Jonathan Clements's Blog, page 169

Ten Steps for 2023

I'M NOT BIG ON MAKING New Year’s resolutions. Still, January is a good time to conduct some financial housekeeping. Below are 10 ideas to consider as the calendar turns over.

1. Portfolio cleanup. I sometimes feel like a broken record when I talk about the disadvantages of actively managed mutual funds. Among other issues, they tend to underperform and are tax-inefficient. But here’s the challenge: Even after factoring in 2022’s decline, the S&P 500 has risen more than 600% since 2009’s market bottom.

As a result, mutual funds that have lagged behind the market may still have substantial gains. If you own a fund like this in a taxable account, it presents a dilemma: If you hold onto it, there’s a good chance it’ll continue to underperform while burdening you with unnecessarily large annual tax bills. On the other hand, if you sell, you guarantee yourself a taxable gain.

This difficult choice often leads to inertia. Investors hang onto funds like this because they hate the idea of intentionally incurring a gain. My recommendation: Don’t view it as an all-or-nothing decision. Make a plan to sell a little each year. To give some structure to this decision, you might set a capital gains “budget” for your portfolio—limited to, say, 0.5% or 1% of your portfolio’s value each year. Then you can slowly work your way out of your undesirable holdings.

2. Portfolio checkup. The new year is a good time to conduct a risk audit on your portfolio. In addition to reassessing your asset allocation—the split between stocks, bonds and other assets—you’ll want to audit the risk level of individual holdings.

A few years back, brokers—including Vanguard Group—decided to ban certain types of investments, including leveraged and inverse exchange-traded funds, in their clients’ accounts. That was a clear verdict on the inherent riskiness of these investments. But most investments don’t come with a warning label. In general, my litmus test is to ask whether you could explain a given investment to a 10-year-old. If a holding is so complicated that you can’t explain it in simple terms, you should probably steer clear.

3. Interest rate upgrade. Just 12 months ago, there wasn’t much difference between bank checking accounts, money market funds and Treasury bonds. They were all offering virtually no interest to savers. But that all changed in 2022. While the Federal Reserve’s seven rate hikes inflicted pain on the bond market this year, the outlook going forward is much more positive.

Short-term Treasury bonds are now paying some 4.7%. Even online savings accounts, such as those offered by Ally Bank and Capital One, are paying 3.3%. Many traditional banks, meanwhile, have been dragging their feet and are still paying next to nothing on savings. If you have a material amount of cash in the bank, this is a good time to investigate higher-yielding options.

4. Tax strategies. No matter what life stage you’re at, there are always tax strategies to consider. As your financial situation evolves, though, the set of relevant strategies will change. If your income is rising, for example, it might be worth looking at new charitable giving strategies or increasing the amount you’re deferring into retirement accounts.

On the other hand, if you’re later in your career and reducing your hours, it might make sense to switch to a Roth 401(k), assuming your employer offers that option. And finally, if you’re in the early years of retirement, a Roth conversion might make sense. Since the tax clock resets each January, this is a perfect time to look through the toolbox of tax strategies.

5. New rules. Once again, in the final days of the year, Congress passed, and the president signed, a host of new tax rules. For the most part, these are positive changes, opening the door to new strategies and providing greater flexibility on existing strategies. Among the changes: increasing the age at which required minimum distributions must begin, allowing for the rollover of (some) unused 529 college savings funds into a Roth IRA and increasing contribution limits on tax-deferred accounts for those age 50 and older. There are many other changes, too numerous to list here. To learn more, I recommend two excellent summaries, one on HumbleDollar and the other on Kitces.com.

6. Prepping for a rainy day. As the new year begins, it’s worth revisiting your insurance needs. ​Two of the most cost-effective types of insurance are umbrella and term life. Because they cover relatively low-probability risks, it’s easy for insurance companies to offer substantial coverage at reasonable rates.

Another recommendation: Put together a “just in case” list. If something were to happen to you, this list would provide a roadmap of sorts to your finances. It should also provide your family with other important information, such as the password to your phone. There are various ways to put together a list like this. I’ve seen some families create a Google doc and share it with family members. Others keep it on paper somewhere in their home, and have informed family members and trusted advisors where they can locate it. Finally, I’ve assembled a PDF template, which you’re welcome to download.

7. Custodial provisions. If you have minor children, the most important estate planning task, in my opinion, is to name a custodian who would take care of your children if something were to happen to both parents. Just as important is to periodically review these choices. If your chosen custodian has moved, for example, or is unwell, you might want to consider a substitute.

8. Account beneficiaries. If you have a retirement account, such as an IRA or 401(k), you probably chose beneficiaries when you opened these accounts. But things change, so it’s important to review beneficiary designations regularly. The same applies to life insurance policies. Less well known is the fact that you can set up beneficiary designations on non-retirement accounts. This mechanism is known as transfer-on-death and can help your estate move through the probate process more quickly.

9. Mindful spending. Author Ramit Sethi uses the term “money dials” to help people think about their spending priorities. He has 10 dials, including travel, generosity and convenience. Something I’ve found is that, over time, our budgets have a tendency to drift away from our values. That’s because, as the saying goes, life happens. We get busy and don’t always stop to think about how the pie is being divided. Sethi’s recommendation is to slow down and take the time to take stock.

10. Tuning out nonsense. In 1973, the Italian singer Adriano Celentano released a song with the unusual title Prisencolinensinainciusol. That’s not Italian; it’s gibberish. But if you listen to the song, you might find that it sounds a lot like English. That was Celentano’s goal, and it became a huge hit in Europe because it sounded like an American song.

This relates to my final recommendation for the new year. Listen to the news on any given day, and you’ll hear no shortage of financial commentary. Market experts opine on everything from the economy to the market to individual stocks. But here’s the problem: While this commentary is often very articulate, the reality is that financial markets are driven by too many variables to be predictable.

That makes most of this commentary effectively useless. Like Prisencolinensinainciusol, it might sound like it makes sense, but listen critically, and you’ll discover that a fair amount of it is really just entertainment. To make financial progress in the year ahead, I suggest tuning out these market experts and instead focusing on things over which we have more control.

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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December’s Hits

AMID THE GIFT BUYING and holiday celebrating, what were folks reading? Here are last month's 10 most popular HumbleDollar articles and blog posts:

Thanks to legislation just passed by Congress, big changes lie ahead for both retirees and retirement savers. Greg Spears details 11 key changes and what they mean for your money.
Over the past six years, readers have cast an eye on almost 18 million HumbleDollar pages. What were they looking at? Check out the 30 most popular articles.
Got books? Just in time for the holidays, Adam Grossman offered 10 new personal-finance book recommendations.
Want to make sure your future self is in good financial shape? Adam Grossman suggests steps to take that could cut taxes, boost retirement income and lower housing costs.
"It isn’t magic," writes Joe Springer of his high-dividend stock strategy. "Getting started is the hardest step. But once you’ve gotten over that hurdle, things should just grow and grow."
"A HumbleDollar writer mentioned his investment portfolio had dropped $500,000 in value in 2022," notes Kristine Hayes. "My entire nest egg was worth just over $500,000 back in January."
At age 63, James McGlynn is worrying about his Medicare premiums as of age 65. Enter three complicating factors: MAGI, IRMAA and Elon Musk.
Bond investors are heavily focused on yield. But what yield should they focus on? Adam Grossman tackles that thorny question.
"It’s hard to capture with words the sense of joy and empowerment that comes from knowing that we don’t need nearly as much money and material possessions as we’re typically told," writes Matt C. White.
Dementia can upend a carefully crafted retirement plan and necessitate costly medical care. What can you do to prevent mental decline? Try taking a walk, says Rick Connor.

Meanwhile, December's best-read newsletters were Kristine Hayes's Learning to Retire, Brian White's Talk While You Can, Jim Kerr's Riding Out the Storm and my Late Shift.

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Ten Words for 2023

MOST OF US ARE forever striving to be better versions of ourselves—usually with mixed success. Still, the changing of the calendar often prompts renewed efforts. But what should we focus on? Let me offer 10 words that I try to live by.

1. Pause. Throughout the day, we make snap decisions, and they usually work out just fine—except when it comes to spending and investment choices. Got an overwhelming urge to buy an expensive bauble or make a portfolio change? Try waiting a few days, so your feverish desire has a chance to cool and you can ponder the decision with a clearer head.

2. Reflect. Feeling down? Take a minute to think about your good fortune—the friends and family who surround you, the home you live in, the wonderful experiences you’ve enjoyed, the wealth you’ve accumulated. With gratitude comes happiness.

3. Move. Exercise has all kinds of benefits—physical, emotional and cognitive. If possible, try to get your exercise outside, so you can delight in nature, see your fellow humans at play and feel the sun upon your face.

4. Give. This doesn’t have to be money. You can also give of your time by, say, volunteering for your favorite charity or helping out at your place of worship. I see this every day: HumbleDollar’s writers get paid little—and some decline payment—and yet they pour countless hours into their articles. Trust me, they’re a wonderful bunch of folks to work with.

5. Sleep. This is one of my greatest struggles. I know I sleep better when I’ve been active during the day, eat earlier in the evening and have addressed any major worries. What if these things don’t happen? You’ll find me answering emails at 4 a.m.

6. Simplify. Over the past few years, I’ve been shedding both possessions and financial accounts. I highly recommend it. It’s liberating to be less encumbered by both financial complexity and household items you no longer care about. Afraid you’ll dispose of something and later regret it? I’ve shed countless items and, thus far, I haven’t had a single pang of regret.

7. Talk. We, of course, do a lot of talking, but we often avoid the important stuff, especially when it comes to our finances. Too many folks shy away from honest conversations about money, partly because they fear they’ll reveal their ignorance or they’re embarrassed that they haven't amassed more.

Get over it. Within families, I think the onus is on the parents to start these conversations, talking about what financial contributions they can afford to make toward college costs, how well they’ve prepared for their own retirement and what steps they’ve taken to address end-of-life issues. Such conversations don’t just keep everybody informed. They can also spur all concerned to be better managers of their money.

8. Listen. We tend to be much better at talking than listening. There’s an obvious reason to be a better listener: We can learn about others and their perspective on the world, and that may nudge us to change our own views. But there’s also a less obvious reason: People will like you more. Want to endear yourself? Stop talking about yourself and ask others about their lives.

9. Never. Our most important actions are often the ones we don’t take. Indeed, in a world full of temptation, it’s useful to decide what’s verboten. My list includes individual stocks, fried chicken, actively managed funds, hard liquor, CNBC and processed meats. (Okay, I admit it, pepperoni gets the all-important pizza exception.)

10. Anticipate. I love having fun times to look forward to. Last January, I made the arrangements for the get-together for my 60th birthday—which won’t happen until next month. In August, I booked a cruise from New York to Bermuda—for March 2024. Every so often, I daydream about what the cruise and my birthday celebration will be like, and that daydreaming offers a thoroughly enjoyable minute or so that costs me nothing.

Want to squeeze more happiness from your dollars? My advice: Plan that vacation, family reunion or remodeling project well in advance—and make sure you do a lot of research, so you have the pleasure of imagining all kinds of possibilities.

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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How Much is Enough?

AT A PARTY GIVEN BY a billionaire on affluent Shelter Island, New York, author Kurt Vonnegut informs his friend, Joseph Heller, that their host had recently made more money in a single day than Heller had earned in total from his hugely popular novel, Catch-22.

To that, Heller replies, “But I have something he will never have.”

“And what is that?” asks Vonnegut.

“Enough,” says Heller. “Enough.”

The story may be apocryphal—I’ve read a similar version featuring J.D. Salinger, author of The Catcher in the Rye. Still, it illustrates the importance of knowing what’s enough.

If you’re a bestselling author with royalties rolling in every six months, you may not want for much if your spending isn’t extravagant. Heller’s wants and needs were less than those of a titan of industry, and so more easily satisfied.

Money is both relative and a matter of perspective. For example, whether you have $6 or $10 in your pocket, it probably won't change how you go about your day beyond, say, influencing your choice when it comes to buying a snack or a morning coffee.

Similarly, whether you have a $6 million or $10 million net worth probably won't change how you lead your life, except perhaps causing you to make somewhat different decisions about philanthropy and estate planning.

But what if the difference is $600,000 or $1 million? That might determine whether you take an earlier retirement or continue to work. At $600,000, you might be notably more cautious about spending, while $1 million would offer more of a cushion and greater peace of mind.

That difference in the perception of whether we have enough often drives whether we work later in our lives. According to the Bureau of Labor Statistics, “Americans over the age of 55 will take roughly half of all new jobs created in the next decade, economists estimate, as the U.S. population ages and more people postpone retirement. What’s more, the biggest jump in labor force-growth in coming years will come from those age 75 and older, where overall employment is projected to nearly double by 2030.”

My wife and I are approaching the “what’s enough” quandary in several ways.  As empty-nesters, we continue to work and to add to the coffers, while enjoying life without being extravagant. We also work with a fee-based financial planner to plot out various retirement scenarios and to help us manage our financial risks.

In the coming years, we’ll practice what I preach and begin a phased approach to retirement by gradually reducing the amount we work. For now, we’re relatively healthy. Fingers crossed, this will continue and we’ll be comfortable waiting to claim Social Security, thereby reaping higher monthly payments.

Over the decades, we’ve seen plenty of business titans succumb to greed and engage in illegal activities because they seemed clueless as to what constitutes enough. Our goal is to follow Heller’s lead—or is it Salinger’s?—and adopt the mentality that whatever we have is indeed enough.

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On the Road Again

SEEING NEW PLACES is something my wife and I have enjoyed throughout our married life. Some families have a vacation home that’s their primary destination. I can see the appeal: a place to get away to, where everything is familiar and memories are made.

Others have hobbies that consume their free time. I’ve lived near the Great Lakes and know boaters who head there every weekend. Then there are the golfers. Enough said. Or the football fans who tailgate, wear team gear and go to all the home games—and maybe some of the away games, too.

When our children were growing up, we wanted to expose them to a host of places. Each vacation, we’d head off in a different direction from our home in Ohio. These included visits to Washington, D.C., Boston and Chicago, lake vacations in Michigan, and seaside vacations in North and South Carolina.

Then there were a couple of visits to Disney World, and big trips to Hawaii and London. Some families traveled more, certainly, but our kids got plenty of variety.

Regardless of how you spend your free time during your working years, retirement opens up the chance to double down on your preferred use of free time. Ten years into retirement, traveling has become the pastime we enjoy the most.

The No. 1 motivation for our travels is the grandkids. With six grandchildren in two families located two and six hours away, we spend a lot of time driving to see them. We’re a part of their lives even though they don’t live nearby.

On the way home from visiting our more distant grandkids, we make side trips to see places like Gettysburg, or Monticello near Charlottesville, Virginia, or state parks. We’re always looking for interesting places to stay where we can hike.

Our second favorite type of trip is short getaways to bed-and-breakfast places or small hotels. We started looking for unique places to stay when we visited Ohio’s Amish country. Then we stayed in B&Bs while visiting relatives in towns too small to have a chain motel. We enjoyed the smaller lodgings, and have planned vacations where we get to stay in B&Bs, even when there were other options.

Then there are bigger vacations with tour groups. We want active outdoor vacations, but not camping. We’re also interested in learning new things, whether cultural history, natural history or just seeing the sites.

We’ve settled on trips offered through Road Scholar, a nonprofit tour company serving adults looking to combine learning with travel. We’ve been on four trips, with the next one planned for this winter. We’ve been to the Canadian Maritimes, and on a river cruise on the Columbia and Snake rivers in Oregon.

Our most adventurous trip, however, was to Acadia National Park in Maine in what was described as a “small group walking and hiking outdoor adventure.”  We like to hike and this trip took us to the upper limit of our capabilities.

Road Scholar offers tours all over the world, of varying lengths and prices, as well as varying activity levels. Our Acadia trip was not its most physically demanding option—there’s yet one level higher. The other trips, which primarily consisted of bus touring, required much less exertion.

Each trip is focused on learning, with knowledgeable tour leaders, guest lecturers and hand-picked tour guides at each stop. They take us to events or venues that we never would have found on our own. And they do all the driving. I welcome giving up some control in exchange for the convenience of not driving, navigating or organizing the itinerary.

Road Scholar conducts some trips themselves, but most of their tours are contracted to local groups or organizations. This means there’s some variation in how each trip works, but we’ve found them all well done.

The contractor for the Columbia and Snake River cruise was UnCruise Adventures, a company with smaller cruise ships that sleep 86 guests or less. It offers a seven-day Columbia and Snake River cruise focused on visiting wineries. The Road Scholar trip we took emphasized the route of the Lewis and Clark Expedition, with a lot of geology thrown in.

History versus wineries? To each his own. My brother-in-law couldn’t believe that, given the choice, we took the history tour. On our trip, we stopped at one winery, and that was enough for us.

There are downsides to tours. On some occasions, we would have preferred to spend more time at a particular stop. Or maybe less time, such as at the winery. But when we were on a mountain trail in Acadia, and it wasn’t clear to me which way the trail went, I appreciated having a guide.

This winter’s trip is to Big Bend National Park and Guadalupe National Park in Texas, and to Carlsbad Caverns National Park in New Mexico. As with Acadia, this tour is hiking-oriented—which means we’re now in training.

Howard Rohleder, a former chief executive of a community hospital, retired early after more than 30 years in hospital administration. In retirement, he enjoys serving on several nonprofit boards, exploring walking paths with his wife Susan, and visiting their six grandchildren. A little-known fact: In May 1994, Howard was featured—along with five others—on the cover of Kiplinger’s Personal Finance for an article titled “Secrets of My Investment Success.” Check out his previous articles.

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Tax-Free Abundance

I HAVE A CONUNDRUM: In 2023, I’ll have ample opportunities for tax-free growth—but probably not enough cash to take advantage.

It doesn’t get much better than tax-free, right? I remember the excitement when Roth IRAs came into being, thanks to 1997’s Taxpayer Relief Act. But today, the Roth is just the tip of the tax-free iceberg. Indeed, for 2023, I'm eyeing four tax-free accounts.

I want to fund a health savings account and my solo Roth 401(k), while also stashing more money in a 529 college savings plan for my two-year-old grandson. On top of all that, I plan to convert part of my traditional IRA to a Roth, which will mean writing a large check to Uncle Sam to cover the conversion tax bill. Add it all up, and I might need some $70,000, with $14,000 going to Martin’s 529, $4,850 to my health savings account, $30,000 to my solo Roth 401(k) and perhaps $20,000 to cover the tax bill triggered by my Roth conversion.

I could put more than $14,000 in Martin’s 529. But I promised my daughter and son-in-law that I'd build up the account to $50,000. Another $14,000 will fulfill that promise, while also earning me a Pennsylvania state income-tax deduction. Beyond $50,000, the account's growth will hinge on the savings habits of Martin's parents and the kindness of the financial markets.

Meanwhile, in 2022, I converted $80,000 from my traditional IRA to a Roth. I hope to convert a similar sum in 2023, but it'll depend on my total income for the year and hence what my marginal income-tax bracket will likely be.

But it isn’t just the allure of tax-free growth that’s got me excited. I also want to fund these accounts as early in the new year as possible. To be sure, that didn't work out so well in 2022. Still, investing earlier in the year is usually a good idea because financial markets trend higher over time, and it seems especially appealing in 2023 because stocks and bonds are already at depressed prices.

There remains the small issue of rustling up that $70,000. I don't currently have that sort of cash sitting in my taxable account—or, to be more precise, I won't after paying for a big remodeling project I have planned for next year. But I'll do the best I can. Step No. 1: On Jan. 3, I'm planning to make a $50,000 Roth conversion. Let's hope it's a down day in the stock market.

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Taking It Personally

DENNIS DEVOURED the computer screen with an intensity he usually reserved for his trading platform. He’d just arrived in Manhattan from St. Louis for an investment banking position he couldn’t refuse, and was hunting for a two-bedroom apartment.

“These rents look like down payments,” he muttered to himself. But this was no time for complaining. Dennis checked his watch and turned on CNBC. It was the first Friday of the month and the employment report was due out momentarily.

The numbers were good—too good—and risked stoking inflation. The Dow opened down 300 points and Dennis was bereft. He’d thrown a couple of thousand into the market before yesterday’s close in anticipation of a softer jobs report. He could only grumble, “More bad luck. Last week, it was the Fed, and now this. No matter what I do, I end up the victim.”

Jasmine was up at 5 a.m. in Los Angeles in time to catch the employment news. She could barely squeeze in time for her yoga video and herbal tea. She, too, had added to her stock position the day before and was disappointed to learn of the stubbornly resilient economy.

Jasmine threw up her hands and shrugged. She’d been mistaken before, but now she would turn a negative into a positive by buying a few shares on the weak market open. Jasmine had usually been able to look beyond her mistakes, and felt this time should be no different.

Dennis and Jasmine are fictional characters, but I’m using them to illustrate a key point: Both had the same jobs information going in and yet such diametrically opposed reactions coming out. Dennis is disgusted, while Jasmine sees opportunity. What’s going on here?

People differ in how much they believe they can influence the events of their lives. Folks with a relatively strong sense of internal control, like Jasmine, see themselves as effective and able to have an impact on their life situation. External controllers, like Dennis, interpret their circumstances as largely due to outside forces like fate or just plain luck.

These personality characteristics were dubbed the locus of control by psychologist Julian Rotter back in 1954. Its universal application has been demonstrated in hundreds of studies carried out over half a century.

In the early 1970s, investigators discovered that a person’s locus of control was not monolithic. It can vary with circumstance. Reactions can depend on several situational factors, including whether the event in question was viewed as positive or negative by the person involved.

These insights contain important implications for investing behavior that, curiously, have rarely found their way into the financial media. Let’s break new ground today on HumbleDollar.

We have “internals,” like Jasmine, pondering either positive or negative events, and “externals,” like Dennis, who are doing the same. Crossing internal versus external beliefs with positive versus negative events gives us four quadrants (see chart below). Let’s fill the first box of the quadrant with an externally oriented fellow like Dennis who is given a positive market event, such as his annual brokerage statement showing only a small loss in an abysmal year for stocks.

What does he say to himself? “Boy, lucky I had to wait for those CDs to mature. Otherwise, I might have increased my stock allocation and lost more money.” Our externalizer gives himself no credit for foresight in diversifying into certificates of deposit in the first place, so he gets no boost to his self-esteem as an investor. By misconstruing positive feedback about his investment acumen as mere luck—believing it occurred without any contribution from him—Dennis may be destined for a forlorn market future.

What about the externally oriented person confronted with bad news, say a dwindling brokerage balance? Well, she blames her financial advisor. I know—because, when I was an advisor, I was often the target. She may spend a lifetime berating investment professionals, even when they’ve invested her money exactly as she’d previously requested.

Now, let’s switch sides and think of internalizers like Jasmine, those who believe they’re in control of things. We’ve all known the insufferable internalizer who proclaims he made it big “completely on his own.” At more moderate levels, he exudes confidence and approaches investing with realistic optimism.

Psychologist and Nobel laureate Daniel Kahneman stresses that an exaggerated belief in our own abilities can mushroom into overconfidence that breeds impulsive and risky behavior. Does the peripatetic day trader come to mind? An internalizer like this may believe he can anticipate the market’s random walk. As Kahneman reminds us, “We are prone to overestimate how much we understand about the world and to underestimate the role of chance.”

We are left, finally, with the case of the internally oriented individual who characteristically interprets her market misfortunes as her own fault. Who so tortured would choose to keep on investing? The Great Crash of 1929 provides her with more than enough ammunition to avoid the market altogether—and she admonishes her children seated around the dinner table to do the same.

This inclination to attribute investing failures to your own hand can be a formula for guilt and self-reproach. Meanwhile, my very first research paper in 1969 suggested that people who believe themselves unable to determine their own destiny are at risk for clinical depression.

It may be tempting to try, but please don’t start diagnosing yourself. Don’t trade in your advisor for a therapist or a prescription for Prozac, either. You may inhabit one of the four categories most of the time. But we also all hop around from box to box, depending on the specific circumstances surrounding an event.

Locus of control is a graduated dimension along which people differ, not an either-or indictment. In fact, some people have a combination of the two tendencies. They can take personal responsibility for their actions and the consequences, while also remaining capable of relying upon and having faith in outside resources.

Kahneman teaches us that self-awareness helps overcome cognitive biases like overconfidence, herd behavior and loss aversion. It can also help with our beliefs about how much we influence our life’s events. Do you feel a lot of control—or very little? The better you know yourself, the more likely you are to avoid foolish financial mistakes.

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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Year In Year Out

WHEN I LOOK BACK at 2022, my wife and I had a good year. We avoided COVID-19 even as we did things we’d been yearning to do for a long time. We enjoyed our time traveling, and visiting family and friends. Even doing the little things that we take for granted was a pleasure. Indeed, this year felt like a return to normal.

Of course, everything hasn’t come up roses. Our investment portfolio is down 12.6% as I write this article. Inflation caused by supply chain issues and the war in Ukraine didn’t help our investments. But I’m looking forward to next year's 8.7% Social Security raise, and our portfolio is still on track to meet our future spending needs.

Unfortunately, I lost a good friend this year. Jeremy, who I knew since the seventh grade, passed away. I wrote about us taking a road trip to Canada when we were in our 20s. Over the years, we kept in touch. As we grew older, we realized how valuable our friendship was. We would talk more frequently, at least once a week. He’d call me pal or buddy. I would sometimes call him by his childhood nickname, Big Jer. I’m going to miss our phone calls.

My health has been good this year. In fact, at age 71, I haven’t felt this good in a long time. I have no aches and pains. I feel like I could run a marathon. How long can I keep this up? Dr. Thomas T. Perls, a professor at Boston University’s Chobanian & Avedisian School of Medicine and founding director the New England Centenarian Study, says that—to reach age 90—three-quarters hinges on health behaviors and the environment that we live in, and the other quarter on our genes. Maybe my morning walks, weight-bearing exercises and healthy diet are paying dividends.

But as we reach 100 and older, genetics play a more important role in our longevity. My financial advisor says I have enough money to reach that 100-year mark. But do I really want to live to 100?  A U.K. poll by Ipsos found that only 35% of people wanted to live to 100, with 49% disagreeing. In fact, 56% felt like I do—that their quality of life would be poor at that age.

I’m not thinking that far ahead. I’m looking forward to 2023. My wife and a friend are going to Europe early next year. Not me. It’s too cold where they’re going. I’m staying in California where it’s warmer. Enjoying the mild temperatures this time of year is one reason we’re willing to live in a state where the cost of living is so high. But my wife has been bitten by the travel bug. She can’t stay put.

Later in the year, we plan to visit Italy, Switzerland and Norway. Then maybe a road trip across the country. If the Cleveland Guardians make it to the World Series, I plan on being there. Why not? It would be a once-in-a-lifetime event for us long-suffering Cleveland baseball fans.

I’m not worried about my investment portfolio. It's highly diversified. If the economy falls into a recession, as some folks predict, bonds should perform better. Inflation and interest rates tend to fall as the economy contracts, and that should boost the value of bonds. I have a healthy portion of bonds in my portfolio.

I’m going to keep doing in 2023 what I've done since I retired: Stay the course with my investments and try to lead a healthy lifestyle. I believe those are the keys to a long and prosperous retirement.

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

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Learning to Retire

SEVEN MONTHS AGO—on my 55th birthday—I walked away from a job I’d held for 24 years. That day, I got in my car, left Portland, Oregon, and began a two-day roadtrip to Arizona.

My husband, who retired in 2018, was already living in our Phoenix-area home. I was looking forward to joining him, but I questioned how well I’d adapt to my new life as a retiree.

During my 1,300-mile journey south, I had plenty of time to ponder my future. I wondered how my husband and I would cope with the hot desert climate. I questioned if we’d have sufficient income to cover all our expenses. I was unsure how I’d deal with the vast amount of free time I would have.

Now, just half a year later, I feel comfortable with my decision to leave behind fulltime work.

Moving to Arizona in May meant dealing with the summer heat right away. The hottest daytime temperature we endured was 115 degrees. We learned summer heat requires waking up at 4 a.m. to get outdoor activities completed while temperatures are still in the 80s and 90s. During the heat of the day, we often visited one of the swimming pools or climate-controlled gyms located in our retirement community. We also spent time catching up on the various television series we enjoy.

Exercising our four dogs in the heat required some creative solutions. The dogs logged many miles on a treadmill we purchased for them. We had an air-conditioner installed in our garage so we could use the space as a training area.

Financially, we’re doing fine. My husband’s income stream includes a state pension, Social Security and rent from a home he owns in Washington state. His pension includes an annual cost-of-living increase, so inflation hasn’t been much of a burden. I have a pension, a 403(b) and a Roth IRA, but we don’t plan on tapping those until I turn 65.

While our income decreased in 2022, so too did our expenses. Since 2019, we had been paying mortgages on two homes—one in Oregon and one in Arizona. We sold our Oregon home in the weeks prior to my retirement, eliminating a major money drain.

Other expenses decreased as well. The utility and property tax payments on our Oregon home were higher than what we pay in Arizona. Oregon’s 9.9% personal income tax rate is over twice as high as Arizona’s. We do pay sales tax in Arizona, but many items—including most groceries and prescription medications—are exempt.

The money we netted from the sale of our Oregon home is sitting in a cash account, earning 3% interest. Those funds provide us with peace of mind. Should we face a large, unexpected expense, we know we have enough cash to cover it.

The dog training business my husband and I started in June is beginning to turn a profit. The money we make helps offset some of the costs associated with our own dogs. The real benefit, however, is the feedback we receive from clients. Helping residents in our community develop better relationships with their four-legged friends rewards our souls.

What about all that free time I knew I’d have once I retired? It’s devoured by all the activities I never had enough time for when I was working. My husband and I spend our days playing with and training our dogs. We ride our bikes almost every day. We take sunset walks through the neighborhood and we’ve rediscovered the simple joy of reading books.

I admit learning to enjoy a slower pace of life hasn’t been easy. For 30 years, my life followed a set routine. On weekdays, I woke up, spent the day at work, returned home and slept. Weekends were almost always devoted to home improvement projects and house cleaning.

I vowed to take a break from my hectic schedule when I retired.

At first, I wasn’t very successful. I spent hours each day organizing our new home. I scrubbed tile grout, replaced door knobs and cleaned carpets. Slowly, I learned how to unwind. My housekeeping standards are no longer as stringent as they once were. If the dirty dishes sit in the sink overnight, it isn’t the end of the world. The stack of papers I’ve been meaning to file away can wait a bit longer. I’ve learned I can even indulge in the occasional afternoon nap.

People sometimes ask me if I miss my job. I don’t. For 30 years, working was just a means to an end. Time will tell if I ever return to regular employment either through choice or necessity. But for now, I’m adapting to my new life as a retiree just fine.

Kristine Hayes Nibler recently retired, and she and her husband now live in Arizona. She enjoys spending her time reading, writing and training their four dogs. Check out Kristine's earlier articles.

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For the Record

IT’S EASY TO GET overwhelmed by the number of documents we receive over our lifetime. Paper copies take up space, and even electronic records necessitate computer storage. Either type requires a certain amount of time spent organizing.

The sheer volume makes the question of how long to retain records a perennial topic for newspapers, social media and podcasts. For instance, many folks have heard the advice that they should retain all documentation for seven years after they file their taxes. That’s sound advice when dealing with the IRS.

But there are reasons you might want to keep documents for more than seven years. The recent experiences of two friends illustrate why some records should be kept for far longer.

Tom—not his real name—was served with divorce papers after a long marriage. As he and his wife were working through the settlement, they were determining what assets they had acquired jointly and what each had brought to the marriage. Tom was trying to figure out the value of a 401(k) from 20 years ago, before they got married.

Over the past 20 years, the plan had three different administrators. None retained records from that era. I certainly can’t blame them. Each probably kept records for a few years, and then deleted them once they were no longer the plan’s administrator.

Tom was left to estimate the value of the 401(k) from decades ago. Unfortunately, his spouse had a different estimate. It took some emotionally draining meetings to reach an agreement.

Another friend—let’s call her Barbara—had once worked for a company and been there long enough to accrue a small pension. Every couple of years, she checked what the pension would pay upon retirement. Because Barbara’s salary and years of service were fixed once she left that employer, the estimate from the administrator never changed. Until this year.

Her old employer changed pension administrators. When Barbara checked on the pension amount, the new administrator gave an estimate that was one-third less than that of the previous pension administrator.

Barbara is now trying to gather records showing what she earned at that employer between 2002 and 2007, since those years of salary will determine the size of her pension. Unfortunately, she had thrown out her old W-2s and pay stubs because she had long ago filed taxes for those years.

My two friends’ experiences provide some justification for my habit of keeping many documents for far longer than seven years. Let’s face it: We never know when we might need some financial numbers from the distant past.

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