Jonathan Clements's Blog, page 162

House in Order

"I WOULD SAY TO the House, as I said to those who have joined this government: I have nothing to offer but blood, toil, tears and sweat. We have before us an ordeal of the most grievous kind. We have before us many, many long months of struggle and of suffering…. You ask, what is our aim? I can answer in one word: victory. Victory at all costs—victory in spite of all terror—victory, however long and hard the road may be, for without victory there is no survival."

What Winston Churchill said to his House during Great Britain’s darkest hour, I would say about selling yours. Selling a house shouldn’t be easy. If you sold one and it was, you didn’t do it right. It’s likely the biggest financial transaction of your life, so I don’t think it’s too much to ask that you put in a little effort.

The non-comprehensive checklist below is based on a lifetime of experience. I haven’t always followed it, though when I didn’t, I paid for it.

Know your home’s value. When you meet with your agent, you need to have an idea of what your home is worth. If you don’t, how can you be sure the sales price your agent suggests is the correct one?
Find the right agent. Using the agent that sold you your home may be the easiest route, but it may not be the most profitable one. It may take a while, but you need to spend the time to find the best agent to sell your home. Remember, they all cost the same, so you might as well hire the right one. News flash: You need to interview more than one agent. And maybe, just maybe the best agent may be… you, via a “for sale by owner” or discount broker.
Listen to your agent. You spent some time and effort hiring her, so now listen to what she says. If she doesn’t dig the lime green paint in the living room, the 10-foot-by-10-foot bridal portrait over the fireplace or the trampoline room, then maybe some changes are in order. Don’t take her constructive criticism personally. In the words of the world’s greatest businessman, “It’s not personal, it’s strictly business.”
Stage the place and clean it so prospective buyers fall in love at first sight. Think curb and entry way appeal. The house I recently purchased has a stunning three-floor modern staircase that was highlighted with lights and artwork. When my wife first walked in the door, she wanted it—bad. It also needs to be clean, and I mean clean clean. Think Martha Stewart and Felix Unger had a love child clean. Decluttering can help, as it makes every home look bigger, better and cleaner. I realize you and your family still need to live there, but you need to make it appear as though no one actually does.

Spend some money. If, like most people, you delayed some work on your home due to frugality or procrastination, the time is now. Not too much, but enough to put a nice shine on the place.
You need good photographs for the MLS. Obviously.
Market it. Your agent is going to list your home on the MLS, which will then syndicate the listing to the far reaches of the internet. She may also use other routes like direct mail, print and blogs. But you can’t let that be the end of it. You also need to market the place yourself. You have lived in your neighborhood for some time, so you have a circle of friends, neighbors, colleagues and acquaintances. You need to use them to get the word out: Facebook, LinkedIn, bulletin board at work, your sister’s friend who’s head of the PTA, and so on. When I sold my house in Houston, my personal marketing effort played a key role in getting the job done.
If the above steps fail to work, there’s one final step that may be tried. Bury a statue of St. Joseph upside down in your backyard. It’s a well-known technique to enable a real estate miracle, as a subsequent "successful closing won’t be long in the offing." The reason is obvious, as St. Joseph is the patron saint of house hunters. Don't believe me, you heathens? Well, it’s well documented here. Not Catholic or Anglican? Uh-oh.

You are the captain of your real estate ship. As the former First Lord of the Admiralty may have once said, “Victory will never be found by taking the path of least resistance.”

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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Sticking the Landing

WALL STREET WAS stunned Friday morning by the strength of the jobs market. While technology company layoffs have lately hijacked the fear-mongering media’s narrative, the truth is that the employment picture is quite strong.

With a 517,000 gain in net employment last month, along with ebbing wage growth, the “soft landing” crowd is one big step closer to winning the battle against the recession prognosticators. True, January’s jobs jolt is merely one data point. What’s maybe more impressive is that there have been 10 straight better-than-expected monthly payroll reports. That trend is a job seeker's friend.

Something would have to be truly wonky for the U.S. economy to be in a recession right now. There’s a revealing chart from J.P. Morgan Asset Management that illustrates the point. Variables such as industrial production, and wholesale and retail sales data, suggest modest economic weakness. But inflation-adjusted personal income, growth in payrolls and real consumer spending all indicate the economy is in decent shape.

Even more encouraging for investors is that the global economic tide may be turning for the better. Consider that there have been significant upward revisions to GDP growth forecasts in Europe and Asia over the past two months. A mild winter across the euro area has sent energy prices plunging, while China’s swift reopening is a demand driver for the world.

Does all this sanguine news justify current stock market levels? That’s always hard to determine. The S&P 500 now trades at a somewhat elevated 18.4 times forward earnings, according to FactSet. What’s more, value stocks and some European indexes are already at all-time highs. The recent good news may bolster investor confidence. But this doesn’t seem like a time to be making radical portfolio changes.

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Kicking the Tires

IT’S HUMAN NATURE to be impressed by things that sound sophisticated or seem complex. In the world of personal finance, this certainly applies to the planning tool known as Monte Carlo analysis.

Its roots go back to the 1940s, when it was developed by Stanislaw Ulam, a physicist working on the Manhattan Project. Today, it’s a popular way to assess the strength of a proposed retirement plan. If you’ve seen presentations indicating that a financial plan has a particular probability of success, that likely came out of a Monte Carlo simulation. Because of its highly mathematical underpinnings, this type of analysis tends to be viewed as rigorous and its results reliable. It’s not perfect, though.

In the past, I’ve discussed some of the shortcomings of Monte Carlo simulations. Chief among them is the issue that retirement can’t be characterized as having a binary outcome. It’s too simplistic to say that someone’s retirement will either be a success or a failure. As researcher David Blanchett noted in a recent article, “Monte Carlo failures aren’t like plane crashes.” Retirement—thankfully—is much more nuanced.

That leaves us with a crucial question: If we don’t use Monte Carlo analysis, how do we assess the robustness of a retirement plan? How can we be sure a particular plan won’t result in a retiree outliving his or her money? Below are nine strategies to consider.

1. Asset allocation. Adherents of Monte Carlo laud its ability to protect investors from sequence-of-return risk. That’s the risk faced during the first years of retirement, when poor investment returns can be especially damaging. Because Monte Carlo analysis looks at thousands of possible sequences of returns, it can help identify this risk. That’s useful, but there’s a simpler and more intuitive way to protect against an unwelcome sequence: through portfolio structure. If you hold sufficient dollars outside of stocks and in more stable assets like bonds or cash, that can help immunize your portfolio against a bear market in stocks, even one that persists for a number of years.

2. Scenario analysis. An appeal of Monte Carlo analysis is that it effectively “rolls the dice” hundreds or thousands of times. That can help investors explore a range of potential outcomes. A downside to this approach: Each time the computer rolls the dice, it only changes one variable—typically just the projected market return. This makes Monte Carlo analyses incomplete. In the real world, many more variables are in play, and it’s important to see how those changes might also impact the sustainability of a plan.

For instance, you might look at the impact of different spending levels or different housing scenarios. What if you purchased a vacation home or you downsized? You might also look at the impact of a large charitable gift. And, of course, you might want to analyze the impact of a change in tax rates. You can’t test everything, but it’s important to look beyond the single variable that Monte Carlo simulations tend to use.

3. Tax diversification. To help shield your portfolio from ever-changing tax rules, try to strike a balance among the four main types of accounts: a cash account, a taxable investment account, traditional tax-deferred retirement accounts and tax-free Roth accounts. This sort of balance is important because it helps retirees better control their tax rate from year to year.

Already have the four types of account? You might also look into a health savings account, though eligibility will depend on the type of health insurance you carry. If you have children or grandchildren, a 529 education savings account is a great idea—especially with the new escape hatch that allows for the partial conversion of leftover 529 dollars to a Roth IRA. Contributing to some of these accounts—such as a Roth—might mean forgoing a tax benefit this year. But remember, it’s the long term that matters. Sometimes, it’s worth paying more tax this year if it means paying less down the road.

4. Guaranteed income. No doubt about it, income annuities have a bad reputation—but don’t dismiss them entirely. What most people fear is that they buy an annuity on Monday and then die on Tuesday. That’s an understandable concern, but it’s also unlikely. Locking in some guaranteed income can provide both financial security and peace of mind. At the very least, remember that Social Security represents probably the best annuity of all—with both inflation protection and a survivor benefit. I suggest doing everything you can to maximize that benefit.

5. Real estate. Rental property seems to be the asset that people either love or hate. That’s understandable. A friend described arriving at a tenant’s door to pick up an overdue rent check and being greeted by a pit bull. That’s every prospective landlord’s worst fear—but it’s also unlikely. Real estate is attractive because it delivers passive income, isn’t highly correlated with the stock market, allows for the use of leverage and provides unique tax benefits. It isn’t for everyone, but it’s worth considering.

6. Tuition. Most parents feel an obligation to provide their children with an education. As one parent put it, “If my kid gets into Harvard, I’ll find a way to pay that bill—no matter what.” It’s a wonderful sentiment. But with tuition so high, it’s important to think more critically about this. One way to manage risk while also supporting your children is to have them take out loans. Then, after they graduate, contribute toward paying them down, but only to the extent that it doesn’t jeopardize your own plan.

7. Mortgage. If at all possible, I recommend paying off mortgage balances before retirement. Even if the numbers indicate that you’d be able to make the payments in retirement, reducing your fixed costs can provide you with valuable flexibility to navigate life’s inevitable curveballs.

8. Estate plan. Along with tuition, another potential budget buster is long-term care. Should you or your spouse require an in-home aide or a long-term-care facility, the costs can easily run to six figures a year. While there’s no way to predict the level of care you might need—if any—you can take steps to protect your portfolio so every last dollar isn’t consumed by a nursing home. It’s worth consulting an elder-care attorney to learn what strategies exist. Those strategies differ from state to state.

9. “Right” answers. Personal finance pundits seem to enjoy beating each other up over retirement strategies. In addition to Monte Carlo analysis and the scenario approach described above, there’s the so-called 4% rule, the RMD method, the guardrails strategy and many others—and everyone has an opinion on which is best. But since none of us can see the future, the best strategy, in my view, is to consider what each of these models has to offer. Don’t let any one model leave you feeling overconfident—or overly worried. Instead, see them all as data points for consideration. Most important: Make sure that, should your plan falter, you have a backup plan.

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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Angry at IRMAA

I'M AMAZED BY the opinions expressed by some retirees about the Medicare premium surcharge known as IRMAA, short for income-related monthly adjustment amount. Is it really unfair for higher-income older Americans to pay larger premiums for Medicare Part B and Part D? Many people think so.

IRMAA was part of 2003’s Medicare Modernization Act and took effect in 2007. The threshold at which IRMAA kicks in for a couple is four times higher than the median household income for Americans age 65 and older. Yet here are just two—out of many—complaining comments I saw on Facebook. Both have been slightly edited:

“If I pay more for health care, I expect to get more. With IRMAA’s impact on Medicare premiums, this is not true.”
“IRMAA is designed to fault the wealthy for being successful because ‘they can afford to pay more.’ Raising the premium on higher earners to pay for the same services does not make sense. It should be the same for all people no matter what.”

The idea of taking more from some taxpayers—or giving more back to them—based on income is hardly unique to Medicare. The federal income-tax code is progressive, meaning those with higher incomes pay a higher percentage of their income in taxes. Similarly, the Affordable Care Act subsidizes health insurance based on income. (A digression: Those subsidies don’t always seem to go to the right people. Two bloggers I’ve come across report a seven-figure net worth—and yet they pay less than $40 a month for family health insurance coverage.)

Moreover, roughly 25% to 30% of large employers charge employees for health insurance premiums based on their salary level. At my old employer, we structured retiree premiums based on a combination of years of service and salary. Nobody seemed to complain about that. 

The federal government subsidizes Medicare premiums. IRMAA merely reduces the size of that subsidy for some Medicare recipients. According to Medicare’s trustees, about 4.8 million beneficiaries paid a Part B IRMAA premium, or about 8% of Medicare Part B recipients.

More than half of Americans feel the wealthy don’t pay their fair share in taxes. Yet it seems that many retirees, even though they have an income that’s four times or more the average, don’t think they should be considered wealthy. 

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The Long Game

RUNNING OUT OF MONEY is retirement’s biggest financial risk—though this, of course, never actually happens. Thanks to Social Security, almost all retirees will have some monthly income, no matter how long they live.

Still, Social Security alone probably won’t make for a comfortable retirement, though it is the financial cornerstone for many. In fact, Social Security accounts for at least 50% of income for half of retirees. That includes a quarter of those age 65 and up for whom their monthly benefit is at least 90% of their income—a statistic I find shocking.

Want to do better? You need to not only save diligently during your working years, but also figure out how to draw down those savings over a retirement of uncertain length. That brings me to three sets of statistics that prompted me today to tackle the topic of longevity.

A recently released survey found that 48% of respondents believe they’ll outlive their retirement savings. To state the obvious, we should make it a priority to save enough during our working years so we’re financially comfortable for as long as we live—and yet half of folks think they’ll fall short.
I received an email from a correspondent who cited life expectancy as of birth as a guide for retirement planning. It’s not the first time I’ve seen this error made. When today’s 65-year-olds were born, life expectancy was age 67 for men and 73 for women. But life expectancies as of birth include those unlucky folks who die before reaching age 65. What if you make it that far? Today’s 65-year-olds can, on average, expect to live to 82 if they’re a man and 85 if they’re a woman.
In 2021, U.S. life expectancy declined for the second year in a row, driven largely by COVID-19, though drug overdoses also played a significant role. But what if you’re careful about your health? It’s always dangerous to rely on average life expectancies, because there’s a 50% chance you’ll live longer. But it’s especially dangerous if you see a doctor regularly, exercise, aren’t obese, don’t smoke and so on. One indication: Affluent, healthy individuals—the sort of folks who buy income annuities—are assumed by insurance companies to live perhaps five years longer than the general population.

When we’re in our 20s and 30s, financial experts badger us to give some thought to our 60-year-old self. But I worry that 60-year-olds also need to be badgered to worry about their 90-year-old self. All too often, I read that we should spend heavily early in retirement because we’ll need less money later on. Indeed, I sense that many folks believe their elderly self will be so out of it that he or she simply won’t appreciate whatever money is left. But will we still feel that way as we approach age 90, with our nest egg dwindling and long-term-care costs looming?

That raises the thorny question: As we plan for retirement, how long should we expect to live? If you know health issues will limit your lifespan, it might be possible to make a reasonable estimate. But for the rest of us, let me offer a radical suggestion: We should assume we’ll live forever and plan accordingly.

What does this mean in practice? For starters, if you’re a single individual in decent health or the spouse who had the higher lifetime earnings, consider delaying Social Security until your late 60s and perhaps all the way to age 70. A fat monthly Social Security check is the best financial defense against the cost of a long life.

Second, if Social Security alone doesn’t provide enough income to cover at least your fixed living costs, consider purchasing immediate-fixed annuities that pay lifetime income. I’d suggest buying a series of annuities over time, in case interest rates rise in the years ahead and so you can purchase from multiple insurers, thus hedging the risk that any one insurance company gets into financial trouble. I’d also suggest buying annuities where the monthly payments rise each year by, say, 2%.

Third, I wouldn’t use the 4% rule, where you withdraw 4% of your portfolio’s value in the first year of retirement and thereafter step up your annual withdrawals with the inflation rate. I think the 4% rule is a useful guideline for those looking ahead to retirement. But once retired, I’d favor a strategy where there’s no risk of depleting a portfolio.

My preference: Each year, withdraw a fixed percentage of your portfolio’s remaining value. For instance, in 2023, you might opt to withdraw 4% or 5% of your nest egg’s year-end 2022 value. The higher the percentage you choose, the greater the chance your annual withdrawals will shrink over time. Still, whatever percentage you pick, you’ll never run out of money—because you’re always withdrawing a percentage of whatever remains.

To be sure, that means you could potentially reach the end of your life with a substantial portfolio. If that really bothers you, consider annuitizing even more of your nest egg. But as for me, I’d be happy to reach my final years with a heap of money. A fat financial account will mean fewer money worries at the end of my life—and I’m more than happy to bequeath a healthy sum to my kids and my favorite charities.

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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Seed Money

MONEY IS OFTEN TIGHT for those in their 20s. Yes, that first “adult” job typically pays more than any previous job. Still, finding money to save and invest can be tough. After handling all the other big expenses of early adulthood—house, wedding, student loans—there just isn’t much money left over.

That’s my dilemma and one facing many others in their 20s. How can we make extra money without getting a second job? My fiancée and I focus on earning money just by living. Here are five tactics we use:

High-yield savings accounts. In the current environment, these accounts are a no-brainer, with many currently paying well over 3.5%. Most have no minimum balance, worry-free transfers and charge no fees. Currently, we earn roughly $60 a month on our balance of more than $20,000.
Credit cards. Yes, these are easily abused. But if you’re diligent about paying off the balance in full, there’s no reason not to use one. Nearly all big retailers offer a card that rebates 3% to 5% back for store purchases and perhaps 1% elsewhere. Fidelity Investments even has a card that gives 2% cash back on all purchases, with the money going straight into your brokerage account. I’ve had an Amazon card for nearly five years. As a couple, we also use the Costco card, which refunds 4% back on all Costco purchases with the gold membership, plus 4% back on fuel up to $7,500 a year. Between our Costco and Amazon credit cards, we get roughly $40 back per month.
Treasury bills. These are a risk-free way to earn interest. Treasury rates vary with each auction, but are typically slightly higher than high-yield savings accounts. Treasury bills are sold in increments of $100. Maturities range from four to 52 weeks, with auctions occurring each week. We buy four-week bills every week, which means every week some of our four-week bills also mature. The most recent auction for a four-week bill was well over 4%. We buy anywhere from 10 to 50 bills per month, equal to $1,000 to $5,000, and might collect $4 to $15 per month in interest.
Money back apps. There are numerous apps out there that’ll pay you to share your receipts. For instance, we use Upside, an app that gives us cash back when we buy fuel at certain gas stations or eat at select restaurants. All you need to do is share the last four digits of your credit card or upload the receipt. The cash back can be directed to your bank account or a gift card. Pairing this with the credit card rewards can mean a handsome return on each purchase. We’ve gotten anywhere from $20 to $40 back each month with the app.
Donating plasma. There are many donation companies that collect plasma. Although this takes time out of your day, it’s an easy way to earn extra income that can then be dedicated to investing. We live near a relatively busy clinic. Each visit can take up to two hours. Donating twice in a week means an extra $150.

All this might seem like relatively small potatoes. But even small investments in the financial markets each month can have a big impact over time—especially if you’re in your 20s and have many decades to invest.

Gavin Schmidt is a supply chain analyst for a Fortune 200 company. Fascinated by the economy, and by business and consumer decision-making, he became interested in personal finance and investing early in life. Based in Minneapolis, Gavin’s interests outside of finance include reading, being outdoors, fitness and music.

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Just Do It

AS A REGULAR READER of HumbleDollar, The Wall Street Journal and Bloomberg, I pick up all kinds of pointers on investing. And the more I read, the more I think I may have been doing it wrong all these years. My approach to picking investments is more aligned with a dartboard than a spreadsheet.

I’ve never owned an exchange-traded fund. I don’t know what the VIX is, except it measures expectations. That’s a neat trick. And don’t get me started on the inverted yield curve. That sounds like a yoga position.

Take the trading week that began on Monday, Jan. 9. The S&P 500 gained 2.7% and the Dow Jones Industrial Average rose 2%. My portfolio’s increase didn’t match either percentage, but 34% of my money is invested in bonds. I did have a net gain of $38,848 for the week. That seems like a good thing.

I’ve given up trying to figure out what drives the financial markets. That week, inflation slowed, the Fed considered a quarter-point interest rate increase, U.S. consumer sentiment jumped—and more secret documents were brought home for lunchtime reading.

Since I retired, I’ve taken eight required minimum distributions (RMDs). Between December 2009 and January 2023, two things happened to my rollover IRA. It was reduced by withdrawals and increased by the performance of my investments. When all is said and done, my current IRA balance after RMDs is 27% larger than it was on Dec. 31, 2009.

Given that RMDs at my age are generally about 4% a year, the 4% rule seems to be working for me after 13 years, even during the recent market gyrations. True, I don’t add an inflation adjustment to my withdrawals, but inflation was only a significant factor for a couple of those 13 years.

I’ve heard something about mutual fund expense ratios. Frankly, I never looked at them until now. The expense ratios of the seven funds I own are 1.01%, 0.98%, 0.91%, 0.83%, 0.08%, 0.04% and 0.025%. I guess I did half good.

I own a balanced portfolio, with stocks in the majority. Of the total stock investments in my brokerage account, 20% is in one utility stock and 15% of the bonds are municipal funds.

This means I’ve broken at least one rule: too many eggs in one stock basket. But the 20% in one stock is explained by an emotional attachment. It’s the company where I worked for nearly 50 years. Most of my shares were earned as compensation.

My total portfolio looks like this: 54% index mutual funds and other U.S. stock investments, 5% foreign stock funds, 34% bonds and 6% cash equivalents. I haven’t made any changes to my asset allocation in years and I haven’t rebalanced since I retired. It would appear I am a seat-of-the-pants investor.

Yet, when I use the evaluation tools in my Fidelity Investments account, I’m told that, “The ‘style’ of your stock holdings in these accounts looks like it's pretty similar to that of a benchmark that follows the U.S. stock market.” Similarly, I’m told that, “The ‘style’ of your bond holdings in your selected accounts looks like it's pretty similar to that of a benchmark that follows the U.S. investment grade bond market.”

How did I manage that? There’s a lesson here: The most important investment strategy for most of us average folk is, “Just do it.”

Start early, stick with the basics, think long term, stay the course, slow and steady wins the race, and all that. Oh yes, the compounding of dividends, interest and capital gains payments is also pretty cool. I’m still reinvesting all forms of distributions in my brokerage account. Should I need to change that, I could receive at least a 15% boost in income.

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Revisiting My Results

I ENJOY WRITING for HumbleDollar—but I often feel I get more from the thoughtful reader comments than whatever insights I provided. For instance, in a recent article, I discussed some year-end financial decisions I was considering. Two readers made comments that caused me to review my decisions, while also delivering a few dollars’ worth of humility.

The first comment identified an error in my spreadsheet analysis. I noted that my marginal New Jersey state income-tax rate was 8.97%. A reader questioned that number. When I reviewed my analysis, I discovered an error in my spreadsheet. A single cell had been deleted in copying the sheet from 2021 to 2022. The tax rate should have been 6.37%.

I hate making mistakes. My engineering mentors consistently encouraged me to perform “sanity checks.” I usually hand-check my spreadsheet calculations, but I missed this one. I decided to do a thorough check of everything. To my chagrin, I found another error, this time regarding the amount of state tax withholding from my pension. The amount assumed in the spreadsheet was thousands of dollars too high. Where did that error come from? I have no idea.

We moved from Pennsylvania to New Jersey in 2021. The errors are all associated with state income-tax calculations. New Jersey’s state income tax is far more complicated than Pennsylvania’s. The silver lining is it gave me a chance to fix my spreadsheet for 2022 and beyond—and reassess my conclusions.

Since my original, flawed calculations indicated a fairly sizable tax refund, I thought we’d use that amount to offset the taxes generated by a Roth conversion. But when my initial analysis also showed an incorrectly high combined marginal tax rate, I thought we’d forgo a Roth conversion in 2022.

Correcting the errors showed that we’ll get a significantly smaller refund but also pay a lower marginal tax rate. With these updates, I decided to go ahead and make a smaller Roth conversion.

The second comment mentioned two issues that my article didn’t specifically address. The first concerned providing for a surviving spouse. When one spouse dies, the surviving spouse typically inherits the deceased spouse’s retirement accounts. The surviving spouse will then be responsible for required minimum distributions from the couple’s combined retirement account balances, but the survivor will be paying taxes as a single filer and probably at a higher marginal tax rate.

Longevity in my wife’s family is greater than mine. Her grandmother lived to age 97 and her mother to 88. Vicky is healthy and takes good care of herself. We have taken several steps to make sure she’s well taken care of should I die first. For my company pension, I selected a joint-and-survivor option. Vicky will receive 75% of the current amount if I die before her. We’re also planning to wait till I’m 70 to claim my Social Security retirement benefit. I have the higher lifetime earnings and waiting will maximize her survivor benefit. With the pension and Social Security, plus our retirement savings, Vicky should have enough to live comfortably after I’m gone.

The second part of the comment addressed the sunsetting of today’s relatively low federal income-tax rates. Today’s tax rates were set as part of 2017’s Tax Cuts and Jobs Act (TCJA). The TCJA made significant changes to the tax code, but many of its provisions will expire in 2026. Barring further legislation, tax rates will return to their 2017 levels. It’s been reported that extending the TCJA tax law changes would cost more than $2 trillion through 2033.

To assess complicated decisions and their financial impact over—I hope—decades of retirement, I use a retirement planning tool called MAXIFI. The tool has a detailed tax model that incorporates both the federal and state tax codes. The default federal tax model assumes that the changes from the TCJA sunset in 2026, and return to pre-2018 levels. When I reviewed the analysis of our retirement plan, I noticed that for 2026 and beyond our marginal federal tax rate goes from 24% to 28%.

The tool also enables users to explore “what if” scenarios, including what happens when one spouse dies. The base case assumes we’ll both live to 100. After running the base case, you can run a “survivor case” where you pick which spouse is the survivor and at what age the other spouse dies. I’m currently 65. I ran a series of cases where I died at 66, 70, 80, and 90. That’s hardly a pleasant thought. Still, everything ought to be fine financially: In each case, my wife should have sufficient income and assets.

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

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How to Retire at 38

I ADMIRE SUPER-SAVERS. I really do.

You know who I’m talking about: Ordinary people making ordinary salaries who are somehow able to sock away half or more of their disposable income and who accumulate enough to step away from the working world long before the rest of us.

We hear about these people all the time on podcasts. The couple who banked $1 million over the course of a decade by scrimping and saving. The millennial money wizard who has built a six-figure net worth and plans to retire by age 38.

How do they do it? They live in the same expensive, consumeristic world as the rest of us. How do they avoid the temptation to pull out the plastic when the impulse hits?

I consider myself a fairly frugal person who has a decent grasp of the fundamentals of investing. And yet, despite saving and investing for more than 30 years, it took me until I was nearly 62 before I had enough saved to feel comfortable stepping away from the daily grind.

Even now, after downsizing and cutting expenses to the bone, I worry whether I’ll have enough to last for whatever years I have left on this earth. Those worries were exacerbated by last year’s horrific showing in the financial markets.

After witnessing double-digit losses in my portfolio in 2022, I went into the new year determined to cut my already slashed spending levels. But here I am, a month into 2023, and I’ve already put an unexpected $1,000 on my credit card.

So, while I’m not qualified to offer advice on how to achieve financial independence by age 40, I think I am qualified to tell you what you shouldn’t do if your goal is to be a super-saver and retire decades before the rest of us. Here are seven pointers.

1. Don’t have a spouse or significant other. No one wants a cheapskate for a partner. I like to splurge on Rachael at Christmas. As soon as the holidays are over, it’s time to get her a nice gift for her birthday in January. This month, it’s Valentine’s Day. Then, in April, it’s our anniversary. And so it goes on.

2. Don’t have kids. Enough said.

3. Don’t get divorced, especially if you have kids. I lost a good decade of financial progress, not to mention 10 years of my life, by going through a divorce in my 40s. Beyond surrendering 60% of our marital assets, there was the alimony, the child support, the legal bills and so on. Avoid it—assuming that’s a possibility. For me, it wasn’t.

4. Don’t have a dog. I just got back from taking Cassie to the vet for her annual doggie checkup. Including shots and tests, the appointment cost me close to $300—which is one reason my credit card balance is so high. As I’ve written before, dogs are great companions that add immense richness to the tapestry of our lives. But as investments, they’re terrible.

5. Don’t own a house. Despite easing up recently, housing prices continue to be insane. Along with that overpriced house comes the equally insane cost of maintaining it. Even tiny houses are getting ridiculously expensive.

Of course, rents are also soaring, so if you want to be a super-saver, consider living out of your car—if you can afford one.

6. Don’t get sick and don’t get old. Last year, I made my first trip to the body-parts store to get a new joint. I needed to replace my creaky, arthritic left hip. Even with a good-quality medical plan, I still burned through thousands of dollars to cover my deductible and copayments.

There’s a good reason all the super-savers I read about are young. They don’t have to worry about all this getting-older stuff.

7. Don’t travel or have fun. This is critical. If you want to accumulate enough money to retire early, you can’t waste any hard-earned money on vacations, dinners at nice restaurants, tickets to Broadway shows or the opera, or any other frivolous stuff. Put off all the fun until you’ve stepped away from the working world, at which point you can finally relax and enjoy yourself. Until your body starts falling apart.

There you have it. Bottom line: if you want to be a super-saver, all you need to do is stop living. Give it a shot and you might find yourself profiled on a podcast. I’m looking forward to hearing all about you.

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.

The post How to Retire at 38 appeared first on HumbleDollar.

Connor’s Favorites

HERE ARE MY TEN favorite articles that I’ve written over the three-plus years I’ve been a part of the HumbleDollar community. Although I write my share of technical and analytical articles, the ones I like the most have a human element.

As my wife will attest, I’m a bit of a softy, and care deeply about my family and friends. I like happy endings and want to see people succeed, especially the generations to come. Indeed, helping people with the knowledge and experience I’ve gained is a primary motivation in writing for the site.

Quiet Heroism (Aug. 30, 2019). My second article for HumbleDollar was inspired by finding my father-in-law’s 1943 tax return. The 1040 tax return form tells an amazing story of the heroism on the home front during the Second World War.
Think Bigger (Aug. 12, 2019). My first HumbleDollar article was my attempt to explain my views on personal financial planning. Too many of us spend too much effort on our investments, and not enough on the other important aspects, such as tax and estate planning.
Return on Investment (Dec. 31, 2019). This article discusses our extended family’s annual Thanksgiving week reunion on the Outer Banks of North Carolina. Although it was a financial challenge some years, the return on our collective investment has far exceeded our expectations.
Resolved: Get Healthy (Jan. 7, 2022). HumbleDollar’s editor asked writers to pen an article on their New Year’s resolutions. This article spurred my wife and me to make 2022 our year to get healthy.
This Too Shall Pass (March 31, 2020). At the beginning of the pandemic, when things were looking bleak, I was reminded of one of my father’s favorite sayings. A little research put the saying in a broader context and helped me take a stoic view of bad times.
Step by Step (Feb. 11, 2020). I sometimes like to ponder big ideas, such as “how does the world work.” This article offers one way to view the world—as the culmination, and integration, of a great number of small steps.
Birthday Wishes (Sept. 29, 2022). On my 65th birthday, my wife asked if I wanted anything special. It gave me the opportunity to think about what was important, and what I truly wanted to do with the rest of my life.
Paradise Lost (Sept. 7, 2020). I believe we learn as much from our mistakes as from our successes. This article talks about my biggest financial mistake—buying a timeshare.
Hitting the Road (Sept. 20, 2022). My wife and I took an extended roadtrip through the southeast in August 2022. We saw friends and family, as well as some places we’d never been. We both had the same reaction—how much fun a simple roadtrip to new places can be. Based on readers’ comments, many folks agreed.
Four Decades Later (June 15, 2022). On the occasion of my 40th wedding anniversary, I thought about the benefits of a long marriage. This article discusses the personal and economic benefits of being hitched.

This is the fifth installment in a series devoted to the favorite articles and blog posts penned by HumbleDollar’s most prolific writers. The earlier installments were from Dennis Friedman, Mike Zaccardi, Kristine Hayes and Adam Grossman.

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