Jonathan Clements's Blog, page 81

Happy Conclusion

FOR THE PAST FEW years, I’ve been on a Radiohead kick. For the uninitiated, Radiohead is an English rock band whose lead singer is Thom Yorke, known for his distinctive whining vocals—I mean that in a good way—and innovative songwriting.

As I read about Yorke, a quote from him leaped off the page: "When I was a kid, I always assumed that [fame] was going to answer something—fill a gap. And it does the absolute opposite.”

I immediately thought of the financial corollary. People assume money will make them happier or fill a void in their life. They grind and grind and grind until they finally reach retirement, or hit their financial independence number, or cross whatever threshold occupies their mind.

But does money really make us happy? Some studies say no. A famous 2006 study by five academics, including the late great Danny Kahneman, concluded, “The belief that high income is associated with good mood is widespread but mostly illusory. People with above-average income are relatively satisfied with their lives but are barely happier than others in moment-to-moment experience, tend to be more tense, and do not spend more time in particularly enjoyable activities.”

Kahneman and Angus Deaton added new findings in 2010, suggesting that emotional well-being rises with income “but there is no further progress beyond an annual income of ∼$75,000. Low income exacerbates the emotional pain associated with such misfortunes as divorce, ill health, and being alone. We conclude that high income buys life satisfaction but not happiness, and that low income is associated both with low life evaluation and low emotional well-being.”

A 2021 study added a new wrinkle. Matthew Killingsworth, of the University of Pennsylvania’s Wharton School, found happiness kept rising with income, with no limit at $75,000. Killingsworth notes that, “It’s a compelling possibility, the idea that money stops mattering above that point, at least for how people actually feel moment to moment. But when I looked across a wide range of income levels, I found that all forms of well-being continued to rise with income. I don’t see any sort of kink in the curve, an inflection point where money stops mattering. Instead, it keeps increasing.”

But why? If fame couldn’t fill Thom Yorke’s “gap,” is money somehow different? Can Killingsworth’s research be right? I have a suspicion, and it starts with a favorite phrase from one of my mentors: “I don’t know if money buys happiness. But it certainly buys flexibility.”

It turns out that this idea is a key part of Killingsworth’s theory. Higher earners are happier, in part, because of an increased sense of control over their life, he says. “When you have more money, you have more choices about how to live your life. You can likely see this in the pandemic. People living paycheck to paycheck who lose their job might need to take the first available job to stay afloat, even if it’s one they dislike. People with a financial cushion can wait for one that’s a better fit. Across decisions big and small, having more money gives a person more choices and a greater sense of autonomy.”

More money equals more flexibility, more autonomy and more satisfaction. But we’re still left with a puzzle. Why did Kahneman’s and Killingsworth’s results disagree? Fortunately, they got together to compare notes and discuss why their conclusions were in opposition. The upshot: It seems we need to view happiness and unhappiness not as opposites, but as separate phenomena.

The happiness spectrum, for example, might show the difference between a 10-day vacation in a luxury hotel and a four-day vacation in a motel. Both are “good” additions to life. We’d probably accept either. But more money buys you the better of the two.

What about unhappiness? Money can put a roof over our heads and food in our stomachs, preventing two unhappy outcomes. But much unhappiness is untethered from money. Money can’t prevent a messy divorce or change the chemical imbalance in your brain.

The $75,000 threshold “may represent the point beyond which the miseries that remain are not alleviated by high income,” concluded the two authors. “Heartbreak, bereavement, and clinical depression may be examples of such miseries.”

Kahneman’s and Killingsworth’s joint research allows us to answer two crucial questions. Can money increase happiness? Yes, and seemingly without limit. Can money decrease unhappiness? Yes, but only to a point.

The armchair psychologist in me would guess fame works similarly in Thom Yorke’s case. While fame might have made certain highs even higher, it—like money—can’t address many of life’s lows.

Jesse Cramer is the pen and voice behind The Best Interest, a blog and podcast. After a decade in aerospace engineering, Jesse switched careers and now works with clients at a fiduciary wealth management firm in Rochester, New York. Jesse enjoys reading, racket sports, and fostering dogs with his wife. His previous article was Horse Then Cart.

The post Happy Conclusion appeared first on HumbleDollar.

There Is a Season

THE FIRST ROCK concert I attended was The Byrds at Bowdoin College in Maine. We stayed nearby at a cabin in the woods. It was there that I had my first experience with marijuana. It was not a good experience—thank goodness. My drug days were short-lived.

One of the songs made famous by The Byrds is Turn! Turn! Turn! The song was written by Pete Seeger, who derived it from verses in the Bible.

One of the verses is, “To everything there is a season, and a time for every purpose under heaven.” There’s a proper time to do something. You can do it another time, but it probably won’t work out as well. A farmer must plant his seeds in the spring, and he must wait for the growing season to finish before harvesting. Trying to rush any step will lead to a bad crop.

There’s much talk today about the financial independence-retire early (FIRE) movement. I believe in financial independence. It’s the “retire early” piece that’s always baffled me. Why retire unless we’re done with working?

Many in the FIRE movement apparently have skills that command high wages at a young age. The trouble is, it seems they also hate these high-paying jobs. Saving prodigiously allows them to quit work early and lead the life they’ve dreamt about.

But instead of suffering through a job they hate so they can retire early, why don’t these folks find work they love? As the saying goes, if you love your job, you’ll never work a day in your life. If these FIRE enthusiasts are so talented, they should have plenty of employment options. They could move to wherever their ideal job is located and be happily employed. When they feel like they’ve had the career they wanted, they can then enjoy the fulfilling retirement they’ve imagined. There is a season.

Now that I’m older, I look back and see the seasons I’ve experienced. I got my college education right after high school. I’ve seen what happened to friends who delayed. In many cases, they struggled to find the time and discipline to complete their education. Many never graduated. There is a season.

I didn’t have a girlfriend until I was a senior in college. I’m grateful I experienced the magic of romantic love while I was still young enough to appreciate it. There is a season.

During my last bout of unemployment, I set my sights on retiring at age 70. To achieve my goal, I needed a job that would last six years. I found a suitable position and I almost went the distance. Thanks to the severance package I negotiated, I was able to hold off claiming Social Security until 70. Mission accomplished.

When I began my career, the talk of my generation was to retire early, ideally at 55. I never had retirement as a goal, however. I only wanted to work and save money, so I could live the life of my choosing.

My employers showed me by their actions that steady work was not in my future. I had career breaks that I treated as mini-retirements. I needed to save as much as I could to handle unemployment whenever it happened. I’m happy that I did.

One of the books I read during my many bouts of unemployment was What Color is Your Parachute? by Richard N. Bolles. It advises choosing a career direction based on our skills, talents and interests. Bolles subsequently co-wrote What Color is Your Parachute? For Retirement, which advocates the same approach when designing our life after work.

I’ve decided that my retirement will be intentional, meaning it won’t just happen. Whatever I decide to do will be because I want it to happen. My wife is the opposite. She does very little planning. She wings it. She fills her schedule with things to do, but never too far in the future. Opposites attract.

I’ve read that retirement has three stages: the go-go years, slow-go years and no-go years. People in early retirement play golf, travel and act like teenagers. Once the novelty wears off, they settle down to quieter lives. Eventually, they can’t get around easily. There is a season.

I believe the time I have is a gift from God. I don’t view retirement as an end of something, but a new beginning. I’m aiming to make something of my retirement. I don’t want to be on my deathbed thinking "if only" I'd done this or that. It is indeed a season—and I want it to be a full one.

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.

The post There Is a Season appeared first on HumbleDollar.

Non-Leading Indicators

IN TRYING TO FORETELL the economy’s direction, former Federal Reserve Chair Alan Greenspan has shown “a keen interest in men’s underwear,” according to CNN Business. “He sees underwear sales as a key economic predictor.”

This isn’t because Greenspan is preoccupied with nether garments. Rather, says an NPR reporter, he believes that “the garment that is most private is male underpants because nobody sees it except people like in the locker room.”

Yes, the men’s underwear index exists. It’s based on the premise that, during normal economic times, sales of men’s underwear are usually stable, but during an economic slump men prioritize other expenses over replacing their underpants.

HumbleDollar contributor Ken Begley may have unwittingly answered the question as to whether or not the U.S. is headed for a recession. A man before his time, he understands the underwear index—as indicated by his unabashedly candid “holey underwear” article.

Meanwhile, just in case you’re wondering, ladies’ underwear seems not to be an issue—presumably because women are more sensitive about wearing worn-out underwear. And who would have the temerity to conduct such an indelicate study, anyway?

There are still risks to the economy, but most economists expect the U.S. to dodge a recession in 2024. Meanwhile, here are a few more ersatz but semi-accurate ways of measuring U.S. economic downturns:

Lipstick index. In a recession or bear market, women tend to replace buying more expensive items, like jewelry or handbags, with smaller purchases that act as a treat or pick me up—like a new lipstick.
Hemline index. A scan through Vogue magazine indicates that longer hemlines will be one of this year’s trends. That doesn’t bode well for the economy and could be a harbinger of things to come. The theory, which has been around for a while, draws on the premise that skirt lengths get shorter in good economic times—the 1920s and 1960s—when women showed more leg. Hemlines get longer in bad times, such as during the 1930s, after the 1929 Wall Street crash, and during the economic turmoil of the 1970s. Perhaps the midi length, an in-between length skirt now trending, is a sign of today’s uncertainty.
Relationship index. Some people seek a new relationship to give themselves a lift during an economic downturn. Research indicates that dating sites see an uptick in business when the economy isn’t doing well. If there’s one thing that’s worse than being low on funds, it’s being low on funds and lacking companionship. This activity could also be a source of low-cost entertainment.

These indexes may not prove to be an accurate way to predict the economy’s direction, but they’re probably no worse than what we hear from professional prognosticators. As George Bernard Shaw is reported to have said, “If all the economists were laid end to end, they’d never reach a conclusion.”

The post Non-Leading Indicators appeared first on HumbleDollar.

Not Just Numbers

IN THEIR NEW BOOK The Missing Billionaires, Victor Haghani and James White make an interesting argument. Looking at the number of millionaires in the U.S. in 1900 and doing some math, they estimate that there should be many more billionaires today—thousands more, in fact—than there are. The question Haghani and White ask: Where did they go? Or, more specifically, where did their wealth go?

The authors consider possible explanations, including taxes—especially estate taxes—and the 1929 crash. But even after adjusting for those factors, they calculate that there should still be many more people today with a lot more wealth. In the end, they settle on two explanations for these “missing billionaires”: excessive spending and poor investment decisions.

To illustrate their observation about spending, they point to the Vanderbilts. When he died in 1877, Cornelius “Commodore” Vanderbilt was by far the wealthiest American. But just 50 years after his death, the family’s wealth was essentially gone, thanks to spending that exceeded even their vast means. One of Cornelius’s grandsons built the 125,000-square-foot Breakers mansion in Newport. Another commissioned Biltmore in North Carolina, which is still the largest home in America. And they endowed Vanderbilt University.

The second factor Haghani and White point to is on the investment side. Many of these families failed to effectively diversify, owning too much of a single stock. In many cases, these were shares in family businesses, which they held on to for emotional reasons.

While the Vanderbilts are an extreme example, their experience illustrates the importance of planning, even for wealthy families. When making a financial plan, I recommend a three-part approach.

1. Math. There’s no shortage of strategies for building a financial plan, from Monte Carlo analysis to the so-called 4% rule. But whichever approach you choose, there are five principles that, in my opinion, are universal:

Don’t draw a straight line. If you have many years to retirement, consider multiple scenarios. In each scenario, turn the dials on different variables, from spending levels to market returns to inflation expectations. Try multiple stress tests.
Keep investment fees low. Research firm Morningstar studies the investment industry and has concluded that, on average, “low-cost funds beat high-cost funds.” This is the case, the firm says, “in every single time period and data point tested.”
Keep things simple. Last year, Wall Street introduced more than 500 new exchange-traded funds. But most of these fit in the “shiny object” category and really aren’t necessary. The problem with these strategies is that they tend to be costly and tax-inefficient.
Keep an open mind. While simplicity is my favored approach, there are exceptions. For example, single premium immediate annuities carry complexity, but they make sense for certain investors.
Manage taxes. In addition to income taxes, keep an eye on potential future estate taxes.

2. Mindset. Back in 2004, the author Kurt Vonnegut was speaking to a group of college students. He told a story about how he liked to spend his time: When he needed an envelope, he said, he liked to walk down to the stationery store and purchase a single envelope. Seeing him do this, his wife suggested that he instead buy a box of 100 and keep them in his office. But Vonnegut objected. He enjoyed the walk and liked chatting with people along the way.

This helps illustrate an important truism about personal finance: The numbers are just part of the picture. Vonnegut would have saved both time and money by ordering a box of envelopes online. But for him, it wasn’t about the numbers. It was about what gave him enjoyment.

In other words, mindset is a valid component of any financial plan. While there isn’t necessarily a formula you can apply, there are questions you can ask to help inform the structure of your plan. These are some examples:

How would you rank order your financial goals? For example, would you prefer to have a vacation home where family could gather, or would you prefer to keep these dollars in the bank for added security?
How do you view the tradeoff between time and money? For example, would it be more important to retire early or to continue working, so your savings have more time to grow?
If you have children, how important is it to leave them the largest possible inheritance? Do you worry that the prospect of a large inheritance would demotivate them?
How important is charitable giving, both during your lifetime and as part of your estate plan?
How important is it to avoid market volatility? In other words, how much potential growth would you be willing to give up in exchange for limiting losses during market downturns?

There is, of course, no right or wrong answer to any of these questions.

3. Circumstances. My doctor and his twin brother are partners in their medical practice. But even when two people appear almost identical—with the same background, the same profession and the same income—there will be differences. Though these differences are often harder to quantify, they’re nonetheless an important component of any financial plan. These are some questions you might consider:

If you’re in your working years, how would you characterize the stability of your income? If you’re a tenured professor, that might allow you to take more risk than someone with a similar—but less certain—income.
To what extent does your retirement plan include guaranteed sources of income, such as a pension? 
Do you have other assets that might or might not have value—shares in a family business, for example?
Is health a concern, either yours or, if you’re married, your spouse’s?
If you have children, what is their financial situation? Might they need help, or might they be able to help you, if need be?

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 on Threads, and check out his earlier articles.

The post Not Just Numbers appeared first on HumbleDollar.

Paying to Avoid Pain

IN RECENT YEARS, I’ve confronted a choice: I could fund my solo Roth 401(k)—or I could use the dollars to cover the tax bill on a large Roth conversion. I wish I could do both. But after using my earned income to pay living expenses and make financial gifts, I don’t have the necessary cash.

My choice: Go for the big Roth conversion.

Why? In part, it’s because I’m focused on shrinking my traditional IRA before I turn age 75 and have to start taking required minimum distributions (RMDs), which could push me into a much higher federal income-tax bracket. I’m especially focused on doing so in 2024 and 2025.

In early 2026, I’ll turn age 63, which means thereafter any Roth conversions have the potential to trigger the Medicare premium surcharge known as IRMAA, or income-related monthly adjustment amount, which is based on your income from two years earlier. On top of that, it’s possible federal income-tax rates will climb in 2026, assuming the individual tax cuts included in 2017’s Tax Cuts and Jobs Act are allowed to sunset.

But there’s an added reason to favor Roth conversions over contributing to my solo Roth 401(k). Suppose I have $24,000 in spare cash. I could stash that $24,000 in my solo Roth 401(k), which is appealing.

But it isn’t as appealing as using the $24,000 to cover the federal income-tax bill on a $100,000 Roth conversion. This assumes I’m in the 24% federal income-tax bracket. In other words, a Roth conversion gives me more bang for my buck, allowing me to get a bigger chunk of money growing tax-free, plus it means smaller tax bills down the road because it shrinks my traditional IRA.

My plan is to leave my Roth accounts to my two children. One is likely to be in at least as high a tax bracket as me, so it makes sense for me to pay my IRA's tax bill instead. In fact, I may tweak the beneficiaries on my Roth and traditional IRAs, leaving more of my traditional IRA to the child in the lower tax bracket.

There’s also some possibility that I’ll tap my Roth accounts for my own use—if, for instance, I have a year with surprisingly high expenses and pulling yet more money from my traditional IRA would push me into a much higher tax bracket. On the other hand, from a tax perspective, my traditional IRA could also come in handy, notably for charitable giving and if I have a year with high deductible medical costs that I could offset against a traditional IRA withdrawal.

What if—unlike me—you’re fully retired and don’t have any earned income, and hence you don’t face the choice of either funding a Roth or converting part of your traditional IRA to a Roth? If you have taxable-account money to cover the conversion tax bill, it may still be worth making a big conversion.

Before you go ahead, there’s all manner of considerations, including the rate at which the conversion will be taxed, your projected tax bracket once you begin RMDs, and the potential impact on your IRMAA premium surcharges and on the taxation of your Social Security benefit. If you intend to bequeath your Roth accounts, you might also ponder your tax rate compared to that of your beneficiaries. In addition, you should consider whether you can pay the conversion tax bill without triggering additional taxes because, say, you'd have to sell highly appreciated stock to generate the cash needed to cover estimated taxes.

But as with my annual choice, keep in mind the leverage involved—that every $1,000 in extra income taxes paid will allow you to get many multiples of that sum shifted out of your traditional IRA and into a Roth, where it’ll then grow tax-free. Moreover, this maneuver has a little-appreciated advantage: By using taxable-account money to cover the tax bill on a Roth conversion, you thereafter avoid the tax bill on that taxable-account money.

Suppose you have $10,000 in a high-yield savings account that’s earning 5% in annual interest, or $500 a year. If you use that $10,000 to pay the conversion tax bill, not only will you move a big chunk of money into a tax-free account, but also you’ll no longer have that $500 a year in taxable interest.

Indeed, by using that $10,000 to pay the tax bill on a Roth conversion, it’s like you’re shifting the $10,000 into your Roth, where it will then grow tax-free. The tax savings from shrinking your taxable account is the reason it’s worth undertaking Roth conversions, even if you think your tax bracket in future will be similar to what it is today.

For those with greater wealth, there’s an added incentive to “prepay” the income taxes owed on their traditional retirement accounts: The net result is to reduce the size of your taxable estate. That could mean not only a smaller federal estate-tax bill—not a problem for the vast majority of families—but also less in state inheritance and estate taxes, which are an issue in a third of states, including where I live.

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

The post Paying to Avoid Pain appeared first on HumbleDollar.

Count Me Out

MY ALL-TIME FAVORITE movie is the Coen brothers’ 2000 classic, O Brother, Where Art Thou? At one point, Holly Hunter’s character, Penelope, declares, “I’ve said my piece and I’ve counted to three.” Her estranged husband, played by George Clooney, understood from long experience that once she had “counted to three,” her mind couldn’t be changed.

Last summer, I wrote an article that explored the decisions my husband and I are working through about our retirement date and location. I concluded, “This is harder than it might seem. I may be writing a completely different article six months from now.” Well, here I am, not much more than six months later, and my own immediate future is coming into focus, at least the “when” part.

In my earlier article, I said that we were deciding between July 1, 2025, and July 1, 2026, as our retirement date. I received a lot of great questions in the comments section, including several along the lines of “You sound ready—why wait?” and “Run the numbers. Would an extra year really make that much of a difference?”

Why wait? My university pension will be based on three things: a multiplier based on my age at retirement; my years of service credit; and the average of my highest three years of salary. The age factor maxes out at 60, so that’s no longer a consideration.

At my rank—I’m an advanced full professor—I get reviewed for merit increases every three years. I was reviewed in 2022 and was fortunate to receive the highest possible raise. I decided then that, unless a health crisis intervened, I should stick it out until at least 2025 to lock that final pay increase into my pension calculation. That’s also the year I’ll turn 65, hit 35 years of service credit and become eligible for Medicare. It just feels like the right time to me.

By next year, I’ll also have enough credits for one more quarter of paid sabbatical, which I already have approved for this coming winter, and then I’ll return for my final quarter of teaching next spring. (If you take a sabbatical, you can’t go straight into retirement or a new job, or you'll have to repay the university for that time.) I earned that sabbatical and don’t want to leave those unused credits on the table.

Run the numbers. As I intimated in my previous article, the reasons behind the possible later 2026 retirement date were financial. But like some readers, my husband encouraged me to “run the numbers,” so I did. It’s impossible to know to the penny what my pension would be in 2026 vs. 2025, but I can get pretty close. I estimate that an additional year of service credit would add $468 a month, or $5,616 a year, to my pension. That’s a nice sum, but it isn’t worth an extra year of my life if I’m ready to leave the workplace.

What's changed? In hindsight, I think I was looking for a sign that would guide me toward one retirement date or the other. Then I got some news in January that has made it crystal clear to me that I want out as soon as possible.

Thankfully, it wasn’t bad news from the doctor. Rather, it was very unpleasant and surprising workplace news—a departmental reorganization that’ll dramatically change my day job. I was already tired and burned out after a few rough years as department head during the pandemic. This latest development clarified for me how ready I am to be done with this institution.

Though I still enjoy teaching, advising graduate students, research and writing, I can do some or all of those things when I’m retired. In fact, recently one of my publishers contacted me and asked if I’d do a new edition of one of my books. I asked if I could write it starting in July 2025, and if I could add a younger co-author, and the publisher said yes to both.

I think that a writing project during the year after I retire will be an enjoyable way to ease out of the workplace, especially since it allows me to mentor a younger scholar during the process. I’ll also be finishing up on several students’ doctoral dissertation committees in 2025-26, which professors are allowed to still do after they retire.

Finally, one other thing that’s changed: My husband and I are both coming around to the idea that we don’t need to retire at the exact same moment. As I have outlined, it doesn’t affect our bottom line much if I work an extra year or don’t, but it would make a difference if he continues to work. He still feels valued and motivated in his job, and he doesn’t have a clear vision yet of what he’d do with his time if he were fully retired. He may keep going for several more years, possibly cutting back on his hours over time.

For me, though, it’s 2025, and I’m not kidding. In fact, I’ve counted to three.

Dana Ferris and her husband live in Davis, California. She’s a professor in the writing program at the University of California, Davis, and is the author or co-author of nine books on teaching writing and reading to second language learners. Dana is a huge baseball fan and writes a weekly column for a San Francisco Giants fan blog under the nom de plume DrLefty. When not working, she also loves cooking, traveling and working out. Follow Dana on X @LeftyDana and on Threads, and check out her earlier articles.

The post Count Me Out appeared first on HumbleDollar.

A Man With a Plan

YOU COULD CALL ME a 529 superfan. The college savings plans helped me put my two kids through college. Their state and federal tax advantages cut the exorbitant cost of college just enough so we didn’t have to borrow for our two kids’ education.

Which makes it surprising that I knew the man who created the 529 plan—but I didn’t realize he’d fathered them.

I covered Senator Bob Graham of Florida as a newspaper reporter in Washington in the 1990s, but left the beat the year before he introduced his 529 legislation. I only learned of his role in 529s shortly before he died on April 16 at age 87 in a retirement community in Gainesville, Florida.

As a senator, Graham was tan and affable, but he spoke hesitatingly, choosing his words with care. He was what my old political science professor would have called a workhorse, not a show horse. A Harvard-educated lawyer, Graham concerned himself more with details than speech-making, and he worked well in a divided legislature.

A Democrat, Graham worked across the aisle with Senator Mitch McConnell of Kentucky, a Republican, to write and pass the rules around 529 plans. About a dozen states, including Florida, had created state college savings plans by then, but the rules were inconsistent and limiting.

In Florida, for example, parents could buy a tuition credit for a newborn at a fixed price that would pay for one credit hour of classes 20 years later. That was quite a bargain given the inflation rate in education, but it only worked if your child attended a state university in Florida. If your child went to an out-of-state institution or to a private college in Florida, you got a refund of your money paid, not college credits.

Graham realized we needed one college savings system for the entire nation, so parents in any state might participate. In the legislation he introduced in 1996, Congress sheltered the gains in 529 plans from federal taxation. Later, in 2001, Congress went further, exempting plan withdrawals from federal taxes providing the money was spent on higher education.

With those tax breaks in place, 49 states have created 529 plans for their residents—Wyoming is the lone exception. I contributed a great deal of money to 529 plans, and I saved a lot of money because of them. I invested through a low-cost 529 plan in Utah, which my home state of Pennsylvania permitted. Our 529 accounts helped put our son Michael through Ithaca College, and our daughter Genevieve through Franklin and Marshall.

Paying eight years of college bills took every spare cent we could scrape up. How did 529s help? I found a credit card that would give me 1.5% back on all my spending, with the money deposited in a 529 plan. Every year when my kids were young, my wife and I contributed about $13,000 each annually to the Utah 529. We could deduct those contributions from our reported state income.

Pennsylvania’s tax rate is 3.07%, so that deduction saved us almost $800 a year. We owed no taxes on plan withdrawals for tuition, books and fees. One way and another, I estimate that 529 plans reduced my kids’ college costs by 10%.

Senators aren’t known to be shrinking violets, and fathering a program like the 529 could have made Graham’s name enduring—if he’d attached his name to the plans. That’s how Senators Claiborne Pell, William Roth and J. William Fulbright have kept their names alive long after they’ve departed. Not so with Graham. The 529 takes its name from its section in the federal tax code, just like the 401(k).

The word on Graham in Washington was that he lacked charisma. The Washington Post described him once as a “sober, conscientious, unfailingly courteous grandfather who couldn’t light up a room with a barrel of Iraqi crude and a Zippo.”

When I interviewed Graham, he was careful with his words. He would repeat your question, and maybe question its premise. He had a smiling, courteous presence, but he didn’t have a free and easy way about him. Yet voters seemed to sense his seriousness and purpose. He never lost an election. He served two terms as Florida’s governor and three as its U.S. senator. What he lacked in style, he made up for in substance.

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.

The post A Man With a Plan appeared first on HumbleDollar.

Studying for the Bar

HOW DO SOME INVESTORS end up in places they don’t belong? Where do they turn for information and guidance? Who do they talk to before making important financial decisions?

What follows are the results of my unscientific research, which was conducted in some of the finest and most respected centers of advanced learning anywhere.

Barroom seminars, your window on the world. Are we talking politics, investing, religion, world peace or other topics of paramount importance, such as Ohio State’s quarterback dilemma for the upcoming football season? Doesn’t matter. There’s no problem too big or too small that won’t be solved with a barroom seminar.

The guy running the seminar will be the big guy at the corner of the bar with the type-A personality. He’ll be lording it over his minions, who typically express their concurrence with air punches and choruses of “hell, yes.”

Happy hour from three to six, and don’t miss all you need to know about the Iraqi dinar. I once dropped off a tax return to a beaming client. Why so cheery, I inquired? He said the RV was coming. I was like, what, are you getting a new camper?

He said, “No, dummy, the dinar is going to be revalued this week and I’m gonna make a couple million bucks.” Seems RV is also short for revalued. I think we all know how this bet turned out.

Bucket of brews for $10 and your best Social Security claiming options. “You’re stupid if you wait till later to claim because it’ll take until you’re 80 just to break even.” That guy is now age 80 and trying to live off the benefit he claimed at age 62.

We’ve got the NFL Sunday Ticket and the get-rich-with-our-cryptocurrency primer. I actually know some folks who have done well with crypto. But most of my barroom buddies got in way too late and then sold way too low.

Sign up for our darts league and the all-you-ever-wanted-to-know-about-the-Middle-East policy forum. I once heard a guy in a bar say that, if he were president, he could easily negotiate peace in the Middle East. Later that night, he couldn’t even talk the cop out of arresting him for driving under the influence.

Two-for-one drink specials and 10 barely intelligent reasons your guy sucks. This might be my favorite barroom seminar—the nearly inarticulate reasons my political candidate stinks. Left, right, blue, red. Doesn’t matter. There’s a type-A jackass for every political persuasion.

Today’s soup is muskrat turtle bean and features Bubba’s Bible interpretations. I’m laughing to myself as I type this one. Barroom Bubba seems to know more about the Bible than my daughter, who has a degree in theology from the University of Notre Dame.

And here I come to the moral of my story.

I know some people who have never met a conspiracy theory they didn’t like, and who sometimes make financial and other important decisions based on them. And many of us, including me at times, are prone to confirmation bias, only seeking out information that mirrors our own thinking. Whether it comes from the loudmouth at the end of the bar, or that pundit you follow on cable TV or social media, too often we let such people influence our thinking.

Lest you think that I’ve spent too much time studying behavior at local watering holes, please know that—prior to becoming an income-tax preparer—my far-reaching barroom research was conducted during my 30 years spent selling and delivering beer in Toledo. And, yes, I was usually the only sober one in the room.

For 30 years, Dan Smith was a driver-salesman and local union representative, before building a successful income-tax practice in Toledo, Ohio. He retired in 2022. Dan has two beautiful daughters, two loving sons-in-law and seven grandchildren. He and Chris, the love of his life, have been together for two great decades and counting. Check out Dan's earlier articles.

The post Studying for the Bar appeared first on HumbleDollar.

Not Dead Yet

FOR MY BIRTHDAY this year, my wife gave me a card that declares, “Not Dead Yet.” That might sound morbid, but I laughed. The reason: My wife had misinterpreted something I used to say to colleagues at my final job.

When they saw me at the coffee machine, they’d often ask, “How are you doing, Dave?”

Instead of saying “fine,” I used to say, “I’m still breathing. Count your blessings. Blessing No. 1: I’m still breathing.”

In many cases, I’d get an amen, or colleagues would chuckle, or they’d say something positive. My wife saw it differently.

She always thought it meant I was done with living and getting ready to die, which is the furthest thing from the truth. In fact, I was—and still am—celebrating the here and now, expressing gratitude for still being alive.

My latest birthday is one of my most significant. It’s my required minimum distribution (RMD) birthday, meaning I just turned 73. With this birthday, I’ve achieved the final financial goal I set for myself. I wanted to hold off all withdrawals from my IRA—which I first opened when I was age 27—until I was forced to by the tax rules. To celebrate this milestone, I’ll be giving away my entire RMD as qualified charitable distributions (QCDs) to the charities I’ve selected. To help both me and one of the charities, a portion of my QCD will purchase a charitable gift annuity.

While I consider 73 to be a special birthday, I didn’t want any presents. It isn’t that I don’t like gifts. Rather, I don’t like what my wife buys me—because they’re usually things she thinks I need, not things I want. Often, it’s clothes that my wife would like to see me wear.

But this year was different. I received a ream of printer paper, a T-shirt that says “real cars don't shift themselves,” a bag of Hershey’s dark chocolate kisses, a grabber because my son wants me to help him collect roadside trash, three lottery scratch-off tickets that yielded winnings of $6, and lunch at our favorite Mexican restaurant. In other words, my wife gave me things I needed and liked, and there wasn’t anything I had to return.

Now that I’ve notched my final financial milestone birthday, I’ll be measuring the passage of time in days, not years. Every day I’m alive is a reason to celebrate.

I have heard of people who have weekend-long, or week-long or month-long birthday celebrations. But mine will be a celebration every day for the rest of my life. I’m still breathing. What could be a better reason to celebrate?

The post Not Dead Yet appeared first on HumbleDollar.

Unsettling Experience

MOM AND DAD WERE products of the Great Depression. I feel like it affected every single day of their lives. Despite their difficult upbringing, they made good financial decisions that allowed them to live comfortably. Part of it was because Dad worked for the same company for almost 42 years. His pension paid him more than I earned in my first job as an engineer.

When Mom died in August 2004, she was almost 84. My dad passed away in 2009, almost exactly five years later. He was 91. Mom and Dad did a good job of telling my sister, brother and me what they wanted to happen when the time came to divide their assets. They asked that everything be split equally among us three children.

Mom and Dad each had a will, along with a trust that was supposed to make the distribution of their accumulated wealth as easy as possible. But that, alas, didn’t happen.

I’m the oldest of the three siblings and, when Dad died, I was trustee and executor, which meant I was responsible for settling his estate. Shortly after Dad’s funeral, I took a day off work to visit the clerk of court in Alamance County, North Carolina. I live in Raleigh, so this was about an hour’s drive away. I obtained the recommended number of copies of the death certificate and letters testamentary, so I could begin work on his estate.

My sister and brother were on board to help, but my sister lived in Tennessee. My brother still lived in our hometown. Our initial focus was on emptying my parents' very full house, making home repairs so the place could be sold, and dealing with their finances.

My brother did the lion’s share of the work clearing out the house. Whenever my parents didn’t want something, they put it in the attic. It was packed with junk. The living area was full of furniture that, for the most part, no one wanted. We filled many dumpsters, held an auction, and gave away countless items.

For jewelry, Mom had a very specific list of who should get what. This list wasn’t part of any will or trust document, just a typewritten list, with items under each of our names.

The required home repairs were substantial, costly and time-consuming. But it was their finances that were the hardest part. My dad had made me a signatory on his bank accounts, so paying funeral costs, medical expenses, other bills and our out-of-pocket costs wasn’t a problem. Soon, however, issues emerged.

First, I discovered that my dad had never closed Mom’s estate. Until he died, he was receiving and cashing dividend checks sent to my mom, because the stocks were still in her name. I don’t know why the bank let him do that. I had to reopen her estate, and get death certificates and letters testamentary to notify banks and other companies of her passing.

The second problem arose when I needed access to their safe-deposit box. To get the box opened, I had to get a court order of instruction and then take it to the bank. Inside the safe-deposit box, I found all the missing paper stock certificates. The bad news: Mom and Dad had also used the safe-deposit box as a place for unimportant papers and documents, including empty envelopes and lists.

Under the court’s instruction, a bank official was required to itemize what we found. The employee was incredulous about the number of empty envelopes she had to catalog.

The third unpleasant discovery: Very few of their holdings were ever placed in the living trust my parents had created. The house was in the trust, probably courtesy of the lawyer who drew up the trust paperwork. But most of their stocks and mutual funds remained in either Mom’s or Dad’s name.

My parents used a financial advisory firm, but my dad was extremely distrustful of lawyers and other professionals, so he didn’t reveal all their holdings. Still, the financial advisor’s office was helpful in establishing stock and mutual fund ownership.

The office was overjoyed when I found the paper stock certificates, because it meant they didn’t have to initiate the lost certificate process for so many different stocks. Over time, we were able to transfer all holdings into three different accounts, one for each child.

I managed all the financial paperwork on my own, except for the estate tax returns. At times, it felt like a second full-time job, but I never engaged a lawyer to help. Perhaps I should have. The clerk of court was patient with me up to a point, but she wanted to close both estates, even though there were still many details requiring resolution.

For example, I found a life insurance policy that my dad had taken out in the 1940s. His mother, who died in the early 1960s, was the beneficiary. The policy’s proceeds had been turned over to the New Jersey Unclaimed Property Administration. It never earned a penny of interest during the decades it remained in the state’s possession.

My parents also owned two weeks of a timeshare on Hilton Head Island, South Carolina. Ever tried to sell a timeshare? Basically, I gave them away.

In addition, my parents owned two extra burial plots—don’t ask. No one would buy them. I finally gave them to my parents’ church for indigent burials. The church still requested prepayment of the grave preparation fees.

All these issues took me years to sort out. We had to have a tax preparer file estate tax returns for three years before I could close out everything.

I get anxious just thinking about the stress that my time as executor caused me. Want to make life easier for those settling your estate? From my hard-won experience, here are six lessons:

If you create a living trust, make sure assets are retitled to be part of the trust. One exception: Don’t retitle your IRA or 401(k) so it’s held by your living trust, because that can cause a big tax bill. To the IRS, it’s the same as a 100% withdrawal.
Keep unnecessary papers out of your safe-deposit box. Use it only for important documents. At the bank, add your executor to the list of people who can access your safe-deposit box. Let your executor and trustee know where you keep the box key.
Check and update your beneficiaries on all insurance policies, IRAs, 401(k)s and other assets that pass by title and hence outside of the probate process.
If you own stocks, allow the shares to be digitally maintained by your broker, financial advisor or investment house, rather than holding onto paper stock certificates.
Get rid of items you no longer use or need. My parents certainly didn’t need to keep every suitcase they ever owned, but their attic was a testament to their inability to part with stuff. No doubt this was a legacy of growing up during the Great Depression.
Don’t be afraid to use qualified professionals. Lawyers, financial advisors, accountants and tax professionals can provide valuable help when you badly need it.

Jeff Bond moved to Raleigh in 1971 to attend North Carolina State University and never left. He retired in 2020 after 43 years in various engineering roles. Jeff’s the proud father of two sons and, in 2013, expanded his family with a new wife and two stepdaughters. Today, he’s “Grandpa” three times over. In retirement, Jeff works on home projects, volunteers, reads, gardens, and rides his bike or goes to the gym almost every day. His previous article was They Pitched We Swung.

The post Unsettling Experience appeared first on HumbleDollar.