SAVING FOR THE FUTURE entails a pinch in the present. Every so often, it makes sense to reconsider how much we save—and whether it’s time to take a break from saving. As a recent early retiree, I was pondering this, even before the latest stock market disruption. Unfortunately, none of us has a reliable crystal ball that tells us when to buy low or sell high. We also don’t have complete knowledge of our future self. Maybe future me will receive a windfall or die young, so I can get by with saving less. Or maybe I’ll develop a chronic condition and need more savings. We don’t know how lucky we will be on the way from youth to retirement—those years when we have the greatest opportunity to save. Savings aren’t “safe.” Risk is inevitable. Cash in an FDIC-protected bank account is guaranteed to keep its face value, but it’s also pretty much guaranteed to decline in real value each year due to inflation. Meanwhile, buying bad stock or bond market investments does little more than transfer your wealth to someone else. Recessions, market corrections and normal fluctuations can be difficult to stomach. And then we have occasional extraordinary events, like the economic and political disruptions caused by the coronavirus. Faced with all this uncertainty, I don’t try to divine the future. Instead, in setting aside a portion of my money for future me, I’m simply seeking to maintain purchasing power for a comfortable old age. With moderate luck and ongoing financial education, I might be able to eke out a percentage point or three above inflation, opening the road to a more prosperous retirement. I recently reviewed the Series EE and I savings bonds that I’ve purchased over the years. These ultra-conservative investments are rarely recommended. They’ve never been more than a fraction of my investments. The earliest bonds I own were bought through a payroll savings plan at work. I discovered some were no longer earning interest and I cashed them in at the bank. I will redeem the rest over time as they reach final maturity. I still recall the pinch in my long-ago budget. But as I say goodbye to steady paid employment, I’m grateful for the early savings habit I adopted. Those small sums, stashed in savings bonds, will periodically make nice additions to my everyday life. My remaining bonds, purchased occasionally over the past 30 years, earn interest rates ranging from 2.18% to 5.96%. That’s less return, over the long run, than I would have earned on a total stock market index fund, but those bonds are a sure thing that look good now as part of my balanced portfolio. I plan to buy more savings bonds, as well as make periodic purchases of a total stock market index fund. It won’t be as much as I contributed while working. Maybe each month I’ll save a sum equal to a week’s worth of groceries. Still, I’ll find it easier to sleep in my early retirement years knowing I continue to save a bit. And down the road, when I sell those investments, I’ll appreciate getting back that grocery money, which will make my uncertain future a little more comfortable. Catherine Horiuchi recently retired from the University of San Francisco's School of Management, where she was an associate professor teaching graduate courses in public policy, public finance and government technology. Her previous articles include Muddling Through, When It Rains and The Aftermath. [xyz-ihs snippet="Donate"]

AS MY TWINS DEPART for college, they leave behind a home base where they find food in the refrigerator, get new clothes and shoes when needed, have bills paid and extra-curriculars funded, and receive a small weekly allowance to save or spend. Now, they’re headed far from familiar security. They gain instead independence and the opportunity to explore other ways of living and spending, all part of their higher education. Cold cereal for supper? An extra pair of jeans instead of a recommended second textbook? Out for coffee with a friend or perhaps a show and dinner? A part-time job or a double major? I’ve got a dollar figure in mind for expenses I’ll be covering, beyond tuition and housing that’s already paid. One twin’s housing comes with a meal plan. The other’s dorm room has a kitchenette. That one will need to include food in her budget. I’ve made my estimate for their first semester and will add money to their existing credit union accounts once a week. Each has a debit card to take to college. This way, I imagine they will mostly use their incidental money appropriately, making minor miscalculations early on that can easily be corrected. If one twin finds my frugal estimate too low, she can contact me, and we can strategize why that’s happening and adjust the budget accordingly. If I’ve estimated correctly, it’s possible I might not hear much from either twin until the holidays, when I hope both will take a break from school for a visit home, where they can regale me with tall tales. Putting a thumb on the scale, I’m buying the roundtrip tickets home now—before they leave.

TWO WEEKS AFTER my husband’s death, we held a memorial service for local friends and family. Days later, after a reasonable amount of online research, I visited a car dealer. It’s my experience that bringing at least one youngster along speeds up dealmaking, plus a parent can get unvarnished opinions about life in the backseat. So I brought along my 13-year-old. The two of us test drove two used cars and bought one of them. The next day, I drove to work in the city, instead of taking a train from the park-and-ride lot, as I'd done for the prior decade. My goal was to shorten my commute and reduce my hours away from home. This ended badly when I slipped on wet pavement in a parking garage, resulting in an injury that required surgery and time off work. Having never endured such an injury before, it was a shock to realize that—for the first time in my adult life—I was neither earning nor saving money, especially during a period of such high expenditures. Further, we’d lost all my husband’s future cash flow and his sharing of family responsibilities. Would that I had a partner and decades of earnings to recover the lost cash. But instead, I was on my own, launching three young adults. I had read about the "widowhood effect." I was at elevated risk of illness, injury or death. I had been careful. But I’d already exceeded the three-to-five days off work allotted for a death in the immediate family. On top of that, we grieving people are often told to stay busy and try to get back to normal routines. While anyone can lose their footing on a rain-soaked walkway, possibly nothing bad would have happened if I’d kept to my familiar commute or, even better, stayed home from work another week or two. But all this was futile what-ifs. I set aside such thoughts, and focused on my work as executor of the estate and on helping the children in their grief. The financial work was made simpler by our prior planning, with a straightforward will, clear beneficiaries named on financial accounts (with one exception) and a family revocable trust, meaning my husband’s estate didn’t need to go through probate. An ongoing relationship with the lawyer who’d done this work also came in handy for this and other matters. The confluence of the loss of my spouse and a temporarily disabling injury became the ultimate test of our rainy-day fund. Cash to cover three-to-six months of expenses is a sizable chunk of money. Some experts advise holding less, if you’re willing to use loans or credit cards in a pinch. But the fact is, that “pinch” could involve a lot more than typical spending. As it turned out, our funds proved sufficient to weather the early problems caused by losing my credit cards, debit cards and license, followed by the cost of the funeral, a down payment on a newer car, daily living expenses and medical costs. Nevertheless, it was alarming to watch my emergency money shrink. I am now rebuilding our family’s rainy-day fund, as well as restructuring our financial accounts to make the whole of it simpler and easier to manage. Here are four key lessons from this period: The moment of loss is too late to begin saving money. You must begin sooner and have some confidence you’re targeting the right amount. It’s easier emotionally to plan for a flood or hurricane than to plan for your own death or the loss of a loved one. Whatever your strategy, the goal is a resilient financial environment for your family. Include legal planning in this. Having one bit of bad luck doesn’t preclude having more of the same. Keep a calm demeanor throughout and stick with your financial strategy. It will pay off in the long run. Many post-death tasks have specific timelines. For instance, there’s 60 days to roll over an IRA if you’re the spouse and you receive a distribution. Call the customer service numbers on statements. Read any paperwork that firms send you. Return it promptly. Keep moving forward with one eye on the calendar. Along with your financial plan, invest in friends, family and community. If you run out of money or the ability to handle matters, it’s good to know that others will show up for you. The support of friends and family in our community saved us thousands in direct expenses, as well as buoying our spirits at life’s lowest moments. Catherine Horiuchi is an associate professor in the University of San Francisco's School of Management, where she teaches graduate courses in public policy, public finance and government technology. This is the third article in a series. Catherine's two earlier articles were At the End and The Aftermath. [xyz-ihs snippet="Donate"]

MY TWIN DAUGHTERS just finished sorting through college offers and making their decision ahead of the May 1 acceptance deadline. With nearly 3,000 four-year colleges to choose from, how did they decide? It wasn’t easy. The pandemic didn’t just close our local public schools. It also ended visits from universities and limited school-based college counseling. Counselors compensated with lunchtime workshops, links to webinars, and lots of robocalls and emails urging students to fill out and submit the Free Application for Federal Student Aid (FAFSA). Working on their applications from home, my students were deluged with glossy mailings. “The University of Chicago wants you,” I said to one twin. She laughed and replied, “No, they don’t.” Luckily, during my daughters’ junior year, I attended one at-school event just before the pandemic hit. The presenters explained that neighboring states might be a better choice than our in-state system. They also encouraged parents to help their students build a list of seven to 10 schools in three categories: safety, match and reach. To further my education, I read several books, including The Price You Pay for College, Excellent Sheep, Who Gets In and Why and The Tyranny of Merit. With COVID-19 disrupting the usual pre-college test taking, applications surged for high-visibility and elite universities that were offering test-optional and test-blind reviews. There was also much interest in colleges with need-blind admissions, especially those where financial aid comes solely in the form of grant money. The resulting deluge of applicants for relatively few spots made it easy for these colleges to assemble an incoming class that matched their wishes, while sharply reducing the chances that any one student would make the cut. Faced with this discouraging math, we sought out solidly rated, somewhat selective, diverse and interesting colleges where the students’ median grade point average (GPA) and test scores resembled ours. In particular, we focused on four-year schools that had the career orientation essential to one twin, and universities with a lower net cost and the broad program of undergraduate study needed by the other. Both had sat for the SAT the week before their high school closed, but the prevalence of test-optional and test-blind reviews diminished the value of their good scores. Meanwhile, their high school GPAs weren’t as competitive. Partly that was a result of the distance learning necessitated by the pandemic. But it also reflected the well-known academic performance hit following a parental death—in this case the sudden loss of their father in 2019. Every college application this year included a question inviting students to describe the impact of the pandemic. Reports suggest that answers to this question heavily influenced application decisions. By contrast, my daughters’ loss of their father is a less universal and less widely understood grief, and no doubt harder for the typical admissions reader to interpret. I had the twins write their own essays. We made a conscious decision not to play in the space where consultants “advise” students or where parents “help” with essays. Given how easy it is to game these essays, I’m surprised at their oversized importance in the admissions process. While the girls wrote their essays, I studied key statistics found in federal data, including retention and graduation rates. An example: The state university in our city reports a four-year graduation rate of only 12% and a six-year graduation rate of 55%. Saving money short-term by going local thus creates a likely long-term opportunity cost that’s equal to two years of post-college employment income. I focused on cost, likelihood of admission, speedy graduation and low rates of loan default. This last data point is a good proxy for post-college success. [xyz-ihs snippet="Mobile-Subscribe"] The twins ultimately decided on a handful of “good fit” schools, expecting to be accepted by one or more. The good news: Each was admitted to and will attend her first-choice school. I have modest sticker shock. The first year alone will cost more than my last full year’s after-tax salary. The best part: I will “contribute” significantly less than the FAFSA-calculated EFC, or expected family contribution. How is that? Many schools, especially private nonprofit colleges, discount tuition through awards of merit aid. This is one reason to look beyond local public universities. Merit awards for each twin mean that sending the girls to college won’t break the bank. I anticipate today that I have enough to pay my fair share of the tab for the next four years. My initial promise to my twins was one year of college costs. It’s up to them to show they’re ready to do right by my investment of life savings, as well as by their own investment of time and effort. If all goes well, I’ve promised to continue supporting their studies in future academic years. What have I learned from all of this? In the aggregate, graduating from college in four years leads to a long-term positive return on investment. We don’t, however, live in the aggregate. Instead, we live in individual families and in uncertain times. To find good places for your students to apply, you need to know your students’ desires, your family’s capacity to pay, the likelihood of a positive return for the degrees they seek and how that education will feed into their career aspirations. While some top schools are highly selective, most admit a majority of applicants. For incoming students at any particular college, interquartile ranges for GPAs and SAT/ACT scores are usually available. At private schools, merit aid offers are likely if your student’s GPA and test scores place him or her in the top quartile. Your children may not be certain of their desired major or which schools might be a good choice. But some things can be teased out. Big city or small town? Big university or small college? Lots of fun or lots of academic collaboration? Avoid shoehorning your kid according to your beliefs about the next 50 years. Honestly, you don’t know. As a parent, your information needs differ from those of your child. Review all the data you can find on schools your student has suggested, including student demographics, net price and default rates for those who have federal loans. Colleges that send glossy brochures seek to boost applications and drive selectivity—and thus their national ranking—to new heights. If your student has previously shown interest in one of these schools and wants to apply, know that the likelihood of getting in is minuscule, even if your student appears to be a stellar applicant. Your student didn’t get in anywhere she applied? Or earlier thought she’d take a gap year before applying, only to be sad now that her friends are heading off to college? No worries. Many schools, public and private, have non-traditional deadlines or rolling admissions. Check out this list. Catherine Horiuchi recently retired from the University of San Francisco's School of Management, where she was an associate professor teaching graduate courses in public policy, public finance and government technology. Check out Catherine's earlier articles. [xyz-ihs snippet="Donate"]

STOCKS, BONDS, CASH—and a house owned free and clear. For many, that’s the recipe for a financially successful retirement. Our homes represent a central pillar of middle-class status. With a paid-off mortgage, we have an affordable place to spend our old age. Yet signing up for decades of house payments has become controversial for its high opportunity cost—what you give up to pay the mortgage. Has a home mortgage, with its long, slow road to payoff, fallen from relevance as a central element of retirement planning? To be sure, it's been a wild ride. During the George W. Bush administration, well-intentioned federal policies encouraged an expansion of the market for home loans. Bankers and builders responded. Home values rose as lending standards declined and increased demand met limited supply. Rising home prices served as their own collateral. Borrowers with no cash found zero-down offers containing both a primary and secondary mortgage. The second note, called a piggyback loan, filled the role of a down payment. “No doc” loans replaced earlier underwriting requirements that stipulated borrowers must verify they had income sufficient to support mortgage payments. These riskier loans were bundled and sliced into collateralized debt obligation (CDO) tranches, considered less risky than individual mortgages since the risk of default was diluted across many loans. These marketable securities also shifted the financial risks of lending away from mortgage originators and onto holders of the CDOs. This created novel moral hazard for multiple parties, who weren’t subject to the risks they ran. Questionable gain-seeking behavior resulted, such as bankers churning out CDOs to inflate year-end bonuses. Ratings agencies compounded the risk miscalculation by labeling these toxic instruments as investment grade. Out of this came the Great Recession. In the subsequent global reckoning, the plummeting value of toxic assets cut a path of destruction through the world economy. Many people lost their homes to foreclosure. Financial firms holding mortgages became insolvent, triggering a global liquidity crisis. Housing prices dropped, in some markets by as much as 50%. Even traditional borrowers, many of whom had put tens of thousands down and made years of payments, found themselves owing more than their homes’ worth. Some homeowners simply walked away, refusing to pay their mortgage. Others exited their housing debt with short sales—selling for less than they owed—which further exacerbated the crisis. Banks holding mortgages and collateralized debt obligations were endangered. Many of my students at the time held underwater mortgages and wondered how to respond. Was it ethical to walk away? Once burned, twice shy. Some now argue for an alternative lifestyle of renting forever. They want to find means, other than homeownership, to save for retirement and achieve financial prosperity. Still, nearly two-thirds of U.S. households remain homeowners. With the high costs of everyday life, homeowners can be tempted to borrow against the equity in their homes, even when it means their mortgages may never be repaid. With high interest rates, the high initial cost of homes, and ready options for cash-out refinancing, why should a paid-off home remain a primary financial goal? Perhaps it's foolish to place such importance on owning a home. Questioning homeownership is common ground for young adults and retirees alike. Uncertainties increased in a post-inflationary era where home values have lately trailed inflation. Factor in the cost of property maintenance and the stress of servicing a mortgage, and homeownership can look unappealing. Could the housing price boom be over? In some places lately, the interest rate on no-risk cash deposits has been higher than the annual increase in home values. People with working-class paychecks or living on retirement incomes are already stretched thin covering the costs of housing, food and transportation. A mortgage can push aside many of life’s smaller pleasures. If that’s the case, why not opt for the smallest, cheapest housing possible? Catherine Horiuchi is retired from the University of San Francisco's School of Management, where she was an associate professor teaching graduate courses in public policy, public finance and government technology. Check out Catherine's earlier articles. [xyz-ihs snippet="Donate"]

I'M TYPICALLY FRUGAL and financially cautious. But this past January, I became reckless. No, it wasn’t love, at least not the ordinary kind. Rather, I saw a photograph and made an offer of $48,000 on a “park unit” located 1,000 miles from home. Park unit, I learned, is a technical term for a variant of what I’d call a mobile home. My first task was to look up the term, so I’d know what I was offering to buy. For those readers who enjoy reading government standards definitions, these constructions are governed by ANSI standard A119.5. This manmade object is mobile in name only. It has been “parked” inside an age-restricted recreational vehicle resort in Arizona for nearly 40 years. The resort rents space by the day, month or year to vehicles that move (RVs) and those that don’t (park units and manufactured homes). Until I arrived at the beginning of March, I knew its particulars only through pictures and a 33-page report of an inspector I’d hired. I knew little about its construction or its series of prior owners and occupants. As a result of my impetuousness, I’ve added to my personal possessions an immobile vehicle, with an assessed value of about $25,000 per the Pima County Treasurer’s Office and which sits on a tiny patch of rented land over which I enjoy limited control. In purchasing the park unit, I also acquired an attached porch and laundry, a back patio with landscaped garden, a covered driveway and a large storage shed. The unit came “fully furnished,” meaning a houseful of secondhand appliances and discarded possessions, including a golf cart. This drove the difference between my purchase price and the unit's assessed value. I have a rough estimate of forward expenses for this and the coming years of ownership, expenses that I’ll be able to cover without trouble. Still, new costs and uncertainty have come my way, despite my focus on financial simplification over the past year. Why take this plunge? It’s a fair question. My youngest turned age 18 and is off finding his future. My twins are establishing themselves in their young adult lives. Thanks to good cellular coverage and a family phone plan, we’re able to keep tabs on one another. I have few expectations, responsibilities or demands on my time. I’m still in the company of the family dog, so it’s not a complete break with the past. When my spouse died five years ago, I soldiered on as a single parent and breadwinner, before taking early retirement. Now that those roles have been unwound, I’m reinventing myself. I don’t know the future, though many things are evident: I’m not as youthful as when I last looked in a mirror. Adventures transport me beyond the world that defined my working and family years. Infirmity will eventually find me, fast or slow. If slow, I could need help at home, or my kids might bring me into their homes. I could require services of a care community. Or I might go in a flash. Meanwhile, I have to be somewhere. I need to grow, learn new things and keep my mind fully engaged. I want my “decumulation expenditures” to reflect my values and interests. I remain curious about other people and their life stories. I want to meet new people and tend to longstanding friendships. Time spent with family and friends brings great joy. I have more to contribute to the wider community. I’m redefining an already excellent life, living true to my nature. And I’m finding this involves a new universe, the world of 55-plus housing. So, it’s not random, my decision to purchase this so-called recreational vehicle. HumbleDollar contributors have already shared stories about second homes, continuing care retirement communities, traveling around the world, retiring near children and relocating to less expensive cities, states or overseas. Threads have discussed long-term-care insurance and the cost of skilled nursing, as anticipated for oneself or as experienced by spouses or parents. I’ve read these and am better informed, thanks to the perspectives offered by others. I also hold close the insights of Australian hospice nurse Bronnie Ware: “It all comes down to love and relationships in the end.” My home neighborhood exemplifies “aging in place.” I’ve listened to neighbors’ stories during my 35 years of living here. Two seniors regretted their inability to visit siblings. One had a brother on the opposite coast. The other neighbor’s brother was only 200 miles away, but neither traveled well once they hit their 80s, so that left only phone contact. A third neighbor grew timid about leaving her house after retiring, especially during the pandemic, resulting in crippling seclusion and loneliness. My brother and sister-in-law, like others residing in northern states, favored mid-winter holidays in warmer climes during their working years. First it was St. Petersburg in Florida, then Arizona, where they visited a friend who’d moved into a 55-plus mobile home in Tucson that was once owned by her father. My brother and his spouse decided to head south for good when they retired. In a thorough search, they considered housing options throughout the Tucson metropolitan area, both age-restricted and typical neighborhoods. They explored the full range of options at every price point. Some were bare bones, while one development established by retired professors created a community stuffed with aesthetics and amenities, including regular lectures and Pilates classes. In due course, they sold their spacious riverfront Craftsman bungalow in Michigan and acquired a second-hand park unit in a modest age-restricted RV resort. At the time, I thought they’d gone crazy. Why didn’t they buy a house with a garden like the one they’d left behind, only now in the Sunbelt? If they wanted to live an age-restricted lifestyle, why not select the finest retirement community with every amenity they might enjoy? They encouraged me to visit them in their secondhand single-wide, so a few years back the kids and I took a holiday trip to Tucson to check it out. It was a mind-blowing week. If they’d bought into the fanciest community, they would have spent their days with retired professionals similar to themselves. If they’d bought a house in a general neighborhood, they’d be the oldsters home alone while everyone else was off at work and school. They would need a car to do anything, okay for now but maybe not so much as they grow older. Instead, my brother and sister-in-law became part of a compact and modest community of less than 300 households, the majority seasonal snowbirds and some just passing through. Their resort’s common areas include a small pool, a workout facility and community rooms an easy two-minute walk from their trailer. They’ve got a small shopping center across a boulevard with restaurants, a salon, a bank, a post office, a hardware store, a mini-mart and an insurance agency. A park abuts the resort on one side, with a traditional single-family home neighborhood beyond that. Multiple county, state and national parks lie within a few miles, drawing visitors from around the world. Their RV park includes dozens of spaces for Class A, B and C motorhomes. Migratory neighbors drive from as far as Canada to spend the winter in Tucson. As anyone who’s shopped for a motorhome knows, such vehicles range in price from a few thousand dollars to as much as $300,000. Let’s not forget the cost of a smaller car towed behind to get out and about while “camping” at an RV park. When temperatures rise come spring, winter vacationers return to northern homes and extended families, or continue their mobile RV roaming elsewhere. I’ve learned that approximately 225,000 retirement-age individuals live in the Tucson metropolitan area. For virtually every imaginable malady related to aging, there’s a world-class medical center within the metropolitan area bursting with specialists. Access to good health care is on my checklist of must-haves in retirement. My home town has grown substantially since I arrived. Doctors, dentists and the you-name-it who I’ve patronized for 35 years are retiring, like me. New restaurants and longstanding stores address the tastes and needs of the current generation of working adults and families with young children. Businesses that didn’t change with the times are gone altogether. When I retired, I lost my daily contact with work colleagues. A few weeks later, the pandemic arrived and closed campus for a long time, keeping me from establishing the habit of wandering about and staying engaged as an emeritus faculty member. The campus has since reopened, but post-pandemic people seem to have changed their working and socializing habits, and I haven’t felt a strong urge to begin anew there. I lost a second set of casual friends when the kids grew up, and aged out of school clubs and competitive sports, with their many practices, meets and travel. I spent years warming auditorium seats and gymnasium benches across the state and around the world, endless hours spent with parents of other youngsters. We shared our lives, but not anymore. I still have friends around town and among local oldsters who hang out at neighborhood bakeries drinking coffee most mornings. But it’s nothing compared to the vibrancy of my brother’s social network. And so I’ve bought a unit in the same park as my brother and sister-in-law. For now, I’ll be a seasonal resident. When hot weather arrives, I’ll return to where I worked and raised my family. With an extra bedroom available at home, my brother and sister-in-law can spend as much of the summer as they wish with me at my house. I can still enjoy the many wonderful things that make my neighborhood a great place, and I’ll have family nearby in the winters when I travel south. Here's what’s crucial to this entire venture. My adult children don’t need to be spending time thinking about me growing old, possibly lonely in the old house. Instead, I’m building a more robust circle of family and new friends, where we can take turns both being needy and helping each other. Maybe I’m not so reckless after all. Catherine Horiuchi is retired from the University of San Francisco's School of Management, where she was an associate professor teaching graduate courses in public policy, public finance and government technology. Check out Catherine's earlier articles. 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