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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 do you wish your younger self knew?

"That the world isn't that bad."
- Seigo Tsujimoto
Read more »

What should you look for when buying a home?

"A good home inspector. I’m not sure one really exists, but anyone is better than the one your real estate agent recommends."
- mjflack
Read more »

How would you define "enough"?

"I will attempt to answer what "Enough" means to me in the financial wealth sense. First a little background: When we bought our home after finishing my residency, I assumed we would stay for five years max then move to a more expensive neighborhood, where most other physicians lived. My initial assumption was that a more expensive home would be a "better investment". Funny thing was, we liked the house, the neighbors, and our boys were happy. I asked my senior partner for his opinion, and he shrugged and said simply "Don't buy a big house". Around then I started reading Jack Bogle and Warren Buffett, and eventually many others too. It became increasingly obvious to me, that the higher my present cost of living, the less available there is to invest for the future. Not to mention, the larger nest egg I would need to fund those higher costs in retirement. I realized my partner was advising against a more expensive lifestyle. It was necessary to make some financial tradeoffs. My wife retired at 61. When I turned 64, I realized my nest egg had exceeded my "number". I took Bill Bernstein's advice and "quit playing the game". I gave my partners a full year notice, reduced my hours, and enjoyed that last year. Then I joined my wife in retirement. We still live in the same house. Our sons have grown up, and they along with their families live a short drive from us. We made tradeoffs between present and future consumption long ago which funded a lifestyle we greatly enjoyed, and still do, and for which we are grateful. "Enough" means we were happy with the lifestyle those tradeoffs allowed for while working, and which provided a nest egg sufficient to allow us to continue that same lifestyle now."
- Jack Hannam
Read more »

Second Look

Retirement

Early Decision

DELAYING SOCIAL Security until age 70 will get you the largest possible monthly benefit, and that’s the right strategy for many retirees. But what’s right for many folks won’t necessarily be right for you—and you may want to file at 62, the youngest possible age, so you maximize your total lifetime benefit.
If you’re single with no dependents, you should probably file at age 62 if you’re in poor health or your family doesn’t have great genes,

Read more »

Family Finance

The Path Not Taken

IN AN EARLIER ARTICLE, I wrote about a catastrophic stock market loss that taught me—the hard way—about the benefits of diversification and the importance of managing my own investments. That loss derailed our plans to build a large and expensive home in the hills overlooking Austin, Texas.
We were heartbroken at the time. This had been our dream for several years. But it’s funny how life works out sometimes—and it may have been the best thing that ever happened to us.

Read more »

Investing

The Price Is Slight

I LOVE THE PRICE war among index-fund providers, because it puts pressure on all money managers to lower fees. But I don’t think investors should pay much heed to differences in annual expenses that amount to just 0.01% or 0.02% a year, equal to 1 or 2 cents for every $100 invested—and they certainly shouldn’t switch funds for those potential cost savings.
To check I wasn’t missing something, I set out to do apples-to-apples comparisons among index funds in four highly competitively segments of the indexing market: large-cap U.S.

Read more »

Lists

Building Wealth

I’VE BEEN READING about how people aren’t saving enough money, and how almost half of all Americans carry a balance on their credit cards. Looking to be more financially prudent? Here are 10 pointers on how to build wealth and gain financial security over your lifetime:
1. Save—for a reason. Saving money is the key to building a substantial portfolio. One secret to being a good saver: Have something worthwhile to save for. It might be homeownership or early financial independence.

Read more »
Home Call to Action

Mindset

Just Feels Right

MEIR STATMAN, a finance professor at California’s Santa Clara University, argues that financial decisions—like everyday consumer purchases—have three benefits: utilitarian (what it does for me), expressive (what it says about me) and emotional (how it makes me feel).
As we manage our finances, we insist our goal is strictly utilitarian, and that all we want to do is make money. But in truth, we often make decisions for expressive or emotional reasons—and these other motivations can hurt our stated goal of greater wealth,

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

Is there a downside to the current popularity of indexing?

"no, unless you count eventullybeing in a higher tax bracket! The markets are a less than zero sum game, because of fees and other expenses, and for every buy there is a sell. And, when you trade, and there is a great chance the person or entity on the other side of that trade is named Buffett or Vanguard, etc., and that should cover it. By using index funds, you benefitting from the collective wisdom of all of the globes investors, enjoying low fees, low taxes, etc. And, no, it is NEVER a " stock pickers market." Of course, if you really feel you can be a better investor than the likes of Buffett, (Hint: you can't), then trade individual stocks and actively managed funds."
- Michael l Berard
Read more »

What obligations do we have to our heirs?

"obligations? none whatsoever."
- alex scott
Read more »

Second Look

Retirement

Early Decision

DELAYING SOCIAL Security until age 70 will get you the largest possible monthly benefit, and that’s the right strategy for many retirees. But what’s right for many folks won’t necessarily be right for you—and you may want to file at 62, the youngest possible age, so you maximize your total lifetime benefit.
If you’re single with no dependents, you should probably file at age 62 if you’re in poor health or your family doesn’t have great genes,

Read more »

Family Finance

The Path Not Taken

IN AN EARLIER ARTICLE, I wrote about a catastrophic stock market loss that taught me—the hard way—about the benefits of diversification and the importance of managing my own investments. That loss derailed our plans to build a large and expensive home in the hills overlooking Austin, Texas.
We were heartbroken at the time. This had been our dream for several years. But it’s funny how life works out sometimes—and it may have been the best thing that ever happened to us.

Read more »

Investing

The Price Is Slight

I LOVE THE PRICE war among index-fund providers, because it puts pressure on all money managers to lower fees. But I don’t think investors should pay much heed to differences in annual expenses that amount to just 0.01% or 0.02% a year, equal to 1 or 2 cents for every $100 invested—and they certainly shouldn’t switch funds for those potential cost savings.
To check I wasn’t missing something, I set out to do apples-to-apples comparisons among index funds in four highly competitively segments of the indexing market: large-cap U.S.

Read more »
Home Call to Action

Lists

Building Wealth

I’VE BEEN READING about how people aren’t saving enough money, and how almost half of all Americans carry a balance on their credit cards. Looking to be more financially prudent? Here are 10 pointers on how to build wealth and gain financial security over your lifetime:
1. Save—for a reason. Saving money is the key to building a substantial portfolio. One secret to being a good saver: Have something worthwhile to save for. It might be homeownership or early financial independence.

Read more »

Mindset

Just Feels Right

MEIR STATMAN, a finance professor at California’s Santa Clara University, argues that financial decisions—like everyday consumer purchases—have three benefits: utilitarian (what it does for me), expressive (what it says about me) and emotional (how it makes me feel).
As we manage our finances, we insist our goal is strictly utilitarian, and that all we want to do is make money. But in truth, we often make decisions for expressive or emotional reasons—and these other motivations can hurt our stated goal of greater wealth,

Read more »