Jonathan Clements's Blog, page 90

Road Less Traveled

I HAVE A SIDELINE writing stories for a local newspaper. Every now and then, even in a small rural community, you’ll find folks who blow your mind. One such individual is a retiree named Junius R. Tate, who goes by J.R. and who spent his youth in Washington County, Kentucky.

Tate hiked the Appalachian Trail, which crosses 14 states from Georgia to Maine and is roughly 2,200 miles long. It takes a determined hiker about six months to complete.

Tate has hiked the entire length four times, spending as little as $1,000 per journey. The first time was in 1990, when he was age 53. He hiked it again in 1994 and 1998. Then, in 2006 at age 69, he completed the trail for the final time. He turned 70 one week later. On these journeys, he carried a backpack weighing around 50 pounds through every sort of weather you can imagine.

Tate wrote a book called Walkin’ on the Happy Side of Misery: A Slice of Life on the Appalachian Trail. He then wrote a second book called Walkin’ with the Ghost Whisperers: Lore and Legends of the Appalachian Trail.

After Tate completed his third hike, CBS News did a feature on him. The Tennessee State Senate made him an honorary ambassador for his work promoting hiking. He spent many years giving hundreds of talks to folks who wanted to hear his story and perhaps hike the Appalachian Trail themselves.

Tate’s hiking began when he retired from the Marines in 1980. He farmed for a while in western Kentucky before moving to Virginia, where his son was studying medicine. It was there that he began to take up trail hiking as a hobby. One day, a young friend asked him to hike the Appalachian Trail with him. So he did.

I asked Tate, “How does someone prepare to hike the Appalachian Trail?” He said the best way “is to put lots of extra weight in your backpack and power hike up and down hills.” He said he put a load of Encyclopedia Britannica volumes in his pack and hiked up steep hills.

You can also just “head up into the mountains and do a hundred or more miles with a little extra weight,” he said. Whatever you do, don’t go out without proper preparation, he advises.

A hiker needs to decide whether to “thru-hike” or “section-hike.” A thru-hiker completes the trail in one continuous trip. A section hiker might take years to complete the trail by hiking sections each year until completing it entirely.

You can start at either the north or south end of the trail. About 90% of thru-hikers begin in Georgia. They’re called “north bounders.” Meanwhile, “south bounders” start in Maine.

Why do most hikers start in Georgia? North bounders can start hiking as early as Jan. 1, though most begin in mid-March or early April. Tate always took the northbound route. He’d begin his hikes in early April. That gave him time to reach the trail’s end at Baxter State Park in Maine by the end of September. The park usually closes to hikers on Oct. 15.

In Tate’s opinion, south bounders are a different breed, usually loners and fast movers. They have to start in June or the first half of July, and end their hikes in Georgia’s chilly December. The earlier you start out from Maine, the worse the southbound hiking conditions tend to be. Obstacles include high water, black flies, a ton of mud, and downed trees from the previous winter. South to north is a much more pleasant hike.

I asked Tate about the possibility of running into some bad folks out on the trail. He said it’s safer on the trail than going to the local convenience store. In the past 50 years, while millions have spent time on the trail, there have only been 13 murders.

Still, Tate advised taking precautions. The best way to stay safe is “to hike with a partner or friends,” Tate said. “Most hikers like to hike alone during the day and meet up at a selected place for the night. Extra caution is needed at road crossings.”

The trail seldom crosses roads. Dubious types will sometimes wait at those crossings, looking for thru-hikers. Some will offer to give hikers rides to the nearest town for a price. Tate had a healthy leeriness of accepting such rides.

The most miles Tate hiked in one day was 25. He tried to hike 15 to 18 miles daily, on average. Each time he thru-hiked, he felt the trail got a little easier and he had to do less prep work because of his experience.

Over his four Appalachian Trail trips, Tate hiked roughly 8,800 miles. He estimates that he’s hiked another 3,200 miles on other trails, including the 500-mile Colorado Trail and the 270-mile Long Trail in Vermont.

Tate recommends three books for folks who want to hike the Appalachian Trail. The best, he thinks, is the Appalachian Trail Data Book, available through the Appalachian Trail Conservancy. “It lists important information on where shelters and campsites are, road crossings, food resupply points and distance from the trail, among other things,” he said.

Two other books are important, although they mirror each other, so a hiker would likely only want one of them: The A.T. Guide by David Miller and the Appalachian Trail Thru-Hikers’ Companion.

It’s been a long time since I’ve had a book captivate me as much as Tate’s accounts of his hiking journeys. They’re highly readable even if you don’t plan on becoming a thru-hiker. They can make you laugh and, at times, raise the hair on the back of your neck.

Still, it seems that Tate’s greatest joy came not from conquering the Appalachian Trail four times. Instead, it was the folks that he met along the way and kept in contact with. The end of his first book gives follow-up details on all the hikers that he stayed in touch with after his hikes.

Finally, Tate’s favorite trail food was Snickers candy bars. He ate a bunch.

Ken Begley has worked for the IRS and as an accountant, a college director of student financial aid and a newspaper columnist, and he also spent 42 years on active and reserve service with the U.S. Navy and Army. Now retired, Ken likes to spend his time with his family, especially his grandchildren, and as a volunteer with Kentucky's Marion County Veterans Honor Guard performing last rites at military funerals. Check out Ken's earlier articles.

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Losing Benefits

SOCIAL SECURITY retirement benefits are a critical source of income for many seniors. But as I’ve discovered from preparing tax returns, there’s a lot of confusion surrounding two key issues.

The first issue: the reduction in benefits that occurs when folks claim benefits before their full retirement age (FRA) of 66 or 67, but continue to work. This is the so-called earnings test. If folks are under their FRA for the full year, the Social Security Administration will reduce their benefits by $1 for every $2 earned above $22,320, which is the earnings limit for 2024.

Suppose you earned $42,320, or $20,000 above the earnings limit. Your Social Security benefit would be reduced by $10,000. The maximum Social Security benefit for 2024 is $58,476. To lose this entire sum, you’d have to earn twice this amount, or $116,952, plus the earnings limit of $22,320, for a total of $139,272 in 2024.

In the year you reach your FRA, the earnings limit is significantly higher—it’s set at $59,520 for 2024—plus the reduction in benefits is $1 for every $3 earned above this limit. What happens once you get to your FRA? There’s no reduction in benefits, regardless of how much you earn. On top of that, once you reach your FRA, Social Security recalculates your monthly check, so you get credit for the benefits you earlier lost.

The second confusing topic: the taxation of Social Security benefits. Whether your retirement benefits are partially taxable depends on your combined income. What’s that? It’s your adjusted gross income, plus any non-taxable interest and half of your Social Security benefits. For a single person, if your combined annual income is less than $25,000, none of your Social Security benefits is taxable. Between $25,000 and $34,000, up to 50% of benefits are taxable. If your combined income is more than $34,000, up to 85% of benefits are taxable.

I was reminded of all this recently when I prepared a tax return while volunteering with AARP’s Tax-Aide program. Robert’s tax return stuck in my head for a few reasons. First, we shared a birthday, although—at age 68—he’s two years older than me. Second, his return is likely the simplest I’ll do this season.

He had one document, a 1099-SSA that reported his Social Security benefits. His benefit in 2023 was $33,050. From this, $1,979 was subtracted for his Medicare Part B benefits and $3,900 for alimony from a 1999 divorce. His net benefit was $27,171.

When I asked if he had any other sources of income, he said things were tough. He’d been on Social Security disability benefits for a number of years. When he reached his full retirement age two years ago, Social Security switched him over from disability benefits to retirement benefits.

Robert’s return only took a few minutes to prepare, but he had some questions. He was considering getting a job to supplement his income, but he’d heard that if he made too much it would reduce his benefit. We explained that, since he was past his FRA, his Social Security benefit would not be reduced based on earned income.

We then discussed the taxation of his benefits should he choose to work. He was aware that earned income could cause some or all of his benefits to be taxable, but wasn’t sure how much he could earn without a significant tax hit. For 2024, Robert’s standard deduction will be $16,450, comprised of the typical $14,600 standard deduction, plus $1,950 since he’s over 65. The sum of his earned income and any taxable Social Security benefits would have to exceed this amount before he’d owe federal income taxes.

Since Robert’s only income in 2023 was his Social Security benefits, his combined income was one-half of this, or some $16,500. This means he could have earned $8,500 before he’d have hit the $25,000 limit at which Social Security benefits become potentially taxable. And even if he surpassed this limit, he wouldn’t necessarily owe income taxes, thanks to the added tax relief offered by the standard deduction.

Because of the complexity of many tax code provisions, and the way they interact with each other, often generating a sample tax return is the only way to see how a change in one variable, like earned income, impacts a taxpayer’s final tax bill. This can be especially true when a person’s state taxes are as complicated as New Jersey’s.

The tax software we use made it easy to run a series of “what if” scenarios to see how various levels of earned income would impact Robert’s taxes. The calculations were based on 2023’s tax law. One of the thoughts I had was that Robert might be eligible for the earned income tax credit (EITC).

At low incomes, a single filer with no qualifying children could be eligible for a credit of up to $600. Robert wouldn’t be eligible for this federal credit because he’s older than the age 65 cutoff. But New Jersey provides a credit that’s equal to 40% of the federal amount and there’s no maximum age, so Robert could have earned $8,500 without owing anything in federal or state income taxes, plus he’d have been eligible for a $240 state EITC.

True, Robert would have paid $667 in Social Security and Medicare payroll taxes on the $8,500 of earned income. Still, with the state EITC credit, he would’ve netted $8,063 out of the $8,500. None of his Social Security benefits would be taxable. The additional income would represent a 30% increase in his standard of living. In fact, Robert could have earned $10,000 and still received New Jersey’s EITC, while paying no federal or state income taxes.

The table below summarizes Robert’s tax situation, and how various levels of income would affect his tax return. It shows that, for low-income retirees, a modest amount of income can dramatically increase their standard of living without significantly boosting their tax bill.

Richard Connor is a semi-retired aerospace engineer with a keen interest in finance. He enjoys a wide variety of other interests, including chasing grandkids, space, sports, travel, winemaking and reading. Follow Rick on X @RConnor609 and check out his earlier articles.

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Killing Time

WHEN I WAS A TEENAGER, my father and I went to the local mall. I don’t recall why we went shopping together, but I do remember going into a Tandy craft store and buying a customizing kit for leather belts. Tandy Corp. would later become well known as the owner of RadioShack.

On the way home, my father and I were talking about the kit, and I made the comment, “It’ll be a good way to kill time.” My father shot back, “Never kill time.” Later that year, he died of a massive heart attack.

While I never forgot what my father said, I wish I could tell you I took it as inspiration and went on to accomplish great things, but I never did. I did use time well, but I also wasted time, killed time and have blanks in my memory where I’m not sure how I used my time.

But that’s changed. Today, I pay more attention to the ages at which people die. Suddenly, people my age and younger are dying of natural causes. Just yesterday, I went to the dentist for a checkup. As soon as I sat in the examination chair, he told me that his wife recently died, and yet previously she’d almost never been sick.

Such stories have changed my perspective on life and money. We can always make more money. But we can’t make more time, and we never know how much more we have. This makes time the more precious commodity. Still, we should carefully consider how we use both money and time.

Money can be saved, invested and spent. My wife and I aren’t great investors. But we’ve been good savers and thoughtful spenders.

My wife’s family were blue collar. When she was growing up, her family’s budgeting process consisted of separate envelopes marked for each expense, such as groceries and vacations. My family didn’t use this method. Instead, when I was growing up, my family just saved, with no particular plan for how to use the money. This is what I’ve also ended up doing.

My method makes my wife uncomfortable. She likes knowing there’s an envelope marked “vacation,” so she knows what kind of vacation we can have based on the amount in the envelope. My method doesn’t involve this mental focus. For me, money is just money. It’s “dry powder,” ready to be spent when and where needed. My wife’s preferred method involves more deliberate choices—a good thing—while my method offers more flexibility, which is also a good thing.

Whatever method we adopt, both money and time are there to be used, and preferably used without waste. We will, of course, make mistakes because we’re human. Still, if we’re thoughtful in our choices, we reduce the possibility that we’ll lie on our deathbed, regretting the things we could have done with our time and money.

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Five Seasons

NICK MAGGIULLI, in his book Just Keep Buying, makes an observation about the world of personal finance: If you Google common questions—such as “how much should I save?”—you’ll receive more than 100,000 results. It’s an overwhelming amount of information. But there’s a bigger issue: Many of the answers contradict each other.

It’s the same with many other personal finance questions. How much should you hold in bonds? Do you need international stocks? What’s an ideal withdrawal rate in retirement? Look for answers to each of these questions, and you’ll find a mix of often-contradictory opinions and rules of thumb. This is one of the reasons that personal finance can be challenging. But there is, I think, a way to cut through the complexity. I recommend approaching your financial life the same way we approach the seasons of the year.

Just as there are basic steps we know to take during each season—to wear a coat in the winter, for example—there are steps that make sense during each phase of our financial lives. This can help us to set aside generic rules of thumb and instead focus on the specific strategies that are most important for each phase. Below is a look at five key phases of life and the playbook I suggest for each.

1. Getting to zero. In the early years after getting out of school, many people joke that their goal is to achieve a net worth of zero. What they mean is that they want to move their net worth up to zero by paying off their student loans.

But this raises a question: Many with six-figure debt loads feel an urgency to eliminate their loans. That’s understandable. But should they devote every spare dollar to paying down their loans as quickly as possible? Or should they use some of those spare dollars to begin saving?

My view is that it’s more important to begin saving, for three reasons. First, if history is any guide, you’ll earn more on your investments than you’d save by paying down debt—because the returns on stocks have, on average, been higher than virtually all student loan interest rates. Second, having savings provides you with flexibility, such as to make a major purchase or to weather an interruption in your income. Finally, if your employer provides a dollar-for-dollar match on retirement plan contributions, you’ll effectively earn a 100% return overnight on those dollars. That’s why I wouldn’t pay down debt any more quickly than is required.

Saving and investing are important, but—to use a phrase popularized by investment manager and author Howard Marks—what’s “the most important thing” at this stage? In my view, disability insurance is critical. If you’re in a high-income profession such as medicine, be sure to secure own-occupation coverage. And if you have a preexisting condition, try to obtain a guaranteed standard issue policy, which may be available only while you’re still in school or in training.

What about life insurance? If you aren’t married and don’t have children, I see life insurance as generally unimportant at this stage.

2. Accumulation. Once your career has gotten underway, and there’s a surplus in your monthly budget, you’ll want to shift your priorities. At this stage, if you have a family, life insurance should take center stage. How much coverage should you have? I generally recommend an amount that would both pay off your mortgage and pay your family’s bills indefinitely. As a starting point, you might consider coverage equal to 25 or 30 times your current after-tax income.

Another priority is what I call dollar allocation. To the extent you have surplus dollars in your budget, decide how you should divvy up these dollars among retirement accounts, college savings, your rainy-day fund, extra-mortgage payments and other uses. Look at this question through both tax and investment lenses.

The most important thing at this stage: to maintain the right mindset toward market downturns. While everyone enjoys seeing their savings balances rise along with the market, the reality—counterintuitively—is that you should be hoping for a market downturn. Since you’re adding to your savings, a downturn will allow you to buy into the market at lower prices. When a big decline comes along, I’d find every spare dollar you can to invest.

3. Breakeven. You may reach a point in life when you’re just breaking even—not adding to your savings but not withdrawing, either. It’s common for young people to be in this position for a while. Older folks, too, may go through a breakeven phase—when their children are in college, for example.

What’s the most important thing at this stage? Run long-term projections to make sure you’re still on track for your goals, especially retirement. In other words, it isn’t necessarily a problem to be running a breakeven budget, but you’ll want to be sure your savings, with no further additions, are on track to grow sufficiently to meet future needs.

4. Financial independence. Perhaps you’ve done the math and are confident you now have enough saved to meet your needs indefinitely. At this stage, what’s the most important thing? In my opinion, it’s risk management.

If you’re relying on your savings to meet your expenses every month into the future, you want to be sure that your asset allocation is sufficiently conservative so you could weather a multi-year downturn. If you need $100,000 per year from your portfolio, consider holding at least $500,000 to $1 million in bonds and cash investments. To be sure, there are other priorities at this stage, including tax-management, but I see risk-management as paramount.

5. Fixed income. If you’re in retirement and living solely on fixed income sources such as Social Security, a pension or maybe an annuity, your financial situation might not have a lot of latitude. Aside from inflation increases, your income will be more or less fixed forever. While that might not feel ideal, this is also the simplest of the five phases because you aren’t relying on the stock market—which is inherently unpredictable—to meet your goals.

The most important thing in this phase: to think ahead. While your income might meet your needs today, it’s worth taking some time to consider rainy-day scenarios. What would happen, for example, if health care expenses increased later in life? You’ll want to think through different scenarios. There may be estate planning steps you could take today to protect your family’s assets.

I live in Boston, where the joke is that we sometimes experience four seasons in one day. Fortunately, our financial lives don’t move quite that quickly. But when you see a financial change-of-season coming, it’s good to have a new playbook ready.

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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A Quiet Life

IT'S CLEAR LIFE experiences shape how we behave. But what role does temperament—the innate personality traits embedded in our DNA—play in how we navigate our personal and financial lives?

I began exploring my personality in my mid-40s. Amid a midlife crisis, I wanted to better understand why I act the way I do. I was recently divorced, living alone for the first time and determined to do some in-depth self-reflection.

I was aware my personality was the result of both inborn and environmental influences. Studies estimate 30% to 60% of human personality is heritable. I began to reflect back on my childhood to examine the behaviors I still have as an adult.

The most obvious lifelong trait I possess: my desire to spend time alone. In elementary school, I spent far more time reading than I did playing with other kids. I was happiest when I could sit in the corner of a room surrounded by a pile of books. When I wasn’t reading, I was writing. I frequently gifted handmade books filled with stories and poems I’d penned to my parents and teachers.

As a teenager, I was quiet and nerdy. Other girls my age enjoyed having sleepovers and reading Seventeen. I preferred to hang out with my farm animals and spend my allowance on issues of Dell Pencil Puzzles & Word Games.

In college, I spent my days in class and my nights studying. I was more interested in getting good grades than partying. I struggled to make small talk with my peers but enjoyed having in-depth conversations with my professors.

In my 30s and 40s, I frequently felt out of place. I wasn’t interested in climbing the corporate ladder, networking or socializing with coworkers. Working in laboratories meant I never earned a six-figure salary. But I did it so I could spend the better part of a 30-year career working in solitude.

In 2012, the book Quiet was published. Reading it, I began to understand how and why my introverted personality affected the way I viewed the world. It’s also helped me understand why I may feel so content in retirement.

HumbleDollar is filled with the life stories of retirees. It can feel overwhelming to read about the many issues they face. To move or stay put? To spend money on experiences or save for the future? To travel the world or stay closer to home?

Not even two years into my own retirement, I’m still a novice at navigating my post-work years. But the longer I spend in retirement, the less I seem to worry. I’ve come to realize that the lifestyle my husband and I have adopted plays a large role in keeping us stress-free.

We prefer quiet to chaos. To be sure, having four, large working-breed dogs sharing our home means some chaos is inevitable. But our ultra-simple way of living helps maximize the amount of peacefulness we have each day.

When we sold our house in Oregon and moved to Arizona, we left most of our furnishings behind. We have no dining room table. We have no sofas, coffee tables or curio cabinets filled with knickknacks. The floor space is mostly open, sans the eight or nine dog beds randomly distributed among the rooms. I appreciate the simplicity. It’s easy on the eyes and easy to keep clean.

Our days are filled with the activities we enjoy. For me, reading, writing and tackling small home improvement projects often keep me busy for a few hours each day. My husband spends time each morning meditating, studying history and working out.

Most days also include a bike ride or walk around our neighborhood. At least a couple of hours is spent training and playing with our dogs. A trip to one of the grocery stores in our community is sometimes the only time we get into a car. Dinner is followed by spending a couple of hours streaming the TV shows, movies or mixed martial arts fights we enjoy watching.

Our finances are equally simple. Our income is automatically deposited each month and our bills are automatically paid. Our retirement investments sit in just a handful of accounts. Our income is low enough we don’t feel compelled to find ways to minimize our tax burden.

Any large expenditures we make are based more on practical considerations than aesthetics. Our kitchen is straight out of the 1980s. But the cabinets are in great condition and the appliances all work. Rather than spending money to replace items that are still functional, we chose instead to have 4,000 square feet of artificial turf installed in our backyard. The joy we get watching our dogs romp and play in our personal dog park is far greater than the pleasure we’d get from admiring a new cooktop.

For me, retirement isn’t all that different from childhood. There have been very few other times when life felt relatively carefree. These days, I solve puzzles on my phone, rather than in a magazine, and I write my life stories using a Chromebook, not a notebook. The quiet life isn’t for everyone. But it suits me just fine.

Kristine Hayes Nibler retired in 2022, and she and her husband now live in Arizona. She enjoys spending her time reading, writing and training their four dogs. Check out Kristine's earlier articles.

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Matters of Principal

HAVE YOU EVER HAD one of those debates where you come up with the winning argument—hours later, long after everybody has gone home?

Among the many financial topics that cause confusion, extra-principal payments on a mortgage deserve a special mention. For decades, I feel like I’ve been trying to stamp out the nonsense that’s spouted on this topic, and I think I finally have the answer. Maybe.

The chief reason for all the confusion is a mortgage’s shifting mix of principal and interest. Most of each monthly payment goes toward interest early in a mortgage’s life, with more getting put toward reducing the loan’s principal balance as time goes on. Adding to the confusion: What happens if you make extra-principal payments on a fixed-rate mortgage is different from what happens with an adjustable-rate loan.

With a fixed-rate mortgage, extra-principal payments shorten a mortgage’s length. With an adjustable-rate mortgage, or ARM, extra-principal payments don’t affect the loan’s length. Instead, they trim the required monthly payment when the loan next adjusts. At that point, the ARM’s required monthly payment shrinks based on the reduced principal, though this reduction could be partly or entirely offset if there’s an increase in the ARM’s adjustable rate.

Unlike in other countries, most U.S. homeowners take out fixed-rate mortgages. Some of these fixed-rate borrowers look at the hefty amounts of interest charged each month in the early years and the relatively modest amount of interest charged later on, and declare that it’s only worth making extra-principal payments during a mortgage’s early years. This notion has some validity—but the reasoning is faulty.

Other folks take this muddled thinking one step further. They look at the hefty amount of interest charged in the early years, coupled with the fact that extra payments on a fixed-rate mortgage reduce the loan’s length. They then calculate extraordinary returns from making extra-payments in the early years—because they assume they can somehow avoid the interest charged in the months that immediately follow.

What’s wrong with these contentions? For starters, it’s important to distinguish between the percentage interest rate charged and the dollar amount of interest incurred. On a fixed-rate mortgage, the interest rate is—surprise, surprise—fixed. Unless you refinance, that percentage interest rate won’t change, so the rate you’re charged is the same in a mortgage’s 29th year as it is in the first year.

By contrast, the dollar amount of interest charged does indeed dwindle as a loan’s principal balance shrinks. Mortgage repayment—or “amortization”—schedules are set so that, with each payment, you not only pay the interest owed but also reduce the principal, with the goal of paying off the loan after, say, 15 or 30 years. As your principal shrinks, so too does the dollar amount of interest you’re charged each month.

That brings us to the shrinking loan length that results from extra-principal payments on a fixed-rate mortgage. Here’s where folks often get confused: The monthly payments you miss aren’t the upcoming ones, but rather those at the end of the loan. Don’t believe me? If you want to live dangerously, go ahead and make a big extra-principal payment, and then try to skip the next few monthly loan payments.

Yes, you guessed it: Soon enough, the mortgage lender will be threatening to foreclose. Your extra-principal payments may have shortened your loan’s length, but that doesn’t mean you can start skipping payments.

Even though the payments you miss by making extra-principal payments are those at the end of your mortgage, it’s still worth making those extra-principal payments, especially early in a loan’s life. But the reason isn’t because those extra-principal payments earn some extraordinarily high annual return or allow you to skip upcoming payments.

Rather, making extra-principal payments early on is worthwhile for the same reason it’s worth investing when we’re young: compounding. Whether you make a $1,000 extra-principal payment in the first year of a 5% mortgage, or the 10th year or the 20th, your $1,000 effectively earns 5% a year. But if you make that $1,000 extra-principal payment in the first year, you’ll earn 5% a year for far longer—and the result is you’ll shorten your mortgage’s loan length by significantly more.

Let’s say you make a $1,000 extra-principal payment on a $200,000 30-year mortgage charging 5%, with its $1,074 monthly payment. If you do that in the first month of the mortgage, you’ll avoid four-plus monthly payments at the end of the loan, according to Calculator.net’s amortization calculator. That works out to $4,420 in avoided mortgage payments. In other words, your $1,000 buys you $4,420 in financial relief 30 years later, which—if you do the math—is equal to an annualized return of some 5%.

What if you make that $1,000 extra-mortgage payment when there’s five years left on your mortgage? You’ll avoid one loan payment at the end of the mortgage, plus part of the prior one, for a total payment savings of $1,277. Do the math, and that’s also equal to a 5% annualized return—but the cumulative gain doesn’t amount to as much because there’s less time for compounding to work its magic.

The bottom line: Making extra-principal payments early in a mortgage can indeed be a good strategy—because those payments will reduce your loan’s length by far more than the same amount of extra-principal paid later on. But it isn’t because of some convoluted reasoning involving the dollar amount of interest charged in those early years. Rather, the value of those early extra-principal payments lies in the power of compounding over many, many years.

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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Making Waves

MY WIFE AND I recently returned from a 14-day cruise to the Caribbean with my 96-year-old mother. Since my dad passed away in 2009, my wife and I have gone on several cruises with my mom.

We departed from and returned to Fort Lauderdale, visiting eight Caribbean islands: St. Kitts, Guadeloupe, St. Lucia, Barbados, Grenada, Trinidad, Martinique and Aruba. For my wife and me, the fare was $2,200 per person for a room with a balcony.

This included travel insurance, taxes and port fees. To this, we had to add $15 per person per day for the mandatory gratuity. We still consider this a bargain for a room with a great view, fantastic meals and free on-board entertainment.

Traditionally, single travelers have had to pay twice the per-person rate of a couple. Cruise lines would argue that, if a single person hadn’t taken the room, they’d place a couple there and collect two fares. But today, cruise lines are often more reasonable. My mother’s fare was $2,700 for a balcony room. She had a handicap accessible room, which was 50% larger than a standard room, with a spacious bathroom.

My wife and I are early risers. My mother is not. We usually have coffee and pastries delivered to our room at 6:30. We sit on our balcony and watch the ocean roll by. When my mother gets up a few hours later, we head down to the dining room for breakfast.

If there’s such a thing as a typical cruise ship, it’s 105 feet wide and 950 feet long. Why these measurements? This is the largest a ship can be and still pass through the original Panama Canal locks. These ships generally carry about 3,000 passengers and 1,500 crew members. New Panama Canal locks, opened in 2016, allow for bigger ships.

In January, Royal Caribbean launched Icon of the Seas, the largest cruise ship to date. It’s 160 feet wide and 1,200 feet long. With two passengers per room, it can haul 5,600 passengers. Because many rooms can accommodate more than two passengers, thanks to fold-out bunks, the ship’s maximum capacity is 7,600 passengers.

On an Alaskan cruise, we first spent a week sailing from Seattle to Anchorage, and then a week on land, visiting Anchorage, Denali National Park and Fairbanks, and spending a few days in each. From Fairbanks, my mom flew home, but my wife and I stayed a few extra days.

We figured we’d never get this close to the Arctic Circle. We rented a car and drove north for 275 miles on the nearly deserted Dalton Highway to Wiseman, Alaska, a hamlet with a full-time population of 12. We spent the night in an eight-foot by 10-foot room that had been partitioned out of a converted 40-foot cargo container. Our room had a metal floor, two single beds, one end table and one lamp. One bathroom served the three bedrooms. Yes, it was extremely spartan, but we were sleeping 60 miles north of the Arctic Circle.

On Caribbean cruises, we’ve frequently rented a car and done our own sightseeing. Because of their English history, on many Caribbean islands, you drive on the left side of the road. When driving on the left, the driver sits on the right side of the car. That is, except in the U.S. Virgin Islands, which is one of the few places in the world where you drive on the left but—because most cars are imported from the U.S.—the driver also sits on the left.

Our most memorable rental car experience was on the island of Grand Turk, part of the Turks and Caicos Islands. Grand Turk is a mile wide and seven miles long. Unlike larger islands, there are no major auto rental companies. The person we rented the car from gave us his personal vehicle.

For lunch, we had a conch sandwich at an extremely small café operated out of someone’s house. When we got an afternoon rain shower, we discovered the driver’s side window didn’t go up. The car’s owner told us to simply leave the car in the cruise ship parking lot at the end of the day, with the keys in it. What about theft? Apparently, on an island that size, it isn’t a worry.

My favorite cruise? A one-way repositioning voyage from New Orleans to Barcelona. In the spring, many cruise ships move from the Caribbean to the Mediterranean. These cruises are not popular. Our ship was only half full. For several months, I’d been working 80 hours a week—40 hours at my job and 40 hours studying for the CPA tests. I passed all four CPA tests on the first try and wanted to relax. The ship stopped in Miami to take on passengers and supplies. After nearly a week, our next stop was the Azores. Those days at sea were complete relaxation.

Some people find a lot to criticize about cruises. Not us.

Larry Sayler is the only person with a Wharton MBA who also graduated from Ringling Bros. and Barnum & Bailey’s Clown College. Earlier in his career, he served as CFO for three manufacturing and service organizations. For 16 years before his retirement, Larry taught accounting at a small Christian college in the Midwest. His brother Kenyon also writes for HumbleDollar. Check out Larry's earlier articles.

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Took Courage

I ALWAYS THOUGHT my father was a brave man. It wasn’t just because he served in World War II. It had to do with a few incidents that I witnessed.

I’ll never forget when my dad and I went to McDonald's for a late evening meal. I was probably in the eighth grade. I believe my mother was working late that night. It must have been a Friday because a lot of teenagers were hanging out in the parking lot.

It was the 1960s, when folks would often eat their food in their car. While we were consuming our burgers and fries, a fight broke out in the parking lot. I said to myself, “We should get out of here before things really get out of control.” But my father thought otherwise. We were going to finish our meal.

There were three teenagers in the car next to us. They started to get out of their vehicle to join the fight. My dad wasn’t a big man, and these three guys looked like they were big enough to be on the high school football team.

Still, my dad stuck his head out of the window and yelled, “Get back in your car.” Those guys looked at my dad, and slowly sat back down and shut the car doors. I don’t know what my dad would have done if they’d ignored him.

We stayed until order was restored. I always thought my dad was courageous that night. Today, some might say he was foolish.

But what might have been even more courageous was when my father accepted a job in California. In summer 1961, when we lived in Canton, Ohio, my dad answered a help wanted ad in the local newspaper. It was for a job as a machinist in Los Angeles. At the time, Southern California companies were looking for skilled labor.

He was offered the job after a telephone interview. Although the company paid all our travel expenses, I often thought it took courage for my father to uproot his family, head to a faraway place he’d never seen, and leave his job to work for a company he knew little about.

We drove our 1956 Ford Fairlane on a long, hot and humid journey across the country in hopes of a better life. I remember it was so hot in Arizona we had to hang a bag full of ice over the radiator to keep the car from overheating.

The company paid for our stay at a motel in Culver City. My dad would go to work during the day at a machine shop that did work for aerospace companies. My mother, sister and I hung around the motel, waiting for him to return. After a few days, it was clear California would be our new home, so my mother, sister and I took a train back to Canton to sell the house and most of our belongings. My parents’ Ohio starter home sold for $10,000.

As a 10-year-old, I didn’t realize that this cross-country trip was the start of my own journey to financial freedom. We weren’t just driving that Ford Fairlane to Los Angeles so my parents could find steady employment. We were also going to a place where my sister and I would find more economic opportunities.

When I graduated college, there were still plenty of job opportunities with major aerospace companies in the area. I went on to enjoy a fulfilling career in the aerospace industry, and I owe much of my success to my parents and that old Ford that took us to a land of opportunity.

Now that I’m retired, I sometimes think that my wife and I should take that cross-country trip in the other direction, in hopes of finding a better retirement. The cost of living is much cheaper in other parts of the country. In California, gasoline is more expensive and food prices are higher, plus our insurance premiums went up sharply this year.

We could sell our house and buy a nice home in the Midwest or the South, and still have money left over. But I think deciding where to live in retirement should involve more than money. I believe we have a better chance to live a longer and healthier life if we stay in Southern California.

We can have a more active lifestyle because the weather is milder here. We can walk, run, hike, bike, golf and work in our garden all year round. The summers can be hot, but not humid. There’s also less risk of falling down and breaking a hip during the winter season.

When I was in college, I had a professor—an older gentleman. On the first day of class, he was telling the students about himself. He said he recently moved to California from Indiana. For the sake of his health, his doctor recommended that he move to a place where the climate was milder.

While he was telling us his story, he began rubbing the top of his bald head. He said, “Not only do I think my health is better, I think my hair is starting to grow back.”

I don't think my hair will grow back. But like that professor, I think my wife and I have a better chance of living a longer and healthier life if we stay put.

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

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Nothing Odd

VOGUE RAN AN ARTICLE a decade ago about Marissa Mayer, then Yahoo’s CEO. The opening quote from Mayer grabbed my attention: “I really like even numbers, and I like heavily divisible numbers. Twelve is my lucky number—I just love how divisible it is. I don’t like odd numbers, and I really don’t like primes. When I turned 37, I put on a strong face, but I was not looking forward to 37.”

Mayer’s statement resonated with me. I’ve been afflicted with a similar lifelong obsession with numbers. When I was very young, my dad wrote math problems on yellow lined paper for me to solve. My sister Lynn taught me elementary geometry when I was in third grade. I had a fascination with baseball statistics and memorized all kinds of numbers from my baseball cards. As I got older, I became fixated on grade point averages and Scholastic Aptitude Test scores.

I’ve never been diagnosed with obsessive-compulsive disorder (OCD). I have no particular fear of germs, and I don’t engage in handwashing rituals or similar activities. Still, there are components of my personality that seem to place me on the OCD spectrum.

If I see a cat video I like, I can watch it dozens of times and still find it funny. I have certain silly phrases and movie quotes that I never seem to tire of repeating. (I can picture members of my family nodding their heads as I write this.) And, yes, sometimes I get preoccupied with numbers.

Like Mayer, I prefer even numbers, though odd numbers that end with five are acceptable. Also like Mayer, I think 12 is a great number and I’m not fond of prime numbers. I was a bit annoyed with myself that, in 2023, I had 23 HumbleDollar articles published and 23, of course, is a prime number. With a little foresight, I could have made it 24, which—as a multiple of 12—is very desirable. I console myself that writing 23 articles in 2023 has a certain cachet. Maybe I should shoot for 24 in 2024 to keep the pattern going.

My numerical quirks have affected how I approach my finances. I’m sure some of these considerations may seem silly to those unafflicted by a numbers fixation. Still, I receive emotional benefit from these mostly benign practices. Here are some of the ways my OCD tendencies have trickled into my financial life:

Even number of funds. In any given portfolio, I prefer to hold an even number of funds. For example, my 401(k) has eight funds. At one time, it had six. It has had as many as 10. It’s never had nine. Once, it briefly had seven, but that made me uncomfortable.

Preferred bond denominations. When I buy a new savings bond or certificate of deposit, I only purchase certain face values. For example, $10,000 and $12,000 are acceptable. What about $11,000? Never.

Spreadsheets. I’m obsessed with spreadsheets. I probably said all I need to say about this topic in an earlier article.

Symmetrical rebalancing. At various times, I’ve rebalanced my portfolio to have roughly equal amounts in multiple funds. I could then easily monitor the “horse race” and see which funds were winning.

Closure. I don’t really want my mind to be filled with financial numbers and deliberations. I prefer closure—the sense that I don’t have to think much about my finances any more. My decision to forgo rebalancing is, in part, due to this. I want my finances on autopilot so I can devote fewer brain cells to thinking about investments.

Retirement has been helpful in this regard. Before, I felt driven to monitor my financial progress. Now that I’ve retired, the accumulation phase is largely over. It’s much easier to avoid checking portfolio balances and to stop financial numbers from invading my brain uninvited.

Control. Having a touch of OCD makes me want to feel in control of my finances. I don’t currently use a financial advisor. If I did, I think I’d always be looking over the advisor’s shoulder. I agree with David Gartland’s statement in a recent article: “I feel better finding out I made a mistake with my money, rather than learning someone else made a mistake for me.”

I’m not suggesting that readers follow in my footsteps. I don’t think the practices above have materially affected my finances. Perhaps a few opportunities were missed. On the other hand, if any of you see something of yourself in me or Marissa Mayer, take comfort: You aren’t alone.

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

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Our Spending Spree

WHEN I GOT DIVORCED, my ex-wife told the judge at family court that I was good with money. But most folks I knew at that time wouldn’t be so kind: They’d say I was cheap.

No, I didn’t align myself with the financial independence-retire early, or FIRE, movement. During my days as a driver-salesman, after I diverted 15% of my pay into the 401(k), I spent every nickel raising the kids, paying the bills and trying to keep up with my big bucks buddies. One thing I refused to do: pay interest on anything other than the mortgage.

This left us with one nice car for my first wife, while I drove a rusty beater to work, which also bolstered my cheapskate reputation. Why else did folks call me cheap? Toward the end of the week, when the well ran dry, we’d pass on things like eating out with friends until the next payday rolled around.

Then the wife and I divorced. Three years later, I bought a duplex and fell in love with my next-door neighbor, Chris. We lived well on half of our combined not-too-impressive income. After several years, the excess began piling up. We had money going into retirement accounts, while filling up non-retirement accounts as well.

The times, they were a-changin’. Chris retired at age 64. A few years later, I hung it up at age 70. I suppose I was one of those ICE—"I’ll continue earning"—types mentioned by HumbleDollar’s editor. By then, my job was preparing tax returns, and I only had to work hard for four months of the year.

Today, we’re collecting Social Security and withdrawing 3% of our IRA balances each year. That leaves us with $40,000 more per year than we were used to living on. But even with the IRA distributions, we manage to stay within the 12% marginal income-tax bracket, plus today’s withdrawals should help in the years ahead, limiting the size of our required minimum distributions.

Amid all this extra income, I had an epiphany. Gee whiz, we could buy some pretty things without guilt. And that’s when 15 months of frivolous spending began.

It was December 2022, and it started simply enough. I’ve always been an audio enthusiast. My 50-year-old integrated amplifier had seen better days. I’m old school and had no desire for the latest 90.1 gazillion-channel home theater system. I just wanted another two-channel stereo amplifier, but maybe with a few modern amenities.

I test drove some different models at Jamiesons, the local hi-fi joint, and ended up plunking down $1,500. To a non-enthusiast, that might seem like a lot of money. Trust me, it isn’t.

Then we really upped the spending.

Chris and I had been watching the development of a nearby 55-plus community. We’d both been reluctant to even stop in and check out the innards. Perhaps it was divine intervention that finally sucked us in. So here we were, standing in the foyer of the model home, staring at the exquisite staged furnishings and getting glad-handed by the eager-to-please salesman.

We toured the house. Plenty of bedrooms. Fancy bathrooms. Great kitchen. All on one floor. No snow shoveling. No grass mowing, either. Okay, I suppose I could grow old here. Then it happened: A bonus room of the size necessary for a proper listening space. That sealed the deal.

During all my years listening to my relatively high-end turntable, I’d never had a dedicated hi-fi space in any of the houses I lived in. Our current home was a condo, with neighbors living on the other side of the walls. My stereo system was confined to the basement, which had seven-foot ceilings and shared space with the cat’s litter box.

And that’s how my $1,500 integrated amplifier turned into a $400,000 impulse purchase.                                     

We had enough cash lying around to buy the lot, but we had to sell the condo to pay for the construction. The place sold quickly, with the proceeds going into the bank. Form 1099-INT for the account showed up last month, and we were briefly thrilled to see it generated $5,000 in interest while we waited for the dreaded construction payments. I say “briefly thrilled” because I soon realized that, if the money had instead been parked in the S&P 500, it would have generated about $20,000 of gains instead of $5,000. Oh well, pigs get fat and hogs get slaughtered. I didn’t want to be the latter.              

“Crap, honey, we’re gonna need some new stuff for the new digs.”

We must have visited every furniture store in a 100-mile radius of Toledo, searching for picture-perfect stuff for our new 1,900-square-foot mini-McMansion.

So, in the 15 months since that fateful day in December 2022, not only did we acquire a new amplifier, but also we got a new house, furniture, appliances, artwork and you-name-it for our forever home. I’m happy to report that we remain debt-free and took no hit to our net worth.

Chrissy keeps asking me if we can really afford our new place. But I don’t have any buyer’s remorse. We worked and saved hard, and now it’s time to enjoy the fruits of our labor before the go-go years fade into history. The big spending is in the rearview mirror, we’re rebuilding the disaster fund, and we’re actually saving more each year than we’re withdrawing from our IRAs, with the extra money going into our regular taxable account.

That’s all I have for now. If you need me, I’ll be at the Glass City Record Show searching for some rare vinyl records that I just have to have for my record collection. Someone told me that if it’s vinyl, it’s not hoarding.

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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