Planning for the inevitable

As a result of the problems I encountered administering the estates of my parents, I learned a few things that might be helpful in planning for the end of your life, especially if you have dependents.

Many people designate trusted relatives or friends as attorneys in fact (through a document called a power of attorney) to act in case they become disabled and cannot handle their own financial and business affairs.  The important thing to remember about such a designation is that it only exists during the lifetime of the grantor — as soon as the person designating another as attorney dies, the attorney’s authority to act on behalf of the grantor stops.

If you have a spouse, and you were the bigger earner, it is true that your surviving spouse will, in many cases, be able to receive your higher monthly social security payments after your death; however, your spouse’s own existing payments will cease, thus resulting in an immediate loss of income.  What’s worse, after Social Security finds out about your death (usually from your funeral provider), if you have received any excess payments via direct deposit, it will claw them back from the account in which they were deposited.

If you were lucky enough to have a pension, you more than likely opted for benefits to your spouse to continue after your death, but at a reduced rate.  The survivor in such situation may likely suffer a large, immediate loss in monthly income (from social security and the pension) that may not be offset by the reduced expenses of living alone.

The issue is not just whether there will be enough money for the survivor to live on long-term.  The issue also is providing for the immediate needs of the survivor when income may be reduced and accounts frozen. Life insurance pays quickly, and can be a lifesaver if the policy beneficiary is the surviving spouse. Don’t make the mistake of using a life insurance policy to provide for those who don’t need the proceeds immediately; provide for them elsewhere in your estate plan.

 

 

 

 

The cost of playing “short pay” video poker

Traditional “full pay”  or “9/6” (based on their payouts for the full house and flush on a single-coin bet) video poker pays back 45 coins for a full house and 30 coins for a flush  including the return of an original five-coin wager (as explained in earlier posts, a wager of five coins is necessary to be eligible for the enhanced royal flush payout).  Combined with the returns for other winning combinations (which usually but not always remain the same on all machines), the overall average return for full pay jacks or better is 99.5% of all moneys wagered when played using optimum strategy at full coin.  This overall return takes a long time to achieve, since part of it is based on hitting a royal flush, which on average occurs only once in some 40,000 hands, but it’s a useful measure nonetheless.

While full pay jacks or better machines do still exist, they are becoming rare, especially outside competitive gaming markets such as Las Vegas.  Particularly at lower denominations, most jacks or better machines in our area pay 8 coins for a full house and 5 for a flush.  The overall return (again, based on optimum play at full coin, over a long period of time) is 97.3%, or some 2.2% less than full pay.

While 2.2% doesn’t sound like much, it can add up fast.  Let’s assume play on a dollar machine (a level at which full pay machines are available at Mohegan Sun and Foxwoods; the best dollar machines at Turning Stone are somewhere in the middle, some returning 9 for a full house and 5 for a flush and others 8 for a full house and 6 for a flush).  At max coin, that’s $5.00 a spin.  While experienced video poker players can achieve speeds of up to 1,000 hands per hour, and average 600-800 hands per hour, let’s assume a leisurely pace (which I recommend) of 400 hands per hour. That means the player is pushing $2,000 an hour through the machine, which amount is exposed to a house edge of 2.7%.  On average, the house therefore will retain $44 of that amount.  On a full pay machine, with a 0.5% house edge, the house will retain, on average, only $10 — more than three times less.  The average hourly cost of playing a $1.00 short pay jacks or better video poker machine is $34 more than a full pay machine.  As we used to say in Brooklyn, “that ain’t nuttin'”.  And if you’re playing a $5.00 machine ($25.00 per spin), the extra cost per hour is quintupled, to $240 per hour.

Whether to accept the extra cost is, of course, up to you.  If you have a very limited budget, and must play at the $.25 level, you really have no choice —  8/5 machines likely are the best available to you in the northeast (and beware of those paying even less).  At the dollar level, if you live in Albany, the nearest full pay machines are two hours farther away than the nearest 8/5 machines.  At the $5.00 level and above, Turning Stone offers full pay jacks or better, as do the casinos in Connecticut.  Be aware that, regardless of short term results, the more you play, the more your results will skew toward the average return.

Ironically, one of the major responses of the gaming industry to increased competition has been to lower the return to players on its games.  The reasons for this are many, including increased taxation and other items of overhead (New York’s taxes on its non-native American casinos is, not surprisingly, among the nation’s highest, and that money has to come from somewhere).  However, a major reason for for the payout reduction is that it works.  Consumers who normally would boycott a store charging four times more than its competition for a given item accept the gouging, usually out of ignorance.  If you know the cost, you — and only you — can decide whether the convenience, amenities and other factors justify playing the short pay machine.