The Othmers' Story

The Washington Post, Tuesday, July 14, 1998; Page A15

Donald Othmer, a professor of chemical engineering in Brooklyn, died three years ago. His wife Mildred, a former teacher and a buyer for her mother's dress store, died in April. Both were in their nineties. They lived quiet, unpretentious lives—which is why it came as a shock to their friends to learn that their combined estates were worth $800 million and that they had given nearly everything to charity.

How did the Othmers get so rich? Like many other Americans, they simply put their money into sound stock market investments and left it there for a long time.

This they had in common with a woman named Anne Scheiber, who worked as a government drone, never making more than $4,000 a year. In 1944, she put a total of $5,000 into stocks such as Coca-Cola and Merck, and when she died in 1995, she left her estate to Yeshiva University. It was worth $22 million.

As for the Othmers: In the early 1960s, they turned $25,000 each over to Warren Buffett, an old family friend from their hometown of Omaha. "They just rode along," Buffett told the New York Times. The investment "never changed their lives."

In 1970, when the Othmers received stock in Buffett's new company, Berkshire Hathaway Inc. (which invests in other companies such as Gillette and American Express), it was trading at $42 a share. Last week, it was $77,000 a share. Mildred Othmer's 7,500 shares alone are worth $578 million. Donald's, which were sold on his death when the price was lower, were worth $210 million.

The Othmers were smart—or lucky—to pick Buffett to manage their money, but that's not the lesson of this story. After all, even if they had simply put their funds into the broad market, they still would have ended up with a fortune of between $50 million and $100 million.

No, the lesson is to live modestly, invest sensibly, don't touch the money and grow rich. This lesson is at the heart of the current debate over transforming Social Security.

Today, it is a government-run plan by which Americans retiring over the next few decades will get minuscule (or even negative) returns on a lifetime of payroll contributions. But reformers, including New York Democratic Sen. Daniel Patrick Moynihan, want instead to create a system of private accounts by which retirees can get the returns that the stock market has been generating for the past century.

Why shouldn't every worker be able to get the returns—and build the nest eggs—that Anne Scheiber and the Othmers built? They can—but only if they have money to save. Currently, 10 percent of every worker's pay is going to taxes to fund Social Security retirement benefits. No wonder Americans are strapped.

William Beach of the Heritage Foundation has calculated that the average single black woman born in 1960 will receive lifetime benefits from Social Security totaling $173,000. But, Beach found, if the woman invests the same money that now goes to Social Security taxes in a mixed portfolio of stocks and bonds instead, she will accumulate $414,000.

Blacks, in particular, are victimized by the Social Security retirement system, since they don't live as long as whites—and thus don't collect benefits for as long. Under a private retirement plan, they could pass assets on to their heirs.

There are other lessons in the Othmers' story:

(1) Frugality pays. Donald Othmer was a smart scientist who contributed to more than 40 patents at Eastman Kodak. But his wealth came from following the simple virtues. The Times wrote that as a boy "he developed a lifelong frugality as he earned money picking dandelions from neighbors' lawns [and] delivering newspapers." He and his wife "lived comfortably but not ostentatiously and rarely talked about their money."

Thomas Stanley and William Danko, authors of the surprise bestseller "The Millionaire Next Door," came to similar conclusions about the rich people they studied for their book. They wrote that "frugal" is the best adjective to describe millionaires. More own Fords than any other car, and only 25 percent of the men studied paid more than $600 for a suit in their lives.

(2) Saving pays. This is a notion that should be drummed into the head of every young person. Put away money early, and don't touch it. If you can leave it undisturbed in a decent investment for a long time, it will grow to immense proportions through the miracle of compounding.

Savings can also be eroded by capital gains taxes, but both Scheiber and the Othmers managed to avoid them by not selling their stocks, then passing them on to their heirs. Still, the cut in capital gains from 20 percent to 15 percent that Congress just passed is a move in the right direction that will boost savings.

(3) Philanthropy will boom. The Othmers' estates will provide $190 million to Brooklyn Polytechnic University, where Donald taught, $160 million to Long Island College Hospital, $75 million to Planned Parenthood and so on.

Rich people, more and more, are giving back what they've earned in an effort to make society better. They would rather make these choices themselves than leave them to Uncle Sam, so they are preserving their estates against taxes.

Eliminating the estate tax entirely could touch off a philanthropic flood. But, even without that change, generous Americans like Scheiber and the Othmers are turning frugality into wealth into good deeds. They deserve attention and praise.