Jonathan Clements's Blog, page 119

Retirement Do-Over

IT'S TIME TO THROW out our broken retirement system and start over. My first article for HumbleDollar, published more than five years ago, was titled Choosing Badly. It was about the inability of most employees to make good use of their 401(k) plan.

Guess what? Nothing’s changed.

Today, some 401(k) plans still have too few investment choices, while others have too many. There are multiple options that people don’t understand, such as target-date funds compared with index funds, or whether they should take advantage of the "brokerage window.” Plans will become even more complex as annuity options are added. This choice overload is partly to help the plan sponsors do their duty as fiduciaries—at the expense of their confused workers.

I recently spoke with an employer who will offer new hires a unique choice. They’ll be able to choose the existing cash-balance pension plan with employer contributions based on years of service and age, and they’ll get a guaranteed annual 6% interest credit and immediate vesting. In addition to this pension, the employer allows workers to participate in a 401(k) with an employer match of 50% on up to 7% of pay.

The new alternative, however, is to forgo the pension and instead enroll in a new 401(k) plan with a 4% guaranteed employer contribution, plus a dollar-for-dollar match on up to 4% of an employee’s pay. The possibility exists for an 8% employer contribution, which is roughly the cost to fund the typical pension plan.

Favoring the pension should be obvious because the employer guarantees lifelong payments to those who stick around long enough to qualify. How great is that? Still, I’d bet most workers will take the new 401(k) because of the easily grasped 8% payment. That’s the employer’s preferred option, too, because—unlike the pension plan—the employer has no long-term liabilities or interest-rate risk with the new 401(k).

The goal for this employer—and many others—is to work its way out of retirement plans that cause fluctuations in corporate earnings. That means it wants out of any defined benefit pension obligation.

This points up how accounting rules, federal laws and regulations create a conflict between the interests of the shareholders and that of workers—and the workers are losing. With the decline of pensions, the risk of paying for retirement has shifted to employees.

Why do we make saving and investing so complicated, especially when the average worker's financial acumen is not great? Why do we need 401(k)s, 457s, 403(b)s, IRAs, Roths, SEPs and so on? Why the different rules for government, corporate, small business and non-profit plans? Why are rules and limits different for IRAs and 401(k)s, and even for married individuals?

For example, beginning in 2026, high earners making $145,000 a year or more will be required to make any 401(k) catch-up contributions to a Roth 401(k) account—meaning after-tax dollars must be invested, but can be withdrawn tax-free. Why?

I suspect the government will capture a slight short-term revenue gain—but with potentially much greater losses of tax income in the long term. It’s about short-term federal budgeting. On the other hand, this requirement likely does high earners a favor—at the cost of more confusion for workers.

All these variables present Americans with unnecessary decisions. The typical worker simply cannot or will not make such decisions. The system isn’t working.

A look at retirement savings makes that clear. The average 401(k) balance for those age 65 and older is only $232,700, while the median (or typical) balance is just $70,600. That $232,700 might generate income of $800 a month or so—not enough to retire on.

We need to start over. We must recognize the limits of the great majority of Americans to implement a 40-year plan to save and invest for retirement. They’re too intimidated by the thousands of pages of rules and regulations.

Here are my ideas: First, we should significantly increase the percentage of income replaced by Social Security so that, at retirement, middle-class Americans would have a basic livable income. This change would be funded by increasing payroll taxes, but more so on employers than workers. Payroll taxes would be levied on benefits provided through employer cafeteria plans, such as health spending accounts and dependent care, which are currently exempt. I would also add all state and local workers to the Social Security system.

The exact nature of these taxes is not important. It’s the concept that’s important—that, for most Americans, voluntarily saving for retirement, coupled with relatively modest Social Security benefits, won’t get the job done.

The tax percentage would automatically be adjusted annually to ensure the system’s ongoing sustainability. You get what you pay for. No more periodic funding crises.

I can already hear the outcry. No, this is not socialism, though it may be a wealth transfer. It’s also an honest recognition of the shortcomings of human behavior when it comes to retirement planning. Adequate income for a growing older population will have to be paid for one way or another.

My second idea: All current regulated retirement vehicles are eliminated and replaced with a single plan, whether employer-sponsored or not. One set of rules, regulations and limits, and the same tax treatment for all contributions. If you want to save specifically for retirement on a tax-advantaged basis, you'll use this one vehicle as you see fit.

Congress—along with some states—have spent decades tinkering with schemes to encourage retirement savings, either by making plans a requirement or by rewarding retirement savings with tax advantages. But the result is a a multi-headed monster and a bureaucracy to go with it. It’s time to recognize our collective shortfalls and get back to basics.

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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Location, Location

WANT TO IMPROVE YOUR portfolio’s long-run performance? You could boost your stock allocation—something I wrote about last year—or cut your investment costs. But don’t overlook another key strategy: thinking carefully about which accounts you use to hold your various investments, or what financial experts call “asset location.”

My wife and I have taxable accounts, Roth IRAs, traditional IRAs and a health savings account. Earnings in each account get different tax treatment both now and in the future. By carefully allocating our investments among these various accounts, we can reduce the taxes we pay over the long term.

Time horizon is a key consideration. We’re unlikely to ever spend down all our assets. As a result, some accounts have an unknown but likely very long time horizon. At the same time, we need to generate some income to cover living expenses, so other accounts have a much shorter time horizon. Because we have some guaranteed cash flow coming in from a pension and annuities, and will eventually have more from Social Security, we’ve settled on an overall stock and alternatives allocation of 75%.

How should we allocate our investments among our various accounts? We sought some professional advice and, based on that, here’s how we’re thinking about each account type:

Taxable accounts. Our top priority is to maintain sufficient cash for living expenses and financial emergencies. That money is invested conservatively and generates interest income that’s taxed as ordinary income. The key is to have enough cash, but not too much, to meet current spending needs.

The remainder of our taxable money is invested in individual stocks and stock funds. That helps to minimize our tax bill, because the dividends and capital gains are taxed at preferred rates. Over time, we’ve added more index funds, which are less likely than actively managed funds to make capital gains distributions. I’m working toward having 80% of our taxable money in stocks and alternatives. This latter category consists primarily of some real estate investment trust funds, though I also own a PIMCO diversified commodity fund in my Roth IRA.

Traditional IRAs. In seven years, we’ll have to start taking required minimum distributions (RMDs) from our traditional IRAs. Because these accounts were funded entirely with tax-deductible dollars, all withdrawals are taxed as ordinary income. We can’t control the size of our RMDs—that’s dictated by the tax law. Moreover, high investment returns in these accounts will lead to larger RMDs, which means more taxes paid at ordinary income rates. Result: Our traditional IRAs are where we have most of our bond fund holdings, since the interest they throw off would be taxed as ordinary income anyway, plus these accounts aren’t the best place to earn high returns.

Roth IRAs. We didn’t get a tax deduction when we funded these accounts, but they come with a big benefit: Withdrawals are tax-free. We don’t believe we’ll ever have to touch this money and instead these accounts will go to our heirs. Given the long time horizon, our Roth IRAs are 90% in stocks and alternatives, and include our most aggressive fund holdings. Indeed, because of the long time horizon, even the bond fund I use is higher risk: Fidelity Capital & Income Fund (symbol: FAGIX), a Morningstar 5-star fund which focuses on U.S. high-yield bonds.

Inherited Roth IRA. I inherited this Roth IRA before the recent tax law change, so I’m able to stretch the RMDs over my lifespan, which the IRS determines to be just over 20 years. Since the RMDs aren’t taxed, maximizing earnings is the goal. I have targeted the stock and alternatives holdings at 70%. But because I need to make withdrawals every year, I buy less aggressive and more value-oriented holdings than I do in our regular Roth accounts. I also don’t reinvest the fund distributions, so cash accumulates throughout the year ahead of my annual RMD withdrawal.

Health savings account. For 10 years, we fully funded a health savings account (HSA). We were eligible to do so because we were covered by a high-deductible health plan. Rather than spending the money on current medical costs, we saved and invested it for the future.

The HSA is a small portion of our portfolio. Still, it’s a potential tax bomb for our heirs if we die without withdrawing the money. Why? While withdrawals are tax-free for us if used for qualified medical expenses, those withdrawals would be fully taxable to our heirs. We’re assuming we’ll withdraw all the money 10 to 15 years from now. With that time horizon, we’re 75% invested in stocks and alternatives. We’ll reduce that allocation as we approach the time when we’ll empty the account.

The tax law allows you to accumulate medical receipts from the time you first opened an HSA, and then use those receipts to ensure future withdrawals from the account qualify for tax-free treatment. I have manila envelopes for each year stuffed with receipts. Thanks to more than 10 years of receipts, we can withdraw any or all of the balance as a tax-free lump sum at our discretion. This makes the account a last-ditch source of emergency cash.

Before I sought advice on asset location, our traditional IRAs were much more aggressive than they are now, while our Roth IRAs were less aggressive. I hadn’t been thinking of the HSA and the inherited Roth IRA as long time horizon accounts, so they were invested more for income and less for growth.

By evaluating expense ratios and other investment costs, you can estimate how much you’ll improve your net investment performance by shifting to less expensive alternatives. Improving tax efficiency by juggling different account types is less easily quantified. But the savings are just as real.

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

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Long Time Leaving

AFTER MY FIRST TWO years of studying electrical engineering at Virginia Tech, I got an internship at Frito-Lay working at its research headquarters in Irving, Texas, far from my New Jersey home. I was paid handsomely, treated well, had access to state-of-the-art computer equipment—and was miserable.

Some of that stemmed from spending the summer away from friends and family. But I was also having a career crisis even before my career began.

I wasn’t sure I wanted to work as an engineer for the next 40 years. I felt the stellar internship I’d scored was the best situation I could hope for in engineering, yet here I was profoundly unhappy. My grades were pretty good but I knew the dreaded junior year in engineering was almost upon me and my grade point average (GPA) was sure to suffer. I got the idea that I should explore becoming a doctor while my grades were still high enough for medical school admission.

I ended up cutting my three-month internship short by a month. A small liberal arts college with a high medical school acceptance rate told me over the phone that it would take me. My parents were a little stunned by this radical change, which seemed to come out of nowhere.

My pre-medical studies didn’t work out. Although I had a 4.0 GPA in my first semester at the new college, I had to drop organic chemistry because the workload proved too much for me. By the end of the semester, I was barely functional due to stress and anxiety, and I knew a career in medicine wasn’t for me. My second semester at the school was a disaster. I dropped all but three classes and was no longer even classified as a fulltime student. I was a college junior without a clue.

For a brief time, I thought about becoming a math teacher, but concluded that wasn’t right for me, either. Eventually, having failed to come up with a better alternative, I decided to return to Virginia Tech to complete my engineering degree. At least I’d be able to support myself as an engineer, I reasoned. I finished my degree and took a job at Peach Bottom Atomic Power Station in Pennsylvania.

When I first started working at Peach Bottom, I carpooled with an engineer who was stressed by his job. On the drive to the plant, he’d say things like “28 years until I can retire.” That’s an awfully long time to be unhappy. A few years later, he made a career change and left the company.

Throughout my career, I’ve thought about retirement. Early on, I didn’t understand pensions. I thought the concept of a pension was that, if you put in enough years, you’d continue getting your full salary after you stopped working. The first time I saw my pension statement, a couple of years into my job, I realized that wasn’t the case at all.

In my 20s and 30s, retirement was far in the future, and I had more pressing concerns, such as job security and taking care of my family. At 29, I married Lisa and it was only then that I started saving a significant portion of my salary in the company’s 401(k) plan. When I was 32, I was offered a voluntary separation severance payment based on my salary and years of service. The amount was $30,000, which would be equal to a little over $60,000 in today’s dollars. I would also have been allowed to keep my pension, which would be worth a little under $300 a month when I turned 55. A few of my colleagues took the package, which was offered to all of the company’s nuclear workers, but I wasn’t tempted.

My career progressed, and my responsibilities increased in my late 30s and 40s. Although retirement was in the back of my mind, my real concern was financial independence. These were years in which I contributed substantial sums to the 401(k) while simultaneously saving money for my children’s eventual college education. But retirement would periodically be thrust back into my consciousness. The company regularly offered early retirement packages to employees 50 or older during the 1990s and early 2000s. I figured my turn would come if I could hold out until age 50.

Around 2001, I was forced to think about retirement again when the company offered the option to convert to a cash-balance pension. By this time, I had 16 years of service. It was a period of change in the industry and, even though I hoped to end my career at Peach Bottom, I didn’t know if forces beyond my control would prevent that.

I gave up my traditional pension in favor of a cash-balance pension with an opening credit of around $135,000—a decision I discussed at length in an earlier article. In retrospect, I would have done better staying with the traditional pension, because my career with the company lasted 38 years. But at the time, there was no way of knowing that.

I’d clocked 30 years at the plant by the time I turned 53. Around that time, I suffered long periods of weariness. I felt like I just wanted to be done. On the whiteboard in my office, I scrawled a retirement target date aligned with my 55th birthday. At that age, I’d be entitled to reduced retirement health insurance benefits, so that seemed like a good goal to reach for.

I created various spreadsheets covering my retirement plan. For a number of years, I tracked all our expenses in one of those spreadsheets, so I’d have a handle on how much Lisa and I spent and where the money went. Along with the various finance-oriented spreadsheets, I added pages to help me brainstorm activities in retirement. One spreadsheet is solely dedicated to identifying the many parks and nature preserves in my area available for hiking. Whenever an idea about something I’d like to do in retirement popped into my head, I’d add it to the appropriate spreadsheet.

When I turned 55, I knew retirement was an option, which was psychologically freeing. I still had one year of my son’s college expenses to pay for, so it seemed prudent to stick around for another year. Also, I was enjoying my job more than I had a few years earlier.

Five months after I turned 55, I was able to shift into a newly formed group that focused on large capital projects, and my job satisfaction increased even more. I enjoyed my work and the team I was on, so I kept at it. I set a new target to retire at age 59. A few months before my 59th birthday, my manager recommended me for a promotion to senior staff engineer, which was the highest rung on the company’s technical career ladder. Once again, I put my retirement plans on hold.

I retired Sept. 5 of this year, right after Labor Day. There were financial reasons for my decision. But more important, after 38 years at one place, it felt like the right time to start a new chapter. I took off most of this past summer, winding down my considerable store of vacation days. It’s been fun getting into a completely different routine, one that has involved more time with family, more time in local parks, a bit of travel, and a reactivated library card. I also used some of my newly found free time to start writing for a website called HumbleDollar. You may have heard of it.

Earlier, I wrote a HumbleDollar piece about a magazine article that for almost three decades has influenced my thinking about retirement. If you read that piece, you probably won’t be surprised that, after retiring, I’ve accepted another position. I don’t want to say too much about it, since it’s just beginning, but I will say it is part-time, fully remote and in my area of expertise.

I enjoy mentoring the next generation of nuclear power engineers and being able to share knowledge I’ve gained over the decades. My new position should allow me to continue doing that. It’s funny. A guy who almost gave up on his engineering career before it even started has turned into a guy who, almost 40 years later, just can’t seem to give it up. As with many of life’s journeys, you just never know what lies ahead until you arrive.

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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Coming of Age

I RECENTLY HAD THREE retired men visit my psychology practice, each grappling with depression. Just as women face special challenges during their senior years, so too do their husbands, fathers and male friends.

Who hasn’t been seduced by those syrupy commercials where an elderly couple hold hands while walking a sun-kissed beach? Retirement is advertised as a magic carpet transporting us to a well-earned destination of meaning and frolic. But the reality is more complicated. Aging and illness can leave a hoped-for blissful retirement instead fraught with peril and disappointment.

My three clients felt betrayed and unprepared for retirement’s melancholy side. They were unanchored, in physical retreat and isolated without the social skills needed to nurture relationships. They’re in grief, mourning the loss of who they were and smarting at the limits that old age imposes.

Maybe you’re one of the fortunate few for whom retirement is unambiguously rich in renewal and self-regard. But for those of us too trusting or caught unawares, retirement often leaves a bittersweet mix of fulfillment and despair. Perhaps you or your loved ones have been blindsided by the ravages of aging that stalk our senior years.

Inspired by the experiences of my patients, I’d like to illustrate several of the hurdles men encounter while navigating their retirement years. All three men were treated by me, and I referred them for evaluation for possible medication. The details of their psychotherapy have been substantially modified to protect their identity.

Gary was a successful restaurateur who handed over daily operations to his daughter. He remained as a consultant, hoping that would ease his transition to a more balanced life. But that arrangement soon proved insufficient. Gary experienced a profound loss of purpose. He felt little reason to start the day and struggled to get out of bed.

Gary was skilled at home repairs, so I encouraged him to find projects around the house to inject meaning into his life and to rebuild his self-esteem. He started to lay new tile in his master bathroom, but has so far been unable to complete the job. Depression, and the resulting low energy, can lead to difficulty with task completion, further exacerbating a patient’s self-criticism.

In retirement, men’s sense of prestige and well-being hinges on their money savvy, just as it did during their working years. Problem is, once they give up their paycheck, they can no longer claim the provider role. On top of that, an often younger, still-employed wife may now be the breadwinner, which can be another ego blow. But perhaps the most corrosive yet utterly preventable damage occurred years earlier: While in the workforce, they failed to live below their means and invest the difference wisely, so now they don’t have enough for a financially comfortable retirement.

Harold and his wife Ginger are in this predicament. She abandoned a promising teaching career to raise her two kids, leaving Harold to earn the wherewithal to cover the family’s living costs and save for retirement. He handled the support part well, but muffed on saving and investing. Ginger has been understanding of her husband's financial oversights, but there’s been a price to pay. Because they didn't save enough for retirement, they plan to supplement their Social Security benefits and savings with part-time jobs at an auto garage and bookstore, reflecting their respective interests in cars and reading.

Health care surprises can be devastating psychologically as well as physically. Whether chronic or acute, debilitating or temporary, medical events’ emotional aftermaths aren’t unique to men. Still, masculinity doubts are our exclusive domain. Yes, societal expectations can have a pernicious effect on women. But we would be remiss to neglect their contribution to depression among male retirees.

A viral man is an active man, and aging takes a toll on our physical capabilities. One afternoon, Paul came into my office unusually agitated. His bad back had prevented him from finishing his morning walk to a coffee shop, something that had been part of his and his wife Julie’s routine ever since he retired six years ago. Julie was particularly upset about Paul’s inability to accompany her because their walks had become a way to have quality time together. As an alternative, I suggested weekly picnic lunches in the park. Both products of California, Paul and Julie were also enthusiastic about joining a yoga class to gently exercise Paul’s weak back.

But Paul’s setback had deeper repercussions. He began to ruminate about his father’s early demise at age 49, and the inevitability of his own physical and mental decline. He was haunted by his lack of control over the finality of death. Even when elderly, men are expected to be strong and stoic as they near the end. Paul was open to my suggestion to share his fears with his pastor and to familiarize himself with the soothing spirituality of Eastern religions.

Let’s face it, we men are social Neanderthals. Most of us have relied on our partners to bring people into our life. We make a few friends at the job, but we’re socially adrift after leaving the workplace. How many of us call friends just to chat? Many men only sparingly allow themselves to be vulnerable enough to initiate new friendships or even maintain longstanding ones. Are you willing to keep up a friendship when you always have to be the pursuer?

To be sure, our life’s last chapter can be a time of expanding horizons and gratifying intimacy with family and friends. But retirement also necessarily portends trouble and travail, and it challenges us to achieve peace with ourselves and our susceptibility to aging’s relentless march.

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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Rx for Future Pain

HEALTH SAVINGS accounts (HSAs) were introduced in 2003, and have since become commonplace in employee benefit plans. My experience with HSAs dates to 2004, when my employer offered $400 in one-time seed money as an incentive to sign up.

HSAs differed from existing health-care flexible spending accounts, and offered some features I preferred. To me, the HSA’s most appealing feature was that I controlled the money. There’s no “use it or lose it” rule, as there is with flexible spending accounts. Unspent money could accumulate and continue growing year after year.

I also liked HSA’s triple tax advantage. There was no tax owed on my contributions, no tax on my investment earnings and no tax owed on withdrawals for qualified health-care expenses. This made my HSA even more tax advantageous than, say, Roth contributions to my 401(k), because the latter didn’t earn me an immediate tax-deduction.

My family members were all in good health when I signed up for a high-deductible health plan, which made me eligible to open an HSA. I planned to pay for health-care bills out of pocket and let the HSA grow tax-free. By keeping receipts for the medical bills I’d paid, I could always reimburse myself from my HSA if I needed cash.

At first, my HSA money sat in a checking account. The administrator required a $3,000 minimum to invest in a limited choice of mutual funds, plus the funds had front-end loads. Not very appealing.

Eventually, the administrator provided better options. With my aggressive investing style and the maximum contributions that I made each year, my HSA balance has grown significantly. It also grew because I didn’t take withdrawals for a long period.

My plan to conserve my health savings account was tested in January 2010, when I suffered a heart attack. Ever the planner, I remember thinking on the way to the hospital that this would ruin my HSA. Later, I realized this is exactly why I had the account—for health care expenses. As it turned out, this was my only withdrawal for medical expenses before retirement.

When I retired in 2021, my HSA had a balance of almost $60,000. Since I couldn’t make any more contributions once I was enrolled in Medicare, it seemed prudent to change investment strategy. I focused on dividends and interest with an eye to earning more consistent returns. I wanted steady results to pay the premiums on my Medicare Part D drug insurance.

My plan worked fine until interest rates started rising, and the value of my bond funds fell. As the financier J.P. Morgan said of the market, “It will fluctuate.”

While my health care expenses in retirement have been slightly higher than I expected, I continue to pay many of these bills with money drawn from sources other than the HSA. This year, however, I relented. I paid my deductibles and coinsurance for foot surgery—plus a trip to the emergency room—from my HSA. I did so to avoid making taxable withdrawals from my traditional IRA.

I paid most of these bills with dividend distributions that I hadn't reinvested back into the market. That turned out to be a prudent move during 2022’s bond fund downturn. My plan is to continue using my HSA for my Part D premiums and for larger medical expenses. What if I want to draw down the account faster? I always have the option to reimburse myself tax-free using that box of medical receipts that date back to 2004.

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The Road Not Taken

LAST MONTH MARKED two years since I leapt into the unknown and left the security of the corporate world to begin a second act as an independent writer. How’s it gone? Have things panned out as I hoped, financially and otherwise? 

Let’s be clear upfront that this move was never about making money. It was about taking a shot at my long-held dream of being an author. I’d put that dream on the back burner for three decades as I did what was necessary to support my family. Now, with my kids out of college and some savings in my pocket, I wanted to take a chance on myself before I ran out of time. I didn’t want to get to the end of my life and find I’d never taken a shot at living life on my own terms. 

Two years later, I’ve achieved things that money can’t buy:

Seeing my first book in print and my blog gain a dedicated following
Going to book signings and readings, and interacting with readers and followers
Spending my days pursuing my passions rather than managing emails and responding to the latest corporate fire drill
Having the chance to travel and spend precious time with my kids, including camping for an entire month under the big skies of Colorado, where my middle son lives.

It’s safe to say I wouldn’t have been able to do any of these things if I was still running 12 hours a day on the corporate hamster wheel. But I’d be fooling myself if I said that all these things didn’t come at a price. I haven’t made a penny on my book, which is still earning back its upfront costs for the publisher, or on my blog, which is ad- and subscription-free. 

My current writing project is a multigenerational novel about a Pennsylvania lumbering family that’s facing an existential crisis following the death of its patriarch. I’ve spent two years researching and writing the book, and I’ve loved every minute of it. I can’t wait to get up in the morning, sit down at my desk, and see how the story and the characters unfold. 

Still, I harbor no illusions that I’ll ever see a financial payback for all the time I’ve spent on this crazy project. Even if I’m fortunate enough to find an agent and a publisher for the book, the odds of making any money on it are about as long as winning the lottery. 

The fact is, everything we do has a price, and that price is our time. As I write in my debut novel, The Long Walk Home, time is our most precious resource, and every choice we make about how to spend our time has an opportunity cost—an alternative road not taken.

My own opportunity cost for the past two years has been missing out on earning a six-figure salary and all that things I could have done with that money, including investing in the financial markets at depressed prices. I made that choice willingly because I had something burning inside me that demanded attention, but I’m well aware of what I lost whenever I glance at my portfolio and see what could have been, had I continued to earn money and invest over the past two years. 

And it’s not just the money that I’ve lost when I made the decision to exit the corporate world. I miss my old teammates. I miss the camaraderie of being part of a team and an organization with a shared mission. I miss the feeling of accomplishment that comes from seeing my efforts make a difference for a big, publicly traded company.  

Would I make the same decision again if I had to?

Yes, yes—a thousand times, yes. There’s nothing more fulfilling, I’ve found, than being able to spend my time doing what I love. To gain that freedom was well worth the opportunities I lost. 

At the same time, I’ve gained a greater appreciation of the things I took for granted while working: the money, the friendships, the camaraderie.

My advice: Whether you’re considering jumping into retirement or taking a shot at a second-act career, be clear not just about what you’ll be gaining with the move, but also what you’ll be losing. Quantify them if at all possible. Ask yourself what your time is worth and how best to utilize it in pursuit of your goals. Think through the different uses for your time. Life’s journey is inevitably uncertain—but carefully weighing the alternatives should help you make the best decision possible.

James Kerr led global communications, public relations and social media for a number of Fortune 500 technology firms before leaving the corporate world to pursue his passion for writing and storytelling. His debut book, “The Long Walk Home: How I Lost My Job as a Corporate Remora Fish and Rediscovered My Life’s Purpose,” was published in 2022 by Blydyn Square Books. Jim blogs at PeaceableMan.com. Follow him on Twitter @JamesBKerr and check out his previous articles.

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Suffering in Private

I FIGURED IT MUST have been the spaghetti from dinner at the dining hall. What else could have given me such sharp abdominal pains? Perhaps I had food poisoning that would eventually pass. That night back in the apartment, I couldn’t sleep due to the pain. I got up every half hour or so and headed to the bathroom. Strangely, I was unable to relieve myself. In addition to severe pain, I felt constipated.

By early morning, I knew something needed to be done. Although I couldn’t stand up straight, I managed to get on the first bus to campus and disembarked near the infirmary. It was before regular hours, so I rang the bell at the emergency entrance. When a nurse finally appeared, I blurted out, “I think I have food poisoning” and immediately vomited to underscore my point.

I stayed in a bed at the infirmary throughout the day. I was given acetaminophen for the pain. It didn’t help. From time to time, someone would come in to check on me. One time, the doctor stopped by with a nurse and tapped my distended abdomen. “Trapped gas” was his diagnosis. Meanwhile, I continued to feel severe pain that was, if anything, increasing. I heard them say that I didn’t have a particularly elevated white blood cell count, which might have indicated appendicitis.

By evening, I was moaning and imploring them to give me something stronger for the pain. At that point, the infirmary staff decided they didn’t know what was going on and called for an ambulance, which took me to the emergency room of the closest hospital. By now, I was really feeling out of it and even the misery of a nasogastric tube insertion was minor by comparison.

They took some x-rays in the emergency room, but the results were inconclusive. I was scheduled for exploratory surgery the next day. I heard the doctor tell my father over the phone that there was a small chance the operation might be life-threatening. In the midst of all this, I was asked whether I wanted a semi-private or private room. Not particularly feeling like having company, and oblivious to the financial impact, I opted for a private room.

The next morning, I was in surgery for two and a half hours. My appendix had apparently burst 40 hours previously, when I had first started feeling the abdominal pain. By the time of the surgery, I had severe peritonitis that had spread throughout my intestines. It was quite a mess to clean up. If I’d been born 50 years earlier, when medical technology was more primitive, my life almost certainly would have ended at age 21.

The first few days of recovery in the hospital were a blur. I was connected to some kind of machine and getting Demerol shots in the thigh for pain every four hours. I felt good for an hour after the Demerol shot, was okay for the next hour, became quite uncomfortable by the third hour, and for the last hour was probably a nuisance to the nurses as I clamored for my shot.

My condition improved after the first few days. A buddy from college brought over his cassette player, headphones and a box of cassette tapes, which were key to helping me pass the time. To this day, I still associate certain ABBA songs with that hospital stay.

As I neared the end of my hospitalization, I was told a group of friends were coming over to visit. Although my pain had decreased markedly by that time, I asked for a Demerol shot just to be sure I would be in good shape when my friends arrived. Maybe because it was no longer needed for pain, this time the shot had an unusual effect on me.

My mind started racing and, upon seeing my friends, I started blabbing to them about who knows what. The tempo of my speech increased with each sentence. When I finally got to the end of my bizarre monologue, I was aware that my head was spinning and knew I was not in my right mind. The visit ended prematurely with a final admonition from me to my friends: “Don’t do drugs.”

My hospital stay lasted 10 days, after which I went home for an additional six-week recovery. Of course, my college term was over. One of my roommates, Matt, took care of the actions needed to withdraw me from all my classes. Fun fact: Matt is now my son’s father-in-law.

This happened in 1984. What did my 10-day life-saving stay at the hospital cost? My father had a Blue Cross student insurance policy for me. The policy allowed $190 for an appendectomy. My surgeon charged $900. There was no distinction made for a ruptured appendix versus a simple appendectomy. My father paid the difference. In addition, the $300 anesthesiologist charge was not covered. Dad paid that as well.

What about my 10-night stay in a private hospital room? The insurance policy only covered semi-private stays. Whoops. The private room cost $100 a day, while a semi-private room would have been $90. Though the insurance company didn’t have to, it covered it all.

I’m grateful for the excellent and attentive care I received at that southwest Virginia hospital. I have to wonder how different my experience might be if I were to find myself in a similar situation today. One thing’s for sure: It would be a lot more costly. With a little research, I found that average daily hospital expenses in Virginia were around $2,550 in 2020, lower than the national average of $2,850. Still, that’s a 10-fold increase from the inflation-adjusted daily charge of $250 for my 1984 hospital stay.

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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Aim for the Middle

WHAT’S THE FIRST RULE of personal finance? To answer this question, let’s look at the financial lives of two notable individuals, starting with musician MC Hammer.

When Hammer gained fame in the 1980s, he made millions. But unfortunately, his spending quickly outpaced his income. Hammer bought 19 racehorses, employed a personal staff of 200 and built a $30 million house with a 17-car garage. The result, sadly, was bankruptcy.

If MC Hammer represents one extreme of financial management, a fellow named Ronald Read represents the other. Read, who died in 2014, was a model of frugality. He used clothes pins to hold his coat closed when the buttons fell off, and he’d park his car several blocks outside of town to avoid parking meters. Read’s appearance was so modest that one day a stranger paid for his coffee, believing it to be an act of charity. But when Read died, those who knew him were shocked to learn the result of all of his extreme frugality. He’d amassed a fortune of $8 million.

Hammer’s and Read’s stories couldn’t be more different. But they do share one thing in common: They both represent extremes. And while no one can know for sure, my sense is that they each would’ve been happier if they hadn’t taken things quite so far.

That brings us back to the first rule in personal finance. In my opinion, the most important thing is to approach everything with a mindset of moderation. Here are nine areas in which I see a moderate approach as being the right approach:

1. Diversifying your stock holdings. Suppose you’re building a portfolio. How should you structure it? The late Jack Bogle, founder of Vanguard Group, often noted that his personal portfolio never included any international exposure. Domestic stocks, he felt, were perfectly sufficient. Meanwhile, today, Vanguard recommends allocating a hefty 40% of a stock portfolio to international stocks.

Which is the right approach? There’s endless debate on this topic, in large part because there’s no single right answer. On the one hand, international markets lack much of the innovation and dynamism of their U.S. peers. But there is also value in diversification. In my view, then, a good solution is to split the difference. You might consider allocating 10%, 20% or 30% to international stocks.

2. Diversifying your bond holdings. Last year delivered an unwelcome wake-up call to bond investors, with total bond market index funds losing about 13% of their value. Funds holding only short-term bonds, however, fared much better, losing less than 5%.

Does that mean investors should hold only short-term bonds? That might seem like the prudent course. But it would overlook the longer-term performance of these funds. Since 2010, total bond market funds have returned about 30%, while Vanguard’s short-term Treasury bond fund (symbol: VGSH) has returned just 12%. A reasonable approach, then, might be to lean heavily on short-term funds, but still hold some intermediate-term funds. It need not be all-or-nothing.

3. Individual bonds vs. funds. Another debate in the world of bonds is how best to access the bond market. Should you buy funds or purchase individual bonds? Each has its merits. Funds are easier to buy and sell, and they offer built-in diversification. Individual bonds, on the other hand, make it easier for investors to know precisely what yield they’ll earn until maturity, assuming the issuers involved don’t default. Which way should you go? I see no need to choose just one or the other. Purchase some of each.

4. Roth conversions. Suppose you do the math and determine that a Roth conversion would be of debatable value. You could table the idea, and that might seem reasonable. But whenever we do calculations, it’s important to keep in mind that things might turn out differently.

Suppose your portfolio grew faster than expected, or suppose Congress lifted tax rates. Then the Roth argument might become stronger. What should you do? In cases like this, a reasonable approach might be to proceed with a conversion, but a modest one—perhaps to the top of your current tax bracket. With that approach, you’d benefit whichever way things turn out.

5. Family gifting. As you may know, estate tax rules provide what’s known as a lifetime exclusion on gifts to others. Today, that number is $12.9 million per person, but in 2026 that’s scheduled to be cut in half. Even that might still seem like a big number. But remember that Congress can change these rules at any time. The estate tax is a political football, and the rules that matter most are the rules that happen to be in place in the year you die. What to do? There are several easy steps you could take without going to an extreme. A few weeks back, I outlined some of these strategies.

6. Selling a winning stock. Suppose you’ve been lucky with a stock like Apple or Tesla. That would be great. But if that stock now represents too large a portion of your holdings, it might also pose a risk. Let’s say one stock accounts for 30% of your portfolio. If you sell it all, it could generate an enormous tax bill. But it need not be an all-or-nothing decision. Instead, a moderate approach would be to set a target for reducing your exposure to that stock—down to perhaps 5% or 10% of your portfolio. You might then move toward that target over time, thus spreading out the tax bill.

7. Selling a losing stock. Suppose you find yourself with the opposite problem: an investment in your taxable account that’s now at a loss. You could sell it, benefiting from the tax loss, and simply move on. But that might carry a different type of risk: If the stock recovers after you sell it, it wouldn’t affect you financially, but the feeling of regret could be unpleasant. The solution: Just as with a winning stock, you might sell it incrementally.

8. How to buy. Another frequent debate among investors is whether to invest money via dollar-cost averaging or to simply invest any available cash all at once. The challenge, of course, is that you can’t know in advance whether the market will go up or down in the short term. A solution you might consider: Split the difference. If you have a large sum to invest, put half of it to work immediately, and then invest the rest over a period of months.

9. Social Security. Even though Social Security can be claimed as early as 62, I generally recommend that folks wait until 70, when their benefit would be the largest. But because of all the years of forgone payments, it can take several years to break even. Some people simply don’t want to take that risk. That’s why a popular solution, if you’re married, is for one spouse to wait till 70 while the other claims earlier. What if you’re single? You could split the difference by simply picking a year somewhere between 62 and 70 to claim your benefit. There’s no need to go to one extreme or the other.

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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House of Cards

I'VE KNOWN AT LEAST half-a-dozen folks who regularly carried five-figure credit card balances. In fact, I was once friends with a woman who had $100,000 in card debt—not just a staggering sum, but also a warning sign about her spending habits that I should have heeded far earlier than I did.

Folks who flock to HumbleDollar tend to be financially disciplined, so this sort of behavior will no doubt spark tut-tutting among some readers. But before we work ourselves up into a state of high moral outrage, let’s acknowledge that we’re all irrational at times and we all have weaknesses, perhaps failing to act wisely when it comes to food, tobacco, exercise, alcohol or gambling. Even frugality can be taken to excess, though it’s deemed more socially acceptable because it doesn’t land anybody in rehab, hospital or bankruptcy court.

Still, what intrigues me is why people end up with horrifying card balances. On the way to five-figure or six-figure card debt, you have to imagine there’s a moment or two when cardholders think, “Maybe this is getting out of control. Maybe it’s time to stop spending.” And yet they don’t.

So, why do folks rack up huge card debt? Based on those I’ve known, there’s a handful of reasons.

Financial need. To be sure, the word “need” deserves quotation marks. The folks I’ve known with large card balances usually started with a legitimate reason: unemployment, home repairs, medical bills, unaffordable mortgage payments, funeral expenses, helping parents financially. But that initial justification then opened the floodgates. “I had to put $5,000 on the card to fix the roof. What’s a few thousand more?”

At that juncture, it would be great if folks had a friend, partner or spouse who counsels caution. Indeed, simply giving voice to our failings—"I lost $2,000 at the casino this weekend,” “I downed a bottle of wine every day last week,” “I made two dozen stock trades yesterday,” “I put so much on the credit card I have no idea what to do”—can have a sobering effect, as the sound of our own words hammers home how far we’ve strayed.

But this, alas, doesn’t always work for couples. I’ve observed cases where spending continues unchecked because neither partner objects to the other’s behavior. In the race to the bottom, they both spend recklessly, preferring ever-larger card balances to an honest conversation about their financial situation.

Magical thinking. How do folks plan to pay off these huge card balances that they amass? No doubt some never intend to repay the money, instead viewing card debt as a way of life. Indeed, almost half of credit-card holders carry a balance from one month to the next. For some, their maximum card balance becomes their spending limit, with each new card adding briefly to their purchasing power.

Meanwhile, others insist they’ll one day pay off their balances, with those hopes resting on some fairy-tale financial break that’ll allow them to put their house in order. A woman I knew, who worked in sales, would talk about “hunting elephants.” She dreamed of landing a major client, which would then earn her a promotion and a big bonus, and suddenly her card debt would magically disappear. Did that work out for her? Not that I ever heard.

Shopping high. Many people simply love to shop. It isn’t an impulse I share, but it’s obviously widespread. Indeed, academics have compared the pleasure of shopping to that of having sex. Meanwhile, others seem to shop not because it gives them a thrill but because it momentarily pushes aside their unhappiness, perhaps helping them to forget a bad marriage or a bad day at the office.

I know a man who has regularly racked up large card balances buying gifts for his family. You might attribute those large card balances to his unbounded generosity, and he is indeed a kind and generous person. But I also get the strong sense that he simply loves shopping, and his generosity is perhaps an excuse for his retail therapy.

Losing control. The thrill from shopping can sometimes lead to addictive behavior, with folks spending uncontrollably. Shopping addiction even has a name: oniomania. I knew someone who, in the course of a month, manically racked up more than $20,000 in credit card debt before reality set in.

Remember that woman I knew with $100,000 in card debt? I tried to help her not just with advice, but also with modest sums to ease her financial stress. The latter was a mistake. The next thing I knew, she’d bought a wardrobe of new clothes for her son. That was followed by a new bicycle, a new skateboard and other new toys. Then, she bought him a dog.

All of this was purchased with the money I had given her. Sadly, it seems the best thing for her was the credit limit on her cards—because, when she hit those limits, she was forced to curtail her spending.

What should folks do if they struggle with spending—or gambling, manic stock trading, food, alcohol or some other behavior that they can’t seem to control? I’m not qualified to answer that. But it strikes me as crucial to recognize that everybody struggles one way or another, so we should push aside our sense of shame and talk to others about our problems, including seeking professional help if necessary.

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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Happy to Follow

FOR MUCH OF MY ADULT life, I’ve read about marriages in turmoil because the wife earns more than her husband. That’s always bewildered me, because I spent most of my career being a very happy trailing spouse.

My wife and I met in our early 30s while trying to rescue a three-year-old stuck on an elevator. This was more than three decades ago. I was divorced and working as a journalist, and had taken my son with me when I needed to drop by the newsroom early one weekday evening. My future wife was the personnel director at the newspaper—the term "human resources" wasn’t yet in vogue—and she happened to be working late.

I told my son to wait by the elevator while I darted around the corner to speak to a colleague. Alone for perhaps a minute, he punched the elevator button, got on alone, and then naturally punched the bright red emergency button a few seconds after the doors closed. He was stuck, I was in a panic and my wife-to-be came to the rescue. She hurried from her office, quickly assessed the situation, and spent the next half hour calmly working with building management and the fire department to successfully free my son.

It took a few weeks, but I eventually worked up the courage to ask her out. A scant few months later, we were engaged and, a year after meeting, we married. And like the elevator holding my tiny son, we were on the move.

We left Kentucky, our home state, less than a year later. My wife had accepted a promotion in Kansas City. The editor of the newspaper in Kentucky told me I was making a mistake leaving my job as the sports editor, but my gut told me what to do—follow my heart.

We lived in Kansas City for five years, where I enjoyed a happy stint in The Kansas City Star newsroom. Again, opportunity knocked for my wife: another promotion, this time in New York City. There, I got employment in a shrine I’d always dreamed about: The New York Times. 

A journalist for 15 years, I had a couple of years earlier migrated to technology, specifically training journalists on software to produce the newspaper electronically. This was the 1990s—and, in hindsight, the beginning of the end for print media. My career change served me well.

My wife got another promotion soon after the New York move. Just a year after joining the Times, I left to join her in Europe, where we enjoyed the next six years as expats: four years in London, a quick hop to Geneva for a year and then back to London for a final year. Shortly after the move to Europe, I landed on my feet again, working for global news and financial giant Reuters.

We returned to Kentucky in 2001, six months before the 9/11 terrorist attacks. With our once-healthy retirement accounts decimated amid the 2000-02 financial meltdown, we had to get back to work. Despite her international success, returning to the States meant my wife had to accept an HR position several levels below her previous positions. But as always, her talent and drive got her to the top HR job at the state's flagship university within a few years.

We just celebrated our 35th wedding anniversary. I’m retired, and she’s mostly retired. I’ve been asked over the years if I found it difficult to accept that my wife earned multiples of my salary, if the power dynamic made me feel inferior. I always reply, "Are you kidding?" 

From the start, I’ve been proud of my wife—in awe of her, really—and her career moves created superb opportunities for me as well. We’ve had wonderful adventures together. I could quite possibly be the happiest trailing spouse ever.

Tony Wilson spent most of his career working as a journalist and then newsroom technology trainer at news organizations in Kentucky, Kansas City, New York City, London and Geneva. He finished his career as the translations planner at printer manufacturer Lexmark.

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