Jonathan Clements's Blog, page 114

It’s Only Money

MY FATHER DIED WHEN I was 15 years old. My mother didn’t work outside the house, so we now had no money coming in. She eventually got a job as a receptionist in the local hospital’s X-ray department, but she only worked weekends and holidays. Meanwhile, by then, my older brother was married and out of the house, so he wasn’t affected by this change in our family’s financial circumstances.

As I saw it, no money coming in—or relatively little—meant poverty, and I considered us poor. I didn’t want to live in poverty, so wealth became my overriding goal. But my view of our family’s financial circumstances wasn’t shared by my mother or brother. While my mother often used the phrase “we can’t afford that,” she didn’t mean that we had no money and she didn’t behave as though we were poor. Rather, she just didn’t want to spend money on the item in question.

It wasn’t until years later that I found out why my mother and brother didn’t consider us poor. As it turns out, my father had purchased a group life insurance policy with a $500,000 death benefit.

Why was this kept from me? I don’t know, but it was. Through my teenage and early adult years, I felt I needed to help out as best I could. I got part-time jobs in high school and college. My goal was to never be a financial burden to my mother.

Fast forward to 2007. My mother died. My brother and I were co-executors and co-beneficiaries of my mother’s estate. My status as executor was only established two years earlier, when my brother had my mother’s will rewritten while she was in the hospital.

At the time of my mother’s death, my 64-year-old brother, his 63-year-old wife and his 35-year-old son were living in my mother’s house. None of them was employed and, at that point, there was a lien on my brother’s assets. My brother was the agent under my mother’s power of attorney, and had access to all of her finances and paperwork. None of this was disclosed to me prior to her passing nor afterwards.

My mother’s estate consisted of her house, 50% ownership of a summer home in West Virginia, and some stocks and oil well royalties. The value of these items wasn’t disclosed to me. But by reviewing my mother's prior income tax returns, I determined that my brother and I weren’t set to receive some great family fortune.

My thought was to liquidate everything and divide by two. That wasn’t my brother’s thought. Because of the dismal state of the housing market in 2007, my brother believed it best to wait for the market to improve. That made sense to me.

But my brother also thought that—if I put up some money to make improvements to the house—it would increase the home’s value and I’d recover my investment when the house was sold. This wasn’t the first time that my brother had wanted me to finance one of his plans. The house strategy might have made sense for someone who’d demonstrated an ability to make money by flipping homes. But my brother hadn’t demonstrated any such skill. In fact, he hadn’t owned a home since 1987, so I didn’t see this as a sensible investment for me.

From that point on, the settlement of the estate went from bad to worse. My mother’s house and all her records were on Long Island, New York, and I lived with my wife and son in New Jersey. Handling any financial matters was difficult. On top of that, my brother wasn’t sharing information with me.

Early on, I received some advice from an estate attorney I hired when it became apparent that it would be my brother versus me. The attorney’s advice was to work it out with my brother. He knew of numerous costly court settlements that would have been avoided if the parties had just agreed to settle on their own. But my brother wasn’t willing to negotiate. He had his plan and was going to proceed.

I loved my brother. I also love money. But luckily, by this point, I had money. I would love to have more, but that wasn’t necessary, so I decided the estate was just money. I wouldn’t spend money on attorney’s fees to chase the money that was potentially available to me. This made decisions easy. I would only spend money on necessary expenses.

The result was that I received 50% of the house’s sale price after putting up no money of my own, except required county fees. The value had diminished after a large oak tree fell on the roof in 2012 when Hurricane Sandy hit the New York area. My brother and his family were living in the house at the time, but were uninjured. They were forced to move out, however, when the town condemned the house. We eventually sold the house in 2021 for far less than we could have received.

The problem: My brother hadn’t kept up the homeowner’s insurance—which meant the tree sat on top of the leaky roof for many years because money from the estate wasn’t available to remove it. When my mother was 90 years old, my brother had convinced her to take out a home-equity loan on her mortgage-free house. (Don’t ask.) The only homeowner’s insurance on the house was the policy required by the bank who held the loan and it was only for the loan amount.

My brother negotiated with the bank to accept the insurance as full payment for the loan. After that, the estate owned the house free and clear, except for the unpaid property taxes. Meanwhile, the West Virginia property was taken away by the other 50% owner—my cousin—after the estate failed to pay our share of the property’s upkeep. This was fine by me. I had planned to give my share to my cousin after we settled the estate.

My brother died on Christmas 2022. The estate still hasn’t been formally settled.

My advice to others who find themselves in a similar situation: Decide how much the estate is worth and how important the money is. Peace with family is also important—and much easier when money is removed from the equation.

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. His previous articles were My Unemployed Life and Failure Is Not Final.

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Four Score Wisdom

I WAS BORN ON THIS day in 1943. Today, I must acknowledge being old. I remember, years ago, scanning the obituaries and checking the age at death. Seventy-five seemed like a good run. Not anymore it doesn’t.

At age 40, I gave up the occasional pipe and vowed, if I made it to 80, I’d take it up again. That’s not going to happen. Not smoking may be a factor in getting this far. Besides, a good pipe and tobacco are too darn expensive.

I read articles on HumbleDollar about taking care of aging parents and all that goes with it. Now, I relate to the parent part, not the caregiver. My parents are long gone. Both died at home in their sleep.

I recently gave my children an updated draft of our final instructions to review. They were shocked. “Why did you prepare this?” they asked. It hasn’t dawned on them that their parents are super-seniors, with a combined 164 years of experience and 55 shared years of marriage.

They’re the ones who could be writing an article about aging parents. I’ve told them, “You may have things to worry about, taking care of your mom and me, but at least it won’t be about money.” That financial security has been a goal of mine since I joined AARP—at age 50, by the way.

Someone recently told me I’m too out of touch and that I should socialize more with 20- and 30-year-olds. That ain’t going to happen. But I do read what many have to say on social media. I also observe them in the local Starbucks, even engaging in conversation occasionally. It can be quite enlightening, amusing and sometimes sad when they talk about having little opportunity.

Out of touch? I have experience. That must count for something.

I watch retirement planning videos on YouTube. I’m shocked when the advisor, who’s explaining all the ins and outs using 30-year projections, looks like he’s barely 30 himself.

I don’t care how sophisticated his spreadsheet is, he hasn’t had time to weather a market crash or severe recession, worry that his clients might be drafted for two years, wait in line for two hours for five gallons of gasoline, or see 10% mortgage rates—though he may yet get the chance.

I’ll admit I don’t understand carrying credit card debt, failing to always save something, or living beyond your means at any income level. And I sure don’t understand covering your body with tattoos and piercings from head to toe.

Paying $1,000 or more to stand and listen to a singer, whom you’re helping to make a billionaire, just befuddles me. I also don’t understand parents spending thousands of dollars a year so their children can play multiple sports and join travel teams. The folks who do understand these things can rightly claim I’m out of touch.

You may look at me and see an old man, but I’m still 18 inside. It seems only yesterday I was a rally car driver, in the Army, getting married, and praying while waiting for our first child to be born.

There are signs of aging, though. I’ve given up trying for a golf score equal to my age. Now, I aim for my blood pressure to match my age.

 I don’t like being treated as old, or a senior citizen, or elderly—unless, of course, it means a discount, getting to the head of the line or others giving up their seat.

How did I get where I am? Why am I financially secure? Good fortune and a lack of misfortune are first and foremost. A supportive and aligned partner helped a great deal. And there are some practical things as well.

I saved something—even a few dollars—every payday since I was 18. Never lived above our one-income means. Never paid credit card interest. Invested mostly in index mutual funds, except for employer stock bought at a discount. And I worked for nearly 50 years until age 67.

I guess I am out of touch. I've morphed into an old curmudgeon, and I’m enjoying every minute of it.

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

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What Goes Up

STEIN'S LAW STATES that, “If something cannot go on forever, it will stop.” It’s named for Herbert Stein, an economist who was influential in the 1970s and served as chair of the president’s Council of Economic Advisors.

Stein first made this comment when he saw government debt growing to what he felt was an unsustainable level. While half-joking in the way he put it, Stein was making a serious observation: Trends rarely last forever.

In some cases, that’s because the trend has become unsustainable for one reason or another. In other cases, it’s because attitudes or preferences change. Stein, in other words, was cautioning against what today we’d call recency bias—the tendency to extrapolate recent trends into the future. Given all of today’s uncertainty, it’s a good time to take a closer look at this idea.

As I mentioned last year, the investment industry loves stories, sayings and aphorisms. For virtually any situation, there’s a wise-sounding maxim that can be invoked to either support or argue against a particular investment decision. When it comes to Stein’s law, there are at least three such sayings—and they’re seemingly contradictory.

The first saying: “Trees don’t grow to the sky.” Investors like to cite this idea when a company appears unstoppable. Today, that might apply to Apple or Amazon. Yes, these companies are on a roll. But just as trees don’t grow to the sky, history indicates they probably won’t maintain their dominance forever.

This is one of the financial industry’s favorite aphorisms, and it squares with Stein’s law. But investors have two other expressions that make precisely the opposite argument: that trends sometimes do continue. When a stock is falling, some will caution investors against “trying to catch a falling knife.” And when an investment is rising, they’ll say, “It’s an elevator, and it’s going up.”

On the surface, these sayings appear inconsistent and thus not terribly helpful. If trends sometimes continue and sometimes don’t, how should we think about the issue? The answer—as with many things in finance—is that it isn’t a binary choice. Each of the three aphorisms contains elements of truth.

We need only look back to past market leaders, including Xerox, Kodak and BlackBerry, to appreciate that market trends—especially in technology—don’t last forever. Amazon founder Jeff Bezos himself has talked about this. In a 2018 speech to employees, he said, “I predict one day Amazon will fail. Amazon will go bankrupt.” Why? “If you look at large companies, their lifespans tend to be 30-plus years, not 100-plus years.” While there are exceptions to this rule, it’s generally been the case, and it supports Stein’s law. Product and technology trends eventually fade or change course.

But data also point in the other direction. While it’s true that trends rarely continue forever, the data show that market trends sometimes continue longer than one might expect. According to research by investment firm AQR Capital Management, “The past 12-month excess return [of an investment] is a positive predictor of its future return.” In other words, what’s done well over the past year is likely to continue doing well.

For how long? AQR finds that, “This time series momentum or ‘trend’ effect persists for about a year and then partially reverses over longer horizons.” Of course, trends sometimes continue for much more than a year. Apple and Amazon, along with the rest of today’s stock market leaders, have been going strong for about a decade.

Frustrating as it might seem, the reality is that any investment trend we observe might keep going or it might not, or it might continue for a while longer before fading or even reversing. What useful lessons can we draw from all this? I have four recommendations:

1. Choose index funds. At any given time, there will be companies, industries, market “factors” and national economies that look dominant. It’s hard to know, though, how long any trend will persist. To take the most recent example, I have yet to meet the investor who predicted that almost four years ago a virus would arrive out of the blue and cause the stock market to drop more than 30%, but then rally back within weeks and go on to reach new highs.

Similarly, I don’t know any investors who predicted the war in Ukraine, prompting a rally in energy stocks after years of going sideways. You could find similar examples throughout market history. That’s why I recommend steering clear of stock-picking and instead favor index funds, which allow you to benefit from whatever trends happen to be underway.

2. Rebalance slowly. In managing your investments, it’s important to have asset allocation targets and to rebalance periodically. But it’s also important not to be too quick to rebalance. That’s because the market does exhibit momentum over shorter periods. If the market is trending down, it’s likely to continue trending down for some number of months. And when it’s on an upswing, that trend is also likely to continue for a while. Result: It’s beneficial to wait a bit before rebalancing so that, if you’re selling, you sell a little higher and, if you’re buying, you buy a little lower.

3. Stay diversified. With bond yields hitting 15-year highs, more than one investor has asked me whether it would make sense to sell stocks and allocate everything to bonds. As I discussed last week, this strategy might make more sense than it did a few years ago, when bond rates were much lower, but I still don’t think it’s advisable. Current trends could reverse. A better approach, in my view, is to maintain a diversified portfolio. I recognize that this can be hard when current trends seem obvious. But as we’ve seen, trends can reverse unexpectedly.

4. Avoid extreme opinions. When inflation was very low, a school of thought known as Modern Monetary Theory (MMT) emerged. Counter to hundreds of years of economic history, MMT argued that governments like ours could print as much money as they wished without any fear of inflation. They invoked the age-old argument that, “This time it’s different.” Economic history, they argued, had entered a new era, and inflation was no longer a concern.

The theory, of course, was quickly proven wrong, but for a while it had its adherents. The lesson: Be careful of extreme views. Wherever possible, opt for a down-the-middle approach. To be sure, sometimes things do change, so we should never entirely ignore market trends. But since trends are so unpredictable, we should be more inclined to stay the course than to react to each new development.

A footnote: Economists may not be known for their comedic skills, but Herb Stein was an exception. While working in the White House, he shared this observation: “Economists do not know very much. Other people, including the politicians who make economic policy, know even less….” Stein’s son, Ben, who is also an economist, inherited his father’s sense of humor. If you’re of a certain age, you may remember his memorable role in Ferris Bueller's Day Off.

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 Twitter @AdamMGrossman and check out his earlier articles.

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Bracing for Evening

HERE'S SOMETHING that’ll surprise exactly zero readers: I’m a planner. Even though I haven’t yet fully retired, I’m already worrying about how short the active part of my retirement will be.

For this, I blame my fellow HumbleDollar writers, as well as those who post comments. Many folks who are active on the site are older than me, and they’ve given me a sneak peek at what lies ahead. One thing I’ve learned: At some point between age 75 and 80, I should expect my retirement’s go-go years to become the slow-go years and perhaps even the no-go years.

Let’s be conservative—that’s what we planners do—and assume the active years will be over by age 75. I’m rapidly approaching 61, and have plans to scale back work once I turn 62. At that juncture, I intend to keep HumbleDollar humming along, but with fewer articles posted each week. The upshot: Even if all goes according to plan, I’m looking at just 13 go-go years.

During those 13 years, Elaine and I will work our way through our travel bucket list. When we’re home, I plan to cut myself some slack, no longer bicycling in the early morning hours, but instead starting the day more gently and riding late morning or during the afternoon. I also hope to renew my efforts to become a less horrible tennis player or perhaps—cliché alert—even try my hand at pickleball.

Maybe 13 go-go years will be more than enough. Still, I’ve come to appreciate why so many folks retire early, even when they don’t have enough socked away, because 13 years sure doesn’t sound like much. That’s doubly true when I think about what will follow.

As I mentioned in an article a few years ago, my father—who was struck and killed by a speeding car at age 75—loathed the idea of ending up in a nursing home or, indeed, in any sort of senior housing. I’ve long shared his distaste, but I’m slowly coming to accept that it may be necessary.

Part of the credit goes to my 84-year-old mother, who is also blessed and cursed with the planning gene. As my sister and I have joked, if my mother—upon her demise—could avoid inconveniencing others by burying herself, she’d do just that. Indeed, since my stepfather died in 2012, she first moved closer to two of my siblings, and then moved into a nearby continuing care retirement community, or CCRC. As my always sensible mother likes to say, “This is the right place for me to be.”

I suspect many affluent retirees will, in the years ahead, decide CCRCs are the place to be. It’s an appealing form of risk pooling. You pay somewhat steep monthly fees when you move into independent living, but in return you get a guaranteed spot later on in assisted living and skilled nursing, should that prove necessary.

My four grandparents all died at age 83 or 84. Two had dementia at the end of their life. My father’s parents were smart, downsizing to a small, ground-floor apartment for their retirement years. My mother’s parents were less sensible, remaining until the end in an overly large house on a big piece of property in a remote corner of England. They couldn’t afford to keep up the place, or even heat it properly, and by the end the ceilings were stained black with mold and damp. After my grandmother died in 2000, the buyers of her home did what had become almost a necessity—they demolished the place.

Not surprisingly, both waiting too long to move and dementia weigh heavily on my mind. Indeed, while the go-go years look alarmingly brief, the no-go years could potentially be all too long. That brings me to some numbers from a Wall Street Journal Sunday article I wrote in 2002.

For that article, I asked an actuary to look at the life expectancy for 65-year-olds, but ignore the 10% of seniors who die most quickly and the 10% who live the longest. That left the middle 80%. But even with the extremes removed, the range of potential life expectancies was still shockingly large.

Men age 65, who fall in the middle 80%, might live as little as seven years or as long as 32 years. For 65-year-old women, the range was 10 to 33 years. In other words, most 65-year-olds will make it to 75—when the go-go years might start drawing to a close—but some will have precious little time beyond that, while others could live another two decades. That sort of uncertainty doesn’t exactly make for easy planning.

Still, plan we must. Elaine and I have agreed that—if all goes well—we’ll stay in our current home through at least age 75, and use it as the base from which we’ll enjoy our go-go years. During this period—perhaps as we approach 70—we’ll start visiting continuing care retirement communities outside Philadelphia, with an eye to identifying a favored CCRC.

I don’t see much point in conducting our research earlier than that. After all, we could settle on a place that subsequently goes downhill because of bad management. On the other hand, we shouldn’t wait too long. I’ve heard that the waiting lists for CCRCs are growing, and there’s always the risk that physical deterioration—or, my big fear, dementia—mean no CCRC would admit us.

Not much rattles me. I’m unperturbed by stock market crashes and I don’t worry whether tomorrow will come. But I must confess, I look ahead to the no-go years with trepidation. But I’m hoping that, as with so many things, thinking about the future—and planning for it—will ease those fears.

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

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The Retired Kid

WHEN I WAS GROWING up, my father would drag me to his office in lower Manhattan a couple of Saturdays each month. He always claimed it was to teach me “the value of a dollar.”

He was raised below the poverty line, and felt my mother spoiled me and that I needed to learn what it meant to work. I now realize he was right, but back then I thought he just wanted an audience who he could then impress with his business exploits.

One day, I was watching him write out checks in the office, when he looked up. “Stevie, go down to the warehouse and help the boys pack up the tape recorders. You’ll get to see what real work is all about.” In my father’s world, if you worked for yourself, you were a man. If you didn’t, you were a boy.

The boys saw me coming down the stairs, and quickly broke up and put out their cigarettes. “Hey, Stevie, your dad send you down to see these Webcor Royals? They’re nice.”

“Uh-huh. He wants me to help you guys pack.”

Luther looked uncomfortable. “Well, it’s simple. Here’s how I do it. The only hard part is wrapping the pad around the inside to protect the recorder.”

Getting the Webcors into the padded box was not as easy as Luther advertised, and I had to put down my transistor radio. I turned on the Dodgers game with the volume on low and out of range of the boys. Looking back, I guess I turned a work assignment into a day by the pool.

“Hey, Stevedore, what’s going on here,” my father barked. “This isn’t Ebbets Field. It’s what brings home your bagels and lox.”

I was petrified. I should have known the Jewish Sherlock Holmes would be on my trail.

“Shut that thing off. You’re the boss’s son, Stevie. You’re setting a bad example.”

“But Dad, Robinson’s up with men on second and third. How about I only listen to the Dodgers’ half of the innings and turn it off when the Giants are up?”

 “Okay, but if and only if you pack 20 boxes in the next hour. Don’t get one of your migraines because I’m having Luther check up. Then we’ll go to Max’s for some pastrami.”

“Thanks, Dad. Don’t worry, I won’t cheat.”

My second retirement. Twenty years later, my career as an academic psychologist was taking off. I was a maverick investigator, inveighing against race and sex bias in diagnosis and psychotherapy, and against the “who do you know” charade pervasive in the academic research review process. Before turning 40, I had served as head of the university’s doctoral training program in clinical psychology and director of psychiatric research. I had already published more than 100 professional articles and was the associate editor of the field’s flagship journal.

Soon, I was playing a stealth part in my department’s research programs. I found a niche as a ghostwriter, polishing early drafts of faculty members’ manuscripts before they were submitted for publication. That role was as valuable to me as it was to the department chair. I was granted a free pass from teaching large undergraduate classes, which I dreaded because of my crippling public speaking anxiety.

My childhood introduction to partial retirement had gone well. I had persuaded my father to cut me some slack so I could listen to the play-by-play when the Dodgers were at bat. But around age 40, I discovered a wholly different and unwanted kind of retirement, when I was laid low by a merciless depression. The career juggernaut I had set in motion was stopped in its tracks, and I eventually surrendered my tenured academic position.

With that fall from grace, my self-esteem plummeted. To my father, who couldn’t understand why someone couldn’t just “snap out” of a major depression, I was still very much a boy.

After almost 20 years of intensive psychotherapy and countless futile trials with psychiatric drugs, I finally hit the medication jackpot. My illness, which portended permanent unemployment and was seemingly without end, was over. But even with extensive treatment, the road back from a monstrous depression is not a straightaway.

Back at work. At age 78, partly by game plan and partly by chance, I’ve arrived at a productive and meaningful partial retirement. I’m still the boy with the transistor radio glued to his ear. But I’m now hoping for some runs in the late innings. Bloodied but unbowed, I’m humbled by my bout with mental illness, and thankful for the income we receive from our investments, our rental properties, my wife Alberta’s fulltime private psychology practice, my pension and my remaining patients.

Before my collapse from depression, we worked ourselves to the bone and saved religiously, and Alberta continued to support our family financially and otherwise through my two-decade-long struggle. But let’s be honest here: Our parents—both Alberta’s and mine—jumpstarted our financial journey.

We also benefited mightily from luck. Too demoralized by my depression to “upgrade” our portfolio of rental properties, I avoided capital-gains taxes and recurring closing costs, points and unconscionable 6% selling commissions. Through no foresight of my own, I capitalized on uninterrupted compounding over four decades of real estate ownership.

My parents both died at age 81. I’m now three years shy of that mark, with cancer and a heart condition that are under temporary control. I can see the ceiling. Last week, I visited a friend with whom I’ve had a weekly lunch for almost 20 years and whose kidneys are failing. As I drove away from the hospital, I felt gratitude for a balanced retirement that has given me the space to revisit my life, and ponder where I want to take it from here. I’ve made some progress toward achieving peace with my mortality. But I have further to go.

Steve Abramowitz is a psychologist in Sacramento, California. Earlier in his career, Steve was a university professor, including serving as research director for the psychiatry department at the University of California, Davis. He also ran his own investment advisory firm. Check out Steve's earlier articles.

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They’ve Gone Soft

MY WIFE AND I BOUGHT a used hybrid Toyota RAV4 recently. We saw it at a dealership and bought it that day.

This wasn’t an impulse purchase. We knew it was time to replace my 10-year-old Subaru Forester, and we’d done research on hybrids and electric vehicles. Because the new car would be our distance traveling vehicle, and my occasional work transportation, we wanted the flexibility of a hybrid. In time, we’ll replace our second car with an electric vehicle for local driving.

This purchase was part of the decision we made years ago to shrink our energy and other natural resource “footprint.” Our home is heated and cooled with a geo-thermal system, our electricity comes from a solar farm in our area, and we compost and recycle. Trading in our gas-burning cars is just the next step.

We found that the internet has transformed car buying. We’d expected the dealership’s salespeople to interview us and then suggest cars for us to look at, trying to sell us a vehicle from the stock they had on hand. That had been our experience in the past—but that's not what we found.

We visited two dealerships. At the first, a laid-back fellow referred us to online resources, and said we could have a car shipped to the dealership if we found one we wanted—with no transport fee if we bought the vehicle. So diffident was our guy, in fact, that he seemed almost uninterested in making a sale.

We were bewildered and a bit uncomfortable with this approach. Could we find an informed salesperson who would at least walk us through the dealer’s car lot and then, if necessary, guide us through the first rounds of an online search, all without trying to close a sale immediately?

We had a better experience at the second dealership we visited. The salesman asked why we were thinking about a used RAV4. He thought our reasoning was sound, but told us that not many such vehicles were available. In fact, the only one on the lot was a 2021 model that had arrived the day before. He said if we didn’t buy it immediately, someone else would snap it up.

We thought that might be classic arm-twisting. But in fact, there was a couple on the lot looking at the same car we were interested in. As they say in Chicago, you snooze, you lose. We claimed it.

We found there are some positive developments in car sales. Most obvious to us was the number of women selling cars. According to the Bureau of Labor Statistics, just over 20% of auto salespeople are women, a substantial increase in recent years. Women selling vehicles is good for customers and great for dealers because many buyers are put off by the car industry’s historically aggressive male-dominated sales culture.

Another improvement is a more streamlined purchase procedure. I was dreading the visit to “the money guy” who would subtly nudge us to finance the purchase with a modest down payment, sweetening the offer by discovering little discounts or reconfigurations of the warranties, while still ultimately making good money for the company by signing us to a significant loan at a relatively high interest rate.

We were not going that route. When my wife and I shop for big ticket items, we act as a bit of a tag team. With the salesperson, I take the role of the idiot who needs to have all kinds of things explained. That helps with the dismissive “don’t worry your pretty little head” attitude toward women, which is still all too pervasive. I push for and get explanations and details.

Meanwhile, my wife is the hard bargainer. “I don’t need or want this or this,” said firmly. Then, with a hint of skepticism, “Is that the best you can do?” She gets results that my marshmallow self can only admire—in this case, a 20% larger trade-in allowance on my road-weary Forester, a 20% increase in warranty coverages, and some other little goodies. Yay, team.

We chose to get all the optional warranty coverages for the “new to us” car. Although it’s less than three years old, we’re the third owners of this vehicle, and we don’t want to worry about the cost of repairs, replacement parts and upkeep. Since we’ll drive this car for years, the money we paid for these coverages should amortize well. At a minimum, we’ll sleep better.

When the actual purchase moment arrived, we weren’t hustled over to a separate loan person in a side office. Our salesperson asked how we wanted to pay for the vehicle. We said cash. He said fine, and handed us off to the title, registration and warranty person, who casually punched in a quick query to one of the credit rating companies. She was ready to accept our personal check for the full amount before we'd gotten our checkbook out. The possibility of financing never came up.

So, we drove off in a Toyota that’s all ours. Since then, we’ve put a few thousand miles on it, and used one of the warranty policies to cover the ridiculously high cost of a second key fob. The best part: We’re happily not buying gas every week.

Tom Scott is a retired Episcopal priest. He and his wife live in Evanston, Illinois. They love retirement because they get to see more of their children and grandchildren, and they can spend more time at concerts, the opera and the Chicago Botanic Garden. Tom's previous articles were Forever Calling and Starting Late.

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Getting a Break

STUDENT LOANS ARE a hot topic—one that’s fraught with confusion and complexity. Still, many borrowers should consider taking action this year. Want to get a better handle on what’s happening? Let’s start with three changes that have lately been in the spotlight:

Federal student loan payments, along with the interest charged, were paused from March 2020 to September 2023. That gave borrowers more than three years to make principal-only payments or, alternatively, to potentially accrue credit toward loan forgiveness without the need to make payments.
Borrowers were to receive automatic debt forgiveness of $10,000 to $20,000, depending on their income, but this was shot down by the Supreme Court and never implemented.
An updated income-driven loan repayment plan called “Saving on A Valuable Education,” or SAVE, was introduced in 2023. This has the most generous payment terms of all the federal repayment plans on offer.

Not included in the list is arguably the biggest policy update for student loans to date, dubbed simply the “account adjustment.” How did account adjustment come about? As I see it, it’s largely due to a lack of clear communication in the past by the Department of Education.

For borrowers to benefit from federal student loan forgiveness programs, there are numerous rules that need to be followed. The Department of Education is making a one-time adjustment to borrowers’ accounts to compensate for historical inaccuracies and poor communication about the forgiveness programs—and the result is many borrowers are now closer to achieving forgiveness.

There are many federal student loan forgiveness programs, but my focus today is on income-driven repayment (IDR) forgiveness. This is achieved by being on an IDR plan for 20 or 25 years, depending on the plan. What determines loan forgiveness? You need to focus on the type of loan and on the repayment plan.

Loan type. When I talk about student loans, I’m talking about federal student loans. Private student loans don’t offer the array of repayment plans I’m discussing in this article.

There are two major categories of federal loans: FFEL, which stands for Family Federal Education Loans, and so-called direct loans.

The FFEL loan program is the old loan program. It ended in mid-2010. Now, all federal loans that are distributed are direct loans. The difference here is that the majority of FFEL loans are technically private loans that are backed by the federal government. Some of these loans count as federal loans, but they’re in the minority. The downside of FFEL loans is that they have access to limited repayment options, and they miss out on some of the federal benefits since they’re held by private lenders.

Meanwhile, all direct loans are federally distributed loans. Borrowers have access to all the different repayment programs, and they get all of the federal benefits. You can convert FFEL loans to direct loans with a loan consolidation through the Department of Education.

To be clear, consolidating your loans is different from refinancing. Consolidating loans combines all of your federal or federally backed loans into one loan. That loan continues to be held by the federal government and has the weighted average interest rate of all the loans consolidated, so it doesn’t change the size or interest rate of the underlying loans (though the rate is rounded up to the nearest one-eighth percent, so your interest rate may increase a little bit). Consolidating leaves your loans eligible for all federal repayment plans and forgiveness programs. In fact, by creating a direct consolidation loan, you gain access to repayment programs that aren’t available to FFEL borrowers.

Consolidating creates a brand-new loan, and typically the payment history on the underlying loans resets. But with the account adjustment, this isn’t true for this year. If a consolidation is initiated prior to the end of 2023, the loans keep their history prior to consolidation. On top of that, if you consolidate in 2023, the longest history on any of the loans will apply to the new consolidated loan. As you’ll see in a moment, this is hugely important to a loan’s potential forgiveness.

Repayment plan. Generally, the Department of Education will only forgive loans if you’ve been on an income-driven repayment (IDR) plan. For many borrowers, if their income is low relative to their student loan balance, these plans offer a way to get out of debt without having to pay off their loans in full. If you’re in this situation—low income relative to your debt balance—you may see your loan balance grow over the years. Still, if you make your income-based payments under an IDR for 20 or 25 years, depending on the payment program, whatever balance is remaining will be forgiven.

What if you aren’t on an income-driven repayment plan? Until recently, your loans wouldn’t get forgiven, even if you’ve had them for 20 or 25 years. Many borrowers have been paying on their loans for decades, only to find their loan balance hasn’t budged much, and they have no credit toward forgiveness.

With the new account adjustment, everybody will get credit toward the 20 to 25 years, even if they weren’t on an income-driven repayment plan. Credit will also be given for certain times of forbearance or deferment. In other words, even if you weren't making payments on your loans, you may still get credit for that time. All this only applies to the past. Starting in 2024, you need to be on an income-driven repayment plan to continue accruing credit toward forgiveness.

How powerful is this account adjustment? Let’s go through an example. Suppose a borrower started repaying her FFEL loans in 1999, loans that should have been paid off after 25 years, assuming regular payments.

Unfortunately, our borrower went through some tough times, and had to pause payments intermittently by going into forbearance. By being in forbearance, she didn't have to make payments, but interest continued to accrue on the loan. Now, 24 years later, she has a balance larger than when she started, plus she has no credit toward forgiveness because she hasn’t been on an income-driven repayment plan.

But our hypothetical borrower learns about the account adjustment. She decides to consolidate her FFEL loans into a direct consolidation loan, which gives her access to lower payments based on her income. In addition, she gets credit toward forgiveness for the past 24 years and will only have to make payments for one more year—to make it to 25 years—before her full loan balance gets forgiven.

Let's take this example one step further: Our borrower has children and she borrowed for her children's undergraduate schooling during 2018-22, taking out an extra $200,000 of Parent Plus Direct Loans (the direct loan program for parents to borrow for children). If our borrower consolidates her old loans taken out in 1999 with these new loans, she could—thanks to account adjustment—get credit for the length of the oldest of these loans. The upshot: Even though the borrower would otherwise need to make 25 years of payments on her children’s debt starting in 2022, with a forgiveness date of 2047, she could get all this debt forgiven next year.

The above examples are pretty extreme. Still, account adjustment can benefit hundreds of thousands, if not millions, of borrowers. But be warned: This isn’t a slam dunk for everybody. There can be negative consequences to consolidating. Borrowers must weigh all the pros and cons before making these decisions, which are irrevocable. There are many variables involved, so I can’t offer blanket recommendations, except this one: For those who still have student loans outstanding, consider speaking with a qualified professional before the end of this year to find out whether there are any steps you should take.

Logan Murray is a solo financial advisor. His company Pocket Project offers subscription-based financial planning services to young professionals. He’s also a consultant for StudentLoanPlanner.com, which helps borrowers make a plan for their student loans. For more financial insights, check out Logan’s blog, connect with him on LinkedIn and check out his earlier articles.

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October’s Hits

HUMBLEDOLLAR'S READERS—as usual—devoured almost anything related to retirement last month. Here are October's 10 most popular blog posts and articles:

What’s the first rule of personal finance? Aim for moderation, advises Adam Grossman. He offers nine examples.
"My three clients felt betrayed and unprepared for retirement’s melancholy side," recounts Steve Abramowitz. "They’re in grief, mourning the loss of who they were and smarting at the limits that old age imposes."
Today's retirement savings system is too complicated and isn't getting the job done, says Dick Quinn. He argues it's time for a total makeover—and he has two key ideas.
What should be on your retirement planning checklist? Adam Grossman offers nine topics to ponder before you call it quits.
"I have two brothers who taught me these lessons," writes Ken Begley. "Both reached their 60s happily married, and they were quite wealthy. They should have had a wonderful retirement. But it didn’t happen that way."
Bill Ehart notes that his late mother had a decent-size portfolio—which was just as well. During the final 15 months of her life, she required round-the-clock home health aides at a cost of $220,000 a year.
"You find out there’s a lot of things that can happen in retirement that aren’t planned," says Dennis Friedman. "This doesn’t mean you shouldn’t have a plan. Rather, it means your plan should be flexible."
"There’s no one way to retire," reckons Dick Quinn. "Don’t overthink it because you’re never going to account for everything anyway. It’s your retirement that needs to work, not just the numbers on a spreadsheet."
If you travel abroad, you could potentially purchase medical, cancellation and evacuation insurance. But which of these is really necessary? Kathy Wilhelm weighs in.
Tom Scott and his wife didn't start saving seriously for retirement until their early 50s. But they still managed to retire at age 70—despite job upheaval, an underwater mortgage and the 2008-09 stock market crash.

What about our twice weekly newsletters? The most popular Wednesday newsletters were Nancy Fagan's Stepping Up and Michael Amoroso's Retirement Takes Work, while the best-read Saturday newsletters were Dennis Friedman's My Happy Retirement and my piece on Taking Charge. 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.

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Taught by My Parents

MY DAD LIVED TO BE age 92 and my mom is going strong at 95. I was involved with my father’s care as he struggled with dementia, and I continue to assist my mother, who still lives independently.

Helping an elderly family member? Here are 16 important lessons that I’ve learned.

1. Don’t be blind. My dad started developing dementia five years before his cognitive ability totally fell off a cliff. No one in the family wanted to recognize his deterioration, though my mother—who was his principal caregiver—kept bringing it up. The sad fact is, most people hate to admit there’s a serious health problem because it means they’ll have to deal with it. But it’s almost guaranteed to get worse if you do nothing.

2. Get the paperwork done. My parents had wills and living wills. A will helps determine who inherits your property. A living will details your health preferences for your doctors and loved ones, should you later be unable to express your wishes. I was already an executor and trustee of some family trusts.

Dementia was making my dad increasingly confused, angry and paranoid. Dad and Mom had a pretty substantial amount of money.

I asked Dad to make out a power of attorney (POA), but I said I didn’t want him to name me. Meanwhile, my mother didn’t have the desire, ability or necessary knowledge to make financial decisions, so she wasn’t an option. Instead, I suggested Dad should grant power of attorney to two of my brothers, who could then act on his behalf if he became incapacitated. This helped to keep him from getting paranoid—because I wasn’t asking for this authority for myself.

3. A power of attorney often isn’t the only piece of paperwork required. Some financial institutions don’t recognize generic powers of attorney, and instead demand additional paperwork. These are generally known as limited or full authorization POAs and have language specific to the account in question. Some need to be notarized.

4. Don’t be a hero. Sometimes, one person will take on the bulk of the work or responsibility of caring for an elderly parent. The rest of the bunch will pat you on the shoulder and thank you for what you do. Just remember that what looks like a temporary situation could stretch into years and even decades.

Everybody involved should have some responsibility from the beginning, taking on some aspect of the family member’s care. Be aware of what you can and can’t do over the long haul. Sometimes, the caregiver will die from the stress of the situation, predeceasing the person being given care. Coming by once a month with a box of chocolates and visiting for an hour is not providing care. Saying “call me if you need help” is not providing care.

5. Earlier is better. If you have the means, it’s better to get a person into a facility that provides assisted living before he or she needs a nursing home. A lot of health care institutions save their nursing home slots for the folks who are already in assisted living. The worse your parents’ health, the fewer options you’ll have.

6. Getting into assisted care or a nursing home isn’t a slam dunk. Most of these facilities will want to interview potential residents before they’re allowed into their facility. This is to gauge what level of care the person will need. Most nursing homes will also want to see a net worth statement and list of assets for potential residents to ensure they can afford the cost over the long term.

Fortunately, Mom and Dad had amassed enough savings so they could afford a nursing home. What if they didn’t have the money? After depleting their assets, they could have applied for Medicaid coverage. But that would have involved a whole additional layer of complexity and limited where they could get care.

7. Assisted living and nursing home facilities don’t have to keep residents. One admissions officer told me that people will frequently understate the problems the potential resident has and overstate his or her assets. Result? The institution finds out later that it can’t deal with the resident. Sometimes, after just a couple of months, the institution is told by the family that the resident is out of money.

It isn’t the institution’s problem at that point. It’s your problem and the staff can ask you to take the resident back home with you. One family had a parent who would throw so many fits that he’d been kicked out of six homes in roughly six months. The family would put him in another home and immediately start applying elsewhere, knowing he wouldn’t be there long.

8. Watch out if one elderly parent is providing care for another. In the process, the caregiver could get injured, and then you might have two parents needing nursing home care at the same time. At that point, you’ll really have problems—and you may not be able to place both in the same facility.

9. Keeping them at home might not be an option. I looked into getting 24/7 care at home for my father. This was 2019, and the price was around $160,000 a year. I asked the agency how good were the caregivers. The administrator hesitated. She admitted that you could get some bad ones. She warned me not to leave any valuables out and that the caregivers may need watching.

Instead, after Dad’s dementia deteriorated drastically, we went with his sons and daughters staying at the house around the clock. That lasted about a month. We initially had nine siblings. One brother died before Dad. Another brother was very ill and died a year after Dad. Both were in their 60s.

The rest of us siblings were in our late 50s to late 60s. Five lived about 60 miles away. Some were still working, all had their own medical problems, all had children, and five had grandchildren.

10. Caregivers should try to make decisions together. I knew we had to put Dad into a nursing home. I called all the siblings together and told them we needed to find a place for Dad. It was agreed. We told Mom of our plans and reasons for it.

11. Someone has to make a decision. Ultimately, the agent under the POA and, if applicable, the surviving spouse have to reach a decision. I asked Dad’s doctor to declare him mentally incompetent. She completed the paperwork. Everybody looked at different facilities, but nobody seemed to agree, plus most facilities were at least an hour from where Mom lived.

So, I made a decision. I talked with Mom and told her that we had one facility that was in our little town. Dad could afford better, but it wasn’t a bad place and it was only two miles away. I told Mom that we would take her up to the nursing home every day if she liked, so she could spend time with him. This won her over.

12. Beware of outsiders giving advice to your parents. A family doctor gave my mother false hope. She first told Mom that she knew someone who would move into the house and take care of Dad. This lady supposedly had done it before by herself. Mom got excited. But this turned out to be incorrect. I contacted the person, and she said she had no intention of moving into the house and that she’d never taken care of someone fulltime like that. She did it with a team of three people.

The other advice the doctor gave: Mom should keep Dad at home and take care of him, no matter what. She gave this advice even though she thought Dad had Lewy body dementia and would be a total vegetable in less than six months. Her advice was ignored, but it made Mom feel guilty.

13. The nursing home stay can be decades—or days. We took Dad to the nursing home for what we said was rehab. We told Dad he could come back home when the doctor said he was well. It didn’t matter much because, by that time, he didn’t know who we were except for brief moments. His mobility was failing and he had lost control of his bowels. Dad had already collapsed mentally before he arrived at the nursing home and he collapsed physically within less than a week.

Two days after he got to the facility, he was in a wheelchair. I got phone calls almost every day from the nursing staff keeping me updated and asking for permission for whatever they needed to do. I also had three face-to-face meetings with the staff. The nursing staff tried everything during that period. The head nurse said she’d never seen anyone deteriorate so quickly. Dad died after 18 days. It was a blessing.

14. Don’t be a hero (part II). Our mother is now 95. By her choice, she lives by herself in her own home, though she does wear a life-alert necklace. I, as the agent under her POA, wanted to move her to an assisted living facility. She didn’t want to go, and the rest of the family didn’t want to force her.

I reluctantly agreed, but with one stipulation: Someone other than me would be responsible for her health care. I already had responsibility under the POA, was trustee of two trusts and an executor for a complicated estate. I also had to arrange for home care for Dad and later putting him in a nursing home. I didn’t want to go through that again.

Two sisters agreed to share the responsibility. I warned them that Mom might one day not be able to get up and would need care from that time on. You never know what’s going to happen day by day. I then had a medical POA drawn up for my mother, with my sisters named as her agents. I continued to hold the POA for finances, as well as being executor and trustee.

15. Keep paperwork updated. One of the brothers that was listed on the POA for Mom and Dad died before Dad died. I tried to get another sibling to take over, but to no avail. So, I agreed to act under the POA. Then, after my dad died, a second brother died. He was the other person named in the POA. I added another sibling to the list with me.

16. Plan ahead. Luckily, my mom doesn’t have dementia. She’s an easy going, independent individual who works hard to maintain her health. My dad was a great and kind man, but dementia is a horrible disease and he had left this earth long before his body died. Mom has a good mind, with seven surviving children, 25 grandchildren and soon-to-be 39 great grandchildren who check in with her regularly. She has a full life and a great will to live. I strongly believe she’ll live past 100.

My sisters have already put her on the waiting list for different nursing homes, just in case she needs it one of these days. What happens when her name reaches the top of the waiting list and she isn’t ready? The nursing home just moves her name back down to the bottom of the list.

Ken Begley has worked for the IRS and as an accountant, a college director of student financial aid and a newspaper columnist, and he also spent 42 years on active and reserve service with the U.S. Navy and Army. Now retired, Ken likes to spend his time with his family, especially his grandchildren, and as a volunteer with Kentucky's Marion County Veterans Honor Guard performing last rites at military funerals. Check out Ken's earlier articles.

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A Profitable Read

I RECENTLY FINISHED reading the second edition of William Bernstein’s The Four Pillars of Investing—twice. This new edition is a significant rewrite of the first edition that was published in 2002. Even if you’ve read the first edition, reading the second edition is worth your time.

Though I’ve read most of the books written by well-known investment luminaries familiar to HumbleDollar readers, there were still pearls of wisdom I gathered from this second edition. Here are six of my takeaways:

1. Meet Sylvia Bloom. Many HumbleDollar readers are likely familiar with the story of Ronald Read, a humble man from Vermont who worked at a service station and as a janitor. His periodic investments in blue-chip stocks over his working life enabled him to amass a seven-figure portfolio despite his blue-collar income.

Bernstein—an occasional HumbleDollar contributor—introduces us to Sylvia Bloom, a legal secretary from New York who, like Read, invested in stocks over her working life. She also amassed a seven-figure portfolio.

I’m inspired by stories like these that show how folks of modest means can build significant wealth during their lifetime through patience and perseverance, all the while ignoring the short-term volatility of the stock market.

Bernstein cites Charlie Munger, Warren Buffett’s business partner, who admonishes us to never do anything to interrupt compounding. Both Read and Bloom allowed compound growth to catapult them to millionaire status.

Some people may claim that dying with a multi-million-dollar portfolio means you never enjoyed the money during your lifetime. But neither Read nor Bloom cared about living more lavishly. Both made generous donations to their favorite charities in their wills. They were satisfied with their modest lifestyles. It was charitable intent that drove them.

2. Stay the course with safe assets. Bernstein argues that it’s important to structure a portfolio with sufficient safe assets so we’re able to withstand those difficult times when the stock market declines 30% or more. Indeed, this is one of the reasons he decided to write a second edition.

Bernstein suggests that retirees maintain at least 10 years’ worth of fixed living expenses in safe assets. According to the author, if you can afford it, 20 or 25 years would be even better.

He defines fixed expenses not as all expenses, but rather those residual expenses beyond what retirees can cover with their guaranteed income from Social Security and any pension. Over time, this allocation to safe assets should be increased with the inflation rate.

Safe assets to Bernstein mean those backed by the full faith and credit of the U.S. Treasury. These include Treasury bills, certificates of deposit in amounts below the FDIC limit, and a U.S. Treasury fund with a duration of less than two or three years. He feels this will give us the resolve to weather bear markets with equanimity.

Bernstein notes that corporate and municipal bonds, while they offer potentially higher yields than Treasurys, involve credit risk and are too volatile to serve as safe assets during a “flight to safety.” The author doesn’t consider short-term investment-grade bond funds to be safe assets.

3. Shallow risk versus deep risk. Bernstein defines shallow risk as the occasional bear market that eventually reverses itself. Deep risk is a permanent loss of capital from inflation, confiscation by government, devastation from war or revolution, or deflation associated with economic decline.

Inflation, by reducing purchasing power, is the most common cause of a permanent loss of capital in America. There are many examples in history of countries debasing their currencies and impoverishing their citizens. The most vivid examples are hyperinflations of the kind seen in Weimar Germany in the 1920s. America hasn’t experienced hyperinflation—yet.

Some may cite the Continental dollars of the U.S. revolutionary era as an example of American hyperinflation, when over-issuance made the currency almost worthless. But we weren’t a nation then, just a collection of 13 squabbling colonies bound by a feeble Articles of Confederation.

To combat inflation, Bernstein recommends owning short maturities for your nominal fixed-income investments, preferably less than five years. TIPS and Series I savings bonds are also recommended inflation-fighters. Stocks, representing a claim on real assets, tend to keep up with inflation in the long run. In short, we have the tools to combat the most common source of deep risk in America.

A deflation like the one experienced in the 1930s is unlikely today because the government is able to print money. During the Great Depression, the country was on the gold standard, and printing fiat money wasn’t possible.

4. Financial amnesia. Writer James Grant has observed that, in most areas of human achievement, progress is cumulative. Each generation adds knowledge to the foundation of knowledge inherited from earlier generations. Yet only in finance is knowledge cyclical. It seems that each generation must relearn the investing principles that earlier generations have figured out.

Bernstein points out that many financial bubbles are inflated primarily by younger people who have no memory of the previous crash. Consider the role of young adults in the recent meme stock craze and the growing popularity of options trading, powered by the notion that you only live once (YOLO) and by the fear of missing out (FOMO).

The infamous BusinessWeek article “The Death of Equities,” published in 1979, scoffed at older investors for buying stocks. The editors felt that oldsters were behind the times and weren’t aware that the stock market had changed.

These “old fogies” understood that share prices were so low that superior returns lay ahead. Indeed, the article preceded one of the longest-running bull markets in history. Any investor who bought into the BusinessWeek narrative missed out on huge gains.

5. Three percent is the new 4%. Bernstein notes that William Bengen’s 4% rule was developed using returns from 1926 to the 1990s. If future market returns aren’t as generous, a 4% withdrawal rate may be too optimistic—and 3% may be safer.

He believes that you’re probably in good financial shape using a withdrawal rate of 2% to 3.5%. Beyond that, the author warns, you might be in the red zone.

6. Don’t buy municipal or corporate bond ETFs. During turbulent markets, these exchange-traded funds (ETFs) can suffer a liquidity mismatch between the low trading volume of the underlying bonds and the high trading volume of the ETF. This mismatch can cause wide ETF bid-ask spreads that increase the cost of transactions and reduce your return.

These six takeaways don’t come close to covering the scope of the material in Bernstein’s second edition. In my opinion, it’s a must-read for folks looking to broaden their investment knowledge. With the holiday season approaching, if you have such a person on your Christmas list, this book would make an excellent gift.

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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