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On Being a “Healthy” Person

"Dana, thanks for sharing this personal and important information. Stay well!"
- DAN SMITH
Read more »

Remembering Jonathan

"Chris, thank you so much for your prayer and beautiful words. Jonathan’s kindness is also what I remember most, and you’re right, he continued teaching all of us until the very end. Your encouragement about my own writing means more than you know. Writing for HumbleDollar has helped me remain connected to Jonathan and to the wonderful community he created. Please know that your reading matters, whether or not you leave a comment."
- Andrew Clements
Read more »

A Wedding Too Far

"Our one child will reach 21 on her next birthday. We've shared every aspect of our financial life with her except for the one account that is still secret--her wedding fund. The money we plopped into an index fund about 15 years ago has grown a nice sum. At some point, we'll disclose the fund and its balance to her, with light guidance on choosing how to spend it, be it a blow-out wedding or a more tangible purchase. But I don't criticize another family's way. It's easy to throw stones at someone else's wedding party!"
- Edmund Marsh
Read more »

Locking it in

"My wife and I made a deal in 1982 when we got married. We would contribute to whatever workplace plans we had available to get the maximum employer contributions. These started out as traditional profit-sharing plans and converted to 401(k) plans when they became available. I insisted on investing 100% in the stock funds available and it worked out great since we mostly contributed six percent and received four percent from the employers. We spent all the rest of the money as we had a house and children to support and when we had extra money, it went into college funds and an emergency fund. BTW, the success of this non-plan plan had a lot to do with the start of a generational bull market in stocks. Never confuse brains with a bull market."
- Howard Schwartz
Read more »

Wedding Cost is just the beginning

"Agreed Dick - spending money on family and friends is a wonderful thing."
- greg_j_tomamichel
Read more »

Taking It With You

DEEP DOWN INSIDE, I want to be the richest person in the graveyard.  I retired at age 62, confident in our financial plan to survive market fluctuations. We saved over 25% of our income for nearly three decades. Perhaps a bit too much, but we lived well and always had sufficient funds to raise a family, maintain our household, and put our children through postgraduate education. If anything, our retirement spending level is conservative, based on a 40 year time frame for both my wife and I. We have a slightly nuanced financial plan. Suffice to say it is reassuring to know that we are beyond financial security if we simply maintain an inflation adjusted 4% withdrawal rate. Indeed, calculations suggested we could double our pre-retirement budget, with no worries or loss of sleep. Risk be damned! Slowly, we made a conscious decision to spend more. At first it was tough to break old habits. I mean, frugality runs deep in my immediate family. You could use my brother and I as chromosomal templates in a genetic search to discover the frugality gene.  My wife and I now go out for coffee without blinking an eye at paying nearly 6 bucks for a cup of Joe (plus tip). We don’t hesitate to escape the Houston heat by scarfing 5 dollar a scoop ice cream. We no longer plan our restaurant outings according to Happy Hour schedules or local senior discounts.  Even so, three years into retirement, our annual spending remains well below what our financial plan says we can safely afford.  Time to up the ante. We bought season tickets to the symphony and added a dinner date before the performance. We took international vacations twice a year, exploring new countries and cultures. We drove to national parks and treated ourselves to overnights in hotels instead of motels. We gifted our children, with hopes they would bolster their own long-term savings. Gosh, we even made significant charitable gifts to institutions we only previously dreamed of supporting.  Spending is easy. Spending wisely is a challenge. Ironically, the strong stock market since our retirement has made it remarkably difficult to spend our money as initially planned. It sounds counter intuitive, but let me explain.  Our retirement portfolio allocation has a stock to bond ratio of 75:25.  The stock component primarily matches total market returns. Specifically, our stock component has grown more than 65% since we retired. Because of this, we put aside 10 years of safer funds (bonds and cash equivalents) to weather any potential market storm. We successfully navigated the immediate sequence of return risk (SORR) hurdle, that pesky danger of facing a poor investment market performance in earliest years of retirement.  We feel both blessed and safe. We sleep well at night. Our financial calculators now indicate that we can spend even more than original predictions. Yet that realization is causing me angst. After all, we spent a lifetime saving, scrimping and sacrificing to reach this point. Indeed, we value the concepts of avoiding excess, of seeking value and purpose in purchases. Our goals were never to impress the neighbors, but rather be content and grateful with what we have.   I want people to know I had a choice about how I spent my accumulated dollars. I chose a life of frugality, questioning everything I purchased. Do I really need that new phone? My current one makes calls, surfs the web, and navigates when I need directions.  Do I need a new car? My dented 11 year old Honda gets me safely to my destinations. Shall I purchase the kayak I’ve been eyeing, or simply rent one for the two times a year I brave the waters?  Perhaps the real measure of a successful retirement is not how much money remains at the end, but whether those resources were used in ways that enriched the lives of others and brought meaning to our own. Financial independence now gives us choices, and a freedom after decades of disciplined saving. It is okay if I leave this world with more than enough funds still in the bank. There are values I learned along the way; those of prudence, generosity, gratitude, and the quiet confidence that comes from living well below one's means. In the end, wealth is simply a tool; character is the true legacy. Perhaps the goal isn't to die with the largest portfolio, but to know that every dollar reflected the values by which we chose to live. Therefore, if I can’t spend it all according to my values, I guess I’m okay with being the one of the richest men in the graveyard.  Jeffrey K. Actor, PhD, was a professor at a major medical school in Houston for more than 25 years, serving as an academic researcher with interests in how immune responses function to fight pathogenic diseases. Jeff’s retirement goals are to write short science fiction stories, volunteer in the community and spend time in his garden. Check out his earlier articles.
Read more »

Financial Fraud

RECENTLY, A FELLOW—let’s call him Tom—contacted me with a distressing story of financial fraud. I’ll describe what happened then review steps you might take to prevent this same sort of thing. Tom first noticed there might be a problem when he spotted a larger-than-average withdrawal from his checking account. The payee was a 529 college savings plan. But because Tom and his wife—let’s call her Jane—have 529 accounts for their children, the transaction almost went unnoticed. Tom assumed it was a transfer into his own family’s account. But when he mentioned it to Jane, she noted that they had stopped contributing to their 529. That prompted them to investigate further. What they found was that scammers had set up a new 529 account in Tom’s name. They then initiated an electronic funds transfer to move more than $2,000 from Tom and Jane’s checking account into the new 529 set up by the thieves. The intention presumably was to then withdraw the funds from the 529, at which point the theft would become unrecoverable. How were the thieves able to initiate the transfer from Tom and Jane’s bank? This is the part that’s distressing: They took advantage of the widely-used Automated Clearing House (ACH) system. Unfortunately, this system has key weaknesses that make it susceptible to fraud like this. First, it allows funds to be “pulled” out of an account. That’s in contrast to a wire transfer, which can only be “pushed” out by someone with access to the account. So a thief would only need your name, account number and bank routing number to siphon funds from that account. And unfortunately, that information is printed on the front of every check, making it accessible to someone looking to perpetrate this type of scheme. Once the thief had the new 529 account set up in Tom’s name, it was just one simple step to initiate a transfer from Tom and Jane’s bank since the accountholder’s name was the same on both accounts. It was so seamless that if Tom hadn’t been reviewing the transactions in his account, he might never have noticed the theft. According to the FBI, losses due to cybercrime have increased from $1 billion per year to $21 billion over the past 10 years, and ACH theft is a tactic thieves are using more frequently, so it’s worth looking at strategies to help keep your accounts secure. Here are six recommendations.
  1. Secure the login to your bank account by setting up two-factor authentication. And if your bank supports it, use an authenticator app, rather than text messages, for the authentication codes. Ideally, if your bank supports it, switch to a passkey. This is a newer technology that represents a significant advance over traditional passwords. Most importantly, they aren’t vulnerable to phishing attacks. They’re also easier to use, providing one-click logins, and you can store passkeys in a password manager. For those reasons, more websites are beginning to support passkeys. I’d make the switch as soon as your bank makes them available.
  2. Set up alerts through your bank to monitor activity in your checking account. Every bank is different, but most allow you to set up email- or text-based alerts to let you know when transactions above a specified threshold are processed, or when other types of activity occur.
  3. Monitor your transactions. These days, it can be hard to keep an eye on every account. Households often have one or more bank accounts plus credit cards and electronic payment services like Venmo or Zelle. Most people realistically don’t have the time to review every account in real time. That’s why I recommend a service like Monarch or YNAB, which are web-based versions of traditional budgeting tools like Quicken. These services can pull in transactions from all your accounts and present them in a consolidated list, making review much easier. If you kept Monarch or YNAB open in a browser window on your home computer, you could scroll through recent transactions whenever you have a spare minute.
  4. To narrow the circle of people who have access to your account information, try limiting the number of paper checks you write. Especially with Zelle and Venmo as alternatives for making payments, this is getting easier. If you do write paper checks, be sure to use a gel pen and to avoid freestanding mailboxes. Those steps can help prevent a related type of fraud, as Jonathan Clements explained a few years back.
  5. Pay attention to notifications of data breaches. Unfortunately, breach announcements seem to occur so frequently that we’ve become immune to them. It’s worth paying attention, though, to understand which particular pieces of information have been stolen. If it looks like your banking information is included in a breach, it might be worth opening a new account, inconvenient as that would be.
  6. Have your guard up against unsolicited phone calls, emails or text messages. If someone is contacting you about an “account security issue,” or claims to be calling from your bank or from the IRS, be especially wary. Those are common tactics for creating a sense of urgency that can cause people to let their guard down.
What if, like Tom and Jane, you spot a fraudulent transaction in your account? Then it’s important to report it as quickly as possible. Regulation E can limit your liability, but the faster you report a suspicious transaction, the more protection it provides. Liability is limited to just $50 if a theft is reported within two business days, but that exposure increases to $500 if it’s reported later. And after 60 days, there are no guarantees. Thieves, unfortunately, don’t seem to sleep, which means that we need to be more vigilant than in the past, and need to be continuously vigilant. As personal finance author Mike Piper wrote recently, “Cybersecurity should be considered another core area of personal finance—no different from insurance planning, for instance.” 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 »

A bleak picture for retirement in the future?

"My calculations say married filing jointly in 2024 with MAGI of $250k would be in the 1.4x IRMAA bracket. Part B would be about $974 more per person per year in 2026 ($202.90*12*0.4)."
- Randy Dobkin
Read more »

Behind The Finery

"Scott, we're still handling our side of the wedding — currently running about 15% over the budget we set for our daughter. I've gotten pretty good at the silent head-shake-and-sigh combo. It doesn't fix anything, but it helps."
- Mark Crothers
Read more »

The Economy of Expectations

"So you rode your bike past my house. 😁"
- W.D. Housley
Read more »

State Farm Dividend

"Good point re: the Umbrella policy. Would you kindly share who you’re with? Ty"
- Scott Dailey
Read more »

The best state to retire? Take a close look.

"Finances, taxes and such were not a consideration. Only being near family which in our case all are within an hour drive."
- R Quinn
Read more »

On Being a “Healthy” Person

"Dana, thanks for sharing this personal and important information. Stay well!"
- DAN SMITH
Read more »

Remembering Jonathan

"Chris, thank you so much for your prayer and beautiful words. Jonathan’s kindness is also what I remember most, and you’re right, he continued teaching all of us until the very end. Your encouragement about my own writing means more than you know. Writing for HumbleDollar has helped me remain connected to Jonathan and to the wonderful community he created. Please know that your reading matters, whether or not you leave a comment."
- Andrew Clements
Read more »

A Wedding Too Far

"Our one child will reach 21 on her next birthday. We've shared every aspect of our financial life with her except for the one account that is still secret--her wedding fund. The money we plopped into an index fund about 15 years ago has grown a nice sum. At some point, we'll disclose the fund and its balance to her, with light guidance on choosing how to spend it, be it a blow-out wedding or a more tangible purchase. But I don't criticize another family's way. It's easy to throw stones at someone else's wedding party!"
- Edmund Marsh
Read more »

Locking it in

"My wife and I made a deal in 1982 when we got married. We would contribute to whatever workplace plans we had available to get the maximum employer contributions. These started out as traditional profit-sharing plans and converted to 401(k) plans when they became available. I insisted on investing 100% in the stock funds available and it worked out great since we mostly contributed six percent and received four percent from the employers. We spent all the rest of the money as we had a house and children to support and when we had extra money, it went into college funds and an emergency fund. BTW, the success of this non-plan plan had a lot to do with the start of a generational bull market in stocks. Never confuse brains with a bull market."
- Howard Schwartz
Read more »

Wedding Cost is just the beginning

"Agreed Dick - spending money on family and friends is a wonderful thing."
- greg_j_tomamichel
Read more »

Taking It With You

DEEP DOWN INSIDE, I want to be the richest person in the graveyard.  I retired at age 62, confident in our financial plan to survive market fluctuations. We saved over 25% of our income for nearly three decades. Perhaps a bit too much, but we lived well and always had sufficient funds to raise a family, maintain our household, and put our children through postgraduate education. If anything, our retirement spending level is conservative, based on a 40 year time frame for both my wife and I. We have a slightly nuanced financial plan. Suffice to say it is reassuring to know that we are beyond financial security if we simply maintain an inflation adjusted 4% withdrawal rate. Indeed, calculations suggested we could double our pre-retirement budget, with no worries or loss of sleep. Risk be damned! Slowly, we made a conscious decision to spend more. At first it was tough to break old habits. I mean, frugality runs deep in my immediate family. You could use my brother and I as chromosomal templates in a genetic search to discover the frugality gene.  My wife and I now go out for coffee without blinking an eye at paying nearly 6 bucks for a cup of Joe (plus tip). We don’t hesitate to escape the Houston heat by scarfing 5 dollar a scoop ice cream. We no longer plan our restaurant outings according to Happy Hour schedules or local senior discounts.  Even so, three years into retirement, our annual spending remains well below what our financial plan says we can safely afford.  Time to up the ante. We bought season tickets to the symphony and added a dinner date before the performance. We took international vacations twice a year, exploring new countries and cultures. We drove to national parks and treated ourselves to overnights in hotels instead of motels. We gifted our children, with hopes they would bolster their own long-term savings. Gosh, we even made significant charitable gifts to institutions we only previously dreamed of supporting.  Spending is easy. Spending wisely is a challenge. Ironically, the strong stock market since our retirement has made it remarkably difficult to spend our money as initially planned. It sounds counter intuitive, but let me explain.  Our retirement portfolio allocation has a stock to bond ratio of 75:25.  The stock component primarily matches total market returns. Specifically, our stock component has grown more than 65% since we retired. Because of this, we put aside 10 years of safer funds (bonds and cash equivalents) to weather any potential market storm. We successfully navigated the immediate sequence of return risk (SORR) hurdle, that pesky danger of facing a poor investment market performance in earliest years of retirement.  We feel both blessed and safe. We sleep well at night. Our financial calculators now indicate that we can spend even more than original predictions. Yet that realization is causing me angst. After all, we spent a lifetime saving, scrimping and sacrificing to reach this point. Indeed, we value the concepts of avoiding excess, of seeking value and purpose in purchases. Our goals were never to impress the neighbors, but rather be content and grateful with what we have.   I want people to know I had a choice about how I spent my accumulated dollars. I chose a life of frugality, questioning everything I purchased. Do I really need that new phone? My current one makes calls, surfs the web, and navigates when I need directions.  Do I need a new car? My dented 11 year old Honda gets me safely to my destinations. Shall I purchase the kayak I’ve been eyeing, or simply rent one for the two times a year I brave the waters?  Perhaps the real measure of a successful retirement is not how much money remains at the end, but whether those resources were used in ways that enriched the lives of others and brought meaning to our own. Financial independence now gives us choices, and a freedom after decades of disciplined saving. It is okay if I leave this world with more than enough funds still in the bank. There are values I learned along the way; those of prudence, generosity, gratitude, and the quiet confidence that comes from living well below one's means. In the end, wealth is simply a tool; character is the true legacy. Perhaps the goal isn't to die with the largest portfolio, but to know that every dollar reflected the values by which we chose to live. Therefore, if I can’t spend it all according to my values, I guess I’m okay with being the one of the richest men in the graveyard.  Jeffrey K. Actor, PhD, was a professor at a major medical school in Houston for more than 25 years, serving as an academic researcher with interests in how immune responses function to fight pathogenic diseases. Jeff’s retirement goals are to write short science fiction stories, volunteer in the community and spend time in his garden. Check out his earlier articles.
Read more »

Financial Fraud

RECENTLY, A FELLOW—let’s call him Tom—contacted me with a distressing story of financial fraud. I’ll describe what happened then review steps you might take to prevent this same sort of thing. Tom first noticed there might be a problem when he spotted a larger-than-average withdrawal from his checking account. The payee was a 529 college savings plan. But because Tom and his wife—let’s call her Jane—have 529 accounts for their children, the transaction almost went unnoticed. Tom assumed it was a transfer into his own family’s account. But when he mentioned it to Jane, she noted that they had stopped contributing to their 529. That prompted them to investigate further. What they found was that scammers had set up a new 529 account in Tom’s name. They then initiated an electronic funds transfer to move more than $2,000 from Tom and Jane’s checking account into the new 529 set up by the thieves. The intention presumably was to then withdraw the funds from the 529, at which point the theft would become unrecoverable. How were the thieves able to initiate the transfer from Tom and Jane’s bank? This is the part that’s distressing: They took advantage of the widely-used Automated Clearing House (ACH) system. Unfortunately, this system has key weaknesses that make it susceptible to fraud like this. First, it allows funds to be “pulled” out of an account. That’s in contrast to a wire transfer, which can only be “pushed” out by someone with access to the account. So a thief would only need your name, account number and bank routing number to siphon funds from that account. And unfortunately, that information is printed on the front of every check, making it accessible to someone looking to perpetrate this type of scheme. Once the thief had the new 529 account set up in Tom’s name, it was just one simple step to initiate a transfer from Tom and Jane’s bank since the accountholder’s name was the same on both accounts. It was so seamless that if Tom hadn’t been reviewing the transactions in his account, he might never have noticed the theft. According to the FBI, losses due to cybercrime have increased from $1 billion per year to $21 billion over the past 10 years, and ACH theft is a tactic thieves are using more frequently, so it’s worth looking at strategies to help keep your accounts secure. Here are six recommendations.
  1. Secure the login to your bank account by setting up two-factor authentication. And if your bank supports it, use an authenticator app, rather than text messages, for the authentication codes. Ideally, if your bank supports it, switch to a passkey. This is a newer technology that represents a significant advance over traditional passwords. Most importantly, they aren’t vulnerable to phishing attacks. They’re also easier to use, providing one-click logins, and you can store passkeys in a password manager. For those reasons, more websites are beginning to support passkeys. I’d make the switch as soon as your bank makes them available.
  2. Set up alerts through your bank to monitor activity in your checking account. Every bank is different, but most allow you to set up email- or text-based alerts to let you know when transactions above a specified threshold are processed, or when other types of activity occur.
  3. Monitor your transactions. These days, it can be hard to keep an eye on every account. Households often have one or more bank accounts plus credit cards and electronic payment services like Venmo or Zelle. Most people realistically don’t have the time to review every account in real time. That’s why I recommend a service like Monarch or YNAB, which are web-based versions of traditional budgeting tools like Quicken. These services can pull in transactions from all your accounts and present them in a consolidated list, making review much easier. If you kept Monarch or YNAB open in a browser window on your home computer, you could scroll through recent transactions whenever you have a spare minute.
  4. To narrow the circle of people who have access to your account information, try limiting the number of paper checks you write. Especially with Zelle and Venmo as alternatives for making payments, this is getting easier. If you do write paper checks, be sure to use a gel pen and to avoid freestanding mailboxes. Those steps can help prevent a related type of fraud, as Jonathan Clements explained a few years back.
  5. Pay attention to notifications of data breaches. Unfortunately, breach announcements seem to occur so frequently that we’ve become immune to them. It’s worth paying attention, though, to understand which particular pieces of information have been stolen. If it looks like your banking information is included in a breach, it might be worth opening a new account, inconvenient as that would be.
  6. Have your guard up against unsolicited phone calls, emails or text messages. If someone is contacting you about an “account security issue,” or claims to be calling from your bank or from the IRS, be especially wary. Those are common tactics for creating a sense of urgency that can cause people to let their guard down.
What if, like Tom and Jane, you spot a fraudulent transaction in your account? Then it’s important to report it as quickly as possible. Regulation E can limit your liability, but the faster you report a suspicious transaction, the more protection it provides. Liability is limited to just $50 if a theft is reported within two business days, but that exposure increases to $500 if it’s reported later. And after 60 days, there are no guarantees. Thieves, unfortunately, don’t seem to sleep, which means that we need to be more vigilant than in the past, and need to be continuously vigilant. As personal finance author Mike Piper wrote recently, “Cybersecurity should be considered another core area of personal finance—no different from insurance planning, for instance.” 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 »

A bleak picture for retirement in the future?

"My calculations say married filing jointly in 2024 with MAGI of $250k would be in the 1.4x IRMAA bracket. Part B would be about $974 more per person per year in 2026 ($202.90*12*0.4)."
- Randy Dobkin
Read more »

Behind The Finery

"Scott, we're still handling our side of the wedding — currently running about 15% over the budget we set for our daughter. I've gotten pretty good at the silent head-shake-and-sigh combo. It doesn't fix anything, but it helps."
- Mark Crothers
Read more »

Free Newsletter

Get Educated

Manifesto

NO. 16: IT TAKES years to achieve full financial freedom. But we can quickly escape much financial worry—if we live beneath our means, pay off credit card debt and build a cash cushion.

act

AVOID SITUATIONS where you feel poor. Even as the U.S. standard of living has climbed, overall happiness hasn’t. A key reason: We care about our financial standing relative to others. Don’t exacerbate this problem by going to shops, resorts and restaurants you can barely afford, or moving to a town where your neighbors will be far wealthier.

Truths

NO. 117: TREASURY bonds offer lower yields than corporates, but they come with a key advantage: They usually hold up better when the stock market declines. Bear markets are often triggered by a weakening economy. That leads to falling interest rates and concerns about the safety of corporate bonds, bolstering the price of Treasury securities.

think

DISPOSITION EFFECT. Investors tend to sell their winners too quickly and hang on to losers too long, often hurting their returns and generating unnecessarily large tax bills. Blame all this on our loss aversion: We’re anxious to turn paper gains into cash profits, before they slip away. Meanwhile, with losing investments, we hope to “get even, then get out.”

Homes

Manifesto

NO. 16: IT TAKES years to achieve full financial freedom. But we can quickly escape much financial worry—if we live beneath our means, pay off credit card debt and build a cash cushion.

Spotlight: Markets

$3 Trillion S&P 500 Gatecrashers

HAVE YOU GIVEN any thought to what’s about to happen to your S&P 500 tracker?
Three enormous IPOs are expected later this year: SpaceX, OpenAI, and Anthropic. Based on their most recent private transactions, SpaceX appears to be valued at around $1.25 trillion, OpenAI at roughly $800 billion, and Anthropic at approximately $380 billion. Combined, we could be looking at close to $3 trillion in private market value that wants to go public. To put that in perspective,

Read more »

Decision Frameworks

IN THE SUMMER of 1966, author John McPhee spent two weeks lying on a picnic table in his backyard. Why?
McPhee was suffering from writer’s block. As he described it, “I had assembled enough material to fill a silo, and now I had no idea what to do with it.”
Investors find themselves in a similar situation today. There’s no shortage of financial information around us. But that doesn’t make it easier to know what to do with it. 

Read more »

Risk Management

BY NOW, YOU’VE probably heard the story of the 25-year-old wunderkind Leopold Aschenbrenner. After graduating as valedictorian from Columbia University at age 19, he worked for FTX, the crypto trading firm, then found his way to OpenAI, where he worked as a researcher for about a year, until mid-2024.
In the months after he left OpenAI, Aschenbrenner wrote a 165-page paper titled “Situational Awareness,” in which he detailed his views on the future of artificial intelligence.

Read more »

Interest Rates Battle

EARLIER THIS WEEK, the Federal Reserve’s Open Market Committee met and decided to lower interest rates by a quarter-point. This immediately sparked a war of words.
At a press conference, Fed chair Jerome Powell took a swipe at the White House, blaming the president’s new tariff policies for an uptick in inflation.
President Trump wasted no time in responding. All year, he has been lobbying Fed officials to move rates lower. And while they have been taking steps in that direction,

Read more »

Staying Rational

IT’S BEEN MORE than six years since Covid first entered our vocabulary. It goes without saying that investors have experienced a lot, and for better or worse, recent market events provide some useful lessons. The first has to do with the nature of the stock market.
What drives stock prices? Open a finance textbook, and the answer will be clear: The value of a stock should equal the sum of the company’s future profits.

Read more »

Investment Wisdom

THE INVESTMENT WORLD is full of storytellers. And while these folks might be entertaining, they generally aren’t very helpful. There’s one category of stories, however, that I do think is useful: They’re what I might call investment fables. They’re apocryphal stories that likely aren’t real. But they’re helpful nonetheless because each carries a useful lesson. Here are some of the more popular ones.
Consumer choice. In 1999, Richard Mille and a partner launched a company to make wristwatches.

Read more »

Spotlight: McGlynn

Early and Often

FUNDING A ROTH—and enjoying tax-free growth—may not have been an option for many high-income baby boomers when they were working. But these folks can still get money into a Roth IRA by converting their traditional retirement accounts—and often there’s a great opportunity to do so if they retire early and find themselves in a lower tax bracket. The first thing to know: Converting from traditional tax-deferred accounts to a Roth IRA will generate ordinary income equal to the taxable sum converted. The second thing to know: Partial conversions are typically the way to go, so you minimize the tax hit in any given year. For instance, instead of converting $100,000 in a single year, you might be better off doing four $25,000 annual conversions, so you stay in a lower tax bracket. Partial conversions can be a great strategy if you’ve just retired, but income hasn’t yet kicked in from pensions, Social Security and income annuities. Suppose you retired early and plan to delay collecting Social Security until age 70. Soon after, you’ll also need to start taking required minimum distributions. Those RMDs will not only boost your taxable income, but also the money involved can’t be rolled into a Roth IRA. Yes, you can take your RMD and then convert an additional sum to a Roth. But the tax bills will usually be smaller if you do Roth conversions before your 70s, plus that means you start benefiting sooner from the Roth’s tax-free growth. As you ponder if and when to convert, there are two additional considerations. First, if you want to use retirement account money to purchase longevity insurance—also known as a qualified longevity annuity contract or QLAC—you’re only allowed to use 25% of your IRA balance, with a lifetime maximum of $135,000 as of 2020. Result: Before…
Read more »

Refinancing—Again

I HAD A NEW HOME built in 2017. I financed it with a 30-year mortgage at a 3.875% interest rate. Early last year, when interest rates dropped due to the pandemic, I suggested that readers refinance. I took my own advice, replacing my 30-year loan with a 15-year mortgage at 2.99%. The cost of refinancing seemed well worth the reduction in my loan interest rate. Two months ago, I saw that mortgage rates had continued to decline, so I refinanced again. My existing mortgage company gave me a new, 15-year loan at 2.375%. I didn’t want to pay the upfront costs to refinance, but I didn’t have to: My current lender waived them because I was already a customer. For those keeping score at home, the interest rate I pay has fallen 39% over the past four years. I started with a low-rate mortgage—and wound up with one that’s rock-bottom. Readers may wonder whether I should pay off my mortgage entirely. I’ve decided I’d rather have more liquidity—by keeping more money in cash. True, my cash account pays just 1.35%, a lower rate than I owe on the mortgage. But I see my savings as insurance against an emergency. On top of that, with a healthy cash balance, I won’t be tempted to draw on the equity in my home for some big expense. No one knows if and when interest rates will rise again. But I’ve locked in low rates for the duration. If short-term rates do rise, my mortgage payment won’t change. My cash account, however, may pay me more money.
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Danger: Cliff Ahead

MEET IRMAA. YOU WON'T like her. IRMAA is short for income-related monthly adjustment amount. It’s a premium surcharge levied on those covered by Medicare Part B and Part D—and who have income above certain thresholds. In 2020, the standard premium for Part B, which covers outpatient care, is $144.60 a month. That’s what you pay if you file taxes as a single individual and your modified adjusted gross income is $87,000 or less, or if you’re married filing jointly with annual income of $174,000 and below. What if your income, including tax-free municipal bond interest, exceeds these levels? You may be subject to the IRMAA surcharge. The Part B premium is set so that it pays for 25% of Medicare’s actual cost. The remaining 75% is effectively subsidized by the federal government’s general revenue. The IRMAA surcharge is designed to remove this subsidy for those able to pay—those whose income is above the $87,000 and $174,000 thresholds. The IRMAA surcharge only affects 5% of Medicare recipients, but—depending on what happens with the inflation adjustments to the IRMAA income brackets—this 5% could increase over time. In 2020, there are five different IRMAA income tiers. The Part B surcharge starts at $57.80 per month, equal to $693.60 annually, and gets as high up as $347 per month, or $4,164 annually. Keep in mind that the IRMAA surcharge is per person, so couples pay double these amounts. If your income bumps you into the next income tier, you trigger the new tier’s full surcharge. For instance, income that moves you into the second tier—which starts at $109,000, versus $87,000 for the first tier—will trigger the second tier’s higher rate, even if you exceed the threshold by just $1. This so-called cliff penalty means that $1 of extra income triggers an additional IRMAA surcharge…
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Four Simple Tips

FORCED TO SHELTER in place, I’ve used the time at home to organize my finances. I’d already read Marie Kondo’s Tidying Up. But I needed her new book, Joy at Work, to motivate me to organize my digital life. Sometimes, it helps to have a step-by-step guide to prod you to deal with such drudgery. Here are four tips I used to get myself organized: 1. Consolidate fixed costs. One way to simplify your finances is to put all fixed expenses on one credit card. True, not every bill can be put on a credit card. But I was able to charge a majority of my monthly bills to a single card, including electric and water utilities, phone, Netflix, internet, cable, electronic toll road pass, gym membership, auto insurance and home security. Result: I have one bill monthly that’s easy to pay, plus it allows me to track my fixed monthly expenses, so I can gauge how much income I need to cover those costs. Earning credit card rewards is a nice bonus. I leave my “essentials” credit card out of my wallet, so it only gets used for this one category of expenses. Meanwhile, I use a different credit card for discretionary expenses, where I also earn rewards. 2. Simplify investment accounts. For the past few years, I’ve had multiple brokerage accounts, so I can compare their research and ease of us, and also to diversify financial institutions, just in case 2008 returned. But the elimination of stock trading commissions has triggered a consolidation among brokerage firms, leaving us with a handful of stronger financial entities that aren’t dependent on commissions. That’s prompted me to move my holdings to one firm. By consolidating, I even received a discount when I recently refinanced my mortgage through that firm—and it means…
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Fourth Time Lucky

I HAD PLANNED a trip to Vietnam for 2020—which coincided with the start of the pandemic and got scratched. I naively rescheduled the trip for this summer. Unfortunately, countries that lack vaccines have been forced to lock down and keep out even vaccinated tourists like me, so that trip also got nixed. Ever the optimist, I rescheduled for Europe in July. This time, it was the delta variant and changing travel restrictions that ended my third international trip before it even began. I asked my tour group what my options were. The folks there mentioned four countries: Iceland, Croatia, Costa Rica and Egypt. I chose Egypt. The positive: There were very few tourists at the pyramids and the temples. The negatives, however, were numerous: wearing a mask on 10-hour flights, the risk of frequent flight cancellations, and COVID testing when both entering and leaving airports, even though I’m fully vaccinated. This last requirement was the hardest to understand. For my flights, I had to have a negative COVID result within 72 hours. I also learned that there are two types of test—the rapid antigen test and the less rapid but more accurate PCR test. The PCR test was required to fly through London on the way to Egypt. I paid $220 for same-day PCR test results to ensure I could board the plane. My daughter, who was accompanying me, was able to get her PCR test at no charge from her university. The testing went smoothly for us. But others in our tour group were forced to take more tests at the airport because their results needed to be within 48 hours of departure. Just before returning from Egypt, our tour group provided us with another COVID test for $150. The results were delivered to our hotel just three hours…
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The Taxman Cometh

LATE LAST YEAR, Congress voted to kill off the so-called stretch IRA, which had allowed those who inherited retirement accounts to draw them down slowly over their lifetime. Many folks were surprised by the stretch IRA’s demise, but they shouldn’t have been. When a tax break or some other government provision benefits only a few folks, Congress often changes the law. Think back to 2015. That year, Congress eliminated the ability to “file and suspend” Social Security—another strategy that tended to be exploited only by a privileged few. I suspect we’ll see similar Congressional action in the years ahead. This election season, there’s been talk of reversing the tax rate reductions in 2017’s Tax Cuts and Jobs Act (TCJA), especially for those who’ve benefited the most from those cuts. In any case, after year-end 2025, many of the TCJA changes sunset. The upshot: If Congress doesn’t act in the next five years, taxes will automatically increase. But it isn’t just the TCJA that’s in the political crosshairs. Here are five other key areas where we might see changes to the tax code: There’s discussion of eliminating the preferential long-term capital gains and qualified dividend tax rates for those with incomes above $1 million. Warren Buffett has often complained that he pays a lower tax rate than his secretary. This change would ease his conscience by boosting the capital gains and dividend tax rate from 20% to potentially 39.6%, but only for those with seven-figure incomes. The TCJA reduced corporate tax rates from 35% to 21%. There are proposals to increase that rate to 28% and to ensure all corporations pay a 15% minimum tax. I predict that, at some point between now and 2034, there’ll be changes to the payroll tax that funds Social Security or, alternatively, that other federal…
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