Jonathan Clements's Blog, page 103

Hug the Center Lane

WHAT SHOULD BE THE first rule of personal finance? My vote: Always look for ways to stay in the center lane—that is, to take a balanced approach. As 2024 gets underway, here are 10 ways you could apply this principle.

1. Housekeeping. Over time, many of us accumulate a grab bag of investments—some good, some not-so-good. Those in the not-so-good category can pose a challenge. Suppose you own an expensive mutual fund. If it’s in a retirement account, you could exit the fund without worrying about any tax impact.

But what if a sale would entail a taxable gain? It’s harder to know when a sale might be worth it—because there’s no way to know how the investment you sell will perform after you sell it, and there’s no way to know how the new investment will perform after you buy it. All too often, I’ve seen folks hold onto substandard investments to avoid a 15% or 20% tax bill, only to see that investment underperform by more than 15% or 20%.

But because there’s no way to know how things will turn out, this is precisely the sort of situation where you might opt for the center lane. How? Don’t view it as an all-or-nothing decision. Instead, you might chip away at an investment a little bit each year, with a goal of eliminating the position over three or five years.

2. Index funds. Among the reasons I see index funds as the best choice for most investors most of the time: They can help your portfolio’s performance stay in the center lane. Of course, there’s a price to pay for owning index funds, which is that you’ll never score the sort of home run you might enjoy with a winning stock. But in exchange for that, you’ll also never suffer the sort of underperformance that an investment misstep can inflict.

3. Retirement contributions. Suppose you’re starting a new job and are offered a choice between a tax-deductible or Roth 401(k). In some cases—if you’re in a very high or very low tax bracket—it’s an easy choice. But what if you’re in one of the middle brackets—either 22% or 24%? The math in these cases is often inconclusive. This would be a good time to favor the center lane and split the difference with your contributions.

4. Life insurance. Later in their careers, folks often wonder when it would be prudent to cancel a term-life policy. In many cases, the math indicates that it would be safe to cancel only some amount of coverage. If you have more than one policy, this is possible, by canceling one and holding onto the other.

What if you have just one large policy? Unless you can persuade the insurance company to dial down your coverage, you may be stuck with an all-or-nothing decision. That’s why, if you’re early in your career and in the market for life insurance, consider splitting your coverage between two or even three policies to buy yourself some flexibility.

5. Social Security. Because Social Security can be claimed at any point between ages 62 and 70, it’s the subject of endless debate. The conventional wisdom is to wait until 70 to get the largest possible benefit. I agree with that. But if you’re married, it often makes sense for one spouse to claim at least a little earlier. While this strategy may not appear mathematically optimal, the reality is that none of us knows how long we’ll live, so any amount of math is still just a guess. My recommendation: Steer clear of the age-70 dogma and instead take a center lane approach.

6. Annuities. Social Security is one of the best annuities available. But if you’re looking for additional retirement security, a single-premium immediate annuity (SPIA) might not be a bad choice. Annuities have a bad reputation because they're often loaded with opaque fees. But SPIAs tend to be the best of the bunch, and if a permanent paycheck is what’s most important, I wouldn’t get bogged down in the negativity surrounding annuities. Instead, you could split the difference by annuitizing just a portion of your assets.

7. Pensions. If you’re lucky enough to have a traditional defined-benefit pension, your employer will typically give you a choice when you reach retirement age. You can accept the benefit as a lump sum, which you can then invest on your own. Or you can opt for guaranteed monthly payments for life.

Often, the math in these cases will point in the direction of the lump sum. But before you make that choice, remember Irene Triplett. When she died in 2020, at age 90, she was still receiving a pension benefit based on her father’s military service—in the Civil War.

8. Debt. Suppose you’ve just received a year-end bonus. Should you allocate some of it to paying down debt? This is another question that lends itself to an easy calculation. If the interest rate on your loan is lower than what you might earn by investing those dollars, it makes sense to invest rather than paying down debt.

But when it comes to debt, there’s more to the equation. For many people, reducing debt provides a peace-of-mind benefit that can’t be quantified. And by reducing your monthly cash needs, a lower debt load buys you flexibility—to, say, switch into a different job with lower pay or even to retire early. The upshot: You might consider reducing a loan balance even when the math says you shouldn’t.

9. 529 accounts. When they were first instituted, 529 accounts were limited to higher education-related expenses. But that changed in 2018, and now 529 funds can also be used for K-12 expenses, up to a cap of $10,000 per year per student. While this new flexibility is welcome, it also makes the math harder.

Not only do parents need to estimate the future cost of college, but also they now need to predict whether their children will go to a private elementary or high school. That’s one reason I recommend making incremental contributions to 529 accounts over time. In theory, you might benefit by making a larger contribution earlier. But because the total tuition obligation is so hard to estimate, you could be better off with a center lane approach.

10. Gifting. If you have adult children, should you help them financially and, if so, to what degree? Warren Buffett suggests this rule: Give children enough that they can afford to do anything, but not so much that they can afford to do nothing. While few have Warren Buffett’s wealth, I see this as a useful guideline.

Ultimately, we want our children to be motivated to earn their own success. At the same time, life is expensive, so most parents want to help to the extent they can. What’s the solution? I recommend making gifts incrementally, perhaps annually. That will give both donor and recipient an opportunity to test the waters. You can then adjust future gifts accordingly.

In his 2023 book, Decisions About Decisions, Cass Sunstein offers this useful guideline on making decisions: Try to determine what the frequency, likelihood and magnitude would be of a potential error. That can help you decide how close to the center lane you want to be.

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 (Twitter) @AdamMGrossman and check out his earlier articles.

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Business Schooled

HUMBLEDOLLAR JUST marked its seventh birthday. I didn’t set out to launch a site that would devour endless hours of my time and derail my plans for something that looked like a normal retirement. But I have no regrets.

The site hasn’t been a huge success. Still, I find running it to be hugely satisfying. It’s the reason I typically crawl out of bed before 5 a.m., and do so happily. Here are five key lessons I’ve learned from my first seven years running HumbleDollar—lessons that I suspect may be useful to others, no matter what their avocation:

1. “Most overnight successes take 10 years.” That was a comment I saw online perhaps five or six years ago, and it’s stayed with me. Just as lottery ticket winners and soaring individual stocks make us think that success can come quickly and with surprising ease, the same can appear true of business ventures.

Yes, some companies do indeed suddenly take off. But as with investing, most businesses succeed by folks trying to do the right thing day after day, even when faced with discouraging short-term results. In the case of HumbleDollar, progress has been especially slow in recent years.

My measure of success isn’t advertising revenue or donations, but rather pageviews. Like most writers, what I care about most is getting read. After explosive increases over the first five years, HumbleDollar’s growth has slowed to a crawl, with 900,000 pageviews in 2017, 1.7 million in 2018, 2.6 million in 2019, 3.6 million in 2020, 4.4 million in 2021, 4.7 million in 2022 and 4.8 million in 2023.

Based on those numbers, I think it’s safe to say the site has probably peaked, and that’s fine. As long as a reasonable number of folks stop by the website each week, and they continue to find it useful, it’ll be my privilege to keep HumbleDollar going.

2. Building your own business is an enormous amount of work. “Entrepreneurs are the only people who will work 80 hours a week to avoid working 40 hours a week,” quipped Shark Tank star Lori Greiner.

I don’t consider myself an entrepreneur. But I’ve always chafed at taking direction from others, as my various bosses would no doubt attest. That’s why I’ve loved building HumbleDollar, nurturing a community that simply didn’t exist before, and I love the fact that I get to call the shots.

That doesn’t mean I’m accountable to nobody. Everybody has a boss and, in my case, it’s you—the readers. If you don’t like what the site is serving up, HumbleDollar would soon shrivel away. Moreover, if folks stopped reading and commenting, the site’s writers—who don’t get paid—would no doubt quickly decide they had better things to do with their time.

3. Don’t assume you know what will succeed. Over the past seven years, I’ve introduced a host of new features and published all manner of articles, sometimes with success, sometimes not.

For instance, the site’s web developer suggested I solicit donations, given that I’d balked at the unseemly blogger game of affiliate marketing, sponsored links and sponsored articles. I was skeptical, but it’s proven to be a success. Similarly, the “Second Look” feature, where we serve up older articles at the bottom of the homepage, has also been surprisingly popular. The best personal-finance articles tend to be timeless, and it seems readers find plenty of value in articles that might be three or four years old.

The Two-Minute Checkup, which was launched in 2022 thanks to the coding skills of HumbleDollar contributor Sanjib Saha, has been used some 47,000 times. That’s not bad. But I must confess, I had dreams that the Checkup would go viral, and that hasn’t happened. Meanwhile, my goal was to turn the Voices section into a repository of reader wisdom, but it’s been slow going. Got financial insights you’d like to share with fellow readers? Try answering a few of the 133 questions.

That brings me to 2023’s biggest change. I like to think I’m attuned to what readers want, but it took me years to embrace the obvious. I’d long known HumbleDollar’s readers were older and keenly interested in retirement issues, and yet it was only last year that I made retirement the site’s explicit focus. I’m still happy to run almost any well-written article that touches on the subject of money. But retirement—preparing for it, generating retirement income, making sure your post-work years are fulfilling—is now the site’s bread and butter.

4. It’s hard to maintain a civil community. Spend time perusing the comments on other websites, and you’ll quickly realize that many folks feel free to say utterly appalling things online—things they’d never say to your face. It’s sad that this is the way humans behave when they have some anonymity and know they won’t be called to account.

HumbleDollar—thank goodness—is different. I’m not sure how we avoided becoming another internet cesspool, but it seems this is one time when the herd mentality is working well. When commenters are too acerbic, others often express their disapproval, either with their down votes or their replies.

Not that everything is hunky-dory. An example: Last year, the site had a commenter who was almost pathologically negative. The final straw: He posted a comment asking whether a writer’s daughter was a drug addict. I deleted that comment and arranged for all of his future comments to go directly to trash.

5. You get locked in and inflexible. Folks often complain about government bureaucracy and about the terrible service from phone companies, cable providers and other large corporations. But I find it easy to understand how these organizations became so unresponsive.

Even HumbleDollar—tiny as it is—is now burdened by its own history. In the early days, I could change the site’s design, the styling of individual articles and how content is categorized with a few hours’ work. But now that the site runs to some 5,000 pages, making major design changes is almost unthinkable.

In my update in early 2022, I mentioned the site’s flagging advertising revenue and donations. Things turned around in late 2023, with donations up 13% from 2022’s level. Many thanks to all those who donated over the past year.

HumbleDollar wouldn’t exist without its large crew of unpaid writers, who not only give of their time, but often also offer intimate financial details along with their money insights. When you write an article—especially an article where you discuss what you do with your own money—you open yourself up to criticism. Make no mistake: HumbleDollar’s many contributors deserve applause for the courage they display.

In running the site, I get editing help from Greg Spears. Without his assistance, there’s no way the site could publish a dozen or so articles each week. I also have a secret weapon. Retired newspaperman Joe Kiefer often sends me emails pointing out spelling errors and grammatical mistakes in the latest articles. I won’t tell you how often I get emails from Joe—because, well, it’s a little embarrassing.

Jonathan Clements is the founder and editor of HumbleDollar. Follow him on X (Twitter) @ClementsMoney and on Facebook, and check out his earlier articles.

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Aiming for Less

WHAT DOES IT MEAN to “live within your means”? To answer the question, we first need to define “means.”

If your gross income is $60,000, that income isn’t your means. For starters, you need to subtract income and payroll taxes. To live within your means, you need to spend no more than your net income—income after taxes and other withholdings.

I’ll go further and suggest that your true means are your income net of monthly savings for retirement and financial emergencies. Some people do even better. They live below their means, meaning they save extra—denying themselves spending that many others happily embrace.

Living below your means isn’t about deprivation or sacrificing all enjoyment. Rather, it’s about making a conscious decision to prioritize financial security. If you’re already saving enough to meet long-term and short-term goals, living far below your means strikes me as unnecessary, even punitive. I’m not a fan of super-frugality.

Living prudently is about managing your finances responsibly and making choices that align with your income. The key words here are “align with your income.” Living within your means is easier as your income rises, and yet many higher-income folks fail to do so.

Where you live is a factor, too. I live in the third highest income-tax state, one that also has the nation’s highest property taxes. The average property tax in our town is $17,206, and our bill is $13,600. One result: Our monthly fixed costs are $4,193.

These expenses include property taxes, homeowners’ association fees, and all insurance and utility bills. They don’t include the cost of groceries, gasoline, clothing, personal care services, gifts, eating out or car maintenance. It also doesn’t include any expenses related to our vacation home.

While some say they live comfortably in retirement on $50,000 a year, it costs us much more. We live comfortably, not luxuriously, but where we live makes a big difference in what it takes to do that. In other words, how much a person spends isn’t, by itself, an accurate indicator of frugality or prudent spending. Still, we manage to live below our means. One sign: We’re retired, and yet we still save each month.

Living within your means is easy. Let me rephrase that: It should be easy, but for many people, it isn’t. They falter in the face of all the pressure and encouragement to spend.

Some people will say that tracking your income and expenses is essential. Typical advice includes creating a budget to identify areas where you can cut back. I disagree. I contend the real problem isn’t a lack of knowledge about spending. Rather, it’s a lack of discipline, an inability to stay focused on financial goals and a propensity to rationalize spending.

My advice is to avoid impulse purchases. Don’t succumb to the temptation to buy things you don't need or can't afford. Give yourself time to think before making purchases.

Which of these is the most important to you: impressing the neighbors, obtaining immediate gratification or achieving important financial goals? I vote for No. 3.

My advice: Define your short-term and long-term goals, such as saving for a car, a vacation or retirement. Living within your means will help you achieve these goals faster. Knowing you have control over your finances, and aren’t living paycheck to paycheck, will reduce anxiety and stress.

Two simple strategies should help: Save first through automatic payroll deduction, and never end a month with a credit card balance. If you follow those two rules, you’re forced to be financially prudent—and you’ll find yourself living below your means.

Richard Quinn blogs at QuinnsCommentary.net. Before retiring in 2010, Dick was a compensation and benefits executive. Follow him on X (Twitter) @QuinnsComments and check out his earlier articles.

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Blowing the Dough

MY WIFE RECENTLY traveled to Connecticut for a week to help with loose ends following her brother-in-law’s unexpected heart surgery. I was left to fend for myself, with only three hard-boiled eggs, two ounces of nearly expired low-fat milk, half a jar of gourmet salsa and a moldy cucumber to keep me company.

Boredom quickly set in. For some inexplicable reason, I had an uncontrollable urge to spend money. The first activity that entered my forebrain was visiting a casino. But I know from experience that, while enjoyable, this isn’t a particularly profitable choice of entertainment. Besides, the nearest casino is three hours away. The gas alone would cost more than I wished to spend.

On top of that, now that I’m officially retired, the amount I had in mind to gamble was not a justifiable cost. Sure, I budget some “blow the dough” funds for fun. But giving money to a large for-profit gambling establishment isn’t how I want my dough blown.

Instead, I willed my mind to envision what I could purchase—and permanently own—with the equivalent amount of dollars. Yes, I know, this simply transfers the guilt of spending from an experience to a hedonistic purchase.

I had my eye on woodworking tools, and had recently discovered a new-to-me tool supply outlet just a couple of miles away. I felt like a kid in a candy store. I bought a few tools—not particularly expensive—but ones that still made me feel pampered by the purchase.

My consumeristic urges were momentarily dampened. To make sure I squashed them completely, I stopped at the local dollar store on the way home and bought a fistful of frivolous items that were also in the tool-like category: some slightly dulled disposable knife blades, almost expired batteries and brightly colored duct tape. Oh yes, and coconut water. Everyone needs coconut water in their man-cave workshop, right?

Alas, I awoke the next day with the same urge to spend. I needed a diversion. My solution was to hop in the car and drive in the opposite direction of any shopping mall or big box store. Just drive west, then turn south when the road curves. Leave the big city and follow the mostly paved farm-to-market narrow roads. Just keep driving until I see billboards spouting ideas and products that are unique to smaller towns and counties, like tractor sales and hybrid corn.

Two hours into my trip, I serendipitously spotted a sign for the local county’s birding preserve. Being a biologist, I figured this would be a great adventure to get my mind off spending gobs of money. It was only 15 minutes away, or three miles as the crow flies, in the next county over. Off I went.

The placid drive between towns was itself worth the price of the excursion, which I can only describe as a real-life Norman Rockwell painting of bygone America. I passed farmlands, gorgeous with crops pushing through recently plowed soil. The smell of freshly spread manure was palpable, yet also wonderful for opening up the sinuses.

The neatly planted fields stood in stark contrast to unkempt yards, where weathered paint peeled gently away from wooden framed homes. Inviting porches stood at a five-degree tilt, bending to the gravity of time and weather. Each house had a small vegetable garden and a dog of unknown breed, as well as an RV, this prized possession gleaming from under a shaded awning. At times, a rusted Chevy with deflated tires could be seen peeking from the side yard.

I’ve learned two things from my experiences driving through little towns with populations smaller than my high school. The first is to always obey the speed limit. A speeding ticket in rural Texas is vastly higher than the day’s blow-the-dough budget. The second rule is to remember the first.

I arrived at the nature center and gladly paid the $5 entrance fee, since I was eager to hike the trails. For such occasions, I keep hiking boots and a bright red long-sleeved shirt in the car’s trunk, just in case I get hit with the hiking urge.

I parked my SUV, ducked behind the raised trunk gate and quickly changed shirts—only to notice a few indigenous townsfolk watching me dress. Gee, it’s a good thing I completed that one set of sit-ups during the pandemic. No matter. The birding was unique, the highlight being a sighting of cardinals whose plumage was a brighter shade of red than my shirt. Priceless.

My retirement goals include trying eateries in unlikely places. Taking a chance, and always on the lookout for good fish and a slightly tangy margarita, I stopped at a colorful Tex-Mex restaurant. The place was a genuine find. Chips and salsa were fantastic, and the prices suggested I could feast to my heart’s content at a reasonable price compared to my usual haunts.

I had hoped to engage the waiter in conversation and learn more about the town, but he wasn’t keen on small talk. Or perhaps I should have changed shirts after my birdwatching workout. When I inquired about the fish tacos, he simply shrugged and said, “Lefty only brought us catfish this morning.”

I pictured Lefty as an outdoorsman, scouring the nearby bayou for today’s catch. Perhaps his nickname was born from being a phenom southpaw pitcher in high school. More likely it stemmed from his using an old-fashioned noodling technique for bare-handed catching of catfish. Or perhaps he owned that year-round fireworks shanty I passed on the way into town. Best not to dwell.

By then, I was exhausted and ready to return home. I took another circuitous route, only to come across acres of cotton fields now converted to solar and wind energy. The sight was jaw-dropping. I was especially awed by the graceful nature of the wind turbine’s rotor blades, majestic in size and physical form. It was inspiring to witness the contrast of old and new, juxtaposed in the most unlikely of places.

The experience was memorable, and my urge to blow the dough was completely vanquished. The total cost of the trip was under $100, and that included fuel, a great meal and some local honey purchased on a whim.

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.

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Make Them Good Years

MANY YEARS AGO, a Wall Street Journal article quoted a source as saying, and I paraphrase, “Young-old age should last as long as possible, while old-old age should last 15 minutes.” Those of us who have visited nursing homes can all relate to this.

Public health initiatives and medical breakthroughs have extended lifespans significantly over the past 100 years. In his bestselling book Outlive: The Science and Art of Longevity, Peter Attia argues that we should focus not just on lifespan, but also on healthspan. The latter is a measure of how well we live, not necessarily how long. 

Attia emphasizes that “longer lifespan with no improvement in healthspan is a curse, not a blessing.” His goal is to increase people’s healthspan so that they maximize their chances of avoiding chronic disease, thereby reducing the portion of their lives that they spend frail and infirm. 

Attia believes that healthspan is about preserving these three elements of life for as long as possible:

Brain: How long you can preserve cognition.
Body: How long you can maintain muscle mass, functional movement, and strength, balance, flexibility and freedom from pain.
Spirit: How robust is your social support network, as well as your happiness, mental health and sense of purpose.

As an expert in longevity and preventive medicine, Attia has researched the ways we can achieve greater healthspan. He identifies four chronic conditions that have emerged in the developed world as the greatest contributors to reduced healthspan. His “four horsemen of the Apocalypse” are:

Atherosclerotic disease. This includes cardiovascular disease and cerebrovascular disease.
Cancer of all types.
Neurodegenerative disease, including Alzheimer’s disease, Parkinson’s disease and various types of dementia.
Metabolic dysfunction. This is a spectrum of everything from hyperinsulinemia to insulin resistance to fatty liver disease to Type 2 diabetes.

These four diseases account for more than 80% of deaths among those over age 50 who don’t smoke. Reducing their toll is a primary focus of Attia’s work. Much needs to be done.

Western medicine seems more focused on curing disease than preventing it. As an example, Attia cites how our medical system has evolved in the treatment of Type 2 diabetes. A person approaching middle age might see his blood sugar rise over time. At some point, the patient is defined as pre-diabetic and later diabetic.

No good comes from being diabetic—it’s a risk factor for all four horsemen. Once the patient has a diagnosis of diabetes, the medical system intervenes, potentially spending thousands of dollars. Yet, for years, the patient was marching steadily toward this point, and prevention could have averted both the physical and financial costs.

The book traces the evolution of medicine. Medicine 1.0 is how disease was treated up to the mid-1800s. This medicine had no foundation in science. Rather, it was based on “direct observation and abetted more or less by pure guesswork.”

Medicine 2.0, the current industry practice, waits until someone has become sick before initiating treatment. Modern medicine has a phenomenal ability to diagnose and treat complex diseases and respond to medical crises. It’s adept at dealing with trauma and infection.

Attia believes that what he terms Medicine 3.0 should focus on identifying negative trends early so we can zero in on prevention. In the diabetes example, early intervention might prevent the disease entirely before it can cause irreparable damage.

There is much evidence—and also much hype—around prevention. He says the greatest surprise in his research is the incredible power of exercise. When he began his dive into the evidence, he expected exercise to be important. What surprised him was how vital it is to our health.

On the flipside, he found that many claims about nutrition are based on weak studies. No doubt, proper nutrition is important, and he identifies some clear dos and don’ts. But fad diets or the constant drip of headlines saying this or that is or isn’t good are just noise.

The book can be read at two levels:

How does this relate to me and how can I increase my healthspan?
What does his research say about how the practice of medicine—and the insurance industry—should evolve, so we reach the next level of preventive care?

We can always learn and improve our current lifestyle. I would have benefited from reading this book at age 40 rather than 65. Even so, reading it now, I see that my health goals track well with Attia’s recommendations.

As a numbers person, I’ve always monitored my health measures: body mass index (BMI), blood pressure, cholesterol, glucose, triglycerides, and PSA, a measure of prostate health. If you don’t know your current state, it’s hard to map a path to improvement. I have also done well with aerobic fitness, but struggled with strength training.

Goals for how you live after 65 can also be defined in terms of function. This can mean completing daily activities without becoming short of breath, being able to get down on the floor—and then back up again—to play with grandkids, and managing household chores and bills without assistance. If these are your goals, too, what you do in the 20 years before retirement can determine your success.

Long ago, I identified that there’s a consistent theme in articles about disease prevention. For almost any chronic disease, the prescription starts the same: don’t smoke, maintain a normal BMI and blood pressure, exercise, minimize alcohol consumption, eat sensibly and get enough sleep. These universal principles are covered in great detail in the book. It’s never too late to start them.

I was introduced to Attia’s thinking through a podcast that I was, coincidently, listening to at the gym. The book is 496 pages long and some parts went into greater detail than I was willing to absorb. I did make some changes in my approach to exercise as a result of reading it, however. As much as I don’t like it, I’ve upped my strength training at the gym. The book also encouraged me to continue refining my diet.

Howard Rohleder, a former chief executive of a community hospital, retired early after more than 30 years in hospital administration. In retirement, he enjoys serving on several nonprofit boards, exploring walking paths with his wife Susan, and visiting their six grandchildren. A little-known fact: In May 1994, Howard was featured—along with five others—on the cover of Kiplinger’s Personal Finance for an article titled “Secrets of My Investment Success.” Check out his previous articles.

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Feeling Rich

ON ONE OF OUR TRIPS to visit my in-laws in South Carolina, my mother-in-law asked me what I thought of her home in a 55-plus retirement community.

“It looks like a house,” I said sarcastically.

Her response gave me food for thought. She said, “I feel rich living here.”

My mother-in-law’s home was far from being a McMansion. It was a single-story two-bedroom house, but it had cathedral ceilings. I think it was the high ceilings that, in the eyes of my mother-in-law, made the house more majestic than it really was.

I’m sure most HumbleDollar readers want to be wealthy, or well-off, or financially comfortable, or some similar goal. But what would make you feel rich?

There are plenty of people who are rich but don’t feel that way because they compare themselves to “the Joneses,” who appear to have even more. Knowing others have more can make us feel poor. That’s a shame. What good is being rich if you don’t feel rich?

I don’t have a degree in psychology, so I’m not qualified to say why some folks feel rich and others don’t. But I would venture to suggest that, if you have money and you’re content with what you have, you probably feel rich.

Now, if you took a survey of HumbleDollar readers, I bet we’d all have different notions of what makes us feel rich. The behavior that makes me feel rich is buying everything with a credit card. Thanks to that magical piece of plastic, I never feel like there’s something I can’t have. Don’t get me wrong: I never carry a balance on my card from one month to the next and, in fact, I never buy anything unless I have the money in the bank to pay for it. Still, having this piece of plastic in my wallet makes me feel rich.

I’ve read reports that say people who use their credit cards have a tendency to overspend and get themselves into financial trouble. That’s probably true, but I still feel rich using a credit card. If I had to take cash out of my wallet every time I bought something, I’d feel poor, stressed and unhappy. There are too many things in this world that can make us feel unhappy—which is all the more reason to identify those things that make us feel rich.

Another behavior that makes me feel rich, especially now that I’m retired and not earning a salary, is having a sizable checking account balance. From a financial standpoint, this isn’t a wise thing to do. The money in my checking account isn’t earning a lot of interest. But it makes me feel rich to know the money is there and that I can easily pay my bills. I think of it as my sleep insurance.

It reminds me of a scene from the movie Love Story. Ryan O’Neal comes home from college and asks his rich father, played by Ray Milland, for money for something out of the ordinary. Ray Milland opens his checkbook and says, “How much?” Now, that’s rich.

I watch the TV show American Pickers on the History channel. It’s a fascinating study of people who accumulate what I consider junk. When the hosts of the show try to buy this stuff for their antique stores, many times the owners don’t want to sell at any price. The hosts know what sort of things people come into their stores to buy, so they know what’s valuable and what’s not. By contrast, the owners of this stuff think everything they have is valuable. Their stuff makes them feel rich.

A recurring theme among a lot of these people: At a young age, they were denied many things. It could have been during the Great Depression or because of their family’s financial position, or maybe a natural disaster caused them to lose everything. But the stuff that these folks have accumulated now makes them feel rich, which I think is wonderful. Many have said they like to surround themselves with their possessions.

Life is too short to sweat the little things—or anything else for that matter—so it’s important to identify those activities, habits or possessions that help you appreciate your life, regardless of how much or how little you have. Which raises the question: What makes you feel rich?

David Gartland was born and raised on Long Island, New York, and has lived in central New Jersey since 1987. He earned a bachelor’s degree in math from the State University of New York at Cortland and holds various professional insurance designations. Dave’s property and casualty insurance career with different companies lasted 42 years. He’s been married 36 years, and has a son with special needs. Dave has identified three areas of interest that he focuses on to enjoy retirement: exploring, learning and accomplishing. Pursuing any one of these leads to contentment. Check out Dave's earlier articles.

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More Than Money

I WAS FASCINATED with retirement planning during the final decade of my career. I read many financial books and focused on saving diligently. Yet, after retiring several months ago following a 39-year career as a research and development engineer, I had a rude awakening.

You can plan all you want, but then comes an unexpected situation that derails everything. As boxer Mike Tyson famously said, “Everybody has plans until they get hit for the first time.”

In the brief time I’ve been retired, I’ve quickly learned that money—despite being the centerpiece of most retirement literature—isn’t the sole answer to my retirement needs. Instead, there are many ingredients required for happiness.

Several years ago, before retirement, my wife and I chose to sell our home, downsize and move to a 55-plus retirement community in Atlanta. Now, we’re in another such community in Tampa. From my perch, I’ve observed how seniors older than me, from their late 70s to early 90s, manage their lives. Some are just barely living, while others are thriving.

What makes some resilient and happy, while others struggle? This is not an easy question to answer. Everyone’s situation is different, so there’s no standard prescription that’ll work for everyone. Still, based on what I’ve observed over the past few years and on my own experience over the past few months, I believe these four pillars, presented in order of importance, are crucial ingredients for a happy retirement:

Health. Without health, retirement is a struggle. If one spouse has a health problem and the other functions as a caregiver, the entire retirement plan has to change.

I know of several families in our 55-plus community where the children have assumed the burden of caregiving, with knock-on effects on their own families and careers. I’ve also seen people living alone who struggle with poor health. In some cases, moving closer to children or to a continuing care facility is a great help.

I also see many seniors in their late 80s who are mentally sharp and physically fit, and there’s a great deal to be learned from them. Our health doesn’t have to be perfect, but a daily commitment to practicing healthy habits goes a long way toward slowing or even halting physical deterioration.

Wealth. There are well-known money moves that we should make during our working lives. Prudent saving and investing will get us to retirement’s door. It doesn’t end there, though. In retirement, there are many decisions needed to safeguard our money.

Some of the critical money moves in retirement include waiting to take Social Security to maximize benefits, whether to work part-time for pay, deciding between a pension or lump-sum payout, and whether to downsize and move to a lower-cost location to reduce expenses.

Then there’s the crucial matter of health insurance. It’s not just deciding between traditional Medicare and Medicare Advantage. Buying long-term-care (LTC) insurance can be a great idea. I didn’t think about LTC insurance until a friend suggested 10 years ago that my wife and I buy it. It was expensive—and worth the cost.

Just two months after buying LTC insurance, my wife fell seriously ill. The insurance paid for her care, which was a big relief. According to the Department of Health and Human Services, nearly 70% of 65-year-olds will eventually need some form of LTC, yet many are unprepared.

If purchasing insurance is too expensive—and it has become prohibitively so—consider self-insuring by setting aside money for LTC. When estimating the amount to set aside, be sure to account for ever-increasing health care costs.

Social network. If we have our health and wealth but are often lonely, that won’t lead to a happy retirement. A National Institute of Aging study pointed out that social isolation and loneliness in elderly Americans can hurt our well-being, while other studies have found that social connections are important for maintaining good health.

In the 55-plus community where I lived in Atlanta, singles were happy to live in a community setting where there were many group activities. Those who had lots of friends and who were socially active were the happiest. Even if you’re living alone, it’s important to make every effort to meet regularly with friends, relatives and members of the community.

Purpose. After I retired, I noticed that few people asked about my career. The titles and responsibilities of the past no longer mattered. Stripped of my identity, I had to redefine who I was and what I was comfortable doing.

The fourth key to living well after retirement is having a purpose. It could be volunteering, teaching others, spending more time with family, hobbies, helping the community or anything that energizes you to jump out of bed each morning to accomplish something. This has been the hardest job for me.

I have no interest in watching TV, so I needed to find something to keep myself busy. I’ve found that helping undergraduates at a nearby university with their projects makes me feel useful. I’m also putting more effort into developing several hobbies, including digital painting.

The first few months and years of retirement are the time to explore multiple options and experiences. Eventually, I expect to focus on a few activities, as I learn what I enjoy the most.

Sundar Mohan Rao retired recently after a four-decade career as a research and development engineer. He lives in Tampa in a 55-plus community. His interests include investing, digital painting, reading, writing and gardening.

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Taking My Medicine

I'M STILL KICKING myself for not getting a new Medicare Part D prescription drug plan during the enrollment period for 2023, even though our premium had gone up significantly. Most people, it seems, are like me: They stick with their current plan, rather than shopping for one that meets their needs at a lower cost.

For 2024, I vowed to do better.

Medicare’s open enrollment period ran from Oct. 15 to Dec. 7, 2023. During that time, I received an email from Medicare encouraging me to compare all of my coverage options, especially the prescription drug plans. The email stated: “There are 23 Medicare drug plans in your area. Explore your choices on Medicare.gov today!”

I get this type of email from Medicare every year. Don’t ignore Medicare’s reminder—because drug-plan prices can fluctuate greatly. According to the Centers for Medicare and Medicaid Services, the average monthly Part D plan premium for 2024 is $55.50.

Lowering costs. It’s easy to compare your current plan to others available to you. All you have to do is log into Medicare.gov, and then enter your zip code and the drugs you take. Medicare saves your drug information, so you don’t have to reenter it each year. It’s also easy to edit your list of drugs, if necessary.

When I compared my current Medicare prescription drug plan, AARP Medicare Rx Saver (from United Healthcare), to the others available to me, I could save a lot if I switched to Wellcare Value Script (PCP). My current plan’s 2024 premium was jumping from $50.70 a month to $89.80. Meanwhile, the premium for Wellcare’s plan is unbelievably lower at just 40 cents a month. In addition, Wellcare provides better coverage for the drugs I take. Both plans have a $545 deductible, but my prescriptions are in Wellcare’s tier categories that have zero deductibles, which isn’t the case with my current AARP plan.

At first, I thought this was too good to be true. How could there be such a big difference in cost? Is there something wrong with the quality of Wellcare Part D plans? It seems not. The Centers for Medicare and Medicaid Services, which rate health care plans, gave it a 3.5 star rating out of four, which is higher than the three-star rating for the plan I currently had. I’ve read that Wellcare is the second-largest company that offers Medicare Part D plans and generally has lower premiums, with some at zero cost. 

I take inexpensive generic drugs and my wife doesn’t take any. My total estimated drug cost under Wellcare is $124.80 a year, which is less than half the cost if I stayed with AARP. I figured that, if my wife and I both switched to Wellcare, we’d save approximately $2,300 in 2024. Almost all of the savings are due to the lower premiums.

We decided to enroll in the Wellcare Value Script (PCP). It was simple to do on Medicare's website. You just click the enrollment button under the plan you want, and some of the information needed for the application is already filled in. Once you complete the application, you can submit it from the Medicare website.

Triggering IRMAA. I'm glad we switched plans because we’re facing higher 2024 premiums for Medicare Part B and Part D. I’m talking here about the premiums charged by the federal government, as opposed to those charged by insurers for supplemental plans.

The Social Security Administration determines the premium surcharge, or income-related monthly adjustment amount (IRMAA), based on your income from two years earlier. The savings from changing our Medicare drug plan will help offset part of the Part B and Part D premium surcharge we’ll pay in 2024.

I never thought I'd be subject to IRMAA. When I retired, my income was primarily from capital gains and dividends, plus the interest I earned on my savings account. One reason I delayed Social Security benefits until age 70: It gave me the chance to do Roth IRA conversions at a relatively low tax rate. Those conversions shrank my traditional IRA, resulting in smaller required minimum distributions (RMDs) once I turn age 73.

When Rachel and I were married in 2020, our income was still well below the IRMAA threshold. But after our marriage, we sold Rachel’s old home, and the 2022 sale ended up increasing our income for IRMAA purposes. Should we have sold the house before we got married? I won’t bother you with all the details. But the short story is, by waiting a few years to sell, we ended up pocketing far more, and the extra proceeds easily cover our 2024 Medicare surcharge.

We didn’t challenge the Social Security Administration’s IRMAA decision because our decrease in income after 2022 was not caused by one of the required life-changing events. The notice we also received stated: “We cannot make a new decision if your income has changed for a reason other than those listed above, such as receiving one-time income from capital gains.”

Meanwhile, even though I’ll start taking RMDs this year, we’ll avoid having to pay IRMAA surcharges two years later, thanks to all the Roth conversions I did earlier in retirement. Holding our bonds in our IRAs has also helped reduce our taxable income.

My wife will start her RMDs in six years. At that point, we'll be up against IRMAA again. We’re planning on doing qualified charitable distributions (QCDs) from our IRAs. That should lower our modified adjusted gross income and, fingers crossed, continue to keep us under the IRMAA threshold.

Dennis Friedman retired from Boeing Satellite Systems after a 30-year career in manufacturing. Born in Ohio, Dennis is a California transplant with a bachelor's degree in history and an MBA. A self-described "humble investor," he likes reading historical novels and about personal finance. Check out his earlier articles and follow him on X (Twitter) @DMFrie.

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December’s Hits

ADAM GROSSMAN dominated our monthly list of the most popular articles and blog posts, with four of his articles among December's top 10:

Last year was a good one for investors. Want to make sure 2024 is even better? Adam offers a slew of suggestions for strengthening your portfolio and your overall finances.
For decades, experts have been warning about the financial fallout from an aging population. Ken Cutler takes a look at what folks might do to protect their finances.
What mix of stocks and conservative investments should you hold? As Adam Grossman notes, it's the most important decision that investors make. He offers six pointers.
What are your favorite funds? Steve Abramowitz describes the four exchange-traded funds he owns, how much he allocates to each—and why he bought them.
Patrick Brennan spent his career in the Coast Guard making decisions based on imperfect information. Now he's facing yet another crucial choice that's beset by uncertainty—when to claim Social Security.
Retirees looking to turn their savings into income are often advised to use the 4% rule. Dick Quinn's contention: The strategy is too risky and too complicated for most folks, who'd be better off buying an immediate annuity.
In 2024, the new law allowing 529-to-Roth transfers takes effect. Intrigued? Adam Grossman walks readers through the ins and outs.
With a lifetime of experience under their belt, retirees shouldn't be easily rattled. And yet older Americans still worry needlessly, as Dennis Friedman can attest.
Conducting an investment review? Whether you're looking at stocks, bonds or real estate, Adam Grossman has some suggestions—with a particular focus on risk.
"I finally had an epiphany," says Bruce Roberts. "It wasn’t complicated: compounding + time = wealth. This was the key—not getting rich quickly, but getting rich slowly."

What about our twice-weekly newsletters? The two most popular Wednesday newsletters were Taxing Our Brains by Dan Smith and A Taller Ladder by David Cooper, while the most popular Saturday newsletters were Happily Ever After and 24 Rules for 2024, both written by me. Don't get our free newsletter? You can sign up here. We also put out a free daily alert about the site's latest articles, which you can sign up for here.

Finally, we just closed the books on 2023. HumbleDollar had modestly more pageviews last year than in 2022. The year's three most popular articles were My Retirement Shock by Mike Drak, Frugality Has a Cost by Jeff Actor and Six Rules for Wealth by Charles Wilson.

The post December’s Hits appeared first on HumbleDollar.

Harmful Illusion

MANY FOLKS EQUATE a stock market downturn with losing money. I often hear comments like, “I lost money yesterday. The stock market went down.”

I believe this impression of loss is an illusion, one that can be detrimental to our financial health—because it blinds us to certain fundamental truths.

1. Illusion of lost money. You only lose money if you sell shares at a loss. If you don’t sell amid a downturn, you still have the same number of shares as before. To the extent those shares pay dividends, that income stream should continue. And if you reinvest those dividends, you’ll be buying more shares at lower prices. While the value of your portfolio may be lower than it was previously, it doesn’t represent a real loss of money if you don’t sell.

2. Temptation to tinker. Behavioral economists have found that we experience the regret of a loss with twice the intensity that we feel the pleasure of a gain. If you believe you’ve lost money in a market downturn, the pain of that illusory loss could tempt you to tinker with your portfolio to either make up the loss or prevent further losses. Such actions rarely benefit investors. You’re more likely to harm yourself because such tinkering is usually an emotional reaction to events—and emotions don’t serve us well when making investment decisions.

3. Increased dividend yields. Dividend yields often rise in the wake of a market downturn. Dividend yield is the amount of the annual dividends divided by the current stock price. Simple arithmetic tells us that when the current stock price declines and dividend payments continue undiminished, dividend yields rise. A rising dividend yield hardly represents a permanent loss of money.

4. Higher expected returns. During a bull market’s euphoria, share prices at elevated levels probably mean lower expected returns. By contrast, following a market downturn, stocks are less likely to be significantly overvalued and, indeed, should provide better future returns. In fact, panic selling in a bear market can result in shares being significantly undervalued. Normally, this is a harbinger of superior future returns and not a permanent loss of money, assuming you hang on.

5. Importance of shares, not price. If you regard a market downturn as a loss of money, you may be reluctant to buy additional shares, feeling that you’re throwing good money after bad. If you wish to build an income stream in retirement, however, the number of shares you ultimately accumulate is more important than the value of your portfolio at any particular moment. A good way to gather more shares is to buy when prices are down.

When a fund declares a dividend, it pays so much per share. Obviously, the more shares you own, the more money you’ll receive—and the more money you receive, the more potential income you can enjoy in retirement. That’s a nice option to have.

I’ll use myself as an example. I began purchasing shares in the Vanguard Total Stock Market Index Fund (symbol: VTSAX) in 1998. Over the ensuing 25 years, I reinvested dividends and periodically purchased additional shares—yes, even in the down years of 2000-02 and 2007-09. In 2024, at age 75, I plan to have Vanguard redirect future dividends to my money market account to give me additional income. In 2022, the fund paid me more than $13,000 in dividends. Most of those dividends were qualified, meaning I paid taxes at the lower capital gains rate, not at income tax rates.

This boost to my income will reduce the amount I’ll have to withdraw from my portfolio for living expenses. In fact, along with Social Security and other income, it has the potential to reduce my withdrawal rate to zero.

Over the 25 years I’ve owned Vanguard Total Stock Market, I experienced several market downturns. With hindsight, I can say today that all those downturns were irrelevant, and in no case did I ultimately lose money. The current value of my investment is of secondary importance to me. Most important is the number of dividend-paying shares I own and the income they provide. By focusing on the number of shares I own, I have a better picture of my financial progress than watching the market value of my holdings wax and wane with the economy.

6. Risk and return. Periodic downturns are what make stocks a risky investment. Without that risk, returns wouldn’t be as generous as they have been historically. The belief that a downturn represents a loss of money ignores the reason we shoulder stock market risk, which is to earn better long-term returns at the expense of short-term volatility.

7. Looking ahead. Long-term investors don’t view market downturns as a loss of money. Instead, they understand the cyclical nature of markets and regard any downturn as a temporary setback that should be followed by better returns. In fact, those future returns will likely be greater than if the downturn had never happened.

If you regard a market downturn as a loss of money, try to shift your perspective and consider it an opportunity for better future returns. If you can come to regard the downturn as an opportunity, you may find you grow more risk-tolerant—and you might be willing to devote more of your portfolio to stocks.

Now retired, Philip Stein was a public health microbiologist and later a computer programmer in the aerospace industry. He maintains that he’s worked with bugs, in one form or another, his entire career. Phil and his wife Jeanne live in Las Vegas. Check out Phil's previous articles.

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