Jonathan Clements's Blog, page 153

More Than Enough

IF YOU’RE LIKE MANY readers of this site, you’ll reach your 60s and discover one of those nice problems to have—that you’ve over-saved for retirement.

What now? For answers, check out a new book, More Than Enough: A Brief Guide to the Questions That Arise After Realizing You Have More than You Need. Author Mike Piper is the driving force behind both the Oblivious Investor website and the free Open Social Security calculator.

His short book—it runs just 129 pages—covers topics like charitable giving, talking to your kids about their future inheritance, tax issues, getting professional help and more. Here are five insights from the book that caught my attention:

“Most likely you’ll have decent investment returns and you won’t live to age 105 in a nursing home,” Piper writes. “And so, most likely, there will be a significant sum of money left over after you… have died. In other words, ‘enough’ ultimately turns out to be ‘more than enough,’ most of the time.”
I’d been toying with opening a donor-advised fund. But after reading More Than Enough, I’m having second thoughts. One reason: They're expensive. For instance, Fidelity Charitable, Schwab Charitable and Vanguard Charitable all charge a basic administrative fee of 0.6% of assets, with fund expenses layered on top of that. I wouldn't tolerate such high investment costs in my own portfolio, so I’m not sure why I’d willingly incur such costs on money earmarked for charity.
If you’ve researched a charity and trust it, you shouldn’t make a restricted gift, argues Piper. “And if you don’t trust the organization to use the money wisely, don’t give to that organization in the first place!” he quips.
More Than Enough makes a compelling case that the most tax-advantaged way to donate money is with a qualified charitable distribution (QCD) from your IRA. To be sure, you must be age 70½ or older to take advantage of this provision. If you’re age 73 or older, the money disbursed this way counts toward your annual required minimum distribution and, by holding down your income, it can reduce the hit from, say, Medicare premium surcharges. But for me, Piper clinched the argument with this point: If you make a donation by, say, gifting appreciated stock, you might reduce your taxable income with the resulting hefty itemized deduction, but you also can't make use of your standard deduction. By contrast, with a QCD, you can both reduce your income and claim the standard deduction.
Piper also makes a compelling case for giving away money during our lifetime. Why not wait until death? One argument I especially liked: “[B]y the time the parents have died, the ‘kids’ are already retired," Piper notes. "And at that point, the inheritance has no major effect on their happiness or standard of living…. Relatively modest gifts received early in life are often more impactful than larger inheritances received later.”

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Planning My Time

GETTING TO RETIREMENT is lazy work for an indexing aficionado. What could be easier than stuffing money every paycheck into an all-in-one target-date index fund? Even building a two- or three-index-fund portfolio takes minimal effort.

Actually retiring, on the other hand, feels like a fulltime job. Who knew that spending money takes more thought than earning, saving and investing it? At age 61, I’m faced with important decisions that I want to get right, including which withdrawal strategy to use, whether to buy an annuity, converting to a Roth or not, and what age to claim Social Security. Just when I thought I had this personal-finance thing figured out, I’m discovering that I’ve only just begun to work on the problem.

Then there’s the question of what to do with my time. On that score, at least, I think I may be a step ahead of the game.

I discovered at an early age that I’m happiest when I’m busy. In my 20s, work devoured every extra hour I was willing to give. I had no need for other pursuits to quench my thirst for industry.

Later, as I moved into my present career, and then on to marriage and a family, I learned to keep my work hours within reasonable bounds. I’m still happiest, however, when the hours not consumed by my job are dedicated to endeavors I consider productive and useful. I derive even more joy when others benefit from my efforts. To that end, I’ve found no shortage of people with needs that I can fill. I expect I’ll find the same is true once I’m retired.

For example, as a deacon, I help manage the secular needs of my church. Along with the weekly duties that keep Sunday services running smoothly, I share responsibility for budgeting, planning and spending projects. Even after my active days as a deacon are behind me, I suspect my successors won’t refuse an occasional helping hand.

Closer to home, my wife and I tend to the personal and financial affairs of family members. Our elderly mothers need care that grows more complex with time. Meanwhile, my wife’s brother passed away in January, so we’re now focused on settling his estate. Once this season of life ends, I don’t anticipate rushing to replace such responsibilities. Still, pitching in to help friends as we grow old together doesn’t strike me as an onerous use of my time.

I also carve out hours to feed my inner selfishness, hiding in my garden with the hope my absence won’t be noticed. One of my hobby’s great pleasures is sharing my harvest with those who appreciate fresh fruits and vegetables. I love soaking up the praise that’s lavished on me, even if the words are a little exaggerated. Their expressions are part of the ritual that turns my garden time into a satisfying exchange between friends. I plan to participate in this barter until I can no longer lift a hoe.

Perhaps the quickest route to a gratifying retirement is a slow winding down. As a physical therapist, I still find ministering to patients to be deeply rewarding. A part-time schedule that fades into a few pro bono hours at the free clinic or the senior center seems like a good way to ease out of the work world. Even now, I enjoy providing physical therapy advice or simple treatment to family and friends.

Can my vision for retirement work for others? I think it’s possible. Here are three suggestions:

1. Share your work. We all possess knowledge or skills that are valuable to others. Sharing a bit of ourselves with another person may sate the desire to remain useful while also helping an appreciative friend. A struggling small business might profit from the advice of a retired CEO. Many seniors depend on volunteers for tax return preparation. A retired handyman may find an endless supply of broken light switches and leaky faucets to mend.

2. Share your hobby. How? Find a fellow chess player who longs for more company than her computer provides, or introduce a favorite dish to a shut-in who's tired of TV dinners. My wife’s mother shares her hobby by giving away countless crocheted afghans. Have an interesting financial story? I’m sure the HumbleDollar community would like to read it. For instance, one of the site’s writers found a unique way to combine his hobby with service to a cause he’s passionate about.

3. Share your time. Has your busy life been too crowded for family and old friends? Employ your organizational skills to create a memorable reunion that revives those once-cherished relationships. Early in retirement, my father gathered our clan together for the first reunion in many years. Each family was presented with a genealogy notebook compiled by him.

Looking farther afield, remember that a place of worship often has a place for volunteers. So does a local school or animal shelter. An older friend with a generous heart donates her time to a hospice. Other opportunities abound, and even offer health benefits to volunteers.

At the moment, gazing from this side of retirement, I know I don’t have a perfect perspective and my views may change. But between generous portions of leisurely travel, indulgent reading and afternoon naps, I imagine a full schedule that’ll satisfy my restless nature—and that’ll give my retirement a sense of purpose.

Ed Marsh is a physical therapist who lives and works in a small community near Atlanta. He likes to spend time with his church, with his family and in his garden thinking about retirement. His favorite question to ask a young person is, "Are you saving for retirement?" Check out Ed's earlier articles.

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The Homing Pigeons

"ARNIE, YOU JUST HAVE to watch this video," offers the wife. "Jessie is so adorable."

"Honey, I’ve been thinking," hubby responds. "I know mortgage rates are high right now, but we really should get a place near the kids."

If you can remember I Love Lucy, you’re old enough to have had this sort of conversation. The mortgage is paid off, the Roth has done well and you’ve got the cash for a down payment. The two state pensions will cover the mortgage on the second home. Dividends, the two Social Security checks and the health insurance benefit from your old employer should ensure a comfortable retirement.

Why not a place close to the kids and your granddaughter? Kind of a getaway for the two of you. Even get in a little dig at those insufferable Danielsons at the club. And what luck. Real estate prices are down because of the higher interest rates. Home prices will bounce back once we get through this uncertain economy. What’s not to like?

Judging by the experience of some forlorn friends, a lot—in fact, a whole lot—could go wrong. Hate to spoil a heartfelt fantasy, but I might be able to save you money and travail.

Let’s start where it really stings. The kids have their own life now. Are you sure they want you so close by? You’ll need to feel it out because they won’t say so straight up. But look at it from their perspective. Are grandma and grandpa going to be a blessing or a burden? True, they’d be built-in babysitters on Saturday nights. But the old man has all those prescriptions he keeps needing to fill. She doesn’t always remember her insulin shots.

Next, let’s go to the expenses involved, because you’re probably minimizing them. There are all the closing costs when buying a house. Soon comes the budget dagger many people conveniently overlook, that $40,000 kitchen remodel to make the house more homey. And don’t ignore travel costs to and from the new place.

But it’s the staggering expense of maintaining a second home that should demand your rapt attention. Remember, you won’t have any rental income to offset the mortgage payment, insurance, taxes, utilities and the host of incidental expenses bound up with homeownership. The mortgage interest isn’t deductible. The property tax alone could be prohibitive. In high-tax states like New York and California, the bill comes to about 1% of assessed value.

If you decide to rent the house out for part of the time, you risk not having its use when you suddenly decide you really want it. Your second home would then become a glorified time-share arrangement. On top of that, IRS restricts what rental expenses can be deducted.

I can already hear the protestations: “Appreciation will bail us out.” Maybe in the long run, but not necessarily. You’ve got to overcome all those prodigious monthly outlays, any remodeling, presale enhancements, staging and the standard selling commission.

Though they don’t fall as sharply as stocks sometimes do, home prices can drop in the short run. In fact, if family conflict or an emergency forces a quick sale, you could take a loss. Think about the folks you know who giddily purchased a house around the 2022 market peak and are now seeing red.

Coordinating the unavoidable repairs and maintenance long distance, like the dishwasher that died at the end of your last visit, will involve time and frustration. Will the kids you didn’t want to burden have to run out and meet the technician?

Resign yourself to a property manager and you’ve added another layer of expense. At this point, you might be thinking of the condo solution, but in many metropolitan areas the monthly homeowner’s fee can approach $1,000.

I know this harangue has been a bummer for some, but in real life even the most well-intentioned dreams should be sensible. After all, you don’t want to make a life-changing decision to buy a second home without being aware of the financial and logistical fallout.

But before you pass me off as an old Scrooge, I do have a plan B. Book a suite in the luxury hotel near the kids’ home and stay for a few days or even weeks. You’ll be pampered by maid service and a concierge, maybe with a breakfast credit thrown in. Your experience will be hassle-free and you’ll save beaucoup bucks. More important, you’ll save time and energy, which you can then use to enrich your senior years and the life of the family you love.

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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Back to the Office?

I STEPPED TO THE podium for the first time in more than three years. My presentation skills were perhaps a bit rusty, but I jumped at the opportunity earlier this month to speak at my former employer’s annual symposium. It felt great to see so many familiar and friendly faces, including old teammates, workplace acquaintances and former clients. It was also no big secret that I was curious about an open position at the company.

I took time to chat with a variety of folks and came away with a continued favorable view of my old employer, an energy trading firm. Will I return to the office? That remains unknown. For now, I’m continuing with my own financial writing, and also helping with blogging projects for financial advisors and larger investment companies.

The more time goes on, though, the more I miss being around smart and fun people at work. Sure, I could keep my head down and eyes glued to dual monitors in my home office, but those few days at the symposium reaffirmed that work is about more than just making money. Collaborating with others, and even non-work banter, go a long way toward making the Monday-to-Friday work routine fulfilling.

Not to throw shade on my current writing clients—whom I adore—but periodic work, with the occasional Zoom or phone call thrown in, just isn’t the same. As much as I despise the notion of having to buy a car and commute, it might be the eventual outcome of my strange career journey.

And have you seen the prices of used cars lately? After a dip during the back half of 2022, the Manheim Used Vehicle Value Index rebounded from January through mid-March. I’ve perused Facebook Marketplace and Craigslist for inexpensive small cars, like the 2008 Toyota Yaris I purchased seven years ago for $4,200. Today, it appears a similar set of wheels would set me back around $8,000.

Readers familiar with my financial situation would rightly scoff at price being a hurdle. Maybe the bigger issue is the psychological impact of buying a car. It means I’m stepping away from freelance writing—working on my own terms—and returning to the nine-to-five grind.

It’s revealing that I imagine my life more fulfilling if I had a fulltime job. After all, the FIRE—financial independence, retire early—movement promotes financial independence as the freedom to call your own shots. But after years of tracking my net worth, eyeing the day I’d achieve “FI,” it hit me that amassing a big pile of money doesn’t guarantee happiness.

Meanwhile, the twice-a-day, 25-mile, 50-minute commute might offer an upside: mentally checking in and checking out. Working from home, and always monitoring markets, investments, Twitter and email, offers little in the way of boundaries. Looking back to the days when I’d drive to and from the office, I would listen to a podcast or veg with some country music on the radio, relaxing before the workday and mentally exiting after it's done.

The upshot: I’ve been eyeing a no-frills car like a Ford Fiesta, Kia Rio, Nissan Versa or Toyota Yaris. I find there’s still a “Japanese premium” for Toyotas and Hondas, so maybe I’ll bid for a Fiesta. Another option is to go the lazy—and more costly—route of buying on Carvana. I estimate that would cost a few grand more than buying privately. While I’ve had no issues with the four vehicles I’ve purchased privately, I feel I’m due for a lemon. That would be frustrating since my time is more valuable today than it was when I was in my 20s.

Inertia and status quo bias are very real for me right now. Writing is going well financially, and pulling the trigger to return to the workplace, buy a car and resume commuting are big mental leaps. I’m confident that, once I’m in the groove again at the office, I’d be happy that I went through it all. On the other hand, maybe I’m getting ahead of myself. I haven’t yet been offered the position or even asked to come in for an interview.

The speaking engagement several weeks ago, along with the fun meals with old colleagues, reminded me that it matters a ton who you work with. What about buying a basic and boring used car? That’s more of a symbolic step than a money matter. But it would feel like a win if those vehicle prices retreated a bit. The Clark Howard in me always wants to score a good deal.

Mike Zaccardi is a freelance writer for financial advisors and investment firms. He's a CFA® charterholder and Chartered Market Technician®, and has passed the coursework for the Certified Financial Planner program. Follow Mike on Twitter @MikeZaccardi, connect with him via LinkedIn, email him at MikeCZaccardi@gmail.com and check out his earlier articles.

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Buffett’s Other Guru

PUBLISHED IN 1958, Common Stocks and Uncommon Profits by Philip Fisher was the first investment book to make The New York Times bestseller list.

Never heard of Fisher? Berkshire Hathaway Chairman Warren Buffett points to two key influences on his investment thinking: legendary value investor Benjamin Graham—and growth-stock proponent Phil Fisher. Indeed, I’d argue that Fisher’s words of advice on bonds, dividends and war scares are as relevant now as they were in 1958.

Bonds. Back then, economic conditions were similar to today. Fisher cites a study from the First National City Bank of New York showing that from 1946 to 1956 the dollar lost 29% of its spending power. That’s a 3.4% annual rate of depreciation, while bonds returned just 2.2%. Moreover, Fisher shows that, even if you bought bonds at the higher yields available at the end of this 10-year stretch, you still wouldn’t have outpaced inflation.

“Of course, these figures are only conclusive for this one ten-year period,” concedes Fisher. "It seems to me that if this whole inflation mechanism is studied carefully, it becomes clear that major inflationary spurts arise out of wholesale expansions of credit, which in turn result from large government deficits greatly enlarging the monetary base of the credit system.” Sound familiar?

Then comes the prediction: “One of two courses seem inevitable. Either business will remain good in which event stocks will continue to outperform bonds, or a significant recession will occur.”

Fisher continues: “If this happens”—the recession, that is—"bonds should temporarily outperform the best stocks, but a train of major deficit producing actions will then be triggered that will cause another major decline in the true purchasing power of bond-type investments.” Because a recession will ultimately lead to more inflation, Fisher believes that bonds “do not provide for sufficient gain to the long-term investor to offset this probability of further depreciation in purchasing power.”

Dividends. Many investors favor stocks with high dividends. Fisher called this sort of investing “hullabaloo.”

Fisher didn’t like dividends because he believed they showed a business’s best growth years were behind it. He compared dividends to a farmer who “rushes his magnificent livestock to market the minute he can sell them rather than raising them to the point where he can get the maximum price above his costs. He has produced a little more cash right now but at a frightful cost.”

Dividends can be a wise choice for companies if they don’t have reinvestment opportunities that’ll earn a return greater than their cost of capital. But for Fisher, such a situation was a warning sign. He wanted stocks that could continue to grow for a long time.

“Dividend considerations should be given the least, not the most, weight by those desiring to select outstanding stocks,” he wrote. “Perhaps the most peculiar aspect of this much-discussed subject of dividends is that those [investors] giving them the least consideration usually end up getting the best dividend return. Worthy of repetition here is that over a span of five to ten years, the best dividend results will come not from the high-yield stocks but from those with the relatively low yield.”

The lesson: Ignore the dividends that a company is currently paying—because they tell you nothing about the returns you’ll get in the future.

War scares. With Russia battling Ukraine and Chinese spy balloons being shot down over U.S. territory, the world feels less safe. While this sort of thing might not make for a good night’s sleep, Fisher counsels the reader, “Don’t be afraid of buying on a war scare.”

His advice: “If actual hostilities break out, the price would undoubtedly go still lower, perhaps a lot lower. Therefore, the thing to do is to buy but buy slowly and at a scale-down on just a threat of war. If war occurs, then increase the tempo of buying significantly.” If hostilities broke out between, say, the U.S. and China, those who have the cash to take advantage could be richly rewarded.

After 2022’s sharp market decline and 2023’s turbulent start, it can be easy to get scared out of stocks. Meanwhile, bonds are more attractive than in recent years, and—depending on your risk tolerance and time horizon—they may be a good fit for you.

Remember, however, that stocks are still the best investment for the long run. If you can stay the course, you’ll reap the benefits of the stock market’s superior returns. Fisher’s old wisdom for stock investors still applies to this new age: “A good nervous system is even more important than a good head.”

Dan Dawson is a naval officer and student at Harvard’s Kennedy School of Government. He is happily married to his high school sweetheart Emily. The views expressed here are his own and don’t reflect those of the U.S. government. 

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Time for a Ladder?

I'M A 70-YEAR-OLD retiree with a conservative fund portfolio. I have 65% in short- and intermediate-term bonds, Treasury Inflation-Protected Securities (TIPS) and cash, with the other 35% in stocks.

Last year was a rough one for retirees. Rising interest rates and unexpectedly high inflation resulted in a losing year for stocks and bonds. My bond funds lost some 10%. It was one of the worst annual losses for bonds ever. Bonds have only lost value in five of the past 45 years, and the largest previous decline was a 2.9% loss in 1994.

But there was a silver lining: Bond yields are up. My mix of short- and intermediate-term bond index funds has a 30-day SEC yield—a calculation based on the 30 days ending on the last day of the previous month—of more than 4%.

That may look awesome if you're just now moving cash into bonds. But if you've invested in bond funds for a while, you understand that yields are up mainly because rising rates have driven share prices lower.

This long-overdue increase in interest rates got me thinking about my bond funds. Should I hold on to them or purchase individual bonds to lock in today's higher rates? Does it make sense to build a bond ladder? With inflation stubbornly high, would it make sense to build that ladder with TIPS?

None of these is a bad option. What’s best depends on your reason for investing in bonds. My main objective is income, but the preservation of principal and diversification matter, too. I use a version of the bucket strategy to help pay for retirement for my wife and me. With this strategy, I divide my portfolio into multiple containers, in my case segmented by years.

I have my IRA at Fidelity Investments. For years one and two, I invest in Fidelity Government Cash Reserves (symbol: FDRXX). For years three through five, it’s Vanguard Short-Term Bond ETF (BSV) and the iShares 0-5 Years TIPS Bond ETF (STIP). I hold Vanguard Total Bond Market ETF (BND) and iShares Broad USD Investment Grade Corporate Bond ETF (USIG) for years six through 12. My U.S. and international stock and real estate index funds are for years 13 and beyond.

I take monthly withdrawals from my cash bucket, which is refilled by interest and dividends from the other buckets. I’m not yet at the age where I have to take required minimum distributions (RMDs), but my annual withdrawal rate is close to what my RMD would be at age 73.

How would a bond ladder fit into my retirement income strategy? I'm not a fan of longer-term bonds because there’s too much interest rate risk. Still, by committing to hold bonds to maturity, I shouldn’t ever have to sell at a loss. If I were to build a bond ladder, I'd probably build a seven-year TIPS ladder for years six through 12—when my wife and I will both be 82—and then keep my stock and real estate index funds for years 13 and beyond. Doing so today would mean selling my Vanguard Total Bond and iShares Corporate Bond at a loss.

I like the idea of the added inflation protection and the greater certainty that comes with holding individual TIPs to maturity. Still, I'm not sure the strategy makes sense for me. I like simplicity. My bucket strategy is easy to manage. By contrast, building a bond ladder would involve a higher level of complexity. That's especially true with TIPS. I’d have to worry about coupon rates, accrued principal, inflation factors and real yields to maturity, plus I’d need to buy the individual bonds on the secondary market.

More important, I didn't build my bucket strategy for direct annual liability matching—that is, selling securities each year to fund that year’s expenses. For now, I've concluded that an acceptable alternative to a TIPS ladder is a combination of TIPS funds and other bond funds with average durations that match my short- and longer-term spending needs.

Chris Cagle retired from his career as an IT manager in the financial services industry in 2019. He now spends his time writing on his own site, RetirementStewardship.com , volunteering at his church, and hiking and fishing when he gets the chance. Chris has also written three books on retirement, Reimagine Retirement (2019), The Minister’s Retirement (2020) and his most recent, Redeeming Retirement: A Practical Guide to Catch Up (2021). Chris and his wife have been married 50 years and have six grandchildren.

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Don’t Regret It

I SPOKE RECENTLY with a fellow who had climbed Mount Everest. The first question I asked: What was it like at the top?

What I expected him to say was that the view was dramatic. Instead, he said, his time at the summit turned out to be less than he’d expected. For starters, it was 4:45 a.m., so there wasn’t a lot of visibility. In addition, it was minus 45 degrees. Because of that, he didn’t want to stay too long. Reaching the summit, it turned out, wasn’t the most memorable or the most enjoyable part of the trip.

This got me thinking about the topic of regret. When it comes to personal finance, there’s the standard type of regret that’s well understood: not saving enough, or spending too much, or taking an unnecessary risk. With mistakes like these, it’s natural to feel regret—because they’re mostly within our control and the results are predictable. In such cases, we might genuinely wish we’d done something differently.

But this fellow’s Everest experience fits into a different category. Though it didn’t turn out as he’d expected, he certainly doesn’t regret it. In fact, he’d gladly do it again. This highlights a reality about decision making: Sometimes, things don’t turn out as expected—but through no fault of our own. In other words, even with the benefit of hindsight, we don’t regret decisions of this sort because, despite the disappointing results, they were still reasonable choices and could easily have turned out differently.

What sorts of financial decisions fit in this category? Many have started new jobs, or even new careers, that turned out to be disappointments. In other cases, maybe a move to a new home or a new city fell short. In all of these cases, it wasn’t because we failed to do our homework. Things just didn’t work out as expected for reasons beyond our control.

The world of personal finance is full of unknowns, which means that many—if not most—decisions are susceptible to this phenomenon. But that doesn’t mean things are completely out of our control. Even without the benefit of a crystal ball, certain decision-making strategies can help tip the results in our favor. Here are five I recommend:

Test the waters. When I was in school, I had a professor who grew up in New Zealand. Near his home, he said, there was a river that was a popular spot for swimming. The problem, though, was that sometimes a nasty type of biting fish might be in the area. Some of the more reckless kids would still just jump in, hoping for the best. Sometimes, they got lucky—but sometimes not. The smarter approach was to take a half-step into the water to assess.

In his field, marketing, this approach made a lot of sense. But for a long time, I wasn’t sure whether this philosophy would apply to personal finance, where many decisions tend to be irrevocable. Recently, though, I caught up with an old friend who told me this story: After his youngest child started college, he and his wife sold their house. They no longer needed such a large home. They then gave themselves two years to decide where to move.

One idea was Florida, but they weren’t sure, so they took six weeks over the winter to do some research. They started in Miami, then moved up the coast, town by town, spending a few days in each community. By the end of the trip, they’d collected a good amount of data and had largely made up their minds. The lesson: Even when it doesn’t seem like it might be possible, look for ways to test the waters on financial decisions. It might carry a cost, but it could be well worth it.

Split the difference. In the world of personal finance, people often view financial decisions through a strict either-or lens. But often, it’s possible to instead take a split-the-difference approach. A common example: Should you wait until 70 to claim Social Security? People battle each other over this question, but it need not be viewed as a right-or-wrong type of decision. Social Security can be claimed at any time between ages 62 and 70, and no one should feel they’re making the “wrong” decision if they decide on an age that—strictly according to the calculator—might be less than optimal.

Immediate annuities are another flash point in personal finance. Some view them as overpriced and unnecessary, while others see them as practical and underappreciated. My opinion is that there’s some truth to both views. Considering an annuity? You could split the difference by annuitizing only a portion of your assets. You could also purchase multiple annuities over a period of years—and from different companies—to help further split the difference.

Conduct a pre-mortem. Annie Duke was a professional poker player and has written two books on the topic of decision making. One of her recommendations is to conduct a “pre-mortem” before making any big decision. Be the devil’s advocate. Think critically about what could go wrong. Then see if there are ways to mitigate those results by using, say, one of the above strategies.

Cut losses. In his 20s, another old friend worked on Wall Street in a series of unpleasant investment banking positions. At a certain point, he decided he’d had enough. Despite the financial cost, he quit and enrolled in divinity school. Unfortunately, his life was cut short by illness, but I’ve always felt it was a blessing that he didn’t spend his last years stuck in a cubicle doing dreary work for endless hours. The lesson: Recognize the difference between sunk costs and future costs. In the investment realm, this might apply to a life insurance policy or a mutual fund that didn’t turn out as expected. When that’s the case, there’s no need to throw good money after bad.

Buy options. A while back, a client asked about purchasing a pricey Tesla and wanted to know whether it would make more sense to buy or lease. My advice was to lease. While that isn’t what I ordinarily recommend, my thinking was that electric vehicle (EV) technology was changing quickly and, because of that, it might be worth the added cost of a lease to gain more flexibility.

As it turned out, a recent move by Tesla did reward those with leases: It cut prices by 20% on its most popular model. This was devastating to those who had bought their cars—because it cut resale values—but didn’t affect those who had opted for leases.

That wasn’t the sort of development I’d envisioned, but I wasn’t surprised that it happened in the fast-evolving EV market. I doubt it would have happened in the older, more mature end of the car market. The bottom line: Optionality always carries a cost. But if a situation looks particularly unpredictable, it might be worth it.

These recommendations, I recognize, do carry a risk: In general, they favor being cautious and moving slowly. But there is such a thing as being too cautious. If we test the waters too carefully or think too rigorously about what might go wrong, there’s the risk that we might shy away from a whole host of decisions.

In The Power of Regret, Daniel Pink makes an important observation: “People regret inactions more than actions—especially in the long term.” In fact, Pink’s survey work found that “inaction regrets outnumbered action regrets by nearly two to one.” That’s a key counterpoint to keep in mind. Yes, it’s important to make decisions carefully. But ultimately, we can’t control everything. Financial decisions will always require a balance. As Annie Duke points out, the only decision anyone should ever regret is one that wasn’t well thought out. If we’ve done our homework, that’s all we can do. Better to get to the peak of Mount Everest in the dark and the cold than not at all.

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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March of History

MANY COMMENTATORS worry about the stock market in October, a month associated with the crashes of 1929 and 1987. But I now pay more attention to March—especially March 10.

As an observer of the stock market since 1980, I stumbled upon an odd coincidence. Major financial events this century, like stock market peaks and troughs, have centered on the month of March. Here are four examples:

March 10, 2000: The Nasdaq peaked at 5048. Between 1995 and that peak, the Nasdaq rose 400%. The dot-com bubble then burst and the Nasdaq didn’t return to its 2000 peak until 2015.

March 9, 2009: The market bottomed after 2008’s Great Financial Crisis. From October 2007 to March 2009, the S&P 500 declined 57%.

March 23, 2020: The stock market bottomed amid the pandemic panic selling. Fiscal and monetary stimulus went into overdrive, triggering a huge market rally.

March 10, 2023: Silicon Valley Bank became the second biggest U.S. bank failure ever.

What is it about March and the financial markets? I was hoping for help from ChatGPT, but I couldn’t figure out how to ask it the question. Any thoughts, fellow humans?

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No Satisfaction

MONEY BUYS HAPPINESS—but it may not buy us very much. Indeed, no matter how much we earn and no matter what other steps we take to boost happiness, we may discover the impact is modest and fleeting.

That brings me to a recent academic debate. In 2010, Princeton University’s Angus Deaton and Daniel Kahneman noted that happiness, on average, didn’t appear to increase beyond an annual income of $75,000 or so—a finding that’s since been widely reported in the mainstream media. But in 2021, University of Pennsylvania’s Matthew Killingsworth contradicted that claim, saying there was no $75,000 limit. Instead, his research showed that happiness rose with income, though at a slower rate at higher income levels.

Who’s right? In a new study, Kahneman and Killingsworth collaborated, with help from Barbara Mellers, to resolve their conflicting findings. The upshot: They found that the 2010 study’s results were skewed by the least happy 20% of the population. Exclude these folks, and it seems rising income does, on average, lead to greater happiness.

“The suffering of the unhappy group diminishes as income increases up to 100k but very little beyond that,” write the authors. “This income threshold may represent the point beyond which the miseries that remain are not alleviated by high income. Heartbreak, bereavement, and clinical depression may be examples of such miseries.”

But here’s what I found most intriguing: While the authors found that more money typically boosts happiness, they also observe the relationship between income and happiness “is weak, even if statistically robust.” In fact, they go on to note that “the difference between the medians of happiness at household incomes of $15,000 and $250,000 is about five points on a 100-point scale.”

Think about that: A household with an income that’s well over three times the national average isn’t a whole lot happier than one living at or below the poverty level. Moreover, the original Deaton and Kahneman study suggests a quadrupling of income may have less impact on someone’s happiness than having a headache, being alone or suffering a chronic health condition.

Indeed, if we’re looking to boost our happiness, we should focus not just on money, but also on two other key areas. In his book An Economist’s Lessons on Happiness, Richard Easterlin—considered the father of happiness economics—discusses an unusual open-ended survey that social psychologist Hadley Cantril oversaw in the early 1960s in 13 countries—wealthy and poor, communist and not—where folks were asked what would make them completely happy, and also what would make them unhappy. “To me, these answers tell us what’s foremost in determining people’s happiness,” writes Easterlin.

So, what did folks in the 13 countries say? “Leading the list in every country are three items: economic concerns, family circumstances, and health,” Easterlin summarizes. “Mentioned most frequently, often by as much as 80% of the population, are things relating to one’s economic situation—concerns about the standard of living, work, or leisure time. Next in importance, cited by around 40-50% of the population, are matters relating to family circumstances—good family relationships and concerns about one’s children. Named just about as frequently are issues regarding the health of oneself and one’s family. Concerns about these three things—economic situation, family, and health—are by far the topics people most frequently mention when they are asked what’s important for their happiness.”

In other words, while getting a pay raise may boost our happiness, we might get just as much mileage from striving to improve our health or our relationship with family members. That said, even if we do these things, the net result may be modest—because there’s something that’s even more important to happiness than money, health and family.

At issue is our happiness set point. While we might do things that make us momentarily much happier, such as going on vacation or going out to dinner, it’s hard to raise our long-term, base level of happiness. It seems each of us has a happiness set point—a predisposition to be happy or not—that might account for as much as 80% of our happiness level.

The upshot: Getting in better shape or hitting some portfolio milestone might make us somewhat happier, but the effect will likely be marginal. That doesn’t mean we shouldn’t strive for such goals. I think we should all be thoughtful about how we lead our lives with an eye to boosting happiness. But if, the day after your boss tells you about the big promotion, you wake up feeling like your world isn’t a whole lot better, don’t be surprised.

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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Writing My Retirement

I WROTE MY FIRST article for HumbleDollar in 2017. I’d been retired for nine years and I had plenty of material. I’d made a lot of mistakes with my money over the years.

I was truly a humble writer then, and I still am. My early articles weren’t my best. It was a learning experience. I wrote them using the notes app on my old iPhone 5—an app that was designed for jotting down quick thoughts, not for writing articles. HumbleDollar’s editor had a lot of patience with me.

My writing improved over time, especially when I started using an online word processor. My articles began to get more attention. I felt a little bit more confident about what I was doing.

I’ve received some positive feedback from readers over the years. I appreciate each and every one of the comments and messages. But there’s one that really stood out.

One evening last year, I received a text message from my neighbor with a link to one of my HumbleDollar articles. It was an article about her younger son watering our yard and getting our mail while we were traveling. It was his first job.

When I saw the message, I thought she might be upset. I never told her I wrote an article about Michael. But she was fine with it, and wanted to let me know they’d read it.

They knew I sometimes wrote articles. I’d sent them a piece I wrote about my mother in 2020. Brian, their older son, discovered the rest of the articles I’d written for HumbleDollar.

When he told me he liked my stuff, it was one of the best compliments I received about my writing. I never imagined an 18-year-old college freshman would have any interest in what this 71-year-old had to say about money and life.

I realize it’s not really about me. It’s what I write about: financial security, good friends and good health. These are things that people of all ages strive for, and not just older folks like me.

Meanwhile, one reader recently asked me if I still use Vanguard Group’s Personal Advisor Services (PAS). I can understand why that question came up. I mentioned in that piece, as well as in a 2022 article, about eventually consolidating our investment portfolio into a single target-date fund or a few low-cost, broad-based index funds. But yes, as of today, PAS still manages our investment portfolio.

One of the reasons I enrolled in PAS was that I was looking for an advisor I could trust to manage our portfolio if something should happen to me. My wife was never keen on the idea, but recently she’s had a change of heart and wants to continue the service for now. Maybe the bear market and the silly mistakes I sometimes make have something to do with her change in attitude.

Vanguard charges 0.3% of assets each year to manage our investment portfolio. The exchange-traded funds in our portfolio average approximately 0.05% in annual expenses, so our total cost is about 0.35%. I’m okay with the additional cost of using an advisor if it gives my wife peace of mind. I’m about five years older than her, so there's a good chance she’ll outlive me. But if we ever decided to leave PAS, a target-date fund or two index funds would be the alternative.

I also wrote in my recent article about having one credit card in our later years. We currently have three. Our Costco Anywhere Visa card is our primary card. It offers the most rewards. The other two we wouldn’t miss, and cancelling them would mean two less credit cards to monitor.

As we grow older, I believe simplifying our life is a wise move. I’ve always found that life is easier to manage and less stressful when you have fewer things to deal with. That’s what we’ve been doing lately, trying to rid ourselves of the clutter in our lives.

We invited a couple over to our house one evening. It was the first time they had been to our home since we remodeled. When the husband walked in and took a look around, the first thing he said was, “You don’t have a lot of things. I like that.”

That’s how I built my wealth over the years—by not owning a lot of stuff. The less you own, the more money you can save. In 2018, I wrote an article about a Fender Telecaster guitar my parents gave me in high school as a birthday present, and how it was the only valuable personal item I own, other than my car and my home. That’s still true today.

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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