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Taking Center Stage

Jonathan Clements

IT’S THE ONE ASSET we’re all born with, and it pretty much defines our financial life. I’m talking here about our human capital, our ability to pull in a paycheck.

That paycheck—or the lack thereof—drives our ability to save, service debt and take investment risk. It also dictates our insurance needs and how much emergency money we should hold. Put it all together, and our human capital should arguably determine how we manage our money over our lifetime.

Let’s start with our early adult years, which are often marked by substantial borrowing as we pay for college, buy that first car and purchase a starter home. Yes, the amount of debt involved can be frightening, and we should be careful not to overdo it.

Part Two of Six

Still, borrowing in our 20s and 30s is often a rational strategy, allowing us to jumpstart our financial life. After all, if we couldn’t borrow and instead had to pay cash for college or for our first home, many of us would have to spend a decade or two scrimping and saving before we notched those two milestones.

Indeed, borrowing to pay for college or technical training can be a smart investment because it can greatly boost our human capital’s value. One obvious payback: The resulting larger income will allow us to save more each month. The goal: amass enough money so one day we can live solely on our financial capital—and we no longer need the income generated by our human capital.

Human factor. How should we invest our savings? We might view our human capital as similar to a bond with its predictable stream of income. That regular income frees us up to invest heavily in the stock market. How much of our portfolio should we stash in stocks? We might ask ourselves three questions.

First, how stable is our job? The more secure it is, the more we could potentially invest in the stock market, knowing it’s unlikely we’ll need to tap our portfolio to pay for a long period of unemployment. Second, how much will we likely save in total between now and when we retire? We might view those future savings as part of our portfolio’s bond and cash holdings, allowing us to be even more aggressive in allocating our portfolio to stocks.

Third, how near are we to retirement? When we get within 10 years or so, we’ll likely want to boost our portfolio’s bond and cash holdings, so we have a pool of conservative investments that we can draw on for spending money and which can replace the soon-to-disappear income generated by our human capital.

What if, during our working years, misfortune strikes and we find ourselves without a paycheck? That might happen if we lose our job, become disabled or fall ill. We might even suffer an untimely demise, leaving our family without any way to support itself. This is the reason to have both an emergency fund and three crucial insurance policies: health, disability and life insurance. We can think of these precautions as protection for our human capital.

Making progress. Our human capital doesn’t just allow us to pull in a paycheck. It also offers us the chance to enjoy that pleasant feeling that we’re being productive and making progress. Of course, we don’t need a job to feel productive. Instead, we might volunteer, or help with the grandchildren, or work on our health, or do countless other things.

Even though my cancer diagnosis means I have limited time left, I still hunger for a sense of progress. I find it hard to devote a day to deliberately doing very little or focusing solely on activities for my own enjoyment. I feel better if I’ve spent the day being productive, and doubly so if I feel I’ve been helping others.

I suspect that most folks aren’t as restless as I am. But I also suspect almost all of us feel better when we end the day with a sense of accomplishment and devote at least part of the day to activities that help the wider community.

That brings me to retirement. Even after we quit the workforce, we’ll likely find we still hunger for the sense that we’re being productive, hence my frequent suggestion that folks continue to make use of their human capital during their initial retirement years—by working part-time.

That part-time position may make for a financially less stressful retirement, while also offering the sense of accomplishment we humans crave. Looking ahead to retirement? To our to-do list, here’s one more item to add: Think about how we might continue to make a little money by working a few days each week. Maybe folks will ultimately decide that isn’t something they want to do during their retirement years. Still, it can’t hurt to give it some thought.

Jonathan Clements is the founder and editor of HumbleDollar. Follow him on X @ClementsMoney and on Facebook, and check out his earlier articles, including last week’s installment of this six-part series.

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Cammer Michael
15 days ago

I greatly enjoyed this article, especially the point that “I also suspect almost all of us feel better when we end the day with a sense of accomplishment and devote at least part of the day to activities that help the wider community.”

Rich
15 days ago

Jonathan, we’re all on limited time and like you I believe we should be productive as long as we can. While I retired eight years ago I continue to work, not for the money but my feeling of self-worth. I’ve had a job of some sort since I was thirteen (the year of the British Invasion; the second, not the first) and enjoy what I do and the pep it gives me. Just like the gym, you expend energy to get energy. So be doing something productive as long as you can I say.

Fund Daddy
16 days ago

Was I lucky? I knew and planned my future and most other stuff years in advance. In my teens I was thinking about the best future jobs for my skills. I knew in the 70s I wanted to work in IT. I studied IT in a tech high school and then graduated with a finance + Computer Science degrees and worked in it all my life. I immigrated to the US with almost nothing in my 30s.
Then, I learned about investing and retired in just 23 years at age 61 with a nice portfolio. The last job I had was the easiest. I hardly worked, but they paid me a full salary. Luckily, all my IT jobs paid me short+long term insurance.
I retired in 2018 and never looked back because I didn’t feel bored or unproductive; after all, my new job, a retree, is the one I planned for years.
The US is the easiest way to retire among the advanced countries. I was telling my co-worker my big “secret”. If you invest $1000 per month at 8% per year, you would have 1.4 million in 30 years…so why are you not doing it now? Why are you not saving even more?
Do you know that if you start saving $1000 per month at age 25 and stop after 10 years, you will have more money at age 65 than someone who started at age 35 and saved for 30 years?
What do I do in retirement? I tried card games but never liked any. One day about 15 years ago, someone offered free Bridge lessons. I’m hooked since then with this great game. I played it 4-5 times a week for about 3-4 hours each time. It’s a great social and brainiac game.
The other part was staying frugal. While my coworkers bought luxury vehicles, we bought 2 new ones every 10 years from Toyota and Honda. Our house was big as theirs, but it was a much cheaper neighborhood in the same school district.
Over the years, I have been telling my kids and their friends that the future is in STEM. You can always find something that you like in that field.
One of my kids friend told me he loves to fix cars. I told him that’s great; no need to go to university, but you must certify in the field. You should learn how to fix Mercedes and BMW. Why would work on cheaper vehicles?
If you have good hands, be an AC specialist or electrician, or another good-paid job BECAUSE the money is better there. Think carefully before selecting your future jobs.
BTW, my wife and I hardly ever got bonuses, stock options, or inherited anything, even the salaries were not top in our field because we decided at a very young age that working more than 40-45 hours isn’t for us. Everything came from savings, investing wisely, and being frugal. We still enjoyed life doing many things, especially long travel around the world.

Last edited 16 days ago by Fund Daddy
jerry pinkard
16 days ago

When I retired, I said that I no longer wanted to work for a paycheck, but that I would give back by volunteering. I worked part-time for a Christian global ministry for a few years as a management consultant, and currently serve on 2 retiree organizations, one small and the other very large. I also participate in ministries at our church.

I still have plenty of time for leisure, but I believe I am making good contributions in the areas I serve.

I believe that life should have meaningful purpose, regardless of age, working or retirement. Jonathan, I am glad you are wired the way you are.

Jerry

Jon Daley
16 days ago

I’m still “young” so I don’t know if I will actually have any psychological issues with not earning a paycheck, but I expect to fill my days with wood projects, lots of volunteering for the local government and non-profits and grandchildren.

I’ve had to lower my volunteer hours the last couple years from 40 to 15 hours a week in order to not be way over busy but once I’m not dependent on outside money I think it will be easy to find volunteer hours and feel productive there.

There are so many organizations that need help.

Jeff Bond
16 days ago

This last part is interesting. I worked full-time (and then some) for a long time, from 1978 to 2020. When I retired at 67 I had a list of things to do, and none of them involved a transition to part-time work. I also haven’t crossed all of them off my list yet.

As far as working was concerned, I was ready to be done with administrivia and bureaucracism. I loved the technical work, and stayed technically up-to-date throughout my career (technical obsolescence is a thing) – – – a great challenge.

But in retirement I’ve taken up other challenges, and I’m paying the way by reaping the benefits that I accrued via my human capital.

stelea99
16 days ago

Perhaps if we think about our capital in terms of a balance scale, with human capital on one side and financial capital on the other we can understand how our financial lives develop over time.

We begin the independent part of life with little or no financial capital, and some human capital. We then work to develop our human capital, growing our skills and knowledge, getting better at our work, getting more responsibility, and earning more. As our life continues we begin to accumulate financial capital through saving and investments, and perhaps work related retirement benefits.

At some point, the financial capital might be able to generate the same purchasing power as our human capital and we might consider retirement, or other alternative uses of our time.

In our situation, following my retirement at age 55, both sets of our parents in their 80s began to need help. During the next 6 years, we made more than 20 trips to CA from the PNW to deal with the last portions of their lives. Both sets of parents had financial and other assets that needed to be managed for the benefit of the parents and their families.

This would not have been possible if I had still been working. None of our siblings were in a position to provide the help that was needed.

DAN SMITH
16 days ago

So true about protecting the paycheck with disability insurance. If I recall from my time as an insurance agent, there 7 levels of risk an employee can fall into, based on one’s occupation. The more brutal the work, the higher the premium. Underwriting was also a challenge. I could get lawyers, doctor and accountants fantastic rates, but the same companies often wouldn’t issue a policy to a carpenter or iron worker for any price.

Jeff Bond
16 days ago
Reply to  DAN SMITH

Dan, when I wrote about whole life insurance earlier this week I didn’t mention disability insurance because I didn’t want to confuse the issue. My first employer did not offer any disability insurance so I purchased a private policy. As a young engineer, I considered the coverage to be economical.

When I changed jobs, my new employer provided disability coverage and I called my agent to cancel the policy. The agent suggested I keep it, because if I did become disabled, that both my policy and my employer’s policy would be payable. He also pointed out that a future employer may not provide disability insurance. That turned out to be true, as my second-to-last job was a very small company that offered few benefits beyond health insurance. Then with my final employer I dropped the coverage once I turned 65.

William Perry
16 days ago
Reply to  Jeff Bond

During my working years I favored paying for my disability insurance with post tax monies so that if I was unfortunate to have to claim a benefit under a disability policy that I would not have to include the benefit in taxable income. Insurance is best if you never have a need to make a claim.

Per the IRS-

You must report as income any amount you receive for your disability through an accident or health insurance plan paid for by your employer:

  • If both you and your employer have paid the premiums for the plan, only the amount you receive for your disability that’s due to your employer’s payments is reported as income.
  • If you pay the entire cost of a health or accident insurance plan, don’t include any amounts you receive for your disability as income on your tax return.
  • If you pay the premiums of a health or accident insurance plan through a cafeteria plan, and you didn’t include the amount of the premium as taxable income to you, the premiums are considered paid by your employer, and the disability benefits are fully taxable.
mytimetotravel
16 days ago

I did work part time at a related job after I retired, in between trips. However, I had no trouble stopping after a few years, and since that was twenty years ago I think my human capital has reached zero. I do volunteer at my retirement community, but the activities aren’t very complicated.

At the other end of life I was lucky to grow up in the UK in the 60s, which meant that my Local Education Authority paid for my college education (of course, I did have to find a university that would take me, which was tough at the time).

Jon Daley
16 days ago
Reply to  mytimetotravel

I don’t know what you do at your volunteer “job” but if it is anything like the things I know about, I wouldn’t value it at zero, because someone needs to do the job and many people won’t even consider it, so it is quite valuable, and most of the groups I’m in involved with wonder what is going to happen in the future, since the next generation is not volunteering and I’m generally the youngest person around and I’m getting close to retiring.

Ken Stack
16 days ago

A wrinkle on the transition from full time to part time paid work idea which i plan to do at age 60. Establishing yourself with a new organization rather than negotiating a part time role with the one you’re retiring from while not likely financially superior seems healthier and more interesting psychologically.

Even better to me if the role is in something else entirely you’re interested in from the work you’ve focused on full time. A new industry, passion/hobby area, or just appears to be fun.

It seems like a great moment to follow your curiosity rather than making a very rational financially driven decision. If you end up with both it’s an unexpected joy.

Last edited 16 days ago by Ken Stack
Rick Connor
16 days ago

Thanks for another thought-provoking article. Shifting form full time work to part-time consulting was a great approach for me. One of the biggest psychological impacts of retirement was the loss of a paycheck. After 4 decades you get used to one. In addition to making some money, I was able to use my experience and skills in a productive way, and even provide some mentoring to young engineers. I’m nit currently pursuing any opportunities, but might consider some potential opportunities later this year.

Ken Cutler
16 days ago

Another great article on one of my favorite HumbleDollar topics. I think about these themes a lot as I continue to work part-time in retirement. I’m currently working on a project for my old company to develop training and provide mentoring in an area where I’m a recognized expert. I was energized yesterday working on the PowerPoint and it’s gratifying to still have a professional relationship with some of my favorite former colleagues. Yes, I have the good feeling that I’m being productive and am helping others. The part-time job is not the only way to get there: I have some volunteer activities that also fill the bill. But as I’ve not yet been creative enough to develop a portfolio of volunteer activities to replace the hours from part-time employment, the paid work fulfills my needs for now. An unrelated but humorous (at least to me) aside: I had a dream last night that one of my HumbleDollar articles was published in Parade Magazine. I couldn’t wait to email Jonathan to tell him about it, and I was particularly happy that my article was cited by another writer in the same issue.

Last edited 16 days ago by Ken Cutler
DAN SMITH
16 days ago
Reply to  Ken Cutler

Ken, your dream isn’t that much of a stretch. After an old friend died, his X-wife googled my name and found my HD articles. Maybe that counts as my 10 seconds of fame.

Ken Cutler
16 days ago
Reply to  DAN SMITH

Dan, it’s great that she found you considering your name is far from unusual. The perks of being a HD celebrity. Alas, the ubiquitous Parade magazine of our youth no longer exists. The last printed edition came out November 13, 2022. I found it amusing that Parade came up in my dream as one of my early HD pieces was about a Parade article that was influential for me.

Patrick Brennan
16 days ago
Reply to  Ken Cutler

Being able to pass on your expertise to a younger generation, in a world where mistakes are incredibly costly, must be very satisfying. Hard earned lessons in that world are extremely valuable.

ostrichtacossaturn7593
Reply to  Ken Cutler

As Pharaoh (played by Yul Brenner) said in The Ten Commandments movie: “So let it be written, so let it be done.”

Rob Jennings
16 days ago

Could not agree more. Although I can’t say it was well-planned because I could not wait to retire with megacorp burnout, part-time consulting for the past 7 years in early retirement has been very worthwhile. Ill be 69 this year and its given me a bridge to delayed SS without drawing on retirement funds, a continued sense of contribution and accomplishment and some great trips in which my wife and I added personal travel. Although I am cutting back some, I even had a couple years where I earnt enough to add a bit to our retirement security.

Stacey Miller
16 days ago

Thank you. Continuing being productive after retirement is on my to-do list. My parents keep me hopping, and travel is my salve. I haven’t figured things out yet beyond the immediate. Time to get more serious about it than reading.

luvtoride44afe9eb1e
16 days ago
Reply to  Stacey Miller

Stacey, at least you are forming the basis to “have a plan”. That’s what I tell any of my friends who are considering retirement in the near future. I’m not talking financially, but rather how to fill the time you formerly spent commuting and working with worthwhile and productive things to do. I did work part time as a consultant for a period after I retired but now I wouldn’t even have time to do that as I keep myself pretty busy with volunteering, being on HOA boards, other non-profit boards and taking classes at a State University under the Senior Citizen Learning program (no credits or stress…just for the enjoyment). What other time I have I spend traveling with my wife and being part of our grandchildren’s lives, who all live in The area. My days of spending my human capital to achieve financial and retirement goals have now shifted to other pursuits. I hope I can spend many more years in this mode!

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