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Feeling TIPSy?

ArticleSanjib Saha  |  Aug 22, 2026

NOT TOO LONG ago, Treasury Inflation Protected Security (TIPS) was a relatively obscure investment for safe long-term fixed-income investments. For the first twenty years of the new century, consumer prices were mostly stable or rising at a too-slow-to-notice rate. Why bother with anything related to inflation? Sadly, persistently low inflation made us complacent on the biggest long-term risk of bond investments -- the insidious unexpected inflation that robs us of the purchasing power of our “safe” investments. Yes, let’s not forget that the biggest risk of bond or bond-like investments is unexpected inflation. Any bond or CD with a maturity beyond a few years must either offer a sufficiently high interest rate to compensate for sudden bouts of inflation, or have its principal adjusted for the inflation actually realized. The former is nearly impossible to find without sacrificing safety. The latter is what TIPS is for. To be clear, the market and investors always expect some level of inflation. Therefore, a bond’s effective interest rate - measured by its YTM (Yield to Maturity) - must be high enough to not only compensate for “expected” inflation and the uncertainties around it but also provide a meaningful increase in the purchasing power of the original principal.  A concrete example might help. Consider a 10-year US Treasury nominal bond with a face value of $1,000, selling at $1,000 and paying 5% annual interest. The interest rate reflects the expectations about inflation and other factors over the next 10 years. The rate would be lower if market expected lower inflation, and higher if market expected the opposite. The omnipresence of inflation means we’re likely to lose some purchasing power when we get our $1,000 in 10 years. It won’t buy what $1,000 buys today. By how much? That’s the thousand dollars question (pun intended).  There isn’t a readily available number that explains why that 10-year Treasury Bond yields 5% instead of 3% or 7%. Investors essentially take a leap of faith that annual inflation stays low enough over the 10-year period for the interim interests to compensate for the purchasing power loss, plus some changes. Most of us are perfectly comfortable assuming that inflation won’t be as high as 5% for 10 years. But are we fooling ourselves? I suggest using an inflation calculator to see for ourselves. Spoiler alert: Late 1960s through early 1980s can be an eye-opening period. How’d we feel if the next 10 years turn out to be something similar? Think about how you might feel when you safekeep your money in a so-called secure investment, give up higher returns available from risky investments, and then encounter an inflationary regime. Your minimum expectation was that your purchasing power would remain intact and perhaps improve a little by the time your bond matures. Instead, unforeseen inflation erodes your purchasing power and compromises the financial goal the fund was supposed to cover.  Your “safe” investment fails you completely. You realize that it wasn’t safe at all.  If unexpected inflation is so devastating, why are we so lax about it?  I can think of two reasons.  First, our minds haven’t adapted to the reality that, unlike to a “real” asset like a bag of rice or a gallon of gasoline, money in its current form is inherently self-eroding. It slowly loses its worth over time. A hundred dollars sitting around will still be a hundred dollars next year, but it won’t buy the same amount. We don’t intuitively perceive the continuous loss of purchasing power. Even when we do internalize it with some effort, we get used to the “pace” of the loss. In other words, we view inflation as steady and unexpected inflation as highly unlikely. Alas, all it takes is a single prolonged inflationary period to change that perception. By then, however, the damage to existing fixed income investments may already be done. Frankly, I’d be very wary of keeping my long-term “safe” money -- fund that I need to preserve beyond a three-year horizon - in any form that isn’t protected against unexpected inflation. For bond investments, the most meaningful option would be TIPS. Why? Because, in addition to being secured by the full faith and credit of the US Government just like any other Treasury securities, TIPS provides three important assurances upfront. First, it provides protection against unexpected inflation, which is a realized inflation that differs from what we expected when purchasing it. If the actual inflation averages 12% instead of the expected 2%, the principal is automatically adjusted to reflect the actual inflation. No guesswork or unexpected risk involved. Second, it provides a “real interest rate” upfront that tells us how much the purchasing power of the investment will increase over time, regardless of what the actual inflation turns out to be. Buying a 10-year TIPS with real 2% annual interest means the investment’s purchasing power will grow 2% per year over the holding period, before considering taxes and other factors. The third aspect is more nuanced. It involves the possibility of inflation being lower than expected, or even negative inflation (aka deflation). Let me elaborate. If a regular nominal 10-year Treasury Bond offers 5% annual yield and an equivalent TIPS offers a real annual interest rate of 2.75%, the market-implied inflation, the breakeven inflation rate, is roughly 2.25% (5% minus 2.75%). Actual inflation, of course, will be known only after 10 years when the bond matures. Suppose the actual inflation turns out to be only 1.25%. The nominal Bond investor would end up with more purchasing power than the TIPS investor because the TIPS principle would be adjusted by only the actual 1.25% inflation rate.  The primary objective of the TIPS investor would still have been met: preserving and improving purchasing power by about 2.75% annually. But there would be a “missed opportunity”. The nominal Treasury investor would end up with even greater purchasing power. Does it mean that a TIPS investor can face an unlimited opportunity cost if inflation turns out to be negative? What happens if the actual inflation is, hypothetically speaking, negative 5%, in a severely deflationary period? Does the TIPS investor get back proportionately reduced principal at maturity? Thanks to the third assurance of TIPS, the answer is NO.  TIPS guarantees that the principal returned at maturity will never fall below the original face value. During periods of deflation, the inflation-adjusted principal can fall below its face value and the interim interest payments will decline accordingly. But at maturity, the principal is floored at the original principal amount. Therefore, the breakeven inflation rate, the difference between the yield of a nominal Treasury bond and the real yield of an equivalent TIPS, represents the maximum annual yield advantage that the nominal bond can have over TIPS in an unexpectedly low inflation regime.  To summarize, a TIPS investor gets unlimited protection against unexpectedly high inflation, while accepting a limited opportunity cost should the actual inflation be low or even negative. The magnitude of that trade-off is reflected in the breakeven inflation rate at the time of the TIPS purchase.  An aside: given the destructive impact of deflation on economy and society, policy makers are generally more concerned about preventing prolonged deflation than about preventing modest inflation. Therefore, prolonged deflation is usually considered less likely. Still, we cannot ignore deflation risk altogether and should be prepared for the possibility that TIPS can underperform a nominal bond if inflation runs low.  Therefore, the decision to favor TIPS over an equivalent nominal Bond hinges in part on the current breakeven inflation rate. If it’s low enough, favoring TIPS can be an easy decision. Getting unlimited protection against unexpectedly high inflation is worth accepting the relatively small opportunity cost if inflation comes below the breakeven rate. There is, however, a cautionary note about buying TIPS bonds in the secondary market, especially older issues. Consider a 30-year TIPS bond issued 20 years ago and a 10-year TIPS issued within last 6 months. Both might appear to be valid choices if they mature within a few months of each other and offer similar yields. But beneath the surface, one may be more favorable than the other.  The older TIPS will likely have a much higher inflation-adjusted principal because it accumulated 20 years of inflation adjustments. But the protection against unexpected deflation applies only to the bond’s original face value, which is typically $1,000.  In a prolonged deflationary period, the older bond has much more room for its inflation-adjusted principal to decline before reaching the $1,000 floor. The newer issue, whose adjusted principal is much closer to the $1,000 face value, has less exposure to this risk. Therefore, all else being equal, I’d favor a TIPS with a low inflation-adjusted factor when buying in the secondary market. All things considered, my vote goes to TIPS for long-term “safe” investments, provided the break-even inflation is reasonably low. For secondary market purchases, however, a high inflation-adjustment factor would give me pause.   Sanjib Saha retired early from software engineering to dedicate more time to family and friends, pursue personal development and assist others as a money wellness mentor. Self-taught in investments, he passed the Series 65 licensing exam as a non-industry candidate. Sanjib is the president and cofounder of Dollar Mentor, a 501(c)(3) nonprofit organization offering free investment and financial education. Follow his nonprofit on LinkedIn, and check out Sanjib’s earlier articles.
Read more »

If Retirement  is Getting Close

Dan Smith  |  Aug 18, 2026

"You have an oxymoron (maximum required minimum distribution). I think you mean maximum distribution. Good strategy--I'm doing this for my mother-in-law."
- Randy Dobkin
Read more »

The Intentional Spendthrift

Mark Crothers  |  Aug 21, 2026

"Greg, fantastic trip—and the solar eclipse was surreal. My suit still fits too, but those Miami Vice–style padded shoulders on the jacket are a fashion crime to henus and make it unwearable. Though I'm forever hopeful it'll come back into style so I can get a bit more mileage out of it."
- Mark Crothers
Read more »

$40 Trillion of Debt

ArticleAdam M. Grossman  |  Aug 22, 2026

SOME MILESTONES are auspicious. Others are not. This week, the Treasury announced that the federal government’s debt had topped $40 trillion for the first time. Government debt is nothing new, but the problem is now of more concern, for two reasons. First, the scale has grown. An apples-to-apples way to look at the government’s debt load is to compare it to GDP—the economy’s total annual output. On this basis, outstanding debt now exceeds 100% of GDP, a level we haven’t seen since the period immediately after World War II. That brings us to the second concern: If the government isn’t able to balance its books while the economy is strong, as it is today, lawmakers will have less flexibility to act when the next recession occurs. For a brief period about five years ago, a theory known as modern monetary policy entered the conversation. The idea, popularized by a book titled The Deficit Myth, was that we shouldn’t be so concerned with deficits—that the U.S. government should be able to borrow more or less as much as it wants. What we’ve seen, though, is that eventually deficits do matter. In simple terms, the government now takes in about $6 trillion per year in revenue, but it's spending almost $8 trillion, resulting in deficits of roughly $2 trillion. And just like a consumer who's run up a big credit card bill, interest payments now consume an ever-larger portion of annual spending. In round numbers, the government this year will spend about one in every six tax dollars it collects on interest and will spend more on interest than on defense. Why have the numbers gotten so much worse? The first factor was Covid. The government had to take extraordinary measures to pull the economy out of recession. But while that spending was mostly justified, the problem is that Congress grew accustomed to larger budget shortfalls and has been unwilling to rein things back in. Congress, in fact, went in the opposite direction when it passed a set of tax cuts a few years back. Those cuts might not have been such a problem, except that one of the lasting effects of the pandemic was inflation. It hit a high near 10% in 2022, and while it’s come down from that peak, it's still higher than it was prior to 2020. What’s the connection between inflation and the deficit? It’s more indirect, but it may be the government's biggest problem at this point. The Federal Reserve's primary strategy in fighting inflation is to raise interest rates, and that's exactly what it did beginning in 2022. That helped with inflation but became a problem for the deficit because the government is such a large borrower, and higher interest rates translated to higher borrowing costs. Unfortunately, the issue has now started to compound on itself. Despite the Fed’s lowering rates, which it has done a handful of times over the past few years, market interest rates have remained stubbornly high, especially long-term rates. That’s because the government is being forced to pay more to borrow, just like any prospective borrower whose finances look shaky. This has become something of a chicken-or-the-egg problem. If rates were lower, the deficit might shrink considerably. But rates may not drop until investors see that lawmakers have gotten serious about the issue.  Why hasn’t Congress addressed the problem? In short, it’s because the two most obvious solutions—raising taxes or cutting spending—are the last thing any politician wants to do. Ironically, this may be the one area where both parties are fully aligned. Hopefully Washington begins to get serious about the problem. For better or worse, though, this is the situation we’re in. Against this backdrop, what steps might you consider for your portfolio? Because the deficit is so closely tied to interest rates, the first area I’d focus on would be your bond holdings. With long-term interest rates at multi-decade highs, there might appear to be an opportunity to profit from long-term bonds if rates were to drop. I would be cautious, though. Just this week, we’ve seen volatility in long-term rates, and things could easily go the other way. For that reason, I recommend a conservative posture toward bonds, with the majority in short-term holdings, only a small amount in intermediate-term and none at all in long-term bonds. To be sure, this might mean forgoing some profits if rates come down, but in my view, the bond side of a portfolio should be the part that helps investors sleep at night rather than another area to worry about. What other steps could you take? I’d give thought to your long-term tax exposure. It’s possible that politicians will eventually get serious and raise taxes, and if they do, you’d want to be in a position to manage your own tax bill. Fortunately, there is one clear route to inoculating part of your portfolio against tax increases, and that’s to look for ways to build up dollars in a Roth account: If you’re in your working years, you could contribute to a Roth IRA or a Roth 401(k). Your employer might even allow for so-called mega back-door Roth contributions. If you’re retired or happen to have a low-income year, consider a Roth conversion.  A final recommendation: If you have a net worth over $10 million or so, you might give thought to estate tax strategies. Today the federal estate tax applies only to individuals with more than $15 million in assets, but this threshold has been a political football and could easily end up much lower. As recently as 2008, it was at just $2 million. Adam M. Grossman is the founder of Mayport, a fixed-fee wealth management firm. Sign up for Adam's Daily Ideas email, follow him on X @AdamMGrossman and check out his earlier articles.
Read more »

Federal debt

R Quinn  |  Aug 19, 2026

"I think we have caught up with Greece!"
- Nick Politakis
Read more »

Tax Complications – How SS Benefits interact with Other Income

Rick Connor  |  Aug 18, 2026

"Great article will help many. My overall opinion is our tax laws are way too complicated, but I persevere, as I have been doing them since age 16. I still prefer the post card tax or flat tax 17% of income. Done."
- William Dorner
Read more »

The Federal Debt and Social Security Payments

DavidHLancaster  |  Aug 19, 2026

"Also, the federal government is writing IOUs to the trust fund to cover the interest payments. It owes to the trust fund. At some point, these IOUs will need to be repaid, and that will be money borrowed."
- Bob Zwick
Read more »

New in 2025 – Code Y on 1099-R box 7 for QCD’s

William Perry  |  Apr 26, 2025

"Thank you, William, for this update. I value your recommendations and have saved the article to my tax file. Being just two years away from my first QCD (at age 70.5, from an inherited IRA), I have begun planning for them. My hope is that QCDs can eventually be accomplished with a few digital clicks, as are grants now from donor advised funds."
- Jo Bo
Read more »

The Lottery of Birth

Andrew Clements  |  Aug 19, 2026

"I had a conversation yesterday with someone in my gym. I commented on what a TV showed on a TV screen regarding the market performance that day. He said he had given up on the stock market. I asked him why. I told him how it had helped retire at 62. He said he was 77 years old and working part time. I asked him if this was for something to keep him busy or out of necessity. He said he was foolish when he was younger and didn’t consider his older self. He figured Social Security would be all that was necessary. I think he has plenty of company here in the US."
- DavidHLancaster
Read more »

Income taxes on retirees with Social Security

R Quinn  |  Aug 14, 2026

"The government is us, all 340 million of us. There aren’t too many laws and regulations that have not been changed as the times require."
- R Quinn
Read more »

Frozen 2025 1040 refund and the IRS CP53E notice

William Perry  |  Aug 19, 2026

"I think that is a good thought and practice for many high income taxpayers. Back when I was working that pattern of applying the overpayment was often a usual occurrence. Many taxpayers with K-1's from their pass-though entities, like partnership income or S-Corp income, do not get their prior year K-1 until well after the unextended 1040 due date (April 15) so there may be some prior year taxable income surprises when the K-1 is finalized and received. In such cases where estimated taxes will be due the next year many taxpayers will choose to lump the estimated balance due for the prior year with the following first quarter amount and pay the combined amount as the extension payment due 4/15 which just happens to be the same date as the first quarter ES payment for the next year. If the prior year tax ends up being more than expected when the 1040 was extended then they have more paid in for the prior year to lower or eliminate potential underpayment penalty and if the final return for the prior year does have a overpayment you can choose the amount of the overpayment to be applied to the next year estimated tax which is effectively paid 4/15 regardless of when the prior year return is filed and what part, if any, of the overpayment you want to to be refunded. Another reason for making a combined payment is the owner of a closely held business they control which is organized as a pass through entity has some flexibility to control the taxable income of the business income from the prior year such as by choosing an accelerated depreciation method for those assets bought in and placed in service in the prior year."
- William Perry
Read more »

1,800 data breaches in the first six months of 2026

rgscl  |  Aug 20, 2026

"The jail sentence should be for the CEO, not some obscure underling."
- Jerry Pinkard
Read more »

Feeling TIPSy?

ArticleSanjib Saha  |  Aug 22, 2026

NOT TOO LONG ago, Treasury Inflation Protected Security (TIPS) was a relatively obscure investment for safe long-term fixed-income investments. For the first twenty years of the new century, consumer prices were mostly stable or rising at a too-slow-to-notice rate. Why bother with anything related to inflation? Sadly, persistently low inflation made us complacent on the biggest long-term risk of bond investments -- the insidious unexpected inflation that robs us of the purchasing power of our “safe” investments. Yes, let’s not forget that the biggest risk of bond or bond-like investments is unexpected inflation. Any bond or CD with a maturity beyond a few years must either offer a sufficiently high interest rate to compensate for sudden bouts of inflation, or have its principal adjusted for the inflation actually realized. The former is nearly impossible to find without sacrificing safety. The latter is what TIPS is for. To be clear, the market and investors always expect some level of inflation. Therefore, a bond’s effective interest rate - measured by its YTM (Yield to Maturity) - must be high enough to not only compensate for “expected” inflation and the uncertainties around it but also provide a meaningful increase in the purchasing power of the original principal.  A concrete example might help. Consider a 10-year US Treasury nominal bond with a face value of $1,000, selling at $1,000 and paying 5% annual interest. The interest rate reflects the expectations about inflation and other factors over the next 10 years. The rate would be lower if market expected lower inflation, and higher if market expected the opposite. The omnipresence of inflation means we’re likely to lose some purchasing power when we get our $1,000 in 10 years. It won’t buy what $1,000 buys today. By how much? That’s the thousand dollars question (pun intended).  There isn’t a readily available number that explains why that 10-year Treasury Bond yields 5% instead of 3% or 7%. Investors essentially take a leap of faith that annual inflation stays low enough over the 10-year period for the interim interests to compensate for the purchasing power loss, plus some changes. Most of us are perfectly comfortable assuming that inflation won’t be as high as 5% for 10 years. But are we fooling ourselves? I suggest using an inflation calculator to see for ourselves. Spoiler alert: Late 1960s through early 1980s can be an eye-opening period. How’d we feel if the next 10 years turn out to be something similar? Think about how you might feel when you safekeep your money in a so-called secure investment, give up higher returns available from risky investments, and then encounter an inflationary regime. Your minimum expectation was that your purchasing power would remain intact and perhaps improve a little by the time your bond matures. Instead, unforeseen inflation erodes your purchasing power and compromises the financial goal the fund was supposed to cover.  Your “safe” investment fails you completely. You realize that it wasn’t safe at all.  If unexpected inflation is so devastating, why are we so lax about it?  I can think of two reasons.  First, our minds haven’t adapted to the reality that, unlike to a “real” asset like a bag of rice or a gallon of gasoline, money in its current form is inherently self-eroding. It slowly loses its worth over time. A hundred dollars sitting around will still be a hundred dollars next year, but it won’t buy the same amount. We don’t intuitively perceive the continuous loss of purchasing power. Even when we do internalize it with some effort, we get used to the “pace” of the loss. In other words, we view inflation as steady and unexpected inflation as highly unlikely. Alas, all it takes is a single prolonged inflationary period to change that perception. By then, however, the damage to existing fixed income investments may already be done. Frankly, I’d be very wary of keeping my long-term “safe” money -- fund that I need to preserve beyond a three-year horizon - in any form that isn’t protected against unexpected inflation. For bond investments, the most meaningful option would be TIPS. Why? Because, in addition to being secured by the full faith and credit of the US Government just like any other Treasury securities, TIPS provides three important assurances upfront. First, it provides protection against unexpected inflation, which is a realized inflation that differs from what we expected when purchasing it. If the actual inflation averages 12% instead of the expected 2%, the principal is automatically adjusted to reflect the actual inflation. No guesswork or unexpected risk involved. Second, it provides a “real interest rate” upfront that tells us how much the purchasing power of the investment will increase over time, regardless of what the actual inflation turns out to be. Buying a 10-year TIPS with real 2% annual interest means the investment’s purchasing power will grow 2% per year over the holding period, before considering taxes and other factors. The third aspect is more nuanced. It involves the possibility of inflation being lower than expected, or even negative inflation (aka deflation). Let me elaborate. If a regular nominal 10-year Treasury Bond offers 5% annual yield and an equivalent TIPS offers a real annual interest rate of 2.75%, the market-implied inflation, the breakeven inflation rate, is roughly 2.25% (5% minus 2.75%). Actual inflation, of course, will be known only after 10 years when the bond matures. Suppose the actual inflation turns out to be only 1.25%. The nominal Bond investor would end up with more purchasing power than the TIPS investor because the TIPS principle would be adjusted by only the actual 1.25% inflation rate.  The primary objective of the TIPS investor would still have been met: preserving and improving purchasing power by about 2.75% annually. But there would be a “missed opportunity”. The nominal Treasury investor would end up with even greater purchasing power. Does it mean that a TIPS investor can face an unlimited opportunity cost if inflation turns out to be negative? What happens if the actual inflation is, hypothetically speaking, negative 5%, in a severely deflationary period? Does the TIPS investor get back proportionately reduced principal at maturity? Thanks to the third assurance of TIPS, the answer is NO.  TIPS guarantees that the principal returned at maturity will never fall below the original face value. During periods of deflation, the inflation-adjusted principal can fall below its face value and the interim interest payments will decline accordingly. But at maturity, the principal is floored at the original principal amount. Therefore, the breakeven inflation rate, the difference between the yield of a nominal Treasury bond and the real yield of an equivalent TIPS, represents the maximum annual yield advantage that the nominal bond can have over TIPS in an unexpectedly low inflation regime.  To summarize, a TIPS investor gets unlimited protection against unexpectedly high inflation, while accepting a limited opportunity cost should the actual inflation be low or even negative. The magnitude of that trade-off is reflected in the breakeven inflation rate at the time of the TIPS purchase.  An aside: given the destructive impact of deflation on economy and society, policy makers are generally more concerned about preventing prolonged deflation than about preventing modest inflation. Therefore, prolonged deflation is usually considered less likely. Still, we cannot ignore deflation risk altogether and should be prepared for the possibility that TIPS can underperform a nominal bond if inflation runs low.  Therefore, the decision to favor TIPS over an equivalent nominal Bond hinges in part on the current breakeven inflation rate. If it’s low enough, favoring TIPS can be an easy decision. Getting unlimited protection against unexpectedly high inflation is worth accepting the relatively small opportunity cost if inflation comes below the breakeven rate. There is, however, a cautionary note about buying TIPS bonds in the secondary market, especially older issues. Consider a 30-year TIPS bond issued 20 years ago and a 10-year TIPS issued within last 6 months. Both might appear to be valid choices if they mature within a few months of each other and offer similar yields. But beneath the surface, one may be more favorable than the other.  The older TIPS will likely have a much higher inflation-adjusted principal because it accumulated 20 years of inflation adjustments. But the protection against unexpected deflation applies only to the bond’s original face value, which is typically $1,000.  In a prolonged deflationary period, the older bond has much more room for its inflation-adjusted principal to decline before reaching the $1,000 floor. The newer issue, whose adjusted principal is much closer to the $1,000 face value, has less exposure to this risk. Therefore, all else being equal, I’d favor a TIPS with a low inflation-adjusted factor when buying in the secondary market. All things considered, my vote goes to TIPS for long-term “safe” investments, provided the break-even inflation is reasonably low. For secondary market purchases, however, a high inflation-adjustment factor would give me pause.   Sanjib Saha retired early from software engineering to dedicate more time to family and friends, pursue personal development and assist others as a money wellness mentor. Self-taught in investments, he passed the Series 65 licensing exam as a non-industry candidate. Sanjib is the president and cofounder of Dollar Mentor, a 501(c)(3) nonprofit organization offering free investment and financial education. Follow his nonprofit on LinkedIn, and check out Sanjib’s earlier articles.
Read more »

If Retirement  is Getting Close

Dan Smith  |  Aug 18, 2026

"You have an oxymoron (maximum required minimum distribution). I think you mean maximum distribution. Good strategy--I'm doing this for my mother-in-law."
- Randy Dobkin
Read more »

The Intentional Spendthrift

Mark Crothers  |  Aug 21, 2026

"Greg, fantastic trip—and the solar eclipse was surreal. My suit still fits too, but those Miami Vice–style padded shoulders on the jacket are a fashion crime to henus and make it unwearable. Though I'm forever hopeful it'll come back into style so I can get a bit more mileage out of it."
- Mark Crothers
Read more »

$40 Trillion of Debt

ArticleAdam M. Grossman  |  Aug 22, 2026

SOME MILESTONES are auspicious. Others are not. This week, the Treasury announced that the federal government’s debt had topped $40 trillion for the first time. Government debt is nothing new, but the problem is now of more concern, for two reasons. First, the scale has grown. An apples-to-apples way to look at the government’s debt load is to compare it to GDP—the economy’s total annual output. On this basis, outstanding debt now exceeds 100% of GDP, a level we haven’t seen since the period immediately after World War II. That brings us to the second concern: If the government isn’t able to balance its books while the economy is strong, as it is today, lawmakers will have less flexibility to act when the next recession occurs. For a brief period about five years ago, a theory known as modern monetary policy entered the conversation. The idea, popularized by a book titled The Deficit Myth, was that we shouldn’t be so concerned with deficits—that the U.S. government should be able to borrow more or less as much as it wants. What we’ve seen, though, is that eventually deficits do matter. In simple terms, the government now takes in about $6 trillion per year in revenue, but it's spending almost $8 trillion, resulting in deficits of roughly $2 trillion. And just like a consumer who's run up a big credit card bill, interest payments now consume an ever-larger portion of annual spending. In round numbers, the government this year will spend about one in every six tax dollars it collects on interest and will spend more on interest than on defense. Why have the numbers gotten so much worse? The first factor was Covid. The government had to take extraordinary measures to pull the economy out of recession. But while that spending was mostly justified, the problem is that Congress grew accustomed to larger budget shortfalls and has been unwilling to rein things back in. Congress, in fact, went in the opposite direction when it passed a set of tax cuts a few years back. Those cuts might not have been such a problem, except that one of the lasting effects of the pandemic was inflation. It hit a high near 10% in 2022, and while it’s come down from that peak, it's still higher than it was prior to 2020. What’s the connection between inflation and the deficit? It’s more indirect, but it may be the government's biggest problem at this point. The Federal Reserve's primary strategy in fighting inflation is to raise interest rates, and that's exactly what it did beginning in 2022. That helped with inflation but became a problem for the deficit because the government is such a large borrower, and higher interest rates translated to higher borrowing costs. Unfortunately, the issue has now started to compound on itself. Despite the Fed’s lowering rates, which it has done a handful of times over the past few years, market interest rates have remained stubbornly high, especially long-term rates. That’s because the government is being forced to pay more to borrow, just like any prospective borrower whose finances look shaky. This has become something of a chicken-or-the-egg problem. If rates were lower, the deficit might shrink considerably. But rates may not drop until investors see that lawmakers have gotten serious about the issue.  Why hasn’t Congress addressed the problem? In short, it’s because the two most obvious solutions—raising taxes or cutting spending—are the last thing any politician wants to do. Ironically, this may be the one area where both parties are fully aligned. Hopefully Washington begins to get serious about the problem. For better or worse, though, this is the situation we’re in. Against this backdrop, what steps might you consider for your portfolio? Because the deficit is so closely tied to interest rates, the first area I’d focus on would be your bond holdings. With long-term interest rates at multi-decade highs, there might appear to be an opportunity to profit from long-term bonds if rates were to drop. I would be cautious, though. Just this week, we’ve seen volatility in long-term rates, and things could easily go the other way. For that reason, I recommend a conservative posture toward bonds, with the majority in short-term holdings, only a small amount in intermediate-term and none at all in long-term bonds. To be sure, this might mean forgoing some profits if rates come down, but in my view, the bond side of a portfolio should be the part that helps investors sleep at night rather than another area to worry about. What other steps could you take? I’d give thought to your long-term tax exposure. It’s possible that politicians will eventually get serious and raise taxes, and if they do, you’d want to be in a position to manage your own tax bill. Fortunately, there is one clear route to inoculating part of your portfolio against tax increases, and that’s to look for ways to build up dollars in a Roth account: If you’re in your working years, you could contribute to a Roth IRA or a Roth 401(k). Your employer might even allow for so-called mega back-door Roth contributions. If you’re retired or happen to have a low-income year, consider a Roth conversion.  A final recommendation: If you have a net worth over $10 million or so, you might give thought to estate tax strategies. Today the federal estate tax applies only to individuals with more than $15 million in assets, but this threshold has been a political football and could easily end up much lower. As recently as 2008, it was at just $2 million. Adam M. Grossman is the founder of Mayport, a fixed-fee wealth management firm. Sign up for Adam's Daily Ideas email, follow him on X @AdamMGrossman and check out his earlier articles.
Read more »

Federal debt

R Quinn  |  Aug 19, 2026

"I think we have caught up with Greece!"
- Nick Politakis
Read more »

Tax Complications – How SS Benefits interact with Other Income

Rick Connor  |  Aug 18, 2026

"Great article will help many. My overall opinion is our tax laws are way too complicated, but I persevere, as I have been doing them since age 16. I still prefer the post card tax or flat tax 17% of income. Done."
- William Dorner
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The Federal Debt and Social Security Payments

DavidHLancaster  |  Aug 19, 2026

"Also, the federal government is writing IOUs to the trust fund to cover the interest payments. It owes to the trust fund. At some point, these IOUs will need to be repaid, and that will be money borrowed."
- Bob Zwick
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New in 2025 – Code Y on 1099-R box 7 for QCD’s

William Perry  |  Apr 26, 2025

"Thank you, William, for this update. I value your recommendations and have saved the article to my tax file. Being just two years away from my first QCD (at age 70.5, from an inherited IRA), I have begun planning for them. My hope is that QCDs can eventually be accomplished with a few digital clicks, as are grants now from donor advised funds."
- Jo Bo
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The Lottery of Birth

Andrew Clements  |  Aug 19, 2026

"I had a conversation yesterday with someone in my gym. I commented on what a TV showed on a TV screen regarding the market performance that day. He said he had given up on the stock market. I asked him why. I told him how it had helped retire at 62. He said he was 77 years old and working part time. I asked him if this was for something to keep him busy or out of necessity. He said he was foolish when he was younger and didn’t consider his older self. He figured Social Security would be all that was necessary. I think he has plenty of company here in the US."
- DavidHLancaster
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Manifesto

Aug 21, 2026

NO. 43: IF OUR GOAL is investment growth, we should almost never buy insurance products. That means no cash-value life insurance, costly variable annuities or indexed annuities.

act

Aug 22, 2026

SHORTEN YOUR commute. Thinking of moving home or taking a new job? Research suggests that if you can keep your daily commute to under 20 minutes—and preferably walk to work—you will be happier. By contrast, a long commute, especially by car, is associated with greater unhappiness, worse physical health and a higher divorce rate.

Truths

Aug 21, 2026

NO. 45: THIS YEAR’S winners often continue to shine next year. This momentum may reflect an initial underreaction to good news, followed by a catch-up period. Trading costs make it hard to profit from the momentum effect. Still, if you own an investment that’s lately started outperforming, maybe you shouldn’t rush to sell.

humans

Aug 20, 2026

NO. 39: WE LATCH on to information that confirms what we already believe. Instead of dispassionately reviewing the evidence, bullish investors spot reasons for optimism wherever they look, while naysayers see just the opposite. The risk: Such confirmation bias convinces folks they know the market’s direction, prompting them to make big bets they later regret.

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Manifesto

Aug 21, 2026

NO. 43: IF OUR GOAL is investment growth, we should almost never buy insurance products. That means no cash-value life insurance, costly variable annuities or indexed annuities.

Spotlight: Houses

CCRC – continuing care retirement community

Kathy Marshall   |  Feb 22, 2025

Just starting to look as we are 81 and I’m nearly 75.  As we struggle with fire insurance in California and hassle with Comcast – they took away our local sports and baseball season is imminent, and other house and neighborhood activities are time consuming and complex.  We are Firewise neighborhood leaders and the responsibility is a challenge.
Our health is excellent for our age but cancer treatment and a chance of Alzheimer’s for me,  lots of experience taking care of our elders,

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Should young people buy or rent?

Bonnie Likens   |  Apr 7, 2025

My son is 30 something working in Silicon Valley paying outlandish rents and looking at expensive housing. Is it still a good option to purchase in this market? I was burned on real estate as a young adult and don’t want to advise him If it is not a good idea.

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Home Tax Tips

Bogdan Sheremeta   |  Mar 7, 2026

IF YOU OWN a home or are planning to buy one, there are a few things you need to know from the tax standpoint that could save you money:
1. Mortgage Interest
If you have a mortgage, you can typically deduct the interest you pay on the loan up to $750,000 ($1,000,000 if taken before December 16, 2017) but only if you itemize your deductions (schedule A)
You can also deduct points you paid if you itemize.

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Financial Question

Martin Turnauer   |  Mar 26, 2025

My wife & I are 80 years old and planning to move into an over 55 age community.
We will sell our current home to purchase a home in the new community, however, the difference between selling and purchasing will leave us with about $200,000 shortfall.
Our combined total investments are:
$2.5 million in our IRA
$1.4 million in our Roth accounts
$2.1 million in our taxable brokerage accounts
Which would be the best source(s) for us to take the money for our new home purchase concerning taxes and additional financial points you are aware of?

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Using AI to enhance “independent living”

Richard Hayman   |  Aug 18, 2025

I thought it would be fun to use AI to help me understand why many of us seem to believe that the best place to fulfill our desire to live “independently” is by aging-in-place in our homes.
To see the questions and answers, click on either link below. They are both the same. The words in purple are the prompts or questions.
Scroll to read the AI response. Sign up for POE only if you want to ask questions directly.

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Coming Home

steve abramowitz   |  Oct 23, 2024

There’s a world where I can go
And tell my troubles to
In my room, in my room
The Beach Boys, 1963
Alberta and I just returned from what for me was a restorative and emotionally powerful two-week trip to New York. No, not because she got to see seven movies at the International Film Festival in the Hamptons or four shows in the city. But she took pictures of me standing in front of five of the commercial buildings my family owned some fifty years ago.

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Spotlight: Yeigh

Driving Lessons

John Yeigh   |  Jan 17, 2022

THIS PAST YEAR marked my 50th anniversary of driving. Over that time, our family has owned 19 cars and driven them roughly 1.9 million miles. While latte purchases frequently evoke financial debate, cars seem less discussed, despite being Americans’ second-largest expenditure after housing. The purchase, ownership, maintenance and sale of cars can all get pretty complicated. Cars are considered a depreciating asset, but not always. My first car was a 1967 Mercury Comet, which I bought for $400 in 1973. I sold it two years—and 15,000 miles—later for $400. While reliable, the car had a dodgy transmission. I said a silent “thanks” for every successful gear shift. My second car was a hot, three-speed 1971 AMC Javelin, which I bought for $1,200 in 1975. It had a whopping 145 horsepower, which is less than today’s base model Honda Civic. I had to MacGyver a coat hanger to tether the exhaust pipe, use hose clamps and a split Coke can to patch holes in the exhaust, and spray starter-fluid in cold weather. As a student, I just couldn’t afford the $200 to repair the exhaust or $40 for the carburetor. I owned that Javelin for 11 years and about 130,000 miles. Once I got a job after college, I fixed the exhaust system and carburetor. This car taught me the benefits of a buy-and-hold approach to car ownership, which we’ve refined over the subsequent 45 years. In midlife, two events abruptly cut short our normal habit of owning cars for lengthy periods. In 1988, our house burned down and took with it two station wagons—a 1981 Pontiac and 1985 Ford. Then, in 2001, we were transferred overseas and had to quickly unload our three station wagons—a 1988 Volvo, 1992 BMW and 1997 Volvo. Having three cars for two drivers may sound…
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Creeping Costs

John Yeigh   |  Sep 16, 2019

WE ARE ALL VICTIMS of continually rising costs. Here’s the oft-repeated drill: The service provider sends the yearly renewal bill by mail or email, or the new annual cost is simply posted to our credit card account or deducted from our bank account. Assuming we even notice the charge, the head-scratching starts. What the heck was the cost last year anyway? The new fee may have increased just 3% or 5%, which doesn’t seem like a lot. This scenario may continue for a few years running, until either the service provider tries to sneak in an even larger increase or we wake up to the cost creep. Now, we have to deal with a bill that’s got out of hand, especially when you consider that U.S. annual inflation has averaged less than 2% over the last 10 years. The next steps are almost always the same. We have to investigate whether the increased cost is reasonable. We have to determine if alternative service providers are available. We have to call the service provider, asking for a lower fee or perhaps dropping options. Finally, we may have to switch to an alternative provider or simply go without the service. If you haven’t recently checked the cost of the following services, you might want to comb through your credit card and bank statements, and check out all recurring expenses. Chances are these costs have crept upward: Cellphone, including the related cloud backup service Cable, landline and internet Insurance for everything from cars to boats to pets Subscriptions for magazines, newspapers, websites, apps and more Memberships for gyms, clubs and professional organizations Home security services Fees for advisors and financial accounts Regular charges for lawn care, pool maintenance, pest control and house cleaning In some cases, you may find you’re paying for services you’ve…
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Don’t Concentrate

John Yeigh   |  Mar 13, 2019

WHO DOESN’T LIKE free money? I know I do. If you’ve worked for a major U.S. corporation, you have probably also been offered free money. But there’s a potential downside—in the form of a large, undiversified investment bet. What am I talking about? Let’s start with the matching employer contribution that’s offered in about half of 401(k) plans. You put in a portion of every paycheck and your company then matches all or half of your contribution. In years past, the employer match often had to be invested in company stock. Today, most plans either offer more flexibility in investment choice or they allow you to diversify out of company stock after a specified holding period. But employees often don’t sell, because of the net unrealized appreciation (NUA) strategy, which provides a tax incentive to retain, rather than diversify, those shares. NUA allows accumulated appreciation on your employer’s stock to eventually be taxed as capital gains, rather than as income. Employee stock purchase plans (ESPPs) are another benefit plan that encourages employees to own company stock, offering the chance to purchase shares at discounts of as much as 10% or 15%. ESPPs also provide favorable tax treatment on the discount, provided the stock is held for two years or longer. While smaller in dollar amount, some plans have an associated dividend reinvestment plan (DRIP) that allows dividends to be reinvested in company stock, again usually at some discount. Matches, NUA, ESPPs and DRIPs all encourage employee stock ownership, but they pale in comparison to the potential accumulation through grants of stock options. Options come in two main forms , incentive stock options (ISOs) and nonqualifying stock options (NSOs), each of which has slightly different tax treatment. But both have the same result: employees owning yet more shares. Add all these incentives…
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Penniless at Last

John Yeigh   |  Jul 19, 2022

IN AN EARLIER ARTICLE, I noted that my savings journey began in 1960 with a couple of jars of pennies that I started collecting at age five. I was following family ancestor Ben Franklin’s maxim that “a penny saved is a penny earned.” One of my uncles also had an interest in coin collecting. He and I began to actively search through countless penny rolls to find pennies with dates that we didn’t have. We bought Whitman coin albums and organized our pennies by date from the earliest Lincoln head pennies from 1909 up through the 1960s. We expanded our collection to include sets of Buffalo and Jefferson nickels, Mercury and Roosevelt dimes, and Washington silver quarters, plus any older coin we happened upon. Occasionally, we found Indian head pennies, Liberty nickels, Barber dimes or Walking Liberty quarters still in circulation. These dimes and quarters contained 90% silver through 1964, so they had a recognized commodity value. Our coin-collecting hobby lasted for eight years. During those eight years, we amassed five nearly complete Lincoln penny sets, missing only the rare 1909 penny minted in San Francisco with the initials V.B.D. for its engraver. One of these pennies in fine condition can cost more than $1,000. We had jars of old duplicate pennies as well. We assembled a couple of complete sets of Jefferson nickels and Roosevelt dimes. Our most valuable collection was the three nearly complete sets of Mercury dimes, lacking only a rare 1916 10-cent piece minted in Denver. We accumulated plenty of duplicate year silver coins as well. My uncle passed away in 1968 due to complications from polio, and my interests shifted. That’s when my coin collection went into hibernation, stored in various basements untouched for 50 years. [xyz-ihs snippet="Mobile-Subscribe"] I have no interest in pursuing this hobby…
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Death and Taxes

John Yeigh   |  Dec 16, 2019

TAX-DEFERRED ACCOUNTS are great, until they aren’t—when we have to pay taxes on our withdrawals. Millions of Americans have tax-deferred accounts, pundits laud them, companies help fund them, institutions service them and markets help them grow. But when it comes time to empty them, often the only person to guide us is Uncle Sam, who’s patiently awaiting his cut. Efficiently managing 30 years of retirement withdrawals from a 401(k), 403(b), IRA or other tax-deferred account is just as important as the 40 years of accumulation. While we could just follow the government’s required minimum distribution (RMD) rules beginning at age 70½, who says these rules are optimal? Granted, the normal playbook is to postpone paying taxes for as long as possible. Heck, “deferred” is the way these accounts are described. Yet deferring may not be right for everyone. There are some widely discussed reasons to make earlier and larger withdrawals from tax-deferred accounts—to convert this money to a Roth IRA, to avoid future tax rate increases, to use the money while still young and healthy, and to reduce future RMDs by making withdrawals earlier in our 60s, when we might be in a lower tax bracket. Married couples have an often-overlooked additional reason to consider extra early withdrawals: Their taxes will almost certainly increase after the first spouse dies. Think of this as the widow or widower’s tax. It's is an issue I recently discovered when I was weighing how much to withdraw from the retirement accounts owned by my wife and me. What's the problem? First, the standard deduction for the surviving spouse will typically decline from $24,400, the 2019 level for those married filing jointly, to $12,200 for a single individual. In addition, the surviving spouse will lose the additional “over age 65” deduction of $1,300 for the deceased…
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Hole Truth

John Yeigh   |  Feb 25, 2025

SOON AFTER GRADUATING college and starting work, I visited a dentist I found in the Yellow Pages for a long overdue teeth cleaning and exam. Although I had never had a cavity, the dentist informed me that I had multiple cavities that urgently needed to be filled. Naïve me allowed this dentist to fill the two supposed cavities of most concern. Somewhat traumatized, I avoided dentists for a time. Finally, I queried several older coworkers, who recommended another dentist. Over the next 15 years, this dentist never filled a single cavity, including those that Dr. Yellow Pages said needed filling.  When I transferred to a job in a new location, wiser me asked coworkers to suggest a dentist. The recommended dentist filled just two cavities over the next three decades. In 2022, my wife and I moved to a new state, and I again needed to find a new dentist. We asked several contacts, but their recommended dentists weren’t accepting new patients. No worries, we thought. Finding a reputable dentist should be easy, thanks to Yelp and Google reviews. Moreover, our insurance network covered just a few dentists in our rural area, making the research quick. My wife visited the new dentist first, and her teeth received a clean bill of health. On my subsequent visit, the dentist advised that my teeth had three cavities that needed filling. I hadn’t had a new cavity in decades, and none was found at a check-up six months earlier. I also had no tooth discomfort or sensitivity. I asked for more details about the alleged cavities, and the dentist responded that my insurance would cover nearly all the costs. I again queried about the specific teeth and cavity concerns. The dentist summarized that I had three cavities that needed prompt attention, but didn’t…
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