Jonathan Clements's Blog, page 132

Don’t Get Catty

I'VE NEVER RENTED TO cats. The opportunity came my way recently via an email from my property manager. An elderly couple was interested in renting our flagship duplex, which would become available in August.

The prospects were smitten by the location near their church and grandchildren, and they seemed like a landlord’s dream. No undergraduate mayhem and no complaints from neighbors about beer cans strewn on the front lawn. They were also likely long-term renters, so I could say goodbye to the seasonal campus merry-go-round. And they wanted to move in as soon as the current tenants vacated.

But there was a hitch: They had four cats.

Pending their safe passage through our standard application and credit screen, I savored the prospect of reeling them in. My reasoning was good-part rational but—with the clarity that comes from time and emotional distance—also disconcertingly irrational. The couple was anxious to move in “as is” as soon as the current renters left and the place was spiffed up—but there would be no new paint ($3,500 saved) and no new carpet because of the cats (another $3,500 saved), plus the applicants were referred by the departing tenants, meaning no re-rental fee to a realtor (half the first month’s rent of $2,500).

Over the years, I’ve learned not to minimize the prohibitive cost of a conventional renter turnaround. It’s more than just a month’s lost rent, along with the expense of repairs and primping for the new occupant. Property investors chronically underestimate the length of time required to complete the re-rental process, and hence the pinch to their cash flow.

Often, the property manager and repair person have trouble connecting. Or the vacating tenants aren’t motivated to find a mutually convenient time to meet the technician or make the home available for an applicant’s walk-through. There’s also the time needed for parts to arrive and to complete the various projects. All the while, you’re casting the line for a good catch. Sure, you may be blessed with a quick bite, but how far in the future does she want to start her tenancy?

All that’s the rational component. Here’s the flipside. When I got the email, I was in Upstate New York, accompanying my wife Alberta, who was attending a writers' conference. Unless there are other travel-phobes hiding out on HumbleDollar, it seems like I’m the only one who has a problem “going away.” What’s in the mail, I worry, and did Jerry remember to recycle the new Barron’s at the foot of the driveway?

When the note arrived, I felt jubilant. Just a click and no more vacancy. Knowing I had rented the unit and that the next mortgage payment was covered, my travel ennui lifted. Alberta wanted to know why I had a mischievous grin. I told her, expecting a hug and congratulations. I can’t quote her verbatim here, but let’s just say she’s not into cats. Four cats? On a carpet and wooden floors? Was I crazy? I was sacrificing the long-term value of one of our best properties for a few months’ rent and some anxiety relief.

Most vacations have a rough moment or two. This was ours. We landed some good verbal punches, pointed fingers and dredged up some below-the-belt resentments. Fortunately, exhaustion and 34 years of experience with compromise prevailed. We managed an uneasy truce. I could have my cat people if an investor friend, along with my former and current property manager, thought I was in my right mind. But no other pet would litter our premises ever again.

Well, my friend and retired property manager of 40 years confirmed my sound judgment. But my current manager—the person who would actually conduct the rent-up—recounted vivid stories of cat nightmares and strongly advised us to turn down the couple’s application. I relented.

To those who have counseled I release myself from the bondage of privately owned real estate, I maintain I’m still hooked by its potential outsized financial rewards. In 2018, the average value of the duplex was about $780,000, according to Zillow. As I write this, its value is estimated to be $1,065,000, a 36.5% gain over five years. Topping that off is five years of 5% annual net income. By contrast, Vanguard Real Estate ETF (symbol: VNQ) appreciated 24% over the same time period, a not insignificant sum. But that’s total return, so it includes dividends.

In another life, I was a crackerjack data analyst, so I’m well aware this paper-and-pencil demonstration is by no means an open-and-shut case. Residential property values vary hugely based on geography, location, economic conditions and myriad additional factors. I’ve only compared Vanguard Group’s real estate fund to a lone investment within a single time frame and in a particular setting. But this sketchy example suggests how well a prudently purchased and managed investment can perform when situated in a favorable environment like a thriving campus community.

It also shows how it can detonate your vacation. Next time, I’ll try dogs.

Is private ownership worth all the angst and travail? That depends on your investment priorities and temperament. The investor needs to weigh the prodigious tax advantages and lesser volatility of directly held property against the diversification and far greater liquidity of real estate investment trust (REIT) funds, the zero commission in and out, and the freedom from hassle, worry and liability. If I get another go around, I’d lean toward REITs, with some diversification into a privately held residential income property that requires relatively little hands-on involvement.

Steve Abramowitz is a psychologist in Sacramento, California. Earlier in his career, Steve was a university professor, including serving as research director for the psychiatry department at the University of California, Davis. He also ran his own investment advisory firm. Check out Steve's earlier articles.

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Die With Zero

WHAT’S THE PURPOSE of life? Is it to die with as much money as possible or, as magazine publisher Malcolm Forbes was quoted as saying, “He who dies with the most toys, wins”? An intriguing and provocative book, Die With Zero, says no.

The book's author is Bill Perkins, a successful energy trader. In it, he argues that the purpose of life is to accumulate as many fulfilling experiences as possible, and in doing so we should aim to die with zero dollars.

The author is not a financial planner. He trained as an electrical engineer, but went to work on Wall Street and made a fortune trading energy. Perkins’s training as an engineer, and his nature, drive him to seek improvement in all aspects of his life. The book is a description of his philosophy on how to maximize our life’s fulfillment.

Perkins tells us, “Your life is the sum of your life experiences. Contrary to belief, this can be quantified and optimized.” The author presents his key concepts as a series of nine rules.

Rule No. 1: Maximize your positive life experiences.
Rule No. 2: Start investing in experiences early.
Rule No. 3: Aim to die with zero.
Rule No. 4: Use all available tools to help you die with zero.
Rule No. 5: Give money to your children or to charity when it has the most impact.
Rule No. 6: Don’t live your life on autopilot.
Rule No. 7: Think of your life as distinct seasons.
Rule No. 8: Know when to stop growing your wealth.
Rule No. 9: Take your biggest risks when you have little to lose.

Each rule gets its own chapter, with examples and personal anecdotes to illustrate the message, and the chapters end with recommendations summarizing Perkins’s key points. Many readers, including me, will initially recoil at some of his ideas. Perkins tries to address common complaints head on.

For example, a typical criticism he hears is that, in spending all your assets, you’ll leave nothing for your heirs. His response, encompassed in rule No. 5, is to give to those you care about as soon as you can, when they’ll most likely make better use of your gift.

Many of his themes align well with much of what’s written on HumbleDollar, including focusing on experiences, living mindfully and understanding risks. One of the more intriguing concepts he presents is encompassed in rule No. 7. In this chapter, he discusses the idea of time buckets. This topic intrigued me because, a few days before I read the chapter, my wife and I spent a few pleasant hours unknowingly creating time buckets for ourselves.

What’s a time bucket? Most of us are familiar with a bucket list, which is a list of the things we’d like to do or achieve before we die. Many HumbleDollar readers are also aware of the bucket strategy used for retirement-income planning. That strategy involves creating several buckets of assets, each designed to provide income for different time segments. For example, the first bucket usually holds several years of spending money in cash or safe assets. Later buckets are earmarked for intermediate and longer-term spending, and are held in riskier assets.

Time buckets are a bit of a combination of both concepts. It’s based on the idea that our abilities diminish over time. Some experiences are best enjoyed when we’re young, while others can be delayed until old age. In our youth, we usually have better health and energy, but less money. As we age, our health and energy wane, but our wealth should grow, allowing us to engage in more expensive activities.

Obviously, these are generalities, and there’s a wide range of abilities and household wealth at each age. But don’t let that distract you from the key message: We should think about what’s most important to us, and do our best to plan how and when we check off our bucket list items. Perkins encourages readers to create time buckets into which we organize our desired memorable moments. Climb mountains in our 20s and 30s. Take guided tours in our 70s and 80s.

A week ago, my wife and I sat down to plan out our travel for the next five years. We discussed how many trips per year, what time of year, where we wanted to go and what our priorities were. We’re thinking of two big trips a year, most likely in the spring and fall. Spread around the rest of the year will be visits with our children and their families, our annual Thanksgiving family trip, travel to see other family members, and shorter road trips to places we’ve been meaning to see.

Without realizing it, we were following Perkins’s advice. I like the idea of time buckets. What about dying with zero? Not so much. But it has got me thinking about rule No. 5.

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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Pick Your Mix

NO QUESTION, MANAGING an investment portfolio is tricky. On the one hand, you want stock market exposure to help drive your portfolio’s performance. But on the other, it’s agonizing when the market drops 30% or 50%—or more—as it’s done on several occasions.

How can investors strike the right balance? Like most things in personal finance, there isn’t one right answer. In general, investors can choose one of five approaches when building a portfolio.

1. All stocks. This first option is, in many ways, the simplest. But it isn’t easy. Since the 1920s, the U.S. stock market has returned about 10% a year, on average. But it’s hardly been a straight line. That’s why I say this approach is simple but not easy and why, as a result, many see an all-stock portfolio as altogether too risky. There are, however, three situations in which the volatility of a 100% stock portfolio might be tolerable and thus this approach might make sense.

First, if you’re in your working years and regularly adding to your savings, you might go with 100% stocks in your retirement accounts. I would certainly recommend, almost universally, 100% stocks for Roth and health savings accounts, which benefit from tax-free growth.

Another situation in which I’d recommend an all-stock portfolio: if you have young children and you’re investing their 529 accounts for college. I generally recommend lightening up on stocks in 529s only when children reach middle school.

Finally, there are folks who enter retirement with enough income from outside sources that they can afford to take any amount of risk with their portfolios. If some combination of a pension, Social Security and passive income allows you to meet your monthly expenses, you could invest your portfolio for maximum growth, even if that also means maximum risk.

2. Tactical. Some years ago, I recall speaking with an executive at a large Wall Street bank. He regularly attended the bank’s investment committee meetings. But his reaction surprised me: “I leave these meetings not knowing any more than when I went in.” The problem was that the bank’s investment recommendations, like much of the advice that comes out of Wall Street, was tactical—that is, short-term in nature based on economic forecasts. This is an approach to investing that’s notoriously difficult.

Consider just the most recent example: In 2020, when the pandemic emerged, investment prognosticators were correct in predicting a market downturn. The market did indeed drop—by more than 30%. The problem, though, is that it didn’t stay down for long. Stocks rebounded quickly, resulting in a positive return overall for 2020. In fact, 2020 turned out to be an above-average year, with the S&P gaining 18.4%, including dividends. The following year, the S&P gained another 29%. There may be someone out there who had perfect timing—selling before the market dropped and then buying back in after stocks fell—but it would have been extraordinarily difficult. No one can see around corners.

Research by Morningstar confirms how difficult this is. Among professional money managers, those who pursue tactical strategies have fared particularly poorly. These types of funds, in Morningstar’s words, have “incinerated” investment returns. As a group, they’d have delivered returns that were twice the funds’ actual returns if their managers hadn’t traded at all over the past 10 years—if they’d simply gone on vacation.

3. Asset allocation. Tactical traders’ results illustrate why, in my opinion, investors shouldn’t make predictions. Instead, I recommend the portfolio management prescription offered by investor and author Howard Marks: “You can't predict. You can prepare.” While market forecasting makes for entertaining cocktail party conversation, it’s too unreliable. Instead, what investors should do is to prepare, so their portfolios could withstand a market downturn at any time. That’s critical because bear markets don’t tend to give much notice.

How can you prepare your portfolio? The key is to choose an asset allocation that won’t require you to sell any of your stock market holdings even if the market dropped 50% or more and stayed down for a multi-year period. For example, if you’re retired and require $100,000 per year from your portfolio, you might hold $500,000 to $700,000 in a mix of cash and bonds, allowing you to ride out a downturn at any time.

Your chosen asset allocation need not be static forever. As your spending needs shift, you might add or subtract from this stockpile of safer assets. Importantly, though, you wouldn’t need to shift your portfolio in response to market events or market forecasts.

4. Judiciously opportunistic. Howard Marks often reiterates his mantra that “you can’t predict,” but he does allow for some exceptions. In his most recent memo, Marks noted that he has, in fact, made a few predictions over the years. How many? In 50 years, he says, he recalls five.

Marks explains his reasoning: “Once in a while—once or twice a decade, perhaps—markets go so high or so low that the argument for action is compelling and the probability of being right is high.” Only then is Marks willing to bet on a forecast. In late 2008, for example, when the Lehman Brothers collapse sparked a drop in both stock and bond prices, Marks started buying. Similarly, in March 2020, when the pandemic caused the market to drop more than 30% in the space of six weeks, Marks again loaded up on depressed shares, betting (correctly) that the downturn would be temporary.

Marks, I think, makes an important point. In general, it’s better to avoid predictions. But as with most things in personal finance, it’s also important to avoid being too dogmatic. Sometimes, it’s okay to take a step or two out on a limb. In 2020, for example, when the Fed began printing money at an extraordinary pace, there was a clear risk that inflation might pick up, and that this would force the Fed to raise interest rates. To guard against this, many investors shortened the durations of their bond portfolios. With rates near zero, this was a relatively safe bet.

5. “No” risk. Some investors are so wary of the stock market that they choose to hold all their savings in bonds. On the surface, this seems like a way to play it safe. Indeed, in modern portfolio theory, the U.S. Treasury bond is referred to as the “risk-free asset.”

But I refer to this strategy as “no” risk because it’s actually quite risky. The danger, of course, is inflation, which degrades the purchasing power of bonds. Even inflation-linked bonds aren’t a perfect inflation hedge. Last year, when inflation approached 9% at one point, Treasury Inflation-Protected Securities (TIPS), on average, lost money. For this reason, even though it may appear safe, I’d steer clear of an all-bond portfolio.

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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Financial Superpowers

THERE ARE ALL KINDS of financial talents that seem desirable. Who wouldn’t want a knack for finding undervalued stocks, identifying star fund managers, and figuring out which way the stock and bond markets are headed? The problem: While some folks may briefly appear to possess these talents, it usually turns out that their apparent prescience was nothing more than dumb luck.

Where does that leave us? Forget the obvious but elusive financial superpowers, and focus on those that—with a little work—are available to all of us. Here are seven advantages that I think we should all strive to cultivate.

1. Greater humility. The larger financial world, as well as our own financial life, are rife with uncertainty. Think about all the unknowns: market meltdowns, job losses, ill-health, home repairs, family tragedies. The list goes on and on.

There’s a reason this site is called HumbleDollar. We should humbly accept that there’s much about the financial world that’s unknowable and that we can’t control. Instead, we should focus our energies on those aspects of our financial life where we do indeed call the shots—things like how much we save and spend, what insurance we carry, how much we pay in investment costs, our portfolio’s tax bill and how much investment risk we take. No, none of these is as exciting as hunting for the next hot stock. But they’re much surer routes to improving our financial standing.

2. Lower fixed costs. Our goal shouldn’t be to spend as little as possible. Rather, we should seek to spend on things we truly care about, while still setting aside enough for the future. But if we’re to meet those twin goals, something else has to give. My suggestion: Keep a close eye on your fixed living costs. We’re talking about things like mortgage or rent, car costs, utilities, insurance premiums, and recurring monthly payments for everything from gym memberships to cable TV to music streaming.

The lower your fixed living costs, the easier the rest of your financial life will be. You’ll have more for discretionary “fun” spending, for savings, and for giving both to charity and to loved ones. In addition, if your fixed monthly costs are low, you’ll be in better shape if your financial life takes a big hit, such as losing your job or needing to pay for a major home repair.

3. Less expensive wants. Where will you direct your discretionary dollars? There are all kinds of possible uses for our spare time and money: shopping for clothes, buying art, hobbies, vacations, concerts, eating out, upgrading the car, sporting events, remodeling the house.

What we choose will reflect our personal preferences and, as such, there are no bad choices, provided we can afford the purchases in question. Still, if we favor using our spare time in less expensive ways—picnics, gardening, exercising, reading books from the library, writing in our journal, hanging out with friends—we’ll find it easier to save and we’ll need a far smaller nest egg for a happy retirement.

4. Longer time horizon. Why do professional money managers and Wall Street analysts focus so much on the months ahead? This isn’t a tough one to answer: Short-term performance is a big driver of Wall Street compensation, including those year-end bonuses so beloved in the financial business.

This is where everyday investors have a huge advantage. They can look beyond today’s financial worries and focus on the long term, reaping the rewards that accrue to those who hang tough with diversified, stock-heavy portfolios through thick and thin. But how long is the long term? While the answer will differ for all of us, I think many folks will discover that a huge chunk of their savings won’t be spent for many, many years.

I usually suggest retirees keep five years of portfolio withdrawals in conservative investments, which should be enough to ride out a stock market decline and reap the benefits of the subsequent rebound. But let’s be conservative and make that seven years. Using a 4% withdrawal rate, seven years of portfolio withdrawals—ignoring bond interest and stock dividends, but also ignoring inflation—would mean keeping 28% of a portfolio in conservative investments, freeing up the other 72% to potentially be invested in stocks. That would be considered an aggressive asset allocation for a retiree, and yet I’d argue it’s still prudent.

What if you’re pretty sure you won’t need a big chunk of your portfolio to pay for your own retirement, and hence you’re spending less than 4% each year? The remaining money is presumably earmarked for bequests to family and to charity—and I, for one, would allocate 100% of that money to stocks.

5. Higher risk tolerance. Even if it makes sense to allocate more of your portfolio to stocks, are you comfortable doing so? Again, like other attributes mentioned here, I think a higher risk tolerance is something we can cultivate. By studying market history, and by recalling the market turmoil we’ve personally witnessed and all the fears that were never realized, we may come to develop a higher tolerance for risk.

To be sure, as some have argued, we shouldn’t necessarily act on this higher risk tolerance, even if our financial situation allows it. At issue is the all-important notion of enough. As Bill Bernstein has said, “When you’ve won the game, stop playing with the money you really need.”

I think there’s a good argument for easing off the risk pedal once we’re retired and being a tad more cautious—perhaps, as mentioned above, setting aside seven years of portfolio withdrawals in short-term bonds, rather than five. But I’m not willing to take this notion of “having won the game” to its logical conclusion by, say, banking everything on income annuities and inflation-indexed Treasury bonds, so every spending dollar needed in retirement is guaranteed to be there.

6. Greater self-awareness. The more we understand ourselves, the better the financial decisions we’ll make. This isn’t just about knowing our risk tolerance. It’s also about grasping our greatest hopes and fears, thinking about how our upbringing continues to influence us, understanding what money means to us, and pondering how we can best use money to boost our happiness.

This self-exploration never ends—because our attitudes change with experience and with age. For instance, those who are younger often show more interest in acquiring possessions. Partly, it’s because their time horizon is longer and thus they have more time to enjoy whatever items they buy. But it’s also because these folks haven’t yet suffered the countless cycles of thrill and disappointment that accompany the many possessions we purchase. Instead, that wisdom has to be learned—and it helps explain why those who are older have a greater interest in buying experiences rather than possessions.

7. More concern for tomorrow. Our lives are a constant tradeoff between our current self’s whiny demands and the often-ignored needs of our future self. Spend today or save for tomorrow? That’s the classic financial tradeoff.

But there are also tradeoffs in other areas of our life. Shall we have the cheeseburger and fries today, knowing the scale won’t be so kind in the morning? Shall we let work slide this week, knowing next week could be a nightmare? Shall we skip exercising today, knowing tomorrow’s health won’t be quite as good?

I realize that, if we crave a greater sense of control over our life, sacrificing today for a better tomorrow can become a way of life—and a rather dull one, at that. Still, despite that risk, I’d argue that an awareness of tomorrow’s needs is a financial superpower and, indeed, it may be the most important one.

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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Getting From A to B

DRIVE A BEATER. That’s what my coworker Neil admonished us to do. He explained that this was a key strategy on the path to financial freedom. Neil, as you might recall from one of my earlier articles, was the colleague who warned about the perils of funding a 401(k) plan.

All you really need is something to get you from point A to point B, Neil said, and consistently spending money on expensive cars simply meant you’d be forced to stay in the workforce longer. Also, when you drive a beater, you can drop collision insurance, and who cares if you pick up a few more scratches and dings?

While not consciously following Neil’s admonition, I’ve found his advice resonates with me. I also had my own corollary to Neil’s “drive a beater” mantra, which was “run a car into the ground.” I’ve owned 11 vehicles over nearly 40 years, shelling out a total of $135,000 to purchase them. Not all were beaters, but five of them averaged under $1,000 a year to drive if you consider only purchase price.

My all-time beater champion was a 1994 Ford Tempo that I purchased from my boss for $1,000 in 2014. It had been his mother’s car and had clocked 120,000 miles when I got it. It wasn't pretty to look at on the outside and was in even worse shape on the inside. Still, it did have a strong air-conditioning system and a good radio.

I bought it for my son, so he could have a car to drive to high school and get around on his own. After he graduated from high school, he was too embarrassed to drive it any longer and, in any case, he went away to college.

Wanting to wring every dollar I could from my investment, I started driving the Tempo to work. Let’s just say it stood out in the parking lot. Even the plant manager teased me about it, to which I responded, “Maybe if you paid me more, I could afford a better car.” Needless to say, that suggestion went unheeded.

I drove the Tempo to work for more than two years, enduring ridicule but enjoying the crisp AC and the exceptional radio. One autumn day, I started feeling ill at work and decided to go home a little early. While ascending the first hill beyond the plant, I heard a weird noise and the car lost all power. The transmission had failed catastrophically. A sympathetic young maintenance technician came to my rescue and, using gravity, guided the car down the hill to a parking lot close to the plant. A week later, it was in the junkyard.

I took a different approach with another vehicle. In December 1990, while getting maintenance done on my 1985 Accord hatchback at the Honda dealership, I spotted a leftover 1990 Accord coupe with an enticingly low price. I didn’t really need a new car, but I let the salesman make his pitch to me.

In January 1991, the Gulf War began, and car sales ground to a near standstill. The salesman kept calling me about the coupe. Late in January, I made him my final lowball offer, which he accepted. I ended up driving that car for almost 15 years, racking up 185,000 miles. When the brakes started behaving erratically, I decided I’d achieved my goal of running it into the ground and traded it in for another vehicle.

At this stage in my life, I’m done with beaters, but I still like to buy used. After my two-year-old son used a stone to innocently engrave artwork into several panels of our brand new 1999 Honda Odyssey minivan, new vehicles somehow lost their appeal. As Neil might have pointed out, that inevitable first scratch or ding isn’t an issue for a used vehicle.

Used vehicles have the advantage of a reliability track record. I make use of the extensive data available from Consumer Reports to identify acceptable options. My latest vehicle is a 2017 Chevy Equinox, which I would never have considered except for its excellent reliability rating. I’m enjoying it more than any other vehicle in recent memory. Another change that age his brought: I no longer feel the obligation to drive the car into the ground. If I can get 10 years out of it, I’ll be happy.

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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Bagging It

IT'S BEEN A YEAR since New Jersey banned all plastic bags from grocery stores, and yet I’m still wandering into our local store without my reusable bags. You would think I’d have gotten the memo by now.




I used to keep the bags in the trunk of my car—but out of sight, out of mind. As a visual reminder, I now keep them inside my car on the passenger side. But they might as well still be in the trunk. Maybe I should hang them around my neck.




While walking through the parking lot during my last food shopping venture, I saw another shopper heading in the direction of the store, bogged down with bags, which reminded me that I’d forgotten mine—again.




I’m on line at the checkout when I notice the shopper ahead of me has a neatly folded, organized pile of reusable bags. They’re uniform in size, color and pattern, with the logo on the bag matching the store we’re shopping at. Meanwhile, I have a motley wad of bags in various sizes, shapes, colors and patterns—some with a psychedelic melange—and almost all of which were freebies from various sources.




I have bags with logos from three different supermarkets in my area. I feel a little sheepish when I hand over some of the bags at checkout in the Wegmans food store, while trying to hide my bag with the Aldi store logo emblazoned on it.




One of my bags announces, “Surely Not Everybody was Kung Fu Fighting,” which would leave you completely lost unless you’re old enough to remember the song. I also have a bag with a New York attitude that reads, “You Got a Problem With That?” And from the Sopranos: “Fughgeddaboudit.” My logic is that, if others think I’m a thug, it might keep the crazies away. I’ve met with a few of those in store parking lots and need all the help I can get, since I’m a small lady and can’t run too fast, making me an easy catch.




Meanwhile, I was reading an article about reusable bags being bacteria ridden, with instructions on how to wash them after each use. There are people who think they’ll die from E. coli if their meat touches their cereal. Some say bag the ban, but it looks like we’re stuck with it. And we’ve created another problem: Grocery delivery services have switched to heavy-duty reusable bags. Their customers complain about having a glut of these bags piled high in their garage, leaving no room for their cars.




An added problem: We now have to go out to buy small plastic bags to replace the ones that we used to get from the grocery store, and which then had a second life as liners for small trash cans. It’s possible to purchase eco-friendly, biodegradable plastic grocery bags from Amazon. But is it okay to use them at the grocery store? They look kind of small and flimsy—more like the size people use when they walk their dog.




It took a while to master the self-service checkout machine, where it helps to be ambidextrous. But since we must now scan, provide our own bags, bag our own food items and deal with processing payment, we ought to receive some compensation. How about a small discount or at least a free reusable bag? And it makes me wonder: Whatever happened to the bag boy? I think he now patrols the self-checkout area.




Today, we have a different ecological problem to ponder. What are we to do with the discarded face masks I see littering the landscape? As Roseanne Roseannadanna used to say, “It’s always something—if it’s not one thing, it’s another.”

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Easy to Miss

"WHERE’S THE QUALIFIED charitable distribution on Mom’s tax return?" Mom had never before executed a qualified charitable distribution, or QCD. Her tax return was 41 pages, and we weren’t sure where to find it.

There was a long pause. "I forgot your mom had made QCDs as I prepared her return,” allowed her tax preparer. “I’ll need to recalculate her taxes."

A QCD can be a tax-efficient way to donate money for those who are charitably inclined—but only if it’s correctly documented on your tax return. Unfortunately, for busy tax preparers, the QCD seems to be an easy deduction to miss, resulting in a needless overpayment of taxes.

In fact, over the past four years, Mom has had two separate tax preparers miss her QCDs when they prepared her taxes for the first time. In both cases, she explicitly documented the QCDs in writing and provided documentation from the charity, but the QCDs were still missed.

To make matters worse, Mom’s adjusted gross income was right on the cusp of the threshold that determines Medicare’s income-related monthly adjustment amount, otherwise known as IRMAA. A failure to correctly document her QCDs could have resulted not only in an overpayment of income taxes, but also a substantial increase in her Medicare premiums. Getting Mom’s annual QCD right is a big deal: It typically saves her about $3,500 a year in taxes.

A QCD is a direct distribution of money by an IRA custodian—think Fidelity Investments, Charles Schwab and Vanguard Group—to a qualified charity. Anyone over age 70½ is eligible to make a QCD. To do so, you can call your IRA custodian, and it’ll write a check against your IRA that’s payable to the charity. It’s even simpler for Mom. She has a checkbook for her IRA, so she can execute a QCD by simply writing a check to the qualified charity.

Normally, distributions from an IRA are taxed as ordinary income. But a QCD doesn’t count as income on your tax return. In addition, QCDs count toward your annual required minimum distribution. The IRS limits QCDs to no more than $100,000 per person per year. Starting in 2024, that $100,000 maximum will be adjusted for inflation.

Any 503(c)(3) organization can receive QCDs. Churches and most charities are typically classified as 503(c)(3)s. Donor-advised funds, charitable supporting organizations and private foundations aren’t eligible to receive QCDs. QCDs can be made from IRAs, but not from employer retirement plans, such as 401(k)s or 403(b)s, so you’ll need to roll your employer plans into an IRA if you want to execute QCDs.

One of the benefits of 2017’s Tax Cuts and Jobs Act was a near doubling of the standard deduction. But there was a downside: The tax benefit of giving to charity was eliminated for most folks. How so? Most taxpayers now find it’s more beneficial to take the standard deduction, rather than itemize their charitable donations and other deductions.

But for those who are eligible, the QCD comes to the rescue. One of the reasons a QCD is so valuable: You don’t need to choose between taking the larger standard deduction and itemizing. With a QCD, you can take the standard deduction, and then add the tax benefits of donating to charity on top. It’s a win-win.

QCDs are reported on Form 1040. If you had an IRA with a $30,000 distribution, this would go on Line 4a. If $20,000 was donated directly to a qualified charity, only $10,000 would be reported on Line 4b. This is the taxable portion of your IRA distribution after subtracting the QCD. In addition, "QCD" should be typed on Line 4b as the reason Line 4a and Line 4b are different.

A QCD effectively sidesteps income tax on the IRA distribution and reduces the adjusted gross income (AGI) on Form 1040. That’s a big deal. Why? AGI is the starting point for the phasing in and phasing out of various tax deductions and tax credits. Depending on your other income, a lower AGI due to a QCD could reduce the taxable amount of your Social Security and decrease the amount you pay for Medicare premiums.

If a QCD is such a valuable tax benefit, why did Mom’s tax preparers miss it? I think the answer is found in the 1099-R issued each year by the IRA custodian. There’s nothing on a 1099-R to alert a tax preparer that Box 1, the gross distribution from the IRA, includes QCDs. Any QCDs you make throughout the year are buried in the gross distribution in Box 1. This is likely why a QCD is such an easy deduction to overlook.

Result: Folks should proactively let their tax preparer know that the gross distribution on the 1099-R includes QCDs, including telling them the total of their QCDs. They should also provide a written acknowledgment from the charity that it received the distribution.

I’m only 58 and not yet eligible for QCDs. But I don’t want to miss this deduction when I grow up, so I’ve projected the total amount my wife and I plan to give to our church after I turn 70½. I then fenced that amount off in a separate IRA and named it "QCD set aside." We plan to use this account to make monthly, tax-free QCDs to our church for the rest of our lives.

Naming the account should be a good reminder of its purpose. And creating a separate account should prevent me from accidentally doing Roth conversions on the money. That would be a foolish mistake and cause me to miss the tax-saving benefits of a QCD. A QCD is a valuable tax strategy that’s easy to execute—and one I don't want to miss.

Chuck Staley and his wife Gina have five children between ages seven and 30. He worked for 35 years as a Department of Defense engineer at Edwards Air Force Base before retiring in January 2022. Chuck now volunteers as a part-time pastor at a small church. He recently started a sole proprietorship, Walk Worthy Solutions, to train federal employees about retirement planning and leadership. Chuck enjoys walking daily with his wife, reading, home improvement projects, and traveling with his family. His previous articles were Passing Them On and Best Time of My Life.

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Not a Financial Loss

DON’T CONFUSE THREATS to your happiness with financial threats.

For instance, it would be devastating if one of your children died at a young age, and no doubt that’s why some folks buy life insurance on their children’s lives. But while the death of a child is a threat to your happiness, is it a threat to your finances? It’s terrible to say it, but just the opposite is true: You’d probably be better off financially. You’d no longer have the cost of raising the kid and putting him or her through college—and thus buying life insurance on a child’s life makes little sense.

Similarly, dying early in retirement would be an unhappy occurrence. But would it be a blow to your finances? Again, just the opposite is true. At that point, all your financial troubles would be over. The fact that you’d delayed claiming Social Security, took pension payments rather than a lump sum, or bought immediate fixed annuities wouldn’t matter to you—and yet folks often say that fear of an early death is the reason they claimed Social Security at age 62, took the lump sum pension payout and avoided immediate annuities.

To be sure, such steps would leave your heirs wealthier. But remember, even without such steps, your early death would likely give a notable boost to the net worth of your heirs. After all, you won’t have spent much of your retirement savings, plus your heirs will get access to that money, plus your home’s value, earlier than they might otherwise have expected.

That brings me to two more examples: extended warranties and trip cancellation insurance. Obviously, it would be upsetting if you dropped your iPhone or you had to cancel your next vacation. But while these might make for a bad day, they wouldn’t be a huge financial blow. In fact, if you had to cancel your next trip, you might lose most of the airfare, but you’d probably dodge the cost of hotels and meals out, so you’d be better off financially than if you had taken the trip.

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In Different Places

MY WIFE HAS PLANS for retirement. Travel plans. For too many years, she’s lived a mostly travel-free life. We’ve logged just a few short excursions to hither and yon.

Yes, there have been reasons for this dearth of travel that were largely beyond our control. But her biggest obstacle has been—and continues to be—me. I’m mostly a homebody, and I’ve been reluctant to change my ways.

My wife didn’t choose to love traveling. Rather, she was born into a family of travelers. When she was a child, her family spent summers and holidays camping all over California and other western states. Later, one of her brothers roamed Europe and elsewhere during 20 summer breaks from teaching school. I’ve written about another brother and a cousin who live abroad. In that article, there wasn’t enough space to list all my wife’s kin who live or have lived overseas. I suspect this familial wanderlust began when an ancestor decided to hitch up his wagon and head west.

By contrast, my family genetics incline us to move once and stay put. There are exceptions, but a majority of my family members hew to this trait. It was certainly true of my parents. My mother still lives in the house they bought in 1952, and she can list her traveling vacations on two hands—with fingers to spare. My genes tell me to be still.

Despite that, I’m not completely opposed to traveling. I’d like our retirement to have an ample amount. That’s where our differences start, however. My idea of ample falls short of what my wife considers barely adequate. While she’s dreaming of destinations and thinking of the itinerary details, I’m fine-tuning the latest iteration of my home project list. We’re both searching for happiness, but looking in different locales.

My wife, it seems, may be the one looking in the right place—or places. Research shows that frequent travelers are happier than non-travelers, though the effect may be short-lived. According to another study, just thinking about travel leads to more happiness. In addition, travel may make us healthier and more creative.

My wife doesn’t need to review the research. She already knows from experience that a change of scenery brings on a change of mood. As a college student, she traded her junior year at the University of California, Los Angeles, for a year at England’s University of Sussex. From that home base, she hopped all over Europe and even down to Morocco. After returning home, she jumped at the chance to travel when opportunity and her finances allowed. How did all this kinetic energy meet me, the immovable object? Travel, of course. She headed back east to Georgia for grad school and never returned to California.

I’m aware that many people share my wife’s passion for points unknown. Here on HumbleDollar, several contributors have written about their journeys, from learning while touring to just roving about. Indeed, Americans are currently traveling in record numbers. Am I the lone soul who is content just puttering about the homestead and avoiding the bother of schedules, questionable food and lugging heavy suitcases—there’s a reason they call it luggage—or do I have a kindred spirit out there?

I know there’s at least one other HumbleDollar writer who is happier staying home, and research indicates we have company. Data gathered from 13,000 people from across Europe show that our home can be an important contributor to wellbeing. In fact, 15% of our total happiness comes from our homes, according to the study. This is quite a bit more than the 6% from our earnings or the 3% derived from the job we do. A good part of the joy comes from a feeling of pride, but certain physical features of our home can also boost happiness.

For instance, a survey of 6,000 homeowners found that home design influenced the overall happiness of nine out of 10 of those surveyed. Moreover, fully 65% are happier at home than away, with a new or recently spruced-up home bringing the most happiness. The two attributes that have the largest impact on happiness: big windows and comfortable furniture.

What are my wife and I to do as we strive for a blissful retirement together? The research doesn’t offer clear guidance. Even so, I’m not worried. Yes, my wife and I favor different pursuits, but those take a backseat to our most important shared values, such as our commitment to our faith, family and friends. Science affirms that we’re on the right track.

We’ve been grounded for more than a few years, all but compelled to stay close to home by family and work responsibilities, plus the pandemic. It’s been no strain on me. I selfishly enjoyed not having to compete with vacation plans for time spent at home. For my wife, however, the tension has become palpable. It's time to bend in her direction and cast off from the home port.

Accordingly, we’re planning a trip to California next year to take care of some family business and play at being tourists. A trip to the U.K. is slated for the following year. I’m not looking forward to the airports and so on, but I know it’ll be worth the hassle to see the smile on my wife’s face. And to tell the truth, since we’ll be in the neighborhood, there’s a little private garden over there that I’m hankering to see.

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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What Medicare Misses

ONE OF THE MORE challenging changes that comes with retirement is the loss of your employer’s health care benefits—and I’m not just talking about regular health insurance. Two other benefits that employers commonly provide are dental and vision coverage.

Traditional Medicare doesn't cover common dental procedures, such as cleanings, fillings, extractions, dentures, dental plates and other dental devices. Medicare also doesn’t cover the cost of eyeglasses, lenses or contacts, which many of us were used to obtaining using our employer’s vision coverage.

Medicare Part A will cover certain dental care that happens in a hospital, such as emergency or complicated dental procedures. Similarly, Medicare will also cover the cost of eye injuries, as I found out recently.

A three-year-old’s heel inadvertently struck my right eye. I quickly developed a veil of dark spots and threads. I saw a local ophthalmologist, who sent me to a retinal specialist. Luckily, there was no tear or detachment.

Four weeks later, my vision is almost back to normal. The costs for my care were submitted to Medicare. The ophthalmologist’s and the specialist’s claims have both been approved. I owe a $20 co-pay for each of the initial office visits, consistent with my Medigap Plan N coverage. I haven’t had any other out-of-pocket costs.

When looking ahead to retirement, it pays to think about dental and vision health, and how we’ll pay for routine services that were often previously covered by our employers’ policies. The first and arguably most important step is to pay attention to your dental and vision health before retirement.

Good dental hygiene is more crucial than many of us realize. Ideally, you adopt good practices in childhood and maintain them throughout your life. It’s never too late to start, however. This will improve your health and save you money. Similarly, regular vision screenings and smart practices—such as wearing eye protection—are great ways to safeguard your vision.

The second step: Make sure you use your insurance benefits in the last years of employment. If your employer funds all or part of your dental and vision insurance, use those benefits to their fullest. If you require expensive care, like dental implants, take care of it while you have insurance and a salary to pay for any expenses that aren’t covered. Also take advantage of any vision services that are covered, like eye exams, cataract assessments and eyeglasses or contacts.

A third strategy: Fund a health savings account, or HSA, during your working years. You get a tax deduction for the amount you contribute, you can invest the money you save, and the earnings grow tax-deferred. When the money is used to pay for qualified medical expenses, the withdrawal is also tax-free.

As you approach retirement, explore how you might replace your employer’s dental and vision insurance coverage. Some Medicare Advantage plans provide dental and vision coverage. What if you choose traditional Medicare? Consider purchasing private dental and vision insurance.

There’s a significant difference in cost and coverage between health insurance and dental insurance. Health insurance policies typically include a maximum out-of-pocket amount. This is the most you’ll have to pay, in addition to any premiums, in a given year. Dental plans, by contrast, define an annual maximum benefit amount. This is the most the insurance company will pay in a year. Any costs above this amount are yours to bear.

Depending on the vision and dental plan you choose, the cost of standard preventive and diagnostic services may or may not count toward your annual maximum benefit. For example, if I have an exam and cleaning that costs $200, that may be covered 100%, but it may also reduce the maximum amount the insurance company will pay for other services. This needs to be confirmed when shopping for a policy.

In the table below, I’ve provided details of two dental plans—Delta Dental PPO (preferred provider organization) Plans A and B—that are offered in my home state of New Jersey. As you can see, these plans often have waiting periods of six or 12 months for various treatments. This is so people don’t sign up for insurance right before they need an expensive procedure, such as implants.

A recent Forbes article provided average dental costs for typical procedures, using American Dental Association data. I took those average costs and the coverage offered by Delta Dental Plan A, and compared the total out-of-pocket costs incurred by two patients, one who is “healthy” and the other who “needs work.”

In my scenario, the healthy patient had two office visits, two cleanings and two X-rays per year. The “needs work” patient had these same preventive procedures, but also had two fillings, a root canal and a crown.

Both patients would pay $865 a year in premiums. The healthy patient incurs $607 in dental services. Since these are all covered preventive and diagnostic costs, and their total is below the plan’s annual maximum, these charges are fully paid by insurance. In this scenario, the healthy patient’s premium cost of $865 exceeded the covered dental expenses of $607, for a net loss of $258.

The “needs work” patient, by contrast, incurred a total of $3,525 in services. The plan covers $2,155 of these costs and the patient owes $1,370. But the $2,155 covered by insurance is over the plan’s annual maximum benefit of $1,500, so an additional $655 is added to the patient’s cost.

The total out-of-pocket cost for the “needs work” patient is an eye-watering $2,890 ($865 + $1,370 + $655). Still, under this scenario, the “needs work” patient saved $635 overall on the costs of the year’s dental work ($3,525 - $2,890) by being insured.

This analysis suggests you may not need dental insurance if you’re one of the lucky people who’s never had a cavity. But if your dental needs often require follow-on procedures, you might benefit from buying coverage.

I’ve assumed in this analysis that the preventive costs were applied to the annual maximum payment. There can also be differences in reimbursement based on the dentist chosen and what agreements the dentist has with the insurance company. It pays to ask what insurance your dentist accepts, and what the dentist’s contractual relationship is with the insurance company.

It’s harder to assess the value of vision insurance policies. Vision insurance generally has a specific purpose: It typically covers eye exams, frames and lenses, or contacts.

Vision care costs can vary sharply depending on location, service provided and eyewear options chosen. The eyewear shop Warby Parker estimates eye exams can range anywhere from $50 to $250 without insurance and cost $10 to $20 for those with vision insurance. Frames can start as low as $6.95 and soar to $1,000 for high fashion. Lenses typically require a co-pay. A policy may or may not cover lens enhancements, such as scratch resistance and UV protection.

Vision insurance plans use co-pays, allowances and discounts in several ways. More expensive plans have more generous allowances, while lower premium plans often offer discounts for some items. The insurer EyeMed offers three plans to individuals. Its offerings provide a good example of how to evaluate a plan.

Let’s assume, for example, that a patient had one eye exam costing $150, and one pair of glasses with $400 frames and $200 lenses, for a total cost of $750. The most expensive EyeMed plan would cover $520 of that cost. The patient would pay the remaining $230 plus $360 in annual premiums, for a total of $590. The insurance results in savings of $160, meaning the services provided cost more than the annual premiums.

The medium-price EyeMed plan costs $150 less in annual premiums but the patient pays $70 more for frames. This plan also has co-pays for some lens enhancements, like scratch resistance and UV blocking, so there could be more costs if those items are chosen.

Depending on your needs, vision insurance might be a good deal. It’s worth spending time reviewing policies to see how they match up with your vision needs. Note that for eye exams, the discount plan has $0 co-pays, but the more expensive plans have $10 co-pays. This is an example of how difficult it is to evaluate these plans. If you usually have an annual eye exam but buy glasses only occasionally, a medium-priced plan may be more attractive than a high-cost plan.

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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