Author Archives: Sunshine

Is Social Security a Ponzi scheme?

Is Rick Perry right or just looking for attention?

Hi Dad,
I’ve seen Rick Perry stating that Social Security is a Ponzi scheme.  I’m hesitant to buy into that view.  Slate Magazine put out an article examining – What would happen if we stopped Social Security right now.  
What do you think of Rick Perry’s statement?  Do you think we should get rid of Social Security?



Cartoon courtesy of: Nate Beeler, The Washington Examiner, Washington, D.C.


Dear Daughter:
This cartoon appeared in the Sunday paper yesterday. It pretty much illustrates the reality of the situation. Perry needed a sound bite and he got it. 

The Truth about Social Security

The truth is more like the statement on the left. The Social Security funding methodology was developed at a time when the workforce was young and growing; where the population at work outnumbered the population in retirement. There would always be enough workers paying in to cover the blueheads drawing out. Now, of course, we have a burgeoning baby-boom generation that will (at the current pace) suck the system dry faster than you kids can replenish it.

The problem with Social Security in 2011

The problem (aside from the upside-down funding) is the expectation that Social Security will provide your average worker with a quit-and-go-fishin’ retirement. It wasn’t intended to do that and it can’t. It’s a safety net; a supplement; that’s all.
Back in the 80s, two things happened that make this all the worse. A change in the Financial Accounting Standards Board (FASB) rules required companies to fully fund their qualified pension plans. That made it a lot more expensive for employers to maintain traditional Defined Benefit plans. DB plans are the ones that provide a worker with a guaranteed annuity at retirement. They also put all the investment risk on the plan sponsor (the employer). Second, a financial advisor looking for an advantage for his client discovered an ignored chunk of the Internal Revenue Code in section 401, subsection (k). It’s a nice little tool that allows an employee to set money aside on a pre-tax basis to save for retirement. Only problem is, it’s too easy to get at your money out before retirement and all the investment risk is on the participant (that’s you) not on the employer. End result – employers are shutting down their pension plans and shifting the responsibility of your retirement back on you.
Oh, your question.

Inflammatory silliness

Yeah, Perry’s Ponzi Scheme comment is just inflammatory silliness. You will get a benefit from Social Security. You will likely have to pay more for it and wait longer for it. You should support federal level politicians who understand finance and who talk about restructuring Social Security funding to a system where YOU get out what YOU put in. There should be a cap on income that is replaced, but no limit on income that is taxed.
And don’t stop contributing to your 401(k).

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Steak for the cookware-impaired

In my Dad’s last post he very adamant about using a cast iron skillet.  However, since cast iron isn’t part of the young apartment dwellers’ basic collection, I needed a revised recipe.  Dad told me this when I called him confused with a package of ribeye in my hand:

1) Heat butter in the best skillet you have.  The hotter the pan gets, the better.

2) Sear the ribeye for 30 seconds on each side, which locks in the juice.

3) Broil the ribeye for 4 minutes on each side.


My Ribeye

4) Let it stand 10 minutes so the fat settles.

It turned out great!  I felt like next Gordan Ramsey!

Take a look at how scrumptious it turned out.

Thanks Dad 🙂  Great Advice.


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The Very Best Steak I Ever Prepared

Dear Dad,

I love steak!  Right out of school, steak was just too much of a luxury.  But now I’m ready to make myself a good juicy steak (on a budget, of course).  I get a bit overwhelmed standing in the supermarket seeing the display of all the different cuts and sizes.  I’m just as lost choosing what to cook it with.  Do you have suggestions or recipes for the non-cooking meat-lover?

How to make the BEST steak

Let’s be honest here, not everybody likes steak. And not everybody likes the same cut of steak. Your Uncle Eric who, as you are aware, knows his way around a slab of protein, is very fond of _____ steak. Your Uncle Lenny is a sirloin steak lover from way back. Your mother and I were die hard filet mignon fans until we discovered….



Ribeye Cut

I happened to be watching reruns of “Good Eats” with Alton Brown. As it turns out, it was his very first show and he was handling something very very basic – steak. His method was unexpected, which I have come to learn is what you should expect from Mr. Brown. But his results turned out to be dead-on.

First, the equipment. You won’t need your grill, barbecue pit, smoker or broiler. You will need an oven and a cast iron skillet. It’s is critical that it be a cast iron skillet – not some stainless steel hand-me-down that your mother gave you. And not a bright orange, plastic handled, non-stick egg tosser that you got at Home Goods. No. This needs to be a serious, old fashioned cast iron skillet. Why? Well first of all, you’re going to be putting it in a really hot oven. Any of those wimpier fry pans are going to melt or lose parts. Second, you want an implement that will retain heat and there is nothing like a chunk of cast iron for that.

Second, you need a decent oven. Not a microwave; not a toaster oven. A real oven. Because you’re going to crank that baby up to 500 degrees and keep it there.

 The Cut

Next, the cut. I don’t know where the ribeye steak comes from – somewhere between the rib and the eye, I suspect. But I really don’t care. For me, it comes from the meat counter at the supermarket. You want one that approaches two inches thick. You’ll probably find something already cut between an inch and an inch and a half. That works too, but on special occasions (which buying a nice ribeye it would have to be – $$$$$$) you can ask the butcher guy to cut you a nice thick one.

Other ingredients: butter, salt.

No – not margarine young lady – butter. And make that kosher salt.

And you’ll want some serious oven mitts.

OK, here we go.

1)    Take the steak out of the fridge long enough in advance so that it will be at room temperature when you cook it.

2)    Sprinkle the steak on both sides with some kosher salt. Why? I don’t know. Alton says so.

3)    Put your seasoned cast iron skillet (that’s not herbs and spices, that’s a proper preparation for cast iron cookware – watch this) in the oven and turn up to 500 degrees F.  That’s right, the skillet pre-heats with the oven.

4)    Once you are up to heat. Turn on the biggest burner you have to high. If it’s electric, you have to wait for that to get up to heat as well.

5)    When everything is hot, pull the wicked hot skillet out of the oven and put it on the wicked hot burner. The idea is to keep everthing wicked hot.

6)    Put a big chuck of butter (like 1 inch off a stick) into the skillet. It’s going to melt lickety split and start to brown. As soon as it is melted.

7)    Put the steak in the skillet to seer for EXACTLY 30 seconds. This is where things start to get smoky. That’s just the way it’s going to be.

8)    Flip the steak over and seer the other side for EXACTLY 30 seconds.

9)    At the end of the 2nd 30 seconds, move the skillet and steak to the 500 degree oven. Leave it there for 4 minutes (for a two inch thick steak, 3 minutes for 1.5, etc.)

10) At the 4 minute mark, flip the steak over and do another 4 minutes on the other side.

11) At the end of the 2nd four minutes. Take it all out. Remove the steak to a plate, cover with foil and don’t touch it for 10 minutes. During this time, you must properly clean your skillet, sautée some asparagus, and pour yourself a nice cold glass of whatever you like to drink with steak.

If you want to get extra fancy, you can make in advance some herb butter to go on your steak, but that’s optional. This is the best steak you will ever have.










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Insurance for the Young and Unemployed

Help! I’m unemployed. Can I still keep health insurance?

Hi Dad,
As you know, I’ve recently been laid off.  I’m really worried about health insurance because the government Cobra plan seems expensive.  Since I’m under 26, is there anything else I can do?  If so, could you walk me through the general process?


Dear Daughter,

You are certainly not alone in your predicament and you are fortunate (though you may not feel it) to have options that would not have been open to you a generation ago – or even a year ago.

COBRA: Consolidated Omnibus Reconciliation Act of 1985

The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) mandates, among other things, that workers have the ability to continue medical insurance coverage after they leave employment. This is a vast improvement over the previous situation, in which once you left your employer, you also left your group insurance and you were on your own.  And while it was an improvement for many people, it provides only that coverage be available, not that it be reasonably priced. For most people, not only do they have to pay what they previously contributed as an employee, they also have to pay whatever their employer contributed (which can vary widely). Plus, the may need to pay up to 2% more than the coverage to cover administrative costs. The idea was that you could stay in the group plan but you wouldn’t incur any cost for your former employer.

Getting coverage at a group rate is way better than having to buy individual coverage, but boy that 102% can still taste bitter.

Obama – Care: Patient Protection and Afforable Care Act of 2010

Now, the Patient Protection and Affordable Care Act of 2010 (a.k.a., PPACA, ACA, Health Reform or Obama-care) adds another arrow to your health care survival quiver.

One of its many provisions is that dependents (children) will be permitted to remain on their parents’ insurance plan until their 26th birthday, and regulations implemented under the Act include dependents that no longer live with their parents, are not a dependent on a parent’s tax return, are no longer a student, or are married.

How to change back to your parents’ health insurance.

Regaining coverage under a parent’s plan is not too difficult. The loss of coverage for an eligible covered dependent is a “Qualified Change in Status” which allows for a change in plan coverage that is appropriate to the triggering event. I am allowed to increase the level of coverage (the number of people covered) to include you, but I wouldn’t be allowed to change the medical plan in which I’m enrolled. I just needed to provide proof that you were coming from another plan. That proof comes in the form of a HIPAA (Health Insurance Portability and Accountability Act) Certificate which your old employer is required to provide in pretty short order after your separation. They could also require proof of your age (usually in the form of a birth certificate). Then I just re-enroll through my HR department with you as an added dependent. Easy peasy.

For those that meet the criteria, it can be a significantly lower cost option. In some cases this is just cost shifting without actually making coverage any more available. In your example, the cost of your coverage shifts from you (under COBRA at 102% of premium) to my employer (a self insured company that has to pay claims). In the end, that will increase their overall insurance costs which will be passed on to premium payers – that’s me.

Others may be able to shift from expensive individual plans to their parent’s plans. Still others, who can’t afford an individual plan and who aren’t eligible for COBRA, may have a window of opportunity to get some cheaper coverage – provided Mom and Dad have coverage and they haven’t reached age 26.

Does recent Health Care Reform really help the country in the long run?

If you indulge me one moment of soap-box editorial – this whole thing doesn’t help as many people as you might think and it does absolutely nothing to improve the cost, quality or overall availability of health care. Providing health insurance is not the same as providing health care. It just queues up more paying customers to the insurance companies and does little to relieve the financial burden on anybody.  Americans need to purge themselves of the notion that all it costs to go to the doctor is their $20 co-pay. Only then will they start being smart consumers of health care. And only that will drive prices down.

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Health Care Reform

Reform or Insurance Regulation?

Did I hear you ask, “So Dad, what do you think of the new Health Care Bill passage?”   I’m glad you asked. First let’s start with my rant/opinion/knee-jerk reaction.

First, let’s be clear, this is not health care reform. This is largely health insurance regulation. There is little here that reforms the health care system. There is nothing about malpractice liability, pharmaceutical pass-throughs, Medicare fraud, intermediary administration oversight, emergency room abuse, nursing shortages, hospital malfeasance, medical training or consumer education. It’s all about regulating the big bad insurance companies. Ironically, the bill does not ensure that every American has health care, it tries to ensure that every American has health insurance – that we all are customers (willing or unwilling) of those same demonized insurance companies.

It does nothing to address the cost of health care. That is – why health care cost so much to begin with. I don’t mean why do insurance premiums go up – I mean why does the price charged for an X-ray go up?  Insurance premiums go up because health costs go up. The bill is addressing issues from the consumer end of the equation (users, insurance, coverage loopholes) rather than from the provider end of the equation (technology, supply and demand, profitability).

The difference between “care” and “coverage” is vast. You can have all the insurance in the world, but if there are not adequate facilities and professionals at your disposal, what good is it?  If there are no doctors or hospitals willing to accept your particular insurance carrier’s product, then you are out of luck. It’s true that many 1st world countries have national health care programs. It’s also true that they have huge service backlogs and inferior care. Just having an insurance card in your wallet won’t necessarily get you the care you need.

Where did the votes come from?  Conviction or Duress?

Second, it is quite clear that members of Congress are not voting their conscience; they are voting under duress, under pressure, under coercion and under the influence of backroom deals (e.g., Nebraska and Florida). According to the Rasmussen Reports national telephone poll, taken Friday and Saturday nights, 41% of likely voters favored the health care plan. Fifty-four percent (54%) were opposed. Given that we theoretically have a constitutional representative form of government, one might expect that 54% of Congress would also oppose the bill. That doesn’t seem to be the way it turned out. A scant 50.8% voted in favor. Hardly a mandate.

It is difficult to believe that there wasn’t a single Republican (not all Republicans are conservative, you know) that saw plausible value in this bill. It’s also astounding to see how many democrats jumped the fence (just two weeks ago, Speaker Pelosi admitted she did not have the votes to pass the bill). The notion of party loyalty/arm-twisting flying in the face of personal judgment is very disheartening.

Can we do better?

Third, as a taxpayer and voter, I resent that this bill has been crammed down my throat. It seems quite clear that those in power set a goal to pass a “health care” bill. Not necessarily to pass the best possible health care bill, or the most sensible health care bill, or the most cost effective health care bill – but just to pass a bill.  I have no doubt that the health care system in this country needs miles and miles of improvement, but that is not reason enough to pass whatever bastardized bill can somehow squeak through Congress.  There is no reason that this bulk of change had to be passed in a single ostensibly comprehensive bill other than to enable its proponents to say, “There, we did it.”

In the next post – let’s look at some of the particulars.

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Filing Your Taxes: The Fun Stuff

Part Three – Other Fun Stuff

Prosecutor : You haven’t been paying your taxes.
Chico : Taxes. I have an uncle who lives in Taxes.
Prosecutor : No, Money. Dollars.
Chico : Dollars, Taxes. That’s where my uncle is a-from.

[The Marx Brothers; Duck Soup]

Estimated Taxes

On the off-chance that you have income from sources other than wages and salary, for which no income taxes are withheld, you might find that the IRS wants some of their potential tax money in advance of April 15. In that case, they will require you to calculate and pay “estimated taxes.” These are quarterly payments that have deadlines of their own. There are a couple of ways to calculate how much you owe. Until you start making money in the stock market or selling collectible ash trays, you probably won’t need to worry about estimated taxes.


Tax refunds are the Siren’s song of the IRS. It feels great to get a nice big fat check from the IRS. It’s Christmas in May. It’s cash found in the pocket of an old coat.  But as good as it feels, it’s a bad thing. The money you get from a refund was yours to begin with. But the IRS took it from you, held onto it and used it for their own purposes, neglected to pay you any interest on this de facto loan, and won’t give it back to you until and unless you demand it by filing your return. The IRS is currently holding onto $1.3 billion in unclaimed tax refunds from 2006 alone. That’s an interest-free loan that the feds use to fund your favorite boondoggle. The interest alone is more than any of us will make in our lifetime. You should be striving to break even – no refund, no tax due.

Refund Loans

There are a few ideas that entrepreneurs have come up with that are tempting at first blush, but are – at least in my opinion – really stupid. Refund loans are high on that list. Here we are talking about tax preparation firms who offer to lend you a portion of your anticipated tax refund. This has a few implications:

  1. You’re going to have to pay them to do your taxes first ($50-$150) – something you could do for free.
  1. You’re not going to get the full value of your refund because they are going to take the interest for the loan out of the refund.

III.                  If your refund is not as big as they said it was going to be, you could end up owing the tax preparer more than the value of the refund.

Last. If you consistently have a refund that is big enough to borrow against, then you should
have your Form W-4 adjusted to have less withheld in the first place (see Refunds above).

Paying Yourself More and the Government Less

You’ve heard it before; I’ll say it here too – to the extent that you can do so (and even if you can’t) you should be contributing to a 401(k) plan. Most employers offer them and when you are 73 (cuz that’s what the Social Security “Normal Retirement Age” will be by the time you get there) you’ll be able to go fishing instead of being a greeter at Wal-Mart.

The important thing about your contributions to a 401(k) Plan is that they are made with “pre-tax” money. (OK – truth is, you don’t actually make a contribution, your employer does. You sign a contract wherein you agree to take a cut in pay in exchange for the employer’s making a contribution.) Because your take-home pay is less, your taxable income is less and – voila – your taxes are lower. The tax man is like the grim reaper however. You won’t avoid those taxes forever, just until you withdraw money from your 401(k) at retirement. And Dad’s Dad always says, “Never pay taxes today that you can pay tomorrow.”  I won’t get into it here, but you should also look into IRAs and your employer’s Section 125 plan.


The IRS can do a lot of mean things if you don’t play by their rules. One of the things that they like to hold over your head to compel compliance is the dreaded audit – a review of prior filings in search of boo-boos. According to Eileen Bailey, the IRS will audit 1%-2% of all returns. But they are less likely to nab you at random and more likely to revisit you if you have done something that raises a red flag. These include, but aren’t limited to:

  • Inordinate deductions
  • Ongoing business losses
  • Blatantly bad math
  • Input values that don’t jibe with reported values
  • Year-to-year inconsistencies (e.g., each year you report a different number of kids)

When the IRS comes to call, they will likely have a specific issue that they want to follow-up on. If they specify, then that’s what you are responsible to review with them. So keep those receipts and bank statements handy (7 years is the amount of time you want to hold on to your records). Dad’s Dad has, on more than one occasion, proven the IRS wrong in their assertions. He has also come out of an audit with the IRS owing him money. But the IRS will never flag you if the error they found was in their favor. Hmmm. I wonder why that is?


There are few definitive correct answers. Even the Internal Revenue Code is subject to interpretation and judgment. And remember, even if you call the IRS with your question, you can get an incorrect answer. In a 2005 test of the system by the Treasury Inspector General, 35% of answers were incorrect.  And if the IRS gives you a bogus answer, you are still responsible.

So that’s taxes. Aren’t you glad you asked?


Filed under Money, Taxes

Tax Saving Ideas

Advice from Fidelity Investments

Not necessarily Dad endorsed 🙂

If you’re doing your taxes and you don’t like the number you’ll be paying the government, here’s some tips on lowering your taxes for next year.

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