Jonathan Clements's Blog, page 22
July 9, 2025
A Quick Question about Retirement Vacations
I've been at my holiday home for 10 days now, feeling relaxed and enjoying myself. It's the first 'holiday' since retirement. What piqued my interest, though, is a subtle but distinct difference: this break feels less intense, is probably the word, than vacations I took while still working. It's not the same kind of escape. Has anyone else noticed this after retirement?
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Roth conversion opportunities extended
Who should Roth:
https://humbledollar.com/2020/05/to-roth-or-not/
How Roth conversions can impact Medicare premiums:
https://humbledollar.com/2023/04/that-28000000-tax/
Rothing can lower future taxes especially when considering the widow's tax after the first spouse passes and estate tax impacts:
https://humbledollar.com/2023/01/securing-lower-taxes/
Rothing may not gain ground on future RMD tax obligations due to growth in tax deferred accounts:
https://www.theretirementmanifesto.com/my-biggest-surprise-in-retirement/
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Here is my favorite word. What is your favorite word? Perhaps frugal, Roth, spreadsheet, planning, Monte Carlo, dividends?
I believe that missed opportunities, stress, poor decisions of all types, just many of the things we complain about result from not being aware of what is happening around us.
Being aware means having knowledge or perception of something. It involves noticing, recognizing, or being conscious of what’s happening either around you or within you.
In essence, being aware is about being connected to what is happening, both internally and externally, and having a sense of understanding or perception about it.
Being aware was brought to my attention during basic training in the army decades ago. They try to keep you off balance, to stress test you, to create illusions. If you don’t exercise awareness, you are always stressed. One night we had to crawl under live machine gun fire with tracer bullets to add to the fear. We were told the guns we’re aimed three feet above the highest point on the range. Most of the guys assumed that meant three feet above our heads, but being aware you would notice the highest point was actually a pole some eight feet high. More awareness, less stress.
Dealing with finances requires awareness for sure, especially when thinking - or not, about the future. Buying decisions, investing decisions, borrowing decisions are all aided by awareness of things around you. And in the 21st century that means a global awareness.
Are you aware of what may happen to Social Security and Medicare, taxes, interest rates, tariffs, new technology on the way, global droughts, how the Saudi’s pump oil. It all matters to your finances.
Heck, are you aware that you cell phone battery is about to run out? 😱 Or, that dream car from Germany will soon cost significantly more?
This awareness thing is made more difficult by the trash and misinformation on social media. Many people seem to simply accept what they read as fact and then act on it or pass it around.
Sadly, my perception is that the majority of us, walk around in a dome of obliviousness happy in our state - and suffer the consequences.
Take a lesson from the Boy Scouts - Be Prepared- Be aware.
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Coast FIRE! Who would have thought that FIRE could have so many flavors?
Coast Fire sounds like a logical evolution of the FIRE (financial independence-retire early) idea. Not everyone thinks ending work is the greatest idea, but a lot of people might prefer less demanding jobs, such that they can both work and enjoy a lower stress life.
When I look at the technology and tools available to help people organize their personal finance and take over their lives I'm truly envious.
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My Favourite Day: Retirement Payday Wednesday
I like Wednesday now; it's my favorite day of the week. When I was organizing everything before selling my business and retiring, I was so uptight and stressed about sorting out a cash flow stream for our everyday spending. I decided to pay ourselves weekly, reasoning it would make things easier to track what we spent this way. If you think about it, it's a silly thing to do. It's not like it was a surprise to me what we spent; I'd been funding that for countless years.
I ran a small business with a multimillion-dollar turnover. My focus was on optimizing cash flow, generating income, and maximizing profit to keep the enterprise healthy and flourishing. Paying staff and suppliers was an easy thing for me to do. Surprisingly, I had a harder time paying myself. Taking the business's life-giving cash to fund my lifestyle always deeply bothered me. Definitely a weird tension for a business owner!
But now I don't have this issue. It's just a joy to see the money drop into our account every week. I actually log into my online banking on a Wednesday morning, coffee in hand, just for the satisfaction of seeing the deposit. I'm easily pleased! Prior to pulling the trigger, I had spreadsheets about retirement income streams coming out of my ears. I would obsess over them nearly every day and get an itch if I hadn't looked in a while. Totally and utterly over the top.
Nowadays, I really don't even think about them. I've set my sail, chartered my course, and it's on autopilot. It's a revelation to seemingly receive cash on a weekly basis without having perceived to hustle and work for it. It's a wonderful feeling that I know will fade when it becomes mundane everyday, but at the moment, I'm enjoying it immensely and wanted to remind you old-time retirees what a super thing it is to seemingly get money for nothing. Now all I need is the chicks for free!
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July 8, 2025
The High Cost of Financial Advice: A Tale of Two Portfolios
My wife's portfolio is approximately 50% larger than mine but pays 900% more in fees. And no, I didn't make a mistake with an extra zero. The difference in absolute fees becomes even more substantial as the portfolio grows. While my Vanguard fees benefit from the platform's fee cap, Suzie's fees continue to scale directly with the size of her portfolio. This illustrates how the impact of higher percentage fees becomes increasingly significant, dramatically reducing the potential for long-term compound growth on larger sums of money.
For simplicity's sake, if I take a 7% average gross return, my portfolio will be bigger than Suzie's within 25 years. If that doesn't work as a stark reminder about the corrosive effect of fees, I really don't know what will. (I got Google Gemini to work this out for me)
The question is whether the additional services provided by Suzie's wealth manager justify the significantly higher cost, especially when simpler, lower-cost alternatives exist. Luckily for me, I'm in the privileged position that Suzie is my wife and doesn't mind me logging into her portfolio's access portal and nosing around. Our portfolios are substantially similar in makeup. I've a slightly higher equity allocation, and Suzie has more infrastructure and utilities, which I think is the reason it had slightly less volatility during the recent market turmoil. But our performance before fees is not much different. In fact, I'm performing slightly better, which might be my marginally higher equity percentage in play.
But I can categorically state there is no massive outperformance in the high-fee option.
"How could you have let this come about?" you may be thinking to yourself. In my defense, until very recently, I was consumed by running my business and, at the end of the day, it's not my portfolio, although it's intimately linked to mine and my wife's future financial well-being. The fact of the matter is it's Suzie's portfolio.. But the question has definitely been on my mind to the extent it was causing me sleepless nights
I did what all married couples in a strong, loving relationship would do. I broached the topic, and we talked. I even used the figures in this article to illustrate my point, and thankfully, I've had some success. Recently, we sat together and opened an account with Vanguard for Suzie. It's only been funded with the minimum opening requirements so far. I wait for my wife to gather the courage to speak with an advisor who was a long-term work colleague and friend about moving her funds from his business.
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Quinn rants about taxes-but maybe not what you think.
Like most Americans I pay taxes, income taxes both federal and state, sales taxes, property taxes and for fifty years, payroll taxes and I’m still, at age 81, paying income, sales and property taxes - plus assorted other miner taxes and fees on goods and services.
Like any normal person, I think it would be nice not to pay taxes and keep all my money. But unlike too many of the uninformed people ranting on social media these days, I understand why taxes are necessary.
Oh yes, money is used inefficiently by government - just as it is, at times, similarly misused by charities, political organization and profit making businesses.
And some Americans - individuals of all sorts - commit fraud and steal money from taxpayers. That has been going on since there have been governments.
Medicare has uncovered tens of billions of dollars in improper payments in the last five years alone - mostly fraud perpetrated by health care providers of some type, often in concert with patients.
Some social media rants are about money spent on foreign aid and welfare. All welfare programs equal about 7% of the budget and foreign aid around 1.2%. On the other hand Social Security and Medicare combined equal about 33-36% of the budget.
None of that changes the need for taxes and all the things taxes support. None of that justifies the calls for no taxes, especially from older Americans based on previously paying their dues. And certainly avoiding taxes should not be based on the job a person does or hours worked.
Over fifty years I paid $230,000 in Social Security and Medicare taxes. Not counting income taxes paid to those trusts after retirement.
However, during our 15 retirement years so far Connie and I have collected in SS and Medicare benefits way more than I paid in taxes.
Also, I estimate that since I retired in 2010 I paid $195,000 in property taxes. Those taxes pay to run my town, county and our school system. My children received a good education paid for by other citizens young and old both with and without children, so why shouldn’t I do the same? What makes 21st century seniors different?
Some people claim the wealthy don’t pay their fare share and that if they did others could pay less. That’s not accurate either. Even the wealthy don’t have enough cash given the federal government alone spends about $18 billion a day.
The current American rant against taxes is short-sighted and unfounded - and fiscally risky at best.
Americans seem unable to make the connection between wants, needs and desires from their collective society and paying for them. In fact, even now we turn our backs on paying the bill. Interest payments alone are about 14% of federal spending and rising.
The United States is among the lowest taxed and highest indebted of developed countries. And still many Americans expect - demand - lower taxes.😱
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July 7, 2025
ETFs versus Assets Under Management
"Expense Impact:
Funds can add an unnecessary layer of
expense, as opposed to direct ownership of
securities through separately managed
accounts.
In addition to the fees, the clients could run
the risk of embedded cap gains that
precede their ownership. When securities
significantly appreciate, managers will
rebalance portfolio positions and taxable
gains may be realized by the investor."
I understand there is a relatively low cost to manage these ETFs but had not heard of the cap gains issue.
And as far as the FlexGuard product---are not target date funds managed to hedge as they get closer to the target date?
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Building a Secure Retirement, 10 Years at a Time.
My FTIA provides an initial 65% of our needs, declining as a percentage as inflation takes its toll over the time frame. The inflation adjusted 35% top up to this (to include inflation adjusting the original 65% FTIA) is going to come from a combination of after tax cash and pre-tax short term bonds to manage tax band issues. Equity holdings may also be used if they exceed my spreadsheet performance projections of 2% real returns. This in my mind is a form of liability matching in so far as I'm matching low volatility assets to future consumption needs over a ten year time frame. I see no need to deviate from this basic liability matching strategy over the following ten year block. I realise not everyone may have the resources to do so.
The details may be different; it's unknowable at present if FTIAs or other short term products will offer value, but it will definitely be something I research closer to the time. By the time the second ten year block is implemented, social security for both of us and a small defined benefit (DB) pension Suzie has will have kicked in to provide a large percentage of our floor income. This aligns with my base premise that extreme long term planning is useful but paradoxically useless at the same time. While the broad brush stroke of a plan is required, the granular more short-term detailing needs a different strategy to be implemented closer to the time and offers a better likelihood for success.
My journey into fixed-term annuities and a tiered income strategy illustrates, in my opinion, a powerful blend of security and agility. By establishing ourselves a guaranteed floor for essential expenses Suzie and I mitigate immediate market risks, while our flexible top-up and equity component allow for both inflation adjustment and upside participation. This iterative, 10-year block approach isn't about perfect foresight but about intelligent adaptation. It does commit us to proactive planning, combined with a readiness to research and adjust to future realities which might become bothersome as we age. But I think it offers a robust path to sustained financial well-being in our retirement without pinning the flag to any one overarching strategy.
As I stated in the original article, personal finance is indeed personal and everyone's circumstances are unique. We should all endeavor to formulate a strong, flexible plan, including emergency liquidity, to give us the best chance in an uncertain economic world. My plan is flexible, letting Suzie and myself change direction if required, which gives us peace of mind. It's also partially driven by a recognition of Suzie's much more conservative risk outlook compared to mine. A financial compromise as such, that is like so much in a successful marriage, mindful of the needs of each other. A humble human plan for us.
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Got Momentum?
While I am satisfied with my current investments and have not made any significant changes in several years I do occasionally evaluate alternatives. I recently read a Morningstar article titled “Top-Performing Stock ETFs of the Quarter”. Most had higher expenses than I would be comfortable with. But several were low-cost, including Invesco S&P 500 Momentum ETF SPMO at 0.13% expense. This ETF tracks the S&P 500 Momentum Index. This got me looking into what “momentum” investing was all about. I downloaded a fact sheet and momentum methodology document from the spglobal web site. I skimmed through the methodology document but frankly it only confirmed that I do not know what I do not know. But the performance of the SPMO ETF kept me looking. The recent performance has been outstanding, with a more than 45% return in 2024, which has continued into this year. And when compared to a standard S&P 500 fund the downside is better (it lost less than 11% in 2022 compared to the S&P 500 loss of 18%). But for most it’s almost 10 year history the index and ETF tracked the S&P 500 providing only slightly better returns. But, about a year and a half ago the momentum strategy seemed to diverge and is now returning significantly better returns. The question is why? Has the strategy been improved? Is it now AI controlled? I have not found answers. At this point I am not ready to make any changes, especially since after more than 18 months of above normal performance it could be close to topping-out. I am wondering what the HumbleDollar community thinks about momentum investing and why it seems to be doing so well right now.
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