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Flipping the Script on Asset Allocation?

"Andrew, you might consider selling your recent reinvestment purchases since the basis will be higher on those shares. Be sure to use the specific ID basis method to identify the particular shares you're selling. This will also simplify things by cutting down the number of tax lots to track as Bill mentioned."
- Randy Dobkin
Read more »

I will still take the dividends

"Unlike your the balance of your article, I agree with you."
- Michael Flack
Read more »

My Favorite Room

"We recently installed an infrared sauna in a spare bedroom. It’s quickly becoming our favorite room!"
- Mike Wyant
Read more »

Target Maturity Bond Funds

"Dan, that is a reasonable assumption."
- Mark Gardner
Read more »

Financial Choices

FOR MUCH OF THE seventeenth and eighteenth centuries, European monarchs used a financial instrument known as a tontine to help finance their governments.  Tontines were first developed in the 1650s by an Italian government worker named Lorenzo Tonti and were similar to annuities: In exchange for a single, lump-sum purchase, tontines offered guaranteed payments for life. But tontines also offered some unique features. Unlike an annuity, where payments end with the death of the owner, tontine holders had the option of tying the payments to another person. A parent, for example, could name their son or daughter on a tontine, thus extending the payments over a much longer period. In the 1750s, however, a Swiss banker named Jacob Beaumont had a realization: While the owners of tontines typically named their children, a quirk in the rules permitted a tontine owner to name any individual. To Beaumont, this presented an opportunity: Why not name the youngest possible person, thus extending the stream of payments even further?  In his home town of Geneva, Beaumont identified ideal candidates for this role: young children who came from well-heeled backgrounds and were thus likely to have access to good healthcare. He then began loading up on tontines tied to the very long life expectancies of these children. The strategy worked exactly as expected and delivered Beaumont enormous profits. Other investors then piled in, mimicking Beaumont’s strategy, which, for a time, offered a virtually no-lose opportunity for profit. This went on until the French government, in frustration, discontinued its tontine program. When it comes to financial decisions, it’s the rare situation that’s as obvious as the one that Beaumont identified. Instead, most financial decisions entail some amount of uncertainty and are subject to judgment. Some choices, though, are closer than others to being obvious decisions. Here are six that I see frequently. 
  1. Certain Social Security claiming decisions are without question. For example, if you’re married and plan to claim the spousal benefit, it’s important to know that this benefit hits a maximum at full retirement age (FRA), which is now age 67 for most people. Unlike workers’ own benefits, which can continue to increase all the way to age 70, spousal benefits are subject to a different rule, so there’s no benefit for anyone to wait beyond FRA.
  2. You may be familiar with umbrella insurance. This provides additional liability coverage on top of auto and homeowner’s (or renter’s) insurance. Because it covers low-likelihood situations, such as someone slipping and falling on your front walk, umbrella coverage is extremely cost effective—sometimes as low as a few hundred dollars per year. I see it as an obvious benefit because the situations it covers, however unlikely, are also the ones that could be the most expensive. And because it would be the insurance company that would face exposure, insurers provide legal defense, at their expense, if there is ever a claim. How much coverage should you have? I generally recommend between $1 million and $5 million, but the key point is that almost any coverage is better than none. 
  3. In choosing an asset allocation for your portfolio, I think it’s best to avoid rules of thumb, because everyone is different. At the same time, a recommendation that I see as universal is to avoid extremes. I wouldn’t get too close to 100% bonds because of the corrosive impact of inflation. And I don’t like getting too close to 100% stocks because of the volatility and risk of loss. That’s always been my view, but recent research can help investors narrow the range further. William Bengen, creator of the “4% rule,” published a book last year in which, for the first time, he looked at the question of portfolio longevity through the lens of asset allocation. What he found was that portfolios with stock allocations between 45% and 75% offered the highest sustainable withdrawal rates over multiple decades.
  1. If you’ve recently retired, you may be considering a Roth conversion, whereby you’d move dollars from your pre-tax IRA to a Roth IRA. This is a popular strategy, but the catch is that a tax must be paid when a conversion is completed, and your tax bracket can increase as you convert more. Convert too much, and you can negate the benefit of a conversion. For that reason, it isn’t always obvious whether a conversion is advisable. There is one situation, though, where a conversion offers an almost obvious benefit: If your income, even with a conversion, would be in one of the two lowest tax brackets (10% or 12%), then it’s unlikely you’d ever find yourself in a lower bracket than that in the future. In that case, especially because of special deductions provided by the new tax rules, I’d view it as an almost obvious choice to proceed with a conversion up to the top of the 12% bracket.
  1. Looking to make charitable gifts? Because the standard deduction is now so high, fewer taxpayers are able to itemize deductions, and that can limit the tax benefit of donations. But there’s still a way to gain a tax benefit: If you have appreciated stocks in a taxable account, you can donate them to a donor-advised fund. That would allow you to sidestep the capital gains tax that would otherwise be due if you sold those stocks. Many donor-advised funds have no minimums, making this an easy choice, in my view.
  2. If you believe your estate will top the estate tax threshold (about $15 million per person at the federal level, but much lower in certain states), then I would be sure to use the annual exclusion (currently $19,000 per donor and per recipient) to make incremental gifts to your heirs. That's because this annual exclusion is in addition to the lifetime exclusion and doesn’t carry over from year to year.
Note that these gifts don't have to be made in cash if the recipients aren't yet in a position to receive them. As alternatives, you could make contributions to a 529 account or to a trust for their benefit, and these contributions would count toward the annual exclusion. Adam M. Grossman is the founder of Mayport, a fixed-fee wealth management firm. Sign up for Adam's Daily Ideas email, follow him on X @AdamMGrossman and check out his earlier articles.  
Read more »

When $2000 Isn’t Worth the Hassle

"These byzantine telecom companies are terrible to work with. I recommend just cutting your loss and moving on. The money is not enough to pursue legal action. Years ago in business, I had a company that owed me $27k and refused to pay. Our agreement was well documented in writing. The EVP would not return my calls. Finally, I sent him a letter documenting our agreement. A colleague suggested that I CC Counsel on the letter. That worked! I got a call the next week from the EVP and he said, "It looks like I am going to have to pay you bastards". I thanked him and we received a check a few days letter. You may want to try that little trick in written correspondence."
- Jerry Pinkard
Read more »

What would you do if you received this text from your child as I did this morning? 

"Dick, I am sorry to hear of your families health issues. I pray for good outcomes for each of them. Been there, done that. Two years ago, I started giving our two children $15k each year, rather than wait until we die to get any inheritance. The only stipulation I had was for my son to establish an emergency fund. My daughter is a SAHM and manages her family's funds very well. I know from casual conversations that my son used most of his money for a new roof and other home improvements which is good, but apparently no emergency fund. Fast forward to this month. My son's work truck transmission went out and it cost almost $5k to repair it. He did not have the cash so dear old dad covered the cost. I may reduce his end of year gift accordingly, since he did not establish an emergency fund. Years ago, we sent both of our kids to church summer camp. We gave them both the same amount of spending money. At the end of the week, my son had run out of money and had borrowed $10 from one of the counselors. Our daughter came back with half of her money unspent. How can kids be so different? This was a precursor for their future lives."
- Jerry Pinkard
Read more »

A Wedding Too Far

"Dan, appreciate the suggestion. I’m actually based across the pond in the UK, so our tax rules around gifting aren't quite the same, but thanks for looking out for my wallet — it needs all the support it can get right now, even if it's only in spirit!"
- Mark Crothers
Read more »

On Being a “Healthy” Person

"Thanks for this. In my case, my high CAC officially makes me a person with cardiovascular disease, and the reason I described myself as “healthy” is that, thankfully, at 66 I’ve not had any adverse cardiac events or even symptoms, and I do pretty robust cardio 4-5 days a week (heart zones 3-4 most days) with no ill effects. My Lp(a) number alone probably wouldn’t have gotten me approved for Repatha in 24 hours. As you note, Lp(a) is a risk factor, not disease itself. If I could go back 10-15 years, I’d have gotten myself under the care of a cardiologist sooner and probably would have been on a statin years ago, which might have prevented at least some of the calcification. But I felt fine, never had bad “regular” LDL numbers, and didn’t know from Lp(a). So other than being aware of bad family history, I didn’t have enough information as a layperson to be more proactive. So oh, well—onward, as you say!"
- DrLefty
Read more »

What to do about the new ID.me login requirement at TreasuryDirect

"My experience creating an ID.me account can be best described as "hinky," glitches that indicated a misstep but then seconds later it worked. I also got several "retry" prompts. Based on a comment on this thread I expected trouble, and an interview process, because my credit is frozen, but nope, I was able to establish the account anyway. Yes, I'll be sticking with "hinky" to describe the process."
- Ted Tompkins
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The Silent Committee

"It’s great to hear from you, Rick! Thank you for the thoughtful comment!"
- John Goodell
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The Ultimate Tail Risk

"I think the situation needs addressing, but I think you have prescribed the wrong tool. Congress can regulate AI through ordinary legislation. Legislation is vastly easier to change as technology evolves. Constitutional provisions are intentionally difficult to change. And we have very little idea what "AI" will mean 30, 50 or 100 years from now."
- John Katz
Read more »

Flipping the Script on Asset Allocation?

"Andrew, you might consider selling your recent reinvestment purchases since the basis will be higher on those shares. Be sure to use the specific ID basis method to identify the particular shares you're selling. This will also simplify things by cutting down the number of tax lots to track as Bill mentioned."
- Randy Dobkin
Read more »

I will still take the dividends

"Unlike your the balance of your article, I agree with you."
- Michael Flack
Read more »

My Favorite Room

"We recently installed an infrared sauna in a spare bedroom. It’s quickly becoming our favorite room!"
- Mike Wyant
Read more »

Target Maturity Bond Funds

"Dan, that is a reasonable assumption."
- Mark Gardner
Read more »

Financial Choices

FOR MUCH OF THE seventeenth and eighteenth centuries, European monarchs used a financial instrument known as a tontine to help finance their governments.  Tontines were first developed in the 1650s by an Italian government worker named Lorenzo Tonti and were similar to annuities: In exchange for a single, lump-sum purchase, tontines offered guaranteed payments for life. But tontines also offered some unique features. Unlike an annuity, where payments end with the death of the owner, tontine holders had the option of tying the payments to another person. A parent, for example, could name their son or daughter on a tontine, thus extending the payments over a much longer period. In the 1750s, however, a Swiss banker named Jacob Beaumont had a realization: While the owners of tontines typically named their children, a quirk in the rules permitted a tontine owner to name any individual. To Beaumont, this presented an opportunity: Why not name the youngest possible person, thus extending the stream of payments even further?  In his home town of Geneva, Beaumont identified ideal candidates for this role: young children who came from well-heeled backgrounds and were thus likely to have access to good healthcare. He then began loading up on tontines tied to the very long life expectancies of these children. The strategy worked exactly as expected and delivered Beaumont enormous profits. Other investors then piled in, mimicking Beaumont’s strategy, which, for a time, offered a virtually no-lose opportunity for profit. This went on until the French government, in frustration, discontinued its tontine program. When it comes to financial decisions, it’s the rare situation that’s as obvious as the one that Beaumont identified. Instead, most financial decisions entail some amount of uncertainty and are subject to judgment. Some choices, though, are closer than others to being obvious decisions. Here are six that I see frequently. 
  1. Certain Social Security claiming decisions are without question. For example, if you’re married and plan to claim the spousal benefit, it’s important to know that this benefit hits a maximum at full retirement age (FRA), which is now age 67 for most people. Unlike workers’ own benefits, which can continue to increase all the way to age 70, spousal benefits are subject to a different rule, so there’s no benefit for anyone to wait beyond FRA.
  2. You may be familiar with umbrella insurance. This provides additional liability coverage on top of auto and homeowner’s (or renter’s) insurance. Because it covers low-likelihood situations, such as someone slipping and falling on your front walk, umbrella coverage is extremely cost effective—sometimes as low as a few hundred dollars per year. I see it as an obvious benefit because the situations it covers, however unlikely, are also the ones that could be the most expensive. And because it would be the insurance company that would face exposure, insurers provide legal defense, at their expense, if there is ever a claim. How much coverage should you have? I generally recommend between $1 million and $5 million, but the key point is that almost any coverage is better than none. 
  3. In choosing an asset allocation for your portfolio, I think it’s best to avoid rules of thumb, because everyone is different. At the same time, a recommendation that I see as universal is to avoid extremes. I wouldn’t get too close to 100% bonds because of the corrosive impact of inflation. And I don’t like getting too close to 100% stocks because of the volatility and risk of loss. That’s always been my view, but recent research can help investors narrow the range further. William Bengen, creator of the “4% rule,” published a book last year in which, for the first time, he looked at the question of portfolio longevity through the lens of asset allocation. What he found was that portfolios with stock allocations between 45% and 75% offered the highest sustainable withdrawal rates over multiple decades.
  1. If you’ve recently retired, you may be considering a Roth conversion, whereby you’d move dollars from your pre-tax IRA to a Roth IRA. This is a popular strategy, but the catch is that a tax must be paid when a conversion is completed, and your tax bracket can increase as you convert more. Convert too much, and you can negate the benefit of a conversion. For that reason, it isn’t always obvious whether a conversion is advisable. There is one situation, though, where a conversion offers an almost obvious benefit: If your income, even with a conversion, would be in one of the two lowest tax brackets (10% or 12%), then it’s unlikely you’d ever find yourself in a lower bracket than that in the future. In that case, especially because of special deductions provided by the new tax rules, I’d view it as an almost obvious choice to proceed with a conversion up to the top of the 12% bracket.
  1. Looking to make charitable gifts? Because the standard deduction is now so high, fewer taxpayers are able to itemize deductions, and that can limit the tax benefit of donations. But there’s still a way to gain a tax benefit: If you have appreciated stocks in a taxable account, you can donate them to a donor-advised fund. That would allow you to sidestep the capital gains tax that would otherwise be due if you sold those stocks. Many donor-advised funds have no minimums, making this an easy choice, in my view.
  2. If you believe your estate will top the estate tax threshold (about $15 million per person at the federal level, but much lower in certain states), then I would be sure to use the annual exclusion (currently $19,000 per donor and per recipient) to make incremental gifts to your heirs. That's because this annual exclusion is in addition to the lifetime exclusion and doesn’t carry over from year to year.
Note that these gifts don't have to be made in cash if the recipients aren't yet in a position to receive them. As alternatives, you could make contributions to a 529 account or to a trust for their benefit, and these contributions would count toward the annual exclusion. Adam M. Grossman is the founder of Mayport, a fixed-fee wealth management firm. Sign up for Adam's Daily Ideas email, follow him on X @AdamMGrossman and check out his earlier articles.  
Read more »

When $2000 Isn’t Worth the Hassle

"These byzantine telecom companies are terrible to work with. I recommend just cutting your loss and moving on. The money is not enough to pursue legal action. Years ago in business, I had a company that owed me $27k and refused to pay. Our agreement was well documented in writing. The EVP would not return my calls. Finally, I sent him a letter documenting our agreement. A colleague suggested that I CC Counsel on the letter. That worked! I got a call the next week from the EVP and he said, "It looks like I am going to have to pay you bastards". I thanked him and we received a check a few days letter. You may want to try that little trick in written correspondence."
- Jerry Pinkard
Read more »

What would you do if you received this text from your child as I did this morning? 

"Dick, I am sorry to hear of your families health issues. I pray for good outcomes for each of them. Been there, done that. Two years ago, I started giving our two children $15k each year, rather than wait until we die to get any inheritance. The only stipulation I had was for my son to establish an emergency fund. My daughter is a SAHM and manages her family's funds very well. I know from casual conversations that my son used most of his money for a new roof and other home improvements which is good, but apparently no emergency fund. Fast forward to this month. My son's work truck transmission went out and it cost almost $5k to repair it. He did not have the cash so dear old dad covered the cost. I may reduce his end of year gift accordingly, since he did not establish an emergency fund. Years ago, we sent both of our kids to church summer camp. We gave them both the same amount of spending money. At the end of the week, my son had run out of money and had borrowed $10 from one of the counselors. Our daughter came back with half of her money unspent. How can kids be so different? This was a precursor for their future lives."
- Jerry Pinkard
Read more »

A Wedding Too Far

"Dan, appreciate the suggestion. I’m actually based across the pond in the UK, so our tax rules around gifting aren't quite the same, but thanks for looking out for my wallet — it needs all the support it can get right now, even if it's only in spirit!"
- Mark Crothers
Read more »

On Being a “Healthy” Person

"Thanks for this. In my case, my high CAC officially makes me a person with cardiovascular disease, and the reason I described myself as “healthy” is that, thankfully, at 66 I’ve not had any adverse cardiac events or even symptoms, and I do pretty robust cardio 4-5 days a week (heart zones 3-4 most days) with no ill effects. My Lp(a) number alone probably wouldn’t have gotten me approved for Repatha in 24 hours. As you note, Lp(a) is a risk factor, not disease itself. If I could go back 10-15 years, I’d have gotten myself under the care of a cardiologist sooner and probably would have been on a statin years ago, which might have prevented at least some of the calcification. But I felt fine, never had bad “regular” LDL numbers, and didn’t know from Lp(a). So other than being aware of bad family history, I didn’t have enough information as a layperson to be more proactive. So oh, well—onward, as you say!"
- DrLefty
Read more »

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Get Educated

Manifesto

NO. 27: RISK and potential return are inextricably linked. If an investment holds out the prospect of high returns, we should presume it’s highly risky—even if we can’t figure out what the risk is.

Truths

NO. 120: INFLATION is the friend of borrowers, but the enemy of savers. If you have money invested, you need to earn an after-tax return that outpaces the inflation rate—or your money will lose purchasing power. But if you’re a borrower, inflation is good news, because it allows you to repay the money you owe with depreciated dollars.

think

OPPORTUNITY COST. Whenever we make a financial choice, we give up something else, which may be a better use for the money. If we buy one item, we can’t spend the dollars on other items, either now or in the future. When we devote money to one goal, we have less for other goals. When we buy one investment, we’re effectively choosing not to buy other investments.

act

TAP HOME EQUITY to trim other debts. If you have high-interest auto loans or credit card debt, you might set up a home equity line of credit and then use it to pay off these higher-cost debts. That’ll reduce the interest you pay. You won’t, however, save on taxes. Thanks to 2017's tax law, such home-equity borrowing is no longer tax-deductible.

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Manifesto

NO. 27: RISK and potential return are inextricably linked. If an investment holds out the prospect of high returns, we should presume it’s highly risky—even if we can’t figure out what the risk is.

Spotlight: Retirement

Social Security

AT FIRST GLANCE, Social Security appears straightforward. During our working years, we pay into it, and in retirement, it sends us a monthly check, guaranteed for life. Unfortunately, it isn’t always so simple. Below are five aspects of the system that are frequently misunderstood.
Benefits estimates. Look at a Social Security statement, and an easy-to-read chart provides estimates of the benefits available at various ages. The heading above the chart reads, “Personalized Monthly Retirement Benefit Estimates Depending on the Age You Start.” That seems clear.

Read more »

Economic Trends

LAST WEEK THE government released its monthly employment figures for February. The results weren’t great. Payrolls declined, and unemployment ticked up. These numbers square with other downbeat data, including a recent uptick in bankruptcy filings.
Another worry: Oil prices have been rising, a result of the conflict in the Middle East. That’s a concern because it could lead to a reacceleration of inflation. It could also dampen consumer spending because higher gas prices act like a tax on consumers,

Read more »

The Humbling Side of Aging

WHEN I STARTED writing for HumbleDollar, Jonathan gave me some simple but important advice: “Don’t brag about your financial situation. You want readers to like you.” Perhaps that’s one of the reasons he named his financial site HumbleDollar.
I try to follow this advice not only regarding money, but in other aspects of my life. I know how fleeting things can be—especially when it comes to health. Life can change on a dime. It can humble you.

Read more »

Building a Secure Retirement, 10 Years at a Time.

In an earlier article, I described my unexpected decision to use fixed-term immediate annuities (FTIA) to form a floor for my expenses over the next ten years. I thought you might find it of interest if I expand on this, relating to the balance of our income needs and how this might play out over the longer term. To be clear and upfront this strategy is “Prioritizing Income Generation Over Capital Preservation” but not in a reckless way and could change over each 10 year block.

Read more »

Trump Accounts

INNOVATION IN THE world of retirement plans is decidedly slow moving. But as of July 4th, investors now have a new savings option known as a Trump account. In short, these are retirement accounts designed specifically for children.
Trump accounts share some similarities with traditional individual retirement accounts (IRAs), but there are also key differences. If you have children, grandchildren, nieces or nephews, this new option may be worth exploring.
Who is eligible for a Trump account?

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Tax Smart Retirement

A POPULAR JOKE about retirement is that it can be hard work. That’s because financial planning is like a jigsaw puzzle, and retirement often means rearranging the pieces.
In the past, I’ve discussed two key pieces of that puzzle: how to determine a sustainable portfolio withdrawal rate and how to decide on an effective asset allocation. But there’s one more piece of the puzzle to contend with: taxes. Especially if you’re planning to retire on the earlier side,

Read more »

Spotlight: Yeigh

My Uncle’s Advice

I LEARNED A LOT about finance and life from my uncle. He was an early investment advisor and published a book on wealth management. Even though he was not a registered investment advisor or a Certified Financial Planner, our family proudly extolled his ideas when I was growing up. My family first introduced me to my uncle’s doctrines when I was a child of five or six. I had been given a small piggybank to store my life’s savings. We soon added a couple of mason jars because I had begun collecting wheat pennies with my small allowance. Production of wheat pennies had ended three years earlier, in 1958, which led me to think they would become collectibles. I even favored older pennies since they might provide greater long-term value. Little did I know that as many as a billion pennies had been minted each year. My Depression-era parents were quite supportive of my slowly filling penny jars. Along this savings journey, they also introduced my uncle’s advice through both everyday practice and some preaching. I vividly remember wanting a Yogi Bear gun, hat, holster and badge set, which was on display at our local five-and-dime. Every time we left the store, I begged my parents to buy it. They initially said a simple “no,” and I let it pass. In those days, my family couldn’t afford much of anything on a whim. One day, my parents relented and agreed that I would be allowed to buy the set, but said I would have to pay the 99 cents from my coin jars. The 99 cents represented perhaps 20% of my life’s savings. I threw a hissy fit as only a young child can. “Not with my own money!” I screamed. I passed on the set, and we never did…
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Got You Covered

EMPLOYEES WHO accumulate significant company stock can end up with a problem, though not necessarily a bad one: concentrated stock holdings. When these employees retire, their challenge is to sell those shares in a way that maximizes their value—taking into account the share price, dividends and taxes. One strategy: Utilize covered calls. Selling a concentrated stock position can take many years because of tax considerations or restrictions on selling. For example, if appreciated shares are held in a regular taxable account, you might want to cap annual sales to limit your adjusted gross income and hence the tax rate you pay. If the shares are held in an IRA or 401(k), they can be sold without any immediate tax consequences—but, before doing so, you’d want to check whether you can make use of the net unrealized appreciation strategy. I’m no options expert. But I and several of my friends have utilized covered calls to enhance income without taking great risk. Let’s say you have 10,000 company shares that you would like to divest over a 10-year period. That means you intend to sell 1,000 shares per year. In this case, you have at least 1,000 shares on which you can comfortably sell covered calls, knowing you wouldn’t be bothered if the shares were called away. My first recommendation: Learn the basics of covered calls. When you sell a call, the buyer purchases the right to buy the stock in the future at a specified share (or “strike”) price. In return, you—the seller—receive extra income in the form of a call premium. Covered means that you, as the seller, own the shares on which you’re selling the calls and hence you’ll have no trouble delivering the stock, if the call option is exercised. Want to learn more? The Options Industry Council,…
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Road to Nowhere

I’M DEBATING whether my life is better described by Tom Cochrane’s Life Is a Highway or Eddie Rabbitt’s Driving My Life Away. In a recent article, I noted that our family has driven our cars about 1.9 million miles. Since I’m the family’s King of the Road, I’ve been along for at least two-thirds of that ride. I’m also, alas, the king of lost time. The average commuting speed in the Washington, D.C., area—where I live—has been estimated at 24 and 46 mph. Whatever the right number is, the roads here have been described as the nation’s most congested. Let’s split the difference and call it 35 mph. If I take my 1.25 million miles at 35 mph, I’ve been in a car for more than 35,000 hours. That works out to almost 1,500 days, or roughly four years. Four years out of a likely 65-year adult life translates to about 10% of my total waking hours. That’s scary. These estimates don’t count our six years living overseas or time spent in others’ cars. However you run the calculation, this much is clear: A lot of my life has been spent in a car seat. Despite this, I mostly didn’t mind my car time—as long as the car was moving. My long commute allowed us to live in a resort town, plus it gave my wife a shorter ride to work. I enjoyed audiobooks, practiced hundreds of work presentations to the windshield, pondered life’s daily challenges, worked by cell phone, listened to NPR and tuned into my favorite radio stations. My non-commuting car time—to get to family, friends or a vacation—were even less lamented. I’m not alone in my comfort with Washington commuting, despite the congestion. According to a 2019 study by the National Capital Region Transportation Planning Board, “Half of…
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Plan on Change

IN MY ONGOING EFFORT to reduce our accumulated stuff, I was trolling through our collection of old thumb drives to see what I should download, save or toss. Among them, I discovered the 258-page presentation from a two-day retirement course that my old employer sponsored in 2006. I wondered how the advice had—17 years on—stood the test of time. As I reviewed it, I found some excellent suggestions and some that were lacking, though I hesitate to fault the presentation’s authors. I felt the course deserves an “A” for its detailed discussion of retirement lifestyle choices and investment planning. Company benefits were also exhaustively reviewed. We were told what benefits we were entitled to, and I recall employees and their spouses found those discussions comforting. In addition, most—but not all—Social Security issues were thoroughly reviewed. The tradeoff between claiming early at age 62 or waiting until an employee’s full Social Security retirement age, which would be 65 to 67, was covered. The potential for higher benefits by delaying claiming until age 70 wasn’t highlighted, however. The benefits of the “file and suspend” strategy for married couples also weren’t discussed—but, then again, this loophole was eliminated before I retired in 2017. I would give the presentation a “C” for its coverage of supplemental health and life insurance coverage. My employer later reduced those benefits, so these discussions are irrelevant now. Four areas deserve only a “D” grade. The course spent little, if any, time on the so-called stretch IRA, withdrawal rates, sequence-of-return risk, and strategies for taking income from a mix of taxable, tax-deferred and Roth accounts. [xyz-ihs snippet="Mobile-Subscribe"] What overall grade would I award the presentation? You might think it would average out to a “C” or maybe a generous “B.” But unfortunately, I’d give the course only a “D”—because, as…
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The Retiree’s Dilemma

I'VE FOUND RETIREMENT to be a conundrum. We finally have the time to pursue any activity we want in a leisurely manner—spend time with family and friends, exercise, sleep, travel, read, binge watch TV, knock items off our bucket list. On the other hand, I now hear the constant ticking of life’s clock. Tick tock, tick tock. For the decades before retiring, life for my wife and me was pedal-to-the-metal with work, children, commuting and chores, though we also found time for some leisure activities. We were on life’s proverbial treadmill and fully embraced the rat race. We were also often stressed, short on sleep and behind on chores. Yet we loved every minute of our fast-paced life. The best part: I was completely unaware of life’s ticking clock. In the seven years since retiring, my wife and I have traveled, hiked extensively, and been there whenever our children needed a helping hand. We’ve reconnected with old friends. I’ve ramped up my jogging and biking, and tried out new things like fishing, wake-surfing and the requisite pickleball. In addition, we now get more sleep and have more time for volunteer activities. My wife manages our VRBO endeavors, while I’ve written many articles and a book.     On the surface, retirement seems so perfect: no commute, no work and the freedom to do the things we enjoy, while our adult children progress nicely. Busy is good. But during the down time, the ticking of that darn clock keeps sounding in my head. That relentless clock has driven us to contemplate the time-value tradeoff of life’s many activities, with our remaining time becoming ever more precious. Family, friends, exercise, outdoor activities and vacations get an automatic pass. Always more, please. Activities important to our future lives—chores, financial planning, health maintenance and the…
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Don’t Concentrate

WHO DOESN’T LIKE free money? I know I do. If you’ve worked for a major U.S. corporation, you have probably also been offered free money. But there’s a potential downside—in the form of a large, undiversified investment bet. What am I talking about? Let’s start with the matching employer contribution that’s offered in about half of 401(k) plans. You put in a portion of every paycheck and your company then matches all or half of your contribution. In years past, the employer match often had to be invested in company stock. Today, most plans either offer more flexibility in investment choice or they allow you to diversify out of company stock after a specified holding period. But employees often don’t sell, because of the net unrealized appreciation (NUA) strategy, which provides a tax incentive to retain, rather than diversify, those shares. NUA allows accumulated appreciation on your employer’s stock to eventually be taxed as capital gains, rather than as income. Employee stock purchase plans (ESPPs) are another benefit plan that encourages employees to own company stock, offering the chance to purchase shares at discounts of as much as 10% or 15%. ESPPs also provide favorable tax treatment on the discount, provided the stock is held for two years or longer. While smaller in dollar amount, some plans have an associated dividend reinvestment plan (DRIP) that allows dividends to be reinvested in company stock, again usually at some discount. Matches, NUA, ESPPs and DRIPs all encourage employee stock ownership, but they pale in comparison to the potential accumulation through grants of stock options. Options come in two main forms , incentive stock options (ISOs) and nonqualifying stock options (NSOs), each of which has slightly different tax treatment. But both have the same result: employees owning yet more shares. Add all these incentives…
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