Jonathan Clements's Blog, page 238
January 6, 2022
Resolved: Get Healthy
LIVING A HEALTHY lifestyle is one of the most important aspects of a happy retirement. It is, alas, also one of the most difficult goals for many of us to achieve. A 2005 Boston College Center for Retirement Research study concluded that health was the second most important factor in determining the happiness of retirees���and those with poor health ���experience dramatically lower levels of well-being.���
I stopped working fulltime on March 31, 2017. My health, wellness and fitness have since deteriorated. That first year, my wife gave me a Fitbit. As my wife suspected, it appealed to my affinity for numbers and statistics, as well as my competitive nature. By fall, I was regularly hitting my daily 10,000-step goal. But in early December, I felt a sharp pain in my left foot as I was walking across some rough terrain. I saw a podiatrist. He informed me that I have a ���horribly arthritic joint��� where my left big toe connects to the foot. We tried a variety of pads, and one eventually took the pain away.
In 2018 and 2019, the ravages of years of playing football and basketball in my youth, coupled with 30 years of being overweight, caught up with my right knee. I tried physical therapy and painkillers, but the damage was too severe. The pain seriously detracted from a long-awaited trip to Italy in May 2019. I missed many of the tours, especially in Rome. Steroids during the first week helped, and I enjoyed the second week much more.
I had a right total knee replacement in September 2019. The surgery went well and I made a serious commitment to rehabbing the knee. Luckily, I had a great surgeon, a great physical therapist and an experienced nurse for a wife. Physical therapy went well. I was up and walking quickly, and improved throughout the fall.
In January 2020, my wife gave me the gift of 10 sessions with a trainer at our local community fitness center. I dove into the sessions, intentionally scheduling them for 6:30 a.m. so I���d start the day well. I got on well with the trainer and enthusiastically made it through nine of the 10 sessions. I really enjoyed it and made sure I did extra workouts each week. As I was getting ready for the 10th session, COVID-19 hit and the gym closed. I never took that last session.
Now that we���re living at the beach, I try to ride my bike several times a week. We joined our local community center, which has an excellent gym and pool. I���ve started going to the gym in the past few weeks. I���m hoping Omicron won���t limit my access.
As you might have gathered, my history of trying to get fit goes like this: Start well, lose some weight, feel better���and then suffer some kind of setback. Throughout my adult life, I���ve always thought I still had time left to take care of my health. But some current health issues have convinced me that I can���t delay anymore. The good news: Most of my ailments are weight-related and there���s a good chance I can reverse much or all of my issues with weight loss, healthy eating and improved fitness.
A National Institute of Health study found that adults who maintained moderate or high physical activity levels had significantly lower health care costs after age 65. The earlier you start exercising, the larger the savings.
I worked hard and diligently to provide us with a financially solid retirement. We have the money to enjoy ourselves, take care of ourselves and, we hope, leave a legacy. But I���ve learned that an enjoyable retirement also requires good health. I���ll be 65 in September 2022. That���s the traditional retirement age. My resolution is to be in good enough condition by then to enjoy the rest of my retirement.
I stopped working fulltime on March 31, 2017. My health, wellness and fitness have since deteriorated. That first year, my wife gave me a Fitbit. As my wife suspected, it appealed to my affinity for numbers and statistics, as well as my competitive nature. By fall, I was regularly hitting my daily 10,000-step goal. But in early December, I felt a sharp pain in my left foot as I was walking across some rough terrain. I saw a podiatrist. He informed me that I have a ���horribly arthritic joint��� where my left big toe connects to the foot. We tried a variety of pads, and one eventually took the pain away.
In 2018 and 2019, the ravages of years of playing football and basketball in my youth, coupled with 30 years of being overweight, caught up with my right knee. I tried physical therapy and painkillers, but the damage was too severe. The pain seriously detracted from a long-awaited trip to Italy in May 2019. I missed many of the tours, especially in Rome. Steroids during the first week helped, and I enjoyed the second week much more.
I had a right total knee replacement in September 2019. The surgery went well and I made a serious commitment to rehabbing the knee. Luckily, I had a great surgeon, a great physical therapist and an experienced nurse for a wife. Physical therapy went well. I was up and walking quickly, and improved throughout the fall.
In January 2020, my wife gave me the gift of 10 sessions with a trainer at our local community fitness center. I dove into the sessions, intentionally scheduling them for 6:30 a.m. so I���d start the day well. I got on well with the trainer and enthusiastically made it through nine of the 10 sessions. I really enjoyed it and made sure I did extra workouts each week. As I was getting ready for the 10th session, COVID-19 hit and the gym closed. I never took that last session.
Now that we���re living at the beach, I try to ride my bike several times a week. We joined our local community center, which has an excellent gym and pool. I���ve started going to the gym in the past few weeks. I���m hoping Omicron won���t limit my access.
As you might have gathered, my history of trying to get fit goes like this: Start well, lose some weight, feel better���and then suffer some kind of setback. Throughout my adult life, I���ve always thought I still had time left to take care of my health. But some current health issues have convinced me that I can���t delay anymore. The good news: Most of my ailments are weight-related and there���s a good chance I can reverse much or all of my issues with weight loss, healthy eating and improved fitness.
A National Institute of Health study found that adults who maintained moderate or high physical activity levels had significantly lower health care costs after age 65. The earlier you start exercising, the larger the savings.
I worked hard and diligently to provide us with a financially solid retirement. We have the money to enjoy ourselves, take care of ourselves and, we hope, leave a legacy. But I���ve learned that an enjoyable retirement also requires good health. I���ll be 65 in September 2022. That���s the traditional retirement age. My resolution is to be in good enough condition by then to enjoy the rest of my retirement.
The post Resolved: Get Healthy appeared first on HumbleDollar.
A Lucky Tortoise
I'VE BEEN REVIEWING my past writing on HumbleDollar, my own blog and social media. I notice I often throw out personal details, such as the second home��we own, paying for our children���s college and our spending on travel. My intention isn���t to boast.
In fact, I don���t even think of myself as wealthy, though the statistics say my wife and I are above average. Perhaps that���s because what we have today was accumulated over 60 years, between when I got my first job at age 18 and today at age 78. Slow and steady, as they say.
I had lots of help���because I���ve enjoyed a life devoid of uncontrollable adversity. I never lost my job, had uninsured medical bills, had a relative to support, got in over my head with debt or had student loans. My nine years of night school starting at age 26 were mostly paid for by the Department of Veterans Affairs. There was never a year I didn���t receive a raise, though I vividly recall one increase of just $12 a month. My wife and I have been married for 53 years.
Fortunate indeed.
In our defense, we also never caused bad things to happen. We always lived within our means. We never paid a penny in credit card debt. We lived on one income from the day we were married, with the constraint on spending that goes with that. When my income���net of savings���proved insufficient, such as when we had three children in college at once, I started what folks now call ���side hustles.���
My wife and I today drive a Mercedes, which is seven years old, and a Jaguar, now two years old. But I���d argue the perception of luxury is mistaken. Many pickup trucks���today���s most popular vehicle���cost more.
Our life wasn���t always this way. We bought basic vehicles that we kept until���in three cases���the engines blew up. Once we had an older Chevy stolen. The police called to say where they had found it abandoned. I went and ���stole��� it back, cleaned up the food and other garbage in the backseat, had it repaired and kept it five more years.
I started saving and investing at age 18, not very successfully I admit, but the idea was there. I had to cut back in some years, but I never stopped saving. My best investment was a pension based on 50 years of service. Did I give up higher pay by staying with one company? Very likely. But I enjoyed my work and we didn���t want to risk being relocated.
Today, we���re financially secure. What isn���t apparent are the decades it took to reach this point. My best income years didn���t start until 2005, when I was 62. From that point on���five more working years���I saved 100% of my bonuses. The growth from our investments since has been significant, as it should have been for anyone with at least some stock market exposure.
I worked with some rabbits who saw advancement in changing jobs, rushing ever upward, some employing rather unethical tactics in the process. But looking back, even considering some missed opportunities, this tortoise won his race.
The post A Lucky Tortoise appeared first on HumbleDollar.
Resolved: Be Patient
I DON���T MAKE TOO many New Year���s resolutions anymore. At age 70, it seems like most of the good ones are for people much younger than me���especially the ones that involve money.
That said, I did have a good New Year���s resolution involving money for the past few years. It was to wait until age 70 to claim Social Security. In return for my delay, I was rewarded with a far bigger check.
If I were a young fellow again, I���d make a New Year's resolution to invest some money in a low-cost, broad-based stock index fund. The next year, I would make a resolution to not touch the money. In fact, I���d make that same resolution every year until I retired.
Think about all the money you would earn by waiting many decades before you withdrew the money. Your investment would generate earnings that are reinvested and those reinvested earnings would then generate their own earnings. Your money would grow exponentially over time. It���s called compounding. But I like to call it waiting���because you have to wait a long time to truly reap the benefits of compounding.
Now, that resolution won���t work as well for me because of my age. The waiting period isn���t long enough for me to take full advantage of compounding. That���s why it���s better to start early.
Another key word is patience. Have the patience to wait many years before you touch the money you invested���just like I had the patience to wait for a larger Social Security check.
If you���re looking for a good New Year���s resolution involving money, it often involves waiting and being patient. Those are two great ways to behave when managing money.
That said, I did have a good New Year���s resolution involving money for the past few years. It was to wait until age 70 to claim Social Security. In return for my delay, I was rewarded with a far bigger check.
If I were a young fellow again, I���d make a New Year's resolution to invest some money in a low-cost, broad-based stock index fund. The next year, I would make a resolution to not touch the money. In fact, I���d make that same resolution every year until I retired.
Think about all the money you would earn by waiting many decades before you withdrew the money. Your investment would generate earnings that are reinvested and those reinvested earnings would then generate their own earnings. Your money would grow exponentially over time. It���s called compounding. But I like to call it waiting���because you have to wait a long time to truly reap the benefits of compounding.
Now, that resolution won���t work as well for me because of my age. The waiting period isn���t long enough for me to take full advantage of compounding. That���s why it���s better to start early.
Another key word is patience. Have the patience to wait many years before you touch the money you invested���just like I had the patience to wait for a larger Social Security check.
If you���re looking for a good New Year���s resolution involving money, it often involves waiting and being patient. Those are two great ways to behave when managing money.
The post Resolved: Be Patient appeared first on HumbleDollar.
Name That Bias
THE FOUNDERS of economics were prodigious thinkers. They tended to believe that others shared their brainpower and so would do as they did���wrinkle their brow, think deeply and make the best choices with their scarce resources.
Problem is, this isn���t how most of us operate. Instead, we take mental shortcuts. This is understandable: We���d never rise from the breakfast table to begin our day if we rigorously analyzed the health effects of eggs, orange juice and coffee. Evolution has also favored those who thought in shortcuts. If our ancestors pondered whether an object in the jungle was a stick or a snake, they might have been bitten. It was better to react to the uncertainty by jumping away.
The mental shortcuts that humans take aren���t random, but show persistent ���leans��� or biases. That���s good news. It means many can be identified and countered if we slow down and think a bit harder. To help in this endeavor, here are 17 common financial biases that researchers have identified.
Anchoring. It���s hard to objectively value an asset, so many people rely on shortcuts. As the fair market value, they fix on the price they paid or some peak price the asset reached. Someone who won���t sell for less is said to be ���anchored��� on a particular price. But assets, alas, have no memory and aren���t obliged to return to that price again.
Availability bias. People overestimate the value of the information that���s most accessible in their memory. If they have a roommate who day-trades meme stocks, it might seem like a more reasonable investment than cold logic would suggest. If everyone in our circle is buzzing about nonfungible tokens, goldmining shares or taxi medallions, their intrinsic worth may seem more certain to us.
Blindspot bias. We���re all subject to biases, but we recognize them more readily in others than in ourselves. It���s safe to assume that we���re all off-base in some way. But we may imagine that we have perfectly sound reasons for every action we take.
Choice overload. Shoppers who encountered 24 flavors of jelly bought��less jelly than shoppers who had to choose among six flavors. When faced with a difficult decision, many times we simply decide not to decide. The cost can be high if we put off enrolling in the 401(k) or making an estate plan. Researchers find this is best overcome through simplification���providing one page of step-by-step directions.
Company stock bias. Enron employees held 60% of their 401(k) assets in Enron stock as the company sailed toward bankruptcy. Employees often think company stock is ���safe��� because the firm���s buildings and brands are ever-present. But any single stock is far riskier than a mutual fund because it���s undiversified, plus workers stand to lose both their job and their savings should the company fail.
Confirmation bias. We tend to value information that bolsters our opinion and dismiss anything that contradicts it. In fact, some people become even more firmly wedded to their opinion as contradictory evidence mounts, like the bearish investors who feel more certain that a crash is inevitable when a bull market charges ahead for decades.
Endorsement effect. If a 401(k) offers five actively managed funds and one index fund, employees tilt their contributions toward actively managed funds. The larger number of active offerings is seen as a tacit��endorsement by their employer, and so drives how many employees divvy up their contributions. What to do? The adoption of target-date funds has helped employees allocate their savings more rationally.
Endowment effect. We tend to value what we own more highly than others might because parting with it feels like a loss. Hanging on to Grandma���s Limoges figurines will cause little harm. But unflagging loyalty to faltering companies, such as Eastman Kodak or Bethlehem Steel, can decimate a portfolio.
Home country bias. At a time when Australian companies made up 3.5% of global stock market value, Australian��stock investors, on average, held more than 73% of their money in Australian shares. Investors everywhere prefer to invest in familiar companies from their own country. This usually means we���re underweight foreign shares, which reduces diversification and increases risk.
House money bias. People feel freer to spend money from a successful investment, inheritance or lottery than they do with funds earned through work. This ���play money��� effect is especially pronounced in casinos, where winnings are more easily risked, despite the fact that $100 is worth $100, no matter how it arrived in our purse or wallet.
Loss aversion. We tend to feel the pain of loss roughly twice as acutely as the pleasure of gain, making investors reluctant to sell losing positions because they must confront the pain of loss. Often, the wiser course is to sell losing positions quickly and without remorse, while letting winning positions run by holding onto them���and yet people tend to do the opposite.
Mental accounting. People segregate their money by its purpose. In reality, all money is fungible, which means it���s interchangeable. Mental accounting can help people reach their goals by making the money set aside for, say, the kids��� college costs seem inaccessible for the parents��� Caribbean vacation.
Overconfidence. Humans possess a healthy amount of optimism even when it isn���t justified. When told that 80% of new restaurants fail within five years, optimistic entrepreneurs often explain why this doesn���t apply to their situation ���because.���
Planning fallacy. When undertaking a project, we imagine only clear sailing. We don���t make allowances for price increases, late deliveries, bad weather, builders��� errors or permit delays. As a result, everything from kitchen remodels to airport expansions take longer and cost more than anticipated.
Recency. This is the belief that recent conditions will persist. People buy stocks when they���ve been going up and valuations are already high. After a bear market, they balk at buying shares at lower valuations because they expect the price slide to continue. Money flows into mutual funds often go ���the wrong way,��� as people���in aggregate���buy at high prices and sell after a sharp drop.
Salience. Our attention is drawn to what���s novel or dramatic. Seeing someone claim a $100 million Powerball jackpot on TV plants the idea that we, too, might win. The cost of a taxi ride seems high because the meter is clicking away. By contrast, the cost of car ownership���gas, insurance, repairs, loan payments���may not feel as great because it goes unquantified.
Sunk cost fallacy. People sometimes add more money to losing positions in hopes of a turnaround. The first money is ���sunk��� or gone. Adding more funds may make the eventual loss worse, and yet a farmer or factory owner may drain away a lifetime of profits to keep a declining enterprise going. Ditto for desperate gamblers, who may bet the ranch on a final hand to try to recoup their losses. A wiser strategy: Weigh each investment or bet on its own merits.
Greg Spears is HumbleDollar's��deputy editor.��Earlier in his career, he worked as a reporter for the Knight Ridder Washington Bureau and Kiplinger���s Personal Finance magazine. After leaving journalism, Greg spent 23 years as a senior editor at Vanguard Group on the 401(k) side, where he implored people to save more for retirement. He currently teaches behavioral economics at St. Joseph���s University in Philadelphia as an adjunct professor. The subject helps shed light on why so many Americans save less than they might. Greg is also a Certified Financial Planner certificate holder. Check out his earlier articles.
Problem is, this isn���t how most of us operate. Instead, we take mental shortcuts. This is understandable: We���d never rise from the breakfast table to begin our day if we rigorously analyzed the health effects of eggs, orange juice and coffee. Evolution has also favored those who thought in shortcuts. If our ancestors pondered whether an object in the jungle was a stick or a snake, they might have been bitten. It was better to react to the uncertainty by jumping away.
The mental shortcuts that humans take aren���t random, but show persistent ���leans��� or biases. That���s good news. It means many can be identified and countered if we slow down and think a bit harder. To help in this endeavor, here are 17 common financial biases that researchers have identified.
Anchoring. It���s hard to objectively value an asset, so many people rely on shortcuts. As the fair market value, they fix on the price they paid or some peak price the asset reached. Someone who won���t sell for less is said to be ���anchored��� on a particular price. But assets, alas, have no memory and aren���t obliged to return to that price again.
Availability bias. People overestimate the value of the information that���s most accessible in their memory. If they have a roommate who day-trades meme stocks, it might seem like a more reasonable investment than cold logic would suggest. If everyone in our circle is buzzing about nonfungible tokens, goldmining shares or taxi medallions, their intrinsic worth may seem more certain to us.
Blindspot bias. We���re all subject to biases, but we recognize them more readily in others than in ourselves. It���s safe to assume that we���re all off-base in some way. But we may imagine that we have perfectly sound reasons for every action we take.
Choice overload. Shoppers who encountered 24 flavors of jelly bought��less jelly than shoppers who had to choose among six flavors. When faced with a difficult decision, many times we simply decide not to decide. The cost can be high if we put off enrolling in the 401(k) or making an estate plan. Researchers find this is best overcome through simplification���providing one page of step-by-step directions.
Company stock bias. Enron employees held 60% of their 401(k) assets in Enron stock as the company sailed toward bankruptcy. Employees often think company stock is ���safe��� because the firm���s buildings and brands are ever-present. But any single stock is far riskier than a mutual fund because it���s undiversified, plus workers stand to lose both their job and their savings should the company fail.
Confirmation bias. We tend to value information that bolsters our opinion and dismiss anything that contradicts it. In fact, some people become even more firmly wedded to their opinion as contradictory evidence mounts, like the bearish investors who feel more certain that a crash is inevitable when a bull market charges ahead for decades.
Endorsement effect. If a 401(k) offers five actively managed funds and one index fund, employees tilt their contributions toward actively managed funds. The larger number of active offerings is seen as a tacit��endorsement by their employer, and so drives how many employees divvy up their contributions. What to do? The adoption of target-date funds has helped employees allocate their savings more rationally.
Endowment effect. We tend to value what we own more highly than others might because parting with it feels like a loss. Hanging on to Grandma���s Limoges figurines will cause little harm. But unflagging loyalty to faltering companies, such as Eastman Kodak or Bethlehem Steel, can decimate a portfolio.
Home country bias. At a time when Australian companies made up 3.5% of global stock market value, Australian��stock investors, on average, held more than 73% of their money in Australian shares. Investors everywhere prefer to invest in familiar companies from their own country. This usually means we���re underweight foreign shares, which reduces diversification and increases risk.
House money bias. People feel freer to spend money from a successful investment, inheritance or lottery than they do with funds earned through work. This ���play money��� effect is especially pronounced in casinos, where winnings are more easily risked, despite the fact that $100 is worth $100, no matter how it arrived in our purse or wallet.
Loss aversion. We tend to feel the pain of loss roughly twice as acutely as the pleasure of gain, making investors reluctant to sell losing positions because they must confront the pain of loss. Often, the wiser course is to sell losing positions quickly and without remorse, while letting winning positions run by holding onto them���and yet people tend to do the opposite.
Mental accounting. People segregate their money by its purpose. In reality, all money is fungible, which means it���s interchangeable. Mental accounting can help people reach their goals by making the money set aside for, say, the kids��� college costs seem inaccessible for the parents��� Caribbean vacation.
Overconfidence. Humans possess a healthy amount of optimism even when it isn���t justified. When told that 80% of new restaurants fail within five years, optimistic entrepreneurs often explain why this doesn���t apply to their situation ���because.���
Planning fallacy. When undertaking a project, we imagine only clear sailing. We don���t make allowances for price increases, late deliveries, bad weather, builders��� errors or permit delays. As a result, everything from kitchen remodels to airport expansions take longer and cost more than anticipated.
Recency. This is the belief that recent conditions will persist. People buy stocks when they���ve been going up and valuations are already high. After a bear market, they balk at buying shares at lower valuations because they expect the price slide to continue. Money flows into mutual funds often go ���the wrong way,��� as people���in aggregate���buy at high prices and sell after a sharp drop.
Salience. Our attention is drawn to what���s novel or dramatic. Seeing someone claim a $100 million Powerball jackpot on TV plants the idea that we, too, might win. The cost of a taxi ride seems high because the meter is clicking away. By contrast, the cost of car ownership���gas, insurance, repairs, loan payments���may not feel as great because it goes unquantified.
Sunk cost fallacy. People sometimes add more money to losing positions in hopes of a turnaround. The first money is ���sunk��� or gone. Adding more funds may make the eventual loss worse, and yet a farmer or factory owner may drain away a lifetime of profits to keep a declining enterprise going. Ditto for desperate gamblers, who may bet the ranch on a final hand to try to recoup their losses. A wiser strategy: Weigh each investment or bet on its own merits.
Greg Spears is HumbleDollar's��deputy editor.��Earlier in his career, he worked as a reporter for the Knight Ridder Washington Bureau and Kiplinger���s Personal Finance magazine. After leaving journalism, Greg spent 23 years as a senior editor at Vanguard Group on the 401(k) side, where he implored people to save more for retirement. He currently teaches behavioral economics at St. Joseph���s University in Philadelphia as an adjunct professor. The subject helps shed light on why so many Americans save less than they might. Greg is also a Certified Financial Planner certificate holder. Check out his earlier articles.The post appeared first on HumbleDollar.
January 5, 2022
No Comparison
TARGET-DATE FUNDS from Vanguard Group are, I believe, fantastic products. My first investment was a $3,000 purchase of Vanguard Target Date 2045 Fund (symbol: VTIVX) in late December 2005, shortly after I turned age 18. That was also my first Roth IRA contribution.
A target-date fund is an off-the-shelf globally diversified portfolio that automatically becomes more conservative over time. You don���t have to do any fiddling with the allocation, such as rebalancing or adjusting down your portfolio���s risk level. It���s a terrific, hands-off investment vehicle for building long-term wealth.
I���m concerned at the moment, however. Last year featured monster gains in the S&P 500 and Nasdaq 100. Even the broad Vanguard Total Stock Market ETF (VTI) returned almost 26% in 2021. By contrast, Vanguard Target Retirement 2060 Fund (VTTSX) was up ���just��� 16%. While that gain is nothing to sniff at, relative return differences can be powerful. And dangerous.
I fear that 401(k) plan participants will see 2021 returns early this year and simply allocate to the biggest winners. That might be fine���owning a low-cost S&P 500 index fund will probably work out okay over the decades ahead. Still, a large-cap U.S. index fund misses out on the diversification benefits that come with owning other stock market segments, such as U.S. small-cap stocks and foreign shares.
Recency bias plagues us as investors. If we aren���t careful, we can pick the hot index fund one year, and then ditch it when it has the inevitable stretch of sour returns compared to other index funds. Target-date funds help keep that kind of performance chasing in check.
My tip: As you review your portfolio, don���t get lulled into thinking that what worked over the past few years will keep winning. A diversified, low-cost approach that doesn���t require tinkering is a solid strategy for long-term investment success.
A target-date fund is an off-the-shelf globally diversified portfolio that automatically becomes more conservative over time. You don���t have to do any fiddling with the allocation, such as rebalancing or adjusting down your portfolio���s risk level. It���s a terrific, hands-off investment vehicle for building long-term wealth.
I���m concerned at the moment, however. Last year featured monster gains in the S&P 500 and Nasdaq 100. Even the broad Vanguard Total Stock Market ETF (VTI) returned almost 26% in 2021. By contrast, Vanguard Target Retirement 2060 Fund (VTTSX) was up ���just��� 16%. While that gain is nothing to sniff at, relative return differences can be powerful. And dangerous.
I fear that 401(k) plan participants will see 2021 returns early this year and simply allocate to the biggest winners. That might be fine���owning a low-cost S&P 500 index fund will probably work out okay over the decades ahead. Still, a large-cap U.S. index fund misses out on the diversification benefits that come with owning other stock market segments, such as U.S. small-cap stocks and foreign shares.
Recency bias plagues us as investors. If we aren���t careful, we can pick the hot index fund one year, and then ditch it when it has the inevitable stretch of sour returns compared to other index funds. Target-date funds help keep that kind of performance chasing in check.
My tip: As you review your portfolio, don���t get lulled into thinking that what worked over the past few years will keep winning. A diversified, low-cost approach that doesn���t require tinkering is a solid strategy for long-term investment success.
The post No Comparison appeared first on HumbleDollar.
Getting by on Less
I LEARNED TO LIVE a lot more cheaply after I lost my job at age 58���and that���s allowed me to retire with a less-than-average income.
After getting laid off, I spent 18 months searching unsuccessfully for a position that reflected my experience and education. I ended up taking an administrative office job at 40% less pay.
Although I was already a thrifty and cautious person, my life became a lot leaner for the next four years, until I retired at 64. Here���s how I coped:
Housing. Living by myself in a two-bedroom condo, I decided to take in a roommate. I didn���t really want to be sharing living space in my 60s, but my roommate���s rent helped a lot over the next three years.
Transportation. I took advantage of free bus passes subsidized by my employer for my work commute, thereby saving on parking and gas. I had to get up extra early���and get home late���to catch the bus on my route, but it helped to preserve my paid-off 2007 car.
Medical. For many years, I���ve had a CareCredit card to pay for extraordinary medical or dental expenses. I���ve always made sure to pay it off before any interest accrued. I���ve also tried to stay healthy through diet and exercise.
Groceries and household items. I planned all my meals and shopped prudently for groceries, going to several stores each week. I took lunch to work every day except on paydays. I also discovered that most of the household items you can buy at dollar stores are just as good, or almost as good, as those at higher-cost stores.
Vacations. I went away for a couple of long weekends each year to places within easy driving distance. I usually stayed with friends or family.
Entertainment. I never had anything more than truly basic cable, even when I was making more money. No CNN, Weather Channel, MSNBC. But I soon cut the cable entirely, and did so earlier than most people. Also, I rarely went to restaurants, bars, movies, concerts or plays.
Clothing and gifts. I���m a huge fan of off-price stores such as T.J. Maxx, Marshalls and Ross. I haven���t paid full retail prices in many years. And you might be surprised at the nice items, and even new things, that you can find at thrift stores.
When my employer offered a modest incentive to retire early to reduce expenses during the pandemic, I was happy to leave. I���d determined that my Social Security and state pension would almost equal my take-home pay. Both checks are heavily based on my earlier years in the workforce, when I had a much higher salary.
In my first year of retirement, I have���mostly���been able to live even more cheaply:
I have more time to plan and cook homemade meals, so I no longer rely on frozen fare as often. I also see the value in making larger meals and freezing portions. I wrote about cooking in retirement for Medium.
I can wear pretty much the same clothes all the time, so I���m not buying much new.
For entertainment, I subscribe to five streaming channels and still pay less than my previous cable bill.
I no longer have a roommate. Some good news: My condo���s value is finally showing some decent price appreciation.
Unfortunately, I felt the need to buy a newer car, as I wrote about��back in October. That means I now have a car payment, but I also have a more reliable vehicle. In retirement, I have the time for long road trips, instead of flying and renting a vehicle. And I���m thinking of camping more often on trips because the Honda Fit can be adapted for sleeping. Most important, in these days of shocking gas pump prices, it gets 33 mpg in the city and 40 on the highway.
As my retirement has been entirely during the pandemic, I got used to eating almost all my meals at home. I could never live on my income if I went out to restaurants as often as most people do. When I did go out to eat a few times earlier last year, I could never finish my portions. Not only do I save a lot of money by rarely eating out, I���m also saving calories, too.
I have to pay a lot more for medical insurance. My old employer���s subsidized coverage cost me just $50 a month. But my Medicare Part B climbs to $170.10 a month in 2022. I chose a Medicare Advantage plan when I turned 65 last summer, which has no premium. So far, coverage has been okay. I took advantage of the one-time opportunity to transfer part of my IRA into a health savings account without tax penalty. Fidelity Investments provides a convenient debit card linked to this account.
Inflation, of course, makes my low-cost retirement more challenging. That���s why I write a Medium blog and freelance for HumbleDollar and other sites. I don���t expect big windfalls, but it���s nice to have extra pocket money.
Ron Wayne spent 26 years working for newspapers in Pennsylvania and Georgia before becoming the editor in the University of Florida���s main news office. During his 10 years working there, he earned his master���s degree in mass communication and taught as an adjunct in the College of Journalism and Communications. Since retiring last fall, he���s enjoyed a simple life, including reflecting on his experiences on
Medium.com
. Check out Ron's earlier articles.
After getting laid off, I spent 18 months searching unsuccessfully for a position that reflected my experience and education. I ended up taking an administrative office job at 40% less pay.
Although I was already a thrifty and cautious person, my life became a lot leaner for the next four years, until I retired at 64. Here���s how I coped:
Housing. Living by myself in a two-bedroom condo, I decided to take in a roommate. I didn���t really want to be sharing living space in my 60s, but my roommate���s rent helped a lot over the next three years.
Transportation. I took advantage of free bus passes subsidized by my employer for my work commute, thereby saving on parking and gas. I had to get up extra early���and get home late���to catch the bus on my route, but it helped to preserve my paid-off 2007 car.
Medical. For many years, I���ve had a CareCredit card to pay for extraordinary medical or dental expenses. I���ve always made sure to pay it off before any interest accrued. I���ve also tried to stay healthy through diet and exercise.
Groceries and household items. I planned all my meals and shopped prudently for groceries, going to several stores each week. I took lunch to work every day except on paydays. I also discovered that most of the household items you can buy at dollar stores are just as good, or almost as good, as those at higher-cost stores.
Vacations. I went away for a couple of long weekends each year to places within easy driving distance. I usually stayed with friends or family.
Entertainment. I never had anything more than truly basic cable, even when I was making more money. No CNN, Weather Channel, MSNBC. But I soon cut the cable entirely, and did so earlier than most people. Also, I rarely went to restaurants, bars, movies, concerts or plays.
Clothing and gifts. I���m a huge fan of off-price stores such as T.J. Maxx, Marshalls and Ross. I haven���t paid full retail prices in many years. And you might be surprised at the nice items, and even new things, that you can find at thrift stores.
When my employer offered a modest incentive to retire early to reduce expenses during the pandemic, I was happy to leave. I���d determined that my Social Security and state pension would almost equal my take-home pay. Both checks are heavily based on my earlier years in the workforce, when I had a much higher salary.
In my first year of retirement, I have���mostly���been able to live even more cheaply:
I have more time to plan and cook homemade meals, so I no longer rely on frozen fare as often. I also see the value in making larger meals and freezing portions. I wrote about cooking in retirement for Medium.
I can wear pretty much the same clothes all the time, so I���m not buying much new.
For entertainment, I subscribe to five streaming channels and still pay less than my previous cable bill.
I no longer have a roommate. Some good news: My condo���s value is finally showing some decent price appreciation.
Unfortunately, I felt the need to buy a newer car, as I wrote about��back in October. That means I now have a car payment, but I also have a more reliable vehicle. In retirement, I have the time for long road trips, instead of flying and renting a vehicle. And I���m thinking of camping more often on trips because the Honda Fit can be adapted for sleeping. Most important, in these days of shocking gas pump prices, it gets 33 mpg in the city and 40 on the highway.
As my retirement has been entirely during the pandemic, I got used to eating almost all my meals at home. I could never live on my income if I went out to restaurants as often as most people do. When I did go out to eat a few times earlier last year, I could never finish my portions. Not only do I save a lot of money by rarely eating out, I���m also saving calories, too.
I have to pay a lot more for medical insurance. My old employer���s subsidized coverage cost me just $50 a month. But my Medicare Part B climbs to $170.10 a month in 2022. I chose a Medicare Advantage plan when I turned 65 last summer, which has no premium. So far, coverage has been okay. I took advantage of the one-time opportunity to transfer part of my IRA into a health savings account without tax penalty. Fidelity Investments provides a convenient debit card linked to this account.
Inflation, of course, makes my low-cost retirement more challenging. That���s why I write a Medium blog and freelance for HumbleDollar and other sites. I don���t expect big windfalls, but it���s nice to have extra pocket money.
Ron Wayne spent 26 years working for newspapers in Pennsylvania and Georgia before becoming the editor in the University of Florida���s main news office. During his 10 years working there, he earned his master���s degree in mass communication and taught as an adjunct in the College of Journalism and Communications. Since retiring last fall, he���s enjoyed a simple life, including reflecting on his experiences on
Medium.com
. Check out Ron's earlier articles.The post Getting by on Less appeared first on HumbleDollar.
January 4, 2022
Resolved: More School
MOST FOLKS DON���T teach and write about a topic until after they���ve earned a degree in the subject. Owing to my career path, and the nebulous nature of my specialty, I���ve done the opposite���with the next step coming in 2022.
I went to law school just after college because���frankly���I had no better plan. I enjoyed being a lawyer, but I knew it wasn���t my passion, so I went into teaching. I loved it. I taught various humanities, mainly at the high school level.
One subject that stuck with me was economics. A school administrator asked me to teach econ because he figured I knew about it as an attorney. The man clearly didn���t know lawyers. Still, I liked it, except that the texts kept addressing students as ���future participants��� in the world of economics, even while I watched them work, shop and otherwise already be a part of consumer culture. On top of that, the world of textbook theory���with its assumption of conscious rational decision-making���isn���t actual reality.
I also saw how my sons, still in elementary school, were already having their consumer habits shaped like stalagmites by constant media drips. Adult marketers told them saving wasn���t as fun as spending, and that they were a nobody if they didn���t show their individualism in the same way everyone else was or didn���t collect all of whatever was the latest hot thing.
I started reading. I dug up my old college psychology books. I studied behavioral economics from Thorstein Veblen ��to Richard Thaler. I pored over books on how to��market��to young people, and then used their strategies to create lessons on how to counter them and empower youth. I published articles and wrote books in the then-nascent area known as consumer economics and media literacy. The field was new, so no one had a degree.
Now, I���m retired. My wife and I call this our ���third life,��� our time to wander and wonder. If you���ve read our stuff, you know we have done just that. We traveled and lived abroad. We have now returned to Dallas, but that doesn���t mean our wandering and wondering have stopped. We���re taking it inwards���by going back to school.
There���s still no degree specifically in media literacy, but the University of Texas at Dallas offers an MAIS, or Master of Arts in Interdisciplinary Studies. With much trepidation, I wrote the dean a long letter that basically asked, ���Am I crazy?��� She wrote back and then we spoke on the phone, sketching out a program combining a bit of economics, marketing, communication and psychology. She offered to waive the GRE and other entrance requirements, given that I already had a law degree. She made it easy and welcoming. How could I say no?
At age 60, I plan to be back at school this spring. I���m scared and excited. It will probably cost $36,000 to $45,000 when all���s said and done, plus a lot of time and effort. Can I remember how to be a student after 35 years? Can I hack it academically? And what do you wear to school dances nowadays?
It���s daunting. But I feel that���in my retirement���I now have the money and time to follow my passion. It���s just taken a lifetime of experiences to figure out what that passion is.
I went to law school just after college because���frankly���I had no better plan. I enjoyed being a lawyer, but I knew it wasn���t my passion, so I went into teaching. I loved it. I taught various humanities, mainly at the high school level.
One subject that stuck with me was economics. A school administrator asked me to teach econ because he figured I knew about it as an attorney. The man clearly didn���t know lawyers. Still, I liked it, except that the texts kept addressing students as ���future participants��� in the world of economics, even while I watched them work, shop and otherwise already be a part of consumer culture. On top of that, the world of textbook theory���with its assumption of conscious rational decision-making���isn���t actual reality.
I also saw how my sons, still in elementary school, were already having their consumer habits shaped like stalagmites by constant media drips. Adult marketers told them saving wasn���t as fun as spending, and that they were a nobody if they didn���t show their individualism in the same way everyone else was or didn���t collect all of whatever was the latest hot thing.
I started reading. I dug up my old college psychology books. I studied behavioral economics from Thorstein Veblen ��to Richard Thaler. I pored over books on how to��market��to young people, and then used their strategies to create lessons on how to counter them and empower youth. I published articles and wrote books in the then-nascent area known as consumer economics and media literacy. The field was new, so no one had a degree.
Now, I���m retired. My wife and I call this our ���third life,��� our time to wander and wonder. If you���ve read our stuff, you know we have done just that. We traveled and lived abroad. We have now returned to Dallas, but that doesn���t mean our wandering and wondering have stopped. We���re taking it inwards���by going back to school.
There���s still no degree specifically in media literacy, but the University of Texas at Dallas offers an MAIS, or Master of Arts in Interdisciplinary Studies. With much trepidation, I wrote the dean a long letter that basically asked, ���Am I crazy?��� She wrote back and then we spoke on the phone, sketching out a program combining a bit of economics, marketing, communication and psychology. She offered to waive the GRE and other entrance requirements, given that I already had a law degree. She made it easy and welcoming. How could I say no?
At age 60, I plan to be back at school this spring. I���m scared and excited. It will probably cost $36,000 to $45,000 when all���s said and done, plus a lot of time and effort. Can I remember how to be a student after 35 years? Can I hack it academically? And what do you wear to school dances nowadays?
It���s daunting. But I feel that���in my retirement���I now have the money and time to follow my passion. It���s just taken a lifetime of experiences to figure out what that passion is.
The post Resolved: More School appeared first on HumbleDollar.
Double Agent
MY MOM HAD PLANNED to look for a new home near my wife and me in 2022. In November 2021, I searched Realtor.com to see what was available. I saw a home that looked like a good fit, but its status was listed as ���pending.��� On a whim, I called the selling agent. It turned out that the house was falling out of escrow. We made an offer.
We didn���t have an agent, so the selling agent offered to represent us. This dual-agent approach is allowed in California. While I was wary of having the seller���s agent also represent us, it ultimately worked in our favor.
The first benefit: Our offer was accepted. That���s no small feat in today���s hot real estate market. Given that the property fell out of escrow once, the seller didn���t want it to fall out again. The agent got to know us and she conveyed to the seller that we were solid buyers. I believe this was a big factor in our offer being accepted over two others that were made around the same time.
Another benefit was that the agent shared some of the extra commission that came from representing both parties. The seller received net proceeds higher than the prior deal, and we paid a lower price than what was previously contracted. While the agent was surely the biggest beneficiary of the arrangement, she made it a ���win-win-win��� for all involved.
A final benefit: All requested fixes were accepted by the seller. In the real estate transactions I���ve been through, the ���fix it��� list seems to be the point at which animosity peaks between buyer and seller. That was not the case this time. It was difficult for the seller to turn away a request list that was presented to him by his own agent. There was no back and forth. All fixes were made and the deal is now done.
What should you do if you���re involved in a dual-agent transaction? The key piece of advice I���d offer: Hire your own inspector. We ignored the list of inspectors presented to us by the agent, and instead hired a professional recommended by someone else.
We didn���t have an agent, so the selling agent offered to represent us. This dual-agent approach is allowed in California. While I was wary of having the seller���s agent also represent us, it ultimately worked in our favor.
The first benefit: Our offer was accepted. That���s no small feat in today���s hot real estate market. Given that the property fell out of escrow once, the seller didn���t want it to fall out again. The agent got to know us and she conveyed to the seller that we were solid buyers. I believe this was a big factor in our offer being accepted over two others that were made around the same time.
Another benefit was that the agent shared some of the extra commission that came from representing both parties. The seller received net proceeds higher than the prior deal, and we paid a lower price than what was previously contracted. While the agent was surely the biggest beneficiary of the arrangement, she made it a ���win-win-win��� for all involved.
A final benefit: All requested fixes were accepted by the seller. In the real estate transactions I���ve been through, the ���fix it��� list seems to be the point at which animosity peaks between buyer and seller. That was not the case this time. It was difficult for the seller to turn away a request list that was presented to him by his own agent. There was no back and forth. All fixes were made and the deal is now done.
What should you do if you���re involved in a dual-agent transaction? The key piece of advice I���d offer: Hire your own inspector. We ignored the list of inspectors presented to us by the agent, and instead hired a professional recommended by someone else.
The post Double Agent appeared first on HumbleDollar.
In Search of Balance
���WHEN THE FACTS change, I change my mind. What do you do, sir?��� Those words are sometimes attributed to Paul Samuelson, one of the the 20th century's most influential economists. Due to a litany of cognitive biases���especially status quo and confirmation bias���letting go of cherished beliefs is easier said than done.
Which brings me to the topic of bonds and, more specifically, their role in the classic balanced portfolio of 60% stocks and 40% bonds. This mix is often the starting point for the moderate-risk investor seeking to balance risk and return. Since 1926, it���s generated an impressive 9.1% annualized return and has done so with far less volatility than an all-stock portfolio. Its worst year was 1931, when it fell 26.6%.
But one fact has changed over the past century, and it makes the historical record moot. Nominal interest rates are at rock-bottom levels���not just decade lows, but multi-century lows.
Bonds serve two primary roles in a portfolio: income and ballast. With bond yields near zero before inflation and deeply negative after inflation, income is not a great reason to hold bonds, perhaps with the exception of Series I savings bonds.
What about as ballast for a portfolio? A major appeal of bonds, particularly Treasurys and investment-grade bonds, is their relative price stability and the inverse correlation that bond prices often have with share prices. As I���m fond of saying, a bad year in the bond market can be matched or exceeded by a bad day in the stock market.
But investing is all about risk and return. With the 10-year Treasury yielding just 1.6%, is that measly return really worth the interest rate risk posed by potentially rising rates? In a 60-40 portfolio, a 1.6% bond yield contributes just 0.64% to the overall portfolio���s return, and that���s before taxes.
Furthermore, the great awakening of inflation could be a double whammy for bonds. First, real bond returns are reduced directly by inflation. Should the inflation rate persist at 6.8%, as it���s been over the past year, a 1.6% nominal yield equates to a real return of roughly -5%. Worse yet, if rising inflation leads to higher interest rates, bond investors would also suffer capital losses as the price of their bonds fall.
In short, traditional bonds may not protect investors as they have historically. A perfect storm of lower stock and bond prices is a real risk. What are the alternatives? While there are no perfect substitutes, here are some to consider:
1. Series I savings bonds and TIPS. Despite having negative yields to maturity, TIPS���Treasury Inflation-Protected Securities���do offer inflation protection. But they still carry interest rate risk, the risk they'll face in price if rates rise. That���s why I favor I bonds. Unfortunately, the amount of I bonds you can purchase is quite limited. Start buying some today.
2. Immediate fixed annuities. It may seem ironic that annuities would be a bond alternative, given that insurance companies invest annuity premiums primarily in��� bonds. But the secret sauce of annuities is mortality credits���money left over from annuitants who die earlier than expected. This boosts the income that annuities can provide and, at the same time, reduces longevity risk in retirement. Unfortunately, inflation is a very real risk if you own income annuities. If possible, you may want to ladder your annuity purchases.
3. Cash investment or very short duration bonds. Despite some famous naysayers��who have recently called cash ���trash,��� think of short duration bonds and cash investments as the ballast in your portfolio. Yes, they will lose you money after inflation. But holding a small portion of your portfolio in these investments can be extremely valuable when markets go haywire, as they do from time to time.
4. Precious metals. For the record, I���m not a gold bug. But as an inflation hedge, I have a small allocation to gold and gold-mining companies. Gold has been a store of value for thousands of years and I���m betting that it will remain so. I view my allocation to gold as an insurance policy. A 5% to 10% allocation seems reasonable given the unprecedented degree of monetary stimulus.
5. Cryptocurrencies. Just kidding. My apologies to crypto HODLers.
John Lim is a physician and author of "How to Raise Your Child's Financial IQ," which is available as both a free PDF and a Kindle edition.��Follow John on Twitter @JohnTLim��and check out his earlier articles.
Which brings me to the topic of bonds and, more specifically, their role in the classic balanced portfolio of 60% stocks and 40% bonds. This mix is often the starting point for the moderate-risk investor seeking to balance risk and return. Since 1926, it���s generated an impressive 9.1% annualized return and has done so with far less volatility than an all-stock portfolio. Its worst year was 1931, when it fell 26.6%.
But one fact has changed over the past century, and it makes the historical record moot. Nominal interest rates are at rock-bottom levels���not just decade lows, but multi-century lows.
Bonds serve two primary roles in a portfolio: income and ballast. With bond yields near zero before inflation and deeply negative after inflation, income is not a great reason to hold bonds, perhaps with the exception of Series I savings bonds.
What about as ballast for a portfolio? A major appeal of bonds, particularly Treasurys and investment-grade bonds, is their relative price stability and the inverse correlation that bond prices often have with share prices. As I���m fond of saying, a bad year in the bond market can be matched or exceeded by a bad day in the stock market.
But investing is all about risk and return. With the 10-year Treasury yielding just 1.6%, is that measly return really worth the interest rate risk posed by potentially rising rates? In a 60-40 portfolio, a 1.6% bond yield contributes just 0.64% to the overall portfolio���s return, and that���s before taxes.
Furthermore, the great awakening of inflation could be a double whammy for bonds. First, real bond returns are reduced directly by inflation. Should the inflation rate persist at 6.8%, as it���s been over the past year, a 1.6% nominal yield equates to a real return of roughly -5%. Worse yet, if rising inflation leads to higher interest rates, bond investors would also suffer capital losses as the price of their bonds fall.
In short, traditional bonds may not protect investors as they have historically. A perfect storm of lower stock and bond prices is a real risk. What are the alternatives? While there are no perfect substitutes, here are some to consider:
1. Series I savings bonds and TIPS. Despite having negative yields to maturity, TIPS���Treasury Inflation-Protected Securities���do offer inflation protection. But they still carry interest rate risk, the risk they'll face in price if rates rise. That���s why I favor I bonds. Unfortunately, the amount of I bonds you can purchase is quite limited. Start buying some today.
2. Immediate fixed annuities. It may seem ironic that annuities would be a bond alternative, given that insurance companies invest annuity premiums primarily in��� bonds. But the secret sauce of annuities is mortality credits���money left over from annuitants who die earlier than expected. This boosts the income that annuities can provide and, at the same time, reduces longevity risk in retirement. Unfortunately, inflation is a very real risk if you own income annuities. If possible, you may want to ladder your annuity purchases.
3. Cash investment or very short duration bonds. Despite some famous naysayers��who have recently called cash ���trash,��� think of short duration bonds and cash investments as the ballast in your portfolio. Yes, they will lose you money after inflation. But holding a small portion of your portfolio in these investments can be extremely valuable when markets go haywire, as they do from time to time.
4. Precious metals. For the record, I���m not a gold bug. But as an inflation hedge, I have a small allocation to gold and gold-mining companies. Gold has been a store of value for thousands of years and I���m betting that it will remain so. I view my allocation to gold as an insurance policy. A 5% to 10% allocation seems reasonable given the unprecedented degree of monetary stimulus.
5. Cryptocurrencies. Just kidding. My apologies to crypto HODLers.
John Lim is a physician and author of "How to Raise Your Child's Financial IQ," which is available as both a free PDF and a Kindle edition.��Follow John on Twitter @JohnTLim��and check out his earlier articles.The post In Search of Balance appeared first on HumbleDollar.
January 3, 2022
Resolved: Worry Less
FOR AS LONG AS I CAN remember, I���ve been a worrier. I���ve spent too much time fretting about any number of things. I worry about money. I worry about my health. It���s not too much of an exaggeration to say there are times when I worry about not having enough to worry about.
As I get closer to retirement, I���ve resolved to limit how much time I spend worrying about the future. I���ve come to realize many of the decisions that have kept me up at night are things I have little control over. I���ve learned planning and diligence only go so far in providing peace of mind. Luck and timing play as much���and perhaps more���of a role in success. Worrying, as far as I can tell, has never changed the outcome of any decision I���ve ever made.
For years, I worried about how much money I had and whether I was investing it the ���right��� way. Now, at age 54, I have nearly $500,000 in my primary retirement account. I���m content with how I have the funds invested. If the future goes as I hope it will, it���ll be at least a decade before I have to draw any money out of my account.
Despite feeling reasonably satisfied with my finances, I can still find things to worry about. My grandmother will celebrate her 101st birthday this spring. If I inherited her longevity genes, it���s possible I could spend more than 45 years in retirement. In that case, a $500,000 nest egg won���t exactly allow me to have a carefree lifestyle.
On the other hand, I���m keenly aware of my own mortality. Over the past 12 months, four of my high school classmates have unexpectedly passed away. The thought of not getting to enjoy any of the money I���ve worked so diligently to set aside isn���t a pleasant one.
Logically, I know neither of those extreme scenarios is likely to occur. Actuarial��tables suggest I���ll live to be 86 years old. And worrying about how much or little time I have left isn���t going to change anything anyway.
Leaving behind a lifetime habit of worrying isn���t easy. Several years ago, I filled a notebook with every possible scenario I could think of regarding my future. I tried to predict stock market rates of return, inflation rates and future salary increases. I guessed at potential retirement dates and researched areas of the country with the lowest cost of living in case I needed to relocate. I hoped channeling my anxiety into some sort of vague life plan would alleviate the stress I was experiencing.
Now, looking back, none of the predictions I made a decade ago looks anything like where I stand today. I didn���t predict I���d own two homes before I retired. I didn���t foresee getting remarried. I didn���t forecast a worldwide pandemic, the highest inflation rate in recent history or the dramatic rise in housing values that have persisted over the past two years.
I���m finally able to accept that I can't control much of what will happen to me in the future. Instead of worrying, I���m resolving to spend more of my time enjoying what I do have and appreciating how far I���ve come.
As I get closer to retirement, I���ve resolved to limit how much time I spend worrying about the future. I���ve come to realize many of the decisions that have kept me up at night are things I have little control over. I���ve learned planning and diligence only go so far in providing peace of mind. Luck and timing play as much���and perhaps more���of a role in success. Worrying, as far as I can tell, has never changed the outcome of any decision I���ve ever made.
For years, I worried about how much money I had and whether I was investing it the ���right��� way. Now, at age 54, I have nearly $500,000 in my primary retirement account. I���m content with how I have the funds invested. If the future goes as I hope it will, it���ll be at least a decade before I have to draw any money out of my account.
Despite feeling reasonably satisfied with my finances, I can still find things to worry about. My grandmother will celebrate her 101st birthday this spring. If I inherited her longevity genes, it���s possible I could spend more than 45 years in retirement. In that case, a $500,000 nest egg won���t exactly allow me to have a carefree lifestyle.
On the other hand, I���m keenly aware of my own mortality. Over the past 12 months, four of my high school classmates have unexpectedly passed away. The thought of not getting to enjoy any of the money I���ve worked so diligently to set aside isn���t a pleasant one.
Logically, I know neither of those extreme scenarios is likely to occur. Actuarial��tables suggest I���ll live to be 86 years old. And worrying about how much or little time I have left isn���t going to change anything anyway.
Leaving behind a lifetime habit of worrying isn���t easy. Several years ago, I filled a notebook with every possible scenario I could think of regarding my future. I tried to predict stock market rates of return, inflation rates and future salary increases. I guessed at potential retirement dates and researched areas of the country with the lowest cost of living in case I needed to relocate. I hoped channeling my anxiety into some sort of vague life plan would alleviate the stress I was experiencing.
Now, looking back, none of the predictions I made a decade ago looks anything like where I stand today. I didn���t predict I���d own two homes before I retired. I didn���t foresee getting remarried. I didn���t forecast a worldwide pandemic, the highest inflation rate in recent history or the dramatic rise in housing values that have persisted over the past two years.
I���m finally able to accept that I can't control much of what will happen to me in the future. Instead of worrying, I���m resolving to spend more of my time enjoying what I do have and appreciating how far I���ve come.
The post Resolved: Worry Less appeared first on HumbleDollar.
