Jonathan Clements's Blog, page 61
April 29, 2025
Bogle has saved us a Trillion Dollars through Vanguard’s 50th Anniversary
Vanguard serves over 50 million investors, has over $9 Trillion assets under management, and has fund expenses that average a meager $0.07%. We have about half our assets invested through Vanguard, and particularly appreciate that Mr. Bogle's fee savings have been adapted across large segments of the brokerage industry.
For a great post summarizing Vanguard's Trillion Dollar savings contribution to us all, check out Nick Maggiulli's Be Minimally Extractive here:
https://ofdollarsanddata.com/be-minim...
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Buying an Annuity from the SSA
HumbleDollar has hosted a lot of interesting and useful discussion recently about the benefits of buying an annuity to provide guaranteed income to a retiree. Once you have decided to purchase an annuity, you are faced with the complicated choice of what annuity to buy. In 2012, Boston College’s Center for Retirement Research published a paper that posited that delaying your Social Security benefits and using other resources to fund your lifestyle was akin to purchasing an annuity from the Social Security Administration (SSA). Their take was that “buying an annuity” from the SSA was the “best deal in town.” I wrote an article about this a few years ago, and I thought it was worth rolling out again.
Since 2012 interest rates have risen and commercial annuities have become more attractive. Additionally, the SSA’s full retirement age, or FRA, has continued to rise. The last cohort to reach FRA at 65 was in 2003. In 2027, the FRA will max out at 67. Future retirees planning to wait to FRA before claiming their SS retirement benefits will be faced with a 3-year period if they choose to wait until the maximum claiming age of 70. Funding a 3-year bridge may appear easier than the previous 5-year gap.
One thing I’ve learned from preparing tax returns for lower incomes retiree is the importance of SS retirement benefits (another great topic on HumbleDollar). I, and others, have observed that there are many retirees whose sole retirement income comes from SS. The stark reality is that these retirees would benefit most from delaying their SS benefits, and increasing their benefits by some 8% per year of delay.
I tend to think of this decision in three groups. At one end you have retirees in desperate financial situations. They may need their SS benefits as soon as possible to live. At the other end you have folks with more than enough financial resources to retire. For them the decision on when to claim SS is much less important. They can do what they want. For a large group of retirees, SS is important but not necessarily time critical. If they have enough retirement funds to consider purchasing an annuity, they might want to consider using some of their resources to purchase one from the SSA.
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April 28, 2025
A False Sense of Security
Like many HD contributors, I don’t own a Single Premium Immediate Annuity (SPIA). Social Security and pensions cover most all of our spending, I don’t need no stinkin’ SPIA.
Or do I? I’ve done the math. The calculators tell me I’m in good shape. But I know this sense of security I feel is precarious. There are any number of things that could blow up my plan. Lengthy care in a nursing home, victim of fraud, catastrophic market events are all examples of things that could upset my applecart.
In a perfect world I can make lots more money in the market than by purchasing a SPIA. Sadly, this world isn’t perfect, and a SPIA can guarantee my income will last as long as I do. Yes there is a cost to be paid, just as there is with insurance for my health, home, cars and life. I’ll probably never need the insurance, but then again, I might.
If I do end up buying, I’ll get one with a return of premium, or a period certain that guarantees my beneficiary at least gets back the unused portion of the premium. The moral of my story is to keep an open mind about SPIAs.
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Kind Hearts are More than Coronets
The Cancer Center seemed a little bleaker and colder during my last session. My husband usually accompanies me to my sessions but I was alone for the first time.
I noticed the woman in the cubicle next to me, as we had both been there at the same time for the past 4 weeks. She was also alone, getting her treatment, wearing a bonnet- the bonnet type hat many women wear who have lost their hair to chemotherapy.
Conversation isn’t the norm at the center and I settled in my chemo chair, while the staff prepared me. They usually start me off with a drip of Benadryl - just to make me drowsy enough so I won’t be fully aware of what’s going on. The infusion nurse, a nice young man, then says “ok, let’s filler up.”
I had my iPad and a book to distract me, and noticed the woman next to me was engaged with her cell phone. The time passed and, as it happened, we both finished treatment at the same time.
I’m not an intrusive person and tend to be a little on the private side—but there was something about this little woman that was touching. So upon leaving I walked over to her cubicle, gave her my best smile and asked her how she was feeling. We had a pleasant exchange and As I turned around and started to walk away, I felt someone tugging on the bottom of my jacket. I turned around and it was my bonny bonnet lady who asked me sweetly “will you be here next week?”
It was just a chance human encounter, a sharing of compassion, a little touch of kindness and concern. A reminder that even in our own distress, reaching out to others makes life more pleasant.
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April 27, 2025
Deducting Medical Expenses of a Decedent
Often when a person dies the surviving spouse or executor receives huge medical bills from the last illness or accident of the decedent. Hopefully most of such final medical expenses are covered by medical insurance but as anyone who has been tasked with dealing with the after death financial matters knows this is a long, complex and time consuming process.
Any medical expenses of the decedent not paid before death are by default liabilities of the decedent's estate. If a federal estate tax return, form 706, is required those unpaid medical expenses are a liability of the estate.
However, the estate personal representative (PR) or surviving spouse if there is no PR may elect to treat such eligible medical expenses as paid by the decedent at the time the medical services were provided. Such medical expenses must be paid within the one year period beginning with the day after the date of death (DOD) to be eligible to deduct by itemizing.
Assuming such deduction provides an income tax benefit on the final 1040 of the decedent, regardless of their tax filing status (MFJ, single, etc.), then the personal representative or surviving spouse must attach a separate statement, in duplicate, to the decedent's final form 1040 in addition to schedule A itemizing deductions and stating such medical expenses were paid post death in the one year following the DOD and have not been and will not be claimed on the decedent's estate (form 706) tax return.
I will not go into the reporting needed on form 706 as it is infrequently filed because of the high exemption amount we each have that eliminates the requirement to file a 706 for most of us and because such reporting is beyond the scope of this article. Note, just because no 706 will be filed does not eliminate the need for the statement in the 1040 for post DOD medical expenses if itemizing.
In a nutshell this information is often most useful if the decedent has a surviving spouse, huge uninsured medical expenses paid after DOD, will itemize on the final 1040 and has a 1040 tax liability in the year of death without such itemized deductions. This action will be a lot of work and the PR and/or spouse will need to decide if the time and dollar cost is worth any expected tax benefit before doing the work.
If the decedent's 1040 return has been filed and such post death medical expenses were not included on the original 1040 then an amended 1040X may be filed within the normal time period for filing amended returns to claim such medical expenses as a itemized deduction.
IRS Pub 502 and Pub 559 have short commentaries on the procedures for post DOD medical expense deduction requirements for itemizing.
My hope is that these actions and decisions will never be an issue for you.
Best, Bill
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Tweaking the 4% Rule
With recent stock gyrations I thought that their most recent look at withdrawals and retirement accounts might be helpful.
Here are a few points made in the article:
"Morningstar researchers have investigated and identified their latest starting safe withdrawal rate. Here’s a hint: it’s slightly lower than the previous year. "
About saving for retirement, "it’s pretty straightforward as long as you start early and you’re consistent about it. But when it comes to taking your retirement portfolio and figuring out how to turn that into a paycheck for yourself, that gets much more complicated."
There’s sort of a balance. You want to make sure that you’re spending enough so that you can enjoy your retirement and enjoy hobbies and travel, that kind of thing, but not spend too aggressively so that you might have to cut back later in life. "A lot of people actually end up underspending."
Morningstar states that their approach is different. "We decided that instead of looking at past data, we would do something more forward-looking, using market estimates for possible future returns."
Looking at the past 15 years Morningstar says the market returns were "actually the best 15-year period for stocks that we’ve seen going back to 1970."
Morningstar has reduced their return assumptions for stocks and bonds.
Morningstar's analysis looks at 900 outcomes using a base case of 3.7% and "various flexible or dynamic withdrawal strategies." These alternatives "can often lift the starting withdrawal rate."
Here's a link to the article:
https://www.morningstar.com/retirement/retirees-heres-how-tweak-4-rule-protect-your-nest-egg
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You versus Social Security – Quinn is betting against you.
One thing (?) really bothers me and that is the idea that Social Security is a bad deal. That view is based on the theory that a person would be far better off if the FICA taxes instead of going toward Social Security, were invested by the worker.
There are two major flaws in that view. First, Social Security is far more that a individual retirement income - disability benefits, survivor income, dependent income, ex-spouse income are included.
So, for the theory to have a chance, everything must go right throughout a persons entire life, no job loss, no disability, no divorce, no disabled child, no early death and no bad investments or bad timing.
Second, we must assume a person exercises forty or so years of financial discipline and investment skills. No diverting any of the money, no skipping new investments, no speculation, good diversification based on years to retirement and more.
I suggest relatively few people are capable of doing that and I think the overall financial state of many retirees and most Americans provides ample evidence.
So, the argument against SS based on what one person expects to successfully do is irrelevant in my opinion. The collective benefits for society are what matter.
During my working life of over fifty years beginning in 1959 I and my employers combined paid $266,314 in FICA Social Security taxes. I have no idea what that would be worth if invested in lieu of the taxes as paid weekly, but I do know that Connie and I collected in benefits all those taxes paid in about seven years of retiring and that today after sixteen COLAs, our combined SS benefits based on my taxed earnings only are $60,496 a year and the survivor benefit would be $40,320. And all that is about as guaranteed as is possible.
Did I miss out on accumulating a million or two? I doubt it, but I also don’t care. In my book Social Security still wins. I see that as the case for 99% of workers, even HD readers.
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April 26, 2025
It’s 2025. Do you send checks by mail?
I saw this article in the Washington Post and thought that I haven’t sent a check by mail in years. Am I the minority in this?
I pay all my bills electronically and once in a blue moon, I pay a few bills by the Wells Fargo app.
Also, if you pay by mail, what do do to protect yourself from what is described in the article?
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Three Points to Avoid Injuries
Three Points
It’s a simple lesson I learned when I piloted an 18 wheeler in order to make ends meet while getting my business up and running. If you ever stood next to semi-trailer truck you would have noticed that the last step into or out of the tractor is a doozy. I wouldn’t be surprised to learn that HD’s resident physical therapist Ed Marsh treated a few injuries that occurred when a driver fell getting out of his truck.
Enter the three point rule, which basically means that you have two feet and two hands, and at any given time three of your four appendages should be in contact with something in order to keep you tethered and stable.
In the truck that meant hands on the grab bar while your feet climbed down those tractor steps. I apply the same rule to other activities of daily living as well. For example, even though I have no problem stepping over the tub for a shower, I still keep a hand on the grab bar to assure my stability.
I’m now at an age where some friends are having balance issues. Few make use of any sort of device for help. Is it due to pride or embarrassment? I don’t see any shame in using a cane. While not intended to be used as a crutch, a cane still provides that third point of contact and helps greatly with balance. When I get to my slow and no go years I won’t hesitate to avail myself of whatever it takes to maintain a good quality of life for as long as possible.
Any other suggestions to help with avoiding accidents?
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You’ve Come a Long Way, Baby by Marjorie Kondrack
When I sought a good plan for investing during the 1960s, women were discouraged from having too much interest in the male-dominated Investment world. Then I discovered dividend investing, and found that income is not only a path to steady returns, but also a source of comfort when the market hits maximum turbulence, as it has recently.
I discovered this strategy has also become popular with people who are planning to retire early and need income—but also growth. Income from the S&P 500 stock dividends over the last 25 years( 2004-2024)has grown an average percentage of 7.33%.
While this includes both capital appreciation and dividend income, it’s notable that dividends contributed significantly to the total return.
Coincidentally, the strategy has seen the same level of annual dividend growth. When you’re getting that kind of income and it’s growing, it’s possible to outpace inflation.
The comfort and consistency of a dividend income stream gave me the confidence I needed to be a successful investor. When a company that’s actually made it through the pandemic, and the great financial crisis earlier in the century, and continues to pay its dividend, there is a pretty good chance that the company is committed to it.
The more challenging part of the analysis is to figure out what a company’s management and board philosophy is, beyond the dividend. Do they say they are committed to the dividend—that’s what you’re looking for. There’s something comforting about a strategy where income—even $1,000. a month extra is consistently delivered into my account.
It started with a book I read by the late Geraldine Weiss, known as “the Grand Dame of Dividends, —“Dividends Don’t Lie—”which changed the course of my investing strategy. She was also the first woman to launch a successful investment newsletter, now managed by Kelley Wright—Investment Quality Trends—consistently rated as one of the top newsletters. I learned to identify good value, blue chip dividend stocks with low downside risk. In her initial writings, Ms. Weiss used only her first initial—G. It was an attempt to conceal her gender—a sad commentary on the times, when women felt they had to bolster their credibility by obfuscating their identity.
https://www.stockscreening101.com/investing-strategy-dividend-yield.html
i also learned to gauge when a stock is undervalued or overvalued. The company may be an excellent one; a stalwart blue chip, but at what is there a good entry point to buy the stock? or for that matter, to sell it.
The time tested strategy of Dividend Investing still works fine today. How many remember the old Virginia Slims cigarette advertising motto, “You’ve Come a Long Way, Baby.” It was changed in the 1990’s to “Its a Woman Thing.” How bland—no verve— no panache.
Check out the S&P 500 dividend aristocrats; a stock market index composed of the companies In the S&P 500 index that have increased their dividends in each of the past 25 consecutive years
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