Jonathan Clements's Blog, page 125

My Car Journey

I WROTE AN ARTICLE in 2019 titled Mercedes and Me. It was about my 52-year quest to fulfill a promise to my father—one I’m sure he never even remembered. My promise: to buy a Mercedes, a vehicle my father sold for many years but could never afford, even at dealer cost.

In 2014, after 10 years of diligent saving, I achieved my goal. I paid $60,000 in cash to make good on my promise and to fulfill my dream.

Now, the car is nine years old. It’s been driven 118,000 miles, including three cross-country trips, on one of which I recklessly reached 115 m.p.h. As best I can determine, the car is worth $12,000 to $14,000 today. It isn’t hard to see that buying the vehicle wasn’t a good financial move. Even I know that.

My wife and I are talking about getting a new car. Yup, another Mercedes.

Do I need a new car, let alone a Mercedes? Of course not. My wife has a three-year-old car with just 18,000 miles on it.

Do I, at age 80, deserve a new luxury car? Nobody deserves such a thing.

As you might gather, I’m trapped between emotion and common sense. Not long ago, I wrote about why emotion-driven spending is risky. Yet here I am, struggling to follow my own advice.

In the greater scheme of things, a discussion about buying a car with a price tag close to the national median household income is ludicrous. In fact, as I write this, I’m sitting in our vacation home—another costly luxury and another emotion-drive purchase. My realization: This debate I’m having with myself about purchasing a new car isn’t about the car at all. Rather, I’m trying not to feel guilty about what we have, even as I also try to avoid turning into a money-obsessed Scrooge McDuck.

Yeah, it’s valid to say I earned what I have. But that doesn’t help. Most people earn what they have, many working a lot harder than I did. The truth is, I’ve been fortunate my entire life, and I didn’t earn that good fortune. I lost just one job since graduating high school. It was my first job—and it had only lasted a week.

Sometimes, working hard isn’t enough. Illness, divorce, layoffs and more can throw our financial lives off track. I see this with my four children. Like most Americans, they’re trying to cope with medical bills, upcoming college costs, saving for retirement and paying everyday expenses. They all work hard, but serious illness and job interruptions have hurt a couple of them.

While I recognize that luck has been on my side, I also haven’t abandoned my curmudgeonly view of people who waste money and fail to plan, and thus end up in debt and facing a bleak financial future. My wife and I can claim a good measure of frugality during our 55 years of marriage. Hey, the price of my favorite oyster cracker has gone through the roof, so I’ve switched to the store brand. We may have been lucky, but we’ve also been prudent. Shouldn’t we get credit for that?

I fear I’ve grown out of touch with the financial reality of most people’s lives. I suspect that may also be true of other HumbleDollar writers and readers. Think on this: The median monthly income for Americans age 65 and older is $3,968. Among Social Security recipients, 37% of men and 42% of women receive 50% or more of their income from Social Security. In fact, 12% of men and 15% of women rely on Social Security for 90% or more of their income. That’s the retirement reality for many seniors.

Don’t misunderstand me: I’m not super-wealthy. My assets were accumulated over 60 years. That’s a lot of time to sock away money and benefit from investment compounding. Most of my wealth was amassed by saving in my employer’s 401(k) and stock purchase plan, and through bonuses and stock awards during the final five years of my career.

The bottom line: I’ve been successful and many others haven’t, though often through no fault of their own. Dare I take credit for what I have? Should spending money on luxuries cause me guilt? Adding to my feelings of guilt: I could pay for a new Mercedes with the increase in my portfolio’s value over the past year. I didn’t do a thing to earn that money. It’s just passive income, right?

Just for fun, I asked Google, “Should I feel guilty about spending money?” The search turned up answers that discussed setting a budget, personal values and struggling to make ends meet. In other words, underlying the answers was the assumption that folks didn’t have enough money.

One notion I came across in my Googling: It’s okay to spend money on things you enjoy. If you’re spending on things that make you happy, you shouldn’t feel guilty. That sounds like a solid 21st century justification: If it makes you happy, just do it. Seems a bit short-sighted and selfish to me.

Back to the Mercedes. Am I going to buy a new one? I still have some thinking to do. After all, I fulfilled my original promise to my father. Is buying another one about status? At 80 years old, I like to think I’m beyond that. Besides, the price of many Mercedes, including the one I’d buy, is less than that of many pickup trucks and SUVs. If I wanted a status symbol, I should probably buy one of those.

At this late stage, is it worth trying to overcome my feelings of having too much, of spending too much, of being too fortunate? I’m not sure. But let me tell you this: If I ever win the lottery, I’m going to be in a real pickle.

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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Doin’ the Charleston

I WROTE RECENTLY about my wife’s lifelong love of traveling, and of my resolve to get in step with her as she resumes her rambles. To that end, earlier this summer, I drove our family to Charleston, South Carolina, to attend the retirement ceremony for my cousin Chris, and to see a bit of the city, to boot.

As our departure time approached, we learned that the original schedule for retirement day had been altered. Chris advised my wife that he understood if we wanted to change our plans. She assured him she wouldn't miss an event that got her stay-at-home family—my daughter and me—to travel somewhere, anywhere, and especially to Charleston. She’s enamored of the city, but for years has been unsuccessful at enticing me to accompany her there for a tour. Chris’s big day was just the lure to get me out of the house and into the car.

After a morning drive from our home near Atlanta, we began our Charleston excursion with a tour of the U.S.S. Yorktown, a World War II-era aircraft carrier resting permanently at Patriots Point. We explored the ship from engine room to captain’s chair, including a stroll on the flight deck to investigate the variety of aircraft on display. Along the way, we tried to imagine the sailors and naval aviators at work in dangerous locations far removed from the quiet of Charleston Harbor.

The next day was devoted to helping Chris and his friend Matt say so long to the United States Air Force in a dual retirement ceremony. Their lives have been intertwined for years. They graduated college together and were commissioned as Air Force officers on the same day. After spending much of their 22 years of active and reserve service together, they were now sharing their retirement date. They even fly for the same commercial airline.

Retirement day for the two friends began with a final flight down the South Carolina coast, accompanied by a hand-picked crew of Air Force comrades. Back on the ground at Joint Base Charleston, family and friends stood on the flightline to watch the men maneuver their C-17 for a last flyover as military pilots. After they landed and following the traditional drenching of the pilots with ice water, all were invited aboard to see this remarkable aircraft.

Inside the plane, faces were beaming, including those of the retiring pilots. I knew Chris was looking forward to retirement from the Air Force, but he told me his feelings were “bittersweet.” Later, at the actual ceremony, I caught a glimpse of what he meant. As their service records were recounted, it dawned on me that these men were part of history. They’d risked their lives to save the lives of others while participating in a long list of military and humanitarian missions.

Some of the missions were secret, but one made the headlines. In August 2021, the reservists of Charleston’s 701st Airlift Squadron of C-17s played a big role in the U.S. effort to move Afghan refugees out of harm's way. Tens of thousands of lives were saved, and one life breathed her first breath aboard an airplane in flight from Kabul to Qatar. My family had the opportunity to speak with Leah, the C-17 loadmaster who helped deliver the baby girl. As she recounted the evacuation, my thoughts again turned to the serious nature of the jobs that military men and women take in stride as part of their workday.

Even in civilian life, tough work is often easier when the load is shared among friends. Demanding jobs that help others can also bring great satisfaction. Research shows that camaraderie and sense of purpose are the two aspects of the work world that retirees miss the most. Research also shows this is especially true for military veterans, who are particularly vulnerable to feelings of loss after separating from organizations where collaboration, teamwork and trust sometimes mean life or death. I hope Chris’s and Matt’s tenure as reservists, with one foot in the Air Force and the other in the mundane world the rest of us occupy, helps ease their transition.

On our final morning in Charleston, the Marsh family sallied forth from the visitor center on a four-mile jaunt that looped down King Street to White Point Gardens, then around the Battery and Rainbow Row.  Along the way, the ladies window-shopped Louis Vuitton, Gucci and other high-end stores, while I reminded them that the best sights were still ahead. The real draw for us all was the distinctive Charleston architecture, with beautiful gardens nestled between homes that date from as early as the mid-18th century.

To prepare for the drive home after our stroll, we had planned to lunch at highly recommended Hyman’s Seafood, but opted instead for tasty Thai food served directly across Meeting Street from the iconic restaurant. No matter. I’ll add great Charleston seafood to my list of reasons to revisit this charming city.

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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August’s Hits

AUGUST IS IN THE books—which means it must be time for our monthly list of the most popular articles and blog posts. Here's what caught the eye of HumbleDollar readers during August:

"Frugality can be a source of happiness," notes Adam Grossman. "For some, it affirms their self-image to wear well-worn clothing or to drive a vehicle that’s more downscale than they can afford."
Is retirement an unaffordable, obsolete idea? An article from almost three decades ago argued just that—and it still influences Ken Cutler's thinking today.
"Some experiences are best enjoyed when we’re young, while others can be delayed," notes Rick Connor. "As we age, our health and energy wane, but our wealth should grow, allowing us to engage in more expensive activities."
Looking ahead to retirement? Dan McDermott offers five questions you might want to tackle.
What approach should you take to building your portfolio? Adam Grossman offers five strategies.
Traditional Medicare doesn't cover routine dental and vision care—but purchasing private insurance may not be a huge help, as Rick Connor explains.
Even if Congress does nothing, Social Security is getting cut, says Marjorie Kondrack—thanks to the tax on benefits, which has never been adjusted for inflation and now hits 56% of retirees.
What should you carry in your wallet? Sonja Haggert keeps as little as possible—because she's seen what happens when your wallet gets stolen.
Michael Perry and his wife were planning to simplify their portfolio by selling unwanted investments with embedded capital gains. But they're having second thoughts—because they're residents of a community property state.
"Dad told me that at that point, if his business had gone bust, he thought he’d just play the market for a living," recounts Ken Begley. "All was right with the world. That is, until it wasn’t."

What about our twice weekly newsletters? Among our Wednesday newsletters, the most popular were Laura Kelly's Dying at Home and Greg Spears's An Educated Choice, while the most popular Saturday newsletters were What We Lose and Financial Superpowers, both written by me.

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Not Cool

SHOULD A REASONABLE real estate buyer expect the multiple listing service (MLS) to provide a reasonable description of the property being purchased? What if it doesn’t?

All the previous times I’ve purchased real estate, the MLS accurately described the property I was buying. I realized that disclosures were also provided by the seller, and those specified the finer points of what was being purchased. Still, I’d come to expect a certain amount of integrity from the MLS listing itself.

That all changed during my most recent real estate adventure. I signed a contract on a condo that, according to the MLS, came with a “large wine fridge.” A few weeks after signing the contract, I was again reviewing the disclosures and noticed that the large wine fridge wasn’t mentioned. The listing agent subsequently confirmed it wasn’t part of the deal, saying the wine fridge would have been part of the deal if I’d agreed to pay the list price.

Now, I realize that legally the disclosures are what determines what is and isn’t part of the transaction, but I was dismayed to learn that an item so prominently mentioned in the MLS did not actually “convey,” as they say in real estate lingo. I then became concerned about whether the third space of the three-car private garage and the third of the three outdoor spaces would convey. Thankfully, they did.

It also burned me that the large wine fridge would have conveyed if I paid “a full offer.” I’d never heard of such a thing. I wondered how much over asking would have enabled the seller’s Peloton to convey? I pushed my agent to go over the listing agent’s head to attain satisfaction, but the listing agent’s boss was even more obstinate.

For most of my working life, I was employed by one of the biggest companies in the world. People may think that because we were so big, we played hardball with all our customers and vendors. Well, we did during negotiations. But if the signed contract ended up flawed—like my above deal—then we worked hard to find an equitable resolution because our reputation is what enabled us to make future profitable deals.

I decided to go through with the deal after the seller convinced me that the inclusion of the wine fridge in the MLS was an oversight by the listing agent. I also wanted to maintain some good will. I was negotiating with the seller about some issues in the inspection report, plus I wanted to buy some of his furniture.

But after the sale closed, I just couldn’t let it go. I felt this was an integrity issue, specifically a violation of Article 12 of the National Association of REALTORS® Code of Ethics. (Yes, these folks do indeed write “realtors” in all capital letters and include the ®, as if they’re screaming at you and feel their right to do so should be legally protected.)

Article 12 reads: “REALTORS® shall be honest and truthful in their real estate communications and shall present a true picture in their advertising, marketing, and other representations.” That, along with the huge void in my newly purchased “butler’s pantry,” really started to gnaw at me.

So, I contacted the ombudsman at the local Regional Association of REALTORS®. She was a nice enough woman who was there to “attempt to informally resolve your concerns… before matters ripen into disputes and possible charges of unethical conduct.” Unfortunately, she didn’t try to resolve my concerns, instead simply forwarding them to the unapologetic listing agent.

That meant the next step was to submit an ethics complaint. It wasn't so much that I wanted to try and ding the listing agent with a $250 fine, although that wouldn’t bring a tear to my eye. Rather, it was that I wanted some sort of acknowledgment that what the listing agent did was wrong.

The ethics complaint form was filled in, notarized and submitted via registered mail. Upon receipt by the Regional Association of REALTORS®, I made one last unanswered plea to the listing REALTOR® for “an equitable resolution.”

A hearing by three members of the Regional Association of REALTORS® was scheduled. The nefarious agent and I weren’t invited. A few days later, the Regional Association of REALTORS® contacted me with an update, saying the agent in question was not in violation of Article 12. No further explanation was given, which led me to believe that resistance was futile and an appeal to the grievance committee would be less than productive.

After it was all said and done, I still think it was worth my time. But then again, I’m retired and have nothing but free time. I also learned something useful for the next time I buy a condo—and perhaps even more useful the next time I sell one. I also rest easy knowing I’ve done what I could to hold REALTORS® accountable. Still, I have to say, my refrigerator-chilled Charles Shaw 2023 pinot grigio just doesn’t taste that good.

Michael Flack blogs at AfterActionReport.info. He’s a former naval officer and 20-year veteran of the oil and gas industry. Now retired, Mike enjoys traveling, blogging and spreadsheets. Check out his earlier articles.

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Wisdom of My Father

I HAVE FOND MEMORIES of walking the Atlantic City boardwalk with my father, enjoying the ocean breeze and discussing life’s secrets. As I grew older, he used these walks to impart financial wisdom; nothing clears the head like the sound of rolling waves breaking over the sand. My father endeavored to fill my brain with notions about setting long-term goals and how best to achieve them.

“Let your money work for you,” he’d advise. “Time in the financial markets is your friend,” he’d say. “Pay for your future first, and only then spend the rest.”

When I married 35-plus years ago, my wife and I put his words of wisdom into practice. I had a stipend as a graduate student, albeit a small one. My father gave us the money to meet the minimum investment required to open a Vanguard Windsor II fund account. My wife and I then set up an automatic transfer of $50 each month, coinciding with the day my paycheck arrived.

How fun it was to watch that fund grow. Indeed, the early growth seemed almost exponential, because our additions were a relatively large percentage of the initial balance. Within a year, we upped the monthly transfer to $60. Then $75. By the end of the third year, we were adding $110 to the fund each month.

Yes, it was an odd number. But I figured that, if we could afford $100, why not an extra $10? I know it doesn’t sound like a lot in today’s world. But for a young couple, it was a huge financial commitment.

Two things came of our Windsor II investment. First, we developed a sense of financial security. We had, in essence, created an emergency fund. We felt it was untouchable, primarily because it was outside our local bank account and hard to access—remember, this was in the mid-1980s. We now had money for life’s little curve balls, such as when our twins were born. The savings meant that we didn’t need to borrow for the unexpected doubling of the number of cribs and car seats, food and diapers.

The second result was more important: We developed the habit of saving for our future. When we landed our first real jobs, we already had the savings mindset, and we took full advantage of our workplace retirement plans.

That initial Windsor II account morphed to match our risk tolerance. Over time, we shifted to a more aggressive mutual fund, the Morgan Growth Fund, which eventually became Vanguard U.S. Growth Fund. Whenever I received a raise or bonus, we increased our automatic purchases, topping $500 a month by the time the twins were ready for college. The great bull run that began in 2009 meant that a good portion of the twins’ college costs were covered. We never did open a 529 college-savings plan. Instead, we selfishly saved for our own future, including maxing out our 401(k)s and other retirement accounts, but that left us with enough to cover college costs as well.

My wife retired a number of years ago, and I recently transitioned to part-time, with the hope of fully retiring by the end of this summer. Even this close to full retirement, we continue to make automatic monthly deposits to our Vanguard account. I truly feel that continuing to save even in retirement is a worthy goal. Only time will tell if we’ll have the money to do so.

I think my father would have been pleased by his son’s decision to take his advice to heart. I’ve found moments over the years to pass on my father’s wisdom—financial and otherwise—to his grandchildren. Sometimes, when I close my eyes and really concentrate, I can still hear his words, “Pay for your future first.”

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.

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Scoring Points

I'M NOT SOMEONE WHO enjoys spending money on luxury travel. I’d never pay cash for a business class airline ticket or a hotel suite. Nonetheless, on a recent trip to Spain with my husband, we flew business class and had suites in all four hotels we stayed at.

We also visited lounges in every airport before our flights, had access to executive lounges at two hotels where we could get free meals, snacks and cocktails, and indulged in lavish breakfast buffets at the other two. We paid for none of these extra amenities, but we certainly enjoyed them.

We managed this through a judicious deployment of points, miles and hotel status. I paid for the business class airline tickets with points earned through American Express and Chase credit cards. I’m a Titanium Elite member with Marriott, which got us complementary suite upgrades at three hotels, and my Diamond status with Hilton procured us the suite at the fourth hotel. The other perks at the hotels also came from my status with those brands, and access to airline lounges came automatically with our business class tickets.

In addition to all of those luxuries, we were able to use the TSA Precheck and CLEAR lanes when we departed from San Francisco, and the Global Entry lane when we returned, so we cleared U.S. immigration quickly. Our membership in all of these programs was paid for by holding specific travel credit cards. We also have access to American Express and Priority Pass lounges at airports around the world because of the credit cards we have.

You might have noticed that I’ve mentioned a variety of different credit cards, and you might be wondering how I earned all those points and miles. Well, at the risk of horrifying HumbleDollar writers and readers who have as few credit cards as possible, I’ll confess to having many. No, I don’t have as many cards as some travel writers, such as the staff of The Points Guy. But I currently have 13.

My cards are a carefully curated combination of co-branded airline and hotel cards, as well as cards which earn “flexible currency,” meaning Ultimate Rewards (UR) points from Chase and Membership Rewards (MR) points from Amex. Among points-and-miles adherents, these latter cards are considered the most valuable because they can be used in different ways depending on your travel goals.

You can purchase travel directly from the Chase or Amex travel portals, using points or money, and thereby earning yet more points. Alternatively, UR and MR points can be transferred to airline and hotel partners, and they can also be put toward rental cars and other uses. For example, for our flight home from Spain, I transferred UR points to my United Airlines account and then used those miles to buy our tickets.

As for earning points or miles, there are several ways to do so. First, you can earn sign-up bonuses when obtaining these various cards. That’s the quickest and easiest way to fatten up your points or miles account. Second, you can earn points or miles by actually traveling—staying at a Marriott and earning Bonvoy points, flying on Alaska Airlines or a partner airline and earning Alaska Airlines miles, and so forth.

Third, you can put as much of your day-to-day spending as possible on various credit cards to earn points and miles—things such as utility and cable bills, insurance premiums, and supermarket, pharmacy and gas station purchases. Finally, you can earn points by shopping online with partner merchants. When we were furnishing our new condo in 2019, I earned 75,000 extra Ultimate Rewards points by not only using a Chase card that earns UR points, but also by purchasing from merchants such as Pottery Barn while logged into the UR portal.

When I was younger, I used to listen to a personal finance radio show hosted by Larry Burkett, who strenuously preached that credit cards were bad, that you should only have one of them if you really had to, and that if you ever had a month where you couldn’t pay off your card in full, you should cut up the card and never get another one.

It took me a long time to question the idea that credit card usage was inherently bad. But finally, I did some reading and thinking for myself. I was surprised to learn, for example, that having more than a few credit cards doesn’t necessarily harm your credit score and, indeed, can boost it. But you have to know what you’re doing and be able to keep track of payments, rewards and rules for usage.

The key to responsible credit card ownership for me includes the following  three principles:

1. Always pay off any credit card you use in full every month. Whatever benefit you might earn from getting credit card points will be negated if you’re paying interest on card balances.

2. Only get a new credit card if you have a specific travel-related goal for obtaining it. Every one of my 13 cards is in my wallet or sock drawer for a reason. Other people may not care about travel rewards and instead focus on cash-back cards, but it’s the same principle.

3. Only keep a credit card with an annual fee if you can justify it by recouping perks that are worth even more. My most expensive card is my Amex Platinum, which costs a hefty $695 per year, plus an additional charge for authorized users. But there’s a long list of benefits that I use, and they add up to well over $1,000 a year. These include CLEAR membership for my husband and me, TSA Precheck and Global Entry fee reimbursement, airline and hotel credits, Uber credits, and digital streaming credits.

Lest you judge my champagne tastes too harshly, I’ll end this piece by telling you about the next trip we’re taking—another trip without a champagne price tag. It’s a five-day jaunt to Chicago over this coming Labor Day weekend. We’re flying Southwest from Sacramento to Chicago Midway (Southwest points for my husband’s ticket, companion pass for me). We’ll be staying at the Chicago Ritz Carlton (four free nights thanks to our Marriott Bonvoy credit cards and from earning status, plus some Marriott points for the fifth night).

We’re attending two games at Wrigley Field to see our San Francisco Giants play the Cubs—one game in a luxury suite and the other in club box seats right behind the first base dugout—both paid for with Marriott points via their “Bonvoy Moments” program. No, flying Southwest isn’t exactly luxury travel and, no, we won’t get a suite upgrade at the hotel. But we’re taking a very nice trip for relatively little outlay.

Travel is an important goal for us as we near retirement. We’re not “too fancy” to fly economy. But as we get older, being able to fly business class on a lengthy international trip, have extra space in a hotel suite, access airport and hotel lounges without paying extra, and get through airport security more easily, all combine to make travel more pleasurable and manageable.

Dana Ferris and her husband live in Davis, California. She’s a professor in the writing program at the University of California, Davis, and is the author or co-author of nine books on teaching writing and reading to second language learners. Dana is a huge baseball fan and writes a weekly column for a San Francisco Giants fan blog under the nom de plume DrLefty. When not working, she also loves cooking, traveling and working out. Follow Dana on Twitter @LeftyDana and check out her earlier articles.

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Affordable Mistakes

WHEN I SET OUT TO improve my financial knowledge, sites like HumbleDollar didn’t exist. Instead, I garnered insights from books, investment seminars and like-minded people. Still, my greatest lessons came from my own financial mistakes.

I’ve made many, and I still occasionally stumble. A few missteps were costly and had lasting repercussions, but the rest were less damaging, especially considering the lessons I learned from them. Here are six of what I call my “affordable mistakes.”

1. Investing in individual stocks without research. After losing years of investment compounding by ignoring the stock market, I foolishly adopted an invest-now-research-later approach. Relying solely on company name and price history, I narrowed my buy list to a dozen or so public companies and then invested equal amounts in each.

Among my selections were two familiar names. I knew about Eastman Kodak from my college days, when one of my hobbies was developing film. And I was familiar with Washington Mutual because the bank sponsored a spectacular annual firework display that I loved to watch. I naively assumed that these stocks, together with the others I chose, would be good long-term investments. They weren’t.

Both Kodak and WaMu eventually failed, leaving me with no chance of recouping my investment. I figured that unless you enjoyed stock research (which I didn’t), had a strong desire to beat the market (which I didn’t), and could dedicate time to staying on top of company and industry news (which I couldn’t), it made no sense to favor individual stocks over low-cost, diversified stock funds.

2. Borrowing from my 401(k). In my mid-30s, when I was going through a financially challenging period, I found myself in need of immediate cash. My 401(k) plan offered a loan that seemed appealing. The paperwork was minimal, the funds would be available within days and the interest I paid on the loan would go into my 401(k). Faced with a time crunch, I applied for the loan and used the money as soon as it was available.

But within a few months, I realized my mistake. No, the problem wasn’t my ability to repay the loan or hold onto my job. Rather, the stock market was in a slump when I took out the loan and started recovering in the months that followed. The opportunity cost of selling at a low point and missing the subsequent market rebound was significant. To minimize the damage, I repaid the loan sooner than originally planned.

3. Constructing an unwieldy portfolio. As I learned more about diversification, I decided to rebuild my portfolio. I allocated a portion of my money to broad market index funds, while using the remainder to add variety. But I lacked a clear understanding of which varieties to add and in what proportions. I began investing in anything that seemed unique or interesting, resulting in an excessive number of holdings with no discernible purpose. It was akin to using every spice in the kitchen to cook a single dish.



The various specialized funds I bought included those focused on micro-cap shares, equal weighting stocks, business development companies, master limited partnerships, commodities, mortgage real estate investment trusts, high-yield stocks, dividend-growth shares, frontier market stocks, convertible bonds, mortgage-backed securities and more. If I’d continued this approach, I might have ventured into non-fungible tokens, special purpose acquisition companies, cryptocurrencies and meme stocks, too.

Soon enough, my brokerage account became unmanageable and, quite frankly, absurd. Luckily, I realized my mistake before my holdings had notched significant capital gains. I was able to sell and declutter my account without too big a tax cost.

4. Paying the ignorance tax. After paying off my mortgage and reducing other fixed living costs, it dawned on me that my annual tax burden was larger than all my other expenses combined. How did that happen? Not only was I failing to make full use of tax-sheltered retirement accounts, but also I was keeping the wrong investments in my taxable account.

To rectify the problem, I took three steps. First, I began making after-tax contributions to my 401(k) and then converted them to a Roth 401(k), where I invested the money in a growth stock fund. Second, I shifted most of my bond investments from my taxable to my tax-deferred account. As part of this, I created a brokerage subaccount within my employer’s retirement plan for maximum flexibility. Finally, I moved all my international funds from my retirement account to my taxable account so I could claim the tax credit for dividends withheld by other countries.

5. Misjudging my risk tolerance. After learning about derivatives, I tried various options strategies to profit from my newfound knowledge. My favorite approach involved betting that the share price of a high-quality company wouldn’t decline more than 20% within the next few months. My hope was to make a modest profit if I was right, which was highly probable. The risk: If the stock performed worse than expected, I’d have to bear the additional losses.

Keep in mind that a single options contract involves 100 shares. If the stock price was high, like Apple back in 2012 when it soared past $500 a share, the maximum loss could be a real wallet-buster. At the time, Apple was a Wall Street darling, thanks to its meteoric rise in the preceding years. I got carried away and kept betting on its continued prosperity, despite the higher loss potential associated with its rising share price. The tide turned, and the stock began to drop from its peak. Suddenly, the possibility of a significant loss became all too real. Fortunately, I managed to pick up my penny and run before the steamroller got too close.

6. Expending too much effort chasing yield. I’ve always kept more cash than most financial gurus would recommend—something that helps me sleep better at night—but I got frustrated with the paltry interest rates that regular bank accounts offered. When high-yield savings accounts burst onto the scene and financial institutions were falling over themselves to attract investors, I couldn’t resist.

Before I knew it, I had opened numerous online accounts, constantly shuffling my money around to grab a few extra bucks in interest. Dealing with multiple tax forms each year and keeping up with the ever-changing rates became a headache—until I discovered a simpler way to get a competitive yield.

My brokerage firm lets investors participate in Treasury auctions and, at maturity, automatically reinvests the proceeds in the next auction. I promptly moved most of my cash into my brokerage account and signed up to invest in a few short-maturity Treasury bills. I no longer needed to juggle multiple bank accounts to squeeze out the last drop of yield.

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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Bad News Bonds

EXPERTS HAVE LATELY been recommending that investors shift some money from short-term bonds—which offer the highest yield these days—to longer-term issues, whose prices are more sensitive to interest rates.

Had I followed this advice—and I almost did—I’d have quickly lost money in what’s supposed to be the safe part of my portfolio. Bonds did indeed rally from their October 2022 lows, but have pulled back since early May. Vanguard Intermediate-Term Treasury ETF (symbol: VGIT) was down 4.2% from its May 4 peak through last Friday, while iShares 20+ Year Treasury Bond ETF (TLT) was off 8.8% during that stretch.

The “smart money” said prepare to profit if interest rates fall, perhaps because the economy slips into a recession. But that’s a big “if.” The flipside: You lose if rates rise.

That’s why I’ve generally preferred short-term Treasurys in my portfolio. That limits my exposure to interest-rate fluctuations and provides a hedge against the risk of falling stock prices. Short-term Treasury prices won’t decline much if rates keep rising, though they also won’t gain much if rates fall from here.

An added bonus: Today, we’re enjoying generous yields on short-term bonds and cash investments, including some guaranteed by the federal government. Indeed, those high rates have lately drawn me to money market funds and certificates of deposit (CDs).

The bond market got a bad case of the willies in August, burning those who hold interest-sensitive assets. Now, Wall Street is gripped by the fear of rising rates. Budget deficits and the national debt really do matter—finally—or so some are saying. On top of that, the U.S. Treasury must issue a lot of new debt at higher rates, while foreign countries are reducing their Treasury holdings. Prepare for interest rates to be “higher for longer,” some experts are predicting.

I prefer not to bet on the direction of interest rates—and I don’t have to. Unlike the stock market, where declines have reliably been followed by greater gains because of growing earnings and dividends, there’s no such natural tendency in the bond market. Yes, higher interest rates lure more buyers, but rates could potentially rise indefinitely. Until 2022, bond and stock investors, as well as homeowners, had enjoyed 40 years of generally falling rates. Who’s to say that trend couldn’t reverse in the decades ahead, and so why take interest-rate risk?

I have a young advisor at Fidelity Investments who had better advice for my situation than the high mucky mucks at other big asset-management firms. He had thoughtfully set up a meeting with me ahead of the Aug. 31 maturing of a Treasury note I bought last year.

He said Fidelity shared the consensus view that interest rates will fall in 2024. But knowing we were talking about my emergency money, his recommendation wasn’t to take interest rate risk, but rather to focus on avoiding reinvestment risk—the danger that rates will be lower when I go to reinvest the money from, say, a maturing bond. He suggested buying a noncallable three- or five-year CD at 5.1%. That way, if rates decline, I don’t have to worry about where to reinvest my cash: I’ve locked in good rates for a few years to come.

Problem is, I can’t commit to tying up any money for three-plus years. I need more liquidity in my emergency fund. I can tie some up for perhaps a year or 18 months. Of course, if rates keep rising, I’d be better off in a money market fund. Last year, I bought that Treasury note with what seemed like a great yield, but it’s now low by today’s standards.

I’ve settled on a plan to gradually purchase CDs between now and year-end to create what’s known as a CD ladder. That is, the CDs will mature at staggered dates, stretching from June 30, 2024, through Sept. 30, 2025. Every three months starting in mid-2024, I’ll get cash I can reinvest or spend if needed, such as if I lose my job or to pay for my daughter’s wedding. I recently bought a noncallable CD yielding 5.25% through Sept. 4 of next year. In a month, I’ll look for one maturing in December 2024, then March 2025 and so on.

Moving gradually eases my mind about the possibility that rates could be even more generous in the near future. The lesson I’ve learned from the whole experience: Tune out tactical investment advice—and just be happy when yields in your emergency fund are beating inflation.

William Ehart is a journalist in the Washington, D.C., area. In his spare time, he enjoys writing for beginning and intermediate investors on why they should invest and how simple it can be, despite all the financial noise. Follow Bill on Twitter @BillEhart and check out his earlier articles.

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Roll This Way

I THOUGHT I HAD a pretty good handle on health savings accounts, or HSAs. My wife and I contributed to HSAs over the decade before we retired. The money we accumulated has come in handy in the early years of retirement. I’ve also written several articles extolling their virtues.

But I recently learned that we missed an opportunity to further fund these accounts, while simultaneously reducing future required minimum distributions. The trick is to do a rollover from an IRA to an HSA. The tax code allows a once-in-a-lifetime IRA-to-HSA rollover. This little-known strategy is called a qualified HSA funding distribution. It appears that Congress authorized this as a way for a taxpayer to access IRA funds for a onetime significant medical expense.

Direct rollovers are allowed from a regular IRA, but not from a SEP or SIMPLE IRA. You also can’t do a direct rollover from an employer-based account, such as a 401(k), 403(b) or 457. But you could roll over funds from your employer-based account to a rollover IRA, and then do the direct transfer to your HSA.

To contribute to an HSA, you must be enrolled in a high-deductible health plan, or HDHP. Contributions to HSAs are tax-deductible and any subsequent growth is tax-deferred. Withdrawals from your HSA that are used to pay qualified medical expenses are tax-free. This is unlike withdrawals from a traditional IRA, which are considered taxable income.

For individuals with an HDHP in 2023, the maximum contribution to an HSA is $3,850, while the maximum contribution for those with family coverage is $7,750. There’s an additional $1,000 catch-up contribution allowed for those age 55 and older. Consider a married couple, both 55 or older, with an HDHP through one spouse's employer. In 2023, they could contribute up to $9,750—a $7,750 family contribution, a $1,000 catch-up for the insured and another $1,000 to the other spouse’s HSA. 

Converting funds from a traditional IRA to an HSA, and then using them for future qualified medical expenses, has the effect of eliminating the tax owed on the sum involved. It also has the added benefit of shrinking your IRA balance and thereby reducing future required minimum distributions.

The maximum amount you can roll over is the same as that year's HSA limits on contributions based on your age and type of coverage. In other words, any amount rolled over reduces the amount you can contribute directly to your HSA for that year. This includes any contributions your employer makes on your behalf.

The strategy is covered by strict rules, so you need to do your homework. The rollover is reported on line 10 of IRS Form 8889. One of the more complicated parts is the testing period. You must remain eligible for an HSA during a 12-month testing period, which begins in the month you make the rollover and ends 12 months later on the last day of that 12th month, with the distribution month counting toward the 12-month total.

Got that? For example, if you did a rollover on June 17, 2023, the testing period would end on June 30, 2024. If you fail the testing period—there are exceptions for death or disability—the entire amount that was rolled over becomes taxable income and subject to a 10% tax penalty.

Who does this make sense for? A good candidate would be a married couple, over 55, enrolled in a family coverage HDHP, with existing HSAs. Let’s assume the HDHP is through the wife’s employer. She could roll over the maximum amount—$8,750 in 2023—to her HSA. Her husband could also roll over $1,000 to his HSA, for a total of $9,750.

If the couple has individual HDHP health insurance coverage, they could each roll over the maximum individual amount into their own accounts. They can even share the maximum amount unevenly, but the IRS rules for splitting HSA contributions between a married couple are complicated, so you need to make sure you follow the rules carefully. Of course, a single person can also use this up to the individual maximum amount.

This once-in-a-lifetime conversion has the impact of a Roth IRA conversion, but without the current income tax burden. Adding an additional tax-free $9,750 to an HSA may not seem like a lot, but it could help cover some medical expenses if you’re an early retiree who isn’t yet age 65 and eligible for Medicare.

In addition, I could see using this tactic in conjunction with a Social Security claiming strategy, where the higher-earning spouse delays his or her benefit, while the other spouse claims earlier. The additional HSA funds could cover several years of a retiree’s future Medicare premiums, which are considered an eligible expense for tax-free HSA withdrawals.

Unfortunately, my wife and I missed the boat on this opportunity. Vicky retired in July 2021. I started Medicare in September 2022. During the intervening 13 months, we purchased an HDHP health plan through my old employer. We could have done at least a partial rollover, based on our months of coverage.

But who says you have to do a rollover? Researching the rollover strategy made me consider an alternative approach for some pre-Medicare retirees. Here’s how it might work:

Married couple, 60 years old, filing a joint tax return
Enrolled in an HDHP and have HSAs
Instead of rolling over IRA money to an HSA, they withdraw $9,750 from an IRA, avoiding the usual 10% tax penalty because they’re over age 59½
Use that money to contribute $9,750 to health savings accounts
Take $9,750 HSA deduction on Form 8889 when they file their taxes
Recover any tax withheld as a tax refund

Result? Their HSA contributions are tax-deductible and thus reduce their taxable income—and that means the IRA withdrawal is effectively tax-free.

Richard Connor is a semi-retired aerospace engineer with a keen interest in finance. He enjoys a wide variety of other interests, including chasing grandkids, space, sports, travel, winemaking and reading. Follow Rick on Twitter @RConnor609 and check out his earlier articles.

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Left With the Details

MY WIFE AND I PLANNED our retirement using several standard assumptions, including how long we might live. Dorothy was healthier than me, so we assumed I’d be the first to go. But on June 30, she died suddenly, and I was the one left to deal with the fallout—including the many pesky, practical details.

Those details were bureaucratic and technical, and it didn’t take long to complete them. Dealing with the funeral home, Social Security and various financial institutions was straightforward. Diligently maintaining our revokable living trust and beneficiary designations allowed our estate plan to work as we intended.

As I started looking at the apps on Dorothy’s cellphone, it was clear that—while her life had ended—her digital life had not. There were three issues I needed to address: the risk of identity theft, her continuing presence as an advertising target and unwanted subscriptions. This took more time than the practical details.

Social media platforms want customers to be “sticky,” so leaving can be difficult. Facebook offers a legacy program which allows a user’s page to remain while preventing any further changes. You can establish a legacy contact you designate to inform Facebook of your death. Alternatively, after your death, a family member or friend can submit proof of death to move the account to legacy status.

Google takes a different approach, allowing users to establish an “inactive account manager.” Once you establish the plan, Google will watch the account for activity. If the account has been inactive for a specified period, Google will try to reach your trusted contact. If your trusted contact doesn’t respond or Google finds no activity for two months, it'll delete the account. Remind your heirs to take control of your account after your death and gather any information they want from, say, Google Contacts, Gmail and Google Photos before the account is deleted.

Many advertisers try to keep customers sticky by asking them to subscribe to their advertising, typically via email or text. I took the time to unsubscribe from advertisers so their messages stopped arriving. I had added Dorothy's account to my email app so that any important messages wouldn’t be lost. Eliminating the advertisements was for my own sanity. Note that the “white label” unsubscribe functions are not always effective. Instead, search for the word “unsubscribe” in the message and use that link. When you respond to texts with “STOP,” the vendor should generate an automated confirmation. If necessary, you might report messages as spam.

Paid subscriptions—online and otherwise—can be difficult to track down. You can scour credit card and checking account statements to find them, but that’s tedious and might not be complete. While there are apps, such as Rocket Money, that say they will remove subscriptions, I suggest a more comprehensive approach.

Close any accounts—credit cards, bank accounts and so on—in the deceased’s name, which means any paid subscriptions can’t be renewed. If you’re the surviving spouse, also close all joint accounts, and open new ones in just your name.

I contacted the three credit bureaus to inform them of Dorothy’s death. I also placed a note in my credit file to explain why I closed our joint accounts. With any luck, this will eliminate any further use of the accounts and avoid any impact on my credit score.

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