When Does $35,000 Equal $190,000?

Here is an illustration of the high cost of waiting to start a simple saving program.

Bob is 21 years old and he decides to begin saving for his retirement.  He starts putting $5000 each year into some type of  account, (a IRA, for example).  He does that for 7 years until he turns 28 and then he decides to quit and spend his money on other things.  He lets the money in his account sit and earn interest until he retires at age 65.

Fred, who is also 21 years old, decides that he will start saving later.  He spends all his money and doesn't have any left over to put in savings.  Then, when he turns 28, Fred decides he had better start putting money away for his retirement. He begins to put $5000 a year away just like Bob did, only Fred faithfully puts $5000 in every year starting at age 28 until he turns 65.

At age 65, which one has the most money? 

Remember they are both using the same type of savings program and they both realize the same rate of return.  Since Fred has put a total $190,000 in his account, compared to Bob's $35,000, it would be reasonable to assume that Fred will have more money. 

In truth Bob will have more money than Fred when they reach age 65.

Because Bob started earlier, his money has had more time to "compound", (doubling periods).  Using an example rate of 10%, Bob's $35,000 will grow to $1,944,326 by the time he is 65.  Meanwhile, Fred's $190,000 will have only grown to $1,820,217.  That is a difference of over $100,000 !

This simple illustration underscores the importance of time and consistency when saving money for future needs.

Disclaimer:  The above is for illustrative purposes only and is not representative of any specific type of investment, and is not a solicitation to conduct any type of business or investment transaction.

What They Didn't Tell You About Prop 14

Proposition 14 is being advertised as making the primary process more open by allowing voters of any party to vote for any candidate on the ballot.  I like the sound of that, BUT, it is the other things that they don't tell you about that have me concerned.

First:  Once the primary is over, the only people who will be on the ballot in the general election will be the two people who got the most votes in the primary, no one else.  That means that the smaller political groups will not be allowed to participate in the general election.  To me that seems wrong. 

Currently in the general election we are allowed to vote for anybody we want and we have the opportunity to choose between many different candidates.  If this passes, we only get to choose between two.

I know that for a candidate from a smaller party, such as the "Peace and Freedom" or "Green" parties, the chances of winning a general election may be small, but just having the candidate on the ballot means that I can vote for him or her if I want.  Not if Prop 14 passes.  Also, just having such a candidate on the ballot makes the other candidates address the issues they raise.

Second:  Under the new law, none of the candidates have to tell you what their party affiliation is.  How can you have a election and not know a candidate's party affiliation?  We could end up with two candidates on the ballot, both from the same party, and never know it until after the election is over.

This whole thing just doesn't seem right.

The Big Lie of California's Proposition 17

The commercials say that this proposition will give people the option of taking their "longevity discount" with them when they change auto insurance carriers. They tout this as something we cannot do right now. In reality the current law specifically allows this discount.

Here is the text of the current law about the discount: "...insureds are able to claim a discount for regular purchases of insurance from any carrier offering this discount irrespective of whether or not the insured has previously purchased from a given carrier...". That means you can get a discount for "persistency" from any auto insurance company that is willing to offer one, even if your "longevity" was with another company.

The wording in Prop 17 says essentially the same thing: "...an insurer may offer applicants or insureds an additional discount for a policy...based on the length of time the applicant or insured has been continuously insured for bodily injury liability coverage with one or more insurers, affiliated or not."

So what is the difference between what is now on the books and the new law?

It will actually be harder to qualify for any "longevity discount" under the new law. In other words, it will be easier for an insurance company to say that you DON'T qualify for the discount and charge you a higher rate. But then, considering the fact that proposition 17 is backed by a major auto insurance company, why am I not surprised?

Under the current law, you could let your policy lapse up to 90 days for any reason, (including not paying your premium), and still qualify for the discount.

Under Prop 17, if your policy lapses for non-payment of premium, FOR ANY LENGTH OF TIME, (even just one day), the insurance carrier can disallow the discount and charge you a higher rate.

Under the current law, if you serve in the armed forces outside of the state of California, you can come back to California and buy auto insurance within two years and still qualify for the discount.

Under Prop 17, if you serve in the armed forces, the only way you can qualify to get the discount when you get back is if you are deployed OUTSIDE THE US. That means our military personnel that serve even part of their time at a posting in the United States would NOT be allowed to have this discount when they return to California.

I don't know about you, but I don't think our members of the military should be penalized because they are required to serve their country.