Jonathan Clements's Blog, page 215

Lack of Trust

RULES OF THUMB and conventional wisdom often serve us well. But we should make sure they���re truly applicable to our situation.

Like many parents, my wife and I prepared our first estate planning documents when our children were young. The estate planning lawyer suggested a so-called AB trust. If we���d taken his advice, when one of us passed away, half of our joint assets would have gone into an irrevocable trust. The surviving spouse would get the income from that trust, but in most cases wouldn���t have access to the principal. When the surviving spouse died, the money in the trust would be distributed in accordance with the wishes of the first person who passed away.

My parents had this type of trust. There are good reasons for using it. Let���s assume the husband dies first. He may want his estate to go to his children when his wife dies. If he doesn���t have such a trust and leaves everything to his wife, she may not leave everything to their children. Suppose she remarries. She might opt to leave everything to her new spouse, so nothing ends up going to the children.

This happened to a woman I know. She was an only child and grew up on a family farm. Her mom died first. Mom���s share of the farm went to her husband. Dad remarried. He died. The farm went to the new wife. The new wife died. She had no will. Under state intestacy laws, the family farm went to the children of the new wife. My friend got nothing. This is probably not what my friend���s mom wanted. An AB trust would have prevented this outcome.

Still, when the lawyer encouraged us to use an AB trust, my wife and I balked. Why? At the time, our four children ranged from ages five to 12. When one of us died, they would have been guaranteed to eventually receive half of our estate. But would we want that if, say, one of our children was a drug addict or in jail? Hopefully, that wouldn���t be the case, but there were no guarantees.

The upshot: We told our lawyer that, when one of us died, we wanted that person���s estate to go to the surviving spouse. My wife and I agreed that, in the event one of us died early, the surviving spouse shouldn���t inadvertently leave everything to a new spouse and mistakenly cut out our children. The lawyer was uncomfortable with our plan. He finally agreed to prepare the documents the way we requested���without the AB trust���but insisted on us signing a statement that we were doing this against his advice. We think he was afraid a disgruntled child would one day sue him.

Happily, years later, none of our children is a drug addict or in prison and neither of us died early���but my wife and I are still sticking with our original plan: When the first of us dies, we���re trusting the other to leave our remaining assets to our children.

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Look Before Leaping

WELL, I���M SIX MONTHS into my retirement from the corporate world. How are things going? Any regrets? Any big surprises?

No regrets, for sure. I knew that leaving the workplace at age 61 would be a tradeoff of freedom gained versus money forgone. But I had a second-act dream to pursue���becoming an author���and, for me, that tradeoff was worth going for. So far, it has been. I have my��first book��out and another in the works. While I���m not making much money, having the freedom to pursue my passions without having to ask permission from anyone is, to quote a notable credit card commercial, priceless.

But there definitely have been some rough moments along the way. If you���re thinking about retirement, here are six considerations to keep in mind before you jump:

1. You have to create an entirely new identity for yourself.��For 30 or 40 years, you had an identity conferred on you by an organization and by the working world in general. You could see that identity on your email signature, your business card, your LinkedIn profile. That identity came with fancy titles that brought certain privileges and power.

All of that���s gone now. It was all part of a game and the game is over. Outside the organization, you���re just a person, like anybody else. Who am I now that I���m no longer vice president of global public relations for a Fortune 250 company? I���m just a writer, an unknown one. I���m starting over.

Even for someone like me who never put much truck in titles, the void is startling and I���m still getting used to it. What I���m finding is that we���re never really as important as we think we are when we���re working, and that we���re more important in other ways than we ever realized. Those new aspects of identity, however, need to be discovered. Which brings me to my second realization.

2. You need to find a new purpose for your life.��We humans need purpose in our lives, and work provides that. We don���t just work to make money. We work to make meaning for our lives and our time here on earth. You may not love your job���most people don���t, according to surveys. Still, that job gets you out of bed in the morning, which is a good thing.

Now that you���re no longer working a job, what���s that purpose that gets you up and (hopefully) raring to go? It can���t be about closing deals and making money any longer, so what���s it going to be? Giving back to the world? A new creative hobby? Helping your kids?

I consider myself fortunate that I���ve always had a powerful sense of purpose in my passion for storytelling. From the time I was a kid, I always felt my calling was to be a writer, and that never left me. Because of that, I never felt a strong connection to my identity in the corporate world, and finding a new purpose in retirement hasn���t been particularly hard. If anything, it���s been a huge relief, since all through my working years I felt like I was trying to serve two masters. Now, there���s only one, and happily it���s the master that gives me the greatest satisfaction.

3. Ramping down your spending is tougher than you think.��I spent years preparing for an early exit from the grind. I built a nest egg, downsized, eliminated debt and slashed my monthly expenses to a fraction of what they���d been. The expectation was that the early years would be tight since I don���t plan to take Social Security early and I have to cover medical expenses until I can go on Medicare. I knew I���d have to budget carefully to make the plan work, but I���m pretty frugal to begin with, so I didn���t see a problem with that.

What I didn���t expect was how hard it would be to cut some of the frills out of the budget���like eating out. When I was bringing home a steady paycheck and wanted to go out to eat on Friday and maybe Saturday, too, I could do it without worry. Now that I���m living on my savings and I know those savings have to last me for the rest of my days, I need to weigh every expenditure, pondering what I will gain and what I���ll lose. Should I spend $70 on dinner and drinks, or save it for the property tax bill coming up next month?



To ease the transition, I���ve picked up a few writing and PR consulting projects on the side. Nothing too onerous���I don���t want to take away from my personal writing time���but enough to bring in some extra ���frills��� money. That���s helping a bunch.

4. You need to keep to a structured routine.��I heard plenty of warnings about this before I retired, and they were all correct. Having a routine is critical in retirement.

Let me repeat: Having a routine is critical in retirement. It���s critical to both our physical and mental vitality. All the studies show that, without structure and routine, our cognitive capacities tend to decline more rapidly as we age. I don���t want that, and so I���ve kept to pretty much the same daily schedule I had when I was working.

I still get up early���usually around 5:30 a.m.���to get in a workout. From there, I make coffee, take Cassie for a walk, and come back inside and start my work. I usually write until 2 p.m. or so, and then I take a break and work on other projects, writing or otherwise. The difference now, of course, is that my routine is devoted to what I want to do, rather than what a big company wants me to do.

5. You need to give yourself permission to take it easy.��This is the flipside of No. 4, and it���s been the hardest transition for me. When you���ve been working a high-pressure job for 30-some years, it���s hard to all the sudden take the foot off the gas and say, ���Hey, it���s time to relax.��� This is particularly the case for someone like me who has always invested a good deal of his identity in the notion of accomplishing things.

It���s okay to still want to accomplish things in retirement���things that are personally important to you. I certainly have a lot of things I want to accomplish in the years ahead. Still, if I���m not going to find time to smell the roses now, when am I going to do it?

So that���s what I���m working on: Giving myself permission to do non-work���meaning non-writing���things that give me pleasure. I���m getting back into fly fishing and tying flies, which I didn���t have much time to do when I was working. I also plan to start golfing again, once I get this arthritic left hip replaced. Ugh.

6. You need to discover new ways to socialize.��For me, the biggest loss I���ve experienced in retirement, more than the steady paycheck and the benefits, has been the camaraderie of the people I used to work with. I didn���t like spending hours of my day in fruitless meetings, of course. But I enjoyed being able to message people on the fly, work on projects together, have lunch or dinner while traveling���the things we take for granted while working.

All of that���s gone now. I���m still in contact with many of my former colleagues, but rarely do I talk to them during the workday. I���ve had to find other ways to connect with people and make friends. The gym is one of those places. I���ve already made a few new friends at the gym, all by just spending a few extra minutes there in the morning and taking the chance to speak to people. I���m also doing volunteer board work for a nonprofit and have met new people there as well.

No matter what age you are and how much planning you do, retirement likely will be a shock to the system, like jumping into a cold pool. I���m still adjusting to the water. But I sure am enjoying the swim.

James Kerr led global communications, public relations and social media for a number of Fortune 500 technology firms before leaving the corporate world to pursue his passion for writing and storytelling. His debut book, ���The Long Walk Home: How I Lost My Job as a Corporate Remora Fish and Rediscovered My Life���s Purpose,��� was just published by Blydyn Square Books. Jim blogs at PeaceableMan.com. Follow him on Twitter @JamesBKerr and check out his previous articles.

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Proud of Nothing

I'M NOT SOMEONE who pats himself on the back when he does something right. I���m also not someone who takes compliments well. But this time, I want to toot my own horn.

After four years, I can finally say I���ve accomplished a goal that I���ve worked toward for many years, but was unable to achieve. It wasn���t easy. It took a lot of discipline and composure.

To accomplish this feat, I tuned out cable business news. I avoided financial articles on topics like why you should sell bonds or overweight foreign stocks. More important, I ignored the financial markets��� daily performance.

What have I done the past four years that I���m so proud of? Absolutely nothing. It���s quite an accomplishment, don���t you agree? It���s not easy to sit on your hands, sticking with your long-term investment plan through good times and bad.

Okay, I did do something. I rebalanced my investment portfolio twice. But that���s all. I give some credit to my financial advisor, who helped me stay the course.

You might say, what���s the big deal? Here���s what: I can, at long last, say I���m behaving like a passive investor. Yes, I owned index funds before. But that doesn���t make you a passive investor if you���re still chasing performance. This year, for instance, how many index-fund investors have upended their long-term asset allocation plan by reducing their bond holdings?

To be a passive investor, you have to hold your investments over the long term. I know four years isn���t a long time. But for me, it���s quite an accomplishment. What is passive investing?

Passive investing doesn���t try to outsmart the market, but rather endeavors to match the performance of the major market indices.
It���s a type of investing that seeks to minimize costs, including costs for trading and investment selection.
It usually delivers better after-tax results.
It slowly builds wealth over the long haul by using a buy-and-hold strategy. By contrast, traders and market-timers focus on short-run results.

I don���t know anyone who can forecast how stocks and bonds will perform over the short-term. But I do know that it���s highly likely the financial markets will produce positive returns over long periods. That���s why it���s important to focus on long-term rather than short-term results. It���s what a true passive investor does.

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Moving Home

FROM TIME TO TIME, I���ve been called judgmental. Me? Just to be sure, I looked up the definition. I���ll admit I do meet some���but not all���of the criteria.

I read or listen to something, and then I start thinking. Can that be true? What are they thinking? Why would they do that? Have they considered their financial priorities and the possible consequences?

My latest target is the TV show about people buying a recreational vehicle (RV). What are they thinking?

There���s nothing wrong with camping vacations, along the way seeing the country and its national parks. But is it worth a $100,000 or more investment that declines in value the minute you drive off the dealer lot?

These folks often claim to want the camping lifestyle, but demand their RV have ���all the comforts of home.��� A full-size fridge, a dishwasher, washer-dryer and multiple televisions are often basic requirements.

In a recent show, a woman rejected one RV because she couldn���t see the big screen TV from the kitchen area. Another was upset because the bedroom didn���t have nightstands on both sides, not to mention there was no king-size bed. The kids typically get bunks���each with a TV.

An outside kitchen and entertainment center are frequently RV must-haves. All I can think of is��� bugs. I hope the folks in the adjacent parking space are watching the same TV show.

Some buyers make assessments of pullout beds and seating based on anticipated entertaining and guests. Traveling across the country, stopping here and there, and you worry about guests���as a primary criterion? I keep thinking the only guest knocking on the door will be furry with four legs.

I went camping as a kid, and also as a parent with my sons. Fun, but not the lap of luxury. We didn���t worry about a dishwasher���no dishes. The size of the toilet and shower were no concern. There weren���t any. As for TV, our entertainment was scaring each other with ghost stories. And when it came to mattresses, pine needles did the job.

Once, when breaking camp after a week, I picked up my sleeping bag to find I was on top of a nest of baby copperhead snakes. Maybe there���s something to be said for a luxury RV.

There are those who will live fulltime in their RVs, with three kids and two dogs, while also working remotely. In my judgment, there is not an RV large enough for such a venture. Can you say, ���five days of steady rain���?

Budget, what budget? My favorite recent story was about a middle-aged couple looking to spend up to $150,000 on their RV. They finally settled on something called a fifth wheel for $149,000, but realized they���d also need to buy a bigger truck to pull it���for $50,000 to $80,000 more.

A young couple looking barely out of their 20s had an $80,000 budget and were going to buy an RV rather than a house. While looking at one, the young woman said ���amazing��� 16 times���I counted���but ended up buying a different RV. I couldn���t help but think to myself, are they saving for retirement?

Some presumably well-off retirees go for a luxuriously equipped class A RV���think bus���costing $250,000 or more, not counting the car being towed behind. My judgment says, go for it if you can afford it. But can they really?

Then there���s the attachment called a toy hauler. What toys? Bikes, motorcycles, kayaks, even ATVs. Never leave home without your stuff.

A class C midsize RV gets 10 to 15 miles to the gallon. A gas tank averages 25 gallons for a class C, and 25 to 50 gallons for RVs overall. At today���s gas prices, it would likely cost more than $100 to fill the tank���and that tank might get you 300 miles. Judge me incredulous.

But that���s just the start of the expenses, which include insurance, repairs, maintenance and such. Costs vary, but parking that RV in a campground will range in cost from a low of $25 at national parks to over $100 a night at luxury private resorts.

To each his own, of course. I think taking the family to see the U.S. is a great idea. Rent an RV for a month and off you go. Just don���t take out a mortgage. In my judgmental mode, I see buying an RV as an extreme luxury that most people can���t afford. It certainly isn���t an investment.

Richard Quinn blogs at QuinnsCommentary.net. Before retiring in 2010, Dick was a compensation and benefits executive.��Follow him on Twitter��@QuinnsComments��and check out his earlier��articles.

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Perspective Needed

THE HIGHEST expression of complexity is thoughtful simplicity. It's like standing on a mountaintop after navigating the ascent.

The work of the mountain���s trailblazer is arduous. He or she must focus intently on the task at hand, glancing left and right, guessing what will come around each new bend. But from the pinnacle looking down, the perspective puts the most efficient path in clear view. It becomes possible to make a map to aid those who will come next.

If we ever want to get out of our own way, to enjoy more money success with less unnecessary effort, we must embrace the simplicity that comes with perspective. But that isn���t always easy to do, especially amid all the noise emanating from the financial services industry.

Simple strategies are okay for beginners, or so we tell ourselves. But who wants to remain a beginner forever? Instead, we want complexity, subconsciously thinking it���ll help us achieve the status we long for.

We chase high investment returns because we aren't content with respectable results from a measured asset allocation that reflects our tolerance for���and need to take���risk.
We buy the stocks of individual companies that catch our eye and give us a good story to brag about, rather than spreading risk over a large basket of stocks in low-cost mutual funds or exchange-traded funds.
We trade frequently���trying to time the market���because a disciplined strategy of buying and holding isn't exciting.
We create trusts to own and administer our assets when outright ownership would do just fine.
We go out of our way to use an exotic tax strategy, instead of evaluating all the pertinent factors and only then following the best tax strategy for our situation.

There���s a temptation to view financial planning as some sort of magic art. We might think the clever planner can allow us to reap what we didn���t sow���to somehow create financial gain with no logical underlying economic substance. But in reality, financial planning is a very rational process. Really, no magic.

Its value is in helping us make intentional, knowledgeable choices that can stretch the utility of every dollar. The planning, however, plays only a supporting role���never taking the lead. If we don���t supply any wisdom, financial planning won���t create it.

Want to put the highest level of financial planning to work for you and your family? Learn to appreciate complexity���s beauty���as expressed in thoughtful simplicity.

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The Long Goodbye

RETIREMENT COMES with many risks, but the scariest I���ve witnessed is dementia. It���s estimated that more than six million Americans are living with Alzheimer���s, and they account for just 60% to 80% of all dementia cases.

Other types include vascular dementia, frontotemporal dementia, Parkinson's disease dementia and Lewy body dementia. Drug side effects, brain injury, depression and alcoholism can create dementia symptoms, too. The symptoms may get better when those conditions are treated.

Whatever the cause, dementia can lead to memory loss and serious difficulties handling everyday activities of daily living. Seniors with cognitive issues are at significantly higher risk of making poor financial decisions, and are more susceptible to fraud and abuse, according to a report by researchers from the Federal Reserve and the University of Michigan. They also tend to withdraw from financial responsibilities.

That last symptom���financial withdrawal���I saw firsthand with my mother-in-law and my wife���s widowed aunt. Both women had been quite capable money managers in their prime. As their cognitive issues progressed, however, they lost interest in their finances and were happy to allow family members like me to take over.

Often, there are subtle signs before significant symptoms of cognitive decline become apparent. My close friend John said the first sign of his wife Mary���s terrible illness was getting a late notice on a bill���something that she would never have allowed before.

Mary developed symptoms of frontotemporal degeneration (FTD), which is the most common form of dementia for those under age 60. FTD is not well known, is widely misunderstood and is often misdiagnosed. Symptoms include ���progressive changes to personality, language, decision making, behavior, and movement.���

John and Mary aggressively pursued a diagnosis through one of the major hospital systems in the Philadelphia area. They tried various treatment options and even participated in some trial studies. Unfortunately, none of this prevented Mary���s symptoms from worsening.

She soon required constant care. Her decline coincided with the COVID-19 pandemic, which made finding help that much harder. Her family pitched in to take care of her. Eventually, though, it got to the point where the required care was too great. John had been researching facilities and was able to place Mary in one near her family and friends. She passed away earlier this year at the far-too-young age of 67.

Caring for a senior with dementia can be exhausting and expensive. The Alzheimer���s Association outlines several care options, including in-home care, adult daycare, long-term care and hospice. It suggests using Genworth insurance company���s tool to find the median cost of many of these services in your city and state.



As you might expect, there���s a wide variation in cost. In my state of New Jersey, the median cost for a private room in a nursing home was $145,818 a year in 2021. In Arkansas, the same room cost $80,300. A home health aide working 44 hours a week in New Jersey would be paid an average $68,526 a year. In Arkansas, that aide would get $50,336.

What can we do to reduce the risk of this illness? Keep working. An article��from HealthDay suggests that delaying retirement may reduce the risk of early onset dementia. It cites a French study of 429,000 self-employed workers, which found a 3% reduction in dementia risk for each extra year worked.

The data seems to be in line with the "use it or lose it" hypothesis of brain health. The study showed an association between higher retirement age and lower dementia risk, but not a cause-and-effect relationship. One Alzheimer's expert said she wasn���t surprised by the findings.

���There seems to be growing evidence that staying cognitively active is really important to reducing a person's risk, and perhaps professional activity may be one of those cognitive activities," said Heather Snyder, director of medical and scientific operations for the Alzheimer's Association, as quoted in the HealthDay article. "Things that promote lifelong learning seem to be beneficial. But that may mean different things for different people... and exactly what that is, we can't define at this point."

The lesson for each of us is to prepare as best we can. Stay as healthy and active as possible. Get your finances organized and simplified. Talk to family and have legal papers drawn up specifying how you want your affairs handled if you lose capacity. Get all your estate documents prepared and make sure family members know where to find them.

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

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Falling Hard

THE S&P 500 IS DOWN 10% so far this year���but the pain hasn���t been dished out evenly. Value and steady dividend-paying stocks are about flat for 2022, while technology companies and speculative small-cap stocks have suffered mightily. Money has fled the market���s unprofitable glamor companies and flocked to old-fashioned cash flow generators.

Just how bad has the drubbing been among formerly hot growth names? Look no further than Cathie Wood���s ARK Innovation ETF (symbol: ARKK). Over the past year, this actively managed exchange-traded fund (ETF) is down a whopping 57%. The losses piled up starting early November 2021���arguably the peak for growth stocks and small-cap shares. ARK Innovation ETF fell more than 20% during 2021���s final two months.

After that significant late-year dip, the fund has slumped another 45% this year, bringing its total drawdown to 67% since the fund���s all-time high notched in February 2021. Given the way investment compounding works, the fund must now soar some 200% just to get back to even. The growth-stock part of the stock market is clearly in a bear market. Just how bad have some of the drops been among ARK Innovation���s biggest holdings? Brace yourself.

Morningstar is my favorite site for analyzing ETFs. I like to see what���s under the hood of popular funds. According to the April 21 snapshot, Tesla (TSLA) is ARK Innovation���s biggest position, with a nearly 11% weighting. The stock has performed spectacularly over the past year, up 40%. But among the fund���s largest holdings, that���s the only happy story.

Zoom Video (ZM) is the second-biggest holding. That work-from-home story stock has fallen 69% over the past 12 months. Roku (ROKU), ARK���s third-largest position, is down 72% from a year ago, while its fourth-largest holding���Teladoc Health (TDOC)���is off 68%. All these stocks were among the fund���s top 10 holdings a year ago. I could go on���or you can check out the dreadful performances for yourself. After such a rough stretch, the fund���s assets under management fell below��$10 billion after peaking near $28 billion 14 months ago. But here���s perhaps the biggest surprise: Money has continued to pour into ARK Innovation ETF.

This is not intended to be another hit piece on Wood���s flagship fund. Rather, it illustrates the old clich�����that it isn���t a stock market, but a market of stocks. Even as the broad U.S. market has held its own over the past year, many once-sexy stocks have been tossed into the dumpster.

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Trust Issues

WHEN IT COMES to estate planning, folks with taxable estates���that is, with assets in excess of $12 million���tend to fall into one of two camps. The first recognize that their estates will have to hand the IRS 40 cents out of every dollar above that $12 million threshold. They also know that this limit is scheduled to be cut in half in 2026 and could be even lower in the future. As a result, they're willing to put in as much effort as required to limit their exposure to the estate tax.




The second camp, surprisingly, takes the opposite approach. They���re fully aware of this 40% tax, not to mention potential state-level taxes. These folks know that if they don���t do anything to prepare, their estates will almost certainly end up paying more to the government���maybe a lot more. But they aren���t bothered by that. They prefer to not complicate their lives with all the legal and accounting work that estate tax strategies require. Instead, their preference is simplicity and, in any case, they know that their heirs will still have plenty, even after taxes.




To be sure, there���s a spectrum between these two camps, and some families do choose a point in between. But to a surprising degree, I���ve found that the majority of families fall at either one end or the other of this spectrum. Why is that?




I���ll answer this question by relating a brief story: Earlier this year, I was speaking with a young fellow who is the beneficiary of a family trust. He described how, on the one hand, the trustee can be controlling and judgmental. But on the other, he seems to be ���asleep at the wheel.��� After reviewing the trust���s investment statements, I agreed. There were clear red flags. Unfortunately, however, the trustee didn���t seem to be aware of the issues. Complicating matters is the fact that this trustee is an older family member. That makes it difficult for the young beneficiary to challenge the trustee, especially since this same person controls the purse strings. As he bemoaned the situation, I noted, only half-jokingly, that there's no such thing as a trust without drama.




If estate tax planning has been on your mind, but you don���t want to inadvertently cause stress like this for your heirs, what steps can you take?




My suggestion is to start by getting very specific about your goals. For example, is the estate tax your only concern, or are you also worried about controlling how your trust���s assets might be used by your heirs? I recommend thinking this through and mapping out a vision for your estate plan well before visiting an estate planner. That���s because lawyers have a broad toolbox. If you tell them upfront what you most want to accomplish, that���ll help them choose the right tools for you to consider.




To map out your vision, I suggest two steps. First���and I apologize for the morbid thought���try to picture your heirs 10 or 20 years after your death. How do you imagine them interacting with and benefiting from your trust? What scenarios would make you happy? What would worry you? That���s the first step in mapping out your vision.




Next, think through the major provisions of a trust. The first is the choice of trustee. The key decision here is whether you would want to appoint a corporate trustee���such as a bank, law firm or trust company���or an individual.




If you go the route of a corporate trustee, a key benefit is that you won���t need to worry (too much) about whether the trustee will be around and available to serve. That���s because it���s the institution itself that would be the trustee. You wouldn���t be dependent on any one individual. Another benefit: Some see corporate trustees as more independent and possibly more objective than an individual. A key downside, though, is that corporate trustees tend to be more expensive. They also have an inherent conflict of interest: Since they only get paid while the trust is in existence, they have an incentive to be stingy with beneficiaries, thereby prolonging the life of the trust.




Alternatively, you could name an individual as trustee. This could be a family member, a friend, or an attorney or accountant. The benefit of an individual is that the cost would likely be lower than what corporate trustees charge. An individual might also be more flexible, plus your heirs might prefer working with a trusted friend or family member rather than a rigid employee of an institution. The downside, though, is that putting an individual in place as trustee may increase the risk of family drama, as described above. Also, no one lives forever. If you go the route of an individual as trustee, you���ll need to think about successors, and that isn���t always easy.






On top of all this, you'll want to think about distribution provisions. A key issue is timing. Should your heirs be able to access trust funds at any time, or should they be required to first reach a particular age or life stage? You might stipulate, for example, that a child reach age 30 before receiving any funds. Or you could allow for partial distributions over time���at ages 25, 30 and 35, for example. Because it's very straightforward and limits the trustee's discretion, that sort of structure can help reduce drama. Everyone would understand and have to abide by simple calendar-driven rules without debate.




Alternatively, you might require that a child finish college or be married before receiving funds. The challenge, though, is that everyone takes different paths through life. Some people don���t go to college. Others choose not to marry. In both cases, though, they might be entirely deserving. As you can see, this can get tricky. The 1999 movie�� The Bachelor ��made light of this. But if something like that actually happened in your family, it would be no joke.




The other aspect of distribution provisions is how you���d like your trust���s funds used. You could leave it entirely up to the trustee. That���s the most flexible option but also potentially the most fraught. If a trustee and a beneficiary don���t get along, this setup would give the trustee wide latitude to make the beneficiary���s life miserable for decades. To avoid that, the trust could permit unlimited distributions for specific purposes. These might include tuition, a home purchase or medical expenses. The benefit here is that, for the specific uses you enumerate, your beneficiary would never get stuck in a loop of negotiations with a recalcitrant trustee.




An additional idea is to include with your trust a letter to the trustee. In this letter, you could provide a more complete explanation of your wishes. For example, if your trust will specifically allow distributions for home purchases, you could offer further details in your letter. Should a beneficiary be able to withdraw an extraordinary sum to buy a mansion? What about a second home? If trust funds can be used for higher education, would that be limited to a four-year college? What about vocational school, cooking school or a religious school? Would those qualify? These are all personal decisions. But the more color you provide in your letter, the less drama���hopefully���your beneficiaries will have to endure.

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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Fending Off Inflation

I REMEMBER 40 YEARS ago listening to Salomon Brothers economist Henry Kaufman bemoaning government deficits and predicting higher interest rates as a result. We institutional investors would gather in a room to listen to his declarations through a ���squawk box��� intercom system���because conference calls weren���t yet a thing.

Federal Reserve Chair Paul Volcker was in the process of wringing inflation out of the financial system by raising the federal funds rate so high that investors would rather hold cash investments than spend money. For everyday investors, money-market mutual funds were the go-to investment. I would mail checks to Fidelity Investments, whose money fund yielded more than 15% while also offering complete liquidity. If short-term interest rates rose���which they did���I would earn even more. Stodgy bank accounts and certificates of deposit were no match.

Today, it seems Series I savings bonds are the modern-day equivalent of the 1980s money market fund. Even though buyers are limited to $10,000 per calendar year, the 7%-plus yield on offer seems as popular today as the money market funds of 40 years ago.

Many commentators also recommend Treasury Inflation-Protected Securities, or TIPS, as a great inflation hedge. But since the Federal Reserve purchased these bonds as part of its efforts at quantitative easing, they���re currently priced to return less than inflation, unlike I bonds, which should climb in lockstep with the Consumer Price Index.

What else can you do, besides buying Series I savings bonds, to protect yourself from inflation? Here are four other things I���ve done or plan to do.

First, I refinanced my mortgage with a 15-year loan at 2.375%. That rate is well below the inflation rate, plus I���ll be repaying the mortgage with depreciated dollars and the home itself should act as an inflation hedge. Since I refinanced, 15-year mortgage rates have jumped��to 4.4%, but that���s still comfortably below the current 8.5% annual inflation rate.

Second, if interest rates continue to rise, I can buy more Series I savings bonds next year or I could buy one-year Treasurys. The latter currently yield 2%, but that should climb as the Federal Reserve raises short-term interest rates.

Third, I have another fixed-income investment���in the form of my whole-life insurance policy. The policy���s cash value is currently earning around 3.5%. As interest rates rise, the cash value won���t decline, unlike bond prices. In fact, with the insurance company able to invest at higher yields, I expect my cash value to start earning more than 3.5%. I prefer investments like Series I savings bonds, whole-life insurance and short-term Treasury notes to bond mutual funds, which own conventional bonds that could suffer big losses if interest rates continue to climb.

Finally, another excellent inflation hedge is Social Security, whose payments are tied to inflation. The cost-of-living adjustment for 2022 was 5.9% and there���s a good chance it���ll be even higher next year. I plan to wait to collect Social Security until age 70 so I maximize this inflation-protected stream of income. The larger my Social Security benefit, the more dollars I���ll receive with every cost-of-living increase.

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Investing in Myself

MY FIRST ALLOWANCE was a nickel a week. I was five years old. I can���t recall exactly how I spent it, but I vividly remember visiting cousins and discovering they received a quarter.

It was a shocking introduction to a world where people might have much more, for no clear reason. My access to capital amounted to 52 nickels a year, or $2.60. Added to that was $1 reliably tucked in my Christmas stocking, as well as a little something from grandparents. Once my allowance rose to a dime, my total annual haul climbed to $10.

In my early teens, my parents divorced. Mom moved to the city where her sister lived, rented a duplex and got her first job. She���d gone to college, even graduate school, but had been a stay-at-home parent for 20 years. She had limited employment options. She wasn���t young and pretty, knew almost nobody in town, had two kids to watch over and no work history. Few jobs met our family���s constraints.

She ended up working the swing shift as a nurse���s aide in a rest home. That way, she could see us off to school each morning and be there when we returned each afternoon. Then she���d leave for work. As I saw how she���and we���struggled financially, I became determined to fend for myself and avoid low-paying jobs.

By then, Mom gave me $3 a week in allowance, so my income was about $150 a year, mostly spent on records and books. I sewed my own clothes, aside from T-shirts and jeans, while also raiding and deconstructing my mom���s vintage outfits for new looks. I had a passbook savings account with pretty much nothing in it.

A young couple moved in next door and we became friends. One was a graduate student who���d served as a Peace Corps volunteer somewhere in Africa. My eyes were opened to a much wider world, and I wanted to see it. The journey that followed might seem meandering. Still, I ended up in surprisingly good financial shape, in large part because my needs and wants have almost always been modest. This is an underappreciated source of financial freedom���one available to almost everyone.

College on the cheap. When I graduated high school in the early 1970s, many kids I knew received fancy presents like cars and trips to Europe. I was envious but I had a plan: Go to college and see the world. My graduation presents���a dictionary and the complete works of Shakespeare���have served me well. I still have both books.

I turned down admission to a prestigious out-of-state school because its financial aid package wouldn���t cover my expenses. Instead, I enrolled at the local university, where I had a scholarship. I moved in with three friends who���d gone straight into the workforce. In that bygone era, I lived on $100 a month, which came from my dad plus whatever I could earn from college work-study jobs.

My share of the monthly rent for that two-bedroom apartment was $28.50, plus a quarter of the utilities. We each put $5 a week into a food kitty for suppers together. We also had dinner out once a week. I walked the two miles to campus or rode the bus.

If I didn���t have enough money to buy a textbook, I���d read it on reserve at the university library. I lived just five miles from home, so I could visit often for a home-cooked meal, to do laundry and for help typing term papers. I graduated from college completely debt-free, but with little savings, possibly $100 in my bank account.

My career plan? Become a high school Latin teacher. Once I got into a classroom, however, I felt uninspired. I needed a new idea. My roommates helped me get my first fulltime position, an office job. That lasted maybe a year before I returned to college for a master���s degree, something my bosses encouraged.

I didn���t pick a major in a particularly rational way. Instead, I asked myself, of all the professors I���d met in my undergraduate classes, who seemed to be having the most fun? I settled on a master���s degree in linguistics. My plan from there was to get a job where I could travel and see the world.

I got by on scholarship money, a teaching assistant's stipend and a $1,000 student loan. It would take me six years to pay off that debt, the first of several small debts that left a lifelong distaste for borrowing. People I respect have argued that using debt can be valuable, and I���ve seen them do so successfully. But it���s not for me.

Sensitive computers. Before graduating, I applied to serve in the Peace Corps, but my paperwork got snagged. I thought about going on immediately for a doctoral degree and maybe becoming a college professor. Instead, in 1978, I moved to the city where my brother lived.

I needed work, so I looked for something with lots of openings, where they might hire just about anybody. I hoped to land a job whose skills would be useful for my future. I didn���t want to get stuck like my mom in a dead-end, minimum-wage job. I���d learned that men earned more than women, and read about why that happened. I couldn���t battle those causes head-on, so I focused on applying to male-dominated positions where few women workers had been hired and salaries were more equal.

I took a position as a computer operator, tending an oversensitive machine. It was an early networked time-sharing system that supported remote corporate clients who could access their data 24 hours a day. I worked a crazy schedule, nights and weekends, as well as days. There were just four or five computer operators providing customers with 24/7 coverage.

At night, I���d work alone. I���d back up data and reboot the computer with a length of paper tape after every electrical disturbance, such as a lightning strike near our building. During slower hours, I���d read computer manuals and write code for data reports. This work paid the princely sum of $700 a month.

After a while, I got a raise to $850. That meant I���d crossed over to earning $10,000 a year, a symbolic milestone that changed almost nothing. Those were years of high inflation, so rising costs gobbled up the spending power of my raise. I barely got by and didn���t save anything. I was a lousy cook and ate a lot of fast food, devoting my off hours to pizza, beer and music with friends. I gave absolutely zero thought to my financial future.

Faraway lands. I took an exam to qualify for a federal job but didn���t score high enough to advance above others who had received preference, generally those with military service. I thought about joining the military, but first I contacted the Peace Corps again. They found my missing paperwork and invited me to join. I bid the balky computer farewell and boarded a plane to a country I���d never heard of before.

The Sultanate of Oman is a Kansas-sized, comma-shaped desert kingdom to the southeast of Saudi Arabia, beginning at a naval chokepoint, the Strait of Hormuz, and stretching from there around the Arabian Sea to Yemen. I would earn little money over the next three years, but this was my dream come true. I was seeing the wider world.

I���ve often been asked what it was like living in a country in the early stages of modernization. I was based in a small town far from the capital city of Muscat. My home was a cement-block house, essentially the same size and construction as a typical one-car garage. It had electric lighting and a ceiling fan in the main room. Electricity was purchased monthly from the neighborhood grocery store, the cost dependent on the number of installed lightbulbs. The grocer owned a portable generator that ran a few hours daily to keep meat and soda cool in the store, his expenses defrayed by sharing the output with those who lived nearby.

There was no such thing as trash day. People burned garbage to reduce its volume. We had no heat or air-conditioning in a climate where temperatures ranged from the low 50s in winter to above 115 degrees in summer. It was simply impossible to replicate my comfortable American life with its nearly infinite choices of food, entertainment, friends and jobs. I lived on a monthly $300 allowance, which covered rent, utilities and food.

I met almost everyone in the village during those two years teaching school, before spending a third year in the south of the country as a traveling health worker. Despite hardships, people seemed no less happy than everyone back home. Each family had hopes and ambitions similar to mine. They worried about their teenagers, exhorted their little ones to do well in school, and took care of one another when sick. They traveled to visit friends and family, and came back with pictures and stories to share as they whiled away their evenings with social calls.

There were personal tragedies and petty rivalries and party nights and holiday traditions. It was the same as my world back home, except each household had to manage all their essential human activities and expectations with very little money.

Repeatedly over the following decades, whenever I faced a major setback or my life situation became precarious, I would recall my years in Oman and other places I���d visited. I���d remind myself that almost everything that creates happiness, that makes life worth living, is possible at all price points. I���d stop obsessing over whatever I wanted, what I thought essential for my happiness or success, and look for an alternative that would fit my current station.

I���d also remember that others had much less, and see if there was something I could do to improve their lot for a while, by word or deed. Over my life, this has saved me a mountain of grief and a pile of money.

Starting to save. I didn���t yet have the vocabulary for what I was doing, but over that first decade after high school I was building human capital. It increases an individual���s opportunities, including his or her earnings potential. These early investments in myself���and my dreams���have carried me through life.

Not long after I returned from Oman in 1982, and after another two years of graduate school, I took a second computer-related job, this time as a programmer. I was nearly 30 years old and had accumulated no savings. As part of its culture, the company where I worked taught employees how to plan for the future. I finally got serious about saving for retirement and began contributing to a 401(k). My annual salary rose from $19,000 to $35,000. I earned a few thousand more from freelance projects, a practice encouraged by my employer, who thought everyone ought to have a side gig.

I made plenty of financial mistakes. For instance, I was more focused on saving for retirement than preparing for unexpected expenses. As a result, when my father got a terminal cancer diagnosis and asked me to come see him, I didn���t have the cash or credit to buy a plane ticket. My boss suggested I loan myself money from my 401(k). I borrowed enough for two trips and signed an agreement to pay myself back with 7% interest. An adequate emergency fund would have been better.

Here���s another mistake I made: I worked at government agencies for 12 years, three years in the Peace Corps, two years at city hall, and seven with our local electric company. Technology workers earned tens of thousands more in the private sector, so most didn���t stay long in government. Yet I remained.

Why? One advantage of the public sector was having a defined benefit pension plan. Plan rules permitted me to buy three years of service credits for my time in the Peace Corps. I delayed purchasing them until long after the end of my public service career, which cost me a small fortune.

My cost for the pension credits followed a formula based partly on salary and partly on imputed returns. Though I���d received little income as a Peace Corps volunteer, buying three years of pension credits cost me $58,000. This was many multiples of what it would have cost when I first started my city job. My income had risen from $30,000 to $90,000 over those nine years of employment, and 20 years had passed since I started at the city. Still, the credits I purchased contributed substantially to my small, inflation-linked government pension.

Each year, I���d estimate how much I could expect from my pension and I���d review my Social Security statement. I���d consider whether that would meet my retirement needs. I remember at one time thinking that $15,000 a year would be plenty, and that my pension would almost equal that. But I also assumed I might be overlooking potential retirement expenses, so I carried on working and saving.

My parents had died at age 57 and 62, so I never counted on getting to retirement. If I didn���t make it to old age, I didn���t want to regret the way I spent my life. I regularly reviewed how well my current work suited my life and whether the job made good use of my abilities. If it seemed a bad fit, I���d look for a promotion or seek a new job that could be more satisfying. I had continued to add to my technical and managerial skills, and so kept my talents in demand.



At age 40, I thought I���d retire at 55, leaving plenty of time to spend with my husband before one or the other of us died. As has happened before, my plan went one way, my life the other. Over the decades, I had married twice. One marriage ended when my husband left. The second ended when my husband died following a brief, unexpected illness.

I have raised five children across two separate generations. I still have one in high school. Through it all, I paid my bills when due, and made cuts elsewhere to balance my budget. Childcare and college bills have cost me as much over the years as houses and cars. Only rarely, and for as short a time as possible, did I stop saving for retirement. When things turned around, I started saving again���and doubled down if I could.

Back to academia. In the late 1990s, I saw large numbers of in-house information technology staff and managers replaced by contractors and temporary workers from abroad with H-1B visas. As a manager, I didn���t want to have to replace good workers or get caught in the turnover, so I looked for an exit strategy of my own.

I called a family meeting to discuss how everyone felt about me leaving my government job to try another career. If my family said no, I would have stayed in my job forever, perhaps. But I had completed most of a doctoral program on the excellent advice of a mentor, and so had just a few credits and a dissertation remaining. My family was enthusiastic in their support that I finish my degree and pivot to academic life.

I graduated debt-free, thanks to education subsidies from my employer, along with some savings and money made from part-time college teaching. I took a fulltime academic position and ultimately earned tenure. I also served as an associate dean for three years. I politely declined invitations to apply for dean or senior university leadership positions.

In my last years at the university, my annual income topped $100,000, not by much and not for long, but a marker of prosperity for sure. I maxed out my 401(k) contributions, including catchup contributions allowed after age 50. I also saved the maximum in a nondeductible��IRA and even added a little money to my regular taxable accounts.

I wasn���t saving all this money in case I lived to 95. Rather, I was saving in case my spouse lived to 95, and to make sure the youngsters in our house wouldn���t be left in financial difficulty if something unfortunate happened to me. I like the good things in life as much as anyone, but I also have frugal habits from long practice.

Much that brings me joy is really cheap. For instance, listening to my teens laugh as they talk about their lives. Walking the family dog. Chatting with neighbors. Watching people picnic in the park. Can I admit it? I���ve joined city council meetings on Zoom, just for fun and out of curiosity about what���s important in our city.

My retirement. It���s been three exceptionally difficult years since my husband died. I had a freak accident. Early retirement. Then, weeks after clearing out my campus office, the pandemic shut schools for over a year and hijacked my twins��� college preparations. But we carried on. Now, they���re finishing their freshman years.

I have concerns about spending my old age alone. I had planned to enjoy this time with my husband of 30 years. I feel bad that, of all my friends, I���m the first to lose my life partner. I don���t want to be a burden on my kids. They���re starting their journeys now, not so different from the adventure I began so many years ago, and I don���t want to stand in their way.

My retirement is not filled with carefree activities, new friends and travel���yet. That���s why, looking back, I value more than ever the choices I made when spending time and money. It���s how I ended up with a large family and lots of friends, and it���s allowed most of my fanciful dreams to come to fruition. To understand what I mean, consider three memorable trips.

My dad died in 1988, months after my first marriage failed. I was in low spirits, adjusting to a single salary while most of my expenses were unchanged. Coming back from my dad���s funeral, my brother suggested that we sign up for a mountain climbing trip in South America. Not that we knew much about mountain climbing or had ever been to South America. He said it would cheer me up, and that the months I spent developing the required physical conditioning would keep me busy. I agreed, imagining I might meet a nice guy on the trip.

I cut out all other discretionary spending for the entire year to pay for that trip. In December, I flew to Ecuador. We spent Christmas Eve at a climbers��� hut so full that I had to sleep outside under the stars. Before dawn, we started our hike to the summit of Tungurahua, an active volcano. The precise peak we summited no longer exists, wiped out by a later eruption. A few days after that summit, I climbed to the top of Cotopaxi, the world���s highest active volcano.

Remember Y2K, when the world���s computers were supposed to crash? At the beginning of 1999, I requested vacation leave for the end of the year. It was easy to get in January. By December, my bosses were sweating and asking me to cancel. But I had prepaid for a cruise and I knew my computer systems were in order. My husband and I celebrated New Year���s Eve dancing our way into the new millennium on a promenade deck in Panama, while my colleagues spent a boring night at the office.

One of my twins qualified for the U.S. team for the World Baton Twirling Federation���s 2019 International Cup. Six months after my husband died, the two of us flew to Limoges, France, for her competition. It was a quick trip, because I had to arrange alternate activities for her brother and sister back home, and I didn���t want to strain the kindness of friends and family any more than necessary.

At the end of the meet, we had one glorious, rainy day of sightseeing in Paris before our return flight. My daughter was bone-tired and I was getting about with a cane after my accident. Still, there are so many memories from that trip, such as cutting short our visit to the terrace atop the Arc de Triomphe as a hair-raising electric storm approached.

Some adventures are no longer possible. At this point in our lives, neither my brother nor I would feel safe hiking in crampons above 15,000 feet. I don���t have my husband to cruise with anymore. My teens will soon spend their holidays with other young adults on their own adventures, without me in tow.

Today, I���m a single parent with three young adults still to care for. We���re getting by financially on Social Security and a pension, supplemented with withdrawals from savings. I���ve lived in the same house for nearly 30 years. I paid off the mortgage long ago, and owe no one money.

Looking at my peripatetic path through life, with some good luck and some bad, I���m doing far better than I might have expected in terms of my net worth and annual income. That���s because I started saving and investing while relatively young, choosing to spend less than I could have, even in years when I had more money than usual.

My life is full of purpose, and I���m grateful to have the financial wherewithal to meet its challenges. I���ve learned to tolerate myself, and channel my quirks and preferences in ways that improve my financial standing. Right now, I���m simplifying my accounts, and spending more on myself and on causes I���ve contributed to for decades. As my children mature, I share with them bits and pieces of my financial picture, so���in due course���they won���t have unpleasant surprises.

I don���t have unreasonable expectations of continued good health or good fortune. Instead, I���m a realist, grateful for any week that shows nothing worse than gradual decay and delighted with any week where things seem slightly better than expected. I���m insured for the worst. And I never forget that, despite my age and stage in life, I still have three teenagers to launch. The adventure continues.

Catherine Horiuchi is retired from��the University of San Francisco's School of Management, where she was an associate professor teaching graduate courses in public policy, public finance and government technology. Check out Catherine's earlier articles.

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