Jonathan Clements's Blog, page 9

The Day I Cashed In My Forgotten Treasure

I have a few hundred pounds of out-of-circulation notes. The Bank of England moved from paper to polymer notes a few years ago, and I had forgotten about some paper notes at the bottom of our safe. By the time I rediscovered them, they were no longer legal tender, and the period to exchange them at normal banks had ended.

Knowing I was flying to London, I decided to bring them with me and present myself at the Bank of England headquarters to exchange them for crisp, shiny new £20 notes. I conducted myself in an exemplary manner, figuring I really didn't want to be on the radar of the custodians of the nation's money supply. Better safe than sorry is my motto!

After exiting the building slightly richer, I reflected on the history and physical manifestation of this institution and other central banks around the world, and how their existence and combined decisions directly impact my retirement finances. I felt a tiny sense of connection, however small, to a system that I usually only read about in the news. My own financial stability is not solely determined by my investment choices. It's also shaped by the actions of these powerful bodies.

They are tasked with the balancing act of keeping the economy stable, and every adjustment they make to the money supply or interest rates has consequences that echo through every sector—from the housing market to the stock market. These echoes are what will eventually directly impact the quality of life I can afford in my retirement. My small errand yesterday was a reminder of a much larger and more complex financial world that we all live within. Hopefully they conduct their business wisely. And on a more personal note, that my name hasn't been flagged as a person of questionable character!

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Selling our business – a done deal

So, Friday August 8th, the sale of our business settled. We had struck a 2 week delay, which was quite an annoyance, but ultimately didn't prevent the sale and handover from going remarkably well. It's wonderful to feel that we have given the new owners the very best chance of success. In the last few weeks customers and staff were spending more time talking with the new owners and less with us, exactly as we hoped!

We had said for several months that we wanted the new owners to succeed and to grow the business beyond what we had achieved. It feels like we have given them every opportunity to do so. The benefits of being younger and coming into the business with enthusiasm and a fresh perspective all bode well for prosperous times ahead.

 

HD has talked a lot about luck lately. At this moment I feel like we have been very lucky. We stumbled upon a run down business in a small country town with a very robust, stable economy. It wasn't purchased after lots of thorough analysis  and consideration.  More accurately,  it was purchased on gut feel and a healthy dose of hope.

The town came to embrace the business and our particular approach.  Our staff came from a broad and varied background. Our turnover was low, so typically we saw people stay with us, learn, develop and grow. I don't think we were experts in recruiting, but we stumbled upon some very good people.

When it came time to sell, a buyer came along that was well suited and could secure the funds for the sale. The handover was excellent and I look forward returning as a customer.

We could take undue credit for this, but it feels like good fortune also played a very large part.

So now we both have a new and very different world ahead of us. By we, I mean my Dad, now retired at 77, any myself, 51 and in search of "what's next?".

Dad tried to retire at 68 but was stunningly unsuccessful.  He lasted 3 months before launching himself back into small business.  Now at 77 he seems to have a much stronger sense that retirement is really here this time. But a characteristic of small business is that it can become all consuming. It can feel like all your thought and energy get channelled into how to make the best of the business. So other interests suffer. Now he faces the challenge of rekindling old interests and strengthening old relationships.  I really think he will go OK, but it will certainly take some effort. I just hope that both he and my Mum can make it through with their sanity intact.

For me, I'm now sitting at a table in warm sunshine, on an idyllic island off the coast of Queensland.  A holiday to clear my mind after the intense activity of the business sale has been great.

I'm certain that I want to keep working, but I also know that I would like to have less strain on my body and mind. We're not under pressure to return to work quickly, so I'm looking forward to thinking through where I might be of some value, without working myself into an early grave.

The whole process from purchase, via growth, to eventual sale has been a fantastic ride. Not easy, not for the faint hearted but a wonderful experience.

Looking forward to whatever is next!

 

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Stablecoins: Not My Kind of “Stable”

If you own Treasuries, TIPS, or a well-diversified bond portfolio, you already know what safety looks like: steady income, predictable maturity dates, and the full faith and credit of the U.S. government.

Stablecoins? They’re a different animal.

A stablecoin is a digital token pegged to the U.S. dollar and usually backed by assets like Treasury bills. It can be transferred instantly worldwide, which sounds great — until you remember there’s no FDIC insurance, no government guarantee, and no regulator standing behind it in a crisis. If the issuer gets into trouble, you’re just another unsecured creditor waiting in line.

Here’s the real kicker for investors:

Those Treasury bills or other safe assets backing the stablecoin generate interest — but the yield goes to the issuer, not to the holder.

In exchange, the holder gets a dollar-pegged token that depends entirely on the issuer’s operational competence and integrity.

Yes, stablecoins can make sense for crypto traders or businesses that need instant settlement. But for us individual investors — especially those already holding Treasuries or TIPS — the benefit is thin. We already have:

Direct ownership of the safest assets. No middleman, no counterparty risk.
Guaranteed payment at maturity. Whether we buy a 3-month bill or a 30-year TIPS, we know exactly what we’ll get back.
Yield in our own pocket. The interest belongs to us, not a coin issuer.

So if someone is tempted to move part of their bond portfolio into stablecoins because they sound “modern” or “efficient,” remember: they’d be giving up a government guarantee and a real yield for a digital promise and no interest.

When it comes to safety, I’ll take my boring ladder of Treasuries and TIPS over a shiny token any day.

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Free Social Security Taxability Calculator

While researching an article on the impact of the recent One Big Beautiful Bill Act (OBBBA) I stumbled upon a very useful, free Social Security Taxability calculator. The calculator is a downloadable Excel spreadsheet. I found it while viewing a YouTube video presented by The Retirement Nerds. The video did a nice job of explaining some of the provisions of the tax bill, especially the new $6,000 bonus senior deduction. The presenter used the calculator to demonstrate the interaction between income, SS taxability, and how the new deduction comes into play.

I wasn’t familiar with this site or the presenter so I did a bit of research and it seemed legitimate so I downloaded it from this site.  I’ve played around with it a number of times and I’m pretty impressed. It is not a complete tax return calculator, but it does a few things well, and provides some useful information for what-if studies. It has been updated for to include the 2025 tax law changes, including the new senior deduction.

In general, you input your “base case” which is your AGI, tax-exempt income, the amount of your SS benefits, and any applicable Schedule 1 adjustments (there is a tab that describes them).  The tool calculates the percent, and amount, of your SS benefit that is taxable. It shows the details of that calculation – one of the more complex calculations in the tax code. It also determines your standard deduction, your new senior deduction (if any), taxable income, estimated tax, effective tax rate, and marginal tax bracket. It includes a nice table, and graphic, that shows how much income “headroom” you have until you reach the next tax bracket.

One of the more interesting features is a large table entitled “Incremental scenarios adding more non-Social Security Income”.  This table provides 25 rows to investigate the impact of additional income on your tax calculation. You input a dollar amount in the first row, and it increments each row by that amount. For example, if you input $1,000 in the first row, the succeeding rows will be $2,000, $3,000 and so on up to $25,000.  The columns in the table update some of the previous tax calculations for the new income amount, with the end result being the revised taxable income.  It has a column that clearly shows how, in certain situations, an additional $1 of income can pull additional SS benefits into the taxable category, and how the effective marginal tax rate can be greater than the marginal tax bracket.

There is also nice graphic to the far right that shows a summary of the base case, including how the calculated tax falls into the marginal tax brackets. Someone looking to understand how the taxable portion of your SS benefit is determined, and how additional amounts of income impact your overall tax situation, may find this useful. Roth Conversion studies would be another good use of the tool.

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Not Retired, Just Re-Directed

I'm typing this early in the morning from my cousin's lovely little courtyard garden in London. Everyone is still sleeping, and it's a beautiful, sunny start to the day, perfect for contemplating and drinking coffee. The thought is playing through my mind: although my life is now different, I don't feel "retired.”

My days are certainly different and definitely more enjoyable than when I was working, but I still have that sense of agency and direction that filled my time prior to retirement. I assume it's because I've shed one set of metaphorical clothing and donned another set of comfy leisure clothes, more suited to my new reality of personal choice rather than professional necessity.

Perhaps, although I'm the new guy on the retirement block, that's the answer to this question: retirement shouldn't be an ending, but a continuation of your life journey at a more sedate pace, focused on yourself and your loved ones. With that little thought in mind, I may get ready for a pleasant retirement day tubing through London to the Natural History Museum for a few hours of experiencing the joys of London. I hope you, too, have a lovely, intentional retirement morning, because we only have this one shot at life. Enjoy.

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The Half-Completed Retirement Transition

Warning: this post is more of a rant and a plea for sympathy than it is thoughtful or informative!

So as you know, I retired on July 1. Or did I? I retired from two university systems and was supposed to get one pension check from each starting August 1. On August 1, I got…nothing. And it was my birthday, too!

I already knew I wouldn’t be getting one of the checks that day; my retirement application had been in limbo for a while (not my fault) and is allegedly being processed. But the other one was, I believed, a done deal. I’d received an official letter on May 15: Congratulations on your retirement; your application is complete; here’s how much you’ll get; it will be direct-deposited starting Aug. 1. So while I knew there was a glitch with the second system, I never worried about the first one—until I woke up on my birthday, checked my bank account and saw no pension check.

I got on the phone as soon as the lines opened and explained the situation to the call center rep who answered. She sounded surprised and put me on hold while she checked it out. I was on hold for 15 minutes. “This is not good,” my husband said. She came back and sounded bewildered. Apparently my retirement action had been canceled and completely disappeared from my dashboard like it had never happened. Fortunately for me, the messages from the system, including the May 15 letter, were still all there. “Something isn’t right,” she said. No kidding. She said she’d expedite my case and that someone would call me.  I suffered all day, trying not to ruin my fancy birthday lunch with my fretting.

Finally, in the evening, someone did call me. He’d been in meetings all day trying to figure out what had gone wrong. He’s never seen anything like it. He met with two supervisors that afternoon and they reinstated my retirement action and said I’d get paid on August 8. He was really sorry for the stress and confusion. No one understands how this could have happened.

I’m happy to report that the check did, indeed, arrive on schedule, for the correct amount, and that my dashboard says my next one will arrive at the end of this month. So I think I’m OK with that one, at least. But I’m going to keep checking my account every so often.  I have trust issues now.

As for the other pension, I pinged them on the messaging system last week, as it had been a month since I last heard from them. A supervisor replied and thanked me “for my patience,” said they were still working on it, and hopefully I’d hear something “in the next two weeks.” I have no idea why it’s taking so long. I filed the application for that system on March 3, the earliest day I could for a July 1 retirement.

I don’t know if there’s a lesson here other than that s**t happens, keep checking your accounts because no one cares as much as you do, and if you think something might have gone awry, it probably has. Yikes!

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Outliving Your Money? Let’s Do the Math on Annuities

When you sit down with an annuity salesperson, they’ll probably start with a question that cuts straight to your fears:

“What if you live to 100? Wouldn’t you rather have a guaranteed check every month?”

It sounds comforting — but the truth is, most annuity checks are just your own money coming back to you, with a little interest, minus their cut.

Let’s run some numbers.

Imagine you’re 65 years old with $500,000 in retirement savings. You have two options:

Buy an immediate fixed annuity with a 5.5% payout rate. That means you’ll get $27,500 a year for life, no matter how long you live.Invest in a self-managed portfolio of low-cost ETFs like VOO (S&P 500) or VYM (high-dividend stocks), withdraw 4% in the first year, and adjust withdrawals for inflation. Assume a 6% average annual return.

We’ll run both options over 20 years.

The First 5 Years

YearAnnuity Payment“Balance”*Portfolio WithdrawalPortfolio Balance1$27,500$472,500$20,000$508,8002$27,500$445,000$20,600$517,4923$27,500$417,500$21,218$526,0504$27,500$390,000$21,855$534,4485$27,500$362,500$22,510$542,654

*Annuities don’t actually give you a running balance, but this shows how much of your original $500k is left if you think of the payments as coming from your own principal.

Already you can see the difference — the annuity “balance” steadily drops, while the portfolio balance is growing, even though you’re taking withdrawals.

By Year 20:

Annuity: Still pays $27,500/year, but inflation has eaten away a big chunk of its buying power — that check now feels like only about $15,200 in today’s dollars.Portfolio: You’re taking out over $36,000/year (inflation-adjusted) and still have about $670,000 left in your account.

While a self-managed portfolio often outperforms, annuities do have a place for certain people:

No desire (or ability) to manage investments — some retirees simply don’t want the responsibility or stress.No pension — an annuity can act like a “DIY pension,” covering essential living expenses alongside Social Security.Extreme longevity risk — if your family history suggests you might live into your late 90s or beyond, an annuity can be a form of insurance.Peace-of-mind value — for some, the guaranteed check is worth more than the potential for higher returns.

In other words, annuities are less about beating the market and more about removing uncertainty.

What This Means

Annuity Pros: You’ll never get a “zero balance” notice — the insurance company keeps paying as long as you live. If you make it to 95+, you might come out ahead.Annuity Cons: Payments are fixed unless you buy expensive inflation riders. If you die early, the insurance company wins — your heirs get nothing (unless you pay extra for that option).Portfolio Pros: Lower fees, more growth, keeps up with inflation, full liquidity, and your heirs inherit the remainder.Portfolio Cons: Market volatility means you need a cash buffer and discipline not to sell in a downturn.

The Real Takeaway

The “you might outlive your money” scare works because we humans hate uncertainty more than we hate paying high fees. But with a balanced investment plan, a modest withdrawal rate, and a little patience during market swings, your odds of running out of money are already very low — without locking yourself into an inflexible annuity.

In other words: Some of us can create your own “annuity” — and often, it’ll be bigger, more flexible, and better for your heirs.

These are my thoughts - What did I get wrong?

Note: Research, data and math was AI assisted to help speed up my thoughts.

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Are We an AI-Driven Economy?

We often hear that we are a consumer driven economy, with estimates that consumer spending provides as much as 70% of GDP. I read a recent article by Ben Carlson that indicated that, at least for this year, Big Tech's capital expenditure spending on AI is approaching a similar level. The Bloomberg Magnificent 7 Total Return Index (I had no idea this existed) is up about 39% over the past year, compared to about 19% for the S&P 500. I have no idea where this will go, but it's fascinating to watch.

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Not Qualified to Carry This Anymore

I’m turning into my mother more and more every day. Back when I was taking care of her, she’d hand me her credit card whenever we went shopping. She’d say, “I’m not qualified to carry this anymore.” She was afraid she’d lose it.

Now I catch myself doing the same thing. When Rachel and I go out, I sometimes give her my wallet to toss in her purse. I’m scared I’ll lose it. Since I've retired, I lost my driver’s license in Paris, left my credit card at a restaurant in South Dakota, and who even knows what happened to my prescription sunglasses.

I don’t know if it’s age, distraction, or just bad luck—but at this point, Rachel’s purse is basically my security system. Which is not a great idea, because if we ever lose her purse—especially when we're traveling—we’d both be without credit cards and personal identification.

I’ve lost my wallet twice.

In the 1970s, I went to a Cleveland Indians game at the old Municipal Stadium in Cleveland. The Indians were terrible back then. They had players most fans had never even heard of. The stadium was huge—it held over 70,000 people—but the team was so bad, it wasn’t unusual for them to draw only about 6,000 fans.

At the game I attended, I remember an usher holding a white towel, escorting us to our seats, and wiping them off before we sat down. Because of the low attendance, many of the seats were dirty from lack of use. Six thousand fans could easily get lost in that cavernous stadium.

I don’t know how someone managed to find the wallet I left behind, but somehow, they did. A lady mailed it to my home in California with a note that said, “Indian fans watch out for each other.” I think she felt sorry for me—not just for losing my wallet, but for being an Indians fan.

The second time, my wallet was in my car when it was stolen. I was in my early 20s—old enough to know better. I didn’t even remember my license plate number when the officer asked. That didn’t help.

I told my parents everything—except one detail: the wallet. I was too embarrassed to tell them. A week later, I got a notice from the Post Office. Someone had dropped it in a mailbox, minus the cash.

The 1970s were my lost decade in more ways than one.

Later, someone broke into my first apartment. They stole my stereo, but what really got to me was knowing they had gone through my drawers—those drawers. The ones with my underwear. That apartment had been my first real home. But I moved out soon after. I felt violated, and I just couldn’t live there anymore.

My wife and I are frequent visitors to this beach town in San Diego. One time, when she was off doing her own thing, I took off and drove 20 miles south and inland to that same apartment building. It now has bars on all the windows and graffiti on the walls. Fifty years later, it looked like the crooks were still in charge.

But I haven’t given up on people.

One day, I was at the bank when a man walked in and asked if anyone drove a black Ford Fusion. He had accidentally backed into my car. I expected the worst, but it was just a scratch. I told him not to worry—I’d take care of it with some touch-up paint. He insisted on paying. Showed me his ID. Tried to hand me $300. I refused. We settled on $100.

That kind of honesty still means something.

For a long time, I thought my mom handed me her credit card because she was forgetful. Now I understand—it was trust. She trusted me to look after the things she was afraid of losing.

We may lose things as we get older—wallets, sunglasses, even our sense of certainty. But if we’re lucky, we hold on to the people who help us feel safe.

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Have you seen your money lately?

I just realized the only time I see my money is when I withdraw from an ATM. Ye gads, my wealth accumulated over 70 years is all in cyberspace.

I am at the mercy of computer systems and the folks who run them - and maybe someone in a tiny village in Mongolia. Everything hinges on a programing language which are all Greek to me. 

Even my last ATM attempt didn’t go well. There is only one branch of my bank on the Cape. I have to drive twenty minutes to get there. I walked into the lobby and found the ATM out of order. A teller said the drive up was working so off I go only to find at the moment it only dispenses $100 bills. I go back to the lobby minutes later and they have closed. Tapping on the door I attract the teller who signals through the glass she can’t unlock the door effectively saying “tough luck take $100 bills if you want cash.”

I know my online IRA and brokerage accounts say I own shares of stock, and mutual funds, but I don’t have any certificates, I have no proof. My wealth could go poof with a systems flaw.

I think I have cash in those accounts too. At least that’s what the website says. Where exactly is the Money Market? Have you ever visited?

Our several bank accounts are … where? Nowhere or somewhere…I hope. No passbook. If I lost my iPhone I’m broke because I can’t access my bank or investment firms app - or the ATM.  Is my debit card proof of anything? I think not. 

I have deeds, legal pieces of paper, showing I own my houses and cars, but not a visible “real” thing backing up all our investments. You can’t even get savings bonds to lock away in a safe deposit box anymore, instead you use Treasury Direct where your bonds are…

It seems wealth is nothing more than our ID, password and the last four digits of our social security number. 

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