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$40 Trillion of Debt

ArticleAdam M. Grossman  |  Aug 22, 2026

SOME MILESTONES are auspicious. Others are not. This week, the Treasury announced that the federal government’s debt had topped $40 trillion for the first time. Government debt is nothing new, but the problem is now of more concern, for two reasons. First, the scale has grown. An apples-to-apples way to look at the government’s debt load is to compare it to GDP—the economy’s total annual output. On this basis, outstanding debt now exceeds 100% of GDP, a level we haven’t seen since the period immediately after World War II. That brings us to the second concern: If the government isn’t able to balance its books while the economy is strong, as it is today, lawmakers will have less flexibility to act when the next recession occurs. For a brief period about five years ago, a theory known as modern monetary policy entered the conversation. The idea, popularized by a book titled The Deficit Myth, was that we shouldn’t be so concerned with deficits—that the U.S. government should be able to borrow more or less as much as it wants. What we’ve seen, though, is that eventually deficits do matter. In simple terms, the government now takes in about $6 trillion per year in revenue, but it's spending almost $8 trillion, resulting in deficits of roughly $2 trillion. And just like a consumer who's run up a big credit card bill, interest payments now consume an ever-larger portion of annual spending. In round numbers, the government this year will spend about one in every six tax dollars it collects on interest and will spend more on interest than on defense. Why have the numbers gotten so much worse? The first factor was Covid. The government had to take extraordinary measures to pull the economy out of recession. But while that spending was mostly justified, the problem is that Congress grew accustomed to larger budget shortfalls and has been unwilling to rein things back in. Congress, in fact, went in the opposite direction when it passed a set of tax cuts a few years back. Those cuts might not have been such a problem, except that one of the lasting effects of the pandemic was inflation. It hit a high near 10% in 2022, and while it’s come down from that peak, it's still higher than it was prior to 2020. What’s the connection between inflation and the deficit? It’s more indirect, but it may be the government's biggest problem at this point. The Federal Reserve's primary strategy in fighting inflation is to raise interest rates, and that's exactly what it did beginning in 2022. That helped with inflation but became a problem for the deficit because the government is such a large borrower, and higher interest rates translated to higher borrowing costs. Unfortunately, the issue has now started to compound on itself. Despite the Fed’s lowering rates, which it has done a handful of times over the past few years, market interest rates have remained stubbornly high, especially long-term rates. That’s because the government is being forced to pay more to borrow, just like any prospective borrower whose finances look shaky. This has become something of a chicken-or-the-egg problem. If rates were lower, the deficit might shrink considerably. But rates may not drop until investors see that lawmakers have gotten serious about the issue.  Why hasn’t Congress addressed the problem? In short, it’s because the two most obvious solutions—raising taxes or cutting spending—are the last thing any politician wants to do. Ironically, this may be the one area where both parties are fully aligned. Hopefully Washington begins to get serious about the problem. For better or worse, though, this is the situation we’re in. Against this backdrop, what steps might you consider for your portfolio? Because the deficit is so closely tied to interest rates, the first area I’d focus on would be your bond holdings. With long-term interest rates at multi-decade highs, there might appear to be an opportunity to profit from long-term bonds if rates were to drop. I would be cautious, though. Just this week, we’ve seen volatility in long-term rates, and things could easily go the other way. For that reason, I recommend a conservative posture toward bonds, with the majority in short-term holdings, only a small amount in intermediate-term and none at all in long-term bonds. To be sure, this might mean forgoing some profits if rates come down, but in my view, the bond side of a portfolio should be the part that helps investors sleep at night rather than another area to worry about. What other steps could you take? I’d give thought to your long-term tax exposure. It’s possible that politicians will eventually get serious and raise taxes, and if they do, you’d want to be in a position to manage your own tax bill. Fortunately, there is one clear route to inoculating part of your portfolio against tax increases, and that’s to look for ways to build up dollars in a Roth account: If you’re in your working years, you could contribute to a Roth IRA or a Roth 401(k). Your employer might even allow for so-called mega back-door Roth contributions. If you’re retired or happen to have a low-income year, consider a Roth conversion.  A final recommendation: If you have a net worth over $10 million or so, you might give thought to estate tax strategies. Today the federal estate tax applies only to individuals with more than $15 million in assets, but this threshold has been a political football and could easily end up much lower. As recently as 2008, it was at just $2 million. 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 »

If Retirement  is Getting Close

Dan Smith  |  Aug 18, 2026

"Making your RMD late in the year gives you a lot of flexibility in hitting your projected current year tax liability by having the amount you have withheld be considered as a timely payment withheld equally through out the year while allowing the entire RMD amount to continue to earn investment income for most of the year of distribution. For a couple filing using married filing jointly status I also like the late in the year RMD and targeted withholding in your go-go and slow-go years. When a MFJ status couple or a single taxpayer reaches their no-go years I favor a early in the year RMD as I saw multiple instances that due to a late in the year death the RMD was not timely made and the surviving spouse or heirs how have to deal with an unexpected additional tax issue that could be avoided. The requirement to take a timely RMD survives death. The ability to be able to choose to wait until late in the year to take your RMD is often not available to those who need the IRA distribution for needed expenses."
- William Perry
Read more »

The Intentional Spendthrift

Mark Crothers  |  Aug 21, 2026

"It wasn’t deliberate on my part, still, we had a similar outcome for our recent cross country trip. In January we laid out our itinerary for the trip in May, we pre-paid for all the hotels and airfare home. All that was left to pay for in May was the cost of the rental car and the gas to get to California, and of course meals. Having the major expenses paid well in advance eliminated that damned mental calculator from ruining all the fun.  PS: It was too quiet around here without ya!"
- Dan Smith
Read more »

Federal debt

R Quinn  |  Aug 19, 2026

"I’d say no. The government will issue more bonds to cover spending. Investors will want higher yields, and that will depress bond values"
- Boomerst3
Read more »

The Federal Debt and Social Security Payments

DavidHLancaster  |  Aug 19, 2026

"Also, the federal government is writing IOUs to the trust fund to cover the interest payments. It owes to the trust fund. At some point, these IOUs will need to be repaid, and that will be money borrowed."
- Bob Zwick
Read more »

Feeling TIPSy?

ArticleSanjib Saha  |  Aug 22, 2026

NOT TOO LONG ago, Treasury Inflation Protected Security (TIPS) was a relatively obscure investment for safe long-term fixed-income investments. For the first twenty years of the new century, consumer prices were mostly stable or rising at a too-slow-to-notice rate. Why bother with anything related to inflation? Sadly, persistently low inflation made us complacent on the biggest long-term risk of bond investments -- the insidious unexpected inflation that robs us of the purchasing power of our “safe” investments. Yes, let’s not forget that the biggest risk of bond or bond-like investments is unexpected inflation. Any bond or CD with a maturity beyond a few years must either offer a sufficiently high interest rate to compensate for sudden bouts of inflation, or have its principal adjusted for the inflation actually realized. The former is nearly impossible to find without sacrificing safety. The latter is what TIPS is for. To be clear, the market and investors always expect some level of inflation. Therefore, a bond’s effective interest rate - measured by its YTM (Yield to Maturity) - must be high enough to not only compensate for “expected” inflation and the uncertainties around it but also provide a meaningful increase in the purchasing power of the original principal.  A concrete example might help. Consider a 10-year US Treasury nominal bond with a face value of $1,000, selling at $1,000 and paying 5% annual interest. The interest rate reflects the expectations about inflation and other factors over the next 10 years. The rate would be lower if market expected lower inflation, and higher if market expected the opposite. The omnipresence of inflation means we’re likely to lose some purchasing power when we get our $1,000 in 10 years. It won’t buy what $1,000 buys today. By how much? That’s the thousand dollars question (pun intended).  There isn’t a readily available number that explains why that 10-year Treasury Bond yields 5% instead of 3% or 7%. Investors essentially take a leap of faith that annual inflation stays low enough over the 10-year period for the interim interests to compensate for the purchasing power loss, plus some changes. Most of us are perfectly comfortable assuming that inflation won’t be as high as 5% for 10 years. But are we fooling ourselves? I suggest using an inflation calculator to see for ourselves. Spoiler alert: Late 1960s through early 1980s can be an eye-opening period. How’d we feel if the next 10 years turn out to be something similar? Think about how you might feel when you safekeep your money in a so-called secure investment, give up higher returns available from risky investments, and then encounter an inflationary regime. Your minimum expectation was that your purchasing power would remain intact and perhaps improve a little by the time your bond matures. Instead, unforeseen inflation erodes your purchasing power and compromises the financial goal the fund was supposed to cover.  Your “safe” investment fails you completely. You realize that it wasn’t safe at all.  If unexpected inflation is so devastating, why are we so lax about it?  I can think of two reasons.  First, our minds haven’t adapted to the reality that, unlike to a “real” asset like a bag of rice or a gallon of gasoline, money in its current form is inherently self-eroding. It slowly loses its worth over time. A hundred dollars sitting around will still be a hundred dollars next year, but it won’t buy the same amount. We don’t intuitively perceive the continuous loss of purchasing power. Even when we do internalize it with some effort, we get used to the “pace” of the loss. In other words, we view inflation as steady and unexpected inflation as highly unlikely. Alas, all it takes is a single prolonged inflationary period to change that perception. By then, however, the damage to existing fixed income investments may already be done. Frankly, I’d be very wary of keeping my long-term “safe” money -- fund that I need to preserve beyond a three-year horizon - in any form that isn’t protected against unexpected inflation. For bond investments, the most meaningful option would be TIPS. Why? Because, in addition to being secured by the full faith and credit of the US Government just like any other Treasury securities, TIPS provides three important assurances upfront. First, it provides protection against unexpected inflation, which is a realized inflation that differs from what we expected when purchasing it. If the actual inflation averages 12% instead of the expected 2%, the principal is automatically adjusted to reflect the actual inflation. No guesswork or unexpected risk involved. Second, it provides a “real interest rate” upfront that tells us how much the purchasing power of the investment will increase over time, regardless of what the actual inflation turns out to be. Buying a 10-year TIPS with real 2% annual interest means the investment’s purchasing power will grow 2% per year over the holding period, before considering taxes and other factors. The third aspect is more nuanced. It involves the possibility of inflation being lower than expected, or even negative inflation (aka deflation). Let me elaborate. If a regular nominal 10-year Treasury Bond offers 5% annual yield and an equivalent TIPS offers a real annual interest rate of 2.75%, the market-implied inflation, the breakeven inflation rate, is roughly 2.25% (5% minus 2.75%). Actual inflation, of course, will be known only after 10 years when the bond matures. Suppose the actual inflation turns out to be only 1.25%. The nominal Bond investor would end up with more purchasing power than the TIPS investor because the TIPS principle would be adjusted by only the actual 1.25% inflation rate.  The primary objective of the TIPS investor would still have been met: preserving and improving purchasing power by about 2.75% annually. But there would be a “missed opportunity”. The nominal Treasury investor would end up with even greater purchasing power. Does it mean that a TIPS investor can face an unlimited opportunity cost if inflation turns out to be negative? What happens if the actual inflation is, hypothetically speaking, negative 5%, in a severely deflationary period? Does the TIPS investor get back proportionately reduced principal at maturity? Thanks to the third assurance of TIPS, the answer is NO.  TIPS guarantees that the principal returned at maturity will never fall below the original face value. During periods of deflation, the inflation-adjusted principal can fall below its face value and the interim interest payments will decline accordingly. But at maturity, the principal is floored at the original principal amount. Therefore, the breakeven inflation rate, the difference between the yield of a nominal Treasury bond and the real yield of an equivalent TIPS, represents the maximum annual yield advantage that the nominal bond can have over TIPS in an unexpectedly low inflation regime.  To summarize, a TIPS investor gets unlimited protection against unexpectedly high inflation, while accepting a limited opportunity cost should the actual inflation be low or even negative. The magnitude of that trade-off is reflected in the breakeven inflation rate at the time of the TIPS purchase.  An aside: given the destructive impact of deflation on economy and society, policy makers are generally more concerned about preventing prolonged deflation than about preventing modest inflation. Therefore, prolonged deflation is usually considered less likely. Still, we cannot ignore deflation risk altogether and should be prepared for the possibility that TIPS can underperform a nominal bond if inflation runs low.  Therefore, the decision to favor TIPS over an equivalent nominal Bond hinges in part on the current breakeven inflation rate. If it’s low enough, favoring TIPS can be an easy decision. Getting unlimited protection against unexpectedly high inflation is worth accepting the relatively small opportunity cost if inflation comes below the breakeven rate. There is, however, a cautionary note about buying TIPS bonds in the secondary market, especially older issues. Consider a 30-year TIPS bond issued 20 years ago and a 10-year TIPS issued within last 6 months. Both might appear to be valid choices if they mature within a few months of each other and offer similar yields. But beneath the surface, one may be more favorable than the other.  The older TIPS will likely have a much higher inflation-adjusted principal because it accumulated 20 years of inflation adjustments. But the protection against unexpected deflation applies only to the bond’s original face value, which is typically $1,000.  In a prolonged deflationary period, the older bond has much more room for its inflation-adjusted principal to decline before reaching the $1,000 floor. The newer issue, whose adjusted principal is much closer to the $1,000 face value, has less exposure to this risk. Therefore, all else being equal, I’d favor a TIPS with a low inflation-adjusted factor when buying in the secondary market. All things considered, my vote goes to TIPS for long-term “safe” investments, provided the break-even inflation is reasonably low. For secondary market purchases, however, a high inflation-adjustment factor would give me pause.   Sanjib Saha retired early from software engineering to dedicate more time to family and friends, pursue personal development and assist others as a money wellness mentor. Self-taught in investments, he passed the Series 65 licensing exam as a non-industry candidate. Sanjib is the president and cofounder of Dollar Mentor, a 501(c)(3) nonprofit organization offering free investment and financial education. Follow his nonprofit on LinkedIn, and check out Sanjib’s earlier articles.
Read more »

New in 2025 – Code Y on 1099-R box 7 for QCD’s

William Perry  |  Apr 26, 2025

"Thank you, William, for this update. I value your recommendations and have saved the article to my tax file. Being just two years away from my first QCD (at age 70.5, from an inherited IRA), I have begun planning for them. My hope is that QCDs can eventually be accomplished with a few digital clicks, as are grants now from donor advised funds."
- Jo Bo
Read more »

The Lottery of Birth

Andrew Clements  |  Aug 19, 2026

"I had a conversation yesterday with someone in my gym. I commented on what a TV showed on a TV screen regarding the market performance that day. He said he had given up on the stock market. I asked him why. I told him how it had helped retire at 62. He said he was 77 years old and working part time. I asked him if this was for something to keep him busy or out of necessity. He said he was foolish when he was younger and didn’t consider his older self. He figured Social Security would be all that was necessary. I think he has plenty of company here in the US."
- DavidHLancaster
Read more »

Income taxes on retirees with Social Security

R Quinn  |  Aug 14, 2026

"The government is us, all 340 million of us. There aren’t too many laws and regulations that have not been changed as the times require."
- R Quinn
Read more »

Frozen 2025 1040 refund and the IRS CP53E notice

William Perry  |  Aug 19, 2026

"I think that is a good thought and practice for many high income taxpayers. Back when I was working that pattern of applying the overpayment was often a usual occurrence. Many taxpayers with K-1's from their pass-though entities, like partnership income or S-Corp income, do not get their prior year K-1 until well after the unextended 1040 due date (April 15) so there may be some prior year taxable income surprises when the K-1 is finalized and received. In such cases where estimated taxes will be due the next year many taxpayers will choose to lump the estimated balance due for the prior year with the following first quarter amount and pay the combined amount as the extension payment due 4/15 which just happens to be the same date as the first quarter ES payment for the next year. If the prior year tax ends up being more than expected when the 1040 was extended then they have more paid in for the prior year to lower or eliminate potential underpayment penalty and if the final return for the prior year does have a overpayment you can choose the amount of the overpayment to be applied to the next year estimated tax which is effectively paid 4/15 regardless of when the prior year return is filed and what part, if any, of the overpayment you want to to be refunded. Another reason for making a combined payment is the owner of a closely held business they control which is organized as a pass through entity has some flexibility to control the taxable income of the business income from the prior year such as by choosing an accelerated depreciation method for those assets bought in and placed in service in the prior year."
- William Perry
Read more »

1,800 data breaches in the first six months of 2026

rgscl  |  Aug 20, 2026

"The jail sentence should be for the CEO, not some obscure underling."
- Jerry Pinkard
Read more »

COBRA insurance: No need to fear the bite

Heidi - SunnyMoneyDIY  |  Aug 11, 2026

"In some cases COBRA can be extended to 36 months for a spouse or dependent . One example of a qualifying event would be if the policyholder became eligible for Medicare- a younger spouse could have COBRA extended."
- Julie C
Read more »

$40 Trillion of Debt

ArticleAdam M. Grossman  |  Aug 22, 2026

SOME MILESTONES are auspicious. Others are not. This week, the Treasury announced that the federal government’s debt had topped $40 trillion for the first time. Government debt is nothing new, but the problem is now of more concern, for two reasons. First, the scale has grown. An apples-to-apples way to look at the government’s debt load is to compare it to GDP—the economy’s total annual output. On this basis, outstanding debt now exceeds 100% of GDP, a level we haven’t seen since the period immediately after World War II. That brings us to the second concern: If the government isn’t able to balance its books while the economy is strong, as it is today, lawmakers will have less flexibility to act when the next recession occurs. For a brief period about five years ago, a theory known as modern monetary policy entered the conversation. The idea, popularized by a book titled The Deficit Myth, was that we shouldn’t be so concerned with deficits—that the U.S. government should be able to borrow more or less as much as it wants. What we’ve seen, though, is that eventually deficits do matter. In simple terms, the government now takes in about $6 trillion per year in revenue, but it's spending almost $8 trillion, resulting in deficits of roughly $2 trillion. And just like a consumer who's run up a big credit card bill, interest payments now consume an ever-larger portion of annual spending. In round numbers, the government this year will spend about one in every six tax dollars it collects on interest and will spend more on interest than on defense. Why have the numbers gotten so much worse? The first factor was Covid. The government had to take extraordinary measures to pull the economy out of recession. But while that spending was mostly justified, the problem is that Congress grew accustomed to larger budget shortfalls and has been unwilling to rein things back in. Congress, in fact, went in the opposite direction when it passed a set of tax cuts a few years back. Those cuts might not have been such a problem, except that one of the lasting effects of the pandemic was inflation. It hit a high near 10% in 2022, and while it’s come down from that peak, it's still higher than it was prior to 2020. What’s the connection between inflation and the deficit? It’s more indirect, but it may be the government's biggest problem at this point. The Federal Reserve's primary strategy in fighting inflation is to raise interest rates, and that's exactly what it did beginning in 2022. That helped with inflation but became a problem for the deficit because the government is such a large borrower, and higher interest rates translated to higher borrowing costs. Unfortunately, the issue has now started to compound on itself. Despite the Fed’s lowering rates, which it has done a handful of times over the past few years, market interest rates have remained stubbornly high, especially long-term rates. That’s because the government is being forced to pay more to borrow, just like any prospective borrower whose finances look shaky. This has become something of a chicken-or-the-egg problem. If rates were lower, the deficit might shrink considerably. But rates may not drop until investors see that lawmakers have gotten serious about the issue.  Why hasn’t Congress addressed the problem? In short, it’s because the two most obvious solutions—raising taxes or cutting spending—are the last thing any politician wants to do. Ironically, this may be the one area where both parties are fully aligned. Hopefully Washington begins to get serious about the problem. For better or worse, though, this is the situation we’re in. Against this backdrop, what steps might you consider for your portfolio? Because the deficit is so closely tied to interest rates, the first area I’d focus on would be your bond holdings. With long-term interest rates at multi-decade highs, there might appear to be an opportunity to profit from long-term bonds if rates were to drop. I would be cautious, though. Just this week, we’ve seen volatility in long-term rates, and things could easily go the other way. For that reason, I recommend a conservative posture toward bonds, with the majority in short-term holdings, only a small amount in intermediate-term and none at all in long-term bonds. To be sure, this might mean forgoing some profits if rates come down, but in my view, the bond side of a portfolio should be the part that helps investors sleep at night rather than another area to worry about. What other steps could you take? I’d give thought to your long-term tax exposure. It’s possible that politicians will eventually get serious and raise taxes, and if they do, you’d want to be in a position to manage your own tax bill. Fortunately, there is one clear route to inoculating part of your portfolio against tax increases, and that’s to look for ways to build up dollars in a Roth account: If you’re in your working years, you could contribute to a Roth IRA or a Roth 401(k). Your employer might even allow for so-called mega back-door Roth contributions. If you’re retired or happen to have a low-income year, consider a Roth conversion.  A final recommendation: If you have a net worth over $10 million or so, you might give thought to estate tax strategies. Today the federal estate tax applies only to individuals with more than $15 million in assets, but this threshold has been a political football and could easily end up much lower. As recently as 2008, it was at just $2 million. 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 »

If Retirement  is Getting Close

Dan Smith  |  Aug 18, 2026

"Making your RMD late in the year gives you a lot of flexibility in hitting your projected current year tax liability by having the amount you have withheld be considered as a timely payment withheld equally through out the year while allowing the entire RMD amount to continue to earn investment income for most of the year of distribution. For a couple filing using married filing jointly status I also like the late in the year RMD and targeted withholding in your go-go and slow-go years. When a MFJ status couple or a single taxpayer reaches their no-go years I favor a early in the year RMD as I saw multiple instances that due to a late in the year death the RMD was not timely made and the surviving spouse or heirs how have to deal with an unexpected additional tax issue that could be avoided. The requirement to take a timely RMD survives death. The ability to be able to choose to wait until late in the year to take your RMD is often not available to those who need the IRA distribution for needed expenses."
- William Perry
Read more »

The Intentional Spendthrift

Mark Crothers  |  Aug 21, 2026

"It wasn’t deliberate on my part, still, we had a similar outcome for our recent cross country trip. In January we laid out our itinerary for the trip in May, we pre-paid for all the hotels and airfare home. All that was left to pay for in May was the cost of the rental car and the gas to get to California, and of course meals. Having the major expenses paid well in advance eliminated that damned mental calculator from ruining all the fun.  PS: It was too quiet around here without ya!"
- Dan Smith
Read more »

Federal debt

R Quinn  |  Aug 19, 2026

"I’d say no. The government will issue more bonds to cover spending. Investors will want higher yields, and that will depress bond values"
- Boomerst3
Read more »

The Federal Debt and Social Security Payments

DavidHLancaster  |  Aug 19, 2026

"Also, the federal government is writing IOUs to the trust fund to cover the interest payments. It owes to the trust fund. At some point, these IOUs will need to be repaid, and that will be money borrowed."
- Bob Zwick
Read more »

Feeling TIPSy?

ArticleSanjib Saha  |  Aug 22, 2026

NOT TOO LONG ago, Treasury Inflation Protected Security (TIPS) was a relatively obscure investment for safe long-term fixed-income investments. For the first twenty years of the new century, consumer prices were mostly stable or rising at a too-slow-to-notice rate. Why bother with anything related to inflation? Sadly, persistently low inflation made us complacent on the biggest long-term risk of bond investments -- the insidious unexpected inflation that robs us of the purchasing power of our “safe” investments. Yes, let’s not forget that the biggest risk of bond or bond-like investments is unexpected inflation. Any bond or CD with a maturity beyond a few years must either offer a sufficiently high interest rate to compensate for sudden bouts of inflation, or have its principal adjusted for the inflation actually realized. The former is nearly impossible to find without sacrificing safety. The latter is what TIPS is for. To be clear, the market and investors always expect some level of inflation. Therefore, a bond’s effective interest rate - measured by its YTM (Yield to Maturity) - must be high enough to not only compensate for “expected” inflation and the uncertainties around it but also provide a meaningful increase in the purchasing power of the original principal.  A concrete example might help. Consider a 10-year US Treasury nominal bond with a face value of $1,000, selling at $1,000 and paying 5% annual interest. The interest rate reflects the expectations about inflation and other factors over the next 10 years. The rate would be lower if market expected lower inflation, and higher if market expected the opposite. The omnipresence of inflation means we’re likely to lose some purchasing power when we get our $1,000 in 10 years. It won’t buy what $1,000 buys today. By how much? That’s the thousand dollars question (pun intended).  There isn’t a readily available number that explains why that 10-year Treasury Bond yields 5% instead of 3% or 7%. Investors essentially take a leap of faith that annual inflation stays low enough over the 10-year period for the interim interests to compensate for the purchasing power loss, plus some changes. Most of us are perfectly comfortable assuming that inflation won’t be as high as 5% for 10 years. But are we fooling ourselves? I suggest using an inflation calculator to see for ourselves. Spoiler alert: Late 1960s through early 1980s can be an eye-opening period. How’d we feel if the next 10 years turn out to be something similar? Think about how you might feel when you safekeep your money in a so-called secure investment, give up higher returns available from risky investments, and then encounter an inflationary regime. Your minimum expectation was that your purchasing power would remain intact and perhaps improve a little by the time your bond matures. Instead, unforeseen inflation erodes your purchasing power and compromises the financial goal the fund was supposed to cover.  Your “safe” investment fails you completely. You realize that it wasn’t safe at all.  If unexpected inflation is so devastating, why are we so lax about it?  I can think of two reasons.  First, our minds haven’t adapted to the reality that, unlike to a “real” asset like a bag of rice or a gallon of gasoline, money in its current form is inherently self-eroding. It slowly loses its worth over time. A hundred dollars sitting around will still be a hundred dollars next year, but it won’t buy the same amount. We don’t intuitively perceive the continuous loss of purchasing power. Even when we do internalize it with some effort, we get used to the “pace” of the loss. In other words, we view inflation as steady and unexpected inflation as highly unlikely. Alas, all it takes is a single prolonged inflationary period to change that perception. By then, however, the damage to existing fixed income investments may already be done. Frankly, I’d be very wary of keeping my long-term “safe” money -- fund that I need to preserve beyond a three-year horizon - in any form that isn’t protected against unexpected inflation. For bond investments, the most meaningful option would be TIPS. Why? Because, in addition to being secured by the full faith and credit of the US Government just like any other Treasury securities, TIPS provides three important assurances upfront. First, it provides protection against unexpected inflation, which is a realized inflation that differs from what we expected when purchasing it. If the actual inflation averages 12% instead of the expected 2%, the principal is automatically adjusted to reflect the actual inflation. No guesswork or unexpected risk involved. Second, it provides a “real interest rate” upfront that tells us how much the purchasing power of the investment will increase over time, regardless of what the actual inflation turns out to be. Buying a 10-year TIPS with real 2% annual interest means the investment’s purchasing power will grow 2% per year over the holding period, before considering taxes and other factors. The third aspect is more nuanced. It involves the possibility of inflation being lower than expected, or even negative inflation (aka deflation). Let me elaborate. If a regular nominal 10-year Treasury Bond offers 5% annual yield and an equivalent TIPS offers a real annual interest rate of 2.75%, the market-implied inflation, the breakeven inflation rate, is roughly 2.25% (5% minus 2.75%). Actual inflation, of course, will be known only after 10 years when the bond matures. Suppose the actual inflation turns out to be only 1.25%. The nominal Bond investor would end up with more purchasing power than the TIPS investor because the TIPS principle would be adjusted by only the actual 1.25% inflation rate.  The primary objective of the TIPS investor would still have been met: preserving and improving purchasing power by about 2.75% annually. But there would be a “missed opportunity”. The nominal Treasury investor would end up with even greater purchasing power. Does it mean that a TIPS investor can face an unlimited opportunity cost if inflation turns out to be negative? What happens if the actual inflation is, hypothetically speaking, negative 5%, in a severely deflationary period? Does the TIPS investor get back proportionately reduced principal at maturity? Thanks to the third assurance of TIPS, the answer is NO.  TIPS guarantees that the principal returned at maturity will never fall below the original face value. During periods of deflation, the inflation-adjusted principal can fall below its face value and the interim interest payments will decline accordingly. But at maturity, the principal is floored at the original principal amount. Therefore, the breakeven inflation rate, the difference between the yield of a nominal Treasury bond and the real yield of an equivalent TIPS, represents the maximum annual yield advantage that the nominal bond can have over TIPS in an unexpectedly low inflation regime.  To summarize, a TIPS investor gets unlimited protection against unexpectedly high inflation, while accepting a limited opportunity cost should the actual inflation be low or even negative. The magnitude of that trade-off is reflected in the breakeven inflation rate at the time of the TIPS purchase.  An aside: given the destructive impact of deflation on economy and society, policy makers are generally more concerned about preventing prolonged deflation than about preventing modest inflation. Therefore, prolonged deflation is usually considered less likely. Still, we cannot ignore deflation risk altogether and should be prepared for the possibility that TIPS can underperform a nominal bond if inflation runs low.  Therefore, the decision to favor TIPS over an equivalent nominal Bond hinges in part on the current breakeven inflation rate. If it’s low enough, favoring TIPS can be an easy decision. Getting unlimited protection against unexpectedly high inflation is worth accepting the relatively small opportunity cost if inflation comes below the breakeven rate. There is, however, a cautionary note about buying TIPS bonds in the secondary market, especially older issues. Consider a 30-year TIPS bond issued 20 years ago and a 10-year TIPS issued within last 6 months. Both might appear to be valid choices if they mature within a few months of each other and offer similar yields. But beneath the surface, one may be more favorable than the other.  The older TIPS will likely have a much higher inflation-adjusted principal because it accumulated 20 years of inflation adjustments. But the protection against unexpected deflation applies only to the bond’s original face value, which is typically $1,000.  In a prolonged deflationary period, the older bond has much more room for its inflation-adjusted principal to decline before reaching the $1,000 floor. The newer issue, whose adjusted principal is much closer to the $1,000 face value, has less exposure to this risk. Therefore, all else being equal, I’d favor a TIPS with a low inflation-adjusted factor when buying in the secondary market. All things considered, my vote goes to TIPS for long-term “safe” investments, provided the break-even inflation is reasonably low. For secondary market purchases, however, a high inflation-adjustment factor would give me pause.   Sanjib Saha retired early from software engineering to dedicate more time to family and friends, pursue personal development and assist others as a money wellness mentor. Self-taught in investments, he passed the Series 65 licensing exam as a non-industry candidate. Sanjib is the president and cofounder of Dollar Mentor, a 501(c)(3) nonprofit organization offering free investment and financial education. Follow his nonprofit on LinkedIn, and check out Sanjib’s earlier articles.
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New in 2025 – Code Y on 1099-R box 7 for QCD’s

William Perry  |  Apr 26, 2025

"Thank you, William, for this update. I value your recommendations and have saved the article to my tax file. Being just two years away from my first QCD (at age 70.5, from an inherited IRA), I have begun planning for them. My hope is that QCDs can eventually be accomplished with a few digital clicks, as are grants now from donor advised funds."
- Jo Bo
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The Lottery of Birth

Andrew Clements  |  Aug 19, 2026

"I had a conversation yesterday with someone in my gym. I commented on what a TV showed on a TV screen regarding the market performance that day. He said he had given up on the stock market. I asked him why. I told him how it had helped retire at 62. He said he was 77 years old and working part time. I asked him if this was for something to keep him busy or out of necessity. He said he was foolish when he was younger and didn’t consider his older self. He figured Social Security would be all that was necessary. I think he has plenty of company here in the US."
- DavidHLancaster
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Income taxes on retirees with Social Security

R Quinn  |  Aug 14, 2026

"The government is us, all 340 million of us. There aren’t too many laws and regulations that have not been changed as the times require."
- R Quinn
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Manifesto

Aug 21, 2026

NO. 43: IF OUR GOAL is investment growth, we should almost never buy insurance products. That means no cash-value life insurance, costly variable annuities or indexed annuities.

act

Aug 22, 2026

SHORTEN YOUR commute. Thinking of moving home or taking a new job? Research suggests that if you can keep your daily commute to under 20 minutes—and preferably walk to work—you will be happier. By contrast, a long commute, especially by car, is associated with greater unhappiness, worse physical health and a higher divorce rate.

Truths

Aug 21, 2026

NO. 45: THIS YEAR’S winners often continue to shine next year. This momentum may reflect an initial underreaction to good news, followed by a catch-up period. Trading costs make it hard to profit from the momentum effect. Still, if you own an investment that’s lately started outperforming, maybe you shouldn’t rush to sell.

humans

Aug 20, 2026

NO. 39: WE LATCH on to information that confirms what we already believe. Instead of dispassionately reviewing the evidence, bullish investors spot reasons for optimism wherever they look, while naysayers see just the opposite. The risk: Such confirmation bias convinces folks they know the market’s direction, prompting them to make big bets they later regret.

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Manifesto

Aug 21, 2026

NO. 43: IF OUR GOAL is investment growth, we should almost never buy insurance products. That means no cash-value life insurance, costly variable annuities or indexed annuities.

Spotlight: Behavior

Quinn’s latest rant has serious consequences 

R Quinn   |  May 12, 2025

My favorite, beautiful word is “consequences,” and how it seems to be ignored.
We tend to forget that no matter what we do, there will be a result, a reaction. There will be consequences, some intended, others not.  We tend to address one problem but fail to think through possible consequences. 
The best examples are at the national level. Apply a surcharge such as IRMAA and people will attempt to keep income lower.  
Roth accounts were intended to increase retirement savings,

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Deeply Rooted

Mark Crothers   |  May 23, 2026

JUNE MARKS THREE years since my mum passed from complications of vascular dementia. It was a tough couple of years, watching her mind slowly fail and her world shrink a little more with each passing month. Anyone who has cared for a loved one in the late stages of dementia will know how difficult and disjointed even the simplest conversation becomes. The loops, the confusion, the frustration of trying to redirect someone you love from a thought they can no longer find their way out of.

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Choosing Yes by Saying No

Mark Crothers   |  Aug 5, 2025

Are you definitely sure I can’t tempt you?” my friend asked for the last time as we finished our phone conversation. Once again, I replied in the negative before a few pleasant closing words and then hanging up.
Thinking back on our chat, I realized this was the fourth invitation to various activities I’ve turned down in the last few months. The invitations ranged from an opportunity to provide tax reporting services for an old friend at a decent billable rate to this most recent inquiry today to play doubles together in a badminton league come September.

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A Personal Encounter with the Psychology of Money

Mark Crothers   |  Jul 28, 2025

I’ve been in a bit of a financial funk these last three months, and I’ve finally managed to overcome my heart and listen to my head. I’m really surprised how difficult I’ve found it, especially with my business and financial background. I mean, truly difficult.
It all started when I was setting up a 10-year fixed-term annuity before retirement. I had initially decided on a purchase amount and, to fund it, liquidated some of my developed world index tracker.

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My favorite question.

Richard Hayman   |  Aug 6, 2025

It would be nice to hear more from HD readers who have been there and done that. And to answer the question, “Knowing what you know now, what would you have done differently?”

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Simplicity Is a Virtue

David Gartland   |  Feb 4, 2025

FORD MOTOR COMPANY introduced the world to the convertible hard top in 1957 with a car called the Skyliner. It was a marvel of engineering.
To retract, the Skyliner hard top first tilted up and away from the front windshield. Then the top folded in half overhead. The trunk lid opened wide. The folded hard top swung into the trunk, which then closed. All by flipping a single dashboard switch. You can see it in operation in this commercial featuring Lucille Ball and Desi Arnaz.

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Spotlight: Gartland

The Other Side Sucks

David Gartland   |  Nov 10, 2023

THERE ARE CERTAIN expressions I’ve heard during my lifetime which, for one reason or another, have stayed with me. In a previous article, I related how a coworker encouraged me to “keep on keeping on” when confronted with a challenge, and how Napoleon Hill’s expression “burning desire” struck me as a great way to describe a goal worth seeking. Here’s another expression I’ve never forgotten: “The other side sucks.” I’ve been a race car fan ever since my older brother introduced me to automobile racing in my youth. I especially enjoy Formula One racing. These international racing events gather the best of the best—mechanics, engineers, drivers and the sponsors who pay for it all. One of the Formula One race tracks I’ve visited is in Watkins Glen, New York. In the 1960s, Watkins Glen was the only race track that hosted a Formula One race in America. There were others in the years that followed but, at the time, Watkins Glen was the only one. The racing community that sponsored the event, along with the owners of the racing teams, were sophisticated. The same couldn’t be said of the fans at Watkins Glen, who weren’t necessarily from society’s upper crust. One area of the Watkins Glen track was known as “the bog.” It was a valley within the racing grounds that would become muddy following rain storms. This area became a gathering place for fans, who took great joy in directing late arrivals to this muddy area, especially after it was dark. Upon entering the bog, many cars would get stuck. Amid the resulting melee, cars would often be damaged. This led to Formula One’s sanctioning body to stop holding races at “the Glen.” On one particular night at the bog, two separate and distinct groups formed on each side…
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Passing the Baton

David Gartland   |  Feb 8, 2024

ONE OF THE MOST exciting events at a track meet is the relay race. Each runner has to run his or her leg, and then hand over the baton to the next runner. If the baton gets dropped, the team usually loses. My wife and I occupy two roles in our financial life. I save the money and my wife spends it. This arrangement works well for my wife. When she complains about my frugal nature, I simply explain that this gives her more money to spend. She answers, “Carry on.” As the saver in the family, I’m also the investor. I’ve set up pretty simple financial arrangements. We each have traditional and Roth IRAs. All other money is in joint accounts, accessible to my wife and me. If I die before my wife, it should be a smooth financial transition. It’s not always so. My father-in-law was the main breadwinner. He’d bring home the paycheck, and my mother-in-law would pay the bills. At the beginning of their marriage, my mother-in-law failed to make mortgage payments on time. They lost their first house that way. It was a hard lesson. But after that, their finances were in good shape—until my mother-in-law died. It turns out that my father-in-law didn’t know much about their finances. My mother-in-law had set up all of their bills on autopay, so he never thought about paying the bills. Before she died, they’d reached the point where they could no longer live in their single-family home in a 55-plus community without help. They sold the house and moved to an assisted living facility. The facility didn’t have autopay, so my mother-in-law began paying those bills monthly. This change wasn’t grasped by my father-in-law. When he gets a bill, or what he thinks is a bill, he…
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Here to Stay

David Gartland   |  Aug 20, 2024

DURING MY INSURANCE career, I worked for a company that focused solely on certain types of businesses, or what’s known as niche underwriting. One niche was called senior living, and it insured continuing care retirement communities, or CCRCs. These communities typically consist of apartments where retirees live alongside an adjoining nursing home. One benefit: When residents need nursing home care, it’s right next door. If they’re married, the healthy spouse can just walk to the nursing home to visit his or her beloved. This is an expensive lifestyle, however. You typically pay a steep admission fee and high monthly rents for the guarantee of nursing care whenever it’s needed. What if you can’t afford a CCRC? During my research into the industry, I studied the life stages that retirees frequently follow, and saw that many folks took one of two paths. Some active retirees move from where they raised their family to warmer locations, like Florida or Arizona. Once there, they often live in a community designed for people age 55 and older. Think of it as summer camp for retirees. I found these folks tend to live in these communities until the first major illness occurs. At that point, they often move back to where they came from, so they can be closer to family. This is what my in-laws did. They lived in Sun City, South Carolina, for 20 years until my mother-in-law got sick. Then they moved back to be near one of their daughters on Long Island, New York. A second popular option for retirees is to stay where they raised their family and live in that same house until they die. This is aging in place, and it’s what my mother did. She and my father bought their house in 1946 and she stayed there…
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Becoming an Investor

David Gartland   |  Dec 15, 2023

MY DREAM WAS TO become a brilliant investor who knew when and what to buy and sell. I imagined myself doing the necessary research, which would allow me to make savvy decisions, which would then impress my wife and relatives, as they observed my uncanny ability to always know what to do and when to do it. This never happened. Instead, I took stock of who I was and how I’d consistently behaved. “Know thyself” was the advice of Ken Pangburn, CEO of a company I once worked for. That’s what I endeavored to do. What I realized: I’m a saver, someone who has no difficulty skipping a purchase and instead putting the money in the bank. Now, this is a good start. But it’ll never get you onto the Forbes 400 list of America’s wealthiest. I needed to step on the accelerator a little. I undertook an in-depth study of investing. I had a good grasp of savings accounts and certificates of deposit. What I needed to learn was the other stuff. Stocks were the biggest mystery. I understood that owning shares meant you’re an owner of the company. But which stocks should I buy? This led to studying fundamental vs. technical analysis, and thinking about whether to be a value or growth investor. Should I own individual stocks or mutual funds? If I buy mutual funds, should they be actively or passively managed? It was all very confusing. I felt I had a better handle on bonds because I’d owned some savings bonds. Still, the same questions I had about stocks also applied to bonds. Do I buy individual bonds or mutual funds? Should I buy government or corporate bonds? Still very confusing. This confusion took me back to who I fundamentally was. I was a saver. Period.…
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Stop the Fussing

David Gartland   |  Jan 29, 2024

BILLY JOEL WROTE a song that declares, “I love you just the way you are.” But as parents, sometimes it isn’t easy to say those words about our children. We’re supposed to train them to succeed in life. We all probably think we’re excellent trainers, so—when our children don’t get it—it must be their fault. We did our part, so why don’t they learn? For parents of special needs children, things are different, but also similar. We also have to train our children for life. But they don’t learn or perform as “typical” children do. But good parents persevere, training their children in different ways or with more intensity. We all need to get to the finish line, so we can say, “I did my part.” But what happens if we never get to the finish line? What happens if the usual events that parents enjoy—graduations, marriages, grandchildren—never happen? That’s what I was facing. Luckily, in recent years, I’ve been able to look at my life differently. I’ve accepted my son for who he is, not for what he could be. I was afraid I’d feel I was giving up, but the opposite happened. I started to look at him as complete—that he couldn’t be anything more than what he is. I believe we all want to be better. Take our finances. We read books, try to save more, buy things when they’re on sale and take out loans when it makes sense. But when do we stop trying to make our finances better, and instead accept them for what they are? To me, the goal of accumulating money and having wealth is to live a comfortable life. We do it so that, at some point, we can stop struggling. Thinking we can always improve our finances—or always improve our children—can…
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The Hard Way

David Gartland   |  Oct 29, 2024

I RECENTLY MENTIONED to my wife’s cousin that I’m taking required minimum distributions from my IRA. He won’t have to—because he doesn’t have an IRA. Instead, he keeps his car trunk full of cash. He’s in the car business. He buys and fixes cars, all out of his mother’s two-car garage. He keeps cash to buy used cars at rock-bottom prices. People are willing to sell a car cheaper if they can get the cash immediately. His entrepreneurial style is the opposite of my approach to earning and investing. I followed the standard method—work for someone else and collect a paycheck. Pay my bills and save what’s left over. For me, an IRA made investment sense because it sheltered my money from taxes, at least until withdrawal. Later on, I switched to the 401(k) plan at work, which was an even better option for me. My savings were automatically deducted from my paycheck and deposited into the 401(k). The amount I could contribute to the 401(k) was far more than the IRA contribution limit, which is $7,000 in 2024 or $8,000 for workers age 50 or older. When I left my employer, I rolled my 401(k) into my IRA. And that’s where my money sits today because I was—and still am—basically a conservative saver. I’m curious about my wife’s cousin and others like him, those who don’t have a 401(k) or IRA and who run greater risks than I’d ever be willing to take. A second person in this category is my wife’s childhood friend, who says she’s married to a man who’s “house rich and cash poor.”   When my wife and I visited them at their summer home on the Hudson River, there was a bulldozer sitting on their property. My wife's friend said her husband bought it…
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