Jonathan Clements's Blog, page 9

SECURE Act 2.0 Changes to Retirement Plan Catch-up Contributions

Last month, the IRS issued final regulations related to several provisions of the SECURE 2.0 Act relating to employer sponsored retirement plan catch-up contributions. Some plans allow additional, or catch-up, contributions for employees 50 and over. For 2025, the regular limit is $23,500. The catch-up limit for those aged 50 and over is $7,500.  Starting in 2025, there is a higher “super catch-up” limit of $11,250 or those turning age 60, 61, 62, or 63 during the year. But this is only if your employer’s plan allows it. Beginning in 2026 this new limit will be indexed for inflation.

Beginning on January 1, 2026, any employee classified as a “high-earner” – defined as someone who earned more than $145,000 in FICA wages in 2025 - will not be able to make pre-tax catch-up contributions in their tax-deferred account. Instead, those employees must contribute their catch-up contributions to a Roth account.

This is a good time to re-evaluate your retirement savings strategy. First, check with your plan to see if they allow catch-up contributions, and if they have a Roth account option. It appears that most plans have Roth options, but if yours does not you may be precluded from making catch-up contributions.  There are some unique rules for SEPs, SIMPLE, 403b, and 457 plans, so check with your plans sponsor.  Employees have until the end of the year to make pre-tax catch-up contributions.

The post SECURE Act 2.0 Changes to Retirement Plan Catch-up Contributions appeared first on HumbleDollar.

Make My Day Punk, Harvest the Bubble.

The normal thinking would have us believing that a bubble is a dangerous situation for our retirement accounts. What if I told you that I believe a market bubble makes your portfolio more resilient? Would you believe me?

Everyone fears bubbles. You should harvest them.

Don't worry, I haven't lost the plot, let me be clear: I'm being deliberately provocative to make a point about something some investors neglect when things are going splendidly well, disciplined rebalancing. In reality, bubbles are only devastating if you lack a system. With the right approach, they can actually strengthen your portfolio.

I have some caveats to qualify my contention, although they are actions you should, as a responsible investor, already be practicing.

Rule one. Don't be greedy and lose track of your investment statement.

Rule two. Rebalance your inflated equity position back to your proper asset allocation.

Rule three. When the bubble bursts, draw from your cash and bond positions.

That's all you need to do. Rule one forces you to rebalance, rule two forces your allocation back to your statement allocation and indirectly increases the size of your safe assets. Rule three stops you from selling distressed equities.

Let me show you what this looks like in practice. Say you start with a $1,000,000 portfolio split 60/40 between stocks and bonds. This means you have $600,000 in stocks and $400,000 in bonds.A bubble inflates your equities by 50%, growing your stocks to $900,000 while your bonds stay stable at $400,000. Your total portfolio is now $1,300,000. You now have a risky 69/31 split.Most investors, your neighbor, for instance, ride this wave, convinced they're geniuses.

You rebalance.You sell $120,000 in stocks at bubble prices and use that cash to buy bonds. Your portfolio is now back to a 60/40 split, with $780,000 in stocks and $520,000 in bonds.

When the crash comes and stocks drop 40%: Your neighbor who didn't rebalance loses $360,000 in equity value (on their $900,000 starting equity).You lose only $312,000 (on your $780,000 starting equity).

But here's the magic of rebalancing, after the crash, your portfolio has $520,000 in bonds and cash to draw from while stocks recover. Your neighbor? They only have $400,000 in bonds. The neighbor could be forced to sell their remaining stocks at a loss to pay the bills. You, the rebalancer, sold high and now have a $120,000 bigger cash cushion to weather the storm and a reserve to buy back depressed equity.

The market will scream at you to stay greedy. Your neighbor will brag about gains. Rebalancing during bubbles feels like leaving a party early, but that's exactly when you should. This is where some investors fail. The human greed to hold on, to capture just a bit more upside, is overwhelming. But discipline isn't about feelings. It's about the system.

This is what some people miss: volatility isn't your enemy. Lack of discipline is. A bubble without rebalancing is catastrophic. A bubble with systematic rebalancing becomes a forced wealth transfer from your risk assets to your safe assets, at precisely the moment when risk assets are most expensive.

So the question isn't whether bubbles are dangerous. It's whether you have the discipline to profit from them. Do you feel lucky?

The post Make My Day Punk, Harvest the Bubble. appeared first on HumbleDollar.

Is Your Retirement Plan Missing the Most Important Investment?

Tomorrow morning I'll be up early and take my grandson to school. I enjoy our chats on the journey. Back home, it will be a quick breakfast and then off to meet some older friends for a few hours of pickleball and a bit of craic. I should be back to base by early afternoon for a catch-up with my wife Suzie while we plan what to buy for dinner that evening. My daughter and granddaughter will be joining us for the meal... they can be fussy!

The day after, I plan on focusing the majority of my time on our large garden. I'm still working to tame it after spending the summer at our vacation home. A reasonably busy few days, a fairly typical snapshot of my retirement lifestyle. Nothing out of the ordinary. But I'd contest that if you don't have something similar to retire into, you're probably not going to have a great retirement, no matter how large your portfolio happens to be.

Obviously I don't mean the exact same formula that's evolved within my retirement but the general idea of a blueprint for a well-lived retirement, social connection, exercise and a continuation of purpose at the end of your working life. I would go so far as to say if you haven't thought and taken steps to develop this, you probably should delay retirement until you've addressed the situation.

This I do know, the normal response when asked what you will do when retired "relax and travel" aren't going to cut it for the majority of people. Research definitely backs this up. Studies have shown that maintaining meaningful social roles after retirement is closely linked to positive health and wellbeing outcomes, and social interaction often predicts health in retirement more strongly than financial security. (https://bmcgeriatr.biomedcentral.com/...)

While retirement may increase happiness, it can decrease your sense of purpose if you haven't prepared for that more human side of the transition. Maybe you should study some of this research on purpose in retirement(https://pmc.ncbi.nlm.nih.gov/articles...) , or this overview on how retirement affects health and behaviour, and make your own mind up. It could possibly be a better investment than tweaking your retirement spreadsheet before pulling the trigger.

The post Is Your Retirement Plan Missing the Most Important Investment? appeared first on HumbleDollar.

Retirement blues

The day I thought would never happen finally did on September 30, 2025. For the last 43 years, my salary would appear in my bank account, which would then show a pleasing uptick, providing assurance that all was well with the world. But on September 30, 2025? Nothing! The balance showed, if anything, a small fall. Retirement had finally arrived.

I actually retired on August 25, 2025, but I did receive my final salary at the end of that month. September was spent in a haze. I've read experiences of the newly retired, both negative and positive, and mine can best be described as a state of denial.

Sleeping late? No chance. My Shih Tzu (who has never taken a weekend off) sits up around 5 a.m., stares at me hypnotically to awaken me with the power of his mind, until he detects some sign of life. He then completes the process of waking by liberally licking my face. The only option is to take him out, play with him until he has his breakfast, and then he sleeps. Clearly, he is delighted to have me at home 24/7.

My wife? Not so much. Despite vague promises of being regular at the gym (“now that I have time”) and taking up baking, she is not entirely convinced that it is a good thing to have me at home. Seeing me either sleeping in front of the TV or doomscrolling on YouTube hasn't changed her beliefs.

As for me, I think I'm the same, but there have been changes. Suddenly, the trip to Egypt has been placed on the backburner. I suggested to my wife that we were using too much air conditioning, and that peanut butter is cheaper and tastier than our standard brand. My birthday was celebrated as usual with a party for my colony friends in our common backyard, but I did suggest that this yearly event should next be held for my 70th, five years down the line. My wife agreed to all this and more with equanimity, remarking that I look quite preoccupied. The monthly transfer of money for household expenses from my account to hers, routinely done by the bank over the last five years, mysteriously ran into unspecified scheduling problems. I noted that my blood pressure (BP), which was always normal, had now reached impressive heights and needed a substantial dose of Amlodipine to bring it down. I read stories of people dropping dead on their retirement day. I started regretting the lavish vacations we took to Europe and Africa in previous years.

I'm not sure what changed. We are definitely not poor; if anything, data assures me that we are in the top 10%. Though well short of being able to afford a yacht or a private jet, we have substantial savings and no debt (well, except for the promised support for my two kids through their Master's program, for which money has been set aside). I held a government job previously from which I get a pension, which I've never touched and is enough by itself for an above-modest lifestyle. The second career I had in the Gulf paid about six times the last salary I earned in my government job, and about 30% was saved via Systematic Investment Plans (SIPs) over the last 15 years. All retirement calculators assure me that at a 4% withdrawal rate, I should have more than enough money to last our lifetimes, but I am now beset with a feeling that I should have saved more. So, where is the problem?

My own impression is that the monthly salary slip is addictive, and that I am suffering withdrawal symptoms. The sight of my bank account depleting steadily without hope of replenishment is depressing. The only cure for my angst would be to start a part-time job (which should be easy due to my field of specialization), or initiate a Systematic Withdrawal Plan (SWP) from my mutual fund savings. I am opting for the former and hope that this is curative. Time will tell.

The post Retirement blues appeared first on HumbleDollar.

Taxes? What taxes? I don’t have to pay taxes. No matter, we are all in a pickle jar and it is really sour.

Did you know that the income tax amendment enacted 1913 was temporary or that income taxes are theft? Income taxes are voluntary because they are illegal. How about there is no need for property taxes even though they have funded local education since the 1840s? 

Oh, Social Security is a scam. If you die early all you get is $250 and the government takes the rest of your money. If “they” hadn’t stolen the Social Security funds, we wouldn’t have a problem today. Did you know we seniors paid our dues and therefore have no more obligation to pay taxes!

Where did I get this nonsense? Not nonsense, it’s on social media thoughtfully posted (and too often believed) by the experts among our citizenry so it has to be true, right? And we are concerned about the lack of financial literacy😳 Perhaps ignorance about how government and taxes interact and what they provide is more of a concern? 

Hey, the federal government spends about $18 billion a day, mostly on programs directly benefiting Americans, but tariffs can replace the income tax, right?

Estimates suggests that monthly tariff revenues might rise toward $40–$50 billion/month at peak levels which is about $1.6 billion per day - a tad short of $18 billion. Of course, the $18 billion being spent is about $5 billion a day more than revenue. The gross interest on debt alone is about $3 billion a day. 

Between the uninformed, naive, gullible people reflected on social media and the real fiscal state of government finances, it’s not a pretty picture. 

We are all in the same pickle jar and it’s really sour. 

The post Taxes? What taxes? I don’t have to pay taxes. No matter, we are all in a pickle jar and it is really sour. appeared first on HumbleDollar.

Same But Different: The AI Bubble That Isn’t (Quite)

Have you been getting that familiar tingling sensation lately? The one that says "you've seen this all before." Watching AI stocks soar, then keep on going, I can't help but think back to the year 2000. I genuinely knew a guy back then who quit his job to day-trade dot-com stocks from his house. He now works in insurance. There's a lesson in there somewhere I guess.

Comparisons to the dot-com bust are rife. I may be a slightly thick Irish guy, but even I get the vibe. The parallels are hard to ignore. We've got speculative fever, we've got massive market concentration, and we've got that same cocktail of hype and FOMO that makes normally sane people do irrational things. But I think, if you look a bit deeper, it's different. I know, famous last words and all that.

The dot-com era was built on PowerPoint dreams and very little business fundamentals. I remember hearing on the news about companies with no revenue, no profits, and business plans that essentially read: "Step 1: Get eyeballs. Step 2: ??? Step 3: Profit!" doing IPOs, and investors were throwing money at them all because of a ".com" suffix. Truly unbelievable! When the music stopped, thousands of these businesses simply evaporated. Poof, gone. Along with your great uncle Jack's life savings.

If I look at the companies driving this current AI surge, we're talking about Amazon, Alphabet, Microsoft, Apple—the established giants with cash flows that would make small nations jealous. Profits wise? Most other corporations want to go huff in the corner at how unfair it all is.

They aren't startups operating out of converted warehouses. These aren't businesses held together by venture capital and wishful thinking; they've got proven revenue streams from cloud computing and digital advertising. Their valuations might be stretched, but they're supported by actual, growing earnings. The AI buildout? They're funding it from their own massive balance sheets, not by desperately issuing equity and begging for another funding round. That's definitely different.

What to do? That's the question. Both eras share an obsession with a singular, supposedly world-changing technology. Back then it was the commercial Internet; now it's AI. Traditional valuation metrics are really distorted. Market concentration is high. A handful of tech giants account for an outsized chunk of my Vanguard portfolio performance. If something goes sideways with these few companies, the ripple effect could be brutal, just like it was when the big boys of 2000 came tumbling down.

So, where does that leave my thoughts? Sitting in my sunroom, laptop open, looking at charts that show AI and tech stocks climbing higher, I think—or maybe it's just hope—that we're in a different position. It's a bubble, I'm certain of that, but one built on actual profits rather than futuristic fever dreams. The solid financial foundation of today's market leaders offers protection that was just a dream twenty-five years ago. Then, it was a pot of gold at the end of a leprechaun's rainbow.

Do I personally think a tech bust is coming? Definitely. This tech boom can't live up to the hype. It's going down baby, and it's going to end badly. The difference I think is the scale. I don't foresee the near existential collapse of 2000 overwhelming us—just a common or garden wipeout. Small mercies, don't you think?

I think the real point of worry is after the bust. To me, the vast amounts spent on tech buildout will take years to show up in profits, possibly leading to at least 4 or 5 years of flat markets until valuations catch up with the past capital spend. We could be leaning into our fixed income for quite a while. That's the area I'd be concentrating on building up while bond yields are decent. Maybe you should give it some thought also. But whatever you do, I think it's going to be interesting!

Alas, as you might know, I'm Irish. And if nothing else, we're very good at the gift of the gab and talking pipe dreams and fairy tales. Maybe that's all my thoughts are, but the alarming thing to my mind is this: I don't think anyone's thinking is any better in these unusual times.

The post Same But Different: The AI Bubble That Isn’t (Quite) appeared first on HumbleDollar.

That Dumb Stock Market

The proposition of an article I recently read was “this is the dumbest stock market in history.” Why is it dumb? In part because of an increasingly popular approach to investing—one that most in the HumbleDollar community, including myself, subscribe to.  According to the article, passive index investing is “the very definition of dumb money, because indexers buy stocks without any regard to valuation.” Here are some other points that caught my attention in the article, which I will link to in the comments:

-Fewer and fewer people are actually making a market in stocks using their brains. Most index fund investors are just blindly buying, assuming that someone else is minding the store.

-The dumb stock market, built entirely on blind faith, wouldn’t matter so much if the numbers passed a sanity test. The problem is, they don’t.

-Due to bets on AI, a single company, Nvidia, is worth substantially more than all of the 2000 companies in the Russell 2000 index combined.

-Metrics such as price per earnings and the ratio of total stock market to GDP indicate that stocks are priced at historically high levels, close to valuations during the 1999/2000 bubble.

The conclusion of the article is that investors need to stress test our so-called risk-tolerance sooner rather than later. We may be taking on far more risk than we realize.

After a conversation with my son in which he pointed out I am quite conservatively invested if my pension is included as part of my retirement portfolio, I wondered if he had a point and if I should increase my stock allocation (currently around 63% for my retirement funds). I decided to stick to my “kiss rebalancing goodbye” approach. Still, I have moved a good bit of money from U.S. to international stocks as valuations are not as high overseas. The declining value of the U.S. dollar was also a consideration.

The only individual stock I own (“using my brain” in the parlance of the referenced article) is that of my former employer...shares I essentially got for free, so no brainwork involved. That stock is up over 600% in less than 4 years.

So, it appears I will continue along with my crowd for better or worse. But the logic of this article does have a way of undermining my optimism. I’m wondering what others in the HumbleDollar community think?

The post That Dumb Stock Market appeared first on HumbleDollar.

Wade Pfau has put me in a funk. Are you dealing with the stages of retirement?

Wade Pfau has an interesting article on RetirementResearch.com about the non-financial aspects of retirement and the various stages. 

In it he states, “Mid-retirement often reveals the cracks beneath the surface. Six months to a year in, many retirees face the “most dangerous day,” when the novelty wears off and the emptiness of unscheduled time sets in. Without purpose or structure, days can feel repetitive. This is when boredom or unease can set in, sometimes leading to unhealthy patterns.”

Since this never happened to me, I was wondering if others found it a challenge. I never thought of retirement as a novelty, but rather the next phase of a journey anticipated for decades and for most of us unavoidable in any case. 

My view is that our personalities don’t change just because we retire. I also think some people create unrealistic expectations for retirement and thus set themselves up for a letdown. 

Are these real concerns?

Missing work and perhaps status with it?

Fewer friends because others still work?

Spending 24 hours more or less every day with a spouse or partner? 

Finding things to do or feeling the need to do so?

Frankly, I look forward to a little boredom, days with nothing to do, days without a doctors appointment or car repair, or shopping or sometimes even golfing.

Of course, I have been at this retirement thing a long time and according to Pfau we are in the “Late Retirement: Facing Decline and Legacy.” stage.

Now that is depressing. I’d rather fancy “take life one day at a time” and shorten your planning horizon. 😎

The post Wade Pfau has put me in a funk. Are you dealing with the stages of retirement? appeared first on HumbleDollar.

ROTH Conversions and Fixed Indexed Annuities

I am 65. I plan to execute ROTH conversions over the next 10 years before I hit  RMDs. Obviously, handling the taxes at the conversion is front and center, pay with cash on hand or take out from the conversion. I understand there is an option to ROTH convert into Fixed Indexed Annuities, where the bonus (15-18%) may cover the entire tax burden. The one I have looked at is a 5-year contract, then you can take the money and put it back into the market. I will not need to use the money for the foreseeable future (>20 years). Does anyone have experience with this type of product for ROTH conversions?

The post ROTH Conversions and Fixed Indexed Annuities appeared first on HumbleDollar.

How Not To Invest

BARRY RITHOLTZ'S NEW BOOK, How Not to Invest, offers investors a cautionary tale—many of them, in fact.

Ritholtz has been in and around the investment industry for more than 30 years—as a trader, a journalist and, most recently, as cofounder of a wealth management firm. 

In short, he is no stranger to Wall Street. His conclusion? It can be a minefield.

Bad actors like Charles Ponzi and Bernie Madoff are well known. The reality, though, is that they represent just one of the many types of financial risk we might encounter. To help investors navigate the “bad ideas, bad numbers and bad behavior” that pervade the world of investing, How Not to Invest represents a field guide of sorts.

These are four of the most common pitfalls Ritholtz identifies:

The Media

Research dating back to the 1980s has shown that financial news can be detrimental to investors. Counterintuitively, when investors have access to more information, they tend to make worse decisions. Why? In large part, it’s because people—understandably—feel that they need to take action when they receive new information. So they’ll tend to place trades in response to new news. But since no one has a crystal ball, this increased trading tends to be counterproductive.

This phenomenon has been documented for years. But because of the increased number of news outlets, Ritholtz argues that this problem has only gotten worse. 

Among the ways that news can lead investors astray: “denominator blindness.” In presenting financial news, commentators often present numbers out of context, with the result that the news ends up seeming more dramatic and worse than it really is.

As an example, How Not to Invest cites a news item about Amazon laying off 18,000 workers a few years back. That number sounds big, but it leaves out the denominator, which would provide context: Since Amazon employs about 1.5 million people, a layoff of 18,000 people would translate to just 1% of its workforce. As a result, it isn’t a meaningful commentary on the health of the company.

Similarly, the media often exaggerate stock market news. Back in 1987, when the market fell 508 points in one day, it was an unprecedented event, translating to a 22% decline. But today, with the Dow close to 47,000, a 508 point drop would translate to an almost insignificant loss of just 1.1%.

The lesson: It’s okay to follow the news, but we need to recognize that writers—especially headline writers—tend to have a bias. To grab readers’ attention, they need to make statements that sound like big news. So always ask, what’s the denominator?

Ritholtz puts Wall Street strategists in the same category as attention-seeking financial journalists. “I have met many of these people,” he writes. “Their general advice is for entertainment purposes only. Their forecasts are nothing more than marketing.”

Psychology

Seventy-five years ago, Benjamin Graham noted the importance of investor psychology: “The investor's chief problem—and even his worst enemy—is likely to be himself.” Ritholtz argues that this also may be a bigger issue today than it was in the past. As sophisticated and as logical as we may try to be, ultimately, “we are social primates,” he says. That makes it very hard to ignore what everybody else is doing, especially when the crowd appears to be going in a different direction.

Clifford Asness, a hedge fund manager and author, has commented on this phenomenon. He argues that social media has made the market less efficient in recent years. The meme stock craze of 2021, for example, was driven by a YouTuber in his basement. He and his followers help to push up the prices of certain stocks. That, in turn, made it harder for observers to stay on the sidelines. That drew in new investors who, in turn, pushed prices up further.

That kind of thing couldn’t have happened as easily in the past. But today it’s another pitfall for investors to guard against.

Opinion

How can we combat the twin effects of media bias and investor psychology? Ritholtz notes that we all tend to live in “belief bubbles” with others who share our views—yet another effect of social media. To break out from these silos, we need to actively seek out opposing points of view. Just as Charlie Munger would urge investors to “invert” a hypothesis to pressure-test it, Ritholtz suggests that we intentionally follow commentators we disagree with.

I do this myself. Among those I follow is Michael Burry, an investment manager and protagonist of the book The Big Short. He’s an advocate of active management and has issued dire forecasts about index funds. While I disagree, I listen carefully to his arguments. I also follow the proponents of bitcoin, of modern monetary policy and of various other ideas I disagree with.

Data

A key challenge in the investment world is that the data can sometimes be misleading as well. Consider market valuation metrics. For years, investors have fretted that the market is expensive, Ritholtz notes, and yet, it’s continued to rise nearly every year since 2009. “Bull markets tend to go longer and further than anyone expects,” he’s noted. As a result, metrics like price-to-earnings ratios aren’t terribly useful. 

“If you only buy stocks when they’re cheap,” Ritholtz says, “you get these narrow windows every decade or so.” The solution? Investors should simply dollar-cost average over time and take the long view.

To be sure, there are a lot of potential potholes on the investment landscape. The good news, though, is that Ritholtz also includes a prescription for how investors should invest, and it isn’t complicated. It’s telling, in fact, that this is the shortest section of the book. As Charley Ellis first pointed out 40 years ago in Winning the Loser’s Game , investors don’t need to do anything sophisticated to succeed. We don’t need to find the next Apple or Nvidia. Instead, the most important thing is to simply avoid making mistakes. Avoid the potholes, and the path to success is surprisingly simple.

 

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.

The post How Not To Invest appeared first on HumbleDollar.