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Strange Things in the Precious Metals
Issue #531, July 17, 2018

Buying Years of Retirement
Issue #530, July 09, 2018

Rent-A-Kid for Retirement
Issue #529, July 02, 2018

The Dark Side of Student Loans
Issue #528, June 25, 2018

The Cost of Out-sourcing Convenience
Issue #527, June 18, 2018

Social Security: 66 or 70?
Issue #526, June 11, 2018

Student Loans: There’s (Unfortunately) a Lot More!
Issue #525, June 04, 2018

Co-signing a Note
Issue #524A, May 31, 2018

The Knight Frank Luxury Index and Collectables
Issue #524, May 28, 2018

The Importance of Diversification: The Myth of Diversification
Issue #523, May 21, 2018

How to Save Thousands on Your Food Bill
Issue #522, May 14, 2018

MoviePass and Other Things
Issue #521A, May 10, 2018

Degree Inflation, Long Training Periods, and “Certification”  Part III
Issue #521, May 07, 2018

Degree Inflation, Long Training Periods, and Certification” Part II of III
Issue #520, April 30, 2018

Follow-up on Several Things
Issue #519A, April 25, 2018

Degree Inflation, Long Training Periods, and “Certification”: Part I of II
Issue #519, April 23, 2018

The Kids Birthday Party Hustle
Issue #518A, April 18, 2018

A Pension Question: Part II of II
Issue #518, April 16, 2018

A Physician is an Executive
Issue #517A, April 11, 2018

A Pension Question: Part I of II
Issue #517, April 09, 2018

Is the Correction Over?
Issue #516A, April 05, 2018

Used Car Dealers, Student Loans, the Chinese, and Uncle George’s Rule
Issue #516, April 02, 2018

Starter Homes
Issue #515, March 26, 2018

Redecorating: Beware!
Issue #514, March 19, 2018

NASDAQ Closes at Record High
Issue #513, March 12, 2018

A 40% Chance
Issue #512, March 05, 2018

Several Things
Issue #511, February 27, 2018

Human Capital, Education and Wealth
Issue #510, February 19, 2018

Another Stock Market Update
Issue #509A, February 18, 2018

Some Thoughts on Savings
Issue #509, February 12, 2018

A Stock Market Upfate
Issue #508S, February 10, 2018

Who Can You Trust? Part II of II
Issue #508, February 05, 2018

The Christmas Decoration Pre-worn Jeans Hustle
Issue #Interim Bulletin #507A, February 03, 2018

2018 Outlook for Financial Markets
Issue #507, January 29, 2018

Who Can You Trust? Part I of II
Issue #506, January 22, 2018

Life Insurance Settlements
Issue #505, January 15, 2018

Commodities and Buying the Breakout
Issue #504, January 08, 2018

Buffett Wins His Bet
Issue #503A, January 04, 2018

Practice Real Estate and Free Agency
Issue #503, January 01, 2018

Outlook for 2018: Part III: Stocks and Bonds
Issue #502, December 25, 2017

My Outlook for 2018: Part Ii: Precious Metals
Issue #501A, December 21, 2017

Outlook for 2018: Hard Assets: Part I of III
Issue #501, December 18, 2017

More Thoughts on Bitcoin
Issue #500A, December 14, 2017

Fees and Good Relations with Bankers
Issue #500, December 11, 2017

Salvator Mundi
Issue #499A, December 07, 2017

Should You Rent or Own a Home?
Issue #499, December 04, 2017

A Gift Subscription
Issue #Interim Bulletin #498A, December 02, 2017

Stocks vs Real Estate: Asset Allocation: Part II of II
Issue #498, November 27, 2017

When Good Enough is Fine
Issue #497A, November 22, 2017

Stocks vs Real Estate: Asset Allocation. Part I of II
Issue #497, November 20, 2017

The Saudi Arrests and the Perils of Foreign Investing
Issue #496, November 13, 2017

Gambling and Las Vegas
Issue #495, November 06, 2017

Some Tips on Auto Insurance
Issue #494, October 31, 2017

Bitcoin and the Digital (Crypto) Currencies
Issue #493, October 23, 2017

The Coming Bear Market: Part II How to Prepare
Issue #492, October 16, 2017

Some Observations on Cemeteries
Issue #Interim Bulletin #491A, October 12, 2017

The Coming Bear Market: Part I: The Myth of Buy and Hold Forever
Issue #491, October 09, 2017

The Market makes New Highs
Issue #490, October 02, 2017

The Importance of a New High
Issue #489, September 25, 2017

A Little Insurance: Wealth, War and Wisdom
Issue #488, September 18, 2017

Some Observations
Issue #487, September 11, 2017

How to be Successful in Your Career
Issue #486A, September 07, 2017

How NOT to Buy a Home
Issue #486, September 04, 2017

This Week in the Market
Issue #485, August 28, 2017

Is the “Trump Bump” Running Out of Gas?
Issue #484, August 21, 2017

Gold is on the Move
Issue #483, August 14, 2017

The Importance of Estimation
Issue #482, August 07, 2017

Buying Art and Collecting: Part II of II
Issue #481, July 31, 2017

Buying Art and Collecting in General, Part I of II
Issue #480, July 24, 2017

Physicians need to be More Forceful: Follow-up
Issue #479, July 17, 2017

Physicians need to be More Forceful
Issue #478, July 10, 2017

Your First “Real” Investment
Issue #477, July 03, 2017

Leasing a Watch: Don’t
Issue #476, June 26, 2017

The Importance of Your Children having a Job
Issue #475, June 16, 2017

The Problem with Medical Student Debt is—the Med Schools
Issue #474, June 12, 2017

Critters and Varmints in your Home and Yard
Issue #473A, June 07, 2017

Leveraged ETFs
Issue #472, May 29, 2017

Leasing a Vehicle: Don’t!
Issue #471, May 22, 2017

Issue #470, May 15, 2017

More on Buying Jewelry
Issue #469, May 08, 2017

Buying Jewelry: Gold, Diamonds and Pearls
Issue #468, April 30, 2017

Thomas Sowell: Part III of III
Issue #467, April 24, 2017

Thomas Sowell: Pat II of III
Issue #466, April 17, 2017

Live Close to Where You Work
Issue #465, April 10, 2017

Medtronic in Hospital Management
Issue #Interim Bulletin #464A, April 07, 2017

Thomas Sowell: Part I of II
Issue #464, April 03, 2017

A Political Contribution a an Investment: Part II of II
Issue #463, March 27, 2017

A Political Contribution as an Investment: Part I of II
Issue #462, March 20, 2017

Buffett Selling Vacation Home
Issue #461, March 13, 2017

Advanced Placement (AP) ourses
Issue #460, March 06, 2017

The Importance of a Credit History
Issue #459A, March 02, 2017

A Credit Card Scam
Issue #459, February 27, 2017

The Electronic Health Reord
Issue #458, February 20, 2017

Issue #457, February 13, 2017

Platinum and Palladium
Issue #456, February 06, 2017

Economic Outlook for 2017: Part II of II
Issue #455A, February 02, 2017

Economic Outlook for 2017: Part I of II
Issue #455, January 30, 2017

A Story From Vegas
Issue #454A, January 25, 2017

Land Donation Deals and the IRS
Issue #454, January 23, 2017

The Theory of Gambler’s Ruin
Issue #453, January 16, 2017


By Robert M. Doroghazi, M.D., F.A.C.C.

A Pension Question: Part I of II

Issue #517, April 09, 2018

    A long-time subscriber asked my opinion. She is a 69 year old, non-physician professional who just retired after a 40 year career at a large non-profit hospital chain. Her employer contributed money every year to her retirement account, which now totals $1.35M. Her husband is a physician of about the same age. He still works, likes his job, and has no current plans for retirement. They have other investments, including real estate they have owned for years (see below), and their children have completed their education and are self-supporting. They have no current need for the income from this money. Next year she turns 70, and will have to do something. Options include: 1) take a lump-sum distribution. 2) Annuitize the amount. 3) Roll it over into an IRA, or 4) some combination of the above.
    Before discussing the options, let me congratulate these folks on how careful and successful they have been with their personal money management. To be truthful, these are the kind of people who need my advice the least, yet are most likely to subscribe to this newsletter. The spendthrifts who blow their money and are in perpetual debt up to their eyeballs, the ones who need my advice the most, never seem to be interested. As the Emperor says to Luke Skywalker “So be it’. 
    1) Take the money as a lump sum, taxable distribution.
    RMD comment: This is by far the least desirable option. No need to just hand Uncle Sam 35% of $1.35M = $472K. To make an analogy. Warren Buffett has owned Coca Cola (KO) for decades, so the vast majority of his position represents taxable gains. He has been unhappy with the performance of KO, and was asked why he doesn’t sell. (I paraphrase); I would have to reinvest the proceeds at a 35% profit just to break even.
    2) Annuitize the money as a simple life annuity (Note: there are no additional fees, as compared to a regular annuity. See below). Her employer would provide a return of 9.5%, equal to $10,500 per month, which she would receive as long as she lives. She notes she is in excellent health, and many in her family lived into their 80s and 90s. This money is taxable income and is not indexed to inflation.
    RMD comment: A) this is a straight gamble on how long you will live. If she walks out the door and is the 2nd person in the US to be killed by a driverless auto, that’s it. No more money is paid out. If she lives to 105, she beats the odds.
    B) Her retirement was part of a retirement buyout offer from the hospital chain that many of those eligible took. Apparently many of these people need the income for current living expenses and took this option. If that’s the case, I would have rolled the money into an IRA and take the withdrawals as needed. The point here is that the entire amount remains under your control and in your estate. This, I believe, is the greatest weakness of single-life annuities. There is no residual in your estate for your heirs. You die, and no one receives any more money.
    C) This might be a reasonable option for someone who is single and doesn’t like the responsibility of managing money.
    D) This points up an important issue about life insurance, annuities and long-term care insurance in general. The company must be around for 40 or 50 years or more to honor their pledge to you. This hospital chain offered the buyouts because pension obligations are a drag on their financial performance (see below). I don’t believe any company can guarantee a 9.5% return for 20 or 30 years. Her employer is almost certainly going to need to supplement their payout from other sources, i.e., current operating income, which will place a further drag on their financial performance.
    E) To quote that sage J. Wellington Wimpy of Popeye: “I’ll gladly pay you Tuesday for a hamburger today”. I admit this is my personality, but I prefer my hamburger today. I retired at age 54, and took my Social Security at age 62.  I could never do a simple life annuity. I prefer the money to be under my control from the beginning.
    This is getting kind of long, and there are several other things to discuss, so I’m going to finish this topic in next week’s Newsletter. Note: I’ve already written 4 Newsletters and Interim Bulletins that will come in the next 2-3 weeks. You’ll love them.
    I have noticed a change in Barron’s over the last year since the departure of Ed Finn as publisher. It used to take me at least 2 hours to read. Now I’m often finished in less than 1 hour. For 11 years I attended the Barron’s Art of Successful Investing Conference in Manhattan in October. I considered it one of the highlights of my year, and what I learned was the subject of 3 or even 4 Newsletters. Barron’s did not have the conference last fall, and I have received no solicitations for a conference this fall.
    RMD comment: I still like Barron’s a lot, but feel that the value, which I define as information divided by price, has fallen by at least one-third.
    This is meant as an objective observation, not a political comment.
    Mr. Trump has often cited the stock market as a barometer of his policies. From the night after his election until late January, the stock market went straight up, and I believe, for good reason. The recently passed tax bill, and even more so, the push for deregulation, suggested Mr. Trump might be the most business-friendly President since Calvin Coolidge.
    The market clearly has a different opinion of his picking a trade war with the 2nd most powerful country in the world. These policies have real effects on real people (“Collateral Damage” as Randall Forsyth calls it in today’s Barron’s). Diane’s family is still in farming in Nebraska. Soybeans dropped 3% the day of the announcement, a monster move for such a basic commodity. There was an article in The Wall Street Journal last week that for the first time in 35 years US farmers planned to plant more acres of beans than corn. What do they do now? They’ve got less than a month to decide before planting begins.

    In a bear market, small cap stocks usually break down first, and are the hardest hit. Both the DJIA and the S&P 500 are off about 9-10% from the January highs, while the Russell 2000, an index of the small cap stocks, is off only about 6 ½ %.
    RMD comment: divergences are interesting, and this could be interpreted as bullish.
    Back to the subscriber and her pension. Their real estate investments, which have done very well, are in a capital city. She notes “Government never gets smaller”.
    RMD comment: That’s a very insightful comment. If you look at the yearly list of the top 10 cities in the US with the lowest unemployment, half are always Midwest college towns. Universities (and government) are stable employers, are usually the largest employer in these otherwise moderate size towns, and invariably grow. Think Columbia (U of Missouri), Champaign-Urbana (U of Ill), Ames (Iowa State), and West Lafayette, IN (Purdue). Add in a state capital, such as Madison (U of Wisconsin), and Lincoln (U of Nebraska), and your real estate rental should be pretty safe.
    Re: all annuities offered by an agent: They are to be avoided. The fees can only be described as somewhere between obscene and rapacious. The only time to ever consider an annuity is 1) when recommended by an estate lawyer, or 2) as part of a charitable gift. Otherwise, the only guarantee with an annuity is that the agent will make a lot of money.
    Two of the greatest secular financial issues of this generation are student loans and pensions. Defined benefit plans are being phased out. Corporate pension plans, in general, are in pretty good shape. Public pensions are a total disaster. Politicians way, way overpromise to get votes. It easy to pay out now and leave the bill to the future. Unfortunately, the future does eventually come. Illinois is functionally bankrupt, and New Jersey isn’t far behind. Even Social Security is running on fumes. Congress has already “borrowed” more than $4T from the SS Trust Fund. For practical purposes, there is no SS Trust Fund, it’s just IOUs from the Treasury.
    One of the reasons many people, esp. the younger generation, save so little is because of our social net: Social Security, Medicare, Medicaid, Unemployment Insurance, Food Stamps. These programs were meant to help people in a pinch, not to be their primary support. Look at countries where there is no social net, such as China. The savings rate is 40%. I’m not saying we should do away with these programs, we just need to get people to save more. 

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