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Saving for retirement is life’s toughest financial task. Generating retirement income is the trickiest.

Other People’s Money

ACCORDING TO OXFORD Languages, the word invest means to “expend money with the expectation of achieving a profit.”
I like this definition better than some others because it includes the word “expectation,” which therefore should exclude casino gambling and sports betting. But what if you have an expectation of winning? Couldn’t casino gambling and sports betting both be considered investments? As Zach Galifianakis’s character said in The Hangover, “It’s not gambling if you know you’re going to win.”
How can one create this expectation?

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Not Quite Magic

THEY SAY THAT TAKING a cruise is a poor man’s idea of a rich man’s vacation. As an unsophisticated traveler, all I knew of cruises were the glowing reports I heard from others who had taken them—and the romanticized versions I saw in the movies.

 My aspirations were based on a movie I saw starring Doris Day, Romance on the High Seas. It’s about a glamorous, adventurous and romantic cruise with beautifully dressed people,

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Recent Writing

How I Got This Way

THIS IS MY FIRST article for HumbleDollar. I’m new to the site, but not new to writing for the public and, indeed, I’ve contributed regular columns to some small newspapers.
My life has had more twists and turns than going down a Kentucky country back road filled with hillbillies, of which I am one. Kentucky is either the poorest state in the country or next to it by any measure you want to look at.

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Losing Value

PERHAPS YOU’VE SEEN charts like the one below, which comes from Dimensional Fund Advisors. The message: Investors who try to time the market in search of better returns often end up damaging their results. To many investors, this seems intuitive, because trading isn’t easy.
But to others, market timing appears to make a lot of sense. For instance, for years, Yale University professor Robert Shiller has been maintaining a measure of market valuation known as the cyclically adjusted price-earnings (CAPE) ratio.

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Eyeing the Future

I DON’T TRACK MY finances that closely and I don’t make big financial moves very often. Partly, it’s because I’m so busy with other things. But partly, it’s because I’ve come to see the virtue in benign neglect.
Still, this is shaping up to be a surprisingly busy year. I’ve taken a handful of financial steps—with three key goals in mind:
No. 1: Prepaying retirement. Like many others as they approach retirement,

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Skill or Luck?

NASSIM NICHOLAS TALEB has written a trilogy on the topic of chance: Fooled by Randomness, The Black Swan and Antifragile. I didn’t find these three books to be easy reading, plus Taleb has strong opinions, which may turn off some readers. Still, there’s a host of investment lessons to be culled from his works.
Taleb argues that randomness plays a powerful role in financial markets and,

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Home Call to Action

A Late Save

MANY RETIREMENT savers fund tax-deferred accounts—with good reason: The money we contribute pre-tax to an IRA or 401(k) reduces our taxable income, plus that money grows tax-deferred until withdrawn.
But there are two lesser-known benefits that are worth keeping in mind. First, with IRAs and solo 401(k)s, you can contribute for last year right up until the tax-filing deadline in April of the following year. That means you can calculate your tax bill, make an IRA contribution that’s credited to last year—and voila—cut the tab you owe Uncle Sam.

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The Mary Jean List

MY FATHER-IN-LAW Carson was a stereotypical engineer—organized and precise. All four of his children know the motto “measure twice, cut once.” Carson applied these traits to his finances, which he managed on behalf of himself and Mary Jean, his wife. Mary Jean depended on this.
As they aged, Carson maintained his mental acuity, but he was the first of the two to deteriorate physically. Mary Jean was strong physically but slowly surrendered to Alzheimer’s.

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Medicare for All

I CAN’T TAKE IT ANY more: I need to rant about health care.

There’s absolutely no reason to continue the current health-care payment system, none, not one. Where’s the rationale for having private insurance, Obamacare, Medicare, Medicaid, TRICARE and the Children’s Health Insurance Program (CHIP)? Each was developed to deal with the same issue—paying for health care.

Some form of Medicare for all, or M4A as it’s sometimes known, is the only system that makes sense.

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My Retirement Home

WE BEGAN IN 2019 to think seriously about what we wanted our retirement to look like. My husband had retired in 2018. I was aiming to leave my job in 2022. We were hoping to have a plan in place long before my final day of work.
Our first step was to decide where we wanted to live. We were both eager to escape the Pacific Northwest, so we zeroed in on a couple of potential destinations.

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Get Educated

Truths

NO. 42: IT’S HARD to distinguish skill from luck. Suppose that, after all investment costs, there’s a 45% chance of beating the stock market each year. Over a dozen years, probability suggests that, out of a million investors, 69 “investment geniuses” would beat the market in all 12 years. But were these stock pickers truly skillful—or just very lucky?

Act

BUY A USED CAR. While leasing or buying a new car may be alluring, purchasing a used one is usually the better financial choice. By buying a three-year-old car, you’ll sidestep the steep depreciation that new vehicles suffer, but the car should still have plenty of good miles ahead of it—and you should have ample choice, thanks to all the cars coming off lease.

Think

FIXED COSTS. Our fixed monthly expenses include items like mortgage or rent, car payments, insurance premiums, utilities and groceries. The higher these costs, the less we’ll have for savings and for discretionary spending. The latter includes things like vacations, concerts, eating out and hobbies—typically the spending that brings the greatest happiness.

Money Guide

Backdoor Roth

WHEN YOU CONVERT a traditional IRA to a Roth IRA, you don’t have to pay taxes on your nondeductible contributions. Let’s say that, over the years, you have made $20,000 in nondeductible contributions to an IRA that are now worth $30,000. When you convert, you don’t have to pay taxes on the $20,000 in nondeductible contributions. Thus, the conversion would potentially add just $10,000 to your taxable income, while giving you a $30,000 Roth that will grow tax-free thereafter. The funding of a nondeductible IRA, and then converting it to a Roth, is known as a "backdoor Roth"—a strategy that's popular with high income earners who otherwise wouldn't qualify to fund a Roth IRA. Indeed, some high income earners do this every year, first funding a nondeductible IRA and then soon after converting it to a Roth. Sound appealing? There’s a potential hitch. Consider the example above. Suppose that, in addition to your $30,000 nondeductible IRA, you also have a $170,000 rollover IRA from your old employer’s 401(k). When you convert your $30,000, you have to assume that the money comes pro-rated from all your IRAs combined. That means it’s coming out of the $200,000 total IRA. Result: Instead of just $10,000—or 33% of the sum converted—being taxable, you would find that $27,000, or 90%, would be taxed. The reason: The $20,000 in nondeductible contributions represents just 10% of your IRA’s $200,000 total value. What to do? If you have made nondeductible contributions and you’re considering a Roth conversion, you might hold off rolling your former employer’s 401(k) into an IRA. Alternatively, if you have that money already sitting in a rollover IRA, you may be able to move it into your new employer’s retirement plan. That might leave you with just a single IRA, containing nondeductible contributions. You could then convert that account and pay a relatively modest tax bill. Next: Jonathan's Roth Previous: Roth Conversions
Read more »

Manifesto

NO. 74: WHATEVER the nightmare scenario—recession, inflation, deflation—the answer’s the same: We need stocks to notch long-run gains, with enough bonds and cash to survive the rough spell.

Voices

What costs are you most loath to pay?

"Real estate agent commissions."
- Bruce Keller
Read more »

Is it possible to have too much money?

"If I have too much greed, there will never be too much money. If I know exactly how much I want, it'll be too much money beyond that amount."
- Seigo Tsujimoto
Read more »

Where do you see signs of inflation?

"Since gas prices have eased, primarily food, especially eggs but that's due apparently to the deadliest outbreak of avian flu in U.S. history. Have resorted to hunting for markdowns on items near expiration."
- Klaatu
Read more »

Second Look

Retirement

Perking Up

EACH SPRING, I WATCH a fresh crop of college graduates transition from the world of fulltime academics to the world of fulltime employment. Eager to begin “adulting,” many of them focus on the salaries offered by their employer-of-choice and give little consideration to the various benefits that supplement that salary.
That’s a mistake. As someone who’s been employed fulltime for the last 26 years, I’ve learned the importance of performing a cost-benefit analysis on the perks offered by various employers.

Read more »

Family Finance

Life After Amazon

IN NOVEMBER 2015, I got a notice from Amazon advising me that its security had been breached by some clever hacker and that my password may have been compromised. I was locked out of my account and instructed to set a new password.
In typical mindless fashion, I immediately set out to do just that. But then my inner contrarian stepped up and shouted some questions. I love this guy, even though most everyone around me thinks he’s a truculent moron.

Read more »

Investing

No Sweat

I’M STRUCK BY HOW calmly I’m taking this fast-and-furious coronavirus selloff. The human toll is getting worse every day, and the economic and other consequences could be catastrophic. But I’m not tempted to sell. I’m also not in a hurry to buy the dip, though admittedly my pulse quickened Friday afternoon when the market was down 15% from its Feb. 19 high.
There’s absolutely no way to know what will happen first: Whether I’ll regret not buying the dip or Dustin Hoffman will knock on my door in a biohazard suit.

Read more »

Lists

Not Just Irrational

OUR FINANCIAL irrationality has been well documented by academics focused on behavioral finance. But we aren’t just irrational. We’re also inconsistent in our irrationality. Here are five examples which, while somewhat amusing, can also have dire financial consequences:

Employees will work for 30 years at a job they hate to qualify for a traditional defined benefit pension, but they wouldn’t dream of delaying Social Security for a few years to get a larger monthly check.

Read more »
Home Call to Action

Mindset

Choosing Our Future

WHEN FOLKS HAVE financial questions, they go hunting for the right answer. But what if there’s no right answer to be found?
To be sure, in retrospect, the correct answer is often crystal clear. Looking back at 2018, we should have owned growth stocks until September and then gone to 100% cash. If our home didn’t burn down and our health was good, we shouldn’t have bothered with homeowner’s and health insurance. If we kept our job and survived the year,

Read more »

Free Newsletter

Get Educated

Manifesto

NO. 74: WHATEVER the nightmare scenario—recession, inflation, deflation—the answer’s the same: We need stocks to notch long-run gains, with enough bonds and cash to survive the rough spell.

Act

BUY A USED CAR. While leasing or buying a new car may be alluring, purchasing a used one is usually the better financial choice. By buying a three-year-old car, you’ll sidestep the steep depreciation that new vehicles suffer, but the car should still have plenty of good miles ahead of it—and you should have ample choice, thanks to all the cars coming off lease.

Truths

NO. 42: IT’S HARD to distinguish skill from luck. Suppose that, after all investment costs, there’s a 45% chance of beating the stock market each year. Over a dozen years, probability suggests that, out of a million investors, 69 “investment geniuses” would beat the market in all 12 years. But were these stock pickers truly skillful—or just very lucky?

Think

FIXED COSTS. Our fixed monthly expenses include items like mortgage or rent, car payments, insurance premiums, utilities and groceries. The higher these costs, the less we’ll have for savings and for discretionary spending. The latter includes things like vacations, concerts, eating out and hobbies—typically the spending that brings the greatest happiness.

Money Guide

Start Here

Backdoor Roth

WHEN YOU CONVERT a traditional IRA to a Roth IRA, you don’t have to pay taxes on your nondeductible contributions. Let’s say that, over the years, you have made $20,000 in nondeductible contributions to an IRA that are now worth $30,000. When you convert, you don’t have to pay taxes on the $20,000 in nondeductible contributions. Thus, the conversion would potentially add just $10,000 to your taxable income, while giving you a $30,000 Roth that will grow tax-free thereafter. The funding of a nondeductible IRA, and then converting it to a Roth, is known as a "backdoor Roth"—a strategy that's popular with high income earners who otherwise wouldn't qualify to fund a Roth IRA. Indeed, some high income earners do this every year, first funding a nondeductible IRA and then soon after converting it to a Roth. Sound appealing? There’s a potential hitch. Consider the example above. Suppose that, in addition to your $30,000 nondeductible IRA, you also have a $170,000 rollover IRA from your old employer’s 401(k). When you convert your $30,000, you have to assume that the money comes pro-rated from all your IRAs combined. That means it’s coming out of the $200,000 total IRA. Result: Instead of just $10,000—or 33% of the sum converted—being taxable, you would find that $27,000, or 90%, would be taxed. The reason: The $20,000 in nondeductible contributions represents just 10% of your IRA’s $200,000 total value. What to do? If you have made nondeductible contributions and you’re considering a Roth conversion, you might hold off rolling your former employer’s 401(k) into an IRA. Alternatively, if you have that money already sitting in a rollover IRA, you may be able to move it into your new employer’s retirement plan. That might leave you with just a single IRA, containing nondeductible contributions. You could then convert that account and pay a relatively modest tax bill. Next: Jonathan's Roth Previous: Roth Conversions
Read more »

Voices

What financial topic do you find most confusing?

"Basically everything. There are thousands of conflicting, constantly changing views from "experts' on just one topic. It's very hard to keep myself detached from the noise knowing that ignoring them is the best....."
- Seigo Tsujimoto
Read more »

Which financial companies would you recommend?

"I use both Fidelity and Vanguard since the 1980's. I learned early on never to put all your eggs in one basket, especially like one stock where you work. Anything can FAIL no matter how Big. Overall these two companies have served all my needs, and yes they both have had some ups and downs, but are solid companies and plan to use them until my death, currently I am 76. For banks, I chose online accounts at Ally and Marcus, both always competing for a good rate, and compete with the highest. Also I manage all my investments, as paying 1% and more adds up over a lifetime, I primarily use ETF's for Dow Jones, S&P, and Nasdaq. I use a small percentage 3.4% of my portfolio to deal in individual stocks, as we all like to think we can do better!"
- William Dorner
Read more »

What do you consider your greatest financial mistakes?

"
  1. Being a follower.
  2. Unable to control emotions.
  3. Watching/reading financial news as if they are all true
"
- Seigo Tsujimoto
Read more »

Second Look

Retirement

Perking Up

EACH SPRING, I WATCH a fresh crop of college graduates transition from the world of fulltime academics to the world of fulltime employment. Eager to begin “adulting,” many of them focus on the salaries offered by their employer-of-choice and give little consideration to the various benefits that supplement that salary.
That’s a mistake. As someone who’s been employed fulltime for the last 26 years, I’ve learned the importance of performing a cost-benefit analysis on the perks offered by various employers.

Read more »

Family Finance

Life After Amazon

IN NOVEMBER 2015, I got a notice from Amazon advising me that its security had been breached by some clever hacker and that my password may have been compromised. I was locked out of my account and instructed to set a new password.
In typical mindless fashion, I immediately set out to do just that. But then my inner contrarian stepped up and shouted some questions. I love this guy, even though most everyone around me thinks he’s a truculent moron.

Read more »

Investing

No Sweat

I’M STRUCK BY HOW calmly I’m taking this fast-and-furious coronavirus selloff. The human toll is getting worse every day, and the economic and other consequences could be catastrophic. But I’m not tempted to sell. I’m also not in a hurry to buy the dip, though admittedly my pulse quickened Friday afternoon when the market was down 15% from its Feb. 19 high.
There’s absolutely no way to know what will happen first: Whether I’ll regret not buying the dip or Dustin Hoffman will knock on my door in a biohazard suit.

Read more »
Home Call to Action

Lists

Not Just Irrational

OUR FINANCIAL irrationality has been well documented by academics focused on behavioral finance. But we aren’t just irrational. We’re also inconsistent in our irrationality. Here are five examples which, while somewhat amusing, can also have dire financial consequences:

Employees will work for 30 years at a job they hate to qualify for a traditional defined benefit pension, but they wouldn’t dream of delaying Social Security for a few years to get a larger monthly check.

Read more »

Mindset

Choosing Our Future

WHEN FOLKS HAVE financial questions, they go hunting for the right answer. But what if there’s no right answer to be found?
To be sure, in retrospect, the correct answer is often crystal clear. Looking back at 2018, we should have owned growth stocks until September and then gone to 100% cash. If our home didn’t burn down and our health was good, we shouldn’t have bothered with homeowner’s and health insurance. If we kept our job and survived the year,

Read more »