Friday Reading: Yakezie Challenge

By Harry Sit

Yakezie Network is a blog network found by Sam at Financial Samurai. Members and aspiring members (called challengers) abide by the network’s motto Selflessly Helping Others. Through selflessly helping others, all members and challengers also receive help from other members and challengers.

Although I carried the Yakezie Challenge badge on my blog for some time now, I haven’t made a serious effort to meet the challenge. Now I want to give it a second push. By this announcement, I re-enter the Yakezie Challenge to improve my blog and selflessly help other Yakezie members and challengers.

What does that mean, exactly? It means I will still write as I always do but you will see me "on tour" at other blogs more. You will see other bloggers being invited over here. We often stop looking after we find a few blogs we really like. Actually there are many good blogs out there. I will introduce them to you when I see them.

Now, here are some good reads I found this week:

From Parents, a Living Inheritance by Ron Lieber at New York Times

Ron pointed out many ways wealthy families help their adult children while others from not-as-well-off families don’t have such luck. I think he’s giving too much weight to this factor. Education is still the most reliable way to get ahead. Whoever says college isn’t worth it, read the next article.

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‘I’m Working Really Hard, but I’m Not Getting Ahead’: The New Middle Class Trap by Jim Tankersley at The Atlantic

I’m an immigrant. I have nothing except my education. Education got me ahead. I didn’t get caught in the new middle class trap.

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Asking the Advisors: How to Pay for Investment Advice by Mike Piper at Oblivious Investor

Mike interviewed three good financial advisors about how one should pay for investment advice. I’m familiar with Rick Ferri and Allan Roth. I met both of them at the Financial Blogger Conference. Dylan Ross provides fee-only advice-only service at $250 one time plus $40 a month cancel-at-any-time.

That’s a price an average investor can afford. At that price point, there is no excuse not to get advice from an advisor. Heck, people spend more than that on cell phones. If an advisor stops someone from doing something stupid just once, the advisor would earn his fees multiple times over. I really hope this model catches on.

Speaking of advisors …

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The Value of a (Good) Financial Planner by Michael at Financial Ramblings

Michael is a little skeptical about financial advisors. I guess that’s only because the average advisor people find randomly isn’t that good and is much more costly than fee-only advice-only advisors like Dylan Ross.

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A Day Job Is So Much Easier Than Entrepreneurship by Sam at Financial Samurai

It’s true. A day job is much easier. I earn a few hundred dollars a day just by showing up. Sometimes there’s a lot to do. Sometimes I accomplish nothing but I still get paid a few hundred dollars. I wish Sam great success on his entrepreneurship venture.

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An Efficient Frontier for Retirement Income by Wade Pfau at Retirement Researcher Blog

Wade crunched numbers and found nominal annuities plus stocks will give the best bang for one’s retirement portfolio. There’s something intuitive about it — when your bases are covered no matter what (except high inflation?), you can afford to take risk in stocks. But, …

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Retirees: Should You Get Rid of Your Bonds? by Mike Piper at Oblivious Investor

Mike isn’t convinced that annuities would dominate bonds in all cases. I agree that Wade needs to run more what-if’s to see whether it was a fluke or the conclusion is robust. I’m sure he’s already working on it.

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Self-repeal of ObamaCare by Eddie Wills at Military Retirement & Financial Independence

Eddie Wills has a Master’s degree in Personal Finance from the College of Financial Planning. He came up with a clever way to get around a problem mentioned in last week’s guest post by Bob’s not my name: How Much Will the New Health Care Taxes Affect Middle Class Families?

Except it doesn’t work. Test yourself; you should be able to figure out why. This reminds me of another one I read a couple of years ago: A Finance Professor Writes About Prepaying Mortgage. I believe the best source of information is actual experience. You can’t just go by someone’s degree or position.

It just so happens that both posts had a political tone. Political belief can blind people’s judgment.

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The Phantom Tax Rate Zone by Joe at Roth Mania

For Social Security recipients, there is a narrow band of income in which the marginal tax rate is 46.25% (25% on regular income plus another 85 cents of Social Security benefits taxed at 25%). The solution? Tax Social Security benefits from the very first dollar. Income is income. That will get rid of this weird phenomenon and people will stop complaining about it.

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The Gamble of Peer-to-Peer Lending : How to not lose money in Peer to Peer lending by Suba at Wealth Informatics

Peer-to-peer lending continues to intrigue me. I didn’t think it was a good idea when it first started. I was right. Loans given out in the first few years had awfully high default rates. Now it’s more mature. I heard there are ways to automate the investing so you don’t have to look at each $25 loan individually. Maybe I will dabble into it a little bit down the road.

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Choosing an HSA Provider at The White Coat Investor

White Coat Investor researched many HSA providers looking for one with low fees and good investment options. I continue to believe it’s not necessary to invest the very same HSA dollars in order to invest HSA money. Unless one’s portfolio is 100% in stocks, it’s much easier to invest in other types of accounts at minimum cost. Just bump up the stocks allocation there and treat the HSA dollars in a savings account as short-term bonds.

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Software picked, likely related posts:

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Comments

14 Comments on Friday Reading: Yakezie Challenge

  1. Sam on September 28, 2012
     

    Hey Harry! Looking forward to your redoubled efforts! I think the Y forums are the easiest way to interact with other members and challengers.

    You should join Steve from MWQHJ for some dim sum!

    S

  2. Harry @ PF Pro on September 28, 2012
     

    I joined the challenge a couple months ago. I think the best thing was it kind of forced me to get out there a little more and find some new blogs like you mentioned. Anyways, my traffic has been going up, so I’d say it’s working(whether directly or indirectly) :)

  3. Financial Samurai on September 28, 2012
     

    Cool man. So long as you’re having fun, that’s the main thing. You’ll be surprised by so many different folks you meet and opportunities that come your way!

  4. JoeTaxpayer on September 28, 2012
     

    Appreciate the link love, Harry.
    I think that Social Security should be treated like Roth IRA, it’s not a pretax holding, So it should be 100% tax free. Except for Romney of course. No one else.

  5. Harry on September 28, 2012
     

    Joe – I disagree. The fewer special treatment in the tax code the better. What’s the difference: a worker earing $25k, a teacher receiving $25k pension but no Social Security, and a retiree receiving $25k Social Security benefits but no pension? The all live on $25k of income. Social Security is not personal savings. It’s a government benefit paid by other taxpayers. You can adjust the brackets and rates for progressivity.

  6. David C on September 28, 2012
     

    I will have to think awhile regarding Social Security benefits taxation. Off the top of my head they could increase the standard deduction for 65+ year olds beyond what it is today to compensate for taxing it all… although if you do that then there may be complaints from younger workers (even if misinformed… even if in this alternative universe seniors end up paying more in taxes). Yes I’m aware the standard deduction is already higher for 65+ year olds but it is only modestly higher and I don’t hear any complaints about that today…

  7. Harry on September 28, 2012
     

    Consider a retiree living on $20k Social Security plus $10k retirement account withdrawals versus a worker living on $30k from wages. The retiree has home paid for, paid health insurance, no minor kids. The worker pays mortgage, may or may not have health insurance, has minor kids, has to worry about the labor market, etc. Why exactly should the retiree pay less tax than this worker? Only because more retirees vote?

  8. David C on September 29, 2012
     

    Well those two may not be the best comparison… fooling around with TaxAct I show that retiree with $0 tax liability while the $30K worker gets paid several thousand dollars by the government (even after considering payroll taxes) due to filing as head of household + earned income credit + child tax credits. Nevertheless your broader point still stands since the retiree would have fewer expenses to deal with and was something I immediately thought about after posting yesterday’s comment.

    After all, an even larger standard deduction for 65+ year olds would also benefit workers that have not yet retired and started taking Social Security which was not my point… my immediate reaction to that was “well make this larger deduction only available to SS recipients” but that only leads us back more or less to the current mess we have :-( .

    So… I think fixing this may be beyond my pay grade :-) . I’m not necessarily opposed to treating Social Security benefits like any other form of income… but I find it hard to see it happening with the current tax code (it would seem doable if we went to the TFB’s overhauled and simplified tax code). If an overhauled TFB patent pending tax overhaul is *not* in the works then maybe it would be easier to reduce the amount of SS benefits (mostly targeting the larger SS checks) in return for making SS benefits once again tax-free. However I’m sure there are gotchas and/or moral hazards to that alternative too…

    Maybe the status quo (if we have to live with the current tax code) really isn’t the worst thing after all… how is that for a scary thought. :-|

  9. JoeTaxpayer on September 30, 2012
     

    An odd system, Social Security. A deduction that looks like my defined contribution plan, yet, my benefit is not proportionate to my deposits. As one’s income rises, the replacement rate for the promised benefit is lower, not proportionate. Next, even though the withholdings were post tax, I’m going to pay tax on 85% of my benefit.
    To top it off, it won’t be called an earned pension, but a government benefit, as though collecting money that’s not mine to begin with.

  10. Dylan on September 30, 2012
     

    Thanks for featuring Mike’s article and referring to my advising model. I’ve recently encountered a surprising number of financial planners expressing interest in this service model, and I’d love to see it become mainstream.

  11. KD on September 30, 2012
     

    Joetaxpayer, you have got it wrong. Social Security is what it literally means – a safety net for your old age, widowed spouse and children if you were to die young, or if you get disabled. The payroll tax is a misnomer. It is not a tax, it is not like a defined benefit contribution, it is not a guaranteed benefit, it is not welfare – in fact it is not a benefit at all. It is a contribution to the social safety net achieved via inter-generational transfer of a sliver of income also known as – the now politically pariah word – re-distribution. Its primary aim is to prevent people from becoming destitute on streets. The so-called benefit is technically called PIA – primary insurance amount.

  12. Harry on September 30, 2012
     

    KD – Why do people not at any risk of being destitute on streets also receive Social Security then? Bill Gates, retirees with pension, people with good savings in 401k … Sounds like we should scale it down to pure insurance for the unfortunate.

  13. JoeTaxpayer on October 1, 2012
     

    KD – the PIA for a $50K earner replaces about 40% of their income at retirement. While I understand your point, and concede it’s a correct description of SS, it’s not perceived that way by most folk.

    I don’t know how the numbers break out, exactly, though it appears SS has an ‘insurance’ component for disability, death benefit for survivors, and inflation-adjusted fixed annuity for the earner. Call it what you will, but if it quacks like a duck….

  14. KD on October 1, 2012
     

    TFB, you probably know the history of Social Security better than me. The whole idea was to not make it a welfare scheme. Otherwise lot of many folks would have opted out of it under one pretext or the other. A “promise of benefit” made it palatable to many. Also, with the life expectancy then, it was expected that people will draw a few years from it at most not like 30 or 40 years as they do now. So the inter-generational transfer was acceptable.

    As we know, eventually, the benefits will get means tested or the level of benefits will be reduced for all.

    Joetaxpayer, thank you for understanding my point of view. If Social Security is not perceived the right way then we have our task cut out as a society, don’t we?

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