Jonathan Clements's Blog, page 256
November 3, 2021
Lining Up Money
EARLY LAST YEAR, just as the pandemic was starting, we were looking to buy a new home in an area where houses sold quickly���but we feared selling our existing home would be far slower. In addition, home prices in the new area were substantially higher.
We had no first mortgage on our existing house and no desire to take one out for the new home. Still, we wanted to strike quickly if we found the right place to buy, and that would mean coming up with cash at short notice. I began to consider which investments to sell. Problem is, selling would mean triggering taxes and potentially missing out on investment gains, so we wanted to limit the amount of investments we sold���which we did by borrowing the maximum possible on our HELOC, or home equity line of credit.
HELOCs can play a crucial role as part of a family���s emergency plan. But they can also be used to transfer equity from your current home to a new house. We had a 10-year line of credit as an emergency source of funds. We hadn���t tapped the HELOC during the first nine years we had it. But last year, it was the emergency cash we needed���even if we weren���t facing a true emergency.
By borrowing the full amount allowed by the credit line, we reduced the amount of investments we had to sell. It worked like a charm: We were able to buy the new house for cash. Our investments continued to grow, while we paid minimal interest on the borrowing. As soon as our old home sold, we repaid the loan.
Intrigued by our strategy? Make sure you apply for the HELOC while you still have a paycheck coming in���because you���re far more likely to be approved.
We had no first mortgage on our existing house and no desire to take one out for the new home. Still, we wanted to strike quickly if we found the right place to buy, and that would mean coming up with cash at short notice. I began to consider which investments to sell. Problem is, selling would mean triggering taxes and potentially missing out on investment gains, so we wanted to limit the amount of investments we sold���which we did by borrowing the maximum possible on our HELOC, or home equity line of credit.
HELOCs can play a crucial role as part of a family���s emergency plan. But they can also be used to transfer equity from your current home to a new house. We had a 10-year line of credit as an emergency source of funds. We hadn���t tapped the HELOC during the first nine years we had it. But last year, it was the emergency cash we needed���even if we weren���t facing a true emergency.
By borrowing the full amount allowed by the credit line, we reduced the amount of investments we had to sell. It worked like a charm: We were able to buy the new house for cash. Our investments continued to grow, while we paid minimal interest on the borrowing. As soon as our old home sold, we repaid the loan.
Intrigued by our strategy? Make sure you apply for the HELOC while you still have a paycheck coming in���because you���re far more likely to be approved.
The post Lining Up Money appeared first on HumbleDollar.
One Step at a Time
IN MY LATE 20s, I found that I was 15 pounds heavier than when I was in high school. My cholesterol was over 200 and rising. I was huffing and puffing while mowing the lawn.
I didn���t like where this was going, plus I didn���t want to buy a new set of business suits. I decided that investing in my health was as important as investing for my wealth. If my health was shot by the time I retired, my wealth would bring me less happiness.
To get started, I applied the concept of continuous quality improvement (QI) to my goal of becoming healthier. QI is practically a religion in health care, where I worked for 30 years. The notion originated in Japanese manufacturing. The idea: continually add incremental value for the customer.
One model for QI is the PDCA (plan, do, check, act) cycle. Once an opportunity for improvement is identified, you push it through these four steps:
Brainstorm how to make it better (plan)
Implement your best ideas for improvement (do)
Use data to evaluate whether you���re truly adding value (check)
Adjust based on data-driven evidence of what works and what doesn���t (act)
One thing I like about this approach: It allowed me to take small steps. I���ve noticed that big lifestyle leaps often aren���t sustainable. Just as success in personal finance can be achieved by simple, inexpensive processes followed diligently over a long period of time, improvements in personal wellness can be achieved in much the same way.
I didn���t have a lot of extra time, and it was the middle of winter. My plan was to wake up 20 minutes early to jump rope. I started slowly, but eventually could jump rope for the entire 20 minutes.
No trainer would want this to be your only exercise. But it worked for me. I was seeing results and getting in the habit of exercising. Most important, it was a routine that I enjoyed.
At the same time, I started making small dietary changes. Oatmeal for breakfast and smarter choices in the cafeteria at lunch. The pounds fell off.
Chronic diseases are a drag on the retirement of many Americans, sucking up their time, money and quality of life. These include all types of heart and circulatory diseases, diabetes, arthritis, kidney disease, chronic obstructive pulmonary disease, depression and Alzheimer���s disease.
To reduce the incidence of these conditions, health experts recommend attaining a small set of measurable goals: Maintain a body mass index of 25 or less. Blood pressure should be less than 120/80. Total cholesterol should be under 200, and glucose under 100.
Many people can make progress toward these through good behaviors. Don���t use tobacco, lose weight if necessary, eat right by keeping salts and fats in check, drink moderately, get a good night���s rest, reduce stress and exercise daily.
Does that list seem overwhelming? That���s where QI shows its value. My approach of jumping rope isn���t for everyone, but it worked. Find what works for you.
For instance, instead of watching TV after work, walk one mile in the neighborhood. No fitness expert would say this is sufficient in itself, but what���s better, TV or a walk? As the Nike ad says, ���Just do it.���
After a week, set a new goal: to walk two miles in 30 minutes. It may take a few weeks to get there. Later on, you may decide to run for 10 minutes and walk for 20. And so on.
Don���t burn out by overdoing it in the beginning. Start small and continuously improve. There can be remarkably little cost to this approach. No gym fees. No personal trainer. No expensive diets are required. Just buy a good pair of sneakers and make incrementally better food choices.
Epilogue: After jumping rope for a few months, my next improvement cycle���undertaken in warmer weather���led me to run outdoors. I started slow, and added time and distance goals gradually.
I never ran a marathon, and I���ve run five miles only twice in my life. But I ran 30 minutes per outing, three to four times a week, for years.
My wife and I found ways to incrementally improve our diets, too. I was happy to see my numbers improve. Despite working in a high-stress, sedentary job, I retired with normal readings for body mass index, cholesterol, glucose and blood pressure. I could readily run a 5K. Oh, and when I retired, my weight was 15 pounds less than when I was in high school. QI works.
Howard Rohleder, a former chief executive of a community hospital, retired early after more than 30 years in hospital administration. In retirement, he enjoys serving on several nonprofit boards, exploring walking paths with his wife Susan, and visiting their six grandchildren. A little-known fact: In May 1994, Howard was featured���along with five others���on the cover of Kiplinger���s Personal Finance for an article titled ���Secrets of My Investment Success.��� Check out his previous��articles.
I didn���t like where this was going, plus I didn���t want to buy a new set of business suits. I decided that investing in my health was as important as investing for my wealth. If my health was shot by the time I retired, my wealth would bring me less happiness.
To get started, I applied the concept of continuous quality improvement (QI) to my goal of becoming healthier. QI is practically a religion in health care, where I worked for 30 years. The notion originated in Japanese manufacturing. The idea: continually add incremental value for the customer.
One model for QI is the PDCA (plan, do, check, act) cycle. Once an opportunity for improvement is identified, you push it through these four steps:
Brainstorm how to make it better (plan)
Implement your best ideas for improvement (do)
Use data to evaluate whether you���re truly adding value (check)
Adjust based on data-driven evidence of what works and what doesn���t (act)
One thing I like about this approach: It allowed me to take small steps. I���ve noticed that big lifestyle leaps often aren���t sustainable. Just as success in personal finance can be achieved by simple, inexpensive processes followed diligently over a long period of time, improvements in personal wellness can be achieved in much the same way.
I didn���t have a lot of extra time, and it was the middle of winter. My plan was to wake up 20 minutes early to jump rope. I started slowly, but eventually could jump rope for the entire 20 minutes.
No trainer would want this to be your only exercise. But it worked for me. I was seeing results and getting in the habit of exercising. Most important, it was a routine that I enjoyed.
At the same time, I started making small dietary changes. Oatmeal for breakfast and smarter choices in the cafeteria at lunch. The pounds fell off.
Chronic diseases are a drag on the retirement of many Americans, sucking up their time, money and quality of life. These include all types of heart and circulatory diseases, diabetes, arthritis, kidney disease, chronic obstructive pulmonary disease, depression and Alzheimer���s disease.
To reduce the incidence of these conditions, health experts recommend attaining a small set of measurable goals: Maintain a body mass index of 25 or less. Blood pressure should be less than 120/80. Total cholesterol should be under 200, and glucose under 100.
Many people can make progress toward these through good behaviors. Don���t use tobacco, lose weight if necessary, eat right by keeping salts and fats in check, drink moderately, get a good night���s rest, reduce stress and exercise daily.
Does that list seem overwhelming? That���s where QI shows its value. My approach of jumping rope isn���t for everyone, but it worked. Find what works for you.
For instance, instead of watching TV after work, walk one mile in the neighborhood. No fitness expert would say this is sufficient in itself, but what���s better, TV or a walk? As the Nike ad says, ���Just do it.���
After a week, set a new goal: to walk two miles in 30 minutes. It may take a few weeks to get there. Later on, you may decide to run for 10 minutes and walk for 20. And so on.
Don���t burn out by overdoing it in the beginning. Start small and continuously improve. There can be remarkably little cost to this approach. No gym fees. No personal trainer. No expensive diets are required. Just buy a good pair of sneakers and make incrementally better food choices.
Epilogue: After jumping rope for a few months, my next improvement cycle���undertaken in warmer weather���led me to run outdoors. I started slow, and added time and distance goals gradually.
I never ran a marathon, and I���ve run five miles only twice in my life. But I ran 30 minutes per outing, three to four times a week, for years.
My wife and I found ways to incrementally improve our diets, too. I was happy to see my numbers improve. Despite working in a high-stress, sedentary job, I retired with normal readings for body mass index, cholesterol, glucose and blood pressure. I could readily run a 5K. Oh, and when I retired, my weight was 15 pounds less than when I was in high school. QI works.
Howard Rohleder, a former chief executive of a community hospital, retired early after more than 30 years in hospital administration. In retirement, he enjoys serving on several nonprofit boards, exploring walking paths with his wife Susan, and visiting their six grandchildren. A little-known fact: In May 1994, Howard was featured���along with five others���on the cover of Kiplinger���s Personal Finance for an article titled ���Secrets of My Investment Success.��� Check out his previous��articles.The post One Step at a Time appeared first on HumbleDollar.
November 2, 2021
An Incentive to Help
THE 2017 TAX CUTS and Jobs Act doubled the standard deduction. It���s estimated that 90% of households took the standard deduction in 2018, rather than itemizing, up from 69% in 2017.
The tax-code overhaul essentially means it costs more to donate to your favorite qualifying charities���unless you���re among the 10% whose itemized deductions exceed their standard deduction. To be sure, we shouldn���t give to charity solely for the potential tax benefit. Even if you itemize and hence you can deduct your gift, you���ll still be out of pocket.
That said, for those of us who claim the standard deduction, there is an added financial incentive to give in 2021. If you make a $300 cash donation by Dec. 31, you can take a deduction on your tax return���even if you don���t itemize. A similar write-off was put in place by the CARES Act for the 2020 tax year.
Say you���re in the 22% marginal tax bracket. A $300 charitable contribution means you���ll save $66 in taxes. Nobody���s going to retire on that windfall. But perhaps you can use it as an excuse to enjoy a (thrifty) date night. Alternatively, you might add the amount of the tax break to your donation, so you give even more to your favorite nonprofit.
Some additional good news: If you���re married filing jointly, you can get double the deduction with a $600 donation. That���s an increase from last year, when couples were limited to $300.
The tax-code overhaul essentially means it costs more to donate to your favorite qualifying charities���unless you���re among the 10% whose itemized deductions exceed their standard deduction. To be sure, we shouldn���t give to charity solely for the potential tax benefit. Even if you itemize and hence you can deduct your gift, you���ll still be out of pocket.
That said, for those of us who claim the standard deduction, there is an added financial incentive to give in 2021. If you make a $300 cash donation by Dec. 31, you can take a deduction on your tax return���even if you don���t itemize. A similar write-off was put in place by the CARES Act for the 2020 tax year.
Say you���re in the 22% marginal tax bracket. A $300 charitable contribution means you���ll save $66 in taxes. Nobody���s going to retire on that windfall. But perhaps you can use it as an excuse to enjoy a (thrifty) date night. Alternatively, you might add the amount of the tax break to your donation, so you give even more to your favorite nonprofit.
Some additional good news: If you���re married filing jointly, you can get double the deduction with a $600 donation. That���s an increase from last year, when couples were limited to $300.
The post An Incentive to Help appeared first on HumbleDollar.
Hello Retirement
MY WIFE AND I continue to modify our retirement plan in response to changes in our lives. Most of the changes have to do with the timing of both our retirements. But there���s also the puzzling question of which investment accounts we should draw on for income. More on that later.
First, a bit of background: I started receiving my pension at the end of 2017, after I stopped working fulltime. We expected to start drawing on our retirement savings in 2018. But an unexpected career opportunity for my wife, plus some attractive consulting gigs for me, made that unnecessary.
I just turned 64. My wife is six months younger. She originally thought she���d work through the end of 2021, but she stopped at the end of June. This required us to switch from her insurance to mine for medical benefits.
During the pandemic, I���ve had limited opportunity for additional consulting work. That could change next year or even in the fourth quarter. But I���m not counting on a lot of income. Anything I earn, I���ll consider ���found��� money.
With work winding down, it���s time to execute our retirement plan���including starting portfolio withdrawals in 2022. Here���s our general framework:
Pension. When I started my pension, I chose the 75% joint-and-survivor option. Should I predecease my wife, she���d continue to collect three-quarters of my pension.
Housing. We are now settled into our home on the New Jersey shore. We���re planning upgrades to the bathrooms, but those should be the last big-ticket improvements for a while.
Health insurance. We���ll use my pension���s retiree medical plan until we enroll in Medicare. We chose a high-deductible plan, and use our health savings account to pay out-of-pocket costs. Once we���re enrolled in Medicare, we can join a subsidized Medigap plan offered by my pension plan.
Retirement income. We have enough cash in our Vanguard Group accounts to fund three years of spending. I plan to automate monthly transfers to our online checking accounts.
Social Security. We intend to delay Social Security at least until full retirement age. For me, that���s 66 and six months. For my wife, it���s 66 and eight months. We might delay payments until 70 to maximize our benefits. We���ll evaluate this each year to see if anything has happened to change our decision.
Taxes. I plan to watch this closely, especially as we take withdrawals from tax-deferred retirement accounts. I���ll also look for opportunities to make Roth conversions.
Like many people, we have multiple financial accounts. We have joint checking, savings and taxable investment accounts. We each have rollover IRAs and Roth IRAs, plus I have a solo 401(k). We invest primarily in low-cost index funds.
This raises a question I hadn���t thought about previously. When spouses each have individual retirement assets, whose traditional IRA should we draw from first? Until we reach age 72, there���s no requirement to withdraw any amount from these accounts.
Should we draw from whoever���s account is currently largest? Should we draw from the person with the shortest life expectancy? I did some research, but couldn���t find consistent guidance on how to treat multiple accounts owned by a couple, so I���m still pondering the question.
I���ve never tried to have each of our accounts mirror the others in portfolio composition. Instead, I���ve looked at the whole of our accounts to make sure they match our overall asset allocation target.
For example, my wife���s IRA is primarily invested in U.S. stocks. My account is a bit larger, so I���ve used that account to diversify across U.S. shares, foreign stocks, cash and bonds. I use my account to rebalance our overall portfolio as thing change. This has worked well for us so far. I plan to keep this structure, taking annual withdrawals from my account and allowing hers to grow.
But is that the right strategy? I���d be interested to learn how others have approached this question. Any advice?
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.
First, a bit of background: I started receiving my pension at the end of 2017, after I stopped working fulltime. We expected to start drawing on our retirement savings in 2018. But an unexpected career opportunity for my wife, plus some attractive consulting gigs for me, made that unnecessary.
I just turned 64. My wife is six months younger. She originally thought she���d work through the end of 2021, but she stopped at the end of June. This required us to switch from her insurance to mine for medical benefits.
During the pandemic, I���ve had limited opportunity for additional consulting work. That could change next year or even in the fourth quarter. But I���m not counting on a lot of income. Anything I earn, I���ll consider ���found��� money.
With work winding down, it���s time to execute our retirement plan���including starting portfolio withdrawals in 2022. Here���s our general framework:
Pension. When I started my pension, I chose the 75% joint-and-survivor option. Should I predecease my wife, she���d continue to collect three-quarters of my pension.
Housing. We are now settled into our home on the New Jersey shore. We���re planning upgrades to the bathrooms, but those should be the last big-ticket improvements for a while.
Health insurance. We���ll use my pension���s retiree medical plan until we enroll in Medicare. We chose a high-deductible plan, and use our health savings account to pay out-of-pocket costs. Once we���re enrolled in Medicare, we can join a subsidized Medigap plan offered by my pension plan.
Retirement income. We have enough cash in our Vanguard Group accounts to fund three years of spending. I plan to automate monthly transfers to our online checking accounts.
Social Security. We intend to delay Social Security at least until full retirement age. For me, that���s 66 and six months. For my wife, it���s 66 and eight months. We might delay payments until 70 to maximize our benefits. We���ll evaluate this each year to see if anything has happened to change our decision.
Taxes. I plan to watch this closely, especially as we take withdrawals from tax-deferred retirement accounts. I���ll also look for opportunities to make Roth conversions.
Like many people, we have multiple financial accounts. We have joint checking, savings and taxable investment accounts. We each have rollover IRAs and Roth IRAs, plus I have a solo 401(k). We invest primarily in low-cost index funds.
This raises a question I hadn���t thought about previously. When spouses each have individual retirement assets, whose traditional IRA should we draw from first? Until we reach age 72, there���s no requirement to withdraw any amount from these accounts.
Should we draw from whoever���s account is currently largest? Should we draw from the person with the shortest life expectancy? I did some research, but couldn���t find consistent guidance on how to treat multiple accounts owned by a couple, so I���m still pondering the question.
I���ve never tried to have each of our accounts mirror the others in portfolio composition. Instead, I���ve looked at the whole of our accounts to make sure they match our overall asset allocation target.
For example, my wife���s IRA is primarily invested in U.S. stocks. My account is a bit larger, so I���ve used that account to diversify across U.S. shares, foreign stocks, cash and bonds. I use my account to rebalance our overall portfolio as thing change. This has worked well for us so far. I plan to keep this structure, taking annual withdrawals from my account and allowing hers to grow.
But is that the right strategy? I���d be interested to learn how others have approached this question. Any advice?
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.The post Hello Retirement appeared first on HumbleDollar.
November 1, 2021
Why So Low?
IF THERE���S ONE THING that confuses me no end, it���s this: Why are interest rates���specifically long-term Treasury yields���so low?
The yield on the 10-year Treasury note has lately been close to 1.6%, with 30-year Treasurys at around 2%. Yet year-over-year inflation is currently somewhere between 4.4% and 5.4%, depending on your favored metric.
Think about what this means: Inflation-adjusted yields for both 10-year and 30-year Treasurys are deeply negative, assuming inflation remains elevated. Here are five theories for why Treasury yields are so low:
1. Quantitative easing is suppressing yields. Since the onset of the pandemic, the Federal Reserve has been buying $80 billion in Treasury debt each month, along with $40 billion in mortgage-backed securities. Increased demand leads to higher bond prices, which translates to lower bond yields.
This theory may soon be tested. The Fed is expected to begin tapering its quantitative easing as soon as this month and may phase out bond purchases altogether by mid-2022.
2. Yields elsewhere are even lower. Sovereign��debt in Europe and Japan sport even lower yields than the U.S. Yields on German and Japanese 10-year bonds both hover near zero. By comparison, 10-year Treasurys at 1.6% or so don���t seem so bad. This is the ���best house in a bad neighborhood��� argument.
But given the inflationary pressures building globally, this argument seems tenuous. Consumer prices in Germany, for example, recently rose at their fastest pace in 28 years.
3. Investors are counting on the Fed to keep a lid on inflation. It���s hard to change mindsets, especially those forged over the past four decades. As I discussed a few months ago, most everyone on Wall Street, including those working at the Federal Reserve, have only experienced a benign inflationary environment.
A related point: Does the Fed have the will to slay the inflationary dragon should it reappear? More and more, investors have come to assume that the Fed has their back. The last time the Fed tried raising interest rates, it had to reverse course���known as the ���Powell pivot������when the stock market threw a tantrum in late 2018. What will the Fed do if the stock market throws another fit as it tries to raise rates?
4. The Fed is already engaging in yield curve control. Yield curve control is to long-term interest rates what the federal funds rate is to short-term rates. The Fed dictates short-term rates by setting the fed funds rate. In theory, it has little control over long-term rates, which are determined by the market, though influenced by the Fed���s bond-buying program.
Still, the Federal Reserve has been studying yield curve control as another potential policy tool. The notion: Strive to keep longer-term bonds at or below target interest rates. While the Fed hasn���t officially embarked down this path, it���s conceivable that it has been quietly testing it out.
5. Investors believe inflation will be transitory. This is the best-case scenario for Wall Street and Main Street alike. No one benefits from inflation. Well, almost no one. Debtors benefit from inflation because their fixed payments are made in dollars that become less valuable over time.
As pointed out by fellow HumbleDollar writer Mike Zaccardi, we are nowhere near the stagflation of the 1970s and early 1980s. Perhaps this inflation scare will be a case of the barking dog that never bites. Given the immense complexity of the economy, I have no strong convictions either way. If you believe in the collective wisdom of markets, this is the theory that makes most sense.
The yield on the 10-year Treasury note has lately been close to 1.6%, with 30-year Treasurys at around 2%. Yet year-over-year inflation is currently somewhere between 4.4% and 5.4%, depending on your favored metric.
Think about what this means: Inflation-adjusted yields for both 10-year and 30-year Treasurys are deeply negative, assuming inflation remains elevated. Here are five theories for why Treasury yields are so low:
1. Quantitative easing is suppressing yields. Since the onset of the pandemic, the Federal Reserve has been buying $80 billion in Treasury debt each month, along with $40 billion in mortgage-backed securities. Increased demand leads to higher bond prices, which translates to lower bond yields.
This theory may soon be tested. The Fed is expected to begin tapering its quantitative easing as soon as this month and may phase out bond purchases altogether by mid-2022.
2. Yields elsewhere are even lower. Sovereign��debt in Europe and Japan sport even lower yields than the U.S. Yields on German and Japanese 10-year bonds both hover near zero. By comparison, 10-year Treasurys at 1.6% or so don���t seem so bad. This is the ���best house in a bad neighborhood��� argument.
But given the inflationary pressures building globally, this argument seems tenuous. Consumer prices in Germany, for example, recently rose at their fastest pace in 28 years.
3. Investors are counting on the Fed to keep a lid on inflation. It���s hard to change mindsets, especially those forged over the past four decades. As I discussed a few months ago, most everyone on Wall Street, including those working at the Federal Reserve, have only experienced a benign inflationary environment.
A related point: Does the Fed have the will to slay the inflationary dragon should it reappear? More and more, investors have come to assume that the Fed has their back. The last time the Fed tried raising interest rates, it had to reverse course���known as the ���Powell pivot������when the stock market threw a tantrum in late 2018. What will the Fed do if the stock market throws another fit as it tries to raise rates?
4. The Fed is already engaging in yield curve control. Yield curve control is to long-term interest rates what the federal funds rate is to short-term rates. The Fed dictates short-term rates by setting the fed funds rate. In theory, it has little control over long-term rates, which are determined by the market, though influenced by the Fed���s bond-buying program.
Still, the Federal Reserve has been studying yield curve control as another potential policy tool. The notion: Strive to keep longer-term bonds at or below target interest rates. While the Fed hasn���t officially embarked down this path, it���s conceivable that it has been quietly testing it out.
5. Investors believe inflation will be transitory. This is the best-case scenario for Wall Street and Main Street alike. No one benefits from inflation. Well, almost no one. Debtors benefit from inflation because their fixed payments are made in dollars that become less valuable over time.
As pointed out by fellow HumbleDollar writer Mike Zaccardi, we are nowhere near the stagflation of the 1970s and early 1980s. Perhaps this inflation scare will be a case of the barking dog that never bites. Given the immense complexity of the economy, I have no strong convictions either way. If you believe in the collective wisdom of markets, this is the theory that makes most sense.
The post Why So Low? appeared first on HumbleDollar.
Going Paperless
AFTER THE DEATH of my father-in-law, I helped my mother-in-law organize and simplify their finances. One task I distinctly remember: taking her to the local bank, where she cashed in dozens of old savings bonds, some past their maturity date. It was a tedious process.
It wasn���t just my late father-in-law who failed to stay on top of such things. Last year, I discovered an envelope full of Series I savings bonds that I���d forgotten about.
With the recent jump in inflation, there���s been a surge of interest in I bonds. This morning, the Treasury Department announced the yield for bonds sold during the next six months���7.12%. That annualized yield only applies for the first six months that buyers hold their Series I bonds. That 7.12% is also the annualized inflation adjustment over the next six months for bonds that were previously purchased.
All this has given me an incentive to complete a task I���d long been meaning to accomplish: Convert my savings bonds from paper to digital.
What���s involved? First, you have to create an account at TreasuryDirect.gov. You���ll need personal information, including your Social Security number, bank account details and e-mail.
Once the account is created, click on the tab at the top that says ���ManageDirect.��� When the ���ManageDirect��� page comes up, find the ���Manage My Conversions��� section and click on the ���how to convert my paper bonds��� link. Follow the directions to create what���s called a ���Conversion Linked Account.��� This is the account that will electronically store your bonds once they���re converted.
Next, designate the registered owner of the bonds, and input the bond type, denomination, serial numbers and issue dates. When you���re done, you create a manifest list that you print, sign and mail to TreasuryDirect, along with the paper bonds.
About a week after I sent in my paper bonds, I received an e-mail from TreasuryDirect stating it had received my bonds and was processing them. When I checked the site 13 days later, I saw the bonds listed in my conversion account.
As a test, I also purchased a new Series I bond. It was easy using the ���BuyDirect��� tab on the main page. Now I have a primary account containing the new bond and a linked account for my converted bonds.
I���m happy I made the effort. I no longer have to worry about losing the physical bonds. It���ll also be easy to redeem bonds whenever I want.
I always felt good about investing in savings bonds. The aerospace companies I worked for encouraged employees to participate by sponsoring easy-to-use payroll savings plans. The TreasuryDirect site can provide that same ease of use to everyone.
It wasn���t just my late father-in-law who failed to stay on top of such things. Last year, I discovered an envelope full of Series I savings bonds that I���d forgotten about.
With the recent jump in inflation, there���s been a surge of interest in I bonds. This morning, the Treasury Department announced the yield for bonds sold during the next six months���7.12%. That annualized yield only applies for the first six months that buyers hold their Series I bonds. That 7.12% is also the annualized inflation adjustment over the next six months for bonds that were previously purchased.
All this has given me an incentive to complete a task I���d long been meaning to accomplish: Convert my savings bonds from paper to digital.
What���s involved? First, you have to create an account at TreasuryDirect.gov. You���ll need personal information, including your Social Security number, bank account details and e-mail.
Once the account is created, click on the tab at the top that says ���ManageDirect.��� When the ���ManageDirect��� page comes up, find the ���Manage My Conversions��� section and click on the ���how to convert my paper bonds��� link. Follow the directions to create what���s called a ���Conversion Linked Account.��� This is the account that will electronically store your bonds once they���re converted.
Next, designate the registered owner of the bonds, and input the bond type, denomination, serial numbers and issue dates. When you���re done, you create a manifest list that you print, sign and mail to TreasuryDirect, along with the paper bonds.
About a week after I sent in my paper bonds, I received an e-mail from TreasuryDirect stating it had received my bonds and was processing them. When I checked the site 13 days later, I saw the bonds listed in my conversion account.
As a test, I also purchased a new Series I bond. It was easy using the ���BuyDirect��� tab on the main page. Now I have a primary account containing the new bond and a linked account for my converted bonds.
I���m happy I made the effort. I no longer have to worry about losing the physical bonds. It���ll also be easy to redeem bonds whenever I want.
I always felt good about investing in savings bonds. The aerospace companies I worked for encouraged employees to participate by sponsoring easy-to-use payroll savings plans. The TreasuryDirect site can provide that same ease of use to everyone.
The post Going Paperless appeared first on HumbleDollar.
Priced Less
I REMEMBER GOING to my grandparents on holidays. At each place at the dinner table was a cloth napkin in a sterling silver napkin ring. It was the thing to do at the time. Each napkin ring was unique and quite old. I still have mine.
When my wife and I were married in 1968, two things she wanted were sterling silver flatware and Lenox china. We got the silver as a wedding present and eventually built up enough Lenox china to serve 12.
On our first trip to Ireland, a must stop was the Waterford crystal factory. I remember it well. They gave you a clipboard to roam the showroom and check off your purchases. You were assigned a counselor to help you decide. My wife was good at deciding. A few weeks after we arrived home, we received two large boxes of crystal. Our new prized possessions, including water and wine glasses, cost $80 each���and that was more than 15 years ago.
On trips to Europe, we gained more treasures from Meissen, Lladro, Wedgwood and Royal Doulton. Sadly, Royal Doulton stopped making the teacups with hand-painted Periwinkles.
On my wife���s 40th birthday, I gave her a limited addition Lenox decorative bowl. It had great emotional value. Four children running around a dining room table waving a box of cereal managed to shatter that dream. We glued it together and, after a long search, found a replacement���for the bowl, not the children.
Where is all that stuff today?
Most is packed away in cabinets and closets. If we use the china and sterling once a year, it���s a lot. About the same for the Waterford. The treasured pieces of Lladro and such are carefully displayed in a curio cabinet.
What is it all worth? In terms of memories, priceless. In terms of cash, I���m not sure. It seems such unnecessary niceties have fallen out of favor. I recently found glasses in our Waterford pattern at a local thrift shop. When we downsized, we asked our children what they wanted, and got blank stares and no interest. Is fine dining at home a thing of the past?
It���s a good thing our treasures weren���t an investment. I would have done better with Beanie Babies. Last April, Hippity the Rabbit sold for $20,000.
The post Priced Less appeared first on HumbleDollar.
October’s Hits
WHAT GOT EYEBALLS in October? Last month was the best ever for HumbleDollar in terms of total pageviews���and these were the seven most popular articles:
How'd you like a yield of 7% or so? John Lim runs the numbers on Series I savings bonds.
What's the most important financial decision most workers ever make? Charley Ellis's contention: It's when they opt to claim Social Security retirement benefits.
When Ron Wayne turned 65 earlier this year, he opted for a Medicare Advantage plan. But he's already unhappy with his choice���and wondering whether it's worth the time and effort to change plans.
Should you prepay your mortgage? Roth or traditional? When should you rebalance? There may be optimal answers to such questions. But simple solutions are often better, says Adam Grossman.
What triggers higher Medicare premiums and how can you avoid them? Rick Connor spends time with IRMAA, those much-loathed income-related monthly adjustment amounts.
"Chances are high that most of us would substantially reduce the amount we have in bonds if we considered our total portfolio," argues Charley Ellis. "Our portfolio may be far more defensive than it should be."
If you'll have modest taxable income in 2021, you might convert your IRA to a Roth. But don't overlook another big opportunity, says Michael Perry: selling stocks at a 0% capital gains rate.
Meanwhile, the most popular blog posts��were Greg Spears on Vanguard's broken promise and subsequent reversal, Dennis Friedman on Medicare��and on feeling wealthy, John Lim on time diversification, Dick Quinn on 401(k) withdrawals��and Mike Zaccardi on U.S. stocks' dominance.
What about our monthly newsletters? The two best-read were An F in Retirement and Calculated Courage. Finally, among Voices questions, the two most popular asked about when to claim Social Security and whether there's a downside to indexing's popularity.
An update: You might have noticed the new ticker running across the top of HumbleDollar's homepage. It includes daily performance for a dozen exchange-traded index funds representing 12 parts of the global financial markets���arguably a better way to track the markets than focusing on the S&P 500 or Dow industrials, which reflect just large-cap U.S. stocks.
Jonathan Clements is the founder and editor of HumbleDollar. Follow him on Twitter @ClementsMoney and on Facebook, and check out his earlier��articles.
How'd you like a yield of 7% or so? John Lim runs the numbers on Series I savings bonds.
What's the most important financial decision most workers ever make? Charley Ellis's contention: It's when they opt to claim Social Security retirement benefits.
When Ron Wayne turned 65 earlier this year, he opted for a Medicare Advantage plan. But he's already unhappy with his choice���and wondering whether it's worth the time and effort to change plans.
Should you prepay your mortgage? Roth or traditional? When should you rebalance? There may be optimal answers to such questions. But simple solutions are often better, says Adam Grossman.
What triggers higher Medicare premiums and how can you avoid them? Rick Connor spends time with IRMAA, those much-loathed income-related monthly adjustment amounts.
"Chances are high that most of us would substantially reduce the amount we have in bonds if we considered our total portfolio," argues Charley Ellis. "Our portfolio may be far more defensive than it should be."
If you'll have modest taxable income in 2021, you might convert your IRA to a Roth. But don't overlook another big opportunity, says Michael Perry: selling stocks at a 0% capital gains rate.
Meanwhile, the most popular blog posts��were Greg Spears on Vanguard's broken promise and subsequent reversal, Dennis Friedman on Medicare��and on feeling wealthy, John Lim on time diversification, Dick Quinn on 401(k) withdrawals��and Mike Zaccardi on U.S. stocks' dominance.
What about our monthly newsletters? The two best-read were An F in Retirement and Calculated Courage. Finally, among Voices questions, the two most popular asked about when to claim Social Security and whether there's a downside to indexing's popularity.
An update: You might have noticed the new ticker running across the top of HumbleDollar's homepage. It includes daily performance for a dozen exchange-traded index funds representing 12 parts of the global financial markets���arguably a better way to track the markets than focusing on the S&P 500 or Dow industrials, which reflect just large-cap U.S. stocks.
Jonathan Clements is the founder and editor of HumbleDollar. Follow him on Twitter @ClementsMoney and on Facebook, and check out his earlier��articles.The post October’s Hits appeared first on HumbleDollar.
October 31, 2021
Whither Cash?
IT WASN���T LONG AGO that a saver could make a few bucks in a money market fund. In late 2018, the Federal Reserve had hiked short-term interest rates. By early the next year, Vanguard Federal Money Market Fund (symbol: VMFXX) was sporting a yield near 2.5%.
While it might take years to see that sort of juicy risk-free rate again, market observers now believe the Fed will begin a tightening cycle that will lead to higher short-term interest rates. Investors will get an update from Federal Reserve Chair Jerome Powell during his press conference on Wednesday.
Here���s something you can check today: There���s a nifty tool to view the implied future federal funds rate. Right now, it���s suggesting that a money market account might yield 1% by late 2023 and perhaps even 1.5% three years from now. In other words, don���t get your hopes up for lofty money market and savings account yields just yet.
Concerns over inflation are driving the expectation of higher rates. Just last week, the five-year forward breakeven rate, a measure of expected inflation, climbed to almost 3%, the highest reading in its 18-year history.
What���s strange about the recent jump in inflation fears is that medium-term and long-term Treasury yields are under 2%. Perhaps long-run economic growth expectations are tapering off, and that���s reflected in today���s modest yields. One result: To notch a 4% yield, bond investors are currently forced to own high-yield��junk bonds.
We, as small investors, have an advantage, however.
A lot of ink has been devoted to Series I savings bonds over the past six months���with good reason. The annualized yield, which will be updated tomorrow, is likely to be near 7% through April 2022. Even though that lofty rate likely won���t last long, if the market is correct and inflation averages 3% during the next five years, inflation-linked bonds would beat the pants off a five-year Treasury note, which currently offers just 1.2%.
Since the annual purchase limit is $15,000 per person���$10,000 through regular purchases and $5,000 using a tax refund���it doesn���t make much sense for the super-wealthy to bother with Series I savings bonds. But regular folks might amass a position, while they await better money market rates.
While it might take years to see that sort of juicy risk-free rate again, market observers now believe the Fed will begin a tightening cycle that will lead to higher short-term interest rates. Investors will get an update from Federal Reserve Chair Jerome Powell during his press conference on Wednesday.
Here���s something you can check today: There���s a nifty tool to view the implied future federal funds rate. Right now, it���s suggesting that a money market account might yield 1% by late 2023 and perhaps even 1.5% three years from now. In other words, don���t get your hopes up for lofty money market and savings account yields just yet.
Concerns over inflation are driving the expectation of higher rates. Just last week, the five-year forward breakeven rate, a measure of expected inflation, climbed to almost 3%, the highest reading in its 18-year history.
What���s strange about the recent jump in inflation fears is that medium-term and long-term Treasury yields are under 2%. Perhaps long-run economic growth expectations are tapering off, and that���s reflected in today���s modest yields. One result: To notch a 4% yield, bond investors are currently forced to own high-yield��junk bonds.
We, as small investors, have an advantage, however.
A lot of ink has been devoted to Series I savings bonds over the past six months���with good reason. The annualized yield, which will be updated tomorrow, is likely to be near 7% through April 2022. Even though that lofty rate likely won���t last long, if the market is correct and inflation averages 3% during the next five years, inflation-linked bonds would beat the pants off a five-year Treasury note, which currently offers just 1.2%.
Since the annual purchase limit is $15,000 per person���$10,000 through regular purchases and $5,000 using a tax refund���it doesn���t make much sense for the super-wealthy to bother with Series I savings bonds. But regular folks might amass a position, while they await better money market rates.
The post Whither Cash? appeared first on HumbleDollar.
Late Departure
MY WIFE AND I ARE going to New York City for a vacation. One reason we chose New York: We wouldn���t have to deal with inflated rental car prices. We can walk and use public transportation to get where we want to go. Also, it's just a fun place to visit.
Trouble is, I���ve been suffering from foot pain and a bum shoulder. The past few months, I've been trying to stay off my feet to give my foot a chance to heal, knowing we have this trip planned. Meanwhile, I went to physical therapy for my shoulder and it���s much better, so that shouldn���t be a problem. With my shoulder almost pain-free, I should be able to put our carry-on bags in the plane���s overhead compartment without a problem.
My foot, however, could make or break this trip. I know we���re going to be walking a lot. My wife and I went to Montreal three years ago and we walked more than 20,000 steps a day. We probably won���t walk that much on this trip. Still, how much I can walk is an open question.
When I was younger, I remember going for walks with my father when he was retired. While we were walking, I would sometimes say to myself, ���I���ll still be running when I���m his age.��� Well, I���m now his age and running is the last thing on my mind.
The best time to take a trip like this would have been when we were younger and still working. In fact, that���s usually the best time to travel almost anywhere. Many people put off traveling until they���re retired, thinking that���ll be the best time. Yes, you have more time and money. But the problem is, you���re gambling that your health will hold up.
That���s what���s happening to me. I have the time and money to make this trip. But am I healthy enough? I'll soon find out.
Trouble is, I���ve been suffering from foot pain and a bum shoulder. The past few months, I've been trying to stay off my feet to give my foot a chance to heal, knowing we have this trip planned. Meanwhile, I went to physical therapy for my shoulder and it���s much better, so that shouldn���t be a problem. With my shoulder almost pain-free, I should be able to put our carry-on bags in the plane���s overhead compartment without a problem.
My foot, however, could make or break this trip. I know we���re going to be walking a lot. My wife and I went to Montreal three years ago and we walked more than 20,000 steps a day. We probably won���t walk that much on this trip. Still, how much I can walk is an open question.
When I was younger, I remember going for walks with my father when he was retired. While we were walking, I would sometimes say to myself, ���I���ll still be running when I���m his age.��� Well, I���m now his age and running is the last thing on my mind.
The best time to take a trip like this would have been when we were younger and still working. In fact, that���s usually the best time to travel almost anywhere. Many people put off traveling until they���re retired, thinking that���ll be the best time. Yes, you have more time and money. But the problem is, you���re gambling that your health will hold up.
That���s what���s happening to me. I have the time and money to make this trip. But am I healthy enough? I'll soon find out.
The post Late Departure appeared first on HumbleDollar.
