Jonathan Clements's Blog, page 50
June 11, 2025
How are you dealing with or plan to deal with inflation in retirement? By R Quinn
Someone on HD asked if my inflation adjusted retirement income today still equaled my base salary when I retired.
The answer is a resounding no. For every dollar of base pay in 2009 I would need $1.50 today. Since my pension does not have a COLA, any automatic adjustment is up to Social Security, but that is less than a quarter of our income.
So, now I am 50% behind - no panic yet, but I am glad I didn’t start out say, with 80% income replacement. My extreme fiscally conservative attitude on this subject provided a cushion relative to our spending. Never in thinking about retirement did I consider we might spend less - and we don’t.
Our mortgages were paid off several years before retiring and while we don’t save as much, we still save mostly in the form of eleven 529 plans, and reinvesting investment earnings
Minor items that could mean lower spending in retirement have been offset by increased retirement related spending like more grandchildren and healthcare premiums which went from $157 a month for two of us before I retired to $1654 a month today. In the place of general maintenance for our house inside and out, we have a $950 monthly HOA. Frankly I think the HOA is higher on an average annual basis.
As they say, the greatest risk in retirement is longevity.
Everyone has their own way of dealing with inflation. The 4% withdrawal strategy adjusts for inflation. I will deal with inflation when I have to by first using dividends and monthly interest payments and from cash building up in investment accounts, or in the extreme using assets I hope will go to our family.
I asked Gemini how retirees deal with inflation. Many ideas, like part-time work, cutting spending, taking a HELOC, renting a room in your home and delaying SS were not appealing. Various forms of investment income were attractive, TIPS, I Bonds and dividend stocks were mentioned as was rental income.
NJ state workers naively relied on a pension with a COLA, but because the pension fund was in terrible shape, the COLA was “temporarily” suspended. That was in 2011 and still no COLA and the trust is still underfunded. A problem created by politicians and public unions.
The point is that we all need some way to cope with inflation as we live on at least a partially fixed income. I elected to deal with it in advance and 15 years later so far so good, but for many people that may not be feasible or desirable especially if it delays retirement, so they need another strategy.
How are you dealing with or plan to deal with inflation in retirement?
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June 10, 2025
Trips in your “go go” years?
We are starting to consider booking a trip for 2026. We would like to go outside the US, if possible. Some of you have encouraged me to make a post asking advice about where to go, what to do, and other things we might need to know about traveling out of country. (We do already have our passports from when we took a cruise in 2019 when we paid off our house.) So, HD friends, I am asking what kind of trip would you advise for out of the US travel newbies? Where should we research? What trip was memorable for you? Chris
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Ironman Training Update
This past weekend I did the 200k Ride To Conquer Cancer.
On Saturday we rode from Toronto to Hamilton and on Sunday from Hamilton to Niagara Falls.
I knew it was going to be hard because I had only done one 100k training ride so far this year because of the bad weather we were having.
Also I suffer from bad allergies as well as exercise induced asthma and the day before it looked like it was snowing here due to all the white fluff in the air never mind the smoke from the forest fires out west.
But like they say the show must go on and things were going ok until the 80k mark on day 2. It became very uncomfortable to ride. My arms, backside, and neck were very sore and I had trouble pedaling but in the end I managed to get it done.
With only 54 days left to Ironman Ottawa I can see a lot of riding in my future.
How this adventure will turn out is anybody's guess but I'm committed or maybe I should be committed.
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You Might Be Ready to Retire…Who Would You Rather Be?
One of my friends is hitting 73 in August and we were discussing his need to do an RMD this year. I'm older and have been doing them for some years already. Our financial affairs have one major difference; he has a significant pension and I do not have any pension. I'd say that we are both comfortable. I think he likes his situation, and I like mine.
I thought it might be interesting to create a possible scenario where two people might arrive at the same retirement income through different routes.
Joe has a pension, SS and some savings split between taxable and tax deferred (25/75). He makes around $138,000 per year.
Bill has no pension, he has SS and savings split between taxable and tax deferred(25/75). He makes around $138,000 per year.
They are the same age, are retired receiving SS. The both receive $48000 per year in SS. Joe has a $5,000/Mo no COLA pension, and takes 4% of his $750,000 savings each year to reach his $138,000 income. Bill takes 4% of his $2,250,000 savings each year to reach his $138,000 income. Of course, as Bill ages, he will have to take larger RMDs, but he can lower what he takes out of his taxable account to try to keep his income the same as Joe.
Both have a reasonable allocation to equities in their financial assets. They both own a home without a mortgage.
I suspect that Joe had some kind of government job and that Bill worked for a corporation. Bill might have had a higher income while he was working.
We might be discussing Sally and Elizabeth instead of Joe and Bill....the names are just for convenience.
So, which might you like to be and why?
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June 9, 2025
Should we envy the super wealthy? Have they taken our piece of the pie leaving us with the crumbs? Nope! By Dick Quinn
What triggered this post was a Facebook meme claiming the wealthiest 0.1% have gained $4.4 trillion in the past two years, that they have grown their wealth at the expense of average Americans and that “without them your wealth would have doubled”
When I read that, my reaction is “that’s just wrong and so what, they earned it.” I wish I was that smart. But that is not the typical reaction. Many people readily believe such a meme and are willing to bash the wealthy. I think it is simply envy. I maintain that without the super wealthy many Americans would have less wealth than they do now, and some without a job.
Given the largest asset class of the super wealthy is equities, virtually everyone can build wealth as HD readers well know. We not may be capable of starting a company or new industry and changing the way people live in the process, but we can buy mutual funds and be a 80 percenter (about $3 million at age 65). No budget or spreadsheet required 🤑
As of Q4 2024, the top 0.1% of U.S. households held approximately $22.14 trillion in net worth. This figure is from the Federal Reserve and represents the net worth held by the 99.9th to 100th wealth percentiles. The average net worth for a household in the top 0.1% was $162 million as of Q4 2024.
The top 0.1% (around 134,000 households) owned roughly 15% of America’s total wealth as of Q3 2024. Their largest asset class was equities, valued at approximately $11 trillion.
The solution is easy, create a new company in your garage, issue an IPO and give yourself 20 million shares, wait a few years and bam! you’re an equity one percenter.
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June 8, 2025
Change Lanes, Expand Your Wheelhouse, Learn Some New Tricks
Of the things I have learned from HumbleDollar, and more specifically from Jonathan, is that increasing birthrates and immigration alone won’t solve our Social Security and Medicare quandaries. People need to work longer.
I have pushed back on that idea by pointing out that for many employed in what I call the brutal occupations, working longer is easier said than done. While I stand by that sentiment, I know people who have changed lanes, expanded their wheelhouse and learned some new tricks.
I know an old plumber who got a job with the county as an inspector. An electrician who went into sales for his employer. A carpenter turned foreman. A sheet metal worker who took a job with the city rooting out un-licensed contractors. A steelworker who got a job in a supermarket's produce department. My brother became an attorney after a disability caused early retirement from the police department.
The moral of my story is just because you’re not a Rhodes Scholar doesn't mean you don’t have options. Heck, I know a guy that drove a beer truck for 30 years who ended up owning an income tax practice. Perhaps you know someone who could benefit from a little encouragement.
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When relocation in retirement is not an option, not what you really want. By Dick Quinn
We live in a small town in NJ, population 6,600. The median household income is $203,000, the median home value is $1,358,400 and the median property tax is $29,600. I feel like we live in a bubble and given these numbers are much higher than our state averages, which are third highest in the Country, I guess we do.
Between property taxes and HOA fees the minimum annual cost to live in our condo is $24,900.
We live here by choice, wanting to downsize and eliminate stairs a few years after retirement, but also wanting to stay in the same area - we live less than a mile from the house we had for 45 years. In fact, we live five miles from where I, my mother, grandparents and great grandparents grew up.
I knew long before I retired that relocating after retiring was never going to happen. Our roots and most importantly our family are here. We are very fortunate that all of our family are within an hour drive, not scattered around the country. We spend many weekends involved in family activities.
To see any significant decline in the above numbers, we would have to move out of NJ - way out. That means away from family and lifelong friends and that was never going to happen.
The other option was simply to move to our house on Cape Cod. The property taxes there are $2,800 a year, plus then there would only one home to maintain. I had that dream for awhile, but only a dream. Deep down I knew the reality.
As you see, there is a price to pay for our choices. We are fortunate to be able to make those choices, and not relying on relocation to make retirement affordable. Now you know why my views about retirement income are what they are, our expenses were not going down.
If moving to Florida or the Carolinas, as is popular in the East, or Arizona or anywhere sunny and warm is your dream, why not? Millions of seniors do just that.
From my perspective just do your best to assure it’s a real dream, not driven by financial necessity just to make your numbers and retirement date which you may come to regret.
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Talking Trillions by Jonathan Clements
There’s been a heap of handwringing this year over both federal government borrowing and possible cuts in Social Security benefits, and the current budget bill before Congress is only exacerbating those fears. But I worry folks are focusing on the wrong things.
As Adam Grossman noted recently, the federal government collects $5 trillion in revenue each year and spends $7 trillion. Why? You might point the finger at Medicare, Medicaid and Social Security, which account for almost half of federal spending.
But why do these three programs cost so much? You could rail about fraud or overly generous benefits. But the reason is far simpler: America is getting older, and that’s driving up the cost of these three programs. Two not-so-fun facts: Nearly half of Medicaid spending is devoted to seniors and those with disabilities, and Medicaid covers more than 60% of nursing home residents.
What about making spending cuts elsewhere? If defense spending, interest on government debt and programs like Social Security, Medicare and Medicaid are off limits, that leaves just 15% of federal spending available for possible cuts.
Meanwhile, there are lots of complaints about tax cheats, along with complaints about tax breaks that only benefit low-income households, or hedge funds, or college borrowers. But again, there’s a much simpler explanation for skimpy government tax revenue: When folks retire, they no longer pay Social Security payroll taxes, and their income-tax bill also typically declines. A third of federal government revenue comes from payroll taxes, and more than half from individual income taxes.
In other words, the widening of the federal budget deficit is a symptom of a larger issue: the aging of America, which is leaving us with fewer workers and more folks dependent on the goods and services they produce.
The aging of America can also partly explain inflation and our persistent trade deficit. If we have fewer Americans producing goods and services, it’s more likely that demand will outstrip supply, pushing up consumer prices and prompting companies to import even more to satisfy the demands of U.S. consumers.
And let’s not forget the silliness of the Social Security trust fund, which is merely an accounting ploy, where Uncle Sam takes money out of one pocket and puts it in another. The trust fund’s depletion is, of course, another symptom of our aging population.
But its shrinking, by itself, shouldn’t be cause for alarm. After all, when the trust fund cashes in some of its special Treasury securities, where do you think the Treasury Department gets the necessary money? Social Security has always been a pay-as-you-go system, where this year’s benefits are paid with this year’s tax revenue and this year’s borrowing—the same way the government pays for everything else. That said, it’s conceivable that one day Congress might use the emptying of the trust fund as a cudgel to force through cuts in Social Security benefits.
What’s the solution to all this? As I’ve argued before, the answer isn’t to raise taxes or slash spending, but rather to use tax incentives to make it attractive for folks to stay in the workforce for longer, while also encouraging immigration.
But as you follow the debate over this year’s budget bill, don’t expect to hear such things mentioned. It strikes me as strange, but it seems Congress would prefer to quibble over tax rates and spending cuts, rather than ease the need for both by expanding the working population. Are you happily retired? You may hate the idea of ever holding down a job again, but—for the sake of your Social Security check, your tax burden and more—you should hope and pray that we find a way to persuade those in their 60s to work just a few years longer.
Or, as they say, we can do this the easy way or we can do it the hard way. If we don’t persuade folks to stay in the workforce for longer, we’ll end up in the same place, thanks to financial bullying. Folks may find themselves compelled to work longer—or to return to the workforce—because of some combination of higher consumer prices, higher taxes, and cuts to Social Security, Medicare and Medicaid. Doesn't that sound like fun?
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June 6, 2025
You Never Know
Myopia. Open any finance textbook, and you’ll find that most of its ideas are built on the notion of “present value.” This simply means an investment should be worth the sum of its future cash flows. A public company’s stock price, for example, should correlate with its ability to generate profits in the future. This is the reason investment markets generally look forward.
For professional investors, this is their North Star. When researching a company, Wall Street analysts try to estimate its revenue and profits for future years. This can be a very logical approach. The challenge, however, is that these estimates are often guesses because there are too many factors that could affect any given company at any given time.
Consider a recent example: On April 2, in a policy statement dubbed Liberation Day, the Trump administration announced a set of steep new tariffs. This announcement caused the stock market to sell off, with some companies affected much more than others. Just a week later, the administration changed course and announced that most of these tariffs would be placed on hold. The stock market rebounded nearly 10%.
This one example illustrates an important dynamic: Not only do investors not know which way public policy is headed, but policymakers themselves also don’t know. Although markets generally look forward—an approach supported by economic theory—this is of little value, because no one can see around corners. It’s generally fruitless to make portfolio changes based on expectations about the future.
Attention span. In a recent commentary, Bloomberg observed that global markets exhibited contradictory behavior: “The never-ending back and forth on tariffs. An escalating war in Ukraine. Growing concern about the U.S.’s mounting debt and deficits, and a congressional budget process that seems unlikely to address the problem. Sounds like a recipe for a bear market, and yet global stocks just hit an all-time high.”
Why have stocks been rising despite these negative trends? One explanation is that investors believe the White House won’t follow through on its most serious tariff threats. Although that’s one possibility, I believe that isn’t the only reason. Consider Tuesday’s White House announcement stating that it plans to double steel and aluminum import duties. Clearly, we aren’t out of the woods on tariffs.
Why do investors no longer seem fazed by trade-related news? I believe there’s another factor at play. An event that occurred earlier this year can help us understand why.
In late January, a new AI tool known as DeepSeek made news when it became the most downloaded application from Apple’s App Store. Why? According to news reports, DeepSeek requires a fraction of the computing power compared to those needed to build other AI services like ChatGPT. The market reacted swiftly: Nvidia, the primary supplier of semiconductors to AI firms, saw its stock sink 17% in one day. If DeepSeek’s claim that it requires a fraction of computing power is true, Nvidia is in big trouble.
Since then, Nvidia shares have recovered nearly all their earlier losses—but not because the DeepSeek threat disappeared. There has been no update on DeepSeek’s claim to be built on fewer chips. I believe Nvidia’s stock recovered for the same reason that the overall market recovered, despite the risks Bloomberg highlighted: Investors simply have short memories and short attention spans.
It's hard to explain this phenomenon. Perhaps it’s because news cycles move quickly. Whatever the reason, it’s not rational, but it is reality. And it’s the reason I believe investors are best served by never reacting too strongly to the day’s news. As Tony Hsieh, founder of Zappos, used to say, “Things are never as bad or as good as they seem.” This motto applies equally well to investing.
Permanence. In the investment world, there’s the expression that trees don’t grow to the sky. That is, nothing is forever. Kodak, Xerox and BlackBerry are examples. But when we look at today’s market leaders—Apple, Google and Amazon—it’s hard to imagine that they may one day suffer the same fate. We may, however, be witnessing something like that happening now.
Since ChatGPT’s 2022 arrival, cracks have appeared in Google’s market dominance. According to industry data, Google’s search engine market share, which was over 90% for more than a decade, slipped by a handful of percentage points. About a month ago, Eddy Cue, an executive at Apple, confirmed this. Google traffic on iPhones, he said, had fallen in April for the first time ever. This caused Google parent Alphabet’s shares to fall 7% the next day.
What’s interesting is that Google wasn’t completely unaware of AI before ChatGPT’s release. For years, it had been working on its own AI tool. But for whatever reason, Google hadn’t released it. This decision was reminiscent of Xerox’s famous Palo Alto Research Center (PARC), which invented everything from the mouse to the laser printer to local-area networking, but failed to commercialize any of it.
Google’s decision to keep its AI product under wraps was also reminiscent of Kodak’s 1970s decision refusing to commercialize the digital camera, invented by one of its engineers. Why? Kodak feared it would cannibalize its film business. According to Steven Sasson, the engineer who created that first camera, management’s reaction was: “That’s cute—but don’t tell anyone about it.” The outcome: Kodak ultimately fell into bankruptcy.
These consequences, however, aren’t always a one-way street. After years of dominating the market with its Windows software, Microsoft was repeatedly caught flat-footed—first by the internet and then by mobile computing—but it ultimately found new businesses, and today it’s larger and more profitable than ever.
Which way will Google go? It’s an open question. While Google is losing its market share in the traditional search engine business, it’s quietly gaining traction with its Waymo self-driving cars—an important opportunity since the automobile market is exponentially larger than the search engine market.
The bottom line: Investment markets are wholly unpredictable. Even when a given trend seems robust, it can reverse. Even when policymakers make pronouncements, they can change their minds. Even when a company dominates its industry, it can be usurped. As simplistic as it may sound, broad diversification will likely continue to be investors’ best defense against an uncertain future.
Adam M. Grossman is the founder of Mayport, a fixed-fee wealth management firm. Sign up for Adam's Daily Ideas email, follow him on X @AdamMGrossman and check out his earlier articles.The post You Never Know appeared first on HumbleDollar.
No TIME Left For You
(No time left for you) I found myself some wings
(No time left for you) Distant roads are callin' me
(No time left for you)
- The Guess Who
It had been a while since I had been mailed the opportunity to “get guaranteed income that you can’t outlive,” “preserve your capital,” and most importantly “enjoy a complimentary dinner.” I was concerned that there might have been some sort of cosmic shift away from financial planners who charge 1% of assets or even worse that my name had fallen off the free steak mailing list.
Well once again my fears were for naught as an invitation from a “Well-known local retirement specialist George Williams III,” was in my mailbox and all was right in the world. Oddly though this invite offered a complimentary BBQ buffet and not what I thought was the legally required filet mignon, roasted chicken or salmon on a cedar plank. The venue though was Jack Stack Barbecue, which is possibly the best upscale BBQ joint in Kansas City.
I arrived promptly at 6:00 pm, had my name checked off the list and then given the required name tag and marketing booklet (“Your Financial Blueprint Begins Here”) before being guided to my seat.
The room had two large TVs with looped videos of Mr. George Williams III and his wife being interviewed and working with clients. There was also a very large poster of him sitting in a very sumptuous chair with Mrs. George Williams III standing next to him, something out of a photo session for the King of England.
And after the starter salad we were off, with George III taking the stage and . . . playing a video of people saying very nice things about him. Next, he told a very depressing story about his father dying of cancer with him at his side. The central theme was the concept of “TIME,” and that we will eventually run out of it.
I thought he had started off on such a downer to emphasize he could provide me with more “TIME” by taking care of my money. Instead, he did it as a lead-in to an acronym he really likes to use:
T = Tax Efficacy
I = Income Planning
M = Manage Risk
E = Establish Legacy
He then mentioned when his father died, he was devastated and could not function for over the year. I think he wanted to convey the love he had for his father and the deep loss felt, but couldn’t help but wonder “during all this TIME who was looking after your client’s MONEY?”
It all seemed a little too dark, too sad and maybe a little self-focused.
He mentioned that many years ago 65 was old, but today it wasn’t . . . the ol’ 65 is the new 55 razzmatazz. I understood he was angling at the Birdiean idea that if you’re 65, you’ve still “got a lot of livin' to do!”
The problem was that as I looked around the room, everyone (else) looked really old.
The last few of these I’ve been to, has the speaker asking, “What is the color of a yield sign?” with most of the audience incorrectly answering “Yellow” (as I did . . . the first time). I was waiting for it, when George III instead zagged and offered that he was going to build me a house.
I had also heard the investment house meme before (x3): a foundation of solid investments, walls of income and roof of something or another. I never liked the analogy, as while a solid foundation is important, so is a solid and watertight roof. I’ve had to deal with a leaky roof during a Hurricane Harvey, and I didn’t comment to my wife “at least the foundation is solid.”
Either way, it is played. I’m hopeful that before my next complimentary steak dinner the Financial Advisor Research Team can come up with a new analogy (retirment is like a Flower, a L.O.C.O.M.O.T.I.V.E, or a KAZOO). Or maybe they could just agree to provide some realistic tax, income and risk advice in return for a modest fee (I’m not worried about the Legacy part . . . you’re reading it).
And Good God, please not the three-legged stool analogy which he subsequently mentioned.
He also spoke of and showed pictures of his family. Which btw is very good looking. At the end he showed one more photo of them, on the beach all dressed in earth tones. While the story he told about his father made me a little sad, this photo made me sadder as I wanted to run home, throw out all my family photos, buy a beige and tan wardrobe, and have a new set of profession photos taken of my family. Though it also gave off the photo that comes in the frame vibe (there’s a fine line between professional and banal).
When I attend these soirées, I always try and get a nugget, though this one was nuggetless. After the last photo was shown, there were though, three very memorable conversations:
There was a PowerPoint slide that compared a chart of inflation over the last few years with inflation during the 70s which was quite striking, as when overlayed, they matched up too perfectly. It was supposed to insinuate that current inflation may be quite persistent. When I asked George III if he could email it to me, he said he would . . . but he didn’t.
George III also mentioned a story that had a client owning various mutual funds, and that this was definitely not diversification. Now I understand that owning numerous mutual funds, all investing in the same stocks can be an issue. I asked him to explain, and he stated that owning mutual funds was not diversification and that he used professional money managers to help build a wall of diversification. At this point I was tempted to ask him about the door, not to the “house” he was building me, but to the room I was sitting in.
The couple, who were my table mates, already had a financial advisor but wanted to see what was out there. We both agreed that talking with somebody every now again was a good idea (and good eats). I mentioned that it forced you to gather all your financial details in one place, which is always a very useful experience. The wife quickly mentioned that she keeps this information very organized and always up to date. I then spoke with the husband about the importance of the Roth conversion, but he wasn’t sure if he had a Roth - I felt like telling his wife that she needed to set up meeting . . . with her husband to bring him up to speed.
Soon after I gave George III’s assistant the bad news. No matter how bad the presentation I always feel even worse when I take a pass on making an appointment to discuss “the next step.” In this case though Joyce handled it with class and said, “No worries, now get yourself some Q!” Which made me feel much better.
The day after the party I was pleasantly surprised when I received an email from George III . . . thanking me for coming and asking that I “Please use the button below to request your appointment.” There was also a follow-up voicemail from my old friend Joyce thanking me. But neither provided the inflation details.
Epilog
A few months later George III invited me to another seminar. I RSVP’d though felt a little uncomfortable, but figured he was using it as an opportunity to provide the inflation chart. Then four hours before the event he canceled my invitation without apology, texting me that the “seminar is at full capacity. . . we want to ensure that those who haven't yet had the opportunity . . . are able to join us tonight.”
I was a little disappointed in not getting to spend any TIME with George III, so disappointed that if he invites me again to enjoy a free BBQ, I would only very reluctantly accept.
The color of a Yield sign is . . . Red.
The three legs are Social Security, employee pensions, and personal savings.
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