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Misery lies in the mismatch between the decades needed to score fabulous gains in the stock market—and investors’ relentless focus on today.

I’m depressed, not very optimistic about retirement 😱 by R Quinn

"My bad for the spelling error on the data source. Fixed in above posts."
- Jim Burrows
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Our annual give it away meeting 🤑

"Thanks for pointing this out. Having check writing privileges does sound easier - just yesterday I sent out several small checks which was faster and easier than accessing those organizations online. In one case, a magazine subscription, the 2-year deal offered via snail mail wasn't available from the online subscription renewal service that the magazine is using. Glad I always have a bunch of Forever stamps, and the P.O. is a short walk away."
- Linda Grady
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Social Security Solutions

"SS is funded proportionally by all workers who all benefit proportionally. Once you have any group paying the taxes with no proportional benefit, it becomes a form of welfare in my book and changes the very foundation of the program. You can raise the cap even eliminate the cap and introduce a new bend point so that extra benefits accrue based on higher wages, but at a lower rate. Subject all wages to tax with accrual and you close 60% of the funding gap. Tax all wages above $400,000 with lower accrual and you solve 67% of funding gap. (Per SS reformer by CRFB)"
- R Quinn
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Hedging your bet in retirement-dealing with inflation. What’s your strategy? R Quinn

"And you have to hope you don’t run into an extended bear market or some international crisis. It works when it works as long as you are good with the risk which you seem to be. 👍"
- R Quinn
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Jabs Anyone?

"“Neither am I.” Yet you trust Snopes."
- Luckless Pedestrian
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Two Innovations That Can Improve Your Health by Dennis Friedman

"I agree completely. I had cataract surgery on both eyes and have moderate to severe hearing loss. I've worn hearing aids for 8 years, intermittently at best since they've never been comfortable for me, and only marginally improve my hearing. Eye surgery has been so much better improving the quality of my life!"
- Mike Wyant
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New ArticlesAll Articles »

Underwater Overseas

IS IT WORTH OWNING international stocks? There’s far from universal agreement. The traditional argument for investing outside the U.S. is straightforward: diversification—since domestic and international stocks don’t move in lockstep, and sometimes diverge significantly.
At the same time, however, international stocks have lagged behind their U.S. counterparts for so many years that it’s been trying the patience of even the most tenacious investors. Domestic stocks have outpaced international stocks in eight of the past 10 years.

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Turned Upside Down

FOUR MONTHS AGO, I was told I might have just a year to live. It’s been a whirlwind ever since.
I’ve been inundated with messages from acquaintances and readers, gone to countless medical appointments, my diagnosis has received a surprising amount of media attention, I’ve been hustling to organize my financial affairs, and Elaine and I have taken two trips.
Where do things stand today? Here’s what’s been going on.
Medical update. After three radiation treatments to zap the 10 cancerous lesions on my brain and an intense opening round of infusion sessions,

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Misplaced Trust

WHEN I WAS A YOUNG adult, my parents sat me down and explained that I might at some point inherit money from my grandfather’s trust, which had also helped put me through college. My grandfather passed away in 1984, and his wife—my father’s stepmother—became the trust’s beneficiary.
My father was an only child. The trust stipulated that, if his stepmother died before him, he would receive two-thirds of the trust, while my two siblings and I would share the other third.

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Luxury on Rails

I LOVE TO TRAVEL—and it runs in the family. My parents were avid travelers, with my father receiving a generous travel allowance from his work every four years.
In addition, my father always managed his time and budget for numerous other trips. After his passing, my brother and I took turns maintaining the travel tradition with our mom, until plans were disrupted by the pandemic.
After retiring this year, I eagerly anticipated visiting my mother in India and taking her on a grand tour.

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Don’t Build Without It

YEARS AGO, I SAW a Looney Tunes cartoon starring Daffy Duck and Elmer Fudd. As always, good old Elmer was trying to kill a duck for dinner, only to be outsmarted by the much cleverer Daffy.
In this particular episode, Daffy is playing a game of catch with his duck friends outside Elmer’s house. An overthrown ball crashes through a window. Elmer comes out and says, “Who broke that glass? Someone is going to pay for that.” The ducks all bump into each other in their efforts to run away.

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Ranking Colleges

I’VE TAUGHT BEHAVIORAL economics, which holds that even our most important decisions are influenced by unrecognized biases. For my students, there’s no better example than the choice of where they went to college.
Although the cost is enormous, the decision of where to go hinges on the smallest things. A teenager who says, “I want to be close to my boyfriend,” will zero in on a nearby college, even if her high school romance is fading.

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Get Educated

humans

NO. 27: WE THINK we can forecast the stock market’s direction. Most experts agree it’s impossible to predict where stocks will head next, and yet almost every investor has an opinion. Why? Partly, it’s because market swings have a huge impact on our day-to-day wealth. But partly, it’s hindsight bias: Bull and bear markets seem all too predictable—in retrospect.

Truths

NO. 94: IF YOU REFINANCE your mortgage to take advantage of lower rates, you’ll cut your monthly payment, but you may also set yourself back financially. Suppose you’re eight years into a 30-year mortgage. If you refinance with another 30-year loan, your monthly payment could drop sharply—but it’ll also be eight extra years until you’re debt-free.

act

GENERATE TAXABLE income if this will be a low-income year. You might sell winning stocks in your taxable account, cash in savings bonds or convert part of your traditional IRA to a Roth. Result: You could end up paying federal taxes at just 10% or 12%, and perhaps 0% on your capital gains—a bargain if you foresee getting taxed at higher rates down the road.

Money Guide

Claiming Strategies

WHAT IS THE BEST strategy for claiming Social Security benefits if you’re married—and you can’t take advantage of the loopholes closed by the 2015 Budget Act and discussed elsewhere? For most couples, it will make sense for the spouse with higher lifetime earnings to delay claiming benefits until age 70. Let’s be politically incorrect and assume that’s the husband. Delaying until 70 ensures not only the maximum possible monthly benefit for the husband, but also a handsome survivor benefit for his wife, assuming the husband dies first. Because the husband’s benefit could live on after his death, it can make sense for him to delay Social Security, even if he’s in poor health. Problem is, until the husband claims benefits, his wife can’t receive spousal benefits. She can, however, claim benefits based on her own earnings record—and, as we'll discuss below, it may make sense for her to go ahead and claim those benefits. The missed spousal benefits could amount to a tidy sum. For instance, if the husband and wife are the same age and the husband delays benefits until age 70, the wife will miss out on eight years of spousal benefits and, to make matters worse, she won’t receive any credit for delaying spousal benefits beyond her full retirement age of 66 or 67. Still, because the husband’s benefit will be paid until both he and his wife have died—thanks to the survivor benefit—it will typically make sense for him to delay. When shouldn’t the husband delay? There are three factors that could prompt the husband to claim benefits earlier. First, he might claim benefits earlier than age 70 if both he and his wife are in poor health. Second, the husband might claim earlier if he’s much younger than his wife. For instance, if the husband is four years younger than his wife and he delays benefits until age 70, his wife wouldn’t collect spousal benefits until age 74—which means she would miss out on 12 years of benefits. In that scenario, it can still make sense for the husband to delay until age 70, but the case isn’t as strong. Third, the husband might claim earlier if his wife had little or no lifetime earnings. Remember, the wife receives the higher of either her spousal benefit or her own benefit based on her lifetime earnings. If the wife’s own benefit is large, the extra from spousal benefits may not be worth much, if anything, so there’s little cost in the husband delaying to age 70. But if the wife’s own benefit is modest, the spousal benefit will be worth a lot—and the husband might want to claim benefits when his wife reaches age 66 or 67. That will allow his wife to claim spousal benefits at her full retirement age, at which point her spousal benefit will be as large as it will ever get, ignoring any adjustments for inflation. If the higher-earning spouse delays benefits until age 70, when should the lower-earning spouse—the wife in our example—claim benefits based on his or her own earnings record? If the wife claims benefits based on her own earnings record before her full retirement age, that will result in a reduced benefit. That reduction carries over, so that—when the wife is able to claim spousal benefits—she'll receive less than the full 50% of her husband's full retirement age benefit. Still, when the wife claims is a less crucial decision, because the lower-earning spouse’s benefit disappears when the first spouse dies: At that juncture, either the wife would be collecting survivor benefits (assuming the husband had died) or the husband would continue with his benefit as before (assuming the wife had died). If one spouse is in poor health, the lower-earning spouse might claim at 62. If both spouses are in decent health, the lower-earning spouse might claim at his or her full retirement age of 66 or 67. Next: Family Benefits Previous: Spousal Benefits
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Manifesto

NO. 51: RENTAL real estate can be a great investment. But it’s also a big, leveraged, undiversified bet and a lot of hassle. A diversified stock portfolio is less work—and arguably less risky.

Second LookAll Articles »

Retirement

An Annuity Instead?

IN A RECENT ONLINE discussion, I compared the benefits of an immediate-fixed annuity with the 4% retirement-income rule. The 4% rule suggests that investors can withdraw 4% from a well-balanced investment portfolio in the first year of retirement, and then add annual inflation adjustments without fear of running out of money over a 30-year retirement.
Using the NewRetirement annuity calculator, I found that a 65-year-old man could purchase an immediate annuity for $1 million,

Read more »

Family Finance

Not So Fast

TOWARD THE END of high school, I landed in some predictably adolescent legal trouble: I purchased alcohol underage and had to shamefully explain what happened to my parents. As I dejectedly declared that I would pay the fine and admit guilt, my parents—concerned about potential career implications—instead insisted that I hire a lawyer with my own money. I had to work for more than a year as a busboy and caterer to reimburse my parents for the cost,

Read more »

Investing

A World of Problems

WITH EVERYTHING that’s been going on recently, one story that’s received less attention is the ongoing spat between the White House and the board of the Thrift Savings Plan (TSP). As of a few days ago, there had been a ceasefire in the debate, but it isn’t over. It’s worth understanding what’s at stake—because the underlying issue has been a recurring theme in the investment industry.
If you aren’t familiar with the TSP, it’s one of the retirement plans available to federal government workers.

Read more »

Lists

Unheard Of

TALKING TO A BROKER or insurance salesman? Here are 10 things you’ll likely never hear:

“Wow, your 401(k) has great low-cost institutional funds. There’s no way you should roll that money into an IRA.”
“Do you know that you could buy these funds outside a variable annuity and pay a fraction of the price?”
“Sure, you could make that trade—but probably the only person who will get richer is me.”
“My hunch is, this closed-end fund you’re buying will be at discount within a few months of the IPO.”
“Given the markup on that bond you just bought,

Read more »
Home Call to Action

Mindset

Feel Better

WARREN BUFFETT doesn’t have the best investment record over the past three decades. That accolade apparently belongs to Jim Simons. Buffett also isn’t the world’s richest person. In fact, he hasn’t held that title for the past dozen years and currently ranks No. 6, with barely half the wealth of today’s richest person, Jeff Bezos.
I doubt Buffett feels bad about this. Is your surname neither Simons nor Bezos? I don’t think you should feel bad,

Read more »

Free Newsletter

Get Educated

Manifesto

NO. 51: RENTAL real estate can be a great investment. But it’s also a big, leveraged, undiversified bet and a lot of hassle. A diversified stock portfolio is less work—and arguably less risky.

humans

NO. 27: WE THINK we can forecast the stock market’s direction. Most experts agree it’s impossible to predict where stocks will head next, and yet almost every investor has an opinion. Why? Partly, it’s because market swings have a huge impact on our day-to-day wealth. But partly, it’s hindsight bias: Bull and bear markets seem all too predictable—in retrospect.

Truths

NO. 94: IF YOU REFINANCE your mortgage to take advantage of lower rates, you’ll cut your monthly payment, but you may also set yourself back financially. Suppose you’re eight years into a 30-year mortgage. If you refinance with another 30-year loan, your monthly payment could drop sharply—but it’ll also be eight extra years until you’re debt-free.

act

GENERATE TAXABLE income if this will be a low-income year. You might sell winning stocks in your taxable account, cash in savings bonds or convert part of your traditional IRA to a Roth. Result: You could end up paying federal taxes at just 10% or 12%, and perhaps 0% on your capital gains—a bargain if you foresee getting taxed at higher rates down the road.

Money Guide

Start Here

Claiming Strategies

WHAT IS THE BEST strategy for claiming Social Security benefits if you’re married—and you can’t take advantage of the loopholes closed by the 2015 Budget Act and discussed elsewhere? For most couples, it will make sense for the spouse with higher lifetime earnings to delay claiming benefits until age 70. Let’s be politically incorrect and assume that’s the husband. Delaying until 70 ensures not only the maximum possible monthly benefit for the husband, but also a handsome survivor benefit for his wife, assuming the husband dies first. Because the husband’s benefit could live on after his death, it can make sense for him to delay Social Security, even if he’s in poor health. Problem is, until the husband claims benefits, his wife can’t receive spousal benefits. She can, however, claim benefits based on her own earnings record—and, as we'll discuss below, it may make sense for her to go ahead and claim those benefits. The missed spousal benefits could amount to a tidy sum. For instance, if the husband and wife are the same age and the husband delays benefits until age 70, the wife will miss out on eight years of spousal benefits and, to make matters worse, she won’t receive any credit for delaying spousal benefits beyond her full retirement age of 66 or 67. Still, because the husband’s benefit will be paid until both he and his wife have died—thanks to the survivor benefit—it will typically make sense for him to delay. When shouldn’t the husband delay? There are three factors that could prompt the husband to claim benefits earlier. First, he might claim benefits earlier than age 70 if both he and his wife are in poor health. Second, the husband might claim earlier if he’s much younger than his wife. For instance, if the husband is four years younger than his wife and he delays benefits until age 70, his wife wouldn’t collect spousal benefits until age 74—which means she would miss out on 12 years of benefits. In that scenario, it can still make sense for the husband to delay until age 70, but the case isn’t as strong. Third, the husband might claim earlier if his wife had little or no lifetime earnings. Remember, the wife receives the higher of either her spousal benefit or her own benefit based on her lifetime earnings. If the wife’s own benefit is large, the extra from spousal benefits may not be worth much, if anything, so there’s little cost in the husband delaying to age 70. But if the wife’s own benefit is modest, the spousal benefit will be worth a lot—and the husband might want to claim benefits when his wife reaches age 66 or 67. That will allow his wife to claim spousal benefits at her full retirement age, at which point her spousal benefit will be as large as it will ever get, ignoring any adjustments for inflation. If the higher-earning spouse delays benefits until age 70, when should the lower-earning spouse—the wife in our example—claim benefits based on his or her own earnings record? If the wife claims benefits based on her own earnings record before her full retirement age, that will result in a reduced benefit. That reduction carries over, so that—when the wife is able to claim spousal benefits—she'll receive less than the full 50% of her husband's full retirement age benefit. Still, when the wife claims is a less crucial decision, because the lower-earning spouse’s benefit disappears when the first spouse dies: At that juncture, either the wife would be collecting survivor benefits (assuming the husband had died) or the husband would continue with his benefit as before (assuming the wife had died). If one spouse is in poor health, the lower-earning spouse might claim at 62. If both spouses are in decent health, the lower-earning spouse might claim at his or her full retirement age of 66 or 67. Next: Family Benefits Previous: Spousal Benefits
Read more »
Second LookAll Articles »

Retirement

An Annuity Instead?

IN A RECENT ONLINE discussion, I compared the benefits of an immediate-fixed annuity with the 4% retirement-income rule. The 4% rule suggests that investors can withdraw 4% from a well-balanced investment portfolio in the first year of retirement, and then add annual inflation adjustments without fear of running out of money over a 30-year retirement.
Using the NewRetirement annuity calculator, I found that a 65-year-old man could purchase an immediate annuity for $1 million,

Read more »

Family Finance

Not So Fast

TOWARD THE END of high school, I landed in some predictably adolescent legal trouble: I purchased alcohol underage and had to shamefully explain what happened to my parents. As I dejectedly declared that I would pay the fine and admit guilt, my parents—concerned about potential career implications—instead insisted that I hire a lawyer with my own money. I had to work for more than a year as a busboy and caterer to reimburse my parents for the cost,

Read more »

Investing

A World of Problems

WITH EVERYTHING that’s been going on recently, one story that’s received less attention is the ongoing spat between the White House and the board of the Thrift Savings Plan (TSP). As of a few days ago, there had been a ceasefire in the debate, but it isn’t over. It’s worth understanding what’s at stake—because the underlying issue has been a recurring theme in the investment industry.
If you aren’t familiar with the TSP, it’s one of the retirement plans available to federal government workers.

Read more »
Home Call to Action

Lists

Unheard Of

TALKING TO A BROKER or insurance salesman? Here are 10 things you’ll likely never hear:

“Wow, your 401(k) has great low-cost institutional funds. There’s no way you should roll that money into an IRA.”
“Do you know that you could buy these funds outside a variable annuity and pay a fraction of the price?”
“Sure, you could make that trade—but probably the only person who will get richer is me.”
“My hunch is, this closed-end fund you’re buying will be at discount within a few months of the IPO.”
“Given the markup on that bond you just bought,

Read more »

Mindset

Feel Better

WARREN BUFFETT doesn’t have the best investment record over the past three decades. That accolade apparently belongs to Jim Simons. Buffett also isn’t the world’s richest person. In fact, he hasn’t held that title for the past dozen years and currently ranks No. 6, with barely half the wealth of today’s richest person, Jeff Bezos.
I doubt Buffett feels bad about this. Is your surname neither Simons nor Bezos? I don’t think you should feel bad,

Read more »