Jonathan Clements's Blog, page 130

Rethinking Restraint

I'D PLANNED CAREFULLY. All I needed was to get from the Oslo airport to an Airbnb about eight miles away. It was 12 minutes by bus, the host firmly proclaimed.

I’d disembarked from a ship early that morning in Kirkenes, near the Russian border. I’d paid about $20 for a bus ride to the nearest airport, and then flown 850 miles to Oslo. Now, I was ready for the local bus and that 12-minute ride to the Airbnb. But I was also tired, and my two pieces of carry-on were dragging.

A taxi or an Uber would have been far easier, but I didn’t want to pay the extra $10. I’d determined that I was going to take the bus—I like public transportation—and so I would. But when the bus pulled up, it wouldn’t take my credit card and I had no Norwegian kroner.

I missed that first bus while traipsing back through the airport, and incurred a hefty fee to exchange dollars for kroner. Then, I waited for the next bus, which seemed as if it would never come. Finally, I paid $4 to ride the 12 minutes to a delightful suburban apartment—two hours later than planned.

I had stuck by my values when I should have changed. No harm came of it, except the blow to my self-image as a sensible, value-guided decision-maker.

The experience, which occurred this past spring, led me to reexamine my values. I’ve been fortunate to live well by sticking with four fundamentals: family, professional passion, planning and restraint. These basics still serve me well, for the most part. But I’ve been transformed as I recognize that, at age 81, I have only a few years left.

Family has always been my first priority. It led to a 59-year marriage. I lost my wife last fall. It also led to us providing for our daughter. In anticipation of our deaths, my wife and I had set up a charitable remainder unitrust (CRUT) for our daughter’s lifetime benefit. She appreciates the financial freedom that it gives her. Family values also made me decide that my next trip will be to visit relatives, who are dispersed across the U.S.

Meanwhile, professional passion—along with luck—led me to an academic career where I achieved a full professorship and various administrative positions. These allowed me to devote my career to helping students and staff. In retirement, my professional responsibilities morphed into leadership at my condominium development, then undergoing an $18 million renovation. I employed the skills I’d learned in my career in a new, somewhat more relaxed setting.

Planning has pervaded my life, both professionally and personally. I always detailed our trips in Excel and purchased tickets months in advance, at competitive prices and after much research. We wisely waited to have our daughter until we knew we were ready for a baby.

Still, my experience in Oslo wasn’t the first time I’ve been too rigid. Now that I no longer have the same physical capabilities, I need to bend to the unexpected—and be more graceful about it, unlike when I fumed on the bus platform in Oslo.

Most significantly, I’ve had to rethink my value of restraint. During my working years, restraint meant saving. I put large sums in investment accounts that I didn’t touch, leaving the money to grow through the magic of compounding.

Having retired at 78, I’m able to live on my retirement accounts’ required minimum distributions, with money to spare. It no longer makes sense to equate restraint with saving, but it’s a habit I find difficult to change.

My problem in Oslo arose partly because I didn’t want to pay an extra $10 for a taxi—on a $7,000 trip. That was foolishness, not restraint.

Similarly, but on a much larger scale, I’m struggling with switching from saving to spending those savings. For me, spending first meant helping our daughter. That accomplished, it now means deciding how to use my surplus income wisely.

I’ve written long lists of what I might buy: a fancy car, a second home, a boat, travel, art and so on. The only item on my list that I’ve accepted as worthwhile is more travel. I’ve stepped up from flying economy to premium economy, but my restraint still won’t let me book business class.

My updated version of restraint is holding onto enough money to ensure my care should I have a long illness, such as Parkinson’s, the disease that took my wife. I’m determined not to hold onto money for no good reason.

I’m looking actively for ways to give away money, both income and capital, that will make a difference. I’m interested in local and global causes. I pay close attention to debates on topics such as effective altruism—ways of doing good that are proven to work.

And perhaps I won’t be quite so silly the next time I embark on a trip. I’ll be willing to hail an Uber for convenience, rather than suffering while I wait for a bus.

James E. Mitchell is a professor emeritus of architectural engineering. He spent 32 years at Drexel University. Before that, Jim was a principal in the architecture firm Jordan-Mitchell, Inc., in Philadelphia. He’s currently the unpaid president of The Philadelphian Owners Association. Jim's previous article was Two Decades to Yes.

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Footing the Bill

MANY RETIREES ARE looking for ways to supplement their income. Others would like something interesting to occupy their time and allow them to stay productive and engaged—and, if it brings in a few dollars, all the better.

We’re fortunate to live in the internet age, with the opportunities that it offers. Previously, retirement-income sources consisted mainly of pensions, stocks, bonds, rental real estate and part-time work. Today, there are many other choices, including a few you may not have heard about. Here’s a look at possible retirement-income sources, starting with the more familiar ones. 

Pensions. Although pensions have mostly been replaced by 401(k)s, about a fifth of workers still participate in defined-benefit plans. Pensions are most common among government employees, while just 11% of private-sector workers participate in such plans. The median annual pension benefit in 2021 was $26,734 for federal government retirees, $22,860 for state and local government retirees, and $10,606 for private-sector retirees.

Income annuities. Think of buying income annuities as buying your own pension. These are contracts with an insurance company, and typically involve handing over a lump sum in return for regular income payments that are guaranteed for life.

Stocks and bonds. Dividend-paying stocks, bonds and income-mutual funds are another way to generate income in retirement.

With any luck, the dividends from your stocks and stock funds will deliver a reliable income stream, even as stock prices bounce up and down. Still, those dividends aren’t guaranteed. During the pandemic, 42 companies in the S&P 500 suspended their dividends because of economic uncertainty. These included previously reliable dividend payers such as Walt Disney, Ford Motor and Darden Restaurants.

Bonds and bond mutual funds are another way to receive passive income. While government bonds are considered safe, investors in corporate bonds may lose money to defaults, especially those who invest in high-yield bonds.

Keep in mind that collecting dividends and interest isn’t the only way to get income from an investment portfolio. Instead of focusing on yield, you could strive for a healthy total return and then periodically sell part of your portfolio holdings—an approach many financial experts recommend.

Rental real estate. This is another popular source of income. In addition, if you manage the properties yourself rather than hiring a property manager, you can boost your after-cost rental income and the work involved may provide you with a sense of purpose.

Rental real estate can also be a good way to diversify an investment portfolio. Real estate performance has a low correlation with stock and bond returns. Even if your stocks and bonds are struggling, the income from your rental properties may compensate.

Micro-investing platforms. What if you want to invest in real estate but can’t or don’t want to put $500,000 or more into a rental property? Real estate investment trusts (REITs) and micro-investing platforms such as Arrived and Cityfunds allow you to benefit from property price appreciation and rental income without making a hefty upfront investment.

You can micro-invest in real estate with as little as $100. There are liquidity issues, however. Many platforms expect you to hold your shares for at least five years.

What about other investment asset classes? Today, there are micro-investing platforms for almost any investment you can think of. Do you want to dabble in cryptocurrencies? You have many choices, including Cash App and Juno. Would you like to own shares of a valuable work of art? Check out Masterworks. How about collectibles, such as sports trading cards, autographed jerseys, comic books and luxury cars? Collectable and Rally might suit you. Want to invest in fine wines? Vinovest can help. And if you want a variety of alternative investments on one platform, Yieldstreet has you covered.

Will these micro-investing platforms turn out to be a good investment? The jury is still out, so even daring investors should keep their bets small—and most folks ought to steer clear, instead sticking with stocks and bonds.

Side gigs. What if you want to channel your energy, skill and free time into creating an income stream without commuting to work several days each week? Many income options are available today that didn’t even exist 10 or 20 years ago. Consulting, bookkeeping and teaching are popular part-time jobs for retirees with specialized skills, and these days you can do them online from home.

If you want to teach but don’t want the commitment of a regular teaching schedule, you could create a course with a platform such as Udemy and set your own fee. Alternatively, you can create and upload educational videos or blog posts. I still earn income from videos I created years ago. I’m sure every HumbleDollar reader has skills and knowledge they can draw on to create content that’ll have value for others.

Videos and blogs can be lucrative—assuming there’s sufficient interest. One amateur gardener makes thousands of dollars each month with his backyard gardening YouTube channel. The income comes from ad revenue, sponsored videos, Amazon affiliate links at the bottom of each video and plant sales. A woman makes similar amounts from her gray-hair blog. Another woman lives in Mexico as an expat, and made more than $200,000 in 2022 from her Mexico vacation advice blog and from her travel-blogging business.

There are also more exotic ways to make money online. User Interviews pays people to participate in marketing interviews. Sites such as Swagbucks pay people to shop online and complete surveys.

Are you overweight? HealthyWage will pay you to lose weight. How about teaching people how to be mermaids? Believe it or not, you can even make money selling pictures of your feet online—though I’m not sure anybody would pay for pictures of my feet.

Max Chi retired in 2022 after a career as an IT specialist. He also has a background in physical science and digital marketing, and a strong interest in personal finance. Max enjoys traveling, sightseeing and freelancing. He and his wife live in Texas. Max's previous articles were Anti-Social Behavior and Be Careful Out There.

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When and Where?

A LOT HAS BEEN written, here at HumbleDollar and elsewhere, about the “when” of retirement. Not surprisingly, there are strong opinions.

For example, I’m a member of a Facebook group where the overwhelming consensus is, “Don’t work one single day longer than you absolutely have to.” Of course, many people don’t have the luxury of choosing their ideal retirement date because life intervenes: They get let go from their job or experience health issues that dictate the answer to the “when” question.

Despite reading and thinking a lot about the next stage of life, my husband and I are still struggling to set an exact retirement date. Beyond the “when,” we also have had hours of discussion about the “where.”

The “when” question. We both turn 63 this year. Thankfully, we’re in good health. I’m a tenured university professor, so I have the security of knowing that I—not my employer—will choose my exit date. My husband is employed in the private sector and doesn’t have the kind of job protections I do. Still, it seems the “when” decision will be primarily in our hands and won’t be imposed on us.

We’ve identified two possible exit dates: July 1, 2025, or July 1, 2026, when we’d be turning either 65 or 66. I think we’re both pretty clear that we’re ready, mentally and emotionally, to be done with our day jobs. Leaving on the earlier date would be our preference.

Why the ambivalence? In a word, money. An extra year of earnings would help us save more cash for the “bridge” to Social Security and that bridge would be 12 months shorter, plus we’d add another year of contributions to our retirement accounts. The pension I’ll receive when I retire is based on service credit, and another year would add 2.5% to that number.

Between our pensions—my husband is already receiving one because he retired from the state of California in 2016—and eventual Social Security, we should be able to live comfortably in retirement. We receive high-quality health care through his retirement system, and it’ll coordinate with Medicare when we reach 65, so that’s not a concern, either. We also have long-term-care insurance and well-funded retirement accounts.

Honestly, we could both give notice next week and we’d likely be fine. But you never really know what curveballs life will throw you, so having more of a cushion seems prudent. At this point, we have the health and energy to keep doing our jobs for another two or three years. We know that we’re in a fortunate position in terms of both our earnings potential and our job security. Also, because I get extensive time off during the year, as well as occasional sabbaticals, we’re not delaying the travel we want to do until after we retire.

There’s another wrinkle: Once I start drawing a pension, my net income will likely be slightly higher than what I get now. The reason: I have so much service credit, plus I’ll no longer be making pension, Social Security and deferred compensation contributions. There’s no real reason for me to work that extra year. Yes, there’s a financial incentive for him to work longer, but not me. Would he be happy if I was retired and he was still working? Would I feel badly about it?

The “where” question. Like many aging empty-nesters, we’ve considered moving closer to one of our two kids when we retire. We have no grandchildren yet, so that’s not a consideration. Our younger daughter currently lives in a beach community about 450 miles south of us. It’s a nice area and, as I’ve previously mentioned, we love the ocean. The university town where we live now is inland and very hot in the summer.

As we’ve read and thought about retirement, one theme that repeatedly comes up is the importance of relationships for healthy aging. While we might enjoy living near the ocean and being closer to our younger daughter, would we be able to make friends and find purposeful activity in a completely new area?

We’ve lived in our town for more than 30 years. We have friends, we’re on good terms with our neighbors, we like the condo community where we live, and we’re active in our church. I find comfort in knowing who my dentist, optometrist, hairstylist, Pilates instructor and massage therapist are. In addition, my status as a professor emerita will give us opportunities to stay involved with the university community, along with discounts on tickets at sporting events, the excellent regional performing arts center on campus, and so forth.

As we’ve thought all this over, it makes sense to us to stay put in our longtime hometown. This is our place. This is where we belong. We also understand that things could change as we age. We might need to put down a deposit at the local continuing care retirement community, which has a lengthy waiting list. If grandchildren come along or we find we need more help in the future, we could always revisit the question of living closer to our daughter.

What’s right for one person or couple may be completely wrong for others. My husband and I are getting closer to the answers to these important questions. At least we’ve narrowed down our options somewhat. But this is harder than it might seem. I may be writing a completely different article six months from now.

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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Promises Kept

MY FATHER HAD FOUR brothers: Bob, Jack, Don and Dick. Born in 1918, Dad was the oldest. Bob was next, born the following year. Jack came along in 1922 and Don in 1926. Dick, born in 1931, brought up the rear.

I never met my Uncle Bob. By the time I was born, he and his wife lived more than 1,000 miles away, and my parents were never close to them. Uncle Don was my favorite. He was a labor attorney and lived with his wife—my Aunt Peg—in our state. He was laid back and had a good sense of humor. I always enjoyed his visits.

When I was a youngster, Don took pleasure in giving me career advice, always making sure my nose-to-the-grindstone dad was nearby. His advice: “Kenny, when you grow up, make sure you get a job that lets you sleep in to at least 10 o’ clock each morning.”

My dad would feign horror upon hearing his brother’s corrupting influence on me, and would say, “Now, stop putting ideas in his head, Don. I have enough trouble getting him to work as it is.” I would stand there grinning.

Uncle Jack and Uncle Dick both had what today might be called developmental disabilities. Jack was evaluated and found to be at the intellectual level of a 10-year-old, while Dick was stuck at a five-year-old level. Support for special needs students was almost nonexistent in those days, so neither got very far along in their education.

They weren’t institutionalized and continued to live with their parents into adulthood. For a number of years, Jack, who could be quite a comedian, held a part-time job at a dry-cleaning business. Dick, who had an agreeable personality—not unlike a kindergartener—was obsessed with stuffed animals and never worked.

My grandfather died when Jack was 26 and Dick was 17. After that, my two uncles lived with my grandmother. When she passed away in 1970, a trust—which had been set up for the benefit of Jack and Dick and which was funded by her estate—went into effect. Dick also benefited from another trust that was set up according to the estate of an aunt who had taken a special interest in him. My dad, with an accounting background, and Don, the attorney, were designated as trustees.

Jack and Dick stayed in their childhood home, which was only about a mile from our house. Dad, living so close, took the more active role in their care. Once a week or so, he’d take Jack and Dick to the grocery store, and would also address any other issues that would come up, such as house repairs.

Overall, my uncles were fairly low maintenance. There was a rough patch in 1987 when my parents retired to Lancaster, Pennsylvania, not far from where I lived. Because Dad would no longer be nearby to take care of his brothers’ needs, he and Don sold the family homestead in New Jersey and moved Jack and Dick to a nice facility in Lancaster.

Don died in 1988 at 62, leaving my father as the sole trustee. In 1999, Jack passed away, so only Dick needed to be cared for. Not long after that, my dad’s prostate cancer took a turn for the worse. By summer 2001, it was clear that it was only a matter of months before he would pass away. By then, Dick was happily living nearby in a group home. He enjoyed going to the local senior center each day and was constantly charming little old ladies into giving him stuffed animals to add to his massive collection.

My Uncle Bob—the one who lived more than 1,000 miles away—wasn’t financially inclined and had no interest in taking over the trusteeship of the estates. Pretty much by default, I agreed to pick up the mantle that my father had carried for more than three decades. Dad told me I was going to learn a lot. In my father’s final declining months, he hired an attorney who threaded the complicated legal process required to appoint me as the successor trustee for both trusts. In December 2001, Dad passed away. It was all on me now.

In my new role, the first snag I encountered came when I went to the local Social Security office to report my father’s death and petition that I become Uncle Dick’s new “representative payee” for his modest $400-a-month disability check. The clerk dutifully filled out some forms, and I left. A few weeks later, I started receiving mail to the effect that Uncle Dick’s checks were being stopped because he had passed away. Someone had evidently checked an incorrect box.

I wasn’t so worried about the small monthly check, but the thought of my elderly uncle losing his government health benefits was scary. I immediately called the Social Security office and eventually was able to talk to a live person. Unfortunately, the problem did not get resolved.

I started hearing stories about people who had similar issues that lingered for more than a year. Getting desperate, I planned to contact a local politician to see if he could somehow help. Before I did that, I called Social Security one more time. I was connected with a more competent agent, who understood how to address the problem and had it resolved in about two weeks.

I took care of my uncle’s affairs for 10 years. I found a good accountant to complete the multiple tax returns required for the trusts. I also worked with the broker that my father had used to manage the funds in the two trusts. I had never previously worked with an accountant or broker.

Early one Sunday morning, I got a call that Uncle Dick had unexpectedly passed away at age 79. With Dick deceased, the function of the trusts was complete. Now, the task was to distribute the remaining assets, about $500,000. I contacted an old high school buddy, now a highly respected attorney, to help me. The two wills that created the two trusts were set up with per stirpes provisions, meaning that if a beneficiary was deceased, that beneficiary’s share would pass to his children. Don, Jack and Dick had no children.

My father’s portion would be shared by my three sisters and me. Bob had one son, Bobby, who was in a group home. I was in touch with cousin Bobby, but he hadn’t heard from his father in many years. No one in the family had any valid contact information. The question hanging over the estate settlement process: Would Bob’s share go to him or his son? I searched Social Security records online to see if Bob had passed away but couldn’t find anything. My understanding was that he hadn’t been in great health even before my father’s death, and by now he would be in his early 90s if still alive.

After several months of uncertainty, one of my attorney’s sharp paralegals found that Bob was indeed alive, though suffering from dementia. He was under the care of a guardian in his state. His guardian was competent, helpful and very easy to work with. She even sent me recent photos of the uncle I never knew.

My attorney worked out how the distribution of Bob’s half of the two inheritances would proceed under the circumstances. The mantle for managing Bob’s inheritance was passed on to his very capable guardian. Uncle Bob, who was known as “Billy Bob” or “William” to his caretakers, lived another six years, passing away at age 98. According to his guardian, the inheritance funds “were a blessing to William, they gave him a much better quality of life in a great assisted living facility with his favorite nurse Pam.”

My father’s prediction that I would “learn a lot” turned out to be quite the understatement. What would he think of the way I handled the job that he so faithfully carried on for three decades? I don’t know for sure. But I hope he’d be proud.

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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All You Need to Know

I WAS HAVING DINNER in Santa Fe, New Mexico, with a new friend, Joseph. He told me of his frustration with his financial advisor. The two might meet for an hour, but afterward Joseph still didn’t know what to do.

“Explain it to me like I’m five,” he said to me. So I did.

Joseph has a PhD from an Ivy League university, so he doesn’t need a kindergarten story. Yet I understand his frustration. Finance has its own vocabulary that quickly climbs into clouds of abstraction. What are the essential steps we need to take to do well financially?

I’d contend the basics are straightforward—save and invest for a lifetime. I’ll cover the details in a moment. You also need to understand a little human psychology because there are roadblocks in the way. If this were easy, as they say, everyone would do it.

Any good financial plan starts with a clear goal in mind. Nobel laureate Franco Modigliani held that our financial journey’s main objective is to create a smooth level of income over our lifetime. The biggest challenge is to save enough during our working years to avoid a drop in income in old age, which would cause pain and dislocation.

It’s easy to tell people to save—advisors do it all the time. Yet it’s also hard for many Americans to do. Why? Humans have what the great English economist A. C. Pigou described as a “faulty telescopic facility” that makes today’s needs feel urgent and future needs only dimly perceived.

Here’s another way to express it: “The future is an idea we have to conjure in our minds, not something that we perceive with our senses,” writes Bina Venkataraman, a former climate advisor to the Obama administration. “What we want today, by contrast, we can often feel in our guts as a craving.”

This gut desire for instant gratification helps explain why the U.S. personal savings rate was 3.5% in July, much lower than recommended. To overcome the natural temptation to spend our resources today, researchers suggest making saving automatic. This already happens when Social Security taxes are deducted from our paychecks. It doesn’t take willpower—the saving is done for us.

Many employers offer something similar by automatically enrolling their employees in retirement savings programs, such as 401(k)s or 403(b)s. You can drop out at any time, but more than 90% of workers accept these payroll deductions.

The problem with this system is employers often set the savings bar too low, typically starting at 3% of pay and increasing it by one percentage point a year. Nobel laureate Richard Thaler recommends saving at least 10% and says 15% would be better. In that 10% to 15%, you can count any matching contribution your employer makes.

If you’re not saving at least 10%, go to your plan’s website and raise your savings level. If you can’t afford to do so, increase your savings next time you get a pay raise. That way, you can avoid the feeling of loss that comes with seeing your take-home pay drop.

If you don’t have a 401(k), open an IRA. When you do, you’ll encounter a puzzling question: Roth or traditional? Both options reduce your taxes. If you want to cut your taxes this year, make traditional contributions. The earnings you save won’t be taxed today, but the money will be taxed when you take it out. If you withdraw it before age 59½, you’ll also owe a 10% penalty, so think of this money as off-limits until then.

If you want to save on taxes in retirement, choose the Roth. You’d pay income taxes on the money you save today, but not when you withdraw it and its earnings after 59½, assuming you’ve met the five-year rule. The Roth is advantageous for young workers who will make a higher income later on. Still, don’t get hung up on the imponderables. Just make a choice and move on. It’s better that you save money either way than stall out.

Financial conversations really go off the rails when the topic turns to where to invest. Yes, it’s confusing. And, yes, it’s emotionally uncomfortable. Once again, it’s helpful to know why.

There will be down years when you invest, and those losses will cause real emotional pain. I won’t sugarcoat it. It hurts. The bigger risk, however, is missing out on gains and the financial security that comes with them. The stock market has ended the year down in only 27% of the past 94 years, according to Capital Group. The odds are in your favor over the long run, as long as you hang in there.

Here’s more good news: You don’t have to understand Wall Street jargon to invest, any more than I have to understand the internal combustion engine to drive to church on Sunday. Most employee retirement plans have well-diversified investment choices called target-date funds.

These all-in-one investments own a balance of bonds and stocks, and cut risk by reducing their stock percentages as your retirement date nears. Devoted investors may do better by assembling their own portfolio of funds. Still, if you don’t want to read Barron’s on your Saturdays, you could do a lot worse than selecting a target-date fund.

To choose a target-date fund, you only have to decide the year you plan to retire. Someone who is 40 might want to retire in 27 years at age 67. They’d add 27 to 2023 and get their retirement year of 2050. Most 401(k) plans offer a 2050 retirement-date fund—and a 2040 fund, a 2060 fund and so on.

One final point: It’s often a mystery how a financial advisor gets paid. Clear it up by asking if he or she is paid by commission. If the answer is yes, thank the advisor kindly and walk away. If it’s an insurance salesman you’re talking to, say thanks and run away. Insurance products disguised as investments are guaranteed to cost you too much.

There are many outstanding investments available with no commissions. In financial speak, these are called “no-load.” Demand these investments for yourself. Any advisors you work with should also be a “fiduciary,” which is a complicated way of saying they’re required to put your needs ahead of their own. Just ask them if they’re a fiduciary to find out whose interests they serve first, yours or their own.

Let’s review. The essence of anyone’s retirement plan consists of just four steps:

Save at least 10% of your income in a retirement plan, though 15% would be better.
Choose “Roth” if you want to save taxes in retirement and “traditional” if you want to save on income taxes next April 15.
If you aren’t an investment maven, stash your savings in a target-retirement fund with the year you plan on retiring, for example, 2050 or 2060.
Make sure you’re not paying any sales commissions on your investments. You want no-load funds only. And ask your financial advisor if he or she is a fiduciary.

I could make this a whole lot more complicated, Joseph, but these are the all-important basics. As Nike says, “Just do it."

What's the wisest financial advice you've ever been given? Share your thoughts in HumbleDollar's Voices section.

Greg Spears is HumbleDollar's deputy editor. Earlier in his career, he worked as a reporter for the Knight Ridder Washington Bureau and Kiplinger’s Personal Finance magazine. After leaving journalism, Greg spent 23 years as a senior editor at Vanguard Group on the 401(k) side, where he implored people to save more for retirement. He currently teaches behavioral economics at St. Joseph’s University in Philadelphia as an adjunct professor. The subject helps shed light on why so many Americans save less than they might. Greg is also a Certified Financial Planner certificate holder. Check out his earlier articles.

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From Mali With Love

FELLOW HUMBLEDOLLAR contributor Marjorie Kondrack concluded a recent article by saying she’d “never been to Paris or Prague, Timbuktu or Tokyo.” I had always thought of Timbuktu as an imaginary, faraway place. Only recently did I discover that it actually exists.

Timbuktu is a town in Mali with a population just north of 50,000 people. But according to Wikipedia, thanks to gold and salt that could be found in the area, it was once a “world-renowned trading powerhouse” with a population of 250,000. From the 1200s through the 1600s, “Timbuktu was a world centre of Islamic learning.”

Even in the best of times, Timbuktu is not a place I’d want to visit. It sits on the southern edge of the Sahara desert. In May, the average daily high temperature is 108 degrees Fahrenheit, with an average low of 79 degrees. January is the coolest month, but it still has an average high of 86 degrees. Timbuktu gets virtually no rain at all for six consecutive months. For the other six months, rainfall totals only seven inches.

But assuredly, it is not the best of times in Timbuktu. Beginning in 2008, rebels started kidnapping—and occasionally killing—tourists. In 2012, rebel forces briefly seized control of the town.

The entire country of Mali is suffering. For more than 10 years, there have been various coups. In June, the Mali government announced it’s kicking out the United Nations peacekeeping forces that have been in the country for the past decade.

I imagine most HumbleDollar readers have heard of Timbuktu, at least in the way I knew it, as a mysterious, perhaps mythical place. Have younger people even heard of Timbuktu? Based on a sample of three—our teenage granddaughters—they haven’t.

My brother Kenyon told me that, for about $15, I can have a postcard sent from Timbuktu to my grandchildren or, for that matter, to anybody else. He said this provides income to people who were previously employed in the now-defunct tourist trade. I’ve done this a few times. You pick a postcard from several options and write you own message. Mail time is highly variable, but recipients typically get the postcard within a month. If you want, you can even ask for a postcard with a unique picture hand-drawn by a student in Timbuktu. If you select this option, you have no idea what the picture will be, but $2.50 is donated to a school for sorely needed supplies.

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How to Decide

THE CENTRAL Intelligence Agency knows a thing or two about gathering information. That’s why a CIA publication titled The Psychology of Intelligence Analysis is, in my opinion, a valuable resource for investors.

Of particular note is a section titled, “Do You Really Need More Information?” It offers this counterintuitive finding: To make sound judgments, some amount of information is necessary. But beyond a certain point, gathering more data doesn’t always lead to better decisions. In fact, it can lead to worse results. That’s because more information can “lead the analyst to become more confident… to the point of overconfidence.” The lesson for investors: It’s important for financial decisions to have a quantitative basis. But it’s also important to avoid going too far with any analysis.

Many investors, for example, worry about investing in the stock market during uncertain times. Consider today’s headlines: Inflation has moderated but is still not totally under control. Meanwhile, mortgage rates are at lofty levels, and the Federal Reserve has said it won’t hesitate to push rates up further. There’s also the continuing war in Ukraine. Against that backdrop, investors might conclude that the stock market, which has gained nearly 20% this year, is skating on thin ice. That’s prompted some folks to stay on the sidelines, holding cash rather than taking any risk in the stock market.

But as the CIA document notes—and as investors have seen again and again—it’s impossible to know where the market is headed next. For better or worse, in the absence of a crystal ball, no amount of further analysis will get us closer to an answer. Further analysis, however, may have the unintended consequence of making us feel more confident in an outlook that is, by definition, imperfect. That’s why I recommend a different approach: If you structure your portfolio so it will meet your needs whether the market is up or down, you don’t have to worry about making forecasts.

If you have cash to invest, does that mean you should invest it all immediately? Here’s where you can again apply the CIA’s principle. When making financial moves, always look for ways to make that move incrementally. Among the benefits of moving slowly is that it’ll allow you to gather more information, not because you’ll spend that time doing more research, but because—as time goes on—more information will become available. A year from now, we’ll have answers to things that today are unknown. Two years from now, we’ll know even more, and so forth. Investors can then use that information to finetune decisions rather than needlessly belaboring decisions today.

In the past, I’ve talked about splitting the difference as a decision-making strategy. That may not seem like a rigorous way to make decisions, but I see a number of virtues. The CIA’s principle illustrates another reason splitting the difference on decisions can make sense.

Let’s say your company offers a Roth 401(k) option. Should you go for it or should you stick with the traditional tax-deductible option? To answer this question, you might start by comparing your current tax rate to a projection of what your rate might be down the road. That’s a good start. But at the end of the day, there are things about the future we simply can’t know.

For example, today’s top marginal tax rate in the U.S. is 37%. But four decades ago, it was 70% and, at times, it’s been over 90%. We can’t, in other words, simply extrapolate today’s tax rates into the future. Because we don’t know what the future will look like, it wouldn’t be unreasonable to split the difference on a decision like this. Then, over time, as more information became available, we could adjust. Importantly, though, there would be no real benefit to fretting further over the question in the meantime.

In his new book, Decisions About Decisions, Harvard Law School professor Cass Sunstein offers a related recommendation: Don’t focus on the likelihood of being right or wrong on any given decision. That’s too difficult to know. In any case, there’s almost always a non-zero chance that something might or might not happen. For that reason, Sunstein suggests never going out on a limb in forecasting the likelihood of an event. Instead, he suggests weighing the cost of being wrong versus the benefit of being right, both of which are easier to estimate without having to forecast the future.

Last year, author Mike Piper employed this principle in helping investors think about risk in the bond market. The question: In light of potential rate increases, should an investor shift away from longer-term bonds? Piper’s recommendation was as follows: It’s impossible to know where rates are headed, but if an investor did choose to make a move like this, the cost of being wrong would be modest. “He just misses out on the slightly higher returns that he could have gotten by holding longer-term bonds.” For that reason, Piper concluded that shifting away from longer-term bonds would be a fine decision.

Sunstein’s Decisions About Decisions offers a further recommendation that can help investors make decisions without belaboring the unknowable. He recommends understanding the difference between picking and choosing. These might sound synonymous, but Sunstein explains the difference: When we use data to analyze a decision, that’s choosing. Picking, on the other hand, is random. It involves no data, like picking a number out of a hat.

Picking might not sound like a rational way to make financial decisions, but it’s another way to employ the CIA principle. Consider some of the frequently debated questions on asset allocation. Should your portfolio include a small allocation to value stocks or small-caps or real estate? Since past performance doesn’t guarantee future results, there’s no way to know whether any of these will add or subtract from future performance. But if it’s a small allocation, the cost of being wrong will likely be low. In those situations, where no amount of additional analysis will help you divine the future, it wouldn’t be illogical to make a decision by simply picking.

A final thought: Recently, I was speaking with a fellow who was planning to attend a tennis match for the first time. He was struggling with which seats to choose. Research online indicated that one side of the stadium offered more sunlight. On a cool day, that might be welcome, but on a hot day, it could be unpleasant. The other side, meanwhile, offered a direct line of sight to the umpire. Which would be the better choice?

I had never been to a tennis match, so I suggested he poll others. At the same time, I mentioned another of Sunstein’s decision-making rubrics: Regardless of how a decision turns out, we can almost always learn something when we spend time looking into a question. That in itself can be valuable, and it could help us the next time a similar question comes up.

Adam M. Grossman is the founder of Mayport, a fixed-fee wealth management firm. Sign up for Adam's Daily Ideas email, follow him on Twitter @AdamMGrossman and check out his earlier articles.

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My 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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