This week's folder is labeled Human and Social Capital. We're going to get into some forecasting problems, and then to a specific scheme to solve a looming problem for many people, the boomers, in retirement financing, but first some notes.
It's funny how people get more respect when you consider them alongside machines or land or natural resources, and that is what happens when we put capital alongside "human" or "social." We begin to see that the society does better when people are better educated and in better health, irrespective of the increase in well-being to those people themselves.
There is an educational level -- skill level, if you must -- and a level of health that creates an intrinsic value that can be tapped. When we allow our educational systems to deteriorate -- often as a result of misguided schemes to hold teachers "accountable" -- or our health systems to run to high cost and low benefit -- often for the benefit of mega-corporations wearing free market costumes -- we are letting our infrastructure and capital decay just as surely as when we let the roadways turn to potholes or the sewer systems break.
Notice the difference between human capital and social capital. The educational and health care systems are parallel to physical capital, as well, and when we allow these, or police, or courts, or parks and libraries, or any of the rest of the utilities-type social services ... transportation ... to deteriorate, it is no different than a company allowing its production facilities to fall apart. Yet, corporations who would never let their machines rust or their roofs leak demand that the public sector do just that in the name of fiscal responsibility.
So when we consider the forecast for the medium and long-term futures, we need to take account of the crumbling human and social capital. But there are other issues.
One of them is the tendency to place more emphasis on the read-outs on the economic indicator dials -- GDP, investment, inflation, the rest -- than on the obvious condition of the infrastructure and what that portends for the future. Or for that matter, on the obvious condition of the population, its finances, health, security, and so on. One of the issues in this metrics vs. real condition that has gotten good attention recently is income disparity.
Which society is healthier, the one where the average income is $40,000 or the one where it is $50,000? Not enough information. In a society of 25 people, if 24 are getting $10,000 per year and one is getting a million, it is not clear that this is better than when all 25 are getting $40,000.
So, combine the two problems, the ignorance of social and human capital in the assessment of national well-being and the problem that the metrics often miss the mark, and you have a recipe for bad policy. Here we come again to health care, but also to retirement. One side says, cut the funding for social insurance, increase the contributions, raise the retirement age. But this doesn't fix the problems of growing older or being sick, it just shuffles the accounts and pushes people into private insurance. This is a more costly alternative, not as efficient, but it is good for GDP, or at least that part of GDP associated with the providers. In fact, as a public good, we need to universalize health care to drive the costs down. Doesn't do a thing for GDP. But we also need to make retirement efficient.
That brings us to today's special post, delivered partly for a want of time, since this is in the can from another project, but partly to offer a way out of the current and prospective dead-end for many baby boomers entering retirement. The investments many have made, the 401(k)s and individual retirement plans, have shrunk sadly under the Fed's easy money for the banks and corporations policy. A million dollars which returned $70,000 per year now returns half that. The house we were going to sell for a fat profit is now not worth enough for the down payment on the next one.
So, we've put up the Retirement Co-op Scheme. You can find the whole post below. But if you want to comment, please go to Retirement Co-op (http://retirementco-op.blogspot.com/) It is the first cut at this. Hopefully the concept comes through. There are a lot of details and aspects not directly addressed.
It offers retirees a way of securing their future in a very insurance-like way, entering a community before they need to join one physically, converting their energy, talent and property into the services they need while retaining equity and maximum estate value.
Basics
Issue:
People are entering retirement without adequate resources to fund traditional schemes. Drastic drops in the returns on savings and investment over recent years make the individual retirement scheme less and less viable. The process of retirement, from early, active stages to later, more restricted and dependent stages is clouded by uncertainty. Many retirees are capable, talented and interested in community. Many are determined to remain in their homes, in "independence" that may become simply isolation.
Question:
Is there a way to organize resources, particularly the property and energy and talents of retiring people in an efficient way that will provide adequacy and certainty to their physical and financial futures?
Proposal:
A non-profit corporation which (1) assembles a group of retirees with common or complementary interests, (2) converts time, talent, energy and property resources to shares in the corporation, and (3) uses these shares as a kind of currency to maintain the facilities and provide the services for their retirement.
Discussion:
Let us illustrate with two examples:
(1) A widow who owns her home and wants to remain in it as long as possible.
This person would buy the "plan" by transferring her house to the non-profit corporation (hereafter, "the Co-op") in return for shares. [She would retain residual rights to the property and the prerogative to remain there as long as possible, as well as the option to "buy back" her house for the original payment.] She would use the shares to procure services through the Co-op for meal services, home health care, grounds maintenance, personal services, etc. The widow would never be required to move. If she wanted to exit the plan, she would need only to reimburse the Co-op in the amount of shares used. This last option would be available only to the point she stayed in the home. If she moved to a group home or other Co-op facility, the home would not be recoverable in this manner.
(2) Person or couple with no property
This person would buy the Co-op "plan" with cash or services. The payments could be lump sum or streaming, and could come in the form of cash or services provided to other Co-op members. In between these two examples lie any number of combinations.
Service providers:
Three key classes of service providers make this program work:
(1) The retirees themselves who provide services in exchange for shares in their own plans.
Cooking, grounds keeping, health care, transportation, personal services, cleaning, entertainment, education, management are all services that are needed by some which could be provided by other Co-op members. The transfer of shares between the two is a key part of keeping costs down and eligibility up.
(2) The motivated group home manager.
Absolutely essential to a successful group facility is the manager. This person needs to be well rewarded as well as well oriented in terms of personal values. He must be enrolled in the plan himself, so as to give a personal stake in success. His remuneration might well come in the form of property. That is, he might occupy Co-op owned facilities before retirement as well as after. This should be a desirable and lucrative position.
(3) Non-member providers.
People hired to provide services who are not members may also receive remuneration in one of three ways: wages, housing services (living arrangements in Co-op owned facilities), or shares.
Plans:
The plans would be lifelong insurance and provide a transition from more to less independence, and fewer to more services. Actuarial determinations would be made to determine the level of plan buy-in. Different plans might be offered depending on facilities and services provided. Everything from complete stay-in-your-home support to modest quarters in a group home. In between would be apartment-style, clustered living, or other arrangements. The transition from one living arrangement to the next would be voluntary, with limitations and restrictions known well in advance. Services available would depend on the buy-in and accumulation of shares through services provided by members.
Note here: It is not necessary for the buy-in to cover the entire projected lifespan and needs of the individual. As with private individuals, a certain wealth and income level enables Medicaid support. An individual who enrolls in the Co-op plan who exhausts his or her shares, would continue in the co-op supported by Medicaid. Similarly, health care would be coordinated with Medicare. Nobody would ever lose their access to services and facilities after being enrolled.
Management:
The co-op concept reduces costs, provides certainty and control to members, and converts retiree's resources into the services they will need. It uses shares in the nonprofit as a kind of currency to make this conversion efficient. The concept is simple, but the execution will be complicated.
The accounting for what is needed, by whom, who receives payments in what form, what types of facilities are required, will be a matter that needs close attention. It must be clear to all current and potential members that their property is safe, their shares convertible in some form and their futures not at risk. The legal structure must be air tight to assure, for example, residual rights as above to the widow, and to make sure shares are directly backed by claims on real property.
As a nonprofit, the Co-op would be run by a board of directors elected by member-shareholders. The board would hire managers who would oversee operations. managers would be required to be co-op members. A strict auditing regime would be required for both finances and operations. Members' choices would determine what facilities were obtained, what services provided, and when. These choices would be updated regularly.
Summary:
The intent is to provide an efficient mechanism to transfer property, talent and energy to a retirement program that is transparent and complete. The mechanism is the non-profit corporation, the Co-op, and the shares of the Co-op which act as a kind of currency. Co-op plans are basically retirement insurance and rely on coordination with public sector insurances, such as Medicare, Social Security and Medicaid.
Addenda:
The Co-op, again, would be a kind of insurance, as well as a retirement plan.
Property would be valued in terms of shares for its functionality to Co-op needs, not by its market value. Thus an expensive house, say in an up-scale neighborhood, may have the same value to the Co-op as a more modest or appropriately designed house elsewhere with a much lower market price. The potential member who is a homeowner may not want to covert that property to shares in line with Co-op appraisal, but rather to sell and either buy in via cash, or to buy another property that is more in line with Co-op valuations.
There is no particular need for Co-op facilities to be geographically concentrated, except as indicated to keep providers of services from having to travel too far from one home or facility to another.
Because of the complexity of execution, there is probably a critical mass of some number over 15 members and some need for grant funding to identify the legal constraints and to backstop a pilot project.
Again, coordination of social insurance benefits with Co-op services and facilities is an important element that keeps costs down and eligibility up.
A health assessment would be required upon admission, not so much to restrict access as to tailor plans. It would not be efficient, for example, to maintain somebody in their home who for severe health issues needs more intense monitoring and services.
The two simplest models that inform this proposal are: (1) the individual homeowner with a mother-in-law apartment, who "rents" the apartment to a person in exchange for services, and (2) the group home with a dedicated manager/RN.
Next Steps:
(1) Vetting by you. Your comments are very valuable. Submit them in the comments section at Retirement Co-op or e-mail us at demandside@live.com.
(2) Obtaining grant funding for a pilot project. Again suggestions are useful. We anticipate submitting this to the AARP for suggestions.
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