Jonathan Clements's Blog, page 135

A Basis for Decisions

I'VE WRITTEN BEFORE about harvesting tax losses and using them to offset the gains from selling other investments. We have a bit of a sprawling portfolio, with numerous small positions and lots of embedded capital gains.

Gradually harvesting gains would simplify the portfolio and make it more tax-efficient. And if we do so during these early retirement years, while our income is low, and if we can partially offset those gains with realized losses, we should be able to harvest gains at low rates—and perhaps even pay 0% in capital gains taxes.

But should we sell? Lately, I’ve come to realize that—from a long-term tax perspective—it may be better to leave the gains alone, especially since we’re residents of a community property state. Living in such a state may also argue for combining individual taxable accounts into joint accounts.

There are nine community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. The other 41 are separate property states. In a community property state, all property accumulated during a marriage is considered the property of both partners. This is a key consideration in a divorce and the resulting division of assets. But it also has important implications for investment and estate planning.

As many readers know, when the owner of property dies, that owner’s heirs get a step-up in cost basis on inherited property that’s held outside a retirement account. For example, if I bought a vacation home for $300,000 that’s worth $500,000 today, I would have a $200,000 capital gain if I sold it. Likewise, if I bought 1,000 shares of ABC company at $100 a share and they’re now at $150, I’d have a capital gain of $50,000 if I sold today.

But if I wake up today planning to sell but instead die before doing so, my heirs inherit the house and the stock at today’s value. Result? When they sell, their cost basis will be today’s value, not my original cost basis. This step-up means the gains between my purchase and my death go untaxed. As you can imagine, on assets held for many years, this can be a huge tax savings.

The above is true regardless of whether one lives in a community property state or not. Here’s where the state of residence comes into play: In a community property state, assuming my heir is my spouse, the step-up occurs not only on property owned by me, but also on the full value of property we own jointly.

How does this work? Let’s say that, in addition to the shares of ABC company I own in my taxable account, my spouse owns shares of XYZ company in hers. Since those shares are in her own individual account, she gets no step-up on XYZ when I die. Instead, I would get a step-up when she dies. But let’s say we held both these stocks in a joint account. In most states, the step-up in the joint account would be limited to 50% of each position. But in a community property state, the surviving spouse would get a full step-up on both holdings.

In the individual taxable brokerage accounts that my wife and I own separately, we have significant capital gains, so—from an estate planning perspective—it makes sense to combine them into a joint account or to change the account registration on both accounts to make them joint. That way, when either of us dies, the survivor gets a full step-up on everything outside our retirement accounts. It could also simplify the portfolio a bit.

What are the possible downsides of combining accounts?

Both parties will have full control of all assets. If this is a concern for you, you probably shouldn’t do it.
You’d lose the cybersecurity benefit that comes with having assets housed in accounts with separate login credentials.
Moving to a separate property state later means you’d no longer get the full step-up on jointly held assets.
It would complicate a potential divorce and might mean surrendering greater wealth than you otherwise would.

For us, combining accounts seems like a good idea for the larger step-up alone. If we did so, we might choose to forgo realizing capital gains during our low-income years, knowing that there will eventually be a step-up on everything. Instead, we could use these low-income years to maximize Roth conversions.

Michael Perry is a former career Army officer and external affairs executive for a Fortune 100 company. In addition to personal finance and investing, his interests include reading, traveling, being outdoors, strength training and coaching, and cocktails. Check out his earlier articles.

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July’s Hits

WHAT HAVE FOLKS been reading on HumbleDollar? July was a strange month for site traffic, with a huge surge of visitors in the final week, and that heavily influenced our list of the best-read pieces. Below are July's 10 most popular articles and blog posts.

"I look around and, on every block, see thriving businesses providing non-essential services," notes Dick Quinn. "Where does their revenue come from when we hear that Americans are cash-strapped?"
"The most important reason I’ve decided to join these clubs: They allow me to stay socially engaged," says Jim Kerr. "About a quarter of Americans age 65 and older are socially isolated."
Larry Sayler wanted a retirement withdrawal strategy that would ensure he never ran out of money, but would allow him to spend more when markets fared well. Result: He ended up revamping the 4% rule.
"After booking our flight, I realized that using LATAM’s Spanish language website could have saved me considerable pesos," recounts Mike Flack. "I will not share how much due to the deep shame I am still feeling."
Worried about getting scammed on social media by cyber-thieves? Max Chi offers 10 ways to fight the fraudsters lurking on social media.
How do you think about money? Dick Quinn gave the question some serious thought—and he's concluded that a counseling session might be a good idea. But he's not willing to pay for it.
Florida may have scorching heat, alligators and hurricanes. But as Ron Wayne notes, there's also no state income tax—and free front windshield replacement.
Want to be ready to retire? James McGlynn advises putting a special emphasis on four key topics: guaranteed income, tax-free accounts, asset allocation and retiree medical expenses.
Ken Cutler has owned two homes, and never taken out a mortgage from the bank. Was avoiding debt the smartest financial move? Ken suspects not—but he has no regrets.
"I’ve never been to Paris or Prague, Timbuktu or Tokyo, but I consider having lived in Brooklyn gave me broad exposure to various cultures," writes Marjorie Kondrack. "And I lived there during the best of times."

What about our twice weekly newsletters? The two most popular Wednesday newsletters in July were Doug Texter's Follow Those Values and Mike Finley's Free to Give, while the most popular Saturday newsletters were Courage Required by Bill Bernstein and When to Give, written by me.

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Planting Bad Seeds

WHEN I WAS A YOUNG engineer, I supervised a charismatic worker named Neil, who was a sort of pied piper to the younger engineers and technicians in our group. He was about 20 years older than us and loved to dispense advice like a guru.

His quirky advice usually had a financial component. For example, he recommended that we single guys marry women with curly hair, as that would save tens of thousands of dollars over the course of the marriage, thanks to fewer trips to the beauty parlor. He even had a calculation he’d use to support his theory. He also told us about his scheme to help expand his wife’s cleaning business, which in turn would allow him to ramp down the time he spent working, an activity he seemed to have an aversion to.

“Just planting seeds,” he liked to say after sharing his latest idea.

Another idea he regularly tried to plant: The 401(k) was one of the biggest scams ever foisted on the public by the government. The basis for his argument seemed to be looming legislation that would somehow means-test Social Security, thereby reducing or eliminating payments to those who had their own means, such as money in 401(k)s. “You’re just funding your own Social Security,” he would tell us young guys.

This was well before the internet was available as a fact-checking resource, and Neil spoke confidently, indicating he had really looked into these things. Unlike his chauvinistic views on marriage, which we discounted, some of us had an uneasy feeling he might be on to something with his 401(k) argument.

The company made new employees wait two years before they could participate in the 401(k) plan, and it didn’t provide any matching contribution. Needless to say, many of us young employees weren’t very enthusiastic about availing ourselves of this benefit. For years, I put in 2.5% of my salary, reasoning that I could at least spare an hour of pay each week, on the off chance that Neil turned out to be wrong.

Today, we’re constantly reminded of the importance of saving early to take advantage of the “magical power of compound interest over time.” Front-loading your 401(k) is so much more effective than ramping up your contributions at the end of your career. But because of the seeds that Neil had planted, coupled with my own suspicions and biases, I missed out on putting away those early career savings that could have supercharged my retirement decades down the road.

To make matters worse, the October 1987 crash occurred shortly after I became eligible to contribute to the 401(k). My first quarterly statement showed horrendous losses, though only on a percentage basis, since I had next to nothing in the account. Because of that trauma, as a 25-year-old who should have been at or close to 100% in stocks, I allocated my 401(k) very conservatively, putting the majority of the balance into a money-market fund.

Several years after working with Neil, I married Lisa. It started dawning on me that maybe, just maybe, Neil was not right about the 401(k) conspiracy. Now that I was married and planning to have children, the 401(k) took on more significance. It helped that by this time the company started providing a tiny match, 25% on the first 4% of salary contributed. I started saving a bit more in the 401(k), though sadly I was still overly conservative, probably keeping only about 40% in stocks.

I did do one small thing right, however. My company had an employee stock program for a few years. It would give each worker a tiny amount of stock every year. I think the company got some kind of tax write-off for doing so.

When the company ended the program around 1989, it gave employees a choice: take the stock as a lump sum or roll it into your 401(k) as company stock. My balance was $653, and I decided to roll it into my 401(k) and not take the tax hit. Fifteen or so years down the road, that tiny sum had, with dividends reinvested, ballooned to more than $15,000. More than anything else, seeing that growth helped me comprehend the stock market’s potential.

A few years ago, I did an internet search to see if I could find out anything about Neil. Sadly, I found his obituary. He had passed away at age 68. I read his life summary and found that he had been an avid boater, enjoyed flying model airplanes, and loved kidding with family and friends. I wonder how many times he told them he was “just planting seeds.”

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. His previous article was No Interest.

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Woolf at the Door

ON FEB. 7, 1910, AN ODD event occurred in the English town of Weymouth. A group of five arrived for a tour of HMS Dreadnought, a battleship that was the pride of Britain’s navy. The five were welcomed with fanfare, their staff having communicated in advance that they were members of the Abyssinian royal family. Their appearance was impressive: flowing robes, great jewels and turbans. Through an interpreter, the Abyssinian emperor offered military honors to the ship's crew. The sailors then led the royal delegation on a private tour.

It was an enjoyable visit for all. The only problem: The “Abyssinians” were pranksters. They weren’t Abyssinians, but English, and included the author Virginia Woolf. The language they appeared to be speaking was gibberish, a mix of Greek and Latin that they threw together. When news of the hoax hit the papers, the lapse in security caused embarrassment for the Royal Navy. Most notable was the fact that the commander of the Dreadnaught, William Fisher, didn’t recognize that two of the fake Abyssinians were his own cousins.

I was reminded of this incident a few weeks back when my phone rang one morning. On the other end, an authoritative-sounding voice let me know that I was the subject of an investigation. The government, this fellow said, had seized a package addressed to me. It contained cash, weapons and other contraband, and he wanted to know whether I had ordered these materials. This call would have been unnerving if it hadn’t been so obviously a scam.

I’m not sure how this particular scheme works, but it seems to be the latest in a long line of similar scams. You’ve probably heard, for example, of the “Nigerian prince” scheme. Out of the blue, someone receives a call from an individual pretending to be a wealthy Nigerian. His money is locked up, he says. But if you send him $1,000 today, he’ll gladly repay you $10,000 when his funds are released.

These sorts of schemes seem like they shouldn’t work—but, unfortunately, they do. I personally have seen someone fall for the Nigerian prince scheme and send money to the scammer. Though it was clearly a fraud, it was difficult for the victim to recognize it.

Why does this sort of thing happen? How can people be so gullible? The most obvious explanation, of course, is profit—or the promise of profit. In an article earlier this year, Jason Zweig of The Wall Street Journal discussed the popularity of Regulation D private offerings. These investments are illiquid, speculative, susceptible to conflicts of interest and typically carry high fees.

Zweig characterizes these investments as “dreck,” and yet, despite the risks, he notes that investors have plowed nearly $1 billion into these funds over the past two years. Why? While each fund is different, these private offerings—not unlike Bernie Madoff—promised investors returns in the neighborhood of 10% with little downside.

Why don’t investors look at these investments more critically? In The Confidence Game, Maria Konnikova offers another explanation. Humans, she says, “have a strong bias toward misperceiving the world.” Citing the research of psychologist Shelley Taylor, Konnikova explains that even pessimists have a built-in bias toward positivity. We generally believe that things will go well for us.

Research has quantified this. In 1990, psychologist Robert Vallone conducted an experiment among university students. He asked them to make a set of short-term predictions—about their grades and other aspects of their life—and then followed up with them at the end of the semester. The students almost uniformly overestimated how well things would go. About 70% of the predictions were overly optimistic. The upshot: When fraudsters approach us with appealing opportunities, most people don’t assume it’s a trap.

Still, people aren’t completely gullible. As Konnikova explains, scammers know they need to offer “evidence” that what they’re promoting will work out. A famous early Ponzi scheme—which predated Charles Ponzi himself—was perpetrated by William Franklin Miller in 1889. Miller began by offering investors a return of 10% per week. While that seems absurd, the nature of a Ponzi scheme is that it does work out for early investors. Miller took on his first investor in March 1889 and, sure enough, began paying out the promised 10% per week. That drew in other investors. Within months, he had accumulated more than $1 million of investor money.

Ponzi schemes, fortunately, are rare. More common, though, are the sorts of investments Zweig described: They aren’t criminal, but they’re speculative. They’re able to draw people in by cherry-picking some attractive past returns or by highlighting some past success of the manager. As with a Ponzi scheme, that “evidence” helps investors look past any red flags.

What can you do to avoid these kinds of traps? I recommend a two-part approach. First, keep your investments simple. Wherever possible, opt for investments that are publicly traded, broadly diversified, passively managed and carry low costs. Follow that formula, and you’ll almost certainly avoid the Ponzis and the Madoffs. You’ll also be in a good position to avoid the “dreck” that Zweig describes.

Second, guard against scammers. This step is a bit harder because crooks can be creative. There are, however, relatively easy steps we can all take to batten down the hatches on our finances. These include:

Start with good digital security. Be sure the hard drive on your computer is encrypted, use a password manager and opt for two-factor authentication whenever possible. When traveling, don’t connect your laptop to a public wi-fi network. Instead, use the hotspot feature on your cell phone to get your computer online.
If you can’t pay a bill online, minimize the risk of check washing by using only a Sharpie or a gel pen to write checks. And avoid mailboxes. Bring any envelope containing a check to the post office.
If you receive a call that seems like a scam, but you aren’t sure, don’t share any information. Just hang up. More often than not, that’ll be the end of it. If you’re concerned that the call might have been legitimate, call back but use a phone number you locate yourself, such as from the company’s website, the back of a bank card or a statement you have. That will ensure you’re speaking with someone legitimate, and you can ask whether there really is an open inquiry.
You should be wary of incoming calls even from people you know, such as a grandchild calling for help. The grandparent scam has been around for years, but now—thanks to artificial intelligence—scammers are able to better replicate voices.
Don’t use your bank card as a debit card. Use it only at ATMs, and use a credit card everywhere else. That will help prevent crooks from accessing your bank account in the event of a data breach.
And finally, if you’d like to have a bit of fun, you can try Jolly Roger, a new service that, as The Wall Street Journal put it, can “torture telemarketers.”

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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When to Give

WANT TO DONATE TO charity? It usually makes sense to give now rather than upon death. You’ll get the pleasure of helping a cause you care about, and your generosity may also earn you an immediate tax deduction.

But what about giving money to your children or other heirs? This is a much trickier question, one I’ve thought about a lot ever since my first child was born almost 35 years ago.

Giving now. When I started reading about investing in the 1980s, I was immediately captivated by the idea of stock market compounding and how—if given enough time—it could turn modest sums into significant wealth. No doubt this was partly because I was in my 20s and barely getting by on a junior reporter’s income. A modest sum was all I could muster, but at least I had time on my side.

The magical combination of time and compounding seemed even more relevant to my two kids, who were born in 1988 and 1992. I set out to ensure they’d reap the rewards of compounding, opening accounts to help pay for a future house down payment and for their retirement.

At the same time, there was another notion rattling around in my head: I wanted Hannah and Henry to have a sense of financial security in their early adult years, something that had eluded me. And my plan worked. I remember Hannah calling me shortly before she graduated college in 2010.

Life was about to get all too real for her and her cash-strapped friends, as they contemplated the nitty-gritty of starting jobs and renting apartments. Hannah suddenly had an intense interest in her Vanguard Group account, which I’d been mentioning for years. “I can’t believe I have so much money,” she said, awed by her account balance.

In the years since, I’ve come to realize there are additional reasons to give money to your children early in their adult life: The dollars involved will likely be more helpful to them than to you, plus you’ll have the pleasure of seeing them enjoy the money. To be sure, there are also risks: The money could get squandered and it could dent their ambition.

Will that happen? The good news is, as a parent, you should have some sense for how your kids will handle your largesse—and you can also influence the outcome, by trying to teach them sound financial values from an early age.

On top of all this, there are some purely financial reasons to give away money now rather than waiting until death. You get the subsequent growth of those dollars out of your name, which could reduce the hit from federal and state estate taxes. It could also allow you to qualify for Medicaid, should you need help paying for a nursing home—a goal that might be important for those with modest assets who realize that paying long-term-care costs could wipe out their savings within a few short years.

After investing a fair amount in my children’s names when they were younger, I’ve been less generous over the past decade or so. But I’m rethinking that. I’m confident I have enough for my own retirement and I’m confident my kids would be responsible with any money I give them, plus I’ve been eyeing Pennsylvania's inheritance tax, which would potentially snag a portion of whatever I bequeath. On the other hand, if I give them money now, it would likely mean pulling from my traditional IRA, and I’m not anxious to have that extra taxable income over the next few years, given my current focus on making large Roth conversions.

Giving later. If there are so many sound reasons for giving now, why wait until death? The No. 1 reason: You don’t want to hand over money you might later need for your own retirement.

But even if you can afford to give your children or other family members a healthy sum during your lifetime, you might still want to hang onto the money for the time being. For starters, you get to retain control of the money, which might be important if your kids have little investment savvy, or you worry about how they’ll use the gift, or you fear your children could lose a chunk to a divorce or a lawsuit. There’s also the big behavioral fear: You might want to ease your kids’ financial path, but not so much that they fail to develop good financial habits.

Moreover, depending on when you die, the lump sum you bequeath might arrive at an auspicious time, allowing your children to, say, pay off their mortgage or foot the bill for their kids’ college costs. It could also help them across the finish line to retirement or allow them to live somewhat more comfortably. A gradually rising standard of living over the course of our life can be a source of ongoing happiness, and your estate might make that possible.

To be sure, as some have noted, if the parents die in their 80s, their children may already be retired or close to it, so any inheritance might do little good. I think that’s a valid argument. On the other hand, an inheritance at that point may allow your kids to pay it forward to the next generation—or, alternatively, you could do that yourself, directing part of your estate to your grandchildren.

While compounding was a notion that captured my imagination four decades ago, “paying it forward” is an idea that captivates me today. As someone who has amassed modest wealth, my estate won’t allow my heirs to quit the workforce and lead a life of leisure, and—in any case—I don’t think that’s desirable. There’s great happiness to be had in striving toward goals we care passionately about.

But if used wisely, the money I bequeath could ensure the Clements clan remains firmly entrenched in the middle class for at least a few more generations, paying for decent educations and fending off financial misery. That might sound like a modest ambition. But it’s a legacy I’d happily have attached to my name.

How much financial help should parents give their children? Offer your thoughts in HumbleDollar’s Voices section.

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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The Frugal Flaneur

MY WIFE BELIEVES travel is an adventure filled with new food, new adventures and new friends. Others believe it’s a never-ending series of negotiations, surcharges, taxes and exchange rates, and these need to be painstakingly managed to minimize cost and the deep-seated shame associated with overpaying.

I guess I lean a little more in one direction, as evidenced by my recent travel adventure: a road trip to the East Coast followed by a flight to Chile.

Because of my travel savvy, Booking.com has bestowed upon me the honorific “Genius Level 3,” which means I can get up to a 20% discount on the trips I book. It could be that I am indeed a travel genius—though it may also have something to do with using the site to book 15 stays within the past two years.

Either way, the site also generously offered me a $25 voucher for lodgings, as long as those lodgings were booked almost immediately. Well, the joke was on those Booking.com folks, as Springfield, Illinois, happened to lie between me and the East Coast, and I always wanted to walk in the footsteps of the third greatest president.

Next stop was Cincinnati, to celebrate a loyal reader’s birthday. An Airbnb was engaged, except that—through extensive planning—the Air portion, along with its requisite fees and surcharges, was avoided. Basically, my wife became good friends with the bnb-keeper during a prior stay—such good friends that we now just pay her directly.

During the entire road trip, gas was procured via the GasBuddy app on my cell phone, which enables me to find the cheapest gas. This is done to reward low-cost gas stations, thus driving down gas prices for everyone. It also prevents the shame of overpaying for gas, while allowing for the mocking of others who go to more costly stations located just off the prior exit. If my car needs to be run on vapors with fingers crossed, air-conditioning off and windows up for the last few miles, so be it.

The City of Brotherly Love was called upon, with the primary purpose of meeting my editor to discuss possible upcoming projects, including My Money Journey the Movie. The secondary purpose was to partake of that most economic aspect of the Philadelphia culinary experience: no, not the cheesesteak, but the Citywide Special—a shot of Jim Beam and a can of Pabst Blue Ribbon, all for $4.

A pod hotel room in New York City was then booked for the slightly less-than-exorbitant $281 a night. It’s not the ubiquitous and eponymous box you see in the driveway of people who refuse to pay movers $5,000 for moving their remaining personal belongings after conducting a cursory garage sale—though it’s only slightly larger. I thought the missus would balk, but she was sold by both the great Midtown location and the fact that she’d be getting the bottom bunk.

Now, what to do with the car? Parking at JFK airport for the month or so that we’d be gone would be ruinous to my wallet and my conscience. My wife reached out to a girlfriend who said we could leave the car with her on the Lower West Side. She would street park it, move it as required to comply with alternate side of the street parking, and keep the battery charged by using it to commute to the Hamptons on weekends.

One of the benefits of owning a 10-year-old compact car is that your wife doesn’t really worry about it. Her friend, though, had some vague apprehensions, though not necessarily about driving a 10-year-old car. I believe it was more about being seen in the Hamptons driving a Hyundai Elantra. I thought she could just mention that her Beemer was in the shop and this “piece of crap” was a loaner. In the end, I decided it would be best for all concerned if it was parked in another friend’s suburban driveway.

We flew on LATAM Airlines to Santiago de Chile for a reasonable $360 one way. While technically it isn’t the de jure national airline of Chile, LATAM is the de facto national airline of Easter Island and therefore charged accordingly for that leg of our journey. After booking our six-hour flight to the home of nearly 1,000 extant moai, I realized that using LATAM’s Spanish language website could have saved me considerable pesos. I will not share how much due to the deep shame I am still feeling.

Our lodgings at the Hotel Ismael in Santiago graciously offered an airport pickup for $50. In a few places—Morocco and Zimbabwe immediately come to mind—this offer should be accepted with thanks. In most places, though, it should be politely declined.

A website called Rome2Rio.com estimated a taxi should run no more than $21, which was confirmed by inputting the Santiago airport and Hotel Ismael into the Uber app well beforehand. Was all this research really required? Well, for me it was, as Robert De Niro’s secret agent character stated in the movie Ronin, "I never walk into a place I don't know how to walk out of.”

I went with Uber and there’s no better way to start off a Santiago sojourn than by saving $32. I could have saved even more by taking two buses from the airport to the hotel, but after six days in a pod and 10 hours in an airplane, I didn’t want to push my luck.

Easter Island lodgings were booked via the missus via Airbnb via a local named Makohe Akuna, who appeared in a movie called 180 Degrees South and which we watched for research purposes.

Initially, I thought she was charging us $25 a night more for using the English language Airbnb website. And following the Easter Island flight debacle, I didn’t think further shame could be stood. But after an hour of “discussion” with the missus, we realized that our host was charging an extra $25 per night for hosting an extra person.

If this had been a U.S. Airbnb, I would have just booked it for one and taken my chances. I usually figure it’s better to beg for forgiveness than ask for permission. But since it’s the second most isolated island in the world, I decided not to. Oh, yeah, and why was she charging an extra $25? I don’t know because the missus forbade me from asking.

As I type this, I’m enjoying a Pisco Sour in Santiago, while planning the next stop on our grand tour of South America. I’ve always wanted to visit Bogota, though Buenos Aries might be another option, with its good steak and better wine. Also, it doesn’t hurt that the Argentine peso is in the crapper.

Meanwhile, you might be wondering about the headline. When I tried to use it on an earlier article, HumbleDollar’s editor nixed it, saying you should never use words that most readers won’t understand. But I finally wore him down. So, what is a flaneur? Here’s Wikipedia’s take.

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

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Seeing the Benefit

SOMETIMES, I'M embarrassed to live in Florida.

Late-night talk show hosts have plenty of fodder for their jokes given the behavior of residents, visitors and our politicians. Fortunately, I don’t know anyone who fits the stereotype of “Florida Man,” but such folks clearly exist, or so these memes suggest.

We also endure hurricanes, scorching summers, soaring homeowner’s insurance rates and all kinds of odd creatures, from the native alligator to invasive species such as the green iguana and the giant African snail.

On the other hand, there’s no state income tax. We also have another advantage that I just learned is rare among the 50 states: free front windshield repair. In Florida, if you carry comprehensive coverage as part of your auto policy, your insurance must pay for a new windshield, with no deductible required.

When I was returning recently from seeing my daughter and her husband in Orlando, a stone hit the far righthand side of my windshield, which wasn’t surprising given the amount of road construction in and around Orlando. It was night, so I didn’t notice the crack until the next day, when I went to wash my car. This had happened to me once before with my previous car, and I recall being pleased I didn’t have to pay anything toward the window’s replacement.

At first the crack was just the size of a spider. But it expanded horizontally across the window, almost reaching the center by the next morning. Clearly, it was a hazard. I called my agent with some trepidation, unsure whether the windshield repair law still existed. Thankfully, it does.

I was curious if other states had this benefit. According to this article, only two other states—South Carolina and Kentucky—also feel it’s a safety initiative important enough to justify this insurance requirement. Those two states apply the rule to all vehicular windshields, while Florida only includes the front.

Is the cost of this supposed freebie already reflected in our auto-insurance rates here in Florida? I’m not savvy about insurance matters, but it seems the insurers always have the upper hand. Still, on two occasions, it hasn’t felt that way to me.

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Joining the Club

CALL ME SOLITARY MAN. I’ve never been much of a joiner. I’ve never belonged to a country club and can count on two hands the number of social organizations I’ve been part of during my working years.

Part of this was because I didn’t have a lot of time to pursue outside interests while working 14-hour days as a corporate manager. What spare time I did have, I preferred to spend writing, fishing, hiking or engaged in other solitary pursuits.

But if I’m being honest, much of my club avoidance over the years is because I’m cheap. The idea of forking over thousands of dollars for a country club membership when I had more pressing things to do with my money, like funding my retirement accounts and the kids’ 529 plans, didn’t make a lot of sense to me.

Besides, the whole notion of a club has always smelled to me of privilege and exclusivity. Why would I want to pay through the nose so I can prove to others that I’ve arrived?

In retrospect, I realize I was a bit of a snob in the way I looked at clubs. Yes, a club—especially the swanky kind—is, by definition, exclusive. After all, people without money can’t afford it. But many clubs do a lot of good through their charitable causes. Clubs are also a great way to meet people and to network. By staying away from them, I paid a price in terms of missed career opportunities and friendships over the course of my career.

Better late than never, right? Since I left the corporate world almost two years ago, I’ve joined several clubs, including a fly-fishing club near my vacation home in the Endless Mountains of Pennsylvania. Club membership is pricey, but it offers exclusive access to six miles of pristine trout stream in northeastern Pennsylvania.

Why the sudden change of heart? There are several reasons. First, I now have more time on my hands to indulge in my passions.

Second, I have the money, so why not join a club or two that align with my interests? The fly-fishing club provides a chance to fish prime trout waters without standing elbow-to-elbow with other fishermen along stocked public waters. For a guy like me who loves fishing but hates crowds, that’s priceless.

To assuage my conscience about being part of an exclusive, members-only club that some others can’t afford, I’m ramping up my volunteering and my giving to nonprofit organizations. In addition to being on the board of directors of a nonprofit alternative educational organization, I’ve joined the local Rotary Club, where we meet weekly to plan service projects for needy community groups and causes.

The third and most important reason I’ve decided to join these clubs: They allow me to meet people and stay socially engaged—things that are vitally important as we grow older. About a quarter of Americans age 65 and older are socially isolated, recent research revealed. Beyond the emotional pain of loneliness, seniors who are socially isolated also tend to develop cognitive issues at an earlier age.

Men, in particular, have a problem in this area. We tend to have fewer friends than women in the first place, and when we lose them, as we inevitably do as we get older, we have a harder time making new ones.

Speaking for myself, I’ve lost several good friends over the years. I can feel my social connections dwindling. Now is the time to rebuild them.

Happily, I’ve already made a couple of new friends through the groups I’ve recently joined. To me, these friendships and social connections are well worth the price of membership.

You can’t take it with you, as they say. I feel good knowing I’m spending my money on things I enjoy and that give back to the community, while keeping me engaged in that community.

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

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Moody About Money

A RECENT ARTICLE on this site, written by the editor, put me in a contemplative mood: How do I think about money?

Actually, I was already pondering this question, something I do frequently and especially at the end of the month, when my pension is deposited into one of our bank accounts and earnings on our investments are displayed in our Fidelity Investments accounts. I also ponder this question when I see our stocks and funds go up or down each day. My mood is affected, and my feeling of success changes for better or worse.

To find out more, I tried one of the personality tests that Jonathan referenced in his article. Sure enough, I scored high on “conscientiousness”—such individuals are organized and disciplined—which is what Jonathan predicted for HumbleDollar readers. In fact, I scored so high I probably ought to schedule a counseling session, but I’m not willing to spend the money.

Also as predicted, among the four money scripts, I turned out to be “money vigilant” with a touch of “money status.” But in my defense, my tendency toward money status is not about flaunting wealth or keeping up with the Joneses, but rather about measuring myself against myself and the internal secret goals I’ve set since I was age 18. I’m out to prove something—maybe that I could do better than my parents and grandparents or those kids who were off to Princeton or Harvard after high school.

Perhaps I do need that counseling session.

For the first time in many years, just before my pension arrived, our checking account last month was down to zero after paying off two credit cards. It had been another bad month for car repairs. As I saw what was happening, I panicked because it also meant we weren’t starting July with the balances we usually have.

I mentioned this to my wife, who simply said, “Move some money from the savings account if you have to.” Yeah, that’s the answer. But in my mind we’re going backwards, our savings account balance will be lower and that’s not supposed to happen, because it meant failure was on the horizon.

Part of this feeling comes from my insistence on bucketing our cash. We have bank accounts to pay bills, for travel and for savings, and never does one supplement the other—but maybe it’ll happen this month.

Of course, this is all nonsense. We aren’t going backwards and we won’t run out of money. But as the money vigilant trait holds, “These individuals tend to be very aware of where they stand financially and are overly concerned about their financial well-being.”

According to my wife, that’s me, overly concerned. I guess I am, but at my age nothing will change. I like to think overly concerned is better than a pile of credit cards you can’t pay at the end of the month.

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Follow Those Values

I SAT IN THE LAWYER’S office in Erie, Pennsylvania, in the summer of 2011. He was handling the high six-figure inheritance I was about to receive. I should have been overjoyed, but I was exhausted.

In fall 2004, my mother, a 70-year-old former elementary school teacher, had suffered a massive stroke and developed vascular dementia. My father, a 76-year-old former elementary school principal, had tried to take care of her by himself. He fell ill in summer 2006 and died that fall. In July of that year, I assumed guardianship of both my parents and their estate. At the time, I was working on my PhD.

In the years between 2006 and 2011, I sold my parents’ house, dealt with court reports, managed my mother’s nursing home care, buried both parents and rode shotgun on the estate. I had worked with my parents’ financial advisor to set up annuities. In conjunction with my mother’s pension, half of my father’s pension and her Social Security, the annuities covered the monthly nursing home expenses for five years, with a lump sum then returned to me in the form of a death benefit.

 By then, I had finished my PhD. But because I had gone back to school in my 30s and because I’d emerged from graduate school into the Great Recession, I found myself both underemployed and underfunded for retirement.

As the lawyer was reviewing the estate, he looked up and said, “This is a lot of money. It’s either going to last you 18 months or the rest of your life. I wonder which you’ll be.”

I looked at him incredulously. “Someone could work through this much money in 18 months?”

“Oh, you would be surprised,” he replied. “People who get seasick decide to buy an expensive boat.”

The average U.S. inheritance is some $46,000. The amount I received from my Greatest Generation teacher parents was much, much larger, about $730,000. One article notes that, in wealthy families, 70% who inherit squander the money they receive. According to Cerulli Associates, baby boomers will leave more than $53 trillion to their heirs. A lot of that money will likely be spent on really dumb things.

My suggestion: Take a values-based approach to managing an inheritance. If you do that, you’re far more likely to be among the 30% for whom an inheritance lasts not 18 months, but for the rest of their life.

To be sure, I’ve made some investment mistakes handling the inheritance I received. But I never made the fatal error: leading with my desires rather than with my values and my core needs. I’ve used the inheritance for purposes that fit with my values and, along the way, seen the money grow into a seven-figure retirement nest egg.

Just because you can do something doesn’t mean you should, especially if the action isn’t in line with your pre-inheritance values. I lived in a cheap apartment before the inheritance. I still live in a cheap apartment. When I retire, I’ll buy a condo, so I don’t have to worry about rent increases. But I was never a fan of homeownership, and I’m still not.

In my 20s and 30s, I lived in cities with public transportation, so I never owned a car. Because I’ve lived in places with very little public transportation during the past 10 years, I used a bit of the money to buy a Ford Fiesta. It now has 125,000 miles on it. I hope to get it to 200,000.

There have been no boats or trips to the Riviera. But I have spent money on my career, medical and dental expenses, taking care of an old cat who has been a friend, and continuing to prepare for retirement, the timing of which has not changed just because my circumstances have. When I started graduate school in my early 30s, I intended to work fulltime until age 70 and part-time until 75. That goal hasn’t changed.

I’ve given a few gifts to organizations whose work I believe in. More important, these are organizations that I’ve known well and done volunteer work for. The groups engage in work that I’ve had longstanding commitments to.

 The inheritance has also allowed me the luxury of engaging in impact investing. I purchase Calvert Community Investment Notes each month. That means some of my money is going toward affordable housing, education and microfinance. I receive a smaller return so I can support my values.

When I get closer to retirement, I’ll collect and invest in rare books. That again reflects my values. I’m an English professor. I’ve been a volunteer literacy tutor, and I’ve worked for two major publishing companies, including the publisher of a favorite childhood book series, Curious George.

I began publishing short fiction and scholarly articles in graduate school, and I come from a family of educators, so I’ve spent a bit on writing workshops. I’m also earning a third graduate degree, in instructional design. My employer covers half the cost of the degree and I cover the other half. Eventually, to keep myself intellectually engaged, I’ll probably do a second PhD devoted to the history of education.

While I don’t lead a particularly lavish life, I plan to do some travel that’s in line with my values. I did my junior year abroad at the University of Edinburgh, where I read medieval history. I’d like to spend six months traveling and living in Scotland again. In addition, I’ve loved museums since I was a child. I want to do some museum-oriented travel in the U.S. and Europe.

All these goals are in line with my pre-inheritance values. Something else I care about: autonomy. I’ll have the money in retirement to hire home-health care workers if I need them, so I can avoid being in a nursing home. I consider that to be a precious privilege.

Douglas W. Texter is an associate professor of English at Johnson County Community College in Overland Park, Kansas. Doug teaches a composition I course that focuses on personal finance. His essays and fiction have appeared in venues such as the Chronicle of Higher Education, Utopian Studies, New English Review and The Writers of the Future Anthology.

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