Why was the SECURE Act needed?

The 2019 calendar year closed out with lawmakers congratulating themselves on coming to an agreement on a bill unironically titled the Setting Every Community Up for Retirement Enhancement (SECURE) Act. Yay!

The changes made by this new act are all adjustments to previous versions of similar laws. The government-approved retirement vehicles (401(k)s, IRAs, Roth IRAs, etc.) are still in place and the “benefits” are still questionable. The benefits to the retiree, that is. The benefits to Uncle Sam are set. Control of the capital and guarantee of the taxes generated by that capital are still in the hands of the US government and willing fund managers.

There are several impacts to this new law so let’s take them one at a time. This list may not be comprehensive, but we’ll hit the high/low lights.

The beginning age for taking Required Minimum Distributions (RMDs) from a 401(k) plan rises to 72 from 70.5. If you turn 70.5 after 2019, you’re in luck. The government will not force you to begin withdrawing your invested funds until you hit age 72. This can be classified as a good thing in so much as it increases the time you have, but I would argue that the change itself should not have been needed. What benefit is received by the retiree who is REQUIRED to withdraw a certain amount from their nest egg starting at an arbitrary age? Why was this part of the law in the first place? Why does it remain a part of the law, even if people have been granted an additional 18 months?

Owners of traditional IRAs are now allowed to contribute to them past the age of 70.5. Starting in 2020, even if you are older than 70.5, you may continue to contribute to a traditional IRA. This is a positive change because the arbitrary age limit has been repealed. For the time being, anyway. By the way, I looked up words other than ‘arbitrary’ to use in this paragraph and came up with ‘irrational’, ‘frivolous’, and ‘unreasonable’. All would have worked, but I stuck with the repeat. Moving on.

Annuities should become more prominent in 401(k) plan offerings. One very prominent fear among retirees is running out of money. Annuities can be complex and fee-laden in some cases, but they also provide the certainty of future cash flow. I prefer Participating Whole Life Insurance for the certainty, but occasionally annuities offer a good alternative. With the changes in the SECURE Act, employers will have more flexibility to add annuities to the 401(k) offering that will be portable when a person leaves that place of employment. Depending on the situation, the individual, and the annuity, this could be a positive change. More potential flexibility and cash flow certainty is a good thing.

Employers can automatically enroll employees to contribute up to 15 percent of income. I realize there are arguments on the psychology of saving that support this new ability for employers, but I’m wholeheartedly against it. The argument FOR states that more people would put money away for retirement if it were easier. Automatic is as easy as it gets, so surely more people will start putting money away without even realizing it. Fair enough. Enabling people to get out of their own way and ensure they save for the future is a great goal. My struggle is with the rules and fees associated with the 401(k) where the cash is automatically deferred. The money is still likely invested in mutual funds (fees) and will not be easily accessible, if at all, to the employee.

Change to non-spouse inherited IRA treatment. I am not a tax expert, but the brief rundown on this rule change shows that inherited IRAs not exempted by certain circumstances will need to be liquidated within 10 years. Specifically, IRAs inherited by children. So, inheriting assets in an IRA from deceased parents can potentially force the child into a higher tax bracket or, worse, force them to sell off assets at a loss. The latter situation may seem alarmist to anyone who did not suffer through the crash of 2008, but this is a very real fear for those of us who did.

So what does it all mean, Basil? First, just remember that the SECURE Act is not the last change you will see to the government-approved retirement “saving” rules. The regulations that were in place previously, as well as the updates just discussed, were not designed with the individual in mind. Mandating an age where a person must start liquidating any assets is designed to generate revenue through tax collection. While the motivations should not be a surprise, the important thing to focus on is that the rules can and do change. Participate in these government-approved plans with eyes open.

As I mentioned previously, I do recognize the power of making saving easier. Rather than settling for your employer automatically deferring part of your check to a 401(k), here is a relatively simple alternative. Open a new account with your bank and have your employer divert 10% of your pay to that account. In the beginning, make it difficult to see how much is in that account so you aren’t tempted to spend it. Give it three months and check two things: how much is in the account and how has your life changed? The likely answer is that there is more money in the account than you thought there would be and your life hasn’t changed dramatically. Many people say they didn’t even miss the money they set aside.

Once you are in this habit, or if you are already there, Participating Whole Life Insurance is the gold standard in building your financial foundation. Click here for more information on how to leverage the Perpetual Wealth Code and really feel SECURE.

Qualified plans are not the only option

If you aren’t a member of your local Costco warehouse, you may not be familiar with the monthly advertising magazine (Costco Connection) that features a few articles to break up the ad space.

Each issue contains a Q&A column with Suze Orman who gives advice on selected financial questions. Though this piece doesn’t typically crack the five minutes I spend skimming the magazine, the answer to this question caught my attention.

The question – “What retirement plan would you recommend to self-employed women who are making over the stated Roth IRA threshold of income?”

Ms. Orman’s answer is the perfect illustration of the limit of the typical financial planning mindset, as well as the complexity of the qualified plan rules. A “qualified plan” is one that meets certain requirements set out in the Internal Revenue Code that allow for certain tax benefits. She briefly touches on using a SEP (Simplified Employee Pension) and an individual 401(k) listing the restrictive contribution limits put in place by the IRS, and then refers the questioner to a tax professional.

So women who earn a decent living are limited to plans that restrict the amount they can invest and require the expertise of a tax professional? I think we have a better option.

First of all, don’t invest until you have a sufficient amount saved. Savings and investments are different terms and they are often used interchangeably, so be careful what you are asking for. It’s possible the woman asking the question has her savings in order, but the numbers tell a different story for the majority of Americans. The beauty of focusing on savings first is that it provides peace of mind in case of an emergency (or opportunity), and there is no need to consult a tax advisor.

The gold standard for savings vehicles, that happens to also be something you can utilize for retirement income, is a properly designed Participating Whole Life Insurance policy (PWLIP). Ms. Orman did not list this as an option for retirement because she has publicly derided whole life insurance while not understanding any of the benefits offered. This is unfortunate for the woman who wrote in and any other Costco member who happened to see this bit of advice.

The bottom line is there are options outside of the world of restrictive, fee-laden, qualified plans when it comes to savings and retirement income. The combination of a PWLIP and the use of the Perpetual Wealth Code is one such option. No IRS contribution restrictions, no fees to eat away at the growth of your capital, and no penalty for accessing your capital when you find an opportunity worth funding. Self-employed women (and men) would do well to check out this option.

Stop the Madness

We cannot solve our problems with the same level of thinking that created them.” – Albert Einstein

It’s possible this quote is trotted out too often, but I love this timeless piece of wisdom for two reasons. First, it reminds everyone that how we approach a problem has a major impact on how it is solved. Or not solved, in many cases. Often the solution is hidden from view because of how we have chosen to see the problem. The second reason to love this quote is a bit more snarky. It is the perfect response to virtually any proposed government program. Now the point of this post is not to make a political statement, but to respond to news that the House and Senate are working on bills to “improve the issues with today’s retirement policy.”

The US Senate recently introduced the Retirement Enhancement and Savings (RESA) Act and the House is working on the Setting Every Community up for Retirement Enhancement (SECURE) Act. There are at least two published objectives to these plans, though there may be more hidden beneath the surface.

The first problem these acts purport to solve relates to access to qualified retirement plans. Roughly 66% of Americans currently have the option to contribute to a qualified (401k, 403b, etc.) plan, and legislators feel that is not enough. If only the rest of these employees had the chance to contribute to a retirement plan, they would definitely be saving. So goes the thought process of a governmental bureaucrat. As someone who oversees a qualified plan for a small business, I can assure you this is not the case. Some people have priorities that do not include locking money in a qualified plan. Whether the priority is to save money elsewhere or spend $1.01 for every dollar earned, forcing more businesses to offer qualified plans will not change the behavior.

“Guaranteed” income is the second goal of the new plans making their way through Congress and the short version is that they are trying to make it easier to incorporate annuities in qualified plans. Certain annuities can provide income for life and having this as an option may help participants feel better about their cash flow.

There is much excitement in the press about how these changes to the broken retirement system are bi-partisan, but there is no mention of why the system is broken in the first place. Why is it so expensive for employers to offer these plans in the first place? What is the real benefit to participants who choose to put money into the plans? How have these plans done for current retirees and what issues need to be addressed based on that data? Sadly, these questions are likely not going to be answered by the folks in DC. Just too busy.

What if I told you there was a way to solve both of these issues without making any adjustments to the current 401(k) structure? In fact, the solution has been around for hundreds of years. Start by saving at least 10% of every dollar you bring in. You can do this by opening up a savings account, so no need to involve the 401(k). If you have any “bad” debt (credit cards, student loans, car/boat loans, etc.), negotiate with your creditors so the total spend each month is no more than 20%. If your only debt is a mortgage, increase your savings to 30%. If you are currently spending more than 70% of your income on your lifestyle, examine where the money is going and consider how your future self would feel. Once you have decided where your values and your spending align, adjust your spending to meet the 70% threshold.

If you are leery of keeping your money in a savings account, you have options. The gold standard for this process is a properly designed Participating Whole Life Insurance Policy (PWLIP) that emphasizes growth in cash value. The growth is guaranteed, your capital is accessible to you at any time tax free, there are no IRS-imposed limits on amount of contribution, and the tax free death benefit can be used however your family or charitable organization wishes.

Forget the 401(k)

Several months ago the Wall Street Journal published a piece arguing that we need to create a new form of retirement plan. I love this idea for many reasons, though I disagree with the specific solutions provided in this piece. Below are the features the Journal promotes to improve the current system along with my perspective.

Universal Availability – as of 2017, private employers offered retirement-plan coverage to 66% of workers. The argument goes that it’s tough for people to save for retirement if their employer does not offer a retirement plan. While this sounds obvious, it also ignores the fact that saving does not require a government-approved “qualified” plan. There are plans currently available. They just may not be deemed worthy by the federal government.

Easy to Convert to Regular Income – we have been trained to focus on how big we can grow the number in our qualified plan, rather than think about how best to translate that into future income. Based on what we are all saving for (passive income years) this should have been the first, and biggest, feature of the “new” retirement plan. One suggestion refers to making the first $1,000 of income tax free to reduce the burden of converting the pile of cash to income. What if there was a way to make it all tax free?

Extended Retirement Income – how much money will you need to ensure you have income for life? That’s the proverbial million dollar question and the Journal offers up an example of a firm using annuities to help employees with their financial plan. The example is complex, but annuities can be a good option to solve this issue. Sadly, this product is not often included in qualified retirement plans. Another tough-love piece of advice is that people need to save more of their income during their active earning years. A minimum of 10% of your current income is a good place to start.

Account Portability – from 2004 to 2013, former employees abandoned roughly 16 million retirement accounts with balances of less than $5,000. The total funds amount to about $8.5 billion in retirement funds that have been orphaned. How could this be? Why would someone simply leave potentially thousands of dollars in a retirement account? The same reason employers struggle to set the accounts up in the first place. It’s a pain. Clearly there are plenty of people who have decided their time is better spent doing practically anything but navigating the steps to move money from one qualified plan to another.

Accounts Should be “Hard to Raid” – the Journal argues that the current qualified plan system is too easy to access when the cash is needed. While I will concede this is possible, I have a hard time with the argument for two reasons. First, this is money that was earned by the person saving it, so it’s theirs to do with as they please. Second, we have to treat savers as adults who are responsible for their own decisions. It may not be the wisest choice to withdraw money from a qualified plan and pay the 10% penalty, but that’s up to the individual. Adding extra “security” to the account to make it even more difficult for the owner to access their capital is something I cannot get behind.

So I agree with most of the general points presented by the Journal, and there is good news. A process and product capturing the benefits listed above is already available. In fact, what they describe can be found in a product many savers used prior to the invention of the almighty 401(k).

A properly designed Participating Whole Life Insurance Policy (PWLIP) allows you to save for your passive income years in a tax-advantaged policy, taking advantage of guaranteed returns and no management fees. All while having access to your capital if an emergency or an opportunity arises. These policies are not limited by your employer and are very flexible when converting to passive income during retirement. Contributions are also not limited arbitrarily by the IRS.

Please reach out with questions about how to take advantage of what a PWLIP has to offer. I look forward to talking with you.

If you would like to read the full WSJ report, click here.

Health and Wealth

While listening to an interview with Dr. Andrew Weil (www.drweil.com) today I was reminded, yet again, of the similarities between physical and financial health.  To start with, staying both physically and financially healthy is based on very simple principles.  Eat natural foods, spend less than you earn, exercise daily, save money for the future, drink plenty of water, and so forth. 

The principles are simple, but our ability to make the processes complex is something to behold.  Fast, processed food and drink has taken us far off the path of eating natural foods and drinking water, while credit cards and casino-like stock market investments have divorced us from the realities of spending and saving.  It’s not tough to see the wreckage this has caused in both areas of our lives.  Roughly 40% of Americans are obese and the same percentage could not cover a $400 emergency expense. 

These are depressing numbers for the holiday season (sorry, not sorry).  Lord knows the next 12 days will see more binge eating and drinking, along with more credit card abuse (happy holidays!), but what will happen in 2019?  Possibly a pause for January, but then back to the pattern.  What if we want out of the cycle? 

Decide you’re worth it.

There are countless diet programs to be found online (more complex confusion), but start by eating one non-processed meal a day.  And trade the Mountain Dew for a water.  This is the first simple physical step you can take.  Take another the following week.  While you’re getting your physical life in order, try this for your financial life – save 10% of every paycheck.  Don’t put it in your company 401(k), save it.  To start with, just open a separate account at your local bank.  Get into the habit of saving the cash first, then figure out where it needs to go. 

Another piece of advice Dr. Weil dropped was that we all need to figure out what works best for us.  If you are used to hearing that this is the best and only way to get real results” or something similar, you’ll appreciate how refreshing this statement is.  First learn the principles, then adapt to your lifestyle.  Are you paid via direct deposit?  Maybe it will be easier to have your employer deposit the 10% directly into the new account.  Or maybe you need to put the cash in a separate envelope.  It’s up to you. 

Clients often say that they didn’t even miss the 10%.  Give it a shot and prove to yourself that you’re worth it. 

Unforced Errors

I was fortunate to grow up in an area with a mother who loved playing tennis.  She taught me to play and helped me understand the nuances of the game.  The goal is to get the ball over the net and land it within the playing area on the other side.  Pretty simple.  Of course simple does not always mean easy, and the mental game is where the battle is won. 

One aspect of the mental game relates to focus, and a negative consequence of when you lose it.  Specifically, unforced errors.  A tennis example would be hitting the ball in the net.  Unforced errors lose points, and potentially games, sets, and matches.  So it’s important to stay focused and keep them in check.

In my other life, I help run a 67 year-old distribution business focused on plumbing and HVAC products.  We have many long-term employees with deep industry knowledge and a love for what they do.  Even with this expertise and passion for our work, we make mistakes.  Today we discovered that we had made what can only be described as an unforced error and, just like in tennis, we suffered a loss.  This particular loss was big enough that it caught my attention and, like all unforced errors, it was driven by a lack of focus. 

I’ll spare you the details of the time and money needed to correct this error, but the short version is that it hurt.  Losing time and money stinks, which is why I’m posting this for you today.  It’s easy to see how we can all lose focus in our world of constant Internet distraction and it’s important to remember that unforced errors are the inevitable result. 

One unforced error that is extremely common in the personal finance world centers around saving.  Specifically, treating saving as the last “bill” you pay each time you are paid.  Simply moving this bill to the top of the list each month eliminates this unforced error in our money management.  Paying yourself first allows you to avoid this unforced error and lay a solid foundation for your future financial growth.

The next tennis Grand Slam is the Australian Open in mid-January.  No need to wait until then to ensure your saving plan is in place.  Financial unforced errors can be more costly than those on the courts in Australia. 

Passing of a Daredevil

Bonnie Nelson passed away on December 15, 2018, after a well-fought battle with cancer.  She was 87 years old.  Or, as Robert D. Smith likes to state it, she lived exactly 31,880 days. 

The piece below was written for our company newsletter prior to the cancer’s final push, and shows how Bonnie chose to live her life in retirement.  She celebrated her 20-year retirement anniversary this year and was happy with what she’d accomplished.

Bonnie Nelson – Back in the summer of 1963, Bonnie was visiting a cousin in Iowa City after she left her 14-year insurance job in Des Moines.  She decided to visit the local employment office and they directed her to PSC.  Gladys Nesmith and Dave Gause were on hand to interview Bonnie and they must have been impressed.  According to Bonnie, she requested what she thought was way too much money, but they hired her anyway. 

            Shortly after being hired, Jim Nesmith came into the office asking “who’s the #51 car?!” and Bonnie thought it was already over.  Apparently license plates had county numbers (not names) back then, and #51 was Jasper County.  As a Jasper County native, JHN was just curious who may be visiting Johnson County (#50), so Bonnie could rest easy.  In fact, after six weeks, JHN stopped at her desk, said he figured things were going to work out and gave her a raise. 

            In addition to the license plates, the physical space of PSC was quite a bit different back then. There were no offices, so writing of purchase orders and answering the phones (Bonnie’s primary duties) took place in the counter area.  For the first six weeks, when Bonnie would venture into the warehouse, the guys would conspicuously clam up.  Things eventually loosened up in the warehouse, but she was only the third female in the building after Gladys and Nora Lee Balmer. 

            After nearly 35 years with PSC, Bonnie retired in April of 1998, but continued to fill in part time for the next seven years.  As we have heard from others in this cohort,she misses the people most of all and feels good about her time with the company. 

            The past 11 years have gone quickly and Bonnie has done a bit of traveling.  Her trip to Scotland and England several years ago is a highlight and, ironically, her tour guide was a Wisconsin native.  Small world!  Bonnie also proved she’s a bit of a daredevil while on a cruise through the Panama Canal.  You may not picture her zip-lining through a Costa Rican jungle, but Bonnie made it happen. She said it’s possible she was the oldest person doing it that day, but she’s not certain.  Finally, to show she really isn’t afraid of heights, Bonnie recently rode a hot-air balloon over Pella.  For those who have never gone,she says it’s peaceful to glide through the air, but it gets a little warm in the basket.  Next up is a flight to Pittsburgh for her nephew’s wedding in October. On a plane, this time. 

            Thanks again to Bonnie for her service to the company and for taking time to relive some old memories.

Bonnie worked for our family business for 35 years and grew into much more than an employee for the company.  After that long, it’s tough not to.  Bonnie was a friend to the family and to many of the employees she worked with over the years.  She will be missed.  Rest In Peace, Bonnie. 

Measuring Generosity?

If you’re looking for a podcast to explore, I highly recommend Freakonomics Radio hosted by Stephen Dubner.  If you’re familiar with the book by the same title, the podcast follows the same line of discovery.  Are all of our economic/life assumptions wrong?  What is happening beneath the surface that may be changing the outcome we expect?  And so forth. 

While I do encourage you to check out the podcast, this post is inspired by a rebroadcast of an episode (#288) from May, 2017.  The title is “Are the Rich Really Less Generous than the Poor?”, and the answer to the question was less interesting than the clear assumptions held by the researchers.  The general feeling, if you weren’t aware, is that rich people are selfish jerks who do their best impression of Scrooge McDuck on a daily basis.   The researchers seemed to agree with this premise.

We could take many posts to discuss who would be considered “rich”, how to segment them out, how they grew their wealth, and the various assumptions made about this group of people.  The short version is that the majority of this group of people are wealthy for one reason.  They figured out how to serve their fellow man by delivering the most value to the most people possible.  Of course there are exceptions to every generic statement and this is no different.  There are lottery winners, young adults living off successful parents, the latest Internet scammers, etc.  The major difference here is that the latter group has money, but they aren’t wealthy. 

The reason I make this distinction is to point out that, in general, people who have earned a decent living, have already been generous with their resources.  Their time and talent has been transferred into dollars by adding value to the lives of others.  In addition, our friends conducting the research discovered that “the rich” are just as generous with the money they earned. 

No matter where you are on the income scale, the Perpetual Wealth Code can provide you with a solid foundation for money management.  Building on this foundation can only help your ability to give to your favorite cause. 


It’s Thanksgiving Day and there is much to be grateful for.  I’m personally grateful to you, dear reader, for taking a few minutes to read this post.  Maybe someday in the near future you readers will have a baby or three and catapult this blog viewership into the double digits.  Glorious times ahead.

Today is one of my favorite holidays not just for the gratuitous gorging and the all-day football-fest, but for the reminder about how we should think/act on a daily basis.  I don’t mean we should eat 10,000 calories each day, though Michael Phelps makes it look okay, I mean we should focus on gratitude.  Are there times where life could be a little brighter?  Sure.  But start with the fact that you are here and able to give thanks.  Everything else builds on that.

A few family and friends who have graduated that we’ll be thinking about today – Jim, Gladys, Joe, Pam, David, Helen, Pete, and Eric.  We love you and miss you and give thanks for the joy you brought us.

Thanks for bearing with me on this day of gratitude.  I am truly thankful that that you have made it to the end of this short post and promise that more thoughtful editing is on the horizon.

Happy Thanksgiving!

It just doesn’t matter

I feel like I’m getting older because I’m getting nostalgic.  I remember a time when political campaigns were limited to the several months leading up to the election.  And when a difference of political opinion did not automatically mean someone was evil/racist/heartless.  Sadly, that’s where we are today and there does not appear to be an end to the madness in sight.  This topic comes up on Thanksgiving eve because families rarely escape the drama of the national crazy scene.  Just remember, whiskey is bipartisan.  And so is gravy.

This blog has a personal finance bent to it and there is an inverse correlation to how we think about national politics and how we handle our money.  How much influence do you have over the national political scene?  More importantly, how much impact does it actually have on you?  Not how much impact do you allow it to have on you, how much does it actually have?  Unless you are reading this from a powerful seat in Washington D.C., the answer is that you have virtually no influence on the national political scene.  And, believe it or not, the drama impacts you much less than you think.

Your choices in your financial life matter.  National politicians don’t.  Focus your energy on the decisions that impact your life and make sure your use of money lines up with your values.  Just like politics (but much more important), all holidays are local.  So, check your verbal weapons at the door tomorrow.  And make the drink a double.