Jonathan Clements's Blog, page 115

Let the Elephants Go

HAVE YOU HEARD THE parable of the white elephant? In southeast Asia, possessing a white elephant was symbolic of power and prestige. It was a good omen to find one in the wild, signifying peace and prosperity for the kingdom. They were considered sacred and could not be used in war or for labor. To receive a white elephant from the king was a great honor. Who would turn down such a special and unique gift?

Problem is, a white elephant could be a great burden. Feeding and housing an elephant that doesn't produce anything can be costly. Even though it was seen as a great honor to be rewarded with one, a white elephant was also an ongoing financial curse.

My family tried to give me a white elephant.

My extended family owns a property in Upstate New York, along the St. Lawrence River. It was bought by my great grandfather in 1910, and was the family's vacation home when my mother was growing up. Now that she's retired, my mother likes to spend most of her summers there. We call it the river house, it’s absolutely gorgeous and I love to visit once a year.

But because it's been in the family for so long, the place needs constant repairs. The appliances are decades old, there’s no air conditioning and, in any case, I don't think the electrical panel could handle it. The house needs painting, floor replacement, and linseed oil applications on the wood paneling. There are costs associated with maintaining the old boathouse and the crumbling wooden dock, which—thanks to climate change—now needs to be raised once again or, alternatively, torn down and rebuilt.

My extended family has a small boat, but only some of us use it. In fact, the family has grown so large that we can't all fit in the boat, so now we often rent a larger one. During the winter, we pay to store the small boat and for someone to check on the house when the river freezes over. Every year, we make repairs and improvements. But what the place really needs is an expensive makeover that my parents, aunts and uncles can’t afford.

For years, my mother has asked if one day I wanted to take over my parents’ share of the river house. She’d nudge me to say “yes” with beautiful pictures of the river. But I kept telling her it would become my white elephant, more of a financial burden than a gift.

I live in Philadelphia, so it takes six-plus hours to drive there, and I only go once a year and stay for perhaps a week. Even if I decided to take ownership of the place, thus keeping the house in the family and preserving that part of our history, I wouldn't use it more than I do now. There are many other things I'd rather be spending my money on. I don’t want to worry year after year about repairing something that broke 340 miles away and which I hardly ever use.

Even if I did use the river house more, that would be where most of my money would go. My wife and I wouldn't have the wherewithal or time to vacation elsewhere, and we wouldn't be able to do the things we currently love doing. Right now, my young daughters are more into visiting playgrounds, restaurants and theme parks than observing natural beauty.

I'm hardly the only one who’s faced this sort of dilemma. Other white elephants include family heirlooms, rental properties and complex financial accounts passed down to the next generation. It might sound better to have these things than not have them. But in the end, it’s best if the beneficiaries actually want and understand these things. If the only reason they decide to accept such gifts is to make their family happy, these items will steal part of their freedom, financially and otherwise.

My advice: Don't foist white elephants onto future generations.

Let them decide what they want to keep, not what you want them to have. You may have very different goals and desires than they do. Let them guide your decisions, so you reduce the complexity in their life, rather than adding to it.

My mother has come to understand that my brothers and I couldn’t afford the amount of work that the river house needs. She understands we’d be making big sacrifices to maintain this old house—a house we don't love as much as she does. It's been hard for her to accept this, but it's the truth.

The good news is, we plan to continue visiting the river, even after we eventually sell the house. But this time, we'll do so because we want to, and not because there’s something to repair. And, yes, we’ll be renting.

Charlie Schafer is an aerospace engineer with an interest in personal finance and investing. His other hobbies include reading widely and homebrewing beer. Charlie lives with his wife and two children in South Philadelphia. Check out his earlier articles.

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Everything She Needed

THE MOST FRUGAL person I’ve ever known was my Great Aunt Beatrice. To all the family, she was just Aunt Bea. Never married, she was the sister of my paternal grandfather, a man who passed away 14 years before I was born. She was a dignified lady, proper and pleasant, and not given to bursts of laughter. Still, I felt closer to her than to any of my living grandparents or other relatives from that generation.

When I was growing up, Aunt Bea lived in the same town as us. She would usually be present for our family’s Thanksgiving and Christmas celebrations, and would occasionally be present for other gatherings. Every Christmas, she’d give each of my three sisters and me money envelopes that contained exactly two crisp $1 bills. Although I liked getting the money, back then I couldn’t appreciate what a sacrifice those gifts must have been.

Aunt Bea was born in 1891. I remember that because I inherited the silver dollar bearing her birth year that she kept throughout her life. Although it’s not an especially valuable coin or in particularly good condition, it was probably her most valuable possession at the time she passed away.

While I have some old family photographs from when Aunt Bea was young, I don’t know much about her early life. I do know she lost her brother Willits in the great influenza pandemic of 1918. I wish now I’d paid more attention as a youngster when we all got together and she held forth about family history. Being a typical kid, I was bored by stories about people I’d never met.

Aunt Bea’s last job was as a milliner. She sold ladies’ hats during a time when women increasingly went hatless. Her income steadily dropped, while the rent on her shop increased. She stuck at it too long, my mother once told me, and the landlord wanted her out of the space she rented.

Aunt Bea was always hoping fancy hats would come back in style. They never did. Eventually, she was forced to close her little business.

While I was never privy to the details of Aunt Bea’s finances, by the time I knew her, I’m pretty certain she didn’t live on much more than whatever she got from Social Security. I also don’t know whether my father discreetly helped her out financially from time to time. I wouldn’t be surprised if he did.

Aunt Bea rented what would charitably be called a studio apartment, in an older house on the outskirts of town. It was a single large room with the tiniest kitchen area I’ve ever seen.

Aunt Bea didn’t have a car. Her apartment was within walking distance of the local ACME grocery store. Did she have a television? I don’t remember one. I’m guessing she might have had a radio, but I can’t be certain. I really don’t know how she passed her days.

The reason I remember Aunt Bea’s apartment is that one time my parents dropped me off there when they needed an emergency babysitter. With three older sisters, the need for outside babysitting rarely presented itself.

I remember being bored at Aunt Bea’s place. No TV, no games, not much to do. Aunt Bea was a kindly lady, though, and wanted to take good care of me. She boiled some water, and we sat down for a proper tea.

Now, I wasn’t much of a tea drinker, but I had indulged in it before. I saw that for the two cups of tea that she made, she only used one tea bag. When I complained that I should have my own bag, she exclaimed, “Why, I can get four cups of tea out of one bag.”

When asked about my visit with Aunt Bea, I told my parents the tea bag story. My mother burst out laughing—probably mostly due to my imitation of Aunt Bea’s voice. She also explained that Aunt Bea didn’t have much money and had learned to be frugal.

As Aunt Bea aged, her financial situation worsened. Even the rent on her small apartment was a strain. Then, one day, I heard that Aunt Bea—now well into her 80s—was accepted into a church-related retirement home a few towns over. She would assign her small Social Security check to the home, and they would take care of her.

For Aunt Bea, this was like winning the lottery. She had her own room in the large, ancient facility. Her meals were taken care of, and she no longer had to worry about finances. In addition, after living alone for so many years, she was now part of a community. For her, these truly were the golden years. She was so happy to be there.

Aunt Bea continued to appreciate the small things in life. During my high school years, at Christmastime, I would make her a batch of chocolate chip cookies and send it to her at the home, usually with a handwritten letter. Whenever I visited her with my parents, she would rave about the cookies. She would allow herself only one a day to make them last as long as possible.

My letters were a source of amusement for her. The envelopes addressed to “Aunt Bea Cutler” were particularly popular. She loved talking about the letters, even to staff and other residents. I don’t think she received a lot of mail at the retirement home.

Aunt Bea passed away in 1986 at age 95. She had no funeral, and my parents were the only ones present for her burial. She had little to pass on except a box of family pictures and her silver dollar, both of which are now in my possession. Aunt Bea never had much in the way of wealth or possessions. But in the end, she had everything she needed.

Ken Cutler lives in Lancaster, Pennsylvania, and has worked as an electrical engineer in the nuclear power industry for more than 38 years. There, he has become an informal financial advisor for many of his coworkers. Ken is involved in his church, enjoys traveling and hiking with his wife Lisa, is a shortwave radio hobbyist, and has a soft spot for cats and dogs. Check out Ken's earlier articles.

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Teaching Myself

WHEN I WAS IN COLLEGE, working toward a bachelor’s degree in music education, a friend’s dad told me about Vanguard Group. I’d never heard of Vanguard, and I had no idea what a mutual fund was.

I did some research on the firm and its founder, John Bogle, and read his book Bogle on Mutual Funds. Soon after, at age 19, I opened an IRA at Vanguard and thereafter contributed the maximum allowed every year. I began to follow Bogle’s tenets, including his emphasis on holding down investment costs and on indexing. As Bogle wrote, “In investing you get what you don’t pay for.”

After college, when I began working as a New Jersey public school teacher, colleagues told me to do two things: join the union and contribute to a 403(b) plan. After a little research on sites such as 403bwise.org, I learned there were actually two very different 403(b) plans: a 403(b) and a 403(b)(7).

The former is a tax-deferred annuity overseen by an insurance company and typically involving hefty fees. Most of the time, this type of product yields a nice commission to the sales representative who lurks in the faculty room. By adding the “7” to 403(b), the plan becomes a mutual fund-type of product known as a custodial account. Although the two types of plan are very different, they’re often known by the same title in the faculty room, which leads to some confusion. During my career, I invested solely through 403(b)(7) plans.

Most teachers I know live in a bubble. They’re much too busy writing lesson plans, grading papers, responding to students’ and parents’ questions or concerns, making sure they’re following IEP (individualized education program) and 504 accommodations, completing SGO (student growth objective) and SGP (student growth percentile) reports, and keeping up with an ever-changing curriculum and standardized tests. After their work day is done, many are athletic coaches or have a side hustle, and then head home for their most important “job” as a parent. Spending time learning about 403(b) options doesn’t rank high on the list of priorities.

Schools have a list of approved 403(b) vendors. To be on the list, a vendor must first approach and be approved by the school’s business administrator and then by the school board. Where I worked, the union had very little to do with what vendors or what 403(b) options were available to members. I found nothing in our collective bargaining agreement about these plans. The only way members could get a better plan was by getting enough folks to lobby the school board.

When several of my colleagues and I wanted a better 403(b), this is what we did. We were able to get Vanguard added to the approved vendor list. Doing so eliminated the sales rep and provided us with direct access to Vanguard’s low-cost mutual funds. This worked great until the IRS changed the compliance and recordkeeping rules in 2009. Now, a third-party administrator was added and all vendors had to comply with the school district’s 403(b) rules. In our case, Vanguard wouldn’t agree to the employee’s ability to take a loan from a 403(b), so off the list it went.

For a few years, I stopped contributing to my 403(b) and just channeled money to my Roth IRA. One of our vendors, Lincoln Investments, offered access to Vanguard funds, but I would still have to pay a commission to the firm’s sales rep. This didn’t sit well with me, so I did a little digging and found an unadvertised “participant-directed plan” with the vendor. It wasn’t offered through the sales rep that came to the faculty lounge.

Instead, I had to meet with a vice president of the firm at a local office and complete the paperwork. To buy Vanguard’s funds, I still had to pay the third-party administrator’s fees, but not a commission to the sales rep. I chose Vanguard Total Stock Market Index Fund because I wanted to own “the haystack,” as John Bogle put it, rather than hunting for needles. The fund invests in close to 4,000 stocks.

 Not all my colleagues wanted to do it themselves. I would tell them that, if they wanted a sales rep to help them, make sure he or she is a Certified Financial Planner. That way, the sales rep is obligated to act as a fiduciary and choose investments that are in the teacher’s best interest.

I never found a good reason to contribute to a 403(b) annuity contract, with its high expenses. I knew I already had two annuities in my future. My pension is an annuity, and Social Security functions like one.

Tim Moyer was a New Jersey public school music teacher for 28 years. During those years, he was an investment resource for his colleagues and union treasurer. He continues to serve as director of a music ministry, a calling he’s had for more than 30 years. Tim lives in Moorestown, N.J., with his wife and two sons. He enjoys hiking and skiing with his family, and taking long walks with the family dog. Tim also enjoys composing music for choirs and for the piano.

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Priceless Pets

MY FIRST PET WAS a timid pup called Precious, a moniker inspired by the cartoon character of the same name. My four-year-old self felt an affinity for the runt of the litter, so I quickly picked him out. That sweet, little dog had a nature true to his name. I don’t remember his fate but, in those days, pets ranged free in our little town, and I fear he may have met with some mishap.

My second pooch arrived when I was age six, while sitting in my barber’s chair submitting to a haircut. A family friend home from college popped her head through the doorway and asked if I wanted a free puppy. Of course, I did. My mother acquiesced, and we brought him home that day. I christened him Butch, because I thought it sounded tough. Maybe I should have tried something gentler. A few months later, Butch nipped a little girl’s heel and was promptly returned to the original owner.

In the years since, other dogs have wobbled or walked into my life, dogs whose only price was the promise of a good home. A few were big dogs with big hearts. A couple were little dogs with even bigger hearts. Each asked for scant more than a kind word and occasional scratch behind the ears, but returned all the love they could lavish.

None of these dogs claimed any particular ancestry, and none was especially good looking. Even our present family pet, a Labrador retriever named Lottie, would never win “best of show.” All shared one attractive quality, however: They were free.

Apparently, free puppies aren’t as popular as they once were, at least not in some circles. One breeder here in Georgia advertises registered Rhodesian ridgeback puppies for $2,500. Another offers Shetland sheepdogs for the same price. American Staffordshire terriers fetch “just” $2,000, though the money that’s saved may be lost to higher home-insurance premiums.

To be sure, those puppies sport top pedigrees. Yet even the mixed bloods seem expensive to me. A mini sheepadoodle runs about $900, while $1,000 buys the choice of a bichapoo or a teddy bear. To come home with a cute, cuddly cavapoo, you’ll leave behind $1,795.

Are expensive pets truly better than their cut-rate cousins? Does a homely little mongrel offer any less love than a high society hound? A dog knows nothing of pedigrees, and cares even less. She just wants a pack to run with, and any family will fill that bill. She’s not fussy, so what makes the owners so choosy?

Now, I know sometimes breeding matters. Personality alone won’t win the Iditarod, and it’s pointless to hunt quail without a dog bred for the task. A loyal companion can come from humble beginnings, though, and blossom into your best friend. I don’t claim an expensive dog can’t have an expansive heart, but I also don’t think I have to scrape up a big stash of scratch to bring a new furry friend into my life.

Take Lottie. She was a rescue dog of sorts. My daughter picked her from a large litter living in a flea-infested kennel. Lottie escaped to a good home, but her litter mates weren’t so lucky. All died of parvovirus a short while later.

Lottie's eager personality made it easy to overlook her early faults, like incessant chewing when no one was looking. As a youngster, she was a constant companion when something interesting was afoot, like swimming in the pond or checking on the beaver dam down at the creek. Today, she’s older and slower, but her quick tongue remains difficult to dodge when I sit on the steps to lace up my work boots.

I’m cognizant HumbleDollar is populated by dog lovers, and even a professional dog trainer, so I’m treading lightly. I wouldn’t accuse anyone here of strutting around with a status symbol on a leash, and I also wouldn’t criticize folks for doing so. If a flashy dog brings a thrill, by all means indulge. Money should be enjoyed. Even if someone signals a more subtle message through dog ownership, I won’t howl about it.

As for me, however, I’m not out to put on the dog. Nor do I feel called to save all the world’s at-risk pets. It’s not my campaign. I do like to save money, though, so a free puppy appeals to my frugality. The family pet is one item that I shop for on price every time.

I’m aware I’m striking a self-righteous stance, and I won’t blame anyone for taking me to task for my finger-wagging. But before giving vent to rising indignation, let me tell you of one exception to my tight-fisted tendencies.

That exception was Hanna, named after the tropical storm that drove her to seek shelter on our front porch. My wife and I arrived home from work to find her greeting us with a shy wag of her tail and a hesitant step forward. After getting acquainted, we fed her well and got her bedded down for the night, while we wondered what to do with this mystery dog.

What we did was go all in, with the purchase of a collar, dog shampoo and food before we arrived home from work the next evening. Hanna came to us fully grown, and also fully clipped, though we didn’t realize it at the time. Later, her long coat revealed what was probably one of the designer dogs I poked fun at earlier in this article. We kept scouting for “lost dog” postings, but they never appeared.

We didn’t think we had time in our schedules for either a pet or a pupil. My wife and I are not skilled dog trainers, but discovered we didn’t need to be. As a student, Hanna made up for our deficits with a quick mind that anticipated our wants and quickly secured a spot in our lives.

Hanna’s been gone for a dozen years, but we still miss her. Despite my lifelong policy of bargain-basement pets, I’d gladly pay a premium price to have her back in our family.

Ed Marsh is a physical therapist who lives and works in a small community near Atlanta. He likes to spend time with his church, with his family and in his garden thinking about retirement. His favorite question to ask a young person is, "Are you saving for retirement?" Check out Ed's earlier articles.

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Giving Sensibly

WITH DECEMBER FAST approaching, it’s a good time to think about end-of-the-year financial planning. What steps might you take?

A popular strategy is to make charitable gifts, both to support good causes and reap a tax benefit. But before you start writing checks, take a moment to better understand your tax picture. Because of the complexity of tax forms, that’s often easier said than done. Still, you don’t need to decipher every number. Instead, I recommend focusing on what I call “the big three” questions on your tax return:

Are you itemizing deductions? If not, how close are you to that threshold?
What’s your marginal tax bracket for ordinary income?
What’s your marginal tax bracket for long-term capital gains and qualified dividends?

If you know these three pieces of information, they’ll provide, in my view, most of what you’d want to know. More to the point, they’ll provide most of what’s important in making tax-related decisions. The good news: Most tax software programs provide answers to these three questions on a simple summary page. If you work with an accountant, he or she can also provide this information.

With answers in hand, you can turn back to the question of charitable giving. What’s the most tax-advantaged way to give? Here, you’ll want to consult the first of the above questions: Are you itemizing deductions? If you aren’t itemizing, an incremental charitable gift—while certainly helpful to the charity—won’t offer any tax benefit to you.

For that reason, if you’re in the neighborhood of the threshold for itemizing but not quite there, a strategy to consider is “bunching” deductions using a donor-advised fund. The idea is to double up on donations every other year, allowing your deductions to exceed the standard deduction in those years, and potentially offering tax savings equal to your marginal income-tax bracket. I mapped out this strategy a while back, when the current rules were put in place.

This is also a good time of year to think about gifts to family members. If this is a priority for you, there are a few aspects to consider. First are the tax considerations, though these are fairly straightforward. As you may know, there’s an annual exclusion for making gifts.

In 2023, the exclusion allows you to give any individual up to $17,000 without any gift or estate tax impact. In addition, there’s a lifetime exclusion, which is close to $13 million per person, though that figure is currently scheduled to drop by half in 2026. In addition, if you’ll need to sell investments to fund these gifts, it’s helpful to know your capital-gains tax rate.

Those are the quantitative considerations, and they’re certainly important. But a far more difficult question, in my view, isn’t quantitative at all. That question is, how do you structure gifts to family members in a way that doesn’t cause unintended consequences? If you’re thinking about a program of gifting to children or other family members, I would consider the following:

Scale. Warren Buffett has noted that his strategy in making gifts to his children was based on a simple principle: He wanted his children “to have enough that they could do anything, but not so much that they could do nothing.” This makes sense, and it highlights a key challenge in making gifts. You don’t want the recipient to lose the motivation to get out of bed in the morning. And because everyone’s situation is different, there’s no universal rule here.

Not sure how much is too much? I suggest starting with modest gifts and increasing them only when you can see that the funds are being used productively. Alternatively, you could make gifts that are restricted in one way or another. For instance, you could make a gift to a 529 account, to a custodial account or directly to a family member’s IRA. In each case, the funds could be withdrawn and used in ways that run counter to your expectations, but it would be more difficult. For greater control—especially if you have a larger estate—you might establish a trust and make gifts only through that vehicle.

Sustainability. It likely goes without saying, but it’s important to be sure the gifts you make don’t jeopardize your own financial plan. That’s another reason you might make gifts that increase only incrementally over time.

Transparency. If you’re making gifts to children or to other relatives, chances are they won’t ask too many questions. But that doesn’t mean they won’t have questions. They might wonder, for example, if they can expect further gifts, and what those might look like. That’s why I recommend being transparent with recipients. Let them know your intentions, so they face fewer unknowns in making their own financial plans. If you’re not sure yet whether you intend to make further gifts, that’s okay. Letting recipients know that there’s uncertainty is still helpful information.

Consistency. More than once, I’ve worked with the recipients of gifts who were left puzzled and a little uneasy. That’s because the gifts they received varied in size each year. The recipients were left to wonder whether the differences from year to year—especially when the gifts decreased in size—were meant to send a message. In most cases, the annual differences had benign explanations. In years when the market declined, for example, I’ve seen parents make smaller gifts. The problem, though, is that recipients didn’t always know that. That’s why, if you decide to make ongoing gifts, I suggest starting at a level you know you can maintain through any economic environment.

Equity. I have yet to meet two siblings whose financial situations were identical. But if you’re making gifts to children or grandchildren, I suggest not treating them any differently.

Suppose you have two children, one of whom is a schoolteacher and the other a brain surgeon. Even in that case, I think the best path is to treat them the same. Why? As I often say, brain surgeons have feelings, too. In addition, it’s important to not make assumptions about others’ financial needs. Those with high incomes not only face steeper tax bills, but also their family will receive less college-financial aid and they may have other financial obligations. Result? Their actual disposable income may be far less than it appears.

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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My Best-Laid Plans

I HAD MY SIGHTS SET on retiring at age 59. Not exactly FIRE—financial independence-retire early—but certainly a bit earlier than my peers, close friends and family. I wanted to seek new challenges after spending more than 25 years in academic research. Our financial plan was solid. My wife and I calculated we’d have more than enough retirement income.

But my plans were upended, first by the COVID-19 pandemic and then by two life-threatening health issues.

I’d spent three decades studying the immune system, with a specific focus on developing new ways to increase vaccine potency. The pandemic represented an opportunity to put all my theoretical knowledge to good use.

As a researcher, I was well positioned to lead a team seeking to develop enhanced and novel vaccines. As an educator, I had the opportunity to teach medical students about SARS-CoV-2 and introduce them to an entirely new class of therapeutics. How could I possibly retire? Needless to say, I put my retirement plans on hold and jumped into the scientific void.

I look back on the three additional working years not just with joy, but also with gratitude that I was able to contribute—at least in some very small way—toward helping the world work through the pandemic. I joined the scientific community on a common and exciting quest.

It wasn’t easy. The increased pressure to produce solid data in a short period of time took a toll on my health. Put it this way: There’s never a good time to have a heart attack, but that’s doubly true if we’re in the midst of a pandemic. Luckily, the care I received was top notch. I escaped with some embedded hardware and no permanent cardiac damage.

A year ago, with the pandemic in the rearview mirror, I returned to my earlier goal—embarking on the next phase of my life—and trimmed my workload to two days a week. It was scary to reduce pay and benefits by 60% in the face of volatile stock and bond markets. Indeed, to me, it was scarier than my heart attack. Still, I’d spent decades following a Boglehead-like approach to saving and investing, and felt financially ready to retire. My asset allocation and cash reserves gave me confidence that my plan was solid and allowed me to sleep at night.

My wife and I took the obligatory European trip, flying to Spain to view Gaudí architecture, and to enjoy sangria and espresso. We bought new hiking boots and made a small dent in one bucket list item: exploring new vistas in Texas State Parks. I was confident we were all set for a wonderful retirement.

Man plans. The deities laugh.

Seven months ago, I was diagnosed with a golf-ball-sized brain tumor. I’m grateful that the mass within my skull was discovered well before it led to permanent disability or death. Still, my world was turned upside down overnight. I made my living using my brain, and now my major “capital equipment” was in peril. It was ironic and tough to fathom.

From diagnosis to surgery was only two weeks—not a heck of a lot of time in the grand scheme of things. Two weeks is about the time it takes for newly planted radish seeds to sprout and lift their leaves toward the warming sunshine. Two weeks is half a moon change in the nighttime sky.

Two weeks is not enough time to get one’s financial affairs in order. That’s a long-term plan that takes years to develop and implement. Nonetheless, it was sufficient time to familiarize my wife with our investments and the financial firms we use, and to remind her of our overall goals in our investment policy statement. Since I do most of the bill paying, the two weeks were also enough time to give my wife a refresher course on those day-to-day financial activities.

There were other items to address over that two-week period. Advance medical directives. Medical power of attorney. Financial power of attorney. Update wills. Notarize aforementioned documents. Locate insurance policies. Confirm all accounts have updated beneficiary designations. We were fortunate that we’d addressed many of those items over the prior two years. Still, it was stressful double-checking all of life’s important documents.

We usually gift money to our twins during the first quarter of each year. We accelerated that move, so it happened immediately, rather than waiting until after the surgery. It’s not a heck of a lot of money. But we like how it helps them today, rather than receiving it years later as an inheritance.

The surgery was deemed a success. Most of the tumor was removed, and it was characterized as benign. A short course of radiation therapy followed, and I’ve since made a near-complete recovery. That said, the path post-surgery was challenging. I’m grateful for the community of friends and family that supported my reclamation of my body and mental functioning. My optimistic outlook on life hasn’t changed, though I readily admit my vision of how my next decade will unfold has.

I spent a lifetime planning for a happy financial ending, never considering that my health might derail those plans. Today, I’d urge others to follow their dreams as best they can while they can. This doesn’t necessarily mean retiring early. Rather, try to enjoy life along the way, so you don’t end up with regrets for having worked so hard for so long. During my career, I looked forward to work every day. The excitement of scientific discovery made me who I am. I truly have no regrets.

But I also have a long list of adventures and challenges I’d still like to complete—and I’m altering my plans to take advantage of the gift of additional time that I’ve been given.

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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Taking Back the Wheel

WE FLEW BACK TO the U.S. last week from Madrid, and were reunited with our car of 12 years. After selling our house in late 2022 and going nomadic, we had headed to Europe six months ago, opting to have our 2008 Lexus SUV professionally stored.

In an earlier article, I recounted the thought process behind this decision. Suffice it to say, we chose this option largely because we had no firm plans for when we’d need our car again, but wanted to know we could have it back—and ready to be driven an extended distance—at virtually no notice. It turned out to be in storage for six months, but it might have been far longer and, in the future, it could be.

For $180 a month, the facility’s staff provided indoor storage and performed monthly maintenance, including running the engine and air-conditioning, cycling all the windows, maintaining tire pressure and fluid levels, and moving the car a short distance within the facility. The staff let us know each month that maintenance was performed and whether there were any issues. We had one issue a few months in: The battery failed to stay charged.

Our battery was under warranty, and we had gotten it from a national chain. The storage facility staff offered to take the car to a local branch, so we could have the problem fixed under the warranty. But the testing showed the battery to be good, which meant that we potentially had a car problem, not a battery problem. That meant an issue could still exist, but at least we’d be prepared.

Getting the car back was a breeze, and everything was as we expected. The staff had put the car on a trickle charger, so it was charged and ready to roll when we got it. Everything inside was as we’d left it. After flying in from Spain very late in the evening, we slept in an airport hotel and took an Uber the next morning to pick up the car.

We’d already set up an appointment for preventive maintenance with a Lexus specialist that was on our route. The day after we got the car back, we handed it over for service and picked up a loaner. Later that day, with a new light bulb and rear brakes, our car was pronounced in excellent health, including its battery and electrical system.  We’ll only have it out of storage for a few weeks and a few hundred miles before we store it again.

Some readers will be thinking it would have been better to leave the car with a friend or family member, or just park it, and save money that way. We considered but then rejected these options. With no set return date, it made little sense to ask someone to care for the car indefinitely, or to just leave it somewhere with nobody paying attention. We wanted to know our car would be immediately drivable whenever we needed it, and there was no one able to store it conveniently and in the way we desired.

A side benefit to storing the car—one we hadn’t initially considered: We can store a few belongings in it. We decided shortly before leaving the U.S. to lighten our load and left a kettlebell in the car, along with roughly a small suitcase’s worth of shoes and clothing. While we were gone, the staff were happy to take delivery of some small boxes and put them in the car for us. We’ll again store some belongings when we hand the car back to the storage folks in a few weeks, before we return to the other side of the pond.

Brief mention of my kettlebell dilemma in my previous article sparked some interest and advice from readers, so I owe an update. As you might have gathered, my bell did not make the trip to Europe but rested comfortably in the car. An Italian acquaintance referred me to a gym not far from where we were staying, and it had the equipment I needed for my kettlebell instructor recertification. That worked out well, but I’ve now been without a kettlebell since June. That’s had a silver lining, forcing me to work more on other skills, but I do miss my bells. I’m glad to have one back in my hands for a little while. But soon enough, it’ll be hibernating in our car once again.

Michael Perry is a former career Army officer and external affairs executive for a Fortune 100 company. In addition to personal finance and investing, his interests include reading, traveling, being outdoors, strength training and coaching, and cocktails. Check out his earlier articles.

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My Two Cents

AN UNPLEASANT PRICE shock awaits those who grew up in a low-cost-of-living nation and then relocate to a high-cost country. Coming from India, I experienced it firsthand, as I routinely converted prices into Indian rupees and compared them to the cost of similar items back home. In my initial years abroad, this made it challenging to open my wallet. Everything appeared overpriced.

It took time to come to terms with the fact that, despite higher living costs, I could still afford most necessities, thanks to my higher income. Continually calculating prices in Indian rupees became increasingly illogical and tiresome. Nevertheless, I couldn’t entirely abandon the habit. Instead, I adopted a simplified approach, one that factored in differences in purchasing power.

My new calculation: I’d append a zero to the local price—effectively multiplying it by 10—and consider that figure as the “affordability-adjusted” price in Indian rupees. For instance, if the $20 price tag for a haircut had me pondering a ponytail instead, my thought process would be as follows: If I still lived in India, instead of relocating abroad, would I hesitate to spend 200 Indian rupees to appear well-groomed?

Why did I choose to add a zero, instead of relying on the official currency conversion rate? The exchange rate sometimes made the cost in rupees seem exorbitant. But I instead focused on the average salary in both countries of a software engineer, which is my profession.

For instance, if a software engineer in the U.S. earns a salary of $100,000, the same person in India might earn 10 times that amount in Indian rupees, or 1 million rupees. If the U.S.-based engineer considers the price of a haircut to be reasonable, then the engineer in India should likewise regard the “affordability adjusted” price—the rupee price with an extra zero added to the end—as reasonable.

As unscientific and inaccurate as this approach may sound, it did magic in overcoming my fear of overspending, particularly in my initial years of living abroad. I came to understand that many everyday items—groceries, household essentials, personal care products, electronics and the like—were surprisingly affordable, despite the higher price tag in absolute terms. Conversely, expenses such as housing, repairs and services appeared relatively expensive. Consequently, I aimed to minimize my spending on these costlier categories, ultimately finding a balance I felt comfortable with.

HumbleDollar readers might recall from my previous writings that my financial situation went downhill following my divorce. As a newly single man in my 30s, I faced an urgent need to rebuild my broken finances. I made significant lifestyle cutbacks, meticulously scrutinized the value I’d receive for every dollar I contemplated spending, and earned a well-deserved reputation for being thriftier than any of my friends.

Fortunately, within a few years, I came to realize that my behavior wasn’t merely frugal but bordered on miserliness. By that time, my financial situation had improved, and I no longer needed to cling to my unsustainable lifestyle. Still, I found it surprisingly difficult to tamp down my relentless focus on cutting costs. Undoing my penny-pinching ways turned out to be a more formidable challenge than restoring my post-divorce balance sheet.

Being a tightwad became even more problematic when I remarried a few years later. My wife, who had spent several years as a single mother before our marriage, wasn’t extravagant. Yet we often found ourselves engaged in unpleasant arguments over how tightly to hold the purse strings. My constant scrutiny of every expense became a source of frustration and irritation for my new partner.

As a compromise, I resolved not to expend time and energy scrutinizing expenses that fell below a certain dollar threshold. My recollection is a little fuzzy—this was around 2006—but I believe I started at $10 and quickly made a few upward adjustments. I hoped this would help reduce our contentious spending discussions, while also alleviating my anxiety about overspending.

Like my “affordability adjustment” to reflect my higher salary abroad, this approach also proved remarkably effective. While we, like any new couple, had our fair share of quarrels, they no longer centered around money. Instead of obsessing over every minor expense, I concentrated on large or recurring expenditures. My wife was relieved that she didn’t have to defend every spending choice. Our monthly expenses increased, but so did the quality of our relationship and our time together as a family.

As our careers advanced and our household income steadily increased, my threshold for worry-free spending gradually rose, although it did so at a more moderate pace. I was also getting better at managing my money anxiety.

When I opted for semi-retirement a few years ago, I realized that I needed a new approach to determine my worry-free spending threshold. Since my pay was now less certain, it seemed illogical to base the threshold amount on income. Instead, I found it more rational to establish a limit based on the size of our nest egg. This is when I conceived my “two cents” rule.

The concept is this: If I had $100 to spare, I likely wouldn’t stress over wasting a couple of cents here and there, as long as I’m careful with the dollars. Expanding on this logic, a millionaire shouldn’t be overly concerned about occasional expenditures of $200 or less, unless such expenditures were becoming too frequent.

My new asset-based rule yielded a much larger threshold compared to my previous income-based one. Although I initially hesitated to raise the limit for worry-free spending, I gradually adopted it, especially with the support of a bullish stock market and the continuing income from my part-time job. Result: I now allocate more time to engaging in joyful activities—and less time to dwelling on minor financial decisions.

Sanjib Saha is a software engineer by profession, but he's now transitioning to early retirement. Self-taught in investments, he passed the Series 65 licensing exam as a non-industry candidate. Sanjib is passionate about raising financial literacy and enjoys helping others with their finances. Check out his earlier articles.

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The Other Side Sucks

THERE ARE CERTAIN expressions I’ve heard during my lifetime which, for one reason or another, have stayed with me. In a previous article, I related how a coworker encouraged me to “keep on keeping on” when confronted with a challenge, and how Napoleon Hill’s expression “burning desire” struck me as a great way to describe a goal worth seeking.

Here’s another expression I’ve never forgotten: “The other side sucks.”

I’ve been a race car fan ever since my older brother introduced me to automobile racing in my youth. I especially enjoy Formula One racing. These international racing events gather the best of the best—mechanics, engineers, drivers and the sponsors who pay for it all.

One of the Formula One race tracks I’ve visited is in Watkins Glen, New York. In the 1960s, Watkins Glen was the only race track that hosted a Formula One race in America. There were others in the years that followed but, at the time, Watkins Glen was the only one.

The racing community that sponsored the event, along with the owners of the racing teams, were sophisticated. The same couldn’t be said of the fans at Watkins Glen, who weren’t necessarily from society’s upper crust.

One area of the Watkins Glen track was known as “the bog.” It was a valley within the racing grounds that would become muddy following rain storms. This area became a gathering place for fans, who took great joy in directing late arrivals to this muddy area, especially after it was dark. Upon entering the bog, many cars would get stuck. Amid the resulting melee, cars would often be damaged. This led to Formula One’s sanctioning body to stop holding races at “the Glen.”

On one particular night at the bog, two separate and distinct groups formed on each side of the valley. One side began to chant, “The other side sucks.” That, in turn, caused the other side to repeat the chant, which was both funny and meaningless, since both sides were a muddy mess and neither group could truly evaluate the other side.

Since that time, I’ve become aware of other groups who have become organized in one fashion or another into two separate groups. Each side will decide the other side is deficient, wrong, stupid or missing some key piece of information.

These groups could be based on politics (Democrats/Republicans), religion (Christians/Jews/Muslims/Hindus), skin color (black/white), economic status (rich/poor), labor (union/management), sports (Yankees/Red Sox) and even investment strategy (indexing/active management).

To me, the funny thing is that, if we’re so inclined, we can set up walls to divide us from any group we choose. But why bother? What difference does it make? We’re all human. We’re all made about the same. We all have differences, but we also all have similarities. Why do our differences overpower our similarities?

The other side will always suck—if that’s what we choose to believe. But we don’t have to.

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Flipping Out

ARE WE ANY GOOD at correctly analyzing simple financial situations involving probabilities? Kenyon, my brother and fellow HumbleDollar contributor, introduced me to a 2016 study that suggests that many of us are shockingly poor at doing so.

Sixty-one business students and young professionals at financial firms were presented with the following scenario: At a website, you’ll be given $25 and allowed to bet on a computer-generated coin flip. You may bet on either heads or tails. It isn’t a fair coin. With each flip, there’s a 60% chance of heads and a 40% chance of tails. If you win the bet, the amount you wagered will be added to your kitty. If you lose, it will be subtracted. With each bet, you may wager any sum up to the amount you have. You have 30 minutes. Your goal is to end with the largest amount possible, which you’ll then receive, subject to a $250 maximum.

What strategy would you follow? How would you fare?

If you want to find out how, don’t read beyond this paragraph until you’ve first tried an abbreviated version of this experiment. Instead of 30 minutes, you’ll be given 10 minutes. Also, you won’t receive your ending balance. Otherwise, the situation is as described above. Click on this link and try it. In the comments section below, feel free to post the strategy you followed and your ending balance.

Here are three possible strategies:

Bet a constant percentage of your balance. But how much? If the percentage is too low, you won’t win very much. If it’s too high, you risk getting wiped out with a few losing bets.
Bet a constant dollar amount. As above, if the amount is too small, your bets won’t add much when you win. But if it’s too large, you run the risk of losing everything with a few consecutive losses.
Double your bet after any loss, also known as doubling down. This method guarantees a profit when you eventually win, but there are two important qualifications. First, it assumes you don’t run out of money. In this game, you may quickly run out of money. Second, it assumes there’s no dollar limit on how much you bet each time.

The investigators stated that “[w]hile we expected to observe some sub-optimal play, we were surprised by the pervasiveness of it.” That’s an understatement.

A person should never bet on tails, and yet 67% of the participants bet on tails at least once. Nearly half the players (48%) bet on tails more than five times. One player in five (21%) bet on tales at least a quarter of the time.

It might be rational to bet on tails if you believed the experimenters lied when they said the computer had been programmed so there’s a 60% chance of coming up heads. The only other possible reason for betting on tails: You think past performance had some value in predicting future performance. After a string of heads, some people might believe tails is bound to be next. But in this experiment, each flip had a 60% chance of coming up heads. No one should ever bet on tails.

Surprisingly, 28% of participants went bust, which the experimenters defined as ending with less than $2. A person should never bet so much that they have a 40% chance of ending up with nearly nothing.

The authors assumed that 95% of the participants would reach the $250 maximum. In reality, only 21% reached this goal. As shown below, following an optimal strategy, you should have about $8,973 after 30 minutes. Thus, even with a lot of sub-optimal bets, a person should still reach $250 after 30 minutes. Yet four out of five participants failed to achieve this.

Based on some reasonable assumptions, the researchers suggest a bet of 20% of the current balance is the optimum bet. Why? Those who are math-phobic can skip the equations below.

But for my fellow nerds, here’s the mathematical explanation: With a 20% bet, the expected value of each flip is a 4% increase in your kitty. Why? You have a 60% chance of a 20% gain, and a 40% chance of a 20% loss, which mathematically looks like this: 

(0.6 x 0.2) – (0.4 x 0.2) = 0.12 – 0.08 = 0.04

The outcome is highly dependent on the number of flips. If there are 150 flips during the 30 minutes, a player should have $8,973:

$25 x (1.04)150 = $25 x 358.92 = $8,973

What should we expect during 10-minute experiments? If people follow the strategy of betting 20% of the balance and they make 50 coin flips, they should have $178:

$25 x (1.04)50 = $25 x 7.11 = $178

I’m not including the math, but the $250 maximum for the 30-minute experiment scales down to $54 for the 10-minute version. While the optimal betting strategy yields $178 in 10 minutes, anyone who reaches at least $54 has been somewhat successful.

My brother and I independently tried the 10-minute coin flip experiment. We had absolutely no prior discussion about strategies. He and I both bet a constant percentage of the balance. He decided to use 25% and I used 20%. In 10 minutes, he had $68 and I had $134, both very respectable.

I shared this game with three college professor colleagues—two business professors and one psychology professor who teaches statistics. Two of the three went bust. Those two both used a constant percentage strategy, but they chose percentages that were too high. A string of tails wiped them out. The third ended with $560. Using a modified 20% strategy, he had $280 with just seconds to go. He bet it all and won.

If most well-educated people have trouble with this straight-forward proposition, it’s hardly surprising that the general population has trouble navigating the myriad choices—with so many unknowns involved—when saving and investing for retirement.

Larry Sayler is the only person with a Wharton MBA who also graduated from Ringling Bros. and Barnum & Bailey’s Clown College. Earlier in his career, he served as CFO for three manufacturing and service organizations. For 16 years before his retirement, Larry taught accounting at a small Christian college in the Midwest. His brother Kenyon also writes for HumbleDollar. Check out Larry's earlier articles.

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