Risk = Hazard + Outrage: Focusing Our Energies On the Things That Can Actually Hurt Us

Years ago, I was sitting at the kitchen counter when my (then 16 year old) track star son Drew announced he was going for a long run on one of the forest trails near our home.  I could see his mother becoming anxious as he grabbed a water bottle Cougar1out of the fridge and a handful of mixed nuts from the jumbo-sized Costco jar sitting on the kitchen counter.  Mom announced: “I don’t want you running in the woods, I heard there was a mountain lion spotted there a few days ago.”

Drew glanced over to me for a little fatherly support, and I mentioned that the odds of Drew getting mauled by a mountain lion were about as high as being pecked to death by a flock of marauding ducks.  While my snide comment didn’t score me any relationship points with mom, it allowed Drew to sneak out the door for his planned run.  A couple of hours later, Drew returned safely home from cougar country and during dinner, he asked his mother if he could borrow her car for the evening to meet up with some friends.  Without batting an eye, Linda handed him the car keys, bid him to be careful, and instructed him to be home at a decent hour.

From a philosophical perspective, I found this whole event fascinating.  In Montana, there has only been one recorded death caused by a mountain lion, but Montana is 2nd in the nation for teen driving deaths with 34.1 deaths per 100,000 teen drivers.  With these facts, why all the fuss over running in the woods but little outrage over driving into town to meet friends?

I stumbled upon risk consultant Peter Sandman’s work years ago while reading the book: “Freakonomics,” in which he was interviewed.  Sandman specializes in three areas: (1) scaring people who are ignoring something that is legitimately risky; (2) calming down people who are freaking out over something that’s not risky; and (3) guiding people who are freaking out over peter_Sandmansomething that is legitimately risky.  According to Sandman, there is almost no correlation between what is dangerous and what upsets people.

In other words, the things that actually kill people and the things that regularly upset people are rarely the same thing.  To help clients deal with appropriate responses to risk, he developed the following formula:  Risk = Hazard + Outrage, where “hazard” is the technical (real) component of a risk and “outrage” is the social component (personal response) to the hazard, which may or may not be appropriate.  In order to effectively mitigate a risk, communities (or individuals) need to not only reduce the hazard, they will also have to demonstrate the appropriate amount of outrage towards the given hazard.

I have written extensively on how government macroeconomic policies can impact economic outcomes, and it is easy to be outraged, particularly when such policies result in investment portfolio declines.  Not a day goes by when I don’t hear client outrage over budget deficits, the declining value of the U.S. dollar, or the impact of regulation on our economic growth.  As frustrating as many of these policies may be, I suspect our collective outrage towards these policies may be inappropriate to their risks.  In fact, I believe governments’ economic policies throughout history have had less of an impact (positive or negative) on individual financial security than personal economic choices and behaviors.

If each of us managed our own balance sheets by living within our means and avoiding excessive debt we could negate at the micro household level what is happening at the macro government level.

Marriner_S._Eccles_Federal_Reserve_Board_BuildingWhile quantitative easing by the Federal Reserve might be causing an erosion of purchasing power, owning inflation protecting investments can actually take advantage of the Fed’s inflationary actions.  It has been said that inflation steals from the saver and redistributes to the investor.

Similarly, the growing national debt certainly burdens our children and threatens their future prosperity; however, if each of us managed our own balance sheets by living within our means and avoiding excessive debt we could negate at the “micro” household level what is happening at the “macro” government level.

Studies have shown that humans tend to fear the perceived dangers of risks they can’t control more than the actual dangers of risks they control completely.  In other words, we fear the low probability cougar attack outside of our control more than the far more probable teenage driving death, particularly when we control access to the car keys.  In the same way, it is our natural default mechanism to blame things outside our immediate control (like government, our boss, family, etc.) for our economic crises rather than focus our energies on behaviors within our control that have historically ensured financial security.

Throughout history, America has experienced both wise and foolish government policies; however, one thing continues to ring true: financial security is primarily the result of what individuals do, and very little is the result of what government does.

In order to deal effectively with the risk of financial insecurity, we need to adequately focus our energies towards things that have the greatest impact. Let’s say each of us has 100 units of energy available to use towards reaching financial security.  Given that the hazards affecting our financial security are varied, with some outside of our control and some within our control, how should we allocate our energy units?  I recommend dialing back our outrage against hazards we can’t control to say, 30 tea-party-2011-2_1units of energy, and I recommend increasing our expenditures of energy towards behaviors under our immediate and personal control, to 70 units.

Throughout history, America has experienced both wise and foolish government policies; however, one thing continues to ring true: financial security is primarily the result of what individuals do, and very little is the result of what government does.  By spending more time focusing on our personal budgets and less on the government’s budget, we can be assured our “outrage” and behaviors are managed appropriately for the “hazards”.

Paying off the Student Loans of Your Adult Children

student-loansA major financial consideration many parents face is the decision to help pay off the student loans amassed by their adult children.  When parents are financially secure and their children are not, it can be emotionally difficult to watch their kids struggle.  It gets more complicated when one or more children in a family earn college scholarships, use the GI Bill after a stint in the military, work part-time throughout college, or pursue degrees in lucrative professions, while other siblings goof off in high school resulting in no scholarships, travel and hang out with friends during the summers instead of working, or pursue careers that can’t service their student debt load after graduation.  

Everyone loves to brag about the son or daughter who is doing well financially, but a struggling adult child seems to shout from the mountaintops our own parenting deficiencies.

Successful children are a source of parental pride.  Everyone loves to brag about the son or daughter who is doing well financially, but a struggling adult child seems to shout from the mountaintops our own parenting deficiencies. In some cases we feel responsible for our children’s student loan debt because we encouraged them to go to expensive prestigious colleges rather than schools they could afford.  Parents who are proud their kids were accepted into expensive schools often don’t think about how the tuition will be paid, and they can unknowingly put tremendous pressure on their kids to take out massive student loans because the kids don’t want to disappoint mom and dad by dropping out to attend a more affordable school.

Regardless of the reasons why kids graduate buried under a mountain of student loans, we still love them, and we don’t like watching them struggle. We want them to own their own homes, take vacations, and provide nice things for our grandkids.  When they are financially strapped because of student loan obligations, it makes us feel sad.  Because every situation is different, there really isn’t a once size fits all solution; however, I will touch on some options I have seen practiced over the years.

Don’t help with the student loans at all

While this is usually the best financial option for the parents, it can also be the most emotionally challenging, particularly if the parents routinely bailed the kids out while they were still living at home, but now have decided to practice tough love. Real life is a cruel professor, but when parents require their children to be responsible for their own student loans, the kids eventually figure out how to manage.

An additional point to consider is paying off a child’s student loans offers no assurance the kids will enjoy good financial outcomes in the future. If mom and dad pay off the student loans but the kids haven’t learned sound money management, it is possible they will merely use the opportunity to go into debt some other way.

Loan children the money to pay off their student loans

With student loan interest rates in some cases twice those of home mortgages, some parents think loaning money to the kids will result in a win/win: the kids get a lower monthly payment, and mom and dad get higher interest on their money than what is offered on their bank savings.  Additionally, off-the-books family loans can give the bankers the illusion the kids are in better financial shape than they really are, so they may be more willing to lend the kids money for homes, cars, and businesses.

Plan-to-make-student-loans-more-forgiving-T3H4AHH-x-largeAs a general rule, I think loaning money to family and friends is a bad idea; it changes the relationship from parent/child to lender/borrower.  I have observed many hurt feelings and strained relationships when parents have loaned money to their kids; therefore, I don’t recommend it. Under absolutely no circumstances should parents ever lend money to their children they can’t afford to lose!  Retirement can turn into a real nightmare if you depend on your kids to pay you back and they don’t. Not only will your relationship be estranged, but you could end up destitute in the process.

Completely pay off the loans  

It is certainly a better option to pay off your children’s student loans than it is to lend them the money with expectations of being repaid. Gifts don’t negatively affect relationships the same way loans do, especially if the gifts were made with no strings attached. There are a few things to consider if you pursue this option. First of all, if you have multiple children, there may be hurt feelings if one child gets a big financial gift for going into debt, but the other siblings get nothing for avoiding debt.

I have seen many strained relationships when mom and dad bail out the struggling child and offer no similar gifts to their other children.  If you can afford it, you may consider giving comparable sized gifts to the other children, even if they don’t need it.  This will help alleviate any perceptions of favoritism.

Secondly, the Internal Revenue Service considers a student loan payoff a gift to your children if the payment is larger than $14,000 a year ($28,000 for married couples filing jointly). Before you make any gift greater than $14,000 to any individual, be sure to check with your tax advisor to ensure you report the gift correctly.

 Unlike older parents, adult children often have decades to recover from a financial setback.

Finally, if your gift will reduce the amount of your own retirement savings to the point it negatively impacts your retirement income, don’t pay off the student loans.  Parents often look at their retirement savings as “lazy money” that the kids can certainly use now; however, taking out a large sum from retirement savings may increase your tax obligation the year of withdrawal, and it may decrease the amount of income you will enjoy in the future.  A good rule of thumb is to make sure mom and dad are financially secure before helping out adult children.  Unlike older parents, adult children often have decades to recover from a financial setback.

Partner with the payments 

One idea I think has some real merit is to agree to match the child dollar for dollar for every monthly payment the child pays towards their student loans above the monthly minimum. Here’s how this would work:  On a $30,000 student loan at 7% interest payable over 20 years, the monthly payment would be $232.59/month.  If the child were to pay $332.59/month (an graduation-with-parentsextra $100), mom and dad would match the payment by $100 for a total payment of $432.59.

Under this scenario, the loan is shortened to 7.5 years from 20 years, at a savings of over $17,000 in interest, and the cost to mom and dad is only $8,900 spread out over 7.5 years.  In this process, the child learns a valuable lesson about paying off loans: extra payments equal extra savings; and, if the child isn’t interested in paying off the loan quicker, then why should the parents?  To ensure the payments are actually being applied to the loan, parents can require the child to periodically present a copy of the loan statement.

Every family situation is different, and what might work with one family may be a disaster for another; but one thing is for certain: husbands and wives should be of one mind.  Parents who secretly bail out their adult children without the blessing of their spouses are asking for trouble; therefore, any parental decision about paying off student loans should be made jointly or not at all.

The Bluffer’s Guide to the Theories of Economic Policies

547439_10151561515770513_420715414_nEconomics is study of how individuals, groups, and nations allocate scarce resources.  Because nations are populated by citizens possessing unlimited desires but limited means, governments experience intense pressure to allocate their nation’s resources efficiently.  This is easier said than done because citizens are not monolithic in their production, saving, spending, and wasting, and citizens don’t really like being told how much they must produce, save, spend or waste; however, this doesn’t stop citizens from demanding the government “fix” the economy whenever it is deemed broken.

To appease the citizenry, governments often call upon economists to advise them in developing policies to control one or more economic outcomes.  Unfortunately, economists often disagree on the causes or fixes of stock market declines, rising food prices, or high unemployment.  Economists come at their work from a variety of different worldviews, opinions, educations, and temperaments, and this results in multiple competing theories on which policies should be implemented to steer national economies towards outcomes most preferred by the citizenry. It is the purpose of the article to introduce the reader to four of the most common economic theories considered by policymakers today.

Laissez-faire economics

Laissez-faire (from the French, meaning to leave alone or to allow to do) economic theory holds that economies function most efficiently when the government doesn’t intervene.  Laissez-faire advocates believe policymakers who interfere in the economy with taxes, tariffs, regulations, and other policy tools tend to cause more harm than good.  Laissez-faire theorists prefer letting the economy fix itself whenever it is deemed broken.

Laissez-faire was first proposed by Adam Smith in his book Wealth of Nations (1776), and it has been followed several times throughout history.  Laissez-faire was practiced during America’s Industrial Revolution in the late 19th Century, and again during the Coolidge administration in what has come to be known as the “Roaring 20’s.”

Keynesian economic theory

Named after John Maynard Keynes, an English economist, Keynesian theory maintains that economic recessions and depressions are the result of a lack of consumer demand for goods and services.  When consumers don’t buy, inventories increase, factories then lay off workers, who in turn consume less, continuing the cycle of decreasing demand.  Keynes argued governments should increase demand by spending money on goods and services in the marketplace.  Keynesians believe governments should spend money (by spending a surplus or simply borrowing it) during recessions to keep people working, earning, and spending.  During economic expansions, they advocate reducing spending and paying down government debts.143373701_tumblr_m4p5fhJyzg1qjic3ro1_500_xlarge

Franklin Roosevelt implemented Keynesian policies during the Great Depression by hiring millions of displaced workers and spending large amounts of money on government work projects like the Tennessee Valley Authority and the Civil Conservation Corps.  Recently, economist and New York Times columnist Paul Krugman has been a strong advocate for Keynesian efforts to increase aggregate demand through government spending; and like other Keynesians, Krugman has little concern for a growing national debt because, in theory, debts will be paid down when the economy is once again booming.


Monetarism is an economic theory which contends that changes in the money supply are the most significant determinants of the rate of economic growth.

In the late 1970s and early 1980s, the United States experienced high inflation and low employment, an odd combination of problems Keynesian economic theory failed to adequately solve.  Pioneered by the late nobel prize winning economist Milton Friedman, monetarists advocate using the Federal Reserve to control the amount of money in the economy.  When there is too much money in circulation, the “Fed” raises interest rates and sells bonds in the open market to remove excess money, and when there is too little, the Fed lowers interest rates and buys bonds instead.  Additionally, the Fed dictates how much money banks must keep in reserve and how much they can lend to customers.  In theory, these monetary actions by the Federal Reserve control the amount of inflation and employment in an economy, loosening the money supply when the economy cools down, and tightening the money supply when the economy heats up.

Supply-side economics

Supply-side economic theory argues that the best way to grow an economy is to lower barriers 1) on producers, who “supply” goods and services, and 2) on investors, who provide the capital necessary for the means of production.  According to supply-side theory, when barriers to production or investment are reduced, consumers will benefit from a greater supply of goods and services at lower prices, and the resulting demand for goods and services will increase the number of workers necessary to keep up with the demand, who now have more money to spend, which increases demand even more.

The two main pillars of supply-side economics are lower taxes and reduced government regulation.  Supply siders argue if you tax producers less, they will produce more, thus increasing the supply of goods and services in the economy, resulting in lower prices.  Additionally, if you tax investment income less, investors will invest more money in the means of production, which will also increase the supply of goods and services and lower prices.  Secondly, supply-siders argue that government regulation impedes production and slows down thProductivityDiagrame economy; therefore, it is in the best interest of the economy to reduce any regulations impeding production.

Although less important from an economic standpoint, supply siders also argue that lowering tax rates can actually increase tax revenues collected. This is because the government is able to capture more taxes from greater production and tax compliance.

One of the most vocal proponents of supply-side economic policy was Art Laffer, an advisor to Ronald Reagan.  In fact, the Reagan administration adopted so much of supply-side economic theory that in the 1980’s it became known as “Reaganomics.”

It shouldn’t be any secret those advocating for less government intervention into the economy prefer laissez-faire or supply-side policies, whereas those who demand more government intervention prefer Keynesian or monetarist policies.  Having studied economic theory for the last three decades, I have come to embrace a fifth principle known as the “Rational Expectations Theory,” which believes citizens are not just pawns on a chessboard that g6a00d83451c0c869e2010536bdcfc9970bo where government bureaucrats place them, but instead tend to make mostly rational decisions to circumvent any obstacles (or exploit any advantages) the government creates, resulting in economic outcomes never intended by the government policymakers.  Whether a government leans Keynesian or supply-side, laissez-faire or monetarist, informed citizens will figure out ways to exploit the benefits inherent in any government economic policy.  Unfortunately, history predicts citizens who choose to ignore what the government is doing to control economic outcomes may end up being victimized by any policy a government implements.

Social Security Disability: The Biggest Political Fight You haven’t Heard Of…Yet

social-security-1Many of our clients at COCO Enterprises (and about 13% of the US population) are at or near retirement age, making Social Security a major aspect of their lives.  So when Congress gears up for a political fight over the future of the program, you’d think it would make headlines.  But that’s exactly what isn’t happening right now, as a major Social Security trust fund is set to run out of funds late next year.

Let’s start with the basics of what we think of when you hear “Social Security”.  Social Security, or OASDI (which stands for Old-Age, Survivors, and Disability Insurance) isn’t just a paycheck in old age or for disability.  The Social Security Administration oversees six major government programs: OASDI, Temporary Assistance for Needy Families (TANF), Medicare, Medicaid, State Children’s Health Insurance Program (SCHIP), and Supplemental Security Income (SSI).  Each of these programs are funded in different ways.  For example, TANF is funded via Federal block grants to the states, who then operate their own, state-level programs with the funds.

The two programs that are making waves today, though, are both under OASDI.  OASDI is comprised of two separate programs: Retirement Insurance Benefits (RIB) and Social Security Disability Insurance (SSDI).  Both RIB and SSDI are technically funded by two separate trust funds held under the larger Social Security Trust Fund.  There are two separate trust funds simply because the two parts of Social Security were established at different times, about 20 years apart (SSDI is younger).  The overall Social Security Trust Fund balance currently stands at about $2.75 trillion, with only about $60 billion of that in the SSDI trust fund (as of 2014).  The SSDI fund is depleting at around $30 billion per year, leaving it empty by late 2016.

Traditionally, the Social Security Administration, as well as Congress, have treated the RIB and SSDI trust funds as one and the same.  However, since SSDI was created in 1957 as a new program, the two trust funds are technically distinct entities.  In spite of this of this, Congress has generally granted the Social Security Administration permission to move money between the two funds to cover short-term cash-shortages.  In fact, money has been transferred from one trust fund to another eleven times in the past, with money from the RIB fund transferred to the SSDI to cover program shortfalls ten times, and once from the SSDI to the RIB.

SSDI participation tends to swell in times of economic downturn.  Generally, there are two reasons behind this.  First, there are some workers who might qualify for SSDI but prefer to keep working, but then they enroll in SSDI after losing their jobs.  The second reason is fraud; people simply lie or commit fraud in order to obtain disability benefits.   Since the 2008 Financial Crisis and Great Recession of a few years ago, SSDI enrollment has, predictably, swelled.  This has resulted in beneficiaries of SSDI growing by 23%, leaving the SSDI trust fund projected to be fully depleted in late 2016 unless Congress acts.

The 2014 midterm elections saw the Republican Party strengthen their hold on the House of Representatives and take control of the Senate, but unlike past Congresses, the 114th Congress (the current one) has decided not to merely patch the hole in SSDI with funds from RIB.  In fact, the first day the 114th Congress was in session, the US House approved a new rule (called a ‘Point of Order”) that bars legislation from taking money from the RIB trust fund and moving it to the SSDI trust fund unless doing so fixes the program on a permanent, actuarially sound, basis.

That means that without an infusion of cash from the RIB trust fund, an increase in tax revenue, or some other legislative fix, the Social Security Administration is set to automatically cut benefits to all SSDI recipients by 21% in late 2016.

Republicans argue that taking money from the RIB trust fund to replenish the SSDI trust fund amounts to “robbing Peter to pay Paul”, and that moving funds from one trust fund to another doesn’t address the actual funding problem long-term.  Democrats counter that the distinction between the two funds is a legal technicality being exploited by Republicans for political purposes, all while threatening SSDI recipients with benefit cuts as ransom to change the program in ways the GOP would prefer.

As of now, the Republican leadership in the House has not offered up any legislation that would address the issue in the current Congressional term, though it is very early in the Congressional term.  The Social Security Subcommittee of the US House of Representatives Committee on Ways and Means, chaired by Rep. Paul Ryan (R-WI), is responsible for hearings and drafting legislation related to Social Security.  The Committee convened for the first time on January 21, where the Committee set the rules and oversight plan for the current Congress.  While it’s almost certain Ways and Means will deal with Social Security this term (and probably this year), no agenda or timetable has yet been set, and thus there is no proposed legislation as of this writing.

But that doesn’t mean that ideas aren’t already being floated in both the public and in the halls of government.  Democrats would see RIB funds moved into the SSDI trust account as a short-term measure, with long-term fixes usually including raising taxes and either raising or eliminating the ceiling on annual wages subject to Social Security taxes ($118,500 in 2015).  Because the House of Representatives is controlled by Republicans, none of these proposals are likely to be sent to the Senate, much less the President, over the next couple of years.  It’s far more likely that we’ll see GOP proposals, which include tightening the eligibility requirements for SSDI enrollment and/or reducing benefits, ending up on President Obama’s desk, where they will almost certainly be vetoed.

While it’s still uncertain what, if any, proposals will be presented in Congress this year, one thing is certain:  without further action by Congress, SSDI benefits will automatically be cut by 21% in late 2016, bringing SSDI in line with future projected revenues and expenses, effectively balancing the program’s budget by default.

The SSDI program isn’t the only trust fund that’s at risk of running dry. According to the Social Security Administration’s own audits, the RIB fund will be exhausted in (or around) 2033, which would result in an automatic benefits cut of 27% across the board in the RIB program based on projected revenues and expenses.  Like SSDI, simply doing nothing will result in the program automatically balancing its own budget by reducing benefits. But in the case of the RIB fund, there won’t be a larger trust fund to siphon funds from to cover the shortfall like SSDI has done over the years.  At that point, short-term fixes won’t be available anymore.

Politically, the most popular fix is simply raising the Social Security tax.  According to the Congressional Budget Office, raising the Social Security tax from 6.2% to 7.6% for all workers (and to 9.0% for those self-employed) would eliminate all projected shortfalls in both the RIB and SSDI trust funds for 75 years (which is as far out as they calculate).  This solution is supported by around 60% of Americans in poll after poll, and is by far the most politically popular solution of all proposals.

However, this is not necessarily the best policy decision.  Raising taxes nearly always creates market distortions.  After all, every dollar taxed away from workers is one less dollar they can spend on goods and services, deposit into banks, or invest.  I encourage you to read my December post on market distortions to understand why, more often than not, a “small tax increase” can have big (and usually negative) effects on an economy.

Perhaps the most likely political outcome of this latest fight over Social Security is that as the 2016 Presidential election approaches, a “short-term fix” will be applied that moves a small amount of money from the RIB fund to the SSDI fund.  But, those funds would be limited and would likely only last long enough to ensure that a Republican President, should one be elected, would be able to sign a more conservative-friendly reform of SSDI into law.  However, if a Democrat is elected and the GOP still controls Congress, we’ll be right back where we are now.  This is, of course, all speculation.  What isn’t speculation, though, is that Social Security will be in the news, especially as late 2016 approaches.

So if you plan living longer than 20 years and are expecting Social Security RIB to fund your retirement, you may want to reduce the projected Social Security RIB income you use in your calculations by 27%.  Or better yet, plan your retirement without figuring Social Security into your calculations at all.  There’s no guarantee any of these programs will be able to provide what you think you’ve been promised.  It’s far better to be financially self-reliant at retirement and treat Social Security RIB as an added bonus than it is to pin your retirement hopes and dreams on a government program that is currently on track to run out of money in less than 20 years.

Back to COCO Enterprises


Achieving Descriptive Goals in 2015

setting-goals“If you don’t know where you are going, every road will get you nowhere.”
— Henry Kissinger.

The arrival of a New Year provides inspiration for setting resolutions and goals.  I was enjoying a New Year’s party at a friend’s home, and I was chatting with another friend Greg who stated how much he enjoys the coming of a new year.  For him, it was a time of “out with the old, and in with the new.”  I usually don’t give much thought to New Year’s, but Greg’s passion interested me.  As a result, I have decided to use Greg’s enthusiasm to ensure our readers have an opportunity to get the most out of 2015.

Goals help us identify what success looks like.  Unfortunately, many of us develop “normative” goals in our minds rather than descriptive goals that we write down on paper.  Normative goals are conceptual, difficult to measure, and highly subjective.

Here is an example of a normative goal: “I should read more good books this year.”  How much is more?  What is a good book?  Normative goals aren’t particularly inspiring because they are so ambiguous it is hard to find a starting point or an ending point that signals success has been achieved.  A descriptive goal, on the other hand, is measurable and achievable: “I am going to read at least one book per month.  I will read each book for 30 minutes every day before I get on Facebook, and I will track my daily progress on Evernote.”

Studies have shown that merely writing descriptive goals down on paper increases the odds the goals will actually be attained.
Descriptive goals are important because:

• They keep us focused
• They give us purpose
• They help us succeed

Setting and achieving goals help us grow Spiritually, Physically, Relationally, Intellectually, and Financially.  At Coco Enterprises, we believe incorporating spiritual, physical, relational, and intellectual goals can help you achieve a life of the greatest human flourishing without the fear of regret.  If you are lacking goals for the New Year, consider a few options based on our S.P.R.I.F model:


• Commit to reading the Bible each day for 15 minutes
• Volunteer at your place of worship at least 3 times each quarter
• Attend a small group or Bible study each week
• Pray daily – for those you love, and those who frustrate you
• Practice forgiveness and become a master of it


• Walk or ride a bike to close destinations instead of driving
• Sleep 8 hours a day
• Ditch the soda and drink 32 ounces of water each day (use a filter for taste if you prefer)
• Stretch frequently throughout the day, each and every day
• Shovel snow when the snow blower is overkill


• Commit to talking with your spouse or partner for 1 hour each day, uninterrupted
• Send thank you cards when you feel grateful
• Catch up with friends you haven’t seen in awhile – call, email, visit
• Mend that broken relationship, because life is too short not to
• Set an example at work – rise above the negative tactics of others


• Take an online class or audit one at a community college
• Read 1 hour every night before bed
• Challenge yourself to master public speaking
• Learn a new language
• Journal every day


• Pay off a credit card
• Create a budget that you can follow each week and month
• Save 10% of each paycheck into a savings account
• Donate to charities
• Buy used instead of new

By setting goals, you can achieve great things and develop good habits.  What other goals can you add to our S.P.R.I.F. list?  Share with us, we would love to hear from you.

Market Distortion: What It Is and Why You Should Care

16739137-abstract-word-cloud-for-market-distortion-with-related-tags-and-termsGovernment policies are rarely implemented unless there is already strong grassroots support for them. Policies usually start out as “good ideas,” and passionate individuals and/or groups promote them to government for implementation. Unfortunately, many well-intentioned policies end up causing more problems than they solve because of a phenomenon known as “market distortion.”

Market distortions are changes in behavior on the part of businesses, households, or individuals for the purpose of reducing their taxes, increasing their subsidies, or avoiding extra regulatory burdens. When a government decides to tax or subsidize a company, group of individuals, or a segment of the economy, it “distorts” the economic outcomes that would otherwise occur in a market free from such intervention because the affected humans simply change their behaviors to capture the subsidies or avoid the higher taxes or extra work.

The Affordable Care Act (ACA), often referred to as “Obamacare,” is a good example of a government policy where the policy makers failed to accurately predict market distortions.  The ACA created what has come to be known as the “Employer Mandate,” whereas employers with 50 or more employees are required to provide their full-time employees with government approved health insurance or face stiff penalties.  Ironically, the ACA defines a full-time employee as anyone working 30 or more hours.  This has resulted in many companies avoiding the hiring of new full-time employees if it means the company will be subject to the employer mandate.  Additionally, some businesses are reducing worker hours from 40 hours per week to 29 hours and hiring more part-time workers to avoid the employer penalties.  While reducing worker hours was never the intent of the ACA’s designers, the policy has resulted in a market distortion.

Ironically, the ACA has also experienced the opposite market distortion among workers whose employers do not offer health insurance.  Because the ACA provides subsidies to pay the health insurance premiums of Americans below certain income thresholds, it has become financially savvy for many Americans to lower their incomes to qualify for ACA subsidies by reducing their working hours or declining promotions that come with pay raises.  By offering subsidies, the policy makers have created incentives for many Americans to produce less in order to continue receiving government financial assistance.  This in turn skews income comparisons because it is hard to discern which Americans are in lower income brackets due to social obstacles like racism, poor education, or broken families, or because they have been incentivized by the ACA to work less.

A market distortion phenomenon that has been in the news lately is the tax inversion.  A tax inversion takes place when a corporation merges with an overseas company in a country with a lower corporate tax rate,  and then relocates the corporation’s headquarters to the lower-tax nation, usually while retaining its material operations in its higher-tax country of origin.  Public opinion has put tremendous pressure on U.S. policy makers to ensure wealthy U.S. companies pay their “fair share” of taxes.  This has resulted in America having one of the world’s highest corporate tax rates.  To avoid paying such high corporate rates, companies have begun to “invert.”  One such high-profile case is Burger King, who recently bought the Canadian coffee and doughnut chain, Tim Hortons, and is planning on moving its headquarters to Canada.  Analysts predict Burger King will save hundreds of millions of dollars by inverting.  While the purpose of the high corporate tax rates was to ensure American companies paid their fair share, what has actually happened is some companies have found a way to pay no U.S. taxes at all.  Some economists argue that a better way to increase corporate tax collections is to reduce the U.S. corporate tax rate to a level it encourages U.S. corporations to keep their headquarters in the United States.

I am not suggesting that because taxes and subsidies cause market distortions we should never use them.  It just means we should be mindful that anytime we implement a new tax or subsidy people will adjust their behaviors to avoid what they perceive as penalties and pursue what they perceive as benefits.  Therefore, we should do our homework to ensure the market distortions created by taxes and subsidies do not cost more than the benefits we are seeking.

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“When Can I Retire?” When Your QSR is Greater Than “1”

should_i_stay_or_take_earlyretirement.jpeg.size.xxlarge.letterboxWhen I was thirty, my goal was to retire at fifty, and even though I am now over fifty and financially secure, I am not sure if I ever want to retire completely.  At thirty, work was merely a means to an end; it provided food for our table, clothed my kids, and put a roof over my family.  However, something happened along the way; I discovered that my work has purpose.  I enjoy what I do, and I enjoy the people I do it with.  I consider myself blessed to make a living talking every day to people I like.

However, I understand others are not so lucky.  Many folks feel trapped in jobs that prevent them from doing the things that really make them come alive.  Instead of playing with their grandkids, volunteering at the food bank, or traveling the world, they are slaving away at a job whose only joy is a much-needed paycheck.  Every month clients ask me: “When can I retire?”  My answer is nearly always the same: “It depends on your QSR.”

QSR stands for “Quit Slaving Ratio.”  QSR is a simple formula that helps you determine when you can quit working for a paycheck.  In order to safely retire, you want your QSR to be higher than one.  To figure out your QSR, take the monthly income you expect in retirement (Social Security, pension, rental income, investment income, etc.), and divide it by your anticipated retirement monthly expenses.  The formula looks something like this:


Let’s look at two different couples considering early retirement.  Our first couple’s desired lifestyle will cost $7200 per month in retirement.  This will allow them to  take a couple of international  trips per year, visit children, buy gifts for grandchildren, give generously to their church, and attend monthly music concerts put on by their local orchestra and chorale.  Assuming this couple expects a small pension from Boeing of $600/mo, a Social Security income of $1400/mo, a Spouse’s Social Security of $920/mo, own a rental home that nets $850/mo, and they currently own an investment portfolio worth  $900,000 that will produce $3000/mo (  ($900,000 X 4%) ÷ 12mo =$3000/mo), then this couple’s expected income in retirement is $6770.00/mo; therefore, their QSR looks like this:

$6700/mo INCOME ÷$7200/mo EXPENSES = .9403

Because this couple’s QSR is less than one, I would not recommend they retire just yet.  Unless they either increase their monthly income by $500 (e.g., part-time work) or reduce their monthly expenses (e.g., take only one international trip per year) by the same amount, their retirement years will include the anxiety that always comes from spending more money than is received.  Let’s take a look at another example.

Our second couple worked hard to get their mortgage paid off a few years earlier, and they decided to drop their health insurance at $1100/mo, and instead enrolled in a health care sharing ministry for $360/mo.  Both like to hike and camp, and play cards with friends and family.  In this case, this couple will need $4800/mo to fund their anticipated retirement.  Assuming this couple expects  the wife to receive a $2200/mo teacher’s pension, a Social Security income of $1290/mo for the wife and $1160/mo for the husband, and both have Roth IRA’s of $150,000 that will produce $1000/mo (($300,000 X 4%) ÷ 12mo = $1000/mo), this couple’s expected income in retirement is $5650/mo; therefore, their QSR looks like this:

$5650/mo INCOME ÷$4800/mo EXPENSES= 1.18

Our second couple’s QSR is higher than one, and I would tell them they could quit work today if it was preventing them from doing the things they would rather be doing instead.  Even though our second couple had less income than our first, their QSR was still greater than one, so there is no need for them to be a slave to anyone.

I have many clients who continue to work well into their 60’s and 70’s because they enjoy working, but I think nearly everyone wishes to have the ability to stop doing things they do not enjoy or feel called to do.  By first determining our QSR’s and then working towards getting them above one, we can ensure our retirement years will be filled with activities that are fulfilling, enjoyable, and productive.

If you need help determining your QSR, give our office a call to set up an appointment.   Together, we can help you “quit slaving” as soon as possible.

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