Fixing a one trillion dollar deficit would deplete the entire wealth of a thousand billionaires. In turn, fixing the current 36 trillion dollar national debt would deplete the entire wealth of 36,000 billionaires. (Not just their annual incomes.) We have about 850 billionaires in the United States. People just don't comprehend the hole we are digging for ourselves. Even taking every cent of the money of the multi-billionaires isn't going to come close to covering the deficit. We have to face the fact that taking bigger slices of what the wealthy (and near-wealthy) earn is simply not going to fix the problem, unless this country finds a way to spend less (and keep any budget line item increases well below inflation rates) and also generate more revenue - from more and higher real personal earnings - across the board for all, not just raising taxes. I actually agree in principle that everyone should pay "something" for the rights and privileges of citizenship, but it won't make a hoot of difference in our country's financial reality, and the government would spend too much time trying to collect it. But it does make people think about where their money is being spent - or wasted. Perhaps we need a "symbolic" tax payment - an small but specifically-identified tax contribution deducted from a Medicare, Social Security, Medicaid or refundable tax credit payment. And then let's just pay attention to the math. Remember that old cartoon by Sydney Harris, of two men standing before a blackboard with a lot of math on the left and right, and a big blank space in the middle between the formulae? The caption: "And then a miracle occurs." That's where we are.
Cruises are a treat. You unpack once. You don't have to shlep your bags from place to place. A great cruise line (there are only about a half dozen) gives you excellent quarters, service, food and activity options. A good cruise schedule puts you in port at times you can spend a full day on land. You do pay a bit of a premium for a good cruise line, but I agree that it is a pleasure to move up a class or two. If you are on a ship for a week or more, it is well worth it to have a big window or balcony, and a midship location away from the dance floor and other noisy activities. Every year, we look for cruise options that spend less time "at sea', and that take us almost daily to locations we have never visited. With a cruise, you can't get a "deep dive" into the culture or character of a country or city, but with most places, you don't need that. I'd save the long stays and non-cruise travel for locations where there are many compelling attractions and you really want to have a more complete experience. The best cruises of the six or eight we've had so far, IMHO: Australia and New Zealand, and the Greek islands (eastern Mediterranean).
No envy here, either. I've known a number of very rich, and a couple of super-rich. They didn't seem any happier than anyone else I know. But I do tend to classify them subjectively into categories. There are those who worked very hard for it and earned what they got. There are those who were creative or discovered something unique, and found ways to profit from their minds or insights. There are those who were, quite frankly, lucky - being in the right place at the right time. And then there were a couple whom I never trusted. They struck me as self-interested, greedy, predatory and without morality. IMHO, they took advantage of others, and it would not have surprised me if they would have cheated their parents or friends if they gained from it. But as far as I can tell, they were the rare exception and not the rule.
I wish there was a easy way to help people who are not math people understand the real impact of compounding. Sometimes all you can do is go back to the multiplication, but with an easy version. If you earn 10% a year, how do you estimate what you'll have in a few years? You start with $1. In year two you'll have $1 + 10% of that, or $1.10. In year three you'll have that ($1.10) plus 10% of that, or $1.21 ($1 + $.10 + $.11). It keeps creeping up, but the creeping steps each year start to get bigger and bigger. Then ask someone to imagine how it grows over 10 or 20 or even 50 years if you don't touch it. Sometimes a light will go on.
You have a good framework for decision making. The central issue, IMHO, is your third point. You need to be comfortable that you will do far better than just break even, however. You need to have a gut level confidence that your Roth will allow you to do much better than your current situation. The longer you wait, the less the math works, and the probabilities rise that your Roth may not catch up. You can plug in whatever you think is appropriate to calculate after-tax returns, but don't ignore either inflation or the concepts of "present value". I will only comment on two other points. First, even though IRMAA feels unfair and can cause a financial bump, it should not be material to this analysis. Second, market timing will give you a great bump. If we hit a pothole in the market in 2025, you should take advantage of it. I am a great believer that markets will always come back, and eventually will recover all the ground that has been lost. If you convert during a downturn, your Roth will shine in the years that follow. Good luck.
I think the biggest "unknown" when I was deciding if I should retire was "At what rate would I be drawing down my nest egg and would I have to give up a lot of what I loved to do?" I just did not trust the literature. (I was also going through a divorce (friendly) and a move to another state. So I also knew I'd have some big expenses for buying, furnishing and repairing a new home, as well as all those other unpredictable costs associated with living in a new location.) Happily, I found that once the initial surge of spending on my new home was over, my outflow became mostly predictable. That, along with the nice returns in the market over the past couple of years, have created a lot of daylight between my income and expenditures. I no longer have that "exhaust the nest egg" anxiety, I have not had to give up any of my loves, and I am really enjoying retirement.
We see swings in our portfolios of much more than a thousand dollars almost every day. It is funny that we often get sticky about sums that are much less - like gasoline prices and take-out coffee, for example. For most of us, the cost of replacing a water heater is not really material in the long run. Jonathan isn't going to be the one suffering (and cursing) every few days from a half-filled soaking tub that starts spitting out lukewarm water. Elaine is. She should have the tie-breaker vote in this controversy. Treat the too-small water heater as a sunk cost. Then spend the money on a new one. And Jonathan, capitulate with a smile and say something nice to Elaine. She'll remember it - especially every time she tries to take a soak - and she'll also tell a lot of good stories about you. (If you don't give in, you won't want to know what she'll remember every time she turns on the faucet...)
Thank you both, Jonathan and Adam, for this. It is nice to know the person behind the columns and occasional comments on commenters. It is also a memorable summary of Jonathan's life and life view. I have quite a different view of Jonathan now than I had a half hour ago. [I also know better why Jonathan is a committed global investor. I note that the recent performance of European companies is finally giving him some support.]
I share the writer's prejudice against having to write a check for taxes when he files his return. I like to know my taxes are fully paid and I will get something back. But I've had one experience that suggests that I should plan my taxes to do just that - owe a little rather than expect a refund. My state, Maryland, made a very stupid error three years ago and somehow missed one of my estimated tax payments. It then recomputed my taxes and said it was reducing my refund by quite a bit as a result, and sent me a conclusory notice that did not explain why it did what it did. I quickly caught on to the error and knew exactly why it happened - a lazy or hurried mistake that was very clear. I immediately wrote a letter seeking a correction, sending copies of the checks, front and back,to show that the estimated tax checks were both received and cashed. The state failed to respond, and when the state took my money, I had to file an appeal. After submitting the same paperwork to the appeals officer (with copies again to the state), along with a long explanation of the error, the state strung me along and kept my money for more than another year until the hearing date, when the hearing officer finally told me - on the telephonic hearing - that the state was returning the excess money to me, and it should be in my bank account. I suggested continuing the hearing so I could confirm that actually was the case, and a week later I could finally verify that the state gave up and returned my money. This told me that I should not give the state the option to sweep up all or part of a large refund when it got too aggressive and made an error. I also feel badly for taxpayers in similar circumstances who lack the time, money and understanding to fight for what is theirs, and who have to abandon a fight that they should never have had to endure in the first place, when they are right to begin with and victimized by administrative error and overreach. I suspect the process is intentionally designed to be burdensome to deter appeals, and to allow the state to prevail this way in most appeals. If an appeal is excruciatingly hard to pursue, people will just give up. This whole experience really soured me on Maryland tax collection processes. And I sense I am in the middle of another such snafu from my most recent tax year. Here we go again. (In contrast, I have never had such an experience with the IRS. When I am wrong there, I get something that helps me understand why, and I have to agree that I was. On occasion, the IRS has even changed a return in my favor, so I know it is trying to be objective.)
I probably would have done Roth conversions far earlier. The closer you get to retirement age, the less value they have. Oh yeah - and if I go back to a time long before the last four years, I would have done these three things: (1) buy a lot of Microsoft stock in 1997 and hold it; (2) buy a lot of Apple before 9/11 and hold it; and (3) buy a lot of Berkshire Hathaway stock any time during the 1980s and hold it.
Comments
Fixing a one trillion dollar deficit would deplete the entire wealth of a thousand billionaires. In turn, fixing the current 36 trillion dollar national debt would deplete the entire wealth of 36,000 billionaires. (Not just their annual incomes.) We have about 850 billionaires in the United States. People just don't comprehend the hole we are digging for ourselves. Even taking every cent of the money of the multi-billionaires isn't going to come close to covering the deficit. We have to face the fact that taking bigger slices of what the wealthy (and near-wealthy) earn is simply not going to fix the problem, unless this country finds a way to spend less (and keep any budget line item increases well below inflation rates) and also generate more revenue - from more and higher real personal earnings - across the board for all, not just raising taxes. I actually agree in principle that everyone should pay "something" for the rights and privileges of citizenship, but it won't make a hoot of difference in our country's financial reality, and the government would spend too much time trying to collect it. But it does make people think about where their money is being spent - or wasted. Perhaps we need a "symbolic" tax payment - an small but specifically-identified tax contribution deducted from a Medicare, Social Security, Medicaid or refundable tax credit payment. And then let's just pay attention to the math. Remember that old cartoon by Sydney Harris, of two men standing before a blackboard with a lot of math on the left and right, and a big blank space in the middle between the formulae? The caption: "And then a miracle occurs." That's where we are.
Post: Should all Americans pay federal income tax? By Ben Rodriguez
Link to comment from March 25, 2025
Cruises are a treat. You unpack once. You don't have to shlep your bags from place to place. A great cruise line (there are only about a half dozen) gives you excellent quarters, service, food and activity options. A good cruise schedule puts you in port at times you can spend a full day on land. You do pay a bit of a premium for a good cruise line, but I agree that it is a pleasure to move up a class or two. If you are on a ship for a week or more, it is well worth it to have a big window or balcony, and a midship location away from the dance floor and other noisy activities. Every year, we look for cruise options that spend less time "at sea', and that take us almost daily to locations we have never visited. With a cruise, you can't get a "deep dive" into the culture or character of a country or city, but with most places, you don't need that. I'd save the long stays and non-cruise travel for locations where there are many compelling attractions and you really want to have a more complete experience. The best cruises of the six or eight we've had so far, IMHO: Australia and New Zealand, and the Greek islands (eastern Mediterranean).
Post: Taking on Water by Jonathan Clements
Link to comment from March 25, 2025
No envy here, either. I've known a number of very rich, and a couple of super-rich. They didn't seem any happier than anyone else I know. But I do tend to classify them subjectively into categories. There are those who worked very hard for it and earned what they got. There are those who were creative or discovered something unique, and found ways to profit from their minds or insights. There are those who were, quite frankly, lucky - being in the right place at the right time. And then there were a couple whom I never trusted. They struck me as self-interested, greedy, predatory and without morality. IMHO, they took advantage of others, and it would not have surprised me if they would have cheated their parents or friends if they gained from it. But as far as I can tell, they were the rare exception and not the rule.
Post: Care to join me on my yacht cruising the Mediterranean? Do you envy the super wealthy? RDQ
Link to comment from March 25, 2025
I wish there was a easy way to help people who are not math people understand the real impact of compounding. Sometimes all you can do is go back to the multiplication, but with an easy version. If you earn 10% a year, how do you estimate what you'll have in a few years? You start with $1. In year two you'll have $1 + 10% of that, or $1.10. In year three you'll have that ($1.10) plus 10% of that, or $1.21 ($1 + $.10 + $.11). It keeps creeping up, but the creeping steps each year start to get bigger and bigger. Then ask someone to imagine how it grows over 10 or 20 or even 50 years if you don't touch it. Sometimes a light will go on.
Post: Picture This
Link to comment from March 15, 2025
You have a good framework for decision making. The central issue, IMHO, is your third point. You need to be comfortable that you will do far better than just break even, however. You need to have a gut level confidence that your Roth will allow you to do much better than your current situation. The longer you wait, the less the math works, and the probabilities rise that your Roth may not catch up. You can plug in whatever you think is appropriate to calculate after-tax returns, but don't ignore either inflation or the concepts of "present value". I will only comment on two other points. First, even though IRMAA feels unfair and can cause a financial bump, it should not be material to this analysis. Second, market timing will give you a great bump. If we hit a pothole in the market in 2025, you should take advantage of it. I am a great believer that markets will always come back, and eventually will recover all the ground that has been lost. If you convert during a downturn, your Roth will shine in the years that follow. Good luck.
Post: To Roth Convert or Not
Link to comment from March 8, 2025
I think the biggest "unknown" when I was deciding if I should retire was "At what rate would I be drawing down my nest egg and would I have to give up a lot of what I loved to do?" I just did not trust the literature. (I was also going through a divorce (friendly) and a move to another state. So I also knew I'd have some big expenses for buying, furnishing and repairing a new home, as well as all those other unpredictable costs associated with living in a new location.) Happily, I found that once the initial surge of spending on my new home was over, my outflow became mostly predictable. That, along with the nice returns in the market over the past couple of years, have created a lot of daylight between my income and expenditures. I no longer have that "exhaust the nest egg" anxiety, I have not had to give up any of my loves, and I am really enjoying retirement.
Post: Meeting Expectations?
Link to comment from March 8, 2025
We see swings in our portfolios of much more than a thousand dollars almost every day. It is funny that we often get sticky about sums that are much less - like gasoline prices and take-out coffee, for example. For most of us, the cost of replacing a water heater is not really material in the long run. Jonathan isn't going to be the one suffering (and cursing) every few days from a half-filled soaking tub that starts spitting out lukewarm water. Elaine is. She should have the tie-breaker vote in this controversy. Treat the too-small water heater as a sunk cost. Then spend the money on a new one. And Jonathan, capitulate with a smile and say something nice to Elaine. She'll remember it - especially every time she tries to take a soak - and she'll also tell a lot of good stories about you. (If you don't give in, you won't want to know what she'll remember every time she turns on the faucet...)
Post: Replacing the Replacement
Link to comment from March 8, 2025
Thank you both, Jonathan and Adam, for this. It is nice to know the person behind the columns and occasional comments on commenters. It is also a memorable summary of Jonathan's life and life view. I have quite a different view of Jonathan now than I had a half hour ago. [I also know better why Jonathan is a committed global investor. I note that the recent performance of European companies is finally giving him some support.]
Post: Asking the Editor
Link to comment from March 8, 2025
I share the writer's prejudice against having to write a check for taxes when he files his return. I like to know my taxes are fully paid and I will get something back. But I've had one experience that suggests that I should plan my taxes to do just that - owe a little rather than expect a refund. My state, Maryland, made a very stupid error three years ago and somehow missed one of my estimated tax payments. It then recomputed my taxes and said it was reducing my refund by quite a bit as a result, and sent me a conclusory notice that did not explain why it did what it did. I quickly caught on to the error and knew exactly why it happened - a lazy or hurried mistake that was very clear. I immediately wrote a letter seeking a correction, sending copies of the checks, front and back,to show that the estimated tax checks were both received and cashed. The state failed to respond, and when the state took my money, I had to file an appeal. After submitting the same paperwork to the appeals officer (with copies again to the state), along with a long explanation of the error, the state strung me along and kept my money for more than another year until the hearing date, when the hearing officer finally told me - on the telephonic hearing - that the state was returning the excess money to me, and it should be in my bank account. I suggested continuing the hearing so I could confirm that actually was the case, and a week later I could finally verify that the state gave up and returned my money. This told me that I should not give the state the option to sweep up all or part of a large refund when it got too aggressive and made an error. I also feel badly for taxpayers in similar circumstances who lack the time, money and understanding to fight for what is theirs, and who have to abandon a fight that they should never have had to endure in the first place, when they are right to begin with and victimized by administrative error and overreach. I suspect the process is intentionally designed to be burdensome to deter appeals, and to allow the state to prevail this way in most appeals. If an appeal is excruciatingly hard to pursue, people will just give up. This whole experience really soured me on Maryland tax collection processes. And I sense I am in the middle of another such snafu from my most recent tax year. Here we go again. (In contrast, I have never had such an experience with the IRS. When I am wrong there, I get something that helps me understand why, and I have to agree that I was. On occasion, the IRS has even changed a return in my favor, so I know it is trying to be objective.)
Post: Easy Does It
Link to comment from February 22, 2025
I probably would have done Roth conversions far earlier. The closer you get to retirement age, the less value they have. Oh yeah - and if I go back to a time long before the last four years, I would have done these three things: (1) buy a lot of Microsoft stock in 1997 and hold it; (2) buy a lot of Apple before 9/11 and hold it; and (3) buy a lot of Berkshire Hathaway stock any time during the 1980s and hold it.
Post: What wisdom can you share?
Link to comment from February 15, 2025