In management, we are taught to separate operating decisions from financing decisions. First, we have to evaluate whether the operating benefits are worth the investment. Second, we find the lowest cost mechanism for the financing. The classical advice is solely from a financing standpoint: borrowing to fund a depreciating asset is not a good idea. (this prescription assumes that the opportunity cost of your own money is sufficiently low, an assumption that can be questioned). To make this idea clear, consider a firm figuring out whether to buy a machine. It will evaluate the potential revenue against the cost of the machine to make an investment (i.e., operating) decision. Next, the firm has to figure out whether to raise the money internally or to borrow it (the financing decision). It is easy comingle the decisions, creating confusion. That said, in some settings, the decisions are structurally mingled as in the case of seller-financing at a other than market rate. In the case of the car, it will depreciate the same no matter how you finance it. The decision to buy is simply trading off the benefits of having a car versus the operating (incl. depreciation) costs of having one. The other decision is how do you come up with the money to buy the car. Here, one can argue for different solutions based on what is available.
Thank you for sharing your life story. We would do well to reflect on the lessons you have learned along the way. I particularly liked the bit about having flexibility with discipline, and the need for compassion.
In an ideal world, reserve shortfalls etc. would be reflected perfectly in home values. However, my realtor friends inform me that most buyers give cursory thought to reserve funds in relation to monthly dues. Thus, home values get dinged "less" when reserves are short changed. Naturally, this factoid gives rise to questions such as, "Why should I fund future owners? After all, I will be here for only 5 years more, and nothing major will break during that time!" Another example of self-interested rational behavior ("free riding") getting in the way of collective good. In economics, we term this is the "problem of the commons."
This comment is related but slightly off topic. It turns out that you can buy a loss assessments" rider to your HO-6 policy. For a modest fee (< $50 per year for $50K of coverage), you are coverage for special assessments that arise from a "covered claim" such as hail damage. Assessments for regular repair and maintenance are not covered. In our HOA, we have encouraged everyone to get this rider because our insurance deductible is more than the cost of replacing the roof. (Every insurance firm quoted a separate deductible for damage due to wind/water!) Not a perfect solution but the loss assessment rider will ease the pain when (not if) a major storm / tornado hits and takes out a few of our buildings.
No one is arguing for a differential rate, based on whatever criterion. The simplicity of one-rate provides many benefits.
I am for taxing all income starting tomorrow (with suitable adjustments to benefits, of course). the $400K suggestion is so to make the change politically viable and to push the insolvency problem a few years down the road. (kicking the can down the road has been a go-to solution for many fiscal problems!)
That said, I do agree that this change by itself will not make SS sustainable. The real issue is that the ratio of the base of the pyramid (folks that work and contribute) to the top (folks that collect benefits) has decreased due to longer life spans, lower birth rates and (I think) lower (legal) immigration rates. As these demographic trends are unlikely to reverse any time soon, any solution to the parameters of the current system is likely to be a patch. We need some fundamental rethinking to make this system sustainable in the LR. I have some ideas but all of them have associated flaws as well.
Social security, on its face (or in theory), is indeed supposed to serve as insurance for lower-income workers. However, in practice, it takes a larger bite out of the earnings of lower income workers and is therefore regressive in the sense of taking a bite out of their utility. While one could argue that lower-income folks get proportionately greater returns, any reasonable adjustment for longevity wipes out that advantage. (There is a strong positive correlation between income and age of death.) My comment reflects these realities. In short,
Increasing the FRA disadvantages the poor more than the rich because the former die earlier (on average).
Increasing the rate also disadvantages the poor because they lose a larger chunk of their income and every marginal dollar is worth more to them.
Increasing the cap would address both these concerns without imposing additional costs on the lower-income folks. All of the incremental costs accrue to folks making over $400K a year.
IMHO, increasing the FRA and/or the tax rate is counterproductive. I see it almost as taking more money from the poor to further enrich the well-to-do. As has been proposed elsewhere, removing the cap is a terrific idea that deals with the funding problem. (Implementation wise, it might be politically more saleable to start with a "donut-hole" till $400K and have it fill naturally over time.) Other incremental changes such as broadening the tax base will also help.
We are fortunate to have a wealth advisor as a part of my professional network. We periodically (around milestone events, mostly, every 3-5 years or so) chat to share where we are and to get a 30,000 ft overview on whether we are missing anything major. This way, the advisor is aware of our holdings/plans/values should anything happen to me. She thinks that, at that point, she might hook my wife / kids us up with a Vanguard personal advisor given the composition of our funds.
Comments
In management, we are taught to separate operating decisions from financing decisions. First, we have to evaluate whether the operating benefits are worth the investment. Second, we find the lowest cost mechanism for the financing. The classical advice is solely from a financing standpoint: borrowing to fund a depreciating asset is not a good idea. (this prescription assumes that the opportunity cost of your own money is sufficiently low, an assumption that can be questioned). To make this idea clear, consider a firm figuring out whether to buy a machine. It will evaluate the potential revenue against the cost of the machine to make an investment (i.e., operating) decision. Next, the firm has to figure out whether to raise the money internally or to borrow it (the financing decision). It is easy comingle the decisions, creating confusion. That said, in some settings, the decisions are structurally mingled as in the case of seller-financing at a other than market rate. In the case of the car, it will depreciate the same no matter how you finance it. The decision to buy is simply trading off the benefits of having a car versus the operating (incl. depreciation) costs of having one. The other decision is how do you come up with the money to buy the car. Here, one can argue for different solutions based on what is available.
Post: Driving a Bargain
Link to comment from April 21, 2026
Thank you for sharing your life story. We would do well to reflect on the lessons you have learned along the way. I particularly liked the bit about having flexibility with discipline, and the need for compassion.
Post: A Life You Build
Link to comment from April 20, 2026
In an ideal world, reserve shortfalls etc. would be reflected perfectly in home values. However, my realtor friends inform me that most buyers give cursory thought to reserve funds in relation to monthly dues. Thus, home values get dinged "less" when reserves are short changed. Naturally, this factoid gives rise to questions such as, "Why should I fund future owners? After all, I will be here for only 5 years more, and nothing major will break during that time!" Another example of self-interested rational behavior ("free riding") getting in the way of collective good. In economics, we term this is the "problem of the commons."
Post: The condo, HOA, senior citizen conundrum
Link to comment from April 20, 2026
This comment is related but slightly off topic. It turns out that you can buy a loss assessments" rider to your HO-6 policy. For a modest fee (< $50 per year for $50K of coverage), you are coverage for special assessments that arise from a "covered claim" such as hail damage. Assessments for regular repair and maintenance are not covered. In our HOA, we have encouraged everyone to get this rider because our insurance deductible is more than the cost of replacing the roof. (Every insurance firm quoted a separate deductible for damage due to wind/water!) Not a perfect solution but the loss assessment rider will ease the pain when (not if) a major storm / tornado hits and takes out a few of our buildings.
Post: The condo, HOA, senior citizen conundrum
Link to comment from April 19, 2026
- No one is arguing for a differential rate, based on whatever criterion. The simplicity of one-rate provides many benefits.
- I am for taxing all income starting tomorrow (with suitable adjustments to benefits, of course). the $400K suggestion is so to make the change politically viable and to push the insolvency problem a few years down the road. (kicking the can down the road has been a go-to solution for many fiscal problems!)
That said, I do agree that this change by itself will not make SS sustainable. The real issue is that the ratio of the base of the pyramid (folks that work and contribute) to the top (folks that collect benefits) has decreased due to longer life spans, lower birth rates and (I think) lower (legal) immigration rates. As these demographic trends are unlikely to reverse any time soon, any solution to the parameters of the current system is likely to be a patch. We need some fundamental rethinking to make this system sustainable in the LR. I have some ideas but all of them have associated flaws as well.Post: Fixing Social Security once and for all
Link to comment from April 18, 2026
Social security, on its face (or in theory), is indeed supposed to serve as insurance for lower-income workers. However, in practice, it takes a larger bite out of the earnings of lower income workers and is therefore regressive in the sense of taking a bite out of their utility. While one could argue that lower-income folks get proportionately greater returns, any reasonable adjustment for longevity wipes out that advantage. (There is a strong positive correlation between income and age of death.) My comment reflects these realities. In short,
- Increasing the FRA disadvantages the poor more than the rich because the former die earlier (on average).
- Increasing the rate also disadvantages the poor because they lose a larger chunk of their income and every marginal dollar is worth more to them.
Increasing the cap would address both these concerns without imposing additional costs on the lower-income folks. All of the incremental costs accrue to folks making over $400K a year.Post: Fixing Social Security once and for all
Link to comment from April 17, 2026
IMHO, increasing the FRA and/or the tax rate is counterproductive. I see it almost as taking more money from the poor to further enrich the well-to-do. As has been proposed elsewhere, removing the cap is a terrific idea that deals with the funding problem. (Implementation wise, it might be politically more saleable to start with a "donut-hole" till $400K and have it fill naturally over time.) Other incremental changes such as broadening the tax base will also help.
Post: Fixing Social Security once and for all
Link to comment from April 16, 2026
Would you mind sharing the name for this outfit?
Post: Financial Planning
Link to comment from April 13, 2026
We are fortunate to have a wealth advisor as a part of my professional network. We periodically (around milestone events, mostly, every 3-5 years or so) chat to share where we are and to get a 30,000 ft overview on whether we are missing anything major. This way, the advisor is aware of our holdings/plans/values should anything happen to me. She thinks that, at that point, she might hook my wife / kids us up with a Vanguard personal advisor given the composition of our funds.
Post: Financial Planning
Link to comment from April 13, 2026