My Uncle’s Advice
John Yeigh | Mar 9, 2022
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…
Read more » Got You Covered
John Yeigh | Jul 11, 2019
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,…
Read more » Road to Nowhere
John Yeigh | Feb 13, 2022
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…
Read more » Plan on Change
John Yeigh | Mar 13, 2023
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…
Read more » The Retiree’s Dilemma
John Yeigh | Apr 22, 2024
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…
Read more » Don’t Concentrate
John Yeigh | Mar 13, 2019
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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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. 
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