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Ok random thought time. What do we spend 1/3rd our life doing? We engage in an economy. We work, we buy, we sell. When I sit back and think about it of the time we spend living engaging in some for of the national economy is quite large. I also think its the one thats most fragmented. I don’t think people think about the connection between work, buying, and freedom.

In the last 50 years or so the government has had more and more control over our lives by getting involved with the economy. Organizations like Fannie Mae and the FDA in their own way intended to help us have caused problems all their own. I am now going to regurgitate thoughts onto paper so hang on.

How does Fannie Mae help us? How does Fannie Mae hurt us? While I think Fannie helps some with keeping the cost of owning a home lower (see my older post, about how I don’t know if this is a good thing or not). The problem it can cause is worse than the benefit. Many of these organizations are put in place as though they can never fail. Problem is anything built by man can fail and does given the right means. Problem is when a government entity fails it can threaten to really hurt a market. Notice I don’t say take down. You can every kill a market, as long as there is two free people each with something the other wants the market will work. Its more a question how well it would work.

Take large banks. Right now we see many of them having trouble because they got over their head with sub prime loans, just like Fannie Mae did in the name of ‘promoting home ownership’. Not all the banks did though. There are many banks, many very large when one of them fails it hurts. It is not possible for all banks to fail, there is just to many. So even in the worst kind of misbehavior the damage is limited. Now lets look at similar government organizations. While Fannie Mae and Freddie Mac both service the same purpose they are only two institutions and its much simpler for 2 to screw up and fail than many. Its just the statistics of it. We now find our self’s where the government has to bail them out at a huge cost. The bottom and consequences because Fannie Mae exists is worse than if they were never created in the first place. Without them blood would have been split, oh the initial shock might have been greater but how far the market could fall should government not do anything would be much less.

Because government got involved in the private property business, that is encouraging the owner ship of one type of propery (real estate). The problem can and are worse. Then the amazing thing happens that only happens in government which I will go on to explain next.

All institutions have intentions and results. The hard part is getting from the first (intention) to the second (results) and having them be equal. In the market if you get to far from results equaling intention you go under. People loose there jobs (that’s great) and the organizations that do make it from intention to results grow. Those who worked at the now failed organization are freed to work in more effeicnt and successful organizations. That is the market is self correcting though it is not kind. In the end we are all better off.

Government instutions also have intentions and results. The change here is that when the results don’t land near intentions instead of failing more often money and resources and authority (new power invoked by congress) in added making the failed beast even bigger. This is what amazes me. Fannie Mae screwed up, is put its fingers into the wrong pot and got bit, in a working market they would be eaten up by those more prudent and better heads would lead from then on. Instead the same people will be taking money from tax payers (who are now bearing the risk of a publicly traded company no the share holders). To keep them up and even lax the rules on what Fannie is allowed to buy! Does this make any sense?

Fannie is just one example, there are many more, find one time where a government organization has failed and the leading body, be it congress or local board, say “shut it down, it failed”. No we keep trying with the same broken POS.! Tear it down, maybe try something radically new but judge them on their results and admit failure. I think history shows more often failure by such organizations than success.

In the end, again I feel my brain pushing me more and more towards Ben Franklyn style thinking. It is true I think, that the Libertarians are the closest thing we have to our founding fathers. If I was ever asked if I would rather be a man like the founding fathers or the current crop of leaders, my answer would be quick and simple.

End Rant.

Not all the time, just every time I try to do something it fights me. I was asked to create some videos like I have done in the past. Problem is to deal with the heating problems Apple decided to just crank the speeds up on the fans. So now even sitting idle my fans run at 4000-5000RPM and doing anything they jump to 6000. Point being my microphone (used to dub voice over the videos) is picking up all this racket. New mic in my future.

/rant

This vacation I spent a few days with the people of the Marine Mammal Center. I will defer to their website to see what they do. In general this is a non-profit that goes out and saves/rehabs sick/injured marine mammals. I was lucky enough to engage in both the care of animals currently in their care yet to be released and pick up a newly found stranded Sea Lion.

Now those of you who know me know I am a big believer in small government and that most (if not all) giving should be done by private organizations funded by private people and staffed by private people.

All I can say is the MMC is a wonderful example of this. This organization if fully (short 3% provided research grants) funded by private donations. The MMC is very efficient. They have to be, there isn’t any magic money being taken from tax payers. Because of this they have to show results. They have a wonderful public education program which probably saves more seals from mistakes made by the public than their active recover saves each year. They have a very active community of volunteers many of which have been there 5 years or more. If you have every worked in a like organization you will know that keeping people around so long is very hard. The MMC is doing a wonderful job of this. They also do a great job training new people in the care of like animals to do this else where.

In short the MMC does its job very very well. Better than any similar case that relies on government money or keeping a single Senator/Politician happy. They respond to their own wish to see the animals thrive and work to do that in the be way they can.

It is to me a model of the way charity in the United States should be done. Private people working towards their private interest in protecting and helping these animals. They have a wonderful new facility being built that is fully funded by private persons that will enable them to help yet more animals. They are grateful for these people who have provided the funds and are also grateful for all those who while they may not donate cash donate their time and their backs.

Just a wonderful example, wonderful. I have never worked with any government organization that could even compare to how far a dollar or man hour goes. I would say they are at least 3x’s as efficent as the next government ran program.

Everyone at the MMC thank you very much and for putting up with my questions. I wish you the best in your efforts, and yes I think the Elles are very cute and lazy.

Remember they run on private donations do what you can: Donate

Source of income for operations data:
http://www.marinemammalcenter.org/about_us/financials.asp

I am currently taking a class to get my Michigan Motorcycle endorsement.  The class is located at Washtenaw Community College. The class costs only $25 lasts 6 days (Monday-Thursday then Monday,Tuesday), first day is book work the following 4 days are all on the range on bike they provide the last day being a written test and skill test.

It is a great value, cost includes all materials and gas.  You will need geat to protect your self.  On this they are very strict but they do have some helmets you can borrow.

I have to recomened this class to anyone who would like to learn to ride.  I am not even done yet, or sure if I will buy a bike, or if I will even pass!

 Here are open classes:

WCC Lifelong Learning

So Travis leaves this summer to work for Microsoft so I will need someone to take his place.

Its a two bedroom apt. Fully furnished though you can bring your own stuff.  Ground floor, AC, Grill, dishes, pool, etc.

Comes with a parking spot. 

Water and TV in included.  I’m asking $450/month.

Its on North Campus so great for Music school or COE or any Ann Arbor native.   I work here year round so you never have to worry about a subletter if your here in the summer because I will be here also.  If you need you can take over mid summer after travis leaves but the term is September to August.

If you contact me soon (before March) the rent can go down so act fast.

brockp@umich.edu

or

1(989)277-6075 

I have a problem. When I entered the work force it was pointed out to me that after I leave I will live another 30-50 years.  During this time I will not have a income Social Security is a mess that should never have existed so I needed to do some retirement planning. What I found was that its very easy for the middle class 20 something to save for a comfortable retirement without government help as most people think.

Now many of my friends who went on to grad school and are now getting jobs have been asking me what they should be doing I figured I would write some posts.  Note I am not a CPA be sure you understand any product before you buy it.

1. How much to save?

You should save at-least 15% of your pre-tax income.  This number can include employer matching in a 401(k) or 403(b) but if you go for 20% you can be much safer.

2. Roth or traditional IRA? Roth or traditional 401(k)? 403(b)? 457(b)?  Where should I put this money?

First Never touch money for retirement unless you have to. Getting a new car is not a have to and nether is collage for your children (I will cover this later). Some of the accounts (401(k,b)) let you take loans, don’t do it. First If your employer provides matching funds on your money contribute enough to get all the match.  That is if they have 50 cents on the dollar for the first 6% put in the entire 6%.  Its free money don’t ever pass it up.  If the employer provides a Roth 401(k) or 403(b) use the Roth option over the traditional (I will cover why latter).

Once you have maxed out the match open a Roth IRA at a company like Fidelity or Vanguard (I use Vanguard). Once you have hit the limit for the Roth IRA any extra money you need to save should go into your 401(k) or 403(b) until you get to at least your 15% total in.

3. There is so many options to put my money in and I really don’t know what ones to put my money in!

Use a target date fund. These funds are a collection of mutual funds that have a target date on which you will begin to draw money.  The farther out the date the more stocks and aggressive they are.  These funds provided by most major mutual fund companies take out the guess work that used to be provided my your employer.  So if you don’t want to learn where you should put your money let experts do it for you. I personally use Vanguard target date 2050 (VFIFX) for my Roth IRA. 

4. What should I not use for retirement? 

Don’t use the following in a tax advantaged account. All IRA’s and 401(k)’s 403(b)’s and 457’s are tax advantaged accounts.

• Annuities
• Variable Annuities
• Whole Life (Cash Value) Life Insurance
• Hedge Funds
• Any fund that has expenses over 1%
• Loaded Funds

Really avoid Variable Annuities they provide no advantage for long timer periods and are very expensive. Don’t be taken in about principle protection or death benefits. If you want to know why email me at brockp@mlds-networks.com

Stick to low cost mutual funds like those from Fidelity, Vanguard, Tiaa-Cref or T-Rowe Price.

Please put any questions in the comments. Do not use any numbers if you want some help going over some options talk to a planner or you can email me at: brockp@mlds-networks.com 

Thats really all you need to know, I have some other information below like:

• Why Roth over traditional for young people?
• How to make your own pension plan.
• What is a 401(k) 403(b) and 457?
• Why to save for retirement before your children’s collage

1. Why a Roth over traditional for young people?

First a Roth plan (401(k) or IRA) is after tax. The money you use to pay in you have already paid income tax on it will grow with no taxes on it and when you withdraw you pay zero taxes. A traditional IRA you pay no taxes putting the money in grows without paying any taxes but any money you withdraw in retirement you pay income tax on. 

Young people in their 20’s are just starting the workforce there will be promotions and bounus in the future and our tax rate will climb. So while we are making the least we ever will pay the taxes now in your lowest tax rate and get the money tax free when you retire in a higher tax bracket.  You can also look at political topics where the answer is cut benefits to medicare SS and others but the feel good way is to raise taxes.  We are also in a low tax environment post Regan.

Now for our parents who are in their peek earning years maybe want to avoid taxes now and pay them latter when they have a lower income in retirement.  It all depends but in most cases the numbers point to if your young use a Roth. 

2. How to make your own pension plan.

Upon retirement buy Immediate Annuities. Annuities? Didn’t I just say don’t put money in Annuities. Yes I did and if you do you will be sorry.  Annuities are awful to accumulate money in but great for keeping your income stable.  An Annuity is a contract where you pay a insurance company some amount of money and they will send you a check for the rest of your life.  Don’t worry about this at this point in your life right now you need to accumulate as many assets as you can to take care of your life and family when you stop working.

3. What is a 401(k) 403(b) and 457?

401(k) and 403(b)’s are the same thing. The only change is that 403(b) worker are non-profit and government employed. 401(k)’s are for profit organizations.  A 457 is treated the same tax wise as the 403 and 401 but has slight changes.

These traditional plans are pre-tax. Money goes in without income taxes being paid. Grows tax free but you have to pay income tax when you withdraw money.  Roth versions of these plans are after tax and you never pay taxes again just like the Roth IRA. Note that even with the Roth version employer matches are pretax and will still have to pay income tax on these contributions when you withdraw. Your own personal contributions you will not pay taxes.

A 457 only changes when you can withdraw the money. You can access 457 money when you leave that employer. The 401k and 403b require that you have of a age before you can access the funds this is not true for the 457.  457’s are great for those who are on track to retire before the age limits of the other plans or who have maxed out the limits of the others.

4. Why save for retirement before collage.  

While I know you all want to save for your kids school they can get loans and have their entire working life ahead of them. There are no loans for retirement and unless you want to be living with your children you better take care of your self before you do their collage fund.

When you do have funds for collage be sure to use a 529 plan. Right now its the best way to save for collage. And this like retirement the sooner you do it the simpler it is to do. 

I was giving a high school student a tour of U of M today and in the process we took the university buses. The University buses are great, some are drove by students but many are drove by FTE’s.  Now on my way back to north campus I was on a commuter driven by the guy who plays the great jazz music. 

Now I don’t care for jazz (www.di.fm best music) but I like it every so often and its relaxing.  Today though he had the best, he had steel drum music playing i could have napped with a smile on my face.  

 Ahh the bus driver with the great music may he always drive the bus I am on.
 

I received a insurance quote on my car from AIG for $3,489.00/6months.

……

Um Wow?  That is almost 6 years of my current coverage for the same limits and deductible. 

Some simple highlights of my car:

• 2003 Ford Focus SVT
• 21,000 Miles
• Parked all day (bike to work)
• $9,120 replacement cost (Kelley Blue Book)

Now I love my car, I like the way it looks, how it feels when I drive it. Even how I feel when I drive it. Its great fun and it gets me where I want to go.  But in no way does it cost $6,978/year to cover me.  I have only been pulled over once over three years ago and have never filed a claim or ever thought of it because I have not hit (or been hit) by anything. 

The thing I think is AIG doesn’t want my money which is fine.  I feel they should have the right to pick who they can insure based on their risk tolerance. They should though not even send the paperwork out.

 For example I have a service company www.mlds-networks.com.  If someone is doing something I don’t want to be associated with say selling booze online or similar.  I will not offer to sell to them. If they ask me to work for them I will speak with them what they need and give them options. I may even sell out for enough money, but I don’t make a offer to someone who I don’t want to work with. There are others who will. 

 Seriously why waste the paper?