Jonathan Clements's Blog, page 89

Turning on a Dime

WE MAKE FOREVER PLANS—and often end up shredding them in a few short days.

Think of the folks who hike their portfolio’s allocation to stocks, only to turn tail when the next market downdraft reminds them of their true risk tolerance. Or the families who are forced to move because of a job change, or the arrival of children, or the need to help aging parents. Or me, who thought he might have 30 more years, but instead may have just one.

It's important to be financially resilient, able to stand our ground in the face of market turmoil, big medical bills, layoffs and more. This, of course, is the reason for ample savings and a variety of insurance policies. But in addition to this financial resilience, it’s also crucial to have financial flexibility, in case we need to tear up those forever plans. What does that mean in practice?

First, we should favor assets that are easily sold, or “liquid” in Wall Street speak. This is a reason to avoid things like private partnerships, second homes, rental real estate, car leases and cash-value life insurance, where selling can be slow and exiting can be costly. Last year, Elaine and I twice found ourselves intrigued by the idea of a second home. Thank goodness that never went beyond daydreaming, given my recent diagnosis.

Second, we should have at least some money in a regular taxable account, rather than stashing everything in retirement accounts, where early withdrawals can mean tax penalties. That said, between 401(k) loans, the ability to withdraw Roth IRA contributions at any time, and the many exceptions to the 10% early withdrawal penalty, retirement accounts are increasingly a low-commitment proposition.

Third, we might earmark part of our regular taxable account for financial emergencies and then stash that money in conservative investments, though—to be honest—I've never had a separate emergency fund. Early on, when I was a lowly reporter with a graduate-student wife and two young children, setting aside three-to-six months of living expenses for financial emergencies seemed far beyond what I could possibly afford. I eventually amassed a decent sum in my taxable account, but I viewed that money as part of my long-term investment portfolio—money which, in a pinch, I could always dip into to pay unexpected expenses.

Fourth, we should aim to keep our fixed living costs low. This is a notion I regularly mention: The lower our fixed living costs—think mortgage or rent, utilities, groceries, property taxes and insurance premiums—the more money we’ll have available each month for savings and for discretionary “fun” expenses. Equally important, we’ll be better able to cope financially with unexpected life events. Indeed, I believe perhaps the biggest contributor to my financial success was living for two decades in a house that was far less expensive than I could afford, thus freeing up ample sums each month for savings.

Fifth, we should ask whether we’re betting too heavily on a future that may not happen. For instance, do we keep much or all of our portfolio in the stock market, ignoring the risk—however small—that a surprise need for cash could coincide with a brutal bear market? In the name of caution, perhaps we ought to keep a little more in bonds or cash investments, or maybe set up a home-equity line of credit as a backup source of cash.

Finally—and despite that last suggestion—we should be leery of leverage. Have we bought an overly large home or a vacation property, assuming the big mortgage involved will be easily handled because our job is safe? What if we’re wrong about our job? Such things would reduce our financial flexibility and could put our financial resilience at risk.

So, has my diagnosis prompted me to tear up my forever plans? Yes and no. As I discussed a few weeks ago, I’ve recently taken countless small financial steps, though most of them are designed to make things easier for my heirs. Meanwhile, for now, the big stuff remains the same. I have no intention of unloading my house, and I’ve yet to make any changes to my portfolio’s asset allocation.

Perhaps such steps would be necessary if I didn’t have health insurance or I wasn’t still earning enough to cover the bills. What if I live longer than I expect and need to dip more heavily into my portfolio? Fingers crossed, I already have enough in bonds to cover a few years of expenses—and those bonds take the form of easily sold mutual funds.

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

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Good Enough for Me

HOW DO YOU DECIDE whether to go with good, better or best?

My next-door neighbor always goes for the best, regardless of what it is. He pays more for everything. He’s a senior vice president, and I guess he feels he needs or deserves the best. God bless him.

That’s not my approach. I recently replaced my gas furnace and central air conditioner. My furnace was 23 years old and my air conditioner 10. To save money, I try to repair as many things as I can. But not these. Other than replacing the filter, if something goes wrong, I call the company that installed the furnace and A/C.

One of the sales tactics used by the installation companies: They’d give me three quotes. They were classified as good, better and best. What to do? I hate spending money, so cheap is always my way to go. But cheap usually means more frequent breakdowns and the need to replace sooner.

On the other hand, I learned the warranty coverage is typically limited to 10 years. No matter which brand I looked at or how much the unit cost, it was always 10 years, so what difference does it make what I choose?

Given my thrifty tendencies, I settled on good—a single-stage furnace with a standard digital thermostat. I chose a higher-efficiency furnace since our family hates being cold. I also chose standard A/C since we only use it three months out of the year.

The same thrifty approach has benefitted me with other purchases. I’ve been buying automotive hand tools for 54 years. My go-to brand was Sears Craftsman. The tools had a lifetime warranty. They were sold at any Sears store. Back then, many of the wrenches, ratchets and sockets were made in America by the Danaher Corp.

My alternative tool supplier would have been Snap-on, which is sold only by its dealers, who drive around in Snap-on trucks and sell directly to auto dealers and garages. Snap-on’s tools cost more than Craftsman’s.

While I could have bought the best—Snap-on—I chose “better” since Craftsman tools were good enough for what I needed. In addition, if one of my tools broke, I could always get a replacement at the local Sears store. As it turned out, none of my Craftsman tools has ever broken.

I'm cheap, frugal, thrifty, a tightwad, know the value of a dollar. My inclination is always to buy the cheapest of everything. Cheap often makes sense, but not always.

Take motor oil. For many car enthusiasts, synthetic motor oil is the way to go. They believe that, since it costs more, it must be better. A popular brand is Mobil 1. It’s sold in many stores, including Walmart. You don’t need to change your oil as frequently with synthetic oil, as you do with conventional oil. But is it better for everyone? No.

If you live in extreme climates, like Alaska or on the equator, yes, synthetic is better. If you own an exotic car, like a Ferrari, yes, it’s better. If you drive a Honda Accord in Ohio, no. You’d pay more, but you don’t get more. You’d just get different.

If you’re like my neighbor and feel you deserve the best, go with Mobil 1. Otherwise, go with standard oil. If you want to save even more, buy a store brand. Just make sure it has API in a circle on the back of the container. This certifies that it meets the American Petroleum Institute’s quality standard for new cars. We got 300,000 miles out of my wife’s 1997 Ford Taurus using store-brand oil.

What is the answer to good, better, best? If you need to know you’ve got the best, then go for it. If everything doesn’t need to be the best, save some money and buy better. If you're going to use something once and throw it away, go with good.

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Taking the Keys

DO YOU REMEMBER the headline, “Brooke Astor’s Son Guilty in Scheme to Defraud Her”? He swindled his famous mother out of millions, once by pocketing a $2 million commission on the sale of an Impressionist painting he purloined from her New York City apartment. She lived to age 105 but suffered from dementia.

F. Scott Fitzgerald purportedly said, “The rich are different than you and me.” But maybe not when it comes to elder fraud. One expert estimated that six out of every 10 cases of elder fraud are committed by a relative. One of the best ways to protect yourself is through careful planning.

Some people are good at creating backup plans: extra food in the freezer, alternate routes for driving, not taking the last flight of the day. Other good backup plans include a will, a health care proxy, and a springing power of attorney that takes effect only if you’re incapacitated.

The plans our attorneys draw up won’t cover everything, however. There are other things we naturally don’t want to think about, like what happens if I can’t drive anymore. Some of our abilities decay slowly rather than all at once, making it hard to notice the deterioration in ourselves. Aging brings on a gaggle of these slow-motion changes.

We all die eventually, but many of us lose our physical or mental capabilities first. There will be no flashing light that says “now is the time” to hand over the car keys to a son or daughter.

When do we stop driving, cooking, doing the taxes, paying bills and managing our investments? What’s the signal to let go? Is it a car accident? Is it paying the taxes late or falling behind on the mortgage payments?

Health economist Lauren Hersch Nicholas wrote a brilliant piece of research linking a diagnosis of dementia with credit scores. Credit scores declined years before a dementia diagnosis because people lost track of their finances.

My advice: Have a conversation with your family before your skills decline. Tell them, “If I start acting this way—late with bills, unusual donations, a fraud victim—then we should move into an outsourcing mode.”

Let your family understand your thinking while you’re cogent. Many of us will still fight for the keys, but at least the kids will know it’s worth the effort to take them away if they remember what we earlier said we wanted.

It’s not just when we transfer responsibilities like these, but to whom. Decide now who you want to manage things for you. Your will and health care proxy are essential. But remember, when they take effect, you can’t change your mind. You’re no longer part of the conversation.

When we’re of sound mind and body, as they say on TV, think things through. Work with an experienced attorney, talk with your spouse and then your children, and draw up a carefully formulated plan.

Your portfolio may be on autopilot in your mind, but there’s still rebalancing, moving cash from your brokerage account to checking, and other portfolio maintenance. Does your spouse know how to do it? Does your spouse know the passwords?

Since many HumbleDollar readers manage their own investments, ask yourself who will manage your carefully crafted plan. Are you better off finding an advisor today whom you’ve personally screened? Identifying the right advisor with the right model and fees would help your family, plus you might learn something from interviewing these professionals.

Make sure your family understands your investment philosophy. All the hard work and research into positioning your investments will end if they don’t know why you invest the way you do. You may need to hire an hourly advisor to keep watch on your portfolio and meet with family members at least annually.

It’s common to entrust different people with different tasks. A brother who is a doctor may be your health care proxy, while your son the CPA helps with your finances. Your nephew might shuttle you to doctors.

Such a division of duties might make sense to you. Does it make sense to them? Maybe they have other plans for their time. Be sure to ask them and to understand their expectations.

What if you have no family? Who can you hire? Are there nonprofits that help older people that can handle some things for you? Check them out now.

How do you help your family to monitor your fitness? A new dent in the car is an obvious warning. So is the $20,000 check you wrote to the Prince of Nairobi—unless no one else sees the checks you’re writing. 

Ensure your spouse keeps an eye on things. Also, name a trusted contact for each account, so that your bank, fund company or advisor has a family member or friend to call if something is off-kilter.

Sharing financial information with the kids challenges many baby boomers. How do you share enough so they can be helpful without giving up your privacy and control? Will revealing our wealth change the family dynamic and create new problems or expectations? Will “the reveal” change a child—who’s counting on an inheritance—when it’s clear that won’t come to pass?

This is why so many people hate to share their financial secrets. Still, the people I’ve spoken with say that sharing information with all the children is the best way to prevent fraud. One child may write the checks, but set up things so that all the kids can monitor. Trust but verify within the family.

I’m not prepared to say there’s a clear-cut time when we give up the car keys or the checkbook. I raise the questions here, but there is no one right answer. These conversations might be difficult. But if you don’t have them now, they could grow far more complex and expensive if family members later have to bring in accountants and lawyers.

Elder fraud happens every day and in every wealth bracket. Want to protect yourself? Planning is your best defense.

Matt Halperin, CFA, is the founder of Act2 Financial , an app that helps seniors avoid financial fraud. For 30 years, he worked as a portfolio manager and risk manager at large U.S. money managers. Matt currently serves on the investment committee of two endowments.  He has a BA and MBA from the University of Chicago, and resides outside of Boston. Matt's previous article was Where It Nets Out.

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Playing It Safe

I TOOK MY FIRST cross-country car trip in 1972. It was the summer of my junior year in college. I’d be graduating the following year and embarking on working life. This would be my last chance for a while to take a long trip. I was traveling by myself, so I had the freedom to decide exactly what I wanted to do.

That’s what brought me to Pikes Peak near Colorado Springs, Colorado. One of the greatest auto races in America is the Pikes Peak International Hill Climb. It’s a timed race. Each car travels up the road alone, racing against the clock.

When I saw the race, the course was a dirt road. Eventually, it began to be paved. Now, the road is completely paved so the race times are faster since a paved road offers more traction.

The race on dirt was much more exciting. As a car took a curve, it would slide sideways. The driver would have to turn the steering wheel in the opposite direction while keeping his foot on the accelerator to keep from going over the side. When you slide, you’re losing time, so it’s important to recover quickly.

I remember watching the race from one of the curves. A group of young kids was watching from close to the edge, while their parents stood farther away from the road.

As one of the faster, more aggressive cars raced past us, it kicked up a huge plume of dirt, dust and rocks. It was an exciting moment. But it was the words of one of the parents that’s stayed with me all these years.

A kid—who’d had dust and dirt thrown at him by the passing car—ran back to his father in a great excitement. His father’s response: “Don’t spit out any teeth.”

My takeaway from the dad’s remark: Focus on the most important thing—not sustaining major damage. Like losing teeth.

When I’m walking with my son, he’s not very aware of his surroundings, including cars. To make sure he isn’t struck, I always grab him by the arm when we’re crossing a road. I want to be sure he gets to the other side unharmed.

I remember benefitting from a similar practice on a fishing trip I took with my dad when I was a kid. We were on a party boat off Long Island. Many fishermen were casting off the sides. I hooked a blue fish. The practice was to move forward, toward the bow, so you didn’t tangle your line with the others.

I had made it to the bow of the ship and was working my line when, all of a sudden, I felt someone grab the back of my pants. It was the captain. He saw this skinny kid fighting a big fish, and he didn’t want me pulled overboard. He waited until I reeled in the fish before he let go. The captain was focusing on the most important thing—no one goes overboard on his watch.

I follow a similar safety-first approach in my financial life. I want to prevent major screw-ups. A drop in the stock market doesn’t mean all stocks will drop. Diversifying—owning many different stocks by buying a mutual fund, for example—reduces the chances of being sunk by a single catastrophic loss like Enron. Knowing how the stock market behaves—its rhythms and tides—prevents me from panicking during broad market downturns.

The late Charlie Munger, Warren Buffett’s vice chairman at Berkshire Hathaway, was asked about his secret to wealth. His response emphasized caution: “I avoided the standard ways of failing.” For example, he famously shunned cryptocurrencies, which he saw as gambling.

Avoid getting your teeth knocked out. Don’t fall overboard. Don’t bet heavily on one stock. By not making the big mistakes, we can succeed.

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On Borrowed Time?

THE CONTROVERSY over student loans has caught up with the latest federal government repayment program. That program is known as SAVE, or Saving on A Valuable Education.

SAVE is an income-driven repayment plan, or IDR. It’s the sixth iteration of an IDR plan. Due to the favorable terms and the high estimated price tag, it was recently halted by legal challenges.

IDR plans follow the same general formula to determine the monthly payment on student loan debt. The formula is:

Adjusted gross income
Minus a poverty line deduction that’s multiplied by 150% for all plans, except SAVE, which is multiplied by 225%
Equals discretionary income

Borrowers are then expected to pay a certain percentage of their discretionary income, depending on which IDR plan they’re on. SAVE has the most generous terms of all IDR plans due to four key provisions:

Bigger deduction. SAVE has a 225% multiplier on the poverty line deduction, which means a bigger amount of a borrower's income is protected from required payments. In 2024, the poverty line for a single individual is $15,060. This means that a single borrower's first $33,885 of income is protected from loan payments with the SAVE plan, compared to $22,590 with other IDR plans.

Lower payments for undergraduate borrowers. Depending on the plan, IDR plans have had a formula that required paying 10% to 20% of discretionary income. Starting July 1, the SAVE plan requires just 5% of discretionary income be put toward undergraduate debt and 10% toward graduate debt, or a weighted average of the two if the borrower has both types of debt. This means that, if a borrower has equal undergraduate and graduate debt, his or her required payment would be 7.5% of discretionary income.

Bigger interest subsidies. The unique thing about IDR plans, relative to other debt payments, is that the payment amount is determined by discretionary income, not by the size of the loan, interest rate, term of the loan and so on. This means that student loan debt balances can—and often do—increase over time.

To combat this, some earlier IDR plans have had limited interest-rate subsidies. But to eliminate the chance of ballooning loan balances, SAVE has a 100% interest subsidy on all unpaid interest.

Take a single individual making $30,000 a year with $100,000 of student debt at 7% interest. If this borrower is on the SAVE plan, her required payment would be $0 because she falls below 225% of the poverty line. Her $100,000 of student loans would have $7,000 a year of interest. That interest would be fully forgiven each month and thus never get added to the $100,000 debt balance.

Quicker forgiveness for certain borrowers. If you're on an IDR plan for a certain amount of time, you’re eligible for forgiveness. The IDR plan determines how long until forgiveness, which is either 20 or 25 years.

But the SAVE plan allows for forgiveness in as little as 10 years, depending on how much was originally borrowed. If the borrower took out a total of $12,000 or less, he'd get forgiveness in 10 years. If he borrowed between $12,000 and $21,000, he could get forgiveness between 10 and 20 years.

Some of these policies were set to go into effect on July 1. But about a week before, they were blocked due to court injunctions. The states of Missouri and Kansas argue that the SAVE plan is illegal, and specifically that two pieces of the SAVE plan are too generous: the 5% payments on undergraduate debt and the quicker forgiveness for smaller original debt balances.

Only time will tell what’s next for the student loan world and for the SAVE plan, and how much of the plan survives, if any. And if it does survive these court cases, it may have a whole new set of challenges pending the results of the upcoming election. What should borrowers do in the meantime? For now, borrowers’ best bet is to keep paying on their loans as usual.

Logan Murray is a solo financial advisor. His company Pocket Project offers subscription-based financial planning services to young professionals. He’s also a consultant for StudentLoanPlanner.com, which helps borrowers make a plan for their student loans. For more financial insights, check out Logan’s blog, connect with him on LinkedIn and check out his earlier articles.

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Question of Interest

BONDS MAY NOT BE the most interesting investment, but they generate their fair share of debate. Especially after 2022’s rout, when total-bond market funds dropped 13%, many investors wonder how best to proceed. An open question: Does it make more sense to buy individual bonds or opt for bond funds?

To answer this question, let’s start with a simple example. Suppose you’d invested in Vanguard Group’s total-bond market fund (symbol: BND) on Jan. 1, 2022. As of today—two and a half years later—that investment would still be down more than 5%, even including the interest income received along the way.

It’s because of depressing results like this that many investors argue in favor of individual bonds. Because bond issuers promise to repay investors in full when they hold a bond to maturity, buying individual bonds seems like a no-lose proposition and an easy way to avoid the losses inflicted on bond fund investors.

This, however, isn’t an apples-to-apples comparison. Suppose that on Jan. 1, 2022, you’d purchased a collection of bonds that mirrored the holdings of the bond fund described above. It’s true that, if you held all of those bonds to maturity, you’d indeed avoid losses. But that’s not the right comparison, because it overlooks the value of those individual bonds today. If you tried to sell them today, you’d realize a loss in the neighborhood of 5%, matching the cumulative loss in a comparable fund.

In other words, there’s no mathematical difference between a bond fund and a collection of individual bonds that matches the holdings of that fund. It’s only when bonds are held to maturity that they can help investors avoid losses.

Like everything in personal finance, though, there are caveats. For starters, bond funds—like all funds—carry costs. But bond fund fees tend to be modest, so I don’t see this as a significant factor. And because the bond market, unlike the stock market, doesn’t operate with quoted prices, there can be significant trading costs when buying individual bonds. Bond fund managers, with their dedicated trading teams, will generally do better than individual investors. That arguably can offset a fund’s fees and thus I wouldn’t let cost be a deciding factor.

A more important issue is the risk inherent in any mutual fund. Being an investor in a fund is like being a passenger on an elevator with other people. Everything ought to be fine—as long as everyone else behaves. It’s the same in a mutual fund. Your fate, to a degree, is dependent on your fellow shareholders.

That’s because, when a fund is having a challenging year, some investors will head for the exits. That can force the fund’s manager to sell part of the fund’s assets at depressed prices, locking in losses. That loss is then shared pro-rata among all fund investors. With a portfolio of individual bonds, you don’t face that risk. You have the ability to hold on through tough patches and avoid locking in losses.

Individual bonds carry other benefits. Key among them is the ability to lock in current interest rates. With today’s rates at levels that we haven’t seen in more than 15 years, this is a valuable opportunity. You could build a ladder of bonds going out 10 years and lock in rates in the 4% to 5% range. It would be difficult to achieve this level of precision with a bond fund or combination of funds.

Another way in which individual bonds can be beneficial: Suppose you’re in retirement and withdraw $50,000 per year from your portfolio. A ladder of $50,000 bonds maturing over the next five to 10 years can simplify portfolio management. Each year, you’d simply withdraw the proceeds of the maturing bond. While less common for individual investors, this is a bedrock strategy employed by insurance companies to ensure they always have the funds for future claims. In fact, it’s a key reason many insurance companies have been in business for 100 years or more, so it has a lot of merit.

At the same time, funds offer benefits of their own. At the top of the list is simplicity. Because the bond market is so much larger and more diverse than the stock market, buying bonds takes work. Depending on the type of portfolio you want to construct, it can also be difficult to achieve sufficient diversification. And if you build a ladder, it will require further time and effort to reinvest the proceeds as bonds mature.

So, does it make more sense to buy individual bonds or opt for bond funds? I favor a hybrid approach.

I’d include a mix of short- and intermediate-term maturities. That’s because short-term bonds offer greater stability when interest rates rise, while intermediate-term bonds provide greater appreciation potential when rates drop. What about long-term bonds? This is a corner of the bond market that I wouldn’t include, because of its volatility.

For exposure to short-term bonds, I’d opt for funds, owing to their simplicity and liquidity. Which funds? Because they’re backed by the U.S. government, my first choice would be U.S. Treasurys. If you’re in a high tax bracket, you might also include some municipal bonds.

For intermediate-term exposure, I recommend a mix of bond funds and individual bonds. That’s because funds offer simplicity—they’re easy to buy and sell for withdrawals or rebalancing. But only individual bonds offer the ability to lock in rates, as described above, and this could be a great benefit when interest rates drop, which will likely soon happen, or so the Federal Reserve recently telegraphed.

What else might you include in a bond portfolio? I’d own some inflation-protected bonds, such as Treasury Inflation-Protected Securities (TIPS). According to research by Vanguard, short-term TIPS are the most effective type of bond to guard against inflation, so that’s what I recommend.

Among the thousands of bond funds available, which should you choose? Just like with stocks, I tend to prefer index funds. This is an area, though, where there’s a significant difference between stocks and bonds.

The data tell us most actively managed stock funds lag their benchmarks. But it’s a different story in the world of bonds. According to a recent survey conducted by research firm Morningstar, nearly three-quarters of actively managed bond funds beat their benchmarks over the past year, so I wouldn’t necessarily exclude an actively managed fund from consideration.

Adam M. Grossman is the founder of Mayport, a fixed-fee wealth management firm. Sign up for Adam's Daily Ideas email, follow him on X @AdamMGrossman and check out his earlier articles.

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Unasked Questions

RETIREMENT BRINGS with it a host of questions. The No. 1 question: Do we have enough for a financially comfortable retirement?

It’s an issue that’s no longer relevant to me, but it’s certainly relevant to my wife Elaine and to almost all HumbleDollar readers. But that fundamental question is just the beginning.

There’s a host of other retirement questions we ought to ask ourselves—about whether we have the right investment mix, how we’ll spend our time, whether we’ll opt for traditional Medicare or Medicare Advantage, who will be our social network, whether we’ll work part-time in retirement, when we’ll claim Social Security, whether to buy long-term-care insurance, where we’ll live and more. These sorts of questions are frequently grist for HumbleDollar articles.

But what about the questions we aren’t asking? Here are seven crucial questions that I don’t think get nearly enough attention.

1. When will our life be downsized? Eventually, somebody—either us or our heirs—will have to deal with our stuff. Who will it be? As many HumbleDollar commenters have made clear, it’s best to downsize before diminishing mobility forces us to do so. It isn’t just because the packing and moving will take a physical toll. Also, sorting through the clutter in the basement can take many months—time we may not have if we procrastinate for too long.

2. Are we putting off estate planning, wrongly assuming we’ll be capable of handling it later? It’s a story I’ve heard too often in recent years: Retirees put off organizing their financial affairs, assuming they’ll know when it’s time to act. But that moment of clarity may quietly pass us by, as our mental faculties slip away, and we could end up bequeathing a huge mess to our family.

3. What will happen to our taxes when the first spouse dies? You might have seen mention of the widow’s tax. It could, of course, turn out to be the widower’s tax. But either way, the spouse left behind often ends up paying significantly more in income taxes because he or she now has to file as a single individual, rather than as married filing jointly.

4. How will the surviving spouse cope with one Social Security benefit gone? Upon the first spouse’s death, the benefits received will drop by a third and perhaps more. How come? If one member of the couple was receiving spousal benefits—a maximum 50% of the other spouse’s full retirement age benefit—that spousal benefit will disappear, leaving only the main breadwinner’s benefit.

If the disappearing benefit was larger than the spousal benefit, the hit would be even larger. Will the Social Security check that remains, plus other retirement income, be enough to cover the household’s expenses, which likely won’t fall much after the first spouse’s death?

5. What if we can’t drive? This is less dire than it once was, thanks to  home delivery by grocery stores, restaurants, Amazon and countless others, along with ride-sharing apps like Uber and Lyft. Still, if you live in a rural or suburban area, being unable to drive can make going to the doctor and dentist awfully difficult, and your social life could wither away.

6. Are the kids on board with providing care—or are we just assuming they are? This, alas, seems to be a topic that many families simply don’t discuss until a crisis is upon them. That doesn’t matter if you intend to pay for visiting nurses or head to a continuing care retirement community, and you have the financial wherewithal to do so. But if you assume your adult children will help with your care, you should make sure that is indeed a good assumption.

7. What other dubious assumptions are we making? I see folks make all kinds of questionable retirement assumptions—that stocks will notch double-digit returns, that their spending will fall later in retirement, that they’re unlikely to live beyond their mid-80s, that they know exactly what will make for a happy retirement.

I wouldn’t be so confident. If you’re age 60, think back to what you were like at age 30 and what you wanted out of life. That was 30 years ago. Now, imagine it’s 30 years from now and you’re age 90. Are you really sure you know what lies ahead and what you'll want years from now?

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

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My Breakfast Club

I RECENTLY READ AN article by Anna D. Banks, an executive coach and human behavior consultant, who talks about the importance of cultivating friendships in retirement. She discusses embracing new activities, volunteering, reconnecting with old friends, using technology, attending social events, and being open-minded about forming friendships with people from other backgrounds.

All this got me thinking about HumbleDollar.

The Breakfast Club is a coming-of-age movie from 1985—a movie, incidentally, that I haven’t seen. But I looked up the plot on Wikipedia, so I know it’s about five disparate high school kids stuck in detention and who eventually bond with one another. They come to understand that their various challenges are not so different.

Soon after I began making deliveries to taverns back in 1972, I realized that some faces were becoming familiar. I would see the same group of guys in some of the bars every week. Eventually, I came to know many by name.

Some guys drank alcohol. Those were usually the fellas coming off the third shift, typically 11 p.m. to 7 a.m. After all, it was five o’clock somewhere. But most of the guys were retirees drinking coffee, talking and just starting their day.

Sometimes in winter, when there was eight feet of snow plowed into a pile between my truck and the front door of the bar, the guys would come outside and form a beer brigade to help me out. It was a hoot and I was happy to buy them a round of drinks for their help.

I came to call these groups the breakfast clubs. After walking away from the beer business, I also noticed breakfast clubs at McDonald’s, local coffee shops and elsewhere. My friend Kenny, who I wrote about earlier, participated in breakfast clubs wherever he lived. I came to know some of his buddies at the 5 & Diner in Las Vegas. When he moved to Sarasota, Florida, Kenny joined another group at a local Starbucks.

Whether it’s co-workers, former co-workers, family or friends, belonging to such a group can do wonders for a happy and fulfilling retirement. Friends I made through my income-tax practice served as my breakfast club until I retired at age 70.

These days, I see old friends from work and from growing up. Chris and I are making new friends at the 55-plus community we recently moved into. My family is integral to my well-being.

And, of course, I also have HumbleDollar.

I’ve come to view this blog as a breakfast club, and you guys as a part of my social fabric. The late Toby Keith wrote a song called “I Love This Bar,” describing the myriad characters there. We have quite a variety of inhabitants here at HumbleDollar, too:

We’ve got doctors, we’ve got lawyers, an HR guy and soldiers.
We’ve got preachers, we’ve got teachers, negotiators and dreamers.
We’ve got money guys, we’ve got tax guys, and spreadsheet-loving engineer guys.
And there are some travelers and some dancers.
FIRE people and ICErs.
Boomers and Xers.
We’ve even got a circus clown.

I love this blog.

I saw a meme that said we’re all unique—just like everybody else. We’re from different walks of life, but we’re all trying to help others, be happy and stay healthy—and not run out of money before we run out of time.

I don’t know how HumbleDollar started showing up in my email. Thinking it was spam from one of the many insurance companies I was appointed with, I just kept hitting the trash icon. I don’t remember exactly when I finally opened one. But I’m happy I did.

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.

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Car Quest

WHEN MY SON STARTED graduate school seven years ago, we enticed him to save money by living at home. The catch: He’d need a set of wheels. Lori and I offered to help, provided he was open to a used vehicle. He agreed, and off we went to the nearest Honda dealership.

We were greeted in the parking lot by an enthusiastic salesperson. He invited us inside to chat, and promptly asked us what monthly car payment we were seeking. I looked him square in the eye and simply said, “Wrong question. Let’s start over.” The first item of business would be to find a car that fit my son’s needs.

We chit-chatted for a while about Hondas, and I nostalgically mentioned my love for the 2005 CR-V model with the built-in picnic table. A car like that would be perfect for my son.

The salesperson exhibited visible dissatisfaction as he now grasped that our goal was a used vehicle. He frowned as he realized his commission would be more akin to cubic zirconia than diamonds.

I could read his thoughts. “Do I look like a used car salesman?” he was no doubt muttering to himself. “Was this sucker”—meaning me—"really looking to purchase a 12-year-old car?” Nevertheless, he humored us, and punched in CR-V and the year 2005 into his database.

To everyone’s surprise, an elderly couple had traded in a vehicle matching that description earlier in the week. The owners were meticulous in their recordkeeping, and the car was in amazing condition. It had low mileage, was complete with original owner’s manuals, and had custom protective floor mats to boot.

We went for a test drive and my son immediately fell in love. Sure, it could use a new pair of shocks, but the engine purred like a kitten and the steering was remarkably smooth. More important, we discovered the original folding picnic table hidden in the trunk. Within two hours, I plunked down a wad of cash—actually a paper check—and we drove that puppy home.

My son was impressed with how I handled the entire process. It was a shared financial experience that bonded us in an unpredictable way. I followed up with a lesson on insurance coverage and another on basic car maintenance.

The title was registered in my name. My son sent me monthly payments for a while, and also contributed to the insurance costs. I never held him to that obligation, realizing that he was living off a small student stipend. Besides, we planned to give him the car after graduation. I did insist, however, that he pay for repairs, tires and general upkeep.

Fast forward seven years. My son is now gainfully employed and talking about getting a newer car. That 19-year-old CR-V has traveled more than 150,000 miles of roads, potholes and highways, not to mention collecting its share of well-earned parking tickets.

Admittedly, change is hard for my son. I could tell it was painful to think about giving up his beloved wheels. He’s generally nervous about the entire car-buying process and hesitant about possibly spending too much on a vehicle. I asked him if he’d like to go for a test drive, with me in tow, to ease his trepidation. He jumped at the opportunity.

His head was filled with new models, all of which could be purchased for five or 10 times more than we’d paid for his current set of wheels. I suggested we once again look at used cars, as we might benefit from their previous owner’s care, along with the steep depreciation from the original sticker price.

Once again, our quest began at a Honda dealership. An energetic young fellow made a beeline for us in the parking lot, inviting us inside to talk turkey. The first question he asked was how much we wanted to pay per month. Some things never change. I looked him in the eye and just laughed. Let’s look at cars first, I said, and then decide on financing.

Using a similar strategy that worked all those years ago, I asked if there were any used cars available. Perhaps something in the all-electric variety. Now, it was the salesperson’s turn to laugh. We both knew that Honda’s fully electric vehicle would not arrive at the showroom before next year. Nonetheless, he humored me and typed “electric” into his database.

I guess lightning can strike twice. A 2023 electric Chevy Bolt corporate trade-in arrived earlier that week. We test-drove the car and my son immediately fell in love. The list price was less than 60% of the newer version, and it came with a full 100,000-mile protection plan, including an eight-year warranty on the battery.

Add in the tax credits for buying electric vehicles and the price was too good to be true. One small glitch: The charging cord and owner’s manuals were missing. But they were already ordered for delivery early the following week.

We began the paperwork, ran a credit score on my son, and haggled over the trade-in value for his nearly two-decade-old “emerald status” CR-V. We settled on preliminary numbers.

The sales fellow went in search of final approval from his manager, only to come back crestfallen. Unfortunately, the dealership’s policy was to not sell electric cars without a functional charger. Furthermore, 12 people had already expressed interest in the car, four of whom were calling daily to see if the ordered charger had yet arrived.

Time to think outside the box. I asked if we could purchase the car if we had physical proof of a charging cable. He chuckled but ran the idea by his manager anyway. The manager said yes, that would work.

I spent the next 25 minutes calling dealers, auto parts stores and even the Salvation Army (that was a wrong number). There were no chargers in stock anywhere in the city, although we could order one for delivery. My son and I were visibly disappointed, not to mention a bit peeved at the time we’d spent haggling over pricing.

The salesperson took note. He excused himself, saying he had a quick call to make. He returned five minutes later with a Cheshire cat grin. His friend had a second charger he could bring to the dealership, provided we returned it when the one on order arrived. His manager agreed that this workaround met the house rules.

It took another hour to complete the transaction. There was some paperwork finagling involved since the trade-in CR-V was in my name, and the new car was solely in my son’s. But in the end, we left the dealer as happy campers.

Later that evening, I shared another financial lesson with my son, teaching him the benefits of accelerating payments to avoid most of the loan’s interest. My hope: This has become a tradition—and my son will invite me to join him the next time he goes car shopping.

Jeffrey K. Actor, PhD, was a professor at a major medical school in Houston for more than 25 years, serving as an academic researcher with interests in how immune responses function to fight pathogenic diseases. Jeff’s retirement goals are to write short science fiction stories, volunteer in the community and spend time in his garden. Check out his earlier articles.

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Learning for Life

I HATED SCHOOL. There, I said it. From reading the bios of other HumbleDollar contributors, it appears most, if not all, enjoyed their academic experience. Many have gone on to acquire advanced degrees. I, too, went on to acquire post-college education, but only when my employer paid.

But the best education I received wasn’t found in the classroom, but in day-to-day life. It came from observing what others did or didn’t do. This was my greatest source of knowledge.

Everyone in my immediate family went to college, but no one earned a degree. Throughout my childhood, I kept hearing, “If only I’d finished my education, my life would be better.” I saw my father struggle at work. He was a white-collar worker without a college education. He attended Purdue University for chemical engineering, but left before earning a degree. He was surrounded by people with degrees who had more rewarding jobs.

That taught me that, if I got a degree, I was more likely to enjoy my work, even if I didn’t enjoy every day. I was the person least qualified in my family to earn a degree, but what I did possess was perseverance. I could endure whatever it took to get that piece of paper.

My education has continued ever since. A good friend of mine only had two jobs during his adult life. The first job was at an insurance company I worked at, and the second was at a Lowe's home-improvement store. The insurance company offered him early retirement at age 61, with a pension which could be taken as a lump sum or as an annuity. He took the lump sum.

But he had strong feelings about helping less fortunate people from his native country, and he proceeded to donate the entire amount. Immediately after leaving the insurance company, he joined Lowe’s because a friend worked there. He stayed there until he was age 80 because he needed the money. The lesson for me: Take my various pensions as annuities, so I wouldn’t be tempted to spend the money all at once.

My brother never felt an employer would ever truly appreciate his talents, so he embarked on an entrepreneurial life. It started when he graduated high school. My father saw that my brother wasn’t heading to college. Knowing this, my father said to my brother, “I don’t care if you go to college or not, but no son of mine will be a bum. You tell me what skill you want to learn and I’ll pay for it.”

At the time, my brother was working at a manufacturing plant and was impressed with what the welders were doing, so he went to a local community college and became a certified welder. In addition to his skill at welding, he was also a talented salesman and brilliant problem solver.

The combination of these three skills allowed my brother to sell customers on his ability to solve their problem with a new product that he could then build. But he’d get bored building these products. He’d rather solve a new problem. This resulted in orders going unfilled and him losing the business. A simple solution would have been to hire a production manager, but my brother didn’t want to give up control. This led to his downfall.

I never possessed my brother’s entrepreneurial spirit. Despite reading numerous articles about how entrepreneurship was the way to wealth, I didn’t see that as the right path for me—something I learned from observing my brother.

Indeed, I’m blessed to have had events unfold around me so I could see what works and what doesn’t. A formal education has its merits, but life also offers endless opportunities to increase our knowledge. Yes, the school of hard knocks is expensive. But learning from others’ mistakes is free.

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

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