Happy Thanksgiving: Should you be thankful for the electoral college?

Jim Lorenzen, CFP®, AIF®

You’re probably wondering, “What does the electoral college debate have to do with Thanksgiving?  Nothing.

It maybe has more to do with being thankful for our founding fathers’ wisdom.  And, I’m not talking about this past election, but the reasons why the electoral college was created for all elections we’ve had and will have in the future.  Those who say it’s `outdated’ probably don’t understand why it was created – and why eliminating it will likely never happen.

As an amateur historian – an un-ranked/low-rank/no-rank amateur, at that – I’ve found that learning about these things can be quite interesting, which shows you how much excitement I have in my life.

I won’t get into the weeds on this, lest your eyes begin to glaze over; however, I will give you the names of a couple books, should you find you’d like to learn more.

Even as far back as the Constitution Convention in 1787, race and class warfare was alive and well in America; indeed, the Constitution itself can be, and has been, viewed by some as a racist document, but that’s another story.  Slavery was the elephant in the room no one wanted to talk about since, at that time, the object was to keep the southern states on-board as the northern states were striving for unity in the separation from English rule.

The divisions were complicated:  Northern mercantile vs southern agriculture economies – large states vs. small states, etc.  So, regional and cultural differences not only divided many, but also made them in many ways interdependent.  As was also true then, the population centers, such as they were in those days, tended to be clustered around Boston, Philadelphia, and New York.  The rest of the population was spread-out throughout the colonies in rural areas, including the agricultural south.

In the convention, small states didn’t want to be dictated to by the large; and were concerned that regional influences could dominate national interest, so a system of ‘electors’ was created to ensure that smaller states could still have a voice in the democracy.
The system was based on state representation.   Each state would receive one elector for each senator (2 from each state), and one elector for each member of the House.  Each house member would come from a congressional district, the number of districts being determined by the state’s population.   No state would have less than 3 electors (Rhode Island’s 1 district + 2 senators), but only population growth would limit the larger states, albeit there was a moderation factor:  the limit of 1 elector for each of the two senators.

As I said, this is a short version.

6a00d83451c82369e201b8d0769f84970c-600wiStill, even today, no one regional area can dominate national election results; and, this latest election is just the most recent example (there have been others throughout our history) that demonstrates exactly what the founders had in mind.

Below is  a county-by-county map of the recent Presidential election results.  While it doesn’t reflect the degree of victory for each county (landslide vs. squeeker), it does provide a broad picture of the larger regional support patterns.

As you can see, Democrats did well in densely populated regions like the California coast, the Miami-Dade area in Florida, and New England.  Hence, Mrs. Clinton won more popular votes than did Mr. Trump  because of the high concentration population centers placed in only a few regions – the exact issue the founders in the Philadelphia State House that summer were trying to moderate.

If there had been no electoral college to moderate regional influence in this past election, the people in Ohio, Indiana, Michigan, Wisconsin, Oklahoma, Iowa, Kansas, Missouri, Nebraska, and many other states would have had – and maybe would never have – a voice in the electoral process.

Indeed, the electoral college was the reason both presidential candidates spent time in Nevada.  Without the electoral system, they would have ignored the state completely.  Bottom line:  Every region should have an impact on a national election that decides a national leadership.  A few areas should not decide the government for the whole simply because they have high population clusters.
Source_ The Washington Post

While James Wilson of Pennsylvania proposed the elector system, it was James Madison, known as the father of the Constitution, who noted that a system mediated through electors, rather than direct voting, would balance regional interests better as population grew and became more centralized.  Indeed, James Mason argued that the people could not be trusted!   With the electoral college the smaller states, particularly those in the South who wanted to protect slavery, were glad to see that New York and Philadelphia wouldn’t dominate national politics to the exclusion of the interests of the minority.  They didn’t talk about slavery much though.  As I said, it was the elephant in the room no one really wanted to address – the result being a violent split that took another seventy-three years to ignite.

The founding fathers argued all summer in 1787 and the result was a Constitution that today, 229 years later, is the oldest, still-functioning Constitution in the world!  Not France, not Greece, not England, not Spain – no country in the world has a constitution in effect that’s older than ours.  Amazing, huh?

A few possible reasons:

  • It’s intentional ambiguity, which allows for interpretation as times change, although many strict constructionists may not consider that a good thing.  However, when Secretary of the Treasury Alexander Hamilton wanted to create the first national bank in the Washington Administration, it was Thomas Jefferson (later the first Democrat) who opposed it because that power wasn’t granted to the president in the Constitution.
  • The amendment process, which allows for changes in the Constitution, even with the high hurdles, that can originate from the people through their elected representatives.
  • The willingness of our elected officials to recognize the Constitution as the supreme law.  Many world leaders have chosen to ignore theirs in the past.  Here, we’ve seen one President resign and, even in this most recent rancorous election, we’re seeing a smooth transition – maybe except in the media (they have to fill a lot of time) and in the streets, where many who demonstrate know little about the process they hate so much.

If you’re interested in learning more about the Constitution, here are a couple of good books you might enjoy:

The Summer of 1787, David O. Stewart

America’s Constitution, Akhil Reed Amar

If you’re an American history lover like me, you’ll find both of these enjoyable holiday reading.
Maybe I should have saved this post for the 4th of July!




Jim Lorenzen, CFP®, AIF®
The Independent Financial Group
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Jim Lorenzen, CFP, AIF

Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER® professional and An Accredited Investment Fiduciary® serving private clients since 1991.   Jim is Founding Principal of The Independent Financial Group.  He is also licensed for insurance as an independent agent under California license 0C00742. The Independent Financial Group does not provide legal or tax advice and nothing contained herein should be construed as securities or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader. The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional.

Should Investing Be Fun?


iStock Images

Jim Lorenzen, CFP®, AIF®

“If you think investing is fun, you’re doing something wrong.”                                                – Warren Buffett

I’ll never forget visiting with a nice couple who was seeking advice on planning and investing.  All of a sudden one of them piped-up and said, “I really like trading; it’s fun, and I’ve been pretty good at it.”

When I asked how they did during the market meltdown, I was told they broke even.  I guess they were  like everyone you know who just returned from Las Vegas.

I guess there must  be a lot of people who do, considering all the active trading commercials you see on television, despite all the educational resources available that debunk it’s effectiveness on a consistent basis.  If Warren Buffett won’t do it, why should I?

One colleague tells his clients that pain in a strong indicator of good investing.  In other words, if a potential buy feels right, it’s probably best to hold off.

Studies seem to prove reveal that the human mind is often disconnected from reality.   If their feelings toward an activity are positive, they are naturally moved to judging the risk as low.  This explains why so many tend to buy when the market’s good and sell when it goes down.  Not surprisingly, a whole new field of behavioral finance has emerged that explains how we can think we’re being logical even as we do illogical things:

Data mining:  We tend to look for patterns that validate our beliefs.

Recency bias:  If stocks fall, we expect it will continue.  When they go up, we think that will continue, as well.  The most recent events are more important than an event that happened three months – or years – ago.

Confirmation bias:  When stocks go down, our belief is confirmed that stocks are high risk and low reward – which is why so many move to cash until the market comes back (buying high).

Herd effect:  While many investors believe they’re contrarians, research shows the human animal is more likely to follow the herd. – because we believe the herd is led by experts.

The fact is there are many other risks out there, often ignored by those trying to build their retirement asset base.  I even recorded a webinar about why many retirement plans are doomed to failure.  The important note is sometimes lost:  Those who begin early – and do it right – virtually always outperform those who do it wrong until they’re 65 and worried.

When it comes to trading, maybe Warren Buffett just might know something our nice couple didn’t.


6a017c332c5ecb970b01a3fd0c994a970b-320wiJim Lorenzen, CFP®, AIF®

Virtually all insurance companies will be using the newer 2012 mortality tables in 2016.  Why is that important?  The answer is simple:  The difference in payouts is significant when our lives are measured by the new tables!

According to the new tables to be used in 2016, the male life expectancy is now 88.5 years versus 85.4 years under the old tables.  This 3.1 years represents over 37 months of additional income that will have to be generated from an annuity.  For this reason, you can expect to see ALL companies that offer guaranteed income riders and annuities to lower their roll up rates and/or their income payments.

How much lower will the payments be?  That depends on who you ask, but many believe the payouts will be about 10% lower.  That means if the payout rate for a particular age would have been 5.5%, the new payout rate could be under 5%!

How Will Rising Interst Rates Affect Your Bond Values?


Rising interest rates can have an effect on bond values.  After all, if you’re holding a bond paying 2% and interest rates for comparable bonds rise to 3%, you’ll have trouble finding a buyer unless you’re willing to reduce the price of the bond to make up the difference.

In addition, a bond paying 2% for the next thirty years will be harder to sell than one that has only one year left.  This means that, generally speaking, the longer the maturity the more the price will be affected by rising rates. Continue reading

To Roth or Not to Roth – Should You Do a Conversion?



Jim Lorenzen, CFP®, AIF®

Steven Elwell,  a CFP® practitioner in Amherst, NY recently wrote a nice piece for NerdWallet on this subject.

In his piece, he mentions five situations that might suggest a conversion would be a good move:

  1. You are in a low tax bracket
  2. You don’t need the money and plan to leave it to your kids
  3. When your investments are down (did you do it in 2008?)
  4. When you believe tax rates will go up
  5. You want to reduce the value of your estate for income tax purposes.

If you’d like to read Steve’s article, you can access it here.

The points worth noting in particular – my own opinion – are #1 and #4.

Tax brackets are historically low.   There was once a time when the highest marginal bracket was 90% before the early 60’s, when President  Kennedy began to initiate cuts.  As you can see from the chart below, the general trend has been down for some time, although it’s also worth noting a lot of deductions have disappeared along the way.

While top marginal tax rates have declined, it’s also true that the Government is still spending your money – usually favoring whatever groups will help them get re-elected  – I know, I’m a cynic.  Nevertheless, as I take great pains to avoid any mention of Greece, the government keeps spending.  While those in office take pains to point out the annual deficits have been in decline, the fact is those deficits still add to the existing debt.
There is a difference between the reported national debt and the REAL debt.  The reported national debt is now over $18 trillion; but the real debt is very different.

The government engages in different accounting than the rest of us.   If you purchase a car with nothing down, for example, you would have to list the entire outstanding balance as debt on your balance sheet.  Not so with the government; only the current year’s payments are counted as debt.  Result:  While the government reports $18 trillion, Townhall.com estimated the debt at $87 trillion – and that was in 2012!

Not long ago I did a webinar entitled How To Plan for an Income Tax-Free Retirement.  A number of those who attended, and a few who couldn’t make it, have asked me if I had a written report they could download.   I’ve created an updated version outliining this strategy, which is really most worthwhile for those who are successful and most likely between ages 35-55.  Those between 55 and 60 may still benefit.   You can learn more here.


Enjoy the 4th!

Jim Lorenzen, CFP®, AIF®

Jim Lorenzen, CFP®, AIF®

One of my hobbies, if you can call it that, is American history – particularly the period between 1765 and 1800.


It was during that 35-year period that the colonies declared their independence, and  began a rebellion that morphed into a full-fledged revolution (which had NO chance of success) that defeated the largest and best-equipped fighting force on earth.
During the summer of 1787, the best minds the colonies could produce met in Philadelphia to hammer-out a framework of government.  While Adams and Madison had performed extensive research on the history of republics, they had to make adjustments because few lasted very long and all had failed.
The resulting constitution provided the framework of government that became a reality in 1789 when George Washington took office as the first President of the United States.  The new government was funded by a financial genius Secretary of the Treasury, Alexander Hamilton.  The funding came from a bank he founded:  The Bank of New York (now BNY Mellon, which owns Pershing).
The Constitution they created that summer, that we still have today, is – are you ready? – the oldest functioning constitution in the world today.   No country anywhere on our planet is operating under a constitution older than ours…. Not Greece, not France, not Italy, no one.
It says something about the minds that met in Philadelphia that summer.   Each of them brought something unique and brilliant to the table.  Few people realize that the banking system, credit and stock markets, our system of trade, including the customs service, were all designed by Alexander Hamilton.  He’s one founding father that could walk into our financial system today and recognize all of it, maybe except the machines, because he created it all.
James Madison, the father of the Constitution, would probably be amazed to see that the constitution still lives, albeit with expected amendments since that process was provided for in the original document.   All other constitutions in existence around the world at that time are no longer around.
Enjoy the holiday!  This one is one of the great birthdays we celebrate.

Need to Manage an Inheritance? Here’s Your Checklist!

Jim Lorenzen, CFP®, AIF®

For some, managing a large inheritance can be as daunting as winning the lottery; the windfall may sound good initially, but the money can disappear quickly if not managed properly.

What needs to be considered?  What needs to be done?  What comes first?  What’s been overlooked or forgotten?   Who should I be talking to and what should I ask?

Lots of questions…

Here are some answers.  As part of our IFG LifeGuides series, we’ve created a LifeGuide for Managing an Inheritance.  I hope you find it helpful.


Get Your Inheritance LifeGuide here!

Are YOU a Target in the Green Book?

Last week we heard from many experts who believe it may be time to dump the 401(k).

Two weeks ago we discovered that many experts, like retirement guru and CPA, Ed Slott and former US Comptroller General David M. Walker, believe income taxes are going up – I even conducted my first-ever webinar on how you might be able to plan for an income tax-free retirement.

(You can access a recorded version here.  Be aware: There’s a lot of information, so it lasts about an hour).

This week, I want to tell you about the Green Book.   The Green Book is what the administration releases every year, detailing budget and tax proposals for the coming year.   The Obama Administration released their latest version in February, detailing their proposals for the fiscal year beginning this October.

Surprise:  Many of the Green Book retirement planning proposals are aimed at limiting taxpayer use of tax-advantaged qualified retirement plans and IRAs.

Maybe you’d like to view that recorded webinar, after all.

This proposal should cause some concern because many who have contributed to retirement plans throughout their working lifetime and hit the proposed “retirement savings cap” will lose the ability to make future contributions and lose matching contributions provided by an employer.

By the way, under the Green Book proposals, after-tax contributions to an IRA could not be converted to a Roth IRA.

As many experts recommended in the second video featured in last week’s post, the current system might be better replaced with an insured solution, taking market-risk off the table and potentially removing much of the legislative risk, as well.

What the Green Book proposals would do.

According to David Cordell, PhD, CFP®, CFA, CLU®, and Thomas Langdon, J.D., LL.M., CFA, writing for the Journal of Financial Planning, these are some of the key proposals:

  • Raise the capital gains rate from 20% to 28%
  • Treating gifts of appreciated property (this would include your investments) as realized gain, requiring the payment of capital gains tax
  • Reducing the estate and generation-skipping transfer tax exemptions from their current level of $5.43 million to $3.5 million with (ready?) no inflation indexing
  • Reducing the lifetime gift tax annual exclusion from $5.43 million to $1 million. Eliminating the IRC Sec. 1014 “step-to” basis provision and replacing it with a $100,000 per person exclusion at death – the “steps” can be down, as well as up.

How this might impact your planning:

The “insured solution” may be where much planning is headed.  The Green Book proposals might make life insurance policies designed for cash accumulation even more attractive than they already are, for both individuals and businesses.

The most significant changes in the Green Book include:

  • Eliminating “stretch” IRAs by requiring non-spouses to distribute inherited IRA funds within five years.
  • Depriving individuals with more than a specified amount in their retirement accounts from making contributions to retirement accounts – they’re currently projecting this figure to be about $3.4 million, which could be expected to produce an annual income of $119,000 before taxes with a comfortable margin of safety using a 3.5% withdrawal rate while allowing for inflation adjustments. The figure, however, could vary – the government will let you know.
  • Repealing the special exclusion for net unrealized appreciation for lump-sum distributions of employer securities from employer plans.
  • Requiring plans to expand eligibility requirements to include part-time employees who worked at least 500 hours per year in three consecutive years, and
  • Limiting Roth conversions to pre-tax dollars

[Source:  Journal of Financial Planning, May 2015]

If you missed my webinar, you might want to take a look now.  Grab a cup of coffee, a pad and pen – you’ll be taking notes – and see what you might be able to do to secure your future and remove, as much as possible, government intervention from the picture you have of your 30+ year retirement.