Jonathan Clements's Blog, page 63

Stuck at Home

IT'S AN ARGUMENT I’ll never win. But perhaps I can sow a few seeds of doubt.

The anti-foreign-stock drumbeat has grown louder with each additional year that international markets underperform U.S. shares. Indeed, even though foreign stocks beat U.S. shares in the 1970s, 1980s and 2000s, there are folks today who argue there’s no reason to own foreign shares.

Really? Before you throw in the towel, ask yourself six questions:

1. If U.S. stocks had lousy returns for 15 years, would you abandon them? Since year-end 2009, foreign stocks have lagged behind U.S. shares almost every year. If U.S. stocks had served up that sort of mediocre performance, and I declared that it was time to give up on America’s publicly traded companies, readers would eviscerate me for my flip-flopping, failure to appreciate market history, and possible horrible market-timing—and the criticism would be richly deserved.

2. If U.S. multinationals are a good substitute for investing abroad, why don’t they perform like large-cap foreign stocks? Pained by international markets’ lackluster results, it seems many U.S. investors are looking for an excuse not to invest overseas.

One of their favorite contentions: There’s no need to own foreign stocks, because U.S. corporations offer ample international exposure. But if that were truly the case, wouldn’t returns for large-cap stocks in the two markets be similar? Yet, over the 15 years through Oct. 31, MSCI’s Europe, Australasia and Far East index has notched just 5.7% a year, far behind the S&P 500’s 14.2%.

3. Yes, foreign companies offer fewer legal protections and greater business risk. But isn't this already reflected in share prices? Arguably, investors today are getting paid to take the greater risk associated with international markets.

For instance, the stocks in Vanguard Total Stock Market ETF (symbol: VTI) sport a price-earnings (P/E) ratio of 26, based on the past year's earnings, versus 15.7 for Vanguard FTSE Developed Markets ETF (VEA) and 15.5 for Vanguard FTSE Emerging Markets ETF (VWO). That huge difference in P/E ratios tells you how much more comfortable investors are owning U.S. companies—and how much more room there is for foreign-stock valuations to rise.

4. If foreign stocks are riskier, shouldn’t they offer higher returns? Many in the anti-foreign-stock camp are trying to have it both ways: They’ll claim that U.S. shares are less risky—and yet they’re also confident that U.S. shares will continue to outperform. What happened to the notion that high risk and potentially high return go hand in hand?

5. If you’re an indexer happy to hold U.S. stocks according to their market value, shouldn’t you also be willing to allocate among countries on the same basis? Many—and perhaps most—HumbleDollar readers are index-fund investors, and most index funds weight stocks based on their stock-market capitalization. Today, for instance, that means having 6% of your U.S. stock market money in Apple and almost nothing in Bath & Body Works.

Yes, some carp that this weighting scheme leads to too much money in tech stocks. Still, despite that, I haven’t heard of many folks giving up on their S&P 500 or U.S. total market index funds. I have, however, heard countless folks say there’s no way they’d put roughly 40% of their stock portfolio in foreign markets, even though that’s what a market capitalization approach would suggest.

In designing my own investment mix, I take my cues from the so-called global market portfolio. Investors worldwide have collectively decided that foreign stocks should account for 40% of the global stock market’s value. Who am I to disagree? That’s why Vanguard Total World Stock Index Fund (VT and VTWAX) is my largest fund holding.

To be sure, that opens me up to the risk of both foreign stock and currency fluctuations. The dollar has strengthened in the foreign-exchange market over the past decade-plus, denting the performance of overseas stocks for U.S. holders.

Will that persist? Nobody knows. In fact, nobody knows what will happen to global stock and currency markets in the short-term—which is why I believe you should keep money you plan to spend soon out of stocks, and especially foreign stocks, and in nothing riskier than high-quality, short-term U.S. bonds.

But that doesn't preclude owning international markets. Suppose you’re retired and have half your money in U.S. bonds and half in Vanguard Total World Stock. Result? Some 20% of your overall portfolio would be subject to the whims of the foreign-exchange market and foreign stock markets—an acceptable level of risk, I’d argue.

Can’t bring yourself to stash 40% of your stock-market money overseas? I’d strongly favor going for at least 20%. At that level, investors can get much of the reduction in portfolio volatility that comes with owning foreign stocks.

6. What if you’re wrong? Foreign stocks’ diversification benefit isn’t just about tempering a portfolio’s price swings. It’s also insurance against truly terrible results. You might be confident that U.S. stocks will continue to reign supreme, offering a magical combination of high returns and low risk. But what if you’re badly wrong?

I hate to bring up Japan’s 34-year market disaster once again, and yet I consider it the most significant financial event of my lifetime. What if, in 1989, you were a Japanese investor who was so convinced of your home economy’s strength that you had 100% of your retirement money invested in domestic stocks? At the time, the Japanese economy was the envy of the world. Few foresaw the stock-market debacle that was to come.

Could a similar debacle await U.S. stocks? It’s unlikely. But low risk isn’t the same as no risk. Is it wise to bet your stock portfolio solely on the U.S. market? Many investors are doing just that—and it worries me.

Jonathan Clements is the founder and editor of HumbleDollar. Follow him on X @ClementsMoney and on Facebook, and check out his earlier articles.

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What’s on Your List?

FOUR 20-SOMETHINGS named Ben, Duncan, Jonnie and Dave came up with a great idea for a reality show in 2010. It involved a purple bus named Penelope, a cross-country road trip and a list of 100 things to do before you die. For every item they crossed off their list, they’d help a stranger achieve something on his or her own list. 

Some of their to-dos were ambitious, with a low probability of success: host Saturday Night Live, kiss Rachel McAdams, go to space. 

Some were funny. Tell a judge, "You want the truth? You can't handle the truth." 

Some were sweetly generous: buy dinner for a stranger, take kids on a shopping spree, pay for someone's groceries. 

The show, called The Buried Life, lasted two seasons and was one of MTV's highest-rated shows ever. The show’s four founders also put together a book, What Do You Want to Do Before You Die? Among the questions asked by The New York Times bestseller: What would you do if you only had one day left to live? Would you plant a tree? Would you rob a bank? Would you tell someone how you really feel?

This notion of a bucket list has taken hold in recent decades. Indeed, there was even a movie called The Bucket List, starring Morgan Freeman and Jack Nicholson, that was released in 2007. It was full of exotic travel destinations: the Taj Mahal, the Pyramids, the Serengeti, Stonehenge, Hong Kong, Rome, the Great Wall of China. A popular series of books came out soon after, called 1,000 Places to Visit Before You Die. 

A friend of mine hates bucket lists. She thinks they're too show off-y and competitive, and that checking off bucket-list items doesn't do anything to improve long-term happiness. I totally understand where she's coming from. What if you do Burning Man, and see the Northern Lights, and jump out of an airplane, and stay at the Four Seasons Hotel in Istanbul (okay, I admit that last one is personal), and… and… and… you get to the end of your list and you're bored or sad? Or what if you're more of a homebody, and nothing about exotic travel excites you? Are you supposed to just throw in the towel?

Productivity expert Khe Hy writes in his essay "Why Bucket Lists Are BS" that, instead of a to-do list, we should all have a to-be list, with things like "be kind" and "be creative." In a separate post, "Why Your Goals Are Missing the Mark,” he suggests that effective goals are the ones that have an inner purpose. Your goal of throwing a really great dinner party, he says, may be about a desire to spread joy and laughter. Similarly, your goal of losing 10 pounds could be restated as a commitment to having more energy to play with your kids. 

Are bucket lists really so bad? I dunno. I kind of like the idea of recognizing that our time on earth is limited, and then connecting that bummer of a thought to a list of things I want to accomplish before I croak. But could we attach a deeper meaning to each item?

Example: I want to learn to play mahjong or bridge. Maybe that sounds too small or not glamorous enough for a bucket list, but it's going on mine. Next to it, I can write my "why," which is that I want to have a way to stay connected to society even when I'm old. I want to be able to meet new friends and have a regular social activity that gets me out of the house. Perhaps I could include golf in the same category, though so far I'm not really feeling that one.

You could add a "why" even to your travel wish list. Seeing the world with kids or friends is a great way to bond with them, and it’s also an authentic hands-on education. Traveling solo works, too, because as much as airplanes and shlepping are the worst, opening your eyes to new cultures and experiencing the planet's awesome beauty is amazing. And a little bragging—in moderation—about places you've seen can be a cool way to connect with like-minded adventurers. 

Maybe folks could argue that there's a fine line between an aspirational, purposeful bucket list and an overly long to-do list that ends up feeling trivial. But I think that line is pretty easy to identify, and unique to who you are. And honestly, if taking the time to write down your list reminds you to experience something like paying a stranger's grocery bill or throwing yourself a really great birthday party, is that so wrong? If nothing else, it gives you guidance as to where your extra dollars could be going.

Alina Fisch is the founder of Contessa Capital Advisors , an independent fee-only investment advisor. She’s worked in financial services for more than 25 years. Her focus today is on helping single and divorced women with their finances, a topic she also loves to write about. In her free time, Alina is an avid reader, animal lover, hiker, traveler and vegetable farmer. Her previous article was Sailing Away.

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Household Affairs

IN JANUARY, I surrendered to passionate irrationality, buying a park unit in Arizona that has become my second home.

Now I understand why, at least in the movie cliché, a man might buy house slippers for his long-suffering wife’s birthday, while giving flashy, expensive baubles to his girlfriend for no reason at all.

My single-wide “girlfriend” is tiny and fragile, the bloom off her youth. Things that improve her are easily obtained. A phone call to a friendly fellow at a store, the provision of a credit card number, and—voila—my private world is transformed for the better. Rational me knows the value I derive from each expenditure might be marginal, perhaps an imaginary gain or even an actual loss.

Meanwhile, our longtime family home in California could also benefit from a new refrigerator, as well as much, much more. Over three decades of living in that house, I’ve remodeled, bought new appliances, replaced a furnace, changed out windows, and completed countless other projects. I have clear memories of improvements that helped and ones that disappointed.

As of today, my 2007 kitchen remodel refrigerator has yet to die, so I’m thinking it can wait another year. After all, even when I’m living in the old family house, I’m not staring at the refrigerator nonstop. I might be in the living room, or dining room, or upstairs or out in the yard, with no thoughts of refrigeration clouding my mind.

Here in my immobile home, the living room is also the dining room and the kitchen. Its tiniest flaws, any neglected maintenance, sit in plain view. On top of that—though not always the case—improving my single wide can require minuscule amounts of time, effort and cost. Less than a single quart repainted the “kitchen” and, with under 20 square feet of visible wall, no ladder was required. The whole of the “living room” took one evening to paint.

In a minor triumph of inspiration and imagination, I removed two cupboard doors to create a built-in bookshelf. Then I repurposed the doors as a faux cupboard, masking a badly executed prior owner’s remodeling project. Total expenditure: zero dollars and an hour with a screwdriver, tape measure and level.

Refurbishing the main family house, by contrast, usually involves dollar amounts that start close to $1,000 and easily end on the high side of $50,000. Not to mention weeks or months of arranging details and schedules with scarce home-improvement contractors.

Even here in Arizona, in the land of easy upgrades, a new refrigerator is not a low-cost item. Neither was the washing machine, nor installing a water conditioner. And I have my eye on an electric induction range next.

The easy immediacy of improvements in a small home is a delight. I see changes in an afternoon, making the place ever more useful and attractive as I put my individual stamp on its functionality.

I like to show off my trophy wife—or is it girlfriend?—of a holiday home. Family and friends smile at my fresh paint, a patched and scrubbed counter, a single fixed railing. By contrast, it’s been a decade since anyone walked into my California house and said, “Wow, this place looks so much better.”

I’m learning new things, having fun, and spending my hard-saved investment dollars on myself and others while I’m still around to enjoy the effects. This is my new self and a different life. I’ve uncovered an inner home engineer, and she turns out to be a spender.

I’m not that man in the cliché, however. Next time that I’m back in California, at the big old reliable house with her good bones, I promise to measure for a new refrigerator.

Catherine Horiuchi is retired from the University of San Francisco's School of Management, where she was an associate professor teaching graduate courses in public policy, public finance and government technology. Check out Catherine's earlier articles.

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Time’s A-Wasting

MY LIFE’S GOAL WAS to make money. I make no apologies for this. I’m not particularly gifted in this pursuit, but I did persevere.

I take satisfaction that I stuck to my goal despite all obstacles. There were many trips, falls, mistakes and failures along the way. I had to work hard and seek a new job each time my old employment ended. I set out to do something—and I did it.

That all changed when I retired. It felt like crossing the finish line at the New York City Marathon. I’d completed my career race at last. It was a good feeling. Knowing that someday I’d reach that finish line was a vital part of my motivation.

The satisfaction now is to look back on my journey and see what I accomplished. I fought the good fight. I’m proud of never giving up. But now, I move on to other goals, the ones that I still have time for. We are all given one lifetime. The longest will be about 100 years.

Using 100 as a measuring stick, where are you on your 100-year timeline—and what’s next? What would you do today if you had just one week to live? I hope you’d feel fulfilled, that you’ve done what you wanted to do all along. The goals you pursued might not be what your friends and family thought you should do. Still, if you did what you wanted, you should have no regrets.

If this isn’t true for you, I’d advise you to get going. What do you think you should be doing? The more you do things of your own choosing, the better you’ll feel. Retirement is a perfect time to think selfishly. Doing one selfish thing, while you do 10 things for others, will motivate you to keep going.

Remember, you’re trying to live the rest of your life with zero regrets—to be on your deathbed and think, “I had a good life.” Life is a gift. When you receive a gift, the giver would love to see your appreciation. The way to show that appreciation is to enjoy each day. If you use the day for a guilty pleasure, good for you. The idea is to use the day for what would make you happy.

This might make others happy too—or perhaps not. To be sure, you need goals that won’t disrupt your home life. Breaking your marriage vows or the law might not be a smart move. I hope you’re thinking of goals like skydiving, pursuing hobbies, or visiting places you’ve been pondering for a long time. Let the urgency of a limited lifetime motivate you to accomplish your ambitions.

Maybe you’ll be lucky and have 100 years to work with. Think of all the things you could accomplish. The opportunities are endless. But also remember the expression “time’s a-wasting” applies to us all. We don’t have an unlimited supply of years.

Spread the Wisdom

WHEN THEY ENTER retirement, many folks seem to lose their sense of purpose, especially men who’ve held the traditional role of breadwinner and provider. Once that aspect of their life ends, guys often start to question their purpose.

Our life’s meaning is based on who we are. Some of us are brilliant thinkers. Others are great friends to many. Yet others offer inspiration to the younger generation based on their careers as public servants. We all have a unique combination of gifts. To find meaning, we should apply those gifts in whatever way they can be best used.

That brings me to everybody who reads, writes for and comments on HumbleDollar. Is the subject of money and investing easy for you to understand? Are you comfortable discussing finance with others? Within your social circle, you’re probably the finance whiz, even if you don’t think of yourself that way.

We can use this money sense to provide meaning to the lives of others—by teaching those who are less financially savvy at handling money.

We all know people who are terrible with money. Some tune out as soon as they hear phrases like cost basis or capital gains. Others never acquire the savings habit. Many spend far too freely.

For those who are comfortable with money, advising others on their financial challenges can provide a life’s purpose. To put your gift to work, start by finding your tribe. Join with others who share your interest in spreading financial literacy.

Some people think finance is selfish. I was once told, “The love of money is a sin.” That’s not true. Money is a tool. A hammer in the hands of a skilled carpenter is a thing of beauty.

If your gift is developing friendships, people will praise you for having many friends. Why should the gift of handling money intelligently be viewed any different? Don’t hide your light under a bushel. Embrace your gift and pass it on.

My Retirement Purpose

GEORGE BURNS, one half of the legendary comedy duo Burns and Allen, had a secret to a long and fulfilling life. “Always have a reason to get up in the morning,” he said.

That reason doesn't have to be world peace or saving starving children. It just needs to be something that’s important to you.

Retirement experts often advise that we find a grand purpose—an encore career or running the board at a local nonprofit. But what if "purpose" sounds intimidating? What if simply picking up trash with your son on a daily walk becomes your reason to rise and shine?

Collecting trash may sound mundane. The act takes on greater meaning, though, when viewed through the lens of environmentalism. On our walks, my son and I focus on aluminum cans, those 100% recyclable wonders. Every one we pick up means one less can in a landfill. It may be a small contribution, but it's ours.

My son, driven by an innate desire to clean, leads the way. He'll crawl under bushes and climb hills to retrieve discarded items. The reward he gets is the shout-outs from people walking past or the horn toots when cars drive by. His autism prevents him from acknowledging these positive encounters, but he hears them and it makes him smile.

My son loves to collect trash and recyclables wherever they are. My job is to find honey pot locations with lots of trash. These are usually near industrial sites or close to highways, those in between places where people apparently feel free to throw bottles and cans out the car window.

Litterers may be bad actors, but we don’t care who littered or why. Removing the burden of judgment makes picking up the trash easier. The beauty of our activity is its simplicity. Our only expense is the cost of an occasional replacement grabber for my son. That’s a far cry from the extravagant expenses of, say, a golf-centered retirement.

What started as my son's fascination with trash has become a shared obsession—a commitment to leaving these neglected areas cleaner than we found them. It's a niche with no competition, and the satisfaction we gain is immeasurable.

Is my purpose to save the environment or simply make my son happy? Perhaps both, which is a win-win in my book.

I now understand George Burns's wisdom. He booked a gig at the London Palladium for his 100th birthday, underlining his reason to get up each morning. He did live a century and seven weeks more but, in the end, was too unwell to perform on his 100th birthday. Still, his advice resonates: Find your purpose, big or small, so you find joy in each new day.

David Gartland was born and raised on Long Island, New York, and has lived in central New Jersey since 1987. He earned a bachelor’s degree in math from the State University of New York at Cortland and holds various professional insurance designations. Dave’s property and casualty insurance career with different companies lasted 42 years. He’s been married 36 years, and has a son with special needs. Dave has identified three areas of interest that he focuses on to enjoy retirement: exploring, learning and accomplishing. Pursuing any one of these leads to contentment. Check out Dave's earlier articles.

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Danger: Taxes Ahead

THE JUNE 16, 2021, edition of The Washington Post carried this headline: “Cristiano Ronaldo snubbed Coca-Cola. The company’s market value fell $4 billion.”

The incident in question had occurred a few days earlier, at a press conference in Budapest, where the soccer star was set to play in a high-profile championship game. Coca-Cola was a sponsor of the tournament, so when Ronaldo sat down at the microphone, he found two bottles of Coke positioned in front of him.

Ronaldo wasted no time in moving the bottles out of the camera’s range. To make his point clear, he put a bottle of water down instead. “Agua,” he said in Portuguese. “No Coca-Cola.”

The press conference took place just as markets were opening in the U.S. and, as the Post reported it, “The simple gesture [of moving the bottles] had a swift and dramatic impact: The soft drink giant’s market value fell $4 billion.”

Coke’s share price did indeed drop that day. But in his book Trailblazers, Heroes & Crooks, Stephen Foerster offers a more careful examination of the incident. Looking at trading data, Foerster found that Coke’s share price had already declined before the press conference, and it actually rose afterward. In other words, Ronaldo didn’t cause the share price to drop.

What did? Stock prices can rise or fall for any number of reasons. But in this case, there was something specific. June 14, 2021, was what’s known as an “ex-dividend” date for Coca-Cola. This is an important but often overlooked dynamic that affects stocks and mutual funds.

When a company is getting ready to pay a dividend, it announces in advance the date that it will be paid. That’s called the “payable date.” For logistical reasons, it sets an earlier date as a cutoff for eligibility to receive that dividend. That earlier date is the ex-dividend date, or ex-date. The idea is that shareholders who own the stock on or before the ex-date will receive the upcoming dividend, while those who purchase the stock after the ex-date won’t.

As a result, all things being equal, stocks will typically fall on the ex-date by roughly the amount of the dividend. That’s because that cash is no longer in the company’s coffers and is thus no longer a part of its value. In the case of Coke’s stock on that ex-date in 2021, the drop wasn’t precisely equal to the dividend, but it was close.

This dynamic is more pronounced and more relevant when it comes to mutual funds and exchange-traded funds (ETFs). By law, mutual funds and ETFs are required to distribute the bulk of their income to shareholders on a pro-rata basis. A fund owning stocks, for example, is required to distribute all of the dividends generated by the fund’s stocks. Similarly, a fund owning bonds is required to distribute all the interest paid by its bonds. In this way, from a tax perspective, owning a fund isn’t too different from owning the individual investments in the fund.

Fund investors, however, face another category of taxes—one that holders of individual stocks and bonds don’t have to contend with. Fund shareholders also share in the capital gains generated within the fund. If the fund’s manager decides that he wants to sell one stock to buy another, and he sells the first stock at a gain, each shareholder in the fund will have to share in the resulting tax bill. And if that trade results in a short-term gain—taxable at a much higher rate—each shareholder will bear some of that cost.

As I described a few years back, these capital-gains distributions can have a surprisingly large—and adverse—impact. Because shareholders don’t know a fund’s trading plans, this tax bill is also generally unpredictable.

All that said, I always recommend investing in the stock market via mutual funds or ETFs, rather than buying individual stocks. But how can you guard against potentially negative tax results when investing in a fund? I have five recommendations:

1. While fund distributions are unpredictable and can vary from year to year, you can at least find out the date on which they’ll be paid. That way, you can avoid making a large investment just before a distribution is paid. This scenario is a problem for taxable-account investors because it means that a portion of their latest investment is immediately returned, along with a tax bill. Taxable investors will be on the hook for that tax bill even if they opt to reinvest the distribution in additional fund shares.

Consider a new investor in American Funds’ Growth Fund of America. Last December, that fund made a distribution equal to 6.9% of the fund’s value. You wouldn’t have wanted to invest in advance of this payment because it would’ve resulted in an immediate but avoidable tax. Distribution schedules are available on fund company website. Here are links to the 2024 schedules for Vanguard Group and Fidelity Investments.

2. Funds like the Growth Fund of America tend to make sizable distributions because they’re actively managed, which means these funds can engage in significant trading that then results in realized capital gains. Some funds are even worse. In a recent roundup, Morningstar identified dozens of funds slated to distribute 10%, 20% or more of their value this year. Index funds, on the other hand, engage in far less trading, resulting in far fewer gains. Look through the distribution history of Vanguard’s popular Total Stock Market fund, for example, and you won’t find a single capital-gains distribution in the past 10 years.

3. Within the world of index-based investments, exchange-traded index funds tend to be the most tax-efficient, owing to their structure. I described this in some detail a few years back. Long story short, the difference between traditional mutual funds and ETFs is that ETFs are baskets of stocks that are traded among investors but are almost never sold. Result: They generate very little, if anything, in the way of capital-gains distributions. The idea of a 6.9% distribution, like the one described above, would be unheard of for most ETFs.

4. If, for whatever reason, you choose to invest in an actively managed fund, check its historical distribution rate. Look back several years to see what distributions have looked like during both up and down years in the market. If a fund has a history of being tax-inefficient, and you still want to invest in it, try to make the purchase in a retirement account, where the distributions won’t be taxable in the year they’re paid.

5. Regardless of the type of fund you choose, don’t automatically reinvest distributions back into the fund, even in a retirement account. This is often a default setting, but it can cause unforeseen results. The wash sale rule, for example, can cause a negative tax result under certain scenarios.

A final note: Some funds carry very high distribution rates and advertise it as a feature. Here’s how T. Rowe Price describes its Retirement Income 2020 Fund: “Turn your investments into automatic income…. The fund’s managed payout strategy is designed to provide a stream of predictable monthly distributions throughout retirement, targeting 5% annually.”

Funds like this, however, are playing a bit of a shell game, in my view. That’s because they employ another kind of distribution known as a return of capital. As its name suggests, these distributions are simply returning a portion of a shareholder’s investment. They don’t represent income or capital gains. It’s as if you handed a fund company $100, and it turned around and handed $5 back to you. I see this as a gimmick. These return-of-capital distributions are shown on T. Rowe’s website. It isn’t the only fund company that does this sort of thing.

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.

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A Taxing Retirement

THE TOUGH PART COMES last.

Saving for retirement is pretty straightforward: You sock away as much as you can, favor stock funds, diversify broadly, keep investment costs low and make the most of tax-advantaged retirement accounts. By contrast, paying for retirement can involve mind-boggling complexity—and a big reason is the tax code.

The good news: Once you quit the workforce, you have a fair amount of control over your annual tax bill, especially if you aren’t yet taking required minimum distributions (RMDs) from your traditional retirement accounts, where all withdrawals are dunned as ordinary income. But how should you use that flexibility?

You might aim for a year with low taxable income, perhaps covering living costs with cash from your taxable account or by making tax-free Roth withdrawals. That way, you could potentially take advantage of the tax code’s various goodies for lower-income taxpayers.

Alternatively, you might go in the other direction, making large Roth conversions or pulling more out of traditional retirement accounts than you need for that year's spending. Both strategies would drive up your taxable income. The goal: Shrink your traditional retirement accounts before RMDs kick in during your 70s and potentially push you into a higher income-tax bracket.

Intrigued? Here are some key 2025 tax thresholds.

Health-insurance premium tax credit. Did you retire early, and need to buy health insurance because you aren’t yet age 65 and eligible for Medicare? If you purchase coverage through your state or the federal government’s health-insurance exchange, you could receive a tax credit if your income, based on family size, is four times the federal poverty level or less.

The lower your income, the bigger the potential credit. For instance, for a couple, two times the federal poverty level in 2025 would be a modified adjusted gross income of $40,880. At that income level, the couple would receive a tax credit that covers much of their health-insurance costs.

Zero capital gains. Got winning investments in your taxable account that you’d like to sell? This is another reason to hold down your taxable income. In 2025, if you can keep your total income below $63,350 if you’re single or $126,700 if you’re married filing jointly, you could sell winning investments and pay nothing in capital-gains taxes. Your realized gains would count toward the income total. These figures assume you take the typical standard deduction. That standard deduction can be slightly higher if you’re blind or age 65 or older.

Managing brackets. Many retirees strive to avoid big income years, which could mean paying tax at a much higher rate. Instead, they try to manage their taxable income so they stay within the same income-tax bracket year after year.

Let’s say you want to pay tax at a marginal rate no higher than 12% in 2025—and avoid the next bracket, where your marginal rate would be 22%. In 2025, you should aim for total income of no more than $63,475 if you’re single or $126,950 if you’re married filing jointly. Again, these income totals assume you take the typical standard deduction.

What if you aren’t quite at the top of your target bracket? You might fill up the rest of the tax bracket by making a Roth conversion. Alternatively, you could use that as an opportunity to sell winning investments in your taxable account at a 0% capital-gains rate.

Social Security earnings test. If you’re aiming to keep your tax bill low in your 60s, so you can take advantage of the health-insurance premium tax credit or the 0% capital-gains rate, you’ll likely also want to delay claiming Social Security. Your Social Security benefits will reduce your premium tax credit, even if those benefits aren’t taxed. Similarly, a heap of municipal-bond interest could also hurt your eligibility for the tax credit.

What if you’re continuing to earn money, perhaps by working part-time during your initial retirement years? This is another reason to postpone Social Security. If you claim benefits before your full Social Security retirement age of 66 or 67 and continue to work, you could lose $1 of benefits for every $2 you earn above $23,400 in 2025. The amount you can earn without being penalized is higher in the year you reach your full retirement age.

Once you reach your full retirement age, your monthly benefit is adjusted upward to compensate for the benefits you earlier missed. Still, those with substantial earnings will likely want to avoid the hassles of the Social Security earnings test—by delaying benefits until they stop working.

Income-related monthly adjustment amount. Otherwise known as IRMAA, this is the premium surcharge for Medicare Part B and Part D that hits those with higher incomes. The surcharge, while not huge as a percent of total income, is disliked by many folks, in part because it’s a so-called cliff penalty, meaning $1 over the income threshold and you’re dunned for the entire surcharge for that IRMAA bracket.

The surcharge hinges on the total income reported on your tax return, plus municipal-bond interest, from two years earlier. For instance, 2025’s surcharges are driven by your 2023 tax return. If your 2023 income crossed the first IRMAA threshold—$106,000 for single individuals and $212,000 for married couples filing jointly—you’d pay an extra $73.60 per person per month for Part B in 2025 and an extra $13.70 for Part D.

Keep three key notions in mind. First, IRMAA becomes an issue once you turn age 63, because your income that year will affect your Medicare premiums at age 65. Second, it’s possible to appeal IRMAA surcharges if you’ve had a life-changing event, such as leaving the workforce.

Third, some retirees figure it’s still worth making big Roth conversions and paying the IRMAA surcharge, because the long-term tax savings offered by the Roth are so valuable. Even so, pay attention to the IRMAA thresholds, so you don’t sneak into the next IRMAA bracket and trigger the cliff penalty.

Qualified charitable distributions. Looking to give to charity and, in the process, also save on taxes? In 2025, you’d typically need to have donations and other itemized deductions that are greater than the standard deduction, which is $15,000 for individuals and $30,000 for couples filing jointly. That way, you can itemize your deductions and get some tax savings in return for your generosity.

But if you’re age 70½ or older, consider this alternative: Take the standard deduction while also making charitable contributions that are effectively tax-deductible—by donating directly from your IRA. What do I mean by “effectively” tax-deductible? Ordinarily, money coming out of a traditional IRA would be hit with income taxes, but that isn’t the case with qualified charitable distributions, or QCDs.

The annual amount you can give directly to charity from your IRA climbs from $105,000 in 2024 to $108,000 in 2025. If you’re age 73 or older and taking required minimum distributions, your QCDs count toward that year’s RMD. That can be a huge benefit. One example: You might use QCDs to meet part of that year's RMD, thereby avoiding the next IRMAA bracket.

Jonathan Clements is the founder and editor of HumbleDollar. Follow him on X @ClementsMoney and on Facebook, and check out his earlier articles.

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What You Can Do

THE WAVES AND WEATHER are always changing on the coast of Maine. Last summer, I paddled my canoe to a nearby island in the sun, and two hours later had to feel my way back through a fog that hid the mainland.

There are longer-term forces at play here, too. The black mussel beds I steered around as a child are all gone now. So is the sea grass that made a good hiding place for crabs. These disappearances, I’m told, are due to climate change. The Gulf of Maine has warmed faster than virtually any other ocean surface in the world.

Tides are higher now, and a January storm knocked a nearby house off its foundations. The waves battered down brick walls at the bell tower at nearby Pemaquid Point Lighthouse. Sensing the trend, I raised the property insurance on my cottage last year.

I was receptive, then, when the rector of my church recommended a new book about climate change with a surprisingly hopeful title: Not the End of the World. Its author, Dr. Hannah Ritchie, is a senior researcher in the Programme on Global Development at the University of Oxford.

Ritchie subjects climate claims to rigorous factual analysis and finds more hope for our future than most. Yet hers is not a climate denial book. With the current carbon reduction policies we have in place, she estimates that the planet may warm by 2.5 to 2.9 degrees Celsius. This is far more than the 1.5 degrees sought in 2015’s Paris Climate Accord.

Yet, in Ritchie’s thinking, we’re halfway toward solving our problem of excess carbon in the atmosphere. If no policies had changed, the climate would be warming by much more—by 4.1 to 4.8 degrees Celsius, she calculates. Yes, total carbon emissions are rising, she notes, but emissions per person peaked in 2012 and have fallen since.

To cite just one spot of progress, electricity from solar panels, which was the most expensive form of power generation 10 years ago, is the least expensive source today. Are solar panels popping up on the roofs and garages of your neighborhood? They are in Maine, too.

Meanwhile, coal is dying. Thirty years ago, the U.S. generated 55% of its electricity by burning coal. It now accounts for less than 20%.

See if you can guess the correct answer to this quiz question. What has happened to carbon emissions in the U.S. over the last 15 years? Have they:

a) Increased by more than 20%

b) Increased by 10%

c) Stayed the same

d) Fallen by 20%

The correct answer is d), but it was only chosen by 19% of respondents in a recent survey. Two-thirds chose either a) or b). “No wonder people think we’re screwed,” Ritchie observes.

A defeatist outlook can leave people feeling hopeless. Ritchie recommends that instead we adopt a philosophy of “urgent optimism,” as she calls it. “Optimism is seeing challenges as opportunities to make progress,” she writes. “It’s having the confidence that there are things we can do to make a difference.”

Okay, but what can we do specifically? The biggest of Ritchie’s recommendations would be to trade an SUV for an electric vehicle. It does take more energy to manufacture an electric car, Ritchie notes. But after 12 years, an EV would be responsible for one-third of the CO2 emissions of a typical gas-fired car.

The next biggest step would be to adopt a vegan diet. Livestock creates about 20% of the world’s carbon.

If buying an EV or going vegan feels like too big a leap, here are other, incremental steps Ritchie recommends:  

Eat less lamb and beef. Substituting chicken for beef can reduce our dinner plate’s carbon load by 88%. Fish are an even lower-carbon source of protein. Wheat, peas, beans, cereals and nuts are better still.
Wash your clothes in cold water. My washing machine has a water temperature dial that’s easy to change.
If you can afford it and have the option, buy your electricity from a green energy provider that obtains electricity from wind, solar or hydropower sources.
Ritchie says she always uses the microwave when cooking. It cooks food fast and is more carbon-efficient than the cooktop or oven.
Buy more Tupperware. About 20% of our food goes into the garbage bin. And don’t think that the “best by” date means throw it out after. It simply means the food is at its peak, not that it’s gone bad afterward.

People are inherently good and want to do right by the earth. Yet there are many steps people think will reduce their carbon footprint that have little effect, Richie writes. Here are some things she says we can “stress less about” because they make little difference to our carbon footprint:

Using a dishwasher or hand washing your dishes doesn’t matter in the grand scheme of things.
Recycling our plastic bottles has a negligible effect on the world's temperature.
Leaving a computer or TV on standby power mode isn’t going to make much difference to the climate problem.
Leaving a phone charger plugged in when not in use also isn’t a game changer.
Eating organic food can be worse for the climate if more resources are used to produce it.
Choosing paper bags over plastic at the checkout doesn’t affect the world’s climate, though it may reduce the number of plastic bags flapping in trees.
Eating local foods doesn’t matter much because transport is just 5% of food’s carbon cost, on average. Ritchie herself eats avocados from Mexico.

Greg Spears is HumbleDollar's deputy editor. Earlier in his career, he worked as a reporter for the Knight Ridder Washington Bureau and Kiplinger’s Personal Finance magazine. After leaving journalism, Greg spent 23 years as a senior editor at Vanguard Group on the 401(k) side, where he implored people to save more for retirement. He currently teaches behavioral economics at St. Joseph’s University in Philadelphia as an adjunct professor. The subject helps shed light on why so many Americans save less than they might. Greg is also a Certified Financial Planner certificate holder. Check out his earlier articles.

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Making Me Earn It

NOW THAT I'M RETIRED and have all the time in the world, I often use that time to worry about money. That brings me to a recent offer from Wells Fargo to get a $525 bonus for depositing $25,000 in a savings account for 90 days.

My immediate concern was whether the $525 would more than compensate for the paltry interest rate that Wells Fargo pays. A quick calculation determined that investing $25,000 in a Wells Fargo savings account and getting the $525 bonus—rather than the 4.25% I could then earn with Capital One 360 Performance Savings—would still leave me almost $260 ahead.

I clicked on the offer, and was emailed a “bonus offer code” that I then needed to show my “banker” at a Wells Fargo branch. While it seemed rather a dated process, I was still game. Besides, I liked the idea of having a “banker.” Maybe we could meet for a martini, talk about the fights, and then catch a show at the Copacabana.

Still, the more I thought about it, the idea of visiting a branch was a little confusing. At age 58, I was entirely too young. Did they think I didn’t know how to access the internet?

It felt like I might be in one of those Progressive commercials about the “young homeowners" who are turning into their parents. Was I going to visit a branch in person to pick up a toaster? It all seemed strange, as I hadn’t physically been inside a bank in more than 10 years.

Since the nearest Wells Fargo branch was 25 minutes away, I decided to also visit a Trader Joe’s near the bank. I made a 2:30 p.m. Monday appointment with my banker. In addition to my bonus, now I was looking forward to picking up some Trader Joe’s Kentucky Bourbon Straight Whiskey, English peas and a twelve-pack of Simpler Times Lager.

When I arrived at the bank 10 minutes early, I got a bad vibe. The place seemed so sterile. There was a bunch of empty cubicles in one corner, a waiting area where a woman was collating bank statements and what appeared to be my banker, who was deep in conversation with another customer.

After waiting on line for 15 minutes to check in with a teller, I was informed that I was next. Problem is, my banker was busy opening a credit card account. I thought, “Someone visited a branch to open a credit card account? Have I entered a wormhole to 1975?”

After waiting another 30 minutes, the branch manager informed me that I could continue to wait, make another appointment or open the account online. Hearing that third option almost made me apoplectic. But I calmly showed her the bonus offer email that I’d printed out, clearly stating that I needed to open the account at a branch.

As I wasn’t sure whether this branch was located in 1975 or 2024, I was thankful that I’d printed out the email just in case there was no wi-fi. She read my email and found it equally confusing.

I had come so far and waited for so long that I just had to see it through. And some 30 minutes later, Alex and I started the process. He read off numerous disclaimers, and entered my address, phone number and other vital information on his computer. He had me enter my Social Security number and birth date, and confirm a number of details on a keypad.

He also asked if I intended “to open the account just to get the bonus or to establish a relationship with Wells Fargo?”

I replied, “Let’s just see how this goes.”

It then dawned on me that, while much of the business world has been replaced by the internet, Wells Fargo had decided to try to have one man replace the internet. While it all seemed ridiculous, I had to admire Alex and his quixotic quest.

Alex then gave me three savings account options: Wells Fargo Way2Save at a 0.01% interest rate, Platinum at 0.25%, or opening a certificate of deposit.

I asked, “Can I open a CD and still get the $525?” Which was met with a resounding “no” from a disembodied voice.

I looked around and then up, before saying, “Is that you, God?”

That’s when I noticed the voice came from a previously unseen and dimly lit corner where a woman was sitting alone at a desk. I became just a little upset, not by her answer, but that she hadn’t opened my account some 60 minutes earlier.

Believe it or not, I went with Way2Save as it was specifically mentioned in my offer email. I didn’t want to compromise my two-and-a-half-hour odyssey due to the fine print.

When the end thankfully came, Alex mentioned that he was going “to slip all the paperwork into a manila envelope.” That seemed a perfect ending, as I can’t remember the last time anyone said that to me. I waited a moment before I said goodbye, just in case he wanted to give me my passbook.

I wanted to ask Alex why I had to open this account at a branch. But at this point, I was too exhausted. Further research indicates the goal may be to make the bonus so difficult to collect that no one actually gets the $525.

It’s either that or it’s an initiation, with the pain endured making you feel like you’re part of something special. A feeling that a new member might have after becoming a Navy SEAL (“the only easy day was yesterday”) or a Crip (“blood in, blood out”).

Immediately after shaking Alex’s hand, it started raining. Not just any rain, but biblical rain. I thought it might be an omen.

The next day, I tried to electronically transfer the required $25,000 into my account. I couldn’t. You see, Wells Fargo had thoughtfully limited my daily transfer to $5,000, with a monthly limit of $6,000.

When I contacted Alex, I was informed that this was done to protect me from fraud. He said that I needed to deposit the $25,000 by check.

I then let Alex know that I was planning to close the account as it was becoming quite apparent that I didn’t have what it takes to be a Wells Fargo depositor.

By the next day, my daily transfer limit was magically increased to $25,000. I guess having my own banker finally paid off.

Michael Flack blogs at AfterActionReport.info. He’s a former naval officer and 20-year veteran of the oil and gas industry. Now retired, Mike enjoys traveling, blogging and spreadsheets. Check out his earlier articles.

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When Easy Money Bites

IN THE EARLY 1980s, I was a bachelor in Brooklyn. Unskilled at cooking, I didn’t eat at home unless my food came out of a cereal box or snack bag. For regular meals, I depended on a small neighborhood diner.

It was open for breakfast, lunch and dinner seven days a week. On weekends, it was my main source of food. Like so many diners I’ve visited since, it offered complete meals—soup, main course and dessert—for one price. When I ate at the diner, I’d always have the soup and main course, but skip the dessert.

This was in the days when I was running marathons, so I needed enough food to keep up my energy, but not too much. By skipping dessert, I was able to maintain a healthy weight, something I’ve struggled with all my life.

On one occasion, when I declined the dessert, the guy sitting next to me reminded me, “It’s included in the meal.” I said, “I know, but I don’t want it.” The look of disbelief on his face was classic, as if there was something wrong with me.

Since my running days, I haven’t had the same discipline toward food. My expanding appetite could be a metaphor for a larger financial problem—our tendency to go to excess.

I was reminded of this when I watched the Age of Easy Money, a PBS documentary. It tracked the American economy from the housing crisis of 2008 through the pandemic of 2020. Through most of those 12 years, the Federal Reserve encouraged spending by holding interest rates near zero. Many people borrowed heavily to buy cars, houses, college educations and vacations. The zero-rate period began for a good reason—the government wanted to shock the economy out of the 2008 financial crisis. It revisited the medicine of rock-bottom rates during the 2020 pandemic.

It was a sugar high—lots of cheap money was suddenly available. In 2022, when rock-bottom interest rates ended, some banks got caught in the resulting squeeze. They’d loaned out billions at tiny rates. Now, they were losing big on those loan portfolios. A few notables—Silicon Valley Bank, First Republic and Signature Bank—required government takeovers after panicked depositors fled in an old-fashioned bank run.

As Warren Buffett famously wrote in a letter to his shareholders, “You only find out who is swimming naked when the tide goes out.” It isn’t just the banks that got in over their heads. Many people took advantage of low rates to borrow more than was prudent.

Where was I during all this? I was doing what I always do. I was buying only what I could afford. Putting money aside to pay the bills. Not taking out loans or running up credit card debt. This had nothing to do with my financial situation during this time. It’s just what I do.

It’s a lesson I learned from the cradle. My grandfather was not a saver. He lived the "good life." When the Great Depression hit and his work dried up, he was forced to sell the house, which was mortgaged, and move to the country home that had no running water or heat. It did have one virtue, however: It was paid for.

My mother lived out the Depression in that humble house. She had a roof over her head because they had a paid-up house and could make do. Today, my house is paid off, too. So long as I can afford the property taxes, we’ll have a place to live. That gives me peace of mind.

Taking on debt creates financial risk. It’s a key reason the Great Depression was as bad as it was. Everyone was making money in the stock market, so they thought borrowing from their broker would only accelerate wealth creation. And it did—until share prices crashed and their margin loans came due. Then the house of cards collapsed.

You take on risk whether it’s good debt—for an appreciating asset like a house—or it’s bad debt, such as credit card balances. Unless the debt is paid back on time, you lose control of your financial life and wind up in a hole. I’m grateful that I’ve never had the fear of missing out (FOMO) mentality or the “keeping up with the Joneses” spending reflex.

More isn’t necessarily better. It’s just more. You may feel entitled to it. But do you really need it? And at what cost?

David Gartland was born and raised on Long Island, New York, and has lived in central New Jersey since 1987. He earned a bachelor’s degree in math from the State University of New York at Cortland and holds various professional insurance designations. Dave’s property and casualty insurance career with different companies lasted 42 years. He’s been married 36 years, and has a son with special needs. Dave has identified three areas of interest that he focuses on to enjoy retirement: exploring, learning and accomplishing. Pursuing any one of these leads to contentment. Check out Dave's earlier articles.

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Who Stole My Home?

YOU MIGHT RECALL my article warning about home title theft, where scammers try to claim ownership of your home. Since I wrote the article, the Federal Trade Commission has warned that one preventive measure, so-called title lock insurance, is bogus: It only alerts you to title fraud after the fraud has happened.

Thanks to a recent AARP article, there’s now greater awareness about home title fraud and ways to protect yourself. What can you do to prevent title fraud? Check with your county to see if it’ll provide notifications about your property, ensure you haven’t missed a bill or assessment, and set a Google alert for your address. If someone lists your property, you can stop it. If you have rental property or own vacant land, check periodically to see if someone has posted a “for sale” sign.

If you’re about to buy a house or property:

Buy title insurance.
Beware of bargains. An outrageous deal may be just that.
Be skeptical of “for sale by owner.” Fraudsters avoid real estate agents.
Talk to a real estate attorney about adding a preventive measure to your property deed when you buy.
Make sure the seller is real by having your real estate agent or attorney verify his or her existence. Fraudsters don’t respond to meeting requests or phone calls.

Despite all these concerns, there is good news. Title fraud is increasing, but not so much for owner-occupied homes. Moreover, if you bought your home after 1998, most title insurance provides coverage for fraud and forgery that’s discovered after purchase. If you purchased before 1998, inquire about adding coverage.

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