Jonathan Clements's Blog, page 193

Where There’s a Will

THE WILLS, POWERS of attorney and advance directives drawn up for my wife and me were drafted according to the laws of another state���and were badly out-of-date.

For example, these various documents included guardianships for our then-young children, with a trust to make gradual payouts until they turned age 35. Both our children have since graduated college, become professionally employed and demonstrated they���re financially responsible.

Despite all that, I���m embarrassed to admit that we procrastinated over getting new wills. We���re far from alone. The majority of Americans don���t even have a will. I���d bet a few HumbleDollar readers are likewise in procrastination mode.

What was getting in our way? First, there���s the cost and inconvenience of making new wills. Second is the reaffirmation of our mortality, which can be hard to take.

Third was the continuing uncertainty over estate taxes. The Biden administration��proposed lowering the estate tax exemption and eliminating the step-up in cost basis on inherited assets, though neither idea found much favor with lawmakers. Fourth, we were reasonably certain that we would soon be moving to a new state���New Hampshire���with different estate and end-of-life rules.

Finally, both our children were in the midst of major life transitions. One child graduated college in May, while the other will get married this fall.

Despite all this uncertainty, we just signed new wills, powers of attorney and advance directives. They���re all legally binding in our new home state of New Hampshire. It took us seven months after our move to get them completed, as unpacking and installing closet hooks took precedence.

I feel relieved to have finally replaced our complicated old wills. Not only did we eliminate the costs of administering a no-longer-needed trust, but also we avoided the possibility our estate would be settled in our previous state, which has high estate taxes.

Our new wills are purposefully straightforward and without any special nuances. We trust our children. Each has laid claim to just a few trinkets of personal interest���but neither one is interested in our heavy, brown antique furniture.

We didn���t include a trust in our new wills. My family is generally anti-trust due to experiences with two previous estates that included them. With one trust, the lawyers seemed to be almost as much a beneficiary as the beneficiaries. A simple question over the telephone sometimes cost us a billable hour, or $250. The total legal costs to set up and close out this trust approached $40,000 across several years.

On top of that, not all the of the deceased���s assets had been transferred to the trust, so settling the estate became a mix of trust and probate procedures anyway. This reinforced my belief that a critical aspect of establishing a trust is to properly transfer in all assets, particularly deeded property, titled property, life insurance, annuities, business interests and personal property.

With the second trust, I estimate the trustee reaped almost one-third of the potential inheritance value���as much as $900,000���in management fees and opportunity costs over the 34 years this generation-skipping trust was in force. To make matters worse, changes to the tax code over the years eliminated much of the trust���s intended tax savings.

After these experiences, we���re much more afraid of lawyers��� fees, money management fees, operational complexities and tax-law changes than we are of the potential disclosure of our middle-class financial wealth through the public probate process.

The cost for our new documents was $600. We used a local New Hampshire law firm that seemed quite reasonable compared to the costs in our previous state. While do-it-yourself online options such as Nolo and LegalZoom are cheaper, we wanted to establish an attorney relationship in our new state for other business reasons.

The New Hampshire law firm also provided the added benefits of a notary, witnesses, fire-proof remote storage and the ability to make any future tweaks if required. The whole process took under two hours���one hour of remote work with emails and proofreading, followed by 25 minutes in the lawyer���s office for signing and copying.

The federal estate tax laws don���t seem likely to change anytime soon, except that today���s $12 million estate tax exclusion is scheduled��to drop to $6.2 million per person at the end of 2025, unless Congress acts first.

We hope our new estate documents will suffice for many years to come. But our family structure, financial situation, residency, health and the tax laws could all change���and, if needed, so might our wills.

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

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Winging It

ARE YOU READY FOR some football? Autumn is just around the corner and, if you���re like me, you can���t wait for those lazy Sunday afternoons kicking back and watching the gridiron. What about some munchies as you enjoy the on-field action? While the cost of everything food-related seems to be skyrocketing, there���s encouraging news for one popular football snack.

According to data from Bloomberg, wholesale chicken wing prices are down some 60% from a year ago. It���ll take a while before that price drop trickles through to the supermarket and our favorite barbecue joints, but it���s a promising sign. It seems some relief from food inflation is on its way.

Even for non-football fans and those less keen on meat, there���s good news. Oat prices are down about 25% from their peak in late 2021. Similarly, following an ill-timed bird flu outbreak, wholesale egg prices are now falling fast.

For many families, the relief offered by lighter grocery bills, smaller restaurant checks and lower gas prices can���t come soon enough. After benefitting from several fiscal stimulus packages during the pandemic, there are growing signs that the bottom and middle-income groups are financially strained. The excess savings built up during the pandemic are starting to slip away, while credit card debt is on the rise.

Along with easing inflation, there���s another encouraging sign: We still have a strong labor market, one where the lowest wage workers are garnering the highest raises. We���ll get a fresh look at the jobs situation on Sept. 2���just before the NFL season kicks off.

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Tax Dodging

I GOT AN ANGUISHED call from an investor last week. Let’s call her Emily. Emily’s accountant was finishing up her tax return and was surprised to see a $113,000 capital gain. The explanation turned out to be just as surprising.

The issue stemmed from a well-intentioned move by Vanguard Group. In late 2020, the firm announced it was broadening access to a set of lower-cost mutual fund share classes.

Mutual fund share classes are like fare classes on an airplane. Just as every passenger on a plane is going to the same destination, every investor in a mutual fund owns the same underlying investments. The difference, though, is that some share classes cost more than others, just as some seats on a plane cost more. But in the case of a fund, the best share class to own is the one with the lowest costs. Fund firms restrict access to lower-cost share classes by, say, requiring a larger initial investment.

What Vanguard did was to lower the minimum investment required to get into some lower-cost share classes. So far, this may not sound like a problem. You may recall, though, that investing in mutual funds always carries a risk: Being a shareholder in a fund is like being a passenger on an elevator. Everything should be just fine—as long as everyone behaves. By that, I mean that investors in a fund can impact each other if they choose to sell out of a fund in large numbers.

That’s exactly what happened. When Vanguard invited more investors into the lower-cost share classes, they predictably headed for the exits of the higher-cost shares. The result was a disaster for those left behind, including Emily.

Why was it a disaster? To understand what happened, think about it from the fund manager’s perspective. If an investor wants to redeem his or her investment, the fund manager must make cash available for that redemption. That happens every day in mutual funds and generally it isn’t a problem. Often, in fact, incoming cash from new shareholders can be used to redeem investors who are exiting. In addition, fund managers always maintain cash on the side for this purpose.

But what if there are more redemption requests than new investors on a given day? The fund manager must sell some of the fund’s holdings to cash out those who are exiting. This, too, often isn’t an issue. But if too many redemption requests come in at once, the fund manager may be forced to sell a large number of investments that are worth more than the price that the fund paid. This is where the unpleasantness begins.

By law, mutual funds must distribute substantially all of their net income each year. That income is distributed pro-rata to shareholders, and each is taxed on the amount they receive if they hold the fund in a regular taxable account. ​If a fund incurs extraordinary gains—as the Vanguard funds did—then shareholders like Emily will be stuck with the tax bill, and they have no say in the matter.

That would be bad enough—but there’s more. Mutual fund companies generally only make capital gains distributions once a year, near the end of the year. That’s when they have a good sense of each fund’s total income. For logistical reasons, they only make distributions to investors who are shareholders at the time when the distribution is issued. In other words, if a stampede of investors leaves a fund in June, they might trigger a pile of capital gains, but they won’t be responsible for the gains they triggered. Instead, it’s the hapless folks remaining in the fund in December who’ll have to pick up the tab.

That’s precisely what happened to many Vanguard investors last year. Emily and others are now stuck with the bill. The only potential silver lining: The situation was egregious enough to attract government attention. The state of Massachusetts was able to secure a $5.5 million settlement for shareholders. A pending class action lawsuit may provide broader relief.

As an investor, how can you avoid this sort of unpleasant surprise? Here are five recommendations.

First, avoid actively managed funds. Their managers usually trade more and that greater activity is likely to generate taxable gains. Worse yet, as I described earlier this year, actively managed funds are totally unpredictable. While index funds are not immune to generating gains, those gains tend to be much more muted because the portfolio manager doesn’t have the freedom to buy and sell as the mood moves him.

Second, stick with Vanguard. That might seem contradictory, given last year’s ugly incident. But I see that as more the exception than the rule. The reality is, Vanguard is uniquely positioned to minimize gains for investors. For example, it has a patent on one technique that’s highly complex but enormously effective. Vanguard also leads the industry in lowering fees.

Third, avoid funds that own a mix of asset classes, such as stock-bond “balanced” funds or target-date retirement funds. Their selling point is that they offer ready-made portfolios, with the managers making regular adjustments to keep them in line with their stated strategies. It’s these adjustments, though, that present a problem. They entail more frequent trading, so it’s hard to know what kind of tax bill these funds will generate.

Fourth, avoid niche funds, such as a fund that owns only technology stocks or health care stocks. Even if they’re index funds, a narrowly focused fund is going to be more susceptible to unexpected trading gains. When you stick with a broader fund, like an S&P 500 or total stock market index fund, it’s like being on a big ship. You’re much less likely to be impacted by a few waves.

Finally, opt for exchange-traded funds (ETFs) over traditional mutual funds. Their structure makes them inherently more tax-efficient. As I noted earlier, Vanguard has done an impressive job limiting the capital gains generated by its mutual funds. But ETFs go a step further in insulating investors from potential gains.

That said, if you feel compelled to own a less tax-efficient fund, try to buy it in a retirement account. The fund will still generate distributions, but they won’t lead to an immediate tax bill.

If you do choose to buy something other than a simple index fund in a taxable account, there’s one thing you can do to lessen the potential impact: Consult the mutual fund company’s website before you make your purchase. As the end of the year approaches, each fund company publishes a schedule of upcoming distributions. At the very least, wait until the day after the distribution to make your purchase. That will allow you to sidestep one year’s tax bill.

What if you already own a fund that’s tax inefficient, and it’s in a taxable account? If you have an unrealized loss, of course you could sell it. But if you’re hemmed in by a sizable gain, there is one thing you can do: Be sure your account isn’t set up to automatically reinvest income and capital gains distributions. You’ll still owe tax when you receive those distributions, but at least you can take that cash and reinvest it elsewhere.

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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Made to Measure

"TO MEASURE IS TO��improve."��Businesses, investors, athletes and others embrace this notion, and it undoubtedly has value. Still, earlier this year, when my bicycle���s decade-old computer���which measured speed, distance and cadence���finally quit on me, I didn���t replace it.

These days, when I go out for my morning 20-mile bike ride, I like to think I���m going reasonably fast and I���m not happy if another cyclist passes me. But I also know that, when I occasionally use the Strava app on my phone to clock my average speed, I push myself that much harder. Nonetheless, all in all, I think not knowing is a plus. I enjoy my rides more and I tend to be a little more cautious.

What���s all this got to do with managing money? The financial world is made to measure. There are all kinds of numbers we can track, including how we spend our money, our savings rate, our retirement withdrawal rate, our net worth, our portfolio���s split between stocks and more conservative investments, the performance of each investment we own, and also the return of our overall portfolio.

Some of these numbers undoubtedly have value. For instance, I think every investor should know his or her portfolio���s basic split between stocks, bonds, cash investments and alternative investments. If folks are more aggressive���dabbling in individual stocks or perhaps overweighting certain industry sectors���they should also have a good handle on the size of those bets.

In addition, I think it���s worth tracking how much we���re saving if we���re still in the workforce and how much we pull each year from our portfolio if we���re retired. Are you saving at least 12% of income each year, including any employer matching contribution to your 401(k) or 403(b) plan? If you���re retired, are your annual withdrawals from savings no more than 5% of your portfolio���s beginning-of-year value? If we're being prudent savers and spenders, I don���t see any great virtue in tracking our monthly expenses in detail, but I know others disagree and I see no great harm in doing so.

Where I do see the potential for harm: closely tracking the performance of each investment we own and, to a lesser degree, our overall portfolio. That���s especially true in a year like 2022, when both stocks and bonds have taken us for a wild ride.

As behavioral economists have discovered, we get far more pain from losses than pleasure from gains. Like me with my cycling speed, it may be more relaxing not to know. But closely tracking our investment results doesn���t just have the potential to cause us sleepless nights. There���s also the risk that our losses will prompt us to make panicky decisions.

To this general advice, I���d offer one exception. If you���re invested in individual stocks or bonds, closely tracking their performance probably does make sense. If one of your stocks nosedives, it���s almost certainly a sign that something is seriously amiss, and you���ll want to decide quickly whether to cut your losses or hang tough.

But if���like me���you stick with well-diversified funds, I don���t see much to be gained by following their performance closely, especially during broad market declines. What if you can���t help but look? My advice: Try to ease the financial pain by taking a broader view of your financial life. When you calculate your financial worth, include the equity in your home. Put a value on your Social Security benefit and any pension you���re entitled to. You might also put a value on your human capital���your income-earning ability.

To be sure, the math involved can be tricky. Still, a rough-and-ready calculation will likely provide some measure of comfort during turbulent financial markets. Indeed, even if you���re an aggressive investor, you���ll likely find that your stock holdings are no more than half of your overall wealth.

If you���re still in the workforce, you might also think about how much you���ll likely save between now and when you retire. Say you���re age 45, expect to retire at 65 and save $10,000 a year. You���re looking at $200,000 in future savings, which you might view as $200,000 in cash sitting on your household balance sheet. There���s a good chance this future cash will rival the amount you currently have invested in stocks���and thus, in the context of this bigger financial picture, any short-term market losses probably aren���t all that significant.

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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Poor House?

MY 95-YEAR-OLD mother recently asked my brother and me what information we could get on our cellphones. While showing her the many possibilities, we went to Zillow, so she could see the information that the site has about the house that my wife and I own.

Zillow estimates that the house is currently worth $336,700, and said that we purchased it in 1986 for $86,700. My brother, who is much smarter than me, did some quick mental math using the rule of 72, and said, ���Boy, that���s less than a 4% annual return.���

Plugging the actual numbers into a spreadsheet, the return has been 3.8% a year. How am I supposed to feel about that?

There are several ways to look at the question. A dollar in 1986 had the purchasing power of $2.70 today, so���adjusting for inflation���our $86,700 home purchase would cost $234,000 in today���s dollars. Zillow thinks we could sell the house for more. That means the house has beaten inflation. Perhaps I should feel good.

On the flip side, the S&P 500-index rose from 235 in 1986 to 4,228 at yesterday's close. Had we invested our $86,700 in the S&P 500, the money would be worth almost $1.6 million���considerably more than our home is currently worth. Maybe I should feel sad. Of course, nobody would have loaned us $75,000���our initial mortgage amount���to plow into the stock market. Even if a lender had, our ���equity��� would have been wiped out during the October 1987 market crash and we would have received a margin call.

The house didn���t just cost the purchase price. In the years since our 1986 purchase, we���ve paid $71,760 in property taxes and $50,469 in mortgage interest. Spending 15 minutes looking through my files, I identified another $38,811 of home improvements that we���ve made, things like replacing the windows and upgrading the floors. That, coupled with the initial purchase price, brings our total housing cost to $247,740. That means that we���re ahead by about $89,000.

This list doesn���t include the cost of the deck we added, the gallons of paint purchased, the landscaping we���ve done, the new shed or the thousands of dollars that we are about to spend remodeling the kitchen. At best, we would be lucky to break even if we sold our house. I���m back to feeling sad.

Economist tell us that, on average, housing appreciates in line with inflation, and that the real value of the house is the imputed rent���the value you get by living in the place���or the money you save by not paying rent to others.

I don���t have good numbers on how much we might have spent on rent. But I know that we had been renting an apartment for $850 a month when we moved into the house. Zillow says that today we could rent our house for $1,724 a month. Assuming a linear increase in rent over that time, we would have paid $571,428 in rent over the past 36 years.

When I calculate our net worth, I do get to show a house with a value of $336,700. That means the house has saved us $570,000 or so in rent, plus it puts a $336,700 asset on our household balance sheet. Offsetting that is the $247,740 in housing costs that we���ve incurred. Still, owning has proven to be a much better deal than renting. Now, I���m feeling better about the house.

Of course, this is just the monetary value of our home. A significant added bonus: It���s also a place that protected us from storms and cold, where we celebrated holidays and birthdays, and raised two terrific men. Whether I look at the house as just breaking even or making us a heap of money, I���m satisfied with the value we���ve received.

Kenyon Sayler is a retired mechanical engineer. He and his wife Lisa are extraordinarily proud of their two adult sons. He enjoys walking his dog, traveling, reading and gardening. Kenyon's brother Larry also writes for HumbleDollar. Check our Kenyon's earlier articles.

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Inflation Nation

IT SEEMS EVERYONE in the personal finance world is flipping out about inflation. Some are lamenting the cost to fill up their F-150—with the optional 7.2kw onboard generator for tailgate parties no doubt. Others are decrying the $6.39 it takes to buy two liters of ginger ale or the $198 million required for a Rembrandt.

Hey, I don’t like higher prices for bourbon, vermouth, bitters and maraschino cherries any more than the next guy shaking a Manhattan, but let’s get a hold of ourselves. This isn’t the beginning of World War II—or even the end, at which time inflation was more than 18%.

It reminds me of the scene in The Godfather where Johnny Fontaine is complaining to the Godfather about the tough times he’s facing. He pleads, “I don’t know what to do,” to which the Godfather yells, “You can act like a man,” and then slaps him across the face.

Well, if inflation is becoming an issue for you like it is for me, then we can all act like men and take action. I realize none of these ideas is revolutionary, but sometimes we all need to review the fundamentals.

Consumers have been complaining about gas prices since the Saudis initiated their first oil embargo back in 1973. Trust me, I know. I used to work for an oil company and that’s all anyone wanted to talk to me about.

If high gas prices are a concern, get ahead of the problem by purchasing a car that gets more than the 25 mpg that the 2022 bestselling vehicle in the U.S. gets. Note I said car. Do you really need an F-150 to haul that mulch once every spring?

Crude oil is located in some of the most dangerous and unfriendly places on the face of the earth. I used to be involved with shipping crude oil out of Nigeria, where—on more than one occasion—we had to deal with pirates.

While crude oil is generally refined in much safer countries, oil is still a nasty and dangerous business. I don’t understand why people complain about $4 gas, yet pay $20 a gallon for something that’s free—water. That reminds me: Stop buying bottled water.

When you do drive your car, improve your gas mileage by slowing down. Back in 2005, right after Hurricane Katrina when everyone was flipping out over $4 gas, I thought I noticed that cars and trucks were going a little slower.

This time around, I do not. The engineer in me knows that there should be an inflection point where higher gas prices equal lower speeds, but apparently $4 or $5 isn't it.

Start shopping at Aldi. Everyone always talks about how great Costco is and, for the 26 gallons of the 91-octane gas that Ford recommends for your F-150, it is. But for most everything else, I’d rather go to Aldi.

While they both give you the same Hobson’s choice when it comes to selection, Aldi’s package sizes are a little more digestible. I also think its prices are a little bit better.

May I recommend the 10 ounces of Park Street Classic Hummus for $2.45 or 10 Millville Chewy Granola Bars for $1.79? There’s a reason most of its stores are located in poor neighborhoods. Bonus: Some of these locations even sell wine and beer.

Turn up the thermostat. Until I was 15 years old, I didn’t realize that private homes could be air-conditioned. I thought it was only for movie theaters and department stores. A friend of mine who moved out of his condo months ago still keeps it at 76 degrees, all day every day. Turn the thermostat way up when you leave home. It may be a little warmer than you’d like for the first 10 minutes after you return home, but you aren’t going to melt.

Still freaking out about that 18% increase in the price of veal? Well, if a switch to pork is just plain frightening, I recommend taking up financial institutions on their bonus offers:

Fidelity Investments will give you $100 for opening a $50 account. Already have a Fidelity account? It doesn’t matter.
Tastyworks will give you $200 for opening up a $2,000 brokerage account.
Voyager will give you $100 for opening an account and making a cryptocurrency trade. Hmmm. On second thought, you might want to skip this one.

Inflation was 8.5% in 1980, and back then we had an 8.9% unemployment rate. Many thought it could be the end of days, with some city folk buying fishing rods and camping gear, just in case. It wasn’t, and this too shall pass.

Everybody needs to relax. Listen to a little classical music on non-satellite radio, crack open a Busch Light tallboy and breathe. We got this.

Michael Flack blogs at AfterActionReport.info. He’s a former naval officer and 20-year veteran of the oil and gas industry. Now retired, Mike enjoys traveling, blogging and spreadsheets. Check out his earlier articles.

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Equitable? Hardly

EQUITABLE FINANCIAL Life Insurance Co. agreed last month to pay a $50 million fine for engaging in fraud. According to the Securities and Exchange Commission, since at least 2016, Equitable gave the false impression to 1.4 million investors that they were paying $0 in fees and expenses for their variable annuities. The majority of the investors were educators saving for retirement.

The SEC found that Equitable’s statements “listed only certain types of fees that investors infrequently incurred” and that “more often than not the statements had $0.00 listed for fees.” The commission concluded these were “misleading statements and omissions” of the true fees investors actually paid.

Without admitting or denying the charge, Equitable agreed to pay a $50 million civil penalty that will be distributed to its investors. It also promised to reword how it presents fee information to investors.

As a teacher, I’m outraged by Equitable’s actions. No school district should continue to allow Equitable—formerly known as AXA Equitable—to be an option for its employees' hard-earned money. But come September, I’m sure the company will still be able to roam free in schools across the country.

While the actions of Equitable are inexcusable, it’s important to note that Equitable didn’t get in trouble for charging high fees. Rather, it got in trouble for misleading investors regarding the amount they were paying . This SEC ruling led some to speculate that Equitable would be forced to clearly show the fees educators are paying. I knew all too well that would never be the case.

Since the ruling, Equitable has changed the wording on its statements to say “Administrative/Transaction Charges” instead of “Fees and Expenses.” It didn’t change its fees. Instead, it simply changed the wording on the statements it provides investors.

Equitable, and the vast majority of 403(b) providers, will continue to charge unnecessarily high fees to educators. Why is this? Unlike in the 401(k) world, there’s no fiduciary responsibility for school districts to provide educators with the best possible retirement plans.

What’s an educator to do? The answer boils down to this: Understand the game you’re playing—because it’s a very expensive one. Most educators are paying a mortality and expense fee of around 1.2% annually because, unbeknownst to them, they’re in a variable annuity. I’ve yet to meet an educator who has even heard of this fee. There’s also a good chance they’re paying an expense ratio of around 1% on the same investment.

When added together, 2.2% in annual fees doesn’t sound that bad, but that’s not the right way to think about it. Consider this: If your investments return 10% a year before costs, you earn not 10%, but 7.8%. In this scenario, you didn’t give up 2.2% of your money, but 22% of your annual gain—a shortfall that will compound over time.

An educator can easily lose out on hundreds of thousands of dollars over the course of his or her career due to these high hidden fees. It doesn’t have to be this way. There are excellent low-cost 403(b) options offered by Vanguard Group, Fidelity Investments and T. Rowe Price, but most educators aren’t aware of them.

I hope the SEC’s order will shine an even brighter light on the subject of fees because, come September, the annuity-peddling sharks will be back in our school buildings. They’ll be circling the faculty lounge, looking for unwary educators to help pay for their new Teslas.

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He Said She Said

MONEY MAY TALK���but couples have a harder time, often struggling to agree on financial matters.

I���ve been a clinical psychologist for almost 50 years. I���ve counseled many couples who are mired in financial conflict and seen the quality of their relationship corroded by their squabbles.

How can we avoid such damage and start to reverse it? Let me tell you about two couples. These couples are hypothetical���remember, there���s this thing called patient confidentiality. But trust me, the dynamics I describe are real. Indeed, what you read below are composites based on couples I���ve helped.

The Panicked Biker. Peter and Nancy came to counseling to resolve their recurrent bickering over money. They were in their early 70s and had been married for 47 years.

During our initial sessions, Peter recounted his childhood jealousy of schoolmates who lived in exclusive neighborhoods. He remembered resolving to become ���no less a man than them.��� On top of that, Peter���s life had been fractured at age 16 when his parents divorced and his mother died two years later.

For two teenage years, he assumed responsibility for getting his younger sister and himself ready for school and for preparing their meals. They lived a spartan existence, often eating peanut butter and jelly sandwiches for dinner. Peter spoke of feeling ���terrified and humiliated��� most of the time.

For six years, he saved much of his wages from a job at a bicycle shop in New Haven, Connecticut. While working there, he saw an opportunity to open a store devoted exclusively to mountain biking. Over the next decade, he expanded to 17 stores in seven East Coast cities.

Peter more than realized his ambition to become a material success. He built a 9,000-square-foot house in the Hamptons and drove a BMW Series 7 sedan. His business became a fount of financial well-being, security and self-esteem for close to 50 years. But faced with the prospect of retirement, Peter admitted ���feeling panic-stricken,��� experiencing a mental rush of catastrophic scenarios that���s common among anxious people.

What about Nancy? She was also no slouch. She served as the retail chain���s head of human resources, with responsibility for more than 100 employees. Victimized by her father���s domestic violence, Nancy thrived on Peter���s reliability and effectiveness. She felt safe with him and didn���t want to rock their good life.

But over the years, Peter���s inflexibility became suffocating. Nancy���s wish to broaden their social life and travel abroad was held hostage by her husband���s insecurity and stubbornness. She was privy to their financial statements and knew that they could retire any time they chose. She also knew Peter���s jitteriness about retirement was exaggerated by memories of his teenage hell.

Peter���s unwillingness to commit to retirement was a match to Nancy���s resentment. With no warning or fanfare, she announced she would retire in two years and asked Peter to agree to scale back his involvement with the business on the same timetable. The ensuing standoff precipitated their decision to seek counseling.

Childhood trauma imprints on all of us���and it���s never fully erased. Peter needed to develop self-awareness to distinguish between his lack of control and helplessness as a teenager and his current wealth and enduring marriage. In addition to gaining insight, he benefited from talking through his distortions and from using other cognitive techniques to reduce anxiety.

For retirement to be appealing, it had to offer some of the structure and meaning Peter derived from his business. His immersion in work left little time for hobbies. During counseling, he committed to extending his passion for exercise to backpacking and to joining a bicycle tour group. A spiritual person, Peter also vowed to attend a class on Eastern religion and to learn to live more in the here and now. He said he would try yoga if Nancy accompanied him.

Nancy was trapped by the power dynamic in which so many women find themselves. Peter was head of household, started the business and doled out the cash. Although she would be called upon to reassure Peter during the retail chain���s winter lull, it was not Nancy���s role to be his caretaker or therapist. She needed to prevent his fears from engulfing their marriage. We role-played ways she could gently draw the line and encourage Peter to take responsibility for his anxiety.

Insisting Peter retire in two years was a good start. Peter said he could be on board if he could taper off work gradually to where he might ���go in��� on a weekly basis. He also saw the wisdom of Nancy having a separate bank account with sufficient funds to pay for their travel. Peter and Nancy were optimistic when counseling ended after 12 sessions. They were hopeful about the chance to enjoy a more balanced and richer retirement.

The Lawyer���s Dilemma. Jenny and Dylan, our next hypothetical couple, met when they were both age 27 and in law school. She adored his spontaneity, good cheer and uncommon goodness. Her parents were conservative and strict, and Dylan had the pedigree and charm to win them over. She looked forward to a life more open to viewpoints and experiences formerly shielded from her.

The other side of Dylan���s boyishness, however, was an irresponsibility and immaturity. The youngest of three brothers, he learned he could wrest attention from them by playing and joking. Jenny was working 60-hour weeks at a large corporation, while also managing the household. She was fast becoming intolerant of Dylan���s antics, no longer finding his playing and joking at all charming.

Her aloofness led Dylan to acts of desperation. He began to drink with the boys after work, charged recklessly on their credit cards and gambled away money set aside for retirement. When Jenny discovered all this, she was furious. She lost interest in sex and retreated into resentment. Violating the mores of her family, she exchanged romantic texts with an attentive colleague. Even though she was the one flirting with a colleague, Jenny felt betrayed by Dylan���s financial recklessness and sought therapy.

Jenny had essentially three options. She could stay the course, supplemented by an emotional affair or perhaps one that went even further. She could develop close relationships with women friends to provide some of the richness and depth she experienced with her text mate. Or she could get a divorce and lose the support of her judgmental parents. As her therapist, it wasn���t my role to preach or advise, but only to present the most compelling solutions.

A fourth solution would have been for Dylan to also seek counseling. The lesson of his behavior was clear: The strategies used to receive love as a child are often obsolete and counterproductive in adulthood. Treatment could help him develop more appropriate ways to gain affection and support. We must all learn to shed the game plans of our youth if, as adults, we���re to fulfill the promise of an intimate relationship.

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. Steve's previous articles were The Humble Landlord��and��Calling for Yield.

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Couples Counseling

SARAH AND I GOT married earlier this summer. We���ve always been on similar pages when it comes to money. We both track our finances with gusto. She���s one of the few people I know whose budgeting spreadsheets are more intricate than mine.

We both try to spend reasonably and save consistently. We���d rather devote money to a vacation or an occasional late-night pizza than to fancy things or swanky surroundings. One indication: During the pandemic���s initial lockdown, we managed to coexist peacefully���along with our dog���in a one-bedroom condo.

We honeymooned in Belize. It was the most expensive trip either of us has ever taken. Even so, we used airline points and hotel discounts to make the cost more palatable. One of the hotels we stayed in was in the rainforest. Our room had visitors almost every night, including a massive bug, a not-so-massive spider and a garden snake that I had to coax outside with a fireplace poker.

Hoity-toity, we are not.

While I���m confident about the broad strokes of our finances, there are some practical matters we need to sort out now that we���re married. Here are the six items that have been on our minds lately:

1. Updating beneficiaries. We recently started the process of adding the other as the beneficiary on our retirement accounts. The process has been straightforward. In most cases, changing a beneficiary on an IRA or 401(k) only requires a few computer clicks, sending in a form or calling the plan provider.

You can also add someone as a beneficiary to an individual investment account or bank account through a ���transfer on death��� or ���payable on death��� designation. Doing so will allow these accounts to pass immediately to the other without going through probate, which can be costly and time-consuming.

Of course, estate-planning needs can change as families grow and wealth builds. I tell my financial-planning clients it���s important to review your beneficiaries periodically to make sure they still align with your broader estate goals.

2. Estate documents. Newly married couples should set up some basic estate-planning documents if they haven���t already done so. I advise all clients to get the ���big four���: a will, a medical power of attorney, a financial power of attorney and an advance medical directive. You can knock out all four fairly easily using an online provider like TrustandWill.com.

One suggestion: Tread lightly when having estate-planning conversations. They can be especially sensitive, and it���s possible you and your spouse may have different reactions.

3. Tax-filing status. After years of filing as single individuals, we���ll now have the option to file our 2022 taxes either jointly or separately. While the usual choice may be to file jointly, there are some instances where filing separately can make more sense. For example, if one spouse is on an income-based student loan repayment plan, filing jointly might cause the required monthly loan payment to jump, offsetting the tax savings realized by filing jointly.

A second reason for filing separately: The lower-paid spouse might have large medical deductions that would be lost if the couple filed jointly. I recommend contacting your tax advisor or CPA before making a filing choice. He or she can run the numbers to determine the best course of action based on your specific situation.

4. Life insurance. Couples count on each other for many things, including ongoing contributions to the family's finances. The best way to protect your family financially from an unexpected tragedy is to get life insurance. I typically recommend term insurance. It���s the most cost-effective way to provide financial protection.

Life insurance can be useful even if you and your partner are well-off. I listened to a podcast recently in which the guest���a successful financial advisor���described how she lost her husband early to cancer. The proceeds from his life insurance policy allowed her the time and flexibility to start her own business, rather than immediately going back to work. For a relatively modest cost, the protection offered by the policy proved invaluable.

On a lighter note, my wife and I have joked that we should detox from our honeymoon dessert binge before we apply for insurance, so we can get the best rating possible. That may take a while. The food in Belize was delicious.

5. Combining bank accounts. When it comes to joining finances, I believe there���s a host of possibilities that lie between full merger and complete separation. Each couple needs to figure out what works for them.

Perhaps having a joint checking account to pay for monthly fixed expenses makes sense. In the same way, having a joint high-yield savings account can help ensure that certain savings goals are met.

On the other hand, it's important that each spouse feels some level of autonomy over his or her spending. Having only joint bank accounts could lead to friction over spending choices. I don���t need to know how much my wife spends on her hobbies, and I doubt she wants to know how much I spend on mine.

One couple I work with has joint checking and savings accounts, while diverting ���fun money��� into individual accounts each month. This seems like a great compromise. They have a level of trust and teamwork when it comes to handling their finances. If those factors aren���t there in your relationship, it could point to bigger issues.

6. Savings goals. I often hear from couples who want to know how they should structure their savings. Many of them are already contributing to their workplace retirement plans and some have built up nice cash reserves. Now they���re asking, ���What���s next?���

It���s common for people in their 20s, 30s and 40s to have competing interests. Ultimately, the proper savings plan comes down to personal priorities and time horizons. Money that���s needed in the short term���such as for a house down payment���shouldn���t be risked in the stock market or cordoned off in a retirement account. Long-term money, like retirement savings, can benefit from tax deferral and can be invested more aggressively.

The financial-planning software I use asks clients to prioritize their goals. Often, clients will put items like paying off debt, buying a home and funding retirement in the ���needs��� category. They might put other items, like children���s college costs, a vacation home or travel, in the ���wants��� category. It often takes further discussion to figure how strongly each of these goals resonates.

My wife and I are overdue for a conversation about our next set of goals. We spent much of the past year planning our wedding and honeymoon. Now that those are behind us, we finally have time to think longer term.

Matt Trogdon is a financial planner with Craftwork Capital, LLC. He's based in Washington, D.C., and has a special interest in helping Gen X and Gen Y families. He also serves as a workshop instructor for the Babson College Financial Literacy Project.��Follow Matt on Twitter��@Matt_Trogdon��and check out his earlier articles.

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A Night on the Town

AS I'VE GROWN OLDER, I have become more willing to open my wallet and splurge. But I still get a thrill from what feels like a bargain. One example: I���ve long been a fan of restaurant happy hours, when you can often get a glass of wine and some appetizers at a cut-rate price.

But I have a new favorite low-cost indulgence. Elaine and I will grab a bottle of vino out of the basement���screw top preferred, so we don���t have to bring a corkscrew���and a couple of plastic cups, and then head to Rittenhouse Square, Philadelphia���s iconic park.

On our way to Rittenhouse, we���ll pick up a couple of takeout salads or sandwiches. Then we���ll find a bench, pour a glass of wine, eat our dinner and watch the world go by. No matter the season, the park is almost always bustling. Street performers often provide musical accompaniment to our dinner, while the people-watching is unsurpassed.

Meanwhile, there���s no dinner to make or dishes to clean. The price tag? Maybe $35, including vino. There is, of course, some modest risk we���ll be fined for public drinking, which apparently is illegal in Pennsylvania. But judging by the odor of weed that frequently wafts across the park, I suspect we count as model citizens.

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