Jonathan Clements's Blog, page 83

If I Go First

I MARRIED CONNIE because she’s four years older than me. That meant our life expectancies would be similar and hence a survivor annuity would be less expensive.

I am, of course, joking. Sort of.

Providing for Connie, should I be the first to go, is among my top financial priorities. During my working years, I received far too many calls from new widows who had just learned their husband’s pension stopped when their husband died. Apparently, the husbands hadn’t bothered to mention this.

With traditional pension plans now relatively rare, at least among private sector workers, the days of worrying about a traditional survivor pension are all but over. Still, ensuring a surviving spouse has adequate income remains a crucial issue—and yet it’s one I rarely see discussed on the various blogs and Facebook groups I follow.

There’s a handful of ways to provide for a surviving spouse:

Social Security survivor benefits
A defined benefit pension with a survivor annuity
An immediate annuity with guaranteed dual-life payments
Life insurance
Naming the spouse as beneficiary of 401(k) plans and IRAs
Leaving behind taxable-account investments and savings

My strategy draws on the above ideas. When I die, Connie’s Social Security spousal benefit will disappear and be replaced with double the amount, thanks to the survivor benefit that’s equal to my current monthly Social Security amount.

Decades ago, we both naively purchased—or, more accurately, were sold—tax-deferred variable annuities. We stopped adding new money to these accounts many years ago, but their value continues to grow, and Connie will have that pool of savings available to her.

I have two pensions. Both are so-called joint-and-survivor. Assuming I die first, Connie will continue to receive monthly payments equal to 50% of one pension and 75% of the other.

She would also receive payouts from two life insurance policies. During my working years, I invested in group variable universal life insurance. Over the years, the investment fund accumulated and, when I retired, I converted to a paid-up policy. I also have employer-group insurance, for which I continue to pay a monthly premium. The payout on these two policies should provide Connie with about two years of living expenses.

My wife, of course, is the named beneficiary on my rollover IRA. Meanwhile, our taxable investments are jointly owned, and are structured to generate regular income. That includes taxable-bond interest, tax-free interest from municipal bonds, and dividends on two stocks.

Connie could dip into our portfolio to pay living expenses, but I’m hoping the portfolio stays intact for our children and grandchildren. How Connie will handle our portfolio concerns me—up until now she’s shown no interest in investing. In a letter of last instruction, I’ve explained where to go for assistance.

The post If I Go First appeared first on HumbleDollar.

Cutting the Cord

DURING A RECENT VISIT to retired friends in Florida, I learned about YouTube TV, a streaming service from Google with more than 85 channels. I decided to try it when my wife and I returned home. I initially kept my TV trial private. I wasn’t ready to introduce the idea to my wife, who doesn’t like change and would rather just stick with cable TV.

I thought YouTube TV worked well. I still had to sort a few things out, though, before adopting it wholesale. With seven TV sets in our home, we had different remotes, sound systems and varying levels of television smartness, from totally dumb to too clever for us. Some rooms had four remotes—yes, four—to control the cable box, TV, DVD and sound system.

Could we cut the cord and have only one remote control per TV? Even better, could we have an identical model remote in every room? I challenged myself to make the operation of every TV seem identical, regardless of its make, model or age.

With time, I succeeded. You’ll note, though, that I didn’t say my wife likes the new setup. Did I mention she hates change?

On the positive side, we’re saving money every month. YouTube TV isn’t free, but it’s a lot cheaper than our old Verizon cable service. I’ll get to our total savings—after accounting for the new streaming subscriptions and the equipment we purchased. But before I get to the bottom line, let me walk you through our transition, which was a journey of its own.

First, I placed an order with Verizon to remove all its cable boxes from our home. I got a response I wasn’t expecting. Yes, the company was losing me as a cable customer, but it was determined to hang on as my internet provider. The company offered me much faster service at a lower cost.

This gets a bit technical, but Verizon offered to upgrade my internet speed from 100 megabits per second to one gigabit, plus install three network extenders for whole house wi-fi. All this would cost me $5 less per month than my current rate. The company offered to fix this price for four years and top it off with a $200 Visa gift card.

I accepted this generous offer and set up an appointment for Verizon to install the new wi-fi equipment and remove its seven set-top boxes. I was joining the roughly six million Americans who cut the cable cord each year.

Canceling cable was just the start, of course. The key to making our visual entertainment uniform throughout the house was getting a Chromecast streaming device from Google. The device comes in two versions: standard HD and 4K, which are $30 and $50, respectively. I ordered seven, enough of each model to match the resolution of each television. 

I ordered the Chromecast units directly from Google. The instructions were clear, and each room was set up in less than 15 minutes. You plug the device into a port on the back of your television and it allows you to wirelessly stream multiple services, like Netflix and YouTube TV.

Now came the hard part: learning new TV watching habits. There were new remotes and new channels. It took time, but we’re figuring it out. It’s not hard, just different. Fortunately, our friends with more experience in cord-cutting gave us a few practical suggestions.

They, like us, record different shows. They suggested setting up two users on the recorder so that our shows are sorted as either his or hers. They also suggested that my wife and I organize our TV guide displays differently because we have different favorite network lineups.

So far, the pluses far outweigh the minuses of having to learn a new entertainment system. And the savings are significant. To start, our Verizon savings were $180 per month, even with the added cost of the high-end streaming services.

In addition to cutting cable, I was able to cancel my costly SiriusXM subscription for my car because I now get YouTube TV on every tablet, cell phone and computer. I often use earbuds to listen to my shows while working and driving. Back in the day, it was called radio.

Now, I have to add back the costs. YouTube TV isn’t free, nor were the new Chromecast units and remotes I needed to purchase. When I net it all out, I estimate our savings to be $100 a month.

Our TV transition isn’t over, however. We expect to move to a continuing care retirement community, where the TV service is from someone other than Verizon. This will be one more change to cope with. But I’m sure we’ll figure it out.

Richard Hayman is a second-generation family business owner and inventor with three patents. He studied engineering at Cornell University and received a master's degree from George Washington University. After his family's business was purchased by a public company in 1999, Richard went on to enjoy several additional careers. He’s also been a STEM instructor for middle and high school students in after-school technology programs. Check out Richard's previous articles.

The post Cutting the Cord appeared first on HumbleDollar.

My Perfect Daze

WHAT THE HELL WAS I doing all those years?




That’s the riddle that confounded me when I retired eight months ago. Much to my surprise, I didn’t find myself wandering in the desert of despair, missing my crowded email in-box. I was not bereft without staff meetings, diversity training, team-building exercises, cupcake Fridays. I felt not the slightest urge to lean in, stand up or spend any more time with management consultants.




I had a wonderful career as a financial journalist and public relations professional, traveling the world, working with talented and interesting people, and learning tons about investing, the arts, and the world’s great cities and cultures. And by saving diligently and investing wisely, my wife and I retired with an ample nest egg to carry us through what we hope will be a long and fruitful retirement. We are fortunate.




I was just surprised by how quickly and completely we transformed from hare to tortoise. My wife, also a hard-driving, globe-trotting executive, experienced a similar descent toward seeming indolence. Simply put, we have been more than busy with reading, streaming, theater, cooking, hiking, friends and traveling. There’s also the rapture of idleness, tuning out the mostly bad news of the world and just letting the mind wander. These are wonderful interludes.




It reminds me of the new film, Perfect Days , about the insanely happy and simple life of a Japanese toilet cleaner who achieves fulfillment through his job, taking photos of trees, riding his bike, reading, and listening to American soul music. And not much else. 




But what about the quest for purpose? I read about former corporate leaders seeking to make a difference. The inclination is certainly understandable, given many were kings and queens in their former lives. But I’m reminded of how a former colleague came to think of herself in the corporate afterlife as a PIP: a previously important person. I’m still in retirement infancy and things might change. But for now, at least, I have zero interest in changing the world, scaling new heights, breaking any sound barriers. I did my bit during the working years and my Superman days are over.




As for money and investing, our approach has remained mostly the same. During our careers, after prioritizing mortgages and our three sons, we kept it pretty simple, keeping our assets diversified in low-cost mutual funds, not looking at our account balances all that often, and saving as much as possible. As a wise fund manager once told me, the amount you save is the one part of the investing equation that you can control.




Retirement is different. The gods, in their infinite wisdom, decided to make finances more complicated just as we enter the stage of declining mental faculties. Now, we deal with challenges such as tax efficiency, Social Security, Medicare and estate planning. At long last, we signed up with a good financial advisor, both to validate our investment decisions and to tell us when we’re being stupid.




There are plenty of good, honest financial advisors. Choose one that you trust and like, and make sure you’re getting value for your money. We picked one that charges 1% total, including both the advisor’s advice and the fees incurred by our investment portfolio.




Finally, don’t wait too long to retire. With any luck, you’ll remain vigorous, engaged and active for many years to come, but you never know for sure. You saved all that dough for a reason. Make the most of it.




Of course, some of you may still long for the working life. I admit, nothing can match that moment of pure ecstasy during organizational development when I finally grasped the difference between an objective and a goal. But the supermarket’s two-for-one special on my favorite dark pretzels comes pretty close.




Ed Giltenan is a retired journalist and public relations executive. He lives in New Mexico and New York City, and enjoys hiking, cooking, reading, traveling, and being with family and friends.

The post My Perfect Daze appeared first on HumbleDollar.

Define Done

ONE OF MY MOST enjoyable jobs was in training and development. This involved creating lesson plans and conducting classes for the insurance company where I worked.

One mantra in the training department was “define done.” When we ran a training program for another part of the company, our department manager would stress that we needed to find out the internal client’s definition of “done.” In other words, what would the client require or expect our department to deliver so that the client would be satisfied with our service? The client might be looking for us to, say, train 50 insurance underwriters across the country or to teach employees a method that reduces work errors.

The concept of “define done” is also useful if you’re getting ready to retire or thinking of leaving one job for another. Knowing what you expected from a job will help you to know when it’s time to move on. If this criterion isn’t identified, workers might later regret leaving a job because they feel they left certain things undone.

When I lost my job at age 64, I didn’t feel I was done with my career. I’d read how difficult it is for workers 60 or older to find work. This didn’t bother me much because I was used to hunting for a new job after losing my old one. These experiences were always difficult. But at age 64, my lack of fear gave me the courage to pursue my final job.

I’d researched how my Social Security benefit would be calculated and what earnings are used in the formula. With this information, I could decide what salary would increase my lifetime Social Security earnings. If my new annual salary was greater than that in my lowest earnings year, that low year would drop out of the calculation. This information gave me the framework I needed to negotiate my final salary. The only benefit I needed was a 401(k). I already had health insurance coverage through my wife’s job.

The upshot: My focus was getting a job offering an adequate salary, an acceptable commute and a good 401(k). One job met all three goals, but I was hesitant to accept the firm’s offer. I had applied for a different job at the same company 15 years earlier and didn’t get it, plus I didn’t like the reputation of the company’s CEO. Still, I took a chance and accepted the offer, and ended up staying until I was nearly 70, my desired retirement age. I consider 70 to be a good “done” age.

The company let me go three months before I turned 70, but thanks to the negotiated severance package, vacation pay, a Christmas bonus and profit sharing, I was able to hold off on beginning my Social Security benefit until I turned 70. I had met my goal, so I felt comfortable calling it a career.

My advice: Whatever you’re looking to do—perhaps volunteering, a full-time position or a part-time job—define what “done” means to you. If you don’t, there’s a risk you’ll overstay your welcome in your supervisor’s eyes or your own.

Willie Mays was a great baseball player. But in my opinion, he didn’t define his “done” and continued to play well beyond his days of greatness. Had he defined when it was time to retire, he could have walked out on top and felt satisfied with his career.

We all need to define our “done.” Otherwise, we could find ourselves giving up on a job too soon—or continuing to do something that no longer brings us the joy it once did.

The post Define Done appeared first on HumbleDollar.

No Big Loss

AMONG THE MORE notable studies published in recent years is a paper by Hendrik Bessembinder titled “Do Stocks Outperform Treasury Bills?” His key finding: Between 1926 and 2016, just 4% of stocks accounted for all of the U.S. market’s net gain. As a group, the other 96% delivered returns that were no better than Treasury bills, which returned just 2% a year over the period.




It was a surprising result. The implication: Diversification is even more important than most investors realized, because a portfolio that missed out on just a handful of the market’s best performers—the next Apple or Amazon—could suffer significant underperformance. The solution, of course, was easy: Because they cast such a wide net, total stock market index funds ensure that investors won’t miss out on the market’s next star performers. 




But Bessembinder’s research posed a problem for investors interested in an investment strategy known as direct indexing, which has been growing in popularity. If you aren’t familiar with it, this is how direct indexing works: Suppose an investor wanted to own the S&P 500 but preferred to avoid certain stocks or industries—tobacco, for example.




With a direct indexing service, this investor could purchase all of the individual stocks in the S&P 500 with the exception of the two cigarette makers, Philip Morris and Altria. The portfolio would then consist of the other 498 stocks. With direct indexing, investors can customize portfolios along dozens of dimensions, screening out companies they prefer not to be associated with.




Direct indexing has been around for years. But because of the number of trades required to build a portfolio, and the associated brokerage commissions, it was too expensive for all but the wealthiest investors. That changed in 2019, when a host of brokerage firms dropped commissions on stock trades. Since then, a number of firms, including Charles Schwab, Fidelity Investments and Vanguard Group, have rolled out direct indexing platforms. This created a price war, which has made direct indexing accessible to more individual investors.




Investors interested in direct indexing, however, have faced a bit of a conundrum, thanks to Bessembinder’s finding that just a tiny fraction of stocks are responsible for essentially all of the market’s returns. If a directly indexed portfolio happened to exclude one of the market’s highflying 4%, the performance penalty could be steep.




Imagine a portfolio had excluded Nvidia over the past five years, when it has returned more than 1,700%. Through that lens, direct indexing looks potentially risky. But how significant is that risk? This has been an open question. But a recently published paper, “Exclude With Impunity” by Yin Chen and Roni Israelov, provides some insight.




Chen and Israelov employed a methodology known as back-testing to assess the risk posed by direct indexing. Using stock market data for a nearly 60-year period ending in 2021, the researchers compared the returns of the overall market—as measured by the 1,500 largest stocks—to the hypothetical returns of a portfolio that excluded some number of those stocks. They looked first at the results of excluding just one stock, then five, 10, 30, 50 and more, all the way up to 500. They then repeated the exercise 1,000 times, with a different set of stocks excluded each time.




The results were counterintuitive: Among the 1,000 scenarios tested, the median portfolio delivered results no worse than the overall index. This was true, surprisingly, even when several hundred stocks were excluded. Problem is, in “bad luck” scenarios—the worst decile of results where, for example, more than one Apple or Amazon was excluded—the results did indeed trail the index. The impact, though, was far more modest than Bessembinder’s work might have led us to believe. With 100 stocks excluded, the bad-luck scenarios resulted in a mere 4% reduction in portfolio value over a 58-year period. It was an almost immaterial difference.




There are some important caveats, though. While the impact of excluding 100 stocks was surprisingly modest, the results did deteriorate in the bad-luck scenarios when more stocks were excluded. With 300 stocks excluded, for example, the ending portfolio value in bad-luck scenarios was about 10% lower than if no stocks had been excluded. Chen and Israelov also looked at the impact of excluding entire industries. There, the range of results was wider, because the relative performance of industries is so different.




The bottom line: If you’re considering direct indexing for your portfolio, this new research should provide a degree of comfort. Suppose you’d like to exclude a handful of stocks or perhaps a few industries from your portfolio. The data indicate that you might not incur much of a performance penalty, if any. The key, however, is to be sure the exclusions you choose aren’t too numerous.




Want to exclude the two tobacco companies in the S&P 500? That’s unlikely to dent performance much. According to the “Exclude with Impunity” data, you could leave out as many as several dozen stocks from an index of 1,500 without introducing too much risk. But as a rule of thumb, looking at the data, I would draw the line at 100. Or if you go the route of excluding entire industries, I wouldn’t exclude more than four industries, out of the 49 total. This should limit the performance impact, even if one of the stocks excluded turns out to be one of Bessembinder’s star 4%.




If you’re still on the fence about direct indexing, there’s one more factor to consider: Direct indexing typically delivers a tax benefit which may help offset any impact from excluding stocks. Because a directly indexed portfolio consists of individual stocks, it’s much easier to sell tax-efficiently. Imagine you purchased shares in an S&P 500 index fund 10 years ago. If you wanted to sell some of those shares today, you’d be somewhat hemmed in. Because of the market’s strong run, the S&P 500 is up about 220% over the past 10 years, meaning you’d incur substantial gains on each share sold.




On the other hand, if you owned all 500 stocks in the index individually, you’d have far more flexibility. That’s because of the nature of averages. While the index has gained 220% overall, approximately 250 stocks have gains smaller than that. Indeed, 30 stocks have losses over the past 10 years. The upshot: If you owned these 500 stocks individually and were looking to sell shares, you’d have much more ability to control your tax bill. At the same time, if you were charitably inclined, you’d be able to select the most highly appreciated shares to donate to charity, thus sidestepping capital-gains taxes.

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 No Big Loss appeared first on HumbleDollar.

Not Scared of Bears

I HAVE NO IDEA HOW stocks will perform this year or next. But I have full confidence that a globally diversified stock portfolio will fare just fine over the decades ahead.

My optimism, it seems, isn’t shared by many HumbleDollar readers, who fear we’re facing some rough years for the economy and the stock market. How do I justify my optimism about the long term? Here are five reasons.

1. Heads I win, tails we all lose. As I’ve noted before, I view betting on the stock market as an asymmetrical bet. If all goes well, stocks win. If things go terribly, all investments could potentially lose—bonds, cash investments, alternatives, you name it. If we get economic apocalypse, nobody’s going to want your American Eagle gold coins, and they certainly won’t want your bitcoin.

To be sure, the future isn’t limited to two alternatives, either continued economic growth or economic apocalypse. Conceivably, the economy could stagnate, generating no long-term growth. In such a scenario, holders of bonds and cash investments might still get paid, even as stocks plunge in value. Still, while it’s entirely possible that we’ll have a brief period of no growth—after all, real GDP shrank in 2009 and 2020—I think it’s highly unlikely this would continue long-term. How can I be so sure? That brings me to my next point.

2. Humans strive relentlessly to improve their lot in life. When Hurricane Irma hit the Florida Keys in 2017, 25% of homes were destroyed and another 65% suffered major damage, according to the initial assessment by the Federal Emergency Management Agency. Did residents give up in despair? Far from it. Three years later, when I drove down to Key West with my sister, the Keys were back to business as usual.

But perhaps my favorite example is 2020’s pandemic. Not only was it astonishing how fast a vaccine was developed, but also businesses large and small adapted with remarkable speed to a world where folks were leery of close contact with one another. Welcome to Zoom calls, online Peloton classes, outdoor dining and contact-less payment systems.

3. If the economy keeps growing, stocks should keep rising. Vanguard Group founder Jack Bogle would occasionally offer his forecast for U.S. stock market returns over the next 10 years using three inputs: starting dividend yield, expected growth in earnings per share, and changes in the market’s price-earnings (P/E) ratio.

Along those lines, suppose we add today’s S&P 500 dividend yield of 1.4% to the 6.7% annualized growth in earnings per share for the past 10 years. Result? We might be looking at stock market returns of just over 8% a year. But what if investor sentiment turns sour, driving down today’s lofty P/E ratio of 28?

Let’s say the S&P 500’s P/E falls to 20, which is the 50-year average. If that happens over 10 years, it would knock 3.3 percentage points a year off the market’s total return, leaving investors with some 5% a year, slightly better than today’s 10-year Treasury notes will deliver. What if this “multiple contraction” takes place over 20 years? The annual hit would be 1.7 percentage points.

The lesson: Investor sentiment isn’t that important to long-term investors, and the longer your time horizon, the less important it becomes. Instead, what matters is growth in earnings per share. As long as the economy keeps humming along and investors hang tough, they should fare just fine.

4. If the economy malfunctions, the government will pull out all the stops. Have you heard that it took 25 years for the Dow Jones Industrial Average to return to the high notched in 1929, just prior to the Great Depression? If you calculate after-inflation returns and include dividends, it turns out that investors who bought at the 1929 peak would have broken even by late 1936.

More important, the economic hit could have been shortened and softened if politicians and policymakers hadn’t initially pursued tight fiscal and monetary policies. Those policies made the Great Depression so much worse. Today, by contrast, politicians and policymakers may not get it exactly right, but they have a far better idea of how to handle such situations.

In his book Deep Risk, Bill Bernstein points to four such risks—deflation, inflation, confiscation and devastation. These are Bernstein’s four horsemen of the economic apocalypse, all of which could do major, permanent damage to your portfolio. Confiscation and devastation—think an overthrow of our democracy or war on U.S. soil—could destroy the value of all investments, whether stocks, bonds or cash. In such scenarios, not much would help beyond an ample supply of food, fuel and ammo. A well-stocked wine cellar might also come in handy.

But what about the other two risks, deflation and inflation? The folks in Washington are keenly aware of both. In late 2008 and early 2020, they moved quickly to head off the risk of deflation. In 2022, they again moved decisively, this time to throttle escalating inflation. All three episodes were a messy business, and clearly 2022’s inflationary surge hasn’t yet been fully stamped out. But without Washington’s intervention, it would have been a whole lot worse.

5. It's a big world—fortunately. In February, Japanese stocks notched an all-time high for the first time in 34 years. The country’s painfully protracted bear market isn’t a reason to be fearful of the Japanese market. Rather, it’s a reason to avoid investing heavily in any one country’s stock market.

That’s why my core holding is Vanguard Total World Stock Index Fund (symbols: VTWAX and VT), which replicates the global stock market’s weightings and currently has some 38% in foreign stocks. To many U.S. investors, that seems like far too much abroad. To me—faced with the slim possibility that the U.S. could suffer its own protracted bear market—it seems like it might be too little. But I’m not inclined to stray from the global stock market’s weightings. I may be an optimist—but I’m not optimistic that I can outguess the financial markets.

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 Not Scared of Bears appeared first on HumbleDollar.

In My Absence

EVER SINCE I RETIRED, mornings are the best part of my day. I always go for a long, quiet walk before sunrise. The only person I usually see is Mark, walking his dog. It's a great way to start my day. By the time I get home, my wife is up and we have breakfast together.

Last week, I had coffee with Eric, Rob and Craig. We met at a Starbucks in the neighborhood where I used to live. Our conversation was just small talk, but it was a morning full of fun and laughter.

I’ve found that these small, unremarkable moments are retirement’s best kept secret. As I age, I appreciate the little things more. They tend to give me true joy and satisfaction. Maybe it’s because my life is slower, and I now have time to appreciate life more fully.

Meanwhile, my wife is currently out of town, taking care of her mother, so I had lunch with a friend. We went to a small Italian restaurant where the tables are close together. You can almost bump arms with the person at the next table when you’re eating.

Rick and I sat side by side, so we could both look out the window at the people walking past. Sitting at an adjacent table was a young lady who was finishing her meal. She was eating the same pasta dish that we’d ordered.

When her bill came, she gave the waiter her credit card. When he returned, I couldn’t help but hear him say that the card was denied. She promptly made a couple of phone calls, then told the waiter she could pay using Apple Pay, which was then also denied.

As she sat there, with her head down looking at her phone, I discreetly told Rick, “I’m going to find our waiter, and pay our bill and hers, too.”

He said, “Don’t pay her bill.” Rick wouldn’t give me a reason. I suspect he thought she was financially irresponsible, didn’t deserve to be bailed out and should suffer the consequences of her situation.

Still, I paid the young woman’s bill—because all I could think about was what would happen if my wife were sitting at that table. I would hope someone would help her if she was in trouble. It also reminded me of my Aunt Louise, my mother's sister. I usually think of my aunt when I see someone needing money.

When I was a child, my mother took my sister and me to visit my aunt in Blairsville, Georgia. It’s a small town where the main employer back then was a shoe factory that my aunt worked at.

At that time, my aunt was separated from her husband. She was left to raise two children, Linda and Brenda, on her own. She was struggling to make ends meet.

One night, we kids wanted to go to the movies. My mother tried to pay for all the children, but my aunt wouldn’t stand for it. She had too much pride and was stubborn. She was determined to pay for her own children.

I can still remember the movie we saw: A Night to Remember. I don’t believe it cost much to see the movie. But for my aunt, it took a herculean effort.

She rummaged through her purse to try to come up with enough change to pay for Linda and Brenda. She had no bills. The more I watched her try to scrape up enough loose coins from the bottom of her purse, the less I wanted to see the movie.

I watched my mother try to hand her sister money, but every time she tried, my aunt pushed her hand away. I’ll never forget the sad look on my mother’s face as she watched her sister count the pennies, nickels and dimes she retrieved from her purse.

When we got home from our vacation, my mother called her sister and told her where she hid some money in her house. It was the only way my mother could get her sister to accept financial help.

My wife sometimes reminds me of my aunt. She, too, can be fiercely independent. I often wonder if she’d seek help when needed, should something happen to me. That’s why I’ve tried to make life easier for her if she has to go it alone.

We’ve simplified our finances, hired a financial advisor, assigned beneficiaries to our retirement accounts, kept updated, and created powers of attorney for health care and financial affairs.

I’ve also written down detailed information about our finances, including a list of all our bills and how they’re paid, as well as all the passwords for our online accounts. If she needs an electrician, plumber, handyman or even a pest control technician, I have a list of people she can call for help.

Most important, I told my wife the four-digit passcode to my cellphone, where she can find a treasure trove of information. I said to her, “Whatever you do, don’t cancel my cellphone right away when I die. It’ll be very helpful to you in the initial stages of navigating life without me.”

On my phone, I receive notifications by email and text message when our bills are due and when they’re paid. I’ve also set up reminders for when our major bills are coming due, such as all our insurance policies and property taxes. This way, she can plan ahead for large expenditures.

She can also use my phone to monitor our investment portfolio. I receive an email notification for every transaction made by our financial advisor.

Without my phone, my wife wouldn’t be able to access some of our online accounts that require two-factor authentication. That’s when, as part of the login process, a code is sent to your phone to verify your identity.

I know it’s impossible to provide answers to every question that my wife might have in my absence, but I can at least answer her two biggest ones: Where is all the money? And what bills need to be paid?

Dennis Friedman retired from Boeing Satellite Systems after a 30-year career in manufacturing. Born in Ohio, Dennis is a California transplant with a bachelor's degree in history and an MBA. A self-described "humble investor," he likes reading historical novels and about personal finance. Check out his earlier articles and follow him on X @DMFrie.

The post In My Absence appeared first on HumbleDollar.

Missing That Paycheck

THE LONGER I SPEND in retirement, the more convinced I am of the benefit of reliable income. One of retirement’s most pronounced psychological shocks is the loss of a regular paycheck. After four decades of working, you get used to one coming in every two weeks. The occasional consulting paycheck, even a small one, makes me inordinately happy.

I’m fortunate to have a traditional defined-benefit pension. It built up over 31 years of working with a large aerospace engineering firm. Unfortunately, the plan was frozen three years before I stopped working. Those last three years would have added almost $1,000 a month to my pension. And, as with almost all private-sector pensions, the payment I receive has no annual cost-of-living adjustment.

My wife earned a small pension while working for a local hospital in the 1990s. About 15 years ago, she received notice that the system was offering a lump sum payout to former employees. It amounted to about $30,000. Knowing that I had a pension, we opted for the lump sum and rolled the money into her IRA.

In January 2023, we started my wife’s Social Security retirement benefit. We still plan to delay my benefit until I reach age 70. This is the claiming strategy for couples favored by many financial planners—the lower lifetime earner claims early, while the higher earner delays, thus ensuring the maximum survivor benefit. The advantages are also clearly demonstrated by Mike Piper’s Open Social Security tool.

Another reason I delayed benefits: I still had opportunities to consult. Prior to reaching your full Social Security retirement age (FRA) of 66 or 67, you can both collect Social Security and have earned income, but your benefit may be reduced. In 2024, retirees can start losing benefits once they earn $22,320.

If my 2023 income had matched my 2022 income, I would have lost almost half my Social Security in 2023 to the “earnings test” if I’d been collecting benefits. As it happens, the projects I thought I’d work on in 2023 never came to fruition. I recently reached my FRA of 66 and six months, which means I can now work as much as I want without any reduction in Social Security benefits.

That makes this a good time to reevaluate my claiming decision. A few years ago, I wrote about the idea of “buying an annuity” from the Social Security Administration. The argument still makes sense to me, although today’s higher interest rates make delaying benefits somewhat less attractive. For now, I’m still delaying benefits, though I plan to reevaluate that decision regularly.

Commercially available immediate annuities are an obvious way to create steady retirement income. But they aren’t popular. Why not? Many folks seem to view the payouts as low and they don’t like turning over a large chunk of their savings to an insurance company. The “what if I die early” question is always present.

The process of converting a lifetime’s savings into a secure income stream is more complicated than many folks realize—and not discussed nearly enough. Over decades of working and saving, I had many conversations with friends and colleagues about investing for retirement. But I don’t recall many discussions about how to generate retirement income. It’s especially complicated for married couples. Ensuring Vicky’s financial security is very important to me—and it’s a big reason I’ve so far delayed claiming Social Security.

The post Missing That Paycheck appeared first on HumbleDollar.

Try to Be Satisfied

ONE OF MY FAVORITE books is The Paradox of Choice by Barry Schwartz. Its subtitle is Why More Is Less: How the Culture of Abundance Robs Us of Satisfaction. The principles that the book discusses have important implications for how we manage our money.

Schwartz distinguishes between “maximizers” and “satisficers.” A maximizer is someone who needs to be assured that he or she is making the best decision possible. By contrast, a satisficer can feel settled with a decision that’s good enough, and doesn’t spend time worrying whether a better alternative might have been missed.

I imagine everyone lives on a spectrum somewhere between pure maximizer and pure satisficer. By temperament, I tend to be a maximizer. Still, I’ve been working on becoming more of a satisficer.

What are the downsides of being a maximizer? Maximizers enjoy positive events less than satisficers and don’t handle it as well when negative things occur. When something bad—like a financial setback—happens to maximizers, their sense of well-being takes longer to recover. Maximizers ruminate more than satisficers. They experience more feelings of regret. In general, maximizers tend to be less happy than satisficers.

I think those of us who take in a lot of financial information can find ourselves nudged toward the maximizer end of the spectrum. How often have you read a financial article and afterwards had an uneasy feeling that maybe you don’t have the optimal mix of stocks and bonds, or that you lack the appropriate exposure to international markets, or that you have too much cash in your portfolio?

There are many areas of my financial life where it isn’t clear that I’ve made the best decision—if maximizing wealth is the ultimate goal. Indeed, some choices I’ve made have clearly reduced my net worth. To be a good satisficer, I need to feel comfortable with these decisions. Here are some examples of financial decisions I’ve made that have resulted in wealth not being maximized:

Pension choices. In the middle of my career, I had to decide whether to stay with my traditional pension or move to a cash balance plan. Using the best information available to me at the time, I selected the cash balance option. Years after I locked in my decision, changes were made to the cash balance formula that made it less lucrative. I had no way of knowing that would happen when I made my initial choice.

When I retired last year, I had the option of taking a cash lump sum or receiving a monthly payment for life. Again, I made what appeared to be the best choice at the time: I took the monthly payments with a 100% survivor option. The amount of the monthly payment is clearly less than what I would have received had I stayed with the traditional pension formula initially.

Whether the monthly payment option was the right choice for my cash balance pension remains to be seen. If my wife and I both die younger than expected, it would have been better—in hindsight—to have taken the lump sum. Being dead, we wouldn’t care, but our heirs might.

Retirement savings. I’ve discussed before that I didn’t contribute much to my 401(k) early in my career and that I didn’t invest aggressively. I certainly didn’t maximize my 401(k) account’s growth potential. Still, the percentage of my financial wealth in tax-deferred savings is uncomfortably high. The tax implications of managing that account are thorny enough already. Had I maximized my 401(k) over my entire career, Uncle Sam might have ended up being a major beneficiary of my frugality.

Charitable giving. I’ve shared previously how charitable giving is a priority for my wife and me. In fact, we’ve given away more money over the years than I contributed to my 401(k). Had maximizing wealth been our objective, this would’ve been quite counterproductive.

But here’s the thing: For us, our ultimate goal is to be good stewards of the wealth entrusted to us, not necessarily to maximize it. Money has deep spiritual implications for our lives. We follow someone who said you cannot serve both God and money. Giving money away is the best way we’ve found to avoid serving it.

Social Security. The decision of when to start receiving Social Security benefits still lies ahead for my wife and me. There are varying philosophies regarding when you should begin. The conventional advice is for the family’s main breadwinner to defer taking Social Security until age 70 if possible.

Still, when I input our specific information into an online calculator, the recommended commencement age for me was computed to be just under age 63. I’m sure we won’t make the optimal decision, whatever that might be for us. Still, I don’t plan on agonizing over it or feeling regret. Without foreknowledge of one’s date of death, it’s impossible to know whether you’re making the “best” choice.

I’m satisfied with our retirement savings. I don’t want to feel compelled to maximize the balance. Given that my wife and I appear to be on track for a financially successful retirement, gratitude seems more appropriate than rumination and regret.

Ken Cutler lives in Lancaster, Pennsylvania, and has worked as an electrical engineer in the nuclear power industry for more than 38 years. There, he has become an informal financial advisor for many of his coworkers. Ken is involved in his church, enjoys traveling and hiking with his wife Lisa, is a shortwave radio hobbyist, and has a soft spot for cats and dogs. Follow Ken on X @Nuke_Ken and check out his earlier articles.

The post Try to Be Satisfied appeared first on HumbleDollar.

Back to Life

SOME PEOPLE CAN LOOK at a blank page and imagine a new creation—perhaps a new business or a new house. I can’t.

What I seem to be pretty good at is taking something that’s broken and coming up with creative solutions for fixing it. It's like a game or a puzzle. The goal: Bring this broken object back to life as cheaply as possible.

When, say, a washing machine or a dishwasher breaks, the repair person will look up the manufacturer and order the necessary replacement part. The repair person will install the part, and charge you for labor, plus a marked-up price for the part. Most folks are accustomed to this, and view the expense as the cost of doing business. I see it differently.

The manufacturer’s parts are designed to fit the original product, but that fit comes at a premium price. Suppose a part breaks on your Ford SUV or pickup truck. Yes, you could go to a Ford dealership. But what most people don’t understand is the dealership makes its largest profit not on the sale of a vehicle, but from servicing it. When something needs repairing, the dealership only installs original equipment manufacturer (OEM) parts and it charges high hourly labor rates.

Folks who go this route soon start complaining about how expensive it is to keep their vehicle running, so they elect to buy a new one. That means not only a new auto loan, but also an incentive to get the new vehicle serviced at the dealership, so they don’t void the warranty. It’s a nice racket for the dealer.

Instead of OEM parts, there are aftermarket parts sold at places like Advance Auto Parts, AutoZone, NAPA and O’Reilly. Typically, they’re much cheaper than OEM parts and, in most cases, the aftermarket part will fit your vehicle, though not always, so some adjustments may be necessary.

What if replacement parts are no longer sold? That’s where creativity comes in. You have to see what the part looks like and go hunting for an alternative. That’s why I find myself wandering the aisles of hardware and auto parts stores, looking at the items displayed and trying to match them with what I need. It’s time consuming, but rewarding when it works out.

Knowing how my brain works, my wife will throw down a challenge, handing me something and saying, “Fix it.” That’s what I did with an old seed spreader that she handed me.

It’s also the way I rebuilt my 1983 Honda FT500 Ascot motorcycle. The bike had sat in the garage for 34 years because my wife hates motorcycles and wouldn’t let me ride it. Upon retirement, I promised to get it running again and then sell it, so she gave me the green light to begin the restoration.

The motorcycle was only manufactured for two years. As you’d expect with “planned obsolescence,” replacement parts are no longer sold by Honda, which would obviously prefer that folks bought a new motorcycle instead.

I discovered the brakes on the Ascot had seized up, so I had to break them loose. This meant fixing the two brake calipers and two master cylinders. I purchased replacement components for each, but couldn’t properly fix one of the master cylinders. After much trial and error, I found a satisfactory alternative, but I then needed to build a replacement brake line, which I did.

I sold the motorcycle to a guy living in New Hampshire who used to own the exact same bike, but had sold it and regretted the decision ever since. This meant one less thing in my garage, plus I felt good that the motorcycle gets to live another day with someone who’ll enjoy it.

My projects don’t always end so well. Many times, I start to fix something but end up buying a new one instead. Still, I get satisfaction from trying.

The post Back to Life appeared first on HumbleDollar.