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WELCOME TO OUR comprehensive and continuously updated financial guide. Visiting for the first time? You might start with the financial life planner and the portfolio builder. Looking for a particular topic? Check out the table of contents or try the search function. Are you an instructor using the guide with students? Here are some tips.
I am a Vanguard investor. Right now, I have a very aggressive asset allocation since, being retired, I have enough passive monthly income to live on. However, I am also interested in having cash reserves in case of market downturns. Please discuss what “cash investments” are, and how much to keep in cash, plus, which account would be best to have cash in: brokerage (taxable) or IRA (Roth and traditional)?
You might find these two links helpful:
https://humbledollar.com/money-guide/cash-investments/
https://humbledollar.com/money-guide/step-3-cover-cash-needs/
If you’re over age 59 1/2, and hence not subject to tax penalties on IRA withdrawals, using your traditional IRA to hold your cash is fine. If younger, you should use a regular taxable account.
Is there any reason to choose a unit investment trust? I’m helping a friend with his portfolio and I see his broker sold him several of these. Why would that make sense for the client?
The short answer is, no.
https://humbledollar.com/money-guide/unit-investment-trusts/
I had given my 3 kids a credit card on my account to use for emergencies during college. Now they are all on their own. Will canceling the cards in their name impact their credit score? Two of them will likely be in the mortgage market in the next 12 months.
As I understand it, your kids should continue to get the benefit of the card’s credit history. On the other hand, the credit available to them will shrink when you cancel the cards, so it’ll likely look as though they’re using a high percentage of the credit available on their other cards, which could hurt their credit score.
I REALLY liked reading your newsletter when there were fewer ads. It detracts greatly in the quality of presentation. I would welcome the opportunity to click a few extra times to read articles without these distractions.
The newsletter has no ads, but there are ads on the site. If there were no ads, there would be no site. The donations I receive simply aren’t enough to cover the site’s costs. Nonetheless, HumbleDollar — I believe — operates more ethically than perhaps any other financial site, as you can learn here.
On the other hand, if you’d like to make a six-figure donation, I’d be happy to remove ads for the next year.
Hey Jonathan,
Love HD. Read it first thing upon waking on Wednesdays and Saturdays, even before I read the news.😮
Question:
Would it be possible to contact your usual scribes (the married ones) to see if any of them would address how they went about deciding when to claim the lower earning spouse’s Social Security vs utilizing their retirement accounts?
I am familiar with, and have utilized Mike Piper’s Open Social Security calculator, but it only looks at one side of the coin, the other is seeing your retirement account balance dwindle and also how that affects one’s children’s inheritance.
I am presently pondering this conundrum, and think it would create some interesting content.
Thanks,
David
David: While Mike Piper’s calculator doesn’t explicitly state its results as more/less money at death, that’s implied. In other words, if you live to at least an average life expectancy for someone starting in their 60s, you should come out ahead by following the guidance offered by Mike’s calculator — and hence there should potentially be more money for your heirs.
What is your advise regarding reverse mortgages? Pros ? Cons?
You might check out this page, as well as the links at the bottom to three articles that the site has published:
https://humbledollar.com/money-guide/reverse-mortgages/
Our financial advisor recently switched firms. We have a good relationship, trust him, he is informed about our circumstances, feel comfortable that we would be well taken care of in the event of one of us passing. How do we decide if we follow him or stay with original firm and work with a new advisor. Which category would have the best guidance for this situation?
If moving with your advisor doesn’t lead to a cost increase, and it doesn’t compel you to sell investments and potentially trigger a tax bill, I’d be inclined to move. The difference between a good advisor and a bad one is huge — and, if you’re confident your advisor is one of the good guys, you should probably stick with him.
BTW we are several years retired and the picture of passive investors.
I have purchased I bonds and can’t find on goverment site information as to when and what options are available to recieve interest. Can it be deferred to cash in date? Thanks
With Series I savings bonds, you have to defer your interest — you receive it when you cash in your bonds.
https://treasurydirect.gov/savings-bonds/i-bonds/
I would find helpful comments from experts/readers on best practices for strategizing Required Minimum Distributions annually. I read often about safe percentages of drawdowns or withdrawals annually, but those discussion do not often take RMD’s into account. Is it better to take the RMD from all available sources on a percentage basis–or to move funds to a MM fund in anticipation of the RMD? Thanks for any thoughts!
Two thoughts: 1) You should have a sum, equal to the amount you plan to spend from your portfolio over the next five years, out of the stock market and in nothing more adventurous than short-term high-quality bonds; and 2) you should pull your RMD from whatever investments will keep your portfolio at your target asset allocation. In other words, if stocks are doing well and hence your portfolio is overweighted in stocks, you might end up pulling your RMD from your stock funds. But in a down year like this one, your RMD might come from your short-term bond fund, so your stocks are left to recover.
Thanks for the feedback! I enjoy and appreciate the work of the HumbleDollar community!
Wish you had a section on annuities. There must be some way to figure out which ones are better than others.
Social Security is an annuity.
There are NO good annuities UNLESS they pay 14% with an inflation adjuster. It will never happen. Annuities are legal theft sold by overpaid “sales” people. RUN when you hear the word annuity. Take your assets to some other type of investment including low operating costs index funds.
SPIAs and DIAs can be useful tools to help with longevity risk, sequence risk etc. etc., and to provide a higher percentage of preretirement income from guaranteed sources.
For every financial product out there there is SOME valid use case, it’s just that a lot of people get sold products that don’t fit their needs.
The site does include information on annuities. What sort of annuity are you interested in? If it’s income annuities (I’m guessing it is), start here:
https://humbledollar.com/money-guide/income-annuities/
Im so grateful for the wisdom shared through humble dollar. Learn great things every Saturday. But today’s article on social security leaves out the math. If you wait until 67 to take benefits instead of 62 you don’t catch up until about 82. That’s the biggest reason not to wait in my mind. I could be missing something I admit. But that’s the math I see.
You are absolutely correct. My analysis showed that if I died before 85, taking payments at 62 was the right thing to do. Of course, I assumed that I would not spend it and my investments would continue to grow at the same rate. Fortunately, returns over the past 14 years have been better than I anticipated. I was also motivated by constant discussions of changes to social security. My other reason for starting at 62 was my feeling those already in the system would be the least affected by any changes. I read a Humble Dollar article or two every morning. Thank you.
When asked why I invest and save as much as I do, I struggle to explain or come up with any clear answer. We are fotunate enough to be able to live off of our retirment income. My number one concern is that my wife will be able to live as comfortably should I precede her. We might use some of our investments to either buy a hew home or maybe an RV. If we leave some to our heirs, that would be fine, but it isn’t necessarily a goal. Is there another way to think about this? How can we adjust our thinking to develop a more meaningful plan? Without clearer planning, I feel we won’t be adjusting our risk appropriately.
I would start by making sure you have enough to sustain your and your wife’s lifestyle through to a ripe old age. Once you’re confident you have that covered, see how much is left and together consider how you would like to use it. Travel? Charity? Your heirs? I would draw up a wish list, put it on the refrigerator and spend some weeks thinking about what would be most meaningful to the two of you. You may decide you’d rather just sit on the money — and that’s a fine choice, too.
Thanks Janathan! You’re amazing and I appreciate what you are doing for so many of us. God bless!
I’d like to read much more about annuities. It’s so confusing. It seems like we can only get subjective/biased info from whoever is their own type of annuity. How does one learn about which are the better/worst types of annuities, without a bias?
Annuities come in two flavors: immediate and tax-deferred. You can read about both types in the money guide sections below and those that follow:
https://humbledollar.com/money-guide/income-annuities/
https://humbledollar.com/money-guide/tax-deferred-fixed-annuities/
As a rule, immediate annuities are worth considering if you want more guaranteed retirement income — and tax-deferred annuities are almost always a bad idea.
I am starting to set aside money for my children and aspirational grandchildren. My state has a low estate tax exemption, so just our house pushes my wife and I over. There are so many different ways to go about it UTMA, 529, passing on and IRA, revocable trust, living trust and fancier things like setting up a family corporation etc. Where can I find up to date, level headed advice about this stage of planning?
As a side note, one of the main reasons I can even think about this kind of thing is that I have been following your advice for about 20 years, so thank you very much. Your article on happiness is one of my all time favorites.
It sounds like you need to talk to a financial planner with a good estate planning knowledge. I’ve made regular gifts to my children and stepchildren over the years, starting from when my kids were still in single digits. I even funded a 529 for a future grandchild, with my daughter currently named as both owner and beneficiary. She can change the beneficiary later. But such tactics may not make sense for you. There are lots of issues to consider, including current tax advantages, college financial aid, estate taxes, control issues and — of course — your own financial needs.
I heard a CFP the other day say he currently uses one year T-bills held to maturity for the bond allocation of portfolios he works with.
I’ve done some research since and they seem to be a good option for one’s cash allocation, but seems to me more traditional short or intermediate bond funds are better for the bond allocation for all but very conservative investors.
One thing I have trouble uncovering in my search is an idea of the potential loss of selling early if needed. While there’s no “penalty,” given rising ratesone can expect to lose money if selling early, but can’t find any examples of how much one would stand to lose. Appreciate any info on this, and thoughts on T-bills generally.
T-bills are typically sold at a discount to par and redeemed at par. There’s some small risk that the bills would be trading at a slightly larger discount, should you sell before maturity:
https://treasurydirect.gov/indiv/products/prod_tbills_glance.htm
Frankly, buying T-bills direct has always struck me as a hassle. Why not save yourself the bother and purchase a low-cost government money market fund from Vanguard?
Thanks Jonathan. Yes I had checked the info at treasury.gov and some other sources, but can’t find an example of what the slight loss might be. In any case, it’s only a year duration, so it can’t be that much…
I experimented and was surprised to find it’s not that big a bother. I can buy them online at Fidelity with no commission as easily as buying a stock or mutual fund. So, this is actually easier than the CD buying process was (specifying beneficiaries for each, etc), and way easier than buying Series EE a while back on the treasury site was.
The 7-day yield on Vanguard Federal Money Market Fund is 2.10% (similar fund at Fidelity is 1.86%) while the one year T-Bill expected yield is 2.68%. Currently a one year CD at Ally or Synchrony is 2.50%.
Of course the VMFXX yield may go up while one holds it, and the T-bill and CD rates will not. Still, 2.5 plus seems like the better deal if you can plan to park the money and/or live with the cost of taking it back early.
This rate comparison discussion is useful if this money was going to be in cash of some kind, but the advisor is using T-bills as the bond allocation. I understand the advice to be on the short end of the duration spectrum in a rising rate environment. Still, wouldn’t a short term or intermediate term bond fund, or even a longer duration bond market index fund, be better for most as the bond allocation, rising rates or not? I think I read Chrisine Benz a while back saying that an investor with a 5+ year time horizon would likely do better in the index.
Thanks, Michael
Not sure this is the proper forum for my question, but…
Is there a 2018 or 2019 “Jonathan Clements Money Guide” in the works?
Thanks.
The Money Guide now resides online here at HumbleDollar, where I can continuously update it — and you can read it for free. I’ve had many requests to put out a new paperback edition. I’m toying with the idea — and even have a publisher who is interested — but haven’t made a final decision yet.
Control your finances, control your life ~ A wealth guy
Long time follower here.
Back in the days of “Getting Going” in the WSJ
A colleague and I have been back and forth about investment in foreign stocks.
Seems like if the US becomes the next Japan, this might be a good idea.
Seems to me over the ling haul, US stocks are better. Anyone have any further thoughts on this?
I have to give you EXTREME MANY THANKS for the great free
& accurate information in this website. I have found that the info here is
a LOT more accurate than the financial advisors that I have contacted. When I
do contact someone on a specific topic as listed here, I always read up on it
here first, then contact someone else to see if they have the correct answer as
what is listed here. Needless to say I have NOT found another person or entity
that has the same CORRECT answers as what I have found in here. It’s really
interesting to see another person stumble their way through an answer when they
do not know the correct answer & they are supposed to be an expert in their
field! What a joke because they put cash in front of doing what is right for
the consumer!!
Then you add the fact that all this great info is not only
free, but is always being updated, is just solid GOLD. I have looked on the
internet for years trying to find Real Life Wisdom that I can give to my
children & this site has it & a lot more considering I have forgotten a
lot & don’t know a lot of the info here also.
I have one child that will not listen to me even though he
is in his 30’s & acts like a smart aleck teenager. He will however, listen
to others that have the same info that I want to give him like Dave Ramsey,
which I have the same knowledge. This website fits the bill for this problem I
have with him.
This IS the best site I have found for a LOT of various Real
Life Info & I would recommend ALL parents give this website URL to their
children as I have, along with many others.
Dick, I’ve been following Humble Dollar for some time now but never had the impetus to comment. Wow, what a crazy set of circumstances. Like others, I wish your better half a speedy recovery and my own wife upbraided me last year for assuming she could take half of the furniture weight in the re-arranging we did over the last four decades. My bad. But she does have awesome UBS. Anyway, when we moved from the Bay Area’s 1766 sq ft tract to our current 2651 sq ft single-story in Phoenix I thought I would retire-in-place. And I did! But the MRS didn’t want to let the property go (my company would have bought it at market rate for the move) so we rented it. Soon thereafter we sold it for $354K and now it’s valued at $800K. Whoops. WTH was I thinking? I just wanted the extra cash to buy a boat, have fun with my kids on the lake, not stress over anything … in retrospect not a bad decision, just a stupid one, LOL. I still own the home I’m in and have two rentals, one here and one in Washington. Despite what Jonathan laments about real estate, I still love having my properties when the market farts on every tariff or other lame event that Mr. Trump instigates. At least he’s after the long term health of the US economy (no hate mail here, please). Like others have said, you are truly blessed and your wife is a trooper. Yes, it could always be worse!! GB
I have to pay tax for social security because I am still working part-time. Is there any ways to reduce social security tax? I have to pay 15% tax on SS.
Thank you for your time. I love and appreciate your program
I’d like to calculate if I have enough money now, so i can become more conservative —
in your in your recent article. I dont understand how to use the calculator imbedded in the article…. do you have a step by step? thank you
Struggling with to solve a huge finance question. I am 31 with two kids. I pay $400 per month on student loans with about 25yrs left. I have a 401k that roughly matches my outstanding debt. Is it totally out of line to consider wiping out my 401k to pay off college? It would give me a clean slate and allow me to up my 401k contribution going forward, while also freeing up much needed cash.
You’d be much better off lowering your 401(k) contributions going forward, so you’re under less financial strain, than emptying a 401(k) to pay off student debt. If you cash out a 401(k), you’ll have to pay both federal and state income taxes at your marginal rate and a 10% tax penalty, so you might end up with just 65 cents for every $1 currently in the 401(k). Moreover, you probably couldn’t even empty the 401(k) unless it’s at an old employer. While you might be able to take out a 401(k) loan from your current plan, the only way to empty the account is with a hardship withdrawal — and your employer likely wouldn’t allow it if the goal is to pay off student loans.
This site is a gift to me, my family and many others – thank you so much Jonathan!
I’ve read and saved many of your articles from the WSJ and others from mid-90’s onward. Wisdom about money is married to wisdom about life and you have both. There’s only a handful of people out there like you.
Enjoy your hard working retirement! 🙂