Jonathan Clements's Blog, page 394

Looking Forward

I WAS LISTENING recently to a Bob Dylan song, From a Buick 6. One of the song’s lines is, “I need a dump truck, baby, to unload my head.” That’s how I sometimes feel about the churning in my own mind concerning retirement.

I turned 67 this year. This is probably one of the most critical periods for me as a retiree. There are things in my life I need to sort out, so I can develop a more accurate financial plan that will support my retirement. The following are some of my thoughts about my life moving forward.

I don’t want to die where I currently live. This might sound morbid. But it’s the truth. I spend the majority of my time taking care of my elderly mother. When I’m not with her, I stay with a friend at her house. I’m only home one day a week and it no longer feels like home.

When I was younger, I thought it was a great location for me. As I grow older, I’m not so sure. It would be difficult to walk in the neighborhood because of the traffic and the uneven sidewalks. The building I live in is not very accommodating for an older person.

The new home I’m considering is in an area that is walkable, has good medical facilities, and is located close to stores and restaurants. The home would be easier to navigate and has a small yard. This, however, would also increase my housing costs. Until I make a decision, I have decided to use those costs when calculating my future expenses.

I have a close friend. I want to make sure she is financially secure. I decided to wait until I’m age 70 to claim Social Security, so I receive the maximum possible benefit. As a result, if we decide to get married, she would be eligible for a larger survivor benefit after my death. She should outlive me. I like her odds because she is a female and six years younger. Also, I think delaying my Social Security is a smart thing to do. If one of us lives a long life, the larger payment would be extremely helpful.

I have a mother who will be 95 years old this year. I have power of attorney over her finances. I use the “do no harm” approach when managing her finances. I decided this year to move her remaining money from stocks to bonds. I believe her money should be in liquid assets because of her age and short time horizon. I don’t want her withdrawing from her portfolio in a bear market. If she doesn’t need long-term care, I believe she will have enough money to last the rest of her life. If she needs additional money, I will step in and help her as much as I can. This could be a major expense.

That brings me to my thoughts on how I will fund my own retirement. I’m not comfortable with current stock market valuations. At this point, I’m not trying to grow my portfolio. Rather, I’m trying to preserve it and protect it from inflation. My portfolio has approximately 75% in bonds and 25% in stocks. The bonds plus my Social Security should fund my projected living expenses during retirement. The stock side of my portfolio will be used as a hedge against inflation and for funding possible long-term-care needs.

When I’m 70 years old, I plan on using the IRS’s required minimum distribution table as the percentage I will withdraw each year from my overall portfolio. That will force me to be conservative with my spending, with small percentage withdrawals, especially in the early years.

How will I know my portfolio is performing well? I’m using the Vanguard Target Retirement Income Fund as a benchmark. It isn’t a perfect match, but close enough. As of June, my portfolio was slightly ahead of the Vanguard fund for the year to date.

Dennis Friedman retired at age 58 from Boeing Aerospace Company. He enjoys reading and writing about personal finance. His previous blogs include More Than Money, Leap of Faith and Lessons Learned.

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Pain Postponed

RAISE YOUR WALLET if you think taxes won’t be going up.

Is there much doubt that the federal government will seek additional revenue, given its ballooning debt and future spending on Social Security, Medicare and other federal programs? If so, should retirement savers really be deferring taxes—or, instead, should we be taking advantage of tax-free retirement savings?

The IRA was first introduced in 1974. At that time, there was a 38% tax rate on individual incomes of more than $20,000, with a maximum 70% tax rate on incomes above $100,000. Fast forward to 1980 and the launch of 401(k) plans: You had a maximum tax rate of 70% on incomes above $108,300, and a 39% rate that started at $23,000. Back then, saving on a tax-deferred basis made sense. But today, we have—I suspect—the lowest tax rates we will see for decades.

Some experts—including Prof. Larry Kotlikoff of Boston University—estimate that the unfunded liability for government entitlement programs is $210 trillion. Yup, that’s trillion. That is the difference between anticipated benefit payments and anticipated revenue to support them.

Don’t buy those very long-term projections? Consider instead the very real and growing federal debt of $21 trillion. With that kind of debt, the top tax rates won’t be the only ones going up. There simply isn’t enough money among top income earners to get the revenue needed.

Moreover, it isn’t just higher income tax rates that can hit workers and retirees. Consider that one of the federal government’s largest single revenue losers is the tax-free status of employer-provided health benefits. On top of that, in many cases, even employee contributions are made on a tax-free basis. Could this low-hanging tax fruit tempt the politicians—potentially affecting most middle-class Americans, including millions of retirees?

Despite the likelihood of higher tax rates, we still see employers encouraging their employees to fund tax-deductible retirement accounts, such as traditional 401(k) and 403(b) plans. Those traditional retirement accounts are also where any matching employer contribution ends up. Are employees being set up for steep tax bills in retirement?

The tax situation has changed greatly since 1980 and is likely to change again—and not for the better. For many folks, the chances of being in a low tax bracket in retirement are waning, especially once they factor in not only the taxes owed on required minimum distributions from retirement accounts, but also the growing taxation of Social Security benefits.

What are the implications of all this? Putting some money in tax-deductible retirement accounts still makes senses. During your working years, those tax-deductible contributions will save you taxes at your marginal tax rate—but in retirement, much of your retirement account withdrawals will likely be taxed at lower rates, because these withdrawals might account for the bulk of your income.

Bu if you’re saving more than, say, 10% of your income for retirement, you may want to rethink which account you use for those additional savings. The obvious choice: a Roth 401(k), Roth 403(b) or Roth IRA. You won’t get a tax deduction for your contributions. But once retired, everything withdrawn from your Roth accounts should be tax-free—potentially a huge plus if tax rates are indeed headed higher from here.

Richard Quinn blogs at QuinnsCommentary.com. Before retiring in 2010, Dick was a compensation and benefits executive. His previous blogs include Sharing It, What Motivates Me and Benefits Lost. Follow Dick on Twitter @QuinnsComments.

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Nothing to Chance

IN THE SUMMER of 1789, George Washington got into a dispute with his Postmaster General—a fellow named Ebenezer Hazard—and removed him from office.

Looking for a new profession, Hazard decided to start an insurance company. He called his new firm the Insurance Company of North America and specialized in providing life insurance to ship captains. The business was a perfect fit for the times and quickly prospered. Still, I’m sure that even Hazard would be surprised to see his company still in business more than two centuries later. Today, Insurance Company of North America is the “i,” “n” and “a” in the company’s new name, Cigna.

Ordinarily, insurance companies would not be the most interesting topic, but there is one thing about them that is worth your attention: They are disproportionately represented among the world’s oldest surviving companies. In addition to Cigna, several other American insurers date back 150 years or more. And outside the U.S., many go back as far as the 1600s.

In my opinion, it is no coincidence that so many insurance companies have survived for so long—and I believe it’s worth taking the time to understand the secret to their longevity. Once you do, you may be able to apply their playbook to your own finances.

So what is their secret? It’s not any of the most obvious explanations for business success: None has monopoly power. None possesses unique technology. And none has a Steve Jobs-type visionary leader.

Instead, the strategy that they all employ is something that, in industry jargon, is called “liability matching.” In plain English, that means that they plan very, very carefully to be sure they can meet their future financial obligations. For example, suppose that hurricane season typically results in $2 billion worth of claims each year. If you looked at the internal books of any homeowner’s insurance company, they all would be able to point to a set of dollars that are specifically earmarked for hurricane season 2018, another set for 2019, and so forth. Similarly, a life insurance company will have funds set aside to meet the claims they expect this year, next year and every year into the future for which they have sold policies.

In short, insurance companies leave nothing to chance. They don’t hope and pray that there will be enough cash available to meet future claims. Quite the opposite: They have teams of actuaries who spend their days preparing risk models to ensure that there will be enough cash (or investments expected to produce cash) to match every single projected future obligation of the insurer. That is why it is called liability matching.

As individuals, none of us has the resources of an insurance company. We don’t have our own team of actuaries and we don’t have the ability to increase our own household incomes in the way that insurance companies can raise rates on policyholders. Still, the principle of liability matching is a powerful technique that anyone can employ.

What would this look like in practice? Insurers maintain hundreds of individual accounts—one for each group of future claims. Clearly, you don’t need to go that far. But I would think about it in the same way. Start by asking yourself how many different major obligations you have in your future. For virtually everyone, retirement is a consideration. In addition, some of the following might apply: private school or college tuition, a home down payment or renovation, a wedding and perhaps a major charitable gift. If you are just getting started, you might be focused more on student loans you want to pay off. These are just examples. Take some time to write out your own list of major obligations, being sure to attach an estimated dollar value and timeline to each.

In drawing up your list, I have found that it makes sense to stick to five or fewer individual goals. Go much beyond that and things can become too unwieldy. Indeed, if you focus on funding a small number of very specific and quantifiable goals, I think you’ll find it enormously helpful. You’ll have a yardstick against which to measure your progress. And with that yardstick in hand, you’ll likely find yourself making progress more quickly than you otherwise would, as you strive to accumulate assets to match your future liabilities.

Adam M. Grossman’s previous blogs include In the Cards, You—But Better and Happily Misbehaving. 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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July’s Newsletter

MAYBE IT’S TIME for the simple life. Tired of overseeing a sprawling collection of investments? Thanks to the proliferation of “one-stop shopping” funds built around low-cost index funds, it’s now possible to get a world-class portfolio in a single mutual fund. In July’s newsletter, I discuss the choices available, as well as the pros and cons of opting for a one-fund solution.

This month’s newsletter also includes our usual list of the most popular blogs from last month, plus a look at the soon-to-be-released international edition of How to Think About Money.

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My One and Only

IS IT TIME TO STOP messing around with our portfolios—and go for radical simplicity? I’ve been asking myself that question in recent months, as I eye the growing list of funds that offer broadly diversified “one-stop shopping” portfolios built solely with low-cost index funds.

Take Vanguard Target Retirement 2050 Fund, which invests its assets in four Vanguard index funds and is geared toward those retiring in 2050 or thereabouts. The 2050 fund has a $1,000 investment minimum and charges just 0.15% a year, equal to 15 cents for every $100 invested. What does that get you? Pretty much the entire world: 55% U.S. stocks, 35% foreign stocks, 7% U.S. bonds and 3% foreign bonds.

On my recommendation, my daughter owns that fund in her Roth IRA. I’ve also bought Vanguard target-date funds for my son and two stepdaughters. But I don’t own target-date funds myself, except in two small accounts, where I’m trying to keep things simple.

Still, I’m tempted. Which funds are tempting me? One-stop shopping index funds fall into two camps. First, there are target-date retirement funds, which become more conservative as they approach the year specified in their fund name. Here are three of the lowest-cost providers, with their funds’ annual expenses shown in parentheses:

Fidelity Investments (0.14%)
Charles Schwab (0.08%)
Vanguard Group (0.13% to 0.15%)

Keep in mind that both Fidelity and Schwab also have target-date funds built around actively managed funds. I would avoid those. Also note that there are other fund companies with target-date index funds, but often the truly low-cost versions of these funds are only available in larger 401(k) plans.

Prefer something that offers a static mix of stocks and more conservative investments? Check out these choices:

Fidelity Four-in-One Index Fund (0.11%)
Vanguard Balanced Index Fund (0.07% or 0.19%, depending on share class)
Vanguard LifeStrategy Funds (0.11% to 0.14%)

Vanguard’s LifeStrategy series consists of four funds, with stock allocations of 20%, 40%, 60% and 80%. BlackRock’s iShares unit also offers four asset allocation funds that take varying  levels of risk, such as the iShares Core Growth Allocation ETF, which has 60% in stocks. But at 0.25% a year, the iShares funds are a tad expensive. And because they are exchange-traded funds, not mutual funds, you’ll also incur trading costs, which could prove significant if you’re regularly adding fresh savings or making frequent sales.

What’s the appeal of these one-stop shopping index funds? You get simplicity and a mix of assets chosen by investment experts. You’re also relieved of the need to rebalance, because you have everything in a single fund that’s continuously rebalancing its investment mix. On top of that, there’s a large emotional benefit: While you can always sell your one-stop shopping fund, you can’t meddle with the underlying portfolio. In fact, you may be blissfully unaware of the market turmoil affecting the fund’s investments, because all you see is a single share price that moves relatively sedately.

Set against those advantages are four drawbacks. First, you may be able to purchase the fund’s component parts for less than the fund itself is charging. For instance, those with relatively modest sums to invest will find Vanguard’s target-date and LifeStrategy funds are as cheap as anything they could put together on their own using the underlying Vanguard funds.

But those with larger portfolios can save money by buying what Vanguard calls Admiral shares, which have lower expenses but typically require a $10,000 minimum investment. Still, the savings aren’t huge, unless you have a huge portfolio. My daughter’s 2050 fund charges 0.15% a year. Using Admiral shares, she could replicate the fund’s mix for 0.07% a year—an $800 annual savings on a $1 million portfolio.

“The virtue of a one-stop shopping fund is also its vice: You get a preset investment mix—and maybe it isn’t quite what you wanted.”

Second, if you buy one of these funds in a regular taxable account, rather than a retirement account, there’s the potential for larger tax bills. One-stop shopping funds invest in taxable bond funds, which kick off taxable income distributions each year. Investors could avoid those tax bills if they own the component parts, and either hold the taxable bonds in their retirement account or—if their tax bracket justifies it—purchase tax-free municipal bonds in their taxable account.

On top of that, one-stop shopping funds may make capital gain distributions each year, as they realize taxable gains when rebalancing their investment mix. I eyeballed the various funds and this seems to be at least a modest issue: Many of the funds have made capital gains distributions, something that’s rare among broad market index funds.

Third, when you sell a one-stop shopping fund, you sell out of every market segment owned by the fund. But suppose stocks are in the midst of a brutal bear market and you’d rather leave them to recover, while selling only from the bond side of your portfolio. With a one-stop shopping fund, that isn’t a choice. True, you could aways repair the damage by immediately reinvesting part of the sale proceeds in a pure stock fund. But that, of course, means introducing complexity into a portfolio whose goal was simplicity.

Finally, the virtue of a one-stop shopping fund is also its vice: You get a preset investment mix—and maybe it isn’t quite what you wanted. As I look at the investment mixes on offer, I’d want more of the stock market money invested abroad, especially in emerging markets, and I’d like a tilt toward smaller-company stocks and value stocks. I could, of course, pursue a core-and-explore strategy, dumping maybe 80% of my money in a target-date fund and then adding smaller stakes in funds that provide the investment weightings I want. But again, that seems to defeat the object of the exercise, which is simplicity.

Which way am I leaning? For now, I plan to stick wth my current portfolio. But if Vanguard ever introduced target-date funds with Admiral pricing, I might make the switch. And even if the firm doesn’t, I could see dumping everything in a one-stop shopping fund as I grow older and decide I want a less complicated financial life.

Venturing Abroad

AFTER THE U.S. SUCCESS of How to Think About Money, I struck a deal with Harriman House in the U.K. to publish an international edition, which will be available everywhere in October, except the U.S. and Canada. Look below to see the original U.S. cover—and to the right to see the new cover created by Harriman. The book can now be preordered from Amazon in the U.K. and directly from Harriman.

As I revamped the book for an international audience, I looked at the index funds on offer around the world and reviewed other personal finance issues. My surprise: While tax laws, government retirement benefits, the social safety net and the investment products available vary from one country to the next, the similarities are greater than the differences—and hence the rules of smart financial behavior don’t change all that much, no matter where you live.

June’s Greatest Hits

HERE ARE THE SEVEN most popular blogs that HumbleDollar published last month:

Yes, It’ll Happen
Human Condition
Material Girl
You—But Better
Happily Misbehaving
Yes, Yes, Hmmm
What Motivates Me

Last month’s most popular blogs also included Old Story, which was published in late May. In addition, check out the list of the best-read blogs from 2018’s first six months.

Follow Jonathan on Twitter @ClementsMoney and on Facebook.

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Two-Minute Checkup

YOU NEED TO KNOW the rules—and then you need to follow the rules. Some folks have the knowledge to succeed financially. Some have the discipline. But many people don’t have the whole package: both the smarts and the tenacity to get it done.

Could an app or website make the difference? And could it help with your entire financial life—retirement, college, emergency money, borrowing, insurance, estate planning—and not just a single topic, like budgeting and investing? I’ve been wrestling with these questions for the past two years, along with a business partner, Derek.

We think the solution lies, in part, in helping people to formulate financial commitments and then prodding them to follow through. How would this nudging work? There’s a host of possibilities: We could regularly remind people of their commitments, encourage them to share their commitments with others, and highlight the hefty cost of not acting.

As a first step, Derek and I have created a rough-and-ready tool to help folks quickly assess their finances. The Two-Minute Checkup involves answering nine questions. No need to tell us your Social Security number. No need to link your financial accounts. Just answer the questions and we’ll give you feedback across 10 areas of your financial life. Once you’re done, all we ask is that you take a brief survey to tell us what you think.

Two warnings about the Two-Minute Checkup: First, it only works on a desktop or laptop. If you’re on a phone or tablet, sorry, but you’re out of luck. Second, because we’re in test mode, we’ve built this in the cheapest way possible—by loading a spreadsheet onto the web. Does it seem a little clunky? What can I say, you’re very perceptive.

Intrigued? Give it a try.

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Coffee Break

“THERE ARE TWO kinds of people in the world…” There are Republicans and Democrats. Right-brained and left-brained. Yankees fans and Red Sox fans. And, of course, Starbucks people and Dunkin’ Donuts people.

In Boston, where Dunkin’ was founded and where I live, this is a particularly strong theme. Dunkin’ people and Starbucks people see themselves as very different. Starbucks aficionados see it as a higher-quality experience and don’t mind paying for it. Meanwhile, Dunkin’ fans are proud of their frugality and think that the people over at Starbucks are overpaying.

The reality, though, is that you don’t need to categorize yourself so rigidly. You don’t have to be either a frugal spender or a spendthrift. It doesn’t have to be one or the other. It’s okay to have a little bit of Dunkin’ in you and a little bit of Starbucks. Or, to put it another way, it’s okay to be frugal in certain situations and a big spender in other situations. That doesn’t make you inconsistent or a hypocrite. I think it actually makes you very practical.

How do you balance the two? Let your priorities dictate. Spend a lot on the things you love, but ruthlessly economize on everything that’s less important. For example, my old college roommate is a Dunkin’ kind of guy in almost every way, but he will gladly pay up for business class when he flies. That’s what’s important to him, so he forks over the extra—and I think it makes tons of sense.

Similarly, if you’re a Starbucks kind of person most of the time, don’t feel that you need to overpay at every turn. Buy the store brand or choose a more downscale option when it comes to things that just aren’t that important to you.

As we look ahead to the summer, and hopefully some vacation time, keep this in mind. Don’t box yourself into a particular self-image or, worse yet, someone else’s image of you. Instead, make practical choices based on what you care about. My advice: Think hard about your spending, both major expenditures and day-to-day expenses. Which purchases bring you the most pleasure? That’s where you should focus your dollars.

Adam M. Grossman’s previous blogs include In the Cards, You—But Better and Happily Misbehaving. 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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Sharing It

I HAVE A PENSION, a 401(k) plan and other investments, and no debt. I worked more than 50 years to accumulate what I have. Still, I realize I am fortunate.

That brings me to a list of advice for seniors that’s now making the rounds on the internet. I found it fascinating—and disturbing. The list is presented for “those of us who are between 65 and death, i.e. old.” Many people who have read the list buy into the philosophy behind it. I don’t.

Here are three finance-related excerpts from the list:

1. “It’s time to use the money you saved up. Use it and enjoy it. Don’t just keep it for those who may have no notion of the sacrifices you made to get it. Remember there is nothing more dangerous than a son or daughter-in-law with big ideas for your hard-earned capital.”

Hey, if you are retired and have money that allows you to purchase more than the necessities, go for it—up to a point. I don’t advocate being so frugal that retirement is a miserable bore. But I also don’t see frivolously spending, just to use up money, as prudent. The “use it” philosophy might be okay if you knew exactly how much money you need and for how long. But who has that information? If you spend carelessly, fate may dictate you becoming a financial burden to your kids.

2. “Stop worrying about the financial situation of your children and grandchildren, and don’t feel bad spending your money on yourself. You’ve taken care of them for many years, and you’ve taught them what you could. You gave them an education, food, shelter and support. The responsibility is now theirs to earn their own money.”

A rather selfish point of view, don’t you think? I do worry about the financial situation of my children. While I may not have an obligation to help them, why wouldn’t I, if I have the money to spare?

I’m not talking about buying them luxuries. I expect them to be prudent with their own spending and saving. But when the fridge or stove unexpectedly needs to be replaced, bats invade the attic, a car needs major repair or health care costs overwhelm, I believe that, if parents can afford to help, they should.

3. “Warning: This is also a bad time for investments, even if it seems wonderful or foolproof. They only bring problems and worries. This is a time for you to enjoy some peace and quiet.”

Yikes, avoid investments? If you are 65 or older, you might want to be a bit more conservative with your investments. But it’s no time to stuff the mattress with cash.  Inflation is still there. You don’t want to outlive your money.

I have attained every financial goal I set for myself when I was age 18. What is the point of accumulating wealth, if all you do is spend it on ever more stuff?

Yes, I want to sleep at night and not worry about money. I want to pay my bills on time. I want to enjoy retirement. I want my wife to be financially secure if she survives me. And I don’t want to become a burden on my children. But after taking care of all that, my long-term goal is to make the financial life of my children and grandchildren just a little bit easier.

Richard Quinn blogs at   QuinnsCommentary.com . Before retiring in 2010, Dick was a compensation and benefits executive. His previous blogs include What Motivates Me, Benefits Lost and Double Life .  Follow Dick on Twitter  @QuinnsComments .

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Top Blogs: 2018

WHAT PIQUED readers’ interest so far this year? Here are the top 10 blogs for 2018’s first six months:

The $121,500 Guestroom
The Tipping Point
ObliviousInvestor.com
Second Childhood
The Morning After
Where’s the Party?
Old Story
Four Numbers
Bogleheads.org
Yes, It’ll Happen

The past six months have also seen hefty readership for a blog published at year-end 2017, Best Investment 2018. The most popular newsletters this year have been Unanswered and Making a Difference.

Meanwhile, below are the top 10 blogs for the second quarter. As you’ll see, the first four blogs listed were also among the most popular blogs for 2018’s first six months.

Where’s the Party?
Old Story
Four Numbers
Yes, It’ll Happen
How About Later?
Cracking the Wallet
My Five Mistakes
Bad Idea for Rent
Human Condition
Age-Old Myths

Follow Jonathan on Twitter @ClementsMoney and on Facebook.

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In the Cards

IN HER BESTSELLING book Thinking in Bets, retired poker champion Annie Duke stresses an important point: As kids in school, it was regarded as a failure if we ever answered a question, “I don’t know.” But in the world outside the classroom, the only honest answer to many questions is, “I don’t know” or “I’m not sure.” This isn’t due to ignorance. Rather, it’s because, in many cases, the precise right answer simply isn’t knowable.

A card deck has just 52 cards, but it’s still very difficult to know which one will come up next. When it comes to our personal finances, the number of moving parts is far larger. Result: It’s that much harder to predict what will happen. As Duke says, “The world is a random place.”

In fact, as a financial planner, I often find myself answering questions by saying, “There is no ‘right’ answer.” Absent a crystal ball, there just isn’t enough information to say with certainty how something will turn out. Consider, for example, the following questions:

Is it worthwhile to own international stocks, given that the dollar might strengthen?
Should I do a Roth conversion this year, since tax rates might go up in the future?
Should I rush to give assets to my children because the next president might lower the estate tax exemption?
Should I always take out the largest mortgage I can?
Should I buy inflation-protected bonds, in case inflation returns to double-digits?

In each case—and in many more—the only honest answer is to acknowledge that no one knows for sure. You might have an opinion, and that opinion might be well-founded. But anyone who claims that their opinion is anything more than an educated guess is simply fooling himself or trying to fool you.

But if that’s the case—if so many questions are unanswerable—how can you plan for the future? I recommend a three-step process:

First, recognize that “I don’t know” or “I’m not sure” aren’t the answer to every question. Many questions—what estate planning documents do I need, should I fund my 401(k), should I pay off credit card debt—do indeed have clear answers and aren’t subject to significant debate. When you encounter a financial question, it’s important to be able to tell the difference between those with clear answers and those without.

Second, take solace in the fact that some questions just don’t matter. The financial world is unendingly complex, and it can be easy to get distracted by arcane questions that appear to be important. Whenever a question comes to mind, always ask yourself whether it would make any difference to your financial future. That may allow you to tune out questions that otherwise would consume unnecessary mental energy.

For example, Wall Street brokers and the financial news devote a lot of their energy to speculation about the market’s day-to-day movements. But if you are a long-term investor who’s putting money away for a retirement that is decades away, it shouldn’t much matter what the market does next month or next year.

Finally, understand that “there is no ‘right’ answer” does not mean that there is no answer at all. Rather, it just means that there’s more than one possible outcome you’ll want to consider. And while there may be many, many possibilities, some will be more likely than others. I recommend that you identify the most likely outcomes and let that guide your financial plan.

To be sure, you should have a “Plan B,” should things turn out differently. But beyond that, I wouldn’t spend too much time getting hung up on every remote possibility, such as hyper-inflation or a Great Depression-style stock market collapse. Extreme scenarios are entirely possible. But before you worry about extremes, first be well-prepared for all of the more likely scenarios.

Adam M. Grossman’s previous blogs include You—But Better,  Happily Misbehaving  and Laying Claim . 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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