Jonathan Clements's Blog, page 70

I’m concerned about the stock market. How concerned are you? Jonathan, any comforting words?

I know the markets go up and down. I know anyone living from investments knows that as well. I know many people say they plan for it with various strategies.

However, we seem to be living in an environment like never before. Chaos and uncertainty is the norm on a daily basis here and around the world. The stock markets are reflecting it all.

I’ve seen my investments drop and it concerns me even though they are not providing living income.

Are you concerned? Am I overstating the situation?

Jonathan, how about more words of wisdom? Anything unique about the current state of the markets?

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Three bucket strategy for financing retirement

There have been a number of articles and forum questions on best strategies for managing finances during retirement.

The choice, of course, depends on the individual situation. I came across this "three bucket" strategy that is intriguing.

First bucket is cash that meets near term needs ( one to two years of living expenses other than guaranteed income like social security.  This avoids withdrawal of investment funds during market downturns, particularly in early retirement years, which could cause "sequence of return risk" resulting in running out of money in later years.

The second bucket, covering the next five years, could be in bonds and bond funds. Income distributions will make up for spending from the cash bucket, when needed.

The third bucket is all stocks, focused on long term growth depending on risk tolerance.

This article explains more:

https://www.cnbc.com/2025/03/25/retirees-protect-portfolios-stock-market-downturn.html

What are the pros and cons of such a strategy? Are you already practicing some strategy like this?

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An Insignificant Sum?

I spent 30 years working for a US megacorp: however, I joined the company in the UK. I was on the UK payroll for about six years, and therefore a very small part of my pension is paid by the UK company (with COLA). I was astounded, when I applied for Social Security, to find that the US government was going to reduce my benefit by the amount of my UK pension.

How did that make sense? I had not paid into SS during those years, so they were excluded from the calculation of my benefit. If, instead of working in the UK, I had stayed home with a small child in the US, I would have the same number of missing years in my SS record, but I would have kept the entire payment.

There wasn't anything I could do about it, and I figured it wasn't a large sum, but it was annoying. Obviously, I was pleased by the repeal of this “Windfall Elimination Provision” (Windfall? What windfall?) effective January of 2024. My monthly payment has increased by $50 and last month SS deposited an additional $700 in my checking account, for January 2024 through February 2025. I had written the deduction off as a lost cause, and not much money, but it actually works out that the government kept $6,300.

I seem to remember someone complaining about the elimination of the WEP here recently. I am not complaining.

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401(k) Savings Limits

When I was working, I saved the maximum to my 401(k) account. So, I always kept up with the plan’s savings limits. If you haven’t heard, there are higher savings limits for 401(k) plans in 2025, plus a new “super catch-up” category. And it’s still early enough in the year for salaried workers to take advantage of them.

Thanks to an inflation adjustment, the maximum regular contribution to a 401(k) plan has increased by $500 to $23,500 in 2025. Workers ages 50 to 59 or 64+ can save $7,500 more in “catch-up” contributions in 2025, or $31,000 total.

New in 2025 is the super catch-up category, allowing workers aged 60 to 63 to mount a savings charge before retiring. They can save $11,250 in catch-up contributions—or $34,750 total—to their 401(k) account this year.

Which brings me to the fly in the ointment. With savings limits this high, most workers don’t make enough to ring the top bell. In 2023, only 14% of workers contributed the maximum to their retirement plan, according to Vanguard’s How America Saves 2024, which analyzes the behaviors of some 5 million plan participants.

Here’s my low-stress saving suggestion. Don’t try to leap over the high bar in one go. Instead, if you’re working, raise your savings by 1% of your pay. I didn’t feel much difference in my take-home pay when I did. Then do it again next year, and so on. Maybe you‘ll hit the savings limit, or maybe you won’t. But you should be able to retire someday.

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Quinn’s grand new way to plan for a secure retirement. It’s called the McDonalds strategy

Last year I earned $16.68 an hour - sort of. That’s more than the minimum wage in all but the District of Columbia and for California fast food workers who earn $20 and hour. Fast food workers are mostly part-time, I on the other hand are no time.

That hourly rate is my dividends and interest converted to a equivalent full-time employment. 🤑 I suspect capital gains would boost that a bit- or maybe not this year.

Given I don’t do a thing to earn that income, it is truly passive and a pretty neat system if you think about - and nearly everyone can do it-create passive income that is. 

Have I stumbled on a new retirement planning concept? A new income replacement theory? What is a good passive hourly income rate relative to working hourly income rate? Can Monte (or even a spreadsheet) handle such a complex concept? 🤑

The only thing is, how do you, in advance, determine the passive income that will be generated from your aggregate investments? I guess if you dump cash in bonds, you know the interest to be paid. If you buy stocks for dividends you know that rate. 

By George! There it is, and capital gains are icing on the cake - just like OT or a bonus.  😃

Oh wait, ✋we still need your income replacement needs, how much of your working hourly rate do you need in retirement? Please don’t ask me.

However, at the next meeting with your financial advisor just say you want to earn 50% more per hour than a McDonalds employee in California. Or maybe 75% or 100%. $30.00 an hour gets you $62,400 a year. 😱

Careful, the minimum wage goes up most years. 

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Mirror, Mirror On The Wall

They say at 20 years of age you have the face that nature gave you.  At 40, you have the face life gave you and at 60, you have the face you deserve. This is a variation on a quote attributed to both George Orwell, author and essayist, and Coco Chanel, fashion maven. If this is true, it means  that our choices and attitudes leave an indelible mark on our character which ultimately surfaces in our physical appearance.

Each one of us has the responsibility for the kindness, warmth and openness that our faces communicate.  I found no better example of this than while undergoing medical treatments. It is cold in the infusion room—and as Rosemary, the infusion nurse, bends over me to button up my sweater, I am touched by her tender and motherly gesture.  Few can say why some faces seem beautiful as beauty is not only skin deep, it lies deep within our soul.

As for me, I once had the face of a capable,  self reliant, ambitious, joyful young girl. I now see the face of a thoughtful woman who has known pleasures and sorrows, a patient caregiver, a possessor of a cheerful and grateful heart. And I’m reminded that a beautiful or handsome face and figure go just so far.

And so my question is, what is it about you that you would like people to see when they meet you:

Your humor
Your kindness
Your positive outlook
Your sense of compassion
Your values

Can you add any particular qualities and characteristics that have given you the face you deserve?

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Going Back to Work (Briefly)

I’ve read with interest posts such as Jonathan’s Taking Center Stage and Those Who Follow, both which touched on the pluses and minuses of taking on a part-time job in retirement. The conversation in the comments for both of those posts was great, too. Below, I share my own recent experience of re-entering the job world at age 64.

In my past HD posts I have written how, in our mid-60s, my husband and I appeared to be gliding into retirement. I even wrote about our setting up a retirement-based TIPS ladder that starts this year. In my mind, our work-for-pay days were over.

Well, not so fast.

First, my husband, who had insisted he was done writing books, suddenly came up with another book idea. And then—surprise!—he actually sold that idea to a major book publisher. After celebrating, we realized this means two years of obsessive research, writing, and editing, then another year of trying to promote the book (I help with that part). Retired he will not be.

Around the same time—probably not a coincidence—I became intrigued that a favorite retailer of mine was building a big new store in my hometown. The idea of a part-time job with them sounded like a fun change-up after being self-employed for the past 16 years. I was eager to learn some new things and looked forward to hobnobbing with others in my community who also liked this store’s products.

After navigating through the corporation’s online application portal and two phone interviews, I landed the job in early October and started being trained, along with 10 other newbies. Next followed a total blur of new-store holiday chaos and punching a time clock on different shifts seven days a week.

“Part-time” and “hobnobbing” went out the window during this all-hands-on-deck period. Goldilocks-like, I went through six different types of shoes searching for the most comfortable ones for standing five to eight hours (Skechers Ultra Flex Statements Sneaker) behind something called a digital point-of-purchase PIN-pad station (ie, cash register).

At my station, I learned about the many ways customers in the mid-2020s pay for goods (the first time someone paid using their wristwatch was a revelation) and the best ways to expeditiously bag those goods without getting paper cuts. I learned that a 15-minute shift break in a windowless break room does not do much for a person except perhaps break one’s spirit. And I observed that store cameras are more for surveilling employees than catching shoplifters. None of these learnings had been on my hopeful “expand my world” list.

Once the holiday season passed, it was inventory and restocking time—with lots of bending and lifting. Noticing I was not thrilled with my new working life, my husband said: “The great thing about having a job that you don’t really need to have is that you can just… leave.” And that I did, a mere four months after starting.

So, what is the lesson here? I would not discourage anyone from taking a post-retirement job—I am sure my experience might have been different if it were a different type of job, perhaps working with a smaller, less chaotic business. I will say to others, go in with eyes open. Today’s work world can be fast-paced, demanding, and tough on one’s back and feet!

For myself, watching my twentysomething colleagues try to start their careers while working multiple part-time jobs left me newly appreciative of being in my mid-60s with a TIPS ladder and the blissful privilege of working on my own creative endeavors while sleeping in on Mondays.

Questions for forum readers:

Did you, unlike me, already know how hard retail jobs are?
Have you ever retired then gone back to full-time paid work?
Did you put aside any creative endeavors during your earning years that you are revisiting in retirement?
What shoes are your go-to’s for “most comfortable” for when you are out in public, (ie, not slippers or Crocs 😀)?

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Financial Question

My wife & I are 80 years old and planning to move into an over 55 age community.
We will sell our current home to purchase a home in the new community, however, the difference between selling and purchasing will leave us with about $200,000 shortfall.
Our combined total investments are:
$2.5 million in our IRA
$1.4 million in our Roth accounts
$2.1 million in our taxable brokerage accounts
Which would be the best source(s) for us to take the money for our new home purchase concerning taxes and additional financial points you are aware of?
Thank you
Martin in South Carolina

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Help Wanted

If you could offer your fellow readers one piece of advice that you’re confident would improve their life, what would it be?

To get us rolling, here’s my suggestion: Be generous with others—but do it when they aren’t expecting it. For instance, folks expect to receive gifts on their birthday, so any gifts you give likely won’t seem all that special. What if, instead, you present them with a gift out of the blue? The element of surprise has the potential to make the gift especially meaningful.

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Twenty-five years ago today… by Sanjib Saha

The S&P 500 Index peaked after years of dot-com euphoria. Over the next two and a half years, it lost about half its value, and it took nearly five more years to recover. But the relief was what Fed Chair might call “transitory” —just a couple of years later, the 2008 financial crisis hit, causing an even deeper crash.

Ignoring dividends, it took over a decade from year 2000 for the S&P 500 Index to shrug the bears and surge into a long bull market to nearly quadruple in 25 years. I can’t help but wonder how this lost decade affected retirees or those who invested heavily during the dot-com boom. The long wait to recover compared to a risk-free investment must have been painful and devastating. I can’t imagine how I’d feel if I had to endure such a market in my early retirement years.

I didn’t know about the significance of March 24, 2000, until I saw today’s Barron’s “Review and Preview” email mentioning the anniversary. It made me reflect—what was I doing at that time?

In 2000, I was new to this country and clueless about most things, including stock investments. (I'm still clueless about most things, but not stock investments). The term “S&P 500 Index” would have sounded like a sci-fi gadget to me at that time. All I knew was that the company stock options (a mysterious term that I didn't understand until much later) that I received upon joining my new work—and in the years that followed—became worthless instead of making me a millionaire. I wasn’t particularly upset. Honestly, I couldn’t even grasp how much a million dollars meant; it felt like a fairy tale anyway.

But looking back, I got incredibly lucky. A few years into my life in the U.S., my divorce forced me to educate myself about money and investments so that I could rebuild my finances from scratch. Living on a tight budget, my expenses shrank, allowing me to save aggressively. I cautiously stepped into stock investing to make my savings work for me.

A high savings rate combined with a prolonged bear market is a deadly combination for long-term wealth building . The benefits became clear a decade later when the bull market gained momentum. This, in part, enabled me to make the bold decision to retire early. I unknowingly became one of those who benefited from the so-called “lost decade” of the U.S. stock market, steadily dollar-cost averaging in a prolonged “buyer’s market”.

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