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Being vs. Doing

Jonathan Clements  |  August 30, 2016

WE’RE SPENDING the final two weeks before Labor Day on Cape Cod, staying with my in-laws. Everywhere we turn, there’s another delightful home with a wonderful water view. “Wouldn’t it be great to live there?” my wife and I muse, as we imagine how much happier we’d be if we lived in this place of apparently permanent vacation.

We are, of course, completely delusional.

Being in a beautiful spot can be a great joy for a week or two. Soon enough, vacationers are contemplating purchasing a second home or a time share. We’re fixated on a vision of enchanted daily life, forgetting that the humdrum of existence—mowing the lawn, buying the groceries, going to the dentist—will quickly intrude, no matter how spectacular the view.

Even when we’re at home, we devote great energy to creating special places—a remodeled kitchen, a new deck, lush landscaping with a bench where we can sit and contemplate our transformed garden.

Yet the bench almost never gets sat on, because simply being isn’t enough. Instead, what brings us great joy is doing. The real pleasure in the new garden is the planning and planting. Once it’s done, our sense of satisfaction quickly passes, and we’re on to another project.

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American home shield for house repairs. Have your wife take over the finances now. This year switch husband wife roles to gain experience and confidence.

Risk is a powerful word. My parents lived on modest means and could only buy a house at age 65 because they did so with my sister and her family where they lived the rest of their lives on only Social Security and both died without any long term illness or expenses. I like to think I would help if needed, but I don’t think I would risk my wife’s and my financial security and thereby create a burden or worry for our children.

Life is full of risk. If you're 80 years old, living in Europe , and WWII starts, you're in big trouble. The US has been the safest country over the past 100 years, but bad things that might impact you can still happen. Climate change wipes out Florida? China invades Taiwan? You can't protect again everything.

College. Very little money, but entertainment was cheap. And, no real thoughts about the future. No mortgage, spouse, kid.

Roboticus, sorry for the delayed response. I didn't have any particular answers in mind when creating the post. It was more in response to the preponderance of views, at least in my experience, that talk of passive investing like making the right selections is the easiest thing to do. Which seems curiuos at at time when there are more more ETFs than individual stocks. In actuality, I think the issue investors are really rallying behind are fees, with good reason. Substituting index exposures for individual stocks or mutual funds is fine, but it doesn't relieve investors of the need to be intentional, which can be applied in any number of ways.

Think about all the senior folks out there who are a LOT worse off than you are. If you have life insurance and long term care insurance you have done everything anyone can possible do. Life is about feeling that you have done everything you could and accepting that is the way it is.

I was a good investment for my parents.

What if you put all your retirement money in a single place and followed Taylor Larimore's 3-fund portfolio advice? What if you set a desired asset allocation ratio and did nothing else but small readjustments? What if you acknowledged that your wife will do just fine without you?

I haven't seen the cost estimated. Because of the tax issue, there's obviously a case to be made for owning foreign stocks in a taxable account. But as the saying goes, you shouldn't let the tax tail wag the investment dog. I hold foreign stock funds in my various retirement accounts. Those funds are crucial to owning a diversified portfolio -- and I simply don't have enough taxable account money to purchase enough foreign stock fund shares to get the diversification I want.

Do you know if this cost been estimated? If dividends make up a significant portion of total returns of international stocks over time it seems the cost may be relevant factor to consider. Do you suggest that investors adjust their allocation of foreign holdings between taxable and tax deferred accounts to avoid the issue?

I pretty much did the opposite from my parents. They were big spenders relative to their income, of course they had 5 kids for whom to provide. I have zero. They committed many of the mistakes the typical American did in the mid-2000s, which hurt financially. Still, my mom was sure to keep a nest egg, and that has grown over the years. Their spending declined as the kids left the house and they were able to refinance their mortgage at a low rate recently. They also thoughtfully delayed Social Security to maximize that freebie annuity. Now they are in good shape for the most part. As I get older, the more I realize that spending money on loved ones is good when done responsibly. I used to think all discretionary spending was bad. As always, my folks are looking smarter the more I age!

Air conditioning and refrigeration. I think most Americans have no idea how 90% of the rest of the world without our electric generation and power grids live without cooling our homes and office and preserving food for storage. In countries like parts of India the power grid is often powered by imported diesel fuel and is unreliable. The whole food supply changes radically without frozen food.

During my lifetime I have owned farmland, undeveloped land, wine and other tangible investments. I have not owned collectible cars, art work, precious metals or other items that I had a hard time determining a valuation for. On each of these investments, I always asked myself what was the maximum likely loss that I could have with the investment (Margin of safety). I also read a lot about other people and how they succeeded in their investments. Keep in mind that some assets like wine are taxed at the 28% tax rate for collectibles. There is no long term capital gain tax. I would say there are rare times when you can buy assets so favorably priced, that in three to five years, you can sometimes get make substantial returns on your investments. One caveat is that each one of these investments takes a little bit of your brainpower to ponder. Keep your life simple and don't entangle yourself with property you are less than 99% sure of.

For many years my wife and I never took any expensive vacations. We basically just kept our heads down in our jobs and put money away in our IRA's/401K/investments. One year, a coworker took his wife and daughter to England in the middle of the winter. I didn't realize at the time that flights and hotels were so much more reasonable in January and February. I told my wife, "Next year we are going". We booked a super cheap flight roundtrip through New York to London England. We got a deal on a week's stay at a hotel near Kensington in west London and we learned to ride the London Underground. I was absolutely flabbergasted that here in a few square miles were all the pieces of history that I had read so much about. Buckingham Palace, 10 Downing Street, The Elgin Marbles and the Rosetta stone in the British Museum, the Tate art gallery and on and on. I even liked the Newcastle Brown Ale and fish & chips! That simple trip opened up a lifetime of travel. We started watching Rick Steve's on PBS and reading his books. What a joy our vacations became. We were young enough and healthy enough to go anywhere including China. Travel brought us a quality of life and enjoyment that made our lives ten times more happy.

Spend a little time thinking about why others might view you as lucky. All of us get the occasional lucky break.” I freely admit I was lucky enough to get into a startup... BUT, others I worked with who also potentially had the opportunity didn’t have enough savings to buy in when the opportunity presented itself. The ended up as employees.

I don't have the knowledge to decide which individual bonds are most appropriate for my situation, so funds and ETFs are an easy choice. And the bonus is that the risk is spread out so much more widely.

When you have neither the time nor the interest in doing it yourself.

When I was young I invested too much of what discretionary income I had in rent houses, and not enough in the stock market. I missed out on some very valuable compounding.

I've never heard of any way to recover the foreign tax withheld on investments held within a retirement account, alas.

Thank you! I also posted a question on the voices page related to international stock holdings but that question has been deleted that I'm hoping you would answer as well. I was wondering if there is a non-recoverable cost from the foreign dividend WH tax on international stocks held in a retirement plan account?

I suspect a lot of us cross the boundaries between these archetypes. I feel like #1, but I know and fear the boredom it could lead to. Less so #2, however, I am always chasing new interests & projects. #3: I have plans to satisfy this need in two different ways.

A pension is a wonderful thing to have, but for those of us without that opportunity (or who've lost it along the way), it's all about saving early.

Good article, but the math is inconsistent. The numbers used in the first and last item (0.98 and 0) are the factors to calculate what you get to keep, after inflation or your investment mistake. You multiply your balance with these numbers, and the result is what you net, after paying the cost of the item. However the numbers used for the other 3 items represent the cost of those items. I.e. to account for "paying for help", you multiply your balance with 0.01 to 0.25 to determine what portion of your account balance you need to give up each year. I think the article would be easier to read if the numbers were used in a consistent way. Meaning either representing the net take, or the cost. For example, to make the inflation and the "paying for help" items consistent, we could use 0.98 for inflation and 0.75..0.99 for the help item. Or else, use 0.02 for inflation and 0.01..0.25 for the help.

There is also no inherent tax advantage to holding index funds in a taxable account.

Finding and marrying an incredible partner. Together we have done more, saved more, accomplished more, and experienced more than I ever would or could have alone. The sense of pride and accomplishment that comes from hunkering down together to save over 20% for our first house downpayment, paying for our wedding and honeymoon on our own, and tackling numerous medical bills together has proven just how important finding the right partner is.

Yeah, I agree that medical risk is a big one, as is the risk of becoming permanently incapacitated. Also the risk of getting sued. But if you have a long time horizon and invest in boring old, globally diversified index funds, market risk isn't all that major in my humble opinion (well, at least it wasn't historically). Retirees have to deal with "sequence of return" risk, but that can be mitigated in a variety of ways.

Grad school. I had no money, but I was the most intellectually stimulated I'd ever been, and had the opportunity to scrap enough money together (along with scholarships and sponsorships) to take a trip with my cohort to China. It was an experience of a lifetime, and I was able to stay on and traverse throughout the country with only flashcards as my translation. The experience was worth its weight in gold.

I've always liked NerdWallet for their well-researched articles, online calculators and helpful comparisons.

I'd second Sanjib - caring for family in their time of need. One of the most beautiful things I've witnessed in my lifetime is my mother caring for my father during his last few months on earth. She took an extended leave of absence from work to do so, and has never regretted it. It was one of the most difficult yet most memorable experiences I've been a part of. Providing unconditional love to those we hold dear will always trump any dollar sign in my book.

While those who purchase indivual stocks are much more likely to buy and sell
That's the key though, isn't it? You may not want to hold an individual stock for life for all sorts of reasons (like if the company's market position changes drastically or its management changes). Whereas it's quite sensible and psychologically easy to be a buy and hold forever indexer since index funds are "self cleansing".

I am extremely fortunate to have the parents I do. They taught me to disregard the Jones' and to spend according to our own family value system. Growing up, I was often embarrassed to be driving around in old cars that were the least bit sexy, and now understand how it was those types of decisions that allowed our family ski vacations and club soccer. They saved in all areas that didn't align with our values and priorities so we could spend on the things that did, like fitness and experiences.

When I was young and just starting out with investing, I took way too much advice from friends and family who were chasing the next best thing. I ended up purchasing a few MLPs (master limited partnerships) which I knew nothing about at the time. I lost money and had to wait considerably longer to file my taxes due to the K-1s that come from these types of investments.

I think most of us are just looking for some security in our retirement. I never cared to be rich, I just wanted to be able to do my own thing.

To understand the 0% capital gains rate, check out this article by Rick Connor: https://humbledollar.com/2020/08/much-appreciated/

there is another risk, which is the primary risk and unavoidable - market performance. A couple of bear markets at the wrong times and the power of compounding is destroyed. The math of investing doesn't work without consistent stable returns, and we know those are only a matter of luck. But investing is the only game in town - as with the laws of thermodynamics, you can't win, but you can't get out of the game either.. In the US, there's also the healthcare risk. One hospital stay can produce bankruptcy. This is also unavoidable.

While those who purchase indivual stocks are much more likely to buy and sell, conceptually index funds are no better than individual stocks as a means for avoiding capital gains taxes. For example, the tax on the long term capital gain in an index fund investment wil be the same as the tax in a single stock that has the same return over the same time period.

There's no tax advantage to holding index funds in a retirement account. But there is the obvious performance advantage -- that you're guaranteed to outperform the majority of investors who are invested in the same market segment or segments.

I often read about the tax advantage of holding index funds; however, I was wondering if a person's stock portfolio is held entirely in a qualified plan if that argument still applies?

I had a few financial hiccups - like buying a little sports car when I was in my early 20s in 2008. It was used, so it wasn't too expensive, but had I kept my old Camry and just invested the extra money in a stock portfolio, that would be a tidy sum today. Other than that, nothing really comes to mind. I've found, however, that whenever I've tried to get too cute with my portfolio (i.e. holding more cash or investing in Lending Club notes), it just generally lost out to a diversified and simple mix of index funds. Keep it simple and stick to your plan.

Interesting, I wasn't aware. Thank you for sharing.

So true. I used to do my own taxes by following instructions and understood very little about what I was doing. I started having someone else do it and they don't want to answer questions. I've not escaped the black box yet. You say: "This year, you could have total income of up to $52,950 if you’re single and $105,900 if you’re married, and you wouldn't owe any taxes on your long-term capital gains and qualified dividends." But you don't say why. Can you explain why that is? I get qualified dividends and took some small capital gains this year. How do I go about finding out what money is taxed at what rates? 3.8% surtax not an issue for me. Also, I tried to calculate my effective fed and state tax rate, but the % seems too low. Shouldn't I divide taxes paid by AGI?

Repairs on something that shouldn’t require them.

If that gal is special, what your annual expenses will be will not even cross your mind, see what a couple of kids do to those expenses. FI has a new meaning 🤑

Since I retired in 2010. There were plenty of memorable times when the kids (and my wife and I) were young, But retirement with sufficient income and the time to enjoy it and help the family with no work stress is great.

This! But the irony is that MPT–at least in my opinion–despite its theoretical nature and dubious application to any given reality, has massively influenced financial advice given to individuals. It's why people constantly trim their equity winners to even though think it will hurt them. They've imbibed the rules and never even heard of the theory. It's very unfortunate that MPT has had such an impact upon individual investors, when it makes the most sense at the institutional level. Even Markowitz said he didn't follow it for his personal investments. "Practical men who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist." ― John Maynard Keynes

Yes, there is a tax cost -- you can't take the credit or deduction for foreign taxes withheld: https://www.morningstar.com/articles/914550/should-you-keep-foreign-stocks-out-of-your-ira

Late fees on anything financed. This is money flushed away for zero value and it kills me whenever it happens.

If your health is good, give and value it next to a clear conscience for good health is a blessing money cannot buy. Marjorie K.

NO

If your stock portfolio is held in a qualified plan is there a tax cost associated with the foreign withholding tax on dividends for most international stocks?

I don't like this question. I don't think everything in life should be viewed in economic terms.

I don't think you should do anything. I can't predict future interest rates so I don't try.

I know the stats, but I only buy individual stocks or actively managed funds. I think the key is to have confidence in what you own so you don't panic in the panics.

Here’s an interesting opinion piece on the potential threat of runaway inflation.

I'm fine calling it an investment. The market has gone through huge booms and busts but remains with a respectable market cap near $1 trillion. To me, that's beyond just some random speculative non-sense bubble. I don't know what the future holds nor am I smart enough to know if it's legit, but allocating 2-3% to it in a portfolio is probably fine. It's not worse than gold, in my opinion.

"Is the stock market too high?" Maybe or maybe not. But, where else are you going to put your money? Bonds? Ha-ha. REITs? Riiiight! Become a landlord? Uh, nope. Requires you to be very hands ons and active. Gold? Oh, come on. Bitcoin? If you are willing to lose it all.

Jim, having managed my father in law’s funeral, it’s something I’m thinking a lot about for my mother in law and then for me and my wife. There are so many things to process and my belief is that the more that is done, the easier for those left behind.

HannahKatz - Please see this link below from Society of Human Resource Management: https://www.shrm.org/resourcesandtools/hr-topics/benefits/pages/stimulus-legislation-provides-pension-funding-relief.aspx From the SHRM article: The ARPA includes an expanded version of the Butch Lewis Emergency Pension Plan Relief Act, with eased funding rules for single-employer defined benefit pension plans and a massive infusion of federal funds for troubled union-managed multiemployer pension plans, with no repayment obligations. See also this link to the Pension Benefit Guarantee Corporation: https://www.pbgc.gov/american-rescue-plan-act-of-2021 From the PBGC article: https://www.pbgc.gov/sites/default/files/spanish-linktext.png The American Rescue Plan Act of 2021 (ARPA), enacted on March 11, 2021, allows certain financially troubled multiemployer plans to apply for "Special Financial Assistance." Upon approval of an application, the Pension Benefit Guaranty Corporation (PBGC) will make a single, lump-sum payment to eligible multiemployer plans to enable them to pay benefits at plan levels. Plans are not required to repay Special Financial Assistance, which is funded by general revenues from the U.S. Treasury. I agree that underfunded public employee unions are a problem (although I don't think retired second grade teachers consider themselves to be "part of the ruling class"). Please cite references that money from the American Rescue Plan went toward underfunded public employee union pension plans in irresponsible states. Thank you.

Agreed!

Thanks for sharing your story! I love reading about people's financial success stories. Stories like yours keep me inspired. As I mentioned in my article, I used to think maybe I was crazy for keeping a portion of my retirement funds in the TIAA Traditional account. As I've gotten older, I've learned to appreciate what those funds have given me: a feeling of security. And I couldn't agree with you more about the major lesson you learned: saving is more important than how you invest. The one regret I have is not saving more when I was younger. I relied far too heavily on believing the contributions my employer made to my retirement accounts would be adequate to get me through retirement. Thanks again for sharing your story.

I used to ask myself this question a lot but more from a financial perspective. For me, children are poor financial choices. However, for every other reason, I would always pick having children over any choice I could possibly make in life. They are hard, expensive but there is nothing better than seeing them grow and become great members of society. Not a grandparent yet, but I can’t wait.

That's a very unfortunate situation you were put in. In my 30 years of employment I've only worked for three different institutions. One was a government entity and two were private employers. Two of those three employers (including the government job) offered excellent retirement benefits. The one job I had that didn't provide exceptional benefits I stayed at for a little over a year. I've always prioritized benefits over wages. I think it's helped me in two ways. First, I've always lived off of a modest salary which means I know I can live, happily, without a lot of money. Second, I've accumulated a relatively large sum of retirement benefits. That said, the pension plan I'm covered under is no longer offered to current employees (and hasn't been since the late 90's). The retirement and benefits package that I have at my current employer is also no longer offered (and hasn't been since 2006). I feel incredibly fortunate that I got vested into both systems when I did. The option to retire early wouldn't even be on my plate if I hadn't been employed where I was, when I was, early in my working life.

A friend and mentor once remarked that the GPS Navigation system was the most successful government space program ever. It provides world wide navigation services seemingly for free. A few years ago my wife and I and some family were in Italy. We used Google Maps to navigate all around the hills, lanes, and mountain towns of Tuscany. It was amazingly accurate. GPS navigation has become a utility, like water and electric, and we count on it everyday.

I just came back from a 17 day vacation in California. The car rental was $1200. More than 25% was taxes and fees. More and more cities and states are putting taxes on visitors - they are easy to pass and don't impact locals.

Adam, great job explaining a confusing concept. MPT is very intellectually appealing, but challenging to implement and keep on top of. That's why I was excited for some of the robo-portfolio tools. For lots of people, it's probably the easiest way to achieve and maintain a desired AA.

Not all of us are fortunate to have picked the right employer to work for. My company 401K match was in their stock, I had no choice. Could not move it to other funds offered in the 401K. Eventually, the company filed bankruptcy and I lost all the company matched funds. There is no guarantee of a pension 30+ years down the road, unless you work for the government, and if you don't, you better learn how to invest for your own future.

Stay the heck away from long term bonds. They will get killed if rates rise.

I may be the odd ball here, but I say stay domestic. I know more about our countries industries and stock market than any other country. If I'm investing for the long term, I believe my returns will be at least as good or better with this approach. I also note that many domestic companies are global so I am getting some international exposure.

I would never recommend an actively managed fund. It is just too hard to beat the averages after expenses are considered. If you know you can generate an average return, why would you risk under-performing the market average?

I've been an E-Trade client for a number of years They are my only broker, so I don't have anything to compare with. But I'm very happy with their service. I can always talk to someone if I need help, they are knowledgeable, and their fees are very reasonable I like their trading platform. It is easy to use and it always works.

I've never read any articles comparing the returns of index funds versus active funds. I suspect bond funds are not that different from stock funds. Expenses matter and it is hard to beat averages over time.

I was with M1 (Easy one-click rebalancing, Good incentive to move in with large portfolio and left when they grew too large to offer straight forward run of the mill customer service. Checked again lately by asking a question. Still sucks. Moved to Vanguard and experienced a sudden drop in customer service. (Try to find their help phone line number) Decided to move again to Fidelity or Schwab. HELP!

The Reagan years when President Reagan and Fed Chairman Paul Volcker began their successful attack on inflation and stagflation. I very much fear that 60’s & 70’s style inflation and economic malaise are beginning to develop again. My personal opinion is that J Powell is vastly underestimating the runaway-train that inflation can become, and that J Yellin is complicit in the new ‘big Government ‘ spending mantra. I fear that history will repeat and the younger generations will have their own stagflation epidemic to battle.

So very wise!

Public employee unions may be part of the problem, but they are not the whole problem. Full disclosure: I am a state employee, and one day, if I am so lucky as to live long enough, I will receive a generous and guaranteed pension from my state (not New Hampshire, by the way). I also am an economist who understands the nature of risk and the time value of money. Public employee unions work to get the best deal for their members. Of course they do, just like everyone else does. Why don't public employee unions demand higher salaries? Heck, I could make more as an employee of an investor-owned firm. Why, instead do public employees (through the unions that represent them) they settle for lower salaries accompanied by more generous pensions? Salaries immediate; they are visible. Higher salaries cost real money right now, money that would appear in this year's budget and would have to be raised now, either from taxes from deficit finance, or, even worse, from cutting some other expenditure. None of these options is very palatable to the representatives of the treasury. The other alternative is to skip high current salaries and provide something that does not need to be financed now, like maybe the promise of a more generous pension. Its cost will accrue now, but will be financed and paid later. Of course, the cost is still there, but the state can provide more benefits now by postponing some of today's costs to be collected later. Why, why, you ask, does the state not provide an accrual budget, one that recognizes the costs of those promises now? Why did the City Manager of Portsmouth New Hampshire not provide information to the City Councilors back when we was signing those contracts? Most likely he did -- if they asked for it. Don't blame the union, blame the people you elected, the ones pretending to be shocked, shocked!, at the ballooning pension requirements. They voted to approve the contracts. In this case it is the Portsmouth NH City Council. But it could be any local or state board. They agreed to the terms. Did they not understand them? Did they not ask questions? Better yet, who voted for these people anyway? Did they ask questions? Did they demand to know whether employee costs in the budget represent the full present and future costs? Maybe the blame should be shared by the people who elected the representatives, yes, the voters, who want services now but would object if the costs were paid now.

I think I’m wired as #2–that’s how my professional life has gone—but my heart yearns to be #3, and that’s the kind of retiree life I want.

In my 20s, I also worked in government. I invested my meager savings in small cap mutual funds and real estate. I did well enough to pay for graduate school. It was pure dumb luck! When I started in academia in the late 1990s, I worried about the stock market bubble and invested everything in a money market fund. I remember the folks at the benefits fair thinking I was crazy. Two years later, following the dotbomb fiasco, they though it was genius. In 2002, I invested my accumulated funds in TIAA Traditional and continued to allocate 100% to the guaranteed fund. For the next 10 years, it seemed the smartest move one could make. I still have an investment guide from 2012 and the TIAA Traditional returns beat almost every fund over the prior 10 years by quite a lot. However, the last eight years have reversed all that and it is now lagging all but the most conservative investments. Hindsight is 20/20, but I have no regrets. Sleeping well at night and spending my time on worthwhile endeavors is worth more than worrying about my portfolio. At this point, I am debt free and the kids are in the process of becoming independent. Between TIAA and Social Security, we should have enough to provide a comfortable retirement. I can also now afford to invest aggressively with a very strong base to fall back on. I know - The way I did it was completely backwards from what most people recommend, which is to invest aggressively when young and become more conservative as you get older. But I also learned something else, saving is more important than how you invest.

According to Portfolio Visualizer, an international index fund (VXUS) experienced a CAGR of 5.45% with dividend reinvestment from Jan 2014 to March 2021. Those aren't whopping returns, but they aren't abysmal either. At the end of the day, though, what's most important is that you feel comfortable with your investments. Although your viewpoint is not popular among readers of this site, at least you have good company: famously, both Warren Buffet and John Bogle dismissed international diversification.

It's difficult to pick one particular moment when I was happiest, but my guess would be when I went on vacation with friends or family. Money obviously played a huge role in allowing me to do this. Without money, I wouldn't have been able to take time off from school/work or afford travel expenses. A relevant quote from Morgan Housel: "Aligning money towards a life that lets you do what you want, when you want, with who you want, where you want, for as long as you want, has incredible return."

This is a great article! Sadly, I think, I'm a #1 at heart....'cause I started feeling tired and overwhelmed just reading #2, let alone being that person. lol. I guess I'll never be an intrepid overseas traveler, exploring cultures and learning languages; learn to code, play guitar or build websites; or advocate on behalf of others to inspire change. Yet I do miss fun getaways and U.S. domestic trips the past year and enjoy the outdoors. So maybe there's some hope for me to avoid becoming a total blob.

Best is to follow the sage advice of Yogi Berra: 'It's tough to make predictions, especially about the future'” You state, correctly: "... Anyone trying to build a retirement plan, for example, has to think about future market returns, interest rates, inflation and taxes. All of these factors—and others—will have an enormous impact on our financial future, so we need to make some estimates. ..." But, I don't believe in adopting a specific plan for "retirement". Gainful employment will end at some future date - perhaps due to disability, death, caregiving responsibilities, involuntary termination/job loss, or personal decision. Even though I've been part of the employee benefits industry for the past 42 years, more than once I excised the word "retirement" from 401k and defined benefit plan education and marketing materials. Instead, I've adopted themes like:

  • "Drive to your dreams ... whatever you may be dreaming about, and
  • "Will you be a middle class 401k millionaire, ... someday?" .
Two favorite quotes from my planning seminars of the past:
  • "Plan to live, because death will take care of itself."
  • "Life is not a dress rehearsal for retirement, start doing some of things you've been dreaming about"

Public employee unions are the problem. Even FDR opposed their formation. Part of the COVID bill provides for relief for the underfunded pension funds in irresponsible states that chose not to properly fund the pensions of their public employees, hoping the Feds would bail them out. It is a real kick in the pants to the responsible states that planned for this. These public servants are more like the ruling class, enjoying higher pay and better benefits than their private sector benefactors. This cannot continue.

Not much, and I'm a little worried that I should be doing more. Most of my bonds are in a Vanguard Total Bond funds, and I'm thinking of shortening that holding. I'm still not at the point where I need to touch retirement savings, but that is getting closer.

I just returned from a trip to California to see my son and his family. While we were there my son's father-in-law passed away, at 91. Seeing his five children, grandchildren, nieces, nephews, and extended family come together to support their mother, and each other, reminded me of the importance of family, and inter-generational responsibilities. I know I'm biased, but the world is a much better place with my sons (and their families) in it.

Having left the corporate 9-5 world a few months ago, this area is on my mind. I worry about my new profession being so tightly correlated with how the stock market performs. If the market tanks, my portfolio drops and I will likely lose consulting work. That's one thing. Another is health care. A significant issue can obviously hurt one's financial situation, but even a lot of small things each year can run-up medical costs to the deductible in an HDHP and result in a material annual health care expense. I'm also worried I'll find the special gal who will cause my annual expenses to double. A little tongue-in-cheek here, but it's something I must plan for. Let alone the possibility of having mouths to feed later in life. Finally, I worry about my parents. My mother is 70 and pops is 65. Both are in so-so health at best and already struggle with stairs. There's no plan among my family about who will take care of them, which I think is coming sooner or later. That too has a financial impact. Lots to consider.

Vanguard has been my principle custodian over the years for their low fees, index funds and corporate structure that Bogel set up. ( benefit the individual investor, not the Schwab or Johnson family @ Fidelity) Competition and more transparency has brought many companies, especially new ones into the fold with some great offerings. I've aggregated my assets into two platforms for ease of record keeping (Vanguard-Taxable holdings and Schwab-Retirement accounts)

I have invested internationally for 30 years, but have found that I was constantly tax loss harvesting my international index fund for the last 6-7 years. I have enough capital losses logged thanks to the international funds so I have decided to stick with a 2 fund portfolio of US total market and US total bond. I have been retired for 4 years and feel that the diversity of International is better left to those with decades to reap the benefits. This will be my first full year without an International index fund.

I have had similar problems with the LTC insurance policy for my mother. The insurance company eventually pays what they owe however, not before making you suffer untold aggravation. They make sure that it will cost you many times more than the amount of money you will eventually receive. I have been fighting with them for more than 3 years now. One needs to have quite a substantial buffer for the 6 or more months it takes to get any of the money you are owed out of them. Every month or so there is another issue that needs to be addressed that will again take another 6 plus months to resolve. Just keeping track of all these problems is a paper work nightmare. I can only come to the conclusion that once you give ANY money to an insurance company for any type of insurance it is there's to keep! There only job is to then not give ANY of it back to policy holders. LTC insurance is a scam to fleece the unsuspecting and anyone who purchases it is a fool!

This is very interesting article. I think (hope?) I have aspects of all three styles, and hope to be/so more of #2 and #3. The challenge may be to find the right balance to make a happy retirement.

Interesting question. After a minute's thought, I think I would seek first-hand opportunities to improve the existence of other sentient beings, including our planet. I would concentrate on those whose existence is threatened through no fault of their own. Suffice it to say, at seven or eight billion, and growing, humans wouldn't be at the top of the list.

Oh my. Thank you for this excellent article, but it set off significant PTSD for me! I'm glad you've worked out a way through. In the case of my mother, not only did we have the similar rude shock of getting an abrupt notice of Medicare rehab benefits terminating well before any of us thought she was ready, but we had the additional incredibly stressful experience of trying to navigate the (expensive) LTC policy she had carefully bought and loyally paid for many years. In the end, not only did the LTC insurance not pay, but the insurance company had the shameless guts to try to bill me for her premium for the period one month before her death (while she was already in the facility I was trying to get them unsuccessfully to pay for) and extending five months past her demise. Whatever was left of my temper snapped for sure when I got that notice. Getting oil and frail is not for the feint of heart... and families need a lot of resilience too.

Everything that's been mentioned in the comments!

I believe it is true that experiences bring happy memories, much more so than possessions. The role money played is that many, but not all of these experiences cost money. Touch football games in college, weekend ski trips, outdoor concerts on a beautiful summer night, or a week at a cabin by the lake for the past 16 years have been when I felt happiest. I have been fortunate to have had the money to experience all these things.

C Campbell, Just tried to access my 2019 return via TT, they will "allow" me to view the pdf, but not to "access" the return. If I cannot access then I'm unsure how to use Forms. If you know how to access Forms on a 2019 Return, please let me know. Thanks for the feedback.

It's great to hear from someone who also has money in the TIAA Traditional account. I haven't met many people who do. The closer I get to retirement, the more I realize how I appreciate having access to 'fixed' investments like my pension and TIAA Traditional account. I realized that ever since I started working, my 'budgeting' process has been quite simple. Every month, I pay my fixed expenses out of my salary and then live off whatever remains. I see getting monthly pension and annuity benefits as allowing me to continue to live much this same way in retirement.

As recently retired academics, my wife and I have a substantial amount of our retirement nest egg in TIAA funds. Like you, we are conservative and for most of our careers we had 50% in equities and 50% in TIAA's traditional annuity. We did increase our equity allocations to 60% in the 10 years prior to retirement. Also like you, we appreciate the fact that it has a guaranteed return of 3%, but has usually earned more and, provides a payout bonus for long-term investors. Unlike the notorious variable annuties, the TIAA annuity has no fees and varies only in annual crediting rates and options for retirement payouts. For the time being we are simply taking RMD payouts but may eventually switch to monthly payouts.

#3.

09APR2021@1051MDT I posit that the smartest action you can take is to spend the $40 at MaximizeMySocialSecurity.com. I did and found it worthwhile. It really helped us in deciding "when". We chose a sub-optimal path, but with knowledge.

It sounds like you've done very well financially, thanks to some early encouragement by your co-workers. I wish more employers would share the importance of investing early and often with their employees. I see too many people today--many of whom are getting close to retirement age--who have no understanding of what investments they have, or how much money they might need, in retirement.

"Overly generous" is a term often applied to the state pension plan I'm a part of. A lot of the "Tier 1" retirees end up getting a monthly retirement benefit that's actually higher than the wages they were earning while working. Needless to say, "Tier 1" went away shortly after I became vested as the state figured out it wasn't a sustainable plan.

A small allocation to alternatives is good. There are so many assets today that were not available before - investing in real estate, art, farmland, crypto, and NFTs is easier than ever. Ok, maybe NFTs are too 'out there'. But art has proven to provide strong risk-adjusted returns with diversification benefits. Still, there's nothing wrong with simplicity. A portfolio of stocks and bonds in low-cost funds within tax-advantaged accounts is solid. Base the mix on your risk tolerance, but know that you might live to 100. I'm 33 - that's a long way to go. Also be sure to rebalance. That's such a benefit of target date funds - they get you diversification and provide automatic rebalancing. Maybe add in extra to small caps, value stocks, and ex-US equities. Alternatives can be maybe 5-10% of your portfolio, but you don't want to be a headache that leads to the expense of time and management.

If you had stayed with that first employer, you would be sitting pretty with a pension. I managed pension plans for nearly fifty years and even generous state plans never came close to 17% But with a 8% return I’m guessing we are not talking about a traditional pension plan in any case.

Thanks very much for sharing your story. When I graduated from college (almost 40 yrs ago) my first job was with a financial services company. I was fortunate that young to work with bright investment folks who ingrained in me the understanding of the power of compounding. Of course I understood the general concept of it but it quickly clicked with me and from then on I plowed all the $$ I could into various equity funds. By starting that early I've been very blessed. We will fund our kids Roth IRAs annually (if eligible) into equity funds when they finish college.

I completely agree. Hands down to the best book. It covers 99% of what one needs to know about finance, is practical, based on factual research and written clearly in just ~150 pages. It's the book I find myself recommending the most to those asking me about money and investing.

Books. For $10 or $20 you're getting hours of entertainment or education. A good book can be way more valuable than the dollars it costs!

In spite of being allergic to debt, I'm open to it when there's a high probability of achieving something which would otherwise be very hard to accomplish without debt, AND the "worst-case" outcome is acceptable. I borrowed twice for house purchase. The first one was a small townhome that I paid off in 3 years. The second one was a small single-family house that took me almost 10 years to pay off. In both cases, I kept my cost low and avoided buying something that I didn't need. I also made enough down-payments so that in the worst-case, I could sell the property and pay off the debt.

For holding until maturity, one doesn't need to own individual bonds. There are target-maturity bond funds to serve the same purpose (e.g., Invesco Bulletshare ETFs, iBonds, even some closed-end funds). These invest in multiple bonds that mature around the same "bullet" date.

For many kids, a sensible path is to send them to a community college to complete general education credits there while getting an associates degree, before paying for a bachelor's from a four-year school. The credits usually transfer easily. And if it happens that your son or daughter isn't yet mature enough or academically ready for college, the tuition for learning THAT lesson will be far cheaper.

The only really worthwhile investment with guaranteed returns. Those grandkids are one heck of a dividend too.

I agree that my current international allocation of 27% needs to be raised to a minimum of 30%.

I definitely fall into #2 with a little bit of #1 and #3! If I accomplish one goal, there’s another waiting for me.

I enjoy learning new things, helping others and travel. However, at this stage of my life, none of these is central to my identity. I suppose that puts me in the comfort category although I do like to keep busy.

If it’s possible to be all three, that’s me. I go from one to another depending on my mood. I like art, writing, helping others with benefit related problems and travel. Lots of travel. Visited 45 countries since retiring many several times.

Comfort (well, maybe, lazy sloth), but I want to travel to Europe. Does my "honey-do" list count as learning new things?

I don't think that's necessary. With ex-US bonds yielding just 0.9% in aggregate right now (vs. 1.6% US), I'd just stick with US bonds and perhaps emerging market bonds. Then use ex-US equities for international diversification. The bond market outside of the US is more of a currency play while the US vs. ex-US stock market difference is driven by other factors such as sector and industry performances, growth vs. value, small cap vs. large cap.

Creating a will.

The first TV my partner and I bought was the most basic we could get. We had just moved in and already had many expenses. We didn't even watch that much TV at the time, so we thought it wouldn't make much difference. We ended up getting a TV that was too small and low quality. Because of that, we almost never used it, and didn't watch many shows or films (which we actually like doing). We sold it some years later and bought a bigger, higher-quality TV that was three times more expensive, but much more worthwhile.

I hate tracking my expenses but have been doing it weekly nonetheless since 2015. It's annoying and time-consuming, but it helps me see if I'm on track to reach my saving goals, why I might be falling short, understand where I'm spending most, etc.

Interesting point. What would you say is a decent management fee to pay for an active bond fund?

Not sure if the smartest, but one of the things I've been consistently doing is saving every bonus that I've ever received and most of my salary increases. I think that keeping costs and avoiding lifestyle creep is important.

I do not think about children being a good or bad investment. For me, it is kinda as an obligation to be a parent, partly due to family expectation.

I have used Mint for years to aggregate many different accounts (e.g., credit cards, banks, etc.). I like Vanguard and Schwab, and am getting used to Fidelity due to the new company 401K is there.

Thank you RA. It's remarkable to me how little insight there is into a system that consumes so many lives and resources. The abdication of responsibility in the current system leaves a big opportunity for someone willing and able to create better solutions. Thanks for reading.

Great article, as usual. I am a big fan of Daniel Kahneman, and also another (organizational) psychologist Adam Grant. Daniel Kaheman just recently got interviewed by Adam Grant in Grant's podcast "WorkLife". It is quite amazing to see two personal heros discussing about decision making and intution, etc

Just toggle into Forms view in TurboTax. Then you can see exactly how all the computations are being done and it is not a black box at all. You can even right click any cell inside the forms view and find out where the source data is coming from and from what regulations they are pulling the calculations. Perhaps you have never explored this. I have built my own spreadsheets, and when I was not quite sure of some subtlety I would mock it up in TurboTax and go to the forms view to make sure I had modeled it correctly.

Phil, thanks so much for posting your experiences, this provides such valuable insight into a very difficult system. I've recently had to go through some similar issues, though not as comprehensively stressful as what you've shared. Best of luck as you work through the aftermath.

The situation is definitely NOT apolitical. Public service unions should not be providing campaign contributions to those (democrats) that decide their pay. It’s corrupt.

Many folks who are heavily invested in stocks sell in a panic during market declines -- even though they're years from retirement. They often need little or no bonds and cash for financial reasons. But they clearly need them for emotional reasons. Those of us with high tolerances for risk shouldn't assume others are equally tenacious in the face of short-term losses.

>> "To be fair, true knowledge isn’t dangerous." True knowledge is often dangerous, because it often takes wisdom and experience to apply it safely. >> "keeping enough in bonds and cash investments to make it through the rough periods, both financially and emotionally." Wouldn't that only be true for those financially and emotionally dependent upon the size or their retirement portfolio? Earlier in one's career one is financial and emotionally dependent on potential for earning income, which is why many at that stage are 100% stocks during that time.

"Thank you, I've worked hard to become so." - Wesley (in The Princess Bride)

Home health has become an increasingly popular alternative due to COVID is also very expensive. The median national average cost for a home health aide is $4,576/month, which assumes 44 hours of care. Extrapolating to 24/7 care brings the cost to $17,472/month or $209,664 per year.

Oof, those are highway robbery prices. I wish I knew what the solution to this is, but the healthcare system in the US is so Byzantine that I wouldn't even know where to start. There are so many layers of middlemen and bureaucracy in the US healthcare system that it's difficult to identify all of the inefficiencies, and even harder to implement solutions. Hopefully things will be a little bit better by the time my parents are old.

Thank you Thomas. The billed cost of housing and general care was ~12,000 USD monthly, before any medical treatment or therapy. And additional unspecified services were billed for routinely, with no response to billing inquiries. A system this complex is no doubt filled with perverse incentives. Repairs are urgently needed, as you state.

Ah, good point!

Thanks John. In fact, we did connect with some others who were trying to find their way just as we were. It was good to share experiences, resources, and hope.

Thank you for your kind comment. I sincerely hope this post will help others in some small way. Thank you for sharing.

I'm worried that global growth will continue to be tepid or may be even slower than it has been in the past few decade (2%+/-), which will negatively impact stock performance, and thusly inhibit my ability to retire.

You are the envy of the world, Pete.

I'm so sorry you're having to go through this ordeal. I can hardly imagine the stress you and your family must be experiencing. And it's tragic that your mother wasn't getting high quality care during such a tumultuous and perilous time. I don't want to get political, but your story highlights how desperately our country needs healthcare reform, and how dire our long-term care situation is. Both my parents and myself still retain our citizenship in Argentina. As dysfunctional as that country is, its healthcare system is vastly less complex and more accessible than in the US. My parents plan on moving there when they can no longer care for themselves. My 99-year-old grandmother with Alzheimer's has two full-time caretakers who live with her and are unbelievably loving. In the US, that quality of care would probably cost more than $100,000 a year. In Argentina, it is absurdly affordable (at least for people with American salaries). The aging of the global population is going to present major challenges for all of us, both the young and old. As a society, we need to take more steps to prepare for this challenge before the situation become even more critical than it already is.

For the vast majority of non-super wealthy people term life insurance is the way to go.

Government can and does make things too complicated and less effective...great article.

There are several things investors can do about potential higher rates. One would be to ignore the issue altogether. I've seen people argue that higher rates is what bondholders should hope for, because they'll receive higher interest payments. But it could be a costly proposition if the fall in bonds' prices are larger than the benefits from higher rates. This is the option I'd be most wary of. Another option would be to invest in bonds with short maturities. These bonds would be less affected to increases in rates. However, they will offer lower returns too. Bonds with higher coupons are also less affected by higher rates. But they can have other risks, such as a higher probability of default. Investors might just not hold any bonds. While this erases the risk of rising rates completely, it also comes at the expense of earning minimal (if any) returns in a bank account or similar products. Finally, one could switch from investing in bond funds to individual bonds. If an investor plans to hold the bond until maturity, the price of the bond will not fall because they won't sell it. Bond funds are marked-to-market daily so if rates go up, the price of the fund will go down. Nonetheless, buying a bond directly, rather than indirectly through a fund, has disadvantages. First, it can be more costly and complicated. Second, owning a handful of bonds offers less diversification benefits than a bond fund. And last, but not least, the nominal value of the individual bonds will be worth less if rates and inflation are higher. There are pros and cons for each of these scenarios. There could be other options. The takeaway is that we must make the trade-off that we're comfortable with, which can in turn depend on our risk tolerance, expectations, and preferences. EDIT: As Joseph told me on Twitter, I didn't mean to say individual bonds aren't marked-to-market. I meant to say that by investing in an individual bond, if held to maturity, there will be no loss of principal. But bond fund managers can trade and realize losses.

Driving 10 miles or so to experience something fun - such as a free symphony at the university. I estimated it costs about 20 cents a mile to drive my 2008 Yaris. Can't beat that! But even $15 for a couple beer at trivia with friends is worth it. Also, not everyday, but my indulgence is of course visiting the Brazilian Steakhouse which runs about $30 (after my coupon!) and going during the cheaper lunch time.

Phil - great post. My heart goes out to your family and all the other families that struggle to manage long term care. Our family has had our own LTC challenges. The one positive is that we met quite a number of fantastic folks who helped us with care giving. Our family remains close to several of these kind people even years later.

Maybe not providing the full diversification benefits, but my international exposure is through companies with a global footprint, but US- or UK-based.

Wow! Thank you so much for this post. I've learned a lot from Humble Dollar over the years but this is the first one I'm printing off as well as forwarding to my family. I'm sure there is so much more you left out, but what you included is eye opening. Best wishes to your mother and thank you!

While the correlation between U.S. and foreign stocks has increased over time, that correlation doesn't tell you about magnitude. In other words, U.S. and foreign stocks may move in the same direction in any given year, but the size of their gain or loss may be vastly different -- and thus the case for diversifying globally isn't fully captured by correlation coefficients.

I don't think there is an alternative that is as simple to understand and doesn't require any skill to invest in. However, for those willing to work harder for potentially greater returns (or additional diversification), there are other options. This article by Nick Maggiuli describes a few alternatives and their relative pros and cons:

  • Investment properties
  • REITs
  • Farmland
  • Small businesses
  • Peer-to-peer lending
  • Royalties
  • Your own products
As for me, I'm going to stick with stocks for the time being.

For those who are uber frugal like me, it's also worth taking a look at the mobile plans offered by the company Mint Mobile. Their network coverage is not as good as Verizon's since they piggyback off of T-Mobile's network, but their plans are very aggressively priced. They don't support international usage, however.

True, but a few caveats: As Figure 3 in that paper suggests, the bulk of the volatility reduction benefit can be reached with as little as a 20% international allocation for US-based investors. And as shown in Figure 4, the correlation between US and international equities has increased over time, reducing the global diversification benefit. My takeaway is that it's beneficial to have a fairly sizable international allocation, but the cost of a home bias for US investors probably isn't huge. That's assuming there isn't a black swan event that causes extended US underperformance. Because of that risk, a higher international allocation is probably warranted.

I've been enjoying using the online bank Ally and the investing platform M1 Finance. I use Personal Capital to keep track of my financial life. The one thing all of these services have in common? They are totally free to use.

If I could answer this question, I would be very wealthy. 😁

Always good advice to plan for possible tax rate changes. Income tax has been on a downward trend for decades (people always seem surprised by this), but that seems unlikely to continue.

Might I recommend the book "The Price You Pay For College" by Ron Lieber? Despite my own experience and expertise in higher education, I found this book fascinating and useful.

I will spend a wad of cash the next few years on college expenses. The problem in planning for this included concerns such as, what if there's a market correction that takes a decade to rebound? What if there's a spell of high inflation like 1978-1983? There are more what ifs than answers. To limit the negative impact of uncertainty, and maximize the effectiveness of my saving/spending, I constructed a conceptual "cash equivalent" sufficient to cover estimated spending from savings for the next few years. This includes: Cash in the bank, FDIC guaranteed. CDs of varying maturity. EE and I bonds of varying age. Dividends on stocks in non-retirement accounts. Stocks/index funds in non-retirement accounts. In other words, a conservative slice of my diversified portfolio, not a static cash horde. I included some stocks/funds in case there's a good year where winnings off equities could reduce the bite of spending cash saved dollar-by-dollar after taxes over the past decade. Because I might not have equity wins in these particular years, the size of my "cash equivalent" pool exceeds my anticipated expenditures. Add to the above, the kids can get jobs and generate some cash of their own. Or apply for and win scholarships, internships, and the like.

I've read recent articles disparaging indexing due to the growing size of certain companies with the most popular index funds and ETFs. Yet, over the last 40 years, the shift from defined benefit plans ("pensions") to defined contribution plans ("401k/403b/457's") put ordinary workers in the untenable position of investing for retirement in a sophisticated, global financial system they barely comprehend. Most recent retirees find their social security monthly benefit too low to cover expenses, and health or other factors limit their ability to continue working. It's essential that these defined contribution plans experience a reasonable positive return. Companies do not want to be in the business of assuring their employees have good retirements. Many people don't even have long term jobs anymore. Let individuals/firms with a higher risk tolerance or more money to play with, and more time to research and bet on companies, do the active investing and hiring of active managers. Ordinary investors benefit from low expenses and market matching returns offered by index funds. IMO total market indexing should be even more popular!

Monopsony + Monopoly = Screwed Taxpayers

I'd own a 100-acre ranch in Montana (where I'd spend my summers) and another 100-acre ranch in Texas (where I'd spend my winters).

Now. My time with my wife is better all the time, I love my current job - more than any of my previous jobs, and I can meet all my commitments. My salary is currently the highest it's ever been, which means I have no money stress. I'm not ready to retire yet but I'm on an easy trajectory to get there.

I think you would be hard-pressed to find a public employee union contract that allowed conversion to a defined contribution plan without the union's consent.

Great article. I’m concerned about the long term viability of pensions, too. Question: is there a way to delete our own comments with the new comment system?

I'm very disappointed that towns/cities and states haven't transitioned all their employees to having only 403(b) type plans. Transfer the PV of each employee's current pension and enroll all new employees in a 403(b) type plan. No more pensions. If a municipal employee wants to convert their retirement plan to an annuity at retirement, they can do so. This kicking the can garbage is so very frustrating. Oh and future return expectations in these plans should come down (if they haven't already) so that means more taxpayer dollars funding the plans instead of investment returns doing the hard work. If I'm missing something, please enlighten me. Please

Money helps. Paying people to do tasks you don't enjoy or take away from time with family - like lawn care or shopping - likely improves happiness. But there's more here. One cannot simply automate or delegate everything in life. We must always work to cultivate relationships and feel a purpose in society. Money won't address those issues in full. Like everything, happiness is a continuum - maintain and build relationships and purpose using money as a tool to farm out stuff you hate doing. Another aspect is finding what you really enjoy and spend a little extra money there if possible. Perhaps a third point is reducing risk through money - paying up for a little more insurance coverage or a higher-quality car can prevent potentially costly and harmful accidents and car trouble (as one example).

You nailed this one. I served on several task forces for three different governors evaluating pensions and benefits for state workers. The basic problem is the alliance between politicians and public unions. One demands more and the other gives it, but with no money to fund the promises. Even today if you look at BLS data you will see the benefits and total compensation of government workers significantly above the private sector. It gets worse. Should anyone attempt to raise taxes or adjust future benefits they are vilified. This is especially true for teachers. Citizens make no connection between the benefits they may have (or not) and the taxes they pay to support overly generous programs for state workers. In NJ the state lottery was supposed to provide benefits for education programs and services. Recently, that was distorted and the lottery was made an asset of the pension fund.

Excellent point. Arguably, you should own market-capitalization-weighted index funds when buying stocks, because a high stock market capitalization reflects investors' collective vote of confidence. But large amounts of debt outstanding is another matter. While I don't own fundamentally weighted bond index funds (those that might weight a nation's bonds by measures like, say, GDP rather than the value of debt outstanding), I could see doing so if the funds were available at very low expense ratios.

I'm simply limiting my bond investments to shorter term and high quality. I have no idea when rates will go up, but the current rates are not worth taking any maturity or credit quality risks. I'm also trimming stock exposure as the market keeps on hitting new highs. I love mechanical rebalancing - takes emotion out of the picture.

My 4 years of undergrad. Had very little money to spare, but that had nothing to do with the fun. Extra money merely meant better booze :).

I like the research and planning tools for Fidelity. It also has a good online investor community with a few very knowledgeable and helpful members. I have a small account in Schwas as their stock research offers several qualitative reports (CFRA, Argus, Credit Suisse, Morningstar). The Morningstar XRay tool (premium) is available for free at TRowePrice. I find it handy for portfolio inspection.

I have mixed feeling about owning individual corporate bonds. I had setup a ladder with A and above issues. There were a few unexpected downgrades (due to M&A), and a few got called away too. I remember getting stuck with a few issues that I no longer wanted to keep, but the liquidity weren't great and I had a hard time in disposing them. Too much effort for too little gain. I haven't had any problem with individual Treasury as they are highly liquid. Target-maturity funds (bullet funds) are handy for ladders - the fees are reasonable given the benefits of issuer diversity and much better liquidity. I have separate funds for short and intermediate terms, and both inflation-protected and regular ones. I think the convenience of funds outweigh the hassle of managing individual issues. I had better luck with individual preferred shares (non-Bank), especially the cumulative ones with favorable tax treatment. Most of them were bought during market shocks and at a nice discount to par. The income is decent. I don't intend to sell them anytime in foreseeable future, though a few got called too.

Yes. My parents had health problems that led to financial problems. My brothers and I had to step in and chip in. Eventually, my wife and I bought my parents home and they lived with us for the rest of their lives. Although it was hard at times, it ended up being a positive experience for our children and our extended family. My wife was taught that family comes first, and she was all in on very decision. I also learned a ton about financial and retirement planning by getting involved with my parents and in-laws.

Great article Adam. Thinking, Fast and Slow is one of my favorite books. I spent 40 years creating and executing predictive models of complex physical systems. For these systems, the physics was generally well understood. But the models, and results, all suffered from the 3 items above. In these kinds of systems, engineering judgment helped #1 &2, but could be the case of bias. Compared to deterministic physical systems, complex systems involving human interactions are basically non-deterministic. I have very little faith in short term financial projections.

One of my favorite pieces of advice is to save first, and save automatically. Automate as much as possible, so savings and expenses, are taken care. You may have a meager take home paycheck, but you will learn to live on it, and feel really good watching your savings grow.

I'm a wine aficionado. The global stock of quality wine is enormous. You can find very drinkable wines for $10 or less, and terrific wines for not much more. I was in Tuscany in 2019 and spoke with a small producer of Chianti Classico. He told me they were lucky to make $1 per bottle on wines shipped to America.

I struggle to understand how cryptocurrencies can be a currency and an a highly volatile asset at the same time. I'm a little worried about the recent run up in real estate values, although we recently benefited by selling our primary home.

This question makes for a fascinating thought experiment. What if everyone invested in the same index? Would there be enough of a market to support the buying and selling? I think that, even though people are trading the same shares, there are enough people invested, at various stages of life, to support the buying and selling. I once attended a lecture by Dr. Jeremy Siegel, of the Wharton School. His research looked at the wealth transfer from the baby boom generation to succeeding generations. His results indicated that there was sufficient demand to support the inter-generational wealth transfer, if you considered the global market (like India).

Long term care insurance is a topic I want to research and decide if it is right for my wife and me. One other, I have a left over HSA form my employer. The account is not great in terms of fees and investment options. I've been meaning to convert to a better plan (likely Fidelity) but haven't completed it yet.

I agree with Joe -- term isn't always better. I see a few use cases for whole life: for example, to fund the estate tax in families that own a highly valued private company.

Over the years, I've found practically zero correlation between my tax bracket and my happiness. I wouldn't go as far as to say there's been a negative correlation, though.

Tracking my expenses. For decades I've been looking for a better way. I feel like I've tried them all -- Quicken, QuickBooks, Mint, and more -- and I've yet to find one that doesn't require hours of tedious maintenance.

I do think it makes sense on the bond side, and especially in the international bond space. If a bond index is market cap weighted, what you're doing when you buy the index is to buy more of the most heavily indebted entities. That's never struck me as a good idea.

Tiller Money is a relatively new tool for tracking expenses. It downloads data into a Google Sheet. It's not nearly as polished as something like Mint, but in exchange for the rough edges, it's very flexible.

Cable TV feels like a poor value for the money. Maybe that's only because I remember when TV used to be free, but I still don't like it.

According to an analysis by Vanguard, investors reap the maximum diversification benefit when international stocks account for around 40-50%. You can find the study at https://personal.vanguard.com/pdf/ISGGEB.pdf.

It has no intrinsic value, so it's not an investment. And it's too volatile to be a (useful) currency. It's speculation.

The cost of college, followed by the cost of college and the cost of college. It's endlessly frustrating that college generally delivers a positive ROI, so it's not an option to not want to send my children to college. But colleges have pushed the cost relentlessly higher, making that ROI harder and harder to justify.

My own family's experience closely mirrors the conventional wisdom: Where we've been able to use money to buy experiences, it has brought happiness. In fact, I'd go as far as saying that we weren't buying experiences; we were investing in experiences.

Hate paying bills and taxes. Our bills are almost entirely on auto-pilot. Taxes are done by an excellent accountant who's also a great human being.

The closest thing to an alternative investment I own is a deferred income annuity. Gold contributes no income to a portfolio, just a bit of inflation ballast. Publicly traded REITs are already reflected in major indices. Partnerships have tax and liquidity headaches. Hedge funds...ha!

Estate and LTC planning

Unless you have reason to believe you are not long for this world, avoid the "haircut" for the four years prior your Full Retirement Age. Especially if you are currently making good money and can keep that going those last years. You'll get 35% less at 62 than your FRA benefit, if you were born in 1960 or later. Between FRA and 70, it depends. Your ultimate benefit rises each year in large measure because you also lose the money you would have collected. My brother likes to compare it to a sheet of paper. At 66, your paper is 8 1/2" tall. At 70, the paper is turned 90 degrees and now 11" tall. Roughly the same amount of money (the area of the sheet of paper) comes your way, actuarially. Planning as an individual, you reach a crossover in your early 80's when it turns out that it's better to have started later. But if you don't live long, then you've left your contributions on the table.

I imagine many a person rues the day their parents threw out a baseball card collection with the debris of childhood past. Might have had an awesome rookie or two in there. Of course, nearly all old cards are of little value and that's the rub with "collectibles."

I have a few small accounts to close, leftovers from way back... just have had a hard time getting to that task, not urgent, not particularly important, but being rid of them simplifies my financial house. My latest impetus is to use these to pay this fall's college tuition for my kids.

For many years now I've roughly split our investments between Vanguard and Charles Schwab. I love Vanguard for its history and values, its ownership structure (the company is owned by its funds, so the fund shareholders actually own the company), and especially its Portfolio Watch feature (by Yodlee) wherein you can list all your investments, whether held at Vanguard or elsewhere, and automatically have an up-to-date analysis of your total portfolio (stock/bonds/cash; domestic/foreign; growth/value; large cap/small cap; etc., etc.). I love Schwab for its history of helping the DIY investor, its low fees, and above all, its customer service. You can typically reach someone on the phone quickly, and it's a knowledgeable person who actually wants to help you, even if your issue is a little complicated. It might simplify my life a bit to consolidate but I like having access to the features of both, and psychologically there may be a small comfort in not having all my eggs in one basket!

I have about 17% of my bond allocation in foreign bonds, and all of that is in Vanguard Total International Bond. It's currency-hedged, which keeps the price more stable, as opposed to Vanguard's Total International Stock, which isn't. I've always thought of Vanguard as pretty conservative but here's what they say about foreign bonds: "Adding some currency-hedged, foreign bonds could potentially increase your portfolio diversification. An allocation of about 20% to 50% of your bonds in a low-cost, currency-hedged, international bond fund is a reasonable approach to capture the diversification benefits." 20% - 50% seems like a pretty hefty allocation to me!

I'm at around 34% and have been at that percentage for some time. My foreign exposure is mainly via Vanguard Total International Stock, which isn't currency-hedged, while their Total International Bond is. The explanation Vanguard gave me is that they want the benefit (and will accept the risks) of currency swings in their international stock offering, but they want more stability in the bond fund in keeping with its role as ballast in a portfolio.

Every summer I forecast the price of a barrel of Brent Crude for the next year. I look at the bank forecasts; I look at Industry forecasts; I look at the NY Merc Futures; I look at the EIA information - aged as it is. I look at estimates of production and distribution, assess the US shale fields and their impact as well. Yet, I always return to the decade+ old U of Michigan study on such predictions. The publishers concluded that the most accurate forecast methodology was to assume no change in price. Sometimes, nobody has much of a clue. It's best if we just admit it and stop trying to predict the unknowable.

I feel the same way about my time at university -- it was so much fun, but there was precious little money in my pocket.

I guess the key word in this question is "always." Based on my experience, I would say no, term life is not always better. I understand the mantra to always buy term and invest the rest because it makes sense in most situations. However, as I look back at my decision to buy some whole life in my 20's, it has turned out to have been a great investment decision. Several decades have passed since I bought it, I'm still alive, so the death benefit hasn't mattered. But since my mortality charge is locked in as a 20 something, or a very low cost now, the investment returns have been around 5% tax free. I look forward to seeing how much the cash value increases each year in this zero rate environment. In addition, I'm in one of the best mutual life insurance companies, so the investment risk is almost nothing. So I look at it as a nice piece of asset diversification with a great yield compared to the risk. Also, it still has a death benefit along with numerous ways to tap into the cash value if I want it now. The alternative of buying term and investing the difference would have given me more exposure to equities, and perhaps increased my net worth. But, I am a conservative investor and having cash value life earning north of 5% tax free in a riskless investment is a part of my safe asset allocation. It frees me up to invest aggressively elsewhere. So, yes, whole life can be a good deal.

I'm aiming to start after full retirement age, ideally at 70. Where else can you find a near-certain 8% increase/year on a low-risk, inflation-adjusted income stream? With advances in diet, fitness, and medicine translating into long-term increases in U.S. longevity, delaying Social Security is one way to hedge the risk that we will outlive our retirement savings.

4% is a very reasonable starting point but retirees should be prepared to adjust this based on real (after inflation) portfolio gains/losses over time.

Any cryptocurrency not issued and backed in full faith by a government is in my mind valueless and so always in a bubble. As I write this in April 2021, parts of the US stock market are over-valued, mainly NASDAQ-listed companies. The ARKK ETF, which more than doubled in price last year, holds many such companies. Some might use the "B" word to describe parts of the bond market, considering historical measures of value as well as current default and interest rate risk.

Law school. I had no money.

I know several people who have built wealth through real estate. They have made this a full, or at least part time job. I'm not talking about rapid flipping of properties. I'm talking about owning 10, 20 or more rental properties and generating positive cash flow form each. This can be monthly rents, or VRBO-type rentals in a popular location. Either way involves a lot of work to build and maintain a portfolio. Searching for properties, understanding financing options, collecting rents, and maintenance can take up all your time. If you are very handy and like fixing things, it can be a viable way to build wealth.

Excellent article. I've discussed real estate investments with my sons. The tax issues are real and need to be part of the planning. Also observed some catastrophic maintenance issues that made the property unlivable for a period of time and cut cash flow. Appreciate more articles regarding real estate investing.

Almost any money since I got married spent on family vacations or experiences with my family was money well spent.

My gym membership and my cup of home brewed coffee in the morning. About a $1 a day for both with my work discount for the gym membership. Stress reliever, relaxing, good for me and prime me for my day, they're a bargain!

It is a terrible habit that should be avoided but I would say yes sometimes it makes sense. But rarely. I paid cash for a California vacation in 2018 with the exception of our hotel rooms. 6 days in Anaheim at a hotel near Disneyland was over $225 a night. Kids were were nine and eleven. As we had no family vacation due to Covid this summer and my kids get older I'm grateful for the memories and experience we had.

After securing my families financial future I would use at least half or more to set up a charitable foundation. Many families from my hometown funded our library, Community Y, soccer and baseball complexes as well as schools. I have benefited tremendously over the years from all of them. As I've gotten older I'm amazed families that have long passed away were so generous to folks that weren't even born when they donated much of their fortunes. Amazing country we live in.

Absolutely! What else are you going to do with your time and money? Another cruise? A really fancy dinner? C'mon. While children can be difficult at times, grandparenthood has a 100% satisfaction rating based on my informal survey. There's only one way to become a grandparent: first become a parent.

I travelled Mexico by car quite a bit in my late 20's and 30's. Spent a lot of time in Mazatlan and Durango as well as Queretero, Monterrey and other cities. My family was from both sides of the border so seeing the interior of Mexico opened my eyes to how beautiful the country and its people are. The money earned here in the U.S. that is sent back provides so much dignity, food, healthcare and more to their queridos back home.

I will never pay an ATM fee. I've driven many miles out of my way to avoid such fees. The idea of being charged to access my own cash is just too horrifying.

Neither of my parents were savers. I became a prodigious saver.

Buffett The Making of an American Capitalist by Roger Lowenstein because it introduced me to Buffett as a young man. This led me to read more from others and began my self education. Cash Flow Quadrant was great for helping me see concepts I had never heard discussed in high school or among my circle of friends and family.

My top two: 1) Spending too much (and consequently not saving enough) when I was in my thirties. I was all about 'stuff' back then. I thought having the most up-to-date furnishings, cool electronic 'toys' and new cars would make me happy. It didn't (see mistake number 2). If I would have saved a fraction of the money I spent, my retirement portfolio would likely be significantly larger today. 2) Not fighting to retain my pension when I got divorced. My ex-husband fought for the right to take 1/2 of my state pension when we divorced. I didn't fight back because I just wanted out of an incredibly unhappy marriage. I realize now I should have tried harder to retain my entire pension, especially since I didn't receive any portion of his retirement benefits.

I'll have to check this book out.

Max out your Roth IRA and invest as much as you can in your Roth 401k.

Creating my letter of last instructions (per Jonathan's excellent suggestion). Then again, I'm only 41, so I hope to have more time to work on it.

Everyone who doesn't own it (like me) says "speculation" and every owner says investment. Hindsight being what it is, I'm sure we all wished we had bought it years ago. Ordinarily I would put it in the speculative category, but I think it has the potential to be gold-like and serve as a hedge against central bank's rampant monetary profligacy. What I find most interesting about Bitcoin is that there can only be 21,000,000 coins ever in existence and no more.

Rent and auto payments. My 2014 VW Jetta is paid off and has just 72,000 miles. It doesn’t look all that impressive, but why pay $400 a month for a new car, when I don’t need to? Ditto for housing—why pay more than I need to just to be in the “right” neighborhood?

Putting cash to work in the market and establishing a will. I always think "oh, next weekend I'll do that" then I don't for some reason. I'm normally good at knocking out tasks, but these have been challenging recently.

I agree that the Japan example is an important lesson in diversifying away from your home country, especially when there may be a financial bubble. But in my amateur opinion, I’m not so sure that lower valuations compensate for weaker accounting standards and potential government interference in all overseas markets, particularly China. So I’m uncomfortable investing as much there as world market cap would indicate. I have about 37% of my stock portfolio overseas.

I use "Personal Capital" as my financial aggregator. It keeps track of my expenses, investment accounts and mortgage. It also has a very good retirement feature projecting my pensions, annuities, medical expenses projected investment returns. The service is free-although I'm sure they prefer you to use their investment products.

I have used many different brokerage firms over the years and within the last 2 years have consolidated to Charles Schwab. I left them years ago when they didn't lower their commissions to match the discount brokers. Now that their trading commissions are "zero" I am fully onboard with their service.

I think "hiring a financial advisor" is a pretty open-ended term. Wealth manager, investment manager, financial planner, life insurance advisor all can serve a purpose at different life stages. Then two important questions need to be asked: do you trust them to do right for you as a fiducuary and how much should you pay.

I'm not a fan of owning foreign bonds for a little extra yield. I want dependability and stability in my fixed income exposure. I own foreign stocks for growth but no foreign fixed income.

I’m very worried about what seems to be an excess of speculation in financial markets. We’ve already seen one hedge fund blow up, badly hurting a couple of banks because of the huge leverage involved. Then we have retail investors buying stocks touted on message boards, red-hot fund managers becoming celebrities. We have a market pricing in a great future, and returns over the next 10 years, until my retirement, may be much lower. And I’m worried about potential conflict between the major powers, perhaps over Taiwan. If you think semiconductors are in short supply now, just wait until the island is under attack. I am slightly trimming my stock positions.

Nope, bad habit to get into. I have had a credit card for 56 years and never once paid interest. I use two cards nearly every day just to gather rewards, but they are paid in full before they are due. I’ve heard people who do that are called deadbeats. 🤑

Doing my annual taxes tops the list. A close second is the precautionary tasks related to my identity theft. I need to periodically check my credit report and logon to financial accounts to spot any suspicious activities. I wish I could spend the time in better things.

My vote goes to caring for old parents at their times of need. My wife left her job in US and moved to India with her 6 year old daughter to live with her mom who was diagnosed with colon cancer. This was before we got married. She came back after a couple of years when her mom was getting better. Sadly, things turned south once again and she went back to be stay with her in the terminal few months. We both are grateful that she could be there with her mom in her time of need. Financial considerations were not part of the picture at all. My mom, who lives in India, was down with a back injury a few years ago. I needed to drop everything and live with her for a few months. My supervisor in US was immensely helpful in getting me a long leave of absence. My mom recovered in a few months and was able to come to the US with me to live with us for some more time. Thanks to my supervisor's help and my wife's support, the financial impact wasn't much, but I'm glad that it was never a factor in the first place.

I personally think that at least a third of the stock holdings should be in international. My own allocation is 60:40, though I don't mind going even higher and resemble the Global stock allocation (through a single global fund like VT). I think some overweight to emerging market can be a good bet, especially compared to their valuation to the US counterpart. I have emerging market passive fund (IEMG) and Templeton Dragon CEF to bump my EM allocation.

I made three big financial mistakes (there are more smaller ones). The biggest blunder was staying out of stock market for first 12+ years of my career. I did save regularly. Unfortunately, my investment knowledge was so limited during that period that I knew nothing outside Bank Savings and CDs. I stayed on the sideline because I mistook it to be the playing ground.

I own Emerging Market Govt bond through Vanguard ETF (VWOB), but nothing else at this point. I suppose exposure to foreign bonds can help diversification. Some target-date retirement funds have them too. But the current yield on developed market bonds gives me a pause. I've moved most of my Bond portfolio to short-term US treasury and high-quality corporate bond fund. As interest rate goes high, I'd reconsider venturing more into foreign bonds.

Car insurance and car repair costs. Even with a clean driving record and high credit score, our car insurance has been going up over the last 6 years since our daughter was added to it. I switched recently and it was a little less with the new company, but still it's much higher than I expect. Same for auto repair costs, especially on German cars. It's hard to decide whether some repairs are necessary or not, and almost always, I find the price to be absurdly high. The only reasonable experience was with Honda minivan.

Read the book "The Intelligent Investor" by Benjamin Graham - twice! When looking for proven voices of reason on how to think about investing it is the "Bedrock" of value investing and explains about what risks you should consider and how to think about the market.

Not my original idea, and somewhere in HumbleDollar someone else mentioned this recently, but having a home equity line of credit for me is functionally a cash equivalent, as I pay ~ $50/annually for the ability to access up to ~ $100k as quickly as I could get cash. It's kept me from having to maintain that amount as a cash reserve, and in the > 15 years I've had it I've never had to tap it for an urgent or emergent need, so during that entire time the cash I would have put aside was invested, more than offsetting the annual fees of the HELOC.

Olin, I don’t want perfection, just a little explanation of the calculations behind my results. So that I can learn a little more about my unique situation and how to reduce my taxes.

Patricia Moore, thanks for the compliment. The fact that TT contains details of my prior K-1s makes it difficult to switch to a different outfit, but this may be the year.

Edwin Belen, thanks for the compliment, but I don’t understand the “your expectations are high” comment. I think for $70 TurboTax should provide a modicum of insight and the calculations behind why the amount of my refund changes when I input a new number from a 1099. I just want a little something.

My father was a practical man who taught me many things about finance. My first hard lesson was when I found one of my comic books listed in a valuation manual as worth $50. I showed it to my dad and said, "My comic is worth $50!" My dad asked, "Do you know anyone right now who will pay you $50 for it?" I said no, to which he then said, sorry, but it was not then worth $50; it was worth whatever someone would actually pay me for it.

That's like asking, "Does a hammer build a house?" Money is a tool. When used correctly and in the proper measure, money allows for more choices which can lead to more options to happiness. There is also the danger of using the tool too much. There is such a thing as tyranny of choice, where the plethora of options causes angst and worry (not to mention the fear of losing all one has acquired). An oft-quoted highpoint of money/happiness correlation is an income of $75,000 a year: http://content.time.com/time/magazine/article/0,9171,2019628,00.html

Yes. My parents are smart enough with money that I don’t think it will be necessary. But if it were, I’d do whatever was necessary to repay them for all they’ve done for me. An odd corollary: I served in the military and am happy to pay taxes because I feel the same way about America. This country has given me so many incredible opportunities that I feel like I am lucky to be able to repay the country where I can.

I have a will, living trust, power of attorney, etc., but have not made any funeral arrangements or pre-planned anything. Then again, like Yossarian, I plan to live forever or die in the attempt.

I have been using "Mint" for about two years now. It's a simple way to keep track of my various accounts and their balances.

Home networking gear is a case of you-get-what-you-pay-for. Eero, for example, is more expensive but worth every penny for creating a Wi-Fi mesh with whole house coverage.

The only time I've carried credit card debt (in the last 15 years or so) has been on a zero percent interest card. I've only done it once and it was to pay a substantial sized bill ($9000). I could have taken the money out of my emergency fund, but decided instead to get an 18-month, zero percent interest card and use that to pay the bill with. I actually paid the credit card off in six months, but it made me feel better knowing I could have had longer to pay it off if I needed to.

Christmas as a kid and now Christmas with my kids; going to Spring Training with my grandfather and taking my kids to sporting events; playing football in front of my dad and now watching my kids’ soccer games. The happiest times in my life had very little to do with money, though I acknowledge that without any money, those times wouldn’t have been as happy (or perhaps possible). Some level of financial well being was necessary, which is further anecdotal support for studies that state the same. But as any reader of what I’ve written will note, family was far more important to me and my level of happiness than money.

Owning a successful small business that is growing/compounding or being a silent partner in one can be much more profitable than owning common stocks; however, access to those opportunities is difficult for a number of reasons. I believe most investors would be best served owning stocks for the long run.

My stock portfolio looks roughly like the global stock market, with half in U.S. shares and half abroad. I realize that’s far more overseas than most U.S. investors are comfortable with. But I’d argue my strategy is the lower-risk one. Yes, I’m more exposed to currency swings, but that should help as often as it hurts. Yes, property rights and accounting standards are less robust abroad, but my assumption is that risk gets reflected in lower valuations and hence I have a buffer against misfortune. So why do I think my strategy is less risky? In a word: Japan. I’d argue that its three-decade-long bear market offers the most important investment lesson of my adult life—and that lesson is the danger of investing too much in any one country’s stock market.

The big problem is that unexpected things are always happening. OK, we just had the corona-virus. Now we have the vaccine, so everything is good, right? Well, maybe interest rates will go up sharply for no obvious reason, maybe China will invade Taiwan, maybe the hedge funds will all collapse and crash the market. As a retiree, I have to be ready for any possible scenario.

For me, there are 2 scenari. The optimistic one that has the economy growing and our investments doing OK to great. The pessimistic one where we should put all our money into MREs and ammo. I am an optimist. I don't sweat the fluctuations as I have no control. So, I have a strong bias and I ignore the noise.

Steve O I see that Ric Edeman doesn't like Roth conversions on his radio shows. Since I want my account to grow I prefer paying taxes on a smaller amount today than a larger amount in the future. Paying tax on the seed not the tree.If you do not trust Congress to keep rates down I would think paying now versus letting a future Congress raise rates later would be preferable. Letting a tax-deferred IRA grow seems riskier to me. Choose your poison.

Wonderful points! I've been guilty of #3 Noise. Hopefully get juries and judges that are happily married and well-fed!

Love this post but will say, your expectations are high. The tax code is complicated for most. Embarrassing to admit that I am a CPA (not a tax CPA), and always plugged in the numbers. Now that I’m closing in on retirement, I have spreadsheets to predict what our tax will be, which has forced me to go back to basics. Last year was the first time I could compare against my expectation and I came very close. Getting a little more complicated this year and began tracking our incomes and expected numbers that then feed my year end tax calculation. Excited to continue focusing on this as I never had much of a need as both my wife and I worked and didn’t have much income outside of ordinary income.

A Random Walk Down Wall Street by Burton Malkiel.

I completely agree with what you say about TT. I learned to do income taxes back in 1980 b/c my Father had a tax prep company in our little town. I've always done out taxes since, unless I felt out of my league with a move, or living overseas. I don't love that TT will file your forms for you without showing you what's actually on the forms, or even which forms are being submitted. I'm too stingy to hire a CPA and, as others have pointed out, the hard work is keeping all my financial #s straight. After that, it's just data entry. But that whole QBI thing is such a monster and TT does nothing to help understand it. We own some rental properties so we could make it work, but then TT says it won't eFile! I might look into Free Fillable Forms next year, if I can still recall the name a year from now. Thanks for a great article!

Once upon a time I did my own taxes before software programs came along. Then it got more complicated for me, so I tried a tax person and a CPA. Then I thought I'd try the software program, but ran into an issue and had to contact a CPA on what to do, and that's when I learned you have to learn how to manipulate the system to get it correct. Went back to using a tax person, and then a different CPA in hopes of getting some tax strategy advice. The CPA made some errors and no tax advice provided. Now I'm back to the tax person who uses a $25K tax software program (so they say) and yet it couldn't figure out a simple Form 8606 proration, and I'm still waiting for the taxes to be completed. No human or tax software is perfect, at least from my experience.

Nice article. Definitely will aim to practice those on my two young boys (9 and 6). Thanks.

Password manager made my life a lot easier.

"That advice won’t get you three minutes on CNBC. But, yes, it really is that simple." This is the best point of the article. My wife and I have a running joke about daily market performance: The market was {up|down} today because of {strawberries|bananas}.

If you have a business an accountant is mandatory. We fill out the accountant's tax organizer 2 hours, include documents from folder and drop at office. Accountant will email with any questions. We pick up, check and sign. During active business years the accountant would do quarterly meetings. Also if an audit accountant helps. I keep a spreadsheet from accountants summary to approximate actions during the year. Study accountants work on your return and learn about your taxes. We still have a small business in retirement and yield benefits including writing off accountant fee. Bottom line hire professionals, spread wealth, have peace of mind and contacts as you age. The return is 50 pages, accountant $500, so $10 per page. Also a second and third set of eyes is worth every penny ! This discussion reminds me of work. I was chief chemist and people would tell me well I had chemistry in HS. I would just say me too. I have a local crew mow to employ and have contacts for other jobs. When I was a 21 year old plumber did a leak service call. Lady of house showed me leak under kitchen sink. I fixed leak , gasket backwards, in 5 minutes and called to the lady. She said what do you need? I said leak is fixed please check. She said my husband was under that sink the last 2 weekends cursing. I said is he a plumber. She said insurance. I said time is valuable. She asked how I fixed leak so fast. I said doing plumbing since 10 years old and $10,000 of parts on truck. I have many stories. Best recovered a man's wedding ring cleaning a sewer. I told him go now and apologize to your wife, no extra charge. Schedule F farm income find that in turbo tax LOL. Siblings received farm income from passed uncle's estate. Now the cheap turbo folks are confused , yes they all had calculus.

The very recent experience of 2020 should be a humbling example to all investors of how hard it is to anticipate risks and rewards, both because of the dramatic size of the stock market plunge in the first quarter, and the unexpected resurgence of the market in the last half of the year (which continues in 2021).

Good one! I got, got.

Do not get a single credit card till you're certain you can and will pay the full statement balance every month. Running a balance on credit cards, with their exorbitant interest rates, can quickly spell financial ruin as you dig yourself deeper and deeper into the hole. And when you do get a card, get one with the best rewards. There is great satisfaction in having the credit card bandits pay you every month!

Anyone have any experience with the password manager included with Norton 360? It comes included in the overall software but I am curious if it compares to the others, especially with the two step process.

An excellent summary. Good reminders for many of us while being accessible to those less experienced. I'll be forwarding this.

From personal experience, I feel most folks can benefit from some form of budget- whether it's approximate/coarse or detailed/granular. This is true not only for money but also for other measurable resources such as time. I'm not sure if more granularity helps in all situations, but it makes tracking harder.   The first time I used methodical budgeting was during my high-school days in India. I was preparing for the state-level board exam and had about 3 months to go. I created a fancy schedule detailing which subject to study on what days and for how long. My parents found it a bit amusing but they encouraged my efforts and often checked on how it worked. I found it useful as well as fun.   I did a similar exercise at work after becoming a manager. The first few months were overwhelming- so much to do in so little time. I started to track where my time was going. I reverse-engineered the data to create a weekly budget for various activities, and to spot the things that I need to say No to. This was very helpful in getting a better handle on my workload.   For money matters, I use an overall budget for open-ended spending, e.g., family vacations, where things can quickly add up. E.g., I’d start with an overall amount in mind, and plan the vacation accordingly so that the known expenses (airfare, hotel, excursions, etc.) come to at most 80% of the total budget. This gives enough buffer for miscellaneous expenses during the trip.   All my expenses come from a single spending account. I used to monitor my expenses for the major spending categories, but I don’t do it anymore. I simply monitor how much am I funding this account each year and whether I can explain any big year-over-over change.   Overall, I think having a sense of budget and being able to track spending is important. It doesn’t have to be too rigorous and time-consuming. But without one, it may be hard to know what’s going on. I echo Nicholas's comment that it creates a discipline.

I think buying into SPACs now is a particularly bad idea. Not only are they a miniscule portion of the market, so there is no need to invest - but also, best as I can determine, they are structured to benefit pre-retail investors. Like starting a marathon from a mile behind your competitors. I just don't get NFTs. Listen, I go beyond nuts with admiration every time I see Jeter's flip in the 2001 ALDS, but I have zero desire to own some first issue media record of it. I'm rooting for ARKK to stay afloat, but I'm not willing to risk much on it. Less than 0.1% of my portfolio, actually. For me, this is entertainment, not investing. Dollar Demand. This one confuses me. I'm seeing charts that suggest a big recent decline in demand for the dollar, and yet, price keeps increasing. In situations like this, the value of a consistent diversified portfolio become a lot more clear - a sudden reversal here and I'm positioned to take advantage of it, but if there is no reversal I'll still do fine.

Thanks for the recommendations. Yeah, I'm not completely convinced that the value premium still exists, although I also don't have any evidence that it doesn't. There are behavioral arguments as to why it can't just be arbitraged away, which seems plausible to me. I figure in the worst-case scenario a value fund will endure a bit more volatility for a similar return to a total market fund in the long run. I'm young enough that I'm willing to take a bit of a gamble for marginally higher returns. And it's not like I would go all-in on SCV, it would be a small (10-15%) tilt. That said, it is nice only owning total market funds. By the time the premium from the value factor (if it exists) produces a substantial difference in the size of my portfolio, I will probably be rich/old enough that more money won't materially affect my lifestyle. So maybe I should listen to John Bogle's advice and keep things simple.

I have also shifted slightly to international... and my small cap total is unchanged, but my tilt to SC growth is gone, with a balance of scg/scv in it's place. I'm not sold on the long term resurgence of value, small caps, or international. FYI, it seems like higher expense ratios correlate to stronger value/smallcap tilts, so AVUV and RZV cost more but appear to have a purer SCV exposure. AVUV has a negative momentum screen that RZV lacks, last I knew. Anyways, for SCV you also might consider VIOV at 15 bpts or VBR at 7 bpts. I think of VIOV as my sweet spot between cost & size/value exposure. All that said, while I'm aware of some factor details, I'm not sold on them either. We apply statistical analysis to data that doesn't actually fit the initial conditions required for that analysis to be valid, so as always it's buyer beware...

I get antsy when returns are this good. I'm still contributing to my portfolio each month, but I can't help but feel that I'm not getting a good deal with the CAPE ratio being so high. Yes, there are reasons to be optimistic about 2021, but this year's rally still makes me uncomfortable. Then again, investing during an all-time high has not been so bad historically. So far, I've just been investing in a dead-simple two-fund portfolio. However, I'm considering tilting my IRA into small-cap value stocks, and also upping my international allocation slightly (from 20% to 25%). I've resisted adding more funds to my portfolio because I value simplicity so much, but I'm beginning to reconsider. The main thing holding me back is the higher expense ratios of small-cap value ETFs like AVUV relative to total market funds like VTI. Also, I feel sorry for Cathie Wood. I find her investment thesis to be really interesting, and she's a gifted storyteller, but I'm bracing myself for the day when ARK falls apart. Morningstar shares my concerns.

There’s plenty of good advice to offer, like save diligently, diversify broadly, fund your employer’s 401(k) and so on. But I’d probably start with two key phrases: “Keep it simple” and “keep your confidence in check.” It’s all too easy to assume we know where markets are headed, which investments will outperform, what we want from our financial life and what the future holds for us. These assumptions will almost certainly fail the test of time. Faced with that, our best bet is to buy a few simple low-cost investments (think target-date funds, total market index funds, money market funds) and save like crazy. 

I don't think you're missing anything. In the good old days, when bonds had a yield that you didn't need a microscope to see, the standard advice was to keep bonds in a retirement, while favoring tax-efficient stock strategies in a taxable account. But at today's tiny yields, high-quality bonds aren't nearly as tax-inefficient as they once were, so there's less reason to avoid them in a taxable account.

I've gotten more conservative. Part of that is just stage of life (late 60s and retired), but not all of it. Right now I'm reading The Investor's Manifesto by William Bernstein and he stresses the fact that the pain from a loss greatly exceeds the happiness from an equivalent gain. I know that's true in my case so I've nudged our investments in a more cautious direction---though it's not easy with bonds' current performance, not to mention the (non) yield on savings and money market accounts!

It was long ago, but a book that really opened my eyes and changed the way I thought about money and investing was The Millionaire Next Door (echoing Stan Wolf). And, while not a book, I'll also echo Philip Stein regarding Jonathan's columns in the WSJ. I appreciated the fact that they were were written in such straighforward and non-technical language that a rookie like me could understand and learn from them.

Jonathan, that strikes me as a clever method and maybe I should re-think this subject. But I'm older than you and on Medicare, so there's another factor in play. If our MAGI (modified adjusted gross income) exceeds a certain level, I have to pay IRMAA surcharges on Medicare, which can be pretty expensive. So if I needed a big chunk of cash, and got it by selling stock which resulted in a significant long term capital gain, it could trigger the IRMAA problem. Am I missing something here?

I don't know what a NFT nor a SPAC is. And, I don't care. Three low-cost index funds, baby. And, I have no clue how Bill Hwang made/lost his money.

Ormode, My K-1s are from Master Limited Partnerships (MLP). I don't think it is a simple as summing "just one line" as "Ordinary business income (loss)" (box 1) is treated differently than "Qualified Dividends" (box 6b). Also, you have to take into account "carried forward losses", foreign tax, and charitable deductions listed in box 16, as well as the effect of other boxes. Trust me, if you want to do it right, it can get very complicated. You make a good point though as it must be impossible for the IRS to know if all these K-1 numbers get reported on Sched D, 1040, Form 116, etc. correctly. I have a feeling, whoever wrote the rules on K-1 reporting did this on purpose to benefit those who receive K-1s.

davebarnes, Thanks! My article is not about the accuracy of tax preparation software, but the lack of context, insight, or understanding they provide.

Ormode, I have every indication you are correct: When you pay a CPA to "do" your taxes, you are paying a clerk to enter your numbers into the firm's tax software. If you do it yourself, at least you would have a (very) little better understanding of how it all works.

Big spending: Travel with family. Our trips to Africa, Egypt, Thailand, Kerala (India), etc., were the best spending. Small: Books, Tintin comics for my niece (so that I can reread them too:)), self-learning video/courses for myself, bright-color flowers every other week (surprisingly, they made a lot of difference during the lockdown)

I used to have quite a bit in an online high-yield money market account (Capital One 360), Bank CD ladders, and rest in treasury ladder. When rates dropped last year, I sold the treasuries (captured some LT gains) and also reduced the HY balance to buy short-term TIPS ETF (I use VTIP). The CD ladder is left as-is. I suggested my daughter to use treasury funds for short-term savings. I think she uses the iShares ETFs (SHY and SHV).

"Seven Habits of Highly Effective People" is still my favorite - not a financial book but helpful for most things in life including finances. I enjoy reading "Your Money or Your Life" (Joe Dominguez / Vicky Robin) every now and then. "How to think about money" is another favorite one. I gave copies to some of my daughter's friends and also a few young coworkers. They all loved it.

Gas at Costco. No only the price is lower than most gas stations, the 4% cashback on the Costco Citi card is a nice bonus. For that matter, we buy most food items from Costco because they seem to be great bargain too. The Google Fi mobile plan is also a bargain. We were with AT&T and had a hefty corporate-discount. But given our usage pattern, Fi is not only a bargain, it's a big convenience too for our overseas travel. I also got a free Moto X phone when I first subscribed in 2018. It was good enough for my purpose, but the charger came loose. I got a new Moto G Power last month for $50 (big discount on 2020 models). Not bad at all!

Palantir is interesting. The founder created crazy classes of stock to insure they would always have control, so in essence they still own the company. The stockholders are suing in Delaware Chancery Court.

I do know one fellow who bought 8000 shares of Apple in 2004, and never sold - he does a fair amount of bragging. You can show he's not that great by pointing out that he bought a similar amount of Amazon at the same time, but sold it when it reached 240, because he thought that was about the limit for a bookstore.

You had me scratching my head till it was obvious, congrats, got me

You forgot:

We'll calculate our performance based on backtesting.

You really had me convinced.

I was disappointed that no one created a website for BraggingBucks.com

I was also not aware that the IRS taxes recaptured depreciation at 25%. When we sold we had sizeable capital gains plus 20 years of recaptured depreciation, so a 1031 was a no brainer. On the other has hand, there are several favorable tax breaks for rental property including the recent 20% pass through deduction.

So BraggingBucks won’t cover the NFT market? I’m bored, next! No joke, I just checked Motley Fool and they have an article where they unironically recommend investing in Tesla, Palantir, and Twitter. After spending time on this site and other pro passive investing communities, I sometimes forget how the average active investor thinks. I’ve got to hand it to them though, they sure are entertaining! 😂

🤣😂🙌🏻

I was wondering when I would see the first April Fools of the day! It didn’t take me long to catch on but I was saying to myself “what the ****” initially!

Who needs an IPO? The plan is to avoid all those awkward due diligence questions and sell directly to a SPAC.

You had me until the third paragraph. When can we expect the BraggingBucks IPO?

I’m not claiming this is smart, but I’ve never had what people think of as an emergency fund—three or six months of living expenses sitting in cash investments and held in a regular taxable account. In my 20s, when I was married to a graduate student and raising two children on a junior reporter’s salary, I simply didn’t have much money to spare, and what I could spare I preferred to stash in my 401(k) or use to buy stock funds in my regular taxable account. Over the years, that taxable account grew, so I always knew I could dip into it if I suddenly needed cash. To be sure, my taxable account is mostly in stocks, so I run the risk of having to sell stocks during a bear market. But if that happened, I’d simply make an offsetting move from bonds to stocks within my retirement account, thereby maintaining my portfolio’s overall stock exposure and effectively avoiding selling at a market low.

Hilarious! I was completely suckered until you got to that high load mutual fund. I thought Jonathan had bought a sports car and switched to day trading. Not so funny, the hedge fund my financial advisor recently recommended: 2% load, 3.7% annual expenses plus up to 20% profits taken (6% last year). The 5 year average return of 18% seemed good for some portfolio spice, but was actually less than low cost active Vanguard funds like Capital Opportunity or Int Growth.

I'd actually attribute my high savings rate (around 50%) to the fact that I live in a HCOL area. Much more opportunity to find cheaper alternatives (rent for example), and frugality really pays off when you have more room to work with. Plus, no kids!

Well,I did Credit Karma for 2019 and it was within a few dollars of the my tax guy's results. But, he will be at my side during an audit. Which I have never had.

You are generating K-1s for a partnership, or just putting in your own K-1? Both can actually be done with spreadsheets. On the 1040 and Schedule D, there is just one line where you put in your K-1 totals. I always thought that was a little strange - how does the IRS know if your number is correct? One year I got several K-1s with long-term capital gains and losses, and just added them up and put one number on my Schedule D.

A CPA who does a lot of complex tax returns once told me that the young guys don't know anything about the actual tax code, they just plug numbers into software. I don't know why you would hire anyone to do that, when you can do it yourself. If you want tax advice, I guess you'll have to research the code yourself.

IAD, Thanks for the kind words. I have a relatively simple tax return, but still, spend days on it (and know enough to know that I still don't know enough).

stelea99, I'll have to give the "What-If feature" a try. But why can't TurboTax provide an explanation each time my refund amount changes? Hey! I was born in 1966, so maybe this is kismet!

Ormode, Interesting idea, though I have K-1s which are impossible to model via a spreadsheet.

Doug K, I do the same, though you have to pay TurboTax to get the printed forms so that once you notice an error, you have to amend your taxes before you've even filed them - it becomes a real mess. The public option you mention makes good, common sense for everyone involved except for TurboTax.

davebarnes, As my Mother used to say "to each his own": The issue I have with having my taxes done on my accountant's software is being one step farther removed from the process (and any knowledge gained in the process). Since trying to outperform the stock market is a fool's errand, the only tools individual investors have is the ability to reduce fees and lower taxes. If I don't even have a tangential relationship with my tax preparation, then I'm left with one less tool.

Thomas Taylor, Sounds like you had a good partner/mentor, as just plugging numbers into a computer and then printing out the resultant forms provided does not educate. I wouldn't mind giving it a shot myself, except for the damn K-1s.

booch221, I agree regarding TurboTax, TaxAct, etc, and accountants. They are all just data entry devices that provide zero education or tax planning.

Roboticus I would wait on QLAC's till rates rise a little more. Yes I have the bulk of my portfolio in equities for inflation protection and growth. I was very skeptical of stand-alone LTC but researched hybrids enough to believe they will honor the commitment but if I hadn't researched them thoroughly wouldn't have bought either. On the life insurance it might work but it is all about overfunding. Thanks for your comments.

Your accountant probably uses some kind of computer software and just inputs the numbers. It would be a great idea for Consumer Reports to test tax preparation programs like Turbo Tax, H&R Block, TaxAct, etc and see how they perform when inputting the same numbers. Then have a CPA do it.

I'm a big believer in a budget. I was going to give the budget up this year because I know that I am not going to overspend but I decided to keep to it. Frankly it's a great way to know where your money is going and it helps to provide some spending discipline.

I'm not a big spender. There's very little that I need. I get the greatest happiness when I travel to Mexico and I take some of my Mexican friends on a vacation in their own country. I've been fortunate to see many parts of Mexico with my friends and I have never been happier than when I am there with them.

I took over doing my mother's and my sister's taxes after finding similar lazy mistakes on their tax returns that were prepared by CPAs. In the process, I learned about how retirement home expenses that include a substantial buy-in are taxed as well as how to handle taxes for a musician who works for two organizations and also freelances.

When I had my landscape company I always felt it was the guys on the front line that made the company successful. All of my employees came from Mexico, most on the H2b guest worker program. Over the years, on my visits to Mexico, I got to know many of the families and I saw how important it was that their children have work in the USA so that money can be sent back home. I am already helping some of the families of my former employees. I would find a way to use the $5 million to help more of the families.

Their politics seem no different than any company or organization trying to protect their business or points of view. Even the AARP lobbies for laws that benefit seniors at the expense of younger Americans.

One of my sons just called me complaining about his tax preparer. It seems the “expert” just carried $24,000 in his wife’s former spouses alimony payments over from 2019 when none existed in 2020. Only discovered because my son didn’t want to sign return until he looked it over. This year I struggled over one entry in TurboTax which not typical. While I was on my iPad I called them and not only did they talk me through it, but used an arrow to show me where to click for each step (without seeing my data).

I was a practicing CPA who did a lot of taxes through the years until switching to a different accounting path several years ago. In my experience, the tax code has become ever more complicated since I first started out some 30 years ago. While we did rely on the software, a partner/mentor in my early days always had us take a few complicated returns and do them by hand each year. As to a postage card return, I always think back to my first tax course in the early 80's. My professor said Congress's ability to tax and grant favors or (disincentives) through the tax code was just too powerful to ever give up. Almost 40 years later, his prediction still stands. Although there's always hope.

So much depends on the child themselves. We raised our two boys with consistent values but different methods, because their natures demanded it.

For 40 years I have treated my tax prep guy and his (expensive) software as a black box. Even with my engineering education and MBA, I am comfortable with this. Taxes are just a pain in the ass. Way too complicated for mere mortals.

James, this is a very thought-provoking article, nicely done! I assume you have considerable equity investments as well to fund much of your retirement, and that these insurance products then are designed to plug many of the risks that we all face going into retirement with equity-heavy assets. I think I'm in synch with the first three items, though I'm not sure to what extent we will use annuities (such as QLACs). I'm distrustful of LTC insurance. It has a somewhat troubled history, and seems to have enough loopholes and limitations that I'm skeptical of it's usefulness. I suspect we'll be better off self-insuring. However, the over-funded life insurance could be a useful idea for us. We have been considering a life insurance policy to fund a trust for our special-needs son. What you've proposed sounds like a solution that could serve two purposes, both in funding the trust as well as cash returns in the interim.

I used to do my taxes down at the public library, which had all the tax forms and regulations handily available. Then life and taxes got more complicated.. First program I used was TaxAct, which in its early iterations had good help pages which explained what the software was up to. It got steadily worse until it was just a series of forms to be filled out, with links to the IRS documents, and no explanations. Tried TurboTax but their politics are detestable, also it made several mistakes that I caught and one that I didn't. Tried HR Block these last two years, it also made mistakes each year. At least the mistakes were different ;-) so our tax software is learning I guess. My protocol is to do the taxes with the horrible software, then print out all the forms and check them against the regulations: scribble on the forms and go back to the software to correct its mistakes. Soon I'll have to break down and get an accountant to do my taxes, as I've started to make mistakes too. As part of Biden's tax reform I'd really like to see a public option, like those most other countries use (outlined in the link above). The IRS sends you a pre-filled form which you can sign and send back, or correct if needed.

But would Turbox Tax, etc. miss them?😎

I’ve used TurboTax for years. As long as it’s doing the calculations correctly, I don’t care how it works. The endless pages of the tax code and regulations are a black box too. I’m trusting it determines if the standard deduction is best or not. Not sure why I would want to keep my income low to avoid paying an incremental amount in taxes on higher income. All I know is in the end I’m paying taxes on my pension, 85% of my SS, mutual fund capital gains, interest and dividends and it’s virtually impossible for me to do better than the standard deduction under the current law. Travel and golf and my grandkids deserve more attention than black boxes I can’t do anything about.

I agree. While I wouldn't want to submit taxes without TT, I make a point of doing the necessary homework to understand all of TT's calculations.

I would suggest that instead of TurboTax, you use Free Fillable Forms. Once you have a spreadsheet that mirrors your tax forms, you can input the numbers into Free Fillable Forms and it does the basic arithmetic, and copies numbers from form to form. It is pretty easy to implement IRS worksheets as spreadsheets, and just put in your numbers every year. I have a spreadsheet for the Dividends and Capital Gains Tax worksheet, and one for the Capital Loss Carryforward and one for Unrecaptured Section 1250 Gains. You just have to check to make sure the law hasn't changed.

As a long time user of TTax, I appreciate the feeling of working with a black box. This is especially true when you use TTax's step-by-step process. However, you can improve your understanding of how the underlying variables are working by using TTax's What-If feature. This feature, which is available via opening Forms, allows you to create several scenarios of what your taxes might be in the subsequent year. As you change any of the inputs, you can immediately see the impact on your future tax bill. Full disclosure, I did take a class on income tax accounting in 1966.

Love this post! I spend days doing my taxes because I want to understand what is going on, and still miss things.

I’ve never regularly budgeted. For most of my career, I figured I didn’t have to worry how I spent my money as long as I saved plenty each month. These days, with my heavy-duty saving days behind me, I pay more attention to whether I’m dipping into my portfolio or not—and get concerned when I find myself making large withdrawals. While I don’t regularly budget, every so often, when I have a major purchase coming up—a big trip, new furniture—I do run the numbers to make sure I have the necessary cash available.

Most of the complaints abot 1Password are about the switch to a subscription model. Me. I download the standalone MacOS version. I hate subscriptions.

Thank you for the comment Tom. I've sold 2 of my rental homes over the years and I was also a bit surprised by the taxes. I was only factoring in long term capital gains taxes. It still was profitable though and a good investment.

Excellent article. I was a landlord for about a dozen years. I had no real problems with my 2 family house. I lived in the top half. If the heat went out - it was mine too - so it wasn't twice as hard. If you have good tenants it's smooth sailing. I had a single-family house as well. I co-owned it with my brother. We had to evict a tenant which was a slow and expensive process. You need to factor these types of things into the equation. I did well with the properties. Uncle Sam took a nice chunk - you don't realize the extent of your "silent partner" until you sell. I should have tried to do a 1031 exchange in hindsight. Not everyone is cut out to be a landlord. That's a good thing for those of us who are or were willing to take it on.

Easily the near-institutional lack of legal accountability on the part of VC and private equity to leverage employee pensions and benefits as collateral to knowingly load up debt knowing that it's likely to cripple a company. Then to walk away having pocketed short term profits while leaving rank and file employees jobless and broken. I can't help but think there are legislative and regulatory means to significantly limit this from occurring, but suspect that these very very deep pockets have paid handsomely for elected officials to facilitate their practices.

I used Lastpass for many years but recently switched to Dashlane. It works well for me and has significantly better ratings than Lastpass or 1Password on the Mac App Store. I don't think you can go wrong with any of these three password managers.

Yes the proliferation of passwords is overwhelming. Great for daily use and for estate planning.

1Password is a great product. I have been a fan ever since I replaced my 20-page Word doc with it in 2008. I use it to manage 547 items. Runs/synched on my iMac, iPhone, and iPad.

Money can not buy experience in raising your children with your goals and objectives as it is a one and done learn as you go event. Money and material objects are no substitute for time spent rearing children. They will get whatever crumbs remain upon our demise.

Two-factor authentication is much more important than the passwords you use. A complex password is no better than a simple one if a database that has your password is compromised.

I'm in total agreement. I use a password manager and it has made my life so much easier. The one I use synchs between my desktop and phone, so everything is there!

Good food, whether at home or eating out. Wine. Gifts. Bicycling. Travel, especially the planning and the anticipation. Gardening, not that I’m very good at it, but I love watching the stuff grow. Artwork—I might purchase one new item a year.

When I learned to drive, gasoline was 30¢/gal. But, I am an old fart. Now, we put 2000 miles per year on our car. Who cares about the price of motor fuel?

And I was very grateful for the benefits Peter!! Thank you for the comment. In my home town we are fortunate to still have a good manufacturing base where most folks have a 401 K with a match. But unfortunately you are correct, that's not the case for everyone.

Thank you!! I enjoy your writings very much R Quinn.

Thanks for the comment!! My early challenges helped nudge me to hiring a property manager who gave me my time back and showed me why they were pros.They were much better at the job than I ever was. But being a landlord is not for everyone, I agree.

Thank you for the comment!! Thankfully my most challenging years with tenants were my early years. I now have a professional property manager and they have earned every penny of their fees. For the most part I have also found most of my tenants, 80% or more, to be good folks who treated my properties well.

You are not a typical blue-collar worker. About a third of workers in the private sector do not have a retirement plan. You had a retirement plan and received a company match to boot.

Jamie what are the returns for the I bonds? I see latest returns at 1.68%? What is the favorable tax treatment-that I can defer the interest?

No I did not. Also their yield would not be tax-free. What examples are you referring to?

Mickey that is a good question. For 6 years I was adding cash to the account and earning zero returns (even though I was entitled to a death benefit). The 3.5% is composed of investment returns and sharing in the insurance company's earnings. Whole life policies charge a premium in excess of term policies and this excess is part of the 3.5%. When people cancel their whole life policies early (lapse) they lose this excess. By overfunding the policy I share in the insurance company's profits. The 3.5% yield is low by historical standards. If rates on fixed income rise I would expect the 3.5% to increase. Unlike a bond if rates rise my cash value would not decline. So the trade-off is that it takes years to see a positive return and most people don't have that patience.

Thanks for sharing! I suspect that the difficulties you have encountered as a landlord will confirm the views of many readers that owning rental property is not worth the hassle. However, the vast majority of those who rent are responsible and deserve to have conscientious landlords, like you. Although it was not our intention, my wife and I became landlords in 1999 when we fell in love with a three-story apartment that was being sold as part of a 4-family Brooklyn brownstone. While we had a few problematic tenants in our first few years, we didn't have to resort to evictions and property damage was minimal. We were also fortunate to be located 20 minutes from downtown Manhattan by subway and never had a vacancy during the 20 years that we lived there. It also wasn't our intention to continue to be landlords when we retired and sold our brownstone in fall 2019. However, we changed our minds when our CPA informed us that we could defer more than $300,000 in capital gains and recaptured depreciation taxes if we purchased new rental property via a 1031 exchange. At our ages, we wanted to reduce our risk so we made all-cash purchases of four single-family houses near our new retirement home. It also helps that I am good with my hands and mostly enjoy managing our properties. Once again, we have been fortunate to be in an area that is booming and have had no problem finding good tenants. I wish to the best in your continued adventures in real estate and hope you are as successful as we have been and that you are able to achieve your early retirement goal.

To my own surprise I have lightened up on spending. The pandemic has changed my thinking a bit. Eleven years after retiring I’m no longer saving for retirement, so I have started spending a portion of interest and dividends on special projects and looking forward to spending again in travel.

Juan- You’ve outlined most of the reasons that I’d never become a landlord.

Let me just say, you are and we’re not a “typical blue-collar worker” 👍

Paying off a mortgage creates another floor under your personal net worth and creates cash flow that can then be invested in other areas that might add risk. The way I see it, buying stocks without paying off a mortgage is no different than investing on margin. Another consideration is taxes. If you are not itemizing, then paying off a mortgage is like a tax free bond return, while other investments often add to taxable income. In other words, a 3% mortgage is closer to 4% after taxes. That's a pretty good return in this environment. Finally, it helps me sleep at night. That's the best return on investment.

I would never pay taxes again as any taxable income would be offset by my large charitable contributions each year. It would be a full-time "job" as there are so many small, local charities that would benefit from relatively tiny gifts. I would consider using NetJets for intra-North America travel. I would buy a BEV to replace our 14-year-old car. Porsche Taycan? I would not buy a new house as I really like the one we live in and its location. But, I would replace all the toilets with Toto.

Internet access. Even at absurd USA prices (vis à vis RoW prices), still a bargain. For us, it is the same price as water/sewage and we live in a high price water area. "Long distance" phone calls. In college it cost me about $1/minute to call home.

I set goals at eighteen (really). It took the next fifty years, but I met every one of them and more. Someone else may have done better and sooner, but given my career started as a mail boy right out of high school, I’m happy and FI. Likewise for non-financial accomplishments.

Bananas for sure are a bargain, but you should wash before peeling.

I think about this every time I buy a lottery ticket given my lottery chances are better than inheriting. I have a plan. Each of my children get the maximum tax free gift immediately, and in subsequent years. My sister and brother-in-law get the same. I fund each of my grandchildren’s college. That will take at least $2,200,000. Several hundred thousand goes to charity. I buy a new car. What’s left is invested.

I’d point to two things. First, I’m thrilled that my two kids have grown up to have good financial habits. I made a big effort to teach them about money. Even when you do that, there’s no guarantee it’ll work, but in this case it did. Second, I quit working on Wall Street after six years, leaving behind the highest-paying job I’ve ever had. It would have been so easy to keep collecting the big paycheck, but I traded money for happiness—which seems like an obvious thing to do, but it’s harder than it sounds.

So 3.5% on your cash value? Given that 10-year treasury rates are roughly half of that, what is the risk involved in getting that return? Under the theory that there's no "free lunch" in investing, why are you expecting an above average return with this and what is the trade off? It may be an acceptable trade off for you, which is fine, but there *has* to be a trade off and that's what I'm curious about.

Series I savings bonds are a great option to protect against inflation. Interest rates are adjusted for inflation every 6 months. They also protect against deflation (0% rate floor), have favorable tax treatment, are backed by the US government, and are easy to buy and sell (with no fees). There are annual purchase limits, but a nice cash reserve can be built up over several years.

Electricity, by a mile. Literally. We said farewell to our last gas car in 2020. We refuel in the garage at 11.8 cents per kWh. On average, it costs us 3.1 cents to drive a mile or about $1 to drive 32 miles. Bonus: EVs are a hoot to drive, too.

Maybe. If you're working, love where you live, saved at least six months of take-home pay for unexpected needs, and have retirement savings on track, then yes, pay down your mortgage faster. I'd do it again, even if bond yields were higher, for the greater happiness and better cash flow.

I live in Boston and drive a 30 year old Volvo. I do think it's helped my kids understand our priorities, even if they give me the occasional eye roll.

"Is it your goal to leave your children every dollar you can?" Given that our daughter's most likely age to receive her inheritance is 65+, I think the amount cannot be too much. She (and her husband) are financially smart todayat ages 35/40.

Roths are funded with after-tax money. If Congress decided to tax the disbursements as well, then there would be absolutely no reason to put money into a Roth. I'm hopeful that even our financially-illiterate Congress will recognize that it would be political suicide to change the rules on Roths.

Check Weiss ratings.

Rick Edelman says never convert IRA to Roth because you are giving IRS money now. Also the congress can change Roth to taxable any time. Some life insurance is not paying because the V is a pandemic.

Intriguing. I would caution to add, however, that professional accomplishments themselves, the PhD and founding a company, might be viewed through a broader lens as not different than getting a BMW for your 16th birthday. We all, consciously or otherwise, and myself included, make associations with what we observe in the world. As I like to say, our mind longs to write a consistent story, that one thing leads to another, and similarly, when our observations don't fit into "our" mental story (spoiled kid --- successful adult) we change our narrative to fit the new observation. As I'm sure you know, there are a lot of "successful" people out there, personal contacts and otherwise, for whom I wouldn't trade shoes. They've achieved highly visible and monetary success, at a price I'm not willing to pay. Broken homes, absent friendships, unfathomable loneliness. Again, not all, but some extremes have nearly unavoidable consequences.

I hope you get to use that travel account. In normal times our largest single annual expense is travel and we miss it these days.

Great points. I think your observations apply not only to the obvious wealthy, but to those perhaps in the top 25%

Thanks for the article. You make several excellent points.

Ben, How many years did you have left on your mortgage? What was the balance? What was the interest rate? When you get near the end of a mortgage you're paying mostly principal, and little interest. For this reason, I did NOT pay my mortgage off early.

Smart...many thanks.

paid off my first home’s 30-year mortgage in 13 years. Yes, I would have earned more by putting the money in stocks. But in my mind, that wasn’t the alternative. Instead, I viewed paying down my mortgage as a substitute for buying bonds—one that offered a higher return.

There’s so much to choose from. But I think, more than anything, that I’m bothered by Wall Street’s attitude toward everyday investors. In the eyes of too many Wall Streeters, everyday investors are sheep to be shorn and naïve fools who buy and sell the wrong thing at the wrong time. Yet all those clever professional money managers collectively fail to beat the market—while all those supposedly foolish everyday investors have driven the explosion in indexing. 

There are two five-year rules -- one that applies to regular contributions and one to conversions. If you set up a Roth, that starts the five-year clock for all future contributions. But with a conversion, you start a new five-year clock for each converted sum. The good news: This is unlikely to be a problem if you've made earlier conversions and/or contributions, because you can tap those sums first. https://humbledollar.com/money-guide/roths-five-year-rule/

I’m so proud to have maxed out my 401(k) / TSP (federal employee version) contributions over the years. Set it and forget it, combined with low cost indexing. In passive hindsight, it’s been the best type of investing. My younger version might have wanted to tinker or pay an outside professional to do the same tasks. I see little upside now.

Quality craft beer. Yes, it’s probably double the price of bland beer like Bud or Coors. But those brands have virtually no taste or quality. Neighborhood craft brewers can provide quality beer - and perhaps entertainment - at modestly higher prices.

”I Will Teach You To Be Rich” by Ramit Sethi. Book based on common sense (IMHO) but with a focus that only certain things matter such as your housing and transportation costs and that avocado toast or a latte will not stop you from being rich.

I am less judgmental on myself when I come in over or under my budget. The past year has shown me that many things are not under our control and if I come in slightly better or worse on a small budget to begin with, what does it really matter? What matters is to keep investing, focus more on diversification as I just hit 50, keep learning about retirement topics I’m not very familiar with like LTC and SS strategies in the future, etc. Coming off of a trial retirement and realizing I have more to give in the workplace, I need to figure out how long I will work and until then, be intentional with our money. The rest will sort itself out...

Agree with all of the above. Surprisingly Warren Buffett isn’t on my list: he has access to so many private investment deals that aren’t available to regular investors that I felt these were not helpful to read about. I enjoyed reading The Intelligent Investor by Benjamin Graham for principles of value investing; Jason Zweig’s The Little Book of Safe Money has great advice on balanced investing and planning.

A couple years after college and still on my first job, I bought a condo without knowing/asking myself if I woud be settling down in that part of the country.

I’ve been reading the WSJ daily for 40 years. I started reading it at the college library and it has been a great resource. How else would I have been able to learn from Jonathan? I remember he used to respond to my emails back in the day. Still appreciate that.

I use a 7 year bond ladder mixed with a 7 year “ladder” of bond ETF’s. I have 1/7 of my fixed income investments “maturing” every year so liquidity is available.

Warranties on products likes cars and fridges are designed (from experience) to cover the time frame where their company statistics say you won't need it. Hence come the extended ones. However most extended warranties I have found are also timed to not be needed. I have found the extended ones are mathematically designed by the actuaries of the products universe. Even the extended times are calculated to bring maximum profits to the company. For example there is a reason a car extended warranty will take the usual 3 years to 6 or 7 years because statistically speaking (and the companies know to the date, don't be fooled) only extend to 5 years or 7 years. 5 years when the company knows most claims will start in the 6th .. 7 years when the company knows most claims will start in the 8th .. never forget there is actuarial science behind all warranty products.

After my parents died early, I inherited money. And then 'financial advisors' of all kinds came out of the woodwork. I was too grief stricken to think clearly. Ended up with life insurance I didn't need. Stocks that I did not care about. Mutual funds especially bond funds that were unnecessary at my age. A stockbroker who traded instead of invested for the future. (Hence the definition of a stock BROKER.) So from this I learned that many 'financial professionals' own goals was to separate me from my money. Even got horrific advice from the probate attorneys. Lesson learned in hindsight? Don't make any decisions for a year (and in my case more than a year.)

RICH DAD, POOR DAD by Robert Kiosaki. Learned to identify assets from liabilities. Changed my thinking on spending & what I was spending on. Also by him, CASHFLOW QUADRANT. Drove home more invaluable points. I was also impressed with THE MILLIONAIRE NEXT DOOR. Very interesting book. Taught me to not believe everything I assumed about others.

You are welcome.

Too many insurance suggestions presented for my taste and comfort but thank you.

I enjoy John Bogle's "The Little Book of Common Sense Investing". Beautifully written and really help set the right mindset and framework for being a long term small investor.

I will set up an investment plan to ensure those $5 million does not disappear. An endownment is a great idea. I will withdraw a very small percentage (2%? 3%? 4?%) each year to do things I enjoy: travel, charity giving, etc.

The period certain gave me more certainty than just withdrawing from portfolio. Returns higher than cash. Less flexible than leaving in cash as I gave up flexibility for the higher certain yield. I will receive 96 monthly payments and then start SS. The higher guaranteed yield and monthly certainty more important than the flexibility. Can compare yields from different companies which embed the different fees.

See below.

Nice article. Thank you.

When I was working I was saving 40% of my salary. Being a double income no kids household made this possible. I worked for a state that took us out of Social Security. We still paid the 6.13% SS contribution into a 401 and the state matched it. I contributed 6.75% to a defined benefit pension plan. Then I contributed the max to 457 Deferred Comp plan. Then there was what I saved in taxable accounts (I would use some of that each year to fund a Roth IRA to the max). I really saved too much, but I never felt like I denied myself anything. I drove Honda's when I could have afforded a BMW. I traveled the world and extensively in the US.

Many thanks for the (overly) kind words.

I was referring to other bond substitutes that protect against inflation, such as a COLA annuity or a fixed level percent increase annuity (e.g. 3%). Did you compare the prices of these types of annuities to cash value life insurance?

Reliable dividend stocks are the new "bonds". Index investing is so overrated, especially in an outrageously priced market. Over the past three years I have invested 75% in fairly valued dividend growth stocks and 25% in cash. Even Jeremy Siegel now advocates dividend investing as "the bear protector" and "total return accelerator". Peter Bernstein actually made the case for a 75/25 stock/cash portfolio in an article published in the Investment Management Review in the late 1980s. https://awealthofcommonsense.com/2015/03/an-alternative-to-the-6040-portfolio/

Yes. We now grow about 50% of our produce in our own backyard - organic and in an area where we have four seasons and can grow stuff for only half the year. We can paint the walls any color we like, remodel any way we want. It is a place we enjoy and create memories in. Financially, it is at par with renting.

Create an nonprofit and put the money into an endowment for the nonprofit.

I also used my traditional IRA to fund a “period certain” annuity. This annuity will pay me monthly income from age 62 through 69. I view it as my Social Security “bridge.”
I wish you had explained this a little more. What are the benefits and drawbacks of this strategy? How much did this annuity cost? What will it pay? What risk were you trying to mitigate? Why didn't you just take IRA distributions for your Social Security “bridge.”

Thanks Linda for reading. Yes to the first question. Fortunately I have lunch monthly with a life-long friend /CPA who would fill that role. You do make an excellent point regarding LTC though. I know of 2 instances where the children didn't know there was a policy and didn't use it. Elderly parents forget they have the policies. Regarding cash value projections I am assuming 3.5% even though projections show closer to 4%. In today's rate environment that is still hard to beat.

Yes. I wrote a Roth article recently here and that question came up and we dug into that particular question. If you have the account set up 5 years AND are over age 59.5 there is no more 5 year wait! There is no new 5 year clock.

I would posit that the ROI of learning DIY skills is high.

I have several favorites but always encourage people to read a variety to get a broader perspective. After reading How To Get Rich and Stay Rich by Fred J. Young, I wrote Mr. Young and he invited me to have lunch. It turns out he married a girl from my hometown of Fort Scott, Kansas. It also turned out that Fred had spent time with Warren Buffett in 1958 and afterwards had lunch with him several times. He never mentioned that in his book. I was fascinated. If I wrote a book about getting rich and knew Warren Buffet, I'd find a way to include that in my book.

James, I set up the first Roth IRA years ago and am now over 65. Can I move money out of the Regular IRA into the Roth without worrying about the 5 year waiting rule? Others may have the same question. Thank you.

It pays to be paranoid! I have worked for different insurance companies in their invstment departments and know they are regulated more than most companies.The insurance companies are rated by AM Best, Standard and Poors, Fitch and Moody's. There is a rating called COMDEX that is a composite score of these 4. COMDEX scores range from 100 to 0. I purchased my QLAC from an insurance company rated 100. My whole life policy was purchased from a company rated 98. My LTC policy was purchased from a company rated 95. My period certain annuity was from a lower rated insurance company only rated 84. (Less worried about this annuity as short duration.) I diversified among 4 different insurance companies. There are state funds that can backstop insolvent companies as well. I am also worried about Social Security, higher taxes, Medicare, inflation...

One thing I like about Vanguard is the pressure it puts on the entire investment world to reduce expenses. I wonder how much money has been saved overall from firms who were forced to reduce costs by the competition from Vanguard.

I think most readers would agree that becoming a better investor through self-education requires you to read widely. Therefore, it’s hard to identify one great financial book. There are many good ones available from authors like John Bogle, William Bernstein, Burton Malkiel, and, of course, Jonathan Clements. Having said this, I experienced my greatest education and inspiration from the series of Getting Going columns Jonathan wrote for the Wall Street Journal. I’ve been a long-term subscriber to the Journal and was fortunate to discover Jonathan and his weekly columns when I began trying to educate myself those many years ago. I found his weekly columns to be particularly effective because they were extremely well-written (of course) and were delivered in small doses which made it easier for me to absorb the lessons that needed to be learned. I dutifully cut out the column each week and collected them in a manila folder which eventually grew to about two inches thick. I still peruse these articles from time to time. One of my most important epiphanies came from one of Jonathan’s earlier columns where he stated that you didn’t have to beat the market to reach your financial goals. This one insight primed me to absorb other important lessons like the need for diversification, the importance of minimizing investment costs, and the advantages of index funds over actively managed funds. I often thought that it would be wonderful if Jonathan could cherry-pick his best columns from his Wall Street Journal years and assemble them into a book for the benefit of newer generations of investors. My suggested title for such a book: Jonathan Clements Greatest Hits.

I saw this headline in 2021: Financial Guru and Radio Host Dave Ramsey Selling $15.45M Tennessee Estate. Apparently giving basic financial advice is very profitable! (I wish I'd done it...) I think Dave has done a lot of good with those who were in financial straits. His "tough love" approach seems to work with them. I'm not a fan of his investment advice though. There are much better options than those he suggests.

I agree that equities are the best protection against inflation. Those are in my Roth account tax-free and a brokerage account. I have the volatility offset by the cash value life insurance. If you recall 1 year ago equities were extremely volatile but offset by the Federal Reserve backstopping every asset available which can lead to the inflation we fear.

Boss Hogg as I have grown my Roth IRA over 6 years I become more convinced that more people should look at the possibility of doing so. My tax bracket was very low so it made my choice easier. The first step is opening a Roth account and converting a small amount. I have written an article on Roth conversions here as well.

I worry about that too. I expect eventually Congress will find a way to make them less attractive. That is why it is vital to gradually convert at a lower tax rate than doing it all at once. My Roth accounts are growing tax-free but my tax-deferred IRA is creating a larger tax bill for me evn if Congress does nothing. I do believe the life insurance lobby will protect my cash value policy taxwise. They have been around since the Civil War.

Assuming you have a legal continuing power of attorney (which I’m sure you do), are they aware of all of these policies and plans and capable of implementing them on your behalf over the long term, if necessary. Also, in my experience, the projected cash value of whole life insurance is often on the optimistic side.

The cash value is my bond substitute. You are correct that it is not the best way to protect against inflation.

While there are some good points here the misinformation outweighs them. Rather than writing clearly about gold, for the most part the author trots out the same tired "no inherent value" tropes one can read about ad nauseum on Bogleheads and other forums. This article addresses gold's history and possible deployment in portfolios far more skillfully: https://portfoliocharts.com/2020/08/21/metal-money-and-the-measurable-value-of-gold/ The key mistake, in my view, is looking at gold in isolation rather than as a component of a portfolio. I guess I should add that far from being a gold bug myself I hate owning the stuff but it can help so much with sequence-of-returns risk and boosting safe withdrawal rates during retirement that I prefer to have a modest allocation to it.

Winning the Loser's Game, by Charlie Ellis. It's not about winning, but about avoiding mistakes or "forced errors." It makes a great argument about why trying to beat the markets usually ends up making us poorer.

I agree with all #1 to #9 not #5 All the confusion and lies in life begins with the word percent. Always use real numbers to set goals. In the early 1980 s the 401k confusion was maximum 16 % of salary, company match 50 % of first 6%. Some time in the 2000 401k limits became real numbers. I did the max for 35 years and worked OT. In the early 1980 s we had employee stock ownership plan. I did the max and worked OT. Good advice from Pete and Fred brilliant Substation Test General Foremen both talked real numbers with me. ESOP all the stock offered and not bought was be offered again for purchase, buy. A great way to double the benefit of ESOP. Cancelled most monthly bills working PT for landlord 1978 to 1985. I would stop by office and landlady would say how many hours this week. Then she would pay me 50% more than agreed, because of good work and dependable. In 1986 my wife graduated from Georgetown Medical School cost 18 k / year. Always invest in your brain. I left VA TECH supervising chemist job in 1981. Joined the power company as supervising chemist and doubled Va state salary / benefit package. After two years a different Va state agency wanted me to run a different lab. State offered the top of pay grade after 6 weeks of Friday haggling phone calls. The power company matched state offer 10 k and 5 k raise six months later. Power company likes to win. LOL nice pay day for one interview. One year at power company I was making double of my former PhD va tech bosses. I supervised the whole lab when PhDs stayed in office and "traveled". Masters in Chemistry, Master Plumber, common sense, taking care of problems and supervision abilities pay well. Always be very serious about being paid properly. Save early remember the story of the brothers ONE starts saving at 25 and quits saving at 35. TWO starts at 35 and never catches ONE. We retired 2015, traveled 9 months/year and stopped in March 2020. Since retirement S 35/ B 50 / 15 C savings is up one million. Now S 15 / B 50 / C 35 will buy dip or not. Why play when you already WON. We always lived on one income and saved the other. So no budget. We invested in private medical practice for autonomy. 33 years of company car = max 401 ks 35 years at power company = great pension We both enjoyed long careers in our chosen fields of study. We both worked jobs in college. #7 is nonsense because capital goods, travel and nice houses cost the same everywhere. Example 1990 I was offered a job in western Pa for 1/4 of package in DC.

I think it's a terrible idea. In a family, we are obligated to each other simply because we are family, not because we get something in exchange.

I'm skeptical that a cash value life insurance policy is the best way to protect against inflation since part of the cost of the policy is to provide a death benefit.

I noticed the plan to convert a rollover IRA to a Roth IRA, avoiding future taxes and RMDs. I am doing that too, but am concerned about all the tax increase proposals coming out of Congress and the Biden regime and wonder if they will start taxing Roth IRA disbursements with the argument that the government needs the money more than you do. Anyone else see this as a possibility? I hope I am worrying about nothing.

I fully agree with your sentiments. I don't over insure and 40 years of building and now living off my portfolio assets has given me the confidence I need to successfully DIY my personal finances. I have always had a great interest in personal finance topics and consider myself highly educated in the specific areas of my interest. I don't expect that most folks (as I've learned through family and friends) will be as interested or motivated to successfully do the same.

One more possible reason, with a story (sorry): Several years back I adopted a disciplined buy-hold-rebalance portfolio with stock index funds representing several asset classes (ref. Paul Merriman, streamlined). In January, on the threshold of retirement, my annual rebalance was to 50/50 stocks/2-year treasuries. By early Feb that allocation was out whack for good reasons so I did something wild and crazy: Took a profit on the one-month gain and put it a gold ETF. I'm now 49/49/2. One more backgrounder: At the same time I adopted the rules-based system I also embraced a new guru for all things related to the future, Sergeant Schultz, "I know nothing." (It's been liberating.) So... In 2020 I perceived a new source of risk: "Crazy." Not to get political, but the kind of social crazy that includes sporadic violence and elites abandoning the "reality principle." That's why I bought the gold, not the inflation risk. My opinion is that bad inflation is a threat, but the good Sergeant always reminds me now, "You know nothing!" so inflation fear was not why I bought gold. (Schultzie gets backup from Taleb, from whose Black Swan I took that humans are lousy at making predictions - so avoid doing it on anything more important than whether there will rain for the Saturday picnic.)

Thank you James for sharing your plan. Your comments on possible tax increases cause me to rethink not making a Roth conversion now. I'm not a financial planner so my comments may not be expressed accurately, but I wonder how efficient this plan is in terms of expenses and returns. Specifically, I wonder how the returns on your plan project compared to a 70%/30% stock/bond index fund allocation that never changes, which is my plan as I expect to live a long time and don't want to run out of money. That said, your LTC strategy is interesting and I'm going to give it further thought. Now, based on family health history, I plan to self-fund any long-term care, perhaps putting the home in a "Medicaid Trust" to at least preserve that for my heirs if I completely run out of money.

Up to each parent. However, sometimes, learning everyday skills about maintenance around the house may be its own reward. Some of those skills can be transferred into wage-earning (performing those services for others). And, with wages comes the opportunity for additional learning on managing money - and potentially, long term wealth from investing (such as in a Child IRA).

Bucket lists for retirement are not solely about places to see and things to do. Some financial experts recommend buckets for investment and spending in retirement, others for investment and saving in preparing for retirement. One challenge of course, is where to invest the money.  I say beware… beware the bucket. Are we at the cusp of another major market correction – the Great Recession II, a COVID relapse, resumption of double digit inflation? Volatility is up (or down). Yields on bonds are going … where?  Volatility is not predictive of market swings – up or down. Some time ago, I sat through a presentation by Grady Smith, CFA, Vice President & Senior Portfolio Manager, Dimensional. He demonstrated/I learned that:

  • For the period 1990-2017, using the S&P 500 as a proxy, only 33 of the ~6,300 trading days had gains or declines of 5% or more.
  • For the period 1927 – 2016, volatility in the current month is not predictive of returns in the next month (using the Fama/French US Total Market Index). The average monthly return is substantially the same regardless of whether the prior month had high volatility or low volatility! 
  • For the same period, there is no statistically significant difference in annualized compound returns (whether measured after 1 year, 3 years or 5 years) following either a 10% market decline or a 10% market increase (using the S&P 500 index total returns as a proxy). 
Bottom line, volatility, low or high, doesn't portend the need for a change in investment allocations. This again is of interest as we acknowledge anniversaries of the 2008 financial storm and the COVID-19 market crash. Those who were in their 50s during the Great Recession may be considering retirement or retired today. Many are concerned about a stock market tumble, others about potential double digit inflation. Unlike past periods, many more are invested in 2020 or 2025 target date funds - some of which still have 55 to 60 percent (or more) equity allocations. Others are concerned about sequence of returns risk. Those of us in our 60’s and 70’s clearly remember the double digit inflation of the 70’s and early 80’s. To counter those challenges, some financial experts recommend a bucket approach for retirement savings, preparation, investment, and spending - to moderate the impact of a market correction on retirement savings. You set aside a few years worth of spending then invest the remainder of the portfolio more aggressively. So, when an investment portfolio suffers a market correction, a retiree uses money from the cash account – so the investment portfolio has time to recover. However, when the market correction occurred in 2008, it took more than four years to fully recover – and only for those who stayed invested in equities, those who stayed the course. The bucket approach can also be implemented using mental accounting in both accumulation and decumulation of assets. You allocate/separate assets based on their specific purpose/need. It’s popular, feels good and is plausible. It is easy to implement and it reduces anxiety. But, it may be suboptimal: “The evidence shows that a bucket approach underperforms static strategies; however plausible, comforting, consistent with mental accounting and easy to implement the bucket approach may be, simple static strategies, with periodic rebalancing, are just as easy to implement and leave retirees better off” - says J. Estrada, The Bucket Approach for Retirement: A Suboptimal Behavioral Trick? 12/8/18 at: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3274499 And, just as important, there is significant upside potential from using a “total return” approach says M. Kitces in The Extraordinary Upside Potential Of Sequence Of Return Risk In Retirement, 2/20/19, at: https://www.kitces.com/blog/url-upside-potential-sequence-of-return-risk... So, while we are in our late 60’s, we keep the money in the plans, accumulating tax deferred (or Roth, tax free) using a total return approach (including my spouse’s retirement savings). And, for us, if there is a market decline, we would consider borrowing from my 401k plan. The interest rate on that loan would be ~5+%. Today, as was the situation for the last 10 years of our “retirement”, that 5% “riskless” rate of return is greater than the return we could have achieved on almost all other fixed income investments, and generally it is ALSO less than the rate we would pay on most other commercial sources of liquidity. So, using a plan loan to moderate the impact of a market decline may both improve our household wealth AND increase retirement assets. I just have to remember to rebalance after initiating the loan so that the plan loan principal is treated as the fixed income investment it is. And, should circumstances change, we can accelerate the loan repayment as needed – or, “convert” it into a distribution.  Note: Some retirement experts also use the term “bucket” to separate retirement assets by tax status. So, when saving and spending retirement assets, incorporating consideration of the tax treatment for each source is important – for both the contribution and the distribution, as well as the impact on the investment portfolio.

This is the first time I recall being confused by the observations and advice in this column going back to my initial subscription to the Wall Street Journal more than 20 years ago. (1) Why isn't it clearer that hyper-inflation is the greatest threat to people who are retired? People tend to think there could never be another Weimar Republic, but there are many modern, as well as ancient, precedents. A quick internet search shows four countries with current inflation rates over 100%. Does anybody remember when some of our "allies", such as Israel had inflation rates of over 400%? (The writer of this column should be old enough to remember when Israeli inflation peaked in 1984 at 486%) American inflation approached 20% after WW1. Do we think there will never be another catastrophe (like COVID, Krakatoa, or the grounding of a tanker in the Suez Canal?) (2) Why isn't it clearer that long-term care insurance companies not only can, but have, gone through restructurings, and even bankruptcies? The benefits that my 90-something year old parents receive from paying in for 40 years are now limited to a nurse's aid for one hour three times a week, and a nurse for about a half-hour once a week. (That's not what they were promised. We survive by paying cash-out-of-pocket for enough help for them to live at home.) So, why would a sixty-something year old like me buy long-term care insurance? (Fortunately, one of my colleagues, who was also a DIYer when it came to financial planning, convinced me to sell the LTC policy I bought in my 30's when I was 40-something.) (3) It's just hard to understand how any fiat currency cannot be confiscated, including cryptocurrencies. (4) Housing doesn't seem like "real" estate right now. So, why isn't the recommendation to buy equities? Large caps, small caps, internationals, etc. Why isn't a balanced portfolio enough cash in FDIC insured bank accounts to survive 12-months come hell-or-high water, a few guns and boxes of ammunition that can be bartered, while everything else sits in index funds? Why does this column seem to imply that stocks are more volatile than other asset classes, when it seems to lay people like me that stocks are the only "real" estate?

James McGlynn, not to be a paranoid, but with all the annuitization in your plan it seems you've added a fifth source of risk, that bad things happen to the insurance industry and companies. That could be painful if someone had most of their eggs in those baskets

We’re still working at age 60, and our kids are out of the nest. We max out three deferred comp accounts between us, but it doesn’t add up to 30% of our income. However, as a state university employee, I have a required monthly contribution to my pension, and it’s a sizable sum. Plus the university matches it. Figuring out the value of my forthcoming pension and how it relates to our net worth has always confused me a bit. We also put several thousand dollars a month into a travel account. When we started doing this, we meant it for current as well as future travel, but since we still have disposable income each month, we’re just paying as we go for trips (not that there have been any this past year, but there will be as 2021 goes forward). The travel account is growing for our early retirement years. When I take all of that together, we may be closer to 30% than I thought.

Upon reaching age 72, not 70 1/2. I forgot about the SECURE Act change... BenefitJack

I never buy the extended warranty on a product, except … Twenty-five years ago, a Japanese insurance executive asked me whether I felt responsible for workers who made mistakes or failed to take full advantage of our 401(k) plan. Back then, I felt comfortable asserting that workers were responsible for their own decisions. Since then, behavioral economics studies, litigation, legislative and regulatory changes “moved the goalposts” — prompting me to add automatic features and installment payments and to encourage “asset retention.” Today, many plan sponsors encourage rollovers into their 401k plans and many “actively encourage participants to keep assets in the plan at retirement.”  In my last role as a plan sponsor, we solicited and accepted all rollovers (at hire, while employed, post-employment, too); we changed the default at separation to keeping assets in the plan, and we made changes (like electronic banking) so individuals could not only continue to make loan payments, but they could also initiate a loan after separation (if only as a way to avoid leakage). In fact, as is the case at most employer-sponsored savings plans, the vast majority of participants will be the term vested – not the active nor the retired employees.  My spouse Debbie and I expect to be lifetime participants in that plan, until the second of us dies. The plan’s fiduciary protections and design defaults serve as an “extended warranty.” The value almost always exceeds the cost because: • Separated participants are already very familiar with the plan, a few have 50 plus years of experience, • There are about 50,000 participants with about $5 Billion, many have a lifetime of savings and watch fiduciaries very closely, • There is a guaranteed investment contract paying approximately 3 percent, • Separated participants can access money on demand — either as a withdrawal or as a loan, and • Administrative and investment costs are very low due to plan design and economies of scale. Many retirees lack the expertise to manage a lifetime of savings. “(M)any older respondents are not financially sophisticated: they fail to grasp essential aspects of risk diversification, asset valuation, portfolio choice, and investment fees” (Study by A. Lusardi, O. Mitchell, V. Curto). “The prevalence of dementia explodes after age 60 … the diagnosis of cognitive impairment without dementia is nearly 30 percent between ages 80 and 89. … in studying financial mistakes (suboptimal use of credit card balance transfers, mis-estimation of the value of one’s house, excess interest rate and fee payments), (we) find that financial mistakes follow a U-shaped pattern, with cost-minimizing performance occurring around age 53” (Study by S. Agarwal, J. Driscoll, X. Gabaix, D. Laibson). Retirees may also be financially vulnerable (M. Lachs, S. D. Han). So, upon reaching age 70½, 18 plus years after one estimate of peak financial cognitive capability (study by S. Agarwal, J. Driscoll, X. Gabaix, D. Laibson), we require retirees to make a payout decision regarding a lifetime of retirement savings. Perhaps unknown to most participants, the “extended warranty’s” best value may be the fiduciary protections, as well as operational and design defaults. There is also bankruptcy protection. Fiduciaries are often “prudent experts.” They are required to act solely in the best interest of participants, to carefully select and monitor the investments and the administrators.  Importantly, a plan’s “extended warranty” may be even more valuable throughout participants’ retirement/payout years.

I officially retire and receive my final paycheck (which sounds like the title of a horror movie or punk rock band) next week. Obsessing over this subject has cost me quite a bit of sleep. Now I am a firm believer that we hold bonds not for return on our money but for the return of our money. That said, the bottom line is putting food on the table and taking 40, 50, or 60% of your savings and parking that in uber low-yielding no growth (money-losing if rates keep rising) bond funds is wreaking havoc on my Modern Portfolio Theory Boglehead brain... On the other hand a conservative portfolio of Dividend Champions similar to PG which has increased/grown it's dividend for 63 years in a row (now at 2.34%) or JNJ (58 years paying 2.45%) seems like a better use of my money for the time being. This translates to "increasing their dividend during every disaster I have seen in my lifetime." Absolutely not a bond substitute and no guarantee I will get my money back "at the end of the term" but my investment in JNJ for example has almost tripled in value. And if the market tanks again they should keep paying a dividend and hopefully give me a raise every year as well. So I've decided to utilize a Christine Benz (M*) bucket or two. Two years of needed income in cash and ultra-short government(BIL). The next five years in mostly short (and a little medium-term with some TIPS) bond funds. Then the bulk of what's left in dividend-paying companies with long and stellar track records (across all sectors Intl/Dom). Just my 2 cents...

I bought a cabin on land leased from the State.... so really ...just a cabin. It made 0 sense. I regret that I purchased it without really thinking it through. That said, we learned so much and had many good experiences there. We sold it at a loss just before the pandemic... but I could of lost that money in the stock Market just as easily, and not had the life experience. So a financial regret, but wiser for it.

Congratulations! Having paid off your home at 40, you’re now set to maximize your savings for the rest of your working career. I paid off our home in 1996 at roughly your same age when I received a small inheritance and it was one of the best financial decisions I’ve ever made. Having a paid for home is very powerful financially and psychically - there is something liberating about it. It’ll be interesting to know how you view this decision 5, 10, 20 years down the line.

Ben, we did the exact same thing at almost the exact same time. My final decision was based on the stock market gains enabling the payoff. Sure we hated paying the taxes on those capital gains but as my grandfather was fond of saying, "if you are paying taxes you must be making money..." It's a terrific feeling being debt free as I receive my final paycheck next week and start my retirement. And I now view the "lack" of principal and interest payment as a positive cash flow in my weird view of home economics.

Ugh. Is there anything worse than spending retirement worrying about $$ when there is nothing to worry about?! What a sad waste of what should be a happy and low stress time of life. I'm not saying Mr. Friedman has nothing to worry about cuz I don't know his $$ specifics. I prepared thoroughly for retirement and will NOT spend any time during retirement worrying about money. That includes not walking around my living room every night reassuring myself we're going to be okay.

Bingo Jonathan. These are precisely what I would do!

Author Dennis Friedman - I feel bad that COVID-19 prevented you and your wife from celebrating your anniversary last August with a getaway to that favorite hotel. And I know exactly how that feels because my husband and I were unable to celebrate our 25th anniversary the way we wanted. (Content removed by author.) Now plan something really awesome for your next anniversary.

Dairy. A gallon of milk is less than $3.50. $1.40 for a dozen eggs.

Spending in retirement — https://www.bloomberg.com/news/articles/2021-03-25/here-s-why-so-many-people-intend-to-die-with-money-in-the-bank Many are not.

Gasoline. When I was 16 and learning to drive gas was ~$1.50. Then it was a significant percentage of my income. I filled up yesterday for $2.42 I don't even track how much I spend on gas because it is not in my top 20 expenses.

Water and electricity. I make an effort to conserve as much as I can, but H2O and electrons are seriously cheap (at least where I live) considering their utility. At 10 cents per kilowatt hour, a 10 watt LED lightbulb costs only one penny to run for a full 10 hours. That’s absurdly affordable by historical standards.

I’m not thoughtful enough about charitable giving, so I’d dump a bunch of the money in a donor-advised fund and then do some serious research about which charities to support on a regular basis. I wouldn’t change how I live day to day. But I might do some home remodeling and I’d probably spend a little more to avoid life’s hassles, especially when traveling—no more flying economy.

Bananas, I believe, are a great bargain (plus they come in their own packaging and don’t need to be washed). Seltzer, soda and tonic water are also dirt cheap. I’m always pleasantly surprised when I go to the hardware store and have to buy, say, wall anchors or a box of nails. And while this isn’t an everyday purchase, I consider Kindle notebook computers to be a steal, especially compared to the price of an iPad.

My favorite investment book is Where are the Customer Yachts by Fred Schwed. It is both funny and profound.

Sunil I am just finishing an article on HSA's for Humbledollar. I get in "the weeds" on some of the details-some of them are strange.

I have more tolerance for things not going to plan. In fact, I fully expect life not to follow my plans. There’s a tremendous amount of freedom that comes with being okay with things not being okay. Hakuna matata.

For me, probably never. Warranties are priced the same as insurance: the expected value for the purchaser is negative. Unlike with a home or my health, the cost of replacing items you can purchase warranties for is not stratospheric. I would only purchase a warranty if I believe I have a much higher probability of damaging an item than the average consumer. But I’m a pretty cautious person, so that’s almost never the case.

Maybe if your waiter is actively hostile or rude, but otherwise no. If you’re too cheap to tip, you probably shouldn’t eat in a restaurant. That’s my approach. 😁

I think the answer depends as much on the child as the parent. My oldest has never been motivated by money. My youngest liked how money made him feel grown-up, but once he had a few dollars in his pocket, he too didn't care. For us the only answer had to be that chores were not compensated. Additional tasks were. Our kids also didn't spend much. We gave them an allowance for a while, but that ended in their early teens. If there was something they really wanted that was expensive, we usually worked out a way to share the cost, so they had skin in the game. I think our situation would have looked very different if our kids had different personalities and motivations.

My fixed income was 100% in Intermediate Treasuries up until a couple years ago. Then I realized that the yields were well below what the Stable Value fund in my 401k pays out. This is why almost all of my fixed income now resides in a Stable Value fund. Not all stable value funds are the same, so in addition to the yield, one needs to check out the credit rating of the fund insurers.

I prefer to use preferreds and REITs as bond equivalents. These types of securities can be tricky, and you have to know the market and understand the terms and conditions of your investment.

I changed some bond index fund money to a Russell-2000 stock index fund. Will see how that goes.

I had a rewarding and enjoyable job that I stayed in until I was 71. Nevertheless, as retirement approached I also began counting the months. I view the joy of anticipating retirement as it approaches as comparable to the positive benefits one gets from counting the months until one takes a vacation that they have dreamed of for many years.

I know parents have strong opinions on this one. I took the position that doing chores was an obligation that came with being part of the family and thus my children's allowance didn't hinge on doing certain things around the house. That said, when they were teenagers, I recall occasionally paying them to do chores that weren't routine, such as helping their old man rake the leaves in the fall.

Awww shucks.

That was one of the first investment books I ever read -- full of colorful characters. Wall Street seems a little more bland today.

A retirement account, such as an IRA or a 401k account, has a distinct deaccumulation phase that begins at retirement. Do HSAs have a distinct deacumulation phase? Can I continue to accumulate assets in an HSA in the early years of retirement and, if so, what are the benefits of doing so? What health care expenses in retirement would I be able to fund more easily if I continue to accumulate assets in an HSA in the early years of retirement? Can HSAs be passed on to one’s heirs? Thanks.

The best financial book I ever read was The Money Masters by John Train. It’s an old book that I learned about Warren Buffett from before he was very famous. Berkshire Hathaway was then traded “by appointment” on the Pink Sheets under the symbol BKHT at the outrageous price of $2000 per share. I did the math and his 16 per cent compound return was unbelievable.

Awesome post! Thankfully, having read many of John’s books has provided our family with the wisdom to drive our fixed costs lower each year, live off of one income, live within walking distance from work, avoid divorce, and resist hedonic adaptation as much as we can. We tip-toe into the hot jacuzzi of ratcheting up our savings rate each year...slowly adjusting to the temperature of the water which has allowed us to slowly ratchet up our savings rate. It hasn’t been easy; many times, disputes were had, but as our investment accounts hit the critical mass more trust in the process was received. Last year, we hit our highest number which was roughly 60%. As a bulleted point to living within your means, Buying a home you can easily afford with low maintenance costs and taxes helps a ton. Our current mortgage payment represents 3% of our pre-tax income. The kids are costly (we love them despite), we leverage economies of scale as I like to call it. We buy in bulk, and our third daughter has all of our first and second daughter’s clothes that they have grown out of (some new stuff too). We’re going lower the temperature a bit as we approach our 40’s as best as a prodigious saver can do.

So many good ones I've learned from but if I had to pick ONE book, it would be How to Think About Money by Jonathan Clements.

You're absolutely right about that. I saved 20% of my income my first year of work, which felt very frugal... I was also paying down college debt that was another 15% or so. Then I lost my job, and I had to spend the 20% I'd saved. It's not easy.

+1 for I-Bonds

I once bought put options on a stock that I was (temporarily) worried about. The stock price today is about 7 times higher than the strike price on those options.

Living without worry -- specifically, living without worry about outliving my savings.

Inflation adjusted 30-year I-Bonds. The interest compounds without taxes until you need to withdraw. The IRS allows 10k per year per peron, plus an additional 5 per tax return. We have been building a ladder over a few years to reach several years of our annual expenses.

Like the observation at the end of this article that just because you are retired, there is no reason not to save if you can. Though, 29% seems kind of steep once you are no longer working, if it works...why not.

Working for a large company with good benefits in a low-cost area with no kids translates for us to zero debt, a paid off house and 55% in savings.

The Millionaire Next Door

Problem is for many the early years are when saving is tough, but the earlier the better.

I don't think one has to be super frugal for 30 years to hit some very good numbers. Do it early in your life, and for your first decade of saving, and you can really get that snowball rolling.

I didn't read it as humble bragging or a shot at the childless. I see it as realism. However, I always think it's unwise to promote having children–or anything actually–as a way to be happy. Not least because this romantic trope includes an optimum number. Now people are more likely to think having too many children (4+ –the horror!) makes one unhappy. I think this is a grave mistake too. It's always a problem to say what makes people happy. To not fit in with the wider peer groups or society causes not a lack of happiness but the pain of not fitting in with others. But trying to fit in with others is a sure way not to attain happiness. It's a fallen world and it has many contradictions like this. I'm FI myself and all for that, but to me many in the RE movement seem quite inwardly focused and to harbor romantic notions of happiness (happiness = time, don't you know?) that include destructive notions of the supposed effects of work. Both of these ideas lack realism but are self-reinforcing. Joining these two arguably false notions, one of the commenters in this thread has argued that some insight to the motive of a recent murderer might be gleaned from the fact that he was one of ten children. This is a desperately unhealthy outlook, borne of deeply imbibing these romantic tropes. FI I enjoy myself, and there's nothing wrong with retiring early per se, but the RE movement is an ideology that has deeply disturbing elements.

I'm a huge fan of William Bernstein's The Four Pillars of Investing. I also like David Swenson's The Ivy Portfolio, especially the breakdown he does on various asset classes and their suitability for individual investors. There are many good books out there, a couple that come to mind are How to Make Your Money Last and The Bogleheads Guide to Investing. Much depends on where you are in your investing journey, the right book at the right time can be magic.

I definitely see the fun in this...

I’m glad you posted this. It brings some reality to what is possible.

The extreme FIRE cases made me think of those who go on very low calorie diets in an effort to live longer.

Over the past few years, I've come to appreciate just how different people are. We all have different life histories, incomes, values, goals, etc. What seems insane for one person is quite sensible for another. I suspect you would balk at my miserly ways, but compared to most of the world's population, I live like a king. https://ourworldindata.org/uploads/2021/03/Share-living-on-less-than-30-2-2048x1224.png The key to feeling rich, in my experience, is to make downward comparisons. When I compare myself to the average sub-Saharan African, low-income Indian, or 19th-century American, I feel like the richest man in the world. In turn, that keeps my wants in check and makes it not so difficult to save 30%+ of my income.

Some people talk about a home as a form of "forced savings." I don't think about it exactly that way, but it is definitely a way to hold some of your assets in a form that is not as easy to spend as cash in the bank. In my work as a financial planner, I have seen many families able to downsize late in life when cash ran low. If they hadn't had that house to sell, their assets might have come dangerously close to zero.

An estate planning attorney once told me to fund a trust instead of funding a 529 account for college savings--never mind that I have four children and college costs a fortune, while the chance of having a taxable estate is much slimmer and much further down the road.

I agree on all of this very well worded!

My partner and I have one child who has chronic health issues. The level of financial help we aspire to provide for our child is lifetime financial security. Saving for our retirements has been our first priority for many years, with the hope that we can leave enough after we're gone. We are now looking into an ABLE account and trusts. I like your description of how you are supporting your two children in different ways, each according to their needs, R.A.! It is a different experience to provide financial help to a child with special needs, one that I have found to be a great source of anxiety. I'm glad you wrote about it here.

You would think it’s only rich people, but that does not appear the case. I am surprised to see just how frugally some people live; to the point many of use would not want to live that way for any cause.

Richard - I always enjoy your articles. I generally adhere to most of these and I agree with you as to #5 and #9. I'll keep the kids (and one grandchild) and I don't budget. I currently make $72,000/year gross. I'm required to contribute 9% to a State pension fund; I also contribute $400/pay period to a 401(k) and another $150/month to a personal savings account. When I added that all up. it came to about 26%. My wife's retired and she "gives" me some money from her pension each month for household bills and she does whatever she does with the rest. We bank her SS check each month. I don't feel like we deny ourselves anything. We just live pretty simply, so I can see how a 30% savings rate can be done.

median US household income is $63k. median cost of living is about $20k per person. Arithmetic tells us that saving 30% is not possible except for rich people. The backstory of every FIRE success story that I've investigated, includes six-figure salaries or family money.. As DINKs (dual income no kids) we hit the 30% most years. After kids, my wife went first part-time then got laid off. We managed 20% of my income into retirement and college funds for a while, until years of salary lagging inflation took its toll. At that point my wife went back to work to help pay for college. Our savings has dropped to about 10% now. I'm driving a 2004 Ford and doing car maintenance on all our cars to save money, not where I expected to be after forty years of working..

I used to start my tipping at 15% and adjust from there. Due to the pandemic, I now start at 25%. I adjust from there based on quality of service, but I consider 10% stiffing someone.

So I have been retired 8 years now (how fast it goes). I did not withdraw any money from my IRA for several years, and even though I had an employer match, I was surprised to find out that when I looked at the dividends and interest of my IRA account, more money is NOW being put into (reinvested) that account than in any year that I worked. Einstein supposedly said that compounding was the eight wonder of the world. I say the easiest way to make money is with money...

Six years into retirement I have no idea what my saving rate is currently. I do know my portfolio is worth more today than prior to retirement. Before my retirement my wife and I maxed out our 401k and saved what ever else we could. I’m convinced my wife and I are financially sound today in retirement because of disciplined saving and the value of compounding. I’m also believe by not eating out excessively we saved a substantial amount of money. While my kids might tell you I was on the cheap side.....they would also tell you they appreciated graduating from college with a dependable car with no debt.  My wife and I both worked for large corporations and there was no cost of living adjustment based on geography. Yes, living in a medium size city in the south allowed us to sock away more saving than my buddy who lived in New York City. 

Richard- Great ending !

A timeshare 6000 miles from our home. I feel lucky I got out of it with only a ~75% loss.

Leave it in cash. FDIC insured money market online accounts are a good choice. They are easy to use, liquid, and readily available.

It varies. My parents helped pay for college (until I got married in college). Nothing more (I did not need it) until they died and left me an inheritance at age 70-1/2. That was a huge gift as it took me from FI money to FU money. We paid for our daughter's education. Since then she has not needed any help from us. I expect her to inherit a decent chunk at age 67 when her mother dies at age 95. I am sure it will be FU money for her.

. Friendly Addition to the list... 10. Cost to Secure. Gold takes up space and requires storage. When you buy it, the seller may require payment for secure transportation.

  • You could rent from a company that specializes in storing & securing precious metals. And maybe insure against loss. Those costs cut into the profit margin and recur year-after-year.
  • You could put that gold in a bank's safe deposit box. And again, you might want to insure against loss because the lease agreement for safe deposit boxes usually excludes responsibility for loss (or alleged loss) of money, coins, or currency... a lease agreement typically also requires the renter to agree that the bank's liability is limited.to $xx,000. As before, these recurring annual costs cut into profit margin.
  • You could buy a safe for your home - a one-time expense. And since most home insurance policies limit liability for cash, currency, and collectables, there's that insurance thing again.
  • You could simply bury your stash in the yard or sew it into the hem of your drapes. That's free, but it's insecure. And it creates a new type of risk... the risk that your hidden treasure will inadvertently remain hidden from heirs & legatees.

It's so much an individual choice, based on the parents, their financial status, their children, and their children's choices. Beyond the emotional bonds, I feel a moral duty to help prepare them for the world they will face. Sometimes that means financial support. Many times it's something else entirely. We are giving far more to one child in the way of education; we'll be giving far more to the other in terms of lifetime security (he has special needs.) I'm not sure there's a way to treat them equally, but we can help them each get to where they can stand on their own.

Leave it in cash, in the form of a high interest savings account, or a money market account, or even just regular savings. I prefer these options because they require the least maintenance, and it's easy to get 100% of what you need when you need it, and that's really the most important criteria. If you make a mistake with a CD, you can miss the withdrawal window and have to pay a penalty to get it when you need it. To me, that's stress I don't need. Putting it to work in the market or even in bonds creates a non-zero chance of a potential shortfall.

There's no free lunch here, in my opinion. I'd just keep it in an FDIC-insured high yield online savings account. Perhaps high-income earners can venture into the muni bond space to save on taxes (a little). Other ideas for those looking to take more risk could be a target retirement income fund, but even those carry material risk. We don't have to look back far to see how even 'safe' securities performed during market turmoil. Safe assets can often become sources of liquidity during market panics, so they can be sold off, too. Thinking outside the box, individuals with a lot of home equity (which are many people now) could simply tap that when cash needs come.

I'll start off by saying I have no faith in gold, for many of the reasons you post. Interestingly enough, gold has been a fair substitute for Intermediate Treasury bonds in a 60/40 portfolio since it became possible to buy it in the early 1970's. A gold portfolio actually does better, but I discount that somewhat since it took some time for a retail gold market to develop. If you start in 1974, the two portfolios are pretty close when it comes to return. The risk profile for the gold portfolio is worse vs using treasuries, as you might expect. I would still rather use Int Trsy bonds (or a Total Bond Fund) in my portfolio (I have access to a stable value account, though, so I use that instead.) Bonds are a segment of one's portfolio whose valuation just won't decline much (the modest caveat being long bond funds), and that's a valuable thing in tough times.

"Time for Gold?" https://en.wikipedia.org/wiki/Betteridge%27s_law_of_headlines

Rick good synopsis of gold's history. I think gold's appeal is currently being supplanted by bitcoin as well as far as price appreciation and a means of exchange. You also mention natural resources as a good inflation hedge. The gold/oil price ratio is still fairly high too- implying energy prices are a bargain versus gold.

Just ask them for a quote on your 1968 TR6.

I never received any help from parents, never asked and they were not able to assist in any case. Perhaps that’s why I feel the opposite. I see it as an obligation and in a way a privilege to be able help children if they truly need it from time to time. That’s especially true for college. We are also helping to modestly fund 529 plans for 11 grandchildren. If I can help it, I don’t want anyone to get a degree going nine years at night while trying to raise a family as I did.

No! Unless the server is especially rude and incompetent (very rare), I leave at least 20%. I don’t hold the server responsible for actions by the kitchen or others. That server has a tough job and without doubt they need the money more than I do. I even tip in Europe. It’s a habit I can’t break.

Good article Ben. As you noted it’s something magical to be debt free. Most financial decisions are made based on gut decisions over a beer or cup of coffee. My guess is long term you will take solace to live a life debt free and increase your saving and the leverage compounding offers you over many years.

We lived in the same house for 45 years, bought it for $59,000 in 1975 and sold it for $505,000 in 2018. Good financial investment? I doubt it, but it was a home where we raised four children. That was a good investment... in our family.

Generally no. Mutual funds, especially index funds are what most average investors (or more accurately savers) should stick with.

Following the recommendation of our financial advisor, we refinanced our home mortgage in 2005 with an interest only loan. Seven years later we refinanced again with a conventional 30 year mortgage.

For those of us who are 100% in stocks, deciding whether or how to rebalance is not a problem.

Someone else will be making decisions when I'm gone, that's for sure. My resolve, at the moment, is to influence them while I'm here, but not to tie their hands after I'm gone. I do have a document that outlines four good approaches to investing and which one we're currently following. Perhaps that will be useful later, but it's just as likely it will not even be part of the discussion soon after I'm gone. Fortunately I think my unpaid family has a "$6000" advantage over any paid advisers, but they might give that up someday. I am committed to letting them decide.

Gary P. The mania seems to be most powerful when the core of the value appreciation is caused by rarity. The concept that there's only one of them (NFT), or in the case of Bitcoin, a permanent total limit to the number of "coins". (How do we know they won't decide to make more?) It's a lot like Honus Wagner baseball cards or 55 Chevys. It's fueled by an increasing desire by many people to pay large amounts of money to own something that there's only one, or not many of, even if that object has no intrinsic value. It didn't work out very well for stamps, coins, plates, numbered prints, and what have you.

We also paid off our house early, in 2004, and feel very good about that. Once we got free of those mortgage payments, our credit card debt just seemed to melt away. (My wife and I had a tough time paying off the mortgage, and resorted to borrowing on our credit cards to stay solvent.) I discovered the secret to staying ahead in the stock market. Want to know? It's not selling. We haven't sold any securities in 10 years, and we're doing great.

Absolutely. I had a lump sum to invest in 2018 and did not want to buy index funds in a very overpriced market. I started buying fairly valued companies with long histories of growing their dividends. I have now built a reliable and growing dividend stream. During the crash in March 2020, I bought some more, increasing my yield on cost. My retirement funds still have indices, but I don't ever plan to sell my individual stocks. The stock market is a market of stocks and there are always some excellent companies on sale.

I love the freedom to build things with my hands. I love woodworking and tinkering on projects around my house. I’ve found that Youtube and Motor Trend cable channel on TV are my inspirations. Being retired means I have the time to do things right. I am learning the art of french polishing wood.

I have financial aid letters denoting first year costs for my twins starting college in five months, and I am no longer employed full-time. My financial perspective has become foreshortened. I have set aside sufficient funds for "further out there" per my current understanding of my future needs and am letting those ride. Meanwhile, my front burner financial thinking concerns the adequacy of cash/cash equivalents and cash flow necessary to get the kids through college and on their own. When I spend time thinking about "retirement" and my money "further out there," it's questions of how to use money to make my life easier/better now and later. I don't believe it will run out, so I think I can let bits of it go now in ways that help me. That's a new perspective after decades of saving first and foremost.

For many, a house is the most valuable thing they will ever own. And yet more and more people are discovering that the value of a house can go down as well as up; with leverage (buying with borrowed money) the depths can be dizzying. It's not an automatic savings account that guarantees cash sufficient for your retirement. It's a place to live and where your mail is delivered. If you can easily afford a house payment (that is, on one worker's salary) and If you can buy that house in a stable neighborhood with good schools and a reasonable commute to work and If you are already on your way to retirement with annual contributions to retirement accounts and If you have children for whom a stable home and good schools matter, Then I would as a home is an excellent investment.

FI, yes. RE, no. Living on $10K annually in the US isn't my idea of living. I'm happy to keep working longer while enjoying my wife, kids, dogs, house, trips and hobbies along the way. At that rate of spending, a large chunk of the population could claim FIRE tomorrow, but to what end?!?

I almost always tip, even at part-service restaurants and nowadays, even with takeaway, since the restaurants in our city are closed to table service. I have known people who are raising their families as wait staff and glad I am not in their shoes.

I am sympathetic towards those who need to "count down" their time until retirement. I have been very fortunate to work in a field that is also my avocation so I never feel like I'm working. I'll keep at it as long as I want.

Scratch Golf!

Most people will have satisfactory returns investing in a few well diversified index funds. It is possible, if you do your research, to find two or three individual stocks on a yearly basis that have very compelling value stories. These are the stocks that can double, triple or even return 10x on capital over a few years. Not every stock has this potential but a few do. Just last year, the XLE oil index ETF sold in the $20 range and recently recovered to the $58 range, for example. It sometimes pays handsomely using value investing techniques. Peter Lynch’s book One Up on Wall Street has dozens of stories on stock picking that will help you learn.

I think it is very wise every few years to reread The Intelligent Investor by Benjamin Graham. The is the “Bible” of value investing and it always reinforces my sense of fear when others are greedy. I not sure how these crazy SPAC/NFT/Bitcoin manias will play out but I really like sleeping at night without the sense of excessive risk.

I also second the Taylor Latimore/Bogleheads three fund portfolio of VTI (Total Stock Market Index), VXUS (Total International Stock Market Index) but instead on the BND bond index, I am following Warren Buffet’s recent advise about avoiding bond investing, and using the VWO (Emerging Markets Stock Index). The reason I have so much outside the US is to hedge the continued decline in the US dollar versus a basket of currencies I am not a Bitcoin or precious metals investor, but I am very concerned about the extremely high levels of debt the US government has taken on.

I think what you're saying is that your personal snowball was already rolling, and that without the ongoing house payment, your existing savings were enough to cover your future expenses? It's really nice to get to the point where further contributions aren't really critical anymore. We still contribute to try to help the snowball grow, but frankly within 5-10 years it should be where we need it as long as market returns aren't way below historical averages, regardless of our contributions. I'd like to at least have enough in after-tax investments to pay off the house before we retire, whether we choose to do so or not. However, I suspect that's going to be hit or miss for us.

Ben it’s great you are a real estate attorney. The next thing my wife and I did after paying off our house was to create a family trust and retitle the property to be owned by the trust. Just a little more protection in our litigious society. We then used the trust and our wills to designate the charity we want to give our house to. If you plan on staying in the house you might also want to check your homeowners insurance to make sure you have full replacement value insurance. The cost of rebuilding today is significantly higher than when you bought your house.

Fortunately, we're doing quite well there too. We're super savers. Max out everything. I'm not sure I'd recommend paying off the house unless you were already very well set up in retirement funds. -- Ben

If your purchase has a lot of moving parts, is expensive, and the warranty covers those parts with little wiggle room... or else you are buying for someone whom you know is challenged when it comes to treating such purchases with appropriate care... then an extended warranty can make sense. In 30+ years since college, I think I may have purchased 2 or 3 extended warranties.

Not in the US; exceptions should be rare. I leave a tip even for poor service, it's just not as much as for good service. There was only one time where I left essentially no tip. The situation went beyond terrible service, and I'll just leave it at that.

Hi there. I'm almost 60 and am planning to retire some years before age 70. I have a few savings buckets to use as income between stopping a paycheck and starting SS or tapping retirement savings. Deferred income annuities are like fixed immediate annuities in that you pay a premium in exchange for committed income amounts paid to you each month which continue until you and your partner both die (if you purchase joint annuities). Like all investments they have drawbacks and benefits. You can read how I thought about those in this HumbleDollar article. My first annuity purchase was aimed mostly at longevity risk. This year's purchase is also aimed at boosting income between the end of full-time work and the start of my full retirement.

We went mortgage-free in 2011 at ages 62/53 when we bought the new house. Hindsight says: financially stupid. But, it felt good. So, no regrets. Have added zero$ contributions to retirement funds since then.

"Stay in your job. It may not be what you like, but it pays a lot of money." A bunch of extra pounds and chest pains later, I got out, went into a lower-paying profession that I loved, and my only regret was not doing it sooner.

I've long avoided paying down our house any faster than necessary, figuring that in the long run I'll do better putting that money in the market. It also provides a nice hedge against inflation. Not everyone has the same priorities, however. It's important for investors to know themselves, and prioritize their own needs, rather than always attempting to optimize their financial state. I've never heard anyone say they regretted paying off their house early. It's a milestone, congratulations!

My first marriage was crumbling so I signed a lease agreement for a hot red sports car to make myself feel better. The marriage ended, finances shattered, and I was still trapped in an expensive long-term car lease.

It really depends on the system. Living in Europe, where waitstaff are paid a living wage (mostly), I just rounded to leave the change. In the US, tips are considered a part of the compensation (and this really needs to change), and so I always try to leave a tip of some sort. Remember also that in many places tips are pooled among staff, so non-tipping hurts many.

My parents helped me with college, but when I said I was thinking about taking a year off to see the world, my father said, "As long as you are preparing for life, I'll help. Once you decide to have a life, you are on your own." Not only did that encourage me to stay in school and finish, but I used the same outlook with my sons.

Thanks for your comment. Can you share as to how a deferred income annuity is better to bridge the gap to social security from say 62 to 70 than just using the money to cover expenses? Are the insurance companies giving a much better rate than money markets (.5% currently)? Does the annuity end at 70?

I wrote (https://humbledollar.com/2020/09/paradise-lost/) recently on my biggest financial regret.

I was a busboy at 12, and remember those @#@##$ who didn't tip. I've never wanted to be one of them. I tend to leave a nominal tip for nominal service, and overtip for exceptional service. It would have to be an extremely bad situation for me not to leave a tip. The references to Europe are interesting. I've traveled a bit and find it hard to change lifelong habits.

The past year has reinforced what I've come to learn over thirty years of investing - nobody (especially me) can predict the future, and how markets will react. Develop a well diversified portfolio with an asset allocation you can sleep with. Continue to invest through highs and lows (dollar coast average) and have faith in the future.

Congratulations Ben. At 40 you still have lots of time to save and invest. As an engineer, I tend to get caught up in trying to figure out the "optimum plan". What I've come to learn is that having a solid plan of saving and investing puts you so much further ahead of the majority. It sounds like you are on a great path to financial independence. Max out the tax preferred retirement accounts if you can.

i helped our kids early. Taught them about money and credit beginning in junior high. By the time they had to make financial decisions they were armed with knowledge they hadn’t learned in school. If you young parents will do this you’ll likely find they need no help once the are on their own.

I like being debt free, but at 40 what about your retirement savings? You say you cashed in taxable mutual funds. Do you have an equal amount in retirement investments? That’s the other part of the equation.

We paid off our house in 2014 7 years ago this month BTW, and have been able to invest more because of the elimination of that "nut".

Sailboat when my wife was pregnant. What was I thinking?!

I worry that this question has not even one qualifier. So, no. If you are not a psychopath, then of course you leave a tip. During the pandemic, if you can find an indoor restaurant, tip like you mean it. If you are in Europe for a trip, no, you can just leave your change. But, if you live there and hate their horrible service, be friendly and leave a decent tip. Maybe they will pay attention to you next time.

The Bogleheads three-fund portfolio: VTI, VXUS, BND.

I also want to add that this attitude is more common in Asian families like mine. My parents supported all their four children's college education so obviously, I've inherited this culture and tradition. I also think that with the rising cost of college educations, it is much tougher and maybe even impossible to do so nowadays.

Fulfillment. I can't describe what that means yet, though I have an inkling what several parts of it look like. More time taking care of myself, more time with family & friends, volunteer work, maybe starting a side business.

A home is not a good financial investment. It does not generate income. When you sell it you usually pay 6% to an agent. It's good to buy the smallest home you can live in forever in the best neighborhood, if you can... but understand that life choices can mean otherwise. It can work in your favor if you have difficulty saving, because it forces you to build equity. It can work for or against you if local prices increase or decline. But mostly it's a place to live and build memories.

With each year that passes I become ever more convinced of one investing truism: Simpler is Better.

Investing through a firm because it was recommended by my employer.

For many of us, our mistakes are serendipitous. Investing through the wrong company just made me determined to never allow that to happen again. Some lessons are worth the cost.

Brilliant answer. Sometimes we feel carried along by certain emotions or assumptions or relationships, regardless of our knowledge, and it is necessary to swim against the tide.

Investors as a whole are not compensated for the risk they take when buying individual stocks. The risk/reward tradeoff of a low-cost market index fund is far superior.

Well said. Investing is a simple game. See the market portfolio. Buy the market portfolio. Hold a few bond funds. Sometimes you win. Sometimes you lose. Sometimes it rains. ;>)

I would like to know why the rental companies charge so much? If the price were reasonable, many if not all would purchase it for peace of mind. This could cover the added cost of more potential claims. I'm sure they could do an instant risk check with current technology and at least offer low-risk customers a lower rate.

... should we care?

Far more money has been lost by investors preparing for corrections or trying to anticipate corrections than has been lost in corrections themselves.
- Peter Lynch
The winning formula for success in investing is owning the entire stock market through an index fund, and then doing nothing. Just stay the course.
- John Bogle

Regarding asset bubbles, we can generally tell if there is a bubble developing, so the question is not if there is a bubble, but when will it burst. There was a good argument that the stock market was overvalued years ago, but it is still rolling along. I know of folks who "went to cash" years ago. Time in the market, not timing the market....

Will, thank you for sharing your results. I ran some numbers in late 2019, and have been curious to see what conclusions other people reached. For what it is worth, the following is what I discovered. (First, a little up-front explanation. I ended up with nine variables that I used to test different scenarios. (I am certain this number could easily be increased.) The variables allowed me to play with different inflation rates, investment return rates, and income tax rates. Most of these variables concerned Federal and State tax rates. I used different tax rates for different time periods:  the next 5 years, the later years of my life, and the 10 years during which my children would inherit either an IRA or a Roth IRA and have to fully distribute them. I mention all this, because the results can vary substantially based on the variables keyed in.) I was expecting the results to heavily favor conversions to Roth. The results disappointed me, like your results apparently did for you. The total tax savings could run into fairly large numbers; about 12% of the ending value of the assets. However, the Present Value of those tax savings was more like 6%. Over the last two years, I have been converting part of my IRA to my Roth IRA. The hassles of figuring out how much to convert each year to avoid bumping up to a high tax bracket and the hassles (a better term is “disgust”) of writing quarterly tax payments, has me now wondering if the effort is worth avoiding those taxes, which would be spread over the next 3 to 4 decades. Again, for what it is worth.

My general rule of thumb is to give help (both financial and non-financial) enough to help them be self-reliant. I go by this famous quote “If you give a man a fish, you feed him for a day. If you teach a man to fish, you feed him for a lifetime.” For my family, we have taught the two boys how to fish by supporting them through the highest levels of education they want to pursue. We paid for all their bachelor's degrees' expenses. If they want to pursue a graduate degree, we would be happy to support them as well. Although it turned out that either one didn't want to pursue a graduate degree.

To the issue of annuities folks. Try not to be so gullible. 80% of the people who buy them will never live long enough to get back anything other than THEIR OWN MONEY.You have to really understand the product, and the vast majority of people do not. Ditto for the the folks selling them.

Dennis is posting his views on a myriad of topics, which any person with a modicum of common sense will find enlightening. He NEVER said what he's doing, or did, is for everyone.His rationale is very logical.So I'm hard pressed to understand the myopic response from reader Ellen. Reprehensible!

I took mine in to be appraised two weeks ago, and I somehow have managed to not own the cards that sell. I bought cheap mass produced stuff, not the rare cards that have gone stratospheric, but it’s a great life lesson learned for me on supply and demand that I’ve never forgotten!

Donating a much as possible to my favourite causes.

It's not the money I regret or the object. It's defying that voice inside that said "this is a bad idea". Making stupid purchases and knowing before I made the purchase that it was a stupid purchase is what I regret.

John - Hopefully you've saved them because trading cards are absolutely on fire. Not kidding.

42 months for me!

Spot on.

My number one goal for my retirement (39 months to go, but who's counting) is to remain as healthy (both physically and fiscally) as possible for as long as possible. I want to visit my children, travel, hike, enjoy a nice meal and enjoy the feeling of getting up with nothing more to do than enjoy my breakfast and coffee with today's New York Times on the iPad.

Fifth. You want your kids to inherit Roths and not tIRAs so that their financial lives are easier. Sixth. You are planning on moving to a state (e.g. Hawaii) with a high income tax.

Doing that now. NASDAQ tracker S&P 500 tracker Russell 2000 tracker We are ages 72/63

Yes. At one point I know that Consumer Reports recommended them for treadmills. I buy AppleCare for our iMacs. $169 for 2 years on a $2800 computer seems reasonable. Have used it once to get a new display.

My advice to anyone is to buy a house in the best neighborhood you can afford and live in it the rest of your life. That not even my advice. It is what I read in Jonathan Clements book "25 Myths You've Got to Avoid - If You Want to Manage Your Money Right" 3 years after I purchased my home in 1995. I still live in the same house.

Yes.

  1. All the time in Europe.
  2. When you are the only customers in a restaurant and they forget your order.
  3. Actually, I have left 1¢ tips 3 times in my life. It was proper each time.

Too many talking heads like to say cash is trash these days. I disagree cuz I may know I'm going to lose $$ after inflation but at least I don't risk a significant stock market decline or harm from interest rate increases. So I'll stick with my 60% stock, 40% cash allocation thank you very much. Oh and don't even get me started on the whole "People are investing in stocks because there is no alternative (TINA)" garbage.

Give what each uniquely needs, and only if you are able. Not having to support your parents late in life is an important form of financial help to children.

I would invest in a target-date fund with Vanguard and select the allocations that fit my risk tolerance. Additionally, I would add a small-cap value ETF. As I get older, I appreciate a more simple approach. I also recommend this approach to both my sons.

My advice to the "kids" is that age 60 is when you really need to start thinking about this topic. Before age 60 is too early as Congress will change the tax laws and ruin your planning. 70 is too late as your maneuvers are too constrained. I started at age 70. Oops.

I usually go back to this quote by Charlie Munger. He said, “All intelligent investing is value investing - to acquire more than you are paying for. Investing is where you find a few great companies and then sit on your ass.” Personally, I have the very last part of this down to a science.

American Express offers an optional, extra charge Premium Car Rental Protection. Currently it's $24.95 for 42 consecutive days of $100,000 of primary physical damage coverage. Rather than just rely on the freebie credit card coverage, I always buy this extra physical damage coverage. Claims are not reported to your insurance company, unless a bodily injury liability or property damage claim occurs too. I haven't had to turn a claim in on this yet so I can't vouch for it, but after reading the terms, it appears to be a reasonable deal. Beyond that, the "loss of use" and "impaired value" is another issue addressed by coverage provided by credit card companies. If that's a concern for you, then you should probably bite the bullet and purchase coverage from the rental car company.

I get those sales calls as well -- and they always strike me as funny, because I don't even own a car.

I never bought an extended warranty and I don’t want to. I get a lot of unsolicited phone calls from people who are trying to sell me an extended warranty for my car. They are constantly pestering me. Why? Because they make a lot of money off these types of policies. They are overpriced. I think the best thing to do is try to buy a reliable car and maintain it by following the recommended maintenance schedule.

Agree you should avoid extreme reactions to high valuations. But some investors and commentators seem to have entered the land of wishful thinking. I’m close enough to retirement age I’d rather not pay ‘too much for the whistle’. And since the industry has decided to leave out of PE calculations any company which has negative earnings, for some indexes even applying CAPE gives a flawed sense of value. Many international indexes are no longer cheap but are not as high as their US counterparts.

This is a very tough question, and very individual. I think it is important for parents to be financially secure. Otherwise they can become the ones who need the financial help. After that, it's up to each parent to decide what they want to do. I would want to make sure the children were responsible, with a work ethic. I wouldn't want to create dependence, or too great an incentive to not work. As with most things in life, it requires judgment.

Nice article, Adam. You do a great job of distilling complicated topics for the reader. I was taught to ask the question "Compared to what?". This is useful in many parts of life, but Shiller's article really shows its value.

Thanks for the feedback! I tried to highlight the risks of FIRE. I don't consider myself someone in the movement, but I am naturally frugal and a big saver. So far, it's been my choice to live modestly via having roommates and not having a house or kids. The downside of that (over time) is likely lower happiness. It worked well in my 20s and early 30s, but I'm recognizing if I continue that lifestyle, my happiness and wellbeing will suffer in my late 30s and beyond.

I have the standard retirement goals, of financial security, time with family, leaving a legacy, and others. But one of the things I envied among my friends and colleagues who retired was their autonomy. I'm looking forward to doing the things I want to do on my own schedule. During my 40 year career in aerospace engineering I worked many complex projects with very tight schedules. Now in semi-retirement, I still do some consulting, but it is always based on the project schedule. I know a full retirement will include commitments to family, friends, volunteering, and other events. But I'm looking forward to a little more autonomy.

A home can be a great lifestyle investment for most people. Unless it's overpriced or the ongoing costs are too high, it can be a forcing function to save and build assets. I see it more as an "asset" than an "investment". There are only a small number of options to unlock equity - Reverse Mortgage, downsizing, becoming landlord, etc. It's also an asset to bequeath.

With ultra-low interest rate and an all-time high stock valuations, I think the 4% rule (25x rule) may create a false sense of retirement readiness. Until the dust settles and the rate goes back up to a sensible level, I'm using more conservative numbers for planning purpose.

The US bond market broadly has been expensive for a while now, considering the risks you're taking. A year after presenting a decent buying opportunity, the SP500 is once again pretty frothy by historical measures. It isn't as insane as segments of the market covered by ETFs like ARKK which went from $37.87 to $156.45 in less than a year. This is just gambling. Blockchain is really useful tech but Bitcoin seems a most foolish vehicle for storing value. It's far easier to spot a bubble than it is to predict when one might pop. Like Grantham, I'm still waiting for the music to stop but Fed bandmeister Powell (no relation) seems keen to keep playing.

I'm just looking forward to having more time to do the things I enjoy doing. By the time I retire I will have been working full-time for thirty years straight. The longest vacation I've ever taken in those thirty years was a six-week break last year (in the middle of the pandemic). I read somewhere that women typically take 12-16 years off during their careers in order to care for children and/or parents. This is one reason women typically don't have as much money saved for retirement as compared to men. I'll retire in my fifties so I guess by not taking any breaks during my working years I'll be 'rewarded' by being able to leave the workplace earlier than most women can.

I hope to spend as much time as I can with the greatest spouse in the world, and with awesome friends+family. And to stay married through all of that, we will have fun volunteering together for causes we care about and traveling to the places and the people we love.

My first house. We weren't as financially prepared as we should have been. My second biggest regret was my second house. Buying high and selling low is a poor strategy for building wealth.

Nope. Why own just a few when you can so easily buy your share of the earnings of many companies? A cheap, broad stock index fund + lazy compounding + time = wealth.

I've owned four houses so far and have done reasonably well, financially speaking, with all of them. I hesitate to call any of them 'homes' because all four were purchased with the idea of re-selling them at some point in the future. I've never had any emotional investment in a house--blame it on moving every couple of years as a child. I've always looked for solidly built homes in good neighborhoods. I look for functionality and good floor plans. Most of the upkeep and upgrades I do myself which saves a lot of money. All four houses I've owned have been in areas where real estate values have typically grown at higher-than-average rates over the past twenty years.

This is another way keeping cash on hand can save you money in the long run. I will pop for one only when it buys faster service on something that matters to me or my spouse, or when it takes hassle out of getting a repair or replacement.

A pair of ATV's. It was a purchase made as a last ditch effort to save a failing marriage.

I can't answer this from the standpoint of a parent-I don't have any children-but I can say as a child, I certainly haven't ever expected any financial help from my parents. My family didn't have a lot of money so I grew up knowing I'd need to make it on my own, so to speak. I paid for college with no financial help from my parents or any other relatives. My parents did allow me to live at home for the first couple of years of my college education so that helped me save some money. I didn't own a car of my own until I was in my mid-twenties and holding down a full-time job. The first house I owned cost less than most luxury vehicles do today. Ask me and I'll tell you I think too many parents subsidize too much of the child's lives. I'll tell you I think grit and dogged determination are built from enduring struggle and making sacrifices. I'll tell you I think children appreciate what they earn more than what they are given.

I agree. I don't get it, either.

Borrowing from my 401K in my younger years. Ugh.

I don't think of a home as an investment but I love ours for its comfort and peace of mind. You're lucky if your home's value keeps pace with inflation, after taxes, maintenance, insurance, and real estate transaction costs. A home is a fine choice if your retirement savings is on track, you have a good emergency cash fund, and you plan to stay where you are for at least five years.

For over 30 years I've kept a diverse mix of stock funds and bond funds. We're approaching retirement age at a moment when bond prices and rate risks are not attractive. Since our portfolio is close to target, and I won't retire with a pension, I'm saving new money this year in low-cost deferred income annuities from the two strongest mutual insurers, with annual increases to account for inflation. The income should help us defer Social Security until I'm 70 and helps with longevity risk. Would never have imagined buying annuities until now.

Sports cars. I've bought flashy -unreliable-sports cars that caused aggravation and expense. The next bounceback vehicle is always a Toyota or a Honda. My lesson is to trust Consumer Reports and not be swayed by the sex appeal of the car.

I have watched my daughter drop her phone and break it so many times I make an exception to my normal rule to never take an extended warranty.

I got caught up in the internet bubble of the late 90's. A friend of mine got me to jointly subscribe to a technology newsletter with the pitch that we should not be satisfied with 100% returns on stock investments every year. With this newsletter, we would be making 200% and more. I can't remember all the names that cost me money from following that advice, but Global Star and Global Crossing are a couple that come to mind. I took some losses, but got out before financial ruin. But as I recall, my friend lost 90% of his retirement fund by remaining a true believer. My take away is don't take investment advice from family members or good friends who appeal to our greedy side.

Freedom is the first word that comes into my mind for this question. Freedom from having my time tied up in an office and commute every day to pursue other interests that have become more important than my first career.

"ARE FINANCIAL markets in a bubble?" Well, from my point of view (I live far away from the USA), it definitely is a specific US financial market bubble, caused by Bush Jr going ballistic, then followed by the Obama pumping to glue the mess back together, then followed by the Trump blowing to please his buddies, and now being further inflated by the recently approved "relatively small" Biden Bid, all to be paid for down the road (to serfdom) by yet unborn US taxpayers ... As long as the digital money keeps flowing, difficult to deflate this thing called the US stock market, me think humbly. Why do I think this is a specific US financial market bubble ? I just have to superpose the SP500 or Nasdaq100 over the dozens of foreign stock indexes charts that I also monitor, to see how the main US indexes are "ridiculously" up compared to the foreign competition. It is not even a close contest. Yes I know, US innovation and so on giving "us" a moat and so on. I partially agree with that. Until I read somewhere that in 2020, China registered far more new international patents than the USA, and that the US trade deficit is again going stratospheric, because you people import far more than you export. How this US bubble will end, I do not know. Hopefully a soft landing, so that not too much serfs are harmed in the process, the rich can take care of themselves. What I know is that the most successful and lucky investor in the world (Warren Buffet), is not selling his Buffet of solid stock holdings, while sitting on a growing mountain of USD cash that he doesn't know what to do with, because his investment criteria aren't currently being met from quite some time (a great large sized company to be bought at a relatively decent price, so that it can be a profitable investment down the road for his growing team of investing partners). Something has to give. After all, trees don't grow to the sky, as Mr Bernstein (the peter) wrote in his great book (Against the Gods). To each his/her own. Signed, A history buff.

I waited tables in college while I was in ROTC. I’d go home at 1am exhausted after closing, wake up at 6 to do an Army workout, then to class and back to the restaurant. I still remembering the feeling of getting stiffed, and it hurt. Tip your waiters even when they’re bad. There’s often a person who is struggling on the other end, and they are serving you. Some people love waiting tables, but many do it because they have to (and the pandemic has only highlighted how vulnerable that segment of our society is).

Great article Jonathan. I would add to the list of possible bubbles right now the rise of Nonfungible Tokens or NFT's. A clip of a LeBron dunk going for $208,000? I truly don't get it, but I'm older and emailed my kids to explain it to me. But, pending their explanation, I'm going to go out on a limb and call it a bubble. I'm going to pick up that book too. Sounds great.

Of course it can be. People should view a house as both an investment and a form of consumption. You will spend years and maybe decades making memories with family and friends in your home. Thinking of it purely as a financial asset is likely a mistake. But we are finance people here. Expect your house to return just slightly above inflation, and that doesn't consider taxes, upkeep with the time & style, maintenance, other fees, transaction costs, and opportunity costs.

Any kid who sunk every dollar they earned in the late 80s and 90s into baseball cards knows the answer to this question. Sigh.

I only own one index fund, and it’s where our savings go each month: VT (Vanguard total world roughly 52% US/ 48% rest of the world right now). I never sell. I also don’t own any bonds currently because I have a guaranteed government salary and military pension ahead of me, which act as an inflation-protected bond. I’m not smart enough to figure out if the US will continue to dominate foreign equity markets, and this way, I own a piece of the whole pie.

No, in general. Since a handful of stocks drive index returns, by definition the odds are against you as you pick a few stocks to buy. We don’t know what tomorrow’s winners are, but we know they will be a tiny minority of the stocks available to buy.

This is going to sound strange—maybe because it is—but I really want to pass as much as I can to my children. And I don’t see myself being retired for 30+ years, either. So I see a relatively late retirement in which I continue to live modestly and hopefully let the kids’ inheritance grow. They won’t be rich as Croesus at any rate, but I want to pass to them more than was passed to me.

Thanks for sharing. Quite a few years ago, I had a rental car accident (fairly serious) while vacationing in Florida. I did not purchase any insurance from the rental car company. However, my own auto insurance was able to cover the damage, except the deductible. Then my Amex credit card (I used to reserve the rental card) paid me for the deductible, so I had zero payment afterward. Amex was very easy to work with for filing and processing my claim.

Thanks for sharing. Nice insights.

Dennis; great article and it really got my attention because I’m exactly 1 year away from where you are and agree on all 5 points you made. Because I’m living my dream job in retirement my wife and I have delayed Social “insecurity” ‘til we turn 70(for me.) We are financially secure, no debt and still saving toward the day we do retire...(the only home I’m moving into after that is the funeral home!) The point on LTC is also right on. My aged mother is home bound, requires in-home care and hopes to stay there as long as possible but we’ve fought with her insurance company for 2-3 years over claims that her policy says is covered yet they continue to deny them and our appeals. An attorney told us it will cost more to go to court than we would collect and the companies know that. Not to mention the friends I’ve known whose policies were abruptly cancelled after paying for many years...good call on that one. Thanks much.

I don't recall Mr. Friedman and his wife asking for opinions regarding his retirement plan/portfolio, etc. Not everyone - I include myself here - welcomes nor appreciates unsolicited advice! Still, everyone certainly has his/her opinions and clearly, folks are not shy in expressing them! I trust Mr. Friedman and his wife to know their own minds. I suppose, however, that, when one puts oneself 'out there,' unsolicited opinions are to be expected. Sigh...

I made a claim for damage in Costa Rica last year. I used my United Club visa card for the rental (from Chase). I was successful. It did take some time, and there was an attempt to delay or avoid payment--"you have not provided an independent estimate of the damage." I replied that I had provided detailed pictures of the damage as well as the estimate from the rental company in CR (a Hertz affiliate) and that while I could ask a body shop here to give a second estimate based on that information, it would be both higher and irrelevant. After a while they simply paid the claim without any further communication. The claim was under $1000 US.

great article, thank you. #4 is so true. #11 is my favorite pasttime some days lol

I don't mean any offense by this, but this entire article feels like a bit of a humble brag to me - and a veiled shot at the end to those of us who are child free. Genuinely glad you're doing so well. But I didn't get much value from the post. However, seeing the active comments thread, I guess I'm in the minority!

"Use strong, complicated passwords—and don’t use the same password for every account" means use a password manager. Personally, I like 1Password which I have used for over a decade to manage (now) 450 logins.

I agree passive versus active debate is six of one and a half dozen of another. When young start with VWENX and move to VWIAX in retirement.

Given your allocation to bonds, it makes no sense to not devote a small portion of that bond allocation to annuities. Bonds do not return what they used to as everyone is aware. What is the downside to earning a little above bond market rates usually not available to small investors? If a senior ends up in a nursing home and is without LTC insurance a few thousand $ spent on an annuity in the past is not going to be the factor that causes financial insolvency. A side benefit to annuities is that they allow the investor to take less investment risk if they are already so inclined while maintaining necessary income.

I don't get this. Is this also a quote?

yes, another wise piece. thanks!

I passed on long term care insurance. Instead, I'm on the wait list to move into a CCRC. There are different types, this one guarantees not to throw me out even if I run out of money (it's a non-profit that's been in business, and offering that guarantee, for 30 years). Part of the fees are tax deductible as medical expenses. This way I will be able to move from Independent Living to Assisted Living to Skilled Nursing on the same campus, indeed, in the same building for Assisted Living.

We always skip the rental car company insurance in the U.S. since we carry auto insurance, but when we rented a car in England, we decided to buy it, as it was only for a five days, and we were not used to driving on the left, especially with roundabouts going clockwise. Ironically, I clipped the curb (again not used to driving on the left) and it was out in the country, but fortunately there was no damage. Amazed to turn the car back in without a scratch. Still glad we purchased the extra coverage for the peace of mind.

Roth Conversion: I am 71 and ran the numbers for myself 10 years ago---converting broke even at best, and paying the taxes was certain. So I didn't

I see a new reality show in the making!! But, really, I would like to see the numbers and lifestyle of these guys, and I say that with admiration. Working monks. Really, with admiration.

... or even 20, I've been told. It just seems valuable to have plenty at hand.

Thanks for sharing your plan. I found the Medicare comments interesting. There are just so many variables in constructing a retirement.

I think it's fair to generalize about the risks of replacing bonds with high dividend stocks. Based on history, this will increase portfolio volatility. Every kind of stock is suspect. 70% of them fail to break even every year. 80% of them have below average returns. That's another reason why we use index funds. --------------------------------------------------------------------------------------------------------- Bonds are a conundrum. I plan on leaning heavily on my stable value fund, but not everyone is lucky enough to have a good one in their 401k plan. Gold isn't a terrible long term alternative, though I'm not a fan. I've lost any faith I had in low and min volatility stocks - not that I ever thought they could replace bonds, but I hoped they could help around the edges. March 2020 made me question that notion (even though nothing works as expected all the time, at least bonds will always limit your volatility.)

I'm sure he knows the conventional wisdom about investment allocations. IMO it is impossible to advise him without knowing the size of his nest egg and his tolerance for risk. As an extreme example, a billionaire who is losing sleep with only 10% in equities might be better off avoiding equities altogether.

Last year my premium for coverage I purchased 32 years ago jumped 47% with notice of another increase this year.

Rarely is it wise to generalize. Your suggestion to avoid dividend funds makes absolutely no sense based on history.

I don't think dividend funds are the answer. Companies who pay high dividends are concerning--they might have no growth potential so have nothing else to do with their money, or in a highly regulated industry that holds down profits/growth, or turkeys that can only attract investors by a huge payout to the unwary. A company that pays out 5% in dividends but whose share price drops 30% is no bargain. I'd look at 60/40 portfolio recommendations--lots of places have specific portfolios recommended--Bogleheads, Christina Benz at Morningstar, or maybe consult with a fee-only financial planner (full disclosure, yes I am one) for your specific situation.

Dennis hit the nail on the head in with nursing home costs and insurance. Our phone has been ringing off the hook with insurance agents as the magic number has been reached. Bottom line is health is wealth, and no amount of funds can bring back health once its lost.

I agree. I urge people to keep no more than 50% in bonds--the withdrawal rate studies on survival cite at least 50% in stock funds as a minimum.

I think the consideration for long term care insurance is a bit more nuanced than what you say. Yes indeed it gets more expensive after 60, but actuarily it should be the same--because if you get it before 60, you'll have been paying the premium all those extra years. I do understand that premiums have gone up dramatically for some people, but I've had the same charge for now the 14 years I've had my own policy. I fully expect an increase and probably a big one one of these years--that's what my HSA is for! An increase in premiums can be part of a financial plan, just like any other anticipated rising cost. Finally, I advise clients to get a plan before 60 not because of the purported cheaper price, but because after 60 many, many people develop health conditions that preclude them from even qualifying, no matter the price they're willing to pay. It's just crazy to balk at paying $3,000 a year for coverage that could be worth $500,000 in costs to a portfolio. Even if you pay for 30 years, it's about 1 year in a nursing home or continuous home care (even more expensive). Think you'll never use it (hah!)--buy a hybrid policy that pays off as life insurance so that money won't be "wasted". But it's not wasted--I tell clients--do you expect your house to burn down? Do you still carry homeowners' insurance? In both cases, you're paying to prevent catastrophe. Sure, there's a point where you might have so much wealth (in either case) that you could pay out of pocket, but most middle class to affluent middle class aren't there. The biggest problem is wrestling with the insurer over the two tasks of daily living--lots of people need assisted living but only have one issue.

Great article. 60% bonds seems very risky these days as short terms yield nothing and longer term have seemingly the same risk of capital loss that stocks have. I am 61 and don't know where to put my money anymore. It seems we now have to put our money into companies with long track records and deep moats that are paying adequate dividends (~2.5-4%). SPYD (S&P High Dividend Stock ETF) lost 38% of it's value last March. That does not seem to be a place where anyone wants to be who is just entering or is in retirement. Everyone says diversification but diversify into what? It seems the new model is 80% in dividend aristocrats and 20% cash. Seems like a lot of risk that way too. :)

Personally, I think you have way too much in bonds. "Buffett says bonds are dead "

"copies of the death certificate... you might order 10 or more" My experience says: order 10. If you throw some away, so be it. They are cheap. You don't want to be in the position where you need to order more.

My current home was purchased in early 1980 for just under $100k. It might be worth $750k or so today. Over the years I have reroofed a couple of time, replaced the windows, garage doors, heaters, water heaters, water line, carpets, window coverings, painted four times, fixed the chimney, the drainage, wooden decks, appliances, redone the bathrooms, reinsulated, added AC and fixed many other things that I'm sure I have forgotten. I paid the mortgage off in 1994. My property taxes have changed from $900 to over $6k today. When I eventually sell the place, I'll have to pay capital gains tax on part of the sales price. We live in a great school district. We have an HOA that takes great care of our common areas and makes people take care of their homes and yards. The developer took care to leave a lot of the trees, so it is a beautiful area. Owning a home isn't inexpensive. It isn't an investment. It is a lifestyle choice.

It is a good idea to wait until age 70 to take SS if you are afraid not having sufficient funds in the later stages of retirement. However, if your income might be too high, then one strategy is to take SS early.

$1.3 million (mainly invested in global stocks with a value & small cap tilt.. so it really fluctuates. Expenses are $10k/yr. I agree - getting married would change things (way higher expenses), but then the benefit is I'd add a 'second net worth' and would have the safety net of a spouse who I could bum health insurance from (and vice-versa). I assume my expenses will basically quadruple (in real terms) now to when I'm 50 or 60. I mean, there's no way they could go lower.

Based on your investment mix, how can you be sure it will throw off sufficient income if you are only using dividends, interest and capital gains distributions?

That's a great story Roboticus of your adventures in real estate. People rarely live somewhere for the house investment. As your story shows, our careers usually dictates and we get the good or bad luck that comes with it. Love your honesty and humility that the home run you hit in California wasn't rare investment insight. But I'm sure it's a fun story to tell to others who have never been in that kind of overheated market.

Good for you, I think that's great! Stupid or not, many people are driven mostly by their emotions beyond a certain point. It's good to know your risk tolerance. Many of my friends lack the emotional ability to survive big dips, but still deny the reality of their situation. That's a setup for financial pain. I've been through both those dips also. I rode out 2000, and I sold out in 2007. That last one luckily turned out better than buy and hold for me, actually, but wasn't a smart strategy. I'm back to buy, hold, and rebalance. That's what I did during the recent dip last March. However, as I get closer to retirement & 'winning the game' as is sometimes said, I don't want to have quite as much of my portfolio at risk. I've dialed back the risk to 80/20, and may go to 70/30 soon.

I have a 1200-row spreadsheet with all the sales of houses built in this century in my neighborhood. A "good enough" price ticker.

Excellent write up. We were extraordinarily lucky with our first purchase in California, just outside the bay area. After factoring in mortgage payment, property taxes, utilities, insurance, maintenance, improvements, lack of rental payments, and agent fees, I estimate the 10 year IRR on the property at 20.9%. I transferred to a different part of the country, so not only did we buy at the low of the housing recession, but we sold near the height of last decade's frenzy, all dumb luck. Life-changing luck. Maybe it was a karmic trade for the loss of most of my (eventual) pension. "Shrug". Our second house experience was much more normal. For the first 12 or 13 years, the IRR came out to right around 0%. Only in the last few years has it turned slightly positive (assuming a sale at 90% of the avg big 3 price estimates - Zillow, Realtor, and Redfin.) What we really got out of this latter house was an incredibly supportive school district for our special needs son, and I just can't put a value on that. We've also enjoyed hosting many exchange students, as well as helping out family with a place they could stay for extended periods when they hit difficult times, especially during this recent pandemic. Also, my parents have been retired for over 20 years, but now my mom may need to rely on the home equity. Their savings and income are enough to support her for at least 10 more years. Tapping the equity of the house should extend that to 30 more years should she live well into her hundreds. I'm looking into how we prepare now, leaning towards a HECM-LOC, but still researching. I know she is too attached to ever leave the house, so if I need to hire live-in help for her, well, I'm saving for that as well.

" A 100% stock portfolio can lose 50% of it's market price at any time. Can you experience that without selling?" Yes. I'm 100% in stocks. I have experienced a 40% loss twice, recently, in 2000 and 2008. I don't really understand the problem. I was never tempted to sell. It would have been stupid. In 2008-9, I bought more stocks.

That's a good position to be in Dave. Still, for most of us I think, the mystery of not having a stock ticker to look up to tell us the value of our house makes it intriguing to talk about.

$52K for the kitchen renovation. And, that was only part of the kitchen. And, the kitchen was only 6 years old. But, now I have the Sub-Zero refrigerator. When we sold our previous house after 24 years, I did not do a strict financial analysis, but my back-of-the-napkin calculation was break even. Maybe. On the other hand, we are fortunate enough to have enough money in our Fidelity accounts that we don't have to even think about counting the market value of our house as part of our net worth.

"myriad other costs associated with a loan closing." I don't know about those. My wife and I bought our first and only house in 1994 for $340K with $250K down and a $90K mortgage. (Housing is expensive in Honolulu.) The reason I don't know about those other costs is that we didn't go through a bank. I figured the monthly mortgage payments myself, and I didn't know about extra costs. Apparently, my self-designed mortgage was good enough, since the seller accepted it, and we did pay him the $900+/month, and now the house is ours since 2004. I never tried to compare where our money would earn the best returns; instead I was concerned with rent during retirement. What sent us into the housing market at all was our landlord telling us that in 1994 he was raising our rent for our little cottage from $800 to $1000/month. Ouch! It would be a bleak retirement if all our income went to paying rent. So I decided, we had to buy. Indeed, local rents have gone up substantially. So I think I was right about that. Also, though we didn't buy our house as an investment, it's now valued at about $1M. So it's worked out well for us.

Hi Mike, Can you share what your annual expenses and net worth are? It would help to get a better idea of the FIRE level. The funny thing I found about life is that it changes a lot. I thought having $80,000 in passive income, and a $3 million net worth in 2012 was enough. Then my wife retired earlier by 35 as well. Then we had two kids. So unless you plan to stay single for the rest of your life, I would try to double or triple your number, before feeling good about FIREx With the 10-year still at only 1.6%, shoot for 50X your annual expenses as a net worth goal to be more aligned with where rates are today versus back in the 90s when the 4% rule was popularized. But that’s just my opinion, having been jobless since 2012. Sam

I'm not sure if any of us really want retirement in the sense of just stopping work. There is the implication of being put out to pasture, of a lifetime of expertise that's no longer relevant, a lifetime of creativity that nobody values. I suspect most successful retirements involve either a lot of social contacts, building of new skills, ongoing professional relevance, or some combination thereof.

This is one of the best articles written on Humble Dollar in some time. And that is really saying something, because HD has a very high standard of content! Great wisdom here. I will be printing this out and adding it to my binder of great articles to revisit at a later date.

Michael - are you still living on around 10K per year? I have recently came across Jacob Fisker of Early Retirement Extreme who claims to live on around 7K per year. Perhaps your next article you could share your budget breakdown and how you view spending and tradeoffs. Thanks!

Mike, Great article. I think you might be underselling the benefits of marriage, or at least living with a financial partner. Housing is the largest expense for the average American, about 37% of expenses (excluding taxes). Having someone to split your housing costs with, is a huge benefit, and that alone could allow you both to save an extra ~15-20%.

Well, one of the first rules of financial success is: Don't get divorced. Only $900/month. You need to buy more wine.

Great idea!

Yes, about $10k/yr. A few life changes will double that though.. which I anticipate happening before long.

And I think that benefit shows itself the older someone gets. I mean, it's hard to constantly have roommates as you age.

Phil, I agree that there is no such thing as purely 'passive' investing. Even doing one's best to implement a 'market portfolio' can yield a lot of questions, some of which Markowitz answered (and other luminaries have suggested alternative solutions in some cases), and many of which he didn't. Also, there are other approaches extant, such as the permanent portfolio for example, which come at the question from a very different perspective. I agree that your three questions have many potential answers, and each time we put money to work, we are explicitly or implicitly answering all three. So I'm curious, what do you think is the one or many appropriate answer(s) to these questions? I know that can go a thousand ways, but I'm wondering if you had something particular in mind? I think it's really helpful when calling out difficult decisions to also provide some discussion of how one can address those decisions with some level of confidence.

I retired before I even heard of FIRE. Still, I'm interested. It makes complete sense, to me, for people who hate their jobs and are getting a very high salary for doing them. (But I liked my job and got a rather low salary.)

I'm a financial advisor and I definitely applaud much of the FIRE principles--keep your spending down and your saving and investing up. But too often it depends on keeping your expenses unrealistically and unsustainably low. And if you're not working, you have to do something with yourself besides taking a walk. Having pets can easily cost $3,000 in vet bills. Buying a guitar and taking some lessons, buying a sewing machine, or the pursuit of even moderate hobbies wouldn't be possible on $10,000 in spending. Feeding myself and my daughter (and pets) runs pretty close to $900/month. My property taxes alone are about $10K. It would have to be a very thin life indeed to exist on $10K. Too often I see very "frugal" people scamming their friends and family--freeloading meals, never picking up a check, no gifts, no charitable donations. Instead, I'd propose that a frugal life (in or near a major city), is going to cost you at least $60K, and maybe $75K as a couple with no more than 1 kid (and that's going to be tough). At 100 times spending, that would be $7,500,000--not attainable by saving if you have most salaried jobs. I notice that an awful lot of FIRE bloggers end up starting their own businesses. With the work world what it is today, with so much uncertainty and so many insane and asinine bosses, and often very insecure marriages, having a significant stash gives you a lot more freedom. You don't have to stay in a marriage or job that has become horrible. I started my daughter on her Roth with her babysitting money at 17. Ten years later, she has a very significant stash, but she's also living life--travel (when it was possible), a small but nice car, etc. For me, through two divorces and no real financial education, it took me until my mid-40s to understand both saving and investing. It also took shedding a spendthrift husband. It was only after that that I was able, as a serious saver, to not have to juggle which bills to pay. Also, thirty years ago information on budgeting and investing (and the plethora of investment possibilities) just wasn't as available. Once investable assets exceed 6 figures, I think many people heave a sigh of relief. That might not be enough to be a serious spender, but it's a helluva back stop.

Mike, Please write this article again at ages 43, 53, 63. Let's see how your thinking evolves.

Insightful and relevant to my personal situation. As part of an inheritance, I have money set aside for myself and my children, all in managed accounts, that by any objective measure significantly underperform assets that are under my own management (IRAs, 401ks, investment accounts). So while it pains me to see this on an annual (I try not to check) basis, my current counterargument is that it's a form of diversification, as they do have some exposure in underperforming markets I don't have a stake in. I'm 3 years into this experiment, and will likely reassess at 5, but agree that there are some situations where an actively managed account, even one that "underperforms", may have some utility in one's portfolio.

Most of them don't really retire. They just leave the rat race and do work that they find enjoyable. Sometimes, they end up making more money in their enjoyable work than they made in the rat race. This is in part due to financial independence, and not having to concentrate on financial success, which paradoxically makes your business more successful.

Mike, I may be misreading the post or overestimating your income, but how could you be maxing out a Roth IRA staring in 2005 to present? Wouldn't you have surpassed the income level that the IRA allows you to contribute to a Roth IRA? In any event, amazing job keeping annual expenses around $10,000! In some big (and even medium) cities, that won't even cover rent in a safe, clean apartment, much less all other expenses!

Wait, I can't FIRE in my 50s? Heck, 62 used to be considered early retirement.

My retirement is controlled by the golden handcuffs of my pension and healthcare, so some admitted jealously. 6 years to go! I think my biggest concern for the FIRE movement is over the past 10+ years the market has truly been wonderful and one has had to go out of their way to lose money. Even 2008/09 is enough in the past where I remember it more historically than something painful I went through. I think Thomas (below) is right that we'll see less of the RE part going forward. No/slow growth and a lot of uncertainty would drive me (most?) people to the stability of a job with benefits than trying to navigate RE with 40+ years. It's one thing to RE in your 50s, but some in their 30s leave me scratching my head.

"Wait, I can't FIRE in my 50s? Heck, 62 used to be considered early retirement." "Used to be"? For most of my boomer pals, 65 is early retirement, much less 62. And to them, just mentioning the possibility of retirement in your 50's is absurd heresy, and even thinking of retirement in your 40's is unspeakable blasphemy, and quite ridiculous and impossible, thank you very much. Talk about getting your feathers ruffled...

I’m really glad you wrote this. I think the FIRE movement is a farce mostly because it hasn’t been tested over time and I find many claiming RE have in fact simply changed jobs in some manner and as you point out, frequently no children or family responsibilities. Having constructed compensation plans for energy traders I know what you say about yourself is quite feasible. One of our traders accumulated a $1 million per year pension (until the CEO changed the bonus formula), especially if you can live like a senior on only SS. I still think the more average devotees of FIRE are living in a dream world and are kidding themselves. BEWARE THE WEALTH TAX‼️

Congrats on reaching FI! Even though you argue it’s not all it’s cracked up to be, I admit I’m a little bit jealous. I’m a few years younger than you but nowhere close to being FI. In retrospect, choosing to pursue a PhD instead of jumpstarting my career after college was not the smartest financial decision of my life. And I sure as heck wasn’t financially savvy enough as an 18-year-old to max out a Roth. I didn’t even know what an IRA was until I graduated college! Live and learn I guess. I think the FIRE movement is gradually morphing into just the FI movement. My favorite FIRE bloggers readily acknowledge all the points you made: that early retirement has a lot of downsides, that the 4% rule is deeply flawed, that FI isn’t binary but exists on a spectrum, and that meaningful work can provide fulfillment and help maintain social connections. And like you, many of them worry that the FIRE movement will lose steam as soon as the bull market ends. Despite all these caveats, I have to give credit to the FIRE movement for getting me started on the path of improving my financial acumen. It’s by reading FIRE blogs that I became motivated to adopt an ultra-frugal lifestyle, invest a big chunk of my paychecks each month, use tax-advantaged retirement accounts, and to generally try to optimize every financial facet of my life. I probably wouldn’t be reading this website if it weren’t for the FIRE bloggers. And although I’m probably not going to be able to retire for a long time due to my decision to go to grad school and my desire to have a teaching career, thanks to FIRE, I’m on track to have a very comfortable retirement when I do eventually retire, and to hopefully enjoy a fulfilling life free of excessive financial stress in the meantime. The RE part of FIRE is a bit of a red herring in my opinion. For young, financially ignorant people such as myself, learning about the general tenets of the “movement” can be life-altering.

I'm sorry that you view your decision to get a doctorate and pursue a teaching career "idiotic." Hasn't it worked out for you?

Well, I was definitely not in that league of traders! I'm grateful for the 6 years I spent in the energy industry, but it was not anything crazy in terms of comp - but quite nice for where I live here in Jax, FL. I'm cool with a lower stress job going forward at half the salary. We'll see. Thanks for your comments!

The insurance piece definitely keeps me wanting (but not needing) a full-time job to an extent.

2019 and 2020 were the first years I didn't qualify. Of course, there's always the backdoor Roth. I'll certainly qualify this year barring something weird happening.

That's where I think I'll end up. I'm on the hunt for the right job at the moment - I have an idea of what that is. Being up front with potential employers about prioritizing enjoyment of a job and work/life balance is something I am intentional about. I'm willing to give up salary for low stress right now. Perhaps a few years down the line I will be yearning to grind more, but the last couple of years has left me burned out (no pun!) psychologically. Although I still love to write and teach finance.

I concur with Jonathan. Like you (and like all of us), I have committed my share of financial mistakes. Mine have been more on pinching pennies too much through my high-income and low expense years. I should've had a little more fun and built more memories. It's hard to criticize going for more education too.

I’m thinking most average Americans would be quite happy being FI and RE at 65 rather than stressing out over whether the next SS COLA will be offset by the Medicare premium increase.

Don't be too tough on yourself. It sounds like you've got yourself on a solid financial path far earlier than most folks -- and it also sounds like you're spending your days doing what you're passionate about. Those are two crucial pillars of a good life, financially and otherwise.

Thomas, you're correct about the fine print, it can be extensive. That's why I try and do some research about my insurance needs prior to approaching the counter. Toll transponders can be another area of gotchcas, which I cover here: https://report44.wixsite.com/theafteractionreport/the-rental-car-protocol

Arnold Hold, You make a valid point. If you only rent for a few days, then it can save some hassles, though if you rent a car more often, $10-30/day can add up. I didn't mind the work to get the $160 back (plus another $120 for my "efforts") as it was matter of "principle" and a reconnaissance for future claims. Claiming it on my car insurance would have been impossible as this was an overseas rental and well below my $1000 detectable.

Sorry to hear that Danielle and very good point. Something similar happened to me at Grand Rapid Airport, except I had a minor accident. All the mildly amusing details are here: https://report44.wixsite.com/theafteractionreport/the-rental-car-protocol

I bought some shares of an active mutual stock fund in 1972 and another in 1981. I still have them, and their returns have always been satisfactory. Much later, I heard about index investing, mostly from reading the Bogleheads' forum, but I thought the arguments for it were simpleminded, and I bought more active funds. So that's where I am now. In the 70s and 80s when interest rates were sky high, I also bought some bonds. They were a good deal. But the era of high bond interest passed, and now, imo, they are definitely not a good deal. I'm aware of the argument that bonds moderate one's losses when the market crashes, but folks don't seem to be fully aware that bonds also moderate gains when the market is healthy. Not a good deal.

You have to consider if index investing has distorted share prices, when everyone starts to do it. In order to do that, you have to know how to properly value companies based on their capital structures, cash flows, and business models. In other words, in order to be a good index investor, you have to know how to be a good individual-stock investor. Otherwise, you don't what your investment is really worth, which makes it hard to sit on your hands when the markets go down sharply.

For someone walking in off the streets, it can be very confusing. And yes, one can get hung up on what 'passive' really means. However, the basics are pretty straightforward and use only 2 or 3 funds. Equities: Markowitz won a noble prize for suggesting you should own the Market Portfolio. It's up to you to decide if US only is ok, or you want a Global Market Portfolio. Either is legitimate for long term investing. Many US investors park themselves somewhere in the middle, which is about 25% international, 75% US. Over the long run, which you choose may (should) be immaterial. Bonds: For the portion of your portfolio you don't want to put at risk (Markowitz, again) own Total US Bonds (Intermediate Treasuries is a fine substitution.) That's about as close to a 'riskless asset' as it gets. Asset Allocation: A 100% stock portfolio can lose 50% of it's market price at any time. Can you experience that without selling? Many of us can't, or at least need help to stay the course. For most of us, the buying is easy. The holding, in the face of steep market declines, is the hard part. So, if not, you need some bonds. Since the relationship is linear (an 80% stock portfolio can lose 40% at any time, etc, etc), decide how much of a loss you can bear and still not touch your portfolio. You now have your Bond percentage. Having decided whether you want international stocks as part of your Equity alllocation, and what percentage of bonds to carry, you now have your AA. For a younger investor that might look like 60% US stocks, 20% Int'l stocks, 20% Bonds. Target Date portfolios pretty much do this for you. What matters most is finding a reasonable allocation and sticking to it. If you learn more, you may decide that it's more sophisticated to have more than three funds, or to buy and sell various funds at different times.. That may be true, but it often isn't. A lot of experienced investors end up with a simple 2 or 3 fund portfolio. There is a lot of sophistication in simplicity.

My ex did have occasion to claim for rental car damage on the credit card. Whoops, read the fine print. He had accepted a pick up truck as a rental because they "didn't have anything else available" when he picked up his reservation. Guess what, trucks aren't covered. So be careful what you accept, as well.

Or you could just invest in VT. 😁 That’s about as close to 100% passive as you can get. I’m a little more active than that. I hold a total US fund and a total ex-US fund. The only decision I need to make is the split between the two. But now that I’ve made that decision, there is effectively no management that I have to do (my brokerage automatically rebalances dividends and new contributions for free).

My concept of active mutual fund management is that it typically involves a manager who moves funds in and out of funds and charges a fee for doing so. Passive management need not be nearly as complicated as the author indicates. One can invest in target date funds and forget about them or one can determine their asset allocation and invest in tried and true funds (e.g., VTSAX) and periodically rebalance.

While it is true that some decision making is necessary, it doesn't have to be a complicated as suggested in this article. All one need do is Google Lazy Portfolios to discover simple approaches to investing. John Bogle, the founder of Vanguard, went thru a lot of his life with just a two fund portfolio. So, you can think about all the factors described in this article, or just go with a simpler approach. Humble Dollar is a good place to find info on important considerations such as how much risk one should take.

This is something I worried about a lot when I began my investing journey a couple years ago. Michael Burry has famously raised similar concerns about index funds. The most clearly articulated counter-argument that I've heard is made by Ben Felix in this video: https://youtu.be/Wv0pJh8mFk0 If I understand it right, there is an equilibrium between passive and active investing. Obviously, if everyone went 100% passive that would be terrible. But the more people invest in index funds, the more inefficiencies there will be for active managers to exploit. In theory, this should keep the passive/active equilibrium from getting too out of whack. Here's another great video on the topic: https://youtu.be/1s7ULX45fjw

I agree with you that investing doesn't have to be complicated -- and just one or two funds can suffice. But for the record, Jack owned far more than two funds, including some actively managed funds. He bought those active funds relatively early in his investing career and I assume he was locked in by large unrealized capital gains. Still, when I heard him speak toward the end of his life, he had good things to say about some of Vanguard's active funds, such as Wellington Fund.

The arithmetic makes sense, but frankly if I need to rent a car for just a couple of days the collision waiver, while expensive, saves a lot of hassles. Sounds like you had to do plenty of work to get back the $160 charge removed, and besides if you do run this through your car insurance you'll probably get nicked at your next renewal on the premiums.

Cool post, I've never heard of anyone actually using their credit card coverage before.

I thought your message was gonna be GET THE RENTAL INSURANCE.

What a hassle! It’s nonsense like this that makes me distrustful of any person or corporation that makes me sign a document with a lot of legalese. And it’s rather annoying that reading the fine print is such a chore. There’s always a bunch of gotchas hiding in there.

Your welcome IAD!

johny, I think the CDW offered by rental car companies is way overpriced. Everyone needs to make their own decision, but unfortunately everyone makes their decision without fully understanding what is and isn't covered.

Thanks Roboticus Aquarius!

Thanks! Very helpful!

Your article expresses both the positive and negative aspects of moving to US, without taking an emotional stance on either side . It is well-written and contain sound, practical advice. Thank you for sharing.

I never cared about cars, and I can't to this day identify models the way many people can. But my wife was different. As a poor college student working in a bookstore, she somehow managed to buy a used MGB roadster. She was quite proud of it. It was fun to drive, and we drove it across the country to CA then shipped it to Hawaii. But after several more years, the undercarriage was rusted out, and we sold it for $400. We should have charged more.

Good piece!

Buffett's advice to the trustee of his estate is to only put 90% in low cost index funds 😊

"Once your balance sheet is beyond a certain size, risk is optional." I expect my wife to die with 95+% of her assets in stocks. She would be 95 years old.

Yup. I was thinking of PAS too as I read the post. The advantage of PAS down the road might be for your wife or heirs to use it (one reason many of us simplify our portfolio in retirement... I know I will.) I think PAS advice has been ok from what I've heard.

20 years of cash for me is 25 million dollars. I wish

If your traveling 9 mo you’ve got way more than me. I’ve got 3.5M, I take out 150K per year. 50K is dividends. I have 2 houses, MN and FL, no debt. I’m an LPGA Pro, work part time for fun. The hardest thing for me is to spend money. I’m conservative on the spending side, aggressive on the investment side. I owned athletic clubs and a got a good offer an sold.

Well said SCao.

Thank you, SCao.

"You might feel there’s less need for friends because you have a large family. " I noticed a LOT of people seem to subscribe to this thinking...they don't seem interested in building friendships. The people I know - their entire life revolves around kids and grandkids. Even those who I can coax out: that's all they talk about or care about. I'm happy that they love their family, but they don't seem to care or understand that not everyone has children and maybe would like to talk about something else once in a while. Guess I haven't found my "tribe" yet lol

Thanks for sharing.

My father said, "Teach it to them in black and white. They will shade it in themselves." I find myself sometimes wanting to "shade" my investments. The thing I worry about is the "drop dead" factor. If I would happen to end my time on earth rather abruptly, would my wife have to figure out what I was up to investment-wise? Fancy footwork is impressive, but whoever inherits my portfolio might appreciate the relative simplicity of my approach (index funds and one indidivual stock).

Every time I log into my Vanguard account I get a pop-up nag screen trying to get me to sign up for their Personal Advisor Services. They charge 0.3% annually to rebalance your portfolio and hold your hand during market volatility. For me that would amount to nearly $6,000 a year. I have a very simple portfolio of 50% stocks and 50% bonds mostly in index funds. It's very easy to manage this portfolio myself. I figure I've saved at least $40K over the years by saying no to PAS.

Personally, I find all the bubble talk comforting. If it was all FOMO I'd be worried. In other news, I think Sinclair was soft-peddling - it's impossible to get someone to understand something when they are paid not to. It's impossible to get people to listen if they play golf with their broker. It's impossible to get a financially illiterate executor of a trust to consider a low cost alternative over bleeding it to death through a golf buddy or a glossy brochure. As a matter of fact, Mark Twain was soft-peddling when he said golf was nothing but a good walk spoiled! The pool halls aren't the problem - it's golf! :)

Nice article. Thank you.

Thanks for sharing. Nice article. Acquiring personal finance knowldege and enhance finance interacy are critical life skill both for ourselves and to pass on to our kids.

Betsy, Tell us more retired at 48 for 18 years you are obviously the genius on life choices and actions. I agree USA companies own the world. I am retired 5 years , 67 (35 S 50 B 15 C) and 20 years cash. November 2020 moved to (20 S 55 B 25 C). I will relax and will buy the big dip. I switched from stocks to bonds in late 1999, 2007 and now. My wife the midlife GYN heard many visits start with the most troubling medical problem in 1998, 2003 and 2009 was "My husband lost all the money in index funds". Since retirement portfolio spend 1 - 2% and increased 1 million. We enjoyed traveling 9 months each year, so now no need for more $. The scamdemic has crushed many HUMAN plans and opportunities for happiness.

That is indeed the question. Mr. Kesler is able to manage his own investments, but his plan B for his wife raises a few questions. "Low cost" annuities are seldom low cost and I doubt the financial advisors he has befriended will work for free. Its also nice that some of his children are becoming better versed in money management, but unless they actually work in the industry, this option may or may not be effective. Like Mr. Kesler, I worked in the financial services industry, managing money for clients for 40+ years. I also agree that trust dept. ad valorem fees of 1.0%+, plus embedded fund fees, can be expensive. And, I am also a big believer in low cost funds and ETF's, which I use exclusively in my personal investments. So-called "robo" investment platforms can be a cheaper alternative, but in some instances, where there is no good Plan B for a surviving spouse, the services of a traditional trust department, which include far more than just money management, may be worth the cost. There is simply no one size fits all solution. If you can manage your own money, you can significantly reduce the fees you will pay. If not, you can expect to pay 0.50% to 1.50% to have someone provide this service.

Did you talk to your kids about this plan? What if two want the house? How would that be resolved? Still potential for conflict. Seems better to put it up for sale and have the option for one of the kids to match the best offer (but even that could lead to a conflict if two or more of them want the residence). I speak from experience, once money comes into play, folks behave differently (if they are married, the spouses also come into play). Have many open, frank discussions with the kids....

Great point Hannah. And yet they continue to get the airtime on business channels to weigh in on where the market or economy are going.

My parents pointed out that same thing, when I was in middle school and heard other kids talking about their parents getting big refunds. When I asked them about this, they explained what you did above--that people are having too much kept out of their paychecks. Therefore, the gov is giving people's own money back to them--essentially, an interest-free loan to the federal government. Their explanation made sense to me--but the actions of my friends parents suddenly didn't :)

"Admittedly, health care in the U.S. is far superior. But the whole system seems intended to make life easier for insurance companies, not patients." Bingo! An interesting comparison, though as other commenters have noted, California is quite different in some respects from many other areas of the United States.

Answering your question: To take her money.

Interesting story, and a thoughtful approach to your estate planning!

For a recent example of bubble-talk, you don't need to go far. Look at Grossman's article on this very blog dated March 7, "Coping with Crazy".

Right now our retirement is 30 years away and we are in an accumulation stage. We have an open mind and not averse to that thought.

It's puzzled me why so many people think they need financial advisors. My wife and I, both 79, have been investing since the 70s of the last century, and we have never had an FA -- never felt the need for one. We get quite decent returns from 13 mutual funds from TR Price. I decided that trading investments was a bad idea, also holding bonds, so there is really nothing we need to do to maintain our investments. We incur no fees other than the ER of the funds. When I die, my wife won't need to do anything about the investments. If she wants more income, though I doubt she will, she can simply call up TRP and ask them to arrange to sell fund shares periodically and deposit the money to our/her checking account.

Another quote I like is, "Whose bread I eat, his song I sing."

Another linguist here! Finished my doctorate in applied linguistics in 1991. Still working as a professor.

It is good to not get too comfortable....in our status quo.

Instead of "more than a year", I would actually say for more than 3 years. Jeremy has been calling US market overpriced since 2017 and called it a bubble around Jan 2018 itself. It definitely looks like a bubble from all the stuff happening in recent days but as you've mentioned not sure what exactly to do.Tilting from growth to value and from US to international seems a sensible thing to do but it's been "sensible" like this for the last 3 years. I'm more and more convinced that it's best to figure out a portfolio allocation, stick to it and rebalance occasionally (to not lose momentum factor). I used to believe that knowing more about investing and keeping up to date on some of the insights from folks like Jeremy Grantham, Howard Marks might give an edge on investing, but I now feel it's a waste of time for a paltry excess return, if any at all. I recently re-read Bogle's little book on common sense investing and I now totally agree with him.

warm and wise. thanks, Dennis.

Some of these money "experts" have predicted at least ten of the last three recessions.

I keep 2 years in cash, the rest in stocks. All the stocks I own are headquartered in the US. I figure they know what foreign markets to make money in, I have no idea. I’m 66. I retired at 48, and this has worked well for me. Any thoughts?

This is fantastic advice! Previously, the education's goal was to raise the bar for all students. Now it appears to lower the bar until all students can meet it. There was islands of education that didn't do this, STEM mostly, but now even that has succumbed to the latest educational fads.

Thanks for pointing out the complexity of the problem UofODuck. The only thing I'd quibble with you on is your argument against low cost annuities. There are certainly some very high cost ones out there, but the plain vanilla immediate annuities I think can be very low cost. But, yes, the best solution for the least cost is to not die and continue to manage it myself. I just haven't found the immortality pill yet! Thanks for the contribution to the topic.

If not a trust department to assist your wife, then what?

Mark, my plan is to purchase enough in low cost annuity income so that along with social security my wife would have her fixed expenses covered if I'm not around. Rather than go the trust department route to manage what's left, I've got two financial advisors my wife and I have gotten to know over the years in a variety of circumstances. In other words, they have earned our trust. I'm thinking about leaving directions to have them manage the money with low cost investments. I'm getting comfortable with the amount they would charge for the needed service my wife would need. Finally, I'm happy a couple of my kids are reading good investment books and would be available to assist their mother. That's in a nutshell where I'm at in the process. Thanks for the question.

I really enjoyed this article, nice post! "A penny saved is a penny earned" is actually a misquotation of Ben Franklin's "A penny earned is twopence clear." Assume person 1's income is 10 cents and spends 10 cents. They have nothing. Assume person 2's income is 10 cents and spends 9 cents. Person 2 actually has a two penny advantage because person's 1 cost of living will impede their future savings. This is a bit of a tortured perspective, but Franklin clearly understood the value of saving money and putting it to work, as evidenced by the funds he left for the benefit of the citizens of Philadelphia. https://www.historynet.com/ben-franklins-gift-keeps-giving.htm

Thank you so much! I hope they like it too.

Are you going back to India for retirement so you can live like the top 1% there?

Really enjoyed this! Forwarding to my children.

I put my last semester of college on a credit card. First thing I did after college was pay that off... not build an EF.

The birds in the bush get you no investment returns. (This also applies to Social Security.)

Thanks a lot, Charlie.

I'm inclined to believe that I was born frugal, but I had an experience in my early 20s that further formed my attitude to material things and helped turn me into a life-long investor. Like many males of that age, I too purchased a sports car. Though it didn't appear so at the time, it was most definitely a status symbol boosting my confidence level so much more when taking girls on dates. I soon had a flat tire and the replacement, if I recall correctly, was almost $300 per tire, for which I needed two. So $600 in a blink of an eye and this made me rethink the benefits of a shiny red ego booster. A while later I was rear ended and needed body work to straighten out the frame and the rest. After this the car was never the same and my feelings toward it changed - It became just another used car to me. After this experience I never again became emotionally attached to fancy cars and to this day, cars are just a mode of getting from here to there. The real lesson for me here actually wasn't about costs though it was important. The deeper lesson was the transient nature of happiness we obtain from material things. This lesson is as old as mankind, but it's amazing how we're constantly fooled into buying newer, bigger, fancier, shiny objects when we could be doing something smarter with the money. As I said in the first sentence, i believe i was born frugal. This frugality isn't extreme by any stretch, but I've always been rather insecure about it, as if there was something wrong with me. Should i not care about designer clothes, nice cars and a house as big as I can afford? After all, this is America !! Imagine how relieved I was when I read the seminal book The Millionaire Next Door. The book was describing people like me !! The typical millionaire appears to be a hardworking, frugal, unentitled individual living next door in that average house driving that average domestic car. When observed in laboratory experiments, even the typical millionaire creature's dietary habits were quite ordinary. When lavish food was placed in the same room, this creature opted for the simple sandwich. Entitlement is not in its nature. The weathly in that book were not highly educated folk in high powered, high paying jobs with nice benefits. Most millionaires, as I discerned from the book, do not scheme to be rich, but are instead born to work hard, live frugally and save (rinse and repeat). They often run a small business where you can't run from accountability. So between nature and nurture, I tend to lean on nature as the primary causation for the formation of financially independent people. Financial tips and tricks go a long way, but you need the nature first. Certainly many of you will disagree.

Thanks for sharing.....funny.......and so true!

Fantastic article! Pithy proverbs can impart a lot of false wisdom, especially in the realm of finance.

One magical term I learned when I was young was "fiduciary". That is, many firms with funds for long term savings are relatively safe places to put them. Once you start, forgetting about contributions can make for a fun surprise when you go back and look.

"...live through it and you KEEP INVESTING ANYWAY..." Yep. That's the "miserable feeling." Glad I stuck with it!

I had a fond relationship with my in-laws. Instead of their phone number, I kept their Bell rotary phone. It has the loudest ring and the sound is excellent. Their number is still printed on the paper dial. I haven't given up my land line, simply because I love this old phone. Nothing wrong with a little sentimentality, it's a relatively inexpensive vice.

Sounds like a great book. I like using Arthur Okun's "leaky bucket" metaphor to reach a similar conclusion, (even though his topic was income transfers). The more moving around, the more leaks and splashes. The many costs of trading (including information asymmetry) are greater than zero. It's hard enough to invest and earn. I have never regretted determining my graduate school major by asking, "where are people having the most fun?"

I funded my first quarter of grad school in 1965 by working for the Ohio state highway department in the Fall of 1964 filling road cracks with tar and riding on a snow plow talking with the driver to keep him awake. (They wouldn't let me drive.) From then, I existed on assistantships in grad school. My first investment came in 1972, which I split between no-load mutual stock funds and dividend paying utility stocks,

I never could get to 100% stocks. A little timid. However, I would often deliberately decide to skip rebalancing, and that nudged my portfolio toward more equities over time, due to stronger average earnings for stocks. Helped build risk tolerance, too. Living well below your means, and having an emergency fund, two excellent habits.

Smarter than me! It is so hard to imagine our older selves getting excited about those little bits of savings we kept at. But I sure do!

Your story has a happier ending than many who gave up on the market in 2008, because you were able to learn that it might not be a good idea and had the courage to put the money back in. Well done, you!

I agree that younger investors should tilt more heavily towards stocks. If you have a 30+ year time horizon, live well below your means, and have an emergency fund, what’s the point in holding a bunch of bonds? I’m planning on staying close to 100% in equities until I’m in my late 40s.

No, I haven't married for a third time -- and, when I divorced the second time, the cost was small relative to my net worth. I don't have a surefire strategy for ensuring a marriage works out. I wish I did. But living together first and for a healthy amount of time strikes me as a good first step.

Starting with $2000/yr IRA contributions 30 years ago or so, my balance today is a mind blowing amount when remembering how small the contributions were. Only now do I know real investing is all about contributing on a regular basis and forgetting about it. I mean how much simpler can it get?

I have a friend who has a 2nd house by the beach. What is ironic is that as much as that house might be giving him pleasure, he really hates his job which he needs to keep that house. The way i see it, that house which at most he spends his weekends at, gives him less pleasure in proportion to how much he hates his job which he spends 5 days a week at. I am pretty sure if he sold off that house, he could retire some years early. Another friend who lives quite simply has retired early and seems to bear no burden in his life these days.

I like the author's quote:

Some years, I felt like I was pouring water into a draining tub, buying into a falling market.
Until an investor has experienced the miserable feeling that comes when market values keep falling month-after-month... Until you live through it and you KEEP INVESTING ANYWAY... you won't be able to fully appreciate that simile. The article doesn't say it explicitly, but I will. When the market eventually recovered, the mutual fund shares that the author had bought while prices were low (and falling), began growing. And that's one of the fundamental goals... Buy Low..

We have somewhat similar investment histories. I cashed in about $6,000 in retirement savings to help fund graduate school in the mid-80s. After graduation, I followed the HR manager's advice and chose a 50/50 stock/bond allocation that I stuck with until the meltdown in 2008, which cause me to panic and sell most of my equities because I planned on retiring within 10 years. Fortunately, I also immediately began reading investment books, including Jonathan's, which convinced me to put my money back in equities a couple of months later. My wife and I also maxed out our 403(b) plans for the last 10 years we worked. Frugality, NYC real estate, and working until 70 also put us in good shape when we retired two years ago.

Well, well. Another linguist. I was, too, for 40 years. I came to mutual fund investing because of a book I happened across on the efficient markets theory, from which I drew the conclusion (rightly or wrongly) that there was no point in selling one security to buy another, since the securities I was interested in were probably fairly priced. That is, I don't trade. It has worked very well for me. I buy and hold forever.

the most important part of this article is the first paragraph in my opinion. All the financial engineering is certainly useful, but it all comes together and starts with a frugal mindset for most folks born with regular karma. The mindset of living frugally today and delaying gratification until many many years down the road leads to the success of many of readers on this blog. the secret, if you bother to look for it, is that you don't need much money to experience happiness today. The money that is invested and accumulated will help smooth out the steep valleys we all experience in life and keep our days lighthearted and sleep refreshing.

When I was in college back in the mid 80's, I worked part time for a local Marriott hotel on the night audit shift. I participated in their profit sharing plan (their version of a 401k at the time). When I graduated and left there, it was only a couple of thousand dollars, but it became the 1st amount in my rollover IRA. It's in there somewhere, along with a couple of other rollover amounts over the years, but it got me started on the slow and steady path to good saving habits for retirement.

Jonathan, have you married a third time? If yes, what have you done to make sure another painful event won't happen? As far as thinking long and hard before marrying, how does one successfully do that? What can we do to ensure marriage to a particular person is the right course of action? Yes, Warren Buffet also did say marrying the right person is the most important decision, but even he didn't say how to do it. How is this for young people? 1. Is the person attractive to you ? Yes/No If no, then stop 2. Doe the person have STEM or Ivy degree? Yes/No If no, then stop 4. Are the person's parents divorced? Yes/No If yes, then stop 5. Do person's friends think person is warm & kindhearted? Yes/No If No, then stop 6. Do person's values pertaining to spending, lifestyle and priorities align? Yes/No if No, then stop. 7. Will person agree to a prenup? Yes/No If no, then stop

I have some foreign, but it isn't because I'm betting against America

The one downside of FIRE is that one is free, but friends are not. Thus FIRE means free, but continuing to do something to be around people and possibly creating a new set of FIRE-friendly buddies. In more and more societies the extended family culture is disappearing with the times and young folks see their elders as a burden. Single person households are also on the rise. One way to keep the extended family involved in our lives is to be wealthy, but I don't mean filthy rich, just enough to pay for vacation expenses and other benefits (i.e. beach house) for members of the extended family. In some cultures when kids visit their elders, they get some cash as pocket money. Visit all your aunts, uncles, grannies and grandaddies and you return with a tidy sum.

The power of disciplined saving and compounding.

Thank you so much! I also find that many people do not even know their average annual expense, or think that it's too hard to keep track. Spending a few hours every now and then can detect and stop so many money leaks.

This article is more about our experiences which we had as a new immigrant. We have only lived in VHCOL areas here and in india. I am sure our experience would have been a lot different had we been in a different place outside of California or Delhi.

You have some time to think about this, but if you want your children to have your values you should consider home schooling them for a while and then send them to private school when you find one that shares your ideals, and even then maintain heavy involvement with their education. In your reading on the topic, don't miss some of the challenges to the current incarnation of American public education. Thank you for coming to America, we could use many more families like yours. :)

Pratima, good read I always enjoy the comparisons. As someone already noted, California is not representative of the complete USA. Here in Alabama I can easily see most medical specialists timely/easily and for less than $50. With my Medicare supplement plan I can see my primary care doctor at no charge. What was not listed in your comparison was income??

Your analogy reminds me of the three weeks I spent in Russia a few years ago. We started in St Petersburg and traveled a thousand miles down rivers to Moscow stopping at towns and villages along the way. In Moscow we tripped over Mercedes and BMWs on the sidewalk and window shopped at DeBeers diamond stores. The people in many of the villages were living like it was the 19th century. In one home we had tea, the lady lived on $150 a month half of which went to rent. Which was the real Russia?

You have made some good observations, but to be fully accurate about the US you need to get out of California and especially Silicon Valley. They are not representative of the bulk of America. Neither my wife or I have ever waited weeks or months for health care, although it can happen. Paying a fifty dollar co-pay at the time of service is not typical and selecting from limited doctors is not always necessary. If you needed serious health care, where would prefer to receive it? Seniors on Medicare have no such limits. And, the largest segments of the entire US budget goes to support seniors. Housing in CA is not representative of housing in the US. In fact, you have to leave the West Coast if you want to better understand this Country. You mention differences in cost of living. Isn’t that the overall key, that and the standard of living? I’ve never been to India, but I’ve been to scores of other countries and to 48 of the US states and I think you need a larger perspective to make observations about the US. It’s not Nirvana for sure, but overall comparisons with other countries are very difficult and certainly cannot be made based on one very unique part of the Country.

And I thought income inequality was bad in the US!

Agreed. I have a cousin who lives in San Jose and a brother in Palo Alto. From what they tell me, Silicon Valley is like its own country. If you’re not making a high six-figure salary, it doesn’t seem to be a particularly nice place to live. It’s a nice playground for the rich, though. But I agree with Pratima that the support system for seniors in the US is exorbitantly priced. I’m thankful that I still have my citizenship in another country. If I live long enough, I will probably move there in my old age.

California is admittedly not representative of the rest of the US, although with 12% of the US population one can't simply consider it an extreme outlier--especially since NY adds another 6%. The pandemic has also resulted in a surge in real estate prices in many smaller cities. Here in Raleigh, it isn't uncommon for a seller to get 20 offers on the first day of listing and buyers are putting down 10%-30% of the price in earnest money, which the sellers gets to keep if the buyers back out. Medicare B has a 20% co-pay unless you purchase medigap insurance and also includes a deduction from SS benefits. Co-pays of 20% for drugs are also common. While most specialist care is readily available, my wife had to wait 6 months to see one specialist of her choice in both NYC and Raleigh and 3 months to see another one.

My wife and I also struggled to finance a house in a nice area. We also won. We didn't suffer the issues involving children, since we have none of those. We, or I should say, my wife, mainly, located a place on the East coast of Oahu, which we managed to buy with a $250K down payment and a $90K 10 year mortgage. A bank was not involved. That was in 1994, so we finished paying for it in 2004. The house is small, it was built in 1945, then in 1994 was termite ridden, but we coped with the problems. It's awfully nice not having to pay rent or mortgage payments.

It’s not on the water or else it would be a lot more.

Nice article. I'm surprised that a house on Cape Cod that sleeps 12 is only worth $500,000.

Well, following your column, I did the same for our child, and ditto. And ditto about Transamerica. So much so that I am now thinking of transferring that to Fidelity's offerings. While the index options are not that extensive as those from Vanguard (just five - sort by lowest expense ratios), the ones that are there offer wide diversification and quite low costs (from 0.10-0.17%) apart from the 0.25% tacked-on management fee. That compares very well with Transamerica's own fee structure. https://fundresearch.fidelity.com/annuities/category-performance-annual-total-returns-quarterly/FPRAI

Great story. Amazing planning. You are a great father.

A very sweet and wise post, thank you. Having recently lost my father, I understand the motivations at play. I will add one comment. My mother fared better in retirement than my dad. She pursued new interests and made new friends, several of whom were a great comfort when my dad passed.

As I understand it, Bitcoin is designed to increase in price relative to fiat currencies over time. This was almost enough for me to dabble in it, but not quite. Bitcoin fails in many of the basic requirements of currency, and I think the blockchain tech is really most useful in other parts of the economy. I'm definitely no expert, but frankly, I just don't see the value proposition.

Valuations are a tricky dribble. I've been hearing to expect lower future returns for 20 years, but my portfolio returns have done well enough. Regarding valuation specifics, corporate structure is different, on average, than it used to be. Less labor and fewer capital goods purchases are generally required. GAAP for revenue and expense recognition has shifted. Tax rates are lower. Interest rates are near all time lows. Taken together, these things would suggest that the CAPE P/E ratio should be higher than it was, say, 40 years ago. And then there is Grantham. I'm not sure he's made a generally bullish call anytime in the past 15 years (he has promoted some company stocks). I believe he's a very smart man, but he's not playing the same game I'm playing. From my perspective he looks like a broken clock, the once that's correct twice per day.

I'm liking the possibility of retiring early, so I'm having to think about that closely. The margin of error is way too thin yet. Other common ways to go broke slowly is to buy too big a house, or spending too much on cars.

I'm sorry your family had to go through that. Thanks for sharing what must have been a very painful experience.

We went close to 15 years without a true emergency fund, using a heloc. We were throwing money at long term growth, so I don't regret it, but it's a dangerous way to live. It can be so much harder than anyone would conceive to turn the corner on negative cash flow, but now our EF has 3 months and growing, all funded this year. The closer retirement gets to a reality, the more I like the idea of a really big, healthy EF sitting there to bridge us to SS claiming.

I agree with you both to some degree. A Roth IRA for as long as earnings are modest, and taxes owed are close to nothing. A traditional IRA as soon as you are paying over 12% marginal. You are correct that most people will never save enough to make the Roth IRA worth it. However, you have to count for sampling. If you are the type of person who starts saving at a young age, your chances of becoming a multi-millionaire increase significantly, even with a modest salary. This is why I'd suggest that young savers may want to contribute to their Roth even while paying the lowest individual rates. Once they get bumped up above the 12% bracket, or if they didn't start in their 20's, then I generally agree with using traditional.

You can port the number to Google Voice and then forward it to your cell phone. No cost.

Not necessarily. I think we'd agree that working longer is a very powerful tool for improving the length of time your portfolio will survive. However, retirement is often not voluntary, and re-employment can be fraught with age discrimination, so the value of ongoing employment can be greatly reduced if that happens. This point is moot, however, if you don't have enough accessible cash to pay for expenses until age 70 or whichever delayed SS implenentation you would otherwise choose. The offset that also has to be considered is that of a short lifespan. Unless you love your work and want to do it until you pass, you have to decide how much you value stepping out of the workforce at (for example) 55 vs 60 vs 65 etc. I think both extremes are important to fully consider, and the feasibility of each will depend on the individual's financial situation.

I had a difficult time trying to transfer the account to my name, so I could port the number to a low-cost service provider. It would have been easier and faster to cancel the service, but I was afraid I would lose the number.

True words of wisdom indeed. And the last year has highlighted what you say. It’s brought new meaning to isolation. I never had a large circle of friends and only one or two close friends. Most are gone already or moved south. I made the naive mistake of thinking people I worked with were friends, but upon retirement I quickly learned how easy it was to become invisible. But the good news is I hooked up again with same employer retiree Facebook groups and it’s nice again to have people tell me how they appreciated my help in the past, and as a result of our former employer making benefit changes, I was able to help many again explaining the changes. Not the same as having lunch or a round of golf, but a connection. While traveling we’ve made a few new friends who we visit and they us. But one couple is in the mid-west, another in England and a third in Paris. Since moving to a 55+ condo community I’ve found new golfing buddies, so that’s good. Four children and thirteen grand children keep us busy, but as they grow up they have more focus on their friends and activities. I do not worry about money in retirement, but as you point out there is much more to an enjoyable retirement, some you can plan for and some you can’t. The longer retired and older you get, the more you appreciate and less you complain because it’s not hard to find people a lot worse off ... in health, loneliness or wealth.

Dennis, thanks for the thoughtful discussion of the importance of friends and shared experiences in retirement.

Why not port the number to a service like Ooma and pay only $6/month?

thank you - I admire your courage and commitment to your family. counterpoint - the only people I know that have been able to retire, have military or government (Forest Service, etc) pensions. On the average salary today, it's not possible to save enough for retirement..

Great article - a must read - thanks. Shiller's famous Irrational Exuberance turned me off a bit because it's so emotional when it didn't need to be, but his CAPE won me years ago and it's wonderful to see the author put it in such simple terms. It's also fascinating to see him say the opposite of what I thought he would say. It seems to me that nothing can be as important as how much something costs when you're looking to sell it down the road, but there is the other side of the coin and it seems to have a bit more weight.

Bitcoin is a climate heating disaster. The energy it uses is astronomical and rising. Anyone who has any interest in environmental issues needs to steer clear for that reason alone.

If the market dropped 50%, I'd have to buy. But the type of stocks I buy only drop 20-25% when that happens. I know what I want to pay for the companies I'd like to own, so I'll just hang out for a while. The markets may continue to surprise, but there's no guarantee all the surprises will be on the upside.

Robert Shiller writes about prices today https://www.nytimes.com/2021/03/05/business/stock-market-prices-bubble.html

You will never hear a more fundamental truth about intelligent investing than #3, of which #4 is part of. I have strongly held opinions on things to come just as Mr. Grantham does, but nothing either of us have to say can hold a candle to this article. IMO. :) A related article from my favorite Morningstar guy is interesting as well. For years following the 60's riots, the TV networks would sign out with "It's 11 O'Clock, do you know where your children are?" I think this can be applied to our portfolio allocations today. Or any other day.

Indeed. 100% correct. I use it to enter into stocks that I anyway would like to own. Making some money while waiting for a good entry point. Open positions never more than 2% of my investing stock portfolio, so that I can survive it if the stock crashes, the put option contract gets activated, and I have a stock in my portfolio that went down farther that I ever would have thought. If that happens, I have positioned myself to be able to then double down to a position that is now 4% of my overall portfolio, to recoup the "loss" (a loss is only when you sell, if you buy right, and just sit tight, until things improve well enough to be were you wanted to exit the "trade", if you considered it a trade). After all, who ever foresaw a covid situation like we now have, with the world basically locked up for months? Covid provided many excellent entry points for patient investors willing to wait on the side line with cash that provided zero return, because the proposals from Mr StockMarket were all very expensive before covid. That's how the world runs: buy low then sell it high to some novice/fear of missing out person/perennial day gambler, unless you want to keep the bought security for it's nice dividend stream and share price upward potential, which are the two profit sources for those instruments. By the way, Jonathan, planning a third wedding soon ? Maybe write a blog post about how to get a good prenuptial contract, just to see if the spouse marry you for your (remaining) money or purely out of love and altruism. Since you are a very creative and smart money person, I am already looking forward to reading it all . . .

Regarding USforeign asset allocations, I'm sticking with Buffett over Grantham - "Never bet against America"

I did do that. I purchased Vanguard's low-cost policy and, so far, it's turned out very well for my kids. That said, I now have some concerns, because Vanguard has handed over the administration to Transamerica. While the VA still uses Vanguard funds, I fear that may change down the road.

The insurer may require you to have modified, low-cost versions of both policies. I don't currently own a car and so, to purchase umbrella insurance, I had to get a non-owner's auto policy. It isn't very expensive.

You do have renters' insurance? Right?

No, not having health insurance did not affect how I spent my youth. But my bout with cancer did teach me that there is no real alternative to dealing with risk, and one should not turn away in horror at every perceived risk. For instance, I had to decide after surgery whether to do radiation and chemotherapy, which have their own risks, to make it less likely that the cancer would recur. All my doctor could tell me was percentages of how many had died with and without the options. You just have to evaluate the risks and decide.

My marginal tax rate jumped when my wife died. I have always chosen a Roth over maxing my 403B for tax diversification. It is beginning to pay off as I am now in the 24% marginal rate as a single due to RMDs. Also, I am fighting the medicare penalty which was not a problem before I was widowed. The Roth is helping me there so far. Finally, my son would be stuck in a very high marginal tax rate on my death since congress changed the stretch IRA to 10 years. The Roth will certainly help there. In short, I would put the Roth ahead of maxing a 401k/403B. I am in general agreement with everything else you proposed.

Congrats on being a cancer survivor! Health, unlike how carefully you drive, is tough to control. You can be hit by a car or fall down the steps or get cancer at any age, so it not having health insurance through your 40s definitely is a risk, if not a gamble. Did not having insurance affect how you spent your youth (for example, fewer vacations,. no risky hobbies like skateboarding or mountain climbing or even running)?

I don't have homeowners insurance or auto insurance because I don't own a home or auto. Should I still get an umbrella policy? If so, how can I find an insurance company to sell me one alone?

John, a friend (and military retiree) pointed me to your post. Thanks for thoroughly documenting the issues and giving other military families the freedom of mind to make their own retention choices. I wrote a similar post: stay on active duty as long as it's challenging and fulfilling, but take it one obligation at a time. "Don't gut it out to 20."

Thanks for another great read Jon. I must admit, "options" tend to give me palpitations, so I guess that's simply a natural defense strategy. And I agree with your other points. Looking at the horizon of my own neighborhood, however, what I see often is people playing "catch up" with retirement finances, having stayed just a bit too long at the tempting watering hole of flashy material items and experiences. Then once they start sobering up are faced with an urge to catch up quickly, taking on risk (such as options and shorts) in an attempt to make up for lost time. While I understand the sentiment, I also understand that with risk comes... risk, risk that doubling-down leads to further losses.

Consider this an upvote for your decision and the logic behind it. You're still quite young, but really, never too young to start a new chapter if you have the relative financial ability to do so. This really is a decision borne of good prior choices, or even better worded, investments. Investing in yourself and your Army career, still retaining a pension (albeit less that you may have determined mathematically with the stay put option), so this is really a decision between two financially acceptable options (you didn't mention any "new" retirement saving options should you leave and take a new position). As a member of an Army family this is relevant to me, and I would hope my military family member would approach the scenario as you have. And of course, thank you for your continued service.

Buying insurance to cover all your risks is a fine strategy if you have an unlimited supply of money to pay all the premiums. But if you aren't rich, it is more rational to take into account the level of risk. Not being a rich person, I went for the first half of my working life without health insurance. In retrospect, I still think that was a reasonable decision. In my 50s, I decided to start health insurance, which was fortunate, since in my 60s I was diagnosed with colon cancer. That would have cost me a pretty penny without insurance.

Jonathan, I remember an article by you in the wsj where you talked about buying a variable annuity for your children. And how it would be a good present for them from their old man at their old age. Or am I remembering wrongly in my old age?

Regarding the stars rating, I consider value for the money. If a place is in a very convenient location, well fitted-out, clean and well maintained - all for a very reasonable price; I'll give it five stars.

The company stock ownership point hit home for me. My mother worked for a natural gas company that was later acquired by Enron. She had lots of Enron stock as a result, and my father bought more. They lost it all. WorldCom also comes to mind.

I made a similar decision but a lot earlier. At the 7 year mark I was an Air Force captain filling a major's slot at a great base. I wasn't eligible for promotion for several years and being passed over 3 times meant you were out .... after investing 13 or 13 years. Why was I worried about being passed over with near perfect efficient ratings? Because the rules changed. Only the top 20 % could get a perfect ER. I was a support officer competing against TEST PILOTS..... guess who the top 20% would be. Also the wind down of the Vietnam War was responsible for the RIF of many based on their ER. So I decided to stay long enough to get my MBA evenings complements of the GI bill. Another benefit as you alluded to ... my wife was happy and we started a family. Just for the record I am very proud of my service

Selling puts to buy a stock is actually a reasonable strategy. If you want to own a company, but you think the price is too high, you can sell puts for the number of shares you want to buy at the price you want to pay. This is assuming you have the cash and you are ready to buy the company even if there are unfavourable developments. If the company is a good one, you may have to go through several rounds of selling puts, having them expire, and not getting any stock. Just be disciplined and don't increase the strike price which you are willing pay to the the company.

This article makes me feel so virtuous Jonathan! That doesn't happen very often. Thank You. Dave

Welcome to the pension casino. If you take the lump sum there is always the chance the investments won't pan out. If you take the monthly pension there is always the chance the company will go bankrupt and a reduced pension will be paid by the Pension Benefit Guaranty Corporation. I've had companies that offered to convert my pension to a lump sum years before I would even withdraw it. I'm sure they had my very best interests at heart. Having said that, I plan to wait until 70 to start social security. I have a pension from a company (and I wouldn't be surprised if they went bankrupt). My wife has pension from a fairly stable company. But, we could live without pensions or social security. Our core survival does not depend on those sources of income. They are just icing on our retirement cake. Not everyone can pull this off but it does cut out those scary variables from retirement calculations.

Unlike selling, *buying* Puts can be a useful tool to hedge some impact from big drops in your tech employer’s stock when you have regular vesting and Mr Market has been on a bender. Their rising value, as share price falls, lock in better sleep.

Please revisit this topic. The issues are still there. Here in PA the unions contribute to the scam by accepting money from firms that are then “recommended” by the union. These firms then get time during retiree meetings to sell their non-403b products that are even worse than the annuities and other high fee products they sell to 403b investors.

Good article. I generally agree - and for knowledgeable individuals, such as those reading this post, these are all fine recommendations. However, others may want to consider a different hierarchy. Consider: - According to the American Payroll Association annual study, 70% of Americans live paycheck to paycheck - where they would have some or significant difficulty meeting their bills if their next paycheck was DELAYED one week! - According to Vanguard, How America Saves, 21% of eligible employees do not save in their employer sponsored plan, and another 1/3rd do not save enough to get the full employer financial support. - According to the Department of Labor, median tenure of American workers has been < 5 years for more than the past 5 decades. On average, and averages can be deceiving, the DOL/BLS confirms that the average worker age 50 has had 12 different employers. So, my suggestion is to prioritize the 401k and HSAs while you are eligible. Make sure at least one 401k you participate in provides 21st Century loan functionality (electronic banking, etc.) so that you can not only take loans and continue payments after separation, but also initiate a loan post separation. It becomes the "Bank of Richard". Your bank offers "liquidity without leakage, along the way to and throughout retirement". Allows you to continue to defer taxation, and potentially, avoid penalty taxes - instead of taking a distribution to meet a pre-retirement need. Interestingly, if the plan loan interest rate is GREATER than the return on fixed income investments in the plan, and LESS than the interest rate on a loan from a commercial source, a plan loan can improve both Household Wealth AND retirement preparation.

Good reminders, but old habits die hard. After a lifetime of saving and living well within my means, I just can't bring myself to spend $35-40K on a car like most of my neighbors, though I could easily afford to. "Splurging" and "happiness" are in the eye of the beholder. Some folks passions cost a bunch, others very little. And "wasting time" is not universal. I'm retired, and I actually enjoy researching how I can save a few thousand on a new car purchase, for example. (OK, ready for "Get a life" comments). I don't spend close to the magic 4% of savings each year (more like 1% thanks to delaying SS benefits for my wife and myself), and yet I feel I have everything I want. My parents were adults during the Great Depression, and I think a lot of their habits rubbed off on me.

The point is this: a lot of people are not going to getting into those stratospheric tax rates that you are envisioning down the road. All you have to do is look at the income/net worth inequality in the US. Plus, what is the present value of those tax dollars paid when you are in your mid to late 60's, 70's and 80's versus the present value of those additional taxes paid in your 20's and 30's when you are funding that Roth IRA.

I agree that Treasury Direct is not user friendly. It is easy enough to get an account, but navigating the site is a nightmare. I'm not using my account there right now, because I can get more from an online savings account that from T-bills, but I think I'll check out I-bonds.

Phil - great article. I have been struggling to understand the practical use of Crypto, and you clarified and verified much of what I had been thinking. I bought a little through PayPal just for the experience.

I understand that, thanks to the tax deduction, a young adult (or indeed any person) would be able to invest more in a traditional IRA than in a Roth, assuming they invest the tax savings and assuming they aren't already maxing out the account. But what about the taxes owed on the traditional IRA upon withdrawal? Surely that tilts the odds in favor or the Roth for a young person on a low income who will likely be taxed at a higher rate down the road?

Young people, starting out with modest incomes and hence able to invest lesser amounts than those with higher incomes, would be better off investing in a Regular IRA because, in this way, the low amounts invested are still greater than they would be with a Roth IRA. The greater relative $ invested over time as opposed to investing in a Roth is compounded over time. The additional compounded $ can greatly enlarge the amount of savings down the line. Given the levels of median household income in the US, a significant portion of the population of people filing a joint return would be paying a 12% marginal rate up to an income of $80,250 based on 2020 tax tables. Effective tax rate, not marginal rate, is the key factor when deciding whether or not to invest in a Roth.

My wife and I also had the problem of not being able to find the money for a down payment for a house in Honolulu. So we continued to rent until our 50s. With retirement looming and our rent going up, we were getting desperate. We decided to buy a older house out the sticks and to spend all our savings, $250K, on a down payment. We still needed a $90K 10 year mortgage. That was a lean 10 years, but we did finally get it paid off. It has worked out well for us.

Thanks Thomas. My hope would be that people fund the emergency fund before they build up the credit card debt, but I know that is not always realistic. I've seen this plan work for new college grads with good jobs and an understanding of the value of saving. I've also seen families who got into a lot of debt. They often need help to build a plan that takes into account their income security, and attacks debt and savings at the same time. I have a good friend who is an excellent financial planner who does a lot of pro bono work thin our area for families in trouble, and I'm amazed at how she can turn families around.

Richard, Thanks. I had non-retirement investments in my original list, and somehow lost it in re-write! I agree and even encourage my young nieces and nephews to start a low-cost, low initial investment, low regular investment plan like Betterment. I think that's a good spot for a grandparent or uncle to help out. Everything i have learned about Roth vs traditional is that they are equal if the tax rates are the same at deposit and withdrawal. I think Jonathan's example shows that. But we all know things will change over time, and other considerations may win the argument. I have to admit that the thought of withdrawing from our traditional retirement accounts in the coming years causes me great angst, due to taxes. Totally irrational I admit.

A lump sum without financial education and practice has little value to a good chunk of the recipients. There's endless studies of lottery winners, insurance payees and athletes who get big bucks over a short period and end up bankrupt within a few years. At least inheritance and family wealth transfers are usually private and don't make the recipient a financial target.

1. It is difficult to establish an emergency fund while making minimum payments. 2. You will be making high interest payments longer while you are establishing your emergency fund. 3. If you have to tap your emergency fund before paying off your high interest credit card balance it will take you even longer to pay off your credit card balance.

The answer to the high interest debt vs emergency fund is pretty straight forward. For many people, the high interest debt (ie credit cards) is directly due to not having an emergency fund to pay sudden expenses. The only place to turn is credit cards, so if they are paid off and another emergency comes, the person is right back in the same place they were before. The creation of an emergency fund can stop the viscous cycle, and while it will take longer to pay off the high-interest debt the desired effect is that it is a one time event going forward.

I agree overall, but I’m not sure why you would fund an emergency fund before paying off high-interest debt? Isn’t high-interest debt an emergency? Also, the question of whether it’s better to invest in a Roth or a traditional IRA is a surprisingly complicated question to answer. Mathematically, there’s a case to be made that a Traditional IRA is better if you’re financially savvy, frugal, and play your cards right: https://www.madfientist.com/traditional-ira-vs-roth-ira/ However, humans aren’t robots, so we need to consider psychological factors as well. And the Roth has a number of advantages that the traditional IRA doesn’t (like being able to withdraw contributions penalty free at any time).So I think your recommendation to invest in a Roth if you are in a lower marginal tax bracket and to switch to a traditional if you get bumped to a higher bracket makes a lot of sense in practice.

With any luck, this should explain the math: https://humbledollar.com/money-guide/how-to-think-about-that-tax-deduction/

Great list that many people can benefit from reading and following. But you say the Roth is a bet on marginal tax rates. True for contributions, but what about earnings in the account? If a person can save a higher percentage by going pre-tax I guess it’s possible to come out ahead with pre-tax saving, but if a worker is saving say 10% pre-tax or Roth or both close to the same percentage, won’t the tax-free earnings over a working career always beat earnings taxed as ordinary income? I would add one item to your list, but I’m not sure where; non retirement investments.

Scrooge_McDuck88 - That's an excellent strategy. That was what I was trying to say above. It's smart in so many ways, and teaches as it works. Large lump sums are difficult to deal with unless you already have enough money that it's no big deal to incorporate within your finances. Now I realize not everyone can do this. But look around and you have to ask if there's little financial wisdom passed on to heirs, are large lumps sums the unalloyed good we assume they will be? And what if your kids understood that if there was excess they'd be splitting a lump sum with a children's charity for the benefit those without what they've had? Would this be an insult or a part of your legacy?

You actually need to spend 8 years in the Reserves to retire, not just the 6 to get to 20. It takes 5-6 years of reserve duty to make up for the 2.5% per year credit for active duty (depending on how long your ADT periods are). I would also encourage you to complete qualified correspondence courses which can add to your retirement points total.

I dunno. I have qualms about "leaving as much money as possible". My first priority is to get open IRAs (and solo-401k for self-employed) that I'm committed to funding. Then when I'm gone they'll have those habits, or at least knowledge of what those habits do to hopefully continue. Sure they'll get some form of a lump sum too, but frankly I'm wary of the moral hazard of leaving them too much. I've seen the challenges facing people getting large lump sums and some of the unfortunate consequences. It's a difficult problem, and frankly I'm glad I didn't face that until I was older. My dad did well, but I've been lucky enough to do quite a bit better so a large sum of money (even split with my siblings) didn't seem that large to and it was effortless for me to use it. I'm so thankful that it's a small number for me. How to think about money is a deep existential question and for some reason we think only fools and wingnuts are corrupted by, or struggle to manage without regret, large lump sums. If only. The reality is quite different. I'll leave a lump sum, but my kids will also know there is quite a bit they won't be getting and why. They'll know the real work is in building their own nest egg while I'm alive, and I'm going to be asking them about it constantly as a part of their education. Now if there is a special need or worthy project then all bets are off. Maybe it's carte blanche. But I'm not leaving carte blanche in the form of a blank cheque after I die. I see that as problematic.

Great read and thanks for your service. Life decisions are not always financially based......it’s important we do what is best for families. God Bless you and your family.

I spent 40+ years in the investment business giving people advice and my #1 message to clients was the need to clearly understand where their money was being spent and not just where it was coming from. However, it was surprisingly difficult to get clients to list their expenses. While they knew what they spent on their mortgage or car loan, they could not (or would not?) estimate a lot of the softer expenses (food, entertainment, walking around money, etc.) that often represented a significant portion of their total spending. And, where clients did know what they were spending, it was often viewed as my job to earn more on their investments, rather than their job to reduce excess spending. I also agree with your attitude towards debt, but I am also the child of two depression era parents who grew up in all cash world and never had significant debt, other than their mortgage. As a result, my wife and I worked hard to eliminate all of our debt as soon as possible. For today's young people, however, the debt levels they are willing to or must accept (student loans, mortgage, etc.) are much higher than what we faced, which likely mean they will require more years to eliminate their debt. The importance of human capital is even more profound. Where my father worked for just one employer and I worked for a few, but all in the same industry, my son has already worked for more employers, across several different industries. The importance of investing in ourselves to enhance and adapt our skills to changing needs has never been more important. Thank you for your thoughtful article. I hope many more people read it and take it to heart.

I show my kids what my wife and I have given them. I show them the account a few times a year and how it’s grown. We play with investment calculators and dream what it can become over the long run.

So, why didn't you demand the raise you'd been promised, and ensure you'd have another job to move to if you didn't get the promised raise?

As a US Space Force officer approaching 17 years in service and your same age, I admire the maturity and moral courage it took for you to make this decision that accounts for the long-term implications for you and your family. I fear that many of our military peers would not be wise enough to come to this same conclusion if they were in your same situation, for fear of losing the pension. As Jesus teaches in Luke Chapter 12, however, life is more than just money. It seems like you have prioritized the more important things in life.

Thanks for your service and the support of your wife and children. Best of luck in your new-found career.

This is a good reminder to keep a balanced portfolio. I recalled making a change in my bond allocation in 2013 during the taper tantrum and locked in a loss instead of riding out the event. Somewhere I read if your investing time horizon is longer than the duration of your bond fund in a rising rate environment you will be fine over time and earn more income. That may be why target date and balanced funds aren't such a crazy idea for staying on course.

Loved the article and the comments. Would like to see more articles about this topic. Not sure what is best? Could use some wisdom.

Thanks for your service. Thanks for being so candid. Great article. May God continue to bless you and your family.

Many thanks for serving...great article.

As the apocryphal child who started with nothing, I'm extremely hesitant to pass money down to our children. The Millionaire Next Door by Thomas Stanley made it clear that successful 1st generation millionaires typically had mediocre results funding their own children since it reduced their motivation to succeed. One can argue about the relative work ethics of poor 25 year olds vs. inherited wealthy 25 year olds, but my personal experience has been the vast majority of the former work harder and take more personal responsibility than the latter. It's often painful to see how very differently their children turned out from our self-made wealthy friends. Sometimes that's simply because the parents demand bended knees and social compliance in return for the financial gifts (which are hardly gifts in such cases). More often, it's because the children never experienced hardship and lack empathy for other people. I don't believe that opportunities were better in the past for young adults and today's world is dire enough that middle age must be subsidized by a wealthy parent. There are far more ways to generate wealth than ever before, but the lessons we were taught as children decades ago just don't apply for most Americans todays. Lifelong employment, raises and pensions are all long gone. "Give a man a fish, and you'll feed him for a day. Teach a man to fish, and you've fed him for a lifetime" rings true for me. We spend a considerable amount of time teaching our children about personal finance, entrepreneurship, creativity and independence. They'll have a tremendous advantage with that knowledge along with tangible things like Roth IRAs funded at an early age from their own earnings. However, we're far enough from retirement and our children are young enough that it's still an open question about where the money ends up. Most likely, it will be like borrowing from the bank. You can have any amount you want after demonstrating you have no need for it at all. ;-)

Great advice - and that is an impressive mental & spiritual health regime. Awesome stuff! Yes, I think part of my future needs to be devoted to service in some form to continue to find purpose after being FI.

I predict that the US economy will explode (in a good way) when restaurants are filled to 100% capacity with happy diners. There is more than a ton of money just sitting in many people's bank accounts. The upcoming $1.9T relief package will add tons more. It is clear that some/many people need the relief money. But, it is also clear that some/many don't need it. Those who don't will bank it.

I really enjoy these "market updates" Bill, thank you. They capture a much broader handicapping of the horse race than the financial echo chambers. In my case I've wagered on all the horses, so my wins aren't very exciting - but they have been consistent. :)

It's a good point. That's why I recommend holding the bare minimum (plus maybe a margin for error) in bonds. The rest can then be invested in stocks.

The argument here for holding bonds suffers the same problem as most such arguments. You look at what happens to your investment when the market goes down, but you don't consider what happens when the market goes up. Then, stock returns may more than compensate for losses at other less fortunate times.

My parents decided to raise their children based on their current financial situation. They were doing much better by the time I came along. My upbringing was much more affluent than my brother and sister (another advantage to being the baby in the family...). They changed their will over the years, excluding one child completely at one point, but in the end they left everything to be split equally among the children. Bottom line: it wasn't the percentage allocation, it was how well the kids got along after dust settled. We did just fine.

Great reminders to keep us sane.

Forget Stock Market Forecasts. They’re Less Than Worthless. Jeff Sommer, NY Times, Dec 23, 2019 "For every calendar year since 2000, Mr. Hickey compared the annual Wall Street consensus forecast in late December with the actual level of the S&P 500 one year later. He found that, on average: The median forecast was that the stock index would rise 9.8 percent in the next calendar year. The S&P 500 actually rose 5.5 percent. The gap between the median forecast and the market return was 4.31 percentage points, an error of almost 45 percent. The median forecast was that stocks would rise every year for the last 20 years, but they fell in six years. The consensus was wrong about the basic direction of the market 30 percent of the time. Mr. Hickey found that the forecasts were often off by staggering amounts, especially when an accurate forecast would have mattered most. In 2008, for example, when stocks fell 38.5 percent, the median forecast was typically cheery, calling for an 11.1 percent stock market rise. That Wall Street consensus forecast was wrong by 49.6 percentage points, and it had disastrous consequences for anyone who relied on it." https://www.nytimes.com/2019/12/23/business/retirement/index-fund-investing.html

Yes, I’ve made that suggestion to her about going part-time for a couple years to finish. She likes working better than school—she feels good about herself working and never did at school. Hopefully she’ll do that at some point soon!

While I would certainly bend down and pick up a $100 bill, or even a dime, I'm not going to open an account at Treasury Direct even though it would be a way to make an extra $118. After handling my father-in-laws financial affairs during the last several years of his life, I have come to desire simplicity. He had a significant number of accounts, over 25, with different financial providers. Many of these would not accept his POA. Treasury Direct is like that. You have too obtain their form and have it executed. This defeats the idea of a Durable POA in the sense that it has to be done before the principal is disabled. Anyway, I am getting up there in age and I don't want to leave that kind of a mess for the person who may have to help me. So, I keep the number of accounts I have to a reasonably small number. I am surely leaving some $$ on the table, but I am relaxed about that now. In my younger days I was quite alert to every opportunity.....

Truth!!!

Loved the article Richard. My wife and I decided a long time ago, before we had kids, that if we had children we would invest in them, and grandkids with one condition. We saw this investment at first more in terms of time required to seamlessly invest in them in all areas of life including values, faith, education, work ethic and service to others. So money is just one tool of many to contribute to our family capital that we've been trying to build up into a mini dynasty, so to speak, we visualized to have maximum influence in the world for good. So with this philosophy it's a no brainier to add money to the equation to provided funding, as we are able to support them, if they are having growing impact on the world for good. Thanks again for engaging article on a subject near and dear to those of us with children.

I would skip the kids and fund the grandkids education.

I'm going to assume you don't want your daughter to either starve or not have a roof over her head. In a similar situation, if I had concerns over how my former dependent might use a "blank check", there are perhaps other ways to achieve safety goals while not feeling you're in some way aiding and abetting. For example, while it may be a hardship for you, could your daughter move home, versus financially supporting an apartment. Same holds true for meals, she could eat at home. You could continue to dangle the offer for completing her degree, but that flirts with the idea of bribery which may not be well received. But nonetheless a challenging situation, my best wishes to you.

Thanks for sharing.

More articles on this subject please @disqus_de9pQSMlr4:disqus

In many ways, I'm thankful this is one part of financial planning I don't need to think about. Money and families seems...complicated. I know one person who never saved a dime towards retirement because they assumed they'd be inheriting a large sum of money from a parent. I'm also currently privy to a family that's essentially being ripped apart because of issues related to finances and inheritances. I think if I had children and was planning to leave some type of financial legacy to them, I would never let them know about it.

Dying broke is a nice fantasy, particularly if you have little or no defined benefit money coming during your 30-40 years of retirement. But making it happen is a daunting, if not impossible, undertaking. How do you know whether you’re spending too much or too little, say 10 years into it? How do you know how long you’ll live? How do you know whether you’ll need extraordinary medical care at some point? So the reality is, people who have saved enough in theory to make it will probably approach spending it with a similar eye toward frugality and conservative spending decisions. And as a result, they’ll end up dying with a large estate for their heirs, whether they want to or not.

I'm retired and only 20 years younger than my father, who is still alive. Many boomer children will inherit when they're retired, but the grandchildren are the ones who can use the money, in many cases.

My wife and I have been very cautious about undertaking financial obligations, and now at 79, we have none. No kids. Our savings are unencumbered. No one has any expectations of a legacy from us, and there is no one whose behavior I need to monitor.

My wife’s checking account is mostly used to write checks monthly to everything from St Jude’s to the Williamsburg Foundation and local food pantries, but what I have accumulated from a life’s work and risk taking will still go to my family.

My children have no idea of what they may inherit, except their share of a vacation home which is kind of hard to hide. I can see what you mention being a concern and it certainly happens no matter how are we may try to avoid it.

1. Our daughter and her husband are ages 40/35 with mortgage debt of about 0.9x their income. They will be 60/55 when their youngest son finishes college. I think they are handling their money well. 2. The retirement models say that my trophy wife will die with between $60K and $15M. 3. We have plenty of spending money. 4. We are doing QCDs and plan to do so for the next 30 years. We will see what happens. Well, I won't, as I will be dead.

You honestly cannot think of many better ways to use your money when wonderful organizations like UNICEF and the World Food Program are doing God's work around the world helping people who are suffering? We are so used to passing the money down in our society to our children that we so often overlook the children of others, especially in places where our dollars go much, much further than they ever would closer to home. Take off the blinders.

’m an 41 and my husband is 46. As we know pensions and extended employee benefits are of past. We plan to help with college but college costs have increased tremendously. We hope to provide support and do what we can. We hope to have a wonderful retirement and are working towards this. As we know we are not promised tomorrow. It will always be a balancing act and a little hope and luck on the way.

Never said nor implied that. I was merely responding to what the author wrote: “But I can’t think of many better ways to use our money.”

The problem with that plan is there are a number of non-refundable deductions and credits, which you only receive if you owe the IRS when you file. The Child Tax Credit is $2,000, but only $1,400 is refundable. To get full benefit of the Child Tax Credit, you need to underpay your federal tax by at least $600. Otherwise, overpaying by $5,000 to get a savings bond at 1-2% means missing out on $600 of the Child Tax Credit. Not good deal there.

Richard, thanks for pointing out just how personal these decisions are, and how they're not so much fact-based as they are family-based. As a general observation, it is kinda first world problem, where if you didn't have the money to potentially give/inherit it wouldn't be an issue in the first place. But if you find yourself on the giving or receiving end, then I've observed that there are both immense opportunities as well as pitfalls possible, and am not quite sure if there's a guaranteed path to avoid unintended consequences. If my family, we have been fortunate in recent generations, and that good fortune has been applied primarily to education, but also to home down payments and potentially to other larger capital investments (car, etc., although that hasn't happened yet). Most of all, I want my children to view wealth as a means to a beneficial end, not simply accumulation as the end result. They'll each get to define the specifics themselves, that's not for me to say, and thus far they've made solid choices. I've long understood that there'll come a limit to my influence, ultimately lifespan limited, but in pragmatic terms we've set up what I think is a solid estate plan, and have had the discussions with the kids while we're still of relatively sound mind. But if I were able to control all the chess pieces I guess I'd say I'd like my kids all to set up their respective families for some element of generational security, founded upon the firm base set up my me and my parents.

The thing is, you never know exactly how much you'll need in retirement. A long term debilitating illness? Long term care? 24 hr in-home care? The unexpected cost of critical health care can quickly exhaust most family's resources. You save for the worst possible outcome (if you can), but most of us will have resources left at the end. And, in all likelihood, when you do die, your children will already have worked for 30+ years and their spending and saving (if any) habits will be well established. Giving children a pile of money in their 50's-60's may not have the same impact as it would when they were younger. We paid for our son's college education. We paid off his car loan. And, we helped him buy his first house. We'll probably continue to help where we can without enabling him as the impact is more meaningful now, plus we get to enjoy making these gifts now, which we would not get to do if we left him a large estate at our deaths. By comparison to what young people face today to save, buy a house and educate their children, my generation has been lucky and I see no reason why our children should not share in our good fortune. My intent is not to make our son rich, but its unlikely that he will have the retirement savings that I was fortunate enough to accumulate.

If you think you will have more than you will need, give it to your children or anyone else you want to help when you are still alive and they can "thank you" for it. My mother left me a nice inheritance when she died at 90+. I was 60+ and didn't need it. But when I was building a house 20 years earlier, I really could have used the extra money instead of depleting all my savings.

Bill- what makes you think that those whom are generous to their kids are not generous to strangers as well. I wasn't aware it was a zero sum game.

A difficult decision indeed. You don’t want her to suffer, but you want her to stand on her own. I think the number one thing is making sure she is not taking advantage of you and that regardless of what she does work wise, she is doing her best and living within her means, not yours. I can relate, I disliked school. I graduated high school with no thought of college. I started at nights after working five years and quit after one semester. I only started again to get an early out from the army and ended up going nine years at night to get a degree while my wife and I raised four children. It was not fun.

“ Your children were part of your financial plan the minute you decided to have them. Why would you stop that plan at some arbitrary point?” I wouldn’t exactly call one’s death an arbitrary point. It might be the least arbitrary point of one’s entire life.

I also enjoy helping my grandchildren with modest monthly 529 contributions. It’s not much, but by the time they go to college it should cover one years tuition at a public school.

Just wanted to comment. I was offered a full ride to college by my parents which I refused and wanted to make my own way. It was my late-20s when I realized how held back I was by not having that degree. By this time I was married with kids, so I went to night school and it took almost 8 years for that 4 year degree. 8 years of missed jobs, promotions, and expenses that could have been take care of years before. One of my biggest regrets was not getting that degree when it would have been so much easier. You might consider that instead of her knocking out that last year full time, just take 1-2 classes a semester. She will still hate it, but school won't be her entire life. There is nothing worse than applying for a job that doesn't require a degree, but everyone else that applies has one so you are immediately disqualified. An employer has to weed people out somehow, and a degree is one of the easiest. At the most basic level, it shows some level of commitment to a goal.....

Knowing that compound interest and time is the magic of wealth accumulation my wife and I have aggressively set aside money for our four children in everything from Roth IRA's, 529's, and two trusts. One trust was seeded with a lump sum, and the other is seeded with our annual gift exemption of $15K from each parent. Even though we are in our 40's we have decided to make wealth transference a priority for us. This strategy has taken a lot of cash flow to be diverted to the kids but we see this as a 10-15 year plan and then we will stop and let Mr. Market do his thing. My wife and I didn't start giving to them until our retirement account was fully funded and we became debt free. They're not spoiled on a day to day basis, clothes from LL Bean or Target, one gift for birthday's and Christmas. We have many many conversations with our children around spending, saving, giving, faith, consumption, happiness, and what success looks like. We are hoping that this sacrifice becomes a blessing and not a curse to them.

One of our young adult daughters is going on 27. She dropped out of college, which we were paying for, without a degree. She works as a restaurant server in an affluent area and was doing OK until the pandemic. She was laid off from the good job that she had (even with health benefits, which is unusual in restaurant work). She has a new job now, but the last year has been a struggle, and we’ve been helping her financially. She’s a hard worker and appreciates our help, but she definitely has a mind of her own. We begged and pleaded with her to finish college—she had just over a year to go—but she always hated school and just couldn’t bring herself to do it. So we have mixed feelings about how much to help her. We love her and have a good relationship with her that we want to keep. We want her to thrive. But we’re not sure whether being her safety net is in her long-term benefit. Now, while COVID is still affecting things, is one thing. But two years from now? Five years from now? Just not sure. We can afford it—but should we?

Good article, Richard. I relate. We both received inheritances and that allowed us to put our three daughters through college debt free, and solidify our own situation heading into retirement. Top priority is making sure we do not become a burden to our daughters, and considering both my parents lived to be 97, we recognize the need for long term planning. Still, we hope to host some family get-togethers, seed 529 accounts for our grandkids, etc. We live a frugal life but enjoy it and occasionally travel. We have no debts and a pension covers our expenses pretty well. Feels like we have a pretty good balance, as long as the politicians do not try to confiscate our retirement nest egg to help pay for their pork.

I suggest you stop all forms of charity and monthly redirect to your daughter ! Good job by your daughter completing 3 years. If I had a daughter she would receive annual 30 k from us. Plus cash. I have a niece with BA political science U Iowa and "Masters" Oxford UK looking for a job at 28. I also have nieces and nephews fully employed as MD, business partners, forester, nurses, computer analysts, PhD agriculture and adoptive Mom of four children in need . All these were excellent students, college graduates and all had challenges along the long path of life. Many students are Columbus day drop outs. Drugs, alcohols and lack of discipline take out these students the first year with first set of exams. Yet you can make a come back from this experience. College is not for everyone and many college graduates never make a living in their major. The last 2 years of college in most majors needs to be full time to get the required 50 credits of 300 and 400 level courses during the day. A little secret just because a student attends 3 years of college does not mean one more year is required to graduate. In many majors you need to be all in and study like a maniac. Many students hit a brick wall when taking the difficult 300 and 400 level courses which require a pyramid of knowledge in your major. First year all chemical technology students must take General Chemistry and Lab together not in normal student population. Add in physics and lab, calculus, English and economics no electives. Example schedule of second year of AAS degree in chemical technology 1970s 0800 MWF Organic Chemistry 0900 MWF Chemical unit operations engineering 1000 MWF Analytical Chemistry and Instrumental analysis 1100 MWF Physical Chemistry and Advanced Inorganic Chemistry 1200 Lunch and study Tu and Th Chemistry and engineering Labs to support above "Free time" do problems, prepare lab reports and study. Throw in your part time weekend plumbing job. Date Saturday Night and Church Sunday morning. Next year for BA Chemistry NO required 300 and 400 level courses offered at night. MA Chemistry all courses at night but research required all day. My buddy studied economics never exceeded 40 hours of study per semester and had a B average. He was also an auto mechanic. Another buddy majored in Biology, wife and two children, and worked 40 hr night shift on line at GM. He graduated was called into managers office and was made foreman. This accelerated his career 15 years. Parents who did not attend college do not know anything about the commitment needed to graduate. Also most students attending college do not know anything about the commitment necessary to graduate and obtain a career in their field of study. Generally if you do not have a B average your not working in your field. This was based on 1970 s when there was one or two As per class. Now days a psychiatrist would have to be on stand by for one A per class. Keep Smiling perhaps your daughter can finish up with some help or take another path.

For those planning to use their savings to spend more time with their children, make sure they want to spend more time with you.

Richard, thanks for a well written and enjoyable article. This is a fascinating topic that touches many people. Those of us who have had the experience of financially supporting parents often have a goal of "not being a burden to our kids". Planning for a long life, and possible long term care, can free up your thinking for leaving a legacy.

Your children were part of your financial plan the minute you decided to have them. Why would you stop that plan at some arbitrary point? While your level of support may vary over time, it is in everyone’s interest to always have a plan — and evolve that plan as life unfolds. For myself, I want to enjoy my children while I am around, and if my financial plan looks like I’m going to have a lot left over when I’m gone, I’ll revise that plan to spend more today. And what better way to spend than on your own family? I expect them to make their own way (and well they have). But I also take great joy in sharing in their success, and sharing mine when I can.

I interpret it as a superfluous adjective. With online writing the way it is these days, nothing that simply "be" without adjectives. So often it feels like they serve to trigger emotions which makes our eyeballs sticky which sells ads. As you can see, it works!

It's a tough one -- and I'm not sure what the right answer is. One thought: Post-pandemic, you might continue to help financially, but not on a regular and predictable basis. That way, your daughter will be compelled to live within her income and have an incentive to earn more, but you'll also have the pleasure of making her life a little easier.

Richard, thanks for the thoughtful discussion about leaving money to one's children as part of a retirement plan. My wife and I are recently retired and have more than enough through a small pension, social security, and IRAs to support ourselves comfortably and travel. We have no mortgage and no debt. Two of our three adult children have finished college and are successful in their careers and reasonably frugal. We have no concerns about their ability to manage their finances and save for retirement. Our youngest, in his mid-20s, has struggled to launch himself in a career or in life. He is a creative guy who has worked independently; he sees himself as an entrepreneur but has no business acumen. We provide some support to him now and are trying to help him without creating dependence on 'mom and dad.' It is challenging. His siblings empathize with his struggles and do not appear to resent the additional support we provide to him. We subscribe to the idea of using our resources to support our children while we are alive and continue to pay for family vacations that they would not be able to afford with out our help. We're trying to figure out how to structure things the next time we revise our will. (No grandkids yet.) Probably TMI but your article raised a number of great points.

Sounds like a good balance for sure. Just be sure your frugal life is not at the expense of enjoying your retirement years. I’m sure your daughters appreciate your goals but want you to enjoy your retirement.

My frugal and conservative sides make me very cautious when spending retirement assets even though I don’t need them to live on today. My number one priority is that if my wife survives me, she can live comfortably no matter what and never becomes a financial burden on the children. A financial planner may look at us and conclude there is nothing to worry about. But it’s not his wife and not what may affect his nights sleep.

I guess the approximately half of seniors who have a net worth of around $150K or less feel quite rich. I wonder how many of those seniors on the lower half of net worth have a stock portfolio that has run up like mad. I suspect that a lot of these seniors are helping to pay for SS right now because many have to go back to work.

Good read. I would add that your advice to "make an idea earn your trust" is more difficult than many realize. See Why Most Published Research Findings Are False by John Ioannidis. https://journals.plos.org/plosmedicine/article?id=10.1371/journal.pmed.0020124

Savings bonds are good gifts to young kids or graduating seniors. No, they won't thank , you with enthusiasm but they will think of you (hopefully) when they cash them out (likely during an emerency, a bout of unemployment or when making a big purchase. I did this for myself for years and basically forget about it but knew that it was on my balance sheet if I really needed it (which I did when I got laid off in 2008.)

First off, Congratulations on FI. Time is the most important gift we are given. Take a sabbatical. I'm on a 7-12 month sabbatical after working in a stressful job for 40 years. My new "career" started the day after I retired, spending 2 hrs daily in self-Bible study, 90 minutes in transcendental meditation, 60 minutes aerobics, and 40 minutes for stretching and core work. This is my time given to take my health back. Pray FIRST for guidance. The Holy Spirit is waiting to guide you to your next career. It may be a little of all 3 possibilities you mentioned. You may volunteer at the church a few hours a week to help seniors with taxes who can't afford an accountant and can't do it themselves.. You may decide to be a "gaucho" for a day a week. Perhaps you could connect with an organization that is trying to install green energy into homes for the financially-disadvantaged. Try some things, step out of the boat and see what feels rewarding. If it is not enjoyable, stop and try something else. Giving your talents you were given to someone in need is rewarding on many levels. Do small things with great love.Then you can look back on your life and say you made a difference in the lives of others. It's a wonderful life.

I can't believe you fell for the Trident gum ad.., you need a much larger sample of the medical community to support something before falling for it. :)

I laughed out loud a couple of times here, haha.. Well played!

I’m an I-bonds fan, part of my ‘retire earlier’ savings bucket. Cash-like with some inflation hedge and tax deferral was what I needed.

Does delaying SS imply working longer? If so, I agree, But what really counts is the years of extra income that you can invest to get more investment returns. This also insures you against the danger of an excessively long life span.

We've automated our bills and investments. Everything left over is for gasoline, groceries, entertainment, etc. And we try to minimize those too. We look over the online banking website to look for unauthorized spending by third parties who might have tapped into our accounts but never find any. Wife and I are pretty careful with our spending. We don't shop for fun. It's worked well and we owe nobody but the mortgage bank.

Why stop there? Why not ask what he finds enjoyable about walking his dog, gardening, or traveling? One can certainly not make a claim about their dog walking enjoyment and not elaborate!

To get the conversation rolling, perhaps you should start by telling everybody why you aren't extremely proud of your kid.

I have a better solution to the problem of preserving capital than buying I bonds instead of regular bonds. Buy stocks instead. Fears of volatility are exaggerated.

in the author's bio it states that he is extremely proud of their two adult sons. Can the author elaborate? I'm proud of my kid, but not extremely so. Might the author have a specific reason for his strong feelings?

Oh boy, @Scrooge_McDuck88:disqus, the dog lovers are going to be all over you. Next thing you know, somebody will mention cats and this whole thread will spin out of control.

I was with you until "The website is user friendly." :) That said, while Treasury Direct may be annoying, it's worth the hassle.

I've seen the suggestion somewhere (perhaps on Humble Dollar?) to deliberately overpay your federal taxes by $5000, and then use your refund to purchase an I bond.

It's always fair to ask for evidence. Why do you attack someone for doing that?

lovely idea...

>> "If happiness research has anything to teach us, it’s that we aren’t very good at figuring out what will make us happy." True dat. And a great piece overall, challenging many (perhaps dangerous) myths about aging and retirement.

The pension example cited is not one that most people will face. It usually is just a choice between a lifetime annuity, at whatever discount rate assumption their employer is using, and a lump sum distribution that they can roll over into an IRA. Which option is "best" is seldom simple or even obvious as there are a myriad of variables involved than can affect the final decision: How much money is involved? What other savings and income streams are available? Age? Health? Family health history? Children? etc., etc. In general terms, I think an annuity stream may be better from someone who has limited other resources or who may less discipline in managing their own resources. However, with enough resources and either the ability to manage their own resources, or the means to hire someone who does, a lump sum distribution may prove better over its expected time horizon (wage earner + spouse + children). For most people, It may be worth paying someone to help make these decisions as, once you elect which path to take, there is no going back.

Thanks!

You can offset the interest rate risk with the fixed interest rate on your personal residence. If interest rates go up you can purchase discounted bonds with the same nominal interest rate as your mortgage, in effect prepaying your mortgage at a discount. At the same time the fair market rental value of your residence will increase while your mortgage costs remain the same. If interest rates go down your bonds look good until they are paid off or called, and you can refinance your residence at a lower rate and lower your monthly payment.

For a bond fund, you have to consider how actions of the other investors might impact your investment. If they panic and sell when interest rates go up and values go down, then the fund managers will have to sell bonds and lock in the loss. If interest rates then go down, and investors return, the fund managers will be buying the bonds similar to what they just sold, but at higher prices. If you just continue to hold, you will lose more money than you would as an individual bondholder.

So true! It's almost impossible to grow wealth while overspending.

Perhaps, but only if you have a mortgage. Renters and many retired people don't.

In theory, departing and arriving fund investors should transact at a fair market value, so shareholders who sit tight ought to be unaffected, except to the degree that they hold the fund in a taxable account and the fund is compelled to realize capital gains.

This is one of the best bonds vs. bond funds summaries I've seen, thanks Rick. Of course the lovely thing about funds is that you effectively diversify away the unsystematic risk of individual defaults. If you need or want maturities, you can even purchase low cost bond ETF's with target maturity dates. Unless you're able to avoid those low-lifes that fly first class with your private jets, I really don't see a reason to own individual bonds outside of new-issue treasuries.

Thanks OUTinMinnesota. Once this becomes a habit, it's hard not to do it.

So true. Thanks, parkslope.

Well said. I admit I did a relatively poor job vis-a-vis protecting my human capital. If I were planning to work another 10 years, I might be worried. If anything, I am proof that a few mistakes in planning your financial future will not doom you. I smiled hugely at the mention of cash flow. Even people with financial backgrounds often struggle with this conceptually, and find themselves in unexpected trouble. I never cared much about budgets, but cash flow... that's critical (yes, you need a basic budget to calculate cash flow, but I have never actively used a budget.) Debt is a strange creature. I think there is a distinction between the relatively wise use of debt that allows you to grow your personal capital, and the unwise use of consumer debt to purchase depreciating assets. Even when used wisely, however, it's important to recognize how dangerous debt can be. Congratulations on paying off the house!

I would suggest you took on significant sequence of returns risk to do so. My own investment history suggests I'd likely succeed as well, and yet... I'm not so sanguine about future returns. I expect to wait until 70. Nevertheless, it seems to be working well for you, and I wish you continued success!

If you're going to have a problem in retirement, this is the one you want to have. ;>)

Yup. My Dad made the wrong choice. Luckily my Mom will have sufficient resources even if she lives well past 100.

It's been said that the first person to live to 200 is alive today. The discussion about tax benefits associated with claiming SS at age 62 is an interesting one that I've been meaning to calculate, as I suspected there might be something there. However, that discussion overlooks one key factor; the insurance value of SS. A guaranteed 8% increase in SS, which is basically a lifetime annuity with a COLA, is unattainable anywhere else for as low a cost as far as I'm aware, and if the calculations mentioned elsewhere are accurate, the 7% benefit may extend your breakeven by 5-10 years. In a day and age where more and more of us are living more than a century or even past 110 - most of us would find ourselves unprepared to finance such a long retirement. The best way I can think of to insure oneself against the risk of a much longer than expected life span, is to wait until age 70 to claim SS. If you need to take SS at 62, you take it. If you have no foreseeable need for SS under any circumstances, do what you like. If you are in neither situation, the answer will likely come down to your personal financial situation and your risk appetite, especially with respect the risk of longevity. A lot of people are obsessed with minimizing their taxes and for good reason, but sometimes the tax tail ends up wagging the dog of our financial lives if we're not looking at the big picture. I think it's important to recognize the potential benefits of delaying SS if one happens to survive well beyond their expectations.

The inclusion of 2. Watch my cashflow made me smile. As a concept, the action of tracking & reconciling spending is easy. But the self-discipline needed to actually & systemically do it... that's another story. That's why I'm happy to see this column emphasize it as one of the 3 factors for getting things right. Even better, it's awesome that the column considers the question: Was it time consuming?. It's a pleasure echoing the columnist's response... surprisingly no. Just an hour each Sunday morning to: - - Count cash on-hand and check whether it reconciles with the prior week's cash expenditures. - - Pay bills. - - Verify whether the remaining balance in checking is adequate to cover bills coming due in the next couple of weeks, and if not, move money from savings. There are three reasons why someone would want to track & reconcile spending: 1) As the columnist points out - during working years, it allows you to predict the impact of spending and to focus on priorities (retirement savings, for example) 2) When you keep track your bills and when you verify whether you're going to have enough funds to pay them, you protect your credit rating. 3) In retirement, when living on a fixed income, you're going to be forced to do it. So, why wait?

Sanjib is a man of many talents, with a great sense of humor.

Thank you, Roboticus. I was probably too aggressive with my Debt pay-off, but I'm glad I did it sooner than later.

Thank you, IAD. Glad that you liked it.

....and that's a mic drop.

Indeed.

Thanks for sharing. The most common thread among the contributors to this site is clearly a frugal mindset. Many of us became financially literate years later than we would have liked, but having debt under control made it much easier for us to successfully play catch up.

"passed the Series 65 licensing exam as a non-industry candidate" makes Sanjib the life of the party. All the cool kids want to hang out with him. "Tell us about FASB Rule 15. Please."

Great post! Thanks!

My wife and I have solved this by moving every 10-15 years or so but now getting close to retirement and while our house is bigger than we need, we like it and so are looking at improving it. I think it is wise to periodically improve things, you or your heirs will pay for it in the end if you don't so why not get the updates and enjoy them while alive. Nothing in life s hassle free

There are many ways to play SPAC's. Units, warrants, pre- and post-deal. Mutual funds are stepping into them as well.

I've been tempted to buy SPAK (SPAC ETF) in a play account just to take advantage of all the general interest out there. But who knows what it will do in a recession. Not something I'd want to trust with a significant investment. Best to stay with the horses that brought me here; they'll finish the job just fine.

This principle is invaluable, and applies well to individual stocks. However, when it comes to investing, I prefer the Indiana Jones approach when attacked by the swordsman. Index funds eliminate non-systemic risk with one shot, and that's a pretty big deal.

As said in the article, if you have no choice but to claim SS early, then obviously you should do so.

Well, that's a relief. But, though it's clearly relevant, you might have mentioned that in the present article that I'm commenting on, Something else that puzzles me is this: "Even if you’ll spend more in your 60s, why does it logically follow that you should claim Social Security early?" It follows because we need more income when we're spending more. It's obvious. You go on to argue that we should take more from our savings instead of getting it from SS. My wife and I had savings of about $28K when we were 62, since our resources had been depleted by paying off our home mortgage, That $28K wouldn't even have lasted us a year.

So true! As a Senior in good health, it breaks my heart hearing about the health problems of my age-mates who are paying the price now for years of poor self care. And others put me to shame with their rigorous routines and super-healthy diets! :)

"But will investors get burned?" Rhetorical question, I presume.

Since we're collecting weather jokes, that reminds me of the line attributed to Samuel Clemons, "The coldest winter I ever spent was a summer in San Francisco." On a foggy evening with a strong ocean breeze, it's almost true.

Which reminds of my favorite Chicago joke -- which says the city has four seasons: almost winter, winter, still winter and road repairs.

Compared to individual stocks, SPAC's remind me of the Chicago joke: NYC guy says to his friend, "I'm enjoying all the crime and poverty here, but it just isn't cold enough - let's go west!" :)

That 8% figure you give for the growth of the SS benefit does not take into account the loss of the SS income you've lost by not retiring earlier.

That is a scary story for me, since I don't anything about fixing things. And I'm cheap. After my wife and I bought our first and only house, the roof started leaking. There was a guy in our neighborhood, apparently indigent, who we had paid to do some minor repairs for us. He said he could patch our roof if we could drive him to the hardware store to buy mastic. We would pay him $10/hour. So that's what we did. We had to have him come back twice, but eventually, the roof did stop leaking. It cost us less than $300 -- lots less than a new roof.

best spend it on something fun before you get to that stage.

"Locking in a hefty amount of guaranteed income, whether from a pension, Social Security or income annuities, can greatly strengthen a retirement plan." Maybe. If bad inflation returns, all that except inflation-adjusted SS goes out the window, unless the rare pension recipient's benefits include an even more rare COLA.

appreciate the article. I think everyone who wants a good life should read it. I would add one more thing: take care of your body by going for regular check ups and dental visits.

the article is great and I want to share my experience. I claimed social security early because I wanted to invest the monthly check and thought I could get a better return than what I could get by waiting. I am doing it and and 3 years in I think I made the right choice. No one can predict what the market will do but I will keep investing .

I need to show this to my husband, who is on his glide path to retirement at age 60. His dad is still alive at 93 and he will get a pension from work. At least he hasn't spoken about taking a lump sum in years but he has mentioned claiming SS at 62, which is ludicrous. I've been warned about the specter of RMD's by a guy pushing the scary annuities ( we didn't buy them). I get that it is a thing, so maybe spending some qualified assets earlier on (in a reasonable market) until FRA or later might reduce that later bogeyman. This predicting the future stuff for retirement spending is really hard! Thank you for your posts.

***Our income is higher than that of the typical oral surgeon.*** Well, bless your heart.

Perhaps even better.

Always chose Joint survivor annuity. Example you chose life income annuity and visit the city on day 2 of retirement. You get hit by a bus and your spouse gets ZERO. A friend chose life income annuity retired and died of cancer 2 weeks later never got one check and girl friend got Zero.

DOUG, Enjoy your retirement and the company of your wife. Actuary will tell you claim at 62 is the best. Forget break even static analysis. I cut and pasted this from an actuary article. At 62 $375,138 # 1.175 At 66 $319,119 # 1 At 70 $363,561 # 1.14 I have done my retirement spread sheets for 20 years. Notice how the totals are basically the same. Now that real inflation is roaring get the stuff and experiences NOW. My opinion is living life and investing is anything but Humble, takes guts. I can name 40 dead friends under 55 from electric company career and one dead friend over 84. PS my friends were 20 to 80 years old.

The scam-demic changed all these fine ideas. Oh no EVIL government over reach killed all those retirement dreams. American life and freedoms have ended.

My wife and I both worked until we were 70 and we are moderately risk averse. Claiming at 70 didn't require tapping our savings and our combined inflation-adjusted SS income of 84,000+ provides us with peace of mind as well as making us comfortable having more of our money in equities than we would if we had claimed when we were younger.

IMO you should ignore the "projected cuts" and the rest of the fear click-bait speculation. Do the math using the real data you have now along with the projected data available from the social security admin. for your account. I take it that you have another 5 or 10 years before having to make this decision and by then you'll have much more data about your future benefits. It's like the weather man - he's just talking nonsense until a day or two prior to the date of interest. Things may become so clear at that point that you won't even need to bother with software. Then again, maybe not. You could do much worse than spend these next years mastering the time value of money (hint: it's all about the discount rate) and doing your own taxes. For the record, Jonathan is 100% right to recommend waiting to claim benefits. People like me that can afford never to see a dime from SS play around with spreadsheets figuring out how to maximize the present value of likely future cash flows, but it's not much more than an entertaining addiction. WHAT IF the $!#* hits the fan and you (and/or your wife) have little other than SS to rely on in your old age? You'll be wishing you had waited for maximum benefits regardless of what the pretty spreadsheets said a decade earlier.

Having an annuity that guarantees income for life is something that should be given consideration. SS at 70? That's the Queen Mary!

Good stuff. Thanks, Steve!

I hear ya. Thanks for your perspective.

Thanks!

Here is my advice. You are 33 years old. Assuming you spent 4 years getting a college degree after graduating from high school, you have been in the workforce for what, 10-11 years? Your post makes it sound like you've seen and done everything there is to do in your chosen profession. I don't know your personal circumstances but would be surprised if that really is the case given the relatively short amount of time you have been at it. Kudos to you for having reached FI, but in your case I am guessing that means you are now rich enough to do nothing, but not enough to ANYTHING. That in itself can be a bit of a prison. I strongly recommend you keep grinding or something close to it, at least until you're 40. Assuming you are in reasonably good health, you can expect to live another ~50 years. You wanna switch employers or industries, go for it. But at your age it is way too early to switch into the slow lane of life (or something like it) now. At the very least, keep building your financial fortress so that you will have even more freedom to take advantage of opportunities and follow your desires in the future. And by "future" I'm not talking about when you are 35 but rather when you are 45, 55, and 65.

Yes, for those with multiple 7 digits in investable assets, I've read 2 reasons folks like this consider taking SS early: 1) As Rick says, for high passive earners, SS may get cut in their later years. If you're capital gains and RMDs are multi 6 digits per year, the general voting public would likely not care if you sock it to those small number of rich folks. 2) Investing early SS cash streams, even in passive index funds, can have an ROI greater than waiting for those "guaranteed" SS returns at age 70. So as an annuity, waiting to collect SS at 70 is better than any annuity deal you can get on the open market, but if you're able to take on more risk assets, you ROI can be higher than waiting. Motleyfool.com published an article a few months ago citing just this argument.

Steve, Thanks for some more confirmation of my approach. Social Security is a slippery slope! I do agree with the bulk of advisors that delaying is good for a lot of folks that have limited means and no annuity based income though. Our situation is a bit out fo the ordinary I believe for these days. Take care!

My goal now is to be able to leave my software engineer career with my health unscathed and undented. The next half of life should start with good health. I'm on last job of career and reluctant to add more gas. Still goal driven, just different goal now.

Fascinating. 7.2% tax advantage by claiming at 62 vs. FRA in my case. I live in FL, Roth IRA. I used my tax software to do the what-if's along with TValue to figure out present values.

The $!#* has hit the fan Joe in diapers signing eos. Spend money now and enjoy life now. I agree the spread sheets are an addiction during the work years.

I posted this question on another HumbleDollar article, but seems more appropriate here. Has anyone in late boomer/early gen X range (who will hit SS eligibility a few years before projected cuts are scheduled to take effect,) done the math re: 100% benefits now vs 75% benefits later? It just doesn't seem as clearcut as "wait until 70" for those of us who can potentially collect several years at 100% first, before losing 1/4 of our earned benefits forever more. Does that extra 25% every month now make up for the 8% higher check value (-25% cut) every month later? Is there a tool or spreadsheet available to help you figure this out?

We are taking distributions from our IRA's now and in the future the funds taken out should be about the same after factoring in inflation. So I guess our tax situation should not change too much other than at the whims of the politicians. We just use our IRA distributions for travel, etc...(however, we have paused the distributions for now due to COVID). My 100 pct survival pension and our SS will more than cover our day to day expenses. Our advisor says we are the folks he will have to call in a few years and tell us we have to spend more of our IRA's.

Have you factored in what will happen to your annual tax bill once you reach age 72 and have to start taking required minimum distributions from your retirement accounts? Many retirees enjoy low tax bills in their 60s and think they've done the right thing, only to discover that RMDs in their 70s lead to a double tax whammy, triggering high taxes on retirement account withdrawals and Social Security benefits.

I was glad to see the discussion about spending tapering off when people get older. My contention was always that many/most people spend less when they are older because they have less to spend, not that they don't want to spend. You way of looking at it by comparing income to spending provides some data that is correct.

Long post, sorry! I retired at 60 with a generous COLA pension and my wife retired at 62. She claimed SS at 62 and I also plan on doing so this year at 62. We were fairly high earners so we will get around 50K total in SS per year. We are very fortunate to have saved a fair amount in IRA’s too and barring unforeseen disasters will have more income than we need in retirement. I am pretty healthy, but my wife has a health issue. However, we plan on living well into our 80’s. With that rough explanation of our situation, I will now offer my thoughts for claiming SS early as it pertains to our specific circumstances. We live in a state that does not tax SS. The savings at a state level is around 5.75 percent per year of our total SS. We also have the offset of the Federal tax savings of 15 percent of our total SS per year. I created a small spreadsheet and with those two factors included it looks like we are making the right choice for our circumstances by claiming early. Let’s say you have 50k per year in SS that nets to 45k with the tax advantages I mentioned above. If you took 50k out of an IRA and applied taxes your net would be around 41k. In order to get you back to the 45k net of the SS figures you would need to take around 52k out of an IRA each year to net 45k. When I ran the numbers with the tax savings mentioned above, I found that we had about a 7 percent advantage each year from tax savings and even more if you use the last scenario where you try to match the net of just the SS dollars. Anyhow, it pushed our break evens out by 5 to 8 years beyond the normal break-even ages. That put us in our early to mid 80’s before we lose the advantage of claiming early. Another factor in claiming early is that we wish to leave a legacy to our kids and by claiming early it will leave more funds available to be passed on to them. I read a fair amount of articles about retirement strategies, but I have not found any articles that factor in taxes into SS claiming strategies and especially scenarios in which states do not tax SS. By doing so you can bump out your break-even ages it seems. Am I looking at this from an invalid perspective?

Unfortunately Richard the other side of the coin is terrible. As I am close enough to peer over the edge, it's coming into sharper focus those who've made (or even attempted) a plan for "what's next", be it retirement, a second career, or whatever, versus those who have "lived for the moment" for 3 decades of "moments", ala "YOLO". I feel fortunate to have enjoyed perhaps a similar course to the one you're on now, and probably in large part due to a fortunate combination of entering a well-compensated profession and an upbringing that had essentially no focus on accumulating material wealth. But apart from basic financial common sense that writers like you and Jon dispense weekly, my strong advice to our younger readers is to prioritize health. There are a lot of sins that can be remedied in retrospect, but years of poor self care I've found to be a challenging pit for people to climb out of.

Or even worse, you will reach age 72 and have a $45K SS check and a $150K RMD. The IRS will love you!

You have to look at your own personal situation, your savings, what type of accounts your money is in, and what income you will need. If you are well off, perhaps pushing off SS to age 70 and IRA withdrawals to age 72 does not make sense from a tax perspective. Or perhaps you can take SS early, and just invest the money because you don't need it for living expenses. So let your personal spreadsheet be your guide, and don't follow advice that doesn't apply to your financial position.

What is missing in discussions of Soc Sec claiming ages is Do you keep working? Keep working and claim Soc Sec means taxes have to be considered in the equations. Stopping work early (living off savings) will not cause Soc Sec to increase as predicted, since your 35 yr history is set. If you didn't work (pay Soc Sec taxes) for 35 yrs, then 0s will be put in for the missing yrs, which lowers your payment. Of course, for lower income folk, Soc Sec Admin uses a formula (as secret as the recipe for Coca Cola) that makes up for lower years.

Once you are eligible Congress seems far less likely to take away benefits, or reduce benefits for those reaching full retirement age or 70. Congress has many fair and reasonable options available to fix the shortfall, ones that won’t have the AARP and 67 or 70 year old voters and donors mad at them.

What about us tail end boomers/gen x folks who will hit SS eligibility right before or around time of the projected cuts in benefits? This is where I get a bit confused as to best path forward. If you don't need the funds at 62 or 65, is it still better to wait until 70 - but only get partial benefits because the congressionally-passed cuts will have already taken effect? OR claim SS earlier and at least enjoy a few years at FULL 100% benefits (albeit smaller benefits) before they chop it down? Or is it all just a wash in the end - 6 of one, 1/2 doz of the other? I stink at math - wondering if there's a tool to help figure that out.

Given that the government collects data on income but not wealth, means-testing based on wealth would be extraordinarily difficult. Even means-testing based on income can be tricky with retirees, given that taxable income is somewhat optional, because a retiree can opt to withdraw more or less from retirement accounts or opt to postpone realizing capital gains. The more likely alternative is simply to increase income tax rates or make 100% of Social Security taxable. In terms of claiming early and buying stocks, I addressed that in point no. 3 of this article: https://humbledollar.com/2020/09/not-exactly-true/ The bottom line: Unless you're that rare retiree with 100% in stocks and nothing in bonds and cash, it's hard to make an investment case for taking benefits early. You'd be better off first spending down the money in bonds and cash.

Using similar logic, many male+female pension retirees — remember those? — choose no pension spousal death benefit to boost the initial payout even though longevity stats show one will outlive the other.

Jonathan - I agree wth you. I just don't know why. - Dave

Another angle to consider is if you have a large next egg, say multi 7 digits, and are close to retirement age (60+), because of the coming SS fund shortfall, there is a high probability that the Government will means test new retirees. If this is the case you would want to take it as early as possible, because once you are receiving SS, they are less likely to take it away.

When I was your age I was also at a crossroads. I still had to choose. I comforted myself by remembering that there was a time when I could have done these other things, but I freely chose the path I did pursue. Since I went for less money and more passion, less stability and more uncertainty, and less security and more loss, I have had many opportunities to remember that I did choose. It's been a comfort!

Thanks for your reply! I am glad to see I am not the only one who has run these numbers and then wondered why you do not hear more about this approach. My calculations do not include any gains from keeping the 50k invested year after year either. I know some folks discount that thinking, but it could really add a few more percent of overall gains each year if you factor in a reasonable return on investment.

Not wise to be one who believes above normal market returns will continue on. That's just ludicrous thinking. I will be happy to tap my other sources of assets/income until I'm 70 and let my untapped annual Soc Sec benefit grow about 8% annually until then. I believe Jonathan is spot-on with his column today.

Victim mentality is a fine way to ruin your life.

Of course, I understand and know about the time value of money, and how it affects the Social Security claiming decision. It's an issue I've written about countless time. Please read this: https://humbledollar.com/money-guide/breaking-even-on-social-security/

But money has interest value over time. So it is advantageous to have income earlier rather than later. I'm surprised to find a finance expert that doesn't know this. If you take SS early, you have the use of the SS payments earlier. If you invest that SS income, you get investment returns on it. If you spend it on cars or a home, you get to drive the cars or live in the home for a longer time. My wife and I made a small version of this choice when we retired at 68 in 2010, The SS agent offered us the option of pre-dating our retirement to 2009 and getting a lump sum of approximately $20k. We took the deal. In 2011, I invested the lump sum payment in a mutual stock fund, which has made almost 18% annually.

Thanks for the thoughtful piece Jiab. I'm passing it along to my 30 yr. old daughter who is just embarking on her professional career after grad school. Your points reinforced and amplified some of the things she does now.

Im so grateful for the wisdom shared through humble dollar. Learn great things every Saturday. But today’s article on social security leaves out the math. If you wait until 67 to take benefits instead of 62 you don’t catch up until about 82. That’s the biggest reason not to wait in my mind. I could be missing something I admit. But that’s the math I see.

Great stuff. And you ARE right! I have found the activities & tasks I am good at and get fulfillment when I see others benefitting from them. But the social piece with peers (not students) seems to be ever more important. That's where a 9-5 job could actually help fill me needs. Of course, I don't want the dumb stress and nonsense that comes with some 9-5 jobs.

Great perspective! Maybe finding that special gal is another good goal for me. "It's not good for man to be alone" as scripture says. The paradox of choice is real!

My next piece will talk about that. Stay tuned. Yeah, on paper I am in a great place, but it's weird because it doesn't 'feel' that way. Finding purpose and being social is so important. Combine those factors with working in area about which I am passionate and feel smart in would be the best fit. The quest continues!

You're already blogging about finance, Mike. You're already writing & teaching about it too. So, it looks like you're already realizing self-actualization in those areas. From this blog posting, you seem to be realizing that service to others might also be foundational to who you are - and to the legacy of your life. If I'm wrong about that, I apologize. If I'm right about it though, then I'm simply going to remind you about the post-presidency legacy of service by Jimmy Carter. Not everyone within the Habitat for Humanity organization swings a hammer, do they? My first post-retirement volunteer gig was unsatisfactory. I ended it quickly because I disliked going and the role didn't allow me to use my skills. TRY AGAIN. My second gig was incredibly satisfying. The satisfaction was high because the role made use of T-shaped skills.... the intersection of a hobby I enjoy and its intersection with teaching that gives me self-actualization. I haven't found a post-retirement gig (yet) that incentivizes travel. If you solve that one, let me know :)

I was in a similar position at your age and had a lawyer friend who echoed much of what you're hearing - how nice it must be. I largely disagreed and instead envied him and others who had far fewer choices. I wasn't so much concerned about a major screwup, but about not trusting myself to remain fully applied to the gift of life absent such boundaries. I had a huge ace in the hole that knew me better than I knew myself and she provided the guidance I needed and was my greatest cheerleader throughout six fulfilling careers. My wife of 10 years at that point was obviously fully vested in the outcomes and when she got behind what looked to friends and family like another mid-life crisis, I had the confidence I needed to go forward. Make no little plans; they have no magic to stir men's blood and probably themselves will not be realized. -- Daniel H. Burnham, architect, planner of cities, 1912.

You're in a good place. I'd like to hear how you got there. What other "good places" do you want to get to?

Thank you so much. Great perspective!

Congratulations Mike. In the years leading up to me retiring from my engineering career I took and passed the CFP and RICP programs. I wasn't sure what I would do with them, but even if the only benefit was my education and applying it to our retirement, it was worth it. I looked at starting a new career in financial planning, but wasn't sure I wanted to start at the bottom at 59. Then some interesting and lucrative consulting gigs came about in engineering, so I went that route. I also have volunteered in AARP's TaxAide program. Working with elderly and lower income folks on their taxes is humbling, and a great incentive to focus on your own finances. It also feels great to help people. One frustration is we are not allowed to provide financial advice. There are many folks out there who could use some basic FP advice that would make a material difference in their lives. I haven't found that outlet yet, but it is something I will continue to pursue. My suggestion is to stay open to opportunities, don't necessarily jump at the first one, keep exploring. I think this article is a great start - you've initiated a conversation with people of similar interests. With your CFA and experience, maybe take a look at the niches Michael Kitces and Wade Pfau have carved out in the FP world. You have lots of ability, and lots of years left to make a super positive impact on the world. I wish you luck and look forward to reading about your journey.

My internet provider is Century Link too. By the time I add Internet ($55) and Youtube at $65 you might as well have cable tv. We went OTA about 3 years ago from DirectTV, use Netflix and have Prime too, although we've used Prime very little for streaming. Through my library I get access to ACORN which has great British programming. There are some great library benefits to check out - at least our local one (Scottsdale and Phoenix.)

Interesting idea! Thanks

Great insights. Thanks!

Thanks!

You already teach finance at a university, so extending that to secondary school (high school) might be a logical step. Some school districts are finally adopting financial planning to their curricula, and school principals would jump at the opportunity to use someone with your experience. To me, that type of education is at least as important as any other high school subject. Few people pass a single day in their lives without thinking about money.

Your ability to have choices in large part stems from the financial independence. To crib a famous author, I would simply suggest that you take the Marie Kondo route and search for what "sparks joy". The only caveat I would add to that is that in my personal observation I think that's easier said than done. For some it's difficult to identify and separate one's own personal goals and fulfillments from what family and/or society reward, and I think many would agree that some of that "wisdom" comes with age, when people have a chance to "look back" and wish they had pursued a course more aligned with impact than with personal reward. Good luck with the decision, and it doesn't have to be binary, this or that. It can be a mixed option.

I think you'd get bored quickly in a Fidelity 401(k) role. I'm impressed with your CFA perseverance as I know how difficult and time consuming that is. Perhaps consider a relationship manager at an RIA firm where you could work with clients, do presentations for prospects and write the firm's monthly or quarterly newsletter. I suspect the learning curve would not be as steep as you think. Anyway, you're fortunate at 33 to have the field of options so open.

Thanks! I definitely have an interest in helping those who would not otherwise get good advice. A 401k rep with a company like Fidelity or Empower seems interesting - lower salary, but helping plan participants.

Being financially independent it appears a paying job is not a priority. I’d opt for a combination of writing, teaching and speaking in an effort to raise the financial literacy of average people of all ages. What people know about managing money, spending, living within their means and investing borders on non existent.

Because as I suspect you know, it’s not that simple and it surely is not a matter of a women applying for a job and being paid less than a man ... in the recent couple of decades at least.

Great insights. Especially #2 above. I'll just stick with "enuf" when someone asks.

Question...If women earn less than men (gender wealth gap) then why don’t companies hire all women to increase their profits ?

Don’t tell her husband about that coincidence

Nice article. BTW, the fact that my first name is Jim and last name is Wasserman, or that I live at the same address as the author, is purely coincidental.

https://media4.giphy.com/media/swPH6f77yLk2I/giphy.gif

I think value is difficult to achieve with an ETF because you will get exposure to value traps, where the price is low for a very good and perhaps permanent reason. So to add a value component you must buy individual stocks where you have determined the value price will recover for some specific idiosyncratic reason. However in so doing you violate the "don't be a stock picker" rule, which I also believe strongly in. I own one individual stock, which seems to be singularly exceptional, Amazon, and its in an IRA so no capital gains.

Yup. I own small slices of ARKK, ARKG, MTUM, Vanguard Multi-Factor, NTSX. I got out ahead of myself with Vanguard Minimum Volatility; that stung a little, given it's super-high risk/return efficiency metrics before 2020. It's good to get pricked now and then, to remind one of just how dangerous the most innocuous funds can be. Still, our equity is 95% Index Funds. Fixed Income is mostly a highly rated Stable Value fund, plus some treasuries.

"retirees should delay claiming Social Security to get the largest benefit possible. This is especially true for married couples." Maybe. If the spouses have a significant age difference, that changes everything, in my opinion.

For the decision whether to take a lump sum payment or monthly pension income, in the case of state pensions, I encourage people to take the monthly income, or at least calculate the value of the monthly payments somehow. I've had to decide this three times, myself, for my mother back in 1972 in Ohio when my father died, and in 2010 when my wife and I retired with two pensions in Hawaii, The monthly payments were the better deal by far.

What an unfortunate story about the former employee! I do believe that in retirement, it's probably best to have, of the income stream options, some that are guaranteed and some that aren't. The "should I start collecting Soc Sec as soon as I can or wait" question will go on forever. I can think of at least half a dozen different reasons folks would want/need to start early. And as far as leaving a $$ legacy, for my wife and me, if we leave our 2 kids nothing except our fully paid for home, it would be far more generous than normal and they'll be very grateful for it.

That last paragraph should be the beginning of every conversation about retirement planning. The numbers don't lie. Unfortunately politicians do little else and that complicates the social security calculations for those who can afford to wait longer to receive it. The monster in my closet is taxation and even without (likely) changes, waiting until 70 reduces after-tax PV and makes choosing between 62 vs. FRA difficult. On the other hand, those in lower brackets who cannot afford to wait longer before starting benefits can expect a higher PV if they wait!

I agree. For most people a stream of income is best and reduces the temptation to spend from assets beyond a budget. I had an employee who took a pension as a lump sum, blew it all at Atlantic City over several months and ended up living in his car. A pension should always be an annuity. While a higher SS benefit will be welcome in later years, the reality is it should be taken when it’s needed to live on, perhaps to avoid using other assets.

Don't know how you would omit the most secure option: Set up a tax return PIN with the IRS that must be used to file your return. They mail you a new one each year. Fraud eliminated. Details and link to enroll here --> https://www.irs.gov/identity-theft-fraud-scams/get-an-identity-protection-pin

Thanks very much for the answer. I completely agree. Regards!

This is a great summary. Thank you.

I'm currently 30, so I suspect retirement legislation is going to look very different by the time I'm in my 60s. A look at the ageing population pyramid of the US suggests that major changes will be coming. In my humble opinion, climate change and the ageing of the developed world are two of the greatest unsolved crises humanity must face in the next half century.

Excellent summary. And, why your 50-yer investment/retirement/inheritance plan will never be implemented as our Congresscritters continually "reform" the rules.

While raising the RMD age to 72 will likely facilitate a tax advantage for a Roth conversion it should be noted that some of that advantage will be offset if the conversion increases the rate at which SS benefits are taxed.

One thing no one has remarked on is that IRMAA brackets are now indexed for inflation, starting with the 2021 Medicare year. The formula is surprisingly favorable, since it rounds to the next highest thousand. So the bottom bracket for singles went from $85,000 to $87,000 with only a 1.3% inflation adjustment.

I started delivering newspapers at age 11. Legal age was 12. I always had a job, sometimes two. I always accepted overtime. I worked shift work for 32 years which had built in overtime. I figured that I worked enough OT hours that it equated to an extra 5 years of work. I saved and invested my money. I retired at 55. Don't feel bad about it since I figured I worked for 49 years. Now my job is CFO, managing my portfolio, which still requires a few hours a week.

I was amazed when I linked this post to a FB retiree group and how much of the feedback was along the lines of ... we deserve discounts, we earned them, it’s a right of passage and a sign of respect. Yikes! I don’t get that attitude.

My wife is a proud professional who would never have agreed to marry me if it meant giving up her career to tend the household. Now that we've been married for 50+ years and retired, it's also nice to have our household retirement income multiplied by two,

Mr. Quinn, were you not shopping for a Jaguar in a previous article? I was taken aback reading your comment about Youtube prices. I assumed you were more than comfortable financially. But perhaps this is exactly why you can afford Jaguars.

This is about the only arena where I can claim to be an 'early adopter'. DW and I have never been that big on TV. When we bought our house in '96, the cable prices gave us sticker shock, and we turned it down. We got offered a free package and took it, and the cable company forgot about it, so we had free cable for almost two years. When they wanted us to pay, we dropped it again. Netflix had just started and we bought in, mailing dvd's back and forth. When they went to streaming, we followed right along. We have Amazon Prime for other reasons, and between that and Netflix there is plenty of entertainment. We recently got a year of Disney+, which was all about Hamilton. I suspect we won't renew unless we get hooked on the new Star Wars and Marvel stuff.

My wife and I found, when we got married, we were both of the opinion that children are more expense and trouble than they're worth. Much more. So we agreed not to have any. We have never regretted it, and we made it to a comfortable and secure retirement without working ourselves to death.

The success of value stocks in the past was due to an error. The market overestimated the negative effect that poor prospects of a mismanaged or under-financed company would have. Now we've corrected for that, and value is not undervalued. But mistakes aren't cyclical, so from now on, it's going to be growth all the way.

I use a bill shopping platform called Squeeze. Squeeze.com they helped me find the best streaming packages and saved me on a few bills. The cool thing is they keep notifying me of when I can have savings on my auto-insurance and homeowners. Pretty sweet!!

I watch a lot of YouTube, and it's all free. A lot of the stuff is not for everyone, but you may find something to interest you - millions of people have watched series like the Potter's House. Sometimes real life is more entertaining than overdone melodrama.

1. My internet provider—CenturyLink—has no data caps as far as I can determine. Almost everything we watch now is in 4K. 2. Disney+ at $7/month is a bargain. 3. OTA is free. Most urban areas have 50+ channels being broadcast. We love documentaries and this is the golden age of documentaries. And, scripted reality shows. Last night, for example, we watch Stanley Tucci in Firenze, Italia. Mouthwatering. Ditching the cable/dish company is confusing and complicated. Until you do it and then you wonder why you waited so long.

That works pretty well, we did very limited period subscriptions. We own the entire Poirot series on DVD, which is our absolute favorite, so we don't need to subscribe to that. That series was so well done. Maybe TMI but when we went to a murder mystery dinner, I went as Captain Hastings, my wife was Miss Lemon, and we did indeed solve the mystery...

How about using something like Tablo? I got one of these a couple of years ago, and for us it works very well. I put a couple of TV antennas in the attic, co-phased them and pointed them in two different directions, and we get something like 25 different Over-The-Air broadcast stations locally. This is more than enough for local news events, and gives a moderate sports-watcher like me enough to watch as well. There are even several local channels that run lots of TV oldies, such as Richard mentions in his comment. Not to mention PBS, and other stuff... I think their guide subscription costs something like $50 a year, and is well worth it. Between this, Prime, and Netflix, we have more than adequate TV-watching choices, at far less cost than our old cable setup.

Thank you for making the argument for means-tested Social Security and changes in tax policy. But in the meantime, you could always donate those benefits to charities who actually need them.

"... unsystematic risk, which is the danger that your particular investments will lag behind the market" This is mistaken in a minor but telling way. Risk generally refers to volatility, which includes the chance that you will beat the market. That happens, too, with active sector funds. For instance, I bought into an emerging markets stock fund 8/1/2018 which is now up 15.29% annualized.

David - When it comes to enthusiasm and commitment for professional sports teams it gives perspective to remember that all the players are millionaires with cheerleaders. How much do you think they care about you personally? Can't you really wait a day to watch their games for free? - Dave

I followed a similar strategy which got me out of debt in 10 years. Financially, it worked well, but my real reason was that I really hate being in debt. Instead of making extra mortgage payments, I made a large down payment, to reduce the size of the mortgage.

You can also share your Youtube.tv with family in other cities-similar to sharing Netflix accounts.

Do I have a treat for you. I subscribe, through Amazon, to two British streaming services: Britbox and Acorn, which have a vast number of mysteries, Midsomer Murders, Father Brown, Poirot, Miss Marple, Rumpole of the Bailey, and many others I didn't know about previously.

Buying during market lows works great. I did this in 2008-9, in 2011, and in 2020, and got very good returns. But the difficulty I have is figuring out when/whether to hold money out of the market so as to have cash available for buying during a future low. Actually, I'm having that problem right now.

I don’t get all the streaming. I’m still stuck in the rabbit ears and aluminum foil era. I find little of value on live TV so I’ve reverted to my DVR recording old British comedy and mysteries, coupled with 50 and 60s sitcoms. I was considering YouTube, but after you mentioned the prices, that ain’t going to happen. I’m happy with all the free stuff on YouTube. A good archeological dig in York or a night with Ozzie and Harriet are quite entertaining.

My mistake. The data I cited are for all households.

I can find nothing to support the $3,000 figure. 65+ have the highest median and average net worth of any group. I’d like to read the sou4ce of that number.

https://uploads.disquscdn.com/images/2c58e7f815ba3658ac2e1b5c63d209c292929361642a0bd5d50ffb41a526f21b.jpg I meme on FB today. The I deserve notion never goes away.

Senior discounts are rare in EU countries. This probably reflects the fact that few seniors in the EU live in poverty while the net worth of lowest 25% of US seniors is $3,000. The USA Today article you cited noted that inflation is higher than COLA for the goods and services that seniors purchase. Didn’t you know all seniors struggle financially? Have you ever heard a politician who didn’t use that broad generalization? It is human nature to make inaccurate assumptions about individuals based on stereotypes. Nevertheless, I don't recall ever hearing a politician or anyone else specifically state that all seniors struggle financially.

#BestCommentOfTheWeekAndItsOnlySunday

the thing about seniors that blew my mind was that they have sex. I always assumed they didn't.

Why go to college? To increase your future income? No, that's for vocational school. The traditional idea of college education is quite different, concerning history, art, literature, philosophy which I gather the author regards as airy aspirations. If you catch your child harboring such notions, you must disabuse him/her. ,

Good questions Juan. The market timers have a knack of sounding smart by quoting all kinds of statistics that show the market is in bubble territory. The problem is that if you go back over the last ten to twelve years you can find cogent arguments every year as to why we are in a bubble and, if you followed them, you'd have missed the incredible run up we've enjoyed if we stayed the course. Someday of course they will be right which is why I recommend you have enough cash out of the market to be able to feel comfortable when a big downturn comes. To me, the psychological cost of of riding through a downturn is the price we pay to enjoy being in the market when it goes on a run like we are enjoying now. Monitor asset allocation and rebalance out of equities when they go beyond my comfort percentage periodically is my practice. As to stock picking, I know I'm no Peter Lynch, so I stick to low cost index funds for the most part.

Thank you for posting this. You've translated very eloquently into words many of the experiences/emotions/anxiety which I think hundreds of thousands if not millions of workers (at least, white-collar ones) have experienced during Covid. Another commenter made the worthwhile point that not everyone can seek purpose or meaning from their job. I wouldn't disagree with that. But there is a large cohort of people who do, and for those this advice is very timely and thoughtful.

Yes it's been a decent performer. It's an oddity in my portfolio because most of my other holdings are in index funds.

“You’re going dressed like that?”
HAHA. Wives always say that. It is in their secret manual. Personally, I think cargo shorts are always in style.
"That raises the question of whether respondents are using a uniform definition of income,"
Gross (pre-tax) or disposable (post taxes). AGI or MAGI?
"In addition, many retirees tell me they’ve done quite well with their investments over the past year."
For us. assets up by almost $260K in 2020. After spending $100K on living and paying taxes on a $190K Roth conversion.

Wait a minute: that has averaged 14% return over the last ten years. The “sin” of some of the reputable firms’ active funds may be that they induce greed! The Vanguard mid cap growth index fund averaged a little lower than your TRP active fund at 12% and their active Capital Opportunity mid cap weighted fund has averaged 13% over 25 years with .44% fees. I realize these may all even out, especially with fees, but some mixing and matching seems an OK “oddity”.

We have Medicare and Medigap. They just applied the discount when they gave us an estimate.

That is probably just a feeble scheme to discourage retirees from moving Florida. If your property tax is $15K and your state income tax is $10K , you may very well move anyway. From an incentive point of view, it would make more sense to offer it to retirees whose income is over $91,505, since those are the ones most likely to be paying huge income and property taxes.

How did you get a discount at the oral surgeon without having insurance?

My experience has been similar. My wife and I, both 79, retired in 2010, and we're invested all in mutual stock funds. Except we have 20% in foreign stock funds, half of which are in emerging markets. We're pleased with how our investments have done sine 1981, but especially in the last year, in which we're up 38%. I'm a little bothered by the possibility that we are victims of the "recency fallacy".

Shhhhh.... You are trading our secrets for web clicks! :)

Oops, I FORGOT ONE In NJ, seniors age 65 can have their property taxes frozen if their income does not exceed $91,505, (indexed for inflation) simply because they are seniors. Several forms of income are excluded from the above amount. Meanwhile the median household income in NJ as of 2019 is $85,751.

Joe, I had a great read, this was right up my ally. People with a plan are in no rush to get to there goal, they will get there it just might take a bit longer People with no plans always hunting for the quickest way to get to the end, one small mistake and they need to start over again. My lesson We had just bought a cabin, it was suppose to just need to replace some flooring and paint a bedroom. Suddenly we guttered the hole place.... I was standing there thinking how h——- am I gone put this back together. Our 4 year old son come up and saw I was looking a-bit concerned ( I was terrified ) He said Don’t worry dad, slow and steady get the job done.... That sticking with me

I wish, actually I would rather see the money saved and lower taxes for all citizens.

In 2012 I decided to hold no bonds until interest rates rose, and to stop selling any securities except for living expenses. I had a small investment in a municipal bond fund, which I must get rid of, but I couldn't, so I compromised and sold half, The half that remains is my sin.

Isn't an important lesson of the pandemic that it is important to have a plan in place to protect the surviving spouse in a situation where one spouse is lost suddenly, like, let's say, from an illness caused by a pandemic? They only come every century or so, but they do come every so often. Many spouses have been lost without there being any communication possible to express wishes beyond just condolences.

I've had mine for 2 1/2 years and I am still very much in love with "Dash". I haven't taken it on any long road trips but every driving experience is a joy. It's the most expensive car I've bought. The last new car I bought was in 1995. Kids are out of college, we're on track for retirement, so I finally bought something nice for myself. My vehicle is not contributing to fossil fuel pollution (solar panels came first and we purchase wind power). I love, love, love my car! Once you get used to an EV, you'll never want to go back! Hubby is waiting for an electric truck...

Adam, what you call "inconsistencies" I call "spice". I think it's safe to say that the majority of folks on this website agree that it's essentially impossible, over the long run, to "beat the market". But someone has to win the lottery, right? So a few flyers here or there, either in an organized fashion as "fun money", or with overweighted bets on sectors and such (my approach), it keeps one engaged with the process. Without even having run the simulation myself, it'd almost be interesting to compare the performance of the inconsistencies to the theoretical performance of that same money invested "by the book" in a broad based index fund. I'd be curious.

Great comment--thank you for posting. Another key is to have your child be an attractive applicant to a school with resources. This could be any skill, interest, or accomplishment (sports, arts, academic)--not all students are equally valuable to the college they apply to, and that is not widely advertised.

"we need to fill the big hole left by the disappearance of our fulltime job—something that replaces the positive aspects of our career, that’s challenging, that requires learning new things, that allows us to contribute and that makes us feel a part of something bigger." Great tips in the article, but I take exception to the elitist and often misguided assumption that everyone has this fulfilling job where they "learn new things, feel part of something bigger." Ummm...no. Let's introduce a little reality here: there are MANY hard working people whose 40 hour a week job consists of doing the same exact thing every day for 30+ years - whether it's assembling widgets, mowing lawns, ringing up groceries, tending to patients, etc. There are jobs at all levels from entry to high level that essentially come down to the same or a similar set of tasks every day with very little change. There's no "hole" to fill for many of these folks - just read a few retirement blogs and forums like Early Retirement, Bogleheads, and others: many people have been retired for 5-20+ years without searching for meaning, purpose, etc - they're relaxed and ecstatic with their lives

This article is a great example of the importance of knowing "the rules" in all things that involve money and I loved what "davebarnes" had to say in his comment. The best example of this that I read compared a blue-collar family, double income, who saved from the birth of their child for college in an account in their child's name. 75% of those funds must be used each year, so there was little financial aid awarded even though the couple were not high income. Meanwhile, the financially prosperous dentist had no cash in the child's name, very little cash in the bank, a house that was paid for, and enormous sum in a 401k and their child received a generous financial aid package. We all need to learn "the rules" for college financial aid, buying vs leasing a car, cost of credit cards, Roth vs 401k, et cetera or we will suffer the consequences financially.

Many people are high on real estate. But, not REITs nor partnerships. By real estate I mean single-family and small multi-unit apartment buildings where the investor is the landlord. I am not into real estate because I don't want to be a landlord.

I agree with all your revisions except for #1. I have never been persuaded by the arguments against active funds, and starting from a 1972 investment in TR Price Growth fund, active TRP active funds have always done very well for me. Since 1992, I'm up 12.65%/year.

Also consider the bond market was a better investment than S&P500 since the burning of investment records and my cousin on 9/11. A good friend left POM to work at MCI, his 401k ended at $1000 about a 99% loss.

I use Morning star X ray because it is more accurate than say Vanguard asset mix/ portfolio watch. I also use Catherine Austin Fitts Solari report . Her recent work with John Titus will make you rethink every thing. Going Direct Reset approved at the G7 central bankers’ meeting in Jackson Hole on August 22, 2019. The NY federal reserve fixed all stock market action since 2007. This report sure makes all portfolio adjustments a cruel joke. March 2020 was made possible by the issuance of FASAB Statement 56 by the Trump Administration in October 2018. This federal law facilitates the transfer of government assets and operations to private hands on a non-transparent basis. In 2000 US economy and the financial system laundered $500 billion to $1 trillion a year of all dirty money. Index funds help to make crime money legal. Perhaps we need to rethink index funds because you are buying all the sin. I switched from stocks to bonds in late 1999, mid 2007 and November 2020.

It sounds like you are about to write an article on the importance of considering taxes in adjusting our portfolio's. Early in my career, when I happened to be a partner in an RIA firm, I discovered that my partner, also an accountant, had inadvertently left a client with huge tax bills because he recommended portfolio adjustments without consdering taxes. As someone who has owned GE, MCI, and bought airline stocks soon after 911, I too live with the reality that my stock portfolio has underperformed the S&P 500 at 1,3,5, and 10 year marks most of the times I look.

Now go and sin no more....

It’s good to hear that you’re an investment sinner. I have some oddities in my portfolio that date back to the early days of my investing. One of my oddities is the TRowe Price Mid Cap Growth fund which was recommended to me by my brother some 25 years ago. I have thought of selling it but the thought of paying taxes on it tells me just to deal with having it in the portfolio in spite of the high expense fee.

I use Morning star X ray because it is more accurate than say Vanguard asset mix/ portfolio watch. I also use Catherine Austin Fitts Solari report . Her recent work with John Titus will make you rethink very thing. Going Direct Reset approved at the G7 central bankers’ meeting in Jackson Hole on August 22, 2019. The NY federal reserve fixed all stock market action since 2007. This report sure makes all portfolio adjustments a cruel joke. March 2020 was made possible by the issuance of FASAB Statement 56 by the Trump Administration in October 2018. This federal law facilitates the transfer of government assets and operations to private hands on a non-transparent basis. The US economy and the financial system laundered $500 billion to $1 trillion a year of all dirty money. Index funds help to make crime money legal. Perhaps we need to rethink index funds because you do not know what the hell you are buying.

Hi Joe, nice article. What do you think about 'market timing'? Some people are outside the market because we are in a 'bubble territory'. On the other hand, Peter Lynch -for example- don't suggest trying to time the economy, and that if there are good opportunities at reasonable prices it could be wise to be invested in these companies (even if the market is pricey). But ... there are ever some gurues holding a ton of cash, and anticipating a crash. What do you think?

The ethical will is derived from Jewish tradition found throughout the Old Testament (Genesis 49, etc.). Many consider Matthew 5 to be Yeshua's (a Jew later known as Jesus) ethical will. If you search you'll find many examples of ethical will's throughout history. There are even compendiums in book form on Amazon. This is by far the most important and fun part of estate planning to me, though in my case the other stuff is pretty routine. I'm working hard on the humor part - my favorite comedian of all time was Jack Benny, who was Jewish and arranged in his will for a single rose to be delivered to his wife each day for the rest of her life. I bet she finally started liking him. :)

Johny I'm sorry for the losses you've had. I think as we consider our mortality the limits of money come into focus as you've shared. Thanks for the comment..

Excellent idea! Love it!

Index funds are a few winners and many losers. When you have the winners forget the losers. Enjoy the winnings.

Not only would those statements benefit from documentation as parkslope asked, but also: managers who do outperform their benchmark very often engage in style drift. You may think you own a US small cap fund until you look at the holdings and find Amazon, Google, and Tesla. I have used active funds on occasion, but it was typically to fill a niche where I didn't have access to index funds. That's not to say active funds can't work, but using them does mean you are taking on extra (uncompensated) risk.

Most of my portfolio is fixed, but 10% of it is allocated tactically. I hope you picked right. My base portfolio is light on Lg Cap exposure! With the recent rotation into Int'l growth, Sm Cap and Emerging Markets, it's been a good half year. I'm going to share a thought on US value: the pandemic resurgence seems to have spooked the investors crowding into that space these past few weeks. I suspect value and growth may trade off leadership for a while based on pandemic news. Full disclosure, I'm about 50/50 SCV and SCG. No SC Blend funds.

...and almost 25x expenses saved up. Nice work!

Man plans, God laughs. We had a plan for college saving, but frankly, it mostly failed. The idea was to put in most of the Christmas and Birthday money they got from relatives... but that turned out to be very unreliable. We were pretty worried about college costs, but then we came to grips with the fact that our oldest may never go to college, long story. Our youngest then falls in love with one of the most expensive schools in the nation. The thing about these schools, though, is people rarely pay full price. Youngest was accepted to the dream school, with a 70%+ discount on tuition & board via scholarships. It's still a fair sized annual payment, but it's virtually the same price as the state university ten miles down the road would have been.

I just looked up the annualized return of the S&P index since 1992 -- it's 5.73%. I guess that's fine, but some results are finer than others. My annualized return since 1992 has been 12.63% (the PRR calculated by TR Price for my active funds). Just lucky? I have never tried to guess which funds will do best -- that would be a trader's perspective.

From every aspect of our human being - physical, hormonal, emotional, etc. - we seem to be organisms fine tuned to eat, excrete and procreate. All this other stuff like having careers and dreams are just fluff or side effects. Our maker created us to seek this thing called "purpose" and having children triggers this powerful instinct that drives us to seek food and defend to the death. When kids leave the nest, it leaves some people feeling empty and without purpose.

as far as I know, in order to know happiness, we need to have gone through sadness. If we accept the logic that sadness and happiness are two sides of the same coin, the way to experience even more happiness is not to make more money, but to experience that much more sadness. So to ask for more happiness is to ask for more sadness....so becareful what you ask for.

4 years ago my friend's wife passed away from an illness - she was barely 50. Last year he fell ill and died. Luckily his kids are old enough to take care of themselves. When i start thinking about what I shoulda, coulda, woulda done about BItcoin or Tesla, I quickly remind myself I have enough and the point is to enjoy the remaining time I am alotted.

Sounds like you have found a good balance in your investing philosophy. I appreciate knowing there are kindred spirits out there!

Let me know when you figure out Bitcoin Rick! Thanks.

I really wanted to buy stock after the 1987 crash, but I was poor; every penny was going to tuition. I really wanted to buy Apple stock at 8$... but I was still unsure of myself and investing in index funds made sense. I really wanted to buy a batch of bitcoin at $1... but the household budget was in the red. I wanted to buy Tesla, Facebook... you get the picture. It seems a lot of popular speculative picks have also had surprising staying power. I figure I've had 7 good hunches, 2 that were ok, 1 that crashed and burned. Now that a lot of plans have come to fruition, I can scratch that itch. If I'm interested in something, I can drop a small stake on it and just let it ride. If it goes up 10,000% maybe I can 'retire' right away. If it goes up 400% i can enjoy the ride and a nice vacation. If it crashes and burns, it makes no practical difference to me. I've purchased a tiny slice of ARKK. It's up 50% since I bought it. Cool, but I'm not buying any more. Itch scratched.

Really enjoyable article Joe. I still get urges when a friend tells me they bought Tesla at $40, or some other big win. But more ofter than not any stock I buy goes south quickly thereafter. So its low cost index funds for me. I have a 2021 goal to understand Bitcoin. As part of my AARP TaxAide training I did some study of how the IRS treats it. It's treated differently if its used as a currency (say to pay employees) or an investment. I can't figure out we could use a highly volatile asset as an everyday currency. If my favorite CabSav Zaire by $20 per day per bottle, it would ruin my enjoyment!

Valid. I think it goes back to the maxim 'know thyself'. A lot of people get caught up in speculation. Others just want a little fun on the side. I put $1000 into ARKK a couple months ago, it's up 50%. This is not measurable in our retirement/legacy calculations, and is unlikely to ever be relevant. However, it scratches that itch, and just might pay for a really nice vacation down the road. I'm not tempted to go buy a whole bunch more. If instead all the cash flowing into ark funds causes it to capsize, well, I haven't lost much, and at least I'll get a decent pun out of it.

Thanks Langston. That is a winning formula to follow. Love the FOMO to FOMU.

Another great article, thanks Joe. :) A good baseball player never decides what he's going to after the ball is hit to him. He studies the game and his position in it, then decides beforehand what he's going to do. In risk of beating a dead horse, a good investor will decide on the proper asset allocation of low cost index or similarly well diversified funds for his position (risk tolerance, time horizon, etc.), then correct that allocation when it skews outside a given range, such as 5% or so. FOMO will change to FOMU (messing up) IMO. :)

I can't argue with the math Dave. However, some people like to play a little poker once in awhile just to get together with the guys and risk a little money while having fun. I think my comment is for investors like me who know we don't have a competitive edge and don't want to risk blowing our financial goals, but who still enjoy a $5 bet on the Super Bowl just for the fun of it. As always, your comments are thoughtful and I appreciate them!

Good question parkslope. You may have a good point in general. However, in the little niche I claim to have some competence in I have found some modest success. I have focused on what I see as undervalued stocks that don't have a lot of institutional followers. The more efficient the markets, the tougher it is to get an edge. That's probably where we would have some common ground. But I think it's not unreasonable to think that some investors possess a circle of competence that can gain an edge in some markets. Especially the ones that are not widely followed by analysts. Whether my success was random, or from some insight I have from my experience, we could probably arm wrestle over. But I'm comfortable with my statement. Thanks for the comment.

As you transfer responsibility for monthly bills, consider making irregular cash gifts if you can without compromising your ability to retire. For an adult who is newly living away from home and paying her own bills, an unexpected gift of several hundred dollars is wonderful. It lets her enjoy a night out, buy a new outfit, buy steak and flowers for a fancy dinner at home, enjoy a spa day, or make an extra payment on student loan. By paying regular monthly bills, you can make it too easy for a young adult to live above their means. By making occasional unexpected gifts, you provide joy. The important aspect is that the cash gift is totally unexpected, so the young adult doesn’t rely on it.

"I know banking. I have invested in bank stocks in the past. I’ve done well because I can make a decent estimate of when those stocks are undervalued." Is there any evidence that experts in an industry are able to earn returns that beat the S&P over the long-run?

"We all crave social connection ..." Speak for yourself. I don't need a social connection with you to talk to you. I'm fine with that.

The folks in index funds are earning the market averages, which is a fine result. Instead, if you're going to talk people out of anything, you need to talk them out of owning actively managed funds that lag behind the market. The only problem is, you'll need to figure out which funds will trail the averages in the years ahead. Hint: Past performance is no guarantee of future results.

I wish I could talk people out of the current index fund craze, "After all, that’s how I earned 17% on my retirement funds last year." I made twice that (38,25%) with my active funds. The cure for FOMO is to avoid trading.

"I suggest taking some modest positions to scratch that itch." The problem is that a modest position does not change your overall wealth significantly even if that position goes up a lot. $10K * 400% = $40K. And, the modest position will have your brain focused wasted on something that is not relevant to your overall success.

Catherine, I appreciate the more philosophical thoughts about children you offer here. I really like the Milton Friedman insight. I was not aware that he had addressed this topic. Thanks for the contribution to the conversation.

Years ago I started working with a widow in her 30's who had 3 kids. Her husband died in a car accident a few years earlier. I remember her tellling me at the time that she felt very lucky because she and her husband had purchased life insurance soon after they were married. She would often tell me very proudly that she knew her kids would be able to afford colllege due to their purchase of life insurance. You never know what tomorrow brings. Those who try to prepare for as many eventualities as possible in life are the ones who have the best chance of succeeding financially. All this talk of timing the market, small stocks, large stocks, hot tips, options, Roth conversions etc are meaningless if you do not have an overall plan. Too many small investors do not have a strategy but are filled with a lot of tactics that often are useless when the chips are down.

My wife and i ate dirt for the first 15 years of our marriage. This spirit simple living and investing has enabled us to pay for college without loans, payoff our mortgage prior to retirement and reach financial security by 50 on one income. You can probably tell I am a studious pupil of Mr. Clements.

"Life without work can be boring." Nah. We have websites such as this one to keep us occupied.

I have a quote from Pericles on my wall: “What you leave behind is not what is engraved in stone monuments, but what is woven in the lives of others.” I’m not a religious person by many measures, but I have a strong interest in the words, tales, advice, and warnings that have been accumulated since humans started reciting and writing and drawing and scratching on stone and papers that have survived millennia. I find in the Old Testament book of Numbers more than a litany from Adam to Moses to David. I hope my kids do amazing things but maybe my generation and theirs are merely the path between one great to the next, far out of sight. Milton Friedman said that parents violate self-interest expectations of neoclassical economic theory to advance their children, and we ought not to overly try to limit the ability of parents to advance their children’s interests as in the aggregate we all benefit from this additional production.

Perfect example. The linked Georgetown ROI site intends to roughly inform parents and potential students. Most can earn a public school teaching credential at a fraction of the amount of a private education, where local community colleges can get a person halfway to their credential at an extremely cost effective point.

Regarding point 7, I wasn’t able to glide the extra five working years I’d planned. Adequate financial preparation and now working on purpose just as you state in point 6.

Great piece for firing the imaginations of those with chance now to re-evaluate past expenditures of time and money, and what they anticipate in retirement, so they can adjust in the present moment. Limited and generally less pleasant to adjust once you’re retired.

Actually I am finding this COVID period quite acceptable, perhaps even enlightening. The isolation has reduced my life to the bare minimum and to realize contentment under these conditions has been a pleasant surprise. I am now even more confident my retirement will be without some of the issues outlined in this article. I've found our marriage to continue to be strong, time to fly and the mind not be in that constant unhappy state looking for things to distract itself with. This COVID isolation has made me realize the distractions of eating out, traveling, shopping, partying - going to church even - aren't needed to find contentment.

Great and accurate summary. I’ve been retired eleven years and before that I spent decades coaching employees planning to retire and also working with thousands of retired employees (and still do via Facebook). You have captured the issues which people need to seriously consider when thinking about retirement. The increased divorce rate is a bit discouraging. My wife and I have been married 52 years. Last year we faced the challenge of 30 days quarantined in a ships stateroom followed by two more weeks in our condo when we finally got home. We survived each other.

I have been adding International, Value, and Small Cap exposure (25%) for the last 4 months. I only have 25% now in US large cap equities. 25% cash, 25% spread in bonds/debt instruments/etc... As the US get's more and frothy, I think it's a good time to move money into markets with lower valuations.

Could you provide documentation that "many" portfolio managers have outperformed their benchmarks over the long term?

If someone is moderately interested in doing a little work to improve their portfolio's performance, then spending the time to find portfolio managers (not funds but portfolio managers - remember, investors were investing in Peter Lynch, not Magellan) who run actively managed funds can be very rewarding. There are many who have excellent, long term track records handily outperforming their benchmarks over the medium and long term. I have found that owning a mix of both actively managed and index funds has worked very well over the past 40 years.

"I didn’t want more than 70% of my money in stocks." We are ages 72/63 with 78% of our money in stocks. Enough in bonds/cash to weather a 5+ years market downturn.

Roboticus Aquarius, you have a powerful and moving story. Thanks for sharing so deeply. Your perseverance and love are inspiring.

Thanks Anika. Quite a few of those tuition checks went to University of Montana, so I appreciate the Griz greeting. Fight on! As they say. I appreciate your good perspective on kids. Thanks for sharing the path you took.

Nice article Marc. I like how you referenced you discussion with friends and how that made you think about your portfolio. I find questions from and discussions with friends and colleagues a great opportunity to review my own ideas and actions. There is so much to learn about finance; it is one of the best aspects of it.

One topic often ignored by these types of discussions is the cost of the education vs. likely income the education will generate to help repay the loans. This is a tough love type of topic. Students entering higher education often do not know what career they will pursue. Unless they are advised to at least think about how much they will likely earn with their future degree, they might incur debts that they not only have no hope of repaying, but that will impair their financial situation for their entire lifetime. Attending a top tier private university and incurring $200,000 in debt to become a teacher who in many states will never earn enough to repay the loans is an example of such a bad outcome.

Joe, I appreciate your perspective from the other end. My husband and I put a lot of thought into the decision before eventually taking the plunge, which is why I became a mom at an "advanced maternal age." So far, it's been a lot of work, and a lot of sleepless nights, but also truly amazing and incredibly rewarding. I'm thankful I took the time to travel the world, pursue additional education and some of my interests and passions prior to having children. Now, my life is them. As you stated, selfless service to family translates into selfless service elsewhere. I am a better person for it. Plus, I love the fact that you live in Missoula. Go Griz!

When we began to consider kids, my wife and I actually interviewed our older friends who had raised kids. The input was pretty split, some saying it didn't really work for them, some saying there were good and bad things but the bad things were enough to make them question their decision, almost nobody was purely positive. One of them had suffered the death of a child, another had adopted with poor results (which shouldn't discourage people, my wife is an adoptee), most of the others had relatively 'normative' experiences. Wow. We had to think a bit. Fast Fwd: We have one child who has special needs and is unlikely to ever attend college, despite being described by teachers as truly brilliant (as in finding his own solutions to calculus problems rather than using the methods taught in class. I actually can't conceive of that.) It's an easy guess that he struggles severely in other areas of life. He has worked at three retail location in 18 months, it's difficult for him to keep a job. We have put a lot of work into making sure he has support services, and are trying to set him up so that he won't be kicked to the streets when we pass. My other child has had depressive episodes, but is a National Merit Scholar at one of the top engineering schools in the nation. Parenthood has been more than challenging for us, it's come close to ripping us apart as we both struggled to do everything we could for our kids, but could not always see eye to eye on how to accomplish that. There were many times when one of us would just be too overwhelmed with the effort, and the other had to carry the load for a day, or a week, or longer. That was on top of long hours at work and going to school at night. I imagine I lost ten years of my life expectancy to the experience. I once calculated the opportunity cost of our kids. This may seem a bit cold, but I was curious. It came out to almost 100% of our net worth. Yet, for all that we've been through, there's no way I'd make that trade. I feel like we're on the cusp of accomplishing something really amazing with our efforts. When all is said and done, they are beautiful people I'm proud to have parented. Kipling ended his best-known novel with this line about the Lama who had adopted Kim, and it affects me deeply: He crossed his hands on his lap and smiled, as a man may who has won salvation for himself and his beloved.

Congratulations on hitting the Jackpot. I think over the last 15 years a lot of popular opportunistic purchases like Apple have worked well. You might want to read what Bezos has said about how long his company might last, if you haven't already. It ties in with Jonathan's questions and gives one some things to think about. You are carrying a lot of un-diversifiable risk. I'm not sure you recognize how great that risk is. If you want to invest like Buffet, you might want to ask yourself what your margin of safety is? Why one company is 75% of your portfolio? (Hint: What is the value of their assets compared to their total capitalization? Even including intangibles?) If you don't know off the top of your head, you might want to consider his advice to people who don't have in-depth knowledge of the market. How much do you read about investing (WSB doesn't count)? How much do you read to explore other fields of knowledge? Assuming this investment is taxable, I would want to talk to a CPA about how much I could sell each year and keep taxes minimized. I'd want to sell more than half of it over the next 5 years or so and invest that in diversified index funds that cover the Global or at least the Total US market, plus a few treasury bonds on the side. That's not advice, that's just what I would do. But that's me. The question is what do you want and need? If you're going to have a pension that pays for your retirement, maybe you have more ability to take risks. You really need to assess all of that.

Your optimal strategy certainly would result in a minimal expectation for any family contribution in particular. One wonders, in this era of higher education constraints, with few schools sitting on fat endowments or generous contributions from state legislatures, when it might help a student be admitted, on the margin, knowing the school would not have to discount its price to near zero in order to admit them? The University of California fell into a PR trap and had to face the wrath of the legislature for admitting more out of state students and fewer California students, to improve the bottom line. Schools still must pay for staff, faculties, heat, lights, gyms, cafeterias, grounds upkeep, libraries, building maintenance, health insurance and other benefits. Someone has to pay for colleges. I don't mind paying for higher ed in principle, if I think the expenditure will result in more opportunity and greater life satisfaction or community contribution from my kids. It's only when I think the cost might be ten years of every penny I saved, and the trips I didn't take or nice things I didn't buy to have saved this sum, that I hope my kids and I agree on the right school at the right price.

I didn't even mention the CSS Profile here! : ) Thought I avoided that extra level of financial disclosure, but no, one of the colleges came back and asked for me to submit that as well. The CSS Profile requires a person to disclose both one's home equity and retirement accounts. Surely schools do not expect parents to take out mortgages or spend their retirement funds, in order to pay for college! Either of those would be a terrible choice for parents, who even among the youngest are in middle age, and the oldest senior citizens with no time to re-earn the income to pay off a second mortgage.

A teen who wants to follow a clear and established course like your son has proposed is likely well situated for success. Honestly there are many firms that will help him pay for college, later, once he is in a job and it makes good business sense for him to get his degree. The Georgetown "First Try at ROI" site includes a column "average age at entry" and it's not all 18 year olds. Any tradition of "straight from high school into college" has to be weighed against current conditions and future expectations, hopefully carefully considered by all affected parties. Many, many undergraduates students are now "nontraditional", that is, outside the 18-22 range. He could spend 4 months and $15k, work for a year as a programmer (making back the entire investment, and then some), and decide to become a poet, or a tennis coach, or go back to school to study electrical engineering in earnest. He might even be able to get hired without such a course (I am thinking of one person who applied for a niche tech job on Friday, bought a book that evening, worked all the exercises in all the chapters, and got hired on Monday morning.) Many valid paths to a constructive adulthood.

I appreciate that you are sharing your strategy which I imagine is being refined as each of your children passes into adulthood. There are millions of families ( IMO as a former university administrator ) who have inadequate and incomplete information on how to assist their young adults who are trying to figure out what they will do and what preparation will be essential to get there.

Having been asked by a selective private school to augment the FAFSA with a CSS, I’m sure that the college absolutely expects me as a parent to dip into retirement, other savings, and perhaps even home equity!

The optimal strategy for both the FAFSA and CSS Profile is very simple: 1. Have zero income starting in your child's sophomore year in high school. 2. Have zero non-retirement assets. 3. Make sure your child has zero assets. Implementing the strategy is not easy, but can be done.

I would add that college ROI data don't control for the fact that high ability high school graduates are much more likely to attend prestigous colleges. IMO the higher ability of students admitted to prestigous schools is the main reason why those schools have higher ROIs despite their higher costs.

Fair point, I would say that many of them have a higher degree of preparation and a more comprehensive set of externals supports as well.

My 18 year old son just decided to not go back to a $32,000/year private college after his first semester there in favor of rolling his own software development education via FreeCodeCamp, other free online resources or possibly a $15,000, 15-week coding boot camp. I think it is great as I feel universities have become bloated, entitled organizations. We recognize there are some risks but we think he can work through them.

Timely...and painful article. I have four children, one just graduated from college, one a senior in high school, and two in college. I make a great salary as does my wife due to our location. That location also brings higher than normal expenses like housing. We live frugally, but from an EFC perspective we should be paying $38k per year per kid. Realistically, we can swing around $12k per year. Thankfully, we saved in each of their 529, but no where near enough. What we have done is agreed to pay the room/board/fees for our kids and they cover tuition. They can do that by working during the summer or loans. This has had some unexpected benefit as they now have some teeth in the game. They can blow off a class, but they paid for the class they are blowing off. Tuition has become personal to them. Once all four are done with school, we'll circle back and help out with the loans, but its just not something we can do at the present. With our high schooler, he is looking at the community college route. Amazingly, the tuition is just $75 cheaper per credit than our state's average tuition. The savings is not in the tuition, but all the other fees and room/board. If nothing else during the pandemic, I think a lot of people are putting more thought into college costs, the value and the return on investment.

Thanks SCao. It sounds like you are well on your way to creating a wonderful family legacy. It's encouraging to hear from folks like you making the sacrifices for your family. As my story, and others that have commented show, it's well worth the sacrifices.

Saying outrageous things gets Wall Street experts attention. But those experts are rarely called back later and asked to explain their ridiculous comments.

Thank you for sharing your story. Being a parent is certainly a very personal decision. I personally feel very fortunate to have two young happy and healthy boys (9 and 6). My wife and I just bought our house a few monthes prior to the arrival of our first one, and we made through it financially by living within our mean with just one income for about eight years till she went back to work force a year ago. We still have a long way to go as parents, and seeing both boys grow up in front of our eyes has been the most amazing life experience, despite occational headace. Admire you are able to give all your kids the gift of student-loan free. We are also aiming for that, as we opened 529 accounts for each when they were just born. Please continue sharing your story and I believe strong family (and parents) are the foundation for a strong and thriving community, regardless in 2021 or 2121. Thank you.

All things being equal, it’s better to pay less for something than more. Wait! We're supposed to buy low and be patient?! :) Here's another plot of the Value/Growth trend.

Nice piece, Adam. Love the Tweedy chart. I'd gladly take 10.5% average return over a long period on any equity part of my diversified portfolio. I looked at the value index funds I added to last March. U.S. small-cap value is up 71%, int'l small-cap value +61%, Int'l large-cap value +48%, and US large-cap value +43% since those purchases vs +63% for SP500. In the short term it's hard to imagine how even the value elements have much more room to rise unless they too become unmoored from the gravity of earnings and earnings growth rate. What might you be writing in future on this topic when (if?) 10-year treasuries rise again to anything like 4 or 5 per cent? Will Mr. Market fully sober up then?

Aren't connection speeds faster for institutional funds vs individual investors? Also, although the Stop Trading on Congressional Act was passed in 2012, I would be naive to believe all members of Congress still don't use insider info to profit. Not a level playing field.

Is there a follow up story to this about Michael Burry? Many naysayers continue to put down index funds. I'd rather index than follow the herd.

I totally agree with you.

Thanks for the summaries and links to the two studies. Both are fascinating.

We are Airbnb host, with three property listed. Done it for 8 years with great result and very happy people coming back year after year. You where talking about the “bite and switch price”. The problem is that AirBnb don’t give me an option - they list the lowest price! To stay in our cabin midweek in November is very different from peak summer. Totally agree with you that review are powerful, a bad review hurt us way more then losing 300$, also as a host we are reviewIng the guest and can recommend the guest to other host. The host can set there rules for who can book - need to be recommended - min 5 reviews - age Etc and if you don’t meet the criteria in you profile the listing don’t show up. I have so much to say about topic... haha jo

We still need to clean the place or pay some one todo it. Airbnb don’t give us as a host to set different cleaning fees, but maybe that would be good thing A base cleaning fee and then add $/day cleaning. It would just been shown as a cleaning fee.

Jonathan - That may be because we all have different "comfort levels," and we live in different places that have enormously different costs of living. But I do believe that 75k should cover the bottom of Maslow's Pyramid for just about everyone. I might be wrong, but I don't think so. - Dave

Unless the studies adjusted for cost of living, they're of dubious value when comparing the happiness of somebody earning 75K in say New York city vs someone earning 30K in Des Moines.

The Killingsworth study is very interesting. However, Stevenson and Wolfers (2013) reached the same conclusion in a more comprehensive study that appeared in the American Economic Review. Many scholars have argued that once "basic needs" have been met, further rises in income are not associated with further increases in subjective well-being. We assess the validity of this claim in comparisons of both rich and poor countries, and also of rich and poor people within a country. Analyzing multiple datasets, multiple definitions of "basic needs" and multiple questions about well-being, we find no support for this claim. The relationship between well-being and income is roughly log-linear and does not diminish as incomes rise. If there is a satiation point, we are yet to reach it. https://www.aeaweb.org/articles?id=10.1257/aer.103.3.598 There is also interesting research that suggests that happier adolescents grow up to earn higher levels of income, which raises questions about the direction of causality. Much research has found that richer people tend to be happier. However, relatively little attention has been paid to whether happier individuals perform better financially in the first place. This possibility of reverse causality is arguably understudied. Using data from a large US representative panel, we show that adolescents and young adults who report higher life satisfaction or positive affect grow up to earn significantly higher levels of income later in life. https://www.pnas.org/content/109/49/19953#:~:text=Using%20data%20from%20a%20large,of%20income%20later%20in%20life.

As soon as you mentioned "hindsight" you lost me. The point is that we have no hindsight at the moment. As another noted, the market could have kept on falling and you would have looked like a genius by not investing. The best plan of action is to have a plan and stick to it. Even a poor plan is likely better than one who keeps changing their investment plan based on the latest new trend. For investing cash, I’ve seen investment plans such as “for every x percent drop in the market I will invest y percent of my cash,” which seems a sensible plan of action if you have a lot of cash to invest.

If interest rates rise, bond fund yields should also rise, but their share price will fall. To find out how much, find out a fund's duration: https://humbledollar.com/money-guide/risk-and-bond-returns/

History tells us that all great growth companies eventually slow. So, too, does logic: If a company grew faster than the economy for long enough, it would become the economy -- not a likely scenario. The question is, will Apple slip gracefully into corporate mediocrity without taking a big stock price hit or will shareholders suffer the radical revaluation that often happens when that mediocrity sets in? I don't know the answer, and nor does anybody else, but I would ask yourself what the latter scenario would mean for your financial future.

I struggle to understand the way bond funds work vis a vis the yield . Can someone explain it like I am retarded because based on my WSB membership I am

When I set up my portfolio Apple was 5% of it . Since that time it has grown to over 75% but I cannot bear to sell any of it. Had I done that I would have missed out on two huge stock splits and thousands in dividends. I get what your saying though. But I think with company like Apple I am leaning more towards Buffets thoughts on it : he treats his apple shares as one of the businesses he owns not as a stock . Thoughts?

Thanks for the comment Langston. There is definitely a correlation between religious beliefs and children. I didn't research that for this post, but the Psalm you quote shows a dramatic difference in the attitude about children from the current cultural narrative.

Good comment DrLefty. One of the joys in my life has been in watching my two sons be transformed by having children. However, as you point out, not everyone rises to embrace the responsibilities of parenthood.

Besides GME, there were other stocks that were being bid up that did not get that much attention. AMC and BBBY were mentioned but there were others like BGS that flew under the radar. The short squeeze is usually initiated by hedge funds looking to make a buck. This time it was initiated by small "investors". As a long term investor, this makes me think Wall Street is made up of a bunch of small Casinos where you can win or lose in many different ways. Robinhood seems to be the newest. Remember, the House always wins.

Well, as one of poors with a household income under $180K, we will just keep muddling along.

My favorite point in this article was how being a parent can focus you to work harder and be less selfish. So in addition to being a great mom or dad, you’re a more mature, productive, and fulfilled person. Unfortunately, this doesn’t happen with every person who produces a child, but for those who embrace the responsibilities of parenthood and take it seriously, it’s a great and hidden benefit to what can otherwise seem like a messy and expensive endeavor.

My late father used to say that there were few situations we face in life that couldn't be improved by throwing a little time and (sometimes a lot) of money at them. Maybe personal happiness is one of those; it only makes sense that the more resources we have at our disposal, the greater our chances of success. I'm sure there are diminishing returns at some point, but still returns to be had nonetheless.

An annual income of $75,000 may indeed be where your happiness caps out. But the new research says that, for the broad population, there is no cap.

Very familiar with the oft-quoted $75k number, less so with the happiness set point. Strongly agree that it's heavily influenced by a confirmation bias, that it's consistent with what we WANT to believe, not necessarily something fact/data based. Throwing around similar behavioral psychology theories like they're water, the downside I see is that these bon mots can "anchor" people into thinking they're somehow constrained to these notions, like "gee, why aren't I happy, I make > $75k", or "I can't be any happier because it's out of my control". But that probably reveals my own bias, a general adage that a lot of happiness derives from agency, that we can indeed have a measure of control over our own fates. Best concrete example I can give is with a number of colleagues most of whom earn much more than me. Commonly I hear of their job dissatisfaction, but that they can't change jobs/careers because of this or that reason, when in fact over time they've acquired so many ongoing expenses that it would be a challenge to unwind. But to my eye, that's a choice made over time, and if suitably motivated, people can still choose differently.

Jonathan - I am going to take the crazy risk of disagreeing with you. Years ago I decided that the breakpoint for happiness was about the top of the 15% marginal tax bracket. Then I discovered that the Nobel prize laureate behavioral economist Daniel Khaneman came up with about the same number. At about that 75k number all your basic needs are met. Feel free to shred my opinion. I'm sure I deserve it. - Dave

Behold, children are a gift of the Lord, The fruit of the womb is a reward. Like arrows in the hand of a warrior, So are the children of one’s youth. Blessed is the man whose quiver is full of them; they will not be ashamed when they speak with their enemies in the gate. Psalm 127 Money is a joke compared to children.

This article and your comment both caught me by surprise. Yes, I guess I did realize that by definition the S&P drop qualified as a bear market. I just checked and the length of this particular bear market was 1 month! I guess I had focused on the 1 year performance of the markets (S&P, NASDAQ) and with all that other stuff (pandemic) going on I honestly had forgotten the depths of the dip. An unintended plug for buy and hold investing, I guess.

I love your story! The years of sacrifice sound like they were well worth it as you look back. As I said in the post, I think stories like yours are a good balance to the general narrative in much of our culture that kids aren't worth the trouble. Thanks for sharing your thoughts.

Mr. Kesler - What an excellent post. Thanks so much for sharing your story with us. My wife and I both worked while raising our boys. I had the added benefit of being self-employed with my office in my home. That meant I could drop my boys at school, pick them up, attend ALL their school sports/activities, etc which I did religiously. Being with them whenever I wanted because of my flexible work schedule was such good fortune. Now both boys are engineering majors at highly regarded colleges. I am over the moon thrilled we had children! Thanks for letting me go on a bit about them. How lucky are we who can feel great about how our kids have (so far) turned out.

Thanks Rick. I love your observation. I know fatherhood changed me and it has changed the two of my sons that have had children. There is a time to enjoy being a kid, but there is also a time to mature and take on responsibility and it's so wonderful when you see it happening in your own kids. Appreciate you sharing a part of your story.

Joe, great article. I'm happy for you and your family. Our two sons are great kids, very successful, married great, family-oriented girls, and have given us 3 wonderful grandsons. As proud as we are of all they have accomplished, a special joy and pride was seeing how great they are at fatherhood. Watching your children become parents is an amazing experience.

Thanks IAD! It was an easy one to write since it's about what I care most about in life.

What a fantastic legacy you have Richard. I really think those of us with these positive family stories should tell them. You have a great one and I'm glad you shared a bit of it here. Thanks!

Fantastic Post! Thank you!

Yup, the true ROI comes from grandchildren, we have 13 and they kept us busy. Several still do, but as they get older Ma and Pa slip a bit in their priorities. We had four children in five years, with one, two or three in college for ten consecutive years, they each had $2500 a year in loans, but later we helped them pay those. I have to admit while raising a family, not once did we think about the cost. There was also no discussion about my wife working outside the home, it was never even a thought she would do so. Like you I was in college at night, for nine long years and there many times I didn’t see them awake for a few days. I have no idea what it all cost, except the college and that was about $500,000, but that was over twenty years ago. My only regret which is a bit too strong word, is that none of the kids use their college degrees in their work. They are doing what the like and work nothing like I did in an office for fifty years.. One is a real estate broker, one with a masters in business and finance is a construction project manager and runs a side remodeling business because that’s what he likes, a third works full time at home designing systems, he has a masters in civil engineering and my daughter with a masters in education is a full time mom and great at it. There is no way to figure it all out, but joy and happiness helps. It also helps to avoid dwelling on “ I regret not...” or “I wish we had.”

I have found with airbnb, that the "base published" rate may be way below the base rate for the days that I am interested in. (with one property every date I checked was way higher than the published rate—and this is before taxes, cleaning, etc.) Check the base price before clicking the make reservation button. [I wish airbnb had a way to for us to "complain" about this.]

We've had good luck with AirBnB... will keep the discount option in mind. The last week in January we stayed at a really cozy place in DC near the capital. While the rate was very inexpensive, the post-stay cleaning charge in this time of Covid was about the same as the rent. This information was all available up front, though, so there were no surprises. The suggestion to use Booking as a backup seems like a great approach.

Excellent (I should have written very good, but I did not want to hurt your feelings) and very useful. I will try asking for AirBnB discounts in the future. Thanks.

I find the cleaning charges to be unreasonable for a 1-night stay. But, we typically stay 3-6 nights so they are reasonable—to us.

Hindsight bias? The Dow was at 7,939 in Dec 1965 followed by a long decline to 2,160 in July 82, and didn't surpass its 1965 high until 1995.

I thank Marc and Jonathan for helpful points—these markets crashes are great opportunities to buy solid funds at discount prices. In 2008 and March of last year, several Vanguard funds dropped 40% to 50%. Rebalancing into these funds is a no-brainer, they all recovered rapidly to pre-crash highs. Meanwhile Vanguard active funds rewarded buy and hold—international growth fund went up 60% for the last 12 months—broad diversification keeps participation in this safe, especially with recent re-balancing back towards bonds.

I have been investing in individual stocks for 30 years. It is hard for me to buy stocks at the bottoms, even though I know I should. I generally wait until things start to look up a little. I bought stocks in the second half of 2009, when there were still many good buys, and last year I bought in April and May, after the market started to recover. There was still plenty of upside at both those times.

I think these are all helpful insights within the proper context. Lesson 1: I think there needs to be nuance in this discussion. Buying aggressively is fine, assuming you have a margin of safety. Keep in mind that stocks can go down 30%... and then go down 30% more. Also, it can take years to recover, rather than mere months. If you lose your job in the downturn, you might need several years of cash/fixed income to avoid liquidating your home or other assets. Your emergency fund and fixed income assets need to be enough to get you through the long dark night, so you can last to the sunrise. Lesson 2: My answer to Lesson 1 and to Lesson 2 is that I rebalance when my stock to bond ratio swings by more than 5% (i.e. from 80/20 to 75/25, or to 85/15.) This has me buying low and selling high most of the time. It had me selling bonds and buying stocks at the precise low in March (pure luck on the timing.) I have several funds, but I focus only on stocks vs bonds: correlation of all assets tend to 1 in a market crash, but debt (especially treasuries) takes it's own path. There are other approaches, and other ways to do this, but I agree with you that a specific (written) plan is best. Letting emotions dictate your actions increases your risk tremendously. I say this as someone who has done so and succeeded (in 2008), but then realized I was playing with fire. Lesson 3: I think the real lesson here is not to fear ATH's. The best time to invest is now.

John McHugh: I live in the hi-tech Austin (Texas) area, where the prudent instruction "And then don't do anything stupid" clearly would need fleshing out. I know so many people around here—many couples with two "super-high pay" jobs—who waste phenomenal amounts of money and seem to have little to show for it. That's why sites such as Humble Dollar, and articles like this one by Ms. Gulati, are so important. Despite an overarching political ideology that expects individuals to learn, on their own, the kind of lessons that most Americans clearly don't learn, a complex, modern society like our own would benefit from a greater mixture of understanding and opportunity. Regards, (($; -)}™ Gozo

If I had decades of investing ahead of me, had excess cash available, a secure job, and a decent sized emergency fund, this will probably turn out to have been an excellent time to invest aggressively in equities. And in "hindsight", we all probably wish we did. But since I'm a few years from retiring, I'm not sure I would have been able to pull that trigger in March 2020. I didn't stop my regular investments and even added a little to my regular 401k contributions, but I felt in my position, a little caution and patience would serve me better.

We were all very fortunate that the market rebounded as fast as it did under the circumstances. Certainly the fed pumping a massive amount of liquidity helped, which over time (government debt) may pose a major problem. I guess it would depend on your situation, the last thing you'd want to do is take all your personal liquidity and dump it in the market while it's down. It worked splendid this past flash crash/super speedy bear market, but what happens if the market has a prolonged bear market, and several leg downs which history has shown to happen. Buying the dip doesn't hurt, but I think there is a balanced approach that one should follow.

I try to follow an even simpler strategy: invest as much as I (responsibly) can as soon as I can. I’ll admit I didn’t follow this strategy perfectly in March. I invested some cash I had available over the course of two weeks rather than in a single day. Next time I’ll try not to hesitate.

I think it's important to distinguish market timing from buying the dip. The former puts you firmly in the prediction business, a dangerous place to be. The latter involves reacting to market moves -- which is what you do when you rebalance.

Taken together, I would argue that your points imply that one should simply allocate the absolute maximum amount he or she can afford to invest in equities and let it ride. Buying during selloffs and market highs implies that one has money sitting on the "equities sideline." Thus an evaluation of the benefit of following the advice in this article versus a buy and hold approach should factor in the gains forgone by having money available to time the market.

What doesn't sound like sane advice? Last year, the S&P 500 dropped 34%, right in line with the bear market average. Why wouldn't that count as a bear market?

None of this sounds like sane advice. I would submit you didn't go through a bear market, just a large drop and subsequent recovery. For those of us that are old enough to have actually gone through a bear market, some of your suggestions will produce painful consequences.

I think there are two separate issues here: 1) If we're regularly contributing to our stock market investments, we shouldn't be worried if the market is hitting all-time highs. Because stocks rise over time, all-time highs will be a common occurrence. Marc is simply saying you shouldn't be nervous about making such investments. He's not advocating that investors make a point of investing at all-time highs and not at other times. 2) Marc is also saying that market declines are a good time to step up your stock purchases. We should do that as part of regular rebalancing. Should you invest even more in stocks when the market declines -- and potentially end up overweighted in stocks, at least temporarily? Purists may consider that an investment sin, and they may be right. But I can think of far worse sins.

Isn't any investment in the market based on the prediction that one will earn a positive return? I understand how buying the dip can be considered rebalancing--at least to the extent that it gets one back to their target equity allocation. However, this article also recommends buying at all time highs which requires increasing one's equity allocation. Do you agree with this advice? It seems that one could decide to purchase or sell stocks based on numerous market moves. Surely, at some point, you must agree that this is timing the market.

Is this the right strategy for the average investor as opposed to regular, steady investing over many years? I can see some 401k participant trying to time the market moving funds around.

Thank you, SCao.

Have you ever spoken with anyone who paid off their mortgage and regrets it? I haven't. Without exception, every single person I've met without a mortgage is satisified with their decision and would do it again. The decision was rarely based on financial math. Instead, pretty much everyone talks about peace of mind and the personal satisfaction of not having any consumer debt. My only qualifier to accelerating mortgage payments or making a lump sum payoff is having enough cashflow and/or assets to support yourself in the future.

I agree that raising extra capital can take time. I agree that we need properly funded clearing houses. If a company as large as Robinhood was not paying attention to what was going on and actively taking steps earlier in the week to secure such additional funding, then at best they are inept instead of actively working against their customers. It is possible that there was no urging of hedge fund managers to limit or suspend trading on Robinhood. They still did it! It still changed how the events of last week played out and basically they refused to service their clients. This had an effect on the market and limited the ability of people who had money in deposit with these companies to buy additional shares of certain stocks. With their investment money tied up in Robinhood, it would take days to move it to another institution in which case they would again miss out on the opportunities of the day. I know that myself and many other people will be moving money away from Robinhood and other companies that limited purchasing as soon as the dust settles. But in the meantime, back to the original issue which is the author of the article Adam Grossman stating that he thought the ban "made good sense." Good sense for who Adam? Good sense for individual investors? Or good sense for people who run wealth-management firms?

Good post! I would suggest that number 6 should be adjusted for pensions and SS, though that can be a little tricky if one retires before SS and/or Medicare kick in. I do cash flow analysis to adjust for that, but that generally takes some background to do correctly. I agree with 100% replacement. I would personally target 100% of expenses. For many, income may serve just as well. For others, it may way overstate their needs. My wife and I both just received substantial raises, which will go to savings. There is no reason for us to factor that into our retirement needs. I don't think you can call out one approach as the best solution. I strongly agree, however, that people shouldn't count on expenses falling in retirement. I think it normally does, but often that's only because it's a forced reduction of expenses due to lower income. It's not by choice.

Wrong. You are looking at nominal yields only. If you look at real yields (i.e. backing out inflation), bonds have often returned less than they do today. The 4% guideline is still a reasonable assumption. A couple who retired in 2000 with $1M using the 4% rule endured two awful market crashes and guess what? Still have pretty close to $1M ($982K I believe.) I will note that rebalancing on a regular basis is critical to the success of the 4% guideline, much more impactful than during accumulation. That can be difficult to do when selling safe assets to buy risky assets that have only declined recently, but it still hasn't failed in all these years.

Consider one other less sinister possibility. You’re right, a level playing field IS important. It’s why we need properly funded clearing houses for markets to function for us all. These brokers were asked by their clearing houses to put up a lot more capital given the higher risk of counterparty failure on trades when momentum reverses. The situation with GME and the others changed fast and it takes time to raise $3B. In their shoes, stuck between a rock and a hard place, I might’ve made the same choice. https://www.wsj.com/articles/robinhood-needed-3-billion-to-shore-up-volatile-trading-in-gamestop-other-stocks-11612180694?st=7ri48xn6lh7g0fl&reflink=article_copyURL_share

Mr. Bertagnolli, my own key take-away to your scenario is that once you begin making such a calculations, you may be drawn to make other, similar ones. Like the "stone soup" folktale, once you find things to add into the financial "soup," you often keep finding more. I once started an account for such "found money," separate from all else that I considered savings or retirement. When I retired, that 30-year account had grown well over $100K. Just before the pandemic self-isolation kicked in, we completed a large addition/sun-room to our house. We sit in isolation, yes, but surrounded by trees and birds and sun and sky—all from money that we more-or-less found behind sofa cushions or in the value of cents-off coupons for items we'd needed to buy, anyway. Regards, (($; -)}™ Gozo

I once read a theory that shopping, for modern humanity, serves an emotional function similar to that of actual hunting for survival. Once I began "shopping" for lower brokerage fees, higher CD rates, diverse investment options, I found that it seemed to fulfill that need. I became somewhat-educated—AKA financially literate—along the way. Like many people here, I seem to have too-much wealth set aside for my future. (We won't know if it's too much until it's all [my life] over, though, as economic disruptions can take many destructive forms. I'll let my heirs be the judges of that.) Regards, (($; -)}™ Gozo

I normally agree with most articles from the Humble Dollar and consider it to be a good resource, but to agree with banning individual investors from purchasing stocks because they are volatile is just plain wrong. What happened to the free market? Investing inherently involves risk! Why should the large market players be allowed to manipulate the market and then cry foul when the small investors band together to do something similar? Why is no one addressing the fact that these large market players shorted more stocks than actually existed? I believe you are on a slippery slope when you agree with stopping individual investors from exercising their choices in the market. No such regulation has been put on the large investors. Will some people lose money? Yes! Does that mean that the government or large trading houses should be allowed to ban trading for some and not all? No! I think you need to re-evaluate your position on this. No doubt the events of the last week will be studied for years to come, but imposing stricter rules on individual investors is just another way of shifting the balance of power to these billionaires and away from the everyday person. I think we can all agree that a level playing field is important in any competition. If you do not, I would love to have an open discussion of your reasoning for it!

Appreciate your articles, but really take exception to be supporting Robinhood's ban on GameStop trading. Robinhood's ban was an outrageous accommodation to help larger market players at the expense of individual investors, and frankly would be surprised if Robinhood doesn't lose a lot of investors going forward with their costly stunt against the interests of individual investors.

Good explanation, but you omitted the use of calls and puts as accelerants.

I would also say, that if hedge funds are forced to sell their good stocks to cover their losses, and the good stocks go down, then you might consider buying some. Just be disciplined, have in mind a price you are willing to pay for the company, and if the stock price hits your target, then buy.

Putting all the streaming services and newspapers on one credit card is a good idea. I also have a separate “streaming services” Google Doc that’s linked to my master “money map” doc—all the log-ins and passwords. It’s come in very handy when we’re traveling (back when we did!) and want to remember the Netflix password or read one of the newspapers.

My father-in-law (late 70s) had a major health scare this month. My mother-in-law is 80 and has severe memory issues—if something suddenly happened to him, she’d be hard-pressed even to call us, let alone manage the finances. My husband is a lawyer and their executor, but my FIL hasn’t walked him through the finances, other than pointing to an accordion file in his home office a couple years ago. This all became painfully apparent to us this month, as we contemplated the complications if he should die before we understand their finances. To top it all off, they live in LA County, which has been the terrifying epicenter of the pandemic these last couple months. We’re 400 miles away in Northern California. He’s doing better now, but we’re just praying he holds steady until we can get vaccinated and down there to help sort things out. And we’ve become even more determined to make this easier for our own kids as we get older.

Very nice article. The book is one of my favourite. Thank you for sharing. If we all could practices those habits (or at least same), we all will be more effective, in financial life or not.

Having helped my mom deal with my father's death many years ago, I became determined to make my passing as easy to deal with as possible. Not only have I worked hard to keep all my financial records simple and organized, I'm continually working on 'purging' physical items. Every year or so, I'll go through the house and ask myself, "Have I used this recently?" or "Does this really mean anything to me?" If the answer is, "no", then it either gets thrown away, donated or sold. I don't want anyone to have to spend weeks of their own time sorting through a bunch of stuff that doesn't matter to them.

Thanks Adam - I ignore stuff like this, but some millennials were starting to ask me what was going on and this is the best summary and collection of links I've seen. Another from my favorite Morningstar guy isn't as good, but it's interesting.

We have a term plan provided by our employer. We are on an employment visa, so did not care about buying one outside of the employer.

We do backdoor Roth IRA. I should have mentioned that in the article.

Congrats on you and your family's success so far. As a fellow immigrant (I came here from China when I just finished middle school), I am very glad to see you are building the American dream. For your savings, perhaps you may also think about a Roth IRA if not already has one.

You're welcome. I enjoy being a contributor to Humble Dollar.

Thanks for the article and sharing your insights.

It's stunning that a part of the reason for 6 year degrees is a lack of HS academic preparedness. I'll bet many were well prepared for sports! I taught HS 9th grade English for several years, right out of college (age 21), and was the only teacher fearless enough to spend six weeks working on grammar rules. I used all kinds of methods to make it palatable. Foremost in my mind were my first college papers, returned to me with a sea of red. It worked. The following year the foreign language teachers were telling me their jobs were easier, because they didn't have to teach English along with their language grammar. Parents need to wholly own their children's academic performance, communicate regularly with the teachers, and enforce strong academic discipline at home. Forget the NHL and NFL, get them hitting the books hard every night. Inspect and review homework, and demand excellence. College, and related aid, will take care of itself.

You're welcome. I'm glad you enjoyed the article.

You're welcome! I'm glad you enjoyed the article--and aren't CRV's awesome? Mine still has less than 120,000 miles on it so I know it still has years of life left in it. As for planning? Well, let's just say I'm something of a compulsive planner. It's served me well in both my personal life, as well as my professional life. I actually can't remember a time in my life when I wasn't a planner, even as a child. Thanks for your comments!

I'm late to this though wanted to tell you great read, Kristine - thank you.

We bought a 2004 CRV for our college age daughter. It had 184K miles on it. We took good care of it, making sure my daughter changed the oil regularly, etc. We sold it three years later with 214K miles (didn't need it anymore) for the same price and they buyer was happy to buy it. Great cars!

One word: Mortgage. Also property taxes. I am fortunate to work at a job where my employer contributes an amount equal to 10% of my gross salary to my retirement account, regardless of how much I do, or don't, contribute myself. I still make small contributions out of my own check, but I traded large retirement account contributions for mortgage payments. The value of the house has increased at a rate of about 6% a year, so I think it was a reasonable trade. And, of course, having a house means having the ability to live with four dogs.

Thanks for the thoughtful comments! I absolutely agree about fretting and planning being a necessary prerequisite for my current position. In a matter of a year's time, I went from living a (relatively) carefree life with a large house, a new car and lots of 'toys', to living in a 700 square foot apartment, decorated with second-hand furniture, and driving a 'well-loved' car. All the 'toys' were sold and I had lost half of my pension. I had options. I could have accumulated massive amounts of credit card debt to ease my pain but instead I chose to save as much money as I possibly could, living off a fraction of my take-home pay. The sacrifices I made back then were worth it--they allowed me to be where I am today--but at the time, I questioned if I'd ever be on solid financial ground again.

Why did you stop contributing to your retirement account? Seems strange, although I'm sure you had a good reason

Kristine: Thank you. Your retirement planning experience very much describes my own - even including a now elderly CRV that my wife insists on driving. I'm retired now, but spent years in the investment business telling clients they needed to write down on paper where their money comes from, and more importantly, where it is spent. Unfortunately, to do the kind of planning that you have done takes time and commitment - something too few people seem to have. I also completely agree that no amount of planning will anticipate everything in life. However, if you are willing to put in the work and defer a little short-term gratification, you may have a few more choices when life does throw you the inevitable curve ball.

Hi Will. We love it, zero remorse, and have done several long trips in it since I wrote this. Tesla’s interstate Supercharger network and simple charging experience is exceptional. When operating expenses of my wife’s old mid-sized 9yo SUV increased, we decided to replace it with a Tesla Model Y. The driving experience is still a real joy, and the car has *improved* since purchase thanks to new software features delivered via monthly updates over the internet. I’ve never owned a car I love more rather than less as it ages.

I wasn't aware that there was much risk of an HSA audit. But I will probably spend a lot of my HSA dollars once I'm on Medicare, to pay for Part B and D premiums for my husband and I.

Congrats, don't regret the hard work that put you in this position today. "Chance favors only the prepared mind." - Louis Pasteur. It could be argued that if you hadn't done all the fretting and planning these subsequent favorable events wouldn't have occurred. Sure, could you have done a little less of this, or a little more of that? True for all of us, but I'd contend that, from where you are today, it should be a lot more comforting to say, "I made a plan and exceeded it" versus, "I rolled the dice, took a chance, and it didn't work out". I personally lean towards over-planning, but am learning what you've written about, that focusing on overarching themes is likely a better guiding focus than planning step by step. Thanks for a solid read.

Thank you. And, you're welcome. I really enjoy the Humble Dollar forum. It seems like I learn something new every week.

Point 1 can't be stressed enough: your HSA is your own, and you're not obligated to stay with the provider that your employer has chosen. A few years ago I setup my own HSA with a provider that had terrific investment choices and didn't require $1000 or more to remain in a deposit account earning negligible interest. Then I would periodically transfer recent contributions in my employer-chosen HSA over to the Vanguard funds in my own HSA. The financial benefit was well-worth the small bit of hassle entailed by the transfer paperwork.

Thanks so much. I appreciate the kind words. I love writing for Humble Dollar.

Yep. Even when I was in college (30 years ago), I took advantage of that principle. I paid for college on my own, with scholarships, part-time jobs and need-based grants. One year I got so many scholarships and grants, I was able to set aside a couple of thousand dollars in a savings account. I didn't touch that money for years. It was the most money I'd ever had as a young adult and I treasured the comfort it brought me.

I have to agree with you. Unless one is not counting spousal pension/retirement funds, $410k is a great beginning but is no where near enough to last the remainder of one's lifetime.

Thanks Al. I appreciate the kind words. I think my work ethic was formed when I was a child. I grew up on a farm, taking care of all sorts of animals. I learned early on there was no substitute for hard work.

Mary. I love your philosophy of life! And I agree with you about the 'hobby' of mental accounting. I still struggle with not obsessing about every financial detail. I'm getting better at not fretting as much, but there are certain habits I just can't break. When I got my first checking account (in my twenties), I would not only write down every transaction, but I'd also spend hours balancing the account down to the last penny. To this day, I still use a notebook to record my spending. I no longer do it in perfect detail, but I can't quite let myself leave it behind. Enjoy your weekend.

Thankfully, competitive pistol shooters know how to reload.

I do have a pension (somewhat small, but not included in my net worth figure). I will also qualify for my own SS benefit, having already put in 30 years of full-time work. I may take on a part-time job when I leave my current position--that remains to be seen. I'll be able to take advantage of a very generous retiree health-care benefit when I leave my job as well. The other side of the equation, which I didn't talk about as much in this article, is that I've never had a particularly high salary. I'll likely leave full-time work behind having never made more than $75,000 (gross) a year. Four years ago, I was living off of a net amount of about $35,000.

I actually wrote a Humble Dollar article about the financial implications of getting remarried: https://humbledollar.com/2019/08/nervous-bride/ I don't mind being transparent about my own finances. In fact, I also wrote an article about that as well: https://humbledollar.com/2017/03/say-it-forward/ I do, however, limit transparency to my own finances. Nobody else in my family signed up to have details of their financial lives posted on the internet, and I respect that.

Kristine - I like your humble and self-aware realism. Keep writing so we can all continue to learn from you. Dave

Thanks for the kind comments. I'm glad you enjoyed the article.

Well done, Kristine! Thanks for sharing!

Thanks! I agree there's a certain amount of balancing between future plans and current lifestyle that must take place to maintain ones financial 'health'. I'm still trying to find the perfect balance, but believe I'm making progress.

Nice story, but for purposes of explaining how one accumulates a million in four years you could pretty much stop after, "Get a super-high pay silicon valley job." Maybe add, "And then don't do anything stupid."

Many an investment strategy calls for holding a portion in bonds. We can easily think of a personal home mortgage as a reverse bond. Therefore a mortgage directly reduces the equivalent % of the portfolio dedicated to holding debt and receiving those regular payments. If someone with a mortgage needs a certain % of their investments in debt instruments, even 0%, the same person without a mortgage needs a lesser %. I loan my adult child money as a mortgage, and this is the main portion of my portfolio in debt instruments. I am glad to have it, as it is a good deal for me and a great deal for them. I encourage them to pay it down quickly. They also invest, primarily in tax advantaged accounts. I did also lower their interest rate to reflect the depressed bond markets.

Very proactive! 2 or 3 comments: 1) While your insurer may require you to use one particular HSA custodian, you can transfer that money to another custodian without leaving the plan, unlike the situation with 401k's and 403b's, where participants are stuck with the custodian until your employer changes it or you leave the job. You could do this every January or every time you accumulate a certain amount. 2) Sometimes, for tax planning purposes, waiting to contribute to an IRA allows the taxpayer to adjust taxable income by choosing either a traditional or Roth IRA or a combination. This isn't true for you because your income is too high to make a direct Roth IRA contribution. 3) While one can technically save receipts and leave money in an HSA, the IRS has three years to audit in normal situations, and saving all these receipts may increase one's risk. For this reason, I make it a habit to take the withdrawals for any medical expenses once a year, so that they are rolling off the horizon rather than accumulating until they are far in the past. Like deductible non-cash charitable contributions, such expenses might be an attractive target to an aggressive auditor.

Good read! Big picture is so important as are the spread sheets. Most financial decisions are emotional and made over a cup of coffee or a glass of wine.

Depends on your spend and what you value I suppose

Assuming SS continues to pay out 100% full benefits...

Excellent read. Very helpful lessons learned. Thank you

A very good plan. I’ve gone through a similar process for years. Fund IRA’s and do backdoor conversions the first week of the year. I also fund my state tax deductible granddaughters 529’s the first week of the year. I plan all this out in December. I can’t do my SEP as my income fluctuates.

You’ve done a great job with getting your financial life in order regardless of getting remarried. I’m curious as too how remarriage has effected your plans. You’re no longer saving at the same rate, so what’s the dynamic look like with your new husband. How’s his finances. You were very transparent about your own, but clearly that’s half the story now.

YES, I've written in the comments of H$ articles that it's crucial to make choices that align with what we want to accomplish in life. So many don't look ahead, so don't plan and make any choices. I am very happy Kris did! Of course there are so many ways to invest it makes the need for knowledge important. One of the biggest investment is time and how Ya gonna spend it? Folks may want to look at any job, carrier or vocation as what will the exit from this look like? Before starting, look at the end. I was 19 and started working for THE phone company. A supervisor mentioned that there were many who stuck with the company, and had 'Dun Gud' as it were. At the ripe age of 50, they sold part of the division and we all were made to leave and started a pension. Staying with the job so long has so far given me over $440 thousand for the last 20 years. From that company, I looked for the next chapter in life and found the mass transit industry to continue with, also while looking at the exit. Now, fully retired I have another pension for life. In June 2021, I'll be 70 and so Soc Sec will be another income stream to turn on with maximum benefits with 51 years of earnings reported. I have also a couple IRA's to take annualized money from in 2022. And, If I exit life before receiving a break even amount, I'm good with that. I chose to have a bigger payout for as many years as I live. Yes, like Kristine I never had a 'high earning' job. But, making choices early in life is the key to retiring rich. ;-)

I agree about 410k not being enough especially with the cost of ammo these days!

I don’t want to pry, but I assume you have a pension and SS if you are contemplating retiring early (?) because I don’t see $410,000 as sufficient retirement assets and net worth isn’t always helpful to live on. As you realistically pointed out stuff happens in life and 30-40 years is a long way to go. Have you targeted a specific income replacement percentage in your plan?

Enjoyed your story and hearing your goals, which sound quite like my own. I’ve also spent too much time doing mental accounting, it’s almost a hobby. Getting a handle on what’s needed in my emergency fund, paying off all debt and feeling confident with the balance of my retirement fund has settled my mind. Now it’s time to simply live or live simply.

The $410K figure is my own personal retirement account. I also have a (small) pension and will be eligible for SS benefits on my own work record. The pension and SS benefits aren't accounted for in my net worth, nor is the value of my husband's pension, SS benefits and rental income.

(Stating the obvious,) long term, since HSA dollars are only tax-free until they are inherited, you would want to have used the maximum possible for medical expenses within your lifetimes. I agree HSA's are unlikely to be audited in their own right, as the IRS doesn't have enough auditors, but in a general audit deductions requiring documentation are an easy target "along the way" and could also be viewed as an indicator that this return might be more worth auditing. Obviously lower amounts year by year are less interesting to any auditor than large deductions, while expenses being deducted that go back a long time can be harder to substantiate when questioned. My point is that a sure thing now (or a sure thing three years from now) may be worth more than a future possibility. In fact, while perhaps unlikely, the laws could even change at a later point. I point this out to my millennial children who sometimes think it is all a game, or at least their friends do. If it's a game, it's one where some of the players can change the rules and others can't. (And if we're that good at playing the game, we probably don't need to max out every advantage! With all this in mind, I'm just saying deferring medical expenses for later reimbursement is a small advantage I choose to skip.)

I agree. I learn something new every week - thanks to you and the other contributors. I am 54 years old, and a couple things keep me awake at night: the cost of health care - now and in the future, and wills and estate planning issues: who do I ask to take care of my day-to-day financial decision-making responsibilities if and/or when I am unable to do so? I will keep reading the Humble Dollar posts from you and the other contributors. I am sure you have or will provide some guidance.

Good point about being able to have more than one HSA. The insurer-required HSA account I have does not charge any fees (although it would if I changed my insurer) and has reasonable investment options. I find it is a hassle to move $ from one HSA account to another (I've had to do it twice) and I don't like having my money out of the market during the transfer.

Miss Hayes, You are a very smart blonde. Congratulations for achieving Antifragility, by using your brains, having a good work ethic and controlling what you can control (which isn't much). May you continue to prosper, while enjoying life as it comes. Kind regards, Al

Well said.

Spend less than you earn, and save the difference in some form or another. Without observing this one basic principle, no other financial plan or scheme will work. None.

To a point yes, but realistically what you may value doesn’t preclude what you need to live and deal with inflatiin over decades.

For more than forty years, I did my best to log every expenditure, almost as much an exercise in mindfulness as in finances. Now retired for about five years, I've slowly weaned myself of the habit. My wife and I are lucky never to have been spendthrifts in the first place. But even accounting for that important caveat, we notice no change in our spending habits. I just have a little-more time to use less-productively. Regards, (($; -)}™ Gozo

"This goes to my disdain for budgeting: If we’re diligently funding retirement and other investment accounts every month, it doesn’t much matter what we do with the rest of our money—and there’s no need to track where every penny goes." This statement, coupled with the axiom of "Pay yourself first," comes close to covering the most-important bases when it comes to reasonable, productive, and minimally disruptive financial guidelines. Regards, (($; -)}™ Gozo

When I first started to read the Seven Habits, I was a bit apprehensive that it'd take me a while. There was a picture (of a young/old lady) in the first chapter and a very interesting discussion about the visual illusion. I think it helped me finish the book faster than my usual pace.

Thanks medhat. Couldn't agree more with your insight: "...increasing the likelihood of "success" in personal finance is not necessarily reading more investing advice..."

TIAA is a good firm. But you should be able to trim your costs by purchasing index mutual funds from Vanguard, Fidelity or Schwab, or by buying ETFs from iShares, Schwab, SPDRs or Vanguard.

No cruises this year, Mr Quinn??!

Great article, I've been pondering Vanguard for a while now. I'm currently entirely with TIAA-CREF. Costs have been pretty good but wondering how they might compare with Vanguard. Any ideas?

Yes, you need to be confident that you will have a HDHP throughout the year. When front-loading the IRA and 401k you need to be confident that you will bring in enough earned income during the year.

Agree with you 100% on the value of HSA's as an investment vehicle. But I would be careful about front-loading contributions - the IRS says that contributions must be prorated by the number of months that you're eligible. If you contribute the maximum in January, but then lose your job and HSA plan in June, you'll need to backout the excess contribution.

Thank you. I'm glad it resonated with you.

I am not so sure "you left money on the table." Pre-tax, you saved $88,000 in interest by paying off your mortgage early. You say the extra principal payments, had you invested them, would have grown to $83,000 pre-tax. Sounds like pretty much a draw, with a slight advantage to paying off your mortgage. You are absolutely correct that there is great peace of mind with having no rent or mortgage to pay each month.

I've been reading Ben's work for most of the 7 years he's had a blog. I love the way he takes often confusing questions and finds the thread of logic that simplifies your choices. #5 on his list was the most difficult for me. Not the not selling, but the not reacting. I endured two crashes before trying to time 2008. I did fine, but realized how lucky I had been. I needed I found my way out of that. I rebalance when my stock/bond allocation shifts by more than 5%. That often results in rebalancing near the bottom of significant stock declines, and makes me feel like I am 'buying low'. This is an important psychological reinforcement for me - not only am I staying the course, but I'm also taking advantage of temporary dips in market value via maintaining my risk profile. Conversely, I may or may not be 'selling high' when rebalancing after the market rises significantly, but I am consistent in maintaining my risk profile. Many people may not have this issue, but we all have our weak points, and this is one of mine.

You might want to double check on your state's level of equity protection in case someone obtains a judgement against you in a lawsuit. In Colorado it was only $60,000 the last time I checked. In Texas it used to be $1,000,000, and Florida had an unlimited homestead exemption. A low interest mortgage may be safer than a paid off home.

While I don't mean to dispute the noted benefits of being debt-free, I think the calculations here are imperfect; the prudent mortgage holder would not have maintained an 8.5% mortgage for the 30 year duration, but would have refinanced multiple times and significantly reduced the total interest the Mr. Sayler calculates. In terms of giving advice to his son, Mr. Sayler might note that the prospect of a 2.5% 30 year mortgage, in comparison to 30 years of likely future stock returns, is an entirely different prospect than if rates were 8.5%. I believe that young buyers today would be foolish to overpay their mortgage; it would be a decision similar to maintaining an oversized fixed income weighting in a young person's retirement accounts.

Any life insurance?

While your strategy is all fine and good(one which I used), it is meaningless in the long run if you do not protect yourself with an appropriate level of life insurance on both parents. If one spouse passes away much earlier than expected your fine strategy is sorely impacted in a way that washes away any benefits that you feel you accrued. Your ability to maintain that house will be greatly impacted. Knowing a very young couple who was impacted by the loss of a spouse impressed on me the need of a more coordinated financial strategy. Tactics like the one you employed are fine but an overall financial strategy is the only way to at least have a chance at long run success in maintaining that home without even being able to adjust for things like job loss, job inconsistency, health, divorce, alimony etc.

I share your feeling from a relative point of view, but no one in the US owns their home beyond words on paper because all states levy property taxes. IMO, we are renting property from government ℅ these taxes and like any rental, non-payment will have you evicted. The memos on my property tax payments state Rent for XXXX (year) in weak protest.

I also have a very low mortgage rate and am not paying it off early. Most folks who say they want to use extra funds to invest in equities instead of paying down their mortgage early don't actually invest that extra money. They use it for other things (nicer cars, better vacations, etc).

"if my son asked me if he should pay off his house early, what would I tell him? " Yes. Even if it is only $10/month. The principle is to get in the habit of reducing principal.

I paid off my house vs putting more money into investments. I can tell you during covid while I watched the markets and economy suffer, there was a calming feeling knowing that my home was mine.

Great and intriguing analysis, and I'd like to offer a comment regarding "clearly left money on the table". Sure... in retrospect. I wonder what the comparison would look like versus a historical rate of return (I'm guessing 5-6%) in the market post-depression (don't quote me on that). I absolutely am with your thinking regarding "peace of mind", but suppose that really is an individual thing. Regarding your son and his house, the historical low rates are a reason that I'm not paying down my existing mortgage. Yes, the market has been comical these past few years and it looks like a good 'bet' now, but I understand things can change like GameStop and likewise I suppose (unlikely) the situation with my housing could change as well. So for me my current piece of mind comes from paying a relatively low monthly mortgage and investing aggressively, together maintaining a decent degree of flexibility. Thanks!

I smiled today, having read this a few days ago. In my home office I noticed my copy of "Seven Habits" coincidentally sitting atop a number of personal finance books! Yes, sound and generalizable advice, and if I can add another to your list of great takeaways, it'd be that increasing the likelihood of "success" in personal finance is not necessarily reading more investing advice. After getting a handle on investing basics, it comes down to a better understanding of one's own personality and potential biases that may get in the way of more prudent financial decisions. Thanks again for a thoughtful article!

We being in the tech industry, Silicon Valley provides unmatched opportunities. Any where else in the world it would have taken us more time to reach where we are today. We feel incredibly lucky and fortunate.

I spent 40+ years giving people this sort of advice and the author's point are all good. If people would take even a fraction of these steps, their families and heirs would be much better off. A couple of suggestions, however: 1. Having a power of attorney and living will are vital documents, but even more important is who you give these powers to. If you have multiple kids, don't name them all. Pick one, and pick the one who will make the best choices on your behalf, even if it means saying no to you. If you can afford professional asset management or a corporate trustee, give it serious thought and save your heirs the trouble. 2. Think long and hard before executing a DNR; you won't get a second chance later and miracles can happen. 3. Don't name someone to be your executor or power holder who is your same age or older. They will get old as fast as you will, and may not be able to do the job when needed. 4. Don't assume that you will be mentally competent enough to handle your affairs as you grow older. You likely won't and things could very messy if you haven't made arrangements for others to take over your financial and personal affairs. 5. If your heirs are reasonably responsible, consider telling them in advance what your estate plans are and allow them to ask questions. Your heirs don't get a vote in how you dispose of your assets, but it will save a lot of pain and argument later if they know in advance what you are planning. 6. Finally, end of life planning is not a one-time event. At least every 3-5 years, your plans should be thoroughly reviewed for any needed changes.

FANTASTIC ! Great American success story !

I think that's great as well. I would never begrudge someone who works in a highly lucrative job. More power to them! I've always paid myself first and I save about 26% of my gross salary each year. My wife and I are I'm comfortable and we have never let our lifestyle grow with promotions and salary increases over the years. But I would certainly like to apply that 26% to a larger base!

At this juncture, I don't think you can expect after-inflation gains from high-quality bonds. Instead, you need to own stocks if that's your goal. So why own bonds? They're a source of spending money when stocks are suffering, a way to mellow out a stock portfolio's volatility and a source of rebalancing money when stocks are in a bear market. But you can't count on bonds any more for a decent yield -- unless you buy very risky bonds, at which point you might as well own stocks.

My understanding is that when interest rates go up (as they have to as current high inflation is finally acknowledged), intermediate and long term bond funds will act like equities and lose a significant amount of principal (Fidelity estimates a 27% principal loss on 10 year bonds if rates go up by 3%%). Since short term government bonds are only offering .18% 30-day yield, where else can one go to at least keep up with 2+% inflation (I think it is way higher than this actually) without risking principal. (money markets are only .4-.5% currently also. Thanks for your article.

I always enjoy it when you're vindicated.

Bravo‼️ I especially like #6 which I have been pushing for years and for which I have been criticized. Someone reading this may say, yeah, but they are educated and make a lot of money. That’s not the point of course, it’s all relative and prudent living and spending is possible for just about anyone. Now the challenge is holding on to the $1 million and keeping it growing when the stock market becomes less friendly. Good luck. Do you think you would have had those opportunities somewhere else in the world?

The biggest problem millennials have is not the purchase of specialty coffee on a daily basis but that the cost of higher education skyrocketed to the point that student debt in the US stands at about $1.6 Trillion. That fact has inspired a lot of frugality on the part of millennials which I guess makes other generations happy who are annoyed by the coffee habits of millennials. Unfortunately, the rest of us have to be more frugal because millennials are not able to participate as fully in the economy due to that debt. If anyone is interested in the coffee drinking habits of millennials and the rest of us check out the link below: https://www.bevindustry.com/articles/86796-nca-tracks-coffee-consumption-by-generation

Dear Mr. Kesler, I just spent hours researching the D-K effect(Lesson 1). Thank-you. I forwarded the info on the D-K effect to several email pals. Louis Rukeyser, CNBC, Real Money.com were my go-to's in 1999-2002. My disastrous "investing" resulted. I had to start from scratch in 2002 by learning more from articles on the internet. Now I've come full circle and hired a fiduciary in my retirement that has a similar stance to my own. There is so much I don't know about things like taxes and such. There's also a lot I'm 95% sure about that is actually probably only 5% true.

Have you compared the performance of your individual stock investments over the years versus the S&P?

I invest in active mutual stock funds. I just looked up the S&P annualized performance for 1990-2020. It's 10.7%. My portfolio of active mutual funds (from TR Price) has returned 12.48% for 1992-now.

I'm always a little hesitant to chime in when it comes to individual stock portfolios as I know the general audience on this site emphasizes low-cost mutual and/or broad based index and EFT's. I have individual stocks in part of my portfolio, but I've never considered myself a trader and I don't try to time or beat the market. I buy and hold but not necessarily forever. If it continues to help me reach my goals, I'll be patient until something changes. I have a few stocks that have not done well over the years, but I expect that from time to time. I sold 7 stocks in early 2019 and 6 of those were to reduce the holdings. The other one just had hurdles I didn't think they would overcome and it's still struggling today. I used the proceeds to buy some stocks I had been watching. I sat tight in 2020 until August when I sold 2 holdings. Both were bought in 2017 and one of them a little voice at the time told me it was a mistake. The other was a technology company in the travel industry and as the Covid situation has unfolded, I think it will take quite a long time to recover. Both were tiny positions and I moved on. The only way for me to have taken advantage of the market drop(s) in 2020 would have been to sell stocks, so I just increased my 401k contributions instead.

JMO on a couple of things. The 4% rule A nice rule, and nice for planning purposes - lousy to live by in retirement. If your return is better (or worse) your spending is likely to follow. Tax law changes, health cost changes etc. mean your spending may be more or less that the 4% rule allows. What is needed in retirement. I think what is needed is to replace 100% of your spending. That should maintain your lifestyle. Can you spend more? Yes. Should you spend more? Maybe.If you have the money (and want to spend it) - spend it. If you want to have the money - save it. If you can't maintain your spending you are likely to be unhappy with retirement. Spending. After taxes, after retirement savings, after post tax savings, Other corrections for student loans, mortgages, supporting children, working/commuting costs etc. may not follow into retirement. While working they definitely do not add to your lifestyle. What is left is spent to maintain your lifestyle. Taxes in retirement. For most people taxes are going to be significantly less than while working. FICA disappears. Older people get a bigger standard deduction. Social Security is tax advantaged (and tax free in some states). My total taxes in retirement have not yet hit 2% of my income. Just some thoughts.

I probably have not done as good a job as I should keeping up with this, but over the past 4 years, I trailed the average by about 2 points in 2017, "beat" the average by about 8 points in 2018, trailed the average by about 1 point in 2019 and trailed the average by about 10 points in 2020.

The stock market is so much more efficient today that's it's becoming more and more difficult to uncover the bargains. My mix of passive and active funds has worked fine for me but my individual stock picking has been atrocious - and certainly not for lack of effort. For a number of reasons, I'll likely soon transition to a much more index based portfolio.

Not even half of Americans ever had a pension. So that is not the issue. The new math required is a lifelong goal of saving and investing and controlling spending and debt so that sufficient funds can be accumulated to maintain the same lifestyle in retirement. Why would anyone want a goal of living on a portion of their pre-retirement income? A lifestyle should be spread across a life, not two different lives. Spending will change in terms of how it’s used but that does mean it has to radically drop.

The beauty, in my mind, of Seven Habits is that it is a much easier read than Das Kapital.

I was going to be shopping the ACA this year when I retired. With the ACA before the Supreme Court this year, my CFP recommended going with COBRA, not knowing the outcome of their decision in regards to severability of the law. If the ACA is struck down that's a whole new can of worms for someone that didn't take COBRA while trying to find affordable health insurance

They have to pay 102% of the total premium. Much better deal to shop on an ACA exchange. They would still have continuous coverage and much more flexibility and likely lower cost.

Given the astonishingly low savings of most Americans I don't think being too frugal is what's causing most of them to be out of balance. And while I agree that a budget isn't necessary, I think you must add that one should feel free to spend discretionary money after they've saved/invested and also after they've accounted for debt payments. Far too common, I'm afraid, are folks who buy the iPhone, Starbucks and Ubers before they've figured out how to pay their debts and other obligations.

Good point. The value posted above was calculated assuming the $6 was invested at the end of each day. If you invest at the start of each day, the end result would be $216,428.47. Another important assumption with these values is that interest is calculated daily. If your investment compounds monthly, the end results are again different: $215,707.95 if you invest the money at the end of each month; $216,426.97 if you invest the money at the start of each month. Here I made the simplifying assumption that $182.5 is invested each month instead of taking into account the actual number of days per month. I was just curious about the compound interest effect in this example. No matter how you deposit the $6, compounding returns about 2.5 times your principal after 40 years.

It may be an option for some. But I'm not going to put my wife through the trouble of comparison shopping for health care and dealing with the ACA application process in the middle of funeral arrangements... This can just as well be done a couple months later.

All very good points! If I may add something to it. I actually have such letter already, I call it "Contingency Plan for my family". The very first item on it is the HR contact info of my employer and the steps to activate CORBA which would provide up to 18 months of health insurance upon the employee (my) death. My family would need to pay the entire premium (employer and employee part). But this would provide them continuous coverage, and give them time to shop for a longer term solution.

I've found that the large banks are more reluctant to do this than the online banks. US Bank talked my mother into changing to a joint account with my sister when she tried to add POD beneficiaries. My sister can be trusted to follow our mother’s wishes but there are no doubt many families where that isn't the case. This route can also be problematic because the IRS will consider the balance at death to be a gift to my sister which means we need to keep the balance below the tax free gift limit.

I also know someone going through this. In addition to revocable trusts making sure bank accounts have a payable on death beneficiary is helpful. Otherwise the bank will tell you "get a lawyer" if you want to access funds.

Thanks Mr. Grossman. I've gone a tad overboard in also including in my instructions the recommended asset allocation for our investment accounts that my wife and/or our chosen trustees should consider if I go first.

Thanks for the useful article. Sadly, someone I know is currently dealing with this very issue. They are faced with trying to track down the tax records, bills and various legal documents of a deceased relative who left no written guidance. At a time when they should be free to grieve, they are, instead, spending their time bogged down in financial detective work.

Preferred stock can boost the returns on a dividend portfolio, if you understand how it works. Because of all the factors that are unfavorable to the investor, preferreds have to pay a relatively high yield to get buyers. Just know the risks, and limit your exposure. My portfolio is 8% preferreds, 7% REITs, and 85% common.

enjoyed the article. But it feels a bit old school for today's reality - many of us aren't traditional w-2 workers with fixed salaries and annual raises from The Man. We're contractors, freelancers, etc. Income varies based upon our billings and/or the economy, year to year. "25x" all depends upon retirement age. Retiring in mid to late '50s requires a different number than mid to late '60s. Many people should not rely on income as a barometer of retirement readiness - it's all about a firm knowledge and handle on one's expenses + enough for a very safe cushion for the unexpected ones, combined with the ability to adjust spending. i.e. - locked into as few fixed costs as possible.

The result you get from such calculations changes depending on whether you assume investing at the beginning of the month or the end....

Good points indeed, but they are all hard to think about even while essential. I’ve been working on them all, but still struggle. We have a vacation home. Two of our children visit every year. Two others not so much. We want the house to stay in the family but recognize that may not be what the kids want as it’s 300 miles away from where they live. I asked them all if they wanted their share of the house? Two yeses and two I don’t know. Knowing they can’t now afford to maintain the house, we set aside $100,000 in the estate (adjusted for inflation each year) to be used for taxes, maintenance, etc. We also set forth in detail how the house would be divided should any one or more of the children decide they want the cash value instead. That way even one child can keep the vacation home and have the money to maintain it. My goal was to avoid hard feelings and fights.

Nice article. Have a good / neutral emotional temperament is helpful to both life in general and in investing.

The question: How much would you have after four decades if you invested $6 a day and earned 4% a year? The answer: $216,404.75 (assuming 365 days a year and no leap years)

Insightful as always. In a strange way reading this I thought an apt analogy may be to approach personal finance the way Marie Kondo approaches home organization; keep what brings you joy. If good fortune gives someone the financial options, then keep that in focus and spend on what makes you happy, versus making otherwise unnecessary price/value calculations based on societal expectations. I must admit I share your frugality Jon, but also admit that I pretty much have never felt "deprived" in any material way as an adult. My parents, both since passed, attained a fair bit of material wealth in their later years, but continued to maintain a healthy appreciation of their non-material good fortune (health, grandkids, etc.) where even otherwise minor conveniences they continued to appreciate as "luxuries". An anecdote I remember is post-retirement they wanted a small second car for around town errands, and bought a very inexpensive compact car. You would have thought they had won the lottery when they called me to let me know the "cheap" car they bought even came with heated seats and power windows! Yup, didn't take much. But they were smart enough to know that they had "enough".

Think about endowing a professorship.

Concerning excessive frugality (which is a problem I have), this is mitigated if you enjoy shopping. I didn't used to like shopping, but since now I can shop on line, it's just a matter of putting my laptop on my lap and logging in to Amazon, I think it's fun.

A corollary to: 4. Try not to end up as a financial burden to your children. Your children shouldn't expect an inheritance, but feel exceedingly fortunate if they get one.

Hey...have we met? lol "Excessive frugality costs time. As I’ve noted before, time is the ultimate limited resource. If we spend hours hunting for the lowest price, we waste precious time. If we track every penny we spend, that’s time that could be devoted to something more enjoyable. If we’re so miserly that we spend our days worrying about how much we spend, we’re taking our good habits—which have the potential to free us from financial concerns—and turning them into the same mental burden that afflicts those who have no savings. The bottom line: There’s a point of diminishing returns in our efforts to save money and accumulate more and, if we overdo it, there’s a grave risk we’ll miss the big picture."

Exactly, it isn't a straight-jacket, it's a sanity check.

Bravo David! Yes, we live in this good ol USA and we do have choices. In my 30s I started looking forward to what I would be in retirement. It was how I was raised as I was always taught to look ahead and prepare. Much the success of what I did was to choose solid work that had a great exit feature. I was with the big phone company for over 30 years. They were known for their nice retirement benefits and so now I've been enjoying that for the last almost 20 years. With the breakup of that system things were changing rapidly towards turmoil. Thank you big government. A few decades after that I left for another carrier and chose... mass transit. They also have a terrific retirement which I found could be maximized as it used highest yearly earnings and years of service to determine the pension. I of course worked all the over time and holidays I could. A person could also sell back a portion of their available vacation to boost the yearly earnings, which I made the choice to do. Also at the end of my time, I was paid for 1/2 of the accrued sick time I had earned, which was the maximum allowed. Just try to show that to the 30 year olds working at the same place...HA! After only 16 years there, the pension from that enterprise is 175% of the one from the phone company. I'll be 70 in June of 2021 and so start Social Sec which will be also as maxed as it can be. Another choice. Then in 2022 I'll turn on my two IRA distributions to add more income. I'll have quite a bit more in retirement than when I worked. In this country it's not very difficult to retire rich. I'll have big amounts to pay the my Uncle though. But that 's proof of American prosperity... Thanks big government!

"I wouldn’t turn up my nose at an extra $30." I will. I see these ads on TV for ibotta.com which look like way too much effort for "$147 in one year" I really enjoy reading the "Blow that Dough" thread at Early-Retirement.org

Excellent article! This part could be made into a big banner:

If we’re diligently funding retirement and other investment accounts every month, it doesn’t much matter what we do with the rest of our money—and there’s no need to track where every penny goes.
That's exactly what we live by now (though it took us a long time to figure this out). We save a big portion of our income each year. Then with the rest, I love to be careless. I hate nothing more than clipping coupons, comparison shopping for groceries or gas, or bringing your home made sandwiches and thermos. I just want to enjoy live and not watch every penny. But still knowing that we are setting aside enough for the future.

Thanks for your comments. I love your take...."even a keel" as possible. Yes, parenthood is awesome, challenges and all. Sounds like your twins are pretty lucky to have a great parent with a good, "measured, yet opportunistic, approach."

+1 Exactly right. This type of thinking is so wrong today, when pensions are increasingly a thing of the past (except for some retirees in the public sector). Without the prospect of a pension, current workers need to completely change the “math” of retirement, and never spend anything like the amount they earn, whether it’s $70k per year, or $170k per year. And when they stop working, they will need to shift gears dramatically, and adopt a mindset that permits them to withdraw from their savings/investment pool whatever amount is needed (and prudent) to support their retirement expenses. It’s a new world out there, folks. We need to stop perpetuating these old ideas.

When I found HD, I read every article on the site and I think you outdid your brother in a few cases. Hint, hint. :))

Hi ScubaSki, Agree scuba NOW. Since 2015 we scuba Big Island for 3 months each year. Renting a condo in Waikoloa makes Puko skin and scuba easy.

#5 reminded me of a certain frugal godfather and his (hopefully former) habit of torturous, time-eating multi-leg flights to the PNW 😉

Good post. I could have been more financially careful when I was younger, but I’m still looking forward to a comfortable retirement in a few years. Buying that leather sofa on credit wasn’t financially careful, but my friends and I enjoyed it for years. I don’t care for fancy coffees, but I’ll happily pay for the first cherries of the season or splurge on front row theatre seats when I’m in a major city. My financial lapses are balanced by three good habits. First, I’ve contributed at least 10% (and usually much more) of every paycheck to retirement account since my mid-20s. Second, I’ve maintained about the same standard of living since my mid-20s, instead of moving to larger home, although I have indulged in a weekly cleaning service for years. Third, I keep an emergency fund so I never have to go into debt; that leather sofa wasn’t an emergency and I still don’t regret paying interest for six months. I don’t budget, I just put aside retirement and emergency funds first, keep my fixed costs under control, then feel free to spend whatever’s left each month.

Hi Richard, I agree with your ideas and my life specific comments follow: 1. In retirement switch from SUPER SAVER to ENJOY LIFE SPENDER. No budgets. M = million 2. No 3. We provide with Joint survivor pension, SS at 70 and Large NUT, Wife SS at 62 spends freely. 4. No 5. No rules in retirement. RMD is the controlling factor making 4 % rule moot . 6. Retired 2015 each year we travel 3 months Hawaii, 3 months FLA, 3 months other travel and 3 months home. Since March 2020 home. Nut increased from 2 M to 3 M. So glad we spent 50 k per year traveling and enjoying life. 7. Since 1999 I did my own spreadsheets to plan and record good ideas. Spreadsheet says 3 M at 95 with 4% return. So Keep Smiling or as Evita would say "and the money keeps rolling in from every side".

Jonathan, you know all too well my frugality and you also know that at times that I kick myself when, for example, I buy an airline ticket for a few dollars more than it was advertised a week later when the tickets went on sale. Also, I continue to write down each purchase to ensure that I remain within my monthly budget. But for the past many years of retirement I have never spent past my annual budget. In fact I have been under budget. And so perhaps the time has come to let go of the monthly expenditure tracking!

A rich family in my hometown bought very cheap cars. Manual transmissions, no air conditioning, etc. But, they gave generously to causes they believed in. They found their "happy medium."

Dr. Lim - Such a wonderfully thought-out and well-balanced article! Definitely in my top 10 from Humble Dollar. Thank-you. I'm saving this one. Might I add one possible side-note about #8? Sometimes it's good to be pound-wise rather than penny-fooli$h, as in the example of an investor with a cognitive impairment or an investor with perceived self-wisdom (50% of which may be incorrect) and blind spots about advanced issues like taxes.

I just wanted to say I love your name and picture! With Roscoe by our side we'll get those Duke boys!

We’ve been going back and forth for years about whether to get a second/vacation home. I think we’ve concluded that what we really want is to be away from our hometown in July and August (really, really hot) and maybe January (foggy and cold). So we’re planning to save and budget for VRBOs for a couple of months a year when we’re retired. Even if we spend $10K a month doing that, $20-30K/year is way cheaper and less work than owning a second home. And we’re not locked into the plan or a location if things change.

I'm sick of the 4% Rule and Financial advisors telling clients to save more. My advise is pay off your mortgage and live within what ever your income will allow. Early in retirement, you will want to do more. A younger person can do more. If you need (want) a new car, take the money out now and pay cash rather than financing it because the 4% rule says you cannot take out $50,000 this year. If you want to go on a big vacation or a lot of little trips, do it now when you are healthy enough to do it. You will never know when government will say you can't travel again because someone is sick. You can cut back next year. Don't try to be the wealthiest person in the nursing home when you are 90. I'm speaking form 28 years of retirement.

I've made this comment before but it is appropriate again. My biggest regret is I saved too much for retirement. Financial advisors scared me into thinking I needed to save much more. I retired in 1992 and lived through the crashes of 2000, 2008, and 2020. After every crash, I thought I needed to save more and after every crash, the market came back stronger but I had another couple of frugal years before I started spending again. Now I can afford to do anything I want but physically, I no longer can ski black bump runs all day or do 4 scuba dives a day in cold water. And even though I can afford it, I still will not go to Starbucks

Some people never learn that time is money.

As I was reading, I started thinking, he’s talking about me. Not the $6.00 coffee, but some of the too frugal stuff. There were times when I skirted being too frugal, ask my wife who when she had had enough found a way to break the cycle. But in my defense our last ten years of retirement and our ability to help our kids and grandkids seems some vindication. As far as budgeting goes, I’m with you 100% those who struggle with or obsessed with budgeting would be better to focus on willpower. Save, don’t use credit card debt and then spend whatever you want that’s left.

Who me? : )

Tremendous post, Jonathan. The coffee example plays well into the idea of "investing on life experiences" that you've previously opined on. Particularly for younger folks, the occasional fancy coffee with a dear friend (likely sitting six feet away on the patio at the local coffee shop) is a very reasonable and socially validating expense when compared to me picking up the tab for a family trip to a beach house somewhere. Both activities can have immeasurable emotional value all the same. It's about balance and perspective. While in my early 20s (with limited resources), I fretted excessively about $5 and $10 discretionary purchases. Now In my 50s, the denominations are naturally larger, but that mindset still creeps back into the picture. Granted, it has helped fund an investor's mindset for future financial needs - but if left unchecked, it can also wring all the fun out of life for both me and my loved ones. Your post today was a breath of fresh air for many of us afflicted with the burden of chronic thrift to excess. Kudos!

Really good points. I struggle with some of these myself

A couple of minor points: There is no conflict between the 4% rule and the advice "Spend it down". The reasoning behind the 4% rule assumes that you do spend it down, meaning you spend principle as well as market gains. The 4% rule doesn't concern how much you will need to withdraw in retirement, just how much you can afford to withdraw without serious risk of running out of money in 30 or more years. Of course you need to estimate how much you will need to withdraw in order for the 4% rule to tell you anything interesting.

I first began traveling the year before I retired. I got hooked and ended up spending over $20,000 a year on travel. As we got older, winter became less tolerable so we started renting a house in Florida for several weeks each winter. None of that was part of pre-retirement spending. My point is that it is not hard to need your full pre-retirement income during an enjoyable retirement.

If a person earns $75,000 a year, their net is after all taxes. For most people retirement income will also be taxed. The elimination of payroll taxes will be offset by new expenses, probably health care coverage. I maintain saving should not go away for several reasons. Primarily to grow and maintain an emergency but also for added discretionary spending in retirement. I assume most people know their gross income better than they do their real net especially if they are heavy credit users.

Start of the discussion really. Pick any easy guideline the average person can use to determine how much is safe to use of their assets each year?

But if the 4% rule or something like it does not provide an estimate of available income stream, how will a budget help? Any kind of budget can only work with adequate income not the other way around.

Far too many aren't even saving for retirement which is tragic. Aiming for replacing net pay is a good simple goal for many up through age ~50 and avoids tons of variables and uncertainty that surely holds back most people from even thinking about how to turn savings into income when work stops. When will I want or need to retire? What will my final working income be? What will my SS income be? What kind of lifestyle do we want to afford if we're able in retirement? How long will the last of us live and need income? What average return on retirement savings will we see? Can we afford to defer SS to boost that income? I was frozen like a deer in headlights by these questions until my late 40s, but saving enough I could double down and close the gap I saw after finally doing the math. If by age 50 you've not even looked at whether you can match net pay with savings at your target retirement age, you may well have too little saved. Worrying about the 4% rule is likely a waste of time because you're facing harder questions with few good options.

One thing I've decided is that it's good to have some margin in your plans, and the ability to monitor and adjust your spending as circumstances change. Not micromanaging but maybe assessing things once a year. If you're withdrawing 4% and it looks like the balance is declining too fast, do you have room to adjust your spending without big consequences? Or if things are looking good, you may need a sports car to take up the slack.

Good post! But why should the income needed in retirement be even based on your income before retirement? It should be based on your spending before retirement to maintain your lifestyle, right? Plus or minus some adjustments for things that may change (i.e. more travel and hobby spending as you pointed out). Yes for many folks, the pre-retirement spending and income may be roughly the same, and then you'd be right. But it can also be vastly different. I.e. we spend just a fraction of our income each year. Do we need 100% of our income in retirement?

The short answers are: it's complicated it depends I only know 3 things: 1. We spent $103K last year—the first time ever in 36 years of marriage that we actually tracked spending. This does not include income taxes. 2. We have more money in our retirement funds than we had in January 2019 (which was the first time I really paid attention to the number). 3. If we are going to leave money to our daughter and grandsons, then Roth conversions are part of our life for the next decade. Unless, of course, Congress 'reforms' the tax code again; LOL.

For people who are not "experts" like you, there is a large benefit from an expert who can do the financial calculations that are so important for people to estimate income and spending needs and provide a list of questions they should ask themselves like what things they will no longer spend on and what things they want to spend on in the future as compared to the past. These calculations and the answers to the questions posed by the expert will pretty much determine what kind of retirement is possible. Someone in their mid or late sixties is not going to have too many options to change what will be the trajectory of their retirement. Llike a business, retirement spending is made up of fixed and variable spending. Fixed spending should be supported by things like SS, pensions, if available and immediate annuities where possible. The balance of fixed spending and variable spending is supported by retirement savings. Someone with only SS and some savings may need to invest perhaps less aggressively than someone with a pension. The 4% rule needs to be replaced by, at a minimum, some type of quasi-budget that is based on the assumptions derived from the "experts" analysis above.

Excellent point.

Good discussion Richard. As for the 4% rule, it's a discussion that seems to be a little too far out in the weeds for many people, so I'll pass on that one. The level of income necessary to sustain (NOT just to start!) a comfortable retirement is a subject a lot more people can relate to, and one that seems to be very much misunderstood. Let's face it--doing stuff costs, y'know, money, and just barely covering basic expenses month to month isn't going to cut it for most people, no matter what age they are when they leave paid employment. So yeah, your goal of covering as close to 100% of spendable income before retirement seems a lot more realistic to me. And if you fall a little short of that, it's not going to be nearly as disappointing as totally achieving success in replacing just 30% :)

Many retirees do not have a pension and the median amount of net worth is about $150K without home equity. In my neighborhood retirees spend based on a budget that is contingent on SS and their savings. Too me it makes more sense to develop an appropriate withdrawal %(4% or otherwise) based on fixed and variable spending estimates, retiree savings available, and the best estimate of likely returns from the financial markets using an appropriate investor tolerance for risk. If spending estimates are higher than income estimates from SS and savings then you go back to review your income and savings estimates. This is an iterative process until both income and spending estimates become more in balance. Some of us live with a tighter budget than others. Everyone lives within a budget whether they admit it or not. https://dqydj.com/net-worth-by-age-calculator-united-states/

Why should you avoid the 4% rule? Many, many reasons. But the FIRST that comes to mind is yield on the 10 year Treasury as we speak is 1.094. What was the yield when Bengen came up with said "rule". 5% or so? End of discussion. Literally.

I believe you are correct. And it’s all very confusing to people trying to figure it all out.

Sir - It seems to me the 3 financial topics we'll never have a consensus on are (1) the most appropriate asset drawdown rate in retirement to enjoy life but not outlive our $$, (2) whether to keep a mortgage in retirement or pay it off earlier, and (3) should you take Soc Sec as early as possible or wait it out until 70. Too many folks like to generalize about this sort of thing (like Orman and Ramsey who are 2 of the worst financial "experts" ever).

Good discussion. Very practical. I agree with your seven points of advice.

Thanks for another great post! I think the one part that I am struggling with is I know that there is no way I will need 100% of my income......but I will probably need 120%-150% of my take home pay. For my wife and I, we put $66k a year into our 401kIRAs. I know I don't need to replicate that in retirement, so thats where the "income" part is a rub for me. I initially wanted to say I needed 100% of my take home pay, but that overlooks my FederalStatelocal taxes that are taken out. The 150% of take home works for me, but would the average American understand 120%-150% of their take home? Probably not. I guess after all that I have to agree with you on 100% of income. It's easy...digestable..and hopefully provides them a cushion that most will inevitably need.

As the parent of now teenage twins, I can offer this "fact". Things tend to get better, although challenges remain, they're (usually) different than getting vomited upon! But back to the "neutral thinking", I interpret that as approaching life, investing and otherwise, with as "even a keel" as possible. Yes, 2020 was in many ways a disaster, in my view especially for the families of the 400,000 (and still counting) who lost their lives due to the pandemic. Contrast that with a stock market that was, fact, simply on a tear, with record upon record, also undeniable facts. Now the explanations for those facts are NOT facts, but instead either simply opinions or, in a more formal analysis, hypothesis'. My cautionary takeaway is that it's early days, and those explanations of the facts may or may not ultimately be proven to be correct. In the meantime I personally find it fair (this is true for both my kids and my investing outlook) to take a measured, yet opportunistic, approach. I'm still broadly diversified, but overweighted in healthcare and tech as they're what I do professionally, and again, like my children, I'm planning to be "in it" for the long run. For my children, neither work or investing have compromised on spending as much time as I can with them as possible. Even when they vomit! Relish parenthood, I've long considered it the greatest blessing I'll ever receive.

Another way of avoiding the paradox of choice, not mentioned above, is inattention. This worked very well, for me. I was never much interested in investing, so I bought mutual fund shares and never got around to selling them -- that is, I was never tempted to trade.

Thanks Langston! I appreciate your comments. Hats off to your wife!

Thank you!

Enjoyed reading this one! And agreed - Carlson is great for our community.

The most amazing, heroic, loving and pain tolerant human beings ever created are mothers. I'm in awe of you and my wife (of 5). Thank you. And you couldn't be more right! It isn't about what in front of you, it's about what's important to you. :)

Ha! Thanks Bob for the comment..snarky or not!

If you are going to be snarky, then please refrain from a tell such as ":)".

Hi all, I'm reaching the age that putting off SS benefits does me no service. I'll turn that income stream on in June. I just wonder if there's anything folks can offer as advice as to what I should know. I'm single and will be 70. I like Richard's articles! Thank you in advance!

I see what you did there...

No snark intended. Just a lame attempt at humor.

Entertaining read! Thanks for introducing me to the Dunning-Kruger effect. I wasn't aware of my ignorance and was totally confident that nothing like that existed:)

Rick I have owned a few preferred shares for a few years and benefited from the excess yield. My assumption was the financials were well capitalized after 2008. But my fear going forward is #2-Interest rate risk. The duration of some holdings is very long and if rates start to rise preferreds will be treated like long term bonds.

Back in the 80s, my Merrill Lynch account person gave me the special opportunity of buying $400 worth of preferred stock. I bit. A couple of years later, the company went bankrupt, and I lost that money. Never again. Around the same time, I bought some shares of a TR Price mutual stock fund, New Horizons, which has gone up and up and up since. Lessons learned.

Very helpful article, thanks Rick. I remember years ago studying preferred stock and writing it off - but I don't remember why. Thanks for the reminder! :)

I see what you mean. I do Roth conversions sufficient to get me up to the top of my usual tax bracket, while using cash reserves those years for spending and paying the tax on the conversions. However, if I was doing a Roth conversion big enough to greatly increase my tax liability, I would consider that to be outside the normal spending guidelines, similar to (but less expensive than) buying into a CCRC. As Roboticus Aquarius said above, the 4% is just a guideline, not a hard and fast rule. However, I personally would try to split up my conversions between multiple years so as to not push myself into a higher tax bracket on any of those years. It seems to me that the best time to do Roth conversions is generally in early years of retirement, before you start taking Social Security and having RMDs, so you can do the conversions with relatively little tax pain. Everyone's situation is different, though.

Yes, but, I am still not clear. Suppose I have a retirement portfolio that is 90% tIRA and 10% taxable fund and is $1M. I make a $100K Roth conversion and pay $20K in taxes. Does that $20K count as 2% spending?

Thanks for this article! One other option to consider in order to take some of the tax bite out of Roth conversions is to set up a Donor Advised Fund (DAF), making a large donation towards it, in the year you do the conversion. It can help offset the tax burden for the year from your Roth conversion, especially if you fund the DAF with a large amount that you normally would have spread out over several years with smaller individual charitable donations. Or as you mention, if you still plan to have some Traditional IRA money left at age 72 when the RMDs are required, consider the QCDs instead (as a sort of delayed charitable gift you are planning for in the future). Keep up the great articles Humble Dollar!

Ray my book addresses many of these topics. As I wrote it from a 55 year old's perspective planning for retirement.

Except I would much prefer to have the 6% at age 60 when I can enjoy vs. at 70 when I might be too old, thus the crux

My favorite is the "RMD" approach, because unlike the options above, it takes life expectancy into account. Simply put, your "minimum" spend is what the IRS would require you to withdraw if it were all in a traditional IRA, which can be calculated for any age from 0 up. If you have more than you need saved up for this minimum spend, you can spend the rest with confidence at any point along the way. These figures are in Table 1 "Single life expectancy," and the percentage to withdraw it caculates starts at 1-2% at age 0 and increases to 100% at age 111--at which point, if you're still thinking clearly, you might want to abandon this approach. (At age 60, it's about 4% and at age 70 it's about 6%.)

Assuming you do make the withdrawals beginning at age 60, the 4% will be of a bigger number than the 6% because of the ten years of withdrawals, unless your investment return is greater than your withdrawals, in which case you will have more confidence at 70. If you treat this as a minimum spend, you could ask yourself the question, "will I have enough left for my desired minimum spend at 70 if I go ahead and take [2% extra] this year at 60. If you've been a saver, your answer will likely be "Yes!" If you've always lived out the idea of spending more now instead of saving it for later, you may discover that your future self would kindly request you show a little restraint ;-). BTW, I'm reading a great paper right now another commenter recommended if you want to see this all laid out very technically and thoroughly https://longevity.stanford.edu/wp-content/uploads/2019/07/Viability%20SSiRS%20Final%20SCL.pdf

+1. I agree that SS is a very good deal for most people.

The thing about investing is that it is convoluted that almost anything you say about it is conditional. Thus, even a bad example can yield a good lesson! I've experienced that as well.

This is mostly incorrect: If you invest only in cash you may have close to zero nominal return, and negative real return. Bonds may have positive nominal returns, but close to zero real return. For the past 40 years, though, bonds generated real returns. US Stocks have yielded 6.7% real return over the very long term. Some people think it will be a couple percentage points lower over the next decade, but it still seems likely to be positive. Most people put some of their investments in all three, and generate positive real returns even over some of the worst investment periods. All you need is positive real returns to increase your purchasing power over time. Real returns of merely 3.5% annually will double your purchasing power in less than 20 years.

After reading the article and the comments, I am going to make my usual complaint: no one seems to take into account the Required Minimum Distribution. Many of us retirees have IRAs and must follow IRS rules which require us to withdraw higher and higher sums as we get older. I set up an RMD schedule and ran it out 20 years. By year 10, you are already in excess of 5%. This would seem to suggest that you may want to convert amounts to a Roth account, but be careful of IRMAA which could reduce future social security benefits.

It helps that I waited until I was 70 to draw social security.

My way is the easiest. Live on your RMDs and reinvest the amount you don't spend!

If you are just trying to plan your spending for this year, then there is not much effect. However, if you are planning your spending for the rest of your life, there is value in estimating what happens when you do a Roth conversion. The whole purpose of the Roth is to reduce your long term tax liability (or that of your heirs), leaving you more to spend. Therefore, it makes sense to include this in a long term spending plan.

The better example of the power of compound interest is not the investor, but the borrower. Anyone that has felt the sting of high rate credit cards or payday lending understands compound interest. They believe the credit card issuers are getting rich from people that do not understand the power of compound interest. The math works on both sides.

Not a bad idea, though I do it differently. I have a spreadsheet on which I estimate all my annual income and spending, including taxes. Rather than adding in amounts equivalent to my Social Security and pension income, I just compute how much of my investments I spend each year and compare that to how much of my investments I would spend using the ceiling and floor method.

What a brilliant way to do this. I have been ravenously consuming content for two year and found it weird that no-one talks about when social security kicks in and of course a large part of the disposition is not really needed!!! So if K understand this correctly, and my soc is 4 per month I could over 1Million to to nest egg? Thanks, Ray

Great article Jim, Very well rounded with pros and cons. I liked that you mentioned keeping things flexible just in case some rules change. Just followed you on twitter so I know when you do more and I am going to look at your book. I am 57 and have 7 figure (barely) 401K, no IRA and no Roth yet, I am doing one with Vanguard this week for 2020 and 2021. I also plan to use my 401K as a bridge from say 60-70 whilst I wait for soc security and still do what I can to convert just to have a balanced tap into bucket of funds I can use if and when taking out of my 401K would boost me into an area tax wise I don't want to be in. Any articles to read or things to be careful about at my juncture age wise. Thanks, Ray

This is so not complicated. First, find out when you are going to die...

I think the best explanation for why the market ignored the riot is that, unlike unexpected positive or negative news about COVID, investors didn't see it as having any impact on our economy or the the stocks they own.

For saving to cover big expenses such as 529 for college, the key is to start early. There are pros and cons (https://www.wsj.com/articles/pros-and-cons-of-529-accounts-for-college-11553450400) for 529, however overall I think it is a very good way to save for college, especially given the tax advantage for qualified expense, and if the 529 account is directly opened (vs. via a 3rd party).

You can't know. But for the American stock market, in the past, you would have done well to treat it as a buying opportunity. I bought near the end of 2008, then again in March of last year. So far, so good.

How very true. The obvious moral is to buy stocks, so you don't have to depend on interest. Isn't that risky? Sure, but for the American stock market, it has not proved to be very dangerous, provided you don't sell when there is a crash. I have gotten 12.46% returns annually from my mutual stock funds since 1992

davidrmoran, Thank you for your comment. All of my foreign taxes come from investments in foreign stocks (mostly Canadian). You make a valid point about carrying back one and forward ten years, which becomes very complicated. I use turbotax and it has never allowed me to do this.

Gary W, thanks for your comments. I can understand the reason for form 1116, but not that it only is used when you foreign tax paid is greater than $600.

India Major, thanks for your reply. If you find it all "fairly simple" then I certainly respect your math skills. You are not correct about "credit for the proportion of foreign taxes withheld . . ." as if you only pay $599 in foreign taxes you can get credit for all of it, if you pay $601, you cannot.

a v smart guy, not me!, at mfo had this to point out: Foreign tax credits can be carried back one year and forward ten years, so he may not have lost his tax credit as much as he would like you to believe. I've carried forward and later used foreign tax credits. Basically, you can't take a credit now for foreign taxes paid at a higher rate than your current overall (not marginal) US rate. For example, suppose you owe $10K in taxes on $100K of taxable income (10%). If $20K of that income was foreign, and you paid $3000 in foreign taxes (15%), you could take a credit now for $2000 (10%) and carry over the remaining $1000 to use in future years. The way the IRS describes it is different but amounts to the same thing: Your foreign tax credit cannot be more than your total U.S. tax liability ... multiplied by a fraction. The numerator of the fraction is your taxable income from sources outside the United States. The denominator is your total taxable income from U.S. and foreign sources. More important is whether your mutual fund passes through foreign taxes to you. The way funds generally work is that they pay for expenses (management fees and yes, taxes) out of earnings and pay you the net earnings as divs. The income you see on your 1040 is the usually the net income. But sometimes, even though you're only getting net divs, the funds pretend that you got extra income and it was you, not the fund, that paid those foreign taxes with that extra income. So you might have $500 in "real" dividends, but on your 1099 you see $550 in divs and $50 in foreign taxes paid. The question is: which funds pass through foreign taxes to you? A fund must make an election to pass through the taxes. They can't do so unless "more than 50 percent of the value ... of [the fund's] assets at the close of the taxable year consists of stock or securities in foreign corporations." 26 U.S. Code § 853(a)(1) Generally, global funds don't make this election either because they typically have less than 50% invested abroad or because their portfolio could be near 50% and they want to be clear to investors. (Currently, M* shows 46/246 large cap world stock funds with over 50% non-US stocks.) Somewhat surprisingly (to me) a number of international funds also decide not to pass through foreign taxes.

The momentum theory, which you favor in #2, and mean reversion theory, your #7, of stock prices generally give opposite recommendations. When prices are plunging, momentum leads you to sell your stocks to avoid the further losses you expect, while mean reversion leads you to buy more stocks, to take advantage of the future rise in prices you expect. Don't believe momentum. You should revise your #2 discussion.

Learned a hard lesson about diversification and am a better investor for it today.

My method to determine what I can withdraw from all my accounts is divide the total assets (individual accounts, IRAs and Roth IRAs) by what I think my life expectancy will be and recalculate every year. If have have $300,000 and expect to live 30 years, I can take out $10,000. If that $300,000 grows 10% that year, it would be $320,000 the following year and I would expect to live 29 more years. So for that next year, I could take out $11,034. But if I wanted to buy a new car or go on a big vacation that year, I would need to take out an extra $40,000. If the $320,000 didn't appreciate at all that year but I took out $50,000, I would have about $270,000 and 28 years left to live so I would be able to take out only $9643 that year ...but I would have a new car or would have had a great vacation when I was younger and could enjoy it more. These withdrawals would supplement any other regular retirement income I have such as Social Security and pensions. The method is simple. If you want to take more out when you are younger, you can. If you assets appreciate or depreciate in the short term, you can see it and adjust your withdrawals. And you don't have to pay a financial advisor to figure it out.

When interest rates are ZERO as they are now, compounding over a lifetime still yields a 0 return

I have lived and worked in Europe for the last 11 years, retired for the last 5. For the first six, I had the option of claiming the Foreign Tax Deduction (a dollar for dollar itemized deduction, but on earned income only). In retirement, these last five years, I could only use the Foreign Tax Credit (because of passive investment income only), with all of its inherent mysteries and byzantine alleyways. So, I end up paying US and Swiss taxes, never quite being sure that what I am paying isn't too much (at least to the US). My Swiss tax rate is less than the US; but the US catches me up to the US rate tables in nifty fashion. My expat friends here who are from the UK, Japan, Germany, etc. only pay Swiss taxes. They are astounded that we Americans have to pay both pipers. By the way, Jonathan, I went to University and grad school and worked/lived in Philadelphia. And not all that far from your office address for the newsletter. I hope you are enjoying the city, as I did for many years, with my Philly born spouse!

My one encounter with Form 1116 was a long time ago when it was the only way to claim foreign taxes, there wasn't any alternative for relatively small amounts. I agree that it's probably the most convoluted tax form that I've ever used. The reason for 1116 is actually quite rational, you can only deduct the amount that the foreign income would have otherwise increased your U.S. taxes. The 1116 has been around for a long time, I recently noticed a line for it on the Form 1040 for the year 1940.

QCDs are a great way to donate to charities while you are still living. If you also expect to leave money to charities when you die, the best way is to make them beneficiaries of your traditional IRA. Since the charity will get no tax benefit from a Roth IRA, you would have paid taxes needlessly on the conversion from a traditional IRA.

In addition to the investment return on social security as compared to other investments, social security offers survivor benefits to your spouse and children as well as disability benefits to you and payments to your children under a certain age. I think the benefits are unparalleled.

I see a lot of questions and comments about the five-year rule. If you're confused, I'd encourage you to read this section of HumbleDollar's money guide: https://humbledollar.com/money-guide/roths-five-year-rule/

Contribution is different from conversion. If you contribute to a Roth you can acccess the principal immediately-tax-free and penalty- free. If you convert from an IRA you can't access the Roth penalty-free(the 10% before age 59.5) for 5 years UNLESS you are over age 59.5. I wouldn't worry too much about the 5 year issues if your goal is to build the Roth account. My only advice is to open a Roth IRA by age 55 so that at age 59.5 everything in it will be tax-free.

Michael, We encountered the same situation as you did with international equities. The formula is actually fairly simple, you can only get credit for the proportion of foreign taxes withheld that is the same ratio as your total federal tax divided by your income. Our energy holdings used to include BP, Royal Dutch Shell, and Total in addition to U.S. firms. We sold all our foreign energy holdings, and just use U.S. firms, with their international exposure, for our energy investments. Problem solved!

Which begs the question "Why would anyone continue to live in New Jersey?"

I don't have a Roth, so I have dumb question: does each contribution to a Roth have its own 5 year starting period, or is the first contribution the only important one to consider in establishing the 5 year holding period?

Great list. It’s just dawned on me that I probably don’t need either short-term or long-term disability coverage anymore. I signed up for it when I got my current job at age 48, and the payroll deductions have gone up as my salary has. Now it’s a couple hundred dollars a month. But I’m 60, and my employer provides paid medical leave for up to a year if I ever need it, and if I became so ill or disabled that it lasted longer than a year, I’d just retire. I know I’m in a fortunate financial position to say that at age 60, but the point is that it’s good to keep evaluating these needs (#6).

If you own individual securities, you have no assurance the stock is coming back. But if you own broadly diversified stock funds (hint: low-cost total market index funds), you can have a lot of confidence that your funds will eventually recover and move higher.

Brian, I like your plan. I retired in my middle 50's, but I currently don't withdraw any from my retirement funds, plus I'm not 72 yet. However, I am receiving SS and have a pension. These two sources supply my needs, therefore, my withdrawal period will be less than the average 30 years. If only I had a crystal ball to lead me in the right direction.

I found the article promoting the well-known adage of buying low and selling high-if at all. However, if an investment starts going south, how can you know at that time if it is a buying opportunity or is it time to unload it?

One good thing the Universal Life Insurance salespeople of the early 1980s did was show some amazing projections. They didn't work out, but were attention grabbing compounding examples. The one they ran for me showed I would have $1,000,000 at age 72 by putting $100 a month in the policy. That was back when interest rate projections were very high. I didn't buy the policy, but it did start me thinking.

As anyone who has been thru this kind of 'screw job' or 'antiloophole' knows, it doesn't take a tax genius to see that cliff coming if you are the one writing the law. Why do these idiots not avoid the injustice and graduate the limits?!?! And while I am on it, why are limits usually in Dollar amounts instead of per cents? As we all know, the value of a dollar changes a lot over a lifetime.

Isn't the notion that downturns represent buying opportunities counter to the notion that you can't time the market? One can only buy when there is a "sale" if one has available funds that aren't already in equities, which implies that one might be leaving money on the table while waiting for a sell off. Is there research that has examined whether buying during "sales" is superior to a simple buy and hold approach?

Catherine, I would completely agree. I believe one of the most broken parts of this system is the fact that the estimated family contribution makes the assumption that students are ENTITLED to that percentage of their parent’s savings or income. Whether or not a student gets the full support of the estimated family contribution, FAFSA holds no mercy or willingness to budge on the scholarships or loans they are entitled to. I was told once that the only way to disassociate myself from my parent’s income (at the age of 21!) was waiting to go to college until I turned 25, marriage, pregnancy, or joining the military.

So goodbye to college prep for those old fashioned schools that waste time on history, art, philosophy, and hello to trade schools that teach really useful disciplines. Those hiring officers that require traditional educations that waste time on airy-fairy stuff that is irrelevant to modern life are obviously incompetent. We can teach students how to program much more economically -- and that's the future.

Great article. Tax cliffs can be very frustrating, especially the first time you encounter one. NJ allows a married couple to exclude $100K of retirement income, if your combined income (excluding SS) is below $100K. At $101K you lose the entire exclusion. So, if you had a $50K pension, you could take $49K in IRA distributions, for $99K, and exclude the entire amount. If you add $2K you lose the entire exclusion.

My Father was a CPA and I did my own taxes. I would file out obscure for Fuel tax credits and income averaging (many years ago) which would have cost more to have someone do than the tax savings it would generate. But about 5 years ago I found FreeTaxUSA and started using it primarily because I was getting frustrated using the worksheets needed to fill out the forms. When you do your own taxes by hand you find things that the IRS and Congress who passed the tax laws don't want you to know. Things like the 40.7 and 49.95% marginal tax rates for people getting Social Security and have incomes of around $60-70,000 (single)

Actually--In 2019, $944.5 billion (89 percent) of total Old-Age and Survivors Insurance and Disability Insurance income came from payroll taxes. The remainder was provided by interest earnings $80.8 billion (7.6 percent) and revenue from taxation of OASDI benefits $36.5 billion (3.4 percent). https://www.ssa.gov/news/press/factsheets/HowAreSocialSecurity.htm#:~:text=Social%20Security%20is%20financed%20through,self%2Demployed%20pay%2012.4%20percent.

The money collected in payroll taxes isn’t invested, but instead immediately used to pay benefits to current retirees and other Social Security recipients. Wait! Where have I heard this before..?

This is good information I hope to add to my retirement planning thought process. Thank you!

On point #1 I agree it is mostly a moot point the taxation on earnings. However I believe that once you have held the Roth 5+ years and are over age 59.5 that all distributions are tax-free-regardless of ongoing conversions. (The way the IRS words it is not too clear.) The intent of the 5 year start on conversions is to prevent dodging the 10% under age 59.5 penalty.

Any issues with e-filing? Looks more complicated than turbotax; efiling portion of return. And they admonish if it doesn't go through correctly you can't do it over, you have to file amended return.

"However I believe that once you have held the Roth 5+ years and are over age 59.5 that all distributions are tax-free-regardless of ongoing conversions." Sadly, this does not seem to be the case. Pub 590B, page 28 has a reasonable (at least, for the IRS) explanation of the differences in 5-year clocks for conversions, and further clarifies that each conversion has its own 5-year clock. Here's a great article by Michael Kitces that I think you will find relevant: https://www.kitces.com/blog/understanding-the-two-5-year-rules-for-roth-ira-contributions-and-conversions/ Mike Piper and Ed Slott are also in agreement on this, and I consider them to be my final-word, go-to gurus on most anything related to Roths. I've also discussed this subject at length with a local tax-advisor who says he's seen actual cases of the IRS hitting seventy-some odd aged people with income taxes on the earnings of his converted Roths, because they didn't hold them long enough after conversion. Not the early-withdrawl penalty tax, mind you, but ordinary income tax. Edited to add: Of course, earnings on contributions ARE tax- and penalty- free after 59.5, so long as the account has been held at least 5 tax years.

It's funny how some people know exactly what they want to do at 18 while others have no idea. I graduated from high school with a classmate who knew she wanted to be a doctor. She went straight through college and medical school and into a career as a physician. I spent the first three years of my college education taking classes in a variety of subjects just hoping I'd find something that would stick.

Dave Thanks. As you know the tax rates would be worse if you were single. James

One such other funding mechanism is the assistantship system used by grad schools. Students support themselves by teaching. That could perhaps be extended from college teaching down to secondary school teaching.

Sadly, my crystal ball at age 65 was not working. Now, I am 72 and doing Roth conversions. Large ($100K+) conversions. Will pay a lot more for Medicare Part B. And, my 63 year old wife pays full freight ($9K/yr) for her Obamacare bronze plan. And, she has $1M in her tIRA that needs to converted. So, everyone should take James' advice.

Steve it might have helped but unless the Plus version knows where tax rates are in the future I am not sure how much. I just know that every $ I put in a Roth has paid taxes already and the answer to conversion usually is- "as much as you can afford". btw just heard your podcast with Christine Benz!

Nice write-up James, I too have become both a student and a fan of the Roth. If I may, I'd like to offer a few of my own hints and tips for those trying to master the intricacies of this fine art: 1) While it's true that once you hit 59 1/2 you are pretty much done with the 10% penalty tax, keep in mind that the 5-year clock still applies to Roth conversions; or, more specifically, to the earnings of Roth conversions. These are still subject to ordinary income tax if held less than 5 years. However, due to the ordering rules of how distributions go in and come out of your account, for most people this is of little practical concern (unless you substantially drain the account within a few years, in which case you shouldn't be fooling with conversions in the first place). 2) Also consider the impact of state taxes on your conversions. I live in a state that is relatively tax friendly for many pension/IRA/Social Security withdrawals, to the point that much of your income could be state-tax free if taken at the proper time in the proper order. This could mean that doing Roth conversions might subject you to state income tax, whereas standard withdrawals from traditional accounts might not. This isn't necessarily a deal-breaker for conversions, but should be taken under consideration for sure.

Nice - we allow users to model the long term tax and other impacts of Roth conversions to their plan. We also rolled out a Roth Explorer (Beta) that will suggest potential conversions over time that may help you. Would love to know if it would have helped with your plan. (It’s in the Plus version but there is a free trial so you could run it and then cancel.) https://www.newretirement.com/

Thanks James - small world - it was an honor to go on The Long View. Yes - we use current IRS tax tables. Lots of folks use our platform to create a "second opinion" to their own home built plans or what their financial advisor provides. If you try it - I'd love your feedback either way - we learn a ton from our community and try to share that knowledge through the platform.

529s are AMAZING if your household income is 300k+, but they act just as a wealth building tool. Not as an "affording college" tool. Between 90k and 220k, roughly, with 2+ kids, you will maximize total family wealth much more through IRAs/401ks. Colleges actively penalize you for saving in 529s by counting 5.6% of this years 529 balance AGAINST you (reducing any aid by that amount), year after year. Note: this is calculated on your total 529 balance, NOT on the 529 money saved for 1 student. For example, your 9 yr olds 529 balance will count AGAINST your 20 yr old college student's financial aid!

Take heart. Retire spending is not always an upward sloping line into the future. Some people have theorized that retiree spending is more like a "SMILE". https://www.kitces.com/blog/estimating-changes-in-retirement-expenditures-and-the-retirement-spending-smile/

That was the whole point of my comment. In the event of a death of one spouse, life insurance is a tool to make sure that the family's finances is not totally wrecked and to ensure that any children can afford college. Not every family(especially young families) has the financial wherewithal to sustain a death of a breadwinner. Except for the elite, life insurance is a more practical option. I have known many people who's financial lives would have been devastated if they were not protected by life insurance.

Reminds me of my brother with his small suitcase full of copper pennies. He didn't make much on that investment, but was able to use it to build his upper body strength when planning a mountain climbing trip. It is interesting that at once point the US government banned the private ownership of gold coins. Parents of high schoolers -- even middle schoolers -- are well advised to consider consequences of the prior prior year return. In my case, it's the reason I didn't convert an old IRA into a Roth IRA and probably won't do that for a few more years.

Every couple could benefit from a hard look at what would happen if one died unexpectedly at least once a year, maybe when doing their taxes or deciding how much they can save or spend that year. In this pandemic, my family has had hard conversations about what would happen if a second parent died suddenly. For many families, it is more achievable to backfill a missing income through term insurance than to self-insure through direct saving.

This is so true! I didn't even talk about the income hit. Or the discount rate. Your advice was exactly the path I took. Honestly, the 529 works best if you know what's in your future, and I have no crystal ball, never good at guessing.

One of my twins knows exactly what she wants to do, and at least some college is required as an entry card. The other has no clue. You are correct about many paths, and also straight into work, where once working, in some professions your employer will suggest and pay for you to go to college.

I think student loans only started about a half century ago, and colleges have been around over 500 years. So there are other funding mechanisms. We could benefit from a more extensive dialogue on higher education in the US.

Thanks for the kind wishes. I'll be sure to write about some of the ongoing activity. The application process is not dissimilar to a cold-calling job hunt. The students don't know what they are getting into and honestly neither do the universities, hardly. Strange times!

This is why smart parents often have life insurance on both spouses to ensure that in the event of the death of one parent that these type of life costs like a kid's education can be covered.

Very good advice. For # 11 I would add making sure that you aren't the only one who knows the master password to your password manager as well as the combination to your safe.

Wow, I thought I was one of the only ones to almost totally sell off the US market based on all the points you have mentioned! The Shiller Cape 10 is the 2nd highest its ever been in 140 years! US vs international market performance ALWAYS rotates. I actually am probably more extreme as I have 50% emerging markets including emerging markets VALUE which has perhaps been the biggest underperformer. For US, I have an 'absolute value', very conservative small cap value fund run by awesome, proven absolute value managers - PVCMX. And large and small cap developed nations international funds as well. Like yourself, I feel strongly that if you're able to hold on 7-10 years if need be, one will be quite rewarded over time. And as this outperformance happens to varying levels, periodically take $ off this allocation table and rebalance, obviously that's the toughest part, not to get greedy as mean reversion eventually happens. Yes, it's timing, but longer term timing with history consistently on your side (i.e., mean reversion). I don't believe in 'this time it's different'.

I wish you luck as well. I know it will never happen and I realize there are a lot of complications, but I would like to see the colleges and universities become responsible for the loan(s) the student takes out and/or have skin in the game. As it stands now, the student loan system mess is ultimately a taxpayer obligation. There is no incentive or reason to hold down costs so it continues to balloon ever higher each year.

I do my own taxes on paper. I have the IRS mail me the forms I think I'll need; it's impossible to find them anymore and I don't want to print them at home at my expense.

I wish more parents and high school counselors would encourage students to look into 'traditional' college alternatives. Trade schools, the military, community colleges and certificate programs can all provide great paths to meaningful careers. And, of course, there's no reason why a student can't enroll in college later in life, once they know a bit more about what interests them and what their skill sets are. I know when I was 18 I didn't have a clue about what I was good at or what I wanted to do for the next 35+ years of my life.

My advice. Put that emergency cash into Krugerrands when the child is a sophomore in high school.

While kids in college, for incomes over 100k, there is i effect a 1) 5.64% wealth tax and a 2)47% tax on marginal income Where "tax" is reduction of the discount a college offers. So if you work more and earn an extra $1000 to help pay, almost all of that money is eaten by fed, state, ss, then college discount clawback, leaving you nothing for your effort. The 5.6% wealth tax is devastating if you have 3-4 kids and get hit by it 10+ years in a row. My advice? Consider 0 in 529s, and instead prioritize IRAs/401ks which are invisible to the efc calculations

You hit the nail on the head. We don’t have a student loan crisis, we have an education system crisis. The average student loan payment is about the same as a car payment. Not only does it take too long for a degree, many students are unprepared for college and must take remedial classes. And, as you correctly note, many jobs claim they require a degree, but in fact the job does not. I spent nine years at night obtaining a degree and not one class was needed for my jobs. Back in the late 80s I had one, two or three children in college for ten years in a row. Good luck.

Great topic. Those who are not fazed by algebra, statistics, and calculus, I have a recommendation for all DIY retirement. I found it to be really helpful especially dealing with the topic above with solid mathematical foundation. https://www.amazon.com/Most-Important-Equations-Your-Retirement/dp/1118291530/ref=sr_1_1?dchild=1&keywords=seven+equations+retirement&qid=1610426958&sr=8-1

What's missing here is any account of other sources of retirement income. If you will get Social Security income, you can adjust the required initial amount of your nest egg downward, or you can adjust the 4% estimate of retirement spending upward. An easy way to do the latter is to add 25 times your estimated annual Social Security income to your nest egg, and similarly for any pension income you expect. Then take 4% of that as your estimate of your retirement income. Another source of retirement income, in my opinion, is imputed rent. If you will have your home paid for by retirement time, you can pretend to pay yourself what your rent would be if you had to pay it to a landlord.

The 4% guideline is not a rule. It was supposed to be a starting point to the withdrawal discussion, not an end point. Also, it has never failed in all the time since 1927. That's 63 rolling 30 year periodss of constant success There is nothing wrong with the 4% guideline, as long as you understand what it's about. That includes the assumption of a 30 year retirement. The percentage is lower if you want to plan for 40 years... more like 3.5% as I remember. We have had low-yield environments before, and any retirees using the 4% guideline have done just fine. Now, in reality, I've never heard of anyone strictly using the 4% guideline. Most retirees adjust their spending somewhat depending on returns. This can end up acting a bit like a floor and ceiling approach. There are other approaches too. There was also a recent Standford study addressing the withdrawal problem that may prove interesting to many readers. Wade Pfau is well known for thoughtful analysis on this topic: https://longevity.stanford.edu/wp-content/uploads/2019/07/Viability%20SSiRS%20Final%20SCL.pdf

Retirees on Medicare with a small business can deduct their Medicare premiums as a business expense under health insurance.

Questions. How does the 4% rule affect Roth Conversions? or How do Roth Conversions affect the 4% rule?

I do mine by hand as well. And I haven't even been filing taxes as long as some of the commenters. I would prefer to use a program, but it seemed like such a hassle to download or install it, I just didn't bother. The hard part for me is collecting and organizing all the records. Once it's time to fill out the return, most of the work is done.

Great list. I’d consider adding: 12. Check beneficiaries on insurance, retirement, bank, credit union accounts.

Excellent

When it comes to clocks, consider the HSA. Once the account is opened, all eligible expenses you incur after that date qualify for tax free treatment - no matter when you make contributions, or achieve investment gains on past contributions. So, a healthy worker investing in a HSA at age 30, can generally make pre-tax contributions (pre-tax for federal and state income taxes at the top marginal rate, and pre-tax for FICA and FICA-Med), accumulate earnings, then have them available when needed. And, if never needed, the monies are passed to the account owner's named beneficiary. 401k and employer match. Most plans don't "lock up" contributions - neither your contributions nor the employer match. Avoid withdrawals, subject to penalty taxes. Keep the deferred withholding tax working for you. Time payouts when marginal rates (federal and state) are lower. If you need liquidity, most plans offer loans. Never borrow unless you need to. Avoid borrowing as a means of increasing or sustaining a higher level of consumption than is necessary. However, in almost every plan, the interest you pay on the loan goes back to your own account. So, upon taking a loan, be sure that the loan principal is recognized as part of the fixed income allocation. Then, if the interest rate on the loan is greater than the interest rate on fixed income investments in the plan, and less than the interest rate on a loan from a commercial source (generally true for the past 13+ years and the foreseeable future), a plan loan can improve both your retirement preparation and your household wealth.

perhaps the very definition of rich people's problems

Yep, I tell folks about the surcharge on Medicare and most say that's not fair. But, I understand if you make more, you should pay more. Unless a person earns a huge amount, then they pay very little it seems. It's part of the certainties in the world.. DEATH AND ?

2021 Charitable Contributions at $300 or $600 is no longer "above the line." But still useful.

I found Phillip Moeller's "Get what's yours for Medicare" to be a very helpful guide in sorting some of the intricacies of Medicare, as well as health insurance in general. I had to help my mom sort through some issues with drug formularies and such, which is a potentially whole new can of worms, and I found his book very informative on this and a whole host of health insurance-related topics. He also co-authors at least one other "Get What's Yours" tome, this one about Social Security, and I can also recommend it for those of us who want to plan to make the most of this all-important retirement income source.

I do my own taxes for the same reasons. Last year I discovered Section 199a on the 1099 form and had to file a new form 8995 to explain it. A few years ago I discovered the famous Qualified Dividend Worksheet that saved me a penalty by reducing my taxes.

#6 — QCDs from a tIRA for old farts — is a really good deal for people with money. Another unstated benefit is that it can get a person to increase their charitable contributions.

In the beginning I always did my own taxes. Then marriage and we used a former IRS agent to do our taxes. But that person could not offer any tax advice regarding whether to open a Roth IRA or any tax strategies. The last two years we moved to a CPA requesting some strategy, even willing to pay for it. So far, no advice. Need to go fish again.

Has anyone used free tillable forms?

The $300 limit applies to all 2020 tax returns. For 2021, it's $300 for single filers and $600 for joint filers.

I believe the total charitable donation credit is 300 dollars for single and married filers. My tax software capped ours at 300 and several articles I googled confirmed this. Could you please clarify?

Great post Jonathan!

If at least one portion of your portfolio isn't underperforming, it's not well diversified. The whole point of diversification is not to score the biggest gains - it's to ensure a healthy balance of risk and reward- and that requires investments that work in opposition to each other - or at least not in lockstep together. A big loss is more painful to most people than the thrill of a big gain...particularly those nearing or in retirement. It could just as easily shifted the other way - international could have skyrocketed and US could have lagged.

I use the IRS "Free Fillable Forms" option to file my taxes.

We diversify because we don't know what the future will bring. International stocks may have been disappointing performers in recent years. It doesn't mean they'll be disappointing performers in the years to come.

I've done my taxes by hand for 30+ years, including small business taxes. Have been able to take actions to save many thousands with the information gained thereby. Seems like they've made it harder to complete tax forms on your own in last 5-10 years, though.

Could we have worked with the buyer to be paid over a period of years?
That would be insane. A bird in the hand is worth a one-year IRMAA increase.

TurboTax Deluxe is not that expensive. Last year I downloaded it from Costco for $40. In prior years I downloaded Premium from sellers on Ebay for as little as $15.

RE: Broader Diversification... When I retired in 2001 I was using Charles Schwab's book for guidance in which he said that you could skip the international market because large cap US companies all had foreign business interests. Then in 2006 I was handling my in-laws affairs and had to consult a financial advisor to comply with the CA Probate rules. This person advised that I was missing something when I skipped international. So, I added that segment. Now, 14 years later the only dogs I have are the international index funds. I would have been much better off had I stayed with a US only asset allocation. When looking at overall results which are very good, the poor international results have been a drag, but not enough to keep me from enjoying my retirement.

I'm in the hiring a professional camp but there is a lot to learn by doing one's own taxes, if not every year, every once in a while. The forms can be intimidating, I suggest that rather than trying to tackle this on one's own, pay an accountant to walk you through it (off season) the first time. Many are worried that they might miss something. To build confidence, do it yourself and compare to your accountant's results for a few years. If the same every time, then lose the accountant.

Thank you! That is good news.

Thanks for the good catch MrAtoZ! Can't believe I missed that in editing this piece. Appreciate your letting me know!

Thanks for the comment Peter. There are a variety of usury laws in the US because state law typically governs. In Montana, we passed a law a few years ago that capped interest rates which effectively shut down the high interest lenders. I know many other states have the same types of law, but you didn't say where you are from, so I can't really comment on specifics you are referring to. I think most bankers desire to help clients with their finances. However, if you are aware of abusive practices I would suggest you contact the Consumer Finance Protection Agency and see if they can give you some assistance on any of these issues you raise. Thanks again!

As one of those bankers whose goal was to help provide affordable housing and bring jobs to their community, is their any type of new regulation that you would endorse to foster growth down the line? Specifically, the universal default rule which says that if I miss a payment on one credit card then my other lenders can simultaneously down grade the credit terms on my other credit lines(including reducing credit lines and raising interest rates). Or what about the lender's ability to charge any interest rate on a loan without any ceiling to the interest rate being charged? Would you support an amendment to current law that modifies universal default and puts a ceiling on the level of interest rates that can be applied to debtors?

It’s actually called the Paycheck protection program. But it did issue a lot of payments.

I live in NY. My questions are general ones. Again my question is this: Would you support an amendment to current law(FEDERAL law that is) that modifies universal default and puts a ceiling on the level of interest rates that can be applied to debtors? In addition, would you support FEDERAL regulation of payday lenders so that they cannot charge 400% loans? It is very naive to recommend people depend on the CFPB given our divided politics. The earnestness of the CFPB to help solve someone's problem would depend on who controls Congress.

When I was 30, I hired a housecleaner and a lawn service. They were happy to be paid for chores I didn’t enjoy. I was happy to free several hours a week to learn new skills. Time is valuable. People who are incredibly frugal so they can retire early seem to focus mainly on buying freedom to choose how to spend their time.

If you haven't read it, you should check out James McGlynn's article from last year: https://humbledollar.com/2020/01/danger-cliff-ahead/

My wife and I both retired in 2019 and closed on the sale of our house in mid December of that year. We were recently informed that we would both be in the top IRMAA bracket in 2021, but expect that to change after our SSA-44s are processed. In fact, because we didn't have to take RMDs in 2020, we may not have to pay any monthly adjustment amounts in 2021. Our low AGI in 2020 also means that we will not have to pay an income-related adjustment in 2022. After that we will probably be in the second IRMAA bracket. It also appears that not taking RMDs in 2020 will make us eligible for the new stimulus payment which the new administration may raise to $2,000. Because the stimulus isn't intended for folks like us, we intend to donate it the local food bank.

That's super helpful, thanks Jonathan. I'm looking for something more, to help me ponder Medicare and other post-retirement health insurance and care options with a wider lens. Outside of COBRA for one of our kids, I've yet to buy private health insurance beyond an employer offering so pretty clueless on the topic.

With 10-15 years of Roth conversions in front of us at 100+K/yr, we expect to pay a lot more for Medicare for a long time. But, I feel we need to do the Roth conversions to help our daughter and grandsons when we croak.

Wow. And ouch. Thanks for this! Any good reading recommendations for those approaching Medicare eligibility?

IRMAA is based on your income from two years earlier. If you have realized capital gains in that year, it'll be factored in,

I don’t understand IRMAA is assessed again and won’t include capital gains.

That's correct.

In another year IRMAA is assessed again, I believe, and it won't include that capital gain.

Richard- Wouldn't having most of the funds in a Roth 401k or IRA mitigate the RMDs? I know I'll still have pensions, social security, etc, but seems like a compelling case for Roth conversions.

Love the insight, David!

Welcome to the club. Seems your crystal ball overlooked a key element in retirement planning, ALL health related costs. There is no escape from the IRMAA.. Wait until you get to RMDs. And, not even tax-free income escapes MAGI.

As long as you do the Roth conversions before age 63. (The 2-year lookback). Otherwise the conversions trigger income that can push you into the IRMAA-zone.

Thanks, parkslope. I also wanted to point out that the individual's situation/objective/perception is as important as, if not more, than the "inherent/intrinsic risk" of the investment.

Thanks, David :). Still waiting for the exchange rate to rise ;).

It might be interesting to also consider repeated game play and the difference between short term and long term investing.

To add to this, I think "risk awareness" is also an important aspect of an investor's risk profile, in addition to risk tolerance and risk capacity (loss tolerance). Speaking from personal experience, we often don't even realize what risks we are taking with our investment/financial decisions ;).

Thanks, Langston. I absolutely agree that the emotional aspect is probably the hardest part for most of us.

Sanjib is definitely highlighting the emotional risk tolerance aspect of investment decision making. This is by far the most important characteristic of the successful investor. Done correctly, the math will never lie to you whereas your emotions can ruin you by only telling you what you want to hear unless you are ruthless with yourself. My Dad was a tax lawyer and once told me that the most difficult part of his job was getting clients to tell him the truth. Attorney-client privilege notwithstanding, they often lied because of the embarrassment and this made it hard for him to help them. Much of his work involved gaining the clients' trust to get at the truth. No doubt this is also a huge challenge for good investment advisors - which I'm glad I never got into because it's hard enough figuring myself out. :)

I think that, in that regard, the distinction between risk tolerance and risk capacity is extremely useful. https://humbledollar.com/money-guide/what-stock-bond-mix/

It seems to me that you are redefining risk as perceived risk and/or tolerance for risk.

Hopefully not TOO soon. ;-) Good one, S.S. I made the same choice in September. Love Bernstein on risk: "There are risky assets, there are riskless assets, and there is an exchange rate between them. When times are good that exchange rate is low, and when blood flows in the streets, it is high." "Make sure, absolutely sure, that you have enough riskless assets to tide you over during the bad times...." Or Housel on cash: "...cash is the oxygen of independence..."

I admire those with the patience, tenacity, and attention to detail to do their own taxes. I'm not one of them. I used TurboTax for years but now get so much joy and peace of mind out of my tax accountant doing the job instead of me. Worth every penny.

I did my own taxes too, until I married a CPA.

I also love doing my own taxes by hand, and have been doing so for 50 years. As a retired computer programmer, I am quite comfortable reading technical documents including IRS publications. Attention to detail is another required skill, and that is certainly associated with computer programming. I should add that my taxes are generally quite complex, but I love the challenge. On the 2 occasions that I have been audited, the IRS has accepted my returns.

I've been using H&R Block (formerly TaxCut) since the 90's and finally decided to try TurboTax for 2020. I'm actually using both side by side and so far I'm annoyed at how fat (612MB) and slow TurboTax is. H&R Block (105MB) presents a leaner, more professional appearance - but the proof will be in the pudding once the 1099's, etc., come in. Another great article. :)

My wife met our CPA when they were working together at the old AT&T in the early 1980s. He retired from his corporate job 5 years ago but still does taxes for his long time clients. His fees have also always been modest, including for our 2019 taxes that involved the sale of our house and rental property and the deferral of capital gains and recaptured depreciation taxes via a 1031 exchange. On the other hand, I took over doing taxes for my mother and one of my sisters after finding out that they both were being charged more than $400 for simple returns.

I put myself in the hands of a tax preparer in February 1981. This February I will have a Zoom session with the son of my original guy. Yup, 40 years with the same firm. Well worth the $375 to me for: Wages, UI benefits, tiny business, RMDs, QCDs, Social Security, pension, Roth conversions, HSA.

I got tired of being nickle and dimed every year by TuboTax with their price hikes, so this is what I've used for the last 3 years or so. I wouldn't switch back to TurboTax if they paid me to use their stuff. https://sites.google.com/view/incometaxspreadsheet/home

Sounds like an interesting hobby for the winter months, but I’m thinking one only a lawyer or account may enjoy. 😎 Give me my iPad and TurboTax and I’m good.

I am not sure the article proposed what you suggest, portfolio construction was not the topic and it's fair for the discussion to be US centric and still include an international component... but even if it did, a US centric portfolio is not unreasonable. My own portfolio has a large international component, so my opinion (and most interpretations of Modern Portfolio Theory) is clearly in your camp when it comes to portfolio construction - but there is legitimate diversity of opinion over the inclusion of international stocks for US investors. Most sources recommend some inclusion, but at less than market weight.

Yes, but the problem doesn't just arise with these ideal cases where an investment is always profitable or always lossy. Ordinarily, values go both up and down. All you can reasonably expect is that your profits outpace your losses over the time you hold the investment. Volatility shouldn't matter.

I am skeptical of the volatility calculations themselves. As I understand it, they rely on a normal distribution of results... but market returns are not normally distributed. They have 'fat tails'...

Happy Birthday and New Year Jonathan! You and your contributors have helped many of us think and look at our financial lives in different ways. Many thanks!

The use of volatility (i.e., standard deviation) as a measure of risk is definitely a controversial one. It's easy, but you're right that there's a big difference between an investment that's "volatile" because it's going up and one that's volatile because it's going down. And I think most people would rather have a "volatile" investment that's going up than an investment that exhibits low volatility because the price never moves!

That's great!

I'd sign up for any of those growth rates... ;>)

Jonathan- Happy Birthday! Thanks for all you do.

Just for fun: $300 million to $84.5 billion over 40 years implies a pre-tax annual growth rate of 15.15%. Pre-tax annual return over the same period (1980-2020) for Vanguard's S&P 500 index fund (VFINX) was 11.15%, while Mr. Buffett's stock (BRK-A) grew from $290 to $347,815 at 18.98%.

The worst problem with the formula for the risk of financial instruments is that it measures the unexpectedness of results, while it is generally interpreted as the unexpectedness of bad results. This is why people think their savings are safer when they lower risk.

Great calculations, thanks!

Because Buffet benefited from his choice of investments and the large rise in the market since he was 50, it is impossible to estimate the share of the 84.2 billion increase in his wealth that can be attributed to compounding.

"transitioning from a do-it-yourselfer to reliance and trust in a fiduciary." To quote Julia Roberts in Pretty Woman: "big mistake".

Thank-you, Adam, for reminding me of some important principles. They especially hit home as I am transitioning from a do-it-yourselfer to reliance and trust in a fiduciary. Your fourth point I will embrace after grandkids arrive; our son has a Roth since high school, is a teacher with a pension, and is contributing 11% now (increases by 1%/yr).

Happy birthday. 58 is the new 35! Thank you for building this site, and many writers for sharing financial insights. To a greater & healier 2021!

Mr. Buffett was only worth $300 million when he was 50? Ouch! :)

Good article. I think everybody who agrees with me is a genius.

Sir - Anyone who would suggest having only 2 funds, neither of which have any purely international stocks, isn't doing anyone any favors. So sure it's a nice blended return but shouldn't be a portfolio.

It isn't a bad option -- provided you'll be over age 59 1/2 at the end of the term and hence you can get your money back without worrying about tax penalties.

Will a change log / simple table for the content updates of sections be potentially helpful?

Absolutely!!!

Happy birthday Jonathan from one 58 year old to another. My first financial book was "25 Myths" way back in 1999. I still have the book and still follow the advice. Thank you for your sound advice through the years, for creating this website, and wish you many more birthdays.

Buying a house and supporting your retirement are not necessarily distinct. My wife and I bought a house in 1994, finished paying for it in 2004, retired in 2010, and that's where we live now . It's rent-free, of course.

R. Quinn, I enjoyed your three comments here. I've lived my life believing that most people don't truly understand what money is, and what wealth is. If they did, I believe the articles we find to read would not focus so much on some impossible-to-attain perfect balance. Regards, (($; -)}™ Gozo

Yes. Why protect them?

Thanks for the comment. I update various stats on the site throughout the year. Many of those updates occur right at year-end. I update the tax figures in late October, when the next year's thresholds are announced. And whenever there's new legislation, I try to update the relevant sections of the money guide right away.

Thanks, David. I look forward to your next article. How's that for a not-so-subtle nudge?

Thanks, Joe -- and thanks for joining the site's community of contributors.

Jonathan, Thank you! I am one of those loyal and committed weekly newsletter readers. I guess that would make me a groupie, I call myself a wise Clementine :). From Our Report Card you relayed how easy it is to sign up and post a comment. I am NOT on social media and I do not talk just to be heard. Registered.... here we go. This is my first chat comment, ever! I am grateful to be part of your community. Forty years ago, as an immigrant from a former communist country, the idea of commercialization of peoples life, consumption and thinking was new to me. This capitalistic concept is still not comforting for me. In fact, it gives me the chills. I am grateful for reassurance that there is no direct sale of my private information or commercialization or coercion of my time. From "Our Report Card", I also learned that the Money guide, that I bought and read front to back in 2015, is always being updated. It would be helpful to know the schedule of when the new information has been added or the schedule of made updates to the original book. As tax policy changes, so does financial strategy. This would most efficiently prevent me from not missing anything new of value without needing to redundantly reread the body of the book. Lastly, the data analytics of HD community is interesting, but not so much for me. However, I do pledge to send HD a token donation for every novel idea that I read (may want to update your business model with that concept). My definition of a novel idea, is a life or a financial lesson that I am willing to use my very limited political capital to try to beat into my teenagers heads during our dinner conversation. Your loyal and committed Clementine.

Happy Birthday and Happy New Year! Jason Zwieg once wrote that producing a personal finance column was the art of saying the same thing over and over again without your editor catching on. Humble Dollar may have the same problem but you and your contributors make the articles varied and interesting and I sincerely hope you can continue for a long time.

Happy Birthday, Jonathan! Thank you for all the education and great articles you have written and shared over the years!

Many thanks Jonathan and happy birthday. I found HD about a year ago and every morning when I open my tabs such as the NYT and WSJ I make sure to include HD. I now read it religiously and look forward to another 4 years.

R. Quinn: Amen to what you say. Life and the Universe don't give us very much of Just The Right Balance. Which is better in your old age: too-little or too-much? (($; -)}™

Happy birthday, Jonathan! Thank you for starting this humble and inspiring experiment.

Happy Birthday Jonathan! And thanks for creating this great community. So much nonsense goes on under the guise of offering objective financial advice, but this site is where I send people because of the wisdom you and the other writers offer. I hope you keep it up for many more years! Congrats on achieving some very impressive numbers in just 4 years!

Congrats and thank you for all that you do. I am retiring from the financial planning business after 35 years. I followed and promoted your advice when you wrote for the WSJ, and found you again a few years ago. I’m often asked “what resources do you recommend?” or “where can we learn more?”. I used to keep several books on my shelf as a lending library, but after I found you again, and Humble Dollar, I now have the “go to” recommendation. I’ve always valued and promoted financial literacy. I’ve always wanted my clients to be their own best advocate. Your modest little newsletter has provided the resources to do so. And if I’m no longer there to provide guidance, I’m comforted to know that you and your contributors are. Thank you.

This wise post made me smile throughout, especially "I started a blog in 2009, not knowing you can make money at it. That’s a good thing, because I don’t."

I discovered Humble Dollar only a short time ago via Early-Retirement.org. The articles are interesting and easy to read and absorb.

Happy Birthday and Cheers to a fantastic 2021! I'm a CPA and a former early retirement blogger. I used to read a wide range of financial articles but I'm enjoying my retirement too much and am now pretty particular about which sites I visit. I ALWAYS make time to read your weekly article because I ALWAYS learn something or come away with a different way to look at something I thought I knew. Thank you to you and all of your contributors. You are changing lives!

My thanks to you and the other writers for all you do. I'm a (semi-retired) fee-only financial planner focused on retirement planning and I always mention you site to clients as a source for practical, common-sense financial guidance.

What is your thinking on purchasing a MYGA for 3 to 5 years?

+1 Couldn't have said it better!

Even a new car can be a worthy long term purchase. We bought a Camry in 1995, base model, for a touch over $18K. Ran it 305k miles over 20 years, then gave it to charity. I was very sentimental about that car. In any case, depreciation was admittedly higher at $900 per year, but we also didn't take the chance on possible misuse by a prior owner, and I had wanted the latest safety improvements at the time as my family was just starting out (plus, I had little time to work on it myself.) I have had issues with every used car I bought that largely offset the savings vs long-term new car purchases, despite having them pre-screened. I treat my cars gently, avoiding a lot of 'maintenance' that's really needed only due to hard usage. Anyways, after running that Camry and a Sienna for almost as many miles, we afterwards traded strategies. Bought used Venza and Lexus Rx 350, each at about 100K miles. Ten years from now we'll be facing retirement, and likely have some new decisions to make.

Happy Birthday! I'm honored to have been a part of HD since the beginning. I remember how nervous I was sending you my first writing inquiry. I had just finished reading your book, Money Guide 2016, and I'd learned so much from it. You were (and continue to be) my personal finance hero!

Happy Birthday Jonathan! Its been an honor to write for the site.

Rick: Your articles have been a great addition to the site. Thanks so much!

And I -- and HD's readers -- appreciate all your excellent articles!

Great roundup article. Happy Birthday to you and Humble Dollar.

Lost much of my pension and health care benefits a decade or more ago. Fortune 500 company. "Exposed" in a major publication for underhanded shenanigans. They've lost a couple lawsuits, but got 95% of what they were after. I still work for them (is the grass really greener anywhere else?) The only protection I know of is to save more, in accounts that you own or are fully vested. In any case, Happy New Year, and I hope you fare well in defending your retirement benefits...

The profound thanks is back to you Sir. Your writing is nostalgic, succinct and I feel there is an old-school honesty I can trust. I take inspiration (and hope and validation) from your experience. I try to align ourselves inline with your experiences to stay the course. We're all in on S&P 500 index funds. We've never sold, invest every paycheck irrespective of the market. We live simple lives. Thanks, and a very happy birthday.

The manny van or the max-u-v! serves as a reminder of unintended consequences. Would my dear friends who stay in the guest bedroom rather join me on a vacation where I spent that money with them? Probably, but I doubt that will happen. So in the meantime, I spend my money on a room they don't even prefer. It is definitely the least used room in the house.

I wish I could remember when I was 58. Being able to write for HumbleDollar has made my retirement more enjoyable.

wise father

Given that most people don't really remember things for over 12 years, this puts investors in two categories--those who have experienced the tipping point (and keep experiencing it) and those who never have and perhaps never will. Perhaps this has something to do with why so many non-investors do not start. I wonder what would make a difference? For me, it was the IRA. I could understand it and I knew I needed it, but it was only years later (12 or more?!) that I realized what a wonderful thing I had started doing at age 24.

It appears that all the momentum these days is in medicare advantage plans. The "network" is the substitute for the required participation in a national health plan that we would be offered in many other countries. Those wanting choices outside plans can look at the coverage "outside of network," and probably still find better value here than in the traditional "supplemental" insurance plans.

Happy Birthday, Jonathan. It's a honor to be a very small part of such a great endeavor.

Happy Birthday to you and a belated Happy Birthday to HumbleDollar!! Perhaps HD's popularity is because it is straight forward and makes sense. I fear there is not much common sense in our world anymore.

Happy birthday. Thanks for the HD website

I think one way of looking at the reason why I don't do #3 is because I actually disagree with #1. A couple observations: 1) A local, but well-published accounting friend who spent a stint on the US financial standards board (FASB, which publishes GAAP,) observed that even audited accounting statements are sales pitches from management, not unbiased reporting. 2) I lived in Taiwan 15 years, a relatively developed non-US country these days (as highlighted by their unilateral ability to keep COVID out this year!) A common saying is that every manager has three sets of books: one for the manager only, one for the investors, and one for the government. Elon Musk might be a good example of someone closer at hand who thinks (and does) similarly. So I actually believe that I can lower risk by selection, even though it is not measured by "beta." To select an example that others living near me might tend to appreciate, there are some very large countries in the world where almost no one believes that all investors receive the same opportunities. E.g., global public markets do not constitute a unified whole, but are perhaps more like a tourist night market, where there are some deals to be had, but also many vendors best avoided.

HAPPY BIRTHDAY, JONATHAN! And a great big THANK YOU to you and all of the other contributors!

Nothing to add other than my way of thinking. Usually the hardest thing for me is to understand the question. :) 1¢ Outflow for wrong guess, 5¢ inflow for correct guess: 5/6 x -1¢ = -0.83⅓¢ probable value per roll. 1/6 x 5¢ = 0.83⅓¢ probable value per roll. Expected result: break even. 1¢ Outflow per roll regardless of guess, 5¢ inflow for correct guess: 6/6 x -1¢ = -1¢ probable value per roll. 1/6 x 5¢ = 0.83⅓¢ probable value per roll. Expected result: About -0.17¢ probable value per roll. Example: after 30 rolls, the gambler is down 5¢. 1¢ Outflow per roll regardless of guess, 6¢ inflow for correct guess: 6/6 x -1¢ = -1¢ probable value per roll. 1/6 x 6¢ = 1¢ probable value per roll. Expected result: break even. Notes: Obviously we're all assuming random rolls and enough of them to keep the math honest. Apparently it's not that easy to find truly balanced dice. In school they told me that you needed at least 30 random trials (Central Limit Theorem) before probability distributions started to behave. The Wikipedia article on lottery mathematics says that in a "typical 6/49 game", there is about 1 in 14 million chances of winning. Like a die with 14 million sides... How can that be enjoyable? Edit: I just looked at FL's regressive state tax (the lottery) and it costs $2 per play and you have to guess (6) numbers out of (53), not (49). Excel's combination function =COMBIN(53,6) says that's 22,957,480. Like a die with about 23 million sides, although each losing roll improves your odds by 1. $2 Outflow per play regardless of guess, $6.5 million inflow for correct guess: 22,957,480/22,957,480 x -$2 = -$2 probable value per play. 1/22,957,480 x $6,500,000 = 28¢ probable value per play. Expected result: no retirement savings.

We are facing this same "dumping" of retirees' medical benefits too. Dumped into the marketplace to sink or swim. Now we have had to educate ourselves about insurance companies we have never heard of before. Retirees are first because they no longer have a voice in the company. Active employees be alert! Your benefits are next.

While a statistically breakeven payout would have been six cents, she paid one cent for each throw, so her winnings were reduced by the cost of each transaction. Therefore, to break even, the payout would need to have been seven cents.
This reasoning is not correct. The correct "break even" payout is in fact six cents. If you're willing to pay her seven cents for a winning throw, she should continue to play until she wins all your money.

Yup. I did similar. Bought a 2004 Nissan Sentra in 2007 for $7500 cash. I drove that car for 13 years until I got T-boned by somebody running a redlight the first week of the pandemic shutdown (there were not too many cars on the street so she wasn't paying attention to the signals). I got paid out $4000 for it getting totaled somewhow and turned it around into a used Toyota Corolla Hatchback for the reliable/safe car that I should get another 15 years out of. Hopefully by the time I need a new car again we will be all riding around in auto-driving electric pods. Lol.

#6. I think it is more accurate to say that there will be a new normal--something that has happened many times throughout human history.

"The more often you look at your portfolio, the worse your investment results will be." is silly. I look at our portfolio 5 days a week. The only "trading" I do is to withdraw $4K/month from our taxable account. Looking has zero effect on results.

I like 5,8 and 9 especially. Too bad so many people ignore them.

#6- I am in total agreement. Just like the flu will always be with us and there is a new flu strain vaccination every year, the same will be for COVID. People don't understand that the current covid vaccination does not stop covid, it just lessens the impact if you contract it. All this does is kick the can down the road.....

Jonathan Clements has identified three disadvantages of ETFs over mutual funds: getting a suboptimal price per share due to trade execution issues, bid-ask spread, premium/discount from the NAV. These disadvantages represent costs that one incurs when using an ETF share class instead of a mutual fund share class. An investor incurs these costs when he or she makes the initial investment and also when he or she eventually sells the investment. Further, an investor incurs these costs on an ongoing basis as part of rebalancing transactions. Given these myriad costs associated with ETFs, is it worthwhile to use an ETF share class instead of a traditional mutual fund share class despite the lower expense ratio for the ETF share class? We are frequently told that “there is no free lunch” in investing except for diversification and rebalancing. Is it possible that the lower expense ratio of ETFs is not a ‘free lunch’? Thanks for your response.

I like that philosophy, thanks Ginger!

my wife and I took a year off work in our 30s, lived out of a Ford Econoline and travelled the US. The most common conversation in that year with other folks in the campgrounds, was older couples in RVs saying we were doing it right. They'd waited until retirement and now did not have the health or fitness to really enjoy their travels. Been working 50 hour weeks for 40 years now, at least another 7 to go, and my main regret is not taking more such years. But once you have kids the options narrow.. have to spend enough on the house to get a good school district, have to buy a safe car, have to save for college, have to buy life insurance..

I find this fascinating! Only one is from 2017 and a handful from 2018. Does that mean that you've gained so many new readers in 2019 and 2020 that those pages are near the top just from pure reader volume? Could it be that readers just return to those pages (as I do) a few times and share them with others? No matter the "whys" each of these pages are great and worth a re-read! Thank you!

We're all "too [something.]" Congratulations for identifying who you are and exploring how small changes might be beneficial! My guess is that most people who read "Humble Dollar" rather than "Bigger Bucks" could probably consider spending more sooner ;-).

I'm reading this article, posted here 8 months ago, at the end of 2020. 8 months ago I was thinking about the same as the author, although the possibility of economic collapse seemed larger then than now, so I kept investing. Now the possibility may seem smaller, but since it is a distant possibility, in fact its likelihood is probabilistically essentially the same both then and now. Some invest because they are optimists, but realistic pessimists can still be committed to investing. I'm more of a realistic pessimist. An optimist in an economic disaster zone might be the one who thinks that their gun will protect their rice and beans, because most of their life will somewhat resemble what it is now. When I look at people who are actual refugees, they usually trade guns et al for rice and beans, which they ate yesterday, although we've all heard the story about the homeless man who dies with nothing though he is actually rich.

I had a similar reaction. I wonder how the list would change after adjusting for readership. Catchy titles no doubt affect popularity and may have resulted in a list that doesn't accurately reflect the extent to which readers found the columns informative.

Yes, a big part of what you're seeing reflects the growth in site traffic: HumbleDollar has had four times the pageviews in 2020 that it had in 2017. On top of that, far larger sites are more aware of HumbleDollar and more likely to link to our content. In the case of the 20 articles above, many got a big boost because they were promoted by others with big online followings.

Money is a handy thing. I never much cared for it, but I like the freedom it brings.

I surely do appreciate my situation and I’ve expressed that before, mostly because I did not experience any serious hardship during my working years. But that does not mean I was free of obstacles or did not have to work for my goals, like nine years at night to get a degree paid in part by VA benefits. I do, however, disagree with your use of “vast majority” I say the vast majority overcome the obstacles you mention and many more, some to an outstanding degree. I also maintain many of vicissitudes you mention and others are the result of life choices and decisions people make in their lives.

"That’s how my old employer" Name and shame.

None of us are promised anything. Hopefully you are very thankful for your very atypical situation. Life is full of many obstacles that get in the way of the kind of life you are enjoying. Things like lack of education, being born to parents unsuited to parenting, being a refugee from war-torn homeland, lack of insurance, poor health, wrong decisions made at key junctures of life, divorce, tragedies, lowpaying jobs without adequate benefits etc often offset the best efforts of the vast majority of us as we move through life.

Always appreciate what you write as it gives me things to ponder. Thank you!

Such a complicated topic, our relationship with money. I guess I'm grateful for having parents that were not materialistic themselves, and had more than adequate income, and as a result taught by example to focus on the value that wealth could provide: certain educational opportunities (if you put in the effort), a head start on some of the material things that paid significant downstream benefits (a home in a great school district), and a level of financial security where we could focus on long instead of short term asset appreciation. The current result being that I continue to live well below my means, including not having a car of my own, yet don't in any way feel deprived of whatever material excesses (I like wine) that occupy my spare time. The educational "bonus" is both my spouse and I continue to work essentially full time in well-compensated professions, but only because we want to, not because we have to cover expenses. The "excess" generated from that effort will likely be of benefit, not even to our children, but theirs, where one could only hope that we've set a good enough example that they'll do something similar for future generations.

Please put me in your will, that's where the majority of the money's going. I retired at age 55 fifteen years ago and my wife was 53. The nieces and nephews are still gonna get too much.lol

In the early days of Humble Dollar I wrote about my frugality. Since the age of 16 I have saved, saved, saved until my early retirement at the age of 55. I don't have much need for material things. I live modestly. I remain in the same home that I bought when I was 25 years old. It's only 900 square feet but it's enough for me and my husband. Now that I am retired and that I have a nest egg that is more than sufficient for my daily needs I find myself getting more gratification from giving the money to those who need it more than I do. I take vacations with friends picking up the cost of the vacation. We take friends out for dinner. I get more joy out of experiences with my family and friends than I do from any material things. I never really felt that I was depriving myself during those years of frugality and I don't have any regrets. Now that I am retired I don't worry about money but yes, I am still frugal but not to the same degree! It's a little difficult to shake the habit, a good habit in my opinion.

The only thing that is predictable is the past.

John Klement has an informative summary of the distribution of stock returns. "The data is from Prof. Robert Shiller’s homepage. As you can see, on an annual scale, market returns are essentially random and follow the normal distribution relatively well. Put in this context, the year 2019 was one of the better years in the history of the S&P 500 but not an extreme year." "If we look at rolling 3-year returns, we can see that the distribution of market returns become bimodal. There is a first peak for cumulative 3-year returns of about 0% and a second peak for cumulative 3-year returns of about 30%. The first peak corresponds to bear market environments when 3-year market returns become essentially negative. The second peak corresponds to bull market environments where markets rise uninterrupted for three years in a row." https://klementoninvesting.substack.com/p/the-distribution-of-stock-market

Here's a little perspective on the 2020 market c/o Robert Shiller's data. Zoom in as much as you'd like or download it. Edit: A little OT, but remember inflation? From about 1965 to 1995 there was no real* return in the market! * Real means inflation adjusted, thus the "CPI S&P 500" shows the change in purchasing power of the investor in the index.

Worrying less about an unknown future seems only easy in hindsight. I’m thinking a good chunk of today’s working generation needs to do a bit more worrying ... or better still actual planning and action. Before our four children were out of the house we couldn’t have done much traveling even if we wanted to, not to mention paying for a total of sixteen years of college (within ten years). It sure wasn’t a matter of not spending enough. We didn’t start traveling until I retired eleven years ago at 67 and since we have been to 44 countries, several more than once. With less future based frugality, I’m not sure much of that would have been possible. It’s all about balance as you say ... and a bit of good fortune too.

I always enjoy Dennis' articles - it's fascinating and instructive to learn from folks that are further down the road. My 2¢: 1. Saving and investing for the threshold we call retirement really does require constant study, hard work, discipline, sacrifice and maybe a bit of luck (although I'm not sure about luck because I think the long-term smiles on those who do the other stuff). All of this was a joy, particularly in hindsight. :) 2. I've just crossed the retirement threshold. I don't give a rip if I don't spend enough before I die because those I love will receive the residual. I am spending more than I ever have (maybe 150%) and I'm having a blast doing it. Almost all of the excess spending involves family, friends and charity. Spending? Happy if I do, happy if I don't and then to see my investment in eternity. :) Worried about sub-optimization of #1 or #2 and you're still alive? Sunk cost! Forget it and make today and the future the best you can an enjoy the journey! Watch this again and Merry Christmas!

This goes with the bit about reaching the stage of "Don't need to look at the prices on the menu anymore." (And the next higher level that I won't make, "Don't need to look at the Grand Tour air and hotel prices.") A few years ago I adopted a new daily habits mantra to match: "I am no longer Conservation Man; I am now Consumer Man." (All that said, if I could still get a slightly used Taurus wagon today I'd grab it. :D )

Not too thrifty. Too frugal. Too cheap.

"I believe this is one of the greatest failings of our education system." Sorry but this is another example of what is work with Mariah's generation. Why do you expect that is someone else's job to educate you on how to manage your money? Your money is just like any other asset your life - yours to nurture and grow into something even more valuable over time, or to squander in the short-term. Its up to you, and I resent the notion that if people like Mariah waste their money on $6.50 coffees, that is somehow society's fault.

Thanks. Money could afford us more independance and freedrom, which are pricless.

1999 Subaru and keep it fixed and running. It does have squeaks and klunks but turn the key, it goes. BUT....always pay cash. Save and enjoy!

Interesting topic. I've come to a somewhat opposite frame of mind. Despite the ability to spend more, I look to spend less. I have "enough" posessions, a comfortable but modest house in a pleasant neighborhood. I eat well and take care of my body to the best of my ability. More stuff will not make me happier to any significant degree. We live in a time of wildly unprecedented consumption, and while I know my individual actions have no meaningful impact on the overall I feel some sense of obligation to lessen my "footprint" where I can. I will always feel extremely fortunate to have what I have relative to so many others. For me being "thrifty" is no longer about saving money for the sake of saving money.

~800 sqft would be a little small for me. Though I grew up in a 1920s ~6000 sqft home & it was a white elephant...mom nearly went broke trying to keep it up after the divorce. Much happier in my cheap to buy, cheap to maintain 3BR/3BA ~3000 sqft townhouse where my family of four has lived for 25 years.

The balance or "happy medium" is often easier to talk about with the advantage of hindsight. It is not always easy to identify in the moment.

Alas! Living more in the moment is unfortunately something that most of us grow to appreciate after the fact. My wife and I were diligent savers for years. Debt was eliminated quickly and every extra dollar, bonus, windfall went into savings for that day in the future when we would need the money. And we succeeded. When retirement arrived, we were well prepared and don't have any real spending concerns. However, what we've grown to appreciate is that what we don't have is unlimited time. As each year passes, we regret that we didn't travel more when we were younger and fitter. The pandemic has really driven this point home as the number of years left for us to travel grows ever shorter. A balance between saving and spending is definitely needed, but had I to do it over again (if only!), I'd try to worry a bit less about an unknowable future.

Mariah, A quick suggestion that worked for my wife and me -- Pay yourself first. Direct deposit 10% to 15% to your 401(k) or IRA. Then put a little in an emergency fund. You don't know what will break or when, but you know something will. Then spend the rest with much less stress, knowing you have taken care of your savings for the pay period or month. The first few months will hurt a little, but soon you won't notice it. And in 5 - 10 years you'll look up in wonderment at how much you've saved. Saving and investing is about 75% to 80% discipline and just 20% to 25% financial knowledge -- maybe less. Good luck. Evan Press CFP(R)

Good luck!

My father used to talk about "the happy medium." As I've gotten older I realize more and more what he meant, and how it actually works quite well. Save for retirement, but live your life. Get a decent car, but don't go overboard. A really big lesson was on buying a house. He and mom lived in the same house for 49 years. When my wife and I purchased our house, we thought about living there for 50 years and planned accordingly. (We're at 23 years and counting.) Right now we could probably spend more money than we do but it wouldn't make us any happier. It's a good place to be.

well said.

Too Thrifty? Yes if you are sacrificing safety. Otherwise, I think Will has it right. However, there is a large difference between saving for retirement and saving along the way to retirement. Life is Not A Dress Rehearsal For Retirement: Start doing some of those things you are dreaming about today! Professor Dan Ariely and Mrs. Aline Holzwarth, principal of the Center for Advanced Hindsight, both of Duke University, posted an article in the September 4, 2018 issue of the Wall Street Journal titled, “How Much You’ll Really Spend in Retirement, Probably a Lot More Than You Think.” Here are two excerpts from that article: First, in surveys, they asked hundreds of people, “How much of their salary they thought they would need in retirement.” The answer most people gave was about 70%. Second, in surveying those same people, they asked them to identify how much they would like to spend. “The results were startling: the percentage we came up with was 130%.” The authors then suggest the next step to “translate this annual amount to the total amount you will need over the course of your full retirement (is to) simply multiply the annual amount by the number of years you expect to be in retirement. For most of us, that’s about 20 years.” I say that most people don't increase their spending in retirement. How can I say that? Easy: most won’t have enough money. Let’s start by reducing that 130% figure to dollars. The 2018 median household income in America was $62,175. Multiply that by 95% (130% less 35% of retirement income to be sourced from Social Security), equals $59,066. Now, as the authors direct, multiply that by 20 = $1,181,320. Assuming a 2% real rate of return, by my calculation a median income American household who plans to spend at a 130% replacement rate must save approximately 30% of household income each year for 37 consecutive years – from age 30 to the Social Security Normal Retirement Age of 67! So, this envisioned level of “like to spend” assumes more than one million dollars of savings. I’m reminded of “Comedy is Not Pretty,” a Steve Martin gig from decades ago. Steve exclaims, “You can be a millionaire and never pay taxes! You can have one million dollars and never pay taxes! You say, Steve, how can I be a millionaire and never pay taxes? I say, First, get a million dollars. Now... ” For most workers, retirement is not a savings challenge, it is a spending challenge. The issue here is the word “like,” as in I’d “like to spend” more. The only way workers can save 30% of household income is to deny or defer spending on some essentials and almost all desires. And to that: no I say! Start doing those things you are dreaming about today, now! Don’t defer. 70% is a Common-Sense Goal Where does 70% come from, anyway? As financial expert Michael Kitces observes, “In the end, people can only save what they haven’t already spent. Ideally, households will spend less than they make. With the added benefit that if you spend less in the first place, you will also need less to retire It’s not really the “savings rate” that defines a successful savings path to retirement. It’s actually the spending rate – and having a spending rate that is less than 100% of household income. Or stated more simply: you can’t actually choose or control your savings rate because there may not be any money left to save in the first place. But you can choose and control your spending rate.” Finally, even 70% may overstate the need. Consider some age 85+ retirees who retired more than 15 years ago. The Society of Actuaries found that, “retirement is not a static financial event, but one that evolves over time. (Retirees) tend to be frugal and don’t have a large amount of expense to cover. This may be largely generation-driven, that is, as a result of being raised by Depression-era parents, or it may be a result of the lower activity level that comes with older age. Most are living primarily on Social Security and most have incomes of less than $2K per month, they usually do not spend more than their income. Most report spending less now than they did in the past, especially on travel and entertainment.” True Stories on How it Really Works Meet Hugh & Sheila. This couple was in their early 60s when they evaluated their finances in 1983 as part of a pre-retirement seminar. Hugh says, “Well, the numbers say we can maintain our pre-retirement standard of living. We can make it, but it won’t be a retirement full of wining and dining.” Sheila responds, “We weren’t living a life of luxury while you were working, what makes you think we should in retirement?” Meet Mike & Mary. Mike was a fire fighter. Mary was a homemaker who sold real estate on weekends. Together they had five kids. Their only retirement “dream” was a trip to Hawaii with Mike’s buddies and their wives - Mike served in Europe, but each of his buddies had served in the Pacific during WWII and had talked up Hawaii. All five kids went to college. Mike and Mary burned the mortgage. All was on target, except that Mike died at age 53. The lesson: Start doing some of those things you are dreaming about today, now!

I find this topic most interesting. I have lived what I’ll call frugal, but not drastic life as well, but on a different scale with four children. We lived in the same 1929 house for forty-five years. My efforts at frugality after retirement tend to move up or down in big, short-term bumps. Like saving ten years to buy my dream care for $65,000. But on a more serious note, I still find it difficult to spend, at least to the extent it dips into my accumulated assets. I’ve loosened up a bit in the last year spending some interest and dividends. I don’t live off my investments because I have a pension. My priorities are first, assuring my wife will always have what she needs given her survivor pension will be 50% and second, to leave as much as possible to my children and grandchildren. As typical, none of them have pensions and saving is not easy as it was for me. Saving too much and worrying about the next generation seem quite controversial in the financial planning world.

well, you just don't know whether you will need the money until late in life. And if you are comfortable being frugal, or even ENJOY it, do it!! ;)

"Oh, one more thing, please don’t tell us you can’t pay your student loans." Right? Not to throw this excellent post off track by getting political, but if that initiative somehow passes and those loans are forgiven, it's a huge slap to everyone who worked hard to pay theirs off - as well as all the plumbers, electricians, welders, construction crews, nursing aids, janitors and others who pay taxes and support families without a pricey degree.

My SS and pension are a bit more than my base salary when I retired in 2010. Each month we “spend” all of it, but HOW we spend it is the key. We fund 529 plans for grand kids, we maintain and replenish an emergency fund, we travel normally twice a year, we rent a house for a month in Florida, we save for and pay cash for a car, we donate to charities. In short, if you want to maintain a standard of living, you need 100% income replacement when you begin retirement even if spending later declines.

I'll second that; it is an excellent book. I learned about it from listening to Rick Ferri's podcast with Morgan, but didn't read it until Anika mentioned it. https://rickferri.com/podcast/episode-26-bogleheads-on-investing-guest-morgan-housel-host-rick-ferri/

If he earns enough to trigger the $1 for every $2 repayment, he is likely earning enough to replace one of his lower income years, raising his soc sec distribution base figure for the next year... and every year thereafter. Bear in mind, the reduction in payout for early draw is predicated on an actuarial table, and calculated so that the "odds" are the recipient will get the same payout over their lifetime whenever they begin to draw. Contrary to most bloggers' opinions, there is hardly ever a disadvantage to collecting as early as possible. Do the math with someone you trust. The break even point is 10-15 years out, and if you can't make that 7% per year back in compounded interest, then you were not going to be prepared for retirement at any age.

Good discussion Richard! You might also point out that your colleague also has a third option: do nothing--except keep working, that is. The way the earnings test works, once you've "flunked" it, is that the total reduction in benefits is front-loaded into next year's payout of benefits, with the end result being that your FRA benefit will be credited for these months with no payout as if you had not claimed at all. So, if your colleague "loses" all of his benefit due to the earnings test, it's treated as if he had waited an extra year to claim his benefit. And if he loses, say half, then it's as if he had waited an extra half-year to claim, and so on. When he ultimately does stop working, the benefit that is restored to him is not at the same level as he started at when he claimed early, but at a higher level with the extra credits he's received by "delaying" with earned income. Now, if others are claiming off of his benefit, such as a spouse or child or parent, it gets much more complicated--and a discussion with an expert on Social Security is very much in order.

I am going to ask my Congresscritter to pass legislation to make this even more complicated. What is the point of having a Congress if we don't use it?

Excellent overview of complex issues, thanks!

I have a 2006 Toyota Prius that I bought salvage (fully repaired by a skilled mechanic) that is up to over 239,000 miles. I know the feeling.

On your point #3, the point was driven even more home to me after I read Morgan Housel's take on small things compounded over a long-enough period of time: https://www.collaborativefund.com/blog/the-freakishly-strong-base/

Had a Toyota Highlander- great car as well! Great choices!

my new car is a 2004 Ford.. replaced a 1998 Sienna minivan, which had 300 000 miles.. going to drive the Ford until it dies, then buy another fine old vehicle.

Mr. Cathey- It must be nice to drive such a "new" car. Mine is a 1993 Volvo but it still runs great.

Cars have acquired many safety features in the last 30 years.

I congratulate you on your recognition of the importance of good financial habits and your efforts to overcome the materialistic mindset that is the norm in our society. Your understanding of importance of saving and investing in index funds puts you well ahead of the vast majority of Americans, regardless of age. There is also nothing wrong with enjoying some little luxeries. In fact, just as people who lose weight with strict diets almost always relapse, I think you are more likely to continue saving and investing if you allow yourself to buy some things that you enjoy--even if it is an occasional $6.50 coffee or avocado toast.

I applaud you for taking steps to learn about personal finance. I'm a natural saver thanks to my parents. My wife takes care of the spending side, but we make it work. I got a green Amex charge card on my college campus in the mid 80's and I found it to be one of the best things I did starting out. I knew I had to pay it off every month so I was very careful about what I charged and it was mainly to establish a credit history. I purposely by-passed the "credit" card companies so I wouldn't have to deal with possibly carrying a balance. I try not to make judgments, but I do shake my head at some of the things my adult kids buy sometimes. But they probably say the same thing about me. As Ginger said, it is a balancing act.

After reading Anika Hedstrom's piece last week, I read the Psychology of Money by Morgan Housel and recommend it highly. I think you'll especially enjoy the Postscript.

Your article reminded me of Zoey. She is a character from the book "The Latte Factor." I would suggest this book to you. You might find that you are very similar to Zoey.

Durango, Colorado to Tampa, Florida is quite the climate change.

Balancing act is a good way to describe personal finance. I found that consciously deciding where to splurge helped. I love live theatre, so pre-pandemic I splurged on season tickets in the two cities near me, along with restaurant and hotel reservations for show days. My theatre schedule and recent programs are pinned to office and home kitchen bulletin boards, reminding me why I pack my coffee and lunch. Deciding on my favorite splurge let me save money elsewhere, so I’ll enjoy a comfortable retirement.

I can relate to your fathers point of view. I’m him in a big way. I doubt you were born without self-control, but you are a victim of your generation that has little frame of reference when it comes to money. There was a time where most Americans were frugal by today’s standards. They grew up during or were raised by parents who experienced the Great Depression and rationing during WWII. Credit spending was rare, you saved before you spent AND you had a lot less to spend on and a lot less stuff accumulated. Your four key ideas are what most middle class Americans lived by until about the 1970s. $6.50 for coffee? No way, I’m with Dad. Oh, one more thing, please don’t tell us you can’t pay your student loans. 😁

Funny thing about the Beardstown group- they were praised for beating the S & P 500. Their results were subsquently audited and they had been calculating results incorrectly-they underperformed the index.

While teaming up to buy individual stocks is a bad idea, I do think couples should team up on their investment portfolios.

Apple’s was not off at all. The improvement in the competence of the company, the execution improvements and the huge bomb that M1 has been have reasons for the higher valuation.

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These all strike me as elements of risk management. Taken as a whole, these thoughts provide a useful framework for looking at how much risk you are taking in your portfolio. At first glance, many choices look like a gamble - do I roll the dice, or fold? I try to reframe the question to ask how much risk should a long term investor be taking and what kinds of risk. Once I decide on an answer, an appropriate rebalance will generally allow me reset my risk to my pre-determined comfort level. I hope so anyways. I've mentioned before that I have a limited level of trust market statistics generally, and that includes risk statistics in particular.

I think market valuations are pretty rational when actual profits, and current interest rates, are taken into account. They may legitimately fluctuate a lot in the near future, but I don't think they're irrational.

Maybe the drivers are rational. :) Rational (adj.) late 14c., "pertaining to reason." Reason (n.) c. 1200, "intellectual faculty that adopts actions to ends." Maybe they are behaving rationally with efficiently distributed data that many people then pollute in the emotion of fear and greed, thus generating great short-term differences between Price and Value. Garbage-in, garbage-out, but rationally processed.* I think the two great combatants of Price and Value would closely agree if we were all computers. I think, over the long-term, the emotional noise largely cancels and markets as a whole tell the truth, whether we agree with it or not. * An example from Where Are The Customer's Yachts?, written in 1940, concerned the Price and Value of US Steel. The author easily reported its Price from the morning's paper, but then mentioned that its Value was much, much less because war was on the horizon! Or maybe the Value was much, much more because war was on the horizon! :)

My experience is different. We just closed on our vacation home. We use it as an Air Bnb when we aren't using it. So far it has paid for itself. And right now its slow season. It might start making $ once Covid is gone or travel picks up. So far we are very happy with our decision.

Physical chemistry , physical chemistry 1 & 2 & labs, Unit operations 1 & 2 & labs, Graduate kinetics Graduate Organic III. Calculus & thermo over and over again. Funny work story what is the slope of a curved line - productivity ? Engineers in room discussion endless. Presenter said lets ask Chemist. I said guys no slope remember that is why we took Calculus II. Yep I got the wtf. Yes the straight line folks are leaving out 99% of the world in their "analysis".

I switched from stocks to bonds in 1999 and 2008. November 2020 went to 15% stocks. Why play when you already won.

Remember a good looking woman in nice shoes or BOOTS is priceless. I just insisted my wife buy these smoking hot $350 BOOTS. "Stuffed" We spent the first 5 years of retirement 3 months in Hawaii scuba diving, 3 months in FLA avoiding winter & fun and 2-3 months list traveling each year. We had a blast until March 2020. I always take my wife shopping to unique shops and encourage her to buy new clothes. This makes us both smile and you only pass this way once. I am married 41 years to a 65 yo super model doctor ! Since retirement the portfolio $ went from 2 to 3. We could not spend it all and we worked hard trying. Question why are we not eating lunch at LAVA LAVA BEACH CLUB every day ?

Yes I employed the lawn guys to power wash house , decks and concrete. Looks great took 2 men 4 hours with big power washers that made almost no noise. I then stained decks and painted trim in 2 days done. Why because the power washing was done and yes my power washer broke years ago. Paying for help is a wonderful gift to me.

I agree that NC is a great place to live. I've spent all but 12 years of my life here, mostly in the piedmont. However, I did have a couple of years at Western Carolina University (Go Catamounts, unless they are playing the Heels!), and my wife's family had a beautiful property outside Sparta, NC, just five miles from the Blue Ridge Parkway. I loved it up there.

I certainly remember Eileen, who was one of my favorites among the many grad students who came through the department. I recall keeping one aging workstation running for her, from what had been a large fleet of workstations, because it was needed for her dissertation work. Go Heels indeed!

Yes, it is too bad Vanguard does not provide that service. However, the tax savings with an HSA are such a great deal that the added complexity of an additional provider is justified. Similarly, withdrawals from my NC 457 account are not subject to state tax, so I will keep that account around.

do you have children

I'm sure your long overdue projects can wait until you've read the entire site....

You’re right of course, but I think the matter goes deeper than efficiency, the stock price drivers are not rational. https://humbledollar.com/2020/10/a-seat-at-the-slots/

"Houses are the biggest drain on our budgets, accounting for a third of U.S. family spending. What’s No. 2? That would be cars and other vehicles." I would guess cars would easily be #1 if you count hidden costs. Among them: *) Garages in houses *) Taxes spent on roads and cops cleaning up from auto wrecks and more *). Health care spending from auto wrecks including bigger health insurance premiums *) "Free parking". Businesses charge more to pay for this *). Flood costs - concrete / asphalt to support cars make flooding more destructive.

I was driving on a two lane highway in Texas with a car in front of me. A car coming the other way turned right in front of the car ahead of me and collided (only minor injuries). I pulled over and waited for the Highway Patrol. After the patrolman had taken reports from the two drivers involved he listened to my account. Then he said, "What you saw doesn't match either of the other two and they didn't match each other." Three people had witnessed the same accident and had three different versions. Mine was correct, of course... I was working for an insurance company at the time so I remember being very alert behind the wheel and paying close attention. I had a clear view of both cars and remember watching it like slow motion.

It would have been nice if the author had put some actual numbers in the article. How much did you pay? How much did you put into it (repairs, taxes, etc.)? How much did you sell it for? You know, stuff like that.

This inspired me to get off of my duff and get moving on some long overdue projects. But I wanted to read the comments here first. And then I saw the link that said "Read Next" so I had to check those articles out. Pretty interesting. And they had their own comments section. Oh, and then, I saw there was a section called "Also on HumbleDollar" and that looked pretty interesting.

Right on as usual. Very insightful, but I must give another point of view on the vacation home. All you say is true, but return on investment is sometimes measured in memories. My vacation home is 5-1/2 hours away, I pay $30 a week to have it checked while we are not there. By the end of this winter I will have invested over $300,000 in addition to the purchase price over the last 33 years on expansions and maintenance. According to the tax assessor the current value of the house indicates I’ve made a bad investment and I’ve spent a good many hours traveling back and forth. Wasted? Not from my perspective. I have hundreds of photos of family at the house that say I made an investment killing. And I have a strange memory that sums up the real value to me. My daughter had a lovable black lab she brought to the house each summer. When home you could say to him, “do you want to go to Cape Cod?” and he would be up and headed toward the car in a second. 😎

Great article Jonathan. You inspired me to pull my "to do" list out and exam what has been on there the longest. Schedule colonoscopy, call lawyer to update estate plan, figure out cost basis on some old Vanguard investments and start taking lessons on a ukulele I got for my birthday. Not sure what that says about me as a time waster, but other than learning how to play the ukulele, I'm not doing well with good time management motivation fixing the oldest items on my to do list. Maybe Monday I will tackle them...or maybe not. Thanks for heightening my awareness of my foot dragging!

Jonathan, I defy you to decide you want a Toto toilet and then complete your search in 10 minutes. I found their selection to be so overwhelming that we went to a specialty bath store and spent over an hour with an expert helping us pick the "one". ,dave

Ah, "the perfect toaster". https://us.balmuda.com/collections/toaster $330 USD https://uploads.disquscdn.com/images/2bc6db43332b9e87853bbc0910fa8927dfa3ec60b9b7ebf95e8fae40a3d403a9.jpg

Thanks for the feedback and glad you got more grant aid than expected!

I totally agree. The focus on college as the only path to fulfillment or a big paycheck is a big disservice to our kids.

My wife and I have tracked every penny we've spent on our house over the past 23 years. There is absolutely no way we will ever get our money out of it, but we don't care. We've enjoyed the house, our neighbors and the area. Some things are not an ROI calculation.

After reading the comments, I looked on the IRS website for guidance on spousal waiver requirements. https://www.irs.gov/retirement-plans/types-of-retirement-plan-benefits outlines the rules. After multiple readings, I’ve concluded that (1) some employer-sponsored retirement plans require spousal waiver all the time, (2) some require them under certain circumstances, (3) some are required to offer certain options for spousal benefits, (4) anyone with an employer-sponsored retirement plan and a spouse needs to ask if there are spousal consent requirements before making a non-spouse a beneficiary. The rules are complicated.

And what about child care? I've taken a few days off to save on daycare, but I'm not sure that's wise going forward. Already weekends I use to spend reading and learning now go into looking after our daughter. I wonder how many whole days Bill Gates spent doing nothing but looking after his children. The cost of not spending our time wisely is enormous and has a compounding effect. Let me know if you disagree.

Happy to add two of the largest timewasters I observe of family and friends: 10) Endless watching of the news. 11) Endless debating of politics and political issues. News reporting and political diatribe are relentless, but frankly, 99.99 percent has zero direct personal impact. I have long maintained a personal mantra to try to "only worry about that which I can control and manage" because to do otherwise is fundamentally a waste of precious time.

I also would recommend considering taking a gap year, either between high school and college or during college itself. In retrospect, I wish I had done this. I think I would have had a better sense of what I wanted to do after getting my degree, and more of an appreciation of the skills that are actually useful to have in the workplace.

Very helpful, and agree that not enough people look at creative alternatives to arrive (ultimately) at the college of their choice, instead viewing it as a "direct path or nothing" route, when upper education is really a long game (actually, a lot like investing). I might add that, at least in the case of my children, there were quite unexpected grant offers and such that came AFTER college acceptance. I don't know if this was widespread pre-COVID, but it's occurred for several of the schools my kids have been accepted at thus far.

Big 'thumbs up' to lesson #4. I've worked at a college for over 20 years and often wonder why more students don't consider alternative routes to fulfilling careers. Technology jobs are increasingly requiring workers to obtain relevant certificates, specific to programming languages, rather than having college degrees. The trades-people I deal with tell me about how many jobs (with great pay and benefits) in construction and equipment repair go unfilled because they can't find young people interested in working in those fields.

Even Roth IRA's don't count against FAFSA even though accessible before retirement. Also cash value life insurance. So 2 tax-free accounts can be helpful in receiving aid.

Mr. Taylor, I'd be curious to know, first of all, how many who start with it do fail at sustaining it and, second, how hard it is for how many people to start. If I had my way, I'd like this to be part of a high-school civics/economics program. But then, I recognize that my view undervalues how many of America's school kids would have no ways or means to get started. Regards, (($; -)}™ Gozo

"often carved out an hour each week for quiet reflection" I do that daily. I call it a "nap".

i don't know.... it sounds too simple. A person's personality, disposition, tendencies, outlook etc seemed unlikely changed by a talk on those points. Nobody spoke to me, but I did all the right things. Something deep inside drove me to invest and live simply. Academics did some studies on kids regarding delayed gratification. Some people just can't see the future. When my son got a job, I created a power point presentation about the why, how, when of investing, but I also cornered him and had him setup all his investments on auto pilot. I hope in a few years, his investment balance will speak for itself.

Thanks Anika. I really enjoyed this article, and I love the concept of thinking about retirement as an opportunity.

My mom and dad bought a small (800 sq foot) cabin in the Smoky mountains of NC back in 1987. I had some of the best times of my life with my dad in those mountains. He passed away in 2000 and my wife and I bought it from mom a few years later when she decided she couldn't really enjoy it without him. Our kids were older by then and they were never really interested in using it, so my wife and I have made it our own little place to get away. It was an emotional purchase, plain and simple, and worth every penny.

Been there, done that, got the splinters and blisters, wouldn't trade the memories for gold.

Pay yourself first is a simple principle I've used for my entire "working" life. The hard part is starting and then sticking with it through thick and thin. I think that's where most people fail.

I’m with you. My dream was a house on Cape Cod. We vacationed there for several years. Ever winter I would look through ads at what was for sale. Several times I’d drag the family up looking at houses, finally we went to look at a house in February and the family informed me if I didn’t buy a house this trip, they were never going to Cape Cod again. We found a new construction 99% finished house and bought it. That was the year before my oldest started college immediately followed for ten years by the other three. I often think what a dumb, risky thing that was to do. In 2005 we doubled the size of the house. Now, at age 77 and 81 we are remodeling the kitchen, new windows and painting. When this is finished I estimate we may be at a break even value, but I don’t care in the slightest. We have had 33 years of family fun at different times of the year, we spend summer there and periodically throughout the year. My wife’s only complaint; a five and a half hour drive to get there. There are investments to make money and investments to make memories.

Does that hold true if another beneficiary is named? Can you show me where that is written? Everything I researched mentioned the 50% minimum. Either way it surprises me that 401k administrators even permit non-spousal beneficiaries if that is the case.

Surviving spouse gets 100% of a 401k if no valid spousal waiver. Not sure where your 50% comment is coming from. Maybe you are mixing up the spousal rules for an IRA in a community property state?

Great discussion on the intricate differences between 401(k)s and IRAs. There used to be a BIG difference in the post-death tax treatment of an inherited 401(k) that depended on whether an account had a named beneficiary, vs an account that hadn't actually named one. I believe Congress cleared this up a few years ago, and then it became mostly a mute point once the stretch IRA was more or less abolished by the recent change in tax laws. Still, it is beneficial to review this important topic on a timely basis, especially since it seems things are changing all the time. Thanks for the review.

Yes that is correct. I know of a case where the ex-husband died and didn't name a 401k beneficiary. His daughter would have been able to do a lifetime stretch BUT had to take it all out in 5 years and pay trust tax rates. I wonder why 401k's are permitted to have no named beneficiaries?? Seems like a simple solve.

"I wish there was greater thought given to the tradeoff between spending on baubles today and not spending so we’re better prepared for tomorrow. The baubles will provide only pleasure, while money in the bank can deliver an enduring sense of financial security." I know you don't need me to say this to you, Mr. Clements, but with "Pay yourself first," you don't even need to worry about that "tradeoff between baubles and tomorrow." Pay yourself first. But if you need help controlling excessive, dangerous spending, tear up credit cards and always pay cash. You can't spend money you don't have, when it's not loaned to you via ready credit. Meanwhile, that "Pay yourself first" balance ought to grow quickly in some bank or brokerage account. Once you have a growing some of money that you don't want to lose, it becomes easier to focus on other ways to save, and other ways to avoid wasting money you can save. ____________________ Well, I acknowledge this view is simplistic. But if ever millions more Americans learn it, the sad figures of how few of us can take an emergency expense in stride would dramatically shrink away. No one ever has a paycheck that is just the right amount, where it comes out even at the end of the pay period. Always too-big or too-little, and usually too-little. But if you pull out 10% first, before you ever see it, and park it in some no-fee brokerage account, you'll see how easy it really can be, to learn to save money. Watching your wealth grow make a powerful incentive for saving more of it, and wasting less. Regards, (($; -)}™ Gozo

CJ, Thanks for sharing your IT replacement protocol. Can't speak to androids, but I kept my iPhone 3, way past the last iOS update and never had an issue.

Thanks SCao!

Good luck Will! Hope it works.

Thanks for the idea Mjflack! I had to smile at your suggestion as I did have a great double date this past summer with some millennials which included a great time zip lining at a ski hill here in Missoula. I also do a lot of camping in Montana and you are correct that it is a great way to have an adventure with another generation. I think conversation is better when it takes place away from so many technology distractions. I think I'm on the same track as you are suggesting of finding a setting where the generations can learn from each other. Appreciate the comment!

That's a reassuring stat, I guess the odds really are in my favor. :)

i'm pretty frugal in terms of using a device as long as i reasonably can before purchasing new. But I do break the rule a bit on cell phones because of the os updates. Sometimes penny wise is pound foolish. Realize that older phones - especially android - are only supported with security updates for a few years. Once those security updates are discontinued, anything you do on that phone takes on added risk. So I keep a mobile phone until it is no longer supported with security updates - then sell on ebay and find a new mid-level priced replacement. Too cheap/basic often results in some frustration or disappintment with features. And I'm way too cheap for the flagship models. Just got a google 3a pixel and love it. Bonus; google offers some of the longest android OS support. Same with laptops - I stick with the current version of windows - until it's no longer supported.

"but it’s easy to lose track of the little charges and to continue paying for services you no longer use." I came up with a simple solution. Use a single card for all subscriptions and only for those subscriptions.

I've never even heard of a virtual credit card until your post - thanks! :)

Using a virtual credit card can also help.

DepositAccounts.com is a great resource for finding insured bank and credit union savings accounts with (relatively) high rates. I also like Vanguard's ultra-short bond fund (VUSFX or VUBFX).

Maybe you're referring to Adam Smith's iconic book The Money Game? If you don’t know who you are, the market is an expensive place to find out.

Only about 4.5% of seniors are in a nursing home. Most LTC is rendered in the home.

" Still, a minority of seniors will spend many years in a nursing home—and the cost is potentially astronomical." Personally, the prospect of that is abhorrent to me. My "insurance" plan is to invest heavily (mostly in time and sweat) to maintain my health which will give me the best odds of avoiding that dread scenario. It may sound callous, but I'd rather be dead than "exist" in a long-term nursing home situation where the next stop is more than likely the cemetery anyway.

I completely agree about existing in a nursing home - but I'm less convinced that I know what I'll think if that time comes. This of course is anecdotal, but my Dad was diagnosed with liver failure when he was 81 and told me in the hospital that he didn't want to live if he had to go on dialysis three times a week. He also had a living will that was worded likewise. He had enjoyed a very active lifestyle and had many impressive accomplishments from anyone's point of view. I was not happy with his apparent decision due to my own selfishness of wanting him around as long as possible, but he meant it. After a month or so in the hospital he changed his mind and had a great and thankful attitude about the dialysis. I was thrilled, and as always instructed and humbled by him. My new opinion: you just won't know for sure until you get there. In reference to Dr. Quinn's reasonable looking stat, here's a great list of LTC related stats from Morningstar.

So many great points for the goal oriented, and as much as modern culture seems bent on eliminating the stick in favor of a world of hollow carrots, a good spanking like this certainly focuses the mind. :) Your five retirement planning variables are, in stat's lingo, mutually exclusive and collectively exhaustive. Deal with them properly and you're set. Nevertheless I find it a hard sell to those that think they'll live forever and conquer the world in the meantime. What I've done with anyone young enough that'll listen is boil it down to one or two variables. 1. For the somewhat interested: Save 20% of what comes into your hands. 2. For the interested: Save 20% and invest it inside tax sheltered accounts. Caveats: Specify a payable-on-death beneficiary to the account(s)*. Consider the money lost. Don't tap into it for anything. Live under a bridge if you have to, just don't touch it. It doesn't exist until you retire. This kind of talk raises eyebrows and makes the point regardless of how strictly they may follow it. My thought is that you should be able to maintain your 80% lifestyle through retirement. That's how I sell it anyway and it's a heck of a lot better than a hollow carrot. :) * There's a custom among some Christian missionaries to buy a cemetery plot in the country they go to as a symbol and reminder of their commitment. That's where the POD idea came from even though it's good practice regardless.

I use USAA for checking and once an “electronic” paper check got lost in the mail. It can happen to my checks too, but I watch those very closely to see that they’ve cleared. I like confirmation.

Your point about personal connections leading to those “lucky” breaks reminded me of when we bought our previous home in 1998. We had finished grad/law school several years earlier and were living in our tiny starter home with our two small children, a dog, and a cat. In early 1998, local friends approached us. They were upgrading to a larger home because friends of theirs were moving out of state and selling to them. They knew we were probably close to ready to move into something larger, and their home, with four bedrooms, two baths, a nice yard with a playhouse and swing set, in a good family neighborhood, was perfect for us. They even had two daughters slightly older than our two little girls, and the girls’ rooms were already decorated in our daughters’ favorite colors. The husband was a realtor and knew how to estimate the market. They came up with a fair market price and offered to split the commission we wouldn’t be paying (market price - 3%). They also wanted to postpone the sale and the move for 6-7 months until their friends moved out of the home they were buying and they could do some updating. That was great for us because it gave us time to put the funds together for the purchase. We ended up living in that house nearly 21 years and made over a half-million dollar profit when we sold the house and moved to a new condo in 2019. Buying that house when we did—the California market went nuts within a year after the purchase—was one of the luckiest breaks we ever got financially, not to mention that it was a great home for our family all those years. And all because we had friends who approached us with the opportunity—after their friends approached them for their upgrade.

Whoops, I guess you've been paying too little in taxes for fifty years or so. I wonder how that would have affected the author of this column.

It's a popular misconception that the purpose of health insurance companies is to pay for health care. It is not. The real purpose of health insurance companies is to collect premiums and deny claims. That's why every American health insurance company employs an army of nurses, pharmacists, and doctors to "review" (deny) claims.

"The stock market is a very expensive place to get to know yourself." - Warren Buffett

Boss Hogg, I use T-Mobile and it appears you are correct regarding a Jan 2021 3G shutdown. I guess T-Mobile would have eventually informed me one way or another. They say that timing is the key to success.

Doesn't everyone take calculus more than once? I took AP calculus in high school, then Calc 3 in college, then Differential Equations 1 & 2, then Advanced Calculus 1 & 2. So, I took calculus 6 times. It was easy. Thermodynamics (1 & 2) was mind bending.

That phrase caught my eye too for its succinct clarity. It's the essence of the Millionaire Next Door, and brings together three of Jonathan's "big ideas": humility, simplicity, and future self. Lucky to have such a wise father, and thanks for another great post, Anika.

The journey is the reward, DB ;-)

Ugh 🙄 Next edition of ‘digital monopoly’ will no doubt use Bitcoin or Ethereum as currency. Or digital tulips. And get Airbnb branding. A decade ago we had to home school two of our kids in math (using Saxon) after the state badly screwed up the curriculum, driving up remedial college math rates among incoming freshmen here. Their Stanford math test scores rose by 30+ pp in one year. It was painful but worth it.

Yeah, but after they do, they might know what it is. Not me😳

I imagine it depends on what you use them for. I was quite happy with my teen-marketed bubble gum flip phone (tease me all you want, the speaker phone put expensive models to shame.) Then events conspired to push me onto the apple platform, and i gotta say, it's a big world out there. I use the heck out of that thing, yet barely take advantage of it's full capabilities. It's incalculably useful in many situations. Our 6S's were suffering somewhat in performance/battery lately, and since they were base models, memory management had become a nightmare. We get a stipend from her firm since it's partially a business expense. I just tag along on the contract to keep costs down. We decided to buy new 2020 SE's, with the modest memory upgrade, and they are fantastic. We usually try to use for as long as feasible, so we'll see. 4 years seems to be about as long as we use them before upgrading makes sense. I was offered $30 trade-in on my old 6s... but a simple music storage device costs more than that, so I kept it to use when I jog.

Those in the physical sciences consider any discipline that incorporates human behavior, no matter how quantitative, to be a soft science (see Hedges-How Hard is Hard Science, How Soft is Soft Science: https://users.cs.northwestern.edu/~paritosh/papers/others/HedgesHardSoftScience87.pdf) for a critique of this mindset. Ole was clearly very intelligent and I no doubt that both his analytic research competence (what some might consider a "hard" skill) and frugal mindset were both important factors in his financial success.

Excellent points. What's perhaps a bit different about financial services than a physical science is just how young it is, and it wasn't until the 70s when Tversky and Kahneman began to shape our understanding of human rationalities and decision making. Behavioral finance is still not widely adopted into practice, whereas investment management has largely been lead primarily by math. I think we all stand to benefit from both. Thanks for making the time to read/comment and include a helpful link. Great dialogue.

Good question. What is unique about his book is that each chapter is very condensed, and could be read as a stand alone.

He is one of my favorite writers.

Thank you. I think it was particularly impactful for my father, as he came from nothing. Perhaps that is why he had a lot of natural discipline, because he was so used to going so long with very little, that it was much easier for him to discern what he really needed.

I love this phrase “ Wealth accumulates by not spending money you could.” How true and how much overlooked. There is so much talk of people living P to P, always assuming a shortage of income, but never mentioning the spending side of the equation.

Does it take a whole "book"? Couldn't his ideas be condensed to a 5-page pamphlet?

I too am rereading Morgan Housel's new book and fascinated by the threads he weaves into why success at personal finance is more soft skill and discipline.

Most ideas in personal finance can be expressed in a few sentences. But it takes more than a few sentences to really convey a concept, not just intellectually, but to the point where people's behavior can be changed.

So you meet two interesting people at an art show and you discuss with them the benefits of compound interest? Do you really think you're the first person to offer them unsolicited financial advice? May I recommend that next time you meet an interesting looking couple at an art show you flip the script? Start by asking them what they're up to, then if you're lucky you’ll end up on a double date at this funky dive bar, while planning a zip-line camping adventure.

I like Vanguard's Ultra-Short Term Bond Fund for a near cash alternative. It did well during the March turmoil.

I liked this article. I've been dithering over whether to convert some of my traditional IRA to add to my Roth, for inheritance considerations, and I keep putting it off. I should consider this.

R Quinn, Your wife is a wise woman (who happens to sound just like my wife).

You are silly. 3 years is about the maximum enjoyable life for an iPhone. Yes, you can easily stretch to 4-5 years, but why?

I like older iPhones too. When shopping for used phones make sure your service provider supports them, or be prepared to move to a provider that will. Providers only support technology going back a few years as older phones use their network resources too inefficiently. For example, one can't activate an iPhone 5S or earlier on Verizon (but I think you can keep using one already activated). 3G, used by your iPhone 3, gets turned off in about a year by AT&T, and in a few weeks by T-Mobile and Verizon, so I think your replacing the phone is timely.

Hey, I’m thinking about updating my iPhone 10 to a new 12 Max, know anyone who wants a phone for the 21st century? 😎 I retired about the time you got that first iPhone and yup, spare time is there, but after ten years, making decisions about spending money go from analysis paralysis to if not now, when. Just do it‼️ I’m paraphrasing my wife of course. 😁

Great post Jonathan! Regarding SS and healthcare costs: I don't believe anyone is being shortchanged by SS either, but I think it is good to have data. Senior spending per capita is a bit more than 2.5x what working age people pay per capita (at least it was in 2014), so I imagine that medicine will sometimes eat up more than the COLA. The CPI-E to CPI-W gap is about 25 bpts annually which translates to perhaps $300 per year after 5 years of retirement if my math is on target for the average recipient who receives perhaps $1300 per month. Anyways, it's a modest gap, but it can grow to be decent size for someone surviving on SS alone, especially if they do so for 30 years. Like you, I imagine the issue is overblown, but I do suspect there are some few individuals out there who do see their SS outpaced by medical costs. Point of interest, a lot of the growth in healthcare cost appears to be absorbed by business, gov't and other: Individual out of pocket expenses have declined from 37% or so in 1970 to about 10% today, while total per capita spending has grown 6x (or more by some estimates) over that time in constant dollars. Interesting magic trick there, as constant dollar out of pocket costs have apparently doubled over 50 years, when you smash those figures together. However, total cost growth is so much more and yet invisible to most of us.

Richard, great topic. We've twice gone into debt to take advantage of opportunities, one educational, one business related. It was painful, for 15 years we were in the red or just barely breaking even.. but over the last 7 years the effort has largely come to fruition. I give all the credit to my wife when it comes to finding those opportunities; she has a great way with people.

The Roth questions may not be as much of a split the difference situation as people think. There are many reasons to have tax diversification and to own Roth assets. At a minimum, you should contribute and convert to the limits of your current tax bracket. If you're someone mid-career or later, you've likely built up a stash of traditional assets that will be subject to RMDs, potentially thrusting you into an even higher tax bracket than you were when you contributed/converted the funds. Also, if you bequeath Roth assets to a non-spouse, they'll have the opportunity for 10 years of non-taxable growth followed by a tax-free liquidation of the inherited account.

Thank you! Great article with lots of nuggets of truth!

Nice article with great suggestions. Thank you.

Very helpful! Didn't realize our local library offers free streaming content thru Kanopy and the app is available on our favorite streaming device. Thanks

"If you’re currently in the early years of retirement" is a very vague term. For some people, this means age 55. For me, I retired at age 70 two years ago. You need to think/act very differently at those 2 ages.

Reading this good article made me think of the following: “It’s waiting that helps you as an investor, and a lot of people just can’t stand to wait. If you didn’t get the deferred-gratification gene, you’ve got to work very hard to overcome that.” Charlie Munger

It might depend on where you are in life. If you're making minimum wage and living paycheck to paycheck, it might make sense to carefully allocate funds. If you're making $100,000 a year and living a $70,000 lifestyle, things won't be financially tight. Personally, we track expenses to get an idea where things are headed. One noted trend: Over the past 23 years, expenses have not been going down...

7. Unless you have health issues that significantly reduce your life expectancy I see no reason for not waiting until 70 to claim if you can afford to do so. 6. Selling “overpriced mutual funds or underperforming stocks” assumes that current performance predicts future performance.

Adam, maybe you can clarify two points. A Roth conversion makes sense in some circumstances, but rarely is the five year holding period mentioned. Isn’t that a big factor for someone who is up in age, say in their seventies? Also, regarding Social Security, I never understood why the break even point or maximizing the total benefit is relevant. Seems to me what’s most important is maximizing the monthly income at the time it is most needed. Obviously, that can be at 62 or 70, but I’m guessing if a retiree can wait to 70, SS is not a major portion of income. I took it at 66+ while I was still working part-time, but I invested it all in tax-free municipal bond funds and reinvested all interest. All the money is still there and growing. Not recommending that for others, but as you note, it’s not all or nothing.

For a sharp critique of Bengen's updated 5% SWR see "Can we raise our Safe Withdrawal Rate when inflation is low?" ; https://earlyretirementnow.com/2020/10/26/low-inflation-vs-safe-withdrawal-rates/

While the pundits may say the market is going to crash, every advisor I've ever heard or read thinks it'll go up like 8 or 10% next year. While there may be a crash down the road, it's never going to be right away. It's not going to soar, it's not going to crash. It's going to be around 8 or 10% up.

I think I'd disagree with the first point. I think savers subsidize borrowers (aka spenders) with low interest rates. A high yield bank savings account is only paying 0.6% right now and you can get a mortgage in the 2s. That sure sounds like savers subsidizing spenders to me. Now if savings accounts were paying 5% and mortgages were 8% like a decade plus ago, I could buy your argument. But not at these saver-punishing rates.

Please jot your public library a thank you note telling them how much you appreciate the streaming service(s) they provide. Libraries pay substantial fees to make ebooks and streaming video available free to cardholders. Take a minute to give them some written feedback that they can use when fighting for the budget to support the service. And, go poke around your public library website to see what else they’re providing. Mine offers The NY Times Digital, online audiobooks, and online magazines, all of which save me a ton of money.

Point #7 especially makes me smile. "Seniors are finally getting the (generous) Social Security cost of living adjustment that they deserve" reads no headline, ever. Yeah, I get it, COLAs are inherently boring, and no one wants to read about the status quo. And yet,a headline that reads "Congress proposes modest tax increase to make Social Security benefits more generous" would generate an equally negative reaction, though likely from a different segment of the audience. It's almost as if we can't decide what we really want, and are hunting for a scapegoat for our own poor planning, conflicted priorities, and indecision. Nah, couldn't be...

I concur with all points except for the statement that social security keeps up with inflation. The social security cost of living adjustment is indexed to the Consumer Price Index for All Urban Consumers (CPI-U). This index represents typical spending patterns of working aged adults living in cities. Older adults have different and unique spending patterns, and healthcare expenses make up a much bigger portion of their budget. And as we all know, healthcare expenses have risen at a greatly accelerated rate relative to overall inflation.

You provide a good example of how we can still be wise in some ways, while also losing our mental acumen in others. However, what you are describing is very possibly not normal age-related decline, but rather incipient dementia. It may be time, or past time, to take that into account in your life planning. The possibility of further decline is very real! (In the stage you describe, probably "mild cognitive impairment," it is very common for nobody to notice but those closest, and for those closest to rationalize that this is just the way he's always been, etc. But you point out that your wife has adjusted the way she treats you and also that your parents went through a period of decline.)

Thank you, Jonathan! This is just what I needed to hear! I've been following your wise, intelligent work for nearly 30 years now; bless your contributions to the finance community!

You've had the car for a while. Buyer's remorse? In love with it? wwff? The way I read Ben's quote, one can rationalize anything. Do you feel you are in that boat now?

Can we also say, by extension, that Jonathan Clements will be writing very similar articles to this one in December 2021? Perhaps you should flag it in your calendar and revisit it every year, just for fun.

Thanks for writing. FINALLY, someone else who cares about saving money!

Well-written. And good ideas, too. Thanks. The face-aging app idea is genius; let's see if it works.

Thoughtful commentary this morning. Thanks for reminding us about some enduring narratives about investments and retirement. What is "Admiral" pricing that you referred to when discussing Vanguard's target date funds?

Re your point #4 - I pay 0.13% on my vanguard target fund. That's pretty damn low! True I pay .03% for VTI but honestly an "extra" $1,000 per million invested to have Vanguard do the constant rebalancing is worth it for me - mostly because I am usually much slower to change my asset allocation so probably lose at least that amount to bad allocation in the part of my portfolio I manage myself!

Maybe. The BLS has an index, CPI-E, that tracks inflation as experienced by seniors. For some reason, the data is only available sporadically. Still, it indicates that inflation as experienced by seniors isn't that much faster than inflation as experienced by the broad population: https://humbledollar.com/money-guide/inflation-2/

In the past, I've often joked that there are only 20 personal finance stories, which means that -- by the time I quit the WSJ for the first time after writing 1,000-plus columns -- I'd written each of those stories 50 times.

In my employer sponsored plan, I pay 0.08% fees on a Fidelity target date fund. in the next few months I'm planning on moving more of my 403(b) retirement funds from an actively managed account with 1.14% fees. Currently I have 2/3 of my retirement accounts in actively managed funds and 1/3 in Fidelity target date fund. I'm retiring in a month.

Thats the thing with Vanguard. We can argue over costs but even the highest cost fund is often lower than funds in other families. I'm loyal to Vanguard for that very reason.

For everyday investors, Vanguard has two classes of shares -- Investor shares and Admiral shares. The latter have a higher investment minimum, but also lower annual expenses. The upshot: You could replicate a Vanguard target fund using Vanguard's Admiral shares and have an investment mix with notably lower annual expenses.

"I typically avoid them because, unless you make a point of canceling, charges start automatically once the free trial is over." Sign up with a 'burner card" Privacy.com offers free one-time use cards. We pay $1500year to subscribe to: Hulu with Live TV Apple One Disney+ HBO Max Amazon Prime Video IMDBTV PBS (Passport) Netflix This is less than we were paying Comcrap for a lot fewer viewing options. Want to know more about "cord cutting"? Here is some light reading — https://www.early-retirement.org/forums/f54/update-on-cord-cutting-cable-tv-87375.html And, a free newsletter — https://jarednewman.com/cordcutterweekly/

Nice breakdown... We were early subscribers to Netflix; first the mail service (which we still use), then the streaming. Content peaked and declined a bit with all the competition popping up, but we still use it often. We added Amazon Prime (maybe 8 years ago), when we figured that our annual shipping costs alone made it worthwhile. We have Disney + for Hamilton, and will have to decide if the Mandalorian is good enough that we hold onto it for a while, but I suspect we'll let it lapse at some point.

Thank you, Langston. I believe that the discount/premium of ETFs tend to be smaller and short-lived because of the Authorized Participants and efficient arbitrage. Here's a brief explanation: https://www.fidelity.com/learning-center/investment-products/etf/premiums-discounts-etfs A small number of CEFs are structured as Target-date. As the fund approaches the maturity date, the manager starts liquidating the assets. At maturity, the fund distributes the NAV to the shareholder and discontinues the fund. If someone had previously bought the fund at a discount, then the total holding period return for the shareholder would get a bump. It'd be equal to the total return of the underlying fund assets, plus the discount at the time of purchase.

Interesting information Jannette, and welcome to HumbleDollar. :) I haven't heard of most of these services, but Kanopy is really interesting. Your link revealed a local library that will get me in and it looks like a good replacement for my $99/yr Criterion subscription, thanks!

This is the best summary of CEF's I've ever seen. I didn't realize that the discount to NAV was such a significant player in their trading appeal. Only recently did I figure out that ETF's also trade at discounts or premiums to NAV, which became significant in many cases during the recent downturn. Thanks Sanjib. :)

There’s two more points that should be mentioned: The 4% rule came out of looking for the rate where one would always survive 30 years of withdrawals. If one would be willing to to take a 10% chance of not making it 30 years, a higher rate of withdrawal is possible. The other, the rule presumes taking the same amount out each year increased for inflation. If you reduce your withdrawal or stay flat after a bad year, you increase the likelihood of surviving 30 years at a rate higher than 4%.

CEFs with 33% leverage sound like a good choice for investors at this site who often purchase index funds and who are not very sophisticated. It is apparent that the perils of leverage was not a lesson that was learned from the 2008 financial crisis.

You had a conversation about compounding at a soirée whilst drinking wine? Really?

HaHa! Yes, you have to wait for your openings with this generation and take them when and wherever they come. Thanks for the observation Dave!

Great example! I find that annual cashflow analysis is really helpful to frame the discussion when I look at my own situation. Two wild cards in the discussion are SS and medicare... if you are delaying until age 70 to collect SS, then you have to factor in additional demand on your savings from your retirement date to age 70, and medicare from retirement date to age 65 for basic insurance coverage. This means that working backwards off the 4% rule is not sufficient... one also has to consider additional cash flow demands until these programs kick in. I suspect in your case, perhaps $1M of your $1.3M funds your ~$36K/year + inflation ongoing, and the $300K is filling the gaps to get to SS and perhaps medicare. Beyond that, illiquid assets like property or a business or even an inheritance may have a highly variable payout depending on a host of factors. It means I really need a large safety factor if I'm counting on these cash inflows to help fund retirement, or else plan without them and treat them as my safety factor.

Those Bengen links are gold, thank you Richard. :) The "4% Rule" is the most helpful guide I know to start thinking about withdrawal rates and it amazes me how many writers miss its purpose. A single number isn't gonna happen - life is unpredictable yet requires educated guessing about the future (aka planning). And reevaluation. Jonathan summarized Bengen's paper in a 1996 article for the WSJ that closed with: If you get hit with a big market drop, "maybe you'll have to cut back your spending for a bit," says Harold Evensky, a financial planner in Coral Gables, Fla. "But you shouldn't plan based on Bengen's study. Instead, we use it as a reality check."

Search "how to win at monopoly" to become better.

Certainly ignoring the tv and radio touts is one of the most important things to do if you wish to be a long term investor versus a trader or gambler. These touts are nothing but headline chasers who say so many different things they can always claim an “I told you so” on pretty much anything and sign up a couple more subscribers.

A fascinating part of the Pilgrims' success after that first winter was the economic structures they tried. The contract they had with the sponsors of the voyage "called for everything they produced to go into a common store, and each member of the community was entitled to one common share. All of the land they cleared and the houses they built belonged to the community as well." This failed for the usual reasons and led to their next crisis. Bradford then changed everything and assigned a plot of land to each family to work on and own the produce thereof. It resulted in a complete turnaround and formed the foundation of what we've enjoyed to date. Here's a modern transcription of Bradford's personal account of the turnaround. A literal transcription of same. (Scroll to [162]) The original handwritten document. (89MB download, PDF p. 197)

Thank you for writing about how HOA fees get used and how they can come up short in some instances. I am 66 years old, single, still living in my family home, but would love to sell it and get into a condo. Repairs and maintenance on the house are getting more expensive all the time. However, I would not want to jump from the frying pan into the fire. I have never before read anything about the condo community having a say over the HOA fees and their use, so now I have another perspective to consider before making a final decision that I may not be able to reverse.

A good, common sense piece. Thanks

Monotony just takes too darn long. Our Millenial's new favorite game of commerce is Catan which is less structured.

Yes I bought my 56 Chevy in Miami 1971 for $200. I was working my way thru college bagging at food fair on Key Biscayne. This was the good old days at $1.65/ hr but close to $4.00/hour, Why , because people tipped 25 cents some one dollar to load car. I lived across the street at 100 Sunrise Dr split rent with another guy for $75/ month.

Thanks for all the insights, Jonathan. I like the priority as following: 1: people; 2: money; 3: things.

Two words: variable withdrawals.

I agree spend some money and enjoy life. I have been retired since 2015. In 5 years the $ increased from 2 to 3 million. Spent 25 to 40 k on travel each year.. We stayed 3 months in Hawaii, 3 months in Florida and traveled another 2-3 months each year. We are scuba divers. Now we are stuck at home.

We moved from a single family home into a condo in 2019. Ours was new construction, and we have 3 bedrooms, 2 1/2 baths, almost 2000 square feet, a storage unit, and two parking spaces in the garage on the ground floor, including one with an electric vehicle charger if we ever go that route. We were fortunate to get a top floor unit with nice views. There are 15 units (5 per floor) in our building. It’s not a 55+ community, but most owners are retirees or empty nesters. There are a few students (we live in a college town) whose parents bought the condo for them to live in while going to college or professional school, but really nothing between students and empty nesters. Thanks to California laws on taking our property tax basis with us when moving within the same county, our property taxes are only about $7000 per year. The base price of our unit was $690,000 and we added about $40K worth of upgrades. Comparable units in the newer phases are listed at $756,000, so the value seems to be holding. Our HOA issues have been similar—a lot of controversy about opening the pool during COVID (hasn’t happened for similar reasons), and we just raised the HOA fees to make sure our reserves are fully funded. Our HOA fees will be about $550/month after the increase. For that we have a pool, hot tub, clubhouse, very nice walking trails, basketball and bocce ball courts and a dog park, plus exterior maintenance and landscaping. $550 isn’t nothing, but it doesn’t seem that bad compared to other places we looked at.

I'm 66. I made many of the classic mistakes along the way. Forced early retirement at 56 after a 30 year career. I took umbrage at that and decide to stay retired. No company paid health insurance. Carried a mortgage. Took SS at 62. My saving grace was diligent saving. Max out the 401K with dollar for dollar match. Save more in IRAs and Roths plus emergency funds. At first I was 80/20 and gradually moved to 60/40. I started saving at 30 with $2000 per year and increased it every year up to 50K. I'm not rich but very comfortable. Saving was the key lever for me giving me the option to retire early.

Of course, if you are a 2 income household and do the same, you're cutting the time by more than half - given more money invested initially over the same length of time. But I am curious what you think of the 1 million mark. I read someplace else that 2.7M is the new 1M. I guess the question is more philosophical - should one work longer? What does it say of work and folks, if folks continued working to escape boredom?

11. have an iron-clad prenuptial agreement. If you are male, the divorce will be initiated by the wife. You will not see it coming. 12. avoid drugs and alcohol.

There are always two dozen perfectly sound reasons why the market will go up, and always two dozen perfectly sound reasons why the market will go down. Always. That is why market timing is futile.

Yes - I would add: Lesson 7- market timing is a scientifically proven method of losing money, which has never stopped anyone yet from attempting it.

When my wife's widowed father, at age 84, moved to an assisted living facility near our home (in the early 2000s), we asked him to grant her access to his investment account reports as an interested/trusted third party. So, we didn't need power of attorney until later when dementia was clearly growing stronger. One thing I saw immediately was the amount of churning among bonds (not bond funds) that was going on in his account with a large, national retail investment company. Many of these transactions involved exchanging one bond for another at the same interest rate and term, along with a management charge for the privilege. We were lucky that my father-in-law trusted my advice; soon I had him out of that company's clutches and into a set of index funds. By the way, he was a brilliant engineering professor during his career and never had any interest in investment strategies, instead just trusting these financial advisors. That said, his TIAA-CREF pension was first rate.

Many thanks to Jay and Kateri Schwandt for blessing the nation with a large family. The average woman in the U.S. has fewer than two children and we need tax paying workers to pay for our retirements.

40% bonds at age 25? Your investor will be forgoing a LOT of appreciation over the next 40 - 70 years. Vanguard Target Retirement 2060 is only 10% in bonds, and it's debatable whether a 25 year old should have any of their retirement savings in bonds. It's not like they are going to need to cash out over the next 5 years.

You raise some great points! I think working part-time in retirement is good if it helps with boredom, helps with socializing, and helps with connecting with others. I think if the focus is on money that it is somewhat a slippery slope. I know a few people that work part-time and use the money as their "play money", money outside the regular budget that they use for expensive hobbies and such. I think the danger is when you truly need it as a required part of your budget. An illness or "life in general" could remove that position and there isn't a lot of great options as one ages. I think the $1 million-$2.7m conversation is getting to the end without addressing the beginning and middle. How much will you needwant per year in retirement? For me, that number is $100k per year. My life expectancy estimate says I could live to 92 and my wife 96, so we'll need roughly 36 years of that $100k. Of course, as we age the need for that $100k will decrease, but this is an estimate so I'm sticking with that number. Inflation is a factor, so that $100k will buy less and less over that 36 years. My wife and I both have a pension with COLA, so part of that $100k is offset by our pension as well as our social security, so I really don't need to have saved up enough for $100k per year for 36 years...now I only need to have saved up $35k a year for those 36 years. On the surface I needed $4 million to fund my retirement plus have a buffer, but with dual pensions and SS, I now only need ~$1.3 million. Fortunately, I have more saved than that so there is a safety net as well. My entire point is to figure out what you want your retirement to look like, and then see if your circumstances can support that desire. Maybe you do need only $1 million.......or that $2.7 million is more accurate. Don't just chase a number, but figure out what that number should be and then focus on that goal. Revisit that number as you age, as expectations change as well as life's setbacks throw a wrench into things.

My guess is the very strong value orientation at Dodge and Cox, which is consistent with the thrust of the article. VXUS and VWO are couple of ETF's that also check the boxes, or their identical twins in mutual fund flavor. The next decade is going to be interesting.

I, likewise, uncovered "post-mortem" multiple years of of brokerage account churning when my father passed in 2011. FINRA does what it can to police broker behavior AFTER the fact, but a second set of eyes (with POA powers) is critical as a parent moves into their mid-late 70s (or sooner, based on a family's particular health history). My dad and mom had 37 grandkids at the time of their passing. There were much better uses for those dollars plundered. My advice to dad in his mid-60s was to move their retirement nest egg into no-load indexed MFs (and purchase some Long-Term Care coverage for himself & mom while they were still healthy). This fell on deaf ears. His brokerage account was managed by "Bob" a trusted college fraternity brother (also now dead). We found the two insurance quotes for LTCI dated 1992 in his important papers pile (after his passing) with a sticky note attached "Important - talk to Bob". Mom's cumulative out-of-pocket LTC costs totaled $472,586 in the waning years of her life. Important financial lessons for my generation - learned the hard way.

That list looks like half the story or completely missing context. Taxes are not a "loss" but payment for services you receive from the city, county, state and federal government. That library, police, fire, roads, etc. doesn't pay for itself. Also, your commission for selling your house isn't a "loss" but yet again, payment for services like marketing and selling your house. How much more do you lose when your For Sale By Owner house sits on the market for years and finally sells for peanuts under market? And payroll taxes pay for Social Security and Medicare. Again, that money doesn't come via the Cash Fairy but needs to be collected from somewhere, unless you plan on not collecting those at all.

Your Dutch Lottery study concluded the following ........ "Still, we find convincing evidence that households’ consumption of visible, durable goods (and only such goods) is affected by genuinely exogenous shocks to their neighbors’ incomes." The effect you are talking about is only in regards to durable goods spending among subjects. This study is not showing some overall deleterious impact on consumer's spending patterns on other more regular purchases.

And corporations of course never go bankrupt, and always pay you 100% of the bond amount back, guaranteed, right? And I love the talking points of how it allows "corporations to grow", when in reality, most extra corporate cash goes to stock dividends or management bonuses. It isn't to grow the company or pay their employees better, that's for sure.

"As a retiree, you adjust your spending based on how well your investment portfolio is performing." Maybe, maybe not. I take $4K/month out of our retirement funds. Funds up is $4K/mo. Funds down is $4K/mo. I am trying to avoid market performance influencing our spending. However, our charitable giving is up this year by a few thousand. Some of that is predicated on market performance and some on the advantages of QCDs.

That sort of changes the meaning of the article.

Interesting observations I can relate to. 2020 has been a year of spending for us as well, first a 30 day cruise, new car and now major home renovations. But I am not as brave as you are. I live on a pension and SS, not my investments. Knowing how conservative I am with spending and money, if I were totally dependent on investments in retirement, I’m not sure I could get myself to spend much beyond necessities. Not logical I know, especially at age 77, but if I had to worry about running out of money, I don’t think I could be a spender.

Dennis didn't mention his non-investment income which I assume is substantial. Thus I don't think you can assume he has any worries about running out of money. I am a strong believer in Bill Bernstein's advice that “when you have won the game, stop playing with the money you really need.” In other words, it is okay to invest in the market as long as you have sufficient other financial resources.

What structural economic factors are goiing to drive this surge in inflation? The last time there was significant inflation it was driven, in part, by oil prices. Is globalization about to reverse in the near future? If the US and China divide the world into spheres of influence that could be perilous for inflation. Is the tremendous growth in sovereign debt exhibited by the major powers going to raise inflation? Do you see a resurgence in oil? On the other hand, if there are serious efforts to address climate change, what does that do to oil? Is there really anything wrong with those individual stocks you talk about as long as the investor keeps no more than 5% or so of these particular stocks or any other individual stocks in a portfolio? Investment performance is all about managing the volatility of the various components of a portfolio. For the rest of us, investing is about making a series of bets without betting the farm on any one thing which you appear to be moving slowly toward doing.

Initially, it may have looked smart to buy a property with a low HOA fee. It is going to be a false economy in 5 to 10 years because the value of that condo is going to go into the toilet because the association won't be able to invest properly.

I'll be the first to say it. Very thankful for Jonathan and the wisdom he provides, and the opportunity to be part of the conversation. Happy Thanksgiving to you Jonathan, and to all the contributors.

Proud to say that my father managed my parents' money until 3 weeks before his death at age 95-1/2. All at Fidelity. Zero fees of any kind as he had my mother's Roth 100% in excellent stocks. My brother, the PoA and then executor after our mother died 8 months later, had a very easy financial cleanup task.

In three estates, our family is batting a perfect 3 for 3 on paying high management or investment fees and often having far from ideal investment choices when considering tax and risk implications.

Brian, My wife and I had a very similar situation with my wife's aunt, and then her mother. It took years to figure out and organize their finances. They were also in good shape with pensions and SS. But her aunt had way to many accounts, and had lost upwards of $100K in checking accounts she had forgotten about. The worst was an account with Wells Fargo - she $25K in a non-interest bearing savings account that was charging a $25 monthly fee! What I learned is that it is important to talk to your parents before it gets to the point where they can no longer manage their finances, or have lost interest in managing them. My wife and I are working on a plan on when we would put POAs in place with our sons. We are thinking at 70 or 75 we put the POAs in place regardless of our health. That was they don't have to do it under stress.

You make many excellent points and no doubt his money could have been more efficiently managed and likely he was taken advantage of. But let me play devils advocate. You say, “He didn’t need 92% of his holdings in municipal bonds.” But you also say his pension and SS paid all his expenses. It appears accumulating more money with higher risk had no added value for him. Perhaps the security of bonds and their income was more important to him even while underperforming the market. Someone could look at my investments and easily say he could have done better and they would be right, but accumulating more is not my sleep well goal. I too live on my pension and SS, with money to spare each month. My investments growing modestly while having less downward risk and generating tax-free income plus dividends is fine. On the other hand, it’s possible that my children, especially my son-in-law who is a investment analyst and advisor, will conclude my net worth could have been higher. But if I make it to 97 I’ll be happy or if I don’t, I want to know my wife had a way to supplement her income.

I assume that you believe that you can trust your sons and that's extremely likely. But you may want to have somebody else monitor how they spend the money using the powers of attorney.

That’s unlikely, but we take heart in knowing they are going to pay for teacher and state employee pensions and other benefits significantly better than available to the taxpayers footing the bill 🥴

Actually it’s quite the opposite. Units sell quickly with the occasional exception of someone who insisted on asking an unrealistic price. That pool of people keeps growing and the 55+ group has the money to buy. But realistically, most people who move into a 55+ community aren’t planning on moving again so I suspect resale is not the top priority.

Agreed. Wow, disappointing to read this. I would definitely not agree. Jonathan - time to start vetting your contributors.

I hope you are getting your money's worth from those real estate taxes. At 2%, they are 4x our rate in the Socialist Paradise of the City & County of Denver.

Richard, very nice article. My wife is concerned that 55 + communities limit the pool of people when you are ready or need to sell. Have you observed that resales are difficult, or is it not really an issue? Some of the communities in our area allow a certain percentage of owners younger than 55.

I appreciate HumbleDollar for the spectrum of opinions, and (hopefully) the spirited but not mean-spirited discussion. Read this with intrigue, as it may be a bit controversial, and welcome the comments and thoughts regarding John's basis for his recommendations,"based on two fundamental tenets of investing". Personally, I never get past one, "past performance is no guarantee of future results". Waiting for valuations to "regress to the mean" and for the "return of value" have always struck me as an expectation to return to past performance, and in my own investing career would have been stunningly underproductive. I lean more towards playing a "weighted field", i.e. diversification with exceptions that won't ruin me if they're wrong. Over the past 25 years with a buy and hold (ok, i'll be honest, a "buy and forget") strategy, health care and tech have been flyers that have, for lack of a better term, flown into space. But the base bat on the S&P 500 and large cap growth hasn't been shabby either. Following John's advice now seems to be excess risk on some assumptions I don't agree with, that there will be some "reconing" in the coming years. Welcome thoughts as to what gravitational effect would have us either devaluting stocks or shifting to value (may by synonymous).

I agree. I you have the skills and some knowledge, then selling it yourself is the way to go.

I agree. I always wonder, how does a new agent get that first deal? Also, is > 50 deals too many? Will they have time to focus on you?

It was to me. You raise an interesting point though. many people will spend hours shopping for a new tv, trying to save $50, but when they sell a house for hundreds of thousands of dollars, they don't seem to mind giving away $5,000. BTW: that $5,000 was tax free, which I would have to work a month to make. Never met someone who was willing to work a month for free.

In my limited experience, the theory is you underprice your home in a seller's market to create a bidding war and overprice it in a buyer's market to allow room for negotiation. Though it's just a theory.

I'm not sure using the realtor you used to buy your home many years prior is the right person to use to sell it. This is the biggest financial decision of your life and you do yourself a disservice if you don't at least interview at least one other realtor.

Zillow could be an interesting option. Though without an MLS entry, I'm not sure if agents will show their customers your home.

I think I should clarify two points. Our realtor was one of our four children all of whom, for a few years, were urging us to leave our three story house for something more manageable which I resisted for too long. And, our purchase price was a bargain because we bought the condo from the estate of the women who was the community’s first resident and it had been on the market for a year as two previous sales fell through.

"For two decades we have experienced inflation in things we need (education, healthcare, food), deflation in things we want (cars, gadgets, TVs)." Thanks for the thought-provoking comment! I'm definitely going to steal that insight.

There is nothing unreasonable about this advice, within context. I suspect Value, EM, Int'l will all do well over the next decade (also, small and mid caps.) However, it's also dangerous advice that most investors would struggle to implement effectively. To borrow a phrase, I prefer time in the market to timing the market. 1) I have a small allocation to NASDAQ stocks. I offset that with an LCV fund. I see no need to change that, the net is reasonably neutral. 2) International/EM has both led and trailed the US the past several decades, but has trailed the US the past 10 years. However, not for this past month. If you're diversified, you didn't have to time the market - you just stay the course. 3) If you are in diversified index funds, you don't need to guess whether value or growth is going to do better. 4) For two decades we have experienced inflation in things we need (education, healthcare, food), deflation in things we want (cars, gadgets, TVs). There's modest indications of that changing, but if it does, gold doesn't do a great job of protecting against inflation. A 5% allocation to gold has helped most portfolios slightly over the past 5 decades, so it's a reasonable idea - but as long as one's time horizon is long enough, stocks have outpaced inflation. 5) I'm convinced statistical concepts as applied to stocks are of modest value. Stock returns are not random and returns do not form a bell curve. Most people don't realize that the median stock (ranked on returns) has negative returns each year. Yes, statistical methods can be useful, but their application to stocks can also flip on you in a New York minute. Regression to the mean requires static conditions. Economic & regulatory conditions have seen substantial shifts these past 20 years. I'm less than confident that all asset classes will return to past normative averages relative to one another.

Regression toward the mean clearly applies when there is random variation of a normally distributed variable, which is why short term market variance is greater than long term variance. Likewise, the short term variance of both value stocks and growth stocks will be greater than their long term variances. However, given that the two types of stocks are conceptually different I have doubts that conditions underlying the statistical definition of regression toward the mean can be used to support your argument that value stocks are likely to outperform growth stocks in the near future.

My Mom has 12 brothers and sisters. The older ones cared for the younger ones. They lived in a little town of a few thousand people. My grandfather owned a local business that paid for the house, food and clothes, and not so much more... but they could afford to feed the homeless that sometime gathered nearby, this being the depression. Each Christmas, the older kids would gather with my grandparents to plan the next year, and how they were going to pay for everyone's schooling. Every one of the 13 went to college or seminary. There is now a scholarship fund in the family name at the local state university. No doubt it was a different era. Stories of these times amaze me.

I think that you're correct that most investors would do far better with a diversified buy and hold portfolio, rather than trying to time the market per any advisor or guru. At the same time, I think you are mis-characterizing John's post. His advice would not be unreasonable for an experienced investor who understood the risks involved and found that it jived with their own considered opinion, and was then applied with judicious perspective. However, as advice to the general populace, my opinion is that it's unfortunately problematic, despite the caveats.

Why DODFX over FIENX ? The Fidelity fund has lower expenses and a better return.

I rarely discuss finances with anyone beyond my wife and financial advisor. I have always considered by finances to be very intimate. My wife is co-chair of my Board of Directors. My financial advisor fulfills his role. Talking to my friend Ed, who has already been bankrupt and now thinks using a Heloc is the fancy way to pay off his house, seems a waste of financial advice. Except Ed reminds me that people are often ill-advised. Ed reminds me of what not to do. I mostly ready Humble Dollar, the WSJ, and other sites to garner info so as to make my own decisions. I make calculated moves, avoid fads, and keep quiet. After all, silence is golden.

Loved the article John, thank you. You do a great service in challenging prevailing opinions and making us think about the most important part of our investments: asset allocation. For me, the big question for the coming decade is not about whether to increase my non-US allocation, but by how much. I feel the same way about inflation, but prefer the real return of equities over the long-term to deal with it.

Nailed it again !!

Dear Family, Take my advice and ignore John Lim. Any so-called expert who advises you to "buy gold" or to invest a substantial portion of your life savings into such specific sectors as 100% emerging markets, or "international value," should be avoided. I'm surprised to be reading an article with such misguided advice on Humble Dollar.

Reread this article after waking up some more, Ben. He didn't advise readers to invest 100% in emerging markets, and he never mentioned international value. What article are you reading?

Why don't you mention index funds when discussing building a portfolio?

15 kids!! I have 4 and struggle with things like helping with college, etc. I guess they won't have to worry about things like that since they will have no problem qualifying for student aid!

We have 5 and my youngest son just married the oldest daughter of 9. :) The money issue is real, but they way my daughter-in-law's family works with the older members doing most of the housework and management of the little ones makes it look almost easy. I've seen more stress in many households with 2 kids or fewer. Thanksgiving is going to be quite a scene. :)

Four here too, and I had the same reaction! I wonder if it gets incrementally easier--when you go from 10 to 11, for example, you're only increasing your workload by 10%! Still, it can't be easy. They have my respect.

Great advice and leaves a lot to ponder about. I'm only 32 but I know enough to realize that time goes by fast! Articles like this help formulate some type of a plan.

The behavior of neighbors of lottery winners is amazing! My first thought would be: oh my gosh - I hope it doesn't ruin him! Kudos to the guys with the "humble homes" in their neighborhoods - let the spendy neighbors increase your property value. :)

Good advice. I would add that human behaviors are almost always distributed on a bell curve. Thus, while research indicates that relative income is important to the average person, some people are obsessed with keeping up with the Joneses/Kardashians while others could care less. Our youngest son and his wife fall into the latter category and recently purchased an apartment in Bronxville where most of their neighbors have higher incomes. They love being in an affluent area with great public schools and other services. Our oldest son and his wife are more materialistic but also prioritize living in a good school district over owning a nicer home.

Thankfully, none of my neighbors—as far as I know—buy lottery tickets. We are the 'poors' in our micro neighborhood, though. Poor, because our retirement funds are under $2M. Our neighbors seem to be under consuming. Well, except maybe for bicycles as we have a few n+1s.

" to make money for the fund managers"--disagree. I am not a cynic, I hope. I think it is a response to a market demand. And, as earlier writer wrote: "there's a lot of disagreement about what ESG really means," Each of us has our version. But I'd say most ESGs are a step in the right direction, wouldn't you? (The Live Cycle of Empires and its author look interesting )

I found it interesting to compare VFTNX to the opposite side of this, VICEX, which invests mainly in alcohol, tobacco, firearms, nukes, gaming, etc. VFTNX had better returns over 1, 3, 5, 10 and 15 year spans. Seems that VFTAX is a pretty good option, and it is an index fund too, holding down costs.

Nice summary. There is definitely growing ESG Interest. I helped set up a 401k fund menu for a local firm (I'm not in that business directly, so it took some tap-dancing to not run afoul of liability issues, but I think it turned out well for everyone). They requested the inclusion of ESG fund choices. I included ESG funds appropriate to create a standard 3-fund portfolio (See Bogleheads.com for a description of the 3-fund portfolio), which they seemed happy with. We own a little (very little) VFTNX, the non-admiral version, mostly to make my wife happy. It is generally considered to have a modest growth tilt, which is something investors should also probably be aware of. One might want a large cap value fund to offset it somewhat if you're trying to stay neutral in your large cap space. It's still the wild west, imo, regarding ESG funds. As of yet, there's a lot of disagreement about what ESG really means, and there will be further standardization and categorization that give the topic more transparency. In the meantime, there are plenty of people who want to believe they are both doing good and doing well as a result of their investing. I think it's questionable how much good they are doing in the current moment, but i do think they are setting the stage. 10-20 years from now, ESG impact could well be significant.

Great overview of a new kid on the block. :) Wouldn't it be nice (cue Beach Boys) if we could agree on what is "good" and that we would base that on proof beyond a reasonable doubt that it resulted in a net improvement to the human condition. The life cycles of empires indicates otherwise and I suspect the real purpose behind most ESG funds is to make money for the fund managers (gasp).

Very good article and advice. Thanks for being so forthright with your retirement journey. Many of us have put things off until tomorrow all the while our circumstances can change beyond our control.

If you're thinking of taking a car trip, and couldn't get a traffic report, would you worry about traffic being unexpectedly light? Would that make your prospective trip risky? I don't think so. Ordinarily, "risk" refers to an event being dangerous, with some chance of something bad happening, not something good. Yet in investing, the chance that an investment will be unexpectedly profitable makes it "risky". This language is misleading. I prefer the term "volatile" for an investment whose value may go up or down. Calling stocks "risky" is really a form of the investor fallacy "loss aversion" -- the fear of loss overwhelming the wish for gain. So what should we do in a market crash? I think stocks are volatile, but not dangerous, so I say: Buy. I started investing in 1972 and have been through 4 crashes. By 2008, I had finally figured out that crashes are times to buy, so I did, and was pleased with the result. Earlier this year in Feb-April, it really didn't occur to me to sell. I bought, and my portfolio of mutual funds is up 27% year-to-date.

Why I use the bucket approach. Our short-term bond funds and cash bucket are large enough to cover 7 years of withdrawals. Stocks just sit there: up and down over the years. But, more up than down. However, this strategy does not stop me from obsessively looking at our holdings 5 days a week.

Pushups are good, but strengthening your leg muscles is better. Studies have shown...

Great insight anout Senior age living! I'm 68 and have repeated "placebo" Covid19 aches and pains Derrived from do much media and try to change my daily living with different daily diversions.

Dennis, thanks for your honesty. Its a topic many of us have lived through with our aging parents, and worry about. Best of luck.

Great plan Dave! I'm a bit like you also in still looking at the market and my holdings frequently even though I have no plans to do anything. Thanks for the comment!

Great read Dennis, and sound advice. For me it's analogous to "putting all your eggs in one basket", which in this case is TOO much emphasis on delayed gratification. It can be a delicate balance at times, and for better or worse the only accurate scorecard to say if we got it right is after the fact. Also, and I hope this will apply to me when the day comes where I walk away from a day job, having something, another job/hobby/passion/etc..., that keeps you engaged mentally (and perhaps physically) is something I cross my fingers that physical and mental health will allow.

Thanks for sharing your experiences with us; the decision to retire is so fraught, and also so very important. I'm struggling with the same question... I'd like to downgrade my job within the next 5 years, but probably need to work in some capacity for up to 10 years, while our youngest finishes college and we pay off (hopefully) most or all of our remaining debt.

Have you had a cognitive evaluation by a neurologist? Your symptoms are probably simply due to aging but early diagnosis of dementia is very important, both for future planning and for possible immediate treatment. Acetylcholinesterase inhibitors are often very effective in reversing the symptoms of early stage dementia.

Time is everyone's most important asset, not money. Covid's forced hibernation has similarly led me to sometimes lament foregone travel and exploration opportunities at the expense of work. It is the haunt of the old adage that no one on their death bed wishes they had spent even more hours at work.

Bravo, words of wisdom for us to heed. I just turned 77 and while I started retirement almost eleven years ago with a routine similar to yours, I have slowed down as well. Still try and walk a mile or more a day and I play golf, but not much more. I started working for the company from which I retired at age 17. I truly can say I enjoyed my work. I had control over my job, in later years I had the ear and good working relationship with the Chairman. And then it began to change. The point being, I think you will know when its time to retirement. The job just doesn’t click any more and as you point out other things start drawing you away. People who retire simply because someone else tells them it’s time sometimes face a disappointing future. There is no telling our future, so not going for ones goals is risky. I managed retiree benefit plans and worked with thousand of retired workers. I can tell you for sure that for some things go down hill very fast, while others enjoy decades of retirement. I was able to use a phased retirement for 18 months which let me work in my old job part-time and to experience retirement, including travel. It also let my wife and I experience a little of what life would be like spending a lot more time together day after day. Good training for 2020, including quarantined in a cruise ship cabin for a month. We need to plan for the “I married you for better or worse, but not for lunch.” Syndrome. A large part of an enjoyable retirement is just good luck, but even that won’t be enough without a plan, goals and the money to make it all come together.

Thanks for the great walk through on taxation. While I'm generally aware of the potential for taxes paid to spike under certain conditions in retirement, this really helps visualize how that happens. In specific, I wasn't aware that only half of SS income counts as "income" for the initial calculation. Because both SS Taxation and Medicare rates depend on total income, I've been wondering what the trade-off is for reducing taxable income, and at what point should I consider moving $ from traditional retirement vehicles to Roth IRAs (and paying the associated taxes now.) My impression is that income generally has to be well into 6 figures before a Roth rollover becomes a useful strategy (but of course that will vary depending on your income sources and such.) There are on-line tools to help, and the ones I've used suggest I do nothing... but I have trouble accepting ideas until I've at least done some of the conceptual work for myself.

Richard, great summary, I laughed out loud at the 'Antiques Roadshow'! Waiting for God, Press your luck: Often one spouse is the investor, and the other doesn't enjoy investing or feels overwhelmed by it. Plus a lot of people don't really have good money sense, even if they are highly numerate and logical individuals. A LOT of people really struggle with cash flow, for example. This is a great reason to simplify everything, including asset allocation (AA). I've consolidated all our accounts at one place, and left instructions for my wife on how to further simplify our finances, and our AA if I should pass first (I plan to have implemented virtually all those instructions by the time we retire, but I have some reasons to maintain complexity for now.) My wife is plenty smart but not really a money person, so we've also talked about her getting a fee-only advisor at that point.

The preference for index mutual funds is very popular, but I don't buy it (or them). For my own collection of 16 active funds from T. Rowe Price, since 1992 I've gotten 12.2% annualized returns. I think that's pretty good. And besides, the technical articles I've seen that purport to show you can expect better returns from index funds make no sense to me.

Great read. Thank you!

There is a large segment of our society who do not have the ability to easily save for what they want in their lives. It is very good that you have been successful in your efforts to go from a spendthrift to a saver. Many of us are not as successful unfortunately. On average they live shorter lives because they have to be overly focused on money every hour of their lives. To get another perspective on your transformation would be to read NICKEL AND DIMED by Barb Ehrenreich.

I can relate to the next generation thing. I hear about them struggling, hard to save, but then I look at the spending and bite my tongue. But when it comes to being frugal, there is a simple formula as I see it save first, then spend whatever you like ... without using credit.

And... Learning (and teaching) how to accurately analyze investments enables the intrepid student of life to make decisions within the dichotomy of his rational/emotional makeup that further instead of impede his pursuit of happiness. Good data is a big deal - three cheers for all of you that teach the math! :)

I concur that having a plan, any plan is the key. My best lesson as a young manager was that decently executing a just-OK plan always worked out better than all the non-executed optimal (in hindsight) plans.This works for finances, business and home life because no one ever gets it all right, all the time.

Adam, thanks for the review. I'm looking forward to reading the book. I sense you locked onto one of the key messages - getting organized. Early on in learning about financial planning I thought I (and my peers) thought it was all about investing. I soon learned that having a good plan was good enough, and infinitely superior to having no plan.

This good article reminds of a favorite quote from the old Leave It To Beaver TV program. Beaver: Gee, there’s something wrong with just about everything, isn’t there Dad? Ward: Just about, Beav.

I've had a long career in real estate. In my younger years, I would charge ahead no matter what and ended up in Chapter 11. In the past 5 years, I've walked away from 2 deals and sold another a loss and felt OK about it. I've also done several deals that were very profitable. Maybe age does bring some wisdom.

How about a faster car with HumbleDollar accessories? :)

I appreciate this article. I've found a version of this approach effective - pay yourself first - and automate it.

Broadly speaking, speculators and robots are investors. Computer based investing relies on algorithms that reflect human judgments and those algorithms are constantly being modified as judgments about market behavior change.

One minor correction: The IRS has changed the RMD table starting in 2021 so the RMD at age 72 will be about 3.66%, 4.06% at 75, 4.95% at 80, and 6.25% at 85.

"That stock market investors—in aggregate—care greatly about anything other than interest rates and future corporate earnings." "That the collective judgment of investors, as reflected in market prices, is wrong." The key word in these is "investors". How much trading in the market is done by them vs. speculators and robots? I would suspect "investors" are a small percentage.

For an "income" stage investor, there is no need to outwit the market, as the investment goal shifts to the generation of X% reliable income stream, adjusted for the effects of inflation. hopefully accompanied by terminal portfolio growth. However, blindly investing in "safe" treasury instruments, because these instruments may have provided decent return in decades past, may not be as "safe" in terms of providing an investor with a viable income, as they are now producing negative "real" returns. Conversely, investing in the equities market may portray a dimension of wild price swings dancing to the tune of geopolitical risks. Fortunately, history shows that patient investment in the Large Cap Value stock universe, over long periods, may be a promising solution. Research shows that a portfolio / index representative of the Large cap "value" universe has sustained a "7%" inflation adj annual withdrawal rate ( "sale of shares", dividends reinvested ) over seventy one rolling 20 year periods since 1932 https://tinyurl.com/y6key3v5 . This over a variety of environments, such as 20 plus Presidential election cycles, the 1930s Depressionary period, WW II, oil price shocks, inflation, deflation, financial crisis, pandemic? As there were a minimal number of periods when the income withdrawal and negative "return sequence" depleted the portfolio to "0" ( "failure"), when applying a simple tweak to the withdrawal rate, those periods could be ameliorated ( see charts 1 and 2 https://tinyurl.com/y6key3v5 ). A modern investor is fortunate to have available, expertly managed and well diversified, large cap value index funds ( such as the low expense Vanguard Value ( VTV ) or DFA Large Cap ), which may be used for this purpose. However, if an investor is uncomfortable with the notion of using large cap value solely, they may employ the use of a fund representative of the large cap "dividend growth" universe, although, in testing the "7%" withdrawal premise, the historical data sample for the dividend growth universe is smaller than large cap value.

Good article. Your last paragraph sums it up best for me. How are we doing relative to our goals (my wife and I)? Any other benchmark is not really meaningful to me.

Good point, I wonder though if most people have the right or practical goals or any.

From what I have read, the number of "stars" who consistently beat the market is no greater than chance. Taking the difference in expenses into account, you are likely to fare much better over time with low cost index funds than you are paying a star to manage your investments.

I have managed my own investments from the beginning. My goal has always been reasonable growth while taking modest risk. I have no doubt that a more aggressive approach since I first used a 401k in 1985 would have yielded higher results, but risk is not me and index funds are appealing. With my approach my 401k balance is 60% higher than when I retired nearly 11 years ago AFTER six RMDs. YTD my return is +9.17% Yup, I may have done better, but I’m happy.

Our goal is the same. We are 1+ year into retirement.

Thanks for the kind words.

Richard - you're one of my greatest educators on this site, thank you. :) The elephant in the room here is taxes. For those that manage to achieve their retirement asset target, that in turn will be drawn down during retirement and reducing taxable income in future years, the "wait until 70 to start receiving SS payments" seems logical, budget permitting. For those that have a large enough asset base at retirement that they expect it to continue growing regardless of their withdrawals, some number crunching is in order to decide if their tax bracket might make an earlier SS payment start worthwhile. Like Charlie said - "just leave it to government to make things simple."

After all these years of having somewhat of a complicated tax returns, looking forward to a easy returns in retirement looks like I'll still be using a CPA.

Oh my gosh, just leave it to the government to make things simple. I get it big picture and I prefer leaving these scenarios with a good CPA.

Unfortunately, the vast majority of retirees with joint income below $44,000 don't use CPAs and are unaware of the issues discussed in this article.

1. Love the sarcasm. 2. Scenari is the plural, not scenarios.

I actually also taught military history where we talk about that idea, that generals often fight like it was the last war and don't appreciate the change in technology and times. The frontal charge is an unfortunate good example of this. So was trying to disrupt North Vietnamese supply lines as if they were the Germans in WW II. Thanks.

What a great follow up assignment! Have the kids look for pop culture references (songs, novels, movies, etc.) where people made the wise decision to cut the line. Thanks!

$10 May not be what it used to be, but that Shubik game was a lesson that'll easily outpace inflation. Great teaching! Sunk costs are one of the great heart vs. head battlegrounds. Other examples that came to mind: Kenny Rogers, 1978 You got to know When to hold 'em Know when to fold 'em Know when to walk away Know when to run Boston (rock band), 1978 I can see, it took so long just to realize I'm much too strong not to compromise Now I see what I am is holding me down I'll turn it around I finally see the dawn arrivin' I see beyond the road I'm drivin' don't look back don't look back Paul, ca. 50 Brothers and sisters, I do not regard myself as having taken hold of it yet; but one thing I do: forgetting what lies behind and reaching forward to what lies ahead, I press on toward the goal for the prize of the upward call of God in Christ Jesus.

Speaking of sunk costs on this Armistice Day. Think about the battles/deaths in Flanders' Fields. "Another division will turn the tide"

Great article!

Agree. While we played around with guidelines when we were working we never got around to setting a specific target. Our approach was simply to maximize our retirement income while living a modest but comfortable lifestyle. Key factors for us were maximizing our 403(b) contributions, delaying SS until 70, working until 70 and allocating a substantial share of our investments to equities in index funds, alhough we never went above 60% because of low risk tolerance.

A couple's income and expenses in retirement are usually so different from what they were while working that I find the 100% of base pay guideline of little use.

"or try golf instead" Ha!

Great article Jim. My experience with buying and selling a timeshare (https://humbledollar.com/2020/09/paradise-lost/) gives me some insight. After the first year I badly wished I had walked away from the start. It took years to sell, but that "loss" felt as good as most gains.

Yet another article entirely relevant to my own investing journey, but sometimes reading it in another's words is more impactful. I've as well had winners and losers in individual stock picking (who hasn't?), but have long since settled on broad market plays with a variety of sector bets (yes, IMO they may be "reasoned", but they're still bets) via ETFs, which has proven thus far to be a pretty productive strategy. Sure, I see the Teslas of the world roar past me, but for every one of those rarities my "field bet" on mostly the S&P 500, NASDAQ 100, and health care-related funds has allowed me to both sleep soundly at night and not have to wake up and check the market first thing in the morning.

I have to admit, I've always rather enjoyed not having to select which stocks to buy. I know that as soon as I did I'd have buyer's regret, and gaze longingly at the small cap stock that climbed 100% last month. Better just to own the haystack.

After watching the mutual funds I owned get hammered with losses during the Great Financial Crisis, I decided I could do no worse than those managing mutual funds. It definitely takes a lot of time but by limiting myself to a small set of companies and focusing solely on them, I have averaged 24% per year since going DIY vs. SP500's 13%. Yes, I know I've been super lucky and I agree, if you don't have the time, then invest in ETF index funds. (RSP looks good right now.)

I took a continuing education seminar in stock picking shortly after finishing college. We did an exercise, looking up the last year’s prices of highly recommended stocks in current issues of financial magazines. I was impressed that the prices had risen over the previous year and was ready to go buy stocks. Then our instructor pointed out that those stocks would have been a great deal a year ago, but were probably overpriced now. We looked at P/E ratio and such, finding that the stocks were pricy by the conventional measures she was teaching. Lesson learned: By the time a stock is being highly rated by popular finance magazines, the real traders have already run the price up. She suggested buying boring stocks, ones that slogged along with minor price changes and regular dividends. I was disillusioned though and bought the variable annuity from the nice salesman at the office instead. Five years later, when I finally studied up on variable annuities, I consoled myself thinking I’d at least developed the “pay myself first” habit and switched to index funds.

Simplification is an important goal. We used to have retirement accounts at 6 different institutions. Now we have all of our accounts at one institution, with the exception of my wife's current 401K which we'll transfer when she retires, so 6->2. Much easier to deal with.

It's amazing how closely we were able to forecast our eventual savings when we were in our late twenties... a couple decades later, we are right on track. What was much harder was figuring out how much we would want/need in retirement. We're now targeting 2x in retirement savings vs our target of decades ago. Having had most of a pension eliminated, and incurred special health costs, our needs (and wants) have increased. It's a good thing we built in plenty of wiggle room built into our planning. It's difficult to understand what unexpected things will happen to you over the decades. It's seems to me that it's best to start with multiple contingencies, and then decide whether to whittle those away as you go along.

Brian, nice article. My wife and I are in the same process. The only retirement plan left to move is her 401K, which we will do once she retires. I wish Vanguard had HSA accounts, that would make it very simple.

Isn’t rolling over to Vanguard in their IRA also making Vanguard the middleman? I have a 401k administered by Fidelity and if I roll it over to an IRA administered by Fidelity there is no transfer hassle (all online) and I can keep all my Vanguard funds or select among several thousand others.

One thing I've noticed in life across every discipline I've been involved with is that mastery of a complex topic is best demonstrated by the ability to explain it in simple terms without compromising the particulars. Boiling things down to their essence requires genuine understanding and it provides the extremely beneficial service of highlighting what really matters. This article is an example as is Buffett's subordination of budgeting to "Don’t save what is left after spending, but spend what is left after saving." I do wonder about the modern American mindset in reference to retirement. While most are motivated in their early years to live above the lifestyle provided by "welfare", it seems that many reverse this decision when it comes to their retirement years. Maybe they trust that their children will take care of them, or that their politicians will place the children of others in this role. Maybe it's just short-sightedness, or real or perceived inability. Whatever the case, the information needed to do better is out there (like here) for the picking. /rambling

Good one! For calculating a retirement income goal remember to also back out your annual savings for retirement while working, and add in costs likely to be higher in retirement like travel in the first half and healthcare in the last.

If only more people would take the time to follow this advice. I am amazed how often I hear, “I can’t save that much” or “I can’t afford to save” after I hear that I look at their spending and sometimes I have to bite my tongue. To make planning simple and IMO for practical reasons, I say the income goal in retirement should be 100% of base income while working, no offsets because new expenses will pop up or be desired. And I maintain you should be able to save in retirement to deal with cash emergencies and not disrupt retirement assets.

I feel bad that you worry so much about the issue of regretful spending. It must be difficult to deal with on a daily basis. You should read NICKEL AND DIMED by Barbara Ehrenreich. It might help your perspective on life.

There are 3 ways to invest for long term goals. #1 is by assessing the long term market environment to determine a strategy of investing that takes advantage of those economic, political and societal factors that you determine will be the dominant ones over the investing period of time. #2 is to use the John Bogle approach. #3 is to cull the opinions of market pundits, colleagues at work and the very voluminous year by by year history of stocks, bonds, mutual funds etc. #1 is quite difficult and #3 is a very dangerous way to go I believe. For most people #2 is the way to go I believe. I have done #1 and now I am doing #2. I started seriously investing for retirement in the mid 80's as you did. At the time the environment was that there was a level of interest rates that can only be imagined now. It seemed that all of the forces of government was engaged in lowering interest rates in the country.I felt at the time that you should not fight the Fed as they say now. The majority of my investments were in purchases of individual long term govt bonds with a smaller portion in equities. The result was that I always slept very well. I have never had more than 30-40% in equities, usually much less. I knew that government was going to do everything it could to reduce inflation by raising interest rates. My strategy was to push money into buying as many 10 & 30 yr govt bonds as I could and just collect the interest. After a period of time the preferred strategy is now to reduce sequence of return risk by lowering level of equities and to use indexing(#2) when the future becomes unclear, which I am unable to predict confidently at this point.

How very true, Jonathan! I guess it's not just a family trait!

Several years ago the property and casualty insurance companies changed insurance polices to an "easy to read" format. I always wondered how many people read their insurance polices after that change? An insurance policy is the poorest-read best seller on the market.

A "signalling" comment on "willpower budgets": As a jogger (signal! signal!) I can't do "laps" because starting each additional lap requires willpower already used up just getting out there in the first place! Instead I need to just hit sidewalks Rocky-style (always with a mental 'Rocky-dance' at the end ;-) ) , or drive over to a nearby x-c ski trail, in both cases jogging established known-distance loops. One-and-done on the discipline-summoning front!

James, any thoughts on if the Democrats control the Senate after the January 5 Georgia run off elections? I have read where the likes of Elizabeth Warren would like to not only tax income, but also a taxpayer's assets. Considering that frugal savers often save upwards of a million dollars so they can provide for themselves in retirement, it would not surprise me to see them use comforting words as they confiscate those assets with assurances they will "take care" of retirees. Same with changes to the law that allow them to tax Roth disbursements. I am hoping I am wrong on both counts but they seem to have all kinds of exciting spending plans like "free" college and health insurance and they will need to find a lot of money to achieve them.

I volunteer as a Medicare counselor, (the program's called SHIP in Illinois), and the majority of the people I see are baffled about the choices which Medicare offers. It can be very confusing and stressful, especially when monetary resources are tight, though income and education seems to have only a small factor as to how unsure people are about Medicare. I was counseling an older woman who had enrolled in a fairly expensive Part D plan, especially in light of the three generic prescriptions she was taking. I asked her how she chose her current plan. She said that she was so confused by all of the literature she had received (she had a three-inch stack of sales brochures from various providers), so she chose the plan with the nicest looking brochure. I thought about that for a minute and realized that she was just so overwhelmed that she made a decision to relieve the pressure she felt.

Thinking the small cap value premium is dead because the class has underperformed since 2016 is classic recency bias.

For me, #1 is a very important point. Having lived internationally and knowing many who do, it's important to have money where you need it. However, not all currencies are stable, so this applies better to having money in the US when I live in the US, since our currency has been so stable, albeit with some inflation, and of course, so far....!

For some reason I just thought of this. The difference between a financial plan and an estate plan is that an estate always gets used. It doesn't take any "willpower." I've been working hard to reduce the number of decisions I need to make. It seems to unclutter my days and make life simpler. That's probably why we've had the same painting on the wall for 23 years.

I wish there was a way to tape Number 8 to everyone's phones. Wouldn't it be nice to put scammers out of business?

I also like to check on maximum out of pocket, including premiums. Costs can be a lot more than anticipated if there are per-family member deductibles. We've had years where we paid the roughly $5K in premiums and nothing more... and then we've had years we paid $15K to manage everyone's issues (granted, with a special needs child, and my wife having been in a very bad accident decades ago, we get odd spikes in usage.)

I don't actually have a template. I just have one big, complex spreadsheet that is very specific to my own circumstances. It is not something that will make much sense without including my actual numbers, which I am not comfortable doing. Sorry about that.

My take away from all this is that the market tends to move in cycles. Some of that is due to business cycles, some of it is due to decades-long economic cycles, and some of it is due to our own herd instinct. I don't trust factor math. Anyways, it's unlikely that I can predict if value or growth wins in the long run, so I don't try. Total Stock Market funds avoid the issue entirely, and are a great option. I do think that value and growth tend to dominate for years at a time, so if one is so inclined, it's possible to tilt back and forth to take advantage of momentum. However, the long term benefit of this is modest at best, and one also has to decide how much additional risk they are willing to take. Most of us have difficulty identifying risk, let alone knowing how much we are willing to build into our portfolio.

Solid advice that's applicable for people of any age and not just who fear they may be on the precipice of cognitive decline. I'm not old enough yet to have to worry about cognitive aging, but I'm humble enough to acknowledge that, even on my best days, I'm capable of making stupid mistakes. And even though I try to be as rational as I can be, as a human being, I'm still susceptible to a legion of cognitive biases. For these reasons, I'm especially a fan of pointers #3 and #6. The fewer opportunities I have to inadvertently sabotage myself, the better.

My assumption was that the annualized return was 2.4% after inflation. I did not factor in inflation in any other way, so the whole spreadsheet is in today's dollars.

Great article on the benefits of total stock market index funds! :) It does seem that small value and ex-US stocks are due for a run, but that's the gambler's fallacy talking. Then again, it's difficult to believe that these "factors" are no better correlated to the past than a coin flip. :) A recent small value article from my favorite Morningstar writer has some nice insights.

A great read Bill, thanks. Being of same age this is directly applicable to me and my situation. In real-life terms, from a modeling perspective and in what I think may be applicable to a broad swath of readers, I started saving/investing from essentially zero in the late 80's, when I entered the workforce. When discussing investment growth over these time intervals (10, 20 years), the impact of compounding and reinvestment has an increasingly outsized impact. So bets made early on in an investing career, when the amounts are still relatively low, have a different impact than later, when appreciated (hopefully) portfolios are exposed to a high-growth environment, such as in this large cap/tech growth era. I need to look back at the historical basis advocating for long-term small cap growth, as it always seemed a bit suspect to me. Thanks again.

Ah, the nifty fifty. I bought Xerox in 1973. oops.

All that work to decide on a health care plan and it only costs 18% of US GDP(about 50% higher than Cuba) with about the same life expectancy as Cuba. At least it kept you employed for 40 years so now you can have the time to write about such things.

Six figure salary saving 50%? How could a person earning $100,000 save 50%? Even a single person.

So, it’s possible to save 50% and pay taxes, buy health and other insurances, have a car payment, pay rent or mortgage, buy necessities on what’s left? Where?

The degree to which one should focus on "offense" or "defense" probably depends on their income and saving rate. If you're making $30K or less a year, it doesn't matter how hard you play defense, you are going to have a much, much more difficult time reaching financial goals than someone making $50-$60k (as a grad student, I am acutely aware of this). But if you earn a six figure salary and have a saving rate less than 50%, then yeah, it's time to focus on cutting down spending rather than getting that next promotion. My guess is the income distribution of Humbledollar readers is higher than average and heavily right-skewed, so your advice is helpful here. But there's a large segment of the population that would benefit more from playing harder offense. Here's a different perspective from what we typically hear in the personal finance space: https://ofdollarsanddata.com/the-biggest-lie-in-personal-finance/

Very nice article. I agree with all you observations, except how you characterize limiting mistakes. I feel living with in your means, maximizing the 401k, etc. are more proactive steps to be aggressively managed more than being defensive.

I agree with your points that there is a balance between "defense" and "offense" and that it is harder to save when you learn lower income. Also thank you for the article that you shared.

I save that much and I'm a grad student. If you don't live in a high cost of living area, it's possible. Obviously, you can't live like the average American.

Given the sports analogy that Jiab used, defense can be just as proactive as offense. They are two separate parts of overall performance that are both essential to winning the "game." The best defensive coordinators are just as innovative and aggressive as the best offensive coordinators.

The USA is #1. And, not in a good way. We make medical coverage the most complicated in the world. If Richard had to spend 2 hours doing analysis, how can "Joe Sixpack" even contemplate tackling this?

Good read. I find that many of my friends believe this process gets easier when they transition to Medicare. Oh my gosh paper work galore. Contrary to what many think, Medicare is not free, and the cost is income based. Then you must decide if you want a Advantage plan or Medigap plan or neither. Then you you are overrun with commission salesman that claim to know “what’s best for you”. Then if you are fortunate to have a HSA fund and/or an HRA account you must elect where to pull funds from to pay cost that are not covered. My experience with the Medicare plans are they are good coverage, you just need to take time to understand them. When the government gets involved the process generally retreats as “easy to understand”.

Jonathan - It makes me feel like Luke Skywalker arguing with Yoda, but I disagree with you. With our first home, bought on a 30 year 8.5% fixed mortgage in 1978, I was soon buying equivalent coupon GNMA pools in my self managed tax deferred retirement account at discounts to yield 15% to maturity. Our monthly payments were about $400 per month. When we sold the house 25 years later the fair market rental value had grown to about $1200 per month. It seemed to me that I was getting $800 per month in tax free housing value. Plus we sold the house for about four times what we paid for it. It won't hurt my feelings if you demonstrate to me that I'm wrong. - Dave

Great post on a very important point. Some people go a little further and create a personal investment document to refer to in moments of stress. I have my own, which is only partly written down. In either case, I think you're very much on the right track. My personal view is that if you truly understand your AA - why your stock/bond split is what it is, what are your exact holding and why do you hold them? What makes your portfolio so great for the long term? Inflation? Deflation? Crashes? Booms? Rate increase? Rate Decreases? If you understand that, I think it makes it so much easier to stay the course.

Great blog post. There appear to be just as many counter-arguments for growth as there are arguments for decline, and of similar quality. I'm not convinced we see a large drop or a massive bull, but I am convinced either is possible (and maybe both!). In any case, keep it simple, and stay with the plan.

Jonathan, great discussion on rates. I'll fight you tooth and nail on retirement age though. Too many people get tossed out of their firms while still in their 50's, let alone 60's. Increasing the retirement age can't happen until people have some level of protection against getting frozen out of the market long before they start SS. I'd only change my mind if there were national workplace protections for people over 50 that go well beyond what we have now (esp. as the current law is far too limited, and even then often unenforceable.)

A very thoughtful comment. People freak out over the idea of immigration these days, but immigration has long been a source business growth and success in the US. Many of our largest companies were built and managed by immigrants and children of immigrants. It's overtly bad policy to chase out the people that are helping to build the future right here in America.

Leaving the ghoulish nature of the discussion aside for the moment, that's about 0.25% of total SS receipients. The reduction in payments, as large as it seems, represents about 0.02% of annual GDP. Not likely to make much of an impact. Plus, Logan's Run is a distinctly repulsive way to approach SS viability. The looming baby boomlet is likely to have a much bigger impact... but they need good jobs if that's going to happen.

Yes, but such a practice would open the floodgates to fraud. No way to stop it. It's hard enough with real assets, which many have shown can be manipulated in ways that very much misrepresent their value.

Where one invests their money, and the adjustment of one's income stream, via the monitoring of one's portfolio balance, if need be, can be beneficial to an investor who wants to create and control their own stream of income. Further tactical steps may be taken in order to ease the effects an unfavorable starting " returns sequence", through the use of a simple, arithmetic rules based process. Research shows that a portfolio / index representative of the Large cap "value" universe has sustained a "7%" inflation adj annual withdrawal Research shows that a portfolio / index representative of the Large cap "value" universe has sustained a "7%" inflation adj annual withdrawal rate ( "sale of shares", dividends reinvested ) over seventy one rolling 20 year periods since 1932 ( a decent sized sample for "stress test" ) Link https://tinyurl.com/y6key3v5 . This has encompassed periods of Great Depression, World wars, oil price shock and high inflation, tech bubble deflation, 2008 banking crisis, pandemic?. As there were a minimal number of periods when the income withdrawal and negative "return sequence" depleted the portfolio to "0" ( "failure"), when applying a simple tweak to the withdrawal rate, those periods could be ameliorated ( see charts 1 and 2 https://tinyurl.com/y6key3v5 ). Investment in modern, expertly managed and well diversified, large cap value index funds ( such as the low expense Vanguard Value ( VTV ) or DFA Large Cap ), may be used for this purpose. As the Vanguard value fund mimics the "CRSP large cap value index" / methodology as a framework for portfolio construction, this would imply that a "passive" value management approach is used ( based on 70 years of data ). However, if an investor is uncomfortable with the notion of using large cap value solely, they may employ the use of a large cap "dividend growth" fund / universe for same income generation practice.

That's an interesting idea, but I wouldn't favor that step for two reasons. First, while I view rising interest rates as a risk, I'm far from certain it will happen. Second, the rate on a mortgage will be above the current rate on my bond holdings, so it would be a losing proposition in the short term -- and perhaps the long term, too.

Jonathan - If you're concerned about interest rates rising wouldn't it make sense to finance either a new home, or refinance your current mortgage for 30 years at today's historic low rates? If interest rates do rise, and you could obtain a positive net spread, you could offset your mortgage with bonds that yield more than the interest on your mortgage.

Rick, you can invest in the private equity firm like KKR, rather than buying into one of their funds. I don't care for the impact they tend to have on acquired companies, and there is a flood of money barking for scraps in PE right now, so i am not long personally. It is an option. i do own VLUE, similar to VTV, which should limit losses if a bubble bursts in growth stocks. Note also you can find some currency neutral foreign ETFs at wisdomtree... One risk with emmerging markets is that the indexes are dominated by China... if a war breaks out, you could be out of luck. Diversifying with political allies such as Japan or European equity is safer, and these are cheaper than the sp500, while somewhat less corrupt than emmerging...

What we need, as investors, or even speaking for the post-modern world in general, is a change in accounting practice to properly account for 'capitalization of accumulated knowledge'. The reliance on 'arm's length transactions' to record values is hopelessly 'laggy'.

Love this, he's one of my heroes. Our new savings has been focused on those better-valued sectors for a while now. In Jan 2018, at a moment when the US SP500 was already richly valued even by recent history, Grantham published an interesting paper to say he saw signs of an impending "melt up". Hoping for another correction in broader US large-caps to rebalance at saner prices.

You’re sure right about that. Maybe that’s why few people invest and most people just save.

Thanks for another great article. I wonder how much of the market rise isn't necessarily from "crazy" thinking, but there is literally no where else to put money. With interest rates so low, and low for the foreseeable future, the market gives the hope that anything above 1.0% is possible. A downturn is given as it is mark of the normal cycle, but will it be deeper and more painful now that more people have put money that should be safe into a riskier investment?

Great article Adam. The beginning caused me heart palpitations, but you pulled it out at the end. This investing stuff is not for the faint of heart.

Agree. I was let go at 63 due to "Covid headcount reductions". I am discovering not many companies have jobs for relatively senior executives with 30-40 years experience. I wanted to work 3-5 more years, now I am retiring because few other options.

"The company must have positive earnings in the most recent quarter, as well as positive earnings, in aggregate, over the past four quarters." That sounds to me like it makes the S&P 500 absolutely useless as an indicator of how large stocks are doing. After all there must be a lot of big companies that have losses in the most recent quarter.

Something that nobody is talking about is Covid's effect on Social Security. Now I am a numbers guy so bear with me. As of 10/28 in the united States 212,328 people have died of Covid, about 168,000 were 65 and over. Lets assume that 150,000 were collecting Social Security. The average benefit is about $1600 a month. Plug those numbers into your calculator and you will be shocked as how many benefits $'s are no longer on the books. In my opinion you don't want to work longer but instead retire as soon as you can.

Another potential solution to problem #2 would be to reform our immigration policy so that the US is better able to attract skilled immigrants (see: https://www.sltrib.com/opinion/commentary/2017/09/25/noah-smith-immigrants-are-a-fiscal-boon-for-us-not-a-burden/ ). We could model such a policy after those of Australia and Canada.

My wife and I retired at 70 and 71, respectively, and see little reason why the SS full retirement age shouldn't be moved up to 70. Exceptions could be made for those in manual labor jobs that are difficult for workers to physically continue working for three more years than the full retirement age for those born in 1960 or later.

Vanguard has an interesting study -- I think the folks there have done it twice -- that found that valuations aren't a great predictor of returns over the next decade. They found both CAPE and P/Es based on one-year earnings explain around 40% of future returns, and I wonder whether it's even less now. At one time, I thought it was useful to look at valuations as you ponder likely future returns, but I'm not so sure these days.

This is the key statement: “encourage businesses to create jobs suitable for older workers.” Many of my friends in their late 50s/early 60s have been forced out of their long-term jobs by buyouts or an industry so changed they no longer are seen as viable and have been downsized (without pensions usually). They have been unable to find full reemployment, probably because of age (healthcare costs) and skills issues. So it's not like "postpone retirement" is much of an option for a huge group of folks. We need a better alternative for those "put out to pasture" through no choice of their own. (What are the proposal details for "encouraging businesses" to help?)

What about inflation indexed US Savings Bonds?

Interesting, as always. What you write about tech companies would imply that CAPE ratios are not much use going forward both in predicting likely future returns of US stocks, and in comparing valuations of US stocks vs Int'l (because US stocks have a much larger tech sector). Am I understading this correctly? Btw other people like say Larry Swedroe wrote that CAPE should work independently of sectors, so they appear to have a different view form that expressed here.

Kristine. I really enjoyed your article. I left my former company after 31 years. I really missed the friendships, intellectual stimulation and feeling of worth. At my wife’s encouragement I’ve worked pretty hard to fill in those gaps and stay connected. It has definitely been worth it

I hope it came across that I’m no expert in predicting future markets. In fact I’m one of the worst individual stock pickers you could imagine. Given that, and the inherent uncertainty of the markets, I feel more comfortable with a conservative approach. Someone told me a long time ago the most important measure of risk tolerance is can you sleep at night.

I use Flexible Retirement Planner for much of my planning. I don't use it as a Monte Carlo. Instead I use it as a deterministic model by leaving standard deviation at zero. I assume long term inflation of 3% which I thought was somewhat pessimistic, but other have said it was average at best. Still, I'd like to know what long term return rate would qualify as "low"?

People who demand higher Social Security COLAs have never done any of these tests.

"valuable early retiree health benefits" Maybe. Employers have been reneging on these benefits.

I'm not one of the "averages" either. I'm in my 4th full-time job since graduating college but I was hoping 2 employers ago would be my last. But things change and I had to change along with them. I'm almost 60 and the intangibles of my current CPA/finance job with a County Library system are the most important to me. I took a big pay cut from my last job and it's been well worth it in terms of my sanity, my marriage and having time to spend with my wife, kids and grand-baby. My last boss thought nothing of calling, emailing or texting 24/7. After 3 1/2 years now, I haven't worked a weekend and probably received a call and/or a text from my boss twice over a weekend in that span. I feel like I'm in paradise. And with a little luck, this will be my last stop before retirement in a few years.

I'm jealous. Pensions aren't things that my generation can reasonably expect.

Yep--there's definitely no guarantee. That said, my employer eliminated that particular benefit--for new employees--about 15 years ago. When I retire, I'll likely be one of the last employees eligible to receive it.

Good question. I'm pretty sure I think about it too much, but I've always enjoyed analyzing complex things. I have not met many people who enjoy discussing these kinds of topics at the level I enjoy, but that says more about me than them.

I use the MAXIFI software by Larry Kotlikoff. His base assumption for a "safe" real rate of return is the 30 year Treasury. He also baselines 100 years old as the end of life. He is a big believer in safe spending rates.

Kevin That is a great question. Years ago a fellow engineer and I did some studies with a spreadsheet tool we had created to project retirement portfolio sustainability. The conclusion we came up with was that if you beat inflation by a point or two you were probable OK. We looked at scenarios that applied to our situation - 30 year pensions, well-saved 401k, and then a fairly high social security benefit. We are part of the lucky ones. But I think the point holds - if you start with enough to retire, and your portfolio beats inflation, you shouldn't run out of money.

I wonder what percentage of the population gives any thought to any of this? I imagine most simply save as much as they can, maybe throw it into an index fund (if that) and hope for the best.

"Still, I wouldn’t cut it too close." I think that's it in a nutshell. Personally, I live very far from that "cut line" and as a result don't really think about it hardly ever. But it's a mindset I agree. I don't really feel I want for much and don't feel I'm depriving myself or my family, either now or in impending retirement. My "fun" is for the most part either free or relatively inexpensive. I guess I could spend more if I wanted, but maybe it's simply that I value the security (financially) more.

I like Fido's "significantly below average" results in their retirement planner. It is very pessimistic. If it is positive at death of remaining spouse, then you are probably OK.

There are many variations of sensitivity analyses applied to retirement forecasting, but I prefer less automated methods that allow you to set all the variables. If errors occur in this critical planning phase of life, I want it to be my fault and not that of a software designer. The Monte Carlo simulators provide useful comparisons, but I think they make the most sense for the very wealthy (because it doesn't really matter) or those that don't want to put much time into the process. Regardless of method, almost all retirement planners are disconnected from a comprehensive personal finance program, thus you have to update them independently as time passes. The further out in time we run our simulations, the greater the potential error. I use Quicken's planner that updates every time I buy or sell in accounts I told the planner to include, update fund prices, transfer cash from bonds to my checking account, consider the purchase of a sailboat next July (including annual expenses rising at a selected rate with a final disposition after 8 years for almost nothing), etc. As the days go by, my future approximations become less so with less effort than a planner that requires independent data entry. The probability of error decreases just like hurricane Zeta as it approaches land today. In a few hours we'll know for sure if it'll track as predicted or move a bit east toward Pensacola where I live. :)

What return rate would you suggest if someone uses your second strategy to assume low investment returns?

I totally agree - assuming you mean Fidelity's stand-alone planner. Very clearly laid out with reasonable assumptions and thoroughly documented. Uses Monte Carlo iteration of potential market returns (US stocks since 1926, bonds and foreign stocks since the 70's). The "significantly below average" result you refer to in Fidelity-talk means 90% of over 250 iterations of possible historical market returns provided enough income/assets throughout retirement. The lower than average and average use 75% and 50% success rates respectively. In effect, the most optimistic scenario (average) assumes average historical returns continuing into the future and the other two scenarios assume you get stuck with an increasing amount of the bad years. I really like this. I got very similar results with Quicken's planner, which simply means I made similar assumptions using similar starting numbers.

Thanks Joe! This article was a blessing to read :)

I appreciate it Scrooge. And your sense of humor too!

Joe, I really enjoyed this article. Very thought filled,and thought provoking. I especially like the emphasis on making sure we arrange for our retirement. My wife and I have a lot of experience taking care of elderly and infirm parents. A sound retirement plan is a gift you give to your children.

Hi James. Yes, that "personal pension" concept was what we were going for. Our fathers each had a pension. My spouse and I were in the first 401K generation. We bought ours with post-tax dollars so not a QLAC if I understand that right. We bought ours joint so the longevity bet is on the last of the two of us to go.

The problem I have with “a way to bless others” is its religious connotations. As a militant atheist, this phrase is a complete turnoff. However, I do agree that giving away more money is a "good thing".

Thanks Rick. I have seen many others like you and your wife who struggle with those issues. Comments like yours will hopefully inspire others to prepare for our own challenges as we age. Appreciate the comment.

The deferred income annuity is about as close as possible to a "personal pension". I assume this wasn't a QLAC since it pays till the spouse is deceased as well?

Thanks for the comment Dave. I think as you suggest charity is one of those things we all have in common that unites us whatever our beliefs. In this polarized environment, I think that's a good thing! Thanks for the feedback.

Maybe it's just the social climate we're currently living in, but the fact that the S&P chose not to include Tesla makes me uncomfortable that the committee, in aggregate, just have significant reservations that aren't apparent to the casual observer. It's been long enough for me to not buy the individual stock, and I'm pretty sure that the CEO-led volatility wouldn't in and of itself be excluding. I plan to follow this with a passing interest, as it's likely to be a sitcom that will be entertaining for at least a few more seasons.

There's a lot to unpack in that article, but some of Glen's concerns and the plan he built are similar to mine. I'm not yet retired so we went with deferred income annuities to put the money to work now and we opted for a 3% COLA.

A steady income stream is so important. I can’t imagine the stress without a good pension ... or more money than you could ever spend no matter what. Building an income steam from a combination of sources including an annuity seems the way to go.

One of our subscribers built their own retirement paycheck through a combination of 1) Social Security Optimization 2) SPIAs 3) Fixed income ladder for RMDs 4) 80/20 portfolio for hedging inflation Podcast: https://www.newretirement.com/retirement/podcast-episode-41-glen-nakamoto-building-retirement-paycheck/ Article: https://www.newretirement.com/retirement/establishing-retirement-income-using-an-income-floor/ Would love your thoughts on his approach.

Wonderful article about staying balanced, remaining flexible, and continually learning. The article and comments make real estate management look really painful. Glad to have indexed retirement funds and social security as a foundation requiring little to no management.

True. The thing about Covid-19 is it denies surface evaluations as well, as such observations may be both true and false depending on the context. (...and I don't consider myself all that knowledgeable regarding the virus.)

Here's another! I started with index funds; but that's what was in the 401k plan, and my dad had long preached the virtues of such plans. I've never purchased an individual stock except in my company's ESOP. I would guess your observation is probably more commonly true among older investors; many of whom I've heard relate their stock-picking days, and how they'll never go back. I suspect the younger cohort often get their start in investing with a 401K full of passive index fund options these days.

Great article. I like your approach. Your reference to the "vale of tears" is more relevant than many may know. It comes from Psalm 84:6 and originally applied to the living that successfully navigated hard times and made it into "a place of springs". :)

Thanks, Langston. It's been a rather anguished process of deciding to invest but it seems to fit well with the rest of what we're doing. Your mileage may vary. It was hard to reason over the uncertainty around longevity as a factor in valuing this. Some longevity calculators give a sense of the odds based on our habits and situation (birth year, education, diet/exercise, etc). For giggles, I also leveraged work on our family tree. Went through three generations of ancestors looking at actual vs expected longevity. I heard that phrase often from my beloved father-in-law who successfully navigated hard times and is in a better place. :-)

Name of insurance company = ?

I really don't want to buy insurance from a company that loses money. Their right to a reasonable compensation and profits also secures my investment.

Thank God for my pension so I don't have to deal with annuties!

NY Life for this one, Dave.

Agreed. The ideal insurers in my evaluation were in the top tier of financial strength and have been that way for a long time. I debated whether it matters over the long haul to choose a mutual insurer vs publicly traded.

@@ekknox:disqus thanks for the feedback and the link. Regarding gold, the biggest challenge I have with it is that it has no intrinsic value. It doesn't produce dividends or interest or income of any kind. That means there is no quantitative way to approach valuation for gold. But I appreciate the link.

Thanks for the comments. Inflation is notoriously difficult to forecast because it's been all over the place -- from the mid-teens to today's 1-2%. But as you saw in your software, the difference of just one percentage point can make all the difference.

The most serious problem, in my view, is the fact that S&P's three main indices -- the large cap 500, the mid cap 400 and the small cap 600 -- make it appear that they provide complete market coverage when, in fact, they don't. So there are two solutions: Either use a total-market fund, as you said. That's a great solution. Or, if you prefer to have a little more granular control, you could combine and S&P 500 fund with an Extended Market Index fund, such as Vanguard's VXF. Why even bother with the latter option? There are two reasons you might go this route: 1. If you want to over- or under-weight different segments of the market. Many investors, for example, like to overweight small cap, based on historical outperformance. 2. If you wanted to give yourself more levers to pull when it comes to selling, whether it's for rebalancing, tax-loss harvesting or charitable giving. Because the different segments of the market will perform differently over time, you can buy yourself a little more flexibility if you have two holdings instead of one. All that said, if all you ever purchased to cover U.S. stocks was VTI, it's a great solution.

Adam, Terrific article. I was looking at the SP500 components the other day and was surprised Tesla was not in there. Thanks for the explanation of how it works.

Yes, I'd favor total market index funds -- not only for the broader diversification, but also because you won't have the trading costs and tax inefficiencies caused by stocks leaving the index.

Is this a reason to prefer a total stock market index over an S&P 500 fund? I just checked Vanguard's total US stock market fund (VTSAX/VTI) and both Tesla and Zoom are listed in their holdings: https://investor.vanguard.com/etf/profile/portfolio/VTI/portfolio-holdings Although when I compare this year's returns for VOO vs. VTI, the difference is negligible.

Dave Agreed. Only thing for sure is that they will change. I have a tax guy do my taxes too. I know the retirement angle but he knows other intricacies.

One of the best and honest articles I've ever read.

Thanks for the generally excellent article. A couple of minor quibbles: iBonds are a far better option than TIPS of any duration. Admittedly the 10K per person annual purchase limit is a hassle, but they should always be mentioned. Short and long-term TIPS now have negative real yields. EE bonds are also great for those with a longer time horizon. Regarding gold, while it isn't a good pure inflation hedge, it has been consistently great during times of low real interest rates and, in modest percentages, helps guard against sequence-of-returns risks. Pretty much all of the most successful defensive portfolios I have found include it. And the fact that you're repeating the old canard about it being purely a poor deflation hedge suggests you might benefit from reading this excellent recent article (to be clear, I am NOT a gold bug and much prefer globally-diversified equities as my primary inflation hedge). https://portfoliocharts.com/2020/08/21/metal-money-and-the-measurable-value-of-gold/#inflation

Thanks for this article Kristine. I am approaching retirement having worked at that medical school across the river from you for about 25 years. So, pension Tier 1 also. So many choices for sure and so overwhelming! I just discovered humbledollar a few weeks ago and it is certainly helping me understand more. You along with others have mentioned mentioned concern re: pension and how stable it is likely to be long term. There are concerns for sure. However, I have spoken with quite a few people about this issue including a former state legislator, and i do feel somewhat comforted that at least from a legal perspective we are pretty well protected. From a fund solvency perspective about all I could manage to ascertain is that Oregon's fund is pretty well managed compared to many, and of course, our pension is insured which will offer some protection in the event of a catastrophy. But of course, nothing is a sure thing!

Jonathan, You are certainly ready for the debate but they may want to put a mute button on your mike.

Here's to the "nerdy folks", including me (and probably many/most of your readers)! I'd add a contemporary non-financial topic to your list: don't try and talk science and data regarding COVID-19 with anyone personally invested on having a position that directly benefits them. I don't find it aggravating, just incredibly disappointing.

My father believed in rental real estate in which I never paid much attention. Since his passing, my mother and my siblings have been trying to untangle and sell these properties. I know there has been little appreciation over the years, I can attest that being a landlord is a huge pain, and I have to wonder why the average person would ever think this is a good idea. Our plan is not so much to make a profit in the sale of the land and buildings, but to off load them and be done with it. With local and state governments getting involved with renters since COVID, some renters feel there is no incentive to pay rent. I'm sure there is money to be made in rental properties, but for the small investor it feels like more work and suffering than necessary.

When I read a financial article (except for yours), I think of this old phrase: Whose bread I eat, his song I sing. There is apparently a gathering of people who blog about credit cards (and some make a living doing this) called https://cardconexpo.com/. I'm sure the Card Con part of the name is not truly indicative.

Great article. A lot of wisdom in all of those points. My husband is a lawyer and has been working on a big case for months. He has a good argument and has written a persuasive brief, but his clients are going to lose. Why? Because...well, Upton Sinclair, take it away.

Me. I have purchased 5 individual stocks in my 45+ years of investing. The largest dollar purchase was for $25K.

...I’d much rather hear from those who have changed their mind, because their new opinion is often the result of anguished self-reflection. I've yet to meet an indexer who isn't a converted stock picker, including myself. :)

I've personally have been thankful for having avoided this trap, but have friends that strive to be real estate moguls. In my observation it's a lot about "agency", having (or feeling) some tangible physical control over an asset, in this case a dwelling place. But when I look at it, I only see the warts, which may not be entirely accurate as well.

I'll do you one better! There are many people that blog about travel, but there is a small subset of travel bloggers that make an incredible amount of money hawking credit card for points/airline miles (boarding area.com). The Points Guy is another that has literally made millions getting referral fees for credit cards. Such a racket and I'm continually amazed how this new card "is now the one to get" and to just click the link below. Just pathetic!

We bought a brand new condo last year, and Zillow now has it at over $200K over what we paid for it! I mean, it’s nice and all, and I know realtors gnash their teeth about Zillow because it can create unrealistic expectations. But...$200K increase in 16 months? Yowza.

Over a 60-year planning period (ages 25-85) who the hell knows what Congress will change? One thing I know for sure—I will never do my own taxes. We have used a tax prep guy since 1980 and I expect to have him do our tax forms until my wife is dead.

James, really nice summary of some of the major potential tax changes after the election. It’s fascinating to review some of the detailed analyses of the changes ( like the Tax Foundation) and then compare it to the characterizations in political Ads. Quite a difference

Policymakers seem to forget 401k plans are tax deferral, not tax avoidance or at upon withdrawal are taxed as ordinary income rather than as capital gains or that there have always been income limits on contributions. OR, that changing to a credit may mean investors shifting to Roth. Let’s hope the basic structure of SS does not change. Using general revenue means it becomes more political, something FDR wanted to avoid.

Addressing the top 2 percent and not the rest of retirees, seems worthless to the other 98 percent

As someone who reads much about retirement, I find it surprising that no discussion in regards to renting for a year or so to make sure you're making the right decision in relocating especially from quite a distance or weather extremes.

The main issue with renting is that we have four (working) dogs. There are very few, if any, landlords who would probably be willing to rent to us.

Congrats Kristine!

Congratulations Kristine. My wife and I have learned how personal this decision is. Sounds like you guys made a great choice. I have a friend who bought a retirement home in AZ. The his son moved to Seattle. After a few years they decided they like Seattle so much they sold the house in AZ and bought a townhouse in Seattle. To each his own.

Yes, the sales tax does make some difference. Our home in Phoenix is in an area that's exempt from paying the additional city sales tax. There are other tax differences as well. Since I live, and work, in Oregon now, I pay 9% in state income taxes. If I choose to work when we move to Arizona, that rate will be significantly less (closer to 3%).

Thanks Anika!

Thanks Rick!

Thanks David. Agreed! We can all do a small part.

Kristine its so nice to hear from you! I'm not surprised his wife is equally amazing. What a neat couple. Fun, small world!

From experience, owning a second home a long distance from your residence can be a hassle and more so as time goes by. Hope your retirement is not too far in the future. You mention heat in the summer. Last time I was in Phoenix it was 110 degrees. That’s heat‼️ Rising home prices can be an issue. We bought our retirement condo two years ago for $580,000 and now they sell for $669,000.

So far we've been lucky with managing the second home. We have friends who live down there who frequently stop by and check on the house. We also pay a handyman ($15 per visit) to stop by every two weeks. He runs the water, changes out the air filter and does other odds and ends to make sure the house stays in good condition. We hope to be down there full time in the not so distant future! As for the heat, I've lived my entire life in cold, damp, dark-for-half-the-year environments. I'll take being too warm, over being too cold, for awhile. Looking at Zillow, if we were buying now, instead of 15 months ago, we'd be looking at a house 500-600 square feet smaller than what we ended up with, and probably in an area with much more traffic.

It sounds like you made a good decision. Retirement community houses here in Raleigh are currently selling out sight unseen. My personal impression is that they are best for those who have an active lifestyle and a strong interest in socializing. I have no interest in Phoenix but many people find living there ideal. The values of your Portland home and your new home should both continue to increase. To be fair, I think you should have pointed out that there is no sales tax in Oregon while Arizona has a state sale tax of 5.6% plus county and city sales tax (total is 8.6% in Phoenix). I was also wondering if you have to pay any retirement community fees.

Dave, I agree. In the interaction I describe, the couple had done a lot of analysis and were considering a tri-state region. They knew there would be tax differences, but didn't really understand the differences. And NJ has a reputation as a very tax-unfriendly state. I wanted to show how one could do some fairly simple analysis and get a feel for how a big driver it would be. The real point is one I frequently stress. You don't have to guess or go on reputation - the data is out there with a little effort. thanks for reading.

I think selecting a city/town based upon a $2000/yr difference in taxes is silly. What about climate? What about competent government? What about amenities? What about WalkScore?

The "rise" in median does not look so great if you look at the information on a percentile of income basis. https://www.federalreserve.gov/econres/scf/dataviz/scf/chart/#series:Before_Tax_Income;demographic:inccat;population:1,2,3,4,5,6;units:median

So it seems that Florida is the clear winner ;)

Retiring with a goal of relocating is great. I have a cousin who had a desire and plan to move to Florida from NJ upon retirement. Fact, is they left for Florida the day after leaving the job. But I find it sad when relocating is a financial necessity of retirement or when where you want to live comes after where taxes dictate where you live. New Jersey taxes vary greatly by county. Less than a year ago I sold my house in Essex county, NJ for $505,000 and the property taxes were $14,500. I now live in a condo less than a mile away for which I paid $580,000 and the taxes are $12,500.

What a lovely tribute. I've been through the same experience multiple times and it definitely makes one reflect on their own life. I had to smile when I saw your vet's name. He's married to one of the (now retired) faculty members in the department I manage at Reed. His wife is as amazing as he is.

Imagine a world where everyone made that their mission. From the book Factfulness, I know how much less suffering there is in the world today than 50 years ago and yet there is still far too much. Great piece.

Great article......taking your thoughts and Warren Buffett's on a retirement portfolio..... 95% placed into low cost S&P 5oo index fund and 5% in S.T. Treasury Fund ( both Vanguard Fund). After studying your article one would change the allocation 80% and 20% or 85% and 15% I am 75yo and moving into that portfolio. Solves many problem....1) ultra low cost, 2)removes much of the interest rate and inflation risk, 3) very simple to manage by rebalancing. Appreciate your thoughts.....

Median up mean down last three years. Who’s president?

re: The Fed - you consistently reveal relevant and interesting stuff that is completely off my radar. :) Inflation reminds me of termite infestation that goes unnoticed until significant structural damage occurs. Changing the forecasted inflation rate in my retirement planning software from 2% to 3% knocks 39% off the 2060 present value of my portfolio (my wife's 100th birthday). Though not directly indexed to inflation like TIPS, stocks are a claim on real (inflation adjusted) assets and earnings and, in the long run, as companies raise prices for their widgets, their earnings rise as well. May the magic of holding stock market index funds for the long term never end. :)

Sounds reasonable, covers most bases, but I would like to add that this is what investors should have known in my lifetime. I am old as of late. Needs some geopolitical now.

Although mean pre-tax income for the top percentile fell from 2016 to 2019, mean net worth increased by $61,830, which was more than the absolute increase in net worth for any of the other percentile groups ( 2,530 increase for 75%-89.9%, 19,250 for 50%-74.9%, 10,670 for 25%-49.9%, -980 for less than 25%). Thus, income disparity continued to increase in absolute dollar terms.

My dad said it very simply: "If you need it, buy it. If you don't need it, don't buy it." He lived through the Great Depression.

While many low cost alternatives to advisors exist these days including the Humble Dollar guide, an advisor could be well worth their fees for folks that don't have sufficient knowledge, time or inclination to manage their fananceswealth.

The realtor we used in 2004 was someone my wife had worked for part-time in another field. She did a good job. Then you see that this person you know is a realtor, and this person, and this person, and they're sending you mail and posting pictures on social media. I have no way of knowing who's better. Maybe they're all pretty much the same. If we move again, I see no reason not to use our previous realtor. Why change something that worked? I wouldn't have the guts not to use one because I feel like we wouldn't price our home right. The last person got us a higher price and surely earned the 6%. Finally, it's gotta be tough for a new realtor to get clients since there are so many realtors.

I always like to drill down a little on statistics. I received my first statistics lesson from my father when I was six years old. He said, "Son, always remember the man who drowned in the river that averaged six inches in depth."

I’m confused by the statement that you overpriced your home because it was a buyer’s market. It seems like the opposite should be true—you should list the house with an attractive price that will entice buyers who have plenty of other good choices. Your first impression on the market is usually the most important one.

It appears there are as many ways to go out of business as there are to succeed. I worked for a company that was publicly traded, but the controlling interest was held by two families. Eventually one of the family generations wanted their money out and the company was sold. It was "merged" with the other company and disappeared completely. Eventually the company that they merged with was purchased, and that name disappeared. A little later that company was purchased. I think I was bad luck for those companies...

I appreciate your reflections. Markets are certainly an imperfect mirror! I would say that current market prices mainly represent what it will cost me to buy a piece of the company today, or what someone will give me for the piece I already own. Regarding your utility and former employer, you might want to buy a different utility since you are already counting on this one for your pension. A lot of people forget to think about their wages or pension when they're considering diversification. My accountant friend reminds me that financial statements are also somewhat aspirational rather than strictly accurate--they tell us what the accountants and their CEOs want us to know in the way they wanted to tell their story.

"Favor mutual funds over exchange-traded funds (ETFs)." In taxable accounts aren't capital gains deferred until the shares of the mutual funds are sold which is not the case for the shares in ETFs?

Both mutual funds and ETFs can make capital gains distributions, though ETF distributions will tend to be somewhat smaller. Meanwhile, in terms of unrealized capital gains, those aren't realized until an investor opts to sell, and that's true whether it's a mutual fund or an ETF. You can learn more here -- and what's described applies to both mutual funds and ETFs: https://humbledollar.com/money-guide/mutual-fund-taxation/

Excellent ideas, thank you. Budgeting seems important to me after a major life change (marriage, divorce, birth of a child, job change) to set a baseline and establish priorities. After that, your process is precisely what I would recommend. Automate savings for future needs, then spend til you're happy. My reservation with the Tesla advice is not about what it will cost today, but what it will cost over your lifetime.

The system works as long as someone thinks that they can resell the Tulip at a higher price later..

You can list on Zillow without paying the MLS fee. Shoot your own photos and video tour, or pay someone to do it. Seems like a reasonable place to start as Zillow is so widely used and shows up first in many web searches.

Jonathan, I'm wondering why not put some $ into a High Yield Fund, perhaps a more conservative one like Vanguard, as a middle ground, rather than a full jump into stocks?

Excellent advice!

As I see it, junk bonds are just an unhappy compromise between stocks and bonds. If you want higher returns, why not just take the money you wanted to put in junk bonds and instead split it between high-quality bonds and stocks? That should give a similar boost to your portfolio's expected return, but without the high cost and opaqueness of junk-bond investing.

1% is a pretty heavy cost over the very long run. Over 40 years, it will drain 25% of a typical portfolio's returns. I do think for people who have special needs, poor money sense, or difficulty with numbers, it may be worthwhile for them. This becomes more true if the individual has a tendency towards ill-considered and drastic actions, or has difficulty with anxiety in relation to their investments. There is wisdom in understanding one's own areas of difficulty, and finding ways to compensate for them. However, if at all possible I'd recommend most people learn to manage their investments themselves. The thing is, investing is not complicated. Solid guidance is available in many places for free (I wish I'd had the same resources 25 years ago!) Bogleheads.com is a great place to start. Where an advisor should provide value add is helping you understand your financial vulnerabilities & opportunities. What kind of insurance you may need, and how much. Better ways to finance your goals. Better ways to manage your budget, even. A review of your investments to ensure your portfolio makes sense. This can be done by fee-only advisors, and you can see them every year if necessary, or once every 5 years if that makes more sense.

Or, for zero cost, you could just spend hours reading at Bogleheads and Early-Retirement and make your own decisions.

I honestly don't see the benefit of an ongoing relationship with an advisor. Sure, help in particular spots are useful, but what do they do for you month in and month out? Even a 1% fee adds up...but I guess if they are beating the market by 1% it could be justified...otherwise just out of pocket.

Any advisor who charges 2.5% should be shamed, not added to a list of the “best” advisors. Just like the lottery is a tax on those who don’t understand statistics, 2.5% is tax on those who don’t understand compounding.

It all depends on the state of the housing market. In an extreme seller's market (like now), it doesn't take much more than a Craigslist ad and a $5 For Sale sign. In a strong buyer's market you have to be very aggressive with the price and even more aggressive with the marketing. But you're often better off just keeping the house and renting it out for a while.

There is no legally binding contract until the buyer and seller both agree on all terms, including the price. Anything that happens before that point is fair game.

Or maybe you sold along the way and let somebody else throw the dice until the next buyer comes along 🤑

I too have tried rationalizing holding stocks. My mental experiment is thus: A company is formed and I am in at the IPO. It grows like mad and is profitable but hoards its cash so that I get nothing back but all the while others are hopping on the wagon and driving the price up. After the 30 years it goes broke leaving nothing to shareholders. Somewhere between the IPO and bankruptcy the company made profits but none were returned. Was I gambling? There was always the chance I suppose that a dividend might be paid or share repurchases were made or maybe even a takeover for cash.

Good on all of you for spending your hard earned money! I've never understood the mindset of the seniors who keep living like it's the Great Depression and then leave a huge endowment to their families. Why live like you're suffering and then leave a huge endowment for family to fight over? And for the estate to pay huge taxes? I've golfed with many seniors, most retired with big fat company pensions plus other retirement incomes. Many of them quit golfing when prices went up $1.00 per round, from $13.00 to $14.00! Many seniors criticized spending $2.00 for a cup of coffee. My MIL had a huge fit over 25 cents...no joking. My plan is to die as broke as possible, with no regrets on spending and gifting my money. And before diapers are needed.....

Good interesting read, my parents did not invest in the stock market as they felt stocks were way to volatile. The knowledge of mutual funds was quite sparse in the 50-60s. My Dad worked for Sears and he did have a generous profit sharing plans for many years. Fortunately for him it worked out ok, they retired comfortably and modestly in the 70s. He had all his eggs in one basket, for those who retired a few years later the landscape of Sears had fallen tremendously. My first real career job in 1982 was with a large Pharmaceutical company. My manager sat down with me to complete what seem to be an overwhelming amount of paper work. He enrolled me in the 401k plan at 15% (the maximum), explained to me me about the matching funds which would be in company stock. He then pulled out of his brief case enrollment form for a mutual fund family. He explained this would be where I augmented my company retirement fund. He made it sound like all this was standard practice as he showed me where to sign. He started me on a disciplined financial path to a comfortable retirement. I thank God everyday for putting this man in my life.

I am a big fan of turning off CNBC. If there is a good interview there can always watch it later. Long term investors not well served by panic and greed.

I have a state pension from NC and my wife and I will both have Social Security. In 5-10 years we plan to moveinto a Continuing Care Retirement Community (CCRC), and the pension and SS will cover about 70% of the income we need to cover all our expenses. I knew that over time our tax situation would change and our spending would change, and I wanted to be sure we could really afford the CCRC and all the traveling we want to do. The spreadsheet allows me to plan amounts of Roth conversions and withdrawals from Roth IRAs, traditional IRAs, my NC 457, taxable accounts, and cash accounts, to minimize the taxes I have to pay. I think I have mentioned in previous articles that I am a tax geek, and I want to pay every penny I owe and no more. One place where the spreadsheet helps is in computing the actual cost of the CCRC, since a sizable chunk of the initial investment and the monthly fees can be counted toward medical expenses, enough to make it worthwhile to itemize, even without property taxes. I have to change the spreadsheet every year to account for changes in tax law, and I update our beginning of year account balances to show what we actually have. I admit that I enjoy doing this as a hobby. I don’t know how much money this will save us over the years, but it makes me feel more comfortable that we’ll have enough.

You should build a shrine to him... or something! What a great story.

Good advice. The main issue I have with target date funds is that age is almost always the only factor that determines investment mix. Regarding advice to/from family, I have spoken up when asked about buying a variable annuity and also told my sister she would be better off to dump her expensive advisor and invest in a broad low cost index fund. I can't stand CNBC but I think such outlets are fine as long as one doesn't allow them to affect their investment decisions. As an analogy, many of us enjoy watching political news even though it almost never affects our voting decisions.

I think the second to last point is an often under-appreciated piece of advice. DON'T LOOK! I am a compulsive looker... I admit it. I check stock prices a few times a day. Even if I don't do anything, I still have to look. Like passing an accident on the freeway, or a pretty girl, I just have to look. A dear friend who turned me on to index investing a few years ago says he only looks once a year, for about 30 min to rebalance his portfolio. I spoke to him in April during Covid.. "Ben, how much are you down?" I have no idea was his response. I don't plan to look until the end of December. Damn, was I pea green with envy. To be able to just not look. Out of sight, out of mind. I wish.

Good advice. When we had to do a fast sale in California in 2004 (if you have to do it fast, that was a pretty good time and place), I was still able to find a realtor happy to accept 5%. We also got the low-ball offer to start, $40K less than asking, which we ignored... but in about ten days we had an offer $5K below, then a third offer at $10K over our asking price. The last offer was a mom trying to get her kids close to the local school. Done. Sold in two weeks... which was important because I had a new position 1100 miles away that started asap. I've thought of picking up a license myself, just for the next time we sell a house... actually, as I write this, I realize I should look into this - I know I'm going to be selling at least two houses in the future in an executor role, and I really don't feel like offering up the price of a new SUV to get it done.

Was the point of this post missed? It’s not about the dividends, it’s about why will you buy a stock I want to sell. If you say because you believe the price will go higher, I ask why. If you say because it’s earnings are rising, I ask how does that make the stock more valuable to you... and to the person you will eventually sell the stock to? In the absence of dividends there is no value except that created by the expectation of ... what?

I think budgets work well for some people and not very well for others, depending to a great degree on personality and how people approach their lives. I very much dislike the idea of following a budget. However, I love the idea of creating a budget. Doing so not only helps me understand every bit of our spending, but also whether we are positioned to fund all our priorities for the year. It's what I do for a living, so yeah, not everyone would want to do the same thing. Still, i'll paraphrase Eisenhower: a plan is useless, but the act of planning is vital.

I realize so much of the post was tongue-in-cheek, and it's a fun read I think every experienced investor can appreciate. I do have a bone to pick on the view of market investing as 'gambling' (not directed at this particular blog post as I hope my first sentence makes clear), so here goes: This discussion always makes me question why more people don't promote alternative economic systems. As long as you invest in the total market, it should be clear that investing in the market is not gambling. Imo, if you believe that the stock market is "gambling", then you don't believe in the market mechanism. There is no value creation... and capitalism is an ineffective system (or else, you believe management is suckering the owners and taking all the value for themselves, or giving it all away to the customers, either of which would also be a fatal indictment of capitalism.) The evidence, of course, suggests capitalism creates value. (The extent to which it does so equitably is a matter long under discussion, and not for these pages.) People will pay for value. That drives stock prices. The fact is that valuation is a tricky game for so very many reasons (again, too many to list), and the resulting volatility causes people to misclassify what they are seeing. It's not random. It's volatile, with a long-term upward bias. Two scenarios with very different implications regarding what to do with your personal stash of value. Stepping down from soapbox...

As earnings grow with increases in demand and productivity, the value of the company grows (holding a bunch of stuff constant). As the value of the company grows, so grows the value of the whole pie that it's a piece of - the market. Stock investors own a piece of that growing pie. Of course, their individual piece(s) may not grow, but the pie as a whole, that's another matter. So far. :) Sure it's all vapor with stocks that don't pay dividends - in a way - at least until you convert the stock into money by selling. Each of us, whether we calculate it formally or not, make a present value assessment of an investment whether it pays dividends or interest or nothing at all until we sell it. Waiting longer for your hoped-for profit means you demand a higher rate of return. The time value of money. Money is our modern proxy for everything we need and want to isolate us from portions of our environment we don't like. Such as hunger, poor health and risk. You certainly made a great case for low cost market index funds whether you like it or not! :) Why bother with the components when you can eliminate their individual risk and buy the whole pie? Then go have a life as you add to the funds and walk away from the slot machines that are rigged for the house. Earnings are a reliable predictor, but only over the long term and for the entire market. GDP is a reasonable proxy. Then add inflation. Then add dividends. This fancy math care of Warren Buffett. He assumes long term US GDP at 3%. I'd add 1.5% for inflation and 1.5% for dividends over the next 10 years and expect about 6% total return. What if it's 5% or 15%? What if the US becomes socialist? What if, what if? The fact is, if you want a good shot at beating inflation with your savings, there is no where else to go other than stocks and your human capital (the best bond you will ever own). Great article! You made us focus on the most important question there is: Why? :)

I think it is a fallacy to think that owning stock in dividend paying companies is necessarily safer than investing in non-dividend paying companies. https://www.dividend.com/dividend-education/the-biggest-dividend-stock-disasters-of-all-time/

I don’t think it’s about safety, but about the validity of making money without the gambling aspect or at least a lower level. It’s more honestly sharing the profit

I really enjoyed this article Richard. Fun mental gymnastics!

A key difference between casino gambling and investing is that the "deck" is stacked in favor of investors, especially if you invest in low cost index funds.

Agreed. You can create your own dividends by simply selling a share or two on a regular basis. The (cap gain) tax treatment will actually generally be better than receiving a dividend (normal income). Total return is not affected by whether the company pays you directly via dividends, or not at all. Those of us who have seen the swift re-valuation of shares upon receipt of dividends have zero doubt on that score. Some people enjoy the idea of a dividend; it can make the mental accounting easier to conceptualize... or they may have circumstances where the tax treatment issue is moot or resolves favorably... or they like the convenience of dividends automatically deposited in a spending account. I think people should do what works for them. It should not be a surprise when that involves some differences in conceptualization. However, it's important to understand the concept, so that one doesn't think their dividends provide some kind of investing super-fuel. In the final analysis, all roads lead to Rome (total return.)

Stocks go up because of strawberries and down because of peaches.

You should look up Modigliani and Miller dividend irrelevance theory with assumptions they made such as no taxes, no asymmetric information, no bankruptcy risks, agency costs etc. They were awarded nobel prize for their effort. I point out assumptions as they may not hold true in real world but allows to analyze understand the difference. For example, taxes on dividends are real so it does creates a drag.

So are you saying it’s not dividend we want, but higher stakes gambling? I don’t doubt stock price increases can provide the larger return, but that gets us back to why and seems to reinforce the gambling scenario.

So true. We recently moved to Raleigh NC which is in a county with just over one million. Our realtor told us that there are more than 20,000 licensed realtors in Wake County.

My son is a realtor so I have an idea how tough it is for them dealing with sellers and buyers. When we bought our condo two years ago the sellers realtor told us there were several other people interested to scare us into raising our offer. We really wanted the place so we took the bait. Turned out our purchase price was $30,000 less than when purchased new in 2011 and today same units sell easily for $50,000 more than we paid.

One of the most important questions to ask a potential agent is: how many sides have you done in the last 12 months? Please provide a proof source. There are way too many part-time agents out there who do 1-2 sides a year. You want someone who does 20-50.

2 years ago we sold our deceased mother’s villa using a real estate attorney for $750...in a sellers market why pay for an agent ?

You may call it good negotiation, but it doesn’t seem fair to buyer 2 as you did ask for best and final offer from both. Was the extra $5,000 that important?

It sounds like the realtor asked for best and final offer without first consulting with her client about this strategy. An old saying in NYC is that all is fair in love, war and real estate, although we made a point of using an ethical agent. Her approach was to solicit initial offers and then ask those who weren't the highest if they wanted to increase their offers without telling them what the best offer was. We ended up accepting the second highest offer because the buyer waived an inspection (we weren't aware of any issues but one never knows what an inspector will find).

Research shows that an equity based index / fund representing the Large Cap value "attribute", has sustained a "7%" annual income withdrawal ( inflation adjusted ), accompanied by terminal portfolio growth, through "sale of shares" regime ( dividends reinvested ) over seventy one 20 year "rolling" periods since 1932. Realistically, there WERE periods when the income withdrawal and "return sequence" depleted the portfolio to "0" ( "failure"), yet when applying a simple tweak to the withdrawal rate, based on year end portfolio balance, those periods could be eliminated ( see charts 1 and 2 here https://tinyurl.com/y6key3v5 ). Investment in low expense, modern, and well diversified large cap index funds representing the "value" attribute, can be used in this regard. Funds representative of the "dividend growth" attribute may also be considered, although the data set for div growth for historical testing, is more limited than the "value" attribute. This is not to say that an investor HAS to take a "7%" income withdrawal, however, armed with this 80 plus years of evidence, an income investor may take a more "creative" and scientific approach towards harvesting income with the "unlimited upside" of large, stable quality companies, and not be beholden to duration assets' ( bonds ) inevitable and gradually diminishing returns and "constricted upside". Sure one can deploy duration assets within a portfolio towards reducing "volatility", yet they may want to use the benefit of their "negative correlation" strategically.

Early in my career, I learned the concept “pay yourself first” from The Wealthy Barber. Although the framing story strikes me as hokey now, that book is a major reason I’m on track to retire at 62 although I’ve rarely bothered with a budget. It’s the reason I transfer money to savings and investing accounts before paying bills. I haven’t always been perfect about avoiding debt, but I’ve skipped my monthly investment transfer just twice over the last thirty years. I’d changed jobs both times, resulting in ability to increase monthly transfer after a temporary cash flow issue. One of my strategies for keeping credit card under control is to send several payments during the month. Thirty years ago, my rule was if I charged $50 in a single transaction, I sent in a payment of at least twice that amount the same day. Today, it’s $100 transaction and send enough to pay the current balance. It’s amazing how often I decide not to buy something because I don’t want to write a check or log in to bill pay.

I’m so glad you mentioned there is no need for a budget, I’ve been saying that for years. Having a budget actually makes the financial progress more difficult and frustrating IMO. It appears every day as someone looking over our shoulder. Rather, as you say save, give automaticity first and then spend what you will with what’s left. I would add one other caveat for most people. No spending with credit cards beyond what is paid in full EVERY month.

+1 for I Bonds for all those reasons. They’re one part of savings for our transition to full retirement, to defer SS until 70

If the key remaining role for bonds is as a backup source of cash, munis aren't especially appealing. They got hammered during the initial weeks of the pandemic, while Treasurys rose sharply.

Thanks for the article. A few questions come to mind 1. Money continues to flow into bond funds despite these current negative features. 2. Did not see you mention tax free municipal bonds. How should one consider them in the current climate.

I think the "+" in your 7+ years is very true. If/when we go through a bear market of that length, we'll be cutting our spending relative to normal life quite a bit. So that's a plus. :) The right/best number is as always with us humans; strongly influenced by our emotional makeup, which tends to be a slowly moving target based on age, experience and events. That subjective aspect must be considered in addition to the numbers or there's a chance we'll screw it up and bail at the wrong time when the test comes. It's the same concept as risk tolerance vs. risk capacity. Here's one of my favorite looks at prior crashes for the objective part of your decision. Personally, I think you're sitting pretty.

A typically excellent and timely post Mr. Clements - thank you! Not much to add except that at least for now FDIC and/or NCUA-insured short-term CDs from the top online banks and credit unions offer interest rates that while pitiful are still better than Treasuries all the way out to 10 years while being just as safe. The 10K per person per year purchase limitation on iBonds may make them not worth the hassle for some, but their 1.06% coupon and built-in inflation protection plus not having to pay any taxes on them until redemption makes them far superior to short-term TIPS or nominal Treasuries of any duration. Lastly I find Vanguard's BSV to be a decent quasi-Treasury short-term fund. It's 65% Treasuries and Agencies, the rest high-quality corporates, 2.9 years duration and has never had a losing year (so far). Perhaps money socked away in it will keep up with inflation over time, and that seems to be about as much as one can hope for. Thanks again for not just this post but for being a beacon of clarity and sanity for so many years.

Great article, I’ve also been uncomfortable with the risk vs reward of bonds. My solution was to hold 7 years of expenses in money markets and multiple 5 year CD’s when I retired. The payback between 5 year and shorter duration rates was 19 months when I purchased. So long as I held the CD’s at least 19 months, I came out ahead even if I had to pay an early withdrawal penalty. Multiple CD’s of about one year’s spending each was to keep the penalty for early withdrawal low. I’m selling stock index funds to support my spending when my invested net worth is within 10% of its all time high and living on cash or those CD’s when I’m below that threshold. Four years into early retirement and I haven’t needed the CD’s yet. I look at Social Security as my long term bond, that and cash/CD’s balance the risk in my portfolio.

"retired, with five years of portfolio withdrawals in short-term government bonds and cash investments" This is me, except we are at 7+ years. The question that I have not answered is: what is the right/best number?

Excellent discussion Jonathan. Discussing today's low bond yields is also an excellent time to point out that, for the portion of our portfolios that we have designated for bonds, "investing" in immediate income annuities and Social Security are much more attractive and practical options in today's dismally low rate environment. Also, for that portion of our portfolios earmarked for stocks, choosing a dividend-paying class to generate some current income should be high on our to-do list. For example, an S&P 500 ETF has a dividend yield of around 2%, and there are several other stock index ETF's that have a similar or slightly higher yield. This gives one a better yield than bonds, with the added advantage of more favorable tax treatment for dividends. All you have to do is simply choose to have dividends paid out to you (rather than re-invested) and presto, you have a current stream of income without having to worry about selling anything in a down market. Sure, the underlying value of your stock holdings will fluctuate, but I view this as akin to buying a house or something similar; real estate values fluctuate all the time, up and down, and yet we rarely if ever lose any sleep over it. Buying a stock index fund is very similar, so why should we think about it any differently? I'll assume this "risk" vs. the very real long-haul inflation risk of the low-paying long bond any day.

Or keep liquid cash needs in... cash. I have long had very (very) limited bond exposure for the reasons stated, or more specifically, for the risks stated. Having a cash cushion (in simple bank money market accounts) is my front line for what I term "operational expenses" of life, which also includes a bit for unexpected expenses. I read somewhere long ago that an additional way to access additional cash is a home equity line of credit, which I've also employed with notable satisfaction (I use it tied to the rare overdrafts from my cash account; just have to remember to repay the "loan" as to not incur significant interest). I'm not yet at a stage to tap investments for income, so the overwhelming rest of assets are in equity holdings. Given the market performance during my working career, this has proven (in hindsight) to have been a productive strategy. The appreciation has as expected far outstripped the performance of any other asset class, and my planned retirement strategy is to sell appreciated assets as needed with the intent to utilize the capital gains tax rate.

Curious how you feel about Corporate Bond funds like VICSX. Its returns have been well over inflation over 10, 5, 3 and 1 year periods. Or Intermediate Core Plus Bond funds like BCOIX. Same story. Do you expect these categories to produce below inflation returns in the future? BTW I always look forward to reading your column each Saturday morning - always packed with useful information.

Interesting article. I came to a similar conclusion, which would imply having a larger allocation to stocks. However how would you answer the criticism that in an efficient market all assets are priced efficiently relative to each other, so that if returns on bonds are expected to be negative, stocks returns should also be very low and perhaps negative, with considerably more risk?

Corporate bonds should fare better than Treasurys over the long haul, though I wouldn't use historical performance as a guide to their likely absolute returns, because yields are now so much lower. The question we all need to ask is, "Why do I own bonds?" If you're buying them to complement stocks, corporates don't look like a compelling choice. Back in late February and early March, if you needed cash from your portfolio, you'd have been happy to sell Treasurys -- but not corporate bonds, which sold off badly during the initial pandemic panic.

I do expect the next decade's stock returns to be lower than the historical averages. But stocks are riskier than bonds, so it's reasonable to expect that their real returns will be positive.

For many years I drove 95 from Philadelphia to DC weekly. I would have loved a self driving car. As long as you are driving a Tesla, you'll be the cool dad.

I'm reminded of what I think when I hear a politician or someone else say they're retiring "to spend more time with my family." Does the family want to spend more time with them?

Love ours too, best driving experience of any car I’ve owned in 40 years. I miss my commute. The Supercharging feature has been great for longer road trips.

Excellent point !!

Thank you. My parents did something similar, said they'd pay for my undergrad and grad school for as long as they could but with one condition, I had to get a B or above in every class I took. Thanks to them, I left school without a dollar in debt and now I have the same deal with my child.

Not sure I would hold to the "guilt free" outlook; wisdom through years of smart investing shouldn't give way to the irresponsibility of excessive consumerism in retirement (e.g. a second car?). There are 'plenty of reasons' to adhere to aspects of past behavior with regard to environmental savings while enjoying the fruits of your retirement. The comments here all seem to be what shiny things prudent planning for retirement can bring when the environmental side-benefits of that prudence are cast aside once retirement is reached.

It seems rather entitled that you would expect this support. From your post, it seems like your financial decisions were not based on financial independence. For example, a vacation home with high interest.

My experience with a whole life policy: MassMutual Whole Life. I made a one-time payment on 7/23/1987 at age 27 of $25,000 for an initial death benefit of about $273,000. Part of the cash value growth from that one-time payment was used to cover the annual $822 premiums. I surrendered the policy on 1/9/2019 and received a check for the cash value in the amount of $186,027 for a pre-tax IRR of 6.6% annualized. Death benefit had grown to $426,525, a (happily unused) after-tax IRR of 1.4%. Basis on the cash value was $25,000 + (31 x $822) = $50,482, thus I was taxed at ordinary rates on a $135,545 gain.

@langstonholland:disqus, thanks for sharing. Your timing worked out very well...while rates dropped over this 30yr period, it was a relatively slow decline. At the same time, mortality improvements led to lower death claims, so overall dividends held up relatively well over this period.

Great article. As a grandfather of a 7,5, and 7 month old, I'm interested in the "life cycle" of life insurance - what is needed at what age and what are the best products. I was wondering if it would be fair to subtract out the term premium (say $375) from the $2040 premium, as that represents the price of the death benefit. Doing so improved the IRRs a little bit, to 2.75% and 5.24%.

Hi @disqus_SlttbB5cLA:disqus - good observation and you are correct that the true expected IRR of the policy is slightly better than I showed because there is a small probability you pass away before age 65 and get the full $500,000 death benefit vs. the cash value at age 65. If this happens, the premiums stop as well, so you put less into the policy thereby increasing the IRR further. The most accurate way to do it would be to calculate a "probability weighted" IRR that estimates the probability of dying each year vs. living to age 65, but that's probably overkill for all but the most spreadsheet-addicted HumbleDollar readers out there :). I think what you did is a good estimate and the true IRR is probably even slightly higher.

Excellent discussion. With interest rates where they are how confident are you that the insurance companies can pay the current dividends? My assumption is that whole life pricing has built-in profits even without income from investments.

Thank you for the feedback. I would say given what interest rates have done this year, insurer dividends will most certainly go down for the next few years. Longer-term, insurer dividends "float" with interest rates, so if rates stay low then dividends will do the same, but if they rise, then dividends will recover. I can't say I have any special insight into what interest rates will do, so I would just consider whether something a bit under the expected IRR is something I'd be happy with if interest rates stay relatively unchanged the next 40 years.

Another vote here for Bogleheads, or one of the several books they've published. For the younger crowd, William Bernstein's "If you can" sets up the right mindset and basic approach. I like Abnormalreturns.com for general investment information that is 'forecast free'. It doesn't entirely live up to that claim, but it comes pretty close. I believe that investing should be boring, for the most part. Have fun with 5% of your portfolio if that sort of thing interests you (as it does many of us), but the rest should be in solid, low cost index funds that never get sold.

I am over 70 recently also, and my attitude this year has also totally changed. I no longer care if I have a big pile of money - my goal now is to die broke :). Even a couple years ago I would not have considered buying a $1,000 camera - much less the $9,000 one I just ordered.

I don’t want to come off harsh, but that seems like terrible advice to recommend people to read the financial papers or even worse watching the circus act of stock trading shows. I advise people the exact opposite. I tell them to first read A Simple Path to Wealth, or one of the Bogleheads books. Turn off the talking heads and follow an indexing approach. If they need tax advice consult with your accountant or a fee based hourly planner.

I have my credits cards all set up for automatic payments, so that the credit card company is pulling the money rather than the credit union pushing it. I have set the automatic payment to happen on the due date, paying the full balance every time. It is never late, and in fact it gives me an extra day of interest free use of the credit card company's money, because for some reason the transfer takes a day to be acknowledged, even though it only really take a millisecond. Apparently the credit card companies are happy as long as they are in control and they know it is in the works as of the due date. I keep careful records of all my credit card payments and carefully check the statements each month, and the credit card companies have never gotten the payments wrong. Of course, there have been a couple of fraudulent charges over the years, which I caught and reported, and I never had to pay them (though it generally meant getting a new card number).

While your advice may make sense for those who have the financial resources to allocate some of their wealth to investing as a hobby, I don't recommend it for those who are focused on ensuring that they have a secure retirement. A simple approach, such as that recommended by Jonathan Clements, the late Jack Bogle and many others, with the portion of one's portfolio allocated to equities invested in index funds has proven to be the be superior to picking individual stocks and relying on sources such as Mad Money and Squak Box.

Have you found that all those resources have proven accurate in their advice? If you don’t mind what has the reading, viewing and asking questions returned? Can you share your rate of return YTD, last 12 months, etc.?

Great advice. Years ago we arbitraged mortgages, refinancing our house at the same time we extracted cash to pay off our parent's house (which we own through a special state program which did not allow refinancing, long story.) Will probably refi again shortly to a 15 year, trim years and a good percent off our mortgage, with a mild hurt to cash flow. About 401K contributions... people often don't realize how much they'll save in taxes in retirement. A big discount now at the marginal rate is worth more than a later discount at a lower blended rate, making traditional 401k plans ideal. However, that's under current law. Plus, there is definitely a point at which the tax hurts build up. I think I remember reading it was between $1.5M and $2M net worth. If you think you'll have that much based just on growth from your current savings, then it may be optimal to switch to Roth contributions.

Some things lose their value if you wait too long. I realize you are talking about a different mindset that comes with security and a shorter runway, but it's true in other ways also. In our first house, we lived there for 6 or 7 years before we hired the backyard landscaped. It wasn't cheap, and it wasn't "necessary." However, now I have great memories of playing with our toddlers back there, and of them going around the path we built that rambled around the backyard. Also, backyard grill-outs with family and friends. A great place to relax. Worth every penny. In our second house, a backyard filled with thorny bushes. The boys were in grade school by then. We had it all ripped out and redone with a big grassy area for the imagination and a separate play area with swings, a slide, stuff to climb. Absolutely worth it.

Dennis, thanks for the well written article. At what age did you start to feel comfortable spending your retirement savings? I was just discussing this with a friend - I still don't like the idea of touching any retirement accounts. I'm 63 and have a good pension and my wife is still working full time, probably for another 6 months. We plan to wait to 70 for SS, so we will have 5-6 years of gap where will need additional income. My analysis says we have plenty, but it just doesn't feel right yet.

Read the Blow that Dough thread at Early-Retirement.org

Thanks for some helpful insight into something I've been pondering for awhile. My husband is already retired-he's 13 years older than I am. I'm still working and, until recently, was very much in super-saver mode. When we first married, it scared me to watch how he would spend money even though he wasn't irresponsible about it. He doesn't carry any credit card debt, and has a house and new car completely paid for. He was simply enjoying spending money on things he enjoys. I kept thinking, "why doesn't he save all his money?" but, over time, realized he didn't need to (or want to). Now, after two years of marriage, we seem to have reached a nice balance where neither of us worries too much about money. I'd by lying if I said I didn't worry at all. I'm realizing the two of us are just in different phases of our financial lives. He's adopted a retirement money mindset while I'm still in a pre-retirement money mindset.

Hi Rick, We felt comfortable spending our retirement savings about six months ago when my wife and I realized we had no immediate family members who are financially dependent upon us. We also felt at our age, I'm 69, it was time for us to enjoy ourselves.

As I am very near age 77 I can relate to your “condition.” Suddenly I too am spending money I would not normally. We recently bought my wife a new Jaguar and we are remodeling our vacation home and like you we would be traveling and spending the winter in Florida if it weren’t for the virus. But we are not spending down our assets, just some of the cash portion and from what would have been our travel budget.. That’s where I draw the line. There and not using credit cards except to get to the end of the month and reward points. We are trying to keep a balance between spending and leaving something for our four children and eleven grandchildren and their college expenses. Then there is making sure my wife has sufficient income and resources if she survives me.

Brian, I could certainly utilize a spreadsheet like you mentioned in this article! Like Gregg and Kevin requested, any chance you would provide your template? Thanks for your consideration, Brian.

Jon - this was just a great post today. The late Thomas J Stanley (God bless him and keep him always) frequently opined on the important difference between providing "EOC" (economic outpatient care) handouts to one's offspring (which tends to stifle both initiative and thrift) versus making strategic investments in their future (529 contributions for grandkids, matching Roth contributions early in their professional careers, family experiences over buying material things, etc). You and Richard Quinn (among other HumbleDollar contributors), by virtue of your being further ahead the actuarial timeline, have helped validate some of Dr. Stanley's "Millionaire Next Door" wisdom and bring it to the masses. You have given many of us a frequent reminder for how to strategically invest in our families future in the proper fashion. Thank you...

Here is what I learned about investing. There is in house information and out house information. The big investment firm insiders activity trade on the inside information. By the time that the average investor even hears any news, the insiders have already acted on that information. The information that you have, belongs in the outhouse. Brokers want churn just to get fees. Stick to index funds for the long term and rebalance if you have to do that. And never believe why the market is up today as for tomorrow it will be the exact same reason why it is down.

We've actually helped family more than we've been helped, but it hasn't been all one way. We especially had some help when our oldest was first diagnosed with autism. The therapy bills over the years have been gruesome; and I'd say still we had it relatively good. The value of strength of any kind is the ability it yields to help the people around you. Kudos to you and blessings on your grandson!

Jonathan My financial advice to you is that as soon as your grandson is born you pay him a royalty to post his picture on Humble Dollar. Then report the royalty as earned income, withhold for taxes and Social Security, and contribute the rest to an index fund Roth IRA. He won't know who I am but seventy years from now he'll be telling his grandchildren what a financial genius his grandfather was. Dave

I have a somewhat similar story. In the mid-00s, we were living in a modest but comfortable home with our two daughters. Our housing costs were low. But I inherited some money in 2005, and we thought about moving up to something bigger and more upscale. We looked around for months and made a couple of offers. We were outbid on the house we really wanted—this was in the hot housing market in 2007. We ended up staying put. Of course, the next year the housing market crashed, and we would have bought at the very top of the bubble, plus all the expenses you mentioned of moving to a bigger, nicer house. Our kids left the nest in the following years. In 2019 we finally sold our modest home for a $500,000 profit after owning it for nearly 21 years and downsized to a lovely brand-new condo. Even after making a substantial down payment and buying all new furnishings, we have a nice chunk of cash left over, and that feels good in a pandemic. Because we didn’t dramatically increase our housing expenses, we’ve been able to fully fund our retirement accounts and put our kids through college along with enjoying great travel and plenty of fun. I’ve often thought about how our lives would be different if we’d gotten that house in 2007. Saved from ourselves, I’d say.

"These are the buzzwords of our time—and they make me slightly queasy, with their whiff of self-centered, self-satisfied self-indulgence." Thank you for that, you said it perfectly. Including the caveat (that they are not entirely illegitimate), which given your valuable preface needs to be choked from between clenched teeth - "do good work, help the fam, don't get whacky-imbalanced." And hold the self-righteous smugness. ETA, This too is a useful formulation: "Financial happiness lies not in a bigger house or a faster car, but in knowing all will be okay, even if we’re hit with rough financial times."

The election this year is much different than any one before. To oversimplify it, it is a choice between Socialism and Capitalism. I am very concerned and have taken some money out of stocks

It is nice to have a family that will help out financially. Back in the 80's my Father lent me $10,000 so I could assume a mortgage at a very good rate without getting a second mortgage. It was a very formal agreement with a promissory note and market interest rate. He approved of the new job I was taking. I repaid it in full with interest but 2 years later when I moved back to Colorado and needed (wanted) the $10,000 again to pay off a high interest mortgage on a vacation home, he refused because of what I was going to use it for. When he died, he left everything to my Mother. In the 90's, I had quit my job and was building a new house. I really could have used some financial help but my Mother refused even though she had more than she could ever spend. When she died about 7 years ago, my sister and I received a nice inheritance. I didn't need it then. My advise to any parent (person) that will be leaving a large inheritance or has more than they need or will need, give some of it to your heirs when you are still alive and they can say "Thank You" and you are alive to hear it

Absolutely!. Great article. I especially love the idea that family members are each others assets ( and sometimes liabilities). The pandemic seems to have reminded people about the value of family and friends. Let's hope it stays with us.

EXACTLY! This week I spent three days helping fix our daughter's house, three days hiking New England mountains at peak color with my wife and then two days of activities at a remote cabin with our son plus also providing him with some helpful items. A fantastic week, yet finances mattered not.

Right on! You have expressed my feelings exactly. My goals for what money I have accumulated in 70 plus years is first security for my wife as my survivor and then to leave my four children a little boost for their own future. There has also been loans and other modest help along the way and each month I make a 529 contribution for eleven grandchildren. Have I been fortunate to be able to do this? Yes and I truly acknowledge and appreciate it all. When it comes to “privileged” though I reject that label except to the extent I never suffered the obstacles and unfair treatment some people do. On the other hand, I never made choices or took actions or behavior that would derail my future. And, I have been privileged to have a spouse that is more than half the reason it could all happen.

Also of concern are the running mates, especially with candidates who are 74 and 78 years old, during a pandemic. VP Pence seems to be a market friendly man with executive experience as Governor of Indiana. Senator Harris has already mentioned the "Harris Administration" and her voting record in the Senate is to the left of self-described socialist Bernie Sanders. A very stark contrast indeed.

Jon, I loved this piece. For me it was thoughtful and timely. As one on the cusp of retirement (3 months to go), I feel confident about the future and want to help my family and others benefit from my good fortune and privilege. Two of my three adult children have good money sense; I'm gently working on the third. My wife and I will be spending a couple of weeks exploring post-retirement communities and options in another state later this month. I've been a regular reader for about a year. While I learn a great deal from the more technical articles written by your guests, the more philosophical columns like this one, help me consider the big picture. Thank you for Humble Dollar. I hope that your move to Philly goes smoothly next week and that nothing that really matters to you breaks.

Richard (love your posts too), I use the term "privilege" to denote that I was fortunate to have been born into a family whose parents instilled in me the virtue of hard work and persistence. I did not enter the labor market as a young adult during a recession and I have benefited from having collaborative colleagues and wise supervisors. I have worked in the same industry for 40+ years and as I retire I am not worried about my future or about my ability to provide a boost to our three adult children after I'm gone. I too am privileged to have a great spouse.

Great post. Expensive homes and cars are the biggest impediments to building wealth, imho.

Excellent points made which I can relate to directly. When we are young, ambitious and energetic we don't think that we or our priorities will change over time. Slow and steady does win the race.

Okay I'll be the bad boy and devil's advocate. Someone has to do it. Why is it that financial advisors seem to feel qualified to tell us what's really real now? Otherwise known as the meaning of life. I'm not convinced they are qualified, nor am I convinced that near misses with tragedy are as enlightening as we've been told they should be. Scott Galloway says people telling us to follow our passion shouldn't be listened to because they're already wealthy and don't realize that's not what they did. I suspect something similar is going on here. The tropes common to literature aren't hard to pick out. However how they conform to real life is not always apparent if you think them through. Wealth and poverty are not absolutes, but relative things. It's a matter of who we consider our peers, or who we want to have as our peers.

Great post! Your first point had me reconsidering my own approach. I think annuities can be a great way to set yourself a permanent income 'floor' such that your basic needs are always met. I'd never put all my money in annuities for reasons both personal and not, but a substantial amount, yes. As for Soc Sec... I've looked at this a hundred ways. Ok, really about 27, and I won't go into the breakevens and everything else. The net is, yes, if I take SS early and invest it, and if I continue to earn the 9% or so CAGR I've earned these past decades, I'd come out ahead. However... each year you wait, you get a guaranteed 8% annual return on your 'investment', and it has a Cola on top of that! Are you kidding me? That's investment nirvana for us little guys. Admittedly, the SS funding situation is tricky... a lot can happen in the 8 years you wait. I'm slated to retire right at the crux of this thing. I'm just planning for a 25% haircut on my SS and hoping for the best... but I plan to keep my ear to the ground.

It always seemed to me that a way to analyze taking Social Security at the later age is that if you die late, you'll sure welcome the larger amount. If you die early, then you didn't need the money. There can be good reasons to start SS as early as possible but for most, late as possible is the better choice.

Those are interesting points to ponder Jonathan. I have a question regarding factoring in an immediate fixed annuity into one's portfolio. If a person has a $1 mil portfolio and $400k in fixed income and then purchases $100K in an immediate annuity would it make sense the annuity should then be counted as 25% ($100k) of the fixed income portfolio? Or, would you determine the the annuity into the fixed income portfolio by the amount of income stream it generates? Thx

Regarding Social Security, I figured the break even point of taking it at age 62 or waiting until my full retirement age of 66 and 10 months. That point was nearly 77 years of age! My traveling days will most likely be over by then. No thanks. Secondly, every year I stay out of my investment accounts is a huge plus to the longevity of our savings. I’d rather peg my future on S&P 500 or IT Index Funds than a Social Security check. Thirdly, I don’t care what anyone says, benefit cuts are looming with Social Security. Sure, Congress will “fix” Social Security at the eleventh hour, but not without some cuts. Those who wait until age 70 will be disappointed.

Nice discussion! You could even connect #2 and #3, and point out that delaying Social Security buys you the most cost-effective immediate annuity available anywhere. And it's inflation-adjusted, which makes it an unbeatable deal. As for investing in stocks and getting a better return than SS gives you, that one has been debunked numerous times. Oh sure, with an after-tax AND after-inflation return of something like 4-5% +, it might be doable over the long haul. But, how many people have that kind of investing track record? And if you couldn't earn that kind of return while investing during your working career, why do you believe you can earn it while retired? Sounds more like wishful thinking for most people to me, than an actual, fact- and evidence- based decision. Or maybe, just maybe, more out-dated thinking from the '80's and '90's when those kinds of after-tax returns were more common. Even then, probably just fantasy for most people, as the "average" investor return even at that time was something like a total of 4-6%.

That's a good point about having to include the tax hit if you invest SS taken at 62. I hadn't considered that before, and it's probably a modest drag for most people, but very real for anyone with other income of what, $30K or more (Maybe someone familiar with the numbers can chime in. I am just starting to factor taxes into my retirement spreadsheet.)

Totally agree.

Interesting question. I'd view an immediate fixed annuity as a substitute for bonds -- but, because an immediate annuity generates so much more income, you could potentially allocate more to stocks, thus raising your portfolio's expected long-run return. As I approach retirement, that's the bet I'm making -- and I hope to live long enough to be proven right!

My wife and I both waited until 70 and now have more than $81,000 in inflation-adjusted SS income (before taxes and Medicare deductions). We find that very reassuring and never cared about our break even points. It also minimizes the amount we need to take from our investment accounts. Every past "fix" that Congress has made for SS has not affected those who were already receiving benefits or were anywhere close to being old enough to be eligible.

There is one thing that fascinates me about detailed planning like this, why? I’m not being sarcastic, but if a person is making $x and they know pension income will be $Y and Social Security will be $Z they know that’s what they will live on and must cover taxes, large emergency bills, etc. just like while working. Perhaps saving and payroll taxes will disappear giving an extra income boost. So, isn’t the unknown just the gap between working income, pension and SS? and the question being can investments get me the extra X% of gross income to reach 100% of working income. For that difference wouldn’t the simple 4% guidance provide the answer and there would be two sources of COLAs. Of course the picture is much different if investments must generate all or most income.

Retiring at age 60 is a luxury, especially with a pension. Because you worked for a state, do you not have Social Security? Just curious, what was the percentage of your income goal were you trying to fill with investments after considering your pension?

I agree with Gregg. I have a similar spreadsheet and would like to see your template. Also, you mentioned a conservative 2.4% annualized return but what inflation number did you use?

All teachers in NC and 29 other states have state pensions and are also covered by Social Security.

Any chance we could get a copy of your spreadsheet template? Thanks.

Couldn’t agree more. A lesson I learned years ago: “Making a good living is not the same as making a good life.”

I spent 42 years in the investment business, telling clients that our tenure, skill and investment philosophy was the "secret sauce" that would ensure better returns. It didn't. In retirement, I manage our family money with about a half dozen index funds and only make buys and sells occasionally, either to raise cash or rebalance. Jonathan is right that its really not that hard to manage your own money, but the investment industry has done a very good job of making the process look far more complicated than it needs to be in order to justify the fees that they charge.

Unexpected employment shocks early in our work lives caused a lot of anxiety. We decided to save and invest so that we could achieve financial freedom from such events. The cornerstone of that effort was building up a sizable after-tax savings in bonds and CDs. The secondary benefit of the after-tax account was we had money available to enable us to retire before age 59.5. Today that portion of our savings provides a cushion from the unexpected gyrations of the stock market. We never wanted to be forced to sell equities in a down market to put food on the table. In hindsight, building that cushion was one of the smartest moves we made in reducing financial anxiety.

So true! When it comes to handling money, especially investing, we are often our own worst enemy. How often do we boast about having "an appetite for risk" when markets are booming, only to develop a bad case of investing indigestion at the market's first sign of a hiccup?

I don't think my Vanguard stock and bond index funds have ever hit the 20% band since I bought them in 2009. I have been using the 5-10% band to trigger rebalancing once a year.

Over 10 years ago I sustained an accident that put me out of work for 15+ weeks (thankfully with no long-term health consequences). It was during that downtime that I really put some thought into a life where I was unable to work, and what I needed to do to protect myself and my family. As a family we've always lived well below our income level, so that wasn't too much of a consideration. But setting up for our kids' educational funding, taking a more formal assessment of our retirement assets, and finally making an honest look at what kind of work my spouse and I wanted to do, In the intervening decade both my spouse and I had switched jobs (in my case twice) and find ourselves frankly working almost as hard, but enjoying both work and life significantly more. From this position of hindsight I'll offer that, 10 years ago, I would never have predicted where I or my family have ended up today. Never, not even close. We had the good fortune of making a pretty sensible plan back then and otherwise went with the flow. Thus far it's turned out pretty well. So my comment would be not to try and predict your own future; just try and make the best decisions for the road immediately in front of you.

There are many advisors who have moved to a fee-only model, and a few google searches should be able to find a local network or two with many options to choose from. A couple years back we needed a financial advisor with experience handling special needs issues. For that reference we had to go to our contacts within the special needs community, which is worth keeping in mind for anyone facing a similar situation. It's also a lot more expensive than your typical review, but not unreasonable given the many issues involved and additional training needed. Regardless, we now have a documented plan to follow which is still helping us move forward.

Thanks for your comment, as it's a big change for sure to have retired. My brother once recommended a book to me, "you can negotiate anything." I also read a book called, "women don't ask". Between these two books and a few others I practiced having conversations as you note. And I continue to learn from watching and listening to the experiences of others. That's one reason I check out this website every day, to learn more!

Thanks!

Thanks.

I think every investor has their story of how they messed up and lost a good chunk of money, and how that put them on the right path. It's almost a rite of passage. We actually left Schwab (oh I wish I'd known what I was doing then) to invest in a wrap account with front-loaded funds. In the end we didn't get stung too badly, but it certainly was painful and embarrassing. Thanks for sharing your story, I'm sure it will help people

With your background you probably have had plenty of experience with larger reductions in force (RIFs) and also individuals who for one reason or another a firm neither wants to involuntarily separate nor have still around. Probably even a few people who considered leaving but were persuaded by a raise or other perks or change in position responsibility to stay for a while at least. The employer/employee relationship, except in completely closed environments (fully unionized, for instance), is not as fixed as one might seem, in my experience. It seems at the highest level, many chief executives enter their jobs with the end package already in writing! My point here is to suggest that many people might have more chance than they think in ending a position (whether an ordinary separation or a retirement) with a little something extra.

Amen. You're a good and truthful man Adam.

Having a highly paid senior employee retire early is often viewed as advantageous by an organization. Rightly or wrongly, many academic administrators think they can build their reputations by replacing a tenured faculty member who isn't a superstar with a newly minted PhD from a prestigious institution. I assume that similar reasoning applies to non-academic jobs.

Now kashback is a popular topic and I think it can provoke people to unplanned purchases.

Very well said! Every school should have a required course in the merits of personal responsibility, work ethic and self reliance. No one knows what’s around the next corner in life, good or bad. You were able to carry on because of the thought and planning you and your husband initiated years ago.

Catherine, congratulations and best of luck with your decision. I hope your health continues to improve and you find much happiness.

Thanks for sharing, I retired 5 years ago, the dynamics in some ways were similar to yours and other ways different. I was blessed with my career and at 62 felt it was just time. Of course I let my manager know first and then everyone else about my desire to retire. I opened a dialogue with HR and while it did not happen immediately, it all worked out great for me.......I miss my colleagues and customers other than that I have no regrets. Take away message for me was to “have the conversation with your employer” to completely understand your options and be prepared to negotiate.

I worked in HR and employee benefits in a large corporation for 49 years. Help me understand what is negotiated when a person wants to voluntarily retire.

Could you clarify the exit package idea? I assume you have a pension or 403b or similar plan from your employer. I never heard of a person voluntarily retiring and negotiating an exit package, let alone severance.

"Build a smaller house." Unbelievable. I can't type what I really think about these people, but a classic read on this is Where Are the Customers' Yachts?

I have TIAA accounts from my employment at 3 colleges--two large and one smaller. TIAA fees for similar funds vary by institution and are typcially considerably higher at my former smaller employer. For example, the TIAA-CREF International fund at a large former employer has a fee of 0.06% while CREF Global Equities at the small college has a fee of 0.36%. Investment choices also vary by institution with a much greater range of options at the large institutions.

Nice story, Andrew. This brings back memories of looking for a "discount" broker for our investment club in the mid to late 80s. We found one in Portland, OR that worked via phone and snail mail. I think it was $25 per trade. makes you appreciate how easy it is today.

Small retirement plans and many larger ones often have high plan fees and poor fund choices. This is slowly changing, though. I think one reason for the change is that employers can be sued if their plan fails to provide reasonable fund choices. It's a headache many companies don't want to risk. We have moved two of my wife's non-current 401K's to a Fidelity IRA. However, her first 401k was a great plan with super low plan fees and great funds, and so we've left it with the original provider. Her current very small plan (<10 employees) was recently switched, and is very good. It's now with Employee Fiduciary; the offering is bare bones in many respects, (not as much direct support to the company as some competitors), but it's a fantastic fund lineup.

Great West, now known as Empower, is a criminal enterprise. Their policies and fees are outrageous.

You've got to move to a place like Vermillion SD where the cost of living index is lower...but yes, I think it can be done and enjoyably. The simplicity is appealing. - Dave

Unfortunately there is no vanity in being simple. And therefore with greater wealth comes greater complexity, and eventually a messed up life.

My most embarrassing mistake was thinking that my F500 company's business arrangement to provide fiduciary advice was a good idea. We went with the recommended company, and found ourselves in the worst of investment worlds. High fee front load funds in a wrap account. Talk about feeling stupid. This is what started my determination to learn enough to invest without an advisor. Mistakes are the price you pay for expertise.

Very interesting article. I like the idea of setting a bi-monthly calendar alert and checking our assets.

My gf at the time (wife now) worked for a family run business where the sons who expected to inherit it from their father, would come in at 10am, take a long lunch at noon, then leave between 3 & 4pm daily. Didn't take much to figure out where things were heading, and when the old man retired, the business was shut down in less than 2 years. Having to endure watching these two clowns run a decades old business into the ground enraged most of the employees to the extent that they quit before the place was shuttered. This is how generational wealth can be squandered.

You're in good company. Charlie Munger says much the same thing: the smartest thing you can do is avoid big mistakes.

Same here. After a lot of equivocation I settled on 5% bands applied to total equities, and total bonds. That triggered mid-march. I still question exactly how much to move during a rebalance (vs, say, slightly over-balancing) but for now I just reset my stock/bond percentages straight up.

Dang, I haven't read Mish in years. I keep up with Abnormal Returns, HD, and I'll check in with the guys at Ritholtz investments time to time, as well as Tim Duy for top-notch Fed coverage. I trade more frequently, but in small, incremental trades. My personal investing statement forbids large trades, and requires a cooling off period of 30 days since the last trade. Different path, but in the end my portfolio doesn't change much either.

Interesting approach. I selected a nominal +/- 5% (vs. your illustration's +/- 8% and 4%) a few years ago after three decades of 100% equity index funds. I also had a money market fund with a few years of living expenses in it, so technically less than 100%, but it certainly was easy to manage. :) With rebalancing there are taxes and trading costs to avoid, but that's manageable. I have a question: I assume you were busier than usual this year due to the volatility, but approximately how often on an annual basis did you find your clients' allocation bands exceeded to the point where rebalancing was required? In my case of having a bond allocation for the first time beginning 3 years ago, it only happened once: mid-March of course. Thanks! Edit: Maybe not a relevant question for clients with a small equity allocation?

Yikes!

One thing that was interesting is what happened over a longer period of time after the "irrational exuberance" comment. Here are where the major indexes closed on December 4, 1996, the day before Greenspan gave his famous speech: S&P 500 - 745 Dow - 6,423 Nasdaq - 1,297 Here is where they were 12 and a quarter years later. S&P 500 on March 16, 2009: 754 Dow on March 9, 2009: 6,547 Nasdaq on March 5, 2009: 1,300 This is cherry-picking, but still!

Me too, although not to the extent that you do. It stands to reason that almost all frequent traders are addicted to financial news while that applies to only some of those who rarely trade.

There are several things I look forward to on Sundays, and your articles are one of them. Thanks again Adam. And Jonathan. :)

I think you posted something similar to this a while ago on HumbleDollar, but whatever the case, this is an extremely valuable and unusual perspective. Thanks. :)

If your default is do nothing, it's hard to do something.. and vice-versa. "Inertia" is in this case metaphorical, nonetheless notable.

I realize the data show "investors with more access to financial news engaged in more frequent trading ", but certainly not for everyone. I inhale financial news. Subscribe the WSJ, visit Bloomberg 5+ times a day. Visit this website, Calculated Risk, Mish Talk, Angry Bear, FT, and more. For me, frequent trading is once a year, maybe.

Yeah, same here. I take in a ton of financial news, but all my holdings were trades done 20 years ago. I act like Buffet and treat my holdings as a farm. I learned a long time ago that I can be my own worst enemy and I must minimize trading or I'm doomed. This realization never stopped me from informing myself and taking in a lot of financial news.

Another great tool that provides additional information along with a graph is from Canadian book author Larry Bates "Beat The Bank" with his T-Rex Score tool. https://larrybates.ca/t-rex-score/

Geared to older folks? I be one of those I think. My condo is in a 55+ community of nine buildings each with 12 units. And yup there are rules. It wasn’t too bad until the virus hit and then those older folks became paranoid. On the other hand I’m guessing the average age is 70+ so concern is warranted. The HOA is $779 a month and my taxes are $12,500 so I’m not sure that is less total costs than my old home even with maintenance expenses. But the good news is in two years my condo went up $80,000 in value and so far those for sale are gone in a few months. Overall though I think it was a good move because I never did like mowing the lawn and my DYI skills are non existent.

You mentioned in your article that you did not include the bid-ask spread in your analysis. I checked the bid-ask spreads for these funds on Yahoo: 35bps (VTI); 53bps (BND); 55bps (BNDX); and a whopping 182bps for (VXUS). Incorporating this into your analysis will effect the outcome of your costs. Of course, you only pay the bid-ask spread when you buy and sell, but it is likely that you may want to rebalance on an annual, or more frequent, basis. Also, when you buy and sell through a broker (eg, Schwab, Fidelity, etc.) you typically do not get the quoted bid or asking price. Instead you get executed wide of the the market quote, which further adds to your costs. This also assumes that you do not have to pay any trading commissions. In my opinion, EFTs are great when it is impractical for other reasons to hold the index fund directly though Vanguard. For example, your employer has bad investment choices in your 401k, but you have a brokerage option within the company's plan.

I read where Vanguard Personal Advisory Service believes they can even help make up the difference in their .3% fee through the value they provide. I recently was reading about returns some years back and the only asset class that was positive that year the writer wrote was international bonds. I never had international bonds before I had an advisor. An advisor can not only help someone with asset allocation, rebalancing, tax loss harvesting and host of other services but also act as a coach when one might be tempted to make a timing move that might have a negative outcome. I'm with Dennis the value of an advisor might be for everyone but it helps me sleep better and focus on other areas of my life.

Thanks, Dennis for mentioning the Nerd Wallet calculator. Like others, I discussed converting Vanguard mutual funds to ETFs with a Vanguard advisor. After opening a Vanguard brokerage account, I did more research on my Vanguard holdings: o only 1/2 of my funds had ETFs o one fund's expense ratio was the same as the ETF o 2 other funds had an expense ratio difference of 0.02 o one fund's expense ratio difference was 0.17 I used the fund's performance ratio's for the past 10 years to calculate the difference in returns over 10 years using the Nerd Wallet calculator. I found that the difference for most funds was inconsequential; the fund with the greatest difference (0.17) is significant enough to warrant converting it to an ETF, assuming Vanguard does not lower its expense ratio. Vanguard has been lowering expense ratios on its funds, including Admiral funds.

I have made my share of mistakes throughout my life. First one that comes to mind is a fancy car.

Right, there are many options. These are just examples. My basic point is that unnecessary spending should come after accumulating a emergency fund, and having a retirement savings plan in place.

Amazon has a case of 20oz Coke for $46.00

Insightful as always, but I would offer something for consideration. "For me, that sense of contentment is one of the best things that money can buy." Unfortunately, for some others, no amount of money can buy contentment. I know a few of those people, and feel for them. They look like they're winning a race they don't want to be in.

Many years ago I read a publication called How to Do Everything Right by Bottom Line. I thought it would be a great idea to do everything right. I found out that wasn't possible. What I ended up doing was trying to avoid major mistakes. Small mistakes can be handled. It's those large ones that get you.

Interesting and informative article. I went on the Vanguard website and learned that if you own Vanguard mutual funds that have an ETF class, you can generally convert from the fund class to the ETF class, and it's not a taxable event. However, the Vanguard ETF FAQ states that there are several Vanguard bond funds that don't allow conversions. They are Total Bond Market, Short-Term Bond, Intermediate-Term Bond, and Long-Term Bond. Of course, if you hold one of those funds in an IRA, you can still make the exchange but you would have to consider the tax consequences if you have an unrealized gain currently. Anyway, thank you for this article, I may do some conversions of some of my Vanguard funds to their ETF class.

My biggest regret that listened to Financial Advisors and saved too much for retirement. I didn't save nearly as much as they said I should but now, in my 70's, I have more than I ever dreamed I would have and more than I will need. And I can no longer do all the things I could have done 20 or even 10 years earlier.

My biggest investment mistakes were everything I ever did before finally getting whopped upside the head by the concept of buy-hold-rebalance low-fee index funds. Just in the nick of time too. "Hi my name is Jack, and I used to think I knew something about market behavior..." Sorry to hear about the apartment. In my experience (thankfully not me but close to me), you know you're in trouble on real estate when talk turns to finding "the right buyer." Uh-oh...

Good article tinged with pathos and humor!

Most quality agents (Not all are), would never allocate more than 50-60% into an annuity. Most annuities give 10% per year no penalty W/D. This is all explained to clients. Also, most annuities offer a premium Bonus that you can use to make annuities about 50% liquid day 1.

I remember when my husband and I were in grad school and really pinching pennies, we’d still buy good coffee beans to brew at home. We weren’t going out for lattes, but we weren’t going to drink Folger’s from a can, either. We’re not on a tight budget now, but one thing I’ve discovered in the pandemic is that I can accomplish things much more inexpensively. I was taking private sessions at a local Pilates studio, and it wasn’t cheap. I loved my instructor and knew it was good for me, so I didn’t worry about the price tag too much—we can afford it. But then March hit, and the studio closed for months (still closed), and I found a good online workout program I can do at home for a tiny fraction of the Pilates cost. I don’t know that I’ll ever go back to those twice-a-week private sessions. Cooking nice weekend brunches at home (and mixing our own Bloody Marys or mimosa) instead of going out also comes to mind.

There was a fascinating report by the CFTC and SEC issued four months after the flash crash that is quite understandable. The introduction detailing the perfect storm that led up to the event reads like a novel. I thought it was thrilling. :)

Richard, your article has a lot of great examples for people to think about. I believe the important thing for most people to remember when they read a list like this... if you love your latte, and it makes your every morning, buy it. Do not feel guilty about it. Save on something else. Find something you don't or shouldn't use that much and eliminate that expense. You'll soon find out if it's something that is essential to your life... or not. For me, that was Cable TV, for example. For others, it's something else. Good luck finding those savings!

"Vanguard Personal Advisor Services at 0.3%. $3000 on $1,000,000 first year." I have looked at various advisory services over time. These services seem way over-priced compared to an independent CFP. What am I missing? I have used 3 different CFPs over 50 years. The most I ever paid in one year was less than $3000. That was for a complete financial review, forecasting, and portfolio recommendations. Many, but not all years, I pay for a quick rebalance. That's maybe $500. If I have easy one off questions during the year my CFP will provide a recommendation at no cost. If the question requires time to respond I am charged on an hourly basis. So what is it I don't get? These services at .3% or whatever seem like too high a cost for a person's everyday portfolio.

I was about to post much the same thing. Housing and Transportation are where you are going to free up the cash flow to enable savings. The next tier of savings is stuff like Insurance, gym memberships, clothes, which can also drain cash flow if one isn't astute. Saving on that latte is largely going to be gilding the lily, but for someone like me who doesn't like coffee - I do like my lilies with gilding! I don't mean to say small savings don't matter, they do... but their impact tends to be marginal, and no one should feel guilty indulging in things that bring them joy... as long as it really does do so. Now, we have our areas of savings to be sure: - Never spent a penny on a TV until our late 40's. We took everyone's castoffs. - Haven't had cable since we were late 20's, except for when they gave it to us free. - We bought new cars, 2 base models at good prices... and drove them 20 years until they died. Very low TCO. (We now own used cars.) - We have refinanced on multiple occasions to both knock off time and knock down rates. - We payed down our business loans years ahead of time. But... - We borrowed from our heloc to take family vacations when we otherwise could not have afforded it. Don't regret a dime that we spent. Probably should have indulged more. - Participate in rec leagues all year round. Our family loves sports. - No budget on books. I do use the public library, but if I want a book, I buy it (with one exception, but that was about value for the dollar.) For our age group and income range, we appear to be in the top 5% of savers from data I can find, which I say only to show that we are serious about saving. More about the flip side: - A recent study indicates the gap in net worth between rich and poor is primarily determined by the starting point - not behavior. Obviously there are exceptions, and we love to notice those exceptions and point them out, but they remain exceptions. Several studies on social mobility as well as family income over generations bear this out. (Though inheriting too much is generally counterproductive, as many other studies show.) - Other studies have shown that for people below certain income thresholds, social capital has greater value than financial capital. So they act (rationally) to maximize social capital. Rational behavior is hard to recognize when measured with the wrong yardstick. Richard's column specifically points out he's addressing those of near average income or greater, so I want to be clear that I'm not trying to criticize him or his article. My intent is simply to bring awareness to a very misunderstood topic.

2010 was a great reminder of the value of limit orders for trades. :-) I love what IEX has been doing to improve fairness and transparency in trading equities. Wish more brokers enabled retail customers to use them.

Check out this earlier article by James: https://humbledollar.com/2020/08/my-retirement/

How are you planning on funding your retirement? What types of investments will you draw income from?

So I guess I do pretty well according to the list. I don't drink soda (or alcohol anymore), don't smoke, I'm not into video games, and I don't have a tattoo. We do have one fur baby at the moment and I drive a 2003 Ford Ranger. I enjoy a good Starbucks coffee every once in awhile, but I brew a lot of "good" coffee at home. I'm not giving that up. I'm usually disappointed in a meal out for what it costs, but I love to cook at home. My vice is I like to play golf, but I prefer walking and on our local municipal course. I've never personally bought a lottery ticket, but to each his own. I just try to live beneath my means and pay into my retirement accounts first. It's been working for us so far.

Yes indeed, if most people did that they would be able to come up with the famous $400 we hear so much about 🤑

Sounds like you are on your way to $870,000😊

I take your points. But while sugary soda is bad for your long-term health and should be avoided, where does a 12-pack cost $25? Maybe $5, and often much less. You’ll save by avoiding it, sure, but nowhere near $38k. And the moralizing on small weekly/monthly purchases and other items is a bit much. Focus on right-sizing the big stuff - housing, transportation - and you’ll won’t need to sweat the small stuff. The problem is that the big things are a higher percentage of the budget for lower income folks.

Are you reaching your savings goals by focusing on housing and transportation alone and not sweating the small stuff?

What is cash? :) I rarely used it before the pandemic and haven't made a single cash transaction since it began. In addition to the move away from cash people now don't want to handle cash that might be contaminated. Like many others here, I have always had a frugal mindset. However, frugality can be carried too far and I think cutting ourselves some slack in this regard is money well spent if it helps us cope with the pandemic.

I agree with cutting back wherever you can (and pushing past your comfort zone), and I do this myself. But lately, I've come to realize that it is possible to be too frugal. I used to feel a lot of guilt for spending any money that was non-essential. A little bit of this is good as it keeps me from becoming wasteful. But taken to an extreme, it just leaves you feeling bad about yourself, and at least in my case, was also making me judgmental of others' purchasing decisions. So I've decided to lighten up a bit. So what if someone else decides to shell out a few hundred dollars for a tattoo? That's their prerogative, and in the scheme of things it really won't make much of a difference. Will having an extra $10,000 really matter when you're sitting on a 7-figure nest egg? Also, if someone is frugal 98% of the time, I think they can justify indulging on occasion (within reason of course). The key is living below your means and to make spending decisions deliberately and with careful consideration.

I enjoy your reason Richard. Perhaps because it’s similar to mine. (Confirmation bias) How as a young person do you save one million dollars for retirement? $1 @ a time. How do you save five million dollars for retirement? $5 @ a time.

Absolutely right! It’s a simple strategy called living beneath your means. My wife and I followed this approach for decades. We didn’t live poor, just modestly. We retired in our late fifties while many of our big income big spending friends continued to work.

11. Move to a state/community with lower taxes...savings ?

If you own an ETF with Vanguard, the dividends can be automatically reinvested if you select that option. The dividends for a mutual fund and ETF are treated the same way by Vanguard.

If you own an ETF with Vanguard, the dividends are automatically reinvested if you select that option. They are not paid directly to your brokerage account.

I listen to people who tell me how tough it is getting by let alone saving and then I look at all the possessions they and their children have ... and I have to bite my tongue. One of my grandchildren was at my house recently and observed “gee Pa, you sure have a small television.” Yup, and no debt too.

Too bad so many young people can’t figure that out.

I always cringe when there is mention of moving in order to save or live in retirement. I live in one of the highest cost and tax states. My family has been here since 1840s I don’t want to move, but on the other hand I don’t like paying $13,000 property taxes on my condo either. People being forced to move to live comfortably is a sad commentary.

Mutual fund distributions may be reinvested automatically and promptly. ETF distributions require explicit action by the investor to reinvest the distributions, thus resulting in a potential time delay in reinvestment. Is it possible that the prompt reinvestment of mutual fund distributions, which puts ‘money to work’ sooner, compensates for the higher expense ratios of mutual funds, thus rendering the ‘mutual fund vs. ETF’ issue moot? Any opinions?

The stock market at least provides certain assurances and regulation that private equity simply won't. Stock Index funds, bonds (or bond index funds), and real estate (or REITs) are more than sufficient tools to build or protect wealth. Greed and the need for prestige are both generally enemies of financial success. Private Equity can easily appeal to either desire.

Something else to keep in mind, that I've noticed about switching from funds to ETFs: The mutual funds I owned automatically reinvested their dividend share when it's paid out, whereas ETF's pay dividends directly to your brokerage account. This can be a good thing or an annoyance, depending on your needs and point of view. For me, I don't mind this, as it's a way to generate a stream of steady income in the face of today's paltry bond yields, without incurring the rather large inflation risk of, say, 10-year bonds with a .7% (or lower!) yield. I can't say whether all corresponding mutual fund to ETF counterparts work this way, maybe some of the other commenters here can chip in some of their experience with this.

Doesn’t the advisor fee negate any fee savings using ETFs? In just seven years it appears. It’s like I have any idea to save you $20,000 over 25 years, but it will cost you $75,000 to learn what it is. What is the other advice value?

If Dennis stuck with the higher-cost index mutual funds, rather than swapping to the ETFs, he'd still be paying for the advisor, so the cost of the advisor is immaterial to the choice.

This is why we have target AA's. I'll admit to very modest tinkering, but I still believe in the general value of a consistent AA. The 'set it and forget it' approach has the huge advantage of achieving market returns while having to answer none of these questions. Whatever my international equity percentage may be, every question has the same answer. "Stay the course, unless you've crossed a rebalance threshold. Then rebalance." Simplicity works.

Two years before retirement I cut back to half time (20 hours per week). The last year, I worked quarter time. This got me used to reduced income and allowed me to verify I could survive on that income.

Despite some international stock indices doing well recently, I remain aligned with Bogle and only invest in US based stocks. This approach provides plenty of international market exposure and has worked well during my 40 years of investing.

Baseball is a zero-sum game. The financials markets are not. Terrible analogy.

"I started to wonder about the friendly CFA professor. Could he have been a plant, luring innocent tourists with the CFA designation? I’ll never know." Any King of Queens fans here? Great episode when Doug and Carrie did the timeshare weekend and met that oh-so-friendly couple...lol. Those writers didn't make that stuff up - I definitely wouldn't put it past the timeshare folks to seed the surroundings.

If you don't understand the investment, don't do it. If you cannot explain it cogently to your friends, don't do it.

Another great read, but I smile reading this because recently I experienced intimately the psychic and statistically irrational pull to "chase the hot money" with regards to some current tech darlings. Truth is, the fable of the tortoise and the hare is enduring for a reason; it's true. Betting on America, or more specifically big business America, has been a winning bet in the long run for essentially all investors roughly older than 40, if they started investing in a diversified portfolio entering the workforce at ~ 21 years of age. For me, a fair bit older even, it's been even better, certainly better than any sector otherwise. So did I miss on Google and Tesla? Yup. But objectively, I've won in aggregate a whole lot more than I've lost. But when I see Amazon's current share price am I similarly tempted? You bet. Hence the value of this article. It's so easy to think the grass is greener next door, forgetting that your own grass has been green for so long you've taken it for granted.

Can you elaborate on exchange funds? I’ve looked at options from Goldman Sachs and Eaton Vance. Looks like it could be a good option for large position with really low basis?

I remember going with my Mom and Dad on one of these timeshare promotional visits. My dad ignored the sales pitch and was just there for the free stay and small gifts. Lesson learned.

A lot of people have found that they’re saving money since the pandemic started (assuming they didn’t lose their jobs) because they’re not traveling, eating out, buying clothes or gas, or going to movies, concerts, or sporting events. Yes, we may be spending more on in-home alcohol and we’re definitely spending more on groceries and maybe utilities because we’re home all the time, but it’s still quite a consumption difference. Oh, and things like gyms and exercise studios, massages, and salons. The interesting thing will be whether Americans revert back to old spending patterns once they feel the world is safe again. Some people may learn to like watching their savings accounts grow, and now that they know their way around a kitchen or around mixing their own cocktails, they may prefer to stay home more.

We bought a timeshare on Maui in 2000 at what was then Embassy Vacation Resorts, later purchased by Diamond Resorts. We live in California, so it’s one reasonable flight to get there, and we go almost every year. We still love the property and, because Maui weeks are desirable, we’ve been able to trade over the years to Kauai, New York, Tahoe, Cabo San Lucas, Newport Coast, and Carlsbad. So we’ve really enjoyed it, and we bought it long enough ago that the actual purchase price wasn’t that bad. However, if I had known in 2000 how easy it would be to book lodging anywhere we want to go (Red Week, VRBO, Airbnb, hotel rewards programs, etc.), I wouldn’t have bothered. So, I wouldn’t do it all over again, but I also wouldn’t say we regret it, ether.

You can buy a lot of hotel rooms for $19,000 and there's no $1,200 per year maintenance fee.

Bogle: index funds Bogle: lower costs are your friends Larimore: 3-fund portfolio Kitces: rising equity glidepath Don't make any sudden/radical changes. Steady as she goes. What more do I need to know? I have 2 engineering degrees and an MBA, but I refuse to be overly analytical about this. I obsessively read tons of financial/political news every day. But, I make no portfolio changes.

I love this article. I found myself physically nodding my head in agreement the whole time I was reading it! I've done the same exact thing, thinking I knew more than the market. But, the reality is that the less I try to predict, the more I manage the things I can control (diversification, rebalancing) and the better my portfolio performs.

You write that US stocks don’t expose American investors to currency risks. But they do. Anytime a US company buys inputs from or sells product abroad, it is exposed to currency risk. It isn’t obvious always, unless you pay attention to annual reports and analyst comments.

Many years my Father told me "there is no deal so great that it cannot wait another day". You should have waited another day before you said "yes". My experience with vacation club sales pitches is every time I said "no" they would get someone else to try to sell me and that person would offer an even better deal. And I still don't bite!

I had a friend who was a CFA. When he traveled he liked to stay at Motel 6. If you'd have talked to him, he probably wouldn't have recommended a timeshare! // Having been to Hawaii and seeing all the timeshare offers, if I was ever going to buy one, that would be the place. It's amazing there.

Thanks for sharing this perspective. I think that, in my case, having an engineering background and some self-doubt in addition to having almost zero trust in salespeople that are not able to backup their proposal with data, I have done an excellent job staying in my lane. I did experiment with a small amount of individual stocks and even dabbled in commodity trading many years ago. It didn't go well in either case and I regret doing so but in order to deal with the emotions of loss I considered it an educational expense and never did anything similar again. I have enjoyed very good results and success in my 35+ years of investing and personal finance by following the general advice of many people similar to and including you, Jonathan.

Much ado about grit: A meta-analytic synthesis of the grit literature. Credé, M., Tynan, M. C., & Harms, P. D. (2017). Much ado about grit: A meta-analytic synthesis of the grit literature. Journal of Personality and Social Psychology, 113(3), 492–511. https://doi.org/10.1037/pspp0000102 Grit has been presented as a higher order personality trait that is highly predictive of both success and performance and distinct from other traits such as conscientiousness. This paper provides a meta-analytic review of the grit literature with a particular focus on the structure of grit and the relation between grit and performance, retention, conscientiousness, cognitive ability, and demographic variables. Our results based on 584 effect sizes from 88 independent samples representing 66,807 individuals indicate that the higher order structure of grit is not confirmed, that grit is only moderately correlated with performance and retention, and that grit is very strongly correlated with conscientiousness. We also find that the perseverance of effort facet has significantly stronger criterion validities than the consistency of interest facet and that perseverance of effort explains variance in academic performance even after controlling for conscientiousness. In aggregate our results suggest that interventions designed to enhance grit may only have weak effects on performance and success, that the construct validity of grit is in question, and that the primary utility of the grit construct may lie in the perseverance facet. (APA PsycInfo Database Record (c) 2018 APA, all rights reserved

As Eisenhower observed, Plans are worthless, but planning is everything. I've found that to be mostly true. There is a kind of corrolary to that, which is that you have to do the planning yourself to get the most out of it. Paying someone for a plan can work, but you really need to spend time to understand what they came up with and why, or else it won't be terribly useful.

Life rarely moves in straight lines and smooth roads - isn't that the truth! Eleven years ago, I had a job in an accounting firm I could see myself finishing my career. I was let go in 2009 during the financial crisis. I took a job with a client and again, I saw myself finishing my career with this company. After 5 1/2 years of struggling with some ethical and integrity issues with those at the top of the company, I'd had enough and left. I've been in my current position for about 3 1/2 years and feel I'm in a good place and "hope" this is my last stop, but I'm always reviewing the big picture and all the little pieces that go into it because life is always changing.

Thanks for publishing. I thought the financial stage of retirement would be simple. So much I didn’t know, like Medicare cost are tied to income. Is it better the convert IRA to Roth and pay the taxes at today’s rate or leave it to my kids who will be forced to pay it over 10 years? Fortunately I have an RIA I trust to guide me through the process.

The USA has to be the most complicated country in the world when it comes to retirement finances. I don't trust anyone to guide us. I just read a lot.

When there isn't enough information to come to a definite conclusion (which is true of so many aspects of investing), I pick something reasonable, and stay with it. I believe investing is less about doing anything brilliant, and more about avoiding the big & costly mistakes. Our portfolio attempts to isolate high return segments of the market while offsetting the higher risk to some degree at the same time (despite the truism that in a bear market, equity correlations tend to collapse to 1). Only time will tell if it works, but the US/Foreign stock ratio just kind of fell out of the result, and we're about 55%/45%. The past ten years have been all about US Large Cap it seems, but the portfolio still did well enough (I figured the worst case scenario would still be fine), and I'm happy to let it ride.

This is us. 100% USA. My wife will know if this the correct action in about 33 years when she croaks.

Rick - Two really good articles. Best I have seen in a very long time.

Rick - thanks for two really interesting articles. I struggle with this decision all the time. I've kind of ceded the decision to Vanguard, keeping around 20% in their total international fund. I've toyed with dropping the allocation to 10%, but haven't. I suspect I'll never feel completely comfortable with this aspect of my portfolio.

Everybody hates paying taxes and I agree that smart people will minimize what they have to pay. But if you have to bite the bullet, just remember that having to pay taxes is a wonderful problem to have. You should consider yourself very lucky that you did so well as opposed to posting a real loss. If you determined it is time to bite the bullet then do it vs. trying to figure out how not to pay taxes and waiting so long that you actually lose money on your investment instead of only paying 15% or 23% of your gains.

This is a great lesson for us all. The quest for a secure retirement should not be so extreme as to suck the joy from day-to-day life. One thing I've never placed a budget on is books. Yes, there are a couple books I've put off buying because they were priced many times what a typical book sells for, but in general, if I want a book I buy it. Books not only enrich the present, but are often a source of lasting joy for me. I can see many things that might fit this role for people, from musical instruments and sheet music to play, to certain sports equipment for things you love to do. Security is an important goal, but one has to decide what they value most before they know how best to direct their resources.

Normally it's bad to sell low, but when you've made a mistake it's often difficult to acknowledge it and move on. Kudos on moving on.

While I'm on team charts (I've found them very helpful); I agree with you that there is more than one road to Dublin. One can invest in oneself, or invest in a business. Some people have one or even two pensions, plus social security awaiting them in retirement. Others may have trust funds or other resources. These folks may not need much in the way of retirement savings at all. Then again, different people have different goals for retirement, and the cost of attaining those goals can be very high or very low. Typical charts don't factor in these points, and may also be comprised of partial data (i.e. avg 401k size. I don't remember most such studies ascertaining how many 401k accounts the average worker has to correct for the fact that many workers may have 2 or 3 accounts.) Data is good, but one has to be aware of the source and construction of the information.

Hi: I tried the SS calculator & it gave my spouse should claim at 62 & 7 months. It did not have reason for this. I always thought SS went up by year, not by month so why the 7 months?

SS benefits are determined by how old you are when you apply -- down to the month.

Thank you Richard for the informative article, which strikes very familiar as 1) I'm a timeshare owner, and 2) I'm specifically familiar with the Ko Olina property, which IMO is actually outstanding. Writing because I don't think you should be too hard on yourself, as you may have been closer to having a "net benefit" from timeshare ownership that you think, and I'll use myself as an example. We purchased timeshare "points" more than 15 years ago, after initially thinking we (my wife and I only at the time) would NEVER be "timeshare people". But with the birth of our first, and having a meeting in Orlando, we both realized we were going to be making regular trips to Disney from here on out. The similarities with your situation were in the need to pretty meticulous advance planning, especially when there are multiple families involved. I've been fortunate as we have several family members who actually enjoy this planning, and we've benefited greatly by consolidating points and booking early. The points vs property thing is maybe a bit different with Disney, but we've been all over the map (including Ko Olina) with our "base" points, and compared to paying per trip I think our annual dues + points payment has been markedly less than paying either rack or discounted rates. Maybe Disney ended up as an outlier, as I know their resale market tends to be very healthy (we've never thought of reselling, but I know quite a few that have purchased additional points), but will a lot of planning I think we have ended up comfortably ahead value-wise, but much more importantly we've enjoyed a number of great family vacations. Lastly, no, I'm not an employee of Disney! It's just worked out well for us.

Four reasons we have never purchased a time share: 1. Who wants to vacation in the same place every year? Not us. Other than Paris, we have not visited the same city more than once. 2. What are the selling expenses for selling a room 52 times over? Super high. Why would I pay those commissions? 3. Makes me nervous. 4. In college (ca 1968) I attended one of those free dinners to learn about buying vacation property (aka swamp land) in Florida. I got thrown out when I asked about sewage treatment. The food was not very good—and, you have to remember the attraction of free food to a college male.

Signaling is an unavoidable aspect of human nature. The danger is that is causes many people to spend beyond their means. If I opt for a Timex, I'm signaling that I'm frugal and/or don't have any interest in an expensive watch (I have an Apple watch for functional reasons). Of the 15 houses on our street, only 5 of us don't use lawn services and only three of us pay for recylable trash pick-up, which is optional here. I'm glad to signal that I enjoy yard work (most of the time) and that I support recycling. Last fall I splurged on the most expensive version of a Subaru Outback (my first new car in 30 years). The fact that I bought a Subaru instead of a comparably priced BMW probably signals more to others than the purchase price.

Thanks for sharing this lesson that will help others. Good advice about checking out the secondary market before buying new. Are properties heavily discounted? Are they priced at close to new? There's information there.

I don’t think #3 - gifting to son or daughter in a lower tax bracket is a good idea. If we have enough to be gifting to them, then we shouldn’t be making them pay taxes on appreciated stock and thereby reducing their final amount. At their stage in life, that tax money will have a greater effect long term to them than the tax savings will to the giver. To me maximizing the gift and giving cash is far more important to my kids who are saving for a house, raising kids, paying off student loans, contributing to a Roth, etc.

The way I was looking at it was as if the goal is to maximize the total after-tax proceeds for the family on a combined basis. But I see your point of view and appreciate the feedback.

I’m the chair of a large department at a university, and managing my email is a huge priority. One exception to the OHIO principle is that sometimes I will deliberately put off responding to an email—for various reasons, such as that I don’t want people to think I’m on call 24/7 or I don’t want the person on the other end to feel like they have to respond to me immediately. My default impulse is to deal with emails immediately, even if it’s 4 a.m. or Saturday, so that they don’t pile up. But sometimes I have to tell myself “Wait until tomorrow or Monday, etc.”

The $6 pizza does not come with Covid-19 risk. I have not eaten in/at a restaurant since March 14th. "Pay others to do chores...mowing the lawn" This is funny. Our duplex neighbors pay us $10/week to mow their lawn. We had a lawn service years ago and the quality was hideous. "Ponder your purchases for a few weeks or months before pulling the trigger. " I have had some items on my Amazon wish list for over 5 years. "you could buy perhaps one new Kindle" would make me very unhappy. I buy what Tim tells me to buy.

It might be worth it to pay a bit more for a better location if that cuts down on your commute time to work or locations that you frequently visit. Not only will that save you some money on transportation costs, but more importantly it will save you time and energy. Of course, in some cities it's not feasible to live close to work, but in that case you may want to consider relocating to another city.

I was just thinking of this very subject but in regards to a much larger expense. I'm planning on renting a home for a year or two in a new city, while I decide on whether or not to buy. When evaluating rents, one gets more features by paying more, but then you pay the premium going forward every month, i.e. is the extra $200/month worth it for a better location/garage/etc. Your article provides some good food for thought for making the decision.

Charts are like a roadmap. They’re helpful in showing where you started, where you are and where you want to get. I’m all for an education that has actual work life earning potential. Ultimately, the books have to give way to generating income and savings. You can’t fritter away youth with endless self improvement. The time value of money only works if you save early and regularly. The most valuable indicator of financial success isn’t found in any book, college or online course. It’s called “a work ethic.”

Spending money on obtaining additional certifications or qualifications may or may not be money better spent that allocating it to a Roth. I would add that a big word of buyer beware caution is in order when spending money on "coaches, fitness, books, conferences, certifications and formal education."

I think you miss the point of those charts. While I agree that their numbers and accuracy can be questioned and certainly are not personalized to reflect each situation, they are not a game of who can do better than the other guy. Rather, many provide measures, benchmarks to be used toward hard goals. If a person sees they are far behind their peers in saving for retirement, it may be a helpful message. Their inability to match a saving measure, may give a message to maybe to look at spending. Allocating money “toward continual growth and self-improvement—coaches, fitness, books, conferences, certifications and formal education” is certainly worthy ... after the hard money goals are achieved or are on track, but they are not going to pay the bills or provide financial security 30 years in the future. The “so what” may be a more stressful future.

There are some things i just don't have time for anymore, but it's fun to work on DIY projects - and youtube is your friend. It's helped me replace the pads and ring supporting our washing machine tub (maybe we get another 25 years out of it!), our clothes dryer belts (though alas, we've had to replace that machine), replace tail lights and headlights on our cars, and I'm working on a handy tool to clean poolballs! We've used debt pretty extensively to fund education, a business, and time with our kids. It's been extremely effective to help us build wealth. However, the last thing we want to do is face retirement with all that debt still on the ledger. This is our Decade of Debt Paydown. We've knocked off our business loans 3 years early, traded in two new-ish cars for used cars to kill those car payments, have a third used car for the business with just a year of low payments at low interest left, and have started to attack our substantial heloc (which was used for business expansion and education.) If the business investment pays off it would pay for all those things and more, but business valuations can be very volatile. I hope it materializes, and if so we'll treat it as a nice retirement bonus that helps us finish paying off any remaining mortgage.

Failing to learn and live by these truths is what gets all too many Americans in trouble and often too late to recover. You have pointed out what people don’t want to hear; managing spending is more important than income when it comes to being able to save toward financial security. #3 is the real trap.

Retirement planning comes down to several things: 1)what is your expected monthly expenses and what part of those expenses are fixed and what are discretionary? This implies that you must determine how much of your fixed expenses can be covered by things like SS and pensions. If there is a large gap consider an annuity to fill that difference. Covering that gap with an annuity will cost less in terms of total funds invested upfront as opposed to buying bond funds to be able to derive the needed additional income, 2) you are very fortunate in that your health care insurance are being covered thru a Medigap policy that your employer will pay for, 3) each spouse should buy a life insurance policy so that the surviving spouse can reap some funds to offset the financial hit that often occurs when the first spouse dies. A spouse dying can have a significant impact on household net worth, 4) remaining investable funds should be invested simply in index funds with no more than 50 or 60% allocation to stock. The allocation should reflect your risk tolerance which is derived from how much you need