Jonathan Clements's Blog, page 171

Going Our Own Way

HOW WE THINK ABOUT money affects almost every aspect of our lives. All the landmark decisions we make have a thread of money influence running through them. I’m talking about college, career, marriage, kids, the people and places we associate with—even how we spend our time. If we don’t make these decisions intentionally, we’ll drift downstream, carried by the current of the most popular money management ideas.

That brings me to a study recently published by the Journal of Retirement and entitled, “The Life-Cycle Model Implies that Most Young People Should Not Save for Retirement.” The life-cycle model refers to an economic theory devised by Nobel Prize winner Franco Modigliani and Richard Brumberg in the 1950s. It essentially says that people want to always be able to spend enough to keep up their lifestyle. In other words, we don’t want our spending level—whatever it is—to ever take a sharp dip.

The Journal study assumes this approach is the benchmark for rational behavior. It then factors in a premium to account for the contention that people value consumption more during their younger years.

Accepting this perspective, the researchers discuss a few more supporting economic assumptions and assert that people in their 20s shouldn’t save for retirement, but rather spend every dollar they make and then some. According to this theory, to enjoy a higher rate of consumption in their 20s, people are better off waiting to begin saving for retirement until they’re middle-aged—when presumably they have more income.

Four questions immediately come to mind: How can you justify sacrificing that many years of compounding? Aren’t you giving up compensation if you don’t contribute enough to your employer’s retirement plan to get the full match? What about the risk that your income won’t grow in the future as expected? Will the non-saving habits practiced in the formative years of adulthood become too entrenched to reverse?

Bottom line: I don’t think the study offers good advice. I could devote the rest of this article to rebutting its recommendations by drawing on core tenets of personal finance. But I’m not going to do that because I think there’s a better question to ask. We tend to overlook it because we’re too busy analyzing the merits of this strategy or that.

Here’s the real question: What’s the best plan for living?

I’m challenging not only the above unorthodox research, but also conventional personal finance wisdom. Both accept the same basic financial framework without so much as a second thought. I’m asking: Do I really want to plan my life around satisfying my desires for earning, spending and accumulating money? Or is there a better plan?

To help further clarify the question, let’s go back and look at the Journal of Retirement study from the beginning. The first sentence of its abstract states, “Retirement policy is often predicated on the belief that more saving is always better, at least at the margin.” The purpose of the study is to challenge whether this is true—a worthwhile inquiry. But its whole effort to respond is predicated on the decision to hold up the life-cycle model of consumption as the benchmark for rational behavior.

I’m saying: Don’t gloss over that big assumption. It’s the most important variable of the whole equation. If it’s true that we don’t need to save as much as we’re often told, can we leverage that freedom for something other than extra spending?

Our relationship with money is more than just technical. It’s also spiritual, emotional and psychological. The four sides are inseparable. Because we typically deal with the technical side when we discuss money, we risk ignoring everything else.

Can you name the person who’s had the greatest influence on your financial thinking? Likely it’s someone who has spoken from a technical point of view—an important matter no doubt. But what if I asked you who’s had the greatest influence on the spiritual, emotional and psychological sides of your financial thinking?

My contention: This question warrants even more careful consideration. The technical aspect is valuable, but it’s the spiritual, emotional and psychological parts of our relationship with money that eventually exert more influence on our lives.

I am a follower of Jesus, and one of my most consistent prayers is that my thinking—all of it, including financial thinking—would be pleasing to Jesus, and would resemble how He would think if He were living my life here today. I study the Bible to better understand what that looks like.

Jesus’s idea of what’s important differs from the world’s conventional wisdom. He says there’s a new kind of life available—a better plan for living. I write about this in my book How to Love Money: Four Paradoxes that Breathe Life Into Your Finances. If you’d like to read it, you can download it at no cost from my website.

When I reflect on my life, I see a constant tension. How much will I let my desire for money influence my life plan? I’m not saying that spending is always bad and that choosing to do without is always good. By nature, my wife Sarah and I are both pretty frugal, and we recognize that we could probably benefit from being more extravagant at times.

At the same time, I can confidently look back on a handful of key decisions we’ve made over a three-year span that set the tone for our family for years to come. All went against the grain of conventional money wisdom. We both made career moves that left money on the table, while continuing to give to our church and a few favorite charities from line one of our budget, rather than from the leftovers. These decisions led to a season of earning less income, saving less for retirement and giving away a greater percentage of our income. As a result, our spending took a dip. But I can tell you: We couldn’t be happier with the outcome.

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. Choosing to have less felt counterintuitive to the natural desire to always earn more, spend more and accumulate more. We were able to opt for less only because we had a conviction that there’s a better plan for living.

Matt Christopher White is a CPA and CFP® who writes about money and apprenticeship to Jesus. He's the author of “How to Love Money: Four Paradoxes that Breathe Life into Your Finances,” available at MattChristopherWhite.com . Matt is equally comfortable talking about Luke 6:43, Section 643 of the Internal Revenue Code and the 6-4-3 double play. There’s no place he’d rather be than with Sarah and their two girls, Lydia and Eliza, at their home in the foothills of the Smoky Mountains. Follow Matt on Twitter @WriteMattWhite and check out his earlier articles .

The post Going Our Own Way appeared first on HumbleDollar.

My Ironman Triathlon

I INVESTED A GOOD chunk of 2022 getting ready for the Ironman triathlon on Nov. 20 in Cozumel, Mexico. A lot of people have asked me why I would even attempt an Ironman at age 68. I tell them I’m investing in my future self.

I know what I want my future to look like, and I’m focused on putting the pieces in place to get me there. My good health is a big piece of that picture. I want to enjoy a fulfilling, meaningful life. I want to experience life to its fullest with the time that I have left. And I want to lose those 53 pounds I managed to put on while writing three books and getting through the pandemic.

My goal wasn’t to finish Ironman. My goal is to become healthy again, to be active and athletic so I can do the things I love to do for as long as I can. Here’s my Ironman race report. Let’s just say it was a hell of a day.

Race day. At 5 a.m., I caught a taxi to get to my bike at transition area one (T1), where I’d switch from swimming to riding later that morning. I checked the air pressure in the tires and then loaded the bike with four bottles of nutrition, as well as eight gels and a bottle of salt pills. After that, I dropped off my special-needs bags at the designated buses.

Then I made my way to the shuttle buses and stood in line to be driven to the swim start. It was only a short ride, and soon we were all waiting for the beginning of the race. The pros were scheduled to start at 7 a.m., followed by the age groups, which were self-seeded based on their projected swim time.

Thinking I’d complete the 2.4-mile swim within 90 minutes, I went to join the swim group aiming for 80 to 90 minutes. While we waited, the winds picked up and the announcer reported that a rain squall was approaching. Race officials delayed the start for about an hour until the storm passed. I made it into the water at 8:15 a.m. That’s when the trouble started.

As boxer Mike Tyson famously said, “Everyone has a plan until they get punched in the face.” During Ironman, unexpected things happen, like a flat tire or a problem with nutrition. You’ll go through bad patches and your resolve will be tested numerous times throughout the day. You need to have a big “why” to get through the setbacks or you’ll never make it to the end.

That’s the beauty of this race. It will take you way out of your comfort zone, right to the edge, and then keep you there for the duration.

Punch No. 1. Within seconds of entering the water, someone’s hand hit me on the side of the head and ripped off my goggles. I wasn’t hurt—I was mad, mostly—but I couldn’t get my right goggle lens to stop leaking after that. Eventually, I decided to stop trying to adjust it and just swim. I was uncomfortable at first but eventually found a rhythm.

I kept trying to find someone’s legs to follow through the water, but the other swimmers always seemed to end up off-course. It felt like I was swimming all over the place and I was. One minute I was inside the race buoys and the next minute I was outside of them.

The morning was cloudy but there were lots of fish to see along the way. Scuba divers watching from below were taking photos of us swimming by.

Punch No. 2.  At some point, I felt a rapid drop in water temperature that surprised me. I started to swim through what I thought was seaweed, only it wasn’t. I ended up getting a lot of jellyfish stings close to the end of the swim. Figures.

When we exited the water at T1, there was a shower, where I spent a few minutes rinsing out my right eye. It was really hurting from the salt water. The long shower slowed my transition time, along with the fact that the race stewards decided not to provide us with the usual changing tents.

I’d never trained to take off my swimsuit and put on my cycling shorts while holding a towel. It’s a special skill that needs to be practiced. I hope no one was looking.

It was discouraging to arrive at the bike rack to see only a few bikes left. Almost everyone had exited the transition area ahead of me. Just at that moment, my spirits were buoyed by another retirement rebel like me. He was just sitting there, taking it all in. He talked like someone who grew up in the 1970s, cheering me on and reminding me what a great day it was.

I love hanging around retirement rebels. They’re a special kind of people.

Punch No. 3. One of my goals was to spend as much time as possible on my bike’s aero bars, handlebar extensions that allow riders to get into a low, tucked position. But I had terrible neck pain from the swim and couldn’t hold my head up to see ahead. I was forced to ride upright for the entire first loop and that cost me some time. Luckily, the neck pain went away during the second loop.

Punch No. 4. For some reason, my bike computer wasn’t working properly. Neither my cadence nor my power output was showing. Luckily, it still provided me with my heart rate, distance traveled and time taken, so I could make sure I remained within the bike cut-off time—or so I thought.

I loved the bike course. Most of the ride is near the ocean and it’s simply beautiful. On the negative side, the ride was hotter than hell. I noticed a small lizard run across the road. Not long after that, a much larger lizard did the same thing. It felt like a scene out of Jurassic Park.

I rode past some vultures feeding on roadkill. On the second loop, there were many more of them, forcing me to ride between them. I imagined they were looking at me funny, trying to figure out a way to knock me off my bike. Someone my size could probably feed them for a week. I think the heat was starting to get to me.

Punch No. 5. After about 30 kilometers, my right leg began to suffer from hot foot, a painful burning on the ball of the foot caused by riding in hot weather. It eventually spread to my left leg as well. The pain became excruciating, forcing me to stop and get off the bike for a few minutes at every aid station, which were located 12.5 kilometers apart. My routine was to take a bottle of ice water from a volunteer, have a gulp and pour the rest over my shoulders and head.

Eventually, I made my way to the bike special needs section at 90 kilometers. I was surprised by the number of bags still hanging there, which meant those riders hadn’t gotten this far. Later, I learned that a third of the competitors had dropped out of the race, mostly because of the heat.

I avoided dropping out because my nutrition plan was solid. I had done my homework and packed my remaining bottles in a cooler bag with ice packs. They were still cold when I got to them. Boy, did they ever taste good, and my spirits were lifted.

The sun started to go down. Based on my numerous hot training rides, I knew I would soon get my second wind and become both stronger and faster.

Punch No. 6. This was the biggest punch of all. I rode into town and took the turn for my third bike loop. For some reason, the road was blocked off. A race official told me to get off my bike and that my race was over.

This didn’t make any sense to me because I was still within the bike cut-off time of five hours and 30 minutes, and was on pace to finish the overall race. I couldn’t get a straight answer other than it had something to do with road closures.

I walked over and put my bike on the rack at transition area No. 2, as instructed. I met others there who were complaining about their race ending this way, too. One young lady told me it was her first Ironman and that she was ashamed to get a “did not finish” (DNF) result. I told her not to be ashamed because it wasn’t a DNF but rather a NATF—not allowed to finish. It was the race organizer’s fault.

As for me, I was in good shape. I knew I could have earned that finisher’s medal because I had spent a lot of time practicing my walk-run in hot humid weather. The bonus is that the crowd support during the run is electrifying. I would have had extra motivation, too, because my family was there to cheer me on.

But the victory was denied me after all those months of training and expense. It wasn’t right, but despite sending emails to both the organizer and race judges, no one has yet responded. It reminds me of when Air Canada let me down on a flight earlier this year. The lack of appropriate response was similar. No one seems to want to do the right thing these days.

What important lessons did I learn from my experience? First, Ironman was a rebirth for me, a big change in lifestyle, as well as a change in attitude. It was a form of play. It gave me the chance to become a child again and play with other retirement rebels.

While training I got to remember who I really am. When I was younger, I was creative and authentic. When I was younger, I did things my way. My energy came from taking risks and winning. Ironman brought back my childlike wonder, and I can laugh at the world again. It’s nice to be back.

I also learned that I’m more capable and resilient than I thought. I learned that if I have a big enough “why”—and if I’m willing to put in the work—anything is possible. We can become more than we ever were before in this period of our lives. Yet many of us choose not to reach beyond our comfort zone and the TV. We act as if we’re sedated, we don’t take risks, we don’t go for the gold.

How boring. What a waste.

I also learned that I sweat heavily in competition, so I’m not very good in the heat. That’s why I’m not planning on returning to Cozumel next year to take care of unfinished business.

Where do I go from here? Now that I’ve got my health back, it’s time to move on to bigger and better things. I’ll be focusing on the “giving back’ phase of my life. I plan on giving free “longevity lifestyle design” seminars to nonprofit groups. If you’d like to book one, shoot me an email.

I’m also going to be careful not to let my hard-earned health slip through my fingers. I’ve put the two-day Ride for Cancer in June, followed by the Niagara Falls Half Ironman in September, on my dance card for next year.

The party, as they say, is far from over.

Mike Drak is a 38-year veteran of the financial services industry. He’s the co-author of Longevity Lifestyle by Design, Retirement Heaven or Hell  and  Victory Lap Retirement . Mike works with his wife, an investment advisor, to help clients design a fulfilling retirement. For more on Mike, head to  BoomingEncore.com . Check out his earlier articles.

The post My Ironman Triathlon appeared first on HumbleDollar.

Talk While You Can

THIS PAST SPRING, my brother Phil made the six-hour trip from our hometown in North Carolina to northern Virginia to visit our 95-year-old aunt, whom we know as Aunt Ina Lou. We hadn’t heard from her in a while, which was unusual.

Since we were children, she’d always sent us Christmas and birthday cards, and she’d missed some recently. Phil tried calling several times, but she hadn’t been answering her phone. This wasn’t particularly surprising since our aunt is almost deaf. Though he wasn’t overly concerned, Phil decided to go see her.

When he arrived, he learned that Aunt Ina Lou was no longer leaving her house or paying her bills. He spoke to some of her neighbors. He found out that one of her much younger neighbors had been writing checks for her to sign, and also buying and delivering her groceries. Other neighbors had been doing her laundry and helping out as much as they could.

Fortunately, they’re honest. Our aunt had practically all her substantial savings in her checking account, so they could have cleaned her out. Her young neighbors were concerned because she clearly needed more help than they could provide. They hadn’t known how to contact any relatives, and Aunt Ina Lou was unable to tell them because of her declining mental faculties.

Phil set about trying to organize our aunt’s bills, which were stashed in a variety of places throughout her house. She had saved years of bills, and organizing them was a monumental task.

I’m a Volunteer Income Tax Assistance (VITA) tax preparer, so I offered to do her taxes. On a later visit, Phil brought back what records he could find, and I prepared her 2021 taxes. Most of her tax records were kept in the same place, but the last tax returns Phil found were from 2018. On further checking, I verified that she hadn’t done her federal or state taxes in 2019 or 2020.

Phil went back for yet another visit—to go through more of her records and because Aunt Ina Lou’s health seemed to be declining. On this trip, he noticed a large notebook labeled “estate planning documents” squirreled away in one of her rooms. He discovered that in 2015 she’d set up a trust, naming me as the trustee. She’d also listed me as her agent in her financial and medical powers of attorney, and as the executor of her estate.

She had neglected to mention any of this to me.

Aunt Ina Lou never married and has no children. I’m one of her five nephews and nieces, and we’re her nearest living relatives. I had no idea she would name me for all these duties, though—in retrospect—I was a logical choice. The other nephew and the two nieces live in Florida, and I went to business school and have management experience.

Once I learned I’d been named as her agent, I realized I had to take charge of the situation. I consulted over Zoom with a lawyer from the firm that prepared her estate planning documents, and then went to visit Aunt Ina Lou with my brother. Phil noted that her health had declined even more.

Once I saw her, it was clear to me that she required home health care immediately, and she needed to be in an assisted living facility as soon as possible. Using Google, I found an accredited home health provider in the area and arranged for someone to be there with her part-time.

Shortly thereafter, she fell and broke her wrist during the night, when no caregiver was present, so I shifted to 24/7 care. Fortunately, there’s a good assisted living facility near where she lived. Phil and I visited it in July, and we liked it. We took Aunt Ina Lou for her first COVID-19 vaccine, and made arrangements for her to move into assisted living in August.

I ordered an electric hospital bed for her room that was delivered shortly before she moved in. With the help of my wife Sara, and with Phil and his large truck, the three of us moved a selection of her furniture and belongings into her new studio apartment. We set up her room with lots of familiar furnishings.

She’s doing well in her new home, getting the care she needs, and she seems to have adjusted pretty well to the change. I just wish we had been able to get her into assisted living sooner. She spent a lot of time at home alone, not getting the level of care she needed, and living in needless discomfort. Without the assistance of her young neighbors, she likely would have died, as she was beyond being able to ask for help.

The whole process of taking control of my aunt’s finances and moving her into assisted living ended up being a tremendous amount of work for Phil and me. I spent seemingly endless hours getting access to her financial accounts, consolidating accounts, setting up automatic payments for her bills and getting everything in place for her move.

Practically everyone I dealt with needed to have a copy of her power of attorney designation and then have it approved by their legal department. Further, we had to do everything as quickly as possible because our aunt’s mental and physical health had declined so much by the time I learned I was named as her agent.

Had she told me, I would have kept in closer touch, and also given my contact information to her friendly neighbors and someone from her church. Aunt Ina Lou could have been a lot more comfortable and received proper medical care these last few years. All it would have taken was a note in one of those Christmas or birthday cards.

It was great that she had the powers of attorney drawn up, and the trust will make dealing with her estate in Virginia much simpler. But her case is a prime example of why you need to make sure the person you’ve chosen is willing and able to handle your affairs, and also will check back regularly to determine if that becomes necessary. It’s best to notify your designated agent while you still have your wits about you.

If you have elderly relatives, talk to them sooner rather than later about setting up a financial power of attorney, a medical power of attorney and a will. Urge them to speak to whomever they have chosen to fulfill these duties. It’s far better to know ahead of time that someone is depending on you—rather than to discover your role in the midst of a crisis.

Brian White is retired from the University of North Carolina, where he worked as a systems programmer and then director of information technology in the computer science department. He likes hiking with his wife in a nearby forest, dancing to rocking blues music, camping with friends and stamp collecting. He also enjoys doing Volunteer Income Tax Assistance (VITA) work at the Chapel Hill senior center. Check out Brian's earlier articles.

The post Talk While You Can appeared first on HumbleDollar.

A Taste for Junk

BONDS ARE IN THE NEWS again. Everyone’s talking about Series I savings bonds and Treasurys. But what about corporate bonds, both investment-grade and junk?

Nine years ago, we started following Marc Lichtenfeld’s investment service that recommends corporate bonds. When my husband suggested we try it, I asked, “Aren’t corporate bonds junk bonds?” Forgive the holiday reference, but I had visions of Michael Milken dancing in my head.

From the beginning, my husband was all in. He was intrigued by the high rates corporates would pay and the opportunity for diversification. I was concerned about the risk. Once we got started, though, I found a lot to like.

Corporate bonds carry ratings that help distinguish their creditworthiness. Three credit rating agencies—Moody’s, Standard & Poor’s and Fitch—sort corporates into investment grade, speculative grade, likely to default and defaulting. Each tier has a corresponding letter grade, from AAA to D.

Bond buyers can look up the gradations among the three rating agencies to understand what each rating means for any given bond. In general, a top rating of AAA is reserved for U.S. Treasurys and the strongest blue-chip companies. Investment-grade corporate bonds can get grades ranging from AA+ to BBB-. Anything lower is speculative or not investment grade—junk, in other words.

We compromised by buying investment-grade bonds at first. Gradually, we ventured further into the depths of junk, even buying C- and D-rated bonds as time went on. These are the bottom rungs of junk. A grade of D, for example, usually signifies “in default.”

How, then, have our junk bonds held up? Surprisingly well. For a risk-averse investor like me, a crucial selling point was their relatively low default rate of 2.5% to 3.5%.

High-yield bonds have also posted sturdy returns, according to Bloomberg data cited by money manager Hotchkis & Wiley. The average annualized return on high-yield bonds between 1986 and 2021 was 7.3% during periods of rising interest rates and 8.5% in periods of falling rates. Investment-grade bonds, by contrast, returned less—just 1.2%—in periods of rising rates and more—9.9%—in periods of falling rates.

Why did we buy individual bonds rather than bond funds? When interest rates rise, as they have this year, the share prices of bond funds fall. The market discounts the lower-yielding bonds in the fund’s portfolio until their yield equals the higher rates on offer by newly issued bonds. The share-price decline can be even larger for closed-end funds that use leverage, or borrowed money, to juice their returns.

The price of individual bonds, of course, also falls when interest rates rise. But we aren’t bothered. Our intent is to hold our bonds until maturity. That way, we collect the interest from bond coupons until we are paid back our principal at maturity. Occasionally, a bond we own may get repaid early—or “called.” If we’re lucky, the bond in question gets redeemed at a premium to its current market price.

Our bond investment service has guidelines that match our objectives. Bonds are selected based on “coverage”—the ability of the company to generate sufficient cash flow, or which has adequate funds, to make coupon payments during the time we’ll own them. In addition to the interest payments, paid at a minimum every six months, we can occasionally buy bonds at a discount, which can give us a capital gain if their prices recover.

Today, we have a portfolio of bonds that yield anywhere from 3% to 16%. The higher payouts mean higher risk. Two-thirds of our bonds are non-investment grade, or junk. Our current portfolio includes bonds maturing every year for the next five years.

Overall, we’re doing well, although we do own some disappointments, such as Revlon. Did you think we wouldn’t have some clunkers amid all this junk? There’s lots of bad news about Revlon. From the start, it was called distressed. Then came the bankruptcy filing. Then there was good news. Revlon was paying its bond coupons even in bankruptcy, so through it all we’ve been getting our scheduled interest payments.

We have no idea if Revlon can make it through intact, or whether it’ll be sold off or even liquidated. We did know what we were getting into when we bought, so we kept our investment small.

You could equate our fondness for junk bonds with junk food. We don’t eat it often, but when we do, we enjoy it. We’re usually aware of what we’re doing—and we try not to overdo it.

Sonja Haggert is the author of Invest, Reinvest, Rest. You can learn more at SonjaHaggert.com. Follow her on Twitter @SonjaHaggert and check out her earlier articles.

The post A Taste for Junk appeared first on HumbleDollar.

Credit Where It’s Due

THE BEST FINANCIAL advice I could give to a Gen Z or millennial is this: Join a credit union. But they probably wouldn’t listen.

A GOBankingRates survey earlier this year found that fewer adults under age 40 are banking with credit unions, instead preferring national or online banks by as much as a two-to-one margin. I’ve done all my banking with a local credit union for almost 18 years, and it’s provided me with a degree of personal customer service that’s likely less common with banks. This has been especially important when I’ve faced financial hurdles.

When I was in my late 50s, I was without a fulltime job for 18 months. I simply couldn’t find work related to my university degrees. During that period, I kept up with my mortgage payments but fell behind on the $280-a-month condo fee. When the condo association threatened to foreclose, I went to the credit union because it held my mortgage.

The credit union offered to add $4,000, without any interest charge, to the back of my mortgage to help me pay the fees that I owed. I had to commit to paying the condo fees on time from then on.

At the time, friends had suggested that I just walk away from the mortgage, especially because my condo’s value was then less than what I owed. My old-fashioned morality prevented me from doing so.

I was also worried that a foreclosure would affect my ability to qualify for another PLUS loan, which I needed to help pay for my son’s college housing costs. I wanted to make sure he could stay in the private university where he’d earned a full academic scholarship that covered his $36,000 annual tuition.

Staying put has proven to be the right decision, especially now that my condo’s value has been lifted by the booming housing market. While rents in my Florida town are soaring to new records, I’m still paying the same fixed-rate mortgage and condo fee that I have for the past 10 years.

How did my 18 months without fulltime employment end? Just as I’d exhausted all my savings and retirement money, a friend offered me a position at the university where I’d previously worked for 10 years. It had nothing to do with my skills or education, requiring only a high school degree. The pay was 40% less than my previous job. I would be earning what I did in my 30s, but I had no choice.

Still, in addition to a regular paycheck, the job provided medical insurance for my son and me, plus lots of paid time-off and more contributions to my state pension. Frankly, if I hadn’t taken the offer, I would have become homeless.

During my long stretch without a job, and then working for far less money than before, I almost maxed out a credit card from the credit union. It had an attractive 9.9% fixed interest rate but a higher-than-average minimum monthly payment. I didn’t want to fall behind on any bill, so I turned to the credit union again.

To help improve my cash flow, the credit union offered to transfer my high card balance without fees to a signature loan at a fixed 6.8% rate and a monthly payment of $200. In five years, my loan balance has been reduced by more than 85%.

I’ve also financed four used vehicles through my credit union during the past 17 years. Two were for me, and two were my children’s first cars, whose loans I cosigned. Each time, the credit union gave me the best rate and guided us so we’d know what car we could afford.

I always prefer to obtain financing before I shop. The credit union offered me my current car loan at just 2.44%. Thanks to a seller’s market and the loan payments I’ve made so far, I already owe thousands less than my car’s current resale value.

The GOBankingRates survey suggested that younger folks prefer an online experience for banking. But I rarely go to the credit union offices. I have a phone app that provides me easy access to current data on all my accounts. Last year, after my debit card number was stolen, the credit union suggested an app that immediately sends a text every time my card is charged, so I’ll know if it’s being misused.

At one time, credit union membership was limited to a group of employees or to certain industries. Today, most credit unions are open to all and growing in popularity—just not among the young. About 132 million Americans were credit union members in the first half of 2022, which is three million more than at the end of last year.

Earning higher rates on savings and paying lower rates on loans are the main benefits of being a credit union member. But based on my experience, I’d also recommend them for another reason—much better customer service than you’d get at most banks.

Ron Wayne spent 26 years working for newspapers in Pennsylvania and Georgia before becoming the editor in the University of Florida’s main news office. During his 10 years working there, he earned his master’s degree in mass communication and taught as an adjunct in the College of Journalism and Communications. Since retiring in 2020, he’s enjoyed a simple life, including reflecting on his experiences on Medium.com . Check out Ron's earlier articles.

The post Credit Where It’s Due appeared first on HumbleDollar.

Movies That Move Me

EVERY DECEMBER, I watch two Christmas movies—movies I’ve been watching for as long as I can remember.

My favorite is A Christmas Carol, based on the novel by Charles Dickens. It’s about the mean and miserable Ebenezer Scrooge, a money lender who constantly bullies his poor clerk, Bob Cratchit, and rejects his nephew Fred’s wishes for a merry Christmas.

Scrooge lives only for money. He has no real friends or family, and cares only about his own well-being. As the story goes, on Christmas Eve, Scrooge is visited by three ghosts. They teach him about the Christmas spirit through visions of Christmases past, present and future. In each visit, he sees either the negative consequences wrought by his miserly nature or the good tidings that others bring about through their love and kindness.

Scrooge sees his future—dying alone with no one to mourn him. He has his money and his possessions, yes, but nothing else. He finally understands why qualities like generosity and love are some of the most important things in life.

He’s grateful when he realizes he has a chance to redeem himself and change his future. This is the important message conveyed by Dickens. If Scrooge can change and improve his future, then anyone can.

Dickens reminds us that we still have a last chance to be remembered as we would wish. But we need to start living that way today, while we still have the opportunity to change the direction of our lives.

Seven years ago, after being packaged off by my employer at age 59, I once again watched the movie while suffering from a bad case of retirement shock. I started to think deeply about what I wanted my life to look like, and what I needed to do to get there. Similar to Scrooge, I went through a journey of self-discovery. I, too, wanted my life to have a happy ending.

I began to think about what changes I needed to make to be happy. What kind of person did I need to become? What did I want to do and accomplish in the years ahead? How could I make a difference in the lives of others?

Reinventing yourself is hard work. It takes time and a fair amount of persistence, yet the payoff can be enormous. In my case, it was life-changing. Today, I feel a little like Scrooge on Christmas morning.

My second-favorite movie is It’s a Wonderful Life from director Frank Capra. One thing I learned from becoming a writer is that it’s hard to gauge the impact my work has on others. Sometimes, during a bad patch, I start doubting myself and wonder if all the hard work is worth it.

That’s why I enjoy this movie so much. It’s about a man who gets to see what his town would have been like if he’d never been born. It’s much worse off without him.

The movie is a reminder of how important our efforts are and how we can positively affect someone without knowing it. After watching it, my faith in what I’m doing is restored. I get back to work with both determination and a smile on my face.

Watching these movies has turned into an annual form of self-assessment for me. They make me think deeply about what’s important in my life and what’s not. They hold key life lessons that I value, and they remind me why I do the things that I do.

The post Movies That Move Me appeared first on HumbleDollar.

Yellen About Taxes

WHEN JANET YELLEN was nominated to be Secretary of the Treasury, the Senate Finance Committee staff went over her tax returns with a magnifying glass. Yellen, an economics PhD who taught at Harvard, always prepared the returns for herself and her husband, economics Nobel laureate George A. Akerlof.

“She discovered to her surprise that she had been doing the family taxes wrong for years,” reports Owen Ullmann in his excellent new biography of Yellen, Empathy Economics. “She had listed George’s book royalties on Schedule E, which is for rents, royalties, and partnerships. That seemed the logical thing to do but it was wrong.”

Book royalties, it turns out, “go on Schedule C, which is for income from a sole proprietorship or profession.” The mistake meant that they’d overpaid their taxes for years because, on Schedule C, they could deduct more business expenses from his royalty payments. Still, as a result of Yellen’s error, they had to amend their past returns and refile them.

This time, though, they had to ransack their records to document every last deduction. Yellen found “the level of scrutiny horrendous and the entire process abusive,” according to Ullmann, who was granted a dozen interviews with her in preparation for his book.

Let me just say this: If Janet Yellen can’t get her taxes right, what hope is there for the rest of us?

I just spent the morning estimating my quarterly tax payments owed to the federal government and the state of Pennsylvania. I found the process as easy as getting tickets to a Taylor Swift concert—only more expensive and without any music at the end.

Please understand: I don’t mind paying taxes. As someone once said, they’re the price we pay for civilization—if that’s what you call this. No, it’s the complexity that I find vexing. If this were an Olympic competition, filing your taxes should rate an 11 out of 10 on the degree of difficulty.

When I find things hard, I tend not to blame myself—although, honestly, a lot of this is on me. No, I begin to grouse about the confounded system. I mean, who in their right mind would have you mail a check to “P.O. Box 37008, Hartford, CT 06176-7008” if they were trying to make your life easy?

Believe me, I make it hard enough by myself already. Our printer is on the third floor and the checkbook the first. Naturally, I roamed back and forth multiple times because I made various “mistakes,” like listing my wife first on the quarterly payment form when I’m listed first on our Form 1040.

I’ve learned the hard way that the IRS doesn’t get it when you switch the order of names. The lesson: Don’t be chivalrous.

Then there’s Googling the standard deduction, the income tax brackets, the tax treatment of Social Security income and the FICA tax rate for self-employed people. This all came after we’d estimated our income from five different sources.

I tried to find a quick and easy tax calculator online. Each one turned into a chapter from a Franz Kafka novel, wanting more and more detail until I lost the will to go on. I had to hold my old calculator up to a window to get its solar battery to turn on. Eventually, I switched to my iPhone, so now perhaps hackers and Vladimir Putin know how much I make.

Maybe Yellen can do something about all this. After all, she’s in charge of the IRS. Yet it will take an act of Congress to give us what taxpayers in many countries in Europe already have. Their taxing authorities simply email taxpayers a completed tax return, made from records already reported to the government. The whole process takes taxpayers 10 to 15 minutes to double-check and approve.

Each year, I lose days of spring sunshine to tax preparation. I just hope I do a better job than Yellen.

Before she was Treasury Secretary, Yellen was chair of the Federal Reserve. And before that, she served as chair of the President’s Council of Economic Advisors. At every stage, Ullmann notes, Yellen’s work has been defined by meticulous overpreparation. Yet it’s no match, apparently, for the intricacies of the U.S. tax code.

Greg Spears is HumbleDollar's deputy editor. Earlier in his career, he worked as a reporter for the Knight Ridder Washington Bureau and Kiplinger’s Personal Finance magazine. After leaving journalism, Greg spent 23 years as a senior editor at Vanguard Group on the 401(k) side, where he implored people to save more for retirement. He currently teaches behavioral economics at St. Joseph’s University in Philadelphia as an adjunct professor. The subject helps shed light on why so many Americans save less than they might. Greg is also a Certified Financial Planner certificate holder. Check out his earlier articles.

The post Yellen About Taxes appeared first on HumbleDollar.

New Year New Worries

LAST WEEK MIGHT HAVE been the moment we flipped from inflation worries to recession risks. On Tuesday, November’s inflation report turned out to be cooler than economists expected. Stocks initially soared, only to sell off toward the end of the day in anticipation of Wednesday’s news. Sure enough, the next day, Federal Reserve Chair Jerome Powell delivered not only a 0.5-percentage-point interest rate increase, but also a stern message in his press conference afterward.

While the Fed’s words move markets, I like to look at what traders expect future inflation to be. According to the interest rate market, disinflation is clearly priced in. The 12-month inflation rate is expected to fall from its current 7.1% to below 3% by June 2023. That’s not necessarily good news—because weaker future economic growth is the probable culprit. There are growing signs, such as lower commodity prices, that a mild recession could strike next year.

It’s turning into a battle of who will be correct—the bond market or the Fed. Trading markets expect 1.3 percentage points of policy rate cuts starting in the middle of next year through the first half of 2024, as the Fed moves to counteract a recession. That bearish economic outlook contrasts with the Fed’s so-called dot plot, which projects a higher federal funds rate through 2025. Many pundits believe the Fed’s hand will be forced, and that short-term interest rates will need to be slashed because of a weak economy.

Indeed, recent economic data have been dicey, with manufacturing activity suggesting a recession could already be underway. November’s retail sales, released last week, were also disappointing, notching the slowest annual growth rate since December 2020. We’ll get a fresh look at the employment situation early in 2023, just before the corporate earnings reporting season kicks off in mid-January.

The post New Year New Worries appeared first on HumbleDollar.

Help Yourself

IN BEHAVIORAL FINANCE, there’s an important concept that doesn’t get a lot of attention: It’s called temporal discounting. The idea is that we view our current and future selves, to some degree, as different people—and there’s a tendency to discount the needs of the “other” person. It’s an interesting idea because, even for the most diligent planners and savers, there’s an inherent tension between the financial needs of today and those of tomorrow.




Take the “latte factor,” which argues that a young person could accumulate nearly $1 million in savings simply by forgoing a daily coffee and muffin. Personally, I’m not sure that’s the road to financial success. Still, the latte factor illustrates the importance of not discounting our future selves. Along those same lines, as we look ahead to 2023, here are some other financial steps you might take to help your future self.




Sidestep taxes. Earlier this year, I told the story of an investor who had an odd experience with a mutual fund. She first bought shares in the fund about 30 years ago. Her initial investment was $19,000. When she sold her shares last year, they were worth $287,000. That seemed like a great result. But surprisingly, she actually had a loss on this investment for tax purposes.




How could that be possible? The problem was that the mutual fund in question was actively managed and generated sizable capital gains distributions each year, which she reinvested and thereby raised her cost basis for tax purposes. Result: When she sold, her shares were worth less than all the money she'd put into the fund, including those reinvested distributions. While her original $19,000 might have had a gain, all of the subsequently purchased shares turned the whole thing into a tax loss. Worse yet, for decades, she had been paying taxes each year on the fund’s distributions, heaping on unneeded extra income during her peak earning years.




Want to avoid a similar result? If you hold any actively managed funds in your taxable account, check the fund’s track record for making capital gains distributions. You can find this information on research sites like Morningstar. For instance, look up American Funds’ popular Growth Fund of America, and you’ll see that last year it distributed gains of $6.01 per share when the share price of the fund was $71.12.




That translates to a capital gain equal to 8.5% of the fund’s value, delivering a sizable tax bill to the fund’s taxable shareholders. To quantify this, suppose an investor's capital gains tax rate, including federal and state, is 25%. That fund distribution would have cost an investor 2% of the fund’s value in taxes (25% x 8.5%). That's on top of the cost of the fund itself, which isn't insignificant.




If you hold a fund like this, and you have a sizable unrealized gain on your investment, you may be hesitant to sell. To be sure, exiting the fund would involve a one-time tax hit. But you might be doing your future self a favor if that allows you to sidestep future capital gains distributions.




Plan for a rainy day. In my experience, there are two financial tasks that are most susceptible to procrastination: putting together an estate plan and buying life insurance. These may not benefit your future self, but they could be crucial to your family’s financial future.




Moreover, when folks do get these two tasks taken care of, they usually aren’t in a hurry to revisit them. But it’s important to make sure your estate plan and insurance coverage keep up with your needs—especially if you have children. Fortunately, term life insurance can be very inexpensive, making it relatively easy to add more coverage. Got a whole life policy? One possibility: Cut back on the whole life, with its relatively high premiums, and redirect those dollars into a much larger term policy to cover the years until your children are out of school.






Disability coverage is much more expensive. That reflects the reality that a disability during our working years is much more likely than dying. The good news: Your employer may already provide some coverage under a group policy. Nonetheless, it’s worth running the numbers to see if your family would be able to cope over the long term with that employer-provided benefit plus your accumulated savings.




Revisit your 401(k) contributions. For most people, most of the time, it makes sense to defer income into a 401(k). Say you have a handsome household income of $400,000. If you make a 401(k) contribution, your tax savings on that contribution would be 32% at the federal level. If your income in retirement is much lower—as most people's is—then you’ll come out ahead when you withdraw those dollars from your 401(k) at a much lower tax rate.




But as you advance in your career and your tax-deferred savings grow, it’s worth confirming that this is still the case. If you’re self-employed or in a profession where you have access to multiple tax-deferred retirement plans, it’s possible to end up with very large tax-deferred balances. The result: At age 72, when required minimum distributions begin, your income might leave you once again in a high tax bracket. Indeed, if your tax-deferred balances are north of about $5 million, it might be worth doing some more detailed projections. Your future self may thank you.




Consider an annuity. Annuities have a bad reputation. Some of that’s well deserved, owing to their opacity and high fees. But not all annuities are created equal, and there’s evidence that they can deliver unexpected benefits. Research has found that those with more guaranteed income sources in retirement are both happier and live longer.




In addition to the opacity and high fees, there’s another reason people tend to avoid annuities: The risk that they won’t live long enough to recoup their original investment. In simple terms, people worry about buying an annuity on Monday and dying on Tuesday. That’s an understandable concern, but keep in mind the story of Irene Triplett, who died just a few years ago at age 90. She had been receiving a veteran’s pension benefit from her father. That may not sound remarkable, except that her father was a veteran of the Civil War. The lesson: If you end up living a very long life, your future self might thank you for providing guaranteed lifetime income.




Pay down your mortgage. An age-old debate in personal finance is whether it makes sense to make extra payments toward a mortgage. If you have a low rate, the math suggests you’d be better off not paying down your mortgage any faster than required, and instead investing those dollars where you might earn a higher return.




Today, in fact, the math is easy: Suppose you’re paying 3% on your mortgage—a rate that was available as recently as last year. Instead of making extra payments toward that loan, you could invest those dollars in the stock market where, history suggests, you’d likely earn far more than 3%. Want to guarantee you’ll come out ahead? Instead of purchasing stocks, you could buy a 30-year Treasury bond today and earn 3.5% with negligible risk, ensuring you’d do better than if you used the same dollars to pay off your mortgage early.




That’s what the math says. Still, your future self might thank you for doing the opposite. Why might that be the case? The reality is that none of us knows what the future will bring. Suppose you choose to retire early or perhaps, later in life, money is tight for other reasons. Being mortgage-free would provide a welcome dose of flexibility.

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.

The post Help Yourself appeared first on HumbleDollar.

He Said I Was 100

I REACHED AGE 79 in November. No matter how you slice it, I’m now a senior citizen or, as I prefer to call myself, a seasoned citizen. That became obvious during a recent trip to the supermarket. As I leaned over to check the price of a case of water, a fellow in his 40s asked if he could lift it into my cart.

It was a nice gesture with good intentions, but I silently resented it. Often these days, I’m experiencing similar gestures. A younger player picked up my golf ball. While looking for something on a lower shelf at a store, I was asked if I needed help getting up.

It’s all very frustrating and depressing—because, you see, I could occasionally use help.

Recently, I gave a short talk to my grandson’s second-grade class about veterans and being in the Army. Trying to relate to seven-year-olds isn’t easy. You quickly learn that information that you take for granted is unknown to them.

“What did George Washington do before he was president?” I asked. “Do you know what a Minuteman was?” Silence.

Their questions included, “Did you ever shoot anyone?” “How was the food?” and “How old were you when you joined the Army?”

I replied “no,” “okay” and “21.”

The teacher then asked the class, “Mr. Quinn is 79 and he joined the Army at age 21. How long ago was that?” There’s that age thing again. A variety of incorrect answers resulted.

I looked at my grandson and he quietly said “58.” The last time I asked him how old I was, he said “100.”

As I get older, my views on money have changed. My wallet opens a bit easier these days—just a bit. Since January, my investments and net worth have dropped by six figures. I was freaking out until it finally dawned on me—with help from my wife—that it didn’t really matter. My chances of seeing a full recovery are less than a 30-year-old’s. But what about retirees my age who are living off their investments every day and would be in trouble without a market recovery?

Think about those retirees living on Social Security plus the median 401(k) balance, which is $82,297 at Vanguard Group for those age 65 or older and $132,101 at another big retirement plan manager, Personal Capital. These retirees don’t have much room for error, especially during times of high inflation. Their senior years may be marked by financial stress—along with everything aging.

Try as we might, we simply can’t forestall the effects of growing older. Good health is a big plus, of course. But I’m convinced that our genes and our attitude are the keys to our condition, though I’ll admit that my experiences with COVID-19—plus the first health scare of my life in 2022—have tested that attitude.

Indeed, to a degree, my outlook hasn’t been the same since. But as the Second World War poster advised during the London Blitz, “Keep Calm and Carry On.” That’s what I intend to do, while maintaining my curmudgeonly outlook. I have limited tolerance for those who approach life—and their finances—without what I define as personal responsibility.

The post He Said I Was 100 appeared first on HumbleDollar.