American Workers Turn Down Billions in Free Money

Posted on August 15, 2011 by Walter Ezell

How much free money can you afford to accept from your  employer?

The obvious answer? As much as the employer will provide.

But not so fast. Every year, millions of American workers don’t accept the “free money” offered by their employers as a valuable benefit. I’m not talking about people who don’t take a vacation. I’m talking about matching funds for 401(k) or IRA retirement plans.

As a business owner, I offered 3% matching, and was surprised and appalled by how many people didn’t take advantage of this benefit.

To receive matching contributions, the employee must contribute. That must explain why so many people don’t take the “free money.” To them it is not free money.

What should Joe do?

Graph compares 8, 9 and 10% annual growth rates for 45 years.

Let’s look at a hypothetical example. Joe makes $16 an hour on his first job and works a 40-hour week. If he puts 3% of his gross pay into a 401(k), his weekly  paycheck drops from $500 a week to $484. That’s one hour of gross pay per  week. But his contribution, with his employer match will be $38.40. His annual net pay drops from to $26,016 to $25,167, a difference of $849.  But because the contribution is tax-deferred, he has contributed $998 to the 401(k).

Graph compares 8,9 and 10% annual growth rates for 35 years.

With the matching by his employer,  he has stashed away $1,996, at an outlay of  $849.

What are these savings worth when Joe retires? Let’s assume his pay grows an average of 3% a year and he keeps saving for 45 years, with matches from his employer. If his investments grow an average of 8% a year, his first 10 years of savings will be worth about $500,000 at the end of 45 years. If his investments grow an average of 10% a year, his first 10 years of savings will be worth $1,000,000 after 45 years. See the chart below.

A million dollars

Compound Interest

Because of compound interest (plus employer matching), the  extra $11,435 Joe would contribute by starting 10 years sooner could result in $1 million more in his nest egg.

If Joe waits 10 years, he will start saving when his income has risen to $21.50 an hour. But there will never be any way to make up for those lost years of free money. To compensate, he would have to save 9% a year for 35 years on top of his employer’s 3% matching!

A small sacrifice when young means substantially less  sacrifice later in life.

What’s that half a million or million worth? Experts say when you retire, you should withdraw no more than 4% a year, to be reasonably sure your savings won’t run out, even if you live to be 95 years old and even if the economy takes a severe drop at just the wrong time for your retirement.  So if you save $1,000,000 (with the help of your employer’s free money), you can withdraw $40,000 to supplement your Social Security. If you save $2,000,000, you can withdraw $80,000 per year.

A Word of Caution

That is less money than it sounds like. In 1960, a first-class postage stamp cost 4 cents. In the next 50 years, inflation caused postage rates to soar 1000%. Soft drink prices went up that way, too. Inflation will chew into the buying power of your nest egg.  And because the savings were tax-deferred, you’ll be paying taxes as you withdraw your savings.

But the big news is that by foregoing a movie and popcorn every week for 10 years, Joe could have an extra $769 a week at retirement and for the rest of his life, even if he lives 30 or more years in retirement. Even with inflation and taxes, that will buy a lot more than a movie and popcorn.

If Joe’s 70-year-old self could meet with Joe’s 25-year-old self, he’d want to grab young Joe by the scruff of the neck and shake some sense into him.

Conclusion? Accepting your employer’s matching funds is always a best  practice. I am hard-pressed to think of any circumstance where it is not a good idea.

References

To make calculations related to your own situation, check out this website:

http://www.adp.com/tools-and-resources/calculators-and-tools/payroll-calculators.aspx

Run the hourly paycheck calculator, then run the 401(k) planner from the list of tools on the left.

Beyond matching, you need to think through how much you  should save. A great place to start the thought process is a book called The Number: A Completely Different Way to
Think About the Rest of Your Life, by Lee Eisenberg.

 

Posted in Investments | 1 Comment

A “Self-Care Reformation” is changing the role of patients

Posted on July 22, 2011 by Walter Ezell

After each annual physical I’m sent to the lab to have blood drawn, and I get a bill for the lab work. What I don’t get, unless I ask for it, is a printed copy of the results.

I am determined now that if I am going to sacrifice blood and treasure, I want the full benefit. I want the printout, which shows 41 different measurements with seven prior years, and a final column showing the “reference range.” The reference range (no longer called the “normal range”) is where your numbers should be so you don’t break into a cold sweat and call the doctor in panic.

For years, my glucose was a little high, but the doctor didn’t say much if anything. Then one day, my glucose was in the normal range, not because my test results changed, but because they changed the “reference results.” I’ve got some questions about that, and some thoughts about what I might do to get that number out of the barely acceptable range.

I used to go over the results and pay attention only to the ones that seemed out of the reference range. Now I want to know more. I just spent a few hours looking up each item (what is “SGOT AST”?), comparing year-to-year trends, and seeing if I can scope out a little bit about what is going on with my body.

If you don’t want to be a health nerd, you can skip this, but it strikes me as not a bad idea, in fact, perhaps a Best Practice.

Here’s a great resource for understanding most of the blood-work numbers:

http://www.amarillomed.com/howto

It’s interesting to me that it is not some foundation, the surgeon general, or the Centers for Disease Control that put out this helpful guide, but just a regional medical practice in Amarillo, Texas. Shouldn’t every doctor who prescribes blood work be giving this out?

What Would Luther Do?

Are we ready for the medical equivalent of the Protestant Reformation? Just as Martin Luther proclaimed the “priesthood of all believers,” are we ready for the “physician-hood of all patients”?

To extend the analogy, in the Catholic church of the Middle Ages, Bibles were hard to come by, and unless you were a priest, you likely didn’t have the literacy, the education or the access to the Bible to read it for yourself and interpret its meaning. Access to the Bible and freedom of conscience produced the Protestant Reformation.

Today, we have more and easier access to medical information than ever before.

This Self-care Reformation is already well under way. There’s an upside and downside to the Self-Care Reformation of course. On the downside, people are self-medicating with alternative medicines and treatments, nutritional supplements, and prescription medications borrowed from family or friends, without fully understanding dangers and benefits. The dangers are false reliance on an ineffective treatment to the exclusion of what works, or on a treatment that may be harmful.

An extreme example is the death of Michael Jackson, where the entertainer apparently bought the services of a doctor who would pander to Jackson’s medical whims.

On the upside some of us are reading texts that lead us into better nutrition, exercise and other scientifically grounded self-care practices. My doctor loves it that I take an interest in my health and try to stay informed about developments. But I treat this as a collaborative process by keeping my doctor informed. When I started taking D-ribose before my workouts (as described in The Sinatra Solution), I made sure to discuss it with Dr. Bizzell at my next visit.

But if I started taking steroids that I got from a buddy at the gym, or ignored warnings not to eat grapefruit when I’m on Lipitor, or just basically ignored the doctor’s advice because it didn’t sound like much fun, that’s not so good.

Taking Ownership of Your Health Journey

If we are mindful of the Self-Care Reformation rather than proceeding willy-nilly, we can avoid the pitfalls while taking ownership of our health journey. It is always better to understand the reason for doing something than surrendering to mindlessly to authority.

Nothing in the blood work numbers alarmed me today, but I will be asking a specialist soon why one number doubled (still within the reference range) after remaining steady for at least seven years, and whether I should worry that one number edged up beyond the normal range after remaining just below it for many years.

Understanding numbers in this way is a good step toward turning our medical care into a collaborative process with our doctors, instead of living in a medieval village where we meekly but blindly obey those doctors.

Posted in Health Care | Tagged , , , , , | Leave a comment

Better Health Care at Lower Cost? Doctors Know the Secret

Posted on June 30, 2011 by Walter Ezell

Walter Rudolph, raconteur and entertainer, gave up cigars at the age of 80. He was my piano teacher just after I graduated from college, and I remember his cigars and the brown saliva that dribbled from a corner of his mouth.

“Don’t ever start smoking,” he would often say. “It’s a filthy, dirty habit.”

And then, one day, the cigars were gone.

He told his doctor he’d quit, and the doctor said, “Why’d you do that?”

“Because last time I was here, you told me to!” Mr. Rudolph replied with a chuckle.

Rudolph, a man with zest for life, was former music director of the Ice Follies. In the garage attached to his San Francisco house, he had organized and filed 40,000 pieces of music, an accomplishment and collection of which he was inordinately proud. (He didn’t need the garage for a car because he voluntarily surrendered his driver’s license on his 75th birthday.)

When I showed up for my lesson one day without my book of Chopin etudes, he didn’t shuffle out to the garage to retrieve his copy. He sent me home to get my book.

So Walter Rudolph was one of a kind, not your typical piano teacher. But quitting smoking because the doctor asked him to? Other people do that too.

Something odd about our healthcare system is that doctors are so busy, they sometimes don’t get around to telling patients to lose weight, stop smoking, and get more exercise.

Exercise, good nutrition and reduced stress are a lot cheaper than a heart bypass, insulin, or other medical measures that merely patch the potholes in a lifetime of self-neglect.

In the July/August Atlantic magazine, David H. Freedman looks at why new-age medicine often seems to do a better job of making patients well at a much lower cost than mainstream care.

Freedman makes a startling statement. “Medicine has long known what gets patients to make the lifestyle changes that appear to be so crucial for lowering the risk of serious disease.”

Really?

They know?

This is huge!

In the field of Best Practices, figuring out the best way to do something is less than half the challenge. The final challenge, and perhaps the greatest, is spreading the word and getting best practices to be widely adopted.

And how can doctors get patients to take care of themselves?

By “lavishing attention” on them, Freedman says.

Specifically:

• Longer, more frequent visits.

• More focus on what’s going on in patients’ lives.

• More effort spent easing anxieties, instilling healthy attitudes, and getting patients to take responsibility for their well-being.

• Concerted attempts to provide hope.

What’s spooky is that a crone in a dark room full of scented candles, with no license but with a lot of empathy and folk wisdom, could do all of this.

Maybe even a wise old piano teacher could do this. Almost every week Mr. Rudolph would remind me, “Relaxation is the secret of life, my friend.”

Only medical doctors can prescribe prescription medicine or perform surgery. This isn’t necessarily because surgery and drugs are the most important contributors to human health, but because in the wrong hands, they are dangerous.

Here is the paradox. Because doctors have a monopoly on drugging and invasive procedures, and spent a lot of money to join the guild, they get paid more for those practices and need to get paid well. There is an economic incentive to do more drugging and surgery, with little incentive to give patients the time, empathy and wisdom that are critical to achieving optimum health.

Doctors who want to address the whole person (and there are many) are swimming against the tide of their own economic interest. Unless they are working in an academic medical center, or already involved in an alternative practice, they may not have time to lavish the needed attention that each patient deserves.

Rather than giving these well-intended physicians a gold star for trying, we should enroll them in an effort to reform health care in a way that assures the delivery of empathy, hope, and wise advice to every patient.

Such a reform would reduce costs, improve health and cause the current strident debates over health care reform to dwindle in significance.

Posted in Health Care | Tagged , , , | Leave a comment

Drive Like a Bicyclist

Posted on June 23, 2011 by Walter Ezell

As a driver, how to you approach and cross intersections? Are you a LIFO driver? That is, Last In, First Out?

When I applied for my South Carolina Driver’s License, the highway patrol officer who gave the road test had only one criticism. When we approached a stop sign, I took my foot off the accelerator and coasted rather than continuing faster and using the brakes.

This is a habit I developed during years as a non-car-owning bicycle commuter in Richmond, Va., and Atlanta.

Bicyclists are more sensitive to energy expenditure than most drivers. If you’re stopping, it uses less energy to coast than to continue accelerating and then burn off energy through the brake pads.

And it requires less energy to continue rolling than to stop and then start.

If you see a red light ahead, it may make sense to ease the foot off the accelerator and let gravity and friction slow the car. If you’re approaching the intersection at 5 mph when the light turns green, you’ll enter the intersection sooner than the car in the next lane that is stopped for the red light.

If you drive this way, you are Last In, First Out – a LIFO driver!

On the other hand, if there is more than one lane, I will safely change lanes if it means I can be first in line at an intersection. That way I don’t get stuck behind the typical driver who takes multiple seconds to respond to the light turning green.

When the light turns, I usually find I am first to start moving. I’ve noticed that often while other drivers are still mulling over the change from red to green, I am already a few car lengths past the intersection. This is not the much-criticized “jackrabbit start.” It results, not from rapid acceleration, but from starting promptly.

This is all bike commuter stuff.

Easy stops and easy starts use less energy and put less wear on the transmission, engine and brakes.

It’s a Newtonian thing. Objects in motion stay in motion and objects at rest remain at rest unless acted upon by an outside force. If you can avoid stopping, you conserve that “outside force” you would need to start up again.

So do yourself, your car and your bank account a favor. Drive like a bicyclist.

Posted in Uncategorized | Tagged , , , , | Leave a comment

Post Hoc Reasoning Produces Nuggets of Fool’s Gold

Posted on June 12, 2011 by Walter Ezell

By Walter Ezell

We all like to mine our experiences to extract nuggets of wisdom. This starts very young. You touch the stove and get burned, so you learn not to touch the stove. You eat cooked cabbage and get sick, and instantly develop a harmless though misguided lifelong aversion to cooked cabbage.

If it had been chocolate instead of cabbage, that aversion would be sad instead of laughable!

Post hoc ergo propter hoc is the Latin phrase describing this form of reasoning, meaning “After this, therefore because of this.”

It is a fancy string of words to describe a philosophical error. One event follows another, so we believe there is a causal relationship.

Joe wore unmatched socks when he pitched a no-hitter, so now he wears unmatched socks whenever he pitches. Joe can throw gopher balls out the wazoo and rack up the most deplorable earned run average, but nothing the batters do will ever knock the silly sock superstition out of his gullible head.

Sometimes the nuggets we mine from life experience turn out to be fool’s gold. Post hoc reasoning is a fountain of superstition that is unlikely ever to dry up.

It is the basis for astrology—that persistent superstition that encircles the globe and has deep roots in traditional cultures throughout the world.

It’s easy to suppose how this happens. Careful observers note that when certain constellations pass overhead, the snows begin to melt, the days grow longer, and it is time to migrate upstream, or plant the crops, or birth the lambs, or whatever the tribe needs to do at that time of year to make food and improve the chances of survival. Other constellations tell us it’s time to wrap it up and get ready for winter.

Perhaps the wise ones also observed that when the moon is full or new, the tides are higher. If that is so, then what about Mars, Venus, Jupiter and the other bright “stars” that appear to move through the heavens independently of the more stably configured constellations? Might they also influence the rhythms and patterns of our lives, our destinies and even our personalities?

We know why the higher tides are associated with full and new moons. This is because the sun, earth and moon are aligned and the combined gravity of the sun and moon pull the water higher. But the various planets are much smaller than the sun and much farther from the earth than is the moon, so the change in gravitational influences is trivial when the planets align.

Thus our uneducated reasoning dances down a glimmering path from consistent and predictable observations to fantasy, speculation and pure superstition.

What is seductive about post hoc reasoning is that it usually has some reliable observations to back it up. Little Travis did have his measles vaccination. And after that we did start to see changes in the tyke’s behavior that lead to a diagnosis of autism.

If you talk to millions of mothers, you will find thousands of cases where children with autism had immunizations prior to their diagnosis. This is called “anecdotal evidence,”
and without statistical studies, it proves nothing. What about children who didn’t receive immunizations but were diagnosed with autism?

These mothers, fiercely protective of their offspring, urgently want to understand what went wrong and warn others, thus spreading a superstitious belief in a causal relationship that has no scientific basis. And doctors, with that infuriatingly inconclusive word “unproven” have been unable to extinguish the wildfires of superstition that have lead to many children being unvaccinated and some dying from childhood diseases that were once thought to be effectively eradicated.

Post hoc ergo propter hoc reasoning is not enough to establish causality. If B happened after A, there are several possibilities.

  • A causes B.
  • A is independent of B but they both resulted from the same prior event.
  • Or it’s just a coincidence, and an accumulation of similar coincidences proves nothing.

To establish a causal relationship, scientists look for several things. First is statistical significance. To study a possible relationship between immunizations and vaccinations, they would want to find statistical significance. Study two populations of children that are essentially identical (in race, education family income, diet, etc.) except that one group of children received immunizations and the other didn’t. Is there any difference in the incidence of autism? There has been only one study that found such a relationship, and that study was discredited earlier this year as an “elaborate medical fraud,” according to the British Medical Journal.

http://www.bmj.com/content/342/bmj.c7452.full

The second thing scientists look for is a causal mechanism.

Scientists found that mothers who took folic acid and other pre-natal vitamins for the three months prior to conception were almost 40% less likely to give birth to autistic children. The higher the dose, the greater the effect. If other scientists repeat the study and get similar results, they will then try to identify the causal mechanism. What is it about a vitamin deficiency that increases the likelihood of a developmental disorder such as autism?

http://hw.libsyn.com/p/5/1/6/5169be6cc880cb85/scifri20110610-hr1.mp3?sid=c9b96236ce991310c70b5b6dda34a40e&l_sid=18801&l_eid=&l_mid=2610225

http://thepregnancyblog.net/latest-news-on-pregnancy/absence-of-prenatal-vitamins-linked-to-increase-in-autism/

Teasing out the causal mechanism is far more challenging than establishing a statistical correlation.

What scientists don’t do is say, A happened before B, so A must have caused B. As Aristotle pointed out more than 2300 years ago, that’s just wrong. Figuring this out was a huge step in shattering the shackles of otherwise adorable traditional cultures.

But human beings that we are, we persist in this error. Doing dumb stuff is one of those traditional things we love to keep around.

Post hoc reasoning can save your life if it keeps you from stepping into the fire or overlooking the advent of winter. But this reasoning is unreliable, and can just as easily lead us into harmful superstitions. For people who want to understand how the world works, Post hoc reasoning is never a best practice.

Posted in Uncategorized | Leave a comment

“Best” versus “Good Enough”

Posted on June 11, 2011 by Walter Ezell

Perfectionists sometimes set themselves up for failure.

“If it’s worth doing, it’s worth doing right” sounds good on the surface, but it expresses the all-or-nothing, black or white mindset of the perfectionist.

Yes, if you’re building a bridge, it must be built “right.” That is, built not to fail. A bridge that falls down at the risk to life and property is worse than no bridge at all, no matter how badly the bridge is needed.

But how about painting a stage set that will be used for two weeks? Does it need expensive primer topped with $30 a gallon latex enamel, guaranteed for 10 years?

No! That’s a waste of resources. This is a case where the “best” is too good. “Good enough” is better!

And you wouldn’t add a $200 bottle of merlot to your marinara sauce to bring out the flavor of the tomatoes. An inexpensive red table wine is good enough.

With limited resources – time and money – the best practice may not be the most
expensive or time consuming. The best practice is that which achieves the desired result at the least cost.

As Tom Connellan advises in The 1% Solution for Work and Life, “There is no point in doing well that which you should not be doing at all.”

And there is no point trying to “perfect” that which is already achieving the desired result.

Gasp! I can’t believe I said that! I’m a congenital perfectionist. I sometime find myself postponing needed to-do items because I don’t have time to make them the best in the known universe.

That is when I remind myself, “The perfect is the enemy of the good.”

Posted in Defining "Best Practices" | Tagged , | Leave a comment