Richard A. Lindsey, CPA

Lindsey & Waldo, LLC – Certified Public Accountants

  • Jun 27

    “Failure is not an option” became a popular catchphrase after the release of the movie Apollo 13. (Something I know a little bit about since my father was lead flight planner on Apollo 13.) Failure happens, but when you’re responsible for the people working for you, you have to do everything you can to guard against it. As a leader, devote yourself to avoiding these crucial failures in leadership:

    • Disconnecting from people. Don’t get so caught up in strategy and planning that you forget to talk to the people who work with you. Most of the time, they know more than you about how things work from the ground level, and their insights can be valuable.
    • Doing too much. Delegate appropriately so you don’t get overwhelmed and lose sight of the big picture. When you hire, look for people who can perform aspects of your job as well as, or better, than you can. Your role is complicated enough without adding tasks that your team should be able to handle.
    • Avoiding risk. Play it safe, and your organization will never grow. That doesn’t mean being foolhardy with your organization’s assets. Seek opportunities everywhere, and be willing to commit resources wherever you’ve got a reasonable chance of success.
    • Exhaustion. Take care of yourself, physically and mentally. Eat well, exercise, and take time off so you can stay fresh as you confront the day’s challenges. Pushing yourself to the brink will only increase everyone’s anxiety.
  • Jun 13

    What’s the proper place for Social Security in a retirement plan? Aside from what I am writing about below, Social Security cannot be passed to heirs (notwithstanding spousal death benefits).

    That’s one disadvantage, but it’s not the only one…

    Imagine a man named Bill Fredericks, born in 1948, who is celebrating his 66th birthday today by filing to collect Social Security at full retirement age. Bill’s final salary was $50,000 per year, although when he started working in 1968 he was only earning $7,304 annually.

    For the past 46 years Bill has had Social Security withheld from his paycheck. When he first started, the total Social Security tax was only 7.6%, which for Bill was $46.26 of his $609 monthly paycheck. On his last pay stub, the government collected 12.4%, or $516.67 of his $4,167 monthly salary.

    Because Bill was not subject to the current 12.4% tax during his entire working career, his Social Security benefit will receive a more generous return than any of today’s young people will receive.

    Social Security tax is split into an employee portion and an employer portion. But practically speaking for the employer, both portions are just additional costs of hiring the employee. Some say neither gross nor net wages would change if technically the employee or the employer were paying the entire amount.

    Bill’s lifetime Social Security taxes totaled $152,068. In today’s dollars, it means Bill paid $260,163 to Social Security. This qualifies Bill to receive $24,180 a year, just under half of his former salary. When he dies, only if Bill has a surviving spouse whose earning record was smaller than his, will this benefit survive him.

    Many have said that Social Security is a perfectly suitable option for a real retirement account. But the real way to test is what would have happened had Bill been allowed to keep his Social Security benefit and invest it in a private IRA account.

    I got some help and computed this hypothetical return in an age-appropriate portfolio between the S&P 500 Stock Index and the US Aggregate Bond Index. With only a monthly contribution of his Social Security taxes, by age 66, Bill’s portfolio would have grown to $1,431,487.

    With a safe withdrawal rate at age 66 of 4.43%, this IRA would give Bill an income of $63,415 per year rising with inflation. On average this withdrawal rate would be sustainable until Bill’s 101st birthday. But at his average life expectancy at age 84, he would leave an estate that would still be over a million dollars in today’s dollars.

    Social Security offers Bill only $24,180 a year, half of his former salary. In contrast, (according to my simple math) his IRA account would allow him to retire with $1.4 million, and a 27% raise, as well as leaving a legacy for his heirs. (Mild disclaimer here — these are based on average returns, and it does not constitute a “guarantee”.)

    According to my calculations, it seems pretty clear that workers under age 60 should tilt heavily toward stock investments. Even if Bill had blindly invested in 40% bonds, his portfolio would still have grown to $1,186,472 — a yearly income of $52,561, rising with inflation.

    Social Security should be seen as an option of last resort for today’s workers. The unfortunate fact is that every 46-year investment horizon since Social Security was made law would have produced better returns had the withdrawals been invested privately. Even the Social Security withdrawals of average workers would produce millionaires if they were allowed to be saved and invested in private accounts.

    That’s why I recommend my clients and their friends to view Social Security as a tax, and not as a savings or retirement account. That way, we are able to not rely on it solely for our future lifestyle options, and can receive whatever benefit might remain in the future as a “bonus”.

    Even if peeling off a few hundred dollars per month (hopefully more!) might seem like a stretch at this point in your career, it is worth it to ensure that you don’t have to subsist under a massive pay cut after your prime working years have completed.

    The best part is that your future self will thank you!