Like Edith Sang

Jonathan Clements

WHEN I WAS IN COLLEGE, late in the evening and usually after a few drinks, someone would often play Edith Piaf’s Non, Je Ne Regrette Rien, her stirring and defiant 1960 song about regretting nothing.

It’s a sentiment worth recalling as we look back on our financial life. Here are four things we shouldn’t regret:

Saving too much. Is that really something to regret? It’s undoubtedly better than the alternative: saving too little. While lifestyle improvements often fail to deliver much happiness, a sharp decline in our standard of living—perhaps triggered by inadequate retirement savings or a job loss coupled with a skimpy emergency fund—would almost certainly hurt.

That said, if we spend our life saving voraciously, we might regret our sacrifice if we get scant pleasure from the money we amass. This doesn’t mean we ought, at some point, to start spending with wild abandon, though opening our wallets a little wider strikes me as a fine thing to do.

But there are also other ways to get pleasure from our savings. For instance, we might use our money to help others, perhaps making financial gifts to family members or supporting our favorite charities. We might also choose to hang on to our savings and enjoy the sense of security that money bestows. I’ve come to believe that the pleasure that comes with being generous and from feeling financially secure often exceeds the pleasure that comes from spending.

Diversifying. Ever since I got religion about sensible investing and started diversifying broadly, I’ve found myself owning parts of the global financial markets that have generated lackluster returns for a decade and sometimes longer. Think about the poor performance of U.S. stocks in the 2000s and that of foreign shares in the 2010s.

This is not something I regret. Obviously, if I knew with certainty that tech stocks would sparkle in the 1990s and 2010s, and stink bigtime in the 2000s and also in 2022, I would have invested accordingly. But without such clairvoyance, I take what strikes me as the only prudent course of action, which is to own a little bit of everything.

Funding retirement accounts. I’ve lately seen a spate of comments from retirees bemoaning the amount they stashed in traditional tax-deductible retirement accounts, and the big tax bills that are now coming due as they draw down these accounts. These retirees suggest that Roth accounts would have been a better choice—and that even a regular taxable account would have been preferable. But this smacks of financial amnesia. How so? It ignores the earlier tax deduction that likely compensated largely or entirely for the later tax bill.

If you’re in the same tax bracket when you fund a traditional retirement account as when you draw it down, you effectively get tax-free growth, just like you would with a Roth. To understand why, read this explanation.

But what if you end up in a higher tax bracket in retirement? In that scenario, a Roth would have been the better bet. But what about a regular taxable account? Suppose you’re age 25, and your combined federal and state income-tax bracket is 15%. You invest $10,000 in a tax-deductible retirement account that grows at 8% a year. Forty years later, at age 65, you empty the account, paying a combined 25% income-tax rate on the proceeds. Result: You’d net almost $163,000.

What if, at age 25, you skipped the tax-deductible retirement account and instead stashed the dollars in a regular taxable account? Right off the top, you’d lose 15% to taxes, leaving you with $8,500 to invest. The money again grows at 8% a year. Let’s be (absurdly) optimistic and assume you paid no taxes along the way—because you received no dividends and realized no capital gains.

At age 65, your taxable account would be worth close to $185,000, with a cost basis of $8,500. You then cash out the account, paying taxes at a 15% capital gains rate. Result: You’d be left with some $158,000, or $4,700 less than if you’d stuck with the tax-deductible retirement account. What if we used more realistic assumptions? The taxable account could easily have fallen short by $30,000 or more.

Owning insurance. I haven’t submitted an insurance claim—other than to my health insurer—in the past three decades. Does that mean carrying life, auto, homeowner’s and umbrella liability insurance has been a waste of money? Hardly. I paid my premiums to protect against a host of financial risks, I got the peace of mind that the insurance provided—and I’m happy none of these risks came to pass.

The case for carrying insurance is similar to the case for diversifying. We’re protecting against the unknown. More things can happen than will happen—and, when it comes to the sort of things that good insurance covers, the financial consequences of not having coverage can be devastating. In the absence of a crystal ball, we need to manage risk so we aren’t hurt financially if our home burns down, our neighbors sue us, we need major medical care or some other costly misfortune strikes. That’s what our premium dollars buy and, if we have the right coverage, it’s money well spent.

Jonathan Clements is the founder and editor of HumbleDollar. Follow him on Twitter @ClementsMoney and on Facebook, and check out his earlier articles.

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