Archive for Danielle

Taxes: we’re not Europeans

We don’t want to pay as much tax as the Europeans do. How many times have you heard that? If less than 1,000 times, congratulations—you live without internet service. But, I still retain an old-fashioned interest in verifiable facts, not just what I’d like to be true. I hope one or two readers still feel the same way, so let’s take a look at some numbers on just who pays what taxes, and what those taxes pay for.

The moment you delve into comparing countries, you have to contend with currency conversions, buying power and the cost of necessities (what’s a middle class house in Chicago vs. Lyons vs. Haarlem?) so of course we can argue “not comparable” whenever. We work with what we have, and what I found was some very interesting data on the Forbes website. Forbes states all figures in Euros, but I’m going to use a handy dandy currency converter to put this all in U.S. dollars. (I wish these figures were newer–2009–but it isn’t easy finding facts that are up to date. I just don’t know where all those Freedom Caucus people can get their information.)

Let’s look at a couple earning $108,667 (100,000 euros) with two children. Here’s what Forbes says their after-tax income would be:

United States (overall—some states like Illinois have higher taxes) $84,760
France $78,029
United Kingdom $72,154
Germany $73,676
Netherlands $64,113

 

I could add more countries, but as you might expect, taxpayers in countries with small population bases (Netherlands, Norway, Denmark, etc.) keep less of their gross because there are fewer taxpayers to pay for services.

So, we ARE better off by at least $6,000 and maybe as much as $20,000? Wait a minute—you get what you pay for. And our mythical couple is going to have to pay for a lot more out of that after tax income—stuff that is already paid by government programs in these other countries. I’ll admit I don’t have the specifics on every policy in every other country (but would welcome input from anyone who does), but I do know a few expenses our model couple would need to cover out of pocket:

  • Yearly deductible for health care. Mine’s $3,500/family but employer plans can range anywhere from about $2,000 to $6,000. I’ll be conservative and use just $2,000. Let’s assume the parents’ employers cover all health care premiums—increasingly rare, but I’m trying to be conservative here.
  • Savings needed to cover $30,000 in college costs per year for each of two kids—I’ll again be conservative and assume the kids aren’t going to Harvard, and are 2 years old and newborn, so the amount needed will be on the low side. If the kids were older, more would need to be deducted. According to the SavingForCollege calculator, the parents would need to be saving $613/month for the 2 year old and $558/month for the newborn: a total of $14,052/year.
  • If these parents have such young children, they’re probably not very old themselves. Nevertheless, since in the US people are “free” to pay for their own long term care, and this is covered by many European health systems, let’s estimate a low $1,000/parent per year for long-term care insurance: $2,000. (forget saving for the actual cost of care—it would about double the amount needed if the parents are currently in their 30s and can save for 40 years).
  • I’m not including the value of the living allowance that is given to college students in some countries (Netherlands), the free student exchange programs that are routine, the excellent trades and vocational schools available to non-college Europeans (and which are hard to get at any price in the U.S.), the lump sum children’s benefit given to parents upon birth of a child, or the cost of co-pays and prescription drugs, since these vary and I wanted to look at just a few things we can agree on. So how does that math look now?

 

US $84,760
health care deductible (cost of insurance premiums not included) -2,000
college savings -14,052
long term care insurance -2,000
what you actually have left after being “free” to pay for those services yourself. $66,708

 

Another “but wait”—what if mom and dad are both working and need to obtain child care? In my neck of the woods that’s going to cost around $20-25,000 a year, but Europeans can pretty much depend on free or very low cost service from shortly after the child’s birth. So now, our model couple could easily be down to $46,708 after paying for the same services the European family would get for free (or greatly reduced costs). I’ll try not to go on about the paid-for health spas that are routine in Europe, the far-more-luxurious birth center experience, the well-child checkups and assistance, the earlier retirement age, the longer paid vacations, guaranteed paid maternity leave, the housing assistance for the elderly and low-income families…

Yeah, I’m glad we pay such low taxes. And that we get what we pay for.

 

Anything but money: having self worth and control of your life

Used softball ball in Třebíč, Czech Republic.jpgIn his most recent newsletter, former Wall Street Journal columnist Jonathan Clements observes (correctly) that most of us will never be fabulously wealthy, that we should stop feeling bad about that, and that this bizarre cultural belief leads people to be discontent with any achievement, and to chase hucksters who promise self-transformation and lunatic investment schemes. (See the full text here, and consider subscribing—while I don’t agree with him on everything, it’s always worth a read.)

As I read this, I found myself agreeing with many of his points. He’s spot on when he points out that in fact we can’t be anything we want to be—neither he nor I will ever be a star athlete, and despite years of flailing away on various musical instruments, it’s dawned on me that I’m not going to have much of a concert career. He’s correct, in my view, that we should incorporate a dose of realism in our dreams and plans.

But, the entire article left me with a little downbeat of sadness. I think there’s an important diminuendo that has somehow overcome the melody. The main theme of our lives has become (in my lifetime) that your job is all important and determines your identity: your parents focus on that from early childhood (college education resulting in a job); you are encouraged to choose your major based on future employ-ability (and of course, college is the only option); you work instead of raising your own children (and women make less money because, in part, they take more time off for children even when holding down a full-time position). We are evaluated by where we live, what we drive, what schools our children attend, and on, and on.

I recently saw a number of comments that people in first class airline seats should be treated better—not with more perks (legit if you’re paying for them), but in terms of actual respect and politeness—because they paid for it. Human dignity has come to depend on the wealth attached to the person. Rather than encouraging solidarity among we have-nots, it foists the conviction that the only aspiration is to join the moneyed elite (note I did not say talented, or educated, or in any way meritorious outside of wealth). More than one person in this country aspires to arm candy and gold coated toilets.

It wasn’t always like this, and I’m old enough to remember differently. Long ago I wrote an article on the value of church youth groups. I will never forget the Orthodox youth leader who told me that, because of their religious beliefs and dress, many of the kids in his group were mocked and bullied at the public school, but belonging to the synagogue’s youth group gave them identity and a way to achieve success and form friendships. My parents, aunts, uncles, etc. never had careers. For the most part they worked pretty crummy and often unpleasant jobs. But my parents had a happy marriage, my mom and aunts had many friends, and I don’t think they felt inferior (except for a wish to have had a college education in my mother’s case.) They showed me that there are other ways to be happy and feel like you have worth and achievement—and most of these don’t cost much:

  • Amateur sports. My dad and my aunt both played after-work softball; my cousin was the star of his bowling team. You could be somebody, you could be a hero, you could hang out with a group and you actually were out getting some exercise.

 

  • Music and dance. My parents spent weekends square dancing for many years—traveling to other neighborhoods, challenging other groups, hanging out at each other’s houses afterwards. Dad might be loading trucks on the dock during the day, but he was president of the club on weekends.

Many kids attain a high level of expertise in music, then give it up entirely in college and never touch the instrument again, because after all that hard work, they know they can’t “make a living” at it. People who persist are pitied for trying to scrape together a living.  Parents never again show up at a musical performance if their kid isn’t playing.

I’m always charmed by the Hawaiian music traditions, where people get handed an instrument very early, and pick up an awful lot of amateur ability by sitting around together playing and singing with older family members. Before tv and electronics, it used to be like that here—or so my grandmother said.

 

  • Hobbies & crafts. Making something is an achievement, pure and simple. Having a passionate interest in some area or craft gives you groups to join, events to attend, and even the pleasure of being able to make snarky comments about someone less skilled or expert than you. My aunt had less than two years of high school, but she knew how to install a zipper and I’m afraid that part of her pleasure at church on Sundays was evaluating the (lack of) skill of all the other women in too-obviously homemade dresses. Of course, this was when most women still felt they could attempt to sew. But who has time? Where can you learn? And, as a friend once said to me, if you get any more craft-y, they’ll come and take back your University of Chicago degree.

 

  • Fix-it ability. My uncle spent his life as an injection molder. But he could work on anyone’s car, hang and tape drywall, re-plumb a bathroom and hook up a fuse box. (He had also been Illinois state chess champion in high school, and although he couldn’t read a note he played a mean piano by ear.) I don’t think he had much scope for achievement in his job, but my family admired him greatly—because, in our little group, Harold could do EVERYTHING. As far as I know, he was entirely self-taught. His job may have regarded him as an automaton, but in his “real” life he had agency: control and recognized ability.

 

  • Activism. My grandfather was a union man at the height of the struggle for fair wages and improved safety in the mines. He was somebody in his union, even if his employers thought he was ignorant and his life expendable. His co-workers admired him and he inspired them.

 

I think about money mostly all day, every day. I know it’s important. But what I’m adding on to Clement’s ideas is a plea that we find self-worth and recognition in ways that don’t depend solely on money. In fact, everything I’ve listed above doesn’t depend at all on a college education, or income, of even luck. And that’s a change in societal values that I’d like to see—and one we can seize for ourselves.

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Retirement Accounts: keeping the advice sane and safe

When my daughter and I were at the Women’s March, I saw a number of signs saying I can’t believe I’m still protesting this sh*t (and they didn’t have an asterisk). I feel that way too, and I also feel that way concerning the fiduciary rule for retirement accounts. In fact, I can’t believe we’ve EVER needed to discuss this. The fiduciary rule was set to go into effect on April 10th of this year, but the so-called current administration has issued an executive order on February 3 delaying the order until—who knows?

What’s fiduciary?

The fiduciary rule is simply a requirement that your financial advisor–fee-only, fee-based, hourly fee, commissioned, or maybe roboadvisor (although that’s not quite clear)—be legally obligated to act in your best interest. How on earth is this even controversial? You’re paying for advice one way or the other and the advisor is allowed to act in their own best interests? And keep in mind that this fiduciary rule only applies to retirement accounts. Even so, the brokerage industry has fought it tooth and nail. They claim this rule will squeeze out the little investor who won’t be able to get advice. Give me a break—there’s plenty of fee-only advisors, many hourly, and (shudder) you can get some advice from the robos. At least they won’t skin you alive.

For eons now the SEC has been debating whether and how to employ the fiduciary standard for other investment accounts, and it looks like they’ll now be dithering until your children age into dental implants. Most people believe that any advisor they see is acting in the clients’ interest. Most people are wrong. So let’s take it from the top, yet again.

Difference between best interest and appropriate

Investment sales people (brokerages, bank investment departments, stock mongers, whatever) are only obligated to peddle something to you that’s appropriate for you, and boy, is that broadly defined. So, if it’s appropriate for you to be invested in the S&P 500, you can bet that you will be in the S&P fund that pays the highest commission to the broker, or that the brokerage pitches. I have never yet seen a broker-designed portfolio that included low-cost or no-load mutual funds, because even if those are in your best interests, they’re not in the broker’s best interest because they aren’t going to make any money from those funds.

How to get skinned alive

It can be even worse, depending on what you’ve blurted out to your broker. Before I ever became a financial advisor, my dad used a broker to invest his retirement savings. He adored T., who called him every few days—more than I did, as my dad liked to point out. He had told T. how he needed safety, but how he also wanted the most income possible. Dad had no idea that these were mutually contradictory statements. BTW, if you don’t know why, call me and I’ll explain. Since T. the broker had two options here, guess which one he took? The one that made T. the most money, which was selling my dad a whole raft of junk bonds—high income—which mostly went belly up, losing my 90-something father around $300,000 if my calculations were correct when I finally looked at what was going on in 2007. T. eventually exited the brokerage firm and dad was upset not because he’d lost so much money, but because T. didn’t call anymore; I have a sneaky suspicion it had nothing to do with ethics, sadly. My guess is he didn’t make his quota.

Despite all the firepower the brokerage industry could muster and all the rending of expensive business suits, the rule at best only applied to retirement accounts, which are presumably needy of more protection because—the only money the little guy has? A potential future burden on government support? Because people who have money in other accounts are sophisticated investors? Where’s my emoticon (dog running in circles) when I need one?

What, me worry?

I just saw an article where it was claimed that, well, not to worry. Since, the article argues, the brokerage industry has already moved toward the fiduciary standard for retirement accounts, they’ll do it anyway. With all due respect, I need that emoticon right away. I’ve noticed that when it comes to fleecing the consumer making the most money possible, or being freed from regulation, the brokerage and banking industry can move with lightning speed to change their policies, whereas when something is designed to protect the consumer, implementation will be as slow as regulators will allow. No regulators, no regulation. And please don’t tell me your broker is a nice guy and wouldn’t do that. I have some inherited very attractive “hi-yield” bond certificates I’d be happy to sell you.

Know what you’re getting

Really, with this new change, you have no hope but yourself (which is actually all you’ve got right now). How do you know you’re getting fiduciary advice? Ask you advisor to sign a statement, or review their registration brochure. Does it specify fiduciary? For all advice? Is there any mention on their website about being a member of SIPC ? (look in the tiniest print on the page, near the bottom)—that’s a broker. Next, look at what kind of investments they’re recommending. Are they no-load mutual funds? If not, why not?

I am a fiduciary. I’ll be happy to detail what investments I’m recommending, why, and exactly how I get paid. They’ll be in your best interests. Accept no less.

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