Jonathan Clements's Blog, page 143

Plowman’s Lunch

AROUND 2,800 YEARS ago, Homer’s Odysseus decided that the whole Trojan war enterprise, in which all of Greece would go to war and destroy an entire city because a woman ran off with a guy she liked, was crazy, so he tried to get out of going by pretending to be crazy himself. The Greek allies were suspicious that their cleverest leader was really crazy, so they sent an emissary to find out.

When the emissary arrived at Odysseus’s small city state, he found Odysseus incoherent. Odysseus was plowing his fields, but sowing salt into the ground rather than seeds. Nevertheless, the emissary thought Odysseus might not be crazy. To test Odysseus’s sanity, the emissary placed Odysseus’s newborn infant in front of the plow. Odysseus, not being crazy, stopped plowing, thus revealing himself to be sane—and hence capable of taking part in a war he thought was crazy.

In many ways, Homer’s Iliad and Odyssey mark the beginning of Western literature and, indeed, there are several important themes in Homer’s work—stuff like duty to yourself and others, society’s duty to the individual, man’s relationship to gods and fate, the need to honor the dead, and what constitutes proper action for an individual and for society.

But that’s not the reason I bring up Odysseus. Instead, I’m mostly interested in the fact that he was using a wheelless stick plow. The moldboard plow, allowing more fertile heavy soils to be completely turned over under the plow, would not be invented for another 2,500 years. The stick plow was invented more than 6,000 years ago, so Odysseus is closer in time to me than he was to the invention of that first plow.

As I’ve been planting my vegetable garden, scratching furrows into the ground with a Warren hoe—which functionally is a stick plow even more primitive than Odysseus’s plow—I’ve been thinking about Odysseus, and the relationship between my own plowing and my inability to avoid getting involved in enterprises that lack common sense.

Gardening lacks common sense, at least for me. For people who enjoy the act of gardening, it’s perfectly sensible. But my enjoyment of gardening is irrationally bound up with the idea that I have to grow vegetables, so the garden costs less out of pocket than buying the same food at the store would cost. In a world with both relentlessly efficient large-scale agriculture and local organic commercial gardeners who are far better at growing things than I am, this is difficult to justify.

That a garden needs to be financially practical is not just an idea for me. Apparently, I’m emotionally cathected to this on a level that’s far from practical.

What’s the real reason I feel this way? I think it’s because, when I was growing up, I spent my summers with my grandparents, who were born around 1900. They had a garden. All my grandmother’s sisters had gardens. They all lived nearby. They harvested together and canned the food together.

They had gardens because gardens were practical and thrifty. Gardens were thrifty during the Second World War, and before that they were thrifty during the Great Depression, and before that they were a necessity because various branches of the family were farmers in isolated areas of the West, while others were Kentucky coal miners. For all of them, both cash and refrigeration were in short supply.

The conditions that made gardens practical and thrifty have faded. Nevertheless, each spring in my backyard, I drag the plow of the past habits of long-dead loved ones back and forth.

It’s not just me. People in general drag the past around with them like a phantom plow. They’re so used to pulling that plow that, as they make their way through every day, they scarcely notice how the past leaves a furrow in the present.

Gardening, however crazy I make it, is at least harmless. Not all the financial habits we carry from the past are so benign.

I think most people’s spending habits are unconsciously tied to what they saw their parents, or other adults significant to them, do and how they felt about it. You can avoid talking to your kids about how to spend, save and invest. But you can’t hide from your kids how you actually act around money nearly so well—and certainly not as well as you hide how you act from yourself. Children may not know the dollar amount of their parents’ spending, but they’ll notice every irrational behavior their parents have about money.

And for years, they’ll integrate that behavior or struggle to differentiate themselves from it. Even in cases where people grow up and consciously decide not to behave like their parents, they’re still reacting to the past.

The result can be unfortunate spending or unfortunate frugality. The result might be excessive investment fear or irrational enthusiasm. Or the consequence can simply be an unfortunate feeling of anxiety about money. Such acts and feelings can be difficult to avoid or even recognize when they’re bound up with the emotional aspects of the past.

Few people are cathected to light bulbs or paper clips, which typically makes decisions about purchasing such things relatively rational and straightforward. But other purchases, such as houses, clothes, cars and family vacations, can sometimes take on an emotional import beyond their practical utility. When people habitually overspend or underspend on things, or feel bad about how they use money, there’s almost always an unexamined emotional component beneath the surface.

Paradoxically, thinking dispassionately about the cost of what you want isn’t an entirely satisfactory way out of the dilemma, because you’re a human being. What you want should be bound in some cases to your emotions, because—if nothing is—you’re probably a psychopath.

I don’t think it’s possible to eradicate the emotional element of our spending, saving and investing decisions. I do think that, when you find yourself anxious or troubled by a financial habit, or stridently defensive about a financial decision, it’s a good idea to take a long, hard look at why you have the habit, how it developed and whether it carries an emotional weight from the past.

Some needs of the past can’t be satisfied by acting in the present. You can’t fix everything in the past, but you can understand it. If you’re lucky.

Unless you’re a lost cause, like me. I’m off to nag my kid about helping me weed the garden. We’ll ultimately eat what we sow, and the past will be our future plowman’s lunch.

David Johnson retired in 2021 from editing hunting and fishing magazines. He spends his time reading, cooking, gardening, fishing, freelancing and hanging out with his family in Oregon. Check out David's earlier articles.

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Living Dangerously

FOR MOST SENIORS, purchasing Medicare Part D prescription drug insurance is the right move—even if they don’t require any expensive medicines right now. The coverage insures against the risk of someday needing prescription medication that costs thousands of dollars and might be otherwise unaffordable.




The federal government subsidizes Part D, so it’s cheaper than purchasing stand-alone private drug insurance. Another good reason to enroll in Part D at the first opportunity: You avoid the penalty associated with a late sign-up.




Part D has an initial open enrollment window that runs from three months before to three months after your 65th birthday month. After that, there’s a late enrollment penalty unless you have “creditable coverage”—meaning that, up until that point, you had equivalent drug insurance from, say, your current or former employer. You’d also avoid the penalty if you’re enrolled in Medicare Advantage, a comprehensive health plan that typically includes prescription drug coverage.




If neither applies, Medicare imposes a penalty on those who sign up late. It’s trying to squelch moral hazard—free riders who only buy coverage after being prescribed costly medicine. The math on the Part D penalty is complex. But here’s Medicare’s official explanation: “Medicare calculates the penalty by multiplying 1% of the ‘national base beneficiary premium’ ($32.74 in 2023) times the number of full, uncovered months you didn't have Part D or creditable coverage. The monthly premium is rounded to the nearest $.10 and added to your monthly Part D premium.”




Scratching your head? Here’s the boiled-down version: In 2023, delaying signing up by one month adds 33 cents to the Part D premium. That may not sound like much until you consider some delay signing up for months or even years—and the penalty persists for as long as they’re enrolled in Part D. In a hypothetical example, Medicare calculates that someone who was 29 months late enrolling would pay an extra $9.50 a month for coverage or $114 a year—for life.




Still, Part D might not be right for everyone. Who might choose not to enroll? Two groups come to mind. As I mentioned, those who enroll in a Medicare Advantage plan usually have prescription drug insurance bundled into their overall coverage. In fact, if your Medicare Advantage plan covers prescription drugs, you can’t have Part D, too.




A second, smaller group could be those fortunate few who are both healthy and wealthy. They might choose to self-insure—pay drug costs from their pocket—to avoid a substantial surcharge owed by high-income individuals who enroll in Part D.

The Part D surcharge is $70 a month per person in 2023 for joint filers earning between $366,000 and $750,000 annually. For those making more than $750,000, the monthly surcharge ramps up to $76.40 a month. These are known as income-related monthly adjustment amounts, or IRMAA for short. IRMAA surcharges are levied not only on Part D, but also on Part B—and the Part B charges are even higher.




Healthy and wealthy people can avoid the Part D cost by self-insuring. Under the worst-case scenario, they’d pay for up to 12 months of prescriptions before enrolling in Part D at the next opportunity, at which point the charge would include the penalty for late enrollment.




Part D can be purchased each year during an open enrollment period that runs from Oct. 15 to Dec. 7. It’s not underwritten—meaning no one is turned away from coverage based on health.




Individuals paying the highest income-based Part D IRMAA fee of $76.40 a month—on top of the average Part D premium of $32.74—would save $1,309.68 by not signing up for one year. They would pay a penalty for delaying if and when they signed up, however.




If they delayed signing up for Part D by one year, I estimate it would take 28 years before the late enrollment penalty exceeded the savings of delaying Part D coverage for one year. I’m assuming that a wealthy person could afford to pay out-of-pocket for prescriptions for one year.




To be sure, if you’re not wealthy, this is living dangerously. The most expensive prescription drug, Zolgensma, a one-time infusion to treat spinal muscular atrophy, costs $2.1 million in 2022, according to GoodRx. The site lists 10 drugs that cost more than $600,000 over the length of therapy, none of them commonly used. Still, if you couldn’t afford them, be sure to enroll in Part D when it’s available.

James McGlynn, CFA, RICP, is chief executive of Next Quarter Century LLC  in Fort Worth, Texas, a firm focused on helping clients make smarter decisions about long-term-care insurance, Social Security and other retirement planning issues. He was a mutual fund manager for 30 years. James is the author of  Retirement Planning Tips for Baby Boomers . Check out his earlier articles.

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Money Rebel

WHEN WE'RE YOUNG, WE simplistically view our family’s money journey as one long road with clear signs that tell us to “speed up,” “change lanes” or “get off.” It’s only later, as we gain wisdom, that we can discern how messy the journey is—and how each of us ended up turning onto a different street to pursue financial freedom in our own unique way.

By exploring the money stories of three family members, I have come to better understand my own financial journey.

Business lessons. “Stevie, let’s go already. Stop with the sports page. I need to get downtown.”

“Okay, Dad. The Dodgers are back in first.”

“Stevie, there’s a time for baseball and there’s a time for business. I want to talk to you on the ride in. You’re 14 now and you need to get serious about life. Remember, Stevie, I started with nothing. We never owned a house, so I didn’t even know what a mortgage was.”

I hated these lectures. It was like being in school on the weekend. I wish he would have taken Richie with him, like he usually did.

“I’m worried about you, Stevie. You’re like your mother and grandma. You’re too soft. The world is a rough place and I don’t want you to be taken advantage of. Mommy doesn’t drive so she takes taxis everywhere. Then they take her the long way around and charge her double.”

“Dad, I’m not going to be taken advantage of.”

“Richie is tougher than you. He won’t paint the apartment for a tenant who’s always late or if he’s one of those types who keeps asking for more.”

Always it’s Richie, Richie, Richie. I win the freshman prize for my essay on what happens to real estate values as neighborhoods change and my father doesn’t even come to hear me talk.

“Sometimes, I think you’d be better off working for someone and letting Richie do the real estate. He’ll always cut you a piece of the action.”

He’s afraid that, left to my own devices, I’ll fritter away my inheritance.

“Let’s start with rents. Don’t be a big man. Raising rents to the ceiling is insensitive, and you don’t want to lose good tenants. And pay attention to how rental prospects come across. Sometimes, the kind of people they are is more important than how much they make.”

“Dad, there’s a Howard Johnson’s 28 flavors. Can we stop for a chocolate mint?”

“Later, Stevie, please, there’s more to learn. Keep your eye on the ball, and that’s expenses.”

Here comes lesson No. 100.

“Stevie, holding down expenses is almost more important than raising rents. Rents usually go up gradually and so do most expenses, like utilities, insurance and taxes. And your mortgage stays the same. But repairs and maintenance can go haywire. They’ll determine how much cash you have left at the end of the month.”

I thought about Mommy and how she surprised me with that new Elvis Presley LP.

“You have to be smart. Say a sink needs a new knob. Maybe $100 to replace it. But to get the knobs to match could be $500 if you buy the whole fixture. At that funky place in Brooklyn, they don’t have to match. The people have more important things to worry about, like having enough for food and buying clothes for their kids. They couldn’t care less about which knobs they get. But on 35th Street, that lawyer couple, they have to match. Otherwise, you’ll get a phone call the next day.”

Grandma always set aside some food on her plate. She said it was for God and all his people everywhere. It didn’t matter whether they were rich or not.

“Stevie, don’t drift off on me. We’ll be there soon and we’ve got more ground to cover. Let’s talk about the people who work for you. They should be loyal, no stealing, no excuses to stay home, no ‘it’s snowing’.”

“Dad, I’m getting hungry. Are we near the bridge yet?”

“Yes, Stevie, it’s coming up. You want versatile people, people who can do more than one thing. Take Seymour. When I was just starting out, he looked after the TV parts business, then he ran the record stores. Now, he does the real estate.”

“I think the first game of the doubleheader is about to start. Can we turn it on?”

“When we get to the office, Stevie. Another important thing: Salaries are a big part of expenses. You can’t go overboard, but you have to be fair. Everyone needs to put bread on the table and they’re depending on you. Always pay on time. If you want loyalty, you have to show loyalty. And be generous with gifts. Like Lucy Griffin, the manager at 35th Street. Her husband died two years ago. She works and she has a kid a little younger than you. Every Christmas, I give her a bonus and bring over clothes you grew out of.”

“Hey, Dad, we’re here. I’m going to the office and turn on the game.”

“Okay, Stevie, I’ll park and meet you there.”

Running to the office, I promised myself I’ll never ever own any real estate. I’m going to be a sportswriter.

Sibling rivalry. My brother and I spent many summers at Raquette Lake Boys Camp in the glorious Adirondacks of Upstate New York. The annual baseball game against hated rival Brant Lake marked the final week of summer vacation. The lead changed hands several times when, in the bottom of the ninth and the score tied four-four, Richie came up with two outs and a man on third. He smacked the first pitch inside the third baseline and into left field, knocking in the winning run. Richie ran up to me crying, and together we jumped up and down until my front tooth chipped when it bumped against his forehead.

My brother surpassed me on another playing field as well. He grew into the favorite son—considerate, social and enamored of my father’s business exploits. I would become the renegade, aloof, moody and contemptuous of my father’s fixation on real estate. I never relinquished my role as academic star, but a kooky one isolated in his room playing baseball board games and Elvis Presley songs that vibrated throughout the house. Besides, in a family that viewed teachers as underpaid public servants, scholastic recognition was small consolation.

Smooth sailing in our family served my brother well as an investor. Feeling accepted for the person he was, he had nothing to prove. He could be a steady Eddie. He started before the advent of index mutual funds and, unwilling to pay high active management fees, fashioned his own diversified stock portfolio. He mostly held firm for 40 years, capturing the entire bull market beginning in 1982, persevering through the tech debacle of the early 2000s and the financial crisis of 2008.

Exiting childhood with more to prove than Richie, I fiddled around with exotic trading strategies for far too many years. Despite my more complex understanding of how markets work, I surely underperformed my brother. I squandered my knowledge and my results on old family agendas and personality issues.

Richie had won the game, and it was now time to take some chips off the table. But his phenomenal success with an index-fund-like stock portfolio bred overconfidence just as he approached retirement and its nemesis, sequence-of-return risk. Unfathomably, rather than allocate a substantial part of his nest egg to short-term Treasury instruments to protect his withdrawal plan, Richie took a deep plunge into a single stock. As the country’s only dual defense contractor and major manufacturer of commercial aircraft, Boeing became 17% of what had for decades been a scrupulously diversified portfolio.

My brother had come full circle from a stay-the-course investor to a high-wire act. He didn’t imagine, however remote, encountering one of Nassim Taleb’s black swans. In 2018, Boeing’s 737 MAX 8 airliner tragically crashed in Indonesia and then again five months later in Ethiopia. A constitutionally long-term investor, Richie was loath to sell, but he eventually liquidated the remaining half of his original position. Even so, my brother was luckier than most. He had ample cash flow from a thriving law practice until he retired and reliable passive income from his commercial real estate.

Over the years, Richie and I collaborated on many real estate deals, some in California but most in Florida. His generosity has been unwavering. He found most of the deals, his office did the paperwork and mailed me the closing papers, and he managed the properties. I just signed, barely skimming the documents. For all this, my brother never asked for a dime. Stevie was a pro bono client.

Chastened by my bouts with the fiendish market and supported by family and therapy, today I’m docked in the comparatively calm waters of mutual and exchange-traded index funds. I still do some splashing around, but in a very small pool. No longer needing a proving ground, I frolic in hobbies and find meaning with family and friends—what I should have been doing all along.

Royal treatment. Last month, my wife Alberta received a royalty check for a series of Spanish textbooks her father wrote 80 years ago. Dean of Admissions and Guidance at Los Angeles Valley College, Bob died of a massive heart attack at age 49, when Alberta was eight. He never got to hear the acclaim or see the widespread adoption of his books at high schools across the country. He never knew his royalties would support his family through Alberta’s childhood, pay for her undergraduate and graduate education, and provide the down payment for her first home.

Alberta’s mother Rose had been abandoned by her own father in the Depression. Losing the two most important men in her life consigned Rose to a constant state of nervous apprehension. Despite lucrative royalties, a pension and Social Security income, she lived as if in constant financial peril. Mother and daughter lived in a one-bedroom apartment for some years, a condition of relative deprivation that was a source of unhappiness.

A woman twice broadsided by randomness finally saw the dice fall her way. As often happens, need is a catalyst for opportunity. With a desire for high cash flow but with a low tolerance for risk, Alberta’s mom became attracted to municipal bonds’ twin allure of tax-free income and safety. Rose began purchasing munis a few years before interest rates peaked in the early 1980s, and continued for many years as rates fell and bonds embarked on a multi-decade bull market. Alberta’s mom reaped an entirely unanticipated capital gains windfall, in addition to relatively low-risk, tax-free income.

The bonds proved a boon for us after she died, with the interest supplementing our income. Looking to build up a reserve for a house down payment and wanting diversification for our stock investments, we held on to the bonds, letting them mature one by one to avoid commissions and the bid-ask spread.

In many ways, Alberta grew up as the poor little rich girl, always on the outside looking in. She strove to honor her dad’s memory through academic achievement. She published her psychology honors thesis, was awarded a prize from the American Society of Criminology, and graduated Phi Beta Kappa from Berkeley, before earning a PhD in clinical psychology.

But Alberta’s greatest accomplishment was not in academia, but in our family. Soon after we married, I collapsed with a serious depression that cost me my job as director of research in the University of California, Davis, psychiatry department. Negativity and irrational fears plagued me for many years. All that time, Alberta juggled a private practice with raising our son Ryan, in effect a single working mother.

Her husband, the other kid, could be quite primitive. My helplessness panicked me, but Alberta remained calm. One time, I interrupted a patient hour, pleading that she not ever force me to work again. In a soft reassuring voice, she said she wouldn’t let anyone put that pressure on me. Not believing her, I threatened to let my psychologist license expire. She implored me not to shut the door. She still held out hope.

From time to time, I ask Alberta why she stayed with me.

“Steve, love doesn’t end when earnings do.” Only half-jokingly, she says my sense of self-worth could use some more therapy.

My money journey was fueled by my alienation. A teenager’s dream of becoming a sportswriter and a subsequent career as a clinical psychologist were passions in their own right. But they were also acts of defiance. As I achieved independence from an overbearing parent, my need to rebel diminished. Alberta understood my depression was precipitated by alienation—alienation that blocked me from creating a new professional and financial identity.

But that identity has belatedly emerged, one that includes rendering psychological services, investing in the stock market and managing a once-demonized real estate business. No, I never became a sportswriter. But I have written many professional articles and contribute regularly to HumbleDollar. It is, I think, an identity that fits me well.

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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A Job With Teeth

AS A FIRST-YEAR dental school student in 1999, when I was debating whether to apply for a military health-professions scholarship, I never gave a thought to receiving a military pension. In fact, I don’t even recall knowing that was a possibility.

I was already in debt to the tune of $65,000 from my undergraduate degree, so I was simply seeking financial aid for dental school, typically considered the most costly type of graduate education a person can buy—more so even than medical and law school. Yet, fast forward to today, and my eventual pension is perhaps the single most valuable element of my retirement plan.

When I retire in four years as a colonel with 24 years of active duty service, my pension—in today’s dollars—will be worth $91,400 per year. This pension starts the day after I retire, unlike most pensions, which don’t begin until age 65. It also includes an annual cost-of-living adjustment (COLA) equal to that received each year by Social Security beneficiaries, so my government pension will never lose its purchasing power.

The exact math behind military retirees’ pension is based on the average of their final 36 months of pay—which is tied to their rank or grade—combined with a multiplier tied to the number of years served on active duty. A member of the military must typically serve at least 20 years on active duty to be eligible for an immediate pension and lifetime health care. Many will serve up to 30 years or longer, thus receiving significantly higher pensions than I will.

Although I’ve learned it isn’t wise to consider my future pension to be part of my investment portfolio—because the pension is not an asset per se—it still feels like part of our nest egg, and it largely shapes our retirement planning efforts. For example, the $91,400 I’ll begin receiving in a few years is roughly equal to having a $2.3 million portfolio and withdrawing at a 4% annual rate.

Put another way, the pension equates to $2.3 million less that I’ll need to invest and save for our family’s retirement needs. It’s also $2.3 million that’s not subject to the rise and fall of the financial markets and, because the pension has a COLA and can’t decrease, it’s tantamount to having $2.3 million in inflation-protected bonds that will never go down in value. But again, it’s not truly an asset because, when I die, the pension dies with me. Unless I’m willing to pay for the “survivor benefit plan”—a rather expensive way to insure the pension—my wife receives none of it when I’m six feet under.

To protect my wife’s future and also build a nest egg to cover other expenses the pension won’t cover, such as college, weddings and large or unexpected purchases, we’ve been living below our means since the very beginning and investing as much as possible in a low-cost 80% stock-20% bond mix of index funds. I also have a relatively inexpensive $2 million 30-year term life insurance policy that should cover my wife and kids, at least until it lapses at age 72.

The upshot: Combining the pension—which will begin when I’m age 51—and investments, it’s possible I’ll be able to “retire retire,” which in the military vernacular means, “retire from the military and not have to get a civilian job.” Without my pension, that would be completely impossible, at least at that relatively young age.

On top of that, the military provides a generous health-care insurance plan for retirees, covering my and my wife’s medical needs for life, as well as our children’s needs until age 26 if they remain fulltime students. These benefits aren’t completely cost-free, although the annual enrollment fees and co-pays are extremely low compared to most health insurance plans.

While I anticipate my pension being a catalyst for early retirement, it certainly comes at a price. First, it’s a fully cliff-vested defined benefit, meaning if someone separates from the military prior to serving 20 full years on active duty, there’s zero pension. Zip. Second, we essentially give up our personal freedom during the 20-plus years of service—including choice of location to live, occasionally less-than-ideal housing on military installations, being on-call 24/7 for deployments, incurring a legitimate risk of injury or death in combat, and forgoing the opportunity to have a more lucrative private practice as a dentist.

Third, our spouses and kids pay the price for our careers. Indeed, lack of stability is the norm for military families in terms of homes, neighborhoods, neighbors, friends, churches, schools, sports teams, piano teachers and the like. One of my daughters had lived in four homes on three continents by the time she was two years old.

Is the pension free, easy money? Not at all. But in our case, it is a game-changer. I anticipate it being the key to retiring (or actually “retire retiring”) potentially 12 to 15 years earlier than I could have done if I’d gone into private practice instead.

Casey Campbell is an active duty military periodontist and a homeschooling father of five. He and his family currently live in Northern Virginia. The views expressed in this article are those of the author and shouldn’t be construed as official or as reflecting the views of the U.S. Air Force or Department of Defense. Casey's previous article was A Moving Predicament.

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Ah, the Good Old Days

I GOT OUT OF THE ARMY in August 1969. In the months prior, my wife and I discussed our financial plans. Simply put, if I was given a raise to $160 a week when I returned to work, we could buy some furniture for our small apartment. Bingo—we made it. I was earning $8,300 a year.

The other part of our plan was to save my wife’s salary toward a house down payment. She left the job market for good the following July, when our first child was born. I was going to say she “stopped working,” but that wouldn’t be fair.

In early 1971, we bought a home for $29,000, taking out a 30-year mortgage at 9½%. Our house cost a little over double our 1971 gross income. Based on the average home price and median household income in New Jersey today, a house costs five times income—and we’re mostly talking two incomes. Of course, homes these days are nothing like our 1918 house with a single, tiny bathroom.

In 1972, we bought our first new car, a two-door Plymouth Duster. It cost $2,400. The monthly loan payment was less than $100. There was no air-conditioning and no power anything. For many years, six of us—we had children in 1970, ‘71, ‘74 and ’75—traveled 300 miles every year to Cape Cod in that car. Our daughter sat on a booster seat between us in the front. Yup, in the good old days, we did foolish things, too. We’d probably get arrested today. One August, because of bad traffic, it took us nine hours to do the drive—it usually takes five. Now, that was a family crisis.

Going through some old records, I found our 1971 income tax file. I earned $12,426 as a clerk supervisor, but my adjusted gross income was $12,188, with some interest earnings offset by realized stock market losses. Today, our property taxes alone are $2,000 more than our total 1971 income.

 I’ve previously mentioned my early failures at investing. In 1971, I sold 100 shares of a company called Federal Resources for a loss of $797.

Back then, the personal exemption was $675, which—for our family which then numbered four—knocked a whopping $2,700 off our taxable income. Our mortgage interest was $1,475 and property taxes were $771. In 2023 dollars, those property taxes should be some $5,800. But for that house today, property taxes are actually $11,375 and the place is assessed at $384,700 for tax purposes. In 1975, we sold the home for $42,500.

According to my tax return, I paid $31 in interest in 1971—on a margin account. To be honest, I have no memory of that account. Why would someone earning $12,000 a year have a margin account? Did I buy Federal Resources on margin? I hope not.

I also deducted expenses for my belated college education. Tuition and books, along with the travel miles from work to school to home, came to $763.  Deducting college travel expenses is a no-no these days. I hope that wasn’t the case in 1971. I traveled 3,200 miles that year going to college. The bottom line: I paid almost $1,001 in income taxes in 1971, for an effective tax rate of a bit more than 8%.

Life was simpler in those days. We actually did live paycheck to paycheck—after always saving something—but doing so seemed to be the norm, not a crisis. Vacations were modest and short. I cut my own grass and shoveled the snow. We even had a nice vegetable garden. My wife was very involved in the children’s school activities. Birthday parties were always at our house, with a homemade cake.

We weren’t poor, but we lived modestly, and we were no worse for it. Actually, I should have been pleased. The median household income in 1971 was $10,290. Who knew we were solidly middle class?

Would I like to go back to the good old days? I think not. Still, there are some things I wouldn’t mind bringing forward to today—like our tax bill and the cost of a car.

Richard Quinn blogs at QuinnsCommentary.net. Before retiring in 2010, Dick was a compensation and benefits executive. Follow him on Twitter @QuinnsComments and check out his earlier articles.

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Yes, They Give a Damn

HOME DEPOT COFOUNDER Bernie Marcus made headlines late last year with his claim that capitalism may not survive because “nobody works, nobody gives a damn.” I respectfully disagree. While Marcus has one example—people not wanting to work or work hard enough at the stores he founded—I believe America has a terrific future based on four observations:

I was a Boy Scouts leader for 16 years. I like to think that Scouts teach leadership and independence. Indeed, a 2015 study by Tufts University showed that participation in the program led to an increase in kindness, helpfulness and trustworthiness.

I know what a few dozen young men from Boy Scouts are doing today. Many—but not all—went to college. They currently have careers as varied as teacher, film editor, lead custodian at a school, satellite engineer, data analyst, diesel mechanic, insurance salesperson and hotel manager. Many are married. My point: Each has gone on to contribute to society, pay taxes and become a solid citizen.

My own sons are part of the cohort above. Both have careers in science, technology, engineering and math (STEM). I see and hear about the hours they put in at their jobs. They care about their work performance. They aren’t shirking. Both married bright, capable women. Their wives also have careers, work hard and are concerned about their job performance.
Before I retired, the young people that I worked with were similarly hard working and cared about the job they did. I had the privilege of hiring many young engineers, both men and women, fresh out of college. They all hit the ground running. To a person, they were professional, competent and dedicated.

I also worked closely with supply chain analysts, factory workers, maintenance workers and quality technicians. I’ll concede that many of the younger folks wanted to know the “why” when asked to do a job, as opposed to simply following a directive. To me, this is a plus. When explaining the outcome that I’m seeking, they often have input that makes both the process and the results better.

My alma mater recently invited me back to help judge undergraduate projects by senior mechanical engineering students. More than 300 students worked on more than 60 teams, developing solutions to problems large and small. They built working prototypes to prove feasibility. Some of the projects will result in new products.

Most of these graduates already have jobs lined up. Some will work with Fortune 100 companies. Some chose to work with startups. Virtually all will be contributing to America’s competitiveness.

Bernie Marcus may worry that capitalism won’t survive. But when I look at the young people that I’ve personally witnessed making contributions to America and its businesses, I’m not worried. Echoing the words of Warren Buffett, I wouldn’t bet against America.

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Buying Time

"I'D BE HAPPY TO JUST come here every year," I told my husband. We and our two daughters had arrived on Maui 72 hours earlier. It was May 2000—and our first trip to Hawaii.

We’d signed up for a timeshare presentation in return for discounts on tours and activities. By the time we got to the meeting, I’d fallen head over heels in love with the place. The timeshare salesperson had an easy time persuading me to buy. I had a harder time persuading my husband, but we ended up signing on the dotted line.

Between 2000 and 2008, we acquired more time at our original resort—now owned by Hilton Grand Vacations Club (HGVC)—and also bought time from Marriott Vacation Club (MVC). We now own two deeded Marriott weeks per year and the equivalent of two more weeks at HGVC.

Back in 2000, when I told my husband that I wanted to come to Hawaii every year, I wasn’t kidding. We live in California, and it’s a less-than-five-hour flight to Maui from our home airport in Sacramento. With the exception of 2020, when Hawaii closed down tourism due to the COVID-19 pandemic, we’ve been to Hawaii at least once a year since we purchased our first timeshare. In fact, as I write this article, my husband and I are enjoying a two-week stay at Marriott's Maui Ocean Club on Ka’anapali Beach.

Even though we’ve enjoyed our timeshares and made good use of them, I’ve always felt sheepish about having fallen for the timeshare pitches. Everything I read about timeshare ownership reminded me that timeshares are not a good investment. Recent events, however, have made me reconsider my sense of regret. Hotel prices have skyrocketed in the post-pandemic era, especially in Hawaii. I follow several Facebook travel groups, and I’ve seen complaints about even middling hotels going for $1,000 per night or more on Maui—and thought, “Well, I’m glad I have our timeshare weeks booked.”

I remember that first timeshare salesperson in 2000 showing us a chart of how hotel prices climb exponentially over time, and she made the point that, “In 20 years, you might not be able to afford to stay here.” It may have been the first and only truthful thing a timeshare salesperson has ever said to a prospective buyer.

Out of curiosity, as we were preparing for our current trip to Maui, I priced the same two weeks we’d be staying at the MVC property, May 15-29, at the three major hotels also on Ka’anapali Beach: a Sheraton, a Westin and a Hyatt. I priced a deluxe king room with an oceanfront view, which is somewhat equivalent to the unit we’re staying in.

The price for the two weeks at the three hotels ranged from $20,000 to $24,000. By comparison, our annual maintenance fee for our two weeks of MVC timeshare was $2,800 for 2023. And the hotel options are only somewhat equivalent. Our timeshare unit is a comfortable, spacious one-bedroom condo with an oceanfront view, balcony, full kitchen and in-unit laundry. There’s a lovely pool complex, onsite shops and restaurants, a well-equipped gym and resort activities.

I also checked rental prices for condos on Vrbo and on RedWeek. The latter is a timeshare rental and resale website. While we could rent two weeks at a condo on Maui more cheaply than we could book hotel rooms, the lowest prices were still well north of $5,000 for two weeks, and the condos weren’t necessarily as well equipped as where we’re staying now, nor do they have the resort amenities or great location we get to enjoy.

Of course, the financial comparison isn’t just between annual timeshare maintenance fees and current hotel or condo rental prices. There were acquisition costs for our timeshare ownership. Over several different purchases, we spent some $110,000 to acquire the month or so of time we now have in the two different vacation clubs.

The way we view this, though, is that we could have bought a condo on Maui for our own use as a second home, something we’ve also discussed. To get a similarly appointed and located condo, we’d have to pay more than $1 million, and our monthly homeowners’ association fees would be substantially higher than what we pay in maintenance fees at our two vacation clubs.

If we’d used the $110,000 as a down payment for a condo, we’d still have a huge mortgage, in addition to the homeowners’ association fees, not to mention the other carrying expenses and hassles associated with owning a second home. Instead, the money we’ve spent allows us to spend up to a month in Hawaii every year. For our specific goal—an annual trip to Hawaii that we can count on and plan for—our timeshare purchases have worked out well.

I never thought I’d be writing an article defending our timeshare purchases, especially for a financially savvy and conservative audience like HumbleDollar’s readership, but here we are. Rather than feeling foolish about the money we’ve already spent, with retirement on the horizon, we’ve begun to think about adding to our portfolio with another week or two of MVC ownership. If we do, though, it’ll be a purchase on a secondary resale site such as RedWeek, not through the vacation club itself. That part I do regret.

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

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Ten Ways to Simplify

TODAY MARKS MY 300th weekly contribution to HumbleDollar. Over time, one key theme has emerged: While personal finance can be complicated, it doesn’t have to be. How can you simplify your financial life? Below are 10 ideas.

1. Tracking donations. In the old days, it wasn’t too difficult to track charitable gifts. You would simply refer back to your checkbook. But today, most people use debit and credit cards, plus apps like Venmo, making it more of a chore to keep tabs on every transaction. Yes, there are digital solutions, such as Mint, but they all require some amount of maintenance.

That’s why, primitive as it may sound, I’ve found that a simple solution turns out to be the most effective: a humble manila folder. Simply label it “donations,” and then give it a permanent home on your desk or elsewhere in your home. Each time you make a gift, print out a confirmation or receipt and stow it in your folder. At the end of the year, it’ll likely require only a modest amount of time to total everything up.

2. Tracking spending in retirement. If it’s hard to track charitable donations, what about tracking overall spending? Again, you could use a tool like Mint. But if that isn’t for you, the best approach for retirees is to put their finances on autopilot. Set up consistent, automated transfers from your brokerage account to your checking account. You can then use your checking account as a barometer to easily track your spending.

Say you’re transferring $7,000 per month. If you find your checking account balance is rising over time, that tells you your monthly expenses are running at less than $7,000. On the other hand, if you’re regularly making additional transfers from your brokerage account, you know your expenses are running somewhere north of $7,000. Depending on your situation, you could either trim your spending to bring it under $7,000 or, if your plan permits, increase your monthly transfers until you’re running at breakeven. Either way, it’s an effective way to monitor your spending without much effort.

3. Tracking spending during your working years. If you’re in your working years, it’s harder to use the above strategy because money tends to come in from multiple sources, so a different approach is needed. I suggest using another relatively simple tool: traditional bank statements. Even if you receive statements electronically, you can print these out from your bank’s website.

Check out the summary at the top of the statement. There, you’ll find totals for dollars that came into and dollars that went out of your account each month. While subject to distortion from one-time items and funds transfers, these totals still offer a useful starting point. If you analyze perhaps six months of statements, that should provide a reasonable average. While sometimes a little imperfect, I find this approach far easier than trying to total up every little transaction.

4. Budgeting. In the past, bills arrived by mail, and it was the consumer’s choice when—or even if—to pay that bill. Today, it’s the opposite. Seemingly everything has turned into a monthly subscription, and they’re billed to our accounts automatically.

To make matters worse, if you also have your credit cards set to be paid automatically, you might find yourself in the situation a friend described recently: In reviewing his credit card statement—which he acknowledges he doesn’t do regularly—he was appalled to see not one but two Netflix subscriptions. It was for no good reason, and he’s not sure how long it had been going on. A practical solution I’ve found: Try to consolidate all your subscriptions onto a dedicated credit card. That way, these little charges can’t hide so easily.

5. Estate taxes. When it comes to estate planning, many are deterred by the cost and complexity involved. Consider irrevocable trusts. They’re a popular tool for getting ahead of estate taxes. But if you want to set one up, you’ll first have to find a lawyer, map out your wishes, decide which assets you’re willing to part with, choose a trustee and, finally, make peace with the ongoing complexity, including an added tax return each year. It’s a lot. If you’re materially over the estate tax limit, it’s absolutely what I recommend. But what if you’re not comfortable with, or not yet ready to commit to, an irrevocable trust? In that case, there are simpler steps you can take to chip away at your estate tax exposure.

For example, you’re probably familiar with the annual gifting exclusion, which allows tax-free gifts over and above the lifetime limit. This year, that amount is $17,000—the sum you can give to as many folks as you wish. Now, suppose you want to help your daughter with a home purchase, something that would require writing a much larger check of, say, $100,000. There’s a way to handle that without exceeding the annual exclusion and without too much complexity.

After writing the check, here’s how you’d account for it: Assuming you’re married, and your daughter is also married, you’d classify the first $68,000 as a set of four gifts under the annual exclusion ($17,000 each from you and your spouse to your daughter, plus another $17,000 each from you and your spouse to your daughter’s husband). You’d then structure the remaining $32,000 as a loan. In the following year, you could forgive that loan, including the accumulated interest—which the IRS requires you to charge on intrafamily loans—as gifts under the exclusion for that year. If this sounds complicated, my suggestion is to set up a Google spreadsheet to track your gifts, then share the spreadsheet with everyone involved.

6. Asset allocation. When building a portfolio, there are innumerable investment strategies and asset classes to choose from. But it doesn’t need to be complicated. When in doubt, you could employ the simple formula Warren Buffett recommends: an S&P 500-index fund combined with short-term Treasury bonds.

7. Withdrawal rate. Another topic on which there’s interminable debate: how much retirees can safely withdraw from their portfolios. Many believe in the 4% rule, while others debate that figure. Some say it’s too high. Others believe it’s too low. My view is that there’s no one-size-fits-all. A useful alternative, for a more personalized answer, is to consult the Trinity University study on withdrawal rates. It includes a helpful matrix showing the probability of success for various combinations of asset allocation and life expectancy.

8. Insurance. No question about it, insurance can be expensive, but there are two types that are relatively cheap: term life and umbrella. They don’t cost too much because the risks they cover have low probabilities. At the same time, those risks can be very costly if they do materialize, so I recommend that most people load up on coverage.

9. Taxes. As you probably know, there are two sets of tax rates that apply to most personal income: There are the ordinary income brackets, and then there are the rates for capital gains. This information can be invaluable for planning.

But look at your tax form, and it’s virtually impossible to see where you fall on each scale. How can you find out this information? Whether you work with an accountant or prepare your own returns, most tax software provides a summary sheet with your average and marginal tax rates for each category.

10. Just in case. With apologies for ending on a morbid note, it used to be that when someone died, it wasn’t too hard to piece together the deceased’s finances by simply opening his or her mail for a little while. But now, with most things electronic, it’s critical to put together a letter of last instruction.

In doing so, here’s a suggestion: Separate your letter into two parts. The first can be shared with an attorney, accountant or financial advisor, while the second might include more personal information and would be shared only with family members. Again, I recommend using Google Docs or another electronic format, which will make it easy to share the document and keep it up-to-date.

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 Retire

WHAT’S THE BEST DAY of the year to retire? Many people think it’s Dec. 31. But I used to think my ideal retirement date would be the day in February when the Cleveland Guardians played their first spring training baseball game. What better way to start my retirement than seeing my childhood baseball team in Arizona get ready for the upcoming season? When I wasn’t watching baseball, I could visit the Grand Canyon and Sedona.

When I think about baseball, I think about my childhood friends in Ohio and all the wiffle ball games we played in our backyards. Although the street I lived on was a row of tiny starter homes, it seemed like every house had at least two children. Nobody was rich, but we all seemed happy.

Still, you shouldn’t select your retirement date based on the opening day of spring training or, for that matter, the start of your golfing or fishing season. Retiring is an irreversible decision that should not be made in haste.

In September 2008, I decided it was time to retire. I felt I had enough money. I wasn’t satisfied with the work I was doing. I have to admit it wasn’t an easy decision. At age 58, I was fairly young to retire, plus I was making more money than I’d ever made. It was hard to let that paycheck go. But I was eager to start a new chapter in my life.

I decided to stay until the end of the year. It made sense. I would have given up some benefits if I left in September. For instance, I would have lost 10 days of holiday pay for Thanksgiving and Christmas. I also wanted to max out my 401(k) plan for the year.

There were also some home repairs and upgrades I wanted to do before I left the company. I didn’t want to retire and face large bills that might affect my retirement budget. I installed new blinds, overhead ceiling lights and double-pane windows. I also replaced an old water heater and electrical panel, and painted my apartment.

I found it’s a good idea to make a list of financial benefits you want to take advantage of before you retire. You should also consider any expenses that could influence your decision. What follows are nine financial situations that might determine your retirement date.

Social Security. You may want to plan your retirement date based on when you start taking Social Security. If you take your benefits before your full retirement age and continue to work, you’ll be penalized if you earn more than $21,240 in 2023. You would lose $1 of benefits for every $2 earned above that amount.

Pension. If you have a defined benefit pension, many financial planners say you should consider retiring the day after the anniversary of your first official day on the job. This may give you another full year of service that’s factored into the pension calculation—without having to work the year. On top of that, if your age is used to calculate your eligibility for retirement and other benefits, you need to consider how your birth date might impact your retirement date.

Retirement account withdrawals. If you’ll immediately need to pull money from your retirement accounts to meet your daily living expenses, think about retiring at the beginning of the year. This way you're not withdrawing money from your retirement savings when you might already be in a high tax bracket, thanks to the income you earned from your employer.

Also, if you’ll need to immediately withdraw from your retirement accounts, you probably shouldn’t retire until the day you turn 59½, so you avoid the 10% penalty for early withdrawals from your IRA or 401(k)—though there are ways to sidestep that penalty.

Roth contributions. Consider working long enough into the year so you’re eligible to make the maximum Roth IRA contribution for that year. This especially makes sense for individuals who previously hadn’t been able to contribute to a Roth because their income was too high.

What does that mean in practice? In your retirement year, you would work until you have enough earned income to make the maximum Roth IRA contribution. If you're 50 or older, you need to earn $7,500 in 2023 to make the full contribution and $15,000 for a married couple filing jointly.

Vesting requirements. Check to see when you’re fully vested for your employer’s 401(k) matching contributions, profit sharing plans, pension plans, stock options and any retirement insurance benefits. To maximize those benefits, retire after that date.

Tax implications. If you have deferred compensation, such as stock options, pay attention to the payout schedule. If it’s paid out on the date you retire, you might want to retire at the point in the year when your income is still low, so you avoid triggering a high tax bill.

Medicare. If you won’t have health insurance once you retire, you might wait until age 65, when you'll be eligible for Medicare. It can be expensive to purchase insurance on your own.

According to Fidelity Investments, the best and least costly option is getting health-care coverage through your spouse’s employer’s plan. You can also try purchasing insurance under the Affordable Care Act. It could be a cost-effective alternative if your income is low enough to qualify for government subsidies. Another way to get affordable insurance is to purchase a policy outside of your state’s health-care exchange. That way, you might find plan options that better fit your budget.

Dental and vision expenses. Medicare doesn’t cover dental work and routine eye care. If you have insurance through your current employer, try to get all major dental work done before you retire and be sure to use your vision coverage one last time.

Mortgage. If you have a mortgage payment that would drain your savings in retirement, you might aim to retire on or after the day your mortgage is paid off. Alternatively, you might be able to eliminate the mortgage by downsizing.

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

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Cheapskates Win

NEW MORNINGSTAR research on bond funds echoes what the late Jack Bogle preached—and proved—for decades: Costs are the greatest predictor of fund performance, not stock or bond selection prowess. In investing, you get what you don’t pay for, said Bogle, Vanguard Group’s founder and creator of the first index mutual fund.

There’s a school of thought that claims it’s easier for active bond fund managers to beat their indexes than it is for their stock fund colleagues. Whether that’s true or not, the fact remains that funds with lower expense ratios outperform more expensive ones, and they do so with less volatility. Those are the findings of Morningstar’s Chief Ratings Officer, Jeffrey Ptak, relayed in a recent column titled, “Why Pay Up for Bond Funds?”

“Costlier bond funds not only return less than cheaper funds, on average, but they’re more volatile,” Ptak wrote. “That’s not a coincidence. For even among funds of the same type, pricier offerings are more likely to take on higher risk to clear the higher fee hurdles they face.”

Upon reading that, my thoughts turned to today’s “bond king,” Jeff Gundlach. Several years ago, I considered investing in his flagship DoubleLine Total Return Bond Fund (symbol: DLTNX), but I was dissuaded by the fund’s high expense ratio, which today is 0.73%. Especially when bond yields in the 2010s were so low, I couldn’t justify paying that much for fixed-income exposure.

It’s also important to consider the purpose of fixed-income holdings in your portfolio. Since I’m still working and have a high percentage of my investments in stocks, I view Treasurys as the best way to hedge that risk. I use Treasury bond index funds as opposed to alternatives such as the Vanguard Total Bond Market Index Fund’s Admiral Shares (VBTLX).

Vanguard’s Total Bond fund tracks an index that includes all types of investment-grade bonds, with roughly half in Treasurys, but with corporates and securitized bonds also owned. Gundlach and his team, by contrast, invest the vast majority of their fund’s assets in securitized mortgage bonds. That presents a different risk profile but offers a higher yield.

DoubleLine Total Return sports a trailing 12-month yield of 3.66%, according to Morningstar, versus just 2.66% for Vanguard’s Total Bond Market fund. Its yield advantage is even greater over my short-term Treasury fund. Yet I don’t need yield right now, nor do I need the higher interest-rate risk of these other funds.

Despite vastly higher costs, Gundlach’s fund has destroyed the index fund since the former’s inception just over 13 years ago. DoubleLine Total Return has returned 3.5% per year, versus 2.2% for Vanguard Total Bond. Yet all that outperformance was concentrated in the DoubleLine fund’s early years, before it attracted most of its current $34 billion in assets.

Over the 10 years ended May 31, DoubleLine Total Return, with an annual gain of 1.2%, has lagged behind Vanguard Total Bond’s 1.4% annual return. Paying DoubleLine nearly three-quarters of a percentage point every year cost investors money over the past decade. Vanguard Total Bond’s expense ratio is just 0.05%.

Unlike most of the high-cost funds in the recent Morningstar study, the DoubleLine fund exhibited less volatility than the bond index fund. The DoubleLine fund fell just over 16% in the recent bond bear market, versus nearly 18% for Vanguard’s bond index fund. That’s good, yet hardly enough to let investors sleep more soundly—or to justify the higher costs.

And most active bond fund managers can’t match Gundlach’s record. The bottom line: I’d think twice before investing in any high-cost fund. Management skill rarely compensates investors. The only certainty is that high fees handsomely compensate management.

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

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