Garbage in; garbage out. What follows is the definitive word on the subject:

Setting aside a partial tax holiday, every dollar anyone earns in this country up to $110,100 per year is taxed for Social Security and Medicare purposes at 15.3 percent. The check for one half is essentially written by the employee, and the check for the other half is written by the employer, but the entire cost is borne by the employee.

For anyone challenging that assertion, here’s a simple acid test: The next time an employer suggests that you can work as an independent contractor for convenience purposes and that he or she will pay exactly the same amount you have been receiving, you’re foolish if you don’t insist on a pay raise to cover what you will now be paying as the employer’s share of payroll taxes. Otherwise you just took a 7.65 percent cut in pay.

So, right out of the blocks, most of us are paying the same percent that Mitt pays before we pay a dime of income tax. For lower incomes, there are earned income tax credits that many people, especially those with children, receive when their incomes are down in the $10,000 to $40,000 range, so it’s true that a lot of people (about half the population) don’t pay anything in income taxes after credits, exemptions, and itemized deductions — but they’ve already paid 15.3 percent in payroll taxes on every earned dollar, so we can cut them some slack.

Meanwhile, the median-family income in the country is around $75,000, so half of all families above that level are beyond the sanctuary of tax credits and are in the realm of high marginal income tax brackets. At an adjusted gross income of $69,000, the tax rate for a family taxes everything beyond that figure at 25 percent. For single taxpayers, by the way, the 25 percent marginal tax starts at just $34,500.

For all of us who are in states with income taxes, we get hit at yet another level. For a family with $75,000 of income in California, the state tax works out to be about $5,000. Many of the “one tenth of 1 percent,” however, maintain residency in one of the seven states like Texas, Florida and Nevada where there are no state income taxes.

New Hampshire, which some reports show as Romney’s official residence, has no tax on earned income, but does tax dividends and interest income. Much of Romney’s income escapes New Hampshire’s tax system because, as capital gains, it is taxed at 15 percent thanks to a fluke called “carried interest” — a tax-code fluke that treats what should be regular income as capital gains income — a loophole enjoyed by private equity firms.

So, when you add it all up, the average American family paying payroll taxes, state income taxes and, finally, federal income taxes is keeping this country afloat with an all-in effective rate somewhere north of 25 to 30 percent. Normally, when we say, “This is not about money,” it is about money.

This time around, I would say that it’s not about money. It’s about what’s fair and what makes good business sense as a country.

Large fortunes owe their existence to a well-educated population and the infrastructure that supports it — both of which require an effective government with enough resources to get the work done. To expect people enjoying those fortunes to pay taxes at a rate comparable to that of the typical American family doesn’t seem so unreasonable to me.

Steve Butler is president of Pension Dynamics. Contact him at 925-956-0505, ext. 228.

However, a fund might have invested in, say, Apple (AAPL) and never sold it. The stock has quintupled in value, but because it was never sold by the mutual fund, that gain is known as “unrealized” profit and no annual gain had to be reported.

Then, when we sell a mutual fund years later at a higher price than we paid for it, we calculate the difference in price (we bought it for $1,000, say, and we’re selling years later for $2,000 (a gain in part thanks to the Apple stock that the fund never sold) and we owe taxes on that $1,000 profit.

However, we are allowed to reduce our profit by all the gains that we paid taxes on over the years that we owned the fund.

So, how do we minimize the tax hit on our after-tax money? Index funds, tax-managed mutual funds, municipal bonds and annuities offer tax-shelters outside of a retirement plan.

Index funds just invest in a broad cross section of companies within a specific type. For example, an S&P 500 index fund invests in the largest 500 companies in the country. As a result, these funds have very little “turnover” due to trading. A typical amount might be as little as 5 percent of the total portfolio per year.

An index fund that does very little trading generates very little in annual “realized” profits that would otherwise trigger annual taxable income. Years later, then, when a portion of the fund is sold, little in the way of “realized” profits have been reported along the way. What would have been paid in taxes is still sitting in the investment.

The distinction offered by index funds is that the profits are effectively controlled by the investor. Someone “nibbling away” at their index funds to support themselves in retirement might be paying relatively little in taxes on the distributions from those funds. The money left in continues to grow. Exchange-traded funds (ETFs) are another form of index fund.

Tax-managed mutual funds are those that are sensitive to the tax hit, so they solve this problem by selling some stocks at a profit each year while “harvesting losses” that will offset the gains. The net effect is that their investors reviewing their year-end 1099 tax reports from the fund will see that they will not have to come up with more money for taxes.

For interest income, so-called “tax free munis” are municipal bonds that offer interest free of federal and state income taxes. Considering that interest earnings are taxed at the highest marginal rates, the advantage of paying no taxes makes the net spendable money higher, in many cases, than taxable interest would have generated — after taxes.

Annuities are insurance products that allow investors to accumulate money in a tax-deferred shelter, just like that of a retirement plan. However, annuities can be expensive and come loaded with conditions and features that increase commissions and create penalties for early withdrawal.

Managing after-tax money can benefit from some professional help from time to time. A good CPA can help with some investment tax advice and a reasonably-priced fee-only financial advisor can be worth consulting if this subject matter gives you a headache.

Steve Butler is president of Pension Dynamics. Contact him at 925-956-0505, ext. 228.

On the political landscape, the need to pay down our national debt (the country’s 401(k) loan equivalent) has become an obsession for many Americans and their political representatives, but the question I would ask is why we have to be in such a rush to pay it back right now. We only owe 70 percent of our GNP to non-government bond holders. An additional 30 percent is owed to government agencies like Social Security. To view the possible consequences of delaying full payment, we can look at Japan. I was an exchange student there in 1961, so it captures my interest as a country.

Japan is a poster child of how debt doesn’t have to crimp a style of living. They owe themselves a quadrillion yen (15 zeros) which is about $14 trillion — an amount that is 200 percent of their annual GDP. While their stock market has been moribund for the past three decades, the Japanese haven’t let that bother them. Their lifestyle is enviable, unemployment is at 4 percent and life expectancy has increased by four years over the past 20 years. Their health care, delivered by private companies, costs a fraction of ours and is monitored by what amounts to a Public Utilities Commission that sets prices — just like we control monopolies like the power industry.

Japan offers an example of how those of us looking for answers regarding the prospect of a ballooning national debt can be stymied by the “fact-free zone” of the current political scene. So-called “experts” who have been predicting for three years that the national debt would send interest rates through the roof are still waiting as rates have declined. On the other hand, far more experts with real money instead of just theories and political agendas are lapping up billions of those 10-year bonds paying less than 3 percent. Those satisfied with 3 percent interest for the next 10 years are clearly not concerned about some mythical spike in interest rates.

What has changed over the 60 years since my freshman year is that a lot of our debt is owned by foreigners. Those who are apoplectic at the thought of China owning so much of our government debt forget about the debt of other countries that we own. Foreigners that own a piece of us are more than offset by the money we have loaned to other countries — especially when considering that what we pay in interest is peanuts compared to what we collect in interest on money loaned overseas.

When scare tactics become a big part of the national dialogue, it’s important to be able to grasp some understanding of the fundamentals of economics. Grip the arms of the chair as tight as possible and breathe deeply. The current national debt we shoulder is not some end of the world. Percentage wise, it is less than it was at the end of World War II. Over time, interest rates are bound to rise — but probably not very fast. In the meantime, businesses will continue to expand with borrowed money that costs next to nothing. The prospects for the stock market over the next few years are excellent based on historical relationships between company earnings and stock prices.

At the end of this year, taxes will increase, military spending will decrease, and the budget will get balanced like it was in the ’90s when we had a surplus. Meanwhile, inflation over the years will help to reduce the value of the dollars we will have to pay back. The answer to all of this, for an otherwise anxious investor, is to sit tight with money spread out over funds that invest in established dividend-paying companies and add in some bond funds for stability. I miss Ross Perot, with his charts and a pointer, who used to say, “It’s that simple.”

Stephen Butler is president of Pension Dynamics Corp. Contact him at 925-956-0505, ext. 228.

So, what’s good about them? In some iterations, they can accomplish some value-added advantages over just investing in a collection of name-brand mutual funds. An annuity, basically, is the reverse of life insurance. It is insurance that pays you if you live too long rather than if you die too soon. A 65-year-old buying an annuity for $100,000 is buying the promise that they will receive $7,000 a year for the rest of their life. If they live to 105, it’s a heck of a deal. If they get hit by a bus leaving their insurance agent’s office, the $100,000 is gone.

The insurance industry leaves no stone unturned when it comes to generating legislation favoring its products. Because annuities are insurance products, the compound earnings in the underlying investments accumulate on a tax-deferred basis, like money in an IRA.

Many people buy an annuity and let earnings compound during what’s known as the accumulation phase. This is the period between when the annuity is initially purchased and when the benefit (the income phase) is scheduled to begin. Many people invest in annuities just for this benefit with no intention of ever “annuitizing” or agreeing to part with the lump sum in exchange for a lifetime income. They just want the tax-deferred build-up.

Then they’ll take the money out slowly over time (paying taxes on the earnings portion) while the balance continues to grow tax-free. No law says you have to “annuitize” and risk getting hit by the bus.

For someone who thought he had seen it all, I learn that Vanguard, through its insurance affiliate, is now offering an annuity that offers the tax-deferred buildup, but something new and different happens when you reach the point at which you might otherwise have “annuitized.”

Instead, Vanguard guarantees a percentage of income for the rest of your life, but you don’t give up the principal. That can go to your heirs instead of the insurance company. The lifetime income for someone electing it between ages 65 and 69 is 5 percent of whatever the account balance is at that time. Waiting until 70 increases the income to 5.5 percent. Adding a spouse to the list of who gets the lifetime income reduces the payout by a half a percent.

The so-called withdrawal base is the amount of money deposited at the start. Five percent of this amount becomes the annual payment for life. A $100,000 deposit triggers at least a $5,000 annual income for the rest of the investor’s life.

But it can get even better. The money invested in, say, a balanced fund might increase in value over 10 years to as much as $120,000 even after the payout and the fund expenses. Or, it could drop to $50,000 (picture a $100,000 deposit in 2007 and checking its value in March 2009, for example). The payout in the latter case continues at $5,000 regardless of what hits the account balance might have taken.

On the upside, if the underlying balance continues to grow after paying the 5 percent income plus fees outlined below, then this new balance becomes the new withdrawal base each year. In 10 years, in the example above, the withdrawal base could have increased to $120,000. Your guaranteed income for life would then be $6,000. It resets each year with a ratchet effect that prevents it from ever being reduced.

This strikes me as being a good deal. The annual cost for mortality and administration and the income guarantee — plus what the underlying mutual funds charge — averages about 1.5 percent. This, plus the 5 percent payout, means that if the underlying fund earns more than 6.5 percent per year, your account balance (yours if you decide to quit or for your heirs if you die) will be increasing in value.

If, in a doomsday scenario, the underlying balance dropped to zero, Vanguard guarantees to pay annual income of 5 percent of your highest-achieved withdrawal base as long as you live. It’s like heads you win; tails they lose. That doesn’t happen often in this business.

Steve Butler is president of Pension Dynamics. Contact him at 925-956-0505, ext. 228 or sbutler@pensiondynamics.com

Way too many people have expressed concerns about problems ranging from a double-dip recession, turmoil in Europe, a spike in interest rates, a collapse of demand for U.S. government securities, and so on.

What this all overlooks is the basic resilience of the world economy and the fact that businesses and economies just keep going at one level or another — like the Energizer Bunny.

Anyone assuming that long-term collapse is just around the corner has been reading too many novels like Cormac McCarthy’s “The Road.” Someone trying too hard to protect against the downside by having all their money in cash is paddling upstream against hundreds of years of economic history.

A stock market losing more than 50 percent of its value would leave any normal person feeling like they are staring into the abyss. Fortunately, a loss that extreme has only happened three times since 1930. The extreme bear markets of 1930 and 1940 were followed by complete recoveries within a few years. We’re watching the recovery right now of the crash of 2008 — the third of the three “big ones.”

While we may be a few percentage points short of being whole again, we have to remember that our reference point was entirely artificial. “Being whole again” for most means returning to that exhilarating high-water mark of the fall of 2007 — a point that we all should recognize as the product of a false economy fueled by bad government policy, the excesses of deregulation and irrational exuberance on the part of investors and consumers.

So, if you want a better reference point, check your records to see what you were worth in about 2005 — after recovering from the dot-com bust. Life is Good.

Today, the signs are pointing toward a substantial rise in market values in 2012. If you don’t believe me, ask Bob Brinker, the newsletter writer and talk show host, who was just ranked among the nine top advisers that made Mark Hulbert’s honor role. Hulbert has been ranking all such advisers for more than 30 years.

To make his honor roll is, in fact, an honor. Brinker expects the stock market to reach the low- to mid-1,400s in 2012, which would be about a 15 to 20 percent increase over its current level depending on which day you look.

Meanwhile, the European banks are selling off assets left and right to get the cash needed to beef up their balance sheets and reduce their leverage. Who’s buying? American investment companies like Blackstone Group and KKR & Co.

Worried about Italy? Their tax collections today are more than enough to pay for their government services. What leaves them short, prompting all the hand-wringing, is the interest it has to pay on its government debt.

The obvious solution is to just collect the taxes that people owe.

Tax evasion costs that country $150 billion a year — about 18 percent of their budget. Throwing tax cheaters in jail — like we do — would solve the problem overnight.

Most of the predictions of doom and gloom in this country are coming from those selling gold or running for office. In reality, the United States is proving to be a sanctuary compared to the rest of the world.

A quick look at foreign investment funds shows us their performance this year has been about 15 percent below the performance of U.S. markets. Just when we were starting to believe that a global economy had everyone moving in lock step, we’re being blindsided by the truth of the matter.

In a way, however, that’s a good thing for those of us who periodically rebalance investments (selling some piece of our winners and beefing up our losers). In recent years, there wasn’t much to rebalance when everything was plummeting and then snapping back in unison.

Now, however, the old pattern of inverse correlation between different investment types is emerging. This offers diversification and reduces our risk.

Good news is not a fantasy right now. It’s the real thing.

Steve Butler is president of Pension Dynamics. Contact him at 925-956-0505, ext. 228.

For 13 years, this annual column just before the holidays is meant to offer some financial advice to younger people and to stimulate conversation during the commercials. The general good cheer brought about by the holidays can prompt family members to set aside baggage temporarily and really interact “in the present,” so to speak. So, here are some discussion points.

For the foot soldiers of the Occupy movement, life is not so comfy. The New Yorker had a short article about a young adult from Seattle whose contracting work as a computer graphics designer dried up and he ran out of savings — after having sold all his equipment.

With his last $250, he boarded a bus for New York City and joined the movement. Like early immigrants who arrived in New York City with nothing, this is a compelling story about people who are struggling to force the kind of change that neither political party seems capable of accomplishing.

Who knows? Maybe Occupy will get it done. A role model could be Great Britain, which announced last week that it was splitting up its banks and making it illegal for banks serving businesses and depositors to conduct trading activities. Only those non-trading banks holding deposits would receive taxpayer guarantees.

Here in America, we’ve agreed to “stress tests” that will be monitored by the same feckless regulators who were easily rolled by lobbyists and their legislators. Bring on the Occupiers with their pitchforks and torches, I say.

What struck me about the well-educated young person latching on to the Occupy movement out of desperation was that he had found himself finally with no money and no means of support. So, here’s what young adults should be thinking about if they are fortunate enough to have a job right now:

Don’t buy anything. Give your relatives something like homemade pies for Christmas like the Amish do. Get started on a heavy-duty savings and investment program if you’re fortunate enough to have a job, because here’s how the system works: Money compounding at 10 percent per year doubles every 7.2 years. (The past 10 years have been an anomaly; 10 percent annual returns are more typical than the nearly flat market averages over the last decade.)

At 10 percent, $1,000 saved today will have doubled about six times in 42 years to a total of $64,000 — just in time for a 25-year-old to start retirement at age 67. The same 25-year-old depositing $100 per month into an investment account can expect to have the following account balances: 10 years/$20,655; 20 years/$76,569; 30 years/$227,932; 42 years/$780,000.

And, consider this — if it were $1,000 a month instead of $100, after 42 years our thrifty investor would have $7.8 million.

Any young person with a job who is not contributing to the company 401(k) plan has to have their head examined.

I know, I know. People have school loans to pay back, but they should contribute to the plan anyway. Roughly a third of those contributions would otherwise have disappeared in taxes, because 401(k) money comes right off the top of pay before taxes are calculated. Pay off school loans as slowly as you can and direct the cash instead to building your own nest egg. Having your own asset reserve gives you more flexibility and helps avoid having to move back home.

It’s one thing to be broke and joining the Occupy movement (which has more than $600,000 in donations — a fund that provides a subsistence level of support for its members), but it’s far better to have been looking out for No. 1 and setting the stage for some financial self-sufficiency and your own “unemployment insurance.”

All it takes is the kind of savings discipline that most immigrants to this country are practicing as we speak. Knowing of their effort to get here should remind us not to squander our good fortune.

Steve Butler is president of Pension Dynamics. Contact him at sbutler@pensiondynamics.com or at 925-956-0505, ext. 228.

Not to sound like a tea party member, let me just carp about how much a typical two-income middle-class family pays in taxes on that second income.

Elizabeth Warren, a one-time candidate to run the new consumer protection agency she designed, wrote a great book with her daughter 10 years ago titled “The Two-Income Trap.” It talked about the common phenomenon of young couples wherein both work. All that money coming into households had, in turn, led to the inflated prices for housing along with a host of other unintended consequences.

The most common problem is that, after taxes at the highest marginal rate, the second income take-home pay is often not enough for child care and commuting costs triggered by that second job. When they understand their high marginal tax rates, many young couples decide to live on one income.

For example, if the first spouse makes, say $60,000 and the second makes another $60,000, they are paying almost 45 percent in combined taxes on the second $60,000.

Don’t believe me? Do a rough calculation of what your tax bill will be on this year’s income and then add in the additional amount you normally pay in Social Security and Medicare taxes. On all family adjusted gross income over $60,000, the total of state, federal and social taxes combined will be roughly 40 percent.

Section 125 plans allow employees to sign up before the beginning of the year for what they think they will spend on health-related expenses and children’s day care. Out of each paycheck, before-tax money is deducted and deposited into an account. In other words, about 40 percent of what goes into the account is money that otherwise would have been paid in taxes. It amounts to a 40 percent government subsidy if you think about it.

As the year progresses, a participant in the plan can use the money to reimburse themselves tax free for any health-related expense they have that is not paid by their insurance coverage. This means deductibles, mileage to the doctor, dental work, eye glasses — almost everything anyone expanding their mind can think of that is health-related. It also allows for up to $5,000 per year for children’s day care.

There is a catch, however, and that is the “use it or lose it” feature. By the end of the year, people have to use what they sign up for. Anything left in the account is forfeited and the employer gets to keep it.

In reality, very little ever gets forfeited. Knowledgeable participants have learned how to game the system by purchases like glasses or dental work at year end to blow out the last few dollars.

Unfortunately, these plans are no longer promoted as effectively as they were in their early days. A typical employer just goes with the least expensive administration and gets little in the way of employee education and plan promotion. Short-sighted employers forget that a successful plan presented effectively will receive contribution levels that save the employer as much as twice in taxes what the plan costs to administer.

As for employee participants who are two-income families, the intelligent use of these plans can dramatically reduce the out-of-pocket cost of health care and day care that is otherwise paid with hard-earned, grotesquely-taxed second incomes. Forget what you hear about the so-called 1 percent and their heavy tax burden. Where taxes hurt the most and are at their highest proportionate rate is on the second income to a family.

And get this: while Social Security will stop when the first income reaches $110,000 next year, it starts all over again on the second income right from dollar one. When Elizabeth Warren becomes the next senator from Massachusetts, it will be in character for her to take a shot at creating a more family-friendly tax code.

Steve Butler is president of Pension Dynamics. Contact him at 925-956-0505 ext. 228.

In a similar vein, I receive emails from readers who struggle with the consequences of dramatically reduced interest paid on FDIC-guaranteed CDs and other safe investments that have traditionally provided for the income needs of retirees. Try as we might to avoid it, there is no antidote that doesn’t involve at least some risk.

The challenge is to gain an understanding of, and come to terms with, the forms of risk that can be acceptable given the limited alternatives.

A careful selection of stocks can generate dividends in the 4 percent to 5 percent range with reasonable certainty. I have written about the so-called “Dogs of the Dow” in the past. These are the 10 stocks of the Dow Jones average that pay the highest dividend per share as a percent of the current stock price.

Right now, the Dogs’ average percentage income from dividends tracks at an annual 3.86 percent — about four times the rate on CDs. These 10 stocks are as follows: AT&T, Verizon, Pfizer, Merck, Kraft, Johnson & Johnson, Intel, DuPont, McDonlad’s and Chevron.

How would this work as an investment? Simple. Pick up the phone and establish an account at someplace like Vanguard’s brokerage services division and then have your bank wire some money to them the next time a CD rolls over.

Better yet, do it now. The “penalty” for cashing in a CD early is normally some percent of the interest earned, but with the interest at next to zero, there is effectively no penalty.

Once the money is at the discount brokerage house, direct the firm to invest equal amounts into each one of the 10 stocks listed above. If, for example, you sent $100,000, you would ultimately own $10,000 of each stock. The dividends normally paid about once every quarter would add up to $3,850 per year and would be swept into a money market fund. You could write checks against this account or have the money wired each quarter into your regular checking account.

The capital value of these stocks will fluctuate, but all you should care about, long term, is the dividend income they generate. Dividends per share tend to remain reasonably constant regardless of the stock price, because it’s a big deal when a company cuts its dividend.

Setting the Dogs aside, there are other companies paying far higher dividends. A collection including Avon, Lockheed Martin and Eli Lilly, for example, is paying an average of more than 5.5 percent per year. If buying individual stocks is out of your comfort zone, the S&P 500 index fund is paying an average dividend of more than 2 percent right now.

If the idea of taking risks is foreign to you, consider experimenting with a small amount of money. Use an incremental approach to get comfortable with the concept of having individual stocks chosen for their dividend payment potential. Forget the hope that they will double in value overnight. That is so ’90′s.

As for the capital value of your money, get this: there have been only a handful of 10-year periods in history where the Dow Jones average has actually suffered a capital loss, and never over any 20-year period.

I might point out that these dividend rates are about what an annuity would pay on the same amount of capital. The difference is that the annuity capital vanishes if you get hit by a bus. And there were insurance companies threatened with collapse when the market crashed. Therefore, eschew the free lunch and marketing pitch. I would prefer my money in the above-listed mix of huge company stocks any day.

Gary Hart pointed out that a lack of knowledge costs a lot more than an education. In the realm of personal finance you can sure say that again.

Stephen Butler is president of Pension Dynamics Corp. Contact him at 925-956-0505, ext. 228.

The goals of the originators are pretty clear cut and hard to argue with. They include:

• A tax on financial transactions like Hong Kong and Singapore;
• A return of the Glass-Steagall Act that separated banking from the brokerage industry;
• A ban on the kind of high frequency trading that creates “flash crashes,” where all stocks plunge quickly;
• An overturning of the Supreme Court ruling that made corporations equal to human citizens in some respects.

Can a logical person argue with any of this? Well, the banking industry is certainly trying. So far this year, it has spent $29 million on Washington lobbyists.

What also surfaced was the news that the biggest banks received more than $7 trillion of secret money from the Federal Reserve. Only now, thanks to the Freedom of Information Act, is the truth coming out.

The TARP money, of course, we all heard about. The bankers paid it back as a condition of being able to pay themselves bonuses again.

But this new money, given without any public scrutiny, boggles the mind.

Add to this the artificially low interest rates that reward banks but that rob senior citizens of any decent return on their CD’s, and the largess given to the too-big-to-fail banks is just off the charts.

In the middle of this is the saga of MF Global, the brokerage firm that just went bankrupt. Apparently, there is $1.2 billion of client money that has yet to be found after four weeks of round-the-clock sleuthing. This is a good time to recall that everyone’s stock investments whose shares are held in a house account at a brokerage firm is subject to problems if the firm goes bankrupt. That’s because the firm gets to pledge client assets for collateral for the firm’s loans.

We keep reading that client money is always separate from the firm’s own assets, but MF Global shows that it’s simply not true. For years, a brokerage firm could borrow up to eight times the amount of its own capital using customer securities as collateral for the loan. With recent deregulation, the law changed so that they could borrow 30 times their capital amount.

This could explain why MF Global can’t find its customers’ money. It probably disappeared when claimed as collateral for loans to the firm that went bad. It shouldn’t take a genius to figure that out.

What financial institutions don’t seem to recognize is that regulation is good for their long-term health. Without it, some companies can take insane risks that work for a short period. Because these are all public companies now, nobody has a long-term interest or reputation to protect. To keep up with today’s winners, everyone else adopts the same high-risk approach because they don’t want to look stupid. Regulation keeps this human behavior in check. It protects those with a long-term view.

Occupy Wall Street will be doing these bankers and the rest of us a favor if the publicity they generate successfully drowns out the $29 million worth of lobbyists trying to roll back a modicum of sensible regulation.

I agree with the four Occupy tenets described above, but I’d also add that banks and financial institutions benefiting from any government bailout should limit managers’ compensation to civil service pay rankings. It’s an insult to our intelligence to be told that their level of responsibility commands millions more than that of top military officers or the leaders of major government agencies.

If these people want to make real money, and if they’re as valuable as they think they are, they can round up investors and take a shot at starting their own company. Otherwise they can learn to be happy as a GS-18 — the highest civil service pay scale paying $230,000.

Stephen Butler is president of Pension Dynamics Corp. Contact him at 925-956-0505, ext. 228.

The word “settled” means that these poor people had to sue to get their money. They included Saint Anthony’s in San Francisco.

Why should anyone have to sue? Any small-town investment adviser with a reputation to protect probably would have sold his or her house to pay back clients for what turned out to be the adviser’s mistake. But Schwab’s customers are not in Kansas anymore.

For the 76 million baby boomers approaching age 65 with most of their retirement money in IRA accounts, the biggest conundrum is the question of how much they can take out each year for living expenses.

Countless publications have taken a stab at a pat answer and the results are all over the map. The temptation for many people is to throw up their hands and just turn to the financial services industry for help. We all know how talking to people like Chuck has turned out.

Most of today’s withdrawal formulas for someone retiring at age 65 call for withdrawals of 4 percent a year for someone with a 50/50 mix of stocks and bonds.

After market downdrafts, many of the formulas call for reducing the withdrawal rate to 3 percent. These formulas perpetrated by the financial services industry generally assume

investment fees of 1.3 percent (check out www.analyzenow.com).

If someone could reduce that investment fee cost to just 0.3 percent, they would be adding another full percentage point to their annual withdrawal rate — a 33 percent increase in income. What are people waiting for?

The key to generating higher withdrawal rates is to understand how to construct a do-it-yourself approach. The problem with advisers is that they are too expensive when billing as a percent of assets. This is especially true for people with smaller amounts of retirement money.

The first step in that direction is to learn all you can about bonds and bond mutual funds. Stock performance is relatively simple to understand, but appreciating how bonds work involves some counterintuitive thinking.

When you buy a bond, the value can change either up or down until the point at which the bond matures and you get all your money back. In the meantime, the bond has paid interest for each year that you owned it. The problem for people who might otherwise benefit from owning bonds is that they get spooked when the bond drops in value — even if the drop will be temporary and the entire original purchase amount will be paid back at maturity.

Bond mutual funds owning thousands of bonds have at least some bonds maturing and being replaced every day. The entire fund can drop in value periodically, but the drop is caused by rising interest rates on brand new bonds. A strange thing can happen with a bond mutual fund. While rising interest rates cause the capital value of the fund to fall, the increased rates will slowly cause the interest earnings on the fund to rise.

A sophisticated investor learns to ignore the temporary drop in value and just enjoy the benefit of rising interest income. What else were they planning to do with that capital anyway? It’s just paper. The real value comes from the income deposited each month into a retiree’s checking account. Add to this some dividends from stocks amounting to around 3 percent per year and now we’re talking about real money.

A do-it-yourself 50/50 mix of stock and bond funds charging just 0.25-0.30 percent for management can be found at a place like Vanguard and can generate income in the range of 5 percent a year. At that rate, nobody will run out of money.

The place to learn the fundamentals required to create a comfort level with this strategy would be an investment club like the regional groups of AAII — the American Association of Individual Investors. Or, consider forming your own investment group and share what you know.

Any people collaborating will be smarter than the single most intelligent person in the group. You can even make mistakes and still be ahead of where the financial industry might have taken you.

Steve Butler is author of “Spending Your 401(k) — How to Live a Life and Not Outlive Your Retirement Resources.” Available for free at www.pensiondynamics.com. Talk to Steve at 925-956-0505 ext. 228 or sbutler@pensiondynamics.com