Jonathan Clements's Blog, page 388

Newsletter No. 32

WHAT WILL IT TAKE to achieve a better financial life? It all starts with asking the right questions, as I explain in HumbleDollar’s latest newsletter. Some examples: If money were no object, what would you change about your life? If you were out of work, how long could you cover expenses before having to take drastic financial steps? In late 2008 and early 2009, did you buy stocks, sell or sit tight?

In all, the newsletter offers 31 key questions to ponder. The questions are drawn from my new book, From Here to Financial Happiness, which takes readers on a 77-day journey that helps them figure out where they stand, what they want and what steps they ought to take next. For the next seven days, the hardcover will be available from Amazon for less than $22.50—a 25% discount from the cover price. The Kindle edition, meanwhile, costs $11.99.

Haven’t visited HumbleDollar in recent weeks? Our latest newsletter also offers a rundown of the blogs we’ve published so far this month.

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My Favorite Questions

YOU’RE UNLIKELY to get the right answers—unless you ask the right questions.

That’s especially true when it comes to managing money. We have answers thrust in our faces all the time, as marketers and salespeople exhort us to buy this mutual fund, that car, this stock, that home and this insurance policy.

But are these really what we want or need? It’s hard to know unless we ask the right questions. There’s ample evidence that many folks end up with financial products they don’t need and spend money in ways that bring little or no happiness. It isn’t that we can’t figure out the answers—but to do so, we need to eschew snap decisions and instead take the time to ponder key questions, so we build the financial life we truly want.

That’s the goal of my new book, From Here to Financial Happiness, which was published last week by John Wiley & Sons. The book takes readers on a 77-day journey that helps them figure out where they stand, what they want and what steps they ought to take.

I view all this as a conversation, with questions posed by me and plenty of room in the book for readers to write down their answers. Want to make sure you squeeze maximum happiness from your spending, buy the right portfolio, pursue the goals you really care about and avoid major money mistakes? Consider these 31 questions—all of which are drawn from my new book:

If money were no object, what would you change about your life?
What are your top financial worries?
What are the three smartest financial moves you’ve ever made?
What do you consider your three biggest financial mistakes?
How much financial help should you give a child?
When in your life were you happiest, what made it a happy time—and what role, if any, did money play?
What’s the minimum amount of money you need each month to keep your financial life afloat?
If you were out of work, how long could you cover expenses before having to take drastic financial steps?
What did you learn about money from your parents—and which of these beliefs have you adopted as your own?
Think of three people you know who are in great financial shape. What have been the keys to their financial success?
Is it important to you to drive a nice car and, if so, why?
In the typical week, which moments do you enjoy the most—and which do you dislike the most?
Is getting rich one of your overriding life goals?
Think about your weaknesses. Are they acceptable human failings—or are they inflicting major damage, including major financial damage?
Who depends on you financially—and how would they cope if you suffered an untimely demise?
When is it okay to go into debt?
Think about your life’s major expenditures, like buying homes, purchasing cars, remodeling projects, expensive vacations and paying for college. Which are most likely to make you smile and which ones disappointed you?
What’s on your wish list for major expenditures in the years ahead?
Do you believe a home is a good investment? Why?
What’s your net worth—the value of everything you own, minus all debt?
Does your stock-bond mix reflect your paycheck or lack thereof?
Imagine your perfect retirement day. How would you spend it—and would you be happy doing these things every day for the rest of your life?
Are there children—either your own or somebody else’s—whom you’d like to help financially, and what sort of assistance would you like to provide?
In late 2008 and early 2009, did you buy stocks, sell or sit tight?
How much do you pay in investment costs each year?
If you weren’t burdened by the knowledge of what you hold, what you sold and how markets have fared, would you own your current portfolio?
If you take your bonds and other interest-paying investments, and subtract all your debts, what’s your net bond position?
Are you on track to have all debt paid off by retirement?
If you died tomorrow, would you bequeath a mess?
When was the last time you talked honestly about your finances with somebody?
If you were writing your own obituary, what accomplishments would you include? In the years ahead, what further accomplishments would you like to add?

Special Offer

For the next seven days, the hardcover edition of From Here to Financial Happiness will be available from Amazon for less than $22.50—a 25% discount from full price. Meanwhile, the Kindle edition costs just $11.99. You can also purchase the book from Barnes & Noble and elsewhere.

Latest Blogs

“Americans say it would take $2.4 million to be considered truly wealthy,” writes Richard Quinn. “Only 5% come close. Many more just live like they have that much.”
How does Alan Cronk gauge his son’s money management, now that his son is on his own? “Shortly after graduating in 2016, his credit score was an excellent 810. Today, it stands at a still healthy 791.”
A group of Kanye West’s stock picks has beaten the market by 40 percentage points this year. Adam Grossman asks, what can we learn from his performance?
Dennis Quillen on his divorce: “My wisest decision was preserving my annuity income, mutual funds, future freelance earnings and other income streams, while sacrificing things like the condo, the newest car and lots of furniture.”
What were folks reading on HumbleDollar last month? Check out the seven most popular blogs.
“After the market closed on Oct. 19, I called a stockbroker friend. He said there was sure to be rioting, so he was going to drive into the city, collect his mother from Queens and whisk her to safety.”
Worried about the stock market’s heady gains and considering commodities, hedge funds and other alternative investments? Adam Grossman has a suggestion: Look at bonds instead.
“I kept my cars until it didn’t make economic sense to repair them,” Dennis Friedman recounts. “I learned that, if you were a good saver, you didn’t have to be a good investor to reach your financial goals.”
A financial planner has been stealing content from HumbleDollar without permission. We got our revenge.
“I buy $40 in lottery tickets on the first day of each month,” admits Richard Quinn. “Many years ago, this was part of my retirement plan—the years when I was young and foolish, or maybe just foolish.”
Underpay your own income taxes and you could face modest tax penalties. But fail to pay your employees’ income taxes and things could get really ugly, warns Julian Block.
It looks like retirees will receive Social Security checks that are around 2.7% larger in 2019. Richard Quinn explains the calculation—and debunks two pervasive myths.

Follow Jonathan on Twitter  @ClementsMoney  and on Facebook . His most recent articles include Striking a Chord, Tell Us a Story, Bad News and No Place Like Home.

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Archie Is Scum

A FINANCIAL PLANNER called Archie Nickel is stealing entire articles from HumbleDollar and posting them to his own site—without permission. In the online world, it’s fine to link to interesting articles elsewhere on the web. But it’s a no-no to swipe entire articles. I’ve endeavored to contact the nefarious Nickel, by posting comments on his site and via Twitter, but he’s ignored my requests to stop purloining this site’s blogs and and to remove the blogs he’s previously stolen.

This is my revenge.

It seems Nickel is taking every article from this site’s RSS feed and automatically adding them to his site. When I hit publish, the headline “Archie Is Scum” will appear on his site. (I subsequently took a screen shot of his homepage. Take a look to the right.)

Happy Friday, Archie.

Follow Jonathan on Twitter  @ClementsMoney  and on Facebook . His new book, From Here to Financial Happiness, can now be ordered from Amazon and Barnes & Noble. Jonathan’s most recent articles include Striking a Chord, Tell Us a Story, Bad News and No Place Like Home.

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Lucky One

I OFTEN WONDER: How did I manage to retire early, at age 58? I wasn’t born with a silver spoon in my mouth. I never earned a large salary. I wasn’t a very good investor. I didn’t start saving for retirement until I was in my late 20s.

My future did not look bright. I graduated from college at age 23 with a degree in history. There were not many job openings for a history major. But I had luck on my side. I was born at the right time:

I entered college in 1969, when the cost of an education was inexpensive. I was able to pay my college expenses by working part-time and graduated with no debt.
I found a job in the 1970s with an aerospace company, at a time when manufacturing jobs were still plentiful in the U.S. It was an entry-level job, but there were plenty of opportunities to move up the ladder.
In the beginning, I belonged to a union that negotiated wages and benefits on my behalf. I received yearly raises that helped my salary keep up with inflation. Today, membership in unions is far less widespread.
Companies were still offering pensions and I was eligible for one. Also, I had affordable health care up to age 65. Now, companies rarely offer pensions to new employees. They have also cut back other benefits.
I lived through some of the greatest bull markets. During my years of investing, I have seen the Dow go from 831 to the latest high of 26617.
I retired in January 2009, when the stock market was deeply depressed. I took part of my pension as a lump sum and invested a significant amount in stocks, thus taking advantage of the next bull market.

Yes, I was a lucky one. But along the way to retirement, I also earned my opportunities:

I worked hard and took advantage of every break that came my way. I got my work ethic from my father. He would get up early for work and come home late every evening. I also found myself working long hours and many six-day workweeks.
I learned from my father about saving money, too. He would say, “It’s not how much money you make. It’s what you do with your money that counts.” I bought an affordable condo and retired there. I kept my cars until it didn’t make economic sense to repair them. I learned that, if you were a good saver, you didn’t have to be a good investor to reach your financial goals.
I stayed relevant and current. I went to school at night, while working fulltime, and earned an MBA. I also earned all the certifications required to stay current in my job.
I took advantage of a host of tax-favored saving opportunities: traditional IRAs, Roth IRAs, Roth conversions, 401(k) plans, 401(k) catchup contributions.
I received many promotions during my career, thanks to hard work and social networking.

Unfortunately, future generations may not be as lucky as I was:

Today, college education is unaffordable for many people. According to the Los Angeles Times, “Student loans are now the second largest category of household debt in America, topping $1.4 trillion and trailing only mortgages at $9 trillion.”
Many individuals and families struggle to pay for health care. According to eHealth, the average total cost of health care in 2016 for an unsubsidized customer, including both premiums and deductibles, was more than $8,000 for an individual and almost $18,000 for a family.
Good-paying manufacturing jobs, which allowed many in previous generations to join the middle class, are harder to find. According to the Bureau of Labor Statistics, the U.S. lost some five million manufacturing jobs between 2000 and 2014.
The stock market may not produce the sort of gains for future generations that I enjoyed as an investor. In an interview in October 2017, Vanguard Group founder John C. Bogle forecasted that, over the next decade, stocks would return 4% a year and bonds 3%.

All I was looking for, when I was young, was an opportunity to succeed.  I got that opportunity. I hope future generations will have the same opportunity—but I worry that they won’t.

Dennis Friedman retired at age 58 from Boeing Aerospace Company. He enjoys reading and writing about personal finance. His previous blogs include Friendly Reminder, First Responders and Truth Be Told.

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Running in Place

THE FEDERAL GOVERNMENT today released an inflation measure that’s closely watched—for no good reason.

At issue is CPI-W, the Consumer Price Index for Urban Wage Earners and Clerical Workers. In July, it stood at 246.155. August’s level, which was released this morning, was 246.336. July and August’s levels are two of the three months used to calculate the annual cost-of-living increase for Social Security retirement benefits. The CPI-W for September will be the final factor in determining 2019’s benefits increase.

The average for those three months will be compared to the same three-month stretch in 2017, when CPI-W averaged 239.668. The cost-of-living increase will be based on the difference between those two averages. If September’s CPI-W matches the average of 246.246 for July and August 2018, the cost-of-living increase for Social Security in 2019 will be 2.7%. Got that?

Why am I bothering you with this arcane nonsense? There are two reasons.

First, it makes clear that increases in Social Security are determined by a formula spelled out by the law, and not by a decision made every year by politicians in Washington. In the past, retirees have blamed modest increases on the current president or Congress. That’s simply not true.

Second, the purpose of the cost-of-living increase is to keep pace with inflation, not to get ahead. If the increase in benefits is modest, it means price increases have also been modest, so retirees are no worse off.

All this highlights a major problem: Misinformation about Social Security abounds. On my own site, I devote a lot of time to correcting this misinformation. Let’s face it: Unless we stick to the facts, we can’t have an honest discussion about the program’s future.

Richard Quinn blogs at QuinnsCommentary.com. Before retiring in 2010, Dick was a compensation and benefits executive. His previous blogs include Tortoises Needed, That’s Rich and Sharing the Load. Follow Dick on Twitter @QuinnsComments.

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No Touching

RECENTLY, I STARTED advising three entrepreneurial brothers who are the controlling shareholders of three companies with several hundred employees. All of their companies are presently short of operating cash and unable to borrow from banks or other conventional sources. Without quick infusions of funds, they’ll likely go under.

They won’t be able to pay skittish suppliers who refuse to extend additional credit, even if the brothers guarantee payment. Nor will they be able to meet payroll for employees. Many of these workers are high salaried and possess skills that are hard to replace in a tight job market. The ones who jump ship will readily find work with competing companies.

While my future clients were foraging for funds, they encountered a person I’ll call Curly, someone who recently ended a stint as a low-level White House staffer. Curly continually touted his tax expertise and ties to politicians.

The brothers were so awed by their new acquaintance that they gave him a high-five-figure payment for a strategy that he’d imparted to lots of other cash-strapped businesses: Have their companies pay employees their net salaries, but not remit hefty amounts of withheld income taxes and Social Security taxes to the IRS. Instead, use that money to satisfy suppliers. After all, as Curly assured the brothers, just as soon as business inevitably picks up, the companies can repay what they had “borrowed” from the IRS.

First though, my new clients sought my blessing. I demurred. All I had to do was rattle off long-standing rules set forth in Internal Revenue Code Section 6672. Those rules empower and encourage the IRS to act firmly and swiftly against companies that withhold taxes from paychecks, but fail to pass them along in a timely manner.

Like lots of other business owners who are unaware of Code Section 6672, my clients may think they’re doing nothing dishonest when they dip into the withholding kitty to make up temporary cash shortfalls. But many thousands of individuals who’ve played games with withheld taxes have been stunned to discover that their failure to pay such taxes made them personally liable—and that the IRS could grab funds in their bank accounts and retirement plans or seize other personal assets.

They belatedly learned that the IRS routinely assesses penalties equal to 100% of the amounts due against the people who are responsible for collecting or paying withheld taxes, and who “willfully” fail to collect or pay them.

That portion of my homily prompted the brothers to ask whether they’d be  considered responsible persons. I told them that there can be no two opinions about whether they would be. After all, who else would decide which creditors to pay and when?

Worse yet, they’d also be jointly liable for the entire amounts owed. This would hold true even if, despite their controlling interests, they were somehow able to establish that other persons were more responsible than they were for the collection, accounting and payment of the missing taxes.

How does the IRS define “responsibility”? Let me count the ways. Responsible persons include:

Officers or employees of corporations
Members or employees of partnerships
Corporate directors or shareholders
Members of boards of trustees of nonprofit organizations
Other individuals with authority and control over funds to direct their disbursement

How does the IRS define “willfulness”? It only requires a conscious, voluntary act, not intent to defraud. The act doesn’t have to be one of commission. It can be one of omission, as when a person fails to investigate or correct mismanagement. What if you file for personal bankruptcy? That does not relieve you of responsibility for your company’s failure.

Julian Block writes and practices law in Larchmont, New York, and was formerly with the IRS as a special agent (criminal investigator). His previous blogs include Doctor’s Orders, In Your Debt and Moving Costs. Information about his books is available at JulianBlockTaxExpert.com. Follow  Julian on Twitter @BlockJulian.

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Tortoises Needed

I HAVE A FRIVOLOUS routine. I buy $40 in lottery tickets on the first day of each month. Many years ago, this was part of my retirement plan—the years when I was young and foolish, or maybe just foolish.

For as long as I can recall, I’ve had a premonition of receiving $14 million, either from a long-lost relative or from the lottery. Time is running out, however. That relative appears to have forgotten about me. Meanwhile, I’ve given up on the big lottery prize and would happily settle for a modest $5 million.

Maybe it’s a good thing I maxed out my 401(k).

My controlled addiction to a fast lottery buck is hardly unique. Still, I find it fascinating that many people will play the lottery in search of easy money, but fail to invest prudently for fear of losing money in the stock market. When I “invest” that $40 each month, I know I’m virtually guaranteed to lose it.

“According to Bloomberg research, the average lottery player in America loses roughly $0.40 for every $1 in tickets purchased,” opines a writer for the Motley Fool. “Talk about a bad return on investment.”

If you divide total spending on lottery tickets by the U.S. population, you get an average spend of $207 per capita. But it varies by state. Massachusetts is the highest at $735 per capita.

About half of adults play the lottery, including 40% of those earning less than $36,000 per year. Nationwide, people who make less than $10,000 spend an average $597 on lottery tickets, equal to 6% of income. That’s hard to believe. These gamblers are among the people we assume to have no money to save and invest. It seems the allure of quick wealth overpowers our ability to weigh risk against reward. It also highlights our fondness for instant gratification.

Indeed, while less affluent Americans pour money into lottery tickets, they shun the financial markets, where folks regularly make money, rather than losing it. Barely a third of families in the bottom 50% of earners own stocks, according to the Federal Reserve. In all, just 54% of Americans are invested in the market.

It would appear many Americans would benefit from reading Aesop’s fable of the Tortoise and the Hare. “Do you ever get anywhere?” the Hare asks with a mocking laugh. For too many Americans, the answer is “no”—because they don’t have the discipline of the Tortoise.

Richard Quinn blogs at QuinnsCommentary.com. Before retiring in 2010, Dick was a compensation and benefits executive. His previous blogs include That’s Rich, Sharing the Load, Family Resemblance and Late Start. Follow Dick on Twitter @QuinnsComments.

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Any Alternative?

THE STOCK MARKET recently hit yet another all-time high. But instead of unalloyed glee, many investors are struggling with mixed emotions. They’re thrilled at their gains. But at the same time, they’re hesitant to put more money into a market that has already gained so much.

Result: Folks have been asking, “Isn’t there anything else I can buy?” Often, this leads to questions about alternative investments. Below is an introduction to the topic, along with my recommendations.

What are alternative investments? In simple terms, an alternative is any investment that isn’t a stock or a bond, the two pillars of a traditional investment portfolio. Alternatives include commodities (such as corn, livestock, crude oil and precious metals), real estate, stock options, futures contracts and other esoteric investments.

In addition, the investment industry uses the term alternative to refer to any investment structure which differs from a traditional mutual fund or exchange-traded fund. The best known are private equity, venture capital and hedge funds, all of which are generally structured as private partnerships.

What benefits do alternatives offer? There are two reasons you might consider alternative investments. First, you might expect better returns. For instance, if you’re worried that the stock market is due for a breather after rising for nearly 10 years, you might look to alternatives.

The second reason is diversification. When you add alternatives to your investment mix, you’re looking for things that will zig when the rest of your portfolio zags. In mathematical terms, you’re aiming for things with a low correlation to stocks.

Do I need alternatives? Diversification is usually a good thing. But before you jump headlong into alternatives, take some time to evaluate what you already have. Though you may not have thought about it in these terms, it’s possible that you already have alternatives exposure of one kind or another. If you have a rental property or own a business or your job provides a pension, you already have assets that are not closely correlated with stocks. These assets may provide all the diversification you need.

What if I want more diversification? If, after evaluating your personal balance sheet, you decide you need more diversification, should you invest in alternatives? Unfortunately, the track records aren’t great for most mutual funds that focus on alternative investments. In a 2015 study, The Wall Street Journal found that the single best form of diversification during a stock market downturn—when you need diversification the most—came not from alternatives, but from the simplest of traditional investments: bonds.

Long-term data confirm this finding. Over the past 10 years, bonds have provided far better portfolio diversification than virtually every other type of investment, including alternatives like commodities, private equity and real estate. Bonds have actually demonstrated negative correlations to stocks, meaning that when stocks have gone down, bonds have gone up, and vice versa. While there’s no guarantee bonds will always behave this way, there are logical reasons they usually move inversely to stocks. That is why I believe strongly that a simple portfolio of stocks and bonds (including cash investments, which are really just very short-term bonds) is the most effective way to achieve diversification.

Does this data mean I should never invest in alternatives? The world of alternative investments is vast and diverse, and I want to make an important distinction: The sorts of alternatives that I would avoid are the alternatives funds that are marketed to the public. As I have noted elsewhere, there are definitely hedge funds and other alternatives that have delivered off-the-charts performance. But these funds are rarely available to the general public.

That doesn’t mean you should avoid alternatives altogether. I’m just advising against the retail, mass-market variety. The best opportunities, in my opinion, will present themselves individually. For example, it might be a startup company in your industry or a real estate rental unit in your community. These are the sorts of things that may have outsized potential.

But you’ll need to evaluate each prospective investment on its own merits. In addition to estimating the return potential, you’ll want to consider the investment’s liquidity, costs, tax impact and the track record of the individuals who will be managing it. Most important, ask yourself whether the investment’s strategy passes the commonsense test. The investing genius Peter Lynch once said that he would never invest in anything that couldn’t be illustrated with a crayon. That’s an especially important litmus test when evaluating alternatives.

Adam M. Grossman’s previous blogs include Buy What You Know, Staying Focused, Eight Heroes and Separated at Birth . Adam is the founder of  Mayport Wealth Management , a fixed-fee financial planning firm in Boston. He’s an advocate of evidence-based investing and is on a mission to lower the cost of investment advice for consumers. Follow Adam on Twitter  @AdamMGrossman .

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Striking a Chord

WE CAN GATHER financial facts and research issues. But what we learn will always be tainted by what we’ve experienced.

As I mentioned in last week’s newsletter, anecdotal evidence often proves more powerful than statistics. I’m talking here about the same phenomenon—but writ larger. What we read in articles and books is scant competition for the informational scraps we collect throughout our lives: the comments our parents made, the milieu we grew up in, the stories we hear from colleagues, the adventures we’ve had, the pain we see among friends.

What’s influenced my financial thinking? It’s odd what comes to mind. Often, the incidents were minor and the comments were made in passing. But they struck a chord with me because they said something about human nature or pointed to some financial truth. Here are just eight of the incidents I recall:

1. “You can’t go wrong with real estate.” I remember my mother saying that during the 1970s. Home prices were soaring along with inflation, even as inflation allowed homeowners to repay their mortgages with depreciated dollars. At the time, I thought I was learning some great financial secret. Today, it reminds me of how fickle financial trends are.

2. At age 16, I became fascinated by macroeconomics and read everything I could get my hands on. A book in the school library mentioned that publicly traded companies want their shares to perform well. I had never before given any thought to the stock market and, for months, I puzzled over that sentence. Why should companies care about their stock market performance? After all, hadn’t they already sold the shares and pocketed the proceeds? Clearly, I had much to learn.

3. On Oct. 19, 1987, I was working as a lowly fact-checker at Forbes magazine. We had heard that the stock market was collapsing, but nobody knew precisely how great the damage was, so we headed to the stock market ticker, located in one corner of the building’s third floor. A roll of light brown paper, similar in size to what you might find in the bathroom, rolled through the clattering machine. As I recall, that day the machine spat out just three readings for the Dow Jones Industrial Average: down more than 100 points at mid-morning, down 230 in the early afternoon and, finally, down 508 at the close.

Reporters gathered around the ticker, almost giddy about the market carnage. After the ticker proclaimed the Dow’s 508 point drop, two of the magazine’s more seasoned journalists announced they were hopping into a cab and heading down to Wall Street, to see if folks were jumping out of windows.

4. After the market closed on Oct. 19, I called a stockbroker friend. He said there was sure to be rioting in the city, so he was heading to his New Jersey home to get his car. He was then going to drive back into the city, collect his mother from Queens and whisk her to safety.

5. Early in my career, one of my favorite folks to talk to was Steven Somes, a money manager at State Street. His notion of financial nirvana: having enough money to buy the S&P 500 and live off the dividends. Your lifestyle would be unperturbed by market fluctuations. Instead, you’d own both a portfolio and an income stream that would grow in perpetuity at roughly the same rate as the economy. Tragically, Somes died of heart failure in 1995, at age 37.

6. The early 2000s housing boom was, in many ways, crazier than the late 1990s tech-stock bubble, because it touched so many more people. I recall countless stories from that time. Among them: A colleague from The Wall Street Journal and her husband were moving cities and there was a relocation allowance to be had, which included financial help toward a home purchase.

My colleague described the crazy open houses mobbed by potential buyers. She and her husband would get to walk through a house just once and then—to have any chance of buying the place—they had to make an immediate bid. They knew the market was out of control and yet, reluctant to give up the relocation benefit, they still went ahead and bought, with an offer far above the asking price. Needless to say, it didn’t turn out well.

7. “Recent research suggests that regularly seeing good friends in the local park will bring a greater boost to mental health than having a shiny German automobile parked outside your retirement home,” Andrew Oswald, an economics professor at England’s Warwick University, told me for a 2005 article for The Wall Street Journal. “My candid advice to aging Americans would be to use your hard-earned cash to invest much more in friendships than in material items.” I’ve heard similar thoughts expressed by others, but for some reason Oswald’s words have always stayed with me.

That brings to mind a related comment from my fellow financial author Bill Bernstein: “A BMW isn’t an automobile. It’s an IQ test.”

8. During the fall of 2008—I’m referring here to both the season and the stock market—the sense of panic was palpable. I even got a call from a financial planner, whom I considered a veteran investor, wondering whether he should sell. Until that moment, I don’t think I’d fully realized that knowledge is truly no match for emotion.

Follow Jonathan on Twitter  @ClementsMoney  and on Facebook . His new book, From Here to Financial Happiness, can now be ordered from Amazon and Barnes & Noble. Jonathan’s most recent articles include Tell Us a Story, Bad News and No Place Like Home.

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Starting Over

I WILL NEVER forget that New Year’s Day nearly two decades ago. My life changed forever in a matter of minutes. I received in lightning bolt fashion the devastating news that my wife of nearly 40 years was filing for divorce. Looking back, I should have seen it coming. But at the time, I was totally unprepared. I didn’t know it then, but I was part of the initial wave of “gray divorces.”

No football bowl games that New Year’s Day. I spent the rest of the day trying to deal with my new reality. Emotional damage for sure. I felt hurt and betrayed. But as the hours passed, I began to think in a more reasoned way about all the implications of my new reality—family connections, social and business relationships and, yes, my financial wellbeing. Lifestyle changes were inevitable.

Basically, my carefully crafted retirement plan had been blown out of the water. My life would be greatly different from what I had expected, and had prepared for emotionally and financially. We budgeted throughout our marriage and had managed—or so I thought—to make sound use of our collective money for our children and ourselves.

We both had good retirement plans, including state pensions. I also contributed to a 403(b) plan and eventually opened Roth IRAs for both of us. We were both eligible for Social Security. I was recently retired and yet—thanks to my pension and Social Security—my income was about $2,000 a year more than my university teaching salary. My spouse, younger than me by five years, continued to work fulltime. We owned a nice, roomy condo in a historic district and were within walking distance of a neighborhood shopping area. Things looked great for our respective retirement years.

In the following weeks, and increasingly during the 17-month separated-but-not-divorced period, financial reality set in. As we divided our marital assets, the legal fees mounted. I also had moving expenses—635 miles to another state. It was clear early on that my net worth was shrinking by the month. I ended up both losing the condo and having to pay off the remaining mortgage. I also lost our newest car. When the divorce was finalized, I had an estimated loss well in excess of $50,000 in my personal net worth.

Shortly after, I began to think more optimistically. My net worth bottomed out and better times seemed to be on the horizon. It was clear that my income was significantly exceeding my annual expenses. My wisest decision, I feel, was preserving my annuity income, mutual-fund distributions, future freelance earnings and other income streams, while sacrificing things like the condo, the newest car, and lots of furniture and furnishings. I insisted on keeping my ’93 red Miata, though. My least wise decision, undoubtedly, happened years earlier—the “innocent” comingling of personal assets, such as cash gifts, with marital assets.

Within a year, I was once again a homeowner. I managed to pay off the new mortgage in five years. I focused on long-term investing and have seen a significant increase in my net worth during the post-divorce years. I also drew up a new financial plan for retirement. When will my expenses exceed my income? My latest calculations put the crossover point at age 112.

Dennis E. Quillen is a retired economic geographer and university professor. A fan of blackjack and long-term investing, his previous blog was Getting Comped.

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