Thinking of Retirement as Standard of Living Insurance

Posted on February 22, 2018 by Troy

Professor Zvi Bodie of Boston University said something that really shaped my thinking about retirement savings. He said that we should think about retirement savings more like we think about insurance. When I tried that, I realized that it caused me to challenge the advice about retirement that I often hear and read about. It exposed something that I was seeing that I knew didn’t seem right as I was planning for retirement.

Assurances are not Guarantees

Fund managers want you to invest in their products, but they don’t give guarantees. They are careful to have disclaimers so that we understand that we could actually lose our money. That’s worth taking time to consider. Professor Bodie says that these management companies are in a far better position to understand risk management than the common person, yet they refuse to guarantee that you will even have your retirement savings when you need it. They give assurances, but they refuse to give a guarantee. Professor Bodie says that the reason they don’t give a guarantee, is that they can’t. Instead, they leave the risk of the investment with the person who is least knowledgeable about what they are doing.

A good thing to ask ourselves is: “Why can’t they give a guarantee when they are managing the money?” The answer is: “Because the investments they use are risky and they know it.”

Professor Zvi Bodie does a great job of explaining the problem here in his video:

Is it really Savings?

I think that there is terminology that retirement fund salespeople should not be using. They often refer to the money that we put into mutual funds or the stock market and other volatile investments, as our “retirement savings.” In my opinion, the money we are putting into those kinds of investments are actually “retirement ventures.” Since no one is committed to maintaining a specific amount of money in those accounts, I don’t think that it can legitimately be called: “savings.”

When we use the word “savings” we naturally think of money in a piggy bank or money in a banking institution. In those places, our money is insured in some way. Our piggy bank is locked in our house and our bank accounts even have deposit insurance from the federal government. We naturally expect that when we return to our bank, we will find the same amount or more than we left in it, but that’s not how most “retirement savings” accounts work in my experience.

Unfortunately, we need to be on guard when money managers use the term: “savings.”

Guaranteeing our Savings

There are ways to guarantee savings, and some of them come at a cost. We know that insurance has a cost because many of us have insurance for other things like healthcare, our cars or a house. Insurance costs something because someone else is bearing a risk for us. When we think of something as important as our retirement, doesn’t it make sense to insure that it will meet our basic needs? Sure there are things in retirement, like golf or fancy vacations, that we don’t really need. I’m not talking about that necessarily, but what about food and medical needs? What about the power bill or visiting family for Christmas? Do we want to become a burden on our adult children when it can be avoided?

Zvi Bodie brings up an interesting point in another place. He suggests that we consider the fact that we are willing to pay $1000 for fire insurance for our house even though it is very unlikely that our house will burn down. The chances are very small, yet we still pay for it. That’s because we believe that the seriousness of not having a house outweighs the fact that it is unlikely to happen. What good a house if I am unable to live in it in because my retirement savings has disappeared? It doesn’t really make sense to protect the house and not protect my income.

Two Categories of Retirement Funds

Thinking about retirement in this way leads to dividing our retirement funds into two parts. One part is the part you reasonably believe you can’t do without in your old age. The other part is for things that you hope for, but that are not critical to your survival. When we divide it up like this, and get insurance for the critical part, it can lead to peace of mind knowing that our critical retirement needs are guaranteed to be there for us.

Guaranteed Retirement Options

When it comes to ways to guarantee the critical part of your retirement, you might be imagining a large piggy bank or perhaps a bank CD. If you have been reading my blog, however, you know what I think about that. Both piggy banks and CD’s are not usually inflation protected, which means that they are not a guarantee. They fail to be a guarantee because you don’t know what the contents of your piggy bank will buy in 30 years when you need it.

There have been CD’s that were “inflation-linked” in the past but I have not seen any in the last few years. Hopefully, demand for them will increase and they will be offered again in the future.

Social Security

One obvious form of retirement insurance is Social Security. It is inflation protected and it’s definitely something to consider when thinking about your critical retirement savings. Social Security is likely to go through some changes in the future, but I expect that something very similar to it will be available for a long time to come. There’s more about this investment in the article: Possibly the Most Popular Inflation Protected Investment.

Company or Government Pensions

If you happen to have a job that offers a pension that adjusts your payments for inflation, you are in a good position. When I say pension, I mean the old fashioned kind that doesn’t require that you manage the money and that does provide a written guarantee. Pensions that don’t adjust for inflation, are helpful but they don’t guarantee that you won’t run out of money to pay your expenses in the distant future.

Be Careful With Insurance Annuities

Other insurance products are provided by insurance companies by way of inflation adjusted annuities. I would just make sure that the inflation adjustments are connected to actual inflation and not a flat percentage increase each year. It’s important to understand how much you are paying for that insurance up front too. Beware: Insurance companies use the word “guarantee” in a similar way that fund managers use the word “savings.” Make sure you know what they are actually guaranteeing. Guaranteed percentages are not the whole story. You also need to know the exact amount of principal the percentage is calculated against. If the principle goes down with something other than inflation, it’s not much of a guarantee. Also remember that if the guarantee isn’t in writing, it’s still not a guarantee. Insurance companies do and have gone out of business. Zvi Bodie recommends splitting up your funds between companies.

Home Equity

The Equity in our homes really is a form of inflation protection. Because a house is a physical thing that represents one of our important needs, it’s automatically inflation protected. Its value goes up with inflation because a house is still a house no matter what the value of money is. Just having your home paid off is big part of insuring your retirement.

This presents an option for those who have no heirs or have no other choice. Many of us spend our lives paying the bank to own a house. The tables can be turned. It is possible to sell the equity to the bank and have them pay you to live in your own house. That’s what is called a reverse mortgage.

Once again caution is needed. Make sure to read everything in any contract to make sure that the bank isn’t taking too much for themselves in the deal. They may woo you with assurances that the remaining equity will go to your heirs, but I am told that this is often not the case because of high fees. Again, there’s no guarantee.

Another thing to consider is selling your house to your heirs, with permission to continue living in the house as long as you can. Working a deal with your loved ones could be a practical option and it can be a win-win situation with them.

Inflation Protected Bonds

My favorite option is to use Treasury Inflation Protected Securities and I Bonds for savings that I want to insure. I do have to do a bit more work myself, but fees are low or non existent. These are just boring government bonds that usually don’t make a whole lot of interest, but they do one thing very well: they protect long-term savings from inflation and that’s what I’m looking for when it comes to protecting the critical part of my retirement savings.

The Effects of Inflation

Posted on February 14, 2018 by Troy

Meditations (Pixabay)

Whether intended or not, one of the bad effects of a government-regulated monetary system, is that it creates a disconnect between money and the real things we need to buy. Take food for instance. If we were use hamburger gift certificates instead of the money we use today, we would know that we would get the same amount of food for our money today as we would after leaving the certificates in a box for 10 years. Somehow, we’ve managed to mess up our monetary system such that it is significantly more difficult to depend on it for real needs… like eating or clothing ourselves.

Let’s consider the effects of inflation using terms that we can actually eat. Let’s assume that you had put a 10 hamburger certificate under your mattress in the year 2000, only let’s also assume that someone has allowed inflation to eat your hamburgers without your permission over time. How many hamburgers do you think you would be able to buy today with an inflation adjusted 10 hamburger certificate? By 2017, your 10 hamburger certificate would only buy you about 5.68 hamburgers. This is quite typical, inflation is usually eating away at our savings. There’s a website that makes it easy for you to see how the costs of things have changed over time as a result of inflation. It provides a calculator that allows you to enter your own dates and amounts and see the effect for yourself using the government inflation data.

Try it at: US Inflation Calculator

The problem is that once money is disconnected from something real, it can change in value quietly over time. For much of the United States’ history, our money has been buying less and less over time. There were periods in which inflation went backwards. Yes, that’s called deflation. That might sound good at first, but those times are often harmful as well. One of the most notable times that this happened in our history was the Great Depression. If deflation is happening to money, it’s likely that it’s because people don’t have jobs or money to pay for things they need.

Whether our problem is inflation or deflation, disconnecting money from something that is real is not a very good savings plan. In order to plan, you kind of need to know how many hamburgers you will get to eat, shoes you will get to buy or tanks of gas you will be able to fill. Thankfully, there are still some tools at our disposal that can help us combat the effects of inflation like I Bonds and TIPS. They’re not quite as easy as putting money under your mattress, but at least they are available.

A “Neutral” Government?

Posted on February 13, 2018 by Troy

If philosophical neutrality is a fallacy, as I previously asserted, then building a government on this philosophy is a critically serious problem. It appears to be a trend in governments across the world and it looks like a plan forged by the powers of darkness to me.

Peace does not come by the careful application of a fallacy. It only comes through love and proper reasoning and that will mean that those who are thinking irrationally will have to be exposed. That exposure doesn’t feel very good and some will fight to death over it, but I know from experience that true humility brings peace when we are finally willing to admit that we are wrong.

I was reading a report from a few years ago, about a Canadian ruling that was addressing the contents of prayers before meetings. I am told that they were warning that there are prayers that may not be legal. This appears to be a clear case of philosophical absolutism to me. The United States has it share of the same kind of thing, as do other countries.

We may be tempted to assert that a government should stay out of speech related issues, but in reality, how can they? A government must assert a philosophy of some kind or else it cannot function. It has no choice. The problem with what governments are doing is that the philosophy they are asserting is often irrational. You can’t rationally assert a philosophy that assumes that no philosophy should be asserted. A government built on a foundation of irrationality is in no position to bring about peace or anything else.

With great sorrow, I see the problem again in the recent speeches of both President Trump and Vice-President Pence. Their words sound like an attempt to respect all religions and creeds, even though it is obvious that they can’t. In many of the same speeches, they rightly express that that there are certain creeds and religions that they do not respect, such as those that kill people or promote the destruction of the United States or disrespect its constitution. Are these not creeds and religions? This is confusing to say the least. That’s not what made America great.

If they intend to go back to America’s foundation, they must return to the doctrine of Christian tolerance which asserts that although Christians don’t respect other creeds and religions, they do tolerate them to a degree in civil life, because that’s what Jesus expects us to do until He chooses to deal with them Himself. Christian tolerance is built on the concepts of free will, grace (meaning favoring others when they don’t really deserve it), and the fact that Jesus is still alive and able to take care of the wicked without our help. Christians desire that all men will come to know Jesus by willingly accepting His offer. This means that, according to Christian tolerance, there can be no force when it comes to individual choice either. This is the basis for American liberty and it also happens to be non-neutral.

So why is this a big deal? It’s because it’s this issue that leads a people toward either liberty or tyranny. If a government doesn’t have the authority over life, liberty and personal property, it definitely doesn’t have authority over the Creator that endowed those rights. Any government that thinks it does that is indicating that it believes it is the supreme authority in certain matters. Even if taking God’s place isn’t intentional, that’s what is being communicated and it leaves the door open to serious future problems. Even now we are seeing the desire for philosophical respect drive the followers of various ideas to converge against Christianity, asking that it either comply or be silenced by “civil” government. Since Christian tolerance is the basis for our liberty, freedom as we know it is in serious danger. What governments must do is to acknowledge that their right to rule comes from the God of the Bible, the true One that the Christians have acknowledged.

Other brands of neutral thinking have already been used in the west and have failed quite miserably at critical times. Recall that Neville Chamberlain attempted to bring peace in his time using a method that would allow the UK to respect Hitler’s choices. President FDR signed a peace agreement with Japan in a similar gesture right before we entered the war. It’s important for us to remember how well those things worked out. How about those Israeli peace agreements?

It’s important to ask ourselves: What good is peace if freedom is taken away? There is a way for peace and freedom to coexist, but it depends on Christian philosophy, because that’s the only way they fit together without the government becoming an irrational tyrant.

Purchasing Health Insurance?

Posted on February 8, 2018 by Troy

If you are looking to purchase health insurance, and you are a Christian and go to church on a regular basis, I highly suggest that you look into Christian Healthcare Sharing.

Healthcare sharing between Christians is actually better than insurance in many ways. It’s a huge group of people who are committed to sharing each other’s medical bills. In a very real way, it’s a strong move back to what God intended Christians to do.

What got me looking for insurance alternatives was a move my company made to force us to an insurance company that was known to be participating in abortion. I could not bear the thought of having even one cent of my premium used for someone else to have an abortion. My move to Christian Healthcare Sharing was fundamentally a conscientious one, but I was also interested in it would cost.

I was surprised to find out that even with the significant amount of help my company provided, it was still a pretty good deal to go with Samaritan Ministries and that was a couple of years ago. Some have recently reported a $500 per month reduction in cost. I researched about four different ministries and Samaritan was the one that best aligned with my beliefs and my goals. The thing that really stands out with Samaritan is that the organization doesn’t even touch your money at all. You send your money directly to those who have needs, every month. All Samaritan Ministries does is to direct your payments. They keep track of where the needs are and whether or not they are legitimate and within the scope of the Samaritan Ministries Guidelines that all members must agree to.

I’ve been a member now for over two years and as Samaritan Ministries has grown, it has added new options. There are options for young healthy members who don’t really want to spend much money, as well as options for the big family that really needs to know that all their emergencies will be met.

There’s even an option to share a few dollars more per year to have needs met should they exceed $200,000. Needs in the millions have been successfully shared. When you have that kind of commitment from other Christians, it is a very comforting thing. It’s comforting to know that you are following God’s pattern in the Bible for how Christians should help each other. It’s also critical to know that you are not participating in things that grieve God’s heart.

I encourage you to go to Samaritan Ministries and check it out and tell them that you heard it from Troy Taft. That will help me too. Thank you.

You can also check out the videos of what members have to say about Samaritan Ministries.

Troy Taft Update

Monthly Archives: February 2018