Jonathan Clements's Blog, page 21
July 11, 2025
Highway Robbery
LAST YEAR, I fouled up my Pennsylvania EZ Pass account. I bought a used car in Maine and forgot to add it to my EZ Pass account. Much later, when I got back up to Maine this Memorial Day, my post office box was bulging with dunning notices from Pennsylvania, New York, Maine and Delaware.
For most of a year, I had driven from Washington D.C. to Maine blissfully unaware that my EZ Pass transponder wasn’t paying a cent. Instead, I had entered the murky world of toll by plate, where a snap is taken of my license plate and a bill is sent to my address—in this case Maine.
Two problems: Toll-by-plate charges are much higher than EZ Pass rates. Second, I don’t live in Maine in the winter, so I wasn’t getting those bills. Yes, I am loosely organized.
It was months before I turned the key on my post office box in Maine to discover I was a notorious scofflaw. New York had sent my overdue tolls for crossing the George Washington Bridge to a collection agency. Maine had piled on late fees until a $1 toll turned into a $14 charge. Delaware, however, was the highway robber.
I used to wonder how the State of Delaware could provide services without having a sales tax. Now I realize that it simply soaks the people who drive through it. A $4 toll in Delaware had blown up into a $91 charge, and this had happened to me four times.
In a blur, I wrote some checks, made some calls, and filed some appeals. Delaware dropped its tolls down to $51 each. Maine kindly rescinded all the overcharges, so I paid them $1. New York wouldn’t budge, so I paid the collection agency $55. Pennsylvania was the easiest to deal with, discounting my tolls back down to the EZ Pass rates.
I’ve learned two lessons from my experience: One, register a new car and its license plate with EZ Pass in your state. I’ll concede I should have known this, but we covered a lot of subjects in the car salesroom and I don’t remember this discussion. Two, I need to do a better job of having my mail forwarded.
By falling into this limbo, I realized that EZ Pass can be a trap. The system is not constructed to forgive and forget. It’s more like a day in the life of Franz Kafka. Tolls can become astronomical, and you’re at the mercy of each state’s transportation authority. If you’ve tried to get a Real ID, you know how well that works.
For most of a year, I had driven from Washington D.C. to Maine blissfully unaware that my EZ Pass transponder wasn’t paying a cent. Instead, I had entered the murky world of toll by plate, where a snap is taken of my license plate and a bill is sent to my address—in this case Maine.
Two problems: Toll-by-plate charges are much higher than EZ Pass rates. Second, I don’t live in Maine in the winter, so I wasn’t getting those bills. Yes, I am loosely organized.
It was months before I turned the key on my post office box in Maine to discover I was a notorious scofflaw. New York had sent my overdue tolls for crossing the George Washington Bridge to a collection agency. Maine had piled on late fees until a $1 toll turned into a $14 charge. Delaware, however, was the highway robber.
I used to wonder how the State of Delaware could provide services without having a sales tax. Now I realize that it simply soaks the people who drive through it. A $4 toll in Delaware had blown up into a $91 charge, and this had happened to me four times.
In a blur, I wrote some checks, made some calls, and filed some appeals. Delaware dropped its tolls down to $51 each. Maine kindly rescinded all the overcharges, so I paid them $1. New York wouldn’t budge, so I paid the collection agency $55. Pennsylvania was the easiest to deal with, discounting my tolls back down to the EZ Pass rates.
I’ve learned two lessons from my experience: One, register a new car and its license plate with EZ Pass in your state. I’ll concede I should have known this, but we covered a lot of subjects in the car salesroom and I don’t remember this discussion. Two, I need to do a better job of having my mail forwarded.
By falling into this limbo, I realized that EZ Pass can be a trap. The system is not constructed to forgive and forget. It’s more like a day in the life of Franz Kafka. Tolls can become astronomical, and you’re at the mercy of each state’s transportation authority. If you’ve tried to get a Real ID, you know how well that works.
The post Highway Robbery appeared first on HumbleDollar.
What to Know About The One Big Beautiful Bill
On July 4th, the president signed a significant new tax and spending bill into law. The text of the bill runs to almost 900 pages and affects nearly every corner of the tax code, including personal, business and estate tax rules.
Below I summarize the provisions I see as most relevant to financial planning. It’s important to note that many of the provisions are retroactive to the beginning of 2025.
The formal name of the law is the “One Big Beautiful Bill Act,” and it is, for the most part, positive for taxpayers. It does come at a cost, though, which I’ll address further below.
Personal income tax rates: The most significant element of the new bill is that it makes the current tax brackets permanent. Because these had been scheduled to revert in 2026 to a much higher set of rates, this should provide greater certainty as you think about financial plan for the coming years.
Standard deduction: The standard deduction is essentially unchanged but will receive a bit of an increase for 2025—an additional $750 for single filers and $1,500 for those married and filing jointly—providing a small additional tax benefit for this year.
Itemized deductions: A provision that had been the subject of significant debate was the so-called SALT cap. By way of background, prior to the 2017 Tax Cuts and Jobs Act (TCJA), state and local taxes had been fully deductible against federal income taxes. But since 2018, this deduction had been capped at $10,000 for both single and married taxpayers. The new law increases the cap but in a limited way and only for a limited time.
Between 2025 and 2029, the cap will be increased from $10,000 to $40,000, but this higher cap won’t apply to everyone. A phaseout will apply to incomes between $500,000 and $600,000. Beyond $600,000, the lower cap of $10,000 will apply. This will make tax planning especially important for those with incomes in the neighborhood of that phaseout range. For better or worse, though, this will only be an issue for the next five years, after which this provision will expire.
For business owners who had been taking advantage of a pass-through entity tax (PTET) strategy as a workaround to the SALT cap, there is good news. Despite a push by some in Congress to prohibit these strategies, they will be unaffected.
Bonus standard deduction: There has been a misconception that the new law will make Social Security exempt from income tax. That is not true, but a new provision in the law offers a benefit for many Social Security recipients: A deduction of $6,000 per person will now be available to taxpayers age 65 and older. This new deduction will be on top of existing deductions, including the existing extra deduction that already applies to those 65 and up. But unfortunately, this special deduction isn’t quite as generous as it appears. It only applies for tax years 2025 through 2028, and it comes with an income cap. It will phase out as income increases above $75,000 for single filers and $150,000 for those married and filing jointly.
Qualified business income (QBI) deduction: For business owners, the new law makes the QBI deduction permanent and enhances it a bit.
Charitable giving: When it comes to charitable giving, the new law is a mix bag, providing a benefit to some but imposing a cost on others.
Taxpayers who make charitable gifts but not enough to itemize deductions will benefit under the new law. Starting next year, single filers will be able to deduct up to $1,000 of donations, and joint filers will be able to deduct up to $2,000.
A separate new provision, however, will make charitable giving a bit less tax efficient for those who itemize. Starting next year, charitable gifts will only be deductible to the extent that they exceed 0.5% of adjusted gross income. For example, if a taxpayer has income of $100,000 and contributes $2,000 to charity, the first $500 (0.5% x $100,000) will no longer be deductible. Only the remaining $1,500 can be deducted. This provision will go into effect next year, making charitable gifts relatively more valuable in 2025 than in 2026, all things being equal.
An additional note on this new 0.5% requirement: It used to be that qualified charitable distributions (QCDs) and charitable gifts that could be itemized were the same tax-wise except for the IRMAA impact. But with the new 0.5% rule on charitable deductions, that will make QCDs—for those who meet the age threshold—relatively even more valuable starting next year.
Estate tax: Starting in 2026, the estate tax lifetime exclusion was scheduled to be cut in half, from approximately $14 million per person to $7 million. While these are both big numbers, the lower threshold would have made the estate tax a consideration for many more people. Under the new rules, the lifetime exclusion will not revert and will actually increase somewhat. Beginning in 2026, the exclusion will be $15 million per person.
This should provide much greater certainty for planning purposes. That said, no law can ever be considered truly permanent. A future administration, with a politically aligned Congress, could make the rules more punitive again, and it is a real possibility. Though the estate tax provides minimal revenue to the government, it’s a political football. For that reason, I would characterize the new rules as only semi-permanent.
529 accounts: Prior to the 2017 TCJA, withdrawals from 529 accounts were permitted only for higher education. The TCJA loosened that restriction, allowing withdrawals of up to $10,000 per student per year for K-12 education. Beginning next year, this limit will be increased to $20,000. Parents will also be able to use 529 funds for a broader set of educational institutions, including vocational and certification programs.
Trump accounts: The law creates a new type of savings account for children known as “Trump accounts.” They’ll be similar to IRAs but with a few key differences. Unlike IRAs, children won’t be required to have income in order to contribute, meaning that parents could begin funding one of these accounts from the time a child is born. Employers will also be able to contribute to accounts for employees’ children without the contributions counting as income. For business owners, this opens up an interesting new employee benefit opportunity. Also, a pilot program will provide a $1,000 tax credit to parents who open a Trump account, but this credit will apply initially only to children born in 2025, 2026, 2027 and 2028.
These new accounts will come online in July 2026, and the initial contribution limit will be $5,000 per year.
Cost: These new rules are almost universally positive for taxpayers. As the saying goes, however, there is no such thing as a free lunch. The Congressional Budget Office estimates that the new rules will add $3.4 trillion to the national debt over the next 10 years. That’s on top of the existing debt load of $36 trillion, which is growing at a rate of about $2 trillion per year. Because both political parties continue to show no serious interest in addressing this issue, the result is that interest expenses will continue to consume a growing portion of the federal budget. But if a future Congress chose to get serious about this issue, there is a possibility that future tax rates could move higher. For that reason, I suggest a multi-year outlook as you think about your estate plan.
The new law contains hundreds of other provisions, but upon initial review, this is what seems most important for financial planning purposes.
Below I summarize the provisions I see as most relevant to financial planning. It’s important to note that many of the provisions are retroactive to the beginning of 2025.
The formal name of the law is the “One Big Beautiful Bill Act,” and it is, for the most part, positive for taxpayers. It does come at a cost, though, which I’ll address further below.
Personal income tax rates: The most significant element of the new bill is that it makes the current tax brackets permanent. Because these had been scheduled to revert in 2026 to a much higher set of rates, this should provide greater certainty as you think about financial plan for the coming years.
Standard deduction: The standard deduction is essentially unchanged but will receive a bit of an increase for 2025—an additional $750 for single filers and $1,500 for those married and filing jointly—providing a small additional tax benefit for this year.
Itemized deductions: A provision that had been the subject of significant debate was the so-called SALT cap. By way of background, prior to the 2017 Tax Cuts and Jobs Act (TCJA), state and local taxes had been fully deductible against federal income taxes. But since 2018, this deduction had been capped at $10,000 for both single and married taxpayers. The new law increases the cap but in a limited way and only for a limited time.
Between 2025 and 2029, the cap will be increased from $10,000 to $40,000, but this higher cap won’t apply to everyone. A phaseout will apply to incomes between $500,000 and $600,000. Beyond $600,000, the lower cap of $10,000 will apply. This will make tax planning especially important for those with incomes in the neighborhood of that phaseout range. For better or worse, though, this will only be an issue for the next five years, after which this provision will expire.
For business owners who had been taking advantage of a pass-through entity tax (PTET) strategy as a workaround to the SALT cap, there is good news. Despite a push by some in Congress to prohibit these strategies, they will be unaffected.
Bonus standard deduction: There has been a misconception that the new law will make Social Security exempt from income tax. That is not true, but a new provision in the law offers a benefit for many Social Security recipients: A deduction of $6,000 per person will now be available to taxpayers age 65 and older. This new deduction will be on top of existing deductions, including the existing extra deduction that already applies to those 65 and up. But unfortunately, this special deduction isn’t quite as generous as it appears. It only applies for tax years 2025 through 2028, and it comes with an income cap. It will phase out as income increases above $75,000 for single filers and $150,000 for those married and filing jointly.
Qualified business income (QBI) deduction: For business owners, the new law makes the QBI deduction permanent and enhances it a bit.
Charitable giving: When it comes to charitable giving, the new law is a mix bag, providing a benefit to some but imposing a cost on others.
Taxpayers who make charitable gifts but not enough to itemize deductions will benefit under the new law. Starting next year, single filers will be able to deduct up to $1,000 of donations, and joint filers will be able to deduct up to $2,000.
A separate new provision, however, will make charitable giving a bit less tax efficient for those who itemize. Starting next year, charitable gifts will only be deductible to the extent that they exceed 0.5% of adjusted gross income. For example, if a taxpayer has income of $100,000 and contributes $2,000 to charity, the first $500 (0.5% x $100,000) will no longer be deductible. Only the remaining $1,500 can be deducted. This provision will go into effect next year, making charitable gifts relatively more valuable in 2025 than in 2026, all things being equal.
An additional note on this new 0.5% requirement: It used to be that qualified charitable distributions (QCDs) and charitable gifts that could be itemized were the same tax-wise except for the IRMAA impact. But with the new 0.5% rule on charitable deductions, that will make QCDs—for those who meet the age threshold—relatively even more valuable starting next year.
Estate tax: Starting in 2026, the estate tax lifetime exclusion was scheduled to be cut in half, from approximately $14 million per person to $7 million. While these are both big numbers, the lower threshold would have made the estate tax a consideration for many more people. Under the new rules, the lifetime exclusion will not revert and will actually increase somewhat. Beginning in 2026, the exclusion will be $15 million per person.
This should provide much greater certainty for planning purposes. That said, no law can ever be considered truly permanent. A future administration, with a politically aligned Congress, could make the rules more punitive again, and it is a real possibility. Though the estate tax provides minimal revenue to the government, it’s a political football. For that reason, I would characterize the new rules as only semi-permanent.
529 accounts: Prior to the 2017 TCJA, withdrawals from 529 accounts were permitted only for higher education. The TCJA loosened that restriction, allowing withdrawals of up to $10,000 per student per year for K-12 education. Beginning next year, this limit will be increased to $20,000. Parents will also be able to use 529 funds for a broader set of educational institutions, including vocational and certification programs.
Trump accounts: The law creates a new type of savings account for children known as “Trump accounts.” They’ll be similar to IRAs but with a few key differences. Unlike IRAs, children won’t be required to have income in order to contribute, meaning that parents could begin funding one of these accounts from the time a child is born. Employers will also be able to contribute to accounts for employees’ children without the contributions counting as income. For business owners, this opens up an interesting new employee benefit opportunity. Also, a pilot program will provide a $1,000 tax credit to parents who open a Trump account, but this credit will apply initially only to children born in 2025, 2026, 2027 and 2028.
These new accounts will come online in July 2026, and the initial contribution limit will be $5,000 per year.
Cost: These new rules are almost universally positive for taxpayers. As the saying goes, however, there is no such thing as a free lunch. The Congressional Budget Office estimates that the new rules will add $3.4 trillion to the national debt over the next 10 years. That’s on top of the existing debt load of $36 trillion, which is growing at a rate of about $2 trillion per year. Because both political parties continue to show no serious interest in addressing this issue, the result is that interest expenses will continue to consume a growing portion of the federal budget. But if a future Congress chose to get serious about this issue, there is a possibility that future tax rates could move higher. For that reason, I suggest a multi-year outlook as you think about your estate plan.
The new law contains hundreds of other provisions, but upon initial review, this is what seems most important for financial planning purposes.
The post What to Know About The One Big Beautiful Bill appeared first on HumbleDollar.
Using AI to create a robust investment plan
I’ve been dabbling in AI. Began using precursor “Expert Systems” about 20 years ago, but the new apps are more generalized and interesting. I’m aware of the limitations and anyone who wants to use something like Gemini or ChatGPT should also be aware. They can (and do) generate false information with apparent confidence. This can deceive users. Such disinformation has been given the name "hallucination" or "confabulation" by AI experts. Interesting names for inaccuracy.
However, using precise prompts seems to improve the response.
I’ve been running tests on Gemini using a range of prompts to build an in-retirement portfolio. I call these "tests" because I have my answer to compare this AI expert to. My early explorations indicate this might be a useful tool to add to my other modelling methods such as Monte-Carlo simulations. I’m also exploring approaches to a more robust withdrawal strategy. All of this is to aid my younger spouse.
If anyone is interested in Gemini's complete response, simply copy and paste my prompts into a query. However, AI being what it is, I expect every response will be slightly different.
Adding a few terms to the prompts does generate differing results. For example, I asked Gemini to:
“Provide a model of an in-retirement portfolio. The portfolio is $1,500,000. Annual withdrawal is 5%. The portfolio is to have a duration of 25 years. Provide an optimal mix of stocks and cash or bonds. Stocks may include ETFs, individual stocks in the US and global. Minimize risk.”
I used 5% withdrawal as a means to stress the response. I received a 1,000 word response. A statement of goals and assumptions (inflation, returns and withdrawal rate) were made. Then Gemini went on to provide an “Optimal Mix of Stocks, Bonds, and Cash (Risk-Minimized Focus)”, a “Detailed Asset Allocation”, “Withdrawal Strategy” and “Management & Rebalancing”. The portfolio was 50/50 bonds-cash/equities. It used specific ETFs in its examples.
Gemini summed its response this way: “This model provides a robust framework for a risk-minimized, in-retirement portfolio designed for a 25-year duration with a 5% annual withdrawal. The emphasis on high-quality bonds and diversified equities aims to generate income, preserve capital, and offer some inflation protection, all while prioritizing risk management.”
Adding Dividends. I then modified the query: ““Provide a model of an in-retirement portfolio. The initial value is $1,500,000. The initial withdrawal rate will be 5%. The duration is 25 years. Consider inflation and the possible returns from US and global stocks, as well as cash and bonds. Should dividend paying stocks be included and if so, what percentage of equities?”
I received a more detailed 1,500 word response. This portfolio was 60% bonds-cash and 40% equities. It included a list of example ETFs for stocks and bonds. The allocation percentages of each were provided. A Bucket withdrawal approach was outlined.
Gemini summed it this way: “This comprehensive portfolio model balances income generation, inflation protection, and growth, aiming to provide a sustainable retirement income stream for 25 years while effectively managing risk and leveraging the benefits of dividend-paying stocks.”
However, using precise prompts seems to improve the response.
I’ve been running tests on Gemini using a range of prompts to build an in-retirement portfolio. I call these "tests" because I have my answer to compare this AI expert to. My early explorations indicate this might be a useful tool to add to my other modelling methods such as Monte-Carlo simulations. I’m also exploring approaches to a more robust withdrawal strategy. All of this is to aid my younger spouse.
If anyone is interested in Gemini's complete response, simply copy and paste my prompts into a query. However, AI being what it is, I expect every response will be slightly different.
Adding a few terms to the prompts does generate differing results. For example, I asked Gemini to:
“Provide a model of an in-retirement portfolio. The portfolio is $1,500,000. Annual withdrawal is 5%. The portfolio is to have a duration of 25 years. Provide an optimal mix of stocks and cash or bonds. Stocks may include ETFs, individual stocks in the US and global. Minimize risk.”
I used 5% withdrawal as a means to stress the response. I received a 1,000 word response. A statement of goals and assumptions (inflation, returns and withdrawal rate) were made. Then Gemini went on to provide an “Optimal Mix of Stocks, Bonds, and Cash (Risk-Minimized Focus)”, a “Detailed Asset Allocation”, “Withdrawal Strategy” and “Management & Rebalancing”. The portfolio was 50/50 bonds-cash/equities. It used specific ETFs in its examples.
Gemini summed its response this way: “This model provides a robust framework for a risk-minimized, in-retirement portfolio designed for a 25-year duration with a 5% annual withdrawal. The emphasis on high-quality bonds and diversified equities aims to generate income, preserve capital, and offer some inflation protection, all while prioritizing risk management.”
Adding Dividends. I then modified the query: ““Provide a model of an in-retirement portfolio. The initial value is $1,500,000. The initial withdrawal rate will be 5%. The duration is 25 years. Consider inflation and the possible returns from US and global stocks, as well as cash and bonds. Should dividend paying stocks be included and if so, what percentage of equities?”
I received a more detailed 1,500 word response. This portfolio was 60% bonds-cash and 40% equities. It included a list of example ETFs for stocks and bonds. The allocation percentages of each were provided. A Bucket withdrawal approach was outlined.
Gemini summed it this way: “This comprehensive portfolio model balances income generation, inflation protection, and growth, aiming to provide a sustainable retirement income stream for 25 years while effectively managing risk and leveraging the benefits of dividend-paying stocks.”
The post Using AI to create a robust investment plan appeared first on HumbleDollar.
The Value of Scratch Cooking in Retirement
Suzie and I had a delicious meal last night – slow-roasted chicken, stacked on a bed of buttery Irish champ with a Bailey's Cream-infused peppercorn sauce, very tasty! Top-quality restaurant fare. But the thing was, I made it from scratch.
I've always, for as long as I can remember, had a passion for cooking. It's one of my favourite activities and brings me immense personal satisfaction seeing people enjoy the food I've created. Now that I am retired, I plan on cooking many more delicious meals. My wife Suzie is very happy about this!
As we age, and particularly in retirement, scratch cooking is something I believe we should concentrate more of our time and energy on. The benefits are numerous and deserve thinking about. Your health is arguably the most important asset you have in later years.
Scratch cooking gives you control over the ingredients you use, but critically it also gives you control of ingredients you don't want. You can easily reduce excess salt, sugar, and unhealthy fats often hidden in processed foods or restaurant meals. If you're managing conditions like high blood pressure or diabetes, this is invaluable. You can focus on ingredients like fresh vegetables, lean proteins, and whole grains, fuelling your body with the best possible nutrition and potentially boosting your energy levels, making it easier to chase the grandkids around the park.
There's a large social aspect in cooking. It's a great excuse to invite friends to dinner with the added benefit of social interaction and pleasing company, and can become the glue that knits a loose collection of friends together into an enduring social circle beyond the dining table. In my case, it's led to organising holidays together and other fun activities, and although it goes against the grain of my article, it's also involved real restaurants other than Mark's kitchen.
But thinking about restaurants and other similar meal options like takeaway, have you ever considered the costs involved with making those your go-to options at mealtimes rather than a special treat? My favourite is an Indian takeaway, and I enjoy it on occasion. But even when I'm chomping my way down a spicy curry, maybe a cold beer beside me, I'm normally thinking about the cold hard cash I had to hand over for my dinner. I know I could make something very similar for a fifth of the price and enjoy the cooking process into the bargain.
I know it's not for everyone, but giving scratch cooking a try could be a triple whammy for your health, social wellbeing, and a silent partner working with you in the ongoing battle against rising costs and the pressure on our wallets.
On a closing note I would like to give a big thank you to the most valued partner in my creative cooking journey. Dishwasher I thank you most sincerely!
The post The Value of Scratch Cooking in Retirement appeared first on HumbleDollar.
July 10, 2025
Some people are never satisfied
The Washington Post has an article on yet another effort to cut taxes for the wealthy. This time it is stepping up the cost basis for capital gains to account for inflation. You'd think they'd at least wait for the dust to settle from the recent give away.
I don't know whether the article is behind the pay wall, it's not giving me an option to share it so I did a straight copy.
The post Some people are never satisfied appeared first on HumbleDollar.
Estrangement & Estates
I've been thinking about family dynamics and how they affect financial decisions, and this will be the first of several posts on various applications of this topic.
This first one is a hard one to talk about: It's family estrangement, specifically a family member(s) going "no contact" with or otherwise walking away from other family member(s). It's not as unusual as you might think--there is growing research on the topic, and some estimate that more than 30% of American families have an estranged family member. The reasons for this alarming trend are sociologically complex.
One expert on the topic is psychologist Joshua Coleman, who's written a couple of books and many articles based on insights from his own practice and his research. He notes that while about half of the estrangement situations happen for reasons we'd all consider legitimate (e.g., clearly abusive behavior), others are harder to peg, and what one adult child might consider a "toxic" on the part of their parents might be incomprehensible to their sibling.
As I said, it's complicated. Sometimes, according to Coleman, the estranged family members might find a way back to each other. In other cases, the person is (most likely) gone forever.
The question arises as to the implications estrangement has for one's estate. Coleman urges parents with an estranged adult child not to cut them out of their will, arguing that this will just exacerbate an already painful situation. However, others might argue that if a family member has chosen to exit the family, causing pain by so doing, they are no longer entitled to family resources--and including them in an estate plan might even seem or be disrespectful to other family members who have been hurt by their actions.
I'll be vague, but we have an estrangement situation in my extended family. One relative decided to rewrite their will to exclude the estranged family member. A different relative decided not to exclude them. There are a lot of hard feelings within the family about this person's abandonment of people who love them. Some have even said that they wouldn't be welcome at a funeral or memorial service, having chosen to opt out of the deceased person's life while they were still with us.
One thing we've learned from consulting with an estate attorney: If someone wants to exclude a close family member from an inheritance, they have to specifically state that in the will. Just leaving them out isn't adequate.
What is your experience with or observation about family estrangement and specifically its impact on estate planning or other family resource allocations?
This first one is a hard one to talk about: It's family estrangement, specifically a family member(s) going "no contact" with or otherwise walking away from other family member(s). It's not as unusual as you might think--there is growing research on the topic, and some estimate that more than 30% of American families have an estranged family member. The reasons for this alarming trend are sociologically complex.
One expert on the topic is psychologist Joshua Coleman, who's written a couple of books and many articles based on insights from his own practice and his research. He notes that while about half of the estrangement situations happen for reasons we'd all consider legitimate (e.g., clearly abusive behavior), others are harder to peg, and what one adult child might consider a "toxic" on the part of their parents might be incomprehensible to their sibling.
As I said, it's complicated. Sometimes, according to Coleman, the estranged family members might find a way back to each other. In other cases, the person is (most likely) gone forever.
The question arises as to the implications estrangement has for one's estate. Coleman urges parents with an estranged adult child not to cut them out of their will, arguing that this will just exacerbate an already painful situation. However, others might argue that if a family member has chosen to exit the family, causing pain by so doing, they are no longer entitled to family resources--and including them in an estate plan might even seem or be disrespectful to other family members who have been hurt by their actions.
I'll be vague, but we have an estrangement situation in my extended family. One relative decided to rewrite their will to exclude the estranged family member. A different relative decided not to exclude them. There are a lot of hard feelings within the family about this person's abandonment of people who love them. Some have even said that they wouldn't be welcome at a funeral or memorial service, having chosen to opt out of the deceased person's life while they were still with us.
One thing we've learned from consulting with an estate attorney: If someone wants to exclude a close family member from an inheritance, they have to specifically state that in the will. Just leaving them out isn't adequate.
What is your experience with or observation about family estrangement and specifically its impact on estate planning or other family resource allocations?
The post Estrangement & Estates appeared first on HumbleDollar.
Beyond fees, is using a financial advisor, advisable? If you do or don’t why?
There was a discussion recently on HD about the costs/benefit of a financial advisor.
I have more questions. Who needs a financial advisor and why? I have looked up the pros and cons and certainly a case can be made for using an advisor, but not always.
I have never used an advisor, but that doesn’t mean I wouldn’t be better off if I did. I asked at Fidelity, but the fee percentage - I think it was 1% a few years ago - turned me off.
How does your advisor add value for you? Does it go beyond just where to invest?
Is your financial situation better having used an advisor?
Does your advisor make specific investment recommendations and, if so, do you always follow them? Does your advisor have authority to make or change investments without your approval each time?
Any other thoughts on using an advisor these days?
I have more questions. Who needs a financial advisor and why? I have looked up the pros and cons and certainly a case can be made for using an advisor, but not always.
I have never used an advisor, but that doesn’t mean I wouldn’t be better off if I did. I asked at Fidelity, but the fee percentage - I think it was 1% a few years ago - turned me off.
How does your advisor add value for you? Does it go beyond just where to invest?
Is your financial situation better having used an advisor?
Does your advisor make specific investment recommendations and, if so, do you always follow them? Does your advisor have authority to make or change investments without your approval each time?
Any other thoughts on using an advisor these days?
The post Beyond fees, is using a financial advisor, advisable? If you do or don’t why? appeared first on HumbleDollar.
Securing Lower Taxes
John Yeigh posted excellent information yesterday entitled Roth Conversion Opportunities Extended
Despite my feeling that I am fairly well conversed in this matter I still read everything I can, assuming correctly, that I don’t know everything. When reading the article below:
https://humbledollar.com/2023/01/securing-lower-taxes/
This line struck me:
Take earlier IRA distributions and invest that money in a taxable account. Subsequent gains would be taxed at lower capital gains tax rates. If held until death, the investments could receive a step-up in basis and pass income-tax-free to heirs.
As I have written before I am trying to convert all of my wife’s traditional IRA into a Roth 100% invested in a world stock fund so: 1) I will only have to take RMDs from my traditional account, thus reducing our portfolio maintenance requirements, 2) my children can potentially inherit it and decades of gains tax free, and 3) lower my RMDs when I turn 73. Today I posted a comment on another of John’s linked articles on how reducing the balance in my wife’s traditional IRA to zero is harder to accomplish, due to compounding growth, than I realized (Truly a problem of the affluent)
After hopefully completing the Roth conversions and before we turn 70 (and claiming our Social Security benefits) I figured we would only withdraw funds from my traditional IRA in what limited amount was necessary to meet our expenses.
After reading this article I’m now considering continuing to withdraw enough from my traditional IRA to top off the 12% tax bracket each year until we turn 73 and investing the unspent balance 100% in a world stock fund in our taxable account. These funds could also be inherited tax free due to the step up in basis. I was already planning to increase our portfolio’s stock allocation once we claim Social Security as our income will meet most if not all of our expenses. This plan seems to make more sense than adjusting our stock allocation in my traditional IRA.
Two questions the:
1) Does this plan make sense?
2) Are others also topping off their top tax rate with the same philosophy?
The post Securing Lower Taxes appeared first on HumbleDollar.
Financial AI: Benefit or Danger? I don’t Know.
There's a debate ongoing in the UK at the moment around a cash-only tax-advantaged account, and if the benefit should be reduced from a yearly £20,000 deposit allowance to £4,000. This is with the aim of making people favor equity-based, tax-advantaged accounts to enhance returns. Very UK specific, but it got me thinking once again about the general idea of holding cash as a defensive asset in your portfolio for sequence of returns (SOR) risk when in retirement.
Truthfully, the maths was beyond me for a quick article, but I thought this was maybe something I could test with one of the shiny new LLMs that are popping up everywhere. I chose Google's Gemini, and after politely introducing myself, I posed a question:
"Can you quantify the difference on a standard 60:40 $1,000,000 portfolio of holding a five-year cash buffer during a three-year 20% market drawdown, and project out to two years after the recovery at average market returns?" Here's the LLM's condensed summary:
"For retirees with a $1,000,000 60:40 portfolio, a $200,000 (5-year) cash buffer significantly mitigates 'sequence of returns risk.' Our analysis shows that during a hypothetical 3-year, 20% market drawdown, the buffered portfolio avoids forced selling of depressed assets. After the drawdown and two subsequent years of average returns, the portfolio with the cash buffer would be worth $916,649. The unbuffered portfolio, forced to sell assets at a loss, would stand at $886,906. This $29,743 difference highlights the cash buffer's crucial role in preserving capital and enhancing long-term portfolio resilience, especially when regular withdrawals are necessary. It demonstrates how avoiding sales during downturns allows the invested portion to recover on a larger base, ensuring greater financial stability."
This seems a reasonable outcome to me and highlights a possible benefit of holding cash if you are of the opinion there's going to be a large prolonged drawdown. Then again I've no clue about the calculations the AI used to come to these conclusions.
But what has captured my imagination, and is, I think, something worthy of serious debate going forward as these AI systems develop in complexity in the coming years: Could this be the start of a democratization of financial advice for each individual, with the ability to perform very powerful financial simulations on portfolios that only a few years ago would have been nearly impossible? There are deep implications for this going forward.
I can think of a few areas of concern. When I was a young teenager, I loved programming but always had to be careful of the "garbage in, garbage out" mantra. This would definitely apply here. Other things that come to mind include fundamentally trusting the outputs and issues with privacy of the data used in the simulations, maybe even people over-relying on their AI models. But it offers intriguing possibilities for personal portfolio management in the coming decade and I think very new and unique dangers to navigate.
The simple fact that this morning I could, within minutes of watching a news article, come up with a powerful simulation using an AI is thought-provoking and, in some ways, an alarming demonstration of technological advancement. Let's hope we can successfully embrace its benefits.
Truthfully, the maths was beyond me for a quick article, but I thought this was maybe something I could test with one of the shiny new LLMs that are popping up everywhere. I chose Google's Gemini, and after politely introducing myself, I posed a question:
"Can you quantify the difference on a standard 60:40 $1,000,000 portfolio of holding a five-year cash buffer during a three-year 20% market drawdown, and project out to two years after the recovery at average market returns?" Here's the LLM's condensed summary:
"For retirees with a $1,000,000 60:40 portfolio, a $200,000 (5-year) cash buffer significantly mitigates 'sequence of returns risk.' Our analysis shows that during a hypothetical 3-year, 20% market drawdown, the buffered portfolio avoids forced selling of depressed assets. After the drawdown and two subsequent years of average returns, the portfolio with the cash buffer would be worth $916,649. The unbuffered portfolio, forced to sell assets at a loss, would stand at $886,906. This $29,743 difference highlights the cash buffer's crucial role in preserving capital and enhancing long-term portfolio resilience, especially when regular withdrawals are necessary. It demonstrates how avoiding sales during downturns allows the invested portion to recover on a larger base, ensuring greater financial stability."
This seems a reasonable outcome to me and highlights a possible benefit of holding cash if you are of the opinion there's going to be a large prolonged drawdown. Then again I've no clue about the calculations the AI used to come to these conclusions.
But what has captured my imagination, and is, I think, something worthy of serious debate going forward as these AI systems develop in complexity in the coming years: Could this be the start of a democratization of financial advice for each individual, with the ability to perform very powerful financial simulations on portfolios that only a few years ago would have been nearly impossible? There are deep implications for this going forward.
I can think of a few areas of concern. When I was a young teenager, I loved programming but always had to be careful of the "garbage in, garbage out" mantra. This would definitely apply here. Other things that come to mind include fundamentally trusting the outputs and issues with privacy of the data used in the simulations, maybe even people over-relying on their AI models. But it offers intriguing possibilities for personal portfolio management in the coming decade and I think very new and unique dangers to navigate.
The simple fact that this morning I could, within minutes of watching a news article, come up with a powerful simulation using an AI is thought-provoking and, in some ways, an alarming demonstration of technological advancement. Let's hope we can successfully embrace its benefits.
The post Financial AI: Benefit or Danger? I don’t Know. appeared first on HumbleDollar.
Extra Innings by Jonathan Clements
More than 13 months ago, I was given 12 months to live.
I like to think I took my diagnosis in stride. I moved quickly to simplify my financial affairs, toss unwanted possessions, get new estate-planning documents and change HumbleDollar’s direction so the site could live on after my death.
I also focused on getting the most out of each day. Partly, that meant taking some special trips and spending more time with family. But it also meant continuing to do the work I love and relishing the joys of everyday life.
For me, at least, the prospect of a short life brought a feeling of urgency, greater gratitude for each day and a stronger sense for what’s important. Over the past year, I’ve never been more aware of the finiteness of time. It might sound odd, but that has struck me as a privilege. It’s made me think harder about what I do each day, and it’s heightened my appreciation for the world’s beauty and the goodness of others.
Problem is, my 12-month “deadline” has passed—and I’m still here.
Don’t read too much into that. My prognosis remains poor. Right now, I’m dealing with my four horsemen of the Apocalypse: back pain, fatigue, constipation and loss of appetite, plus some nasty mouth sores. The cancer has spread to my spine and continues to attack my brain, requiring multiple rounds of radiation, as well as the insertion of bone cement to shore up my back. The spreading cancer means my initial treatment plan is no longer working, and I’m now on a new set of meds. I’ve also been trying various medical marijuana products—not something I ever imagined doing—and my hair has all fallen out.
It isn’t clear how much extra time the new treatment plan will buy me. But it is clear I’m not disappearing on schedule.
What should I do with the extra months? Time—which 12 months ago seemed so precious—no longer feels quite so precious. Over the past year, spurred on by my diagnosis, I wrote a slew of articles for both HumbleDollar and a handful of major publications, helped with a book that compiles some of my best Wall Street Journal articles and drafted another book that I hope will appear after my death. With major help from my wife Elaine, I've also continued to spend time every day both keeping HumbleDollar going and preparing the site for life without me.
But what now? What should I do with the additional months that I’ve been given? Is it time for new goals?
All this may seem a little manic, and perhaps it is. But I can’t see myself spending my remaining time reading novels and binge-watching Netflix, while I await the final deterioration in my health. At the same time, because of the fatigue, I don’t have much energy for anything else.
For now, I’m hoping the fatigue will pass, as the effects of my recent 10 consecutive weekdays of total brain radiation fade. It would be great to feel like my old self, or somewhat close, for at least a few months. But as I sit here at the breakfast table, my brain sluggish from the radiation and the chemo, it feels like relief is still weeks away.
I like to think I took my diagnosis in stride. I moved quickly to simplify my financial affairs, toss unwanted possessions, get new estate-planning documents and change HumbleDollar’s direction so the site could live on after my death.
I also focused on getting the most out of each day. Partly, that meant taking some special trips and spending more time with family. But it also meant continuing to do the work I love and relishing the joys of everyday life.
For me, at least, the prospect of a short life brought a feeling of urgency, greater gratitude for each day and a stronger sense for what’s important. Over the past year, I’ve never been more aware of the finiteness of time. It might sound odd, but that has struck me as a privilege. It’s made me think harder about what I do each day, and it’s heightened my appreciation for the world’s beauty and the goodness of others.
Problem is, my 12-month “deadline” has passed—and I’m still here.
Don’t read too much into that. My prognosis remains poor. Right now, I’m dealing with my four horsemen of the Apocalypse: back pain, fatigue, constipation and loss of appetite, plus some nasty mouth sores. The cancer has spread to my spine and continues to attack my brain, requiring multiple rounds of radiation, as well as the insertion of bone cement to shore up my back. The spreading cancer means my initial treatment plan is no longer working, and I’m now on a new set of meds. I’ve also been trying various medical marijuana products—not something I ever imagined doing—and my hair has all fallen out.
It isn’t clear how much extra time the new treatment plan will buy me. But it is clear I’m not disappearing on schedule.
What should I do with the extra months? Time—which 12 months ago seemed so precious—no longer feels quite so precious. Over the past year, spurred on by my diagnosis, I wrote a slew of articles for both HumbleDollar and a handful of major publications, helped with a book that compiles some of my best Wall Street Journal articles and drafted another book that I hope will appear after my death. With major help from my wife Elaine, I've also continued to spend time every day both keeping HumbleDollar going and preparing the site for life without me.
But what now? What should I do with the additional months that I’ve been given? Is it time for new goals?
All this may seem a little manic, and perhaps it is. But I can’t see myself spending my remaining time reading novels and binge-watching Netflix, while I await the final deterioration in my health. At the same time, because of the fatigue, I don’t have much energy for anything else.
For now, I’m hoping the fatigue will pass, as the effects of my recent 10 consecutive weekdays of total brain radiation fade. It would be great to feel like my old self, or somewhat close, for at least a few months. But as I sit here at the breakfast table, my brain sluggish from the radiation and the chemo, it feels like relief is still weeks away.
The post Extra Innings by Jonathan Clements appeared first on HumbleDollar.
