Social Security

Social Security is a good thing.  They designed this system to be a safety net for the elderly and disabled.  For the most part, it's worked.  The problem is that it should have been adjusted over the years to more fit the demographic changes that the U.S. has undergone.  Plus, Social Security was never meant to live on.  People were suppose to be responsible and plan to have a pension and investments, too.  It's failed in these aspects and our children will pay a hefty toll

I've said this for many years:  There's only so many things you can do to "fix it".  1)  Raise taxes to offset the increasing costs associated with the baby boomers retiring.  2)  Reduce benefits to those on social security 3)  Increase the retirement age at which someone can retire 4) Keep the economy growing at a pace that will increase tax revenue.  #4 is really unsustainable.  All economies will have recessions.  So, we are really talking about #1 to #3 as actionable items.

Let's throw out some stats to help people understand where we are and what needs to be done.  22% of all retirees depend solely on social security(1).  That's a staggering figure to me.  More than 1 out of 5 have nothing else.  They didn't put back anything for retirement (or not enough and have run out).  Of that 22% I'm certain the vast majority (easily 90% plus) are on medicaid as well. The average monthly check is around $1,000 currently.  Further, the number of social security recipients as the baby boomers enter retirement age will rise substantially from its current level after 2014 (2).

"The share of people age 65 or older is projected to grow from 13 percent in 2010 to 20 percent in 2035, while the share of people ages 20 to 64 is expected to fall from 60 percent to 55 percent."

The rise in health care costs for the elderly will crush our country financially.  The ratio of workers to retirees will fall to 2.0 (2). 

"CBO projects that the number of workers per beneficiary will decline significantly over the next quarter century (from 2.9 in 2010 to 2.0 in 2035) and then will continue to drift downward."

Scary stuff indeed.  That means two workers will have to support every one retiree.

What needs to be done then to fix the problem?  In my opinion, it needs to be a combination of #1 to #3 above.  Everyone must feel the pain in order to solve what could be the mother of all financial cesspools.  The other bit of planning that must be emphasized is that every one of us younger than age 65 need to put aside investments now, so that social security is not our only income in retirement.  If you've read my Roth IRA article, you know there's a smart way of approaching this.  Building up your taxable buckets first, then switching to the Roth later is by far the best methodology.

We can solve this problem.  I just hope that the Democrats and Republicans can come to a reasonable compromise and work together.  That said, I'm not holding my breathe.  I just hope my children aren't holding the bag.




(1) http://www.usatoday.com/money/perfi/general/2005-08-15-getting-by-usat_x.htm
(2) http://www.cbo.gov/ftpdocs/115xx/doc11579/06-30-LTBO.pdf

Credit Cards

I know a lot of people out there have them, and use them, and get in trouble by them.  If you find yourself paying for things over and over again using credit and not paying off the balance, do yourself a favor right now -- cut them up.  The banks make enough money.  Pay for everything with cash.  When you run out, you're done until next payday.

This teaches two lessons which are paramount to financial stability.  1) Discipline  2)  Budgeting.  It may be a simple approach, but it works.  Pay down those high interest rate cards and never get behind again.  I'm serious.  Cut up the card if you are paying 14% plus interest rates.  Your life in the long run will be so much better.

Discipline in finances is not an option if you ever want to "get ahead".  Without discipline, there is no tomorrow.  There is only today and your wants.  I know.  It's difficult.  Sometimes, you have only needs to pay for.  That's about the only time you should be considering paying by credit.  So, keeping one card for emergencies (and only emergencies... nothing else) is prudent.  But you should not carry it.  Emergencies do not happen to you every day.  So, carrying it daily should not be done.

Paying with cash has its advantages.  You bide your money throughout the pay period.  You should know exactly how much you have in your purse or wallet and how many days it is until the next pay day.  Giving yourself an allowance at payday and the rest goes to bills is a simple -- and effective -- money management tool.

I know these sound simple, but complicated is not what most people need.  They need simple and effective.  Aside from sitting down and mapping out a plan, this is as good as it gets for the average American.

Texting for Teens

Maybe I'm wrong.  Perhaps I'm old-fashioned.  Being a teenager is awkward enough without the added non-social media of texting.  Before my time I'm sure that older people thought telephones were the bane of good conversation, but texting is different.  While I'm sure that communication has risen because of texting, my beef is with the quality of that communication.

Why would I call texting, facebooking, and chatrooms non-social?  Simple.  There really is no human contact here.  No voice.  No sight.  Just an impersonal "Hi" "K" "IDK" etc.  A person behind a keyboard is dangerous.  If you're reading this blog, you should know that.  I'm a person, not a computer.  I have thoughts, ideas, aspirations and texting creates none of that.  Just mindless jibberish at the teen level.  The sharing of pics and tiny messages is not quality communication.

I pose this question:  What good can come from teens texting?  It has its place.  "Home at 5" would be very useful if I were in a meeting and I want to know what's keeping my teen, but those quality communiques are rare.  What is texting used for? 

• As a replacement for open, eye to eye conversation and contact.  Teens today continue to thrive on non-social media and continue to be awkward face to face.  I've seen this transformation.  On the phone, they're ok.  Even then the phrases they use are below what their age level might suggest.  When it comes right down to it, they'd rather text you than talk.
• To pass "notes", and often leads to cheating on tests.
• To remove the human qualities in each of us.  A phone call at least allows you to understand the inflections of voice and understand what the person is feeling.  Hearing someone cry is much better than "I am sad".  How sad?  Sad to the point of throwing yourself in front of a bus?  Or sad that Patrick Swayze passed away?
• Removing the fear of face to face and replacing it with often vicious phrases.  It's easy to hide behind a keyboard.  It's easy to type in anonymity.  Not to mention that the typed word can be misunderstood so easily with dual meanings.  Trying to decipher someone else's notes is very difficult.  Why?  Because only the person that wrote them can understand the context in which they were written.  If you sat in the same class, you'd have a pretty good shot.  If not, you'd be lost or misunderstand them.  The same goes for texting.  xoxoxo might mean hugs and kisses, or something more.  Feelings are trampled on without even trying.

With all this in mind, I blocked my daughter's cell from getting or receiving texts.  Oh, yes, I was not popular with her on that point, but she wanted the phone more.  She calls and I talk to her.  She can leave a voicemail for the "Home at 5" message.  When I talk to her, I get a sense of how her mood is.  How frazzled she is.  How calm she is.  You don't get that with texting.  You get choppy, cryptic messages that can be often misinterpreted.

The other big issue in my mind with teens who incessantly text is when they start to drive.  Driving and texting does not mix.  I'd rather have my daughter drive a couple of years before being the texting champion at school.  Driving takes a particular attention level.  Texting does too.  A beginning driver does not need that added distraction.

In summary, texting has removed a lot of the social skills necessary to cope in our daily lives.  Teens who carry on conversations in their pockets while speaking face to face with you is rude.  Who knows which one they are paying more attention to?  I would hope they would turn them off and have a real conversation, but I find that's not the case.  What will happen in the next few years as we churn out more and more of these non-social people?  That answer is a big IDK.

Family

A pretentious word -- family.  For some it means a whole lot.  For others, it means disappointment.  For those of you that have close family I'm sure you can not image life without them -- like me.  My family is a mixture of comradery, love, and jealousy.

While I understand the comradery and love, I just don't get the jealousy part.  I'm not one of those.  I find family to be one of the biggest blessings we can have in this life.  Why anyone would get jealous of one family member spending time with another one, giving gifts between one another, or just going out to dinner a few more times than others of the family I say this:  So.  I love it when my family does things together.  The more the merrier.

Take Christmas for instance, the whole concept seems to elude people.  You're suppose to give gifts.  It doesn't matter the size, the price tag, or how many.  It truly is the thought that counts in my book.  I'd rather receive a handmade trinket from a two-year old with virtually no monetary value whatsoever -- but filled with the love of giving, than four plasma TVs.

My mother gets so hung up on being "fair" to everyone -- meaning she spends the same on each of us kids.  Bah!  Just in case she ever reads this I say this:  It doesn't matter to me, Mom.  Give to whom you want to, as much as you want, and without the side tabulation.

Further, if you want to take one grandchild out to a special dinner, just between you and them, three days a week and only take the other grandchildren out once a month, do it.  I love that you have a great relationship with that grandchild.  Life is too short to concern yourself with the trivial.  If that grandchild grows up and forgets you, then it truly is their loss.  Take them out four times a week.  If you want to be around each other that much my response is, Great!

But no, others in my family keep score.  They want it all to be even.  They balk at the slightest hint of favoritism.  Some even dwell on it so much that they create scenarios that either slight them or their kids in some form or another.  To scrutinize a parent to such a degree only worsens the love of family.

Personally, I don't understand it.

Personal Responsibility Part III: Obama's Mortgage Plan

First, I must refer you to several links in order for you to understand the current situation.  The present picture is not a rosy one with almost exactly 1 in 4 homes underwater (1).   Further, the forecasts for home prices are expected to decline into 2011 and then, likely be flat afterward.

In Part II of this series I outlined the list of contributing factors which led to our current situation.  Citing only one of these as the sole, or even just the main antagonist, would be foolish.  All of them went a long way toward the upside-down positions we are in.  Breaking just one of them would have solved the problem, with the possible exception of #5.

Once again, the government takes the view that in order to make this catastrophe better, we should throw money at the people who made it.  No one would mistake me for a rocket scientist, but folks how much sense does that make?  Giving money to irresponsible people will yield more of the same -- more irresponsibility.  I can see no other realistic view.  Sure, this will help some of the fringe to get out of the pit they are currently in, but those will be far and few between.  I love the politicians who try to support such nonsensical "solutions" by bringing up this tiny fraction.  They display them like trophies and attempt to sell you that this plan was a success.  In reality, the vast majority of dollars went into the abyss, and we the taxpayers, pay for it.

I can think of no better example than GM.  What exactly did loaning them $50 Billion get us? (3)  They filed bankruptcy any way.  Now, we are mired into a future of owning 60% of a bankrupt company.  Their financials are a complete disaster with over $40 billion in negative equity as of 2007 (4).  I can't imagine what it is now as they don't post their financial statements any more.  Perhaps printing it all out on paper would cost too much?  (tongue firmly in cheek).  Now, they say GM 'could be' worth as much as $50 billion.  I think I'll hold my breath now.

Now on to the crux of this blog article:  Obama's mortgage plan.  There are two parts: 
Those who get to refinance their mortgages underwater, and those who need loan "modifications".  The first part, I don't mind too much.  At least those who were stung can refinance given the following criteria (2):

1. The home being refinanced must be your primary residence. 
2. The loan must be secured by Fannie Mae or Freddie Mac.  (appox. 50%-60% of all mortgages)
3. You must be current on your mortgage payments.
4. All loans that are refinanced will be refinanced into 15 or 30 year fixed rate loans.
5. The amount you owe on your first mortgage cannot be  more than 125% (previously 105%) of the value of your home.
6. You also need  a stable income to qualify for a new mortgage.

The only difference between this and normal refinancing is #5.  Banks will not refinance a mortgage loan without equity.  25% is a decent portion of those underwater.  At least its a bone to those who are on the edge and want to be responsible.

The second part is not great, as the government insists on rewarding those who do not deserve being rewarded.  That criteria is here (2):

1. The mortgage in question  must be on your primary residence.
2. The mortgage to be modified must have been originated on or before January 1, 2009.
3. The unpaid principal balance must be equal or less than $729,750 (good heavens!)
4. You can receive $1,000 per year for up to five years.
5. Foreclosures will be suspended while borrowers are being considered for a modification.
6. The program targets a front end debt to income ratio of 31%.  The government will kick in cash to reduce the debt (given to the bank) once the modification gets to 38%.  For example, on a $300,000 loan the government could kick in about $75,000.  No, that's not a misprint.
7. If the borrower has a back end total debt ratio of more than 55% then they are required to speak to a HUD-approved counselor.
8. The modification will last 5 years.  The floor for interest rates is 2% and the cap is the market rate on the day of the modification.
9. No modification fees will be paid by the borrower.
10. Current late fees on the delinquent balances will be waived.
11. Servicers (banks) will be compensated $1,000 for each eligible modification.
12. Servicers will also receive a $1,000 per year Pay for Success fee for up to three years.
13. Lenders or investors will be paid a $1,500 one time incentive for each successful modification.

In summary, the bank gets paid $1,000 for each "eligible" mortgage (even if they do nothing with them) for three years.  They get paid an additional $1,500 for modifying a loan.  The borrower gets $1,000 for five consecutive years if they make their payments on time.  It's unfair, but at least that does have a thimble full of incentive to be responsible.  But of course, I've paid my mortgage on time since inception.  Where's my $5,000?  The true shame here is #6 above.  I estimated based upon someone making $85,000 per year and an original loan of $300,000 and the value of their home being $245,000.  If you do the math and assume taxes are 2.5% and insurance at .75% then to reduce the payment from 38% to 31% would mean the government kicks in $75,000.

While I understand the concepts above are intended to help, all they do is enable.  The neighbor that has paid his mortgage all along gets nothing, except a sizeable loss of his home's equity of likely $50,000 or more.  Rewarding those that created the mess, is the epitome of irresponsible.  When will we learn?



(1)  http://www.huffingtonpost.com/2010/08/06/fannie-mae-home-prices-to_n_672776.html
(2)  http://www.wisebread.com/details-of-obamas-mortgage-plan-released-will-you-benefit
(3)  http://topnews360.tmcnet.com/topics/associated-press/articles/2010/10/31/112860-gm-repay-21b-governments-investment.htm
(4)  http://www.interfluidity.com/v2/86.html