We live in complex and confusing times. Everyone is required to make many judgments, weigh many issues, and take a great deal of information into account on a daily basis. So many of the important decisions we must make call for specialized skills or experience that we may not possess. They also demand free time for thoughtful reflection; something which may be in short supply. What we badly need, to manage our complicated lives, is excellent advice. The need for good counsel, though, leads directly to a bigger problem: who should we trust? In some ways, this is the biggest quandary of all. Figuring out in whom we can safely place our faith and reliance seems almost impossible. Yet solving this dilemma is critical. In light of the growing complexity and specialization of our world, obtaining the best advice is more vital than ever. Finding skilled advisors who are deeply trustworthy may be the most important, and most difficult, task we face. Continue reading “A New Professionalism”
Author: annmariesgb
Please Don’t Take Your Social Security Benefits Early
A conventional wisdom has developed, among those who study the matter, that waiting to claim benefits is the better course for those deciding when to start receiving social security. There has been some pushback, though, and lately a spate of articles has urged people to consider claiming early. For example, this one suggests that “smart people” take social security benefits early.
Those espousing the conventional wisdom are even more right than they know. Unless necessary to avoid eating dog food, or otherwise climb out of immediate poverty, one should do everything within her power to avoid reducing the benefit amount by claiming early. The wisest course is to hold off until the maximum benefit is achieved (which, under current law, usually means waiting until age 70). It may seem tempting to begin taking as soon as possible, in the hope of accumulating more money, but it is deeply imprudent.
Consider the two basic claiming options (claim early vs. claim late) along with the two basic possibilities for your longevity (die early vs. die late). To analyze this most effectively, you should make a chart like the one below. I am deeply indebted to my old Professor, Thomas Schelling for teaching me and my classmates how to do this.
| Die Early | Die Late | ||
| Take Early | |||
| Take Late |
The four possibilities create the four boxes of the matrix. Each box, in turn, allows us to examine one of the four possible outcomes. Let’s fill them in to indicate whether we would do well or poorly if that scenario came to pass:
| Die Early | Die Late | ||
| Take Early | Win | Lose | |
| Take Late | Lose | Win |
It seems that both claiming early or late offer a chance to win and a chance to lose. It all depends on when you die. None of us knows in advance the date of our demise so, it might seem, either way our odds of obtaining the better outcome are mixed. If this were really the case, it might make sense to seize our calculators and begin figuring out which way yields a few more dollars.
That analysis, though, is the equivalent of staring so hard at the trees that one fails to notice the forest. For there is a glaring issue staring out at you from the matrix above. Something you forgot to notice. If you die early, your delight in having chosen the higher paying path will be severely constrained. YOU WILL NOT CARE BECAUSE YOU WILL BE DEAD. In similar fashion, if you make the “losing” choice of taking late but actually dying early, your tendency to second-guess will be minimized by the fact that you are already dead.
The decision matrix tool helps us see more clearly that the two scenarios involving early death cannot be given the same weight as those concerned with greater longevity. If you simply cross out the “die early” boxes, the decision becomes remarkably simple. Take early and you lose; take later and you win.
So, while the choices surrounding claiming social security benefits have been called a “major life decision,” the strategy turns out to be simple. Wait to claim. Increase your benefits to their maximum. And may you enjoy that extra money over a long and healthy lifetime.
Investing is best understood as a series of Negotiations
Investing is best understood as a series of negotiations. The ability to conduct that bargaining with skill and confidence is worth a fortune. For example, if you overpay by two percent annually on an investment of one million dollars, assuming a return of seven percent per year, in thirty years it will have cost you more than four million dollars. With that much money at stake, you want to use tools that are recognized as world class. Negotiating Your Investments is about what you need to be smart and successful throughout the process. It is a guide to applying the science and principles of negotiation to your financial life. Most people don’t negotiate when investing, often thinking the process more like going to the doctor than working with a salesman. They fail to prepare, gather information, bargain, and gain commitment as they might in a recognized negotiation setting. Whether you are dealing with a true professional, a glorified salesman, or anything in between, this book will show you how to take charge of your most important financial deliberations. Author Steven G. Blum teaches readers the things they must understand going into such negotiations, methods for pursuing what they really need, ways to avoiding being taken advantage of, and techniques for getting others to fulfill their promises. He will guide you in recognizing and achieving best possible outcomes and putting dramatically more money into your pockets.
What is Fair?
When contemplating a potential investment, how can you know if it is fairly priced? Such a determination is critically important since even the best company will prove a poor investment if its stock is purchased too dear. Paying a fair price for an investment vehicle is just as important as not overpaying for a house, a car, or anything else you might exchange for your money.
How An Offer You Hope To Refuse Can Increase Your Power
Strengthening your best alternative is the surest way to increase your negotiating power. This concept may seem counterintuitive; after all, our best alternative to the current deal is the offer we anticipate turning down. We hope instead to fashion the deal currently being discussed into one that best meets our needs and interests. Why work hard on improving the substitute choice we don’t expect to take?
An experience my son had in the lunchroom can help clarify the matter. It seems he was accidently sent to school with a peanut butter and jelly sandwich. Adam is allergic to peanuts and knew he could not eat the thing. He quickly decided his best move would be to trade with friends for something else.
Adam’s pal Bob was dismayed to find a sardine sandwich in his bag. Bob did not want to eat sardines (yecch!) no matter how many Omega 3 oils they supply. He quickly offered to trade the sardine lunch for Adam’s PB&J. Adam asked for a minute to think about it.
Adam knew he would make the trade unless he could find something better. After all, he could not even take a bite of the peanut butter. Although he is not too fond of sardines, he now knew he would not have to go hungry. He hoped, however, to find a superior trade than the sardine sandwich. So he kept soliciting his lunchroom friends.
Charles stepped forward with a turkey sandwich. Adam likes turkey quite a bit. Sensing that, Charles decided to drive a hard bargain. He offered only half the turkey sandwich for the entirety of Adam’s PB&J. Now half a turkey beats a sardine sandwich, any day, but Adam wondered if he could negotiate his way to a better solution. And he decided, based on something his Dad had written, that finding a way to improve his Best Alternative would help him do it.
Adam knows that there are two basic ways to strengthen your BATNA; you can improve the alternative you already have, or you can find a new best alternative better than your previous one. He decided to pursue the former method first and went back to Bob insisting that a simple PB&J for Sardine trade wasn’t good enough. If, however, Bob would throw in one of the chocolate chip cookies in his sack then some serious conversation could take place. Bob agreed and Adam understood that his best alternative to the turkey sandwich deal was now stronger than it had previously been.
Adam’s hungry ambition spurred him on, though, and he decided to attempt strengthening his BATNA further by replacing it with an even better one. He sought out Donna and asked what it would take for her to exchange her salami sandwich for the PB&J. The young lady indicated that if he would throw in a kiss, she would trade her salami for his peanut butter. Now Adam was not too keen on the kiss, and everyone knows that baloney is inferior to turkey, but still he though his situation improved. As Adam saw it, baloney (even with the required kiss) was better than sardines and a cookie. So his best alternative was now the trade with Donna.
The best potential outcome for Adam remained the turkey sandwich and he still hoped to strike a deal for it. He began preparing a strategy to pursue his discussions with Charles. How, he wondered, had strengthening his BATNA given him more power in his attempts to get Charles to trade away the turkey sandwich?
At first, it had looked as though Adam would spend the afternoon hungry. His alternative, at that point, was to wait until dinnertime to fill his belly. After talking with Bob, though, he knew that he would at least be eating a sardine sandwich. (Not good, but better.) At the time he began negotiating with Charles for the turkey, trading for the sardine sandwich was his best alternative (and, thus, worst possible outcome). When Bob was convinced to add a cookie to the deal, Adam’s situation was improved; the worst that could happen now was that he would eat sardines sweetened by a cookie. When he improved his BATNA further by replacing it with Donnas’ baloney sandwich, he knew he would be eating something he enjoys in any event.
Now Adam would negotiate for the turkey sandwich with much less to lose. He could be bold, or insistent, or stubborn. He could bluff, or demand, or take chances. No matter how badly things went with Charles, Adam would be eating reasonably well this noon.
So Adam returned to the bargaining table with the power that comes from knowing that, even if no agreement could be achieved, he would be fine. As a result, he did not need the deal too badly. He now had the luxury of being able to “walk away” with only slight diminishment. With all the self-confidence that flows from such a strong back-up plan, Adam tried a bold ploy. He proposed to Charles that in exchange for the entire turkey sandwich he could offer not only his PB&J but, also, the possibility of a kiss from Donna. Charles agreed to that sweet deal on the spot.
Not only does this story illustrate the added power that comes from improving one’s BATNA, but it also has a happy ending. Adam feasted on the turkey sandwich that he wanted. Charles happily ate a PB&J. And Donna went for a stroll with Charles out to the old apple tree. We’re still waiting for them to return.