Jonathan Clements's Blog, page 131

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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Don’t Have a Cow

SOMEONE ASKED ME this week if he should own pork bellies in his portfolio. While he was kidding, this does get at a real question: Should you own commodities like cattle futures, gold, oil, lumber, soybeans and more?

Those who favor investing in commodities typically cite two benefits. First, commodities are seen as a bulwark against inflation. This is obviously a timely concern. Second, because commodities don’t move in lockstep with stocks or bonds, they’re seen as an effective way to diversify. There isn’t, however, universal agreement on either of these points, so it’s worth consulting the data.

Among commodities, gold has a particularly strong reputation as an inflation hedge. This stems mainly from its performance during the 1970s, when U.S. inflation was stubbornly high, peaking at more than 12%. Throughout that decade, gold rallied. At the beginning of 1970, gold traded at just $35 an ounce. By 1979, it had topped $500, and in early 1980 it hit $750. In the minds of many investors, this cemented gold’s reputation.

Critics, though, point out that in the years that followed, gold languished—not just for years, but for decades. Throughout the 1980s and 1990s, gold mostly traded in a range between $300 and $400. It wasn’t until 2007 that gold finally got back above the $750 peak it had hit 27 years earlier, in 1980. That was an awfully long time for an investor to wait just to get back to even.

Further detracting from gold’s reputation is that it did little to help investors during the recent bout of inflation. At the beginning of 2021, gold stood at about $1,900 an ounce. Where is it today? At about $1,900. In other words, during the worst inflation flare-up in more than four decades, gold did nothing to protect investors’ portfolios.

What should you conclude from gold’s failure to live up to its reputation? One explanation is that the gold rally in the 1970s was just coincident with inflation but wasn’t really caused by it. Instead, two other factors may have been responsible for gold’s rise during that decade.

First, the U.S. dollar, which had for decades been pegged to the price of gold, was removed from the gold standard in 1971. Without this tangible backing, many feared the dollar would devalue, and thus they sought out gold. Another factor driving demand for gold in the 1970s was the lengthy recession. This weighed on stock prices, making gold relatively more attractive as an asset class.

Taken together, the persistent inflation, economic downturn and stock market stagnation of the 1970s created a sense of uncertainty for many investors. This prevailing downbeat sentiment was probably another driver of demand for gold throughout that period.

Why do investors turn to gold in times of uncertainty? This is where the discussion around gold tends to devolve. One research paper points to this logic: In Babylon, during the reign of Nebuchadnezzar, an ounce of gold could purchase 350 loaves of bread. Since an ounce of gold has very similar purchasing power today, the argument goes, gold should be viewed as a timeless store of value. Others are quick to counter, though, that this loaf-of-bread argument is closer to folklore than to reliable data. Should we really base investment decisions on the price of bread 2,500 years ago? By way of comparison, reliable data on U.S. stock prices goes back barely 100 years.

Because gold has such a uniquely long history, and is thus susceptible to these sorts of pseudo-quantitative arguments, it’s worth turning our attention to broader commodity market data. Researchers Claude Erb and Campbell Harvey are the authors of a well-known paper on commodities, “The Tactical and Strategic Value of Commodity Futures.” They examine the value of commodities through numerous lenses. Their conclusion on the value of commodities as an inflation hedge: The benefit is “inconsistent, if not tenuous.”

What about the diversification offered by commodities? Using correlation as a measure, commodities do appear to offer a benefit. Correlation is measured on a scale from -1 to 1, with 1 indicating that assets move in perfect lockstep and -1 meaning the assets move in opposite directions. On this scale, over the past 10 years, the correlation between the Bloomberg Commodity Index and the S&P 500 has averaged just 0.4, suggesting commodities may offer a powerful diversification benefit. Gold looks even more attractive. The correlation between gold and stocks has averaged 0.1, meaning there’s almost no correlation between them.

The fly in the ointment: According to data from AQR Capital, commodity prices swing wildly. Historically, global stocks have returned about 10% a year, with volatility of 13.5%. Commodities, on the other hand, have returned just 8.2% a year but with volatility of 17.5%. In short, commodities have delivered lower returns with higher volatility. This is why, despite their perceived benefits, I don’t see commodities as a good fit for individual investors’ portfolios.

For those still interested in commodities, AQR, as well as Erb and Harvey, the researchers referenced above, arrive at the same conclusion: Avoid index-based approaches to commodity investing and instead opt for active management. That’s because commodity indexes have an Achilles’ heel: They’re usually top-heavy.

In the Deutsche Bank Commodity Index, for example, nearly half the fund is allocated to oil and gas, diminishing its diversification benefit. The alternative, though, is impractical in a different way. Actively managed funds are typically more expensive and less tax-efficient than index funds, with no guarantee that they’ll outpace the index, so I don’t see active management as a good alternative.

If there are no good options for investing in commodities like oil, pork bellies and cattle futures, where does this leave investors? My view: I wouldn’t worry too much about owning commodities, for two reasons.

First, as the data show, it’s debatable whether commodities are even necessary. The data on inflation protection and diversification is murky. Second, to the extent that there is a benefit, broad-based stock market indexes like the S&P 500 already include a number of commodity producers—from oil giant Exxon Mobil to lithium producer FMC to gold miner Newmont Corp. Owning these stocks isn’t quite the same as owning a commodity fund. But given the options, I see it as close enough.

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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What We Lose

WHEN WE RETIRE, we win back control over our daily life. Gone is the boss, the expectation that we’ll be at work at a certain hour, the worry about what the next office email will bring. We have a degree of freedom that, in many cases, we last knew when we were students contemplating a long summer vacation.

But even as we gain that freedom, there’s also much that we lose. If we’re to be happy retirees, we need to think hard about how we’ll cope with these losses. For some, what’s lost won’t seem all that bad. But for me—someone for whom work has been so central to my life—the seven losses below loom large.

1. Income. This is the most obvious loss, we all know it’s coming—and yet many folks are left anxious by the disappearance of their paycheck, even if they have ample savings. Moreover, with that paycheck gone, not only do we lose the ability to save, but also our financial life goes into reverse, with savings coming out of our nest egg instead of going in.

Given that, it's hardly surprising that studies suggest retirees tend to be happier when they have ample predictable income, such as from a pension. Don’t have a pension? To ease the anxiety of retirement, consider delaying Social Security to get a larger monthly check and perhaps also purchasing immediate fixed annuities. I plan to do both.

2. Identity. When we meet folks for the first time, one of the questions is almost always, “So, what do you do?” Instead of “engineer” or “lawyer,” you’ll be saying, “I’m retired.”

How does that answer sit with you? For some, it’ll be just fine. But others will hunger for an answer that lets them reclaim the pride they felt when they described their old profession. Even now, I tell people, “I used to work for The Wall Street Journal,” resting on those old laurels, even though my last Journal byline was more than eight years ago.

3. Purpose. Our new identity will be tied to the meaningful things we choose to do with our retirement years. It might be volunteering, helping family or a “hobby.” I put hobby in quotation marks because the word can suggest something that’s little more than a way to while away the hours.

But to give us a sense of purpose, a retirement hobby has to be more than that. It needs to be something we feel we’re good at, find challenging and fulfilling, and which strikes us as important. As I scale back my work in the years ahead, HumbleDollar will be the “hobby” that provides that sense of purpose, and I know that’s also the case for many of the site’s writers.

4. Structure. I’ve worked for myself for the past nine years, and I regularly worked from home for more than a dozen years prior to that. I lack many talents, but self-discipline isn’t one of them.

For others, however, saying goodbye to the workweek’s predictable rhythm could leave them feeling lost and unsure how to allocate their time, even if there’s plenty they want to do. I suspect the vast majority of retirees soon settle into a new routine that feels not unlike their old workweek. Indeed, many retirees tell me that weekends continue to feel distinctly different from weekdays. But until you find your daily rhythm, don’t be surprised if there are some uncomfortable weeks or months.

5. Community. You may not have great fondness for your colleagues. But at least you see them every weekday and have some interaction. By contrast, as a retiree, you may have scant dealings each day with anybody other than your spouse or partner—unless you make an effort.

So, who will you interact with? Don’t count on it being your old colleagues. While some retirees regularly get together with folks they used to work with, all too often it seems those connections fade with surprising speed. In retirement, friends are like gold, as Dennis Friedman has noted, but it takes work to nurture existing friendships and make new ones.

I’m no great fan of retirement communities. Still, from what I gather, they often offer an active social scene and residents are typically open to making new acquaintances. That strikes me as a huge plus, especially when faced with retirement’s potential social isolation.

6. Relevance. When we’re earning a paycheck, our employer expects us to be productive. One way or another, we’re helping to move the world forward. We may be small cogs in big machines, but we’re part of something larger. What happens when we retire? It can feel like the world has left us behind. While some may be happy to step off the treadmill, others may feel like they’ve become irrelevant—something I worry about.

7. Power. In recent years, I’ve seen frequent references to “ghosting,” usually in the context of dating. One moment, a prospective partner is responding to every message. The next moment, he or she is gone, with no explanation or even a curt goodbye.

But this ghosting also afflicts those of us who leave the work world behind. I’m astonished by the emails I send to folks I’ve known professionally—often for decades—that are now simply ignored. That never would have happened when I was at the Journal. Whatever modest power I once had is now long gone.

I’m reminded of a story my father used to tell. His first job out of university was working for The Financial Times in London. But he left to become city editor of the Glasgow Herald, a far less prestigious publication, at least for the denizens of the City of London. Among my father’s contacts in the financial world, he quickly learned who his true friends were—because they were the only ones who still returned his calls.

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

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Going Nuclear

I BEGAN MY FIRST JOB out of college 38 years ago. A newly minted electrical engineer, I was assigned by Philadelphia Electric Company to work at its Peach Bottom Atomic Power Station in Delta, Pennsylvania. As a young child, I had visited the Peach Bottom Unit 1 Visitor Center, never anticipating that I’d someday return to the site as an employee.

My concentration in college was power engineering, so I fully expected to be working in the transmission and distribution side of the electric power business. I’d taken exactly one credit hour of nuclear engineering classes in my undergraduate studies. But due to what I attribute to God’s providence, I ended up at Peach Bottom in the generation side of the business.

Less than a year after I started there, the Chernobyl accident occurred, casting a pall on the entire nuclear power industry. About a year after that, Peach Bottom was shut down by the Nuclear Regulatory Commission, and it wasn’t clear that the station would ever produce another megawatt.

Here I was two years into my new career, employed at the worst U.S. nuclear power plant and in a dying industry. I felt I’d made a boneheaded career move and my future would involve either extended unemployment or an entirely new field of work. If folks had told me back then that I’d still be at Peach Bottom in 2023, I would have laughed at them. At the time, even in the best-case scenario, the plant’s operating license only extended to 2008.

What happened? After two and a half years of turmoil, determination, hard work and necessary paradigm shifts, Peach Bottom was granted its license again and started making power. Fast forward through the next few decades, and the plant had been through several power uprates and two life-extension efforts, extending the plant’s operating life until at least 2053. For many years now, Peach Bottom has been recognized as one of the best-run nuclear power plants in the country, if not the world.

During my career, I’ve seen several up-and-down cycles in the nuclear power industry. In the 1990s, deregulation came to the electric power industry. The financial pressure on the affected utilities was acute. My company went through at least three major downsizings during that decade.

Over a quarter of the company’s employees left during the first reduction, which involved generous voluntary retirement incentives to all employees age 50 and over. These incentives included a nine-month salary lump-sum payment and a pension sweetener that added five years of age and five years of service to the defined benefit pension formula. By the time the third downsizing was complete, there were very few employees left over age 50.

In 2001, when I was 39, employees were offered the opportunity to convert their traditional pension to a cash-balance pension. The industry wasn’t exactly thriving financially, even though nuclear plants were running extremely well throughout the country. My informal assessment was that, if I was more than 90% confident of staying with the company until age 50, selecting the traditional plan would be the best choice. Lacking that confidence, I opted in to the cash-balance plan.

A few years ago, my employer—now called Exelon—again faced financial dilemmas related to its nuclear plants. The industry was in a down cycle, primarily due to the extraordinarily low price of natural gas at the time. Natural gas-fired plants were at that point much more economical at producing electricity. Some of the company’s nuclear plants, including Peach Bottom, were profitable. Other plants, particularly in Illinois, were hemorrhaging money, even though they were well-run and had high-capacity factors.

Absent a political solution, Exelon stated its intent to permanently shut down several of the financially struggling units. Hundreds of employees exited the affected plants to find other jobs. Once again, the future looked bleak for the company and industry. In September 2021, while some of the plants were in the process of shutting down for the final time, the Illinois legislature passed a bill that provided the necessary financial support to keep them running. It was a stunning turnaround, particularly noteworthy in an era of political dysfunction.

It seems that today, with the sustained focus on climate change and increased support for clean energy, nuclear power is again in an up cycle. Next generation small modular reactors are in various stages of development. Grace Stanke, 2023’s Miss America, is an outspoken advocate for nuclear power. Filmmaker Oliver Stone has put out a movie called Nuclear Now that’s strongly pro-nuclear. Even California is looking to extend operations at its last remaining nuclear power plant, Diablo Canyon. Plants that had been scheduled to shut down are now furiously hiring new workers.

Such is the environment today, as I look ahead to retirement in September. One result: I’ve found that I’m not quite ready to give up my connection to the industry or the specialized knowledge I’ve acquired over the past 38 years. But that may be a story for a future article.

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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Pin Money

I'M OLD ENOUGH TO remember when companies rewarded employee anniversaries with lapel pins. The number of years you served determined the quality of the metal and how many jewels were embedded in the pin.

I also remember when two different hospitals where I worked moved away from this practice in the 1980s and 1990s. Human resources departments came to realize that many employees didn’t value the pins. Perhaps there had been a day when pins were something people wore, but by the 1980s it was a thing of the past.

Instead, creative vendors developed catalogs of merchandise that employees could choose from. The value of the merchandise varied with your tenure. At the time of the transition, the value was set to correspond to what the organization had previously paid for the anniversary pins.

Therein lay a big surprise—and it explained the frustration of the HR staff: Those anniversary pins, particularly for long-tenured employees, were expensive. The jewels may have been small, but the higher-level pins were gold. As the price of gold went up, so did the cost of the pins.

As a result, instead of pins, long-tenured employees could be offered nice clocks, luggage or household appliances. The feeling was that an employee would value the recognition more if they picked something they wanted or needed, rather than receive a pin that would live out its life in a drawer or a jewelry box.

One of the more ironic choices I observed as a hospital CEO: A woman, who had completed 35 years in the hospital housekeeping department, selected a new vacuum cleaner. Certainly, people who clean the hospital also have to clean at home, but it didn’t seem very sentimental. I hope she thought of us when she used it.

This whole transition hit home for me when my mother passed away. She had worked for nearly 40 years at AT&T. As we went through her jewelry box, we came across several gold service pins. I don’t believe she ever wore them. As part of our own downsizing, we took the pins to a gold dealer, who verified the gold content. We were surprised by how much he paid us for them.

The lesson: If you have old service pins and they have sentimental value, by all means keep them. On the other hand, if you’re cleaning out a drawer and come across old pins you don’t want, consider selling them. You might use the proceeds to buy yourself a clock—or a vacuum cleaner.

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Shortage Hits Home

IN THE CENTER OF the Maine village where I spend my summer, a few residents live in a makeshift encampment. It consists of four popup trailers—the kind towed by cars—plus some cars, dilapidated lobster boats and a couple of pup tents, one containing children’s toys.

The residents live without running water, so they bring it to the site in gallon jugs. Their laundry hangs on clotheslines strung between trees and a lobster boat. The site looks forlorn and temporary, but this is the second year it’s been occupied.

A resident of the camp told me he lost his house in a divorce and can’t afford another place. He has family in the village who help him, and he has made money by digging clams at low tide. No doubt his life choices played the biggest role in his predicament. Yet there are also broad economic forces at work, here in Maine and across the nation, that give rise to rough living.

By chance, the place I live, Lincoln County, Maine, received a detailed report on its housing situation this May. The crux of the problem—here and elsewhere—is that U.S. housing prices have outrun the growth in incomes. In five years, the median home price more than doubled in Lincoln County, to $399,000 in October 2022 from $189,000 in October 2017, according to the housing study that was commissioned by the regional planning commission.

Meanwhile, median incomes rose 2.5% a year in Lincon County from 2017 to 2020, the latest figures available. The study’s author, Camoin Associates, estimates that county house prices are 45% above what a typical household can afford.

The situation is similar nationwide. According to Census data, home prices have risen 118%, after inflation, since 1965. Meanwhile, wages have grown just 15% in real terms over the same period, according to Labor Department data. As a consequence, in 2021, the average home costs 5.4 times the average household income, more than double the recommended price-to-income ratio of 2.6.

Lincoln County was more affordable in the past. In the 1980s, a clammer or lobsterman could afford to buy a house, with many starter homes then priced around $30,000. What changed? I can think of five factors.

First, there aren’t enough affordable houses to meet demand. “This has led to more residents living in campers or unsafe situations due to lack of other options, including even temporary shelter services,” the Camoin study found.

Homebuilding plunged during the Great Recession and has never fully recovered. Between 2010 and 2020, only 115 housing units were built In Lincoln County, compared to 2,644 in the decade before. Nationally, homebuilding starts plunged 75% during the Great Recession, according to data from the Federal Reserve Bank of St. Louis. The Great Recession, which began in the housing sector, seems to have put a permanent damper on construction.

Second, the approvals required to build a new house are hard to obtain. Only eight new houses are permitted to be built each year in our village, none within 250 feet of water. Because the rural character of the village is so well-loved, there’s a strong NIMBY culture here—not in my backyard. It’s kept the area looking like a picture postcard. Until you see the housing encampment.

Third, 15 years of rock-bottom mortgage rates allowed buyers to bid up the price of scarce housing, not just in Maine but elsewhere. “In Boston,” writes financial author Roger Lowenstein, “the median home, which had sold for a reasonable 2.2 times median income in the mid-90s, soared to 4.6 times a decade later. Similar leaps were tracked in other high-growth and coastal cities.”

The median home price is now five times Lincoln County’s median household income of $80,700. That puts the county in a league with cities like Miami, Sacramento and Seattle.

Fourth, the town won a grant to extend broadband service in 2020, just before the COVID-19 pandemic hit. This allowed remote workers with big-city incomes to move into a rural community that makes most of its money catching lobsters.

The newest home in our village is a glass building constructed by an executive from Meta Platforms. As my lobsterman friend David said with amazement, “You can see right through it.” Across the channel, popular musician Ray LaMontagne bought 100 acres on an island where he’s been building a large home for two years. It’s still not finished.

Fifth, more real estate investors have entered the housing market, with short-term rentals making up about 4% of the county’s housing stock. The house nearest the encampment is an Airbnb that does a steady business in summer. Cars with out-of-state plates cluster in the driveway. The owner put up a seven-foot stockade fence to hide the encampment from view.

I’m not faulting the landlord. Rental homes produce real income at a time when bonds have lost ground. Vanguard Total Bond Market ETF returned 1.4% annually over the past 10 years, lagging the 2.7% inflation rate. It’s easy to see why rental homes that produce income, along with rising home equity, are so attractive.

What can be done? The best thing would be a building boom, not just in Maine but nationally. According to a study by economists at housing lender Freddie Mac, the U.S. is 3.8 million housing units short of what’s needed to house its population. Lincoln County, with 36,215 residents, needs 401 new housing units in the next decade just to handle its expected population growth and a total of 1,048 year-round units to prevent housing affordability from getting worse.

The housing needed most are starter homes—single-family houses below 1,400 square feet that don’t cost a fortune to build, buy or rent. Currently, they make up just 7% of new homes built nationally, compared to 40% in 1980.

To get more starter homes off the ground, building codes need to be relaxed. The NIMBY movement has discouraged homebuilding by, for example, requiring that new houses be built on big lots. The rising cost of land, lumber and labor have made starter homes more difficult to build and afford. Tiny houses, which are just 400 square feet, often aren’t allowed by code.

Many of the houses in the village were built by their owners long ago. The farmhouse that I live in was built in 1876 by an ancestor of the man in the encampment. That do-it-yourself spirit is still strong here, and people should be encouraged to homestead by building homes incrementally, as they have the money to do so.

Last, we’re due for a housing price correction. When homes cost more than the local population can afford, something has to change. The tide may already be turning now that 30-year mortgage rates are reaching 7%, double what they were a year ago. Nationally, rent prices fell 1% in June, according to Realtor.com data, suggesting the overheated housing market may be starting to cool off.

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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What’s in a Name?

WE USUALLY HAVE Chinese food every Wednesday. It’s our weekly night out for dinner. While waiting outside our favorite restaurant for a table, I heard my wife call out, “Hey, Doe, our table is ready.” That’s what my wife calls me. It’s my new name. She used to call me Dodo. Now, she’s shortened it to Doe.

How did this nickname come about? One day, I called myself a dodo for a silly mistake I’d made. That’s all it took for me to have a new name. When I was growing up, my sister and her girlfriends used to call me Denyard and Misha. Even my mother got in the act. She’d sometimes call me Knuckle. My childhood friends called me Denny. Don’t ask me how I got these names. I have no idea, except for the obvious one, Denny.

As you can see, Doe is a lot better than some of the other names I’ve been called. It seems like a lot of folks have nicknames. My brother-in-law sometimes calls my sister Daisy. I don’t know where that came from. Some of my mother’s friends used to call her Maybell instead of her real name, Mabel. I even have a nickname for my wife, but I don’t know how to spell it, so I can’t reveal it to you.

I had a friend in elementary school whose nickname was Happy. I’m not sure how he got that name, either. When we were in high school, I called him Happy one day. He didn’t like it. He wanted to be called Brian. I get it. He wanted to be seen as an adult, not a child. Many years later, on social media, some of his friends were calling him Happy. He didn’t seem to mind. At that point, he probably liked it because he saw it as an act of kindness.

I’m like Happy. I don’t mind being called Doe by my wife. I see it as an expression of her fondness. But what if my wife and I were much younger and starting a family, we had a baby boy and we named him Doe. How would that affect his life? Would he be bullied in school for having an unusual name? Would that uncommon name affect his earnings potential because he might not be taken seriously at work?

There’s research that shows that what you name your children could have some impact on their success or failure, because it can influence how people see them. Here are four ways your name could affect your livelihood:

1. Easier-to-pronounce names. A Journal of Experimental Social Psychology study found that people had a more favorable impression of individuals who had easier-to-pronounce names than of those with difficult-to-pronounce names. The findings were independent of name length, unusualness and foreignness.

One explanation is that we tend to favor information that’s easier to comprehend. A University of California, Irvine, also found that people with easy-to-pronounce names were viewed as more trustworthy. Meanwhile, a New York University study found that individuals who had easier-to-pronounce names often held higher positions at law firms.

2. Shorter names. In 2011, reviewed more than 100 million user profiles to find which names were common among CEOs. They found shorter names were the most common, such as Peter, Bob and Jack for men. It was speculated that men sometimes shorten their name to project a sense of friendliness and openness. By contrast, women used their full name, such as Deborah, Cynthia and Carolyn, to look more professional.

3. Common names. A Marquette University study suggested that common names were better liked and that such folks were more likely to be hired, while unusual names, like Doe, were less liked and these job applicants were least likely to be hired. This could be good news if you’re looking for work—and is James, Mary, Robert, Patricia, John or Jennifer.

4. Middle initials. Research from the European Journal of Social Psychology found folks who used their middle initial prompted others to have a more positive perception of their intellectual capacity, performance and status. Some psychologists believe it’s because initials are associated with top professions, like law and medicine. Doctors, lawyers and scientists often use their middle initial.

I’d like to think that if my wife and I had a son, we’d have named him Sam, after my father. Although I don’t put too much stock in the above studies, Sam is short and easy to pronounce. More important, it sounds like someone who is hard working and blue collar, like my father was. Unfortunately, you don’t hear that name very often anymore. The last time I heard the name Sam, it was when my neighbor was calling his dog.

Dennis Friedman retired from Boeing Satellite Systems after a 30-year career in manufacturing. Born in Ohio, Dennis is a California transplant with a bachelor's degree in history and an MBA. A self-described "humble investor," he likes reading historical novels and about personal finance. Check out his earlier articles and follow him on Twitter @DMFrie.

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Learned in Uniform

I SPENT ALMOST 43 years either on active duty or in the reserves for the Navy and Army. Yes, I’ve been around.

The following is my list of the top 17 items—including some pertinent financial details—that might surprise those who have never served in the military.

No. 1: Our primary mission is not to fight wars. Instead, it’s to be so big, so bad, so mean, so well equipped, so well trained and so well led that any potential enemy in its right mind wouldn’t want to fight us. Failing that, our secondary mission is to fight and win wars.

No. 2: If we had a draft, we would be less likely to become involved in armed conflicts. We haven’t had a draft since 1973. If every family faced the prospect of their children serving in combat, there’d be less willingness to go to war unless it was absolutely necessary. As it happens, all males age 18 to 25 are still required to register with the Selective Service System in case a draft is ever reinstated.

No. 3: The military doesn’t choose which wars to fight. You and your elected representatives choose wars. The treaties that our government signs generally determine which potential conflicts we become involved in. Political solutions should be a first resort, military action the last.

No. 4: We fire a lot of bullets in combat. It was estimated that 50,000 rounds were fired to kill a single soldier in Vietnam. In fact, I was told that automatic weapons with large magazines were invented for the military because we’re notoriously bad shots when under the strain of combat.

No. 5: Few people become members of the military. Today, about 0.5% of our population serve in the armed forces. That means that if, you have 1,000 people graduating high school, five will serve. The percentage was 11% during World War II.

No. 6: Very few people stay long enough to officially retire from the active or reserve armed forces. Only 30% of officers and 10% of enlisted personnel retire from the military.

No. 7: Military personnel are, in my opinion, well compensated when you include pay, pensions and medical benefits. Military pensions are considered the gold standard. Enlisted active-duty soldiers, who join the military out of high school and serve 20 years, can potentially retire in their 30s with an inflation-adjusted pension and lifetime family medical benefits. The estimated present value of a military pension is often more than $1 million.

No. 8: The reserve armed forces also receive pensions and medical benefits at retirement age. Reserve retirement is age 60, with a few exceptions. Pension benefits are prorated based on actual days of service.

No. 9: A reason some soldiers weren’t deployable during the first Gulf War was dental work. I was at a meeting at Fort Knox during that time. A dentist said the dental work on soldiers was so bad that he had to rebuild whole mouths for Army Reserve and National Guard troops. Later, these organizations required annual dental checkups.

No. 10: There’s no free medical insurance for reserve military personnel unless serving on active duty. It wasn’t until 2007 that the government allowed “drilling” reserve troops—meaning those participating in “inactive duty” training—to purchase military medical insurance for themselves and their dependents. It’s a great benefit, with the military paying most of the cost. A family plan currently costs about $240 a month. It’s the best medical insurance I’ve ever had.

No. 11: Retired military must take Medicare when they reach age 65. At that juncture, military health insurance, otherwise known as Tricare, becomes a supplemental plan that covers most of what Medicare doesn’t.

No. 12: You have to get promoted to stay on active duty. It’s called “up or out.” If you don’t achieve a designated rank after a certain number of years, you can be pushed out of the military before retirement.

No. 13: You’re required to pass weight and physical fitness standards to stay on active or reserve military duty. We were tested twice a year. They’ll give you more than one chance to meet standards. But if you fail, you can lose your job.

No. 14: Sometimes, a general is not a general. Each state has their own armed force—the Army National Guard and the Air National Guard—mostly funded by the federal government. The Adjutant General, or TAG, is the senior military officer overseeing these state armed forces. The TAG is generally appointed by the governor and may be a general only for that state’s national guard force. The TAG's rank, as recognized by the federal government, can be less than that of a general.

No. 15: You don’t have to remain in perfect health to stay on active duty. An extreme case was Major Ivan Castro. He was blinded in 2006 in Iraq. Major Castro was allowed to continue serving on active duty until 2017. He worked primarily with the 7th Special Forces Group and later as commander of Special Operations Recruiting Command. He completed 50 marathons out of uniform and trekked 200 miles across Antarctica to the South Pole with other disabled veterans. This is 50 more marathons and one more trek across Antarctica than I have done.

No. 16: Sometimes, you get into the military by accident. Retired Brigadier General Patrick Dolan, who served in the Army National Guard, is a Roman Catholic priest who had no intention of joining the military. He was asked to do so by his archdiocese to fill a need for Catholic chaplains in the service. He was surprised to realize he enjoyed his time, which included four deployments to the Middle East. Along the way, he earned the Air Assault Badge, Parachutist Badge and Pathfinder Badge.

No. 17: Sometimes, recruiters lie. Army Times wrote a story in the middle of the last Gulf War about a retired National Guard physician in his 70s—which is past the required retirement age for all soldiers—who was asked to go back on active duty. The good doctor thought they didn’t realize his age. He was told they did and he could replace some other doctor’s stateside position, perhaps in Hawaii or a similar place, while the other doctor went to the war zone.

Instead, he ended up as the oldest service personnel in Iraq (2005) and Afghanistan (2006), and then completed four rotations in Germany. His name was Col. William Bernhard. In 2010, he retired—again—at age 79. Needless to say, he kept volunteering, because he was a patriot who knew he could help save lives.

Ken Begley has worked for the IRS and as an accountant, a college director of student financial aid and a newspaper columnist, and he also spent 42 years on active and reserve service with the U.S. Navy and Army. Now retired, Ken likes to spend his time with his family, especially his grandchildren, and as a volunteer with Kentucky's Marion County Veterans Honor Guard performing last rites at military funerals, including more than 350 during the past three years. Check out Ken's earlier articles.

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Going Bananas

“CLEAN YOUR PLATE.” “You’ll eat what’s for dinner and like it.” “There are children starving in Africa.”

Those are lines I often heard as a child. I guess my parents weren’t aware of hunger in the U.S.—or the long-term damage to our waistlines and health that such clean-your-plate advice could have.

Still, at least we weren’t squandering food, which is a big problem these days. Each year, 80 million tons of food are wasted in the U.S. That’s equal to 149 billion meals and some $400 billion. Shockingly, nearly 40% of all food in America is wasted. These figures are for all types of food waste, not just in the home. Amid waste of that magnitude, it’s hard to imagine people being hungry in America, and yet 34 million of us don’t have consistent access to enough food.

Americans waste about 25% of the food they purchase by not preparing it before it goes bad and by not eating all the food they do prepare. What happened to leftovers? When I was a kid, a meatloaf seemed to go on forever and Thanksgiving presented endless opportunities. Tonight, we’re having leftover lobster mac and cheese for dinner. I promised a grandson I’d make that delightful dish on Cape Cod, even with the crustacean meat at $59.95 a pound. There will be no waste, no matter who’s lactose intolerant.

When I visit a Costco or BJs, I’m amazed at what people buy. Who knows how they use those giant sizes of everything? I’ve often wondered how long a gallon of mayonnaise lasts once opened. Apparently, if stored in the refrigerator, it’s about two months. That’s a lot of sandwiches to get through.

I was in a store recently and there were eggs on sale for 99 cents a dozen. That’s quite a bargain. Then I looked at the expiration date on the cartons. It was the next day. Not such a bargain after all, so more waste on the way. Or maybe not. I checked on the shelf life of eggs. Turns out they’re fine to use for several weeks after their expiration date. I wonder how many other people passed up this bargain and, in the process, created more wasted food.

Guess the No. 1 bestselling grocery store food? It’s the lowly—but healthy and inexpensive—banana. The average American consumes around 90 bananas a year. That’s the good news. The bad news: Supposedly, Americans throw away five billion bananas each year—and yet it’s so hard to find good banana ice cream.

Let’s say a family spends $1,000 a month on groceries and wastes 25%. That’s $250 down the garbage disposal each month. Dare I convert that to potential retirement savings? What the heck, based on a 6% annual return over 30 years, we’re talking $245,000.

Restaurants waste food, too. At my age, the senior doggy bag is no joke. I don’t even have a dog, but half my meal usually comes home with me. Two factors are at play. First, I can’t eat as much as I once did and, second, portion sizes have increased substantially over the past few decades. On average, restaurant customers in the U.S. leave 17% of their meals unfinished. Is there a good reason so much food goes uneaten?

Perhaps we’re looking for a bargain and size often trumps quality. We feel cheated if our plate doth not runneth over. Isn’t it curious that, despite all the food we waste, we Americans manage to be the most obese nation in the world? Our obesity leads to health care spending, which leads to financial problems…. You can see where this is going.

Many of our problems as a society and as individuals are connected. Have I demonstrated the link between bananas and a well-funded retirement? How about we make some banana bread—and make sure we eat the leftovers later?

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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