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LAST WEEK, I TALKED about Carveth Read, the English philosopher who’s famous for saying, “It is better to be vaguely right than exactly wrong.” This, in my view, is one of the most important ideas in personal finance.
My focus last week was on the “vaguely right” part of Read’s statement. But what about the second part—the importance of not being “exactly wrong”? Below are seven situations in which trying to be exactly right might,
I JUST READ THAT the 4% rule is making a comeback. From where, I thought?
Under the 4% rule, you withdraw 4% of your nest egg in the first year of retirement. If you had $1 million, you’d take 4%, or $40,000. In year two, you’d add inflation to your previous year’s withdrawal. Say inflation ran at 6%. You’d multiply $40,000 by that 6% to get the second-year adjustment of $2,400. Add that to the prior year’s $40,000,
IF EVERYONE WOULD just follow my advice when managing their money, all our financial problems would evaporate.
I’m kidding, I’m kidding.
From recently viewing a YouTube video, I learned it’s necessary to track all spending, have a budget and be mindful of spending habits. Nope and nope—but yes to watching our spending habits.
Managing money boils down to discipline and responsibility. You may not be able to keep up with the Joneses, take that vacation you desire or get that next tattoo.
I’M NOT BIG ON MAKING New Year’s resolutions. Still, January is a good time to conduct some financial housekeeping. Below are 10 ideas to consider as the calendar turns over.
1. Portfolio cleanup. I sometimes feel like a broken record when I talk about the disadvantages of actively managed mutual funds. Among other issues, they tend to underperform and are tax-inefficient. But here’s the challenge: Even after factoring in 2022’s decline, the S&P 500 has risen more than 600% since 2009’s market bottom.
I’LL BE ENROLLING IN Medicare in a couple of years. I wish I knew how much my premiums will be, but that’s a mystery worthy of Sherlock Holmes. I’ve researched it thoroughly, as you shall see, and it all starts with something called IRMAA.
IRMAA is not the name of my seventh-grade crush. Instead, it stands for income-related monthly adjustment amount. It’s the premium surcharge that people with higher incomes pay for Medicare.
How much is the surcharge?
FOR THE PAST 20 YEARS, I’ve bought dividend-paying stocks and then reinvested my dividends. The big appeal: I increase my wealth with minimal effort.
Starting as a dividend investor used to be tricky, but it’s now much simpler. Many discount brokerage firms have no minimum to open an account and no longer charge stock commissions. You can also purchase shares through the dividend reinvestment plans offered by the transfer agents for many companies. These plans allow shareholders to reinvest their dividends and also purchase shares in amounts as little as $50 or $100.
MUTUAL FUNDS ARE about to send their shareholders some dubious holiday gifts—in the guise of capital gains distributions. These distributions usually occur mid-December and they represent a taxable event for investors who hold funds in a taxable account.
Even in a down year for stocks and bonds, a mutual fund may realize capital gains, which are then passed on to shareholders. These could come as a nasty surprise to investors already smarting from 2022’s steep losses.
WHEN I WAS IN MY 20s, I was lucky to work for a company that offered a pension plan—and that put me on the road to retirement. Today, unfortunately, company pensions are rare. How can you ensure a comfortable retirement? Try shooting for these age-related milestones:
Age 25. Start saving at least 15% of your gross income. As I mentioned in an earlier article, a Fidelity Investments study found that if you save 15% of your gross income every year from age 25 through 67,
WHEN ROSS PEROT RAN for president in 1992, a pillar of his campaign was tax reform. Federal tax rules, he pointed out, had grown to more than 80,000 pages. His proposal: Start over and replace everything with a simple flat tax.
Perot’s campaign for tax reform didn’t make much progress, but many can sympathize with his frustration. Because of the complexity of tax rules, financial planning often ends up feeling like the children’s game Operation—with penalties for even the slightest misstep and confusion around every corner.
YOU KNOW IT’S BEEN a rotten year for investors when it’s time to brush up on the rules for tax-loss harvesting. It’s one way to turn negative returns to your advantage, provided you act before year-end.
If you have taxable investments that have lost value this year—and who doesn’t? —the basic idea is to sell them in 2022 to lower the taxes you owe. Realized losses can be used to offset any investment gains you’ve realized this year.
WHEN MARKETS PLUNGE, investors start questioning whether they have the right mix of stocks, bonds and cash. That’s no great surprise: Bear markets hammer home the investment risks we’re taking—and many folks discover their portfolio is too aggressive for their taste.
That’s a useful insight for the future. But it’s hardly one you want to act upon when, even after Thursday’s rally, the broad stock market remains down some 16% for the year-to-date and the bond market is off 14%.
REMEMBER THE OLD sayings that “the cobbler’s children have no shoes” and “the carpenter’s house is falling down”? That’s how I felt last month as I frantically tried to enroll in Medicare.
My 65th birthday was in early September. Medicare has an initial enrollment period that lasts seven months. It starts three months before you turn age 65, includes your birth month, and ends three months after the month you turn 65. Suppose you were born on Sept.
I WAS IN NEW YORK visiting my sister a few weeks ago when I saw a sign that read “Delay = Denial.” For me, that simple yet profound statement immediately struck a chord.
The sign was referring to climate change. Yet I could see how this plays out in other areas of my life. I began asking myself, what causes us to delay or deny the obvious?
I reached one clear conclusion: complexity. The things we tend to delay the longest are the things we believe to be too complicated.
MY FAVORITE BOOK of all time is The 7 Habits of Highly Effective People. The title may be the only thing that author Stephen Covey has ever written that I don’t like. This book and all of Covey’s work are exploding with life, integrity and meaning. I believe he does an incredible job conceptualizing the most important questions of a well-lived life. If you can’t tell, I’m a bit of a disciple.
THE FINANCIAL WORLD generates a lot of noise. As a financial planner, I see that every day. Being in my 20s, it’s fun to learn about new alternative investments or imagine getting rich quick thanks to one stock or following the advice of one social media post.
But I know that’s all it is—fun. Instead of imagining my way to wealth, I take control of my finances by creating rules to live by. Rules are driven by values.
