Jonathan Clements's Blog, page 151

Did It My Way

"I DON’T LIKE BEING too much of an example for people who just want to make money. If you wrest a fortune from life by buying little pieces of paper, I don't think that's enough. I never consider it enough of a life to merely be shrewd at picking stocks. If you're good at just investing your own money, I hope you'll be good at something more."

What Charlie Munger, the vice chairman of Berkshire Hathaway, said at the company’s 2015 shareholder meeting could be useful advice to most investors. I do, however, appreciate the irony of this advice coming from a man who is known almost entirely for “buying little pieces of paper.”

It’s much like when Donald Trump said, “Part of being a winner is knowing when enough is enough. Sometimes you have to give up the fight and walk away, and move on to something that's more productive.”

For too many years, I spent too much time trying to beat the stock market, reading Value Line, Barron’s or, even worse, Investor’s Business Daily, all part of my efforts to find undervalued companies that would lead to increasing dividends, investment riches and, of course, bragging rights with others who are similarly afflicted.

I’ve had a few scores. Master limited partnerships, Central Securities Corp. and Illinois Tool Works immediately come to mind. But after a while, I just lost the drive. Annual reports, which I previously found just boring, have now become insufferable. I’d rather get a root canal than read one more footnote regarding the Society of Actuaries' new mortality improvement tables. I found my time better spent researching the Second World War, planning travel and sleeping.

One of the best books I’ve ever read, The True Believer: Thoughts on the Nature of Mass Movements, posits that those who join mass movements, such as Nazism, communism or the French Revolution, come from a cross-section of society: the misfits, the outcasts, the selfish and the sinners. Specifically, those who tend not to join mass movements are the “artisan skilled in his trade…. Nothing so bolsters our self-confidence and reconciles us with ourselves as the continuous ability… to see things grow and develop under our hand.”

Simply put, I have found producing or repairing a physical product far more satisfying than 100 spreadsheets. I have always respected those who work with their hands—people like the auto mechanic, the carpenter and, of course, the plumber.

This all came back to me when I was recently informed by my wife that hot water was now coming out of the cold water faucet in our bathroom. “That’s odd,” I thought, “did someone break in last night and replumb our home?” So I did what any man not schooled in the art of pipe sweating would do. I asked the internet. It took a while, but eventually I realized I had what’s known in the trade as a “crossover.”

Crossover in most residential homes comes from an issue with a single handle valve, like the one in your shower or kitchen. The thermostatic mixing valve or the pressure balancing valve fails and allows hot water to leak into the cold water piping. This can lead to scalding issues in the shower and excessive hot water consumption.

After using some Holmesian logic, and by looking three feet to the left of the bathroom sink, I determined the culprit was most likely the adjacent single handle shower valve. I won’t (excessively) bore you with all the details, but after replacing both the possible offenders—ever heard of the 50-50-90 rule?—the issue was resolved.

I can still remember singing the song My Way—specifically the line “I did what I had to do, and saw it through without exemption”—the moment I realized the hot water now knew its place and was staying in its own pipe.

I won’t tell you how long all this took. But let’s just say it was the longest workday I’ve put in since I retired five years ago. I told my wife that I was now a professional contractor, as the job took twice as long and cost twice as much as estimated.

When I went to bed that night, freshly showered, the sense of satisfaction I had was unimaginable. Honestly, it had nothing to do with the money saved by not calling a plumber, although that didn’t hurt. While a part of it might have been the challenge to my masculinity, I think it was more the physicality of it. Something was palpably wrong, and I made it right.

The feeling of satisfaction was better than any stock market win. It was so good, I’m even looking forward to dealing with the next house-related issue. Not necessarily tomorrow though, but maybe later in the year.

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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Disney or Bust

AN ARTICLE PUBLISHED in The Wall Street Journal told the story of Americans in their 30s who are spending heavily and piling on debt as we leave the pandemic behind.

One family with an income of $80,000 in Lincoln, Nebraska—where the cost of living is low, with housing costs 22% below the national average—had $20,000 in credit card debt and $160,000 in student loans.

They used stimulus checks to work down their credit card debt. The couple claims to have saved money during the pandemic, but it’s not clear if that was actual savings or merely saving 20% by buying something on sale. I’m guessing the latter because unplanned spending—on a new water heater and health care expenses—has lately gotten them even deeper into debt.

Taking the family of six to Walt Disney World and other local trips probably had something to do with a doubling of their credit card balance to some $40,000. An online calculator shows that paying the minimum of $635 a month on that credit card will result in $200,000 in interest payments over 30 years.

The wife seems confused as to how this can happen, “a never-ending cycle of playing catch-up,” as she is quoted as saying. Who created this cycle? What will they do when the student loan repayment moratorium is lifted?

I was ready to write something a bit snarky about this couple and other 30-somethings in similar situations, but then I thought it’s really quite sad. When I was in my 30s with four children, the idea of going on vacation to Disney World wasn’t even on the radar. We lived without credit card debt, not because we had lots of cash, but because we abhorred debt—and still do.

In short, we lived well within our means and, back then, it was on my income as an office clerk. How could a family that’s heavily in debt receive government payments, which they use to reduce debt, and then voluntarily double their debt? The real kicker is they don’t seem to understand what they’re doing to themselves.

I wish the article had discussed their retirement savings—or lack thereof.

Some people will see their student debt as part of a national crisis. I see it as making poor choices or failing to leverage the value of their education. Making $80,000 a year from an education that left them $160,000 in debt seems like a poor investment. Perhaps a critique of the cost-benefit of college, or the way that education is put to use after graduation, is in order.

Their vacation took priority over not only debt repayment, but also building an emergency fund. Hence, we can guess where the money for the water heater and medical bills came from. Credit cards. With this pattern of living, the family will never catch up.

I can’t say such financial decision-making is typical, but I doubt it’s unusual, either. Different generations view spending and debt quite differently. Shared life experiences determine attitudes. It seems to me that each generation—especially since the 1960s—creates its own set of excuses. Market crashes, inflation, the pandemic, recessions and job losses are all given as excuses for not saving.

Adverse events have affected all generations. It’s the individual’s response that determines how someone gets through these setbacks—by, say, skipping an expensive vacation. Cutting costs, even on basic expenses, seems to be a forgotten strategy.

No doubt some people will disagree, but the decisions made by this couple—and perhaps many of their generation—seem self-destructive.

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Taxing Pastimes

THIS IS MY FIFTH year providing income-tax preparation as part of the IRS’s Volunteer Income Tax Assistance program. This year, my colleagues and I have seen something new. We’ve had numerous retired taxpayers who have received IRS Form 1099-K for the sale of personal property. They’d never received one before and found it confusing.

What triggered these 1099-Ks? Many retirees find ways to supplement their income—including selling items on the internet. This is the modern version of yard sales and flea markets.

I remember a high-school friend’s dad, who was a talented furniture restorer. He supplemented his retirement income by acquiring old, discarded furniture. He’d refinish these items and sell them at a small profit at yard sales and other venues. At the time, it never occurred to me that his modest profit was taxable income.

The IRS considers the gain on the sale of a capital asset—broadly defined as non-financial property—as taxable. The IRS’s Tax Topic 409 explains that personal use items, such as furniture, are considered capital assets. Ditto for appliances, clothing, even baseball card collections.

Form 1099-K is used to report payment transactions handled by third-party payment processors. These processors enable small businesses to accept credit and debit card payments. Some of the better known processors are PayPal, Venmo, Square, Amazon, StubHub, Etsy and Poshmark.

The threshold for providing a 1099-K to sellers changed radically with the passage of the American Rescue Plan in 2021. Previously, sellers received a 1099-K only if they had gross receipts above $20,000 and more than 200 transactions. That threshold was supposed to drop in 2022 to sales above $600. But in late December, the IRS announced a one-year delay in implementing the change.

Whether it’s $600 or $20,000, under tax law, the gain realized on the sale of personal property is taxable. For example, if you bought concert tickets for $500 and then sold them for $1,000, you realized a $500 gain. This taxable gain is reported on Form 8949 and Schedule D.

It’s important to distinguish between “personal transactions” and "payments for goods and services." Personal transactions include money exchanged between family and friends, including gifts. Instead, at issue here are payments for goods and services through a third-party payment network. It’s these latter transactions that are reported on Form 1099-K.

Not surprisingly, there’s plenty of confusion surrounding these forms. As with most things in the complicated world of taxes, the answer to people’s questions is “it depends.” Below are five frequently asked questions:

How do you determine the cost basis of personal items? It depends on the item and how you acquired it. Documentation in the form of sales receipts is the best record.
What if you inherited or were given an item? The cost basis is generally the fair market value at the time you received it.
When does the occasional sale of a personal item become a small business? Your intent seems to matter. Occasional sales don’t constitute a business. But if you regularly engage in an activity, it may be considered a small business that requires more extensive tax reporting. The IRS provides this guide to determine whether a hobby is a business.
How do you handle a loss on the sale of personal goods? If you sell your prized concert t-shirt, which cost you $50, for $10 on eBay, obviously you don’t have a gain. In most cases, this is not reportable income.
What if I was downsizing and I sold off my old business suits on eBay for $750? You’ll likely get a 1099-K next year for the gross proceeds. If you know the cost of the suits and can demonstrate a loss, that'll allow you to offset the taxable income.

The situation perhaps most likely to trigger a “surprise” 1099-K is when folks resell concert or sports tickets. StubHub sellers who reach the $600 threshold in a calendar year will be required to provide their Social Security number. In fact, “Payment will be withheld from sellers until TIN [tax identification number] information is provided,” according to the ticker reseller.

If you engage in a hobby for pleasure, without an eye toward making a profit, you can earn occasional income without worrying about it being considered a business. My brother-in-law is a talented stained-glass artist. He’s quite generous with his time and has donated some pieces to charity auctions. Admirers of his work have occasionally offered to purchase pieces.

IRS Publication 535, page 7, provides a succinct summary of how to treat not-for-profit activities like my brother-in-law’s. Should my brother-in-law sell one of his works for $75, and his materials cost $25, he would report $50 of gross income.

What if his work went viral, and it became a regular, profitable activity? In that case, he’d likely need to treat it as a small business, with all the required documentation and tax filings. For tax purposes, the key difference between a hobby and a business is the intention to make a profit.

Richard Connor is a semi-retired aerospace engineer with a keen interest in finance. He enjoys a wide variety of other interests, including chasing grandkids, space, sports, travel, winemaking and reading. Follow Rick on Twitter @RConnor609 and check out his earlier articles.

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Kindness Pays

ABOUT A DECADE AGO, when I was in college, I lived in an off-campus apartment complex. The complex had an on-site property manager named Joni. She got to live in one of the apartments in exchange for managing leases. Joni was in her 60s and didn’t have any close family, so she was always eager to talk to whoever stopped by her apartment “office.”

Many of my fellow residents tried to minimize their interactions with Joni, since she could talk your ear off. But I sensed that Joni was just lonely, so I made a point to spend five minutes talking with her whenever our paths crossed. A few months later, I started receiving $100 referral bonus checks from the property management company. It turns out that Joni had begun putting my name down as the person referring a new tenant whenever someone signed a lease.

That brings me to a second, similar story. A few years ago, a friend and I had just purchased a rundown house. We had aspirations to turn it into a rental property. To call the condition of the house unlivable would be an understatement, and we knew we had a ton of work ahead of us. Since my friend and I both had fulltime jobs, this meant working on the house at nights and on weekends.

One day, when my friend was at the house, a neighbor came by, wanting to chat. We still had plenty of work left to do, so my friend could easily have brushed off the neighbor. Still, my friend took the time to talk for a few minutes. The neighbor mentioned that she was looking to sell her dad’s house, and asked whether we might be interested. We definitely were, and a few months later we reached a deal.

Whether it was the house purchase or the referral fees, neither favorable outcome would have happened if my friend and I hadn’t taken the time to slow down and get to know another person. In today’s fast-paced and increasingly virtual world, stopping to take an interest in others is a simple kindness that’s too often overlooked.

Money, of course, shouldn’t be our motivation when showing kindness to others and, in any case, it’s rare we’ll earn a financial return. But we’ll still get to experience the joy that being kind to another person can bring—and that’s priceless.

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Risky Business

OPEN A FINANCE textbook, and you’ll find discussions of volatility and beta, value-at-risk, the Sharpe ratio, the Sortino ratio, the Treynor ratio and many other quantitative tools for measuring risk. But what should you make of these metrics? Are they an effective way to control risk in your portfolio?

These tools do have decades of research behind them, and they can be useful. But I believe they’re also incomplete. Worse yet, they can be misleading. William Sharpe, winner of the Nobel Memorial Prize in Economic Sciences, once commented that his ratio was being “manipulated” by investment marketers “to misrepresent their performance.”

This highlights the first weakness of these quantitative measures: They’re formula-based and that gives them the appearance of being objective, but many of the inputs to these formulas are actually quite subjective. So subjective, in fact, that Sharpe has said, “I could think of a way to have an infinite Sharpe ratio.” To put that in context, a Sharpe value of more than two would be considered very attractive.

Another issue with quantitative measures is that risk is multidimensional. Consider the recent failure of Silicon Valley Bank. None of the quantitative measures referenced above would have detected the risk that ultimately brought down the bank. That’s because, in the end, the bank’s undoing had more to do with psychology than numbers. Depositors began to worry about the bank’s solvency, and those worries caused others to worry. Author Morgan Housel compared it to a stampede: A concern which, at first, was reasonable began to take on a life of its own, driving people over the line into irrational behavior.

The message I take from this: Risk is a bit like a hydra, the creature from mythology that had multiple heads. It’s awfully hard to pin down and even harder to quantify. Sometimes, situations that didn't appear to carry any risk will suddenly experience a flare up. Other times, existing risks will present themselves in new ways and with a greater level of ferocity.

That’s what we saw in 2020, when COVID-19 emerged. There had been other virus outbreaks in recent years, including other coronaviruses. For several years leading up to 2020, in fact, the State Department had specifically called out the risk of a pandemic.

Here’s what intelligence analysts wrote in 2019, a year before COVID hit: “We assess that the United States and the world will remain vulnerable to the next flu pandemic or large-scale outbreak of a contagious disease that could lead to massive rates of death and disability, severely affect the world economy, strain international resources, and increase calls on the United States for support.”

That was hardly the only warning. But if a pandemic had been on our radar, why were we so unprepared? That gets at another reality of different risks: It’s hard to know when to take them seriously. If a particular risk hasn’t been seen before—or hasn’t been seen in a long time—it’s difficult to know how to think about it. How do we distinguish between risks that are real and those that are just paranoid notions?

Indeed, those who dwell too much on prospective risks face a risk themselves: They’ll be dismissed as worrywarts. Investor Nouriel Roubini, for example, has earned the nickname Dr. Doom for his perpetually glass-half-empty outlook. He’s a serious economist, but many people roll their eyes when he delivers yet another downbeat forecast.

Investor William Bernstein, in his book Deep Risk, discusses “the four horsemen” of portfolio risk. In addition to inflation and deflation, which are common concerns, he includes devastation and confiscation—the sorts of things that would be associated with a breakdown of civil society. Are these real risks? I wouldn't dismiss them—and I credit Bernstein for being brave enough to raise these questions—but it's also difficult to know what reasonable steps you might take to protect yourself against them.

Risk is tricky also because it’s a master of disguise. Even when we have a good understanding of a particular risk—such as market bubbles—we can still be fooled. Not unlike viruses, market bubbles mutate. They always come back looking a little different each time. That allows them to slip through our defenses. That, in fact, is how I would characterize much of what happened in 2021, when all sorts of newfangled investments rose to prominence—SPACs, for example, and thousands of new crypto “currencies.”

Even today, despite cryptocurrencies’ volatile performance and lack of intrinsic value, I know many reasonable people who believe they’re valid investments. Are they wrong? I think so. But we won’t really know until we have the benefit of hindsight. And that’s the problem. Investment bubbles are indeed masters of disguise.

Given these challenges, what can you do to manage risk? Below are some suggestions.

For starters, don't rely on any single measure of risk. In his book, Margin of Safety, hedge fund manager Seth Klarman wrote, “Risk simply cannot be described by a single number.” At the same time, though, I don’t view these quantitative risk measures as worthless. They each can help in their own way, but only as part of a mosaic.

In Against the Gods, the late Peter Bernstein addressed this topic. Share price volatility is a common yardstick for measuring risk, but it’s also been roundly criticized. Klarman put it plainly: “I find it preposterous that a single number could be thought to completely describe the risk in a security.” But Bernstein argues that volatility is a measure that’s good enough, even if it’s not perfect. “Statistical analysis confirms what intuition suggests: most of the time, an increase in volatility is associated with a decline in the price of an asset.” In other words, a risk measure doesn’t need to be perfect for it to be useful.

Next, use history to your advantage. Indeed, market downturns do carry a silver lining: They help us better understand the character of risk. What have we learned from the current cycle? In my view, it serves as a reminder that risks may recede but never go away entirely. Inflation, which had been dormant for 20 years, is a good example. For that reason, in making a financial plan, it’s important not to dismiss any particular risk because it hasn’t happened recently. Everything has some probability, even if it’s low.

What else can you do? Recognize that risk is personal. In fact, an event that might be bad for one person might be positive for someone else. For instance, if you’re in your working years and regularly adding to your savings, stock market downturns are actually positive events. I always tell younger investors that they should be hoping for a downturn because that’ll allow them to acquire shares at lower prices. Meanwhile, lower prices are the opposite of what retirees want to see.

Recognize also that some risks aren’t necessarily all good or all bad. Some market events are positive in some ways but negative in others. If you’re in retirement, for example, stock market downturns are generally negative. But suppose you’re looking to complete a Roth conversion or trying to move assets to the next generation in your family. In these cases, you’d benefit from a recession and lower asset prices.

Finally, try to maintain what I’ve called a “five minds” approach to investing. In evaluating risk, employ simultaneously the mindset of an optimist, a pessimist, an analyst, an economist and a psychologist. This balanced approach can help you navigate the landscape of risk.

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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Wishing My Life Away

WHENEVER FOLKS declare that their goal is to one day write a novel, or get in great physical shape, or learn to speak Italian, my immediate reaction is always the same: If these were things they really had a burning desire to do, they’d have done them already.

Which is why you should be skeptical of the article that follows.

Now that I’ve turned 60, I’m thinking about how I’ll divvy up my time in the years ahead. Today, my life is lopsided—nine or 10 hours a day devoted to HumbleDollar, plus an hour for exercise in the morning, maybe a 30-minute walk in the afternoon, and the evenings given over to family. I like to think HumbleDollar performs an important public service, I get a lot of satisfaction from running the site and I have no desire to give it up. Still, I want to be a little more selfish in how I use my time.

What does that mean? My wish list for my 60s is a work in progress. It’s hardly the most exciting list. But here’s where things currently stand:

Work less. As I mentioned a month ago, I’m scaling back the number of articles posted on HumbleDollar. My hope: I can reduce my workload so the site devours my mornings but leaves the afternoons free for other activities. Still, we all need a sense of purpose in retirement—a reason to get out of bed in the morning—and, for me, HumbleDollar will be it. If I didn’t have work to do that I felt was important, I suspect I’d quickly find myself bored, restless and unhappy.

Travel more. Many HumbleDollar writers and commenters have emphasized that you should travel internationally in your 60s because, at some point in your 70s, long flights and foreign lands will seem too taxing. This is advice I’m taking to heart. One of my retirement goals is to spend three months of each year away from home.

I could imagine, say, staying for a month in the relative warmth of Georgia during the winter, a month in Ireland in June, and another month in France in September. The idea is to find an intriguing place where we can settle in and explore the area, but I can also continue to write and edit. Much of the internet may be a cesspool of damaging nonsense, but it’s also liberating for those of us who want to both travel and work.

That brings me to a topic that I’m currently negotiating with my thrifty self. Should I pony up for business class on international flights? I’m still fine squeezing into the cheap seats for domestic travel. But staggering out of the airport in a foreign city, after a night sitting upright in coach, definitely dents my desire to travel abroad.

Vacation home. While I can see traveling more in the years ahead, I don’t envisage my other spending increasing much. I find many of my favorite things cost little or nothing—playing with my grandson, watching the squirrels raid the bird feeder, drinking a glass of wine at the end of the day with Elaine, heading out for a bicycle ride.

But there’s one potential expense that would change all this. We’ve discussed buying a second home. I’m not sure we’ll pull the trigger because of the added hassle and because we currently prefer travel to committing to a single place. But it could happen five or six years down the road, once we’ve worked our way through our international travel bucket list.

One last athletic endeavor. Even as I add this to my wish list, it may be falling off. Starting at age 32, I devoted a decade to running, competing in everything from one-mile races to marathons. I loved that sense of being in top-notch physical shape, and I enjoyed some success in the races I entered.

But that phase of my life fizzled out after a decade or so. I developed problems with my right foot—something called insertional tendinitis. That led me to try my hand at cycling instead. Today, I bike outdoors or on a stationary bicycle almost every day. But I’m not competing. Instead, this is more about maintenance, trying to keep my aerobic ability up and my weight down.

But I have a yearning to push myself one last time, perhaps competing in a long one-day bike race. I have no doubt I could complete the distance. But could I do so at a speed that I’d consider respectable? My fear: I couldn’t put in the necessary training miles without my body breaking down and perhaps doing some long-term damage.

Read more. I’m a tad embarrassed by how few books I read each year. I simply don’t have the time—or, perhaps to be more accurate, there’s nothing I currently do that I’m willing to sacrifice. Still, I’d like to get back to reading fiction and histories because, whenever I do, I find it’s a great pleasure.

One reason to read extensively is because it helps you to write better. I wrote a novel a decade ago that some folks loved—one man sent me an email, saying he’d read it three times—but others hated it, including one person who dismissed it as “perhaps the worst book I’ve read in many years.” I may be an okay personal finance writer, but I’m not a gifted storyteller. Still, with work, I think I could be better, so I may try my hand at another novel. Maybe.

Get to enough. The truth is, I have enough. As I mentioned in recent articles, I’ve saved too much for retirement and I have pretty much convinced myself that I've had enough career success. But even if we know something intellectually, it can take time to change our thinking. I continue to invest heavily in stocks and, indeed, I boosted my stock allocation during the past year’s market swoon. But such risk-taking suggests I’m not content with how much I’ve accumulated.

That may be part of the story. But I think it’s also that I sense I have greater tenacity than most in the face of market downturns, and it would be foolish not to take advantage of that. Still, there’s a danger that this extra risk could blow up in my face—and I’ve been bargaining with myself, trying to figure out when and how much I should reduce the risk in my financial life over the next few years.

Give more. Money, I believe, can buy happiness—but you don’t necessarily have to buy anything. Indeed, money can boost our feeling of well-being simply by being there and providing us with a sense of security.

Money can also bolster our happiness if we give it away, either to charity or to family. I feel I have, at this juncture, done enough for my two kids. On the other hand, I’ve been eyeing Pennsylvania's inheritance tax, which creates an incentive to give them more money now. Meanwhile, I’m funding my grandson’s 529 college-savings plan, and I’m committed to helping with the college costs of any other grandkids who come along.

But the topic that’s really got my attention is charitable giving. I have a few organizations I contribute to every year, but I’m wondering whether there’s a way to be more focused and more effective with my giving. I don’t have an answer yet. But it’s on my wish list.

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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Bewildering Benefits

WHEN I CLAIMED SOCIAL Security benefits, I had no idea how much there was to know—and how much I didn’t know. Bear in mind that the Social Security website didn’t exist until the late 1990s, and back then only minimal services were accessible through the site. In addition, most people didn’t fully appreciate the advantages of delaying benefits.




In my naïveté, I thought I would go to my local Social Security office to find out what options were available for claiming, and what the optimum time would be for me to begin benefits based on my earnings and marital status. Surely they would help me make the best decision? After all, they were the experts.




Big mistake.




I had no intention of signing up at age 62 but found my arm being twisted, ever so gently, to do just that. Now, I’m not beating up on the Social Security agents. They’re usually polite and congenial, but they vary in knowledge and experience, and sometimes lead you to a decision that may not be in your best interest. Lesson learned: If we feel uneasy about a financial decision, it’s usually a sign that we need to do more research.




Later, as the time was drawing near for my husband to file for his benefits, I made an unrelenting, in-depth study of the ins and outs of Social Security claiming so that he might avoid my error. My efforts paid off in 2007 when I read an article in The Wall Street Journal by Glenn Ruffenach, titled “The Baby Boomer’s Guide to Social Security.”




The article neatly outlined an option for married couples, whereby at full retirement age, one spouse—my husband, in this case—could employ the file-and-suspend option. This meant he could collect spousal benefits while earning additional retirement credits until he reached age 70, at which time he could start his own benefits based on his own earnings record. His spousal benefit would be equal to 50% of my benefit as of my full retirement age, though I ended up with less than my full retirement age benefit because I had claimed at 62.




When my husband attempted to pursue this claiming strategy at our local Social Security office, we were told by the staff that they weren’t aware of it. This time, however, I asked them to call Social Security headquarters in Baltimore to confirm our information. We were then referred to a more experienced agent.






In the interest of brevity, I won’t go into all the headwinds we encountered. But in the end, the application was processed and it all worked out well for us, but not without some serious agita. Unfortunately, others can no longer follow our example because the window on file and suspend has been closed since April 2016. Still, for us, the strategy served to take the sting out of my earlier claiming mistake.




Today, there’s much more information on Social Security available, as well as a variety of calculators that will help you sort out your claiming options. You can also create an online account with Social Security, even if you’re still years away from claiming, and get information on your likely monthly benefit.




If you can afford to and you’re in good health, try to avoid anything that would reduce your maximum benefit. It’s said that too many people underestimate their longevity. To get a handle on how long you might live, head to LongevityIllustrator.org.




After claiming, if you feel you may have made the wrong choice, you can apply to Social Security for a re-do if you’re within a year of your application’s approval. You do have to repay all money you’ve received from Social Security and, if you’ve paid taxes on the income, you’d need to file an amended return to get that money back.


An interesting footnote: In January 1940, the first monthly retirement check was issued to Ida May Fuller, a legal secretary, in the amount of $22.54. She retired in November 1939. The accumulated taxes on her salary, during the three years she paid into the Social Security program, came to $24.75. Fuller started collecting benefits at age 65 and lived to be 100. During her lifetime she collected a total of $22,888.92 in benefits.
Marjorie Kondrack loves music, dancing and the arts, and is a former amateur ice dancer accredited by the United States Figure Skating Association. In retirement, she worked for eight years as a tax preparer for the IRS’s VITA and TCE programs. Check out Marjorie's earlier articles.

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Who’s Responsible?

CAN WE REALLY EXPECT Americans to be financially literate and act prudently with their money—when they can’t even return a shopping cart to where it belongs, or stop dropping litter wherever they stand?

I was in the grocery store recently and came out to find a shopping cart pushed into the side of my car. I was parked eight feet from the cart corral. Meanwhile, on my last trip to an ATM, the ground was littered with receipts. It looked like a blizzard, which isn’t what you expect in Florida. I couldn’t resist picking them up and looking at them. “Transaction denied” and “insufficient funds,” they read. I guess folks were annoyed at those messages and unaware they had no money in the bank. Surprise?

Then there’s the pseudo-planner. Think of the driver who, upon seeing the sign saying “left lane closed ahead merge right,” waits until the last possible point, thereby causing an even greater traffic jam. Folks show the same skill at anticipating their financial needs. “I’m 59 and I’ve saved $100,000. Can I retire at 60?”

Speaking of drivers, think about the guy who cuts you off while passing on the right. Do you think he plans ahead for retirement and other expenses? How about the drivers who switch from lane to lane in traffic? Do they do the same with their investments?

We need to take a holistic approach to our finances, viewing the various parts as interconnected. For instance, if a family lives paycheck to paycheck, should they be shopping in the fashion aisle of the pet store? Or, for that matter, acquiring a new pet, no matter how cute?

Are irresponsible actions at the grocery store or on the road indicative of poor financial decisions? Can folks be fully responsible in one area of their life, but not others? It seems not. An irresponsible person is generally always irresponsible, including when it comes to money.

I read a blog about a couple in their 30s who were spending thousand of dollars more each year than their $40,000 income. But at the same time, they were contributing $300 a month to their church. Generous perhaps, but are they acting responsibly? I guess it’s a matter of opinion, but I vote “no.” We all have a financial starting point and an end point spanning 80 years or so. A holistic approach to financial decision-making considers all those years, all the time.

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Pretty Nice Joint

JOINT REPLACEMENT surgery is a rite of passage for many retirees. I’d be willing to wager that a majority of HumbleDollar readers have either had one themselves or know someone who has.

The American Academy of Orthopaedic Surgeons says hip and knee replacements are the most common types of total joint replacement. From 2012 to 2021, 2.55 million of these procedures were performed, according to the American Joint Replacement Registry, which is the academy’s data repository. Today, younger and more active patients are undergoing joint replacements. Patients who had total knee or hip replacement procedures were age 67, on average.

I developed severe osteoarthritis in my right knee in my late 50s. I lived with it until it became debilitating. I elected to have a total knee replacement in September 2019. At the time, my left knee also showed signs of osteoarthritis, but it wasn’t as severe. I was told I could have both knees replaced simultaneously, but it wasn’t recommended, so I chose to have just the right knee done.

My surgery and rehabilitation went well, and my right knee feels great. My left knee hung in there for the next two years. In 2022, I started to have more knee pain, as well as “referred” pain in the lower leg. My knee joint wasn’t straight and put constant stress on the leg muscles. Standing was worse than walking. I decided to have the left knee joint replaced last fall, and had the surgery on Jan. 3.

My 2019 surgery was performed in a hospital and included an overnight stay. I was not a candidate for a same-day procedure in an ambulatory surgery center because of my weight. I had in-home physical therapy for three weeks and then did outpatient physical therapy at a local office. It took six weeks and a lot of hard work, but the knee responded well, and is now strong and flexible.

The second time I was much better prepared for surgery. I was 110 pounds lighter than I was in 2019, and I’d been walking and exercising regularly. Because of these improvements, the surgery was done in a same-day surgery center. I showed up at 9:30 a.m. and walked out with a new joint six hours later.

I started outpatient physical therapy two days after surgery, and it continued three days a week for five weeks. I also did the recommended exercises several times a day at home.

My therapist Kevin was great, offering a mix of compassion, experience and pushiness. The knee responded well. At the seven-week checkup with the surgeon, he was very pleased with the results. I was cleared to bike, swim and hit the gym. There’s still some minor swelling and pain, especially after exercising. I think my knees are good for another 50,000 miles.

A significant difference between my two knee replacement surgeries is the cost. In 2019, we had a high-deductible health plan, with a $3,000 deductible and a $6,500 maximum out-of-pocket limit, so a big part of the cost fell on my shoulders. I’m now on traditional Medicare with a Part B supplemental policy. The bills are still trickling in. I expect to pay the $226 Part B deductible and I might have some small doctor visit copays. But I think that should be about it.

My mom had a total knee replacement about 20 years ago. At that time, the conventional wisdom was a new joint would last about 10 years. Because of that time limit, she delayed the surgery for as long as possible and suffered several years of significant pain. That’s no longer necessary. Both of my replacement knees are Triathlon by Stryker. The titanium joint has an expected life of 25 years, although each patient’s outcome will depend on individual factors.

Based on my two positive knee replacement experiences, here are 10 suggestions:

Avoid the need for surgery if possible. This seems obvious, but our younger selves seldom think ahead. Try to maintain a healthy weight, exercise regularly, maintain flexibility and avoid traumatic activities.
If you’re having a joint replacement, consider “prehabing.” Lose weight if needed, keep walking and work on your flexibility. I could have worked more on my hamstring flexibility.
Think about your shoes. My wife bought me a pair of hands-free step-in shoes. They were a great help after the surgery, and made it easier to be mobile.
Find a great surgical team. You want to have confidence in your surgeon.
Find a great physical therapist, and begin PT as soon as you can.
After surgery, manage your pain but watch your pain medication intake. Ice is your friend. Reuseable ice packs are great. Get several so you always have one at the ready.
Expect sleep to be an issue. This is under-discussed by medical personnel. After my first replacement, my wife bought a box of instant ice packs from Amazon. We kept a few on the bedside and they were a big help at night. If I woke up in pain, I could grab one without waking her. It also reduced the need for pain medication.
After the surgery, walk as much as possible, increasing distance and duration.
Don’t be surprised if you hit a wall a few weeks after surgery. Pain and swelling are challenging and can persist for several months. My physical therapist helped prepare me for this. Recovery wasn’t a straight line, especially as I increased my activity. Connecting with friends and family helped me through this stretch.
It’s easy to worry and limit your activity. Listen to your doctor and physical therapist, and get back to living your life.

Richard Connor is a semi-retired aerospace engineer with a keen interest in finance. He enjoys a wide variety of other interests, including chasing grandkids, space, sports, travel, winemaking and reading. Follow Rick on Twitter @RConnor609 and check out his earlier articles.

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Bracing for the Worst

BACK IN 1989, AS I was finishing the final semester of my undergraduate degree in India, I managed to bag two decent job offers. The first was from a government organization in my hometown, and the second was from an out-of-state private company in western India. I had a few weeks to make up my mind.

I was leaning toward the second offer. Not only did the idea of living on my own in a faraway town sound adventurous, but also the private employer’s compensation package was better.

Still, my father suggested the other job. Being a government employee himself, he liked the job security of public sector employment. Frankly, I didn’t think that was important, but I went with the local job anyway because most of my friends were still in town.

A decade and a few jobs later, I moved to the U.S. to work for a multinational software company. I’ve stayed with the firm ever since. My job has always felt safe and secure. But that began to change in recent months, when several tech companies announced plans to downsize.

I got a phone call from an anxious friend who works at my company. My friend and his wife had their first child last November and were busy adjusting to caring for a newborn. He rejoined work when his parental leave was over and heard rumors from his teammates about upcoming layoffs. I didn’t know anything about any layoffs, so I advised him to ignore the rumors, and focus on his family and work.

The rumors, however, grew louder and, over the next few days, started showing up in the media. Soon after, our CEO announced plans to reduce the workforce in the coming months. The anxiety and confusion were now official. Everyone seemed to have the same question: “Am I on the list?”

I pondered what would happen if I was affected. I reflected on Dale Carnegie’s sage advice: There are some things you can’t control. Plan how to deal with them so you can move on. I figure laid-off workers might face five important consequences.

1. Immigration status. Many employers—particularly in the tech industry—hire foreign workers with employment-based visas. Losing a job can jeopardize a foreign worker’s immigration status, potentially forcing the ex-employee to leave the country on short notice. It can be stressful for those workers who fail to find alternative employment in the limited time available. My friend was worried because he’d be in that situation if he lost his job.

2. Financial hardship. Living paycheck to paycheck is surprisingly common, even for dual-income households with fat pay packets. Two out of three Americans worry about how they’d cover even a month’s expenses if their primary source of income stopped. Sudden loss of income is not only a source of stress, but also it’s a slippery slope toward spiraling debt.

3. Career speedbump. A layoff often means resetting our career progress and forcing a new start. While it may open up better opportunities for a few, most take it as a career setback. Having diverse skills and keeping up with industry trends can improve the odds of faster career repair, but the uncertainties and scrambling in the interim aren’t fun.

4. Unwanted relocation. People tend to settle close to their work. Losing a job might mean moving. Relocation is particularly hard for people with deep roots. They might own their home, have a working spouse and school-age children, and be involved in local activities. Moving costs time and money, involves emotional stress and requires many adjustments—some small, some large.

5. Damaged self-esteem. A layoff isn’t the same as being fired for poor performance. I’ve seen highly capable professionals with proven track records get the boot as often as average workers. Still, a layoff comes with the stigma that the person isn’t valued. We enjoy praise for doing good work, and a layoff is the reverse. It’s a reminder that no one is indispensable and, ultimately, we’re on our own.

To be sure, not everyone is affected the same way. Some might be hit by all five consequences listed above and perhaps even a few more. But others may find it’s a blessing in disguise because their lives are improved by the change.

How would I feel if I find myself on the layoff list? Fortunately, my current gradual retirement would minimize most of the financial and logistical challenges. Though I’m still working part-time, it’s for enjoyment and not because I need the paycheck.

Still, I dread the thought of being laid off. Why? It’d surely hurt my pride, evoking a sense of failure and inadequacy. I don’t want my software engineering career to end with a layoff.

This leaves me with the dilemma that I’ve been struggling with for the past few weeks. The only sure way to avoid the situation is to resign preemptively, but that feels extreme. I enjoy my work and took on a new project last year. Quitting would mean leaving behind unfinished work. My career would feel incomplete.

I shared my anxiety with close friends. They all said hanging tight would be more financially sensible. Even if I’m included in a future layoff, the severance package would offer a decent windfall. To deal with the emotional fallout, they gave me the “it’s me, not you” argument. In other words, layoffs often reflect changing business priorities rather than an individual’s incompetence.

I’ve decided to stay put and cross the bridge to retirement only if circumstances take me there. I know that, if I’m laid off, no severance package would be sweet enough to mask the bitter taste in my mouth. But I won’t let it ruin my hard-earned sense of career accomplishment.

Sanjib Saha is a software engineer by profession, but he's now transitioning to early retirement. Self-taught in investments, he passed the Series 65 licensing exam as a non-industry candidate. Sanjib is passionate about raising financial literacy and enjoys helping others with their finances. Check out his earlier articles.

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