Jonathan Clements's Blog, page 8
October 16, 2025
Don’t make the wrong Medicare decision
Medicare’s open enrollment for 2026 is October 15 to December 7, 2025 or 3 months before you turn 65. If you’re approaching 65 — or helping a loved one — here’s what you need to know before making a choice.
You Have Two Options at 65
When you sign up for Medicare, you’ll choose between:
Original Medicare (Parts A & B)
Run by the federal government. You need to add a Medicare Supplement (Medigap) plan to help cover out-of-pocket costs and a Part D plan for prescriptions.
Medicare Advantage (Part C)
Sold by private, for-profit insurance companies. You no longer have Original Medicare. All your healthcare decisions are made by a for profit company. These plans often advertise extra perks like dental, vision, and gym memberships — but there’s a lot they don’t tell you
What the Insurance companies won’t tell you about Medicare Advantage
I want to be upfront about this because too many people only learn these things when it’s too late:
1. A for-profit insurance company makes your healthcare decisions.
With Medicare Advantage, your insurance company — not your doctor or Medicare — decides what care you can have. And sadly, they sometimes deny or delay care you need.
2. Prior Authorizations can stand between you and your care.
Before you can get certain tests, treatments, or medications, your doctor has to get approval from the insurance company. This is called Prior Authorization and it’s a way to control costs — often at the patient’s expense by denying or delaying expensive care.
Original Medicare doesn’t do this. If your doctor says you need it, Medicare covers it. There is no Prior Authorization with Original Medicare.
3. You’ll be limited to a network of providers.
Most Medicare Advantage plans have a list of doctors and hospitals you’re allowed to use. Top hospitals like Memorial Sloan Kettering and Mayo Clinic and top specialists usually won’t accept most Medicare Advantage plans because they pay less and require extra approvals that deny or delay care.
With Original Medicare, you can see almost any doctor or hospital in the country that takes Medicare. And most do.
4. Insurance companies profit more from Medicare Advantage.
Insurance companies receive a fixed amount from the government for each person enrolled in a Medicare Advantage plan — over $12,000 a year (in 2019). The less care they approve, the more money they keep. That’s not a system built to put you first.
5. Medicare Consultants get paid more to steer you into Medicare Advantage.
Sadly, many Medicare “consultants” make 3 times the commissions selling Medicare Advantage plans than Medicare Supplement plans. I always recommend working with someone who will honestly prioritize your needs, not their paycheck and recommend Original Medicare plus a Supplement G plan.
6. Employer-sponsored Medicare Advantage plans aren’t always what they seem.
Some workplace and school district retiree plans promise you can see any doctor — but if you read the fine print, it often says, “as long as the provider accepts this .” Many top providers won’t.
Unlike all Medicare Advantage plans, Original Medicare allows you to be treated at any Hospital in the United States.
Unlike Original Medicare, all Employer- sponsored Medicare Advantage plans require Prior Approval for most treatments.
7. Switching later may not be an option.
When you first enroll at 65, you have a guaranteed right to buy a Medicare Supplement policy — no health questions asked. But after 65, in most states you could be turned down or charged triple because of Pre-existing conditions.
A few states — Connecticut, New York, Maine, and Massachusetts — allow you to switch any time, but most don’t.
A Personal Note
I’ve seen too many people regret their Medicare choices simply because no one explained how important that decision is at 65. Watch Medicare: What the Insurance companies won’t tell you.
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October 15, 2025
Contrarian Thinking About Roth Conversions
With Roth conversions touted as a savvy move—pay taxes now, enjoy tax-free withdrawals later—it’s tempting to jump in. But what if the U.S. tax system shifts from income taxes to leaning heavily on tariffs? This idea, gaining traction in 2025 policy debates, challenges conventional wisdom and suggests a contrarian take: maybe we should limit Roth conversions.
Here’s why. Converting a traditional IRA to a Roth means paying income tax upfront at today’s rates. The payoff is tax-free growth and withdrawals, ideal if your future tax rate is higher. But if income taxes are cut or replaced by tariffs—import duties that inflate the cost of goods—you could overpay. You’d owe income tax now, then face higher prices when spending Roth savings, as tariffs act like a consumption tax on purchases. It feels like double taxation: once to the IRS, then again at the store.
Tariffs, like the 10-41% rates on imports and 60% on Chinese goods in 2025, fund some tax cuts, but income taxes still dominate federal revenue. A full tariff-based system is speculative and could spark inflation or trade issues. If it happens, keeping funds in a traditional IRA might save you from overpaying taxes now, especially if future withdrawals face little or no income tax.
Still, Roths offer perks like no required minimum distributions and tax-free inheritance. If you’re in a low bracket now or expect higher income taxes later (say, if tariffs falter), partial conversions make sense. What am I going to do this year? I am going to run the numbers and convert enough to stay in my low tax bracket.
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Thinking long term – with all this noise?
Being a human being and a long term investor is ….. challenging.
I think we all probably know the accepted wisdom. Timing the market is almost impossible. Trading is a fool’s errand. Long term investing is the only way to reliably build wealth. The key is to determine your plan, set your allocations then stick to it.
But because we, as the HD community, take an interest in personal finance, we are also likely exposed to financial media. I regularly listen to the “Animal Spirits” podcast and hold Ben Carlson and Michael Batnick in high regard. But recent articles and podcasts from Ben Carlson include:
Animal Spirits: It Feels Like 1999
Is This the Top?
Animal Spirits: Did the Market Just Top?
The Animal Spirits podcast has also had a constant drumbeat of “AI bubble”, which will inevitably work to undermine the confidence of investors.
I’m sure that if Carlson was asked directly, he would say that we should invest for the long term and not try to time the market. Yet the financial media landscape requires that the drama of today must be examined in great detail, and the pundits need to speculate about what the future might hold.
Personally, I feel lucky that I have truly embraced the notion of long term investing. I’m interested in the daily business news, but I feel no urge to race out and move money around based upon Nvidia’s latest quarterly earning report.
But I get it – the overwhelming tsunami of financial drama can make being a long term investor very, very challenging. As human beings we feel like if things are going bad, or might be going bad in the near future, that we should be doing something. Doing nothing can feel lazy, apathetic, neglectful.
I’ve got no answers for how to be a long term investor in the modern world. But perhaps stepping back from the daily financial chatter and reminding ourselves of our long term aims can help bring a little respite from the noise.
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Why I worry about money. How about you?
We have a more than sufficient income. Our income is not dependent on withdrawals or the stock market. Our net worth is more than adequate. By standard measures we are into the 90th percentile for any age. So why do I still worry about money?
I have done some research and I’m convinced it’s all psychological, past experiences and unjustified fear playing with my mind. Maybe yours too.
For many people, money isn’t just a tool — it’s a symbol of safety and control. Even with millions in net worth, the mind can still whisper, “What if it all goes away?” Yup, could it all go away? Highly unlikely.
That fear comes from a deep human need for stability and predictability. When someone’s sense of safety is tied to their wealth, any uncertainty — market drops, medical risks, political change — triggers anxiety out of proportion to the actual threat.
It appears growing up in a family where money was scarce can create a lifelong scarcity mindset. Even after achieving financial security, the brain may not update — it still anticipates crisis.
I did not grow up poor, I never missed a good meal. On the other hand, my father worked on commissions- no sales, no pay. My parents never could afford a house on their own. They didn’t own a car when I was growing up. There were no investments and retirement income was Social Security alone. That was always on my mind during my working years.
When I told them we bought a house on Cape Cod, there was no reaction at all except wanting to know if we were moving. Should I have felt guilty?
Money often becomes tied to who we are, not just what we have. For some, success and self-esteem are inseparable from financial status. This creates a psychological trap: if wealth slips, self-worth feels threatened too. I must acknowledge some of that. I didn’t want to be my parents when it came to finances. I didn’t and still don’t want to be average for any reason. Even in the army being the average guy marching, doing KP, etc. was a challenge so I found a way to work for a colonel as his Personnel Sergeant in battalion headquarters.
Those who achieve financial success often did so through control, discipline, and planning. “If I’m not constantly monitoring, something will go wrong.”
This mindset keeps them in a low-grade state of financial anxiety even when they’re objectively fine. Guilty again.
Wealth creates expectations — for comfort, reputation, family support, lifestyle.
The thought of losing any of it can feel like a threat to belonging, dignity, or identity. This is worrying about losses that haven’t happened, as a way to feel in control of them. And, of course, “wealth” is relative.
Money anxiety often masks other fears — aging, mortality, purpose, relationships. I suspect this is more prominent among retirees and certainly among we octogenarians.
So, if you are among the many who worry about money matters - perhaps needlessly- welcome to the club. I don’t have advice for a cure if there is one, but at least you may learn why. Supposedly, around 70–80% of adults in the U.S. report feeling stressed about money at least sometimes - often when not justified.
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Are You an Entirely Dividend Investor in Retirement?
“I can definitely see investors emphasizing dividend-payers in their equity portfolios, maybe going exclusively with dividend-payers, but I would augment them with some safer investments. Coming back to cash, coming back to a little bit in high-quality bonds.
…you’re protecting yourself in a few key scenarios. One would be that sort of market downturn if stocks are down and you have something else to pull your cash flows from in retirement, if you can pull from the cash or bonds, you can reinvest those dividends back into your dividend-payers when they’re arguably a little bit inexpensive. So that’s an advantage to having that safe buffer of assets.”
Just food for thought.
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The Edge of Indifference
I don't know if there's an academic term for one aspect of my personality. I honestly struggle to articulate what it is. The best I can do is describe it as a total lack of emotional investment in the political and economic situation in the world around me, an absence of the ability to deeply care about the personalities and themes of the great political and financial stage. It puzzles me that people feel so passionately about these events and figures.
The contradiction is that I'm intellectually engaged and interested in the financial and business landscape and the underlying economic systems supporting the world economy. As for politics, I'm totally agnostic. My only interest is in how the leader of the moment's policies intersect with the economy and their impact on the financial world. Beyond that, our political mob could be from Mars for all I care.
So why am I sharing this personal worldview? It's simple: I have many annoying facets, but the detachment I've described is, I think, the state we should aspire toward in our financial and particularly our investment lives.
What I call "detachment" can be viewed as prioritization. I'm not emotionless, I care about understanding the systems. I don't care about the hyperbolic theatre that accompanies actual events. I process political information for its long-term, systemic impact, a change in corporate tax rates, a shift in regulatory framework, and immediately discard the rhetoric and personality clashes.
I feel some investors get burned because they conflate the globe's economic systems with the political and media circus. The economy operates on innovation, productivity, and wealth generation. The circus is a nonstop source of short-term noise, driven by election cycles, geopolitical shocks, and breathless financial headlines.
This noise is specifically engineered to bypass your rational thought process. Behavioral finance tells us it triggers our deepest cognitive biases, such as loss aversion, which makes us twice as likely to panic-sell to avoid a perceived loss, or herd mentality, which pushes us to follow the crowd, often right into stretched valuations. This emotional coercion, often framed as indispensable "analysis," is the primary destroyer of long-term wealth.
What my personal disposition really amounts to is a form of Stoicism applied directly to capital. The central idea is simple: focus your energy only on what you can control. The Stoic investor knows that the identity of the person in office, the daily market fluctuation, and the geopolitical crisis of the hour are all firmly in the column of the uncontrollable.
Although it's a natural part of my makeup, I feel these characteristics are worth cultivating for any investor. Automate your decision-making away from the emotional brain. Consume information for its data and reject the drama. When the market, fueled by anxiety, is screaming, remind yourself that you are merely witnessing the emotional masses temporarily mispricing assets. Your goal is not to predict the next short-term move but to survive the noise with your discipline, and your portfolio, intact.
Emotional detachment isn't a lack of feeling; it's a choice of where to direct your precious energy. Feel what you want about the world. Just don't let it touch the portfolio. The market will always offer you an emotional reason to act. Your edge is refusing to take it.
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October 14, 2025
One fund or two?
Right now, the bulk of my US stock holdings are in my Rollover IRA, split unequally between VFIAX (Vanguard 500 Index Fund Admiral Shares) and VEXAX (Vanguard Extended Market Index Fund Admiral Shares). The split has become more unequal than I originally intended. I am taking the whole of my RMD from the 500 fund (and investing it in other funds in taxable), but I'll still need to move money to VEXAX to rebalance. I am wondering whether it wouldn't be better (it would obviously be simpler) to combine both funds into VTSAX (Vanguard Total Stock Market Index Fund Admiral Shares). Thoughts?
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How do you pay income tax withholding in retirement?
Here is how we use Social Security benefits voluntary withholding to pay all of our estimated Federal tax obligation. This eliminates the need for quarterly filings and payments and is as painless as when taxes were withheld from our employee paychecks. And since most of our income as well as expenses are on a monthly cycle (including a monthly RMD withdrawal moved to our brokerage account) the monthly automatic tax payment keeps everything in balance and on budget.
At the start of the tax year, I estimate what our income will be, adding Social Security benefits, RMD amount, unearned income, Roth conversion, and subtracting the planned QCD’s. We do not tax withhold any of the RMD. We have no earned income. Most of the unearned income is interest. We typically have very little in capital gains since most trading is within IRAs.
Playing around with an online tax estimator that applies the standard married filing jointly both over 65 exemptions, and knows that only 85% of our benefits are taxed, determines the maximum income that keeps us just below the next tax higher bracket. Any significant gap between our taxable income and the calculated maximum determines what if any Roth conversion we will do. All this factors into our withholding estimate which divided by 12 becomes our monthly amount.
The only tricky part is that the voluntary withholding percentages can only be set to whatever the current tax brackets are: 7%, 10%, 12%, or 22%, except that percentages that were set to previous tax brackets remain in effect. So far, by adjusting the withholding percentages for our two Social Security benefits (one much larger than the other) we have been able to “dial-in” our withholding to be close to what is needed.
For 2025 12% of my Social Security benefit was withheld and 7% of my spouses benefit was withheld. Our effective tax rate is about 7.4%. With a small Roth conversion, our federal taxable income was just below the $96,950 MFJ threshold keeping us in the 12% bracket.
It would be much better if the system allowed the withholding to be set to any percentage. And, a recent change to the Social Security online system now allows adjusting the voluntary withholding while logged into the account. If necessary to end up correctly withheld, a mid-year change could be made, allowing for the two month delay between when the change is requested and when it is implemented.
Needless to say is that if taxes on Social Security benefits were ever actually eliminated this would almost certainly also eliminate this method of paying withholding.
The state income tax does need to be separately withheld but our state is very retirement income friendly, not taxing Social Security benefits, and starting in 2026 not taxing retirement account withdrawals at all. Our state tax obligation is only a few hundred dollars.
Anyone else using Social Security benefits voluntary withholding? How many file quarterly estimates? Have taxes withheld from RMDs? Over withhold, just to be sure? Send in lump sums for large tax events? Recalculate taxes several times during a year and make withholding adjustments?
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Where are all the HD writers?
There is a long list of past HD writers, some fairly prolific in the past. Where are they?
Some of us are still telling our stories and taking our licks with a bit of risk without the comfort of Jonathan’s editing. A few welcome new faces have appeared - a couple also prolific, right Mark😉
If you were a writer in the past or entirely new to HD, including those from across the pond or oceans, I for one would like your perspectives on all matters money and retirement- even budgeting, spreadsheets and income replacement- he said with a modicum of jest.
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IRMAA Question
My wife passed away in June. Our 2024 MFJ tax return was in the first IRMAA premium tier. Our 2024 MAGI was $256K which included a $106K Roth conversion. The 2024 tax return will be the basis for my SS Part B fee including the IRMAA premium. That would put me in the 4th IRMAA premium tier for single filing. I expect SSA will initially show me in the 4th premium level. At that point, I can file an IRMAA appeal using FORM SSA-44 to request that they use my 2026 income estimate instead which will save me a lot of money. How will this be dealt with now that I will be a single taxpayer?
Medicare states that:
“If you've had a life-changing event that reduced your household income, you can ask to lower the additional amount you'll pay for Medicare Part B and Part D. Life-changing events include marriage, divorce, the death of a spouse, loss of income, and an employer settlement payment.”
Life changing events do not include Roth conversions. Do I just show my estimated 2026 income, and will the SSA use that. One thing that worries me is they have a statement about perjury and I want to present things in the right way.
Welcome advice from the tax experts on the forum. Thanks.
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