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If folks claim their home has been a great investment, ask to see their detailed financial records—and their degree in advanced mathematics.

More to Come

SINCE ENTERING the workforce in late 2010, I’ve been giving advice to others on how to put their money to good use. There are few things I enjoy more than having a conversation with a couple about such a complex subject. Along the way, I’ve pushed myself to learn more about specific financial planning strategies, as well as about human behavior and psychology.
These readings have not only taught me how I can better help my clients,

Read more »

Not So Easy

I RECENTLY CAME across an academic paper with an attention-grabbing title: “It has been very easy to beat the S&P 500.” Not just easy, but very easy
That got my attention because, in recent years, beating the S&P 500 has been anything but easy. In fact, it’s been maddeningly difficult. In eight of the past 10 years, domestic markets have outperformed international markets—by a wide margin. A dollar invested 10 years ago in the S&P 500 would be worth $4.37 today.

Read more »

Singled Out

“FINANCIAL WRITERS always seem to assume everybody’s married.” That’s a complaint I’ve heard more than once—and it came to mind as I reviewed our 2018 tax return.
That tax return reflected the impact of 2017’s tax law, which—among other things—roughly doubled the size of the standard deduction, while capping the itemized deduction for state, local and property taxes at $10,000. One result: Many couples now get little or no tax benefit from either the mortgage interest they pay or the charitable contributions they make.

Read more »

Over Coffee

SITTING IN a coffee shop, I struck up conversation with a middle-aged woman. We were talking about winning the lottery and then, as if one thought naturally followed the other, we got onto the topic of retirement. She mentioned how difficult it was for her and her husband to pay the mortgage and the monthly bills.
“After saving for retirement?”  I interjected.
“We can’t save for retirement,” she responded. “Our plan is to get our mortgage paid off,

Read more »

Unloaded

“YOU’RE FIRED” was made famous by Donald Trump as host of The Apprentice. Imagine my surprise when my broker delivered the same message to me two years ago.
In 2015, my job was transferred to Texas. I opted to become a long-distance commuter, while my family stayed in Maryland. Around that time, we moved homes, so our son could attend a better high school. In addition, I was helping to launch two huge long-term work projects.

Read more »

Castles in the Air

AMONG THE 16 million who served during the Second World War, many returned home, started families and pursued what would become an integral part of the American dream: homeownership. It’s during this time that the term “starter home” was coined.
My grandfather was one of those proud vets. He and my grandmother bought a place in South Dakota, where they started our family.
In 1950, the average new single-family home was 983 square feet.

Read more »

Money Guide

Marginal vs. Average

IMAGINE YOU'RE single, you claim the standard deduction and you have income of $52,000 in 2019. You would be in the 22% federal income tax bracket, but that isn’t how much of your income you lose to taxes. On the first $12,200 of income, you wouldn’t owe any federal income taxes, thanks to your standard deduction. The next $9,700 would be taxed at 10% and the subsequent $29,775 would be taxed at 12%. That gets you up to $51,675 in total income. It’s only at that point that your income starts getting taxed at 22%. In other words, while you’re in the 22% marginal federal income tax bracket, just $325 of your $52,000 income would be taxed at that rate. Your total federal income tax bill would be $4,614.50, putting your average tax rate at 8.9% for your $52,000 in gross income and 11.6% for your $39,800 in taxable income. Your marginal tax rate is crucial for figuring out whether you should buy taxable or tax-free bonds, how much all that mortgage interest is costing you, and whether it makes sense to convert your traditional IRA to a Roth IRA. But your marginal rate isn’t a good indicator of what your total bill will be for the year. For that, you’d want to know your average rate. Next: Standard vs. Itemized Previous: Payroll Taxes
Read more »

Archive

Laying Claim

IN MY WORK as a financial planner, there's one topic that always seems to raise an eyebrow: Social Security. When people see projections of future retirement benefits, they often respond with skepticism. My sense is that media reports, questioning the system’s solvency, have led people to discount the value of Social Security benefits—or disregard them entirely. In my view, this is a mistake. While no one can guarantee what Social Security will look like in the future, it’s important to understand the basics of how the system works. This understanding may help you maximize your own benefits and avoid costly mistakes. Social Security is complicated, with thousands of rules. But it isn’t hard to understand the calculations behind the standard monthly retirement check. There are just three main factors: 1. Primary Insurance Amount. Checks received by retirees will vary with the amount they paid into the system during their working years. The Primary Insurance Amount, or PIA, is the sum you would receive if you opted to start benefits at what is called Full Retirement Age, which used to be age 65. There are three important things to know about your PIA. First, in most cases, you need to work for at least 40 quarters, equal to 10 years, to be eligible for benefits. Second, once you’ve accumulated those 40 quarters, Social Security will calculate your PIA based on your average earnings over your 35 highest-earning years. If you have fewer than 35 years of earnings, the government will average in zeroes for those years. Third, during your working years, Social Security only taxes your earnings up to a certain level. As a result, during retirement, your benefit will also be capped. This year, for example, the income threshold is $128,400. Whether you earn $128,400 or $500,000 or $1 million this year, the boost to your retirement check will be the same. To provide a simple example of the calculation, suppose you’re nearing retirement and your career earnings—adjusting for inflation—have averaged $150,000. Here's how Social Security would calculate your PIA:
  • 90% of your first $895 of average monthly earnings: $805.50
  • 32% of the next $4,501 of earnings: $1,440.32
  • 15% of the final $5,302 of earnings (that is, up to the cap): $795.30
Put it all together and your total monthly benefit at your Full Retirement Age would be $3,041, equal to $36,493 a year. 2. Full Retirement Age. Above, I mentioned the term Full Retirement Age, often abbreviated to FRA. This is the age at which you are entitled to receive a check equal to your PIA. FRAs vary based on when you were born. When Social Security began in the 1930s, everyone's FRA was 65. To reflect rising life expectancies, Congress has increased the FRA to as late as age 67, so younger people will have to wait a little longer to receive full benefits. You can look up your own FRA on the Social Security website. 3. Age at which you claim benefits. At your FRA, you are entitled to a check in the amount of your PIA. You have the option, however, to start benefits as early as 62 or as late as 70. If you opt to start earlier, your check will be reduced substantially below your PIA. Alternatively, if you delay additional years beyond your FRA, your benefit will increase substantially—about 8% per year for each year you wait. Continuing with the above example, if your FRA is 67 and you are able to wait until 70, your benefit would increase by 24% to $3,771 a month, equal to $45,252 a year. Of course, you would receive those checks for fewer years—something to consider if you have health concerns. But if you’re in solid health and opt to delay to age 70, you would reach breakeven around age 82—and be ever further ahead with every year you live thereafter. That’s why I encourage people to wait until 70. Want to learn more? Head to SocialSecurity.gov, where you can set up an account and download an up-to-date copy of your Social Security statement, which will provide benefits estimates based on your earnings history. Adam M. Grossman’s previous blogs include Proceed with CautionOld Story and Slipping Away. Adam is the founder of Mayport Wealth Management, a fixed-fee financial planning firm in Boston. He’s an advocate of evidence-based investing and is on a mission to lower the cost of investment advice for consumers. Follow Adam on Twitter @AdamMGrossman.
Read more »

Numbers

WASHINGTON’S political environment is the biggest threat to the U.S. economy over the next six months, say 44% of Americans. The two next most popular answers—terrorism and developments overseas—garnered 14% each, according to the Bankrate survey.

Manifesto

NO. 8: RETIREMENT may be our final financial goal, but we should always put it first. Why? It’s easily our most expensive goal, so it takes decades of savings and investment gains to amass enough.

Truths

NO. 17: IT’S OBVIOUS—in retrospect. Looking back, we forget about all the financial uncertainty that existed at the time. Instead, what happened in the markets seems all too predictable. This so-called hindsight bias encourages us to act on today’s investment predictions and may lead us to make overly bold financial bets.

Act

PONDER WHEN to claim Social Security. Start with Mike Piper’s calculator. Many folks are inclined to claim benefits as soon as they retire, but often it makes sense to delay. To understand why, learn more about Social Security, including the advantages of delaying and the different strategies that couples might use.

Think

RISK POOLING. When we purchase health, life, auto and other insurance, we contribute to a pool of money overseen by an insurance company. Those who crash their car or suffer ill-health collect from the pool. Those who get through the year unscathed pay their premiums and get nothing in return—which is what you want, because it means life is good.

About Jonathan

Jonathan Clements

HumbleDollar is edited by Jonathan Clements, former personal finance columnist for The Wall Street Journal.

Home Call to Action

More to Come

SINCE ENTERING the workforce in late 2010, I’ve been giving advice to others on how to put their money to good use. There are few things I enjoy more than having a conversation with a couple about such a complex subject. Along the way, I’ve pushed myself to learn more about specific financial planning strategies, as well as about human behavior and psychology.
These readings have not only taught me how I can better help my clients,

Read more »

Not So Easy

I RECENTLY CAME across an academic paper with an attention-grabbing title: “It has been very easy to beat the S&P 500.” Not just easy, but very easy
That got my attention because, in recent years, beating the S&P 500 has been anything but easy. In fact, it’s been maddeningly difficult. In eight of the past 10 years, domestic markets have outperformed international markets—by a wide margin. A dollar invested 10 years ago in the S&P 500 would be worth $4.37 today.

Read more »

Singled Out

“FINANCIAL WRITERS always seem to assume everybody’s married.” That’s a complaint I’ve heard more than once—and it came to mind as I reviewed our 2018 tax return.
That tax return reflected the impact of 2017’s tax law, which—among other things—roughly doubled the size of the standard deduction, while capping the itemized deduction for state, local and property taxes at $10,000. One result: Many couples now get little or no tax benefit from either the mortgage interest they pay or the charitable contributions they make.

Read more »

Over Coffee

SITTING IN a coffee shop, I struck up conversation with a middle-aged woman. We were talking about winning the lottery and then, as if one thought naturally followed the other, we got onto the topic of retirement. She mentioned how difficult it was for her and her husband to pay the mortgage and the monthly bills.
“After saving for retirement?”  I interjected.
“We can’t save for retirement,” she responded. “Our plan is to get our mortgage paid off,

Read more »

Unloaded

“YOU’RE FIRED” was made famous by Donald Trump as host of The Apprentice. Imagine my surprise when my broker delivered the same message to me two years ago.
In 2015, my job was transferred to Texas. I opted to become a long-distance commuter, while my family stayed in Maryland. Around that time, we moved homes, so our son could attend a better high school. In addition, I was helping to launch two huge long-term work projects.

Read more »

Castles in the Air

AMONG THE 16 million who served during the Second World War, many returned home, started families and pursued what would become an integral part of the American dream: homeownership. It’s during this time that the term “starter home” was coined.
My grandfather was one of those proud vets. He and my grandmother bought a place in South Dakota, where they started our family.
In 1950, the average new single-family home was 983 square feet.

Read more »

Numbers

WASHINGTON’S political environment is the biggest threat to the U.S. economy over the next six months, say 44% of Americans. The two next most popular answers—terrorism and developments overseas—garnered 14% each, according to the Bankrate survey.

Manifesto

NO. 8: RETIREMENT may be our final financial goal, but we should always put it first. Why? It’s easily our most expensive goal, so it takes decades of savings and investment gains to amass enough.

Act

PONDER WHEN to claim Social Security. Start with Mike Piper’s calculator. Many folks are inclined to claim benefits as soon as they retire, but often it makes sense to delay. To understand why, learn more about Social Security, including the advantages of delaying and the different strategies that couples might use.

Truths

NO. 17: IT’S OBVIOUS—in retrospect. Looking back, we forget about all the financial uncertainty that existed at the time. Instead, what happened in the markets seems all too predictable. This so-called hindsight bias encourages us to act on today’s investment predictions and may lead us to make overly bold financial bets.

Think

RISK POOLING. When we purchase health, life, auto and other insurance, we contribute to a pool of money overseen by an insurance company. Those who crash their car or suffer ill-health collect from the pool. Those who get through the year unscathed pay their premiums and get nothing in return—which is what you want, because it means life is good.

Home Call to Action

Money Guide

Start Here

Marginal vs. Average

IMAGINE YOU'RE single, you claim the standard deduction and you have income of $52,000 in 2019. You would be in the 22% federal income tax bracket, but that isn’t how much of your income you lose to taxes. On the first $12,200 of income, you wouldn’t owe any federal income taxes, thanks to your standard deduction. The next $9,700 would be taxed at 10% and the subsequent $29,775 would be taxed at 12%. That gets you up to $51,675 in total income. It’s only at that point that your income starts getting taxed at 22%. In other words, while you’re in the 22% marginal federal income tax bracket, just $325 of your $52,000 income would be taxed at that rate. Your total federal income tax bill would be $4,614.50, putting your average tax rate at 8.9% for your $52,000 in gross income and 11.6% for your $39,800 in taxable income. Your marginal tax rate is crucial for figuring out whether you should buy taxable or tax-free bonds, how much all that mortgage interest is costing you, and whether it makes sense to convert your traditional IRA to a Roth IRA. But your marginal rate isn’t a good indicator of what your total bill will be for the year. For that, you’d want to know your average rate. Next: Standard vs. Itemized Previous: Payroll Taxes
Read more »

Archive

Laying Claim

IN MY WORK as a financial planner, there's one topic that always seems to raise an eyebrow: Social Security. When people see projections of future retirement benefits, they often respond with skepticism. My sense is that media reports, questioning the system’s solvency, have led people to discount the value of Social Security benefits—or disregard them entirely. In my view, this is a mistake. While no one can guarantee what Social Security will look like in the future, it’s important to understand the basics of how the system works. This understanding may help you maximize your own benefits and avoid costly mistakes. Social Security is complicated, with thousands of rules. But it isn’t hard to understand the calculations behind the standard monthly retirement check. There are just three main factors: 1. Primary Insurance Amount. Checks received by retirees will vary with the amount they paid into the system during their working years. The Primary Insurance Amount, or PIA, is the sum you would receive if you opted to start benefits at what is called Full Retirement Age, which used to be age 65. There are three important things to know about your PIA. First, in most cases, you need to work for at least 40 quarters, equal to 10 years, to be eligible for benefits. Second, once you’ve accumulated those 40 quarters, Social Security will calculate your PIA based on your average earnings over your 35 highest-earning years. If you have fewer than 35 years of earnings, the government will average in zeroes for those years. Third, during your working years, Social Security only taxes your earnings up to a certain level. As a result, during retirement, your benefit will also be capped. This year, for example, the income threshold is $128,400. Whether you earn $128,400 or $500,000 or $1 million this year, the boost to your retirement check will be the same. To provide a simple example of the calculation, suppose you’re nearing retirement and your career earnings—adjusting for inflation—have averaged $150,000. Here's how Social Security would calculate your PIA:
  • 90% of your first $895 of average monthly earnings: $805.50
  • 32% of the next $4,501 of earnings: $1,440.32
  • 15% of the final $5,302 of earnings (that is, up to the cap): $795.30
Put it all together and your total monthly benefit at your Full Retirement Age would be $3,041, equal to $36,493 a year. 2. Full Retirement Age. Above, I mentioned the term Full Retirement Age, often abbreviated to FRA. This is the age at which you are entitled to receive a check equal to your PIA. FRAs vary based on when you were born. When Social Security began in the 1930s, everyone's FRA was 65. To reflect rising life expectancies, Congress has increased the FRA to as late as age 67, so younger people will have to wait a little longer to receive full benefits. You can look up your own FRA on the Social Security website. 3. Age at which you claim benefits. At your FRA, you are entitled to a check in the amount of your PIA. You have the option, however, to start benefits as early as 62 or as late as 70. If you opt to start earlier, your check will be reduced substantially below your PIA. Alternatively, if you delay additional years beyond your FRA, your benefit will increase substantially—about 8% per year for each year you wait. Continuing with the above example, if your FRA is 67 and you are able to wait until 70, your benefit would increase by 24% to $3,771 a month, equal to $45,252 a year. Of course, you would receive those checks for fewer years—something to consider if you have health concerns. But if you’re in solid health and opt to delay to age 70, you would reach breakeven around age 82—and be ever further ahead with every year you live thereafter. That’s why I encourage people to wait until 70. Want to learn more? Head to SocialSecurity.gov, where you can set up an account and download an up-to-date copy of your Social Security statement, which will provide benefits estimates based on your earnings history. Adam M. Grossman’s previous blogs include Proceed with CautionOld Story and Slipping Away. Adam is the founder of Mayport Wealth Management, a fixed-fee financial planning firm in Boston. He’s an advocate of evidence-based investing and is on a mission to lower the cost of investment advice for consumers. Follow Adam on Twitter @AdamMGrossman.
Read more »

Free Newsletter

Jonathan Clements

About Jonathan

HumbleDollar is edited by Jonathan Clements, former personal finance columnist for The Wall Street Journal.