Federal entitlements… 

There’s a lot of tongue wagging about Republican efforts to fold, spindle, or mutilate federal entitlement programs like Social Security and Medicare. From the opposite side of the aisle, Democrats insist that the programs must be preserved in total or even expanded.

Having the conversation doesn’t feel unreasonable. In or around 2035, the Social Security trust fund will be exhausted. That will automatically trigger an estimated 24% reduction in benefits as the system will only be able to pay out as much money as it has coming in. 

If the system is going to be preserved in its current form, the solution is going to have to be some combination of raising the age of eligibility, decreasing benefits, and increasing payroll taxes. Just the hint of an honest discussion on those terms won’t make anyone in Congress the next winner of the most popular person in Washington contest. 

All of this, of course, is based on assuming we should preserve the system as it’s currently put together. I’m not entirely of the opinion that should be our goal. If my records are right (and they are), I’ve paid just north of $110,000 in Social Security payroll tax since I started working. If Uncle Sam were to give me the choice of accepting his pinky promise of some undefined benefit at an undefined time in the future or to cut me a check for that amount today to invest in the manner of my choice, I’d sign a quit claim on all future social security benefits and never look back.

Letting it sit in a low-cost index fund until I turn 65 would give me a far better return than anything the future U.S. Congress will want for me. This alternate future looks even rosier if I were allowed to regularly contribute an amount equal to my current social security taxes into that account. Over a span of 20 years that would end up being real money and more importantly, not in any way reliant on the largess of whatever bunch of crackpots and shysters happens to be running Congress in that distant future.

That won’t be an option, of course. The second President Bush brushed lightly against the idea of privatized accounts way back in 2004 and was roundly shouted down. The U.S. Government simply won’t want to give up direct control of a pot of money as big as Social Security. By the time I’m age eligible – in 2040 if the earliest age to claim isn’t raised – I fully expect Social Security will be yet another one of those government programs I’ve paid for my entire working life from which I won’t be qualified to draw any benefit. 

The ghost of Jack Bogle…

I’ve been with the same financial advisor for near on 20 years. I’ve had very few complaints, aside, perhaps, from his being not quite as aggressive when picking investments as my own comfort level would allow. I appreciated someone who was “fiduciarily neutral” to act as a sounding board to discuss changes, goals, and long-term planning. Now that he’s set to retire, I have to wonder if I’m willing to peel off 1% a year to build that same relationship with whatever new guy comes in to take over the shop.

Over the last couple of years, I’ve held back a small amount in a separate investment account that I tinker with directly. I’m not a stock picker. I don’t have the time or inherent analytical ability to do deep evaluation on this stuff. I am, however, good at recognizing that over time, a broad index of the whole market has given me returns in that account that are perfectly acceptable. I’ve observed the same function in the Thrift Savings Plan sponsored by our beloved Uncle. Its core funds – again, broad market indexes – grind out ample returns over time. Set it and forget it until it’s time to rebalance.

The account I held with my old advisor has always been something I thought of as a fallback – a failsafe that would prevent one disastrous, misguided decision on my part from wrecking the entire house of cards. I wonder, though, if maybe it’s time I take the whole thing in hand for a decade or so… at least until I need to come up with a plan to move from the accumulation phase to it becoming a cash flowing source of income. With less than a handful of index funds being fed automatically every two weeks, it doesn’t feel like the occasional rebalancing should be something that’s too hard for me to manage. Saving the yearly fees until we reach a point where there’s heavy duty planning to do would also be a nice little bonus.

It’s all easy to say here, but does, however, require a tremendous leap of faith in my own ability not to fuck things up in the absence of a safety net. Maybe what I’m really waiting for is a late-night visit from the ghost of Jack Bogle to reassure me that “Nothing is simpler than owning the stock market and holding it forever.” Yeah. That would go a long way towards easing my mind on this one. 

Seven months…

About a week ago, I surpassed the point where the total amount I’ve socked away towards my defined contribution retirement plan (think 401k) this year finally outstripped the amount of federal taxes I’ve paid over the same period of time. For seven full months of every year, there’s more deducted towards the maintenance and upkeep of the federal government than there is for my own maintenance and upkeep in old age. By the end of the year, I’ll have stashed away about $600 more in my 401k equivalent than will be deducted in federal income tax.

If you extend this mental exercise to include Social Security and Medicare, the numbers get even more egregious since the reasonable assumption is to expect the big-ticket entitlement programs to either see payouts reduced, be means tested, or go extinct between now and the time I’ll be eligible to tap them as a source of income / benefits. It takes an awfully big leap of faith for someone in my age bracket to think of either Social Security or Medicare as anything other than an additional tax drag for which we’ll never get back out what we put in.

Uncle Sugar knows his flagship entitlement program is running out of cash. Social Security was “saved” in the 80s using a combination of accounting gimmicks and changing the “terms of service.” It’ll have to be “saved” again sometime between now and 2035, when the most recent projections say it will no longer be able to pay out its full promised benefit. Coincidently that’s right about the time I’ll otherwise be eligible to walk out the door after a 33-year career, so I have more than a passing interest in what fuckery our alleged leaders will get up to in order to avoid grabbing the political third rail with both hands.

It seems to me that we have a system intentionally designed to encourage reliance on big government generosity rather than personal responsibility and savings. God knows I’d be in a far better position now if every nickel taxed away under the FICA withholding had been invested conservatively in a broad market index fund rather than converted into a Ponzi-esque promissory note. Encouraging people to invest their own money responsibly, though, doesn’t keep them beholden to Uncle for doling out a meager old age pension. It’s easier to tax their income at the state and federal level, tack on a bunch of various “withholdings,” and make it incredibly challenging to carve out enough income over and above day-to-day bills to generate a credible, independent nest egg. It’s a sure way to guarantee people will scream bloody murder if they’re told their entitlements are in danger.

However it’s “fixed” in the future, I operate from the assumption that none of the changes will be to my benefit no matter how much cash I’ve poured into the machine over my working life. Like most games, this one is rigged in favor of the house and at this point, I just take it as a given that the money taxed away is lost and gone forever. The only advice I’ve found that feels applicable is to shelter what you can, stash as much as you can of what you can’t shelter, and accept that in all likelihood you’re going to need to self-finance your last act. It’s annoying as all hell, but once I accepted it as reality, it got a whole lot easier to plan for that particular future instead of just being pissed off… but rest assured it’s going to chap my ass every single time I see a pay stub and the reminder what’s going where and how deeply the political class have their hands in our collective pocket.

What Annoys Jeff this Week?

Thrift Savings Plan. One of the non-salary benefits that makes federal employment at least nominally attractive is access to the Thrift Savings Plan, a low-fee 401(k) style defined contribution retirement plan. The TSP website has always been a little bit clunky, but with only five basic funds and five target date funds to manage, it didn’t need to be particularly complicated. And that’s where the Thrift Savings Board, the fine people who run the plan, decided to revamp everything. The transition to a new web interface and record keeping system started in May and by the 26th the process was far enough along that users were effectively locked out “until the first week of June.” Well, as predictable as it is, the rollout of these “new and improved features has proven to be absolute hot garbage. I’m one of the lucky ones that managed to set up a new log in without causing the system to crash… even though I still can’t do anything once I’ve signed on. With millions of account holders and $750 Billion under management, you might be tempted to think there would be an incentive to get this rollout right. You would, of course, have been 100% wrong. The Thrift Board and whatever contractor the picked to develop this wonder-system have delivered up a complete and total turd.

Inspection. My bathroom remodel contractor has spent the last week and a half working great guns to stay on schedule. They left around lunch time yesterday and aren’t here at all today because work is at a dead stop until the county inspector comes by to do his or her thing. That might be tomorrow. It might be next week. Per the project manager and a call to the county office, “There’s no way of knowing.” I’m sure these county inspectors are doing God’s own work, but letting bureaucracy grind a project to a stop without giving a date-certain when they’ll even bother to consider giving approval for more work to get done is infuriating on just about every level. It’s the kind of thing that leads people to decide government is the problem rather than being part of the solution.

The BBC. First off, let me say I love the BBC. They’re one of my top two or three go-to news sources and provide the lion’s share of what television I actually still watch. I use to be able to stream some limited live events from their website. Apparently, I can no longer do that, being met by a banner that says “This content is not available in your location.” By my location, I assume they mean across the waters in the United States. Hey, look, I know the Beeb has its own bills to pay. I’d be happy to sign up for a subscription or a pay a license fee or whatever. I know there are ways to circumvent all that, but I’d rather just hit an easy button, pay a few dollars, and get on with it on the up and up.

Buy and hodl, buy and hodl…

For a stretch there from April 2020 until January of this year, any schmuck with an E-Trade account could make money in the stock market. It was very easy for people to get the impression that they were an investing genius thanks to what was probably the hottest market in my lifetime carrying the freight. Since January, though, there seems to be a whole lot of people who are confounded that the market can move down as well as up. 

I’ve got my own records going back to 2003. Looking at the charts, I can see clearly at least three other “big” down periods – 2008, 2015, and early 2020. The rest is slow, steady, upwards progress. Something about time in the market versus timing the market, I suppose. Looking at my May report, I can see I’m down a little more than 12% year to date. Sure, I’d be happier if it were 12% up for the year so far, but nothing I’m seeing feels like cause for panic. Pulling the charts back to look at the 5-, 10-, or 20-year trends tells me the important part of the tale.

Before long, I expect we’ll increasingly see stories about people bailing out – “fleeing to safety” – in some alternative investment. From where I’m sitting, panic decisions are just about the worst thing anyone could do to themselves. Over a long enough horizon, despite every historic crash, dip, and period of stagnation, U.S. markets have never gone down and stayed down. Past performance is no guarantee of future results, of course, so maybe “this time it really is different.” I doubt it. 

So, yeah, I’m 12% down. From where I’m sitting, it’s mostly a shrug and a so what. With at least 13 years to run before I could need a nickel of those funds, why wouldn’t I want to buy today at a solid discount to what I was spending on January 1st? If I were planning to retire on May 31st 2022 instead of 2035, I’d probably be more worried. If I had pulled the trigger and gone off into retirement at the beginning of the year, I’d probably be horrified at what it means for my sequence of returns… but I also wouldn’t have started that adventure all in on index funds instead of shepherding my lot into dividend payers, bonds, and allocations designed to preserve capital rather than chase growth.

The wider universe is going to do whatever it’s going to do. Our politics will swing between the extremes. Climate will continue to shift. There will be great breakthroughs and horrendous failures. Through it all, I’ll be over here quietly buying a little every week, planning for the best case and not-so-best-case future, and doing my level best to make Fortress Jeff my own haven in a turbulent world. As far as I’m concerned, reports of the end of history and impending financial doomsday have been greatly exaggerated. Through it all, there’s very little new under the sun.

Free markets and free people…

According to an article published in the Daily Mail, Congresswoman Ocasio-Cortez has claimed that capitalism “is not a redeemable system for us.” 

Sitting here as someone who 20 years ago had a negative net worth of tens of thousands of dollars and now finds himself in ready striking distance of using two commas in the balance column, I honestly have no idea what the distinguished representative from the New York is talking about.

Way back in the year 2000, I was making just a touch over $30,000 as a first-year teacher with a bachelor’s degree. If you’re playing along at home, that’s in the neighborhood of $17 an hour or $1,154 per pay period. I started putting $25 every two weeks into a retirement account. That’s something like 2% of my salary at the time. As I changed careers, picked up raises, and got promotions over the years, the very first thing I did was increase that amount. If I got a 2% salary bump, at least 1% went towards invested savings. It got to be a habit – one that I still practice. 

Plenty of times there were (and are) wants and needs I’d rather spend that cash on. There are a lot of things I have to pass on or defer to later because saving for the future is a priority. The tradeoff is that over the intervening two decades, that account I started with $25 has grown into something that a kid from “down the crick” could have never imagined possible. 

I’ll never rank with the likes of Musk, Gates, Buffett, or the Koch brothers, but don’t think for a moment that capitalism somehow doesn’t work for “regular people.” I’m the son of a cop and a school teacher from a town in the middle of Maryland’s coal country. My parents divorced when I was a kid. I got my first formal job at 16 and had a laundry list of what today would be called side hustles to pick up extra cash long before that. No one talked about investments or savings or retiring before 65 back there and back then. That sounds just about as “regular” as anyone could be in this life.

In my estimation, capitalism has raised more people out of poverty in the last century than any other economic system devised by the mind of man. It’s what let me build the foundation for a future I couldn’t have dreamed of twenty years ago. Somehow, I doubt that whatever workers’ paradise Congresswoman Ocasio-Cortez has in mind to replace American capitalism would leave me in any way better off over the same time period.

The congresswoman is free to think whatever she wants, but I’ll keep standing with free markets and free people.

What Annoys Jeff this Week?

1. Logging in. When I boot up my work computer in the morning, I have to log in using my access card and PIN. When I log into Outlook, I use my access card and PIN. One Drive? Access card and PIN. Teams. One more time, log in with access card and PIN. Just to start the day I have to log in using the same credentials four to five times depending what opens on startup. I’m sure there’s some important network security reason this is necessary, but it feels dumb and is 100% a daily irritant. 

2. Upgraded masks. For the last two years, I’ve survived plague free by 1) being vaccinated and boosted, 2) generally avoiding people as much as practical and 3) wearing a standard cloth face covering whenever I had to go into a questionable indoor environment. It hasn’t felt like all that big an ask. With the latest variant, word has gone out that it’s advised to switch over to more robust masks – primarily N95 or KN95 style respirators. That’s well and good, but I’ve spent a ridiculous amount of money so far on various upgraded masks and a host of add on extenders, inserts, and other bits to get a better fit. So far, no combination of any of them has given me a mask that doesn’t immediately blow hot air around my nose and cheeks and turning my glasses into a solid wall of fog sitting on the end of my nose. Not falling victim to the Great Plague is important, but if I can’t be both maximally protected and fog-free, I’m going to have to err on the side of being able to see what the hell I’m doing when I need to leave the house.

3. Maryland’s Republican governor has proposed eliminating taxes on retirees as a means to discourage people from spending their working lives here and then immediately decamping for jurisdictions that don’t tax retirement income. For those who will face a potential tax bill from Maryland when they retire, it has to be a consideration. For instance, if you have the longevity to enjoy a 20-year retirement and the state reaches into your pocket to the tune of $4,000 a year, that’s upwards of $80,000 you’re leaving on the table for the convenience of not moving to a more tax friendly state. That’s not the kind of win the Democratic controlled general assembly will want to hand a popular Republican governor. Given Maryland’s historic love of raising taxes on its residents, it’s not the kind of thing they’d want to do if there the governor was a Democrat, either. I’m an unabashed lover of my native state, and I’d love to be able to make a plan to stay here along the shores of the Chesapeake forever, but unless our fearless leaders end up endorsing a plan like this, finances are all too likely to dictate otherwise when the time comes.  

Gordon Gekko versus the do-gooder Senators…

The Thrift Savings Plan (hereafter TSP) is billed as the world’s largest defined contribution retirement plan. Having in excess of $700 billion of assets under management, I’m sure it makes a very tempting target for politicians looking for some new and interesting way to make their mark or get their name in the papers.

Most recently, Senators Bob Menendez (D-NJ), Alex Padilla (D-CA), Ben Ray Lujan (D-NM), Sherrod Brown (D-OH), Jeff Merkley (D-OR), Tim Kaine (D-VA), and Cory Booker (D-NJ), have sent a letter of interest to TSP’s managing board encouraging them to increase the presence of “racially, ethnically, and gender diverse asset managers” overseeing this giant pot of money.

That’s fine, I suppose, if what you’re into is some kind of feel good, hold hands, and sing along kind of moment. When it comes to TSP, though, the only thing I care about is that the fund managers are the very best money makers that can be found for the job. I want the people in charge of growing my principal retirement account to be relentless and absolutely ruthless in finding better returns. It’s simply never occurred to me to care whether they also happen to be black, white, brown, yellow, straight, bi, gay, men, women, or other.

However admirable the above listed senators believe their goals may be, when it comes to managing a vast portfolio for millions of current and future retirees, the old adage is true – if it doesn’t make dollars, it doesn’t make sense. As such, I’d encourage these distinguished members of the US Senate to take their genuine imitation do-gooder tendencies and pandering elsewhere.

Maybe I should just run for Congress. From the sounds of it, getting your jollies by telling other people how to live their lives or what they’re supposed to care about is a far better way to feather your nest anyway.

Unacknowledged milestones…

It seems to me that we’ve largely been conditioned as a society not to talk about money. I’m sure there’s a plethora of sociological studies that define exactly what this is, but I’m not quite interested enough in the details to go digging. Suffice to say, the number of conversations I’ve had with anyone other than various paid advisors about issues of salary, retirement, and general finance is, in a word, limited.

Money and finances are just not topics we bring up in polite company, though maybe it should be. It feels like there would surely be a whole lot of people who would be better off if only they had a bit of financial education – or even just a passing interest and some kind of basic financial literacy. 

I only mention it now because after the terror of watching the hemorrhaging in February and March 2020, and wondering if the blood in the streets would ever stop flowing, a few weeks ago I passed through what I consider a major milestone on the road to reaching a decently funded retirement. Unlike most of the other major milestones we celebrate or at least acknowledge in life – graduations, weddings, births, deaths – there’s no accepted way to mark the occasion.

So don’t mind me, I’m just over here screaming into the void of the internet because we as a society have some kind of complex when it comes to talking about money… except when it comes to complaining about the price of gas or why on earth a beef roast now costs $20.

On planning ahead…

It’s possible I spend more time pondering the idea of retirement than is really reasonable for someone who has, at a bare minimum, 13 years, 9 months, 20 days, and a wake up left to go. I’ll make no apologies. The idea of waking up with no mandatory training, creaking inbox, meetings without end, or goofy assed conferences, is just about the happiest place I can imagine. A lot of my retirement-era day dreams center on where I want to land when it comes time to strike my tents here at the top of the Bay.

At one time I harbored thoughts of going west in retirement. Decades ago, I spent some time wandering where the high desert and Cascades slam together. It was a part of the country marked with open land and big skies, making it almost ideal for the kind of hermiting I enjoy. That is to say it’s possible to get far enough away from people so that they’re not a constant source of annoyance, but close enough to civilization to keep a few good book shops within an easy drive. The prevailing political situation in those states coupled with persistent drought and fire threat make the region significantly less attractive.

The lower Eastern Shore of Maryland or Virginia had its own appeal – Particularly somewhere well south of the bridge and tourists that swarm across Kent Island on their way to the beaches. With an elevation no higher than 100 feet much of the Shore could be increasingly problematic. It doesn’t take much, either from storm surge or sea level rise, to swamp a lot of the most attractive bits of land on the Eastern Shore. Add in the idea of saltwater intrusion into freshwater sources and Maryland’s determination to build yet another bridge to bring even more people across the water, and anywhere on the Shore looks less and less like an ideal choice. Better under these circumstances to stay where I am and enjoy the proximity to the Bay and a fairly safe 138-foot elevation. In all likelihood, Maryland won’t make the final cut for a whole host of reasons anyway so the discussion here is a bit academic.

There’s a personal calculus that goes into all this thinking. Taxes need to be favorable. Cost of living needs to be reasonable. Areas prone to natural disaster are right out – Fires, floods, earthquakes are a pass for me. Implications of climate change are absolutely a consideration. Proximity – or at least an easy helicopter flight – to a level one trauma center is almost non-negotiable. Forgive me, please, but if I’m ever faced with something catastrophic, I’d rather not rely entirely on the expertise at Greater East Podunk Community Hospital. 

All of this seems to be carving an area of interest ranging from eastern Tennessee and western North Carolina, bits of Kentucky through portions of Virginia and its Western sibling, and then up the eastern seaboard (skipping over a few tax happy and ultra-restrictive states like Maryland, New Jersey, New York, and Massachusetts). I’m even pondering on options as far north as the Canadian Maritimes, though that would be a part-time situation at best.

I know. That still covers a hell of a lot of geography. That doesn’t really feel like much narrowing of the field. At least as I sit here right now, I seem to know what I don’t like and where I don’t want to be. That feels like a reasonably good start on a grand plan that I probably won’t carry to fruition for at least another decade and a half.