Jonathan Clements's Blog, page 155

No Going Back

RETIREMENT IS LIFE’S most daunting financial puzzle, not least because many of the decisions we make are difficult or impossible to reverse. To make matters worse, we’re often making decisions we’ve never made before, so we have no real expertise.

What sort of decisions am I talking about? Here are 10 examples.

1. When should I quit work? Needless to say, this is the most important retirement decision. Once you quit the workforce, you not only give up your paycheck, but also your ability to save comes to an end and, indeed, goes into reverse, as you start to draw down your nest egg. Still, there’s always the possibility of working part-time in retirement—something I favor, not just because it brings in a little money, but also because it can provide retirees with a sense of purpose.

2. Should I buy long-term-care insurance? If you purchase traditional long-term-care insurance, you’ll soon find yourself emotionally and financially bound to the policy by the premiums you’ve already paid. Even if the insurer later jacks up those premiums to unaffordable levels, you’ll be loath to drop coverage because of your sunk cost. Hybrid policies exact less of a financial toll if you later have second thoughts and decide to drop coverage, though even these policies can involve a hefty opportunity cost, on top of any actual financial loss that you suffer.

3. Should I downsize? As anybody who has ever sold a home can attest, it’s an expensive process, one you want to do as infrequently as possible. Saying goodbye to your single-family home and moving to an apartment, perhaps in a 55-plus community? That can be a smart move—but your new home may come with a raft of rules that can grate on those who aren’t used to dealing with seemingly petty regulations. Not happy with your new place? Your second thoughts could come with a hefty price tag.

4. Should I move elsewhere? It’s one thing to move to a smaller home. It’s another to move across the country, perhaps to a place with better weather and lower taxes. But what if the balmy weather proves scant compensation for the friends you left behind? Moving back would be costly, and perhaps impossible if you’ve already spent a chunk of the proceeds from selling your previous, more expensive home.

5. Should I move into a continuing care retirement community? These communities—which typically offer independent living, assisted living and skilled nursing all within the same campus setting—often involve a hefty upfront fee. Yes, that fee may be partly or entirely refundable upon death or if you move out after just a few years. Still, if you sign up for a CCRC, it’ll likely be the last big financial decision you’ll ever make, and picking the wrong community would be a costly error.

6. When should I claim Social Security? Among retirement choices, this ranks second in importance, surpassed only by the crucial decision of when to quit the workforce. Many folks claim Social Security early, but that’s often a mistake.

Have regrets? You have two options. First, if you claimed in the past 12 months, you can withdraw your request for benefits and repay the money you received. Second, once you reach your full Social Security retirement age of 66 or 67, you can suspend your benefit and thereafter accrue delayed retirement credits, which will boost your benefit once you restart your monthly check.

7. Should I take monthly pension payments or the lump sum? Among those lucky enough to qualify for a pension, many take the money as a lump sum rather than as regular monthly pension payments. But whichever you choose, there’s no going back. True, those who opt for the lump sum could later buy an immediate fixed annuity and thereby create their own monthly pension. But the monthly payments from the annuity may not be as generous as the monthly payments retirees could have received from their old employer’s plan.

8. Should I annuitize part of my retirement nest egg? I believe immediate fixed annuities are a great way to turn retirement savings into an income stream you can’t outlive, but they remain a profoundly unpopular product. That’s a shame, but I can understand why. If you opt to annuitize, say, $100,000 of your retirement savings, it’s a big, irreversible decision—one that would sting if you got a grim medical diagnosis, say, a few months later.

9. Should I take out a reverse mortgage? Just because you sign up for a reverse mortgage doesn’t mean you have to borrow against your home’s equity. Indeed, some experts advocate setting up a reverse mortgage as a financial backup, in case you start to deplete your other retirement assets or a market swoon means it’s a bad time to tap your portfolio. Still, setting up a reverse mortgage involves hefty upfront fees—a deterrent to pulling the trigger. To see how much you might pay in fees, try this calculator.

10. Should I give away money now or upon death? Whether you're looking to help family or your favorite charities, giving away money now has a lot to recommend it. You get the pleasure of enjoying the recipients' gratitude, you shrink your wealth for purposes of federal and state estate taxes, and today's charitable gifts may also trim your current income-tax bill. The downside: Once the money is given away, it is indeed gone, which could be a financial disaster if you later find your retirement nest egg is shrinking far faster than you anticipated.

When faced with the 10 questions above, the temptation is to opt for the answer that’ll minimize our potential financial loss in the short-term, and thus also minimize the chances that we’ll be racked by regret. But there’s a downside to making the emotionally safe choice. The problem: In some cases, the path that promises least short-term regret—by, say, claiming Social Security right away, taking the pension lump sum and avoiding immediate annuities—could end up hurting us financially over the long haul.

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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Worldly Wisdom

A FEW MONTHS BACK, this site’s editor suggested I write an article about the "10 things I learned about money from four years traveling the globe." I thought, hey, if someone wants to pay me $60 to write about travel, I’m in. I’m hoping he’ll next suggest I write an article about drinking bourbon.

Starting in September 2017, my wife and I traveled the world for four straight years. Travel can be wondrous. Filled with new tastes, like grilled pig rectum in Tokyo. Filled with new smells, though the less said about that tannery in Marrakesh the better. And new people, like a picnic with strangers on the Temple Mount. Along the way, here are a few things I learned.

If you’re going to travel for four years, why pay income taxes to a state you aren't actually living in? Start your adventure by moving to an income-tax-free state. I went with Texas. Depending on your politics, heat tolerance and affection for the second amendment, you might prefer Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Washington or Wyoming.
Use a mail forwarding service—that is, of course, located in your new income-tax-free state. If you go with the great state of Texas, may I recommend Texas Home Base? For $200 a year, it scans the contents of every letter sent to your new Texas address, which you can review at your leisure while drinking a bière on one of Paris’s Bateaux Mouches.
My global travel adventure commenced when my working life ended, so I was in a great position to sell my house. From a practical point of view, this enabled me to avoid mortgage payments, property taxes and repair costs. From a spiritual point of view, this enabled me to avoid worrying about mortgage payments, property taxes and repair costs. I could truly focus on the romance of travel and not the banality of owning a home. I traveled completely unfettered, knowing I could settle down anywhere along the way or maybe never at all.
After selling your home, put all your stuff in a POD.
You may want to start your adventure with a bang by visiting Paris or Tokyo—two of my personal favorites—though a more economical strategy may be to find an inexpensive airfare from where you are to any city on the continent in question. Does it really matter if, instead, you start your adventure in Munich or Seoul?
I never planned more than one city ahead. This gave the flâneur in me the flexibility to extend my stay if I found a location particularly intriguing or economical.

That, in turn, led to two strategies. First, I tried to book rental cars and lodgings that offered “free cancellation.” That way, if my itinerary changed or I found a cheaper option—which I was always looking for—I had flexibility.

Second, after making the initial payment through Airbnb or Booking.com, and ensuring the lodgings were adequate, I would later contact the owner directly to extend. Cutting out the middleman, and possibly the taxman, can be very economical.

I enjoyed inspecting alternatives to America's current version of democracy, capitalism, religion and educational system—such as places where there are more than two political parties, a non-Darwinian economic system, a kinder, gentler version of religion, and an educational system that produces graduates who speak more than one language, one of which—English—is often spoken better than it is by some Americans.

More than that, though, I wanted to try out some just plain good ideas. Like transportation systems that, while not necessarily cheaper, actually work, whether it's a bus, tram, funicular, railcar, cable car, highway, subway, plane, ferry or donkey. Like a hand-held credit card terminal that was brought to the table at the end of my meal so I could pay by credit card, while not letting my credit card out of my possession, at which point it might be copied for future credit card fraud. Like restaurant prices and bills that include taxes and tip. Well, that's only in France, but it's still a damn good idea.

Keep a journal. Otherwise, it’ll all become a giant blur.
Spend a little more than you think you should. Don’t tell my wife about this one.
Most cities in the world offer free walking tours. It’s a great way to get to know a city, get some ideas, and maybe make a friend or two. In most cases, guides will provide you with their phone number, so you can text them for advice during the balance of your stay. While technically they’re free, almost everyone tips, in my case around $10. I like the capitalistic aspect of these walking tours: If the guide doesn’t do a good job, you don’t pay them.

I must have been on more than 20 free tours, and on every one of them, the missus and I were the oldest partakers. Maybe it’s all the walking, maybe it’s ageism, or perhaps it’s because old people have more money and therefore equate free with crap. All I know is that walking tours are a good deal—and seeing a city through younger eyes can be a real tonic.

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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Luxury Liner Living

MOST OF US REACH a point in retirement where we think about downsizing. This happened most recently for us when my husband was replacing batteries in our smoke alarms. This required him to stand on a ladder and look up, triggering a bout of vertigo.




This and other elder episodes, happening as we try to perform simple, everyday tasks, caused us to rethink our ability to remain in our current home. We’re not decrepit yet, but we are slowly succumbing to the vagaries of aging.




Many retirees choose to move to 55-plus communities. For those a little further down the road, there are assisted-living facilities and continuing care retirement communities. Today, we also have the choice of 55-plus “resort living” communities, described by the owners as “upscale.” Translation: expensive. These are independent living apartments where you pay rent on a month-to-month lease. There’s no buy-in or one-time fee.




These communities are portrayed as "cruise-ship-style living.” The amenities include executive chefs providing three meals a day, an array of snacks, salads and sandwiches for in-between noshers, room service, free wi-fi and utilities, weekly housekeeping and concierge service. Pets are allowed, and there’s a host of additional services.




My interest in this style of living was piqued when construction began on a resort living community close to my home. A friend asked me to accompany her to an information seminar given by the management. I also wanted to learn more about this Utopian-sounding existence. There’s no home upkeep, no cooking or shopping for food, no worrying about home repairs, lawn care, snow removal and so on.




The salesman giving the presentation was top-notch, with a resonant, booming voice that even those with diminished hearing couldn’t fault. It all sounded like Nirvana, but being a “kick the tires” kind of person, I’ve decided to reserve judgment until I can have a look-see after construction is completed. The company has approximately 50 communities throughout the country, but none is close enough for me to visit for an inspection.




The fee for a two-bedroom apartment is $6,500 a month for one person and an additional $1,000 for a second occupant, putting the price tag at $7,500 for a couple. Studio and one-bedroom apartments are less. This monthly fee is subject to an increase of 3% to 5% annually, depending on location and other factors. Not surprisingly, such communities are all located in affluent areas.




Construction for our local community is expected to be completed by year’s end. My friend decided to make a $500 deposit. The deposit can be applied to the first month’s rent and is returnable at any time, no questions asked, or so they say. This is called becoming a “charter member” and comes with various privileges.




I’ve decided to delay any decision until I can check everything out, including the food. The brochure pictured a tasty-looking prime rib dinner. But if they run out, I don’t want to be eating fried baloney sandwiches. Stay tuned.

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Spreadsheets and Me

MY AFFINITY FOR spreadsheets began in the late 1960s when I was a paperboy in Virginia Beach. I had a morning route for The Virginian-Pilot and an afternoon route for the now-defunct Ledger-Star. I used my Huffy bicycle with huge baskets front and back.

The business model was straightforward. I paid wholesale for the papers, and customers paid the retail price of 35 cents per week, or 55 cents if they also got the Sunday paper. I collected payments every two weeks, and the company provided a book with pre-printed receipts that could be torn out when a customer paid. Each receipt was smaller than a postage stamp.

My homemade spreadsheet helped me keep track of my small business. Customers who didn’t pay promptly were particularly irksome. A quick glance showed how the bottom line was directly affected. Deadbeats were rare, and I cut off a few, quickly learning the importance of follow-through with customers to make the enterprise worthwhile. I learned valuable lessons about people, human nature and work ethic.

My fondness for spreadsheets didn’t end there. For many years, I’ve tracked our family’s net worth. A year-end hard copy goes in the filing cabinet. Everything has a category:

Real estate. This includes estimates of the market value of our home and rental property. There are also two pricey mausoleum crypts we inherited that I hope aren’t needed anytime soon.
Taxable. Checking and money market accounts are here, along with our taxable Vanguard Group brokerage account.
Tax-deferred. As you might expect, this includes a traditional IRA, a traditional 401(k) and, more recently, our purchases of Series I savings bonds.
Tax-free. This category has Roth IRAs, an inherited Roth IRA and my Roth 401(k). We’ve been steadily doing Roth conversions, so with any luck the balances in this category will grow.
Donor accounts. The North Carolina 529 plans for our grandchildren are here, along with our Vanguard Charitable account. The process of moving assets from Vanguard to Vanguard Charitable is ridiculously easy. We know the money in the donor-advised fund no longer really belongs to us. But we make recommendations about when and how much goes to the various charities we support.

The separation into categories is a reminder that money in a tax-free account is worth more than the same sum in a tax-deferred or taxable account. We know that the U.S. Treasury is, in most cases, a future owner of a portion of the dividends and capital gains from those accounts.

It’s satisfying to see the change in the net worth statements over many years. Despite the inevitable market downturns, we’ve enjoyed impressive long-term growth. Net worth is often defined as assets minus liabilities. We’re lucky enough to be debt-free these days, so the liabilities column is blank. Call me crazy, but I pay off my credit card balances every morning. Yes, every morning.

You may have noticed I don’t include the value of vehicles. They only depreciate, and it’s too depressing.

Our checking account gets balanced every morning with the help of a spreadsheet designed for that purpose. We write very few checks, but there are plenty of online payments, always accompanied by a debit entry in this spreadsheet.

I have a spreadsheet for recording monthly income and expenses. There’s also a tax spreadsheet, useful for projecting yearly estimated income totals. Goals include staying in a certain tax bracket, making Roth conversions and avoiding those pesky IRMAA cliffs.

My various Excel spreadsheets are useful, but they pale compared to the tools available at Morningstar and Vanguard. Among my favorites is the Morningstar Portfolio Manager, where re-arranging the data is a snap. Securities can be sorted by criteria including total returns, holding periods, dividend yields, expense ratios and more.

I like the cost basis resources on the Vanguard website, useful most recently for tax-loss selling. It’s easy to sort the data in the spreadsheets Vanguard provides, and use specific ID to find the securities we want to unload in our taxable accounts. The cost basis tools are also great for hunting for securities with large gains to send to our donor-advised fund.

As I close in on age 70, the spreadsheet with the greatest impact is one devoted to my health. I’m not tremendously overweight, but nobody’s confusing me with George Clooney, either. I step on the scale each morning at about 6 a.m. The number is dutifully recorded by date. My spreadsheet tells me daily and weekly losses, average weekly loss, and percentage of total beginning weight that has been lost. Blood pressure and pulse readings are included.

I find all this quite inspiring. The knowledge that a morning weigh-in looms, with a number recorded for all time, keeps me from mindless eating the night before.

And I’m walking much more these days, in my ongoing effort to avoid using one of those crypts. My phone somehow knows how many steps I’ve taken, total distance traveled and more. I think that information is destined for my spreadsheet.

Steve Skillman lives in Southport, North Carolina. He’s a retired high school band director and arts administrator. Steve spends his time playing the French horn in four regional orchestras and building sets for the local community theater.

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Inflation Bites Dog

RACHAEL AND I WENT to Walmart the other day to stock up on dog food—and came away with a severe case of sticker shock.

We feed our two dogs a daily menu of dry food mixed into a delightful mash with a little canned wet food. Our go-to brands are Purina Dog Chow for the dry food and Pedigree Chopped Ground Dinner for the wet food.

The cost of the 40-pound bag of Purina dry food has barely budged. The price of the 12-can pack of Pedigree wet food, however, has jumped from about $12 to nearly $20.

What’s going on? Doing a little research, I discovered that Pedigree dog food is made by Mars Petcare, a subsidiary of Mars—yes, the same company that makes M&Ms and Twix bars for us humans. I sent a note to the people at Mars Petcare and got the following response back:

We're sorry you are disappointed in the increased pricing. Our top priority will always be the happiness of your pet. Increasing our prices will allow us to maintain our standards and quality to ensure that our treats include the ingredients and flavors that your pet loves.  

Being a former PR guy, I can appreciate the spin in this nice note, but I’m not buying it. Yes, roaring inflation has made everything more expensive over the past couple of years, and pet food is no exception. But to raise the price of canned dog food by 60% overnight, without an obvious market or supply-chain shock driving the increase—clearly, something beyond ordinary inflationary pressures is at work here.

The answer came to me as I scanned the pet food shelves at Walmart. There were literally dozens of brands of bagged dry food to choose from—Purina, Iams, Kibbles ‘n Bits, Blue Buffalo, Nature’s Recipe and more. The choices were much more limited, however, when it came to wet food. We had maybe 10 choices of canned food, and all of them had gone up significantly in price. What’s more, all these wet food choices came from the same two or three suppliers.

This, it seems to me, was a classic case of an oligopoly of producers taking advantage of price inelasticity to increase profit margins. Economically speaking, price elasticity measures the sensitivity of demand for a given product to changes in price. An inelastic product is one where demand stays relatively static when its price or other supply factors change. Marketers love situations like this because they can raise prices without suffering a huge fall in sales or profits.

Inelastic markets typically occur in situations where consumers don’t have much choice when it comes to adequate substitutes. The market for pet products is one such market. Why? We pet owners are obsessed with our furry companions and are willing to pay up to take good care of them. Many of us are even willing to spend extra on so-called “organic” pet food, even though the Food and Drug Administration doesn’t regulate the labeling of organic foods for pets.

I’m not one of those pet owners. Until research provides clear evidence of the benefits of pricier “natural” pet foods, I’m happy choosing a “regular” product that has the right mix of protein, fiber and nutrients. The fact is, all the products on the Walmart shelves, whether regular or organic, are highly regulated and use real meat by-products. The difference in prices have a lot to do with the branding of the product and the advertising dollars that go into it.

As an educated buyer, I’m willing to switch brands if my favorite product becomes significantly more expensive than another product with a similar mix of quality ingredients. My willingness to switch brands based on price is where I, as a consumer, gain power during inflationary times like these. I can do so through the important economic principle of the substitution effect, defined as the decrease of sales that happens when a product’s price rise causes consumers to switch to a cheaper alternative.

Those cheaper alternatives don’t necessarily have to be in the same narrowly defined category. If, for example, a sudden shock in the supply of coffee beans makes ground coffee outrageously expensive, I could drink tea instead.

In the case of dog food, I have many competitive choices for dry dog food—which is likely why prices haven’t increased that much. With fewer choices for canned dog food, however, I’m at the mercy of sharp price increases, such as those I’m seeing on Walmart’s shelves.

For our household, what are the alternatives as we strive to keep our dogs healthy and happy without breaking our limited budgets? Well, we could cut back on the wet canned food, or eliminate it altogether and stick with dry food only for our dogs. While I suspect my Cassie would be fine with this, Rachael’s fussy Cavachon likely wouldn’t be happy with this option.

We could mix gravy in with the dry food to make it more appetizing. Both dogs would love that, and there would be no change in the nutrients they’re getting.

Another more radical option: We could cook up the ground venison in our freezer and mix some of that into the dry meal. The venison comes from a buddy who hunts my property up north. We know that venison is grass-fed and free of hormones, and we have plenty of it.

We’re still weighing our options as we work through the last of the canned dog food. At times like these, a little creativity goes a long way toward staying on budget and retaining our power as consumers.

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

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Driving Me Crazy

WE JUST PURCHASED a new car. The whole buying process has been upended by the pandemic and today’s chip shortage, and we learned seven important lessons.

My wife and I view car buying as an unavoidable chore. We know financial experts recommend buying a car that’s a few years old, so someone else takes the big hit on the initial depreciation. We haven’t done that. We like to buy a new vehicle and keep it for 15 or 20 years.

For the past several years, one of our vehicles has been a Ford F150 pickup, which we purchased new in 2005. Our second vehicle has been a Buick LeSabre, which my parents purchased new, also in 2005. We bought it from my mom when she no longer needed it. Six months ago, the engine blew on our pickup. Since then, it’s been sitting in our barn while I decide whether I should spend $6,000 getting a new engine installed. With it out of commission, having only one 18-year-old vehicle doesn’t seem like a wise proposition.

Two weeks ago, I got serious about buying a new vehicle. We decided we wanted a Toyota Highlander SUV. Highlanders come in seven models: L, LE, XLE, XSE, Bronze, Limited and Platinum. Looking at the specs online, we decided an LE had everything we needed.

Our closest metropolitan area is St. Louis, which is some 50 miles away. There are nine Toyota dealers in the St. Louis area. Toyota dealer websites tell how many vehicles of each model they have in stock, with a picture of each vehicle. I planned a day’s outing and went to the three dealers that supposedly had the most Highlander LEs and XLEs in stock.

Lesson 1: Online reports of available inventory are notoriously inaccurate, at least for Toyota. I went to one dealer whose website said it had four Highlander LEs sitting on its lot, ready for purchase. The dealer had one, and the salesperson said that was a fluke. She said the dealership usually has none.

Lesson 2: Many dealers are adding an “administrative fee,” so the buyer is paying more than MSRP. No more haggling and paying less than MSRP, or manufacturer suggested retail price. One dealer was proud that it added no fee. One of the other dealers I saw added $400 to MSRP, while another added $800.

This was a fact-finding day. I was not planning on purchasing anything, but I did drive a Highlander LE at two of the dealerships. I came home and thought about things for a week. I decided I wanted a Highlander Hybrid—partial electric. It’s supposed to get 35 mpg city or highway. It costs a few thousand dollars more, but I did a breakeven analysis. Depending on the price of gas, after 30,000 or 40,000 miles, I’ll save enough in gas to offset the extra cost.

Lesson 3: Sought-after cars are in extremely short supply. I called the nine dealers in the St. Louis area, two dealers in rural areas east of us, and even two dealers in central Iowa, where my mother lives. Twelve of these 13 dealers did not have Highlander Hybrid LE or XLE that I could walk in and buy. Several offered to put us on a waiting list and said we should be able to get a car within six months. For some, to get on their waiting list, we had to make a $500 or $1,000 deposit. Other dealers said we’d have to wait a year or more and didn’t even offer to put us on a waiting list. One dealer said it restricts sales to people within 50 miles of the dealership.

With the next-to-last dealer on my list, I struck paydirt. It had two Highlander Hybrids sitting on its lot, one LE and one XLE. The buyer for the LE had not been approved for financing and the sale had fallen through. My wife and I rearranged our schedule for the day. That afternoon, we went in and bought the LE. We paid $47,210—an MSRP of $43,643, a $499 “administrative” fee, and $3,068 for sales tax and registration fees.

Lesson 4: Take care of details. We have our credit reports locked to reduce the chance of hacking. In my experience, most establishments use TransUnion, so I unlocked our TransUnion credit report before going to the car dealership. Toyota is offering financing on Highlander Hybrids—4.99% for three or four years, 5.99% for five years, or 6.49% for six years. Although we generally pay cash, I wanted to finance this car. I found out Toyota uses Experian and I couldn’t get my Experian report unlocked at the dealership. I settled for the dealership’s best alternative, Fifth Third Bank at 7.35% with no refinancing penalty. Our hometown bank offers 6.75% for six years. We’re in the process of refinancing.

Lesson 5: Financing is out of control. One dealer told us we could purchase a vehicle with literally no money down. Another said we needed to put down $500. Both said a larger down payment wouldn’t reduce the interest rate. Wouldn’t it be prudent for a financing company to require a 20% down payment, or at least 10%? Can people who have saved nothing afford huge monthly payments? We opted to put down $3,768 and financed $43,442. We have payments of $750 per month for 72 months. When we complete our refinancing, our payments will go down about $15 per month.

Lesson 6: The chip shortage is real. Basic economics says that in a free market economy, when there’s a shortage of something, suppliers increase production. When I asked salespeople why Toyota doesn’t ramp up production of Highlander Hybrids, the reason always given was a shortage of computer chips. Also, because of the chip shortage, we received just one key with our new car. A second key will be sent to us at some indefinite time in the future.

Lesson 7: The used car market is wonky. I checked both Carvana and Carmax for used Highlander Hybrids. We could buy a one- or two-year-old Highlander Hybrid LE, with 20,000 or 30,000 miles on it, for a few thousand dollars more than we paid for our new car. When I told this to my brother, he replied, “Yes, but you can have the car this week.”

I know it makes me sound old when I say this, but we purchased our first home—a small but comfortable split-level with three bedrooms, one bathroom and a one-car garage—for $46,000 in 1981. That’s somewhat less than the cost of our new car.

Larry Sayler is the only person with a Wharton MBA who also graduated from Ringling Bros. and Barnum & Bailey’s Clown College. Earlier in his career, he served as CFO for three manufacturing and service organizations. For 16 years before his retirement, Larry taught accounting at a small Christian college in the Midwest. His brother Kenyon also writes for HumbleDollar. Check out Larry's earlier articles.

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Errors of Commission

I WAS A RABID football fan as a kid. I would sweep across our front lawn, fantasizing about the many and varied ways I would run to daylight for Hewlett High School. But when I finally got the chance, I lasted only a few practices. I hadn’t counted on all the bruises that came with the program.

So, too, was it with my brief stint as an independent investment advisor affiliated with a large discount broker. After a career as a university professor, and while still working part-time as a psychologist, I realized my lifelong dream of becoming a financial advisor. But once again, I got stopped at the line of scrimmage.

I fancied myself a deliberative portfolio manager, not the administrative secretary that the job required. I sought the heady stuff like aligning asset allocations with clients’ needs and risk tolerance, but instead found myself walking them through tortuous retirement-plan application forms.

Admittedly, the investment world hardly needed another self-proclaimed portfolio manager to rake off maybe 1% of an investor’s stake, or about 10% of his or her average annual return. I limped off the playing field chastened and wiser about the distinction between dream and reality.

But I’m not here just to bemoan my fate. In my brief time as an advisor, it soon became apparent that questions of trust and integrity were far more difficult than those of which way to tilt a portfolio. Often legally bound as fiduciaries to put clients’ interests before their own, financial advisors must wrestle with the moral weight of their recommendations.

Consider the ethical dilemma that arose when a 78-year-old widow, whom I’ll call Ivy, gingerly entered my office. She told me she had earned just $27 in annual interest on her $10,000 of savings at her local branch of a national bank. Haltingly and vulnerable, Ivy asked if she might safely get more. She said her and her deceased husband’s state pensions amply covered her living expenses. My client impressed me as frugal. She had no significant debt. She also had a whole-life insurance policy she could tap in an emergency.

It soon became evident that Ivy was not investment savvy and that any financial decisions would be made by me. This was a few years ago, when interest rates were infinitesimal but possibly soon heading higher with inflation. I suggested certificates of deposit to increase her return and Series I savings bonds to protect against any rise in inflation.

Those recommendations were easy for me. Sure, there were alternatives, but this strategy seemed eminently justifiable. I charged an hourly fee for my services, so my compensation was not affected by selecting two commission-free investments. No need to wrestle with a conflict of interest between what’s best for my client and what’s most beneficial for me.

But what if my income was tied to commissions, which CDs and savings bonds do not produce? I was lucky. I had other sources of income, while most advisors don’t. I have attended several advisor conferences and don’t recall even a handful of presentations on CDs and savings bonds.

How do advisors who depend on earning commissions defend a practice that repeatedly pits their own financial well-being against their conscience? The mantra is, “We need to be compensated for our time and expertise.” Certainly they do, and they should be. And an hourly fee would accomplish that and do an end run around commissions and the inevitable confrontations with an inherent conflict of interest.

I know what you’re thinking, folks. How could this obviously sanctimonious guy level an hourly fee of $175 that might well gobble up much of his client’s first-year interest income? Well, this one was almost pro bono. I charged Ivy for a 15-minute session, and helped her set up her CD and TreasuryDirect accounts, which took far more than 15 minutes. With that attitude, maybe it’s no surprise I didn’t last long as an investment advisor.

Don’t get me wrong, I’m no saint. I regularly raise rents on my tenants and I peeked over the shoulder of the girl sitting in front of me during my college econ final. My journey as an investment advisor didn’t go as planned. But I managed to leave with my soul intact.

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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Old-Timers Strike Out

DID YOU KNOW THAT more than 500 retired ballplayers aren’t receiving pensions for their time playing Major League Baseball? It's true.

Today, the average salary per player is $3.7 million a year and even the last man on the bench receives a minimum salary of $700,000—and yet many old-timers are getting shafted by the sport they loved to play.

The story goes back more than four decades. During the 1980 Memorial Day weekend, baseball’s pension vesting rules changed. Previously, a player needed four years of service to be eligible for a pension. But since 1980, all you need is 43 days.

Mind you, 43 is not how many games you need to play. It's how many days you’re listed on an active major league roster. The Boston Red Sox’s new outfielder Masataka Yoshida will be eligible for a big-league pension come mid-May, based on the 43 days he'll have accrued on a roster since spring training.

According to the IRS, the maximum pension is $265,000. That's a great payday for today's ballplayers. But in this sweetheart of a deal, the contract representing baseball’s current players failed to include the men who played before 1980.

Result? A man like one-time Red Sox pitcher Jim Wright, who never earned more than $21,000 playing in “The Show,” or 89-year-old Dave Stenhouse, of Cranston, Rhode Island, who started the 1962 All-Star Game as a rookie for the then-Washington Senators, are being shortchanged because of what era they played in.

Stenhouse's situation is particularly ironic since his son Mike—who also played Major League Baseball—is receiving a pension. Unlike his dad, he played for 43 days after 1980.

In April 2011, an old-timers award program was started by the late Michael Weiner, executive director of the Major League Baseball Players Association, and former Commissioner of Baseball Bud Selig, to give these men at least something. Each would receive $625 for every 43 games they’d spent on an active major league roster.

In the new collective bargaining agreement passed in March 2022, that formula was sweetened. For every 43 games, each man now gets a yearly payment of $718.75, up to a maximum of $11,500 annually.

Unlike most pensions, when a player dies, these payments end. The upshot: When Jim Wright passes away, that bone he's been thrown dies with him. His heirs won't get a plugged nickel. Ditto for the others. How can the league and the union be so callous and unfair?

League owners presented the National Baseball Hall of Fame with a $10 million check six years ago to support its endowment and exhibitions. Essentially, baseball owners chose relics over flesh-and-blood retirees.The league doesn't have to negotiate over the plight of these men during collective bargaining negotiations. That's why it's up to the union to go to bat for these men.

Imagine you were called up to play for your favorite team in mid-August and stayed with the team through the end of September, and never took a glove out to the field and never swung a bat. When you turned 62 years old, you'd be getting a big-league pension—for life.

But a guy like former BoSox utility infielder Carmen Fanzone, who never made more than $32,500 a year during his career, and who played three-and-a-half years, isn't getting a pension. All he gets is a yearly payment of $7,200. And when he passes on, his wife Sue won't continue to receive that stipend.

There's something wrong and unfair about this situation, which doesn't get a lot of newspaper, television or radio coverage. What's worse, the Major League Baseball Players Alumni Association, in Colorado Springs, Colorado, which should be banging the drum in support of these men, has remained strangely silent.

It would be nice if they remembered the men like Fanzone, Wright and Stenhouse, who endured labor stoppages and went without paychecks so that modern-day players like Yoshida could sign a five-year, $90 million free-agent contract. Would that be such a terrible thing for them to do?

Just increase the bone these men are being thrown to a straight $11,500 and, when they go to that great ballpark in the sky, let their wives, children or other designated loved ones continue receiving the payment for, say, three to five years, so there's no economic hardship for anyone's widow to endure. Would that be such a terrible idea?

A resident of New York, Douglas J. Gladstone is a magazine writer and author of two books, including A Bitter Cup of Coffee : How MLB and the Players’ Association Threw 874 Retirees a Curve.

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Plan on Change

IN MY ONGOING EFFORT to reduce our accumulated stuff, I was trolling through our collection of old thumb drives to see what I should download, save or toss. Among them, I discovered the 258-page presentation from a two-day retirement course that my old employer sponsored in 2006.

I wondered how the advice had—17 years on—stood the test of time. As I reviewed it, I found some excellent suggestions and some that were lacking, though I hesitate to fault the presentation’s authors.

I felt the course deserves an “A” for its detailed discussion of retirement lifestyle choices and investment planning. Company benefits were also exhaustively reviewed. We were told what benefits we were entitled to, and I recall employees and their spouses found those discussions comforting.

In addition, most—but not all—Social Security issues were thoroughly reviewed. The tradeoff between claiming early at age 62 or waiting until an employee’s full Social Security retirement age, which would be 65 to 67, was covered. The potential for higher benefits by delaying claiming until age 70 wasn’t highlighted, however. The benefits of the “file and suspend” strategy for married couples also weren’t discussed—but, then again, this loophole was eliminated before I retired in 2017.

I would give the presentation a “C” for its coverage of supplemental health and life insurance coverage. My employer later reduced those benefits, so these discussions are irrelevant now.

Four areas deserve only a “D” grade. The course spent little, if any, time on the so-called stretch IRA, withdrawal rates, sequence-of-return risk, and strategies for taking income from a mix of taxable, tax-deferred and Roth accounts.

What overall grade would I award the presentation? You might think it would average out to a “C” or maybe a generous “B.” But unfortunately, I’d give the course only a “D”—because, as time progressed, I simply couldn’t rely on much of the advice.

To be fair to the authors, many topics became outdated because of a surprising number of subsequent tax-law changes. It’s tough to execute a plan when the referees change the rules in the middle of the game.

For example, the presenters touted the net unrealized appreciation strategy when selling company stock. I find this strategy is of marginal value now because of the narrower spread between today’s income tax and capital gains rates—especially if the capital gains tax rate is topped off with a 3.8% Medicare surcharge on investment income.

Indeed, as I look back, it’s amazing how rapidly the rules have shifted under our feet. Here are nine changes made since 2006 that would upend even the most carefully crafted retirement plan:

In 2007, the Medicare Modernization Act added IRMAA Part B surcharges for higher-income taxpayers.
In 2010, the Tax Increase Prevention and Reconciliation Act eliminated the income limits on converting traditional IRAs to Roths. This enabled “backdoor” Roth conversions.
In 2010, the Affordable Care Act added an IRMAA Medicare Part D surcharge, plus the 3.8% investment income surcharge on higher-income taxpayers.
In 2010 and 2012, the Tax Relief and Job Creation and the American Taxpayer Relief acts extended earlier tax cuts, a variety of tax credits, the $5 million estate-tax exemption and the 40% top estate-tax rate. Income limits were also lifted for Roth conversions within 401(k) and 403(b) plans beginning in 2013.
In 2015, the Bipartisan Budget Act eliminated the “file and suspend” Social Security claiming strategy.
In 2017, the Tax Cuts and Jobs Act significantly lowered federal tax rates. The expanded 22% and 24% tax brackets are particularly helpful to taxpayers doing Roth conversions, and who earlier would have paid a 28% or 33% marginal tax rate. The 2017 law also doubled the estate-tax exemption from $5 to $10 million. It has since grown to $12.92 million, thanks to inflation adjustments. For married couples, this has greatly reduced the need to create trusts to reduce estate taxes.
In 2019, the SECURE Act raised the required minimum distribution (RMD) starting age from 70½ to 72. It also required most non-spouse inheritors to empty inherited retirement accounts within 10 years, thus eliminating the stretch IRA.
In 2020, the CARES Act provided a one-year RMD waiver. The act also provided more generous withdrawal and loan provisions from retirement plans.
In 2022, the so-called SECURE Act 2.0 increased the RMD starting age to 73, and then to 75 after 2033. Retirement plans were enhanced for those still working by raising the size of catch-up contributions, among other things.

As a result of these changes, my wife and I hope to convert 20% of our tax-deferred assets to Roth accounts by age 73, when our RMDs must start. These conversions will be taxed at a federal rate of 24%, rather than the 28% or 33% hit that would have been triggered before.

Yet, I don’t celebrate too much, as these tax savings are significantly offset by higher Medicare surcharges. Our sizable Roth conversions push us into higher IRMAA premiums and trigger the 3.8% Medicare surcharge on investment income. While I wish we could have converted more money before age 65 when the IRMAA surcharges kicked in, Roth conversions are still a game-changer for us because they’ll reduce our future RMDs and grow tax-free.

In addition, our children’s inheritance will currently incur no federal or state estate taxes, and our growing Roth accounts will be inherited income-tax-free. On the other hand, our children will be required to not only empty, but also pay taxes on our other retirement accounts in just 10 years, rather than over their entire life expectancy, which was the case before.

What have I learned from reviewing the 2006 retirement presentation? It’s never safe to get too comfortable with any retirement plan. And further changes are coming. For example, today’s lower income-tax rates are slated to sunset after 2025, as are those high federal estate-tax exclusions created by 2017’s legislation.

Retirement and estate plans have incurred seismic tax changes—both positive and negative—since 2006. No doubt, Washington will continue to tinker with the rules, especially when the current income-tax rates sunset. That uncertainty rests atop the already unpredictable returns from the investment markets. The upshot: It’s futile to draw up precise cash-flow projections for retirement—because those projections simply won’t hold up over the years.

John Yeigh is an author, speaker, coach, youth sports advocate and businessman with more than 30 years of publishing experience in the sports, finance and scientific fields. His book "Win the Youth Sports Game" was published in 2021. John retired in 2017 from the oil industry, where he negotiated financial details for multi-billion-dollar international projects. Check out his earlier articles.

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Defying Logic

THERE'S SOMETHING ODD going on in the housing market. Mortgage rates are appreciably higher than they were a year ago, but home prices—on average—have yet to fall. As of the most recent reading, prices continue to rise on a year-over-year basis. It reminds me of the cartoon character Wile E. Coyote, who experiences a delayed reaction every time he runs off the edge of a cliff. It’s only after he looks down that he realizes he has a problem.

So, what’s going on? One explanation is that higher rates cut both ways. In theory, higher rates should result in downward pressure on housing prices. But there’s another, more subtle factor at play: Many existing homeowners, who had been considering selling, now feel “stuck.” The problem is that, if they move, they’ll have to take out new mortgages, which might be prohibitively expensive. The result: Fewer homeowners are putting their homes on the market. That reduction in supply is putting upward pressure on prices at the same time that higher rates are applying downward pressure.

Ultimately, prices might come down. The key point, though, is that the impact is hardly straightforward. This dynamic illustrates something important about investment markets, which is that they tend to move in ways that, on the surface, often defy logic and expectations.

Consider the bond market. In normal times, bonds with longer maturities offer higher yields than shorter-term bonds. This makes intuitive sense. If you’re going to tie up your money for longer, you’ll want to be compensated for it. But that isn’t the case today. In normal times, the yield curve is characterized by a smooth upward slope, but today its shape is entirely different. Rates are more or less the same across one-year, 10-year and 30-year bonds, but with a slight peak around the one-year mark.

Why is that? After each of its meetings, the Federal Reserve’s rate-setting committee issues a set of interest rate forecasts, and these forecasts carry a clue that can help investors understand today’s unusual interest rate situation. Bond investors, it turns out, are simply mirroring the Fed’s own thinking. In their most recent forecast, committee members projected that rates will peak this year, then drop by half in the longer term.

The Fed, of course, has been steadily raising rates for about a year, and last week reiterated its expectation that further increases will be required to bring inflation under control. But at the same time, investors are looking beyond today’s challenges and see rates dropping in the future. The lesson: If you’re building a bond portfolio, it may be worthwhile to allocate a portion to intermediate-term bonds to lock in some of today’s higher rates before they fall. Still, because rising rates can impact intermediate-term bonds more than shorter bonds, you’ll want to do this judiciously.

While not nearly as quantitative, stocks also follow a logical though counterintuitive pattern. In Mastering the Market Cycle, investor and author Howard Marks notes that current share prices rarely represent a company’s current financial condition. Rather, today’s prices represent a combination of two other factors: investors’ expectations for a company’s future financial results and investor psychology. In mathematical terms, a company’s stock price equals its projected earnings multiplied by a price-to-earnings ratio. That latter figure represents the psychology element—how investors feel about the company.

That emotional component follows a well-known pattern, cycling over time between fear and greed. In normal times, when those two sentiments are roughly in balance, most types of stocks, on average, will tend to rise. But over time, as the market cycle progresses and prices continue to rise, investors will start to crowd into the fastest-growing, most attractive stocks. In recent years, that’s been companies like Apple, Amazon and Netflix.

In the final stage of a market cycle, as prices rise yet further, some investors throw caution to the wind—often, as Marks notes, because they see their friends getting rich and can’t stand sitting on the sidelines. That’s when investor sentiment tends to cross over from investing to speculation. We saw this in the latter part of 2020 and in 2021, when special purpose acquisition companies, firms with no earnings and crypto “currencies” captured investors’ imaginations.

As we all know, periods of extreme investor behavior always come to an end. And when they do, investors retrench and reset to the other end of the spectrum, opting for the most conservative stocks, such as those in health care and consumer staples. The cycle then starts over again.

This poses a problem for investors: It means that risk is highest at precisely the point when everything looks most rosy. By the same token, the opportunity for profit is greatest when investors are feeling most downbeat.

This conundrum is unlikely to ever go away. As Marks notes, it will likely always repeat because it’s driven by human nature. What, then, can you do to protect your finances from this regular boom-bust cycle?

First, structure the stock side of your portfolio so you’re not overly vulnerable to any one particular type of stock. Hold some growth stocks, some value stocks and some international stocks. That way, you’ll always have some part of your portfolio that’s in relatively good shape, regardless of whether investors are in a greedy mood or a fearful one. An easy way to do this is with total stock market index funds.

Second, avoid trying to guess when the cycle will turn. That’s a nearly impossible task. Instead, insulate yourself from unpredictability by aligning your portfolio with your needs. Hold enough assets outside the stock market to carry you through a downturn. I use five years as a rule of thumb. If you’re early in your career and only adding to your portfolio, this is less of a concern. But if you’re approaching retirement or making withdrawals for college tuition or other expenses, I recommend this five-year set-aside.

Third, decide on an asset allocation—for example, 70% stocks and 30% bonds—and then rebalance when it deviates significantly from those targets. This is a nearly automatic way to take advantage of the market’s inevitable ups and downs without trying to guess when they’ll occur.

In my opinion, those first three steps are sufficient. Howard Marks, however, suggests one more. While he acknowledges that investors can’t predict the future, he does offer this analogy: The future, he says, is like a bowl filled with lottery tickets. Some are winners and some are losers. If you reach in and take one, there’s no way to know which it’ll be. But, he says, informed investors tend to have a better sense of the mix in the bowl. In other words, no one knows exactly when the cycle will turn, but careful observers will have a better sense of how close to a market top or bottom we might be.

While I like this analogy, it’s still too susceptible to error, in my view. As I’ve noted before, even economists have a hard time predicting recessions. So do corporate executives. In announcing significant layoffs, CEOs including Mark Zuckerberg have acknowledged that they misjudged economic trends and mistakenly over-hired in recent years. The best solution, then, is to structure your portfolio so you’re prepared at all times for whatever might be around the corner.

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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