Retirement

FOR MORE THAN 20 years, I worked as a personal trainer. Now I’m a financial advisor. On the surface, the two professions look nothing alike. Human behavior makes them far more similar than most people realize.
Years ago, one of my fitness clients joined Weight Watchers. At her intake meeting, she asked whether she should cut back on carrots because she’d heard they’re high in sugar. The specialist didn’t miss a beat. She smiled and said “No one ever comes to us because they eat too many carrots.”

YEARS AGO, while practicing law, I was a frequent contributor to Humble Dollar. I loved Jonathan Clements’s vision for the site – a corner of the financial universe built on clarity, frugality, and the quiet dignity of living within one’s means.
Then my life took a sharp pivot. I left legal practice to teach gifted-and-talented students and coach varsity athletics at a public magnet high school. Almost immediately, my submissions here dried up.

YOU MAY BE familiar with a concept known as Pascal’s wager. Named for Blaise Pascal, a devout seventeenth-century French mathematician, it was a thought experiment in which he tried to weigh, in logical terms, the costs and benefits of believing in God. His conclusion: The cost of not believing—a potential eternity of damnation—was so extreme that it far outweighed any other consideration.
I mention Pascal’s wager because a common question is whether similar logic might apply to financial decision-making.

RECENTLY, A READER—let’s call him Tom—posed this question: If stocks historically have delivered far better returns than bonds, then why should an investor own any bonds at all? Even with the stock market’s unpredictable ups and downs, wouldn’t you end up way ahead by betting only on stocks over the long term?
It’s a fair question. Over the past 100 years, stocks have delivered returns of roughly 10% per year, while bonds have returned just 5%.

WHAT’S THE MOST important idea in personal finance? It’s hard to single out just one, but over the years, I’ve found the following dozen ideas to be among the most useful.

Whether it’s on TV or online, there’s never any shortage of market prognosticators. Especially during a bull market, everyone seems to have an opinion on where things are headed. The reality, though, is that people can only guess about how the economy, the market or any individual investment will perform.

A RECENT post by achnk53 about the impact of a spouse’s death on the survivor’s taxes piqued my interest.  The post referenced an interesting Kiplinger article about the “Widow’s Penalty”, or the negative tax implications on a surviving spouse after the death of a spouse. A surviving spouse can file Married Filing Jointly (MFJ) in the year of their spouse’s death. In the full year following the spouse’s death you must file Single. 

IT’S BEEN AN UNUSUAL week in the bond market, and not necessarily in a good way. This has many investors questioning the value of bonds, which is understandable. Bonds are supposed to be the “safe” side of a portfolio, but they’ve struggled in recent years.
Arguably, the drama we’re seeing in the bond market today began more than 50 years ago. To put today’s situation in perspective, I’ll briefly summarize that long history. Then we can look at what steps you might take to better protect your portfolio from here.

FOR MUCH OF THE seventeenth and eighteenth centuries, European monarchs used a financial instrument known as a tontine to help finance their governments. 
Tontines were first developed in the 1650s by an Italian government worker named Lorenzo Tonti and were similar to annuities: In exchange for a single, lump-sum purchase, tontines offered guaranteed payments for life. But tontines also offered some unique features.
Unlike an annuity, where payments end with the death of the owner,

WHEN A HUSBAND dies, his widow inherits his IRA. Somewhere in the paperwork of the months that follow there is a decision to make, and nobody presents it to her as one. She can take the account as her own, or she can leave it titled as inherited.
Taking it as her own means filling something in. Leaving it means doing nothing, and the IRS tells custodians they may assume that is what she wants.

DEEP DOWN INSIDE, I want to be the richest person in the graveyard. 
I retired at age 62, confident in our financial plan to survive market fluctuations. We saved over 25% of our income for nearly three decades. Perhaps a bit too much, but we lived well and always had sufficient funds to raise a family, maintain our household, and put our children through postgraduate education.
If anything, our retirement spending level is conservative,

THE CHOICE BETWEEN a traditional retirement account or a Roth is a frequent topic on HumbleDollar. The choice is generally framed as a choice between paying taxes up front (a Roth), or deferring taxes until withdrawal (traditional). I thought it would be interesting to evaluate a real-life example of how this choice might work out.
In December of 2016 my wife and I had an opportunity to each open a Roth IRA. My wife took a partial sabbatical that year,

NOT TOO LONG ago, Treasury Inflation Protected Security (TIPS) was a relatively obscure investment for safe long-term fixed-income investments. For the first twenty years of the new century, consumer prices were mostly stable or rising at a too-slow-to-notice rate. Why bother with anything related to inflation?
Sadly, persistently low inflation made us complacent on the biggest long-term risk of bond investments — the insidious unexpected inflation that robs us of the purchasing power of our “safe” investments.

EVERY ARTICLE ABOUT Roth conversions says the same thing: pay the tax from taxable money, not from the IRA.
That is good advice if you have taxable money.
Plenty of retirees do not. Their savings sit almost entirely in a traditional IRA, built from years of 401(k) contributions and a rollover at retirement, with little brokerage money and no cash reserve worth naming.
For them, “pay from outside money” is not advice. It is a condition they do not meet.

AT FIRST GLANCE, Social Security appears straightforward. During our working years, we pay into it, and in retirement, it sends us a monthly check, guaranteed for life. Unfortunately, it isn’t always so simple. Below are five aspects of the system that are frequently misunderstood.
Benefits estimates. Look at a Social Security statement, and an easy-to-read chart provides estimates of the benefits available at various ages. The heading above the chart reads, “Personalized Monthly Retirement Benefit Estimates Depending on the Age You Start.” That seems clear.

BOB MADE A very expensive tax mistake. Doctors told Bob that he only has a year to live… What did Bob do?
He decided to gift a house to his only son before passing away. The house is worth $2,000,000 that he bought back in 1970 for $50,000 in an expensive suburb of California.
The son decided to sell the house and paid about $430,000 in federal taxes.
$430,000 that could have been $0 instead…
How?