Thinking about Retirement Income?

It’s been a rough couple of year, but those of us hanging on to jobs of some form may be looking at our savings and investments and wondering,

What have you done for me lately . . .

If you are someone else’s employee, there isn’t much you can do. But, if you have your own company . . . or you care to create your own company either for the consulting advice you give or for the items you sell on etsy, you have options.

One of those options is a Defined Benefit plan. Nick Paleveda is the kingpin of DB plans and was kind enough to sit down with me for a few questions. In brief, the DB plan is great for those who have profits greater than $49,000 (after salaries). But with less than that . . . stick with your 401k and IRAs.

The reason I was turned on to DB plans? Great way to legally stash $300,000 a year, tax free. Also allows significantly more flexibility in your investment options for the funds. You can invest in private equity positions, your local dry cleaner for example, or regular publicly traded funds – much great range of options than your corporate 401k most likely.

First, a word of warning, you must own your own business to set up a Defined Benefit plan. A defined benefit plan must be set up by the corporation, LLC or sole proprietor who OWNS the business. An employee cannot set up one for themselves.

The main deterrent has been the perceived cost. As it turns out, you can set up a DB for yourself for approximately $600/year. Without further adieu, the interview with Nick:

Hi Nick, let’s dial into the needs of my Miss Mentor crowd. Most are Age 24-35, mostly pre-graduate school, some recently post grad school, many with significant educational debt.  Almost all are employed in relatively high paying positions (large law firms, consulting firms, Investment banks, $125k+), but have received scant knowledge (with entirely too much information) on personal finance. Some also have their own consulting practices or would like to . . . many make the financial decisions of the household – mix of married and unmarried.

1. What exactly is a Defined Benefit (DB) plan? I’ve heard about Keogh plans, but only know enough to be moderately dangerous.

From 1974-1986 the primary retirement plan in the USA was a defined benefit plan. This plan allowed tax deductible contributions, earnings to accumulate tax deferred and lifetime income or lump sums at retirement. In 1986, the Tax Reform Act of 1986 placed severe limitations on funding these plans, and hence, plan sponsors discontinued these plans. In 2001, EGTTRA brought back the tax and retirement benefits for these plans. These plans are NOT for everyone. They are for people who can afford to put away more than $49,000 for retirement. If you plan to put away less, use a profit sharing plan. Defined benefit plans are more expensive to set up and maintain than the profit sharing plan and are more regulated. The DB plan is regulated by the IRS, Department of Labor and PBGC.
2. How will a Keogh give me flexibility to handle life events: going back to school, getting married, buying house, having baby?

It will not help.

3. Does this create conflicts with spousal income, what if my status changes married-to-single or single-to-married?

No conflict with spousal income, but if you create a DB plan and become a participant, the spouse has certain rights to the plan that cannot be alienated using pre and post nuptial agreements.

4.Can this help me retire any portion of student loan obligations faster?

No.

5. If I set up a DB plan for my consulting practice, can my spouse participate even though he has a plan at his place of work?

Only if the spouse also works in your company.

6. Is there a good rule of thumb for when to chose DB over other investment options?

A DB plan is not an investment. It is akin to opening a very huge IRA that must be funded ear year.

7. Are there any other considerations I have over-looked?
Yes- DB plans are very technical and very regulated. Many people in this age group would not be suitable for this plan.

8. Would this conflict with existing 401ks/IRAs/pensions?

Today you can have your 401(k) and defined benefit and profit sharing plan and deduct all three. This was result of a change in the Pension Protection Act of 2006.

9. Is there an optimal time to start a DB plan? Is that triggered by an income generation point or something else?

A defined benefit plan you should look at if you have profits after salary of $49,000 or greater.

10. How do you expect the power of the DB plan to play out over the next 5 years?

Defined benefit plans will become more popular in the small plan market as income taxes increase for people making over $200,000. The real popularity will depend on a persons desire to reduce taxes and increase retirement assets.

Learn more about small firm retirement plans from <a href=”http://www.journalofaccountancy.com/Issues/2009/May/20081255″>Nicholas Paleveda</a> in his May 2009 Journal of Accountancy Article.

Great Literature – 100 Years of Solitude

Every Tuesday, I like to share a learning tidbit on literature. Today, Gabriel Garcia Marquez’s greatest work  (in my humble opinion)  100 Years of Solitude struck me as a good choice.

His epic novel follows the complete lineage of one family in a poetic and touching way. His word choice is descriptive, eloquent, and mixes the realms of reality and fantasy so well that it is easy to be lost in the world which he creates. In fact, in an attempt to escape from the burdens of college, I once spent a few days locked in my room reading this novel and eating saltines. It might have been a better choice to actually go to class.

Regardless, published in 1967, translated in over 27 languages, and the biggest best selling novel in Spanish history since Don Quixote, I am not the only one to find the book truly amazing.

Gabriel Garcia Marquez
Gabriel Garcia Marquez

A very very brief synopsis

As the novel is much better read and I believe about 500 pages long, I think a short summary will do. Marquez, originally from Columbia, sought to portray the circular nature of history  through his book. He attempted to portray time’s overlapping and circular pattern by creating the book in this way as well. The characters in his book all hold relatively the same name or variation thereof which at times can make the book both confusing and compelling.

The first of the family history starts with Jose Arcadio Bueno who is an eternal explorer and inventor at heart. Set in the small town of Macondo, we also see the story of the town unfold from rather untouched by the outside world to facing heavy afflictions and massacres. By the end of the book, after we have followed the tales of  the children and their exploits, Jose (the very first of the lineage) loses his senses and is left tied to a tree. There his wife Ursula visits him until her death. We meet other remarkable characters as well such as Remedios, the hauntingly beautiful daughter who’s looks entrance men. So beautiful, in fact, that eventually she floats up into the sky never to be seen again. There is also Jose Aureliano, who becomes one of the most well-known rebels during the civil war.

Marquez paints each characters’ tale from beginning to end until the complete family lineage of the Buendia’s is complete.

The novel ends with the lines stating that the family lineage will never be again:

“He [Aureliano II ] had already understood that he would never leave that room, for it was foreseen that the city of mirrors (or mirages) would be wiped out by the wind and exiled from the memory of men at the precise moment when Aureliano Babilonia would finish deciphering the parchments, and that everything written on them was unrepeatable since time immemorial and forever more, because races condemned to one hundred years of solitude did not have a second opportunity on earth.” ~Last lines of 100 Years of Solitude

Marquez’s novel is in the form of magical realism and so reading it can be an imaginative experience. Throughout the novel he shows the struggle between the old traditions and the new ways through both his characters and the town of Macondo. His novel is able to paint a world with multiple view points and is rich in symbolism.

For those looking to get lost in their reading, 100 Years of Solitude will not disappoint.



The Spanish Inquisition (1478-1834)

“Nobody expects the Spanish Inquisition!” ~Monty Pythons

You may be familiar with the Monty Python’s version of the Spanish inquisition, and it does hold a bit of truth to it in that its accused were never quite sure of what was happening and why.

The actual Spanish Inquisition, started by Ferdinand V and Isabella of Spain and approved by the Pope, set out to unite the country under one religious faith – Catholicism- and purge the country of heretics. Although at the onset, it’s intentions may have been “pure” the Inquisition soon became a vehicle of political corruption and materialism.

This led to religious persecution of the Jews,  particularly those in Juderia of Spain. As the Jews were persecuted, many converted Catholicism and became known as conversos. It is likely they claimed Catholic faith, but still remained loyal to their Jewish traditions. The Spanish Inquisition did not persecute conversos at first, but soon fueled by greed and power they came to attack all Jews, conversos, and those who held any Jewish ancestry whether practicing Catholics or not.

Torture was often used as a means of confession rather than punishment
Torture was often used as a means of confession rather than punishment

In most cases, the accused were not aware of who had accused them or why. Accusations and the Inquisition process remained very secretive to those facing trial.  The Spanish Inquisition would offer an Edict of Grace ( a grace period offering a chance for those who were accused to come forward and have a chance to be reconciled with the Church) .  When the accused finally did come forward, they were then expected to also list any accomplices and thus the Spanish Inquisition never grew short of supply for their cause. After an unspecified detention period where most times the accused properties and assets were seized, a trial would begin. In the trial, methods of torture were used to elicit a confession from the accused. The torture methods were cruel and consisted of acts such as water torture or extreme “stretching”. If a confession was given (and most times were), the accused were condemned to death with the most popular method being burned at the stake.

Although the Spanish Inquisition was in the name of the Catholic church, the Church did not want “blood” on its hands and handed most of its power over to secular authorities for punishments and such.  Heresy was the primary concern, but people were persecuted for a number of reasons including witchcraft, sodomy, bigamy, and blasphemy.

Although the Spanish Inquisition faded out as the decline of the Church came and the French Revolution neared, it still had moments of revival under certain monarchies. Not until 1834 did a Royal Decree declare the end of the Spanish Inquisition.

Information collected from: http://www.jewishvirtuallibrary.org/jsource/History/Inquisition.html, http://en.wikipedia.org/wiki/Spanish_Inquisition, http://www.thenagain.info/WebChron/westeurope/SpanInqui.html

What are Stem Cells and How are They Helpful?

For me, when I hear the words “stem cell” it’s usually followed shortly after by “research”. I have a very high-level concept of what it means. I know it cures diseases and can be beneficial, and I know it’s controversial. Why? That I am not sure.

So, what is a stem cell?

It is a cell that leads to the growth of other cells – therefore, other cells stem from it.  There are two types: embryonic stem cells and adult stem cells.

We’ll start with adult stem cells. These are found all over the body from our brain, to bone marrow, cartilage, and skin. These cells typically are taken from our own body and are multipotent. Multipotent refers to the cells ability to reproduce more cells, and in particular, the ability for it to only produce cells which are closely related to it. For example, bone marrow cells can only produce from cells which are in its “family” such as bone cells, cartilage cells, and fat cells. Since these cells are taken from our own body, they have less chance of being rejected by our immune system. Adult stem cells have been used for therapeutic reasons for over 30 years now.

Embryonic Stem Cells
Embryonic Stem Cells

Stem cells (embryonic or adult) can greatly aid in regenerating certain damaged parts or our body. They can divide and renew themselves over time, and therefore help rejuvenate certain areas of our body. For example, degenerative diseases such as Parkinson’s, Alzheimer’s, diabetes, and cancer could benefit from placing stem cells in the part of the person’s body that has been most ravaged by the disease. Of course, science is still working on this, and it is not always possible.

Now let’s take a look at embryonic cells. After we take a look at what they are, it will be easier to see the controversy over them.  Embryonic cells typically come from fertilized eggs that have been thrown out after a fertility treatment or were aborted. The stem cells actually come from the blastocyst which is a 5-day old fertilized egg that has divided its cells. These cells within the blastocyst are pluripotent as opposed to the adult stem cells which are multipotent. Pluripotent cells can grow into any type of cell in the body. Hence, they can seem like a scientific treasure mine. It has only been in the last 20 years that scientists have been able to study these cells and cultivate them. Still, we don’t know much about embryonic cells.

So the controversy comes from the fact that these cells are taken from fertilized eggs, and so it holds moral obligations. When does it count as a human being? Is it ethical to do this?

This is a very broad overview, and I haven’t gone into any of the details regarding costs of research, legislation on methods and procedures, or medical benefits.  But from what you do know, what are your thoughts on stem cell research?

Oh Little Lolita

Lolita (1962) - Movie Cover
Lolita (1962) - Movie Cover

Thanks to Stanley Kubrick, every time I see a pair of red heart-shaped sunglasses I think of Lolita. I’ll admit I haven’t seen the movie (it’s on my list though), but I have read the book. At least I get a point for that, most times it’s the other way around.

I’m more familiar with Vladimir Nabokov’s book Lolita (1955), and it is without a doubt one of my all time favorites. It’s rich in clever descriptions,  and his writing style is humorous, addicting, and controversial.

Plot

The main character is Humbert Humbert, a middle-aged professor, who becomes obsessed with a 12 year-old girl. His obsession is so strong that he often becomes tormented by his love for her. He moves from Paris to the US and searches for a place to stay. After meeting a widow and seeing her young daughter Dolores (“Lolita”) , Humbert chooses the widow’s place as his home-stay. In order to get closer to the young girl, he even decides to marry the widow who soon passes away after. Humbert and Lolita eventually get involved in a sexual affair together and go off on a trip across the US. Lolita soon loses interest in Humbert while he remains completely in love with her.

What is the significance of Lolita?

The topic no doubt is racy and obscene. Hence, Nabokov had much trouble finding a publisher for his novel. In fact, he could not find one in the US and went to France to have it published. There it was either exalted or despised. Not until 1958 was it allowed to be published in the US and became a bestseller.

The novel is recognized for its perceptive ability to portray sexuality and repression as well as Nabokov’s unique story-telling talents. His character Humbert Humbert often misconstrued the facts, and his narration was unreliable. For example, Humbert would claim that it was  Lolita seducing him rather than the other way around.

Nabokov (1899-1977)  had a true knack for word play.

To wrap-up, I’ll leave you with one of the most well-known quotes from Lolita:

Lolita, light of my life, fire of my loins. My sin, my soul. Lo-lee-ta: the tip of the tongue taking a trip of three steps down the palate to tap, at three, on the teeth, Lo. Lee. Ta.


The Placebo Effect

Every morning, I take a multi-vitamin. To me, it counteracts all my other bad habits that I occasionally partake in: the junk food, the wine, limited exercise, and so forth. No that my lifestyle is completely unhealthy, but at times I just don’t have the will power to choose health over convenience. So, that’s where my little multi-vitamin comes in. Although it is actually filled with vitamins, I wonder how much it physically helps my body.

That got me thinking about placebo drugs.  Do these actually work? Would a placebo multi-vitamin or any other medication suffice just as well as the real thing?

The placebo effect is a patient’s response to an inert substance which they believe will have beneficial influences. For example, a doctor administers to his patient a sugar pill which he claims will help stop migraines.`From this suggestion, the patient believes that the pill has a curable effect, and so the desired result (cessation of migraines) is achieved. The placebo effect helps sick people feel better although they have been given no actual treatment with medical value.

Photo Credit: Worstpills.com
Photo Credit: Worstpills.com

The next question probably comes to mind- What is the rate of effectiveness ? H.K Beecher first discovered the placebo effect in 1955 and published his paper “The Powerful Placebo”. In his paper, he found an average of about 35% of the patients who received placebo drugs saw positive benefits from it.  Later research and studies have claimed even higher numbers of 50-60%. This does not necessarily mean that we should all rejoice and that the best cure of all is no cure. There have been subsequent studies as well that claim the placebo effect does not exist but rather the data arrives from poor research methodology.

Despite that, the placebo effect has been partially explained through brain chemistry. When we experience pain, our brain releases endorphins (think of this as our body’s own morphine to help ease the pain). Through brain scans, scientists have found that after a patient takes a placebo pill, our brain releases these endorphins. Therefore, it’s like the patient has taken an actual drug. The opposite effect is true as well. If a patient is told a pill can cause negative side effects, they can experience negative outcomes. This is known as the nocebo effect.

It seems as well that placebo effects have been increasing every year. This could be due to the better advertising of drug benefits as well as our growing perception that drugs are good for us and we need them (or at least think we do). I’m not sure if my multi-vitamins fall in this category, so I plan to keep taking mine.  But if it were come to a day where I was seeking some kind of psychiatric medication, I think the power of the mind could hold a lot more in helping than medicine.

Metaphysics in Philosophy

Aristotle’s Metaphysics is one of his most well-known works. His ideas led to a new branch of philosophy which influenced the thinkers of his time and thereafter. The word metaphysics literally means ‘after physics’ as it was chronologically written after the books on nature. His work focuses on reality, existence, and being in terms of what it is. For example, a metaphysical philosopher ponders “What is the world?” while a physicist poses the question “How does the world work?”.

Plato and Aristotle

Metaphysics is the study of all reality including the natural and supernatural. The natural world is identified as things which can be scientifically proven (energy, matter) whereas the supernatural world is identified as things which cannot be scientifically proven (the existence of god). It is the study of the world which we can – and – cannot see. Although when people use the term today, they often overlook the natural side and use metaphysics as a way to question reality from a supernatural standpoint.

There are two main questions of metaphysics. The first one asks, “What is reality?”. In asking this, metaphysical philosophers search for the underlying rules and principals of existence. They hunt for the common thread that proves and binds reality – those things which are unchanging. The second question asks, “What is the real reality?”. This contrasts from the first question as it is focuses on discovering ultimate truth. Often times, this can contradict to the world as we perceive and experience it.

Metaphysics is difficult to define as it is broad in its scope and can include the sciences. Most notably, cosmology is aligned with metaphysics and aspires to identify the very beginnings of existence. It is not only a western philosophy but can also be seen in Buddhist and Hindu philosophy as well.

Information compiled from: http://en.wikipedia.org/wiki/Metaphysics, http://atheism.about.com/od/philosophybranches/p/Metaphysics.htm, http://plato.stanford.edu/entries/metaphysics/, and http://www.rep.routledge.com/article/N095

King Louis XIV of France

Louis XIV (1638-1715, known as the Sun King , ruled France for seventy two years starting at the young age of 4. During his time of rule from the  awe-inspiring Palace of Versailles, Louis XIV was able to expand French influence in Europe and centralize and strengthen its powers at home. The absolute monarchy which Louis XIV built held more power than France had seen in its history as well as eliminated what was left of feudalism.

Louis XIV - The Sun King
Louis XIV – The Sun King

As King, Louis XIV knew that France’s power was divided among a handful of rich noblemen who reigned over vast parts of the province. In order to gain their trust and compliance, he built his image as that of magnificent and glorious. By association, they too would seem glorious to others by sharing his presence, and thus, when Louis offered the wealthy noblemen to come live in his grand Palace of Versailles, they would accept. This avoided another Fronde (civil uprising of nobles against the French monarchy), and the noble elite were appeased. Louis also built palaces across France as well as expanded Versailles making it the most lavish and magnificent palace in Europe.

Louis’ ambitious ways  gained him unprecedented power, and he was able to even convince the Catholic church to allow him more control. One of his most famous quotes – “I am the state.” -portrayed Louis’ vision of himself as France. There was no separation between the two, and so having the Church under his power seemed fitting to him. Louis XIV tried to foster religious unity often resulting in persecution of others such as Protestants and Jews.

Four days before his 77th birthday, Louis XIV died and left behind a great legacy. Although he led France to strength and power, his absolute monarchy also led to tyrannical behavior which would alter result in the French Revolution in 1789.

The Great Books: Beowulf

It seems if a book is touted as a great classic, then it shall be made into a movie. Beowulf is no different, and if you aren’t familiar with this English literature, then you probably recognize it from the 2007 movie version which starred Angelina Jolie. I haven’t seen the movie, but I have read the epic poem. Unfortunately, I barely remember it,  so today we’ll take a brief look at the plot and the significance of Beowulf.

Plot

Beowulf is a young prince from Geatland (a place south of Sweden) who arrives unexpectedly with a group of armed men to a Danish town. This town, belonging to King Hrothgar, has been continually terrorized by a monster named Grendel who breaks in at night and devours the King’s warriors. When Beowulf and his men arrive, they fatally injure Grendel who then runs off to his swamp to die. Grendel’s mother tries to avenge her son’s death, but Beowulf is able to find her at her lair and kill her first. There he sees Grendel’s corpse and decapitates it to bring the severed head of the monster back to Hrothgar’s town. The Danish town cheers and celebrates when Beowulf returns with Grendel’s head and rejoice over the fact that their town is now monster-free. Eventually, Beowulf returns his hometown of Geatland as a hero. Soon after, he takes the thrown and rules for fifty years. A hero to the core, Beowulf protects the Geats from a terrorizing dragon, but it is in this same battle that he is fatally wounded. The Geats burn Beowulf’s body in a large funeral pyre and bury him with treasure. Thus, the story of Beowulf ends.

Beowulf wrestles with Grendel, Lynd Ward (1939)
Beowulf wrestles with Grendel, Lynd Ward (1939)

What’s the significance of Beowulf?

So why has Beowulf persisted as one of the great works of literature through the ages? One reason is that the story portrays a mix of pagan and Christian traditions. Set around 500 A.D. in, a more pagan era, the story’s characters often exhibit many Christian thoughts and beliefs yet their action do not always match this.

Beowulf is often introduced as the first great influence on the development of English literature. Although many scholars stand by this, it was not actually wide read until the 1800s.  Regardless, it still holds great historical and literary value. J.R.R. Tolkien, writer of The Lord of the Rings, was heavily influence by Beowulf.

So the next time someone brings up Beowulf or makes an allusion to it (you never know!), you’ll now have the basic idea, and be able to give a smart, little reply back.

Black Holes

Star explosions are interesting. Star implosions also make equally interesting topics to explore. The kind of star implosions I’m referring to in particular are black holes. If you’ve ever seen Star Trek, you probably have an image in your head of a space ship swirling into a dark, black abyss. That can serve as a starting reference point, but other than the fact that a black hole has a strong gravitational pull, there’s not much more accurate information you can take away from that depiction.

So let’s begin. What is a black hole? A black hole is a result of a star imploding into itself and collapsing down to nothing. Its gravitational force becomes so strong, that no matter can survive it. Inside a black hole is nothing, except for “a little nugget of singularity” as physicist Kip Thorne puts it which we don’t understand. This point of singularity is a result of the dying star continually collapsing into itself, becoming denser and denser, until it is a point with no radius and infinite destiny. Nothing escapes the black hole, not even light.

If light cannot escape the black hole or its event horizon (the border of the black hole where the gravitational pull sucks in surrounding matter), then how can we see it? Technically, we can’t. We observe black holes by observing the way they interact with the objects in space around them.

falling_into_a_black_hole

To understand a bit more about black holes, we need to discuss escape velocity. When a rocket ship launches into space, it must go at a high enough velocity (speed)  to escape the earth’s gravitational pull. If it does not have a high enough escape velocity, the ship  falls back down. In a black hole, the escape velocity needed to exit must be faster than the speed of light. This is impossible and thus the area surrounding the black hole is known as the event horizon. If an object falls into an event horizon of a black hole, it gets sucked in. Outside of the event horizon, though, it is OK.

OK, so the question you really want to know: Can we space or time travel through a black hole? You know….the way they do in Star Trek. This idea is not as far fetched as you may think. Some physicists (like Burko in particular) argue that if a black hole has a weak point of singularity, it isn’t out of the question. A weak point of singularity means that it won’t completely crush you or your space ship if you enter, and it may lead you to a wormhole (a tear/tunnel in the space time continuum) and spit you out in some remote part of the universe. Though this idea is very theoretical, there is no evidence to completely disprove that it may work. In science, that counts as a possibility. The closest black hole being 30,000 years away, though, serves as a much bigger problem.