Jonathan Clements's Blog

When my twin brother Nick and I sold our landscape business at the end of 2012, at the age of 52, we agreed to stay on for another three years. Looking back, that may have been one of the best retirement decisions I never consciously made.

Those three years gave me time to ease into retirement instead of falling into it. They also gave me time to think about something I believe is far more important than deciding when to retire. It’s what are you retiring to?

After enduring another cold Maryland winter, I knew exactly one thing, I wanted warmth. Not just for my aging body, but for a life that could be lived outdoors every month of the year. I’d bought a condominium in Florida a few years earlier, and because I could work remotely, I made the move south.

That became my first step into retirement.

A few years later, Joey and I traded condo living for a single-family home. For the first time in my life, I wasn’t landscaping someone else’s property. I was creating my own. After more than 35 years building landscapes for clients, there was something deeply satisfying about planting trees and flowers simply because they brought me joy.

Then, in 2015, the paychecks stopped.

So did the alarm clock.

For decades my mornings had begun with somewhere to be, someone to meet, or a problem to solve. Suddenly there was nowhere I had to be. I discovered the pleasure of a second cup of coffee that wasn’t making me late for anything.

Retirement also gave us something else that had always been in short supply. Time.

Without a business waiting for me on Monday morning, Joey and I began traveling. We explored towns up and down the East Coast, visited the United Kingdom, the Caribbean, Costa Rica and the Philippines. Every trip reminded me that the world is much bigger than my own experiences. Meeting people whose lives were so different from mine somehow made mine richer.

Travel also awakened something I never expected. I started writing poetry after visiting the Philippines. Those poems gradually turned into personal essays, and eventually into articles for HumbleDollar. Writing has become one of the great surprises of retirement. It has allowed me to reflect on my life, my family, grief, gratitude, and the people who shaped me. In many ways, I’ve found a new purpose just as my old one ended.

Of course, retirement also meant trusting that we had saved enough. That didn’t happen overnight. For years I found myself worrying about money, even though the numbers told me we were financially secure. Old habits are hard to break. After spending a lifetime making payroll, watching expenses and preparing for the unexpected, it took time to believe that we no longer had a mortgage, no debt and no one financially depending on us.

Eventually I stopped asking, “Do I have enough?” Instead I started asking, “Am I living well?” Those turned out to be two very different questions. When people talk about retirement, the conversation usually centers on finances. Those are certainly important. But I’ve come to believe they’re only the admission ticket. Retirement isn’t simply about leaving work. It’s about discovering the life that work never left enough room for. For me, that life has been found in slow mornings, travel, gardening, writing, friendships and the quiet satisfaction of choosing how to spend each day.

That is what I retired to.

The post What I Retired To appeared first on HumbleDollar.

I saw this on the back page of today's Wall St Journal.

"On this day in 1971, Wells Fargo launched the world’s first stock-index fund. One mutual-fund manager’s reaction: “If people start believing this random-walk garbage and switch to index funds, a lot of $80,000-ayear portfolio managers and analysts will be replaced by $16,000-a-year computer clerks. It just can’t happen.”

The post Today in Financial History appeared first on HumbleDollar.

We all remember the 2022 bond collapse, triggered by rising interest rates. Most of us were caught out, a supposedly safe asset class posting double-digit losses. Some of those bond funds are still slightly underwater four years later. Which brings me to a question worth thinking about.

Right now, Treasury Inflation-Protected Securities (TIPS) are offering guaranteed real returns of roughly 2-3% above inflation. That's a compelling, ultra-safe option for liability matching in retirement, and I think most people would do well to look into it. The catch: none of us have unlimited capital. For many, the money to fund that TIPS allocation would have to come from selling bond funds that are still sitting at a loss.

So the real question is this: does it make sense to realize a loss now in order to lock in today's TIPS environment?

My personal opinion, for what it's worth: don't anchor to the purchase price. What you paid for those bond funds in 2021 is gone, and it has zero bearing on whether today's decision is a good one. The only question that matters is forward-looking: is this capital better off in TIPS than in what you're currently holding?

Framed that way, the "loss" stops being a loss at all. You're not losing money by selling, you already lost it when rates rose in 2022. The price already reflects that. What you're actually doing now is trading an uncertain, drifting recovery for a locked-in, inflation-protected return.

To my way of thinking, that's not giving something up. It's possibly an upgrade.

There's a second reason this makes sense beyond the psychology: compare current yields, not prices. Your bond fund's price already adjusted to the higher-rate world, so the real comparison isn't "I'm down X%, do I cut my losses." It's "what yield is this fund actually offering me now, versus what TIPS are offering." Once you strip out the emotional weight of the purchase price, it's just a straightforward yield comparison.

Often, that comparison favors moving.

If you're holding in a taxable account, there's a possible third reason to act now rather than later: realizing that loss can offset gains elsewhere. The tax code is quite literally rewarding you for doing the thing your instincts are resisting. The sunk cost fallacy is fighting you at exactly the moment the numbers are on your side.

So what do you think of my reasoning, does it make sense or am I missing something obvious? I'm not a financial advisor but it seems to me getting hung up on any bond losses shouldn't be the driver of your decision making.

 

 

The post Taking a Loss? appeared first on HumbleDollar.

TIPS are US Government securities that currently pay two to three percent real return depending on the maturity selected. You can buy them from your broker, Treasury Direct account, Exchange Traded Funds (ETFs) and mutual funds. So, if inflation for a time period is three percent, your bonds earn five to six percent depending on the time period. These real returns are guaranteed by the US Treasury. I will not give all the details here and am not giving advice. Any retiree who needs bonds in their portfolio should look into TIPs. Talk to your financial advisor or wealth manager. This opportunity will not last forever. I welcome polite comments.

The post Treasury Inflation Protected Securities (TIPS) are a Generational Bargain Right Now appeared first on HumbleDollar.

Social media is full of seniors complaining about inflation, the inadequacy of Social Security and its COLAs to keep up.

I was curious. Is that true and what has happened to my purchasing power since retiring in January 2010?

To match the purchasing power of $100 in 2010, you would need approximately $153.15 in 2026.

Meanwhile, $100 in Social Security benefits in 2010 has grown through compounded Cost-of-Living Adjustments (COLAs) to $147.36 in 2026. Not equal, but not that far apart either.  The greater portion of total retirement income provided by SS, the closer to matching inflation a retiree is - although I suspect it doesn’t feel that way depending on how adequate Social Security was upon retirement.  

The biggest contributor to current prices was the unusually high COVID related inflation during 2021–2022. Inflation has since moderated, but prices generally have not fallen—they've simply been rising more slowly. 

For the typical family, the largest increases have been: Housing (rent, home prices, property taxes, insurance), Restaurant meals, Hospital and medical services (more accurate insurance premiums), Child care and Groceries. 

However, we need to consider that not everyone uses the goods and services in the CPI the same way or at all in some cases. 

For example, for seniors buying a home, a new vehicle, child care, tuition even medical care are highly variable. As usual, our Medicare and Medicaid premiums have increased, but our out of pocket healthcare expenses have not despite using hundreds of thousands of dollars in services. 

The average Social Security benefit being paid in January 2010 has increased by $595/month. The Medicare Part B premium has increased by $92.40.

Here is an interesting perspective. If I was following the 4% withdrawal rule upon retirement and had investments of $1,000,000 in 2010, what would I be withdrawing in 2026?

I would be withdrawing approximately $61,260 per year in 2026

There are so many variables living in retirement that averages and CPI inflation cannot be applied uniformly, but to me one thing is clear, nobody should retire without a strategy to cope with inflation over several decades. It appears many retired Americans have not planned or considered the impact of rising prices on a surviving spouses income. 

The post Inflation, prices, COLAs, retirement and the last 16 years appeared first on HumbleDollar.

THE WIDOW TAX is sold to the wrong households. It gets pitched to affluent couples as the reason to convert to a Roth or buy life insurance. The pitch says that when one spouse dies, the survivor files single, lands in a higher bracket, and gets clobbered. I ran the numbers for three couples at three incomes, and at the comfortable end the widow tax often costs nothing, or even less than nothing.

The real cost lands lower down, on households nobody is selling anything to. What follows uses 2026 federal figures to show what the widow tax actually does in dollars, not in scary percentage points. The pattern runs opposite to the marketing. The higher your income, the smaller the hit, and the lower you go, the more it bites.

Three Things Move

When the first spouse dies, three things change, and they get bundled under one frightening label. One Social Security check stops, and a pension may shrink or end. That is lost income, and it is usually the largest of the three. It is not a tax.

Spending shifts as well. The survivor pays one Medicare premium instead of two, but the mortgage still comes out of the same account. The third change is the only one the tax code causes: narrower single brackets, a smaller standard deduction and lower thresholds for the Medicare surcharge. The widow tax is that third piece alone, and the three households below measure how big it really is.

The Affluent Couple

Both spouses are over 65. Their income is about $360,000: $80,000 from Social Security, $210,000 from a pension and required minimum distributions, plus $30,000 in qualified dividends and $40,000 in long-term gains. They sit in the 24% bracket, and both already pay the Medicare surcharge.

One spouse dies. The survivor keeps the larger Social Security check and most of the other income, landing at roughly $308,000. As a couple, they paid about $53,900 in federal income tax and a Medicare surcharge of about $9,240. As a single filer, the survivor pays about $55,000 in federal tax and a surcharge of about $6,355.

The effective rate rises from 15.7% to 18.7%, which is the headline people remember. But the federal tax barely moves, up only about $1,100, because the survivor has less income to tax. The Medicare surcharge actually falls about $2,900, because two enrollees in the couple's joint tier cost more than one survivor a tier above. Net it all out, and the survivor pays about $1,800 a year less than the couple did.

The rate went up, and the dollars went down. At the high end, the widow tax measured in money hands back a small refund. This is why the Roth conversion pitch aimed at comfortable couples misfires. If converting to Roth would cut the survivor's future taxable income without cutting the couple's lifestyle, the converted money was surplus.

Surplus is money the survivor never needed to replace. Edward McQuarrie, a finance professor emeritus at Santa Clara University, made a version of this argument in a 2023 paper. He found the dollar hit inconsequential for affluent couples, and located any real cost lower down, where the Social Security torpedo bites.

Where It Actually Bites

Drop down to a couple with $180,000 of income: $60,000 from Social Security and $120,000 from a pension and required minimum distributions, all ordinary income. Both are over 65. The couple files jointly at $180,000; the survivor files single at about $150,000. As a couple, they paid about $17,148 in federal tax and no Medicare surcharge.

The survivor pays about $22,737 in federal tax and a new surcharge of about $2,885. The federal tax rises about $5,600, and a surprising chunk of that comes from the collapse of the new $6,000 senior deduction, which phases out against a lower income threshold for singles. Then the survivor crosses into a Medicare surcharge tier the couple never paid. The total cost of widowhood here is roughly $8,500 a year, set against a $30,000 income loss.

This is the one band where both the dollars and the rate move the wrong way. Now take a couple with $90,000 of income: $38,500 from Social Security, about the national average for two retired spouses, plus $51,500 from a pension and distributions. The survivor keeps the larger Social Security check and the full pension, landing at $73,500.

As a couple, they paid about $3,433 in federal tax, at an effective rate of 3.8%. The survivor pays about $5,278, at an effective rate of 7.2%. There's no Medicare surcharge at this income, and there never will be. But the survivor's effective rate nearly doubles, because more of the Social Security benefit becomes taxable, up to the 85% ceiling, when the single thresholds replace the joint ones.

The added tax is about $1,845, and the lost income is $16,500. Real money for a household least able to absorb it. It doubles the effective rate, and it hurts. 

Read the three together and the widow tax points the wrong way from the marketing. At $360,000 it costs less than nothing, roughly a $1,800 annual saving. At $180,000 it costs about $8,500. At $90,000 it costs about $1,850, but the effective rate doubles.

The affluent couples being sold protection don't need it. The middle couples who feel the sting are not being sold anything, and they're the ones for whom a few thousand dollars a year actually constrains a life. The tax code has three different mechanisms, and which one finds you depends almost entirely on your income. At the top, the Medicare surcharge does the work, and it falls.

In the middle, the surcharge appears from zero. At the bottom, the Social Security torpedo raises the taxability of the benefit from 75% to 85%. The mechanism changes with the income, and so does the household's ability to absorb the hit.

Plan Ahead

This is where the widow tax conversation usually stops, and where I think it should start. The moves most likely to leave a survivor better off are the ones you make years before, and they help whether or not the widow tax ever bites. Converting traditional IRA money to Roth over several years before retirement smooths your taxable income. It lowers the required minimum distributions that will later push a single filer into higher brackets.

It can also keep a survivor under a Medicare surcharge tier the couple never worried about. Drawing accounts in a sensible order, spending down the right buckets first, reduces the future tax base that a single bracket structure will tax more steeply. Managing required distributions as they grow, rather than letting them balloon off a rising balance, limits the single bracket exposure that builds across a long widowhood. A more tax-efficient bequest helps the people who inherit what is left.

None of that is widow rescue. It is good multi-year planning that happens to compound in the survivor's favor. The widow tax is one input to that planning, not the reason for it. The reason is that the year your spouse dies is the worst possible year to be making financial decisions, and the more of those decisions you have already made, the fewer you hand to someone who is grieving.

You can do a rough version of this at your own kitchen table, and you should, ideally long before you need to. Estimate the survivor's income after the smaller Social Security check and any pension change, then estimate the survivor's spending from your actual budget, not a generic rule of thumb. Subtract. If reliable after-tax income still supports the life the survivor wants, with margin, the tax rate was never the thing to worry about.

Then project the survivor's federal tax, the net investment income tax where it applies and the Medicare surcharge as a single filer, and compare it to the couple. Keep the tax separate from the lost income, so you can see what the tax code actually did. Sometimes, as the affluent couple shows, it does you a small favor.

Only then does a planning move earn a look, and only if you can answer what it costs today, what it might save later, who benefits and what has to come true for it to work. The widow tax is real, but it isn't the catastrophe it's sold as. At higher incomes it's not a cost at all. Lower down it is a real cost, and the lower you go, the more it's worth measuring, because the households it constrains have the least margin to spare.

The planning that matters most is the kind you do years ahead, smoothing income, holding down future distributions, managing the surcharge tiers and putting the estate in order. Do that, and you've done right by your survivor, for reasons that have little to do with fear and a great deal to do with care. You'll have done it in the years when you still had the time, and the clarity, to do it well.

________________________________________________________________________________

John Urban is the founder of RetireSmartIRA, a retirement tax-planning app. Earlier, he founded GT Nexus, a supply-chain software company acquired by Infor in 2015. He lives in Northern California with his wife, Kathy, and enjoys time with family, travel, reading, Bay Area sports, and the occasional deep dive into the fine print of the tax code.

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WHEN IT COMES to financial decisions, many investors subscribe to an approach known as evidence-based investing. The idea, as the name suggests, is to base decisions, whenever possible, on data rather than on intuition or other informal methods.

This sounds logical. It isn’t perfect, though. Economic and financial indicators have weaknesses which are important to be aware of. 

Consider, for example, the Cyclically-Adjusted Price-to-Earnings, or CAPE, ratio, developed by Robert Shiller, a Yale professor and Nobel laureate, along with a colleague. Owing to its pedigree, the CAPE is highly respected. And a study by the Vanguard Group found that the CAPE had the strongest ability to predict market returns among fifteen different metrics it tested. For these reasons, many view it as the gold standard for stock market valuation. But how accurate has it been? 

For years, the CAPE ratio has been flashing red. Since 2018, in fact, it’s been more elevated than it was at the peak in 1929, just before the crash. It seems to be indicating extreme risk. And yet, the market has continued to move higher with only temporary setbacks, defying the CAPE’s warnings.

Even Shiller himself has acknowledged that the CAPE’s predictive abilities can fall short. In 2021, he made this seemingly contradictory statement in an opinion piece: “The stock market is already quite expensive,” he wrote, “But it is also true that stock prices are fairly reasonable right now.”

Here’s how he explained this seeming contradiction: While the stock market at the time was expensive by historical standards, he noted that investors should never look at any one metric in a vacuum. Investments need to be considered in comparison to other available options. On that basis, he said, stocks were not expensive, because bonds at the time were also expensive.

Recognizing how the CAPE can register misleading readings under certain conditions, Shiller and a colleague have since developed a modified version of the CAPE called the Excess CAPE Yield. This new metric helps investors compare the prospective relative returns of stocks and bonds. Shiller’s message, in other words: The original CAPE ratio on its own shouldn’t be seen as conclusive.

Another well-respected metric that’s stumbled in recent years is the Sahm rule. In general terms, this rule says that when the unemployment rate begins to increase at a particular rate, a recession is likely. In back-testing, it’s been shown to be remarkably accurate. Since 1959, it would have generated just two false positives.

A few years ago, however, the Sahm rule threshold was breached, theoretically indicating a recession. But Claudia Sahm, the rule’s creator, was quick to explain why investors shouldn’t be nervous. “The Sahm rule is likely overstating the labor market's weakening due to unusual shifts in labor supply caused by the pandemic and immigration,” she wrote. And in the years since, as Sahm guessed, the economy and the stock market have indeed avoided recession.

The upshot: Economic indicators may work—and even work reliably—for a period of time, but then break down when something about the economy changes in a fundamental or unique way, as occurred in the wake of Covid. 

Economic indicators carry another fundamental flaw: In some cases, an indicator might be correct in its prediction but less than accurate in its timing. It might tell us what’s likely to happen, in other words, but won’t tell us when that event is expected to occur. Probably the most famous occurrence along these lines was in 1996, when Alan Greenspan, then the chair of the Federal Reserve, proclaimed that the stock market was exhibiting “irrational exuberance.”

Greenspan turned out to be absolutely right: A bubble was forming in the market, valuations were irrational and a crash was coming. But he didn’t get the timing right. The crash that ultimately occurred didn’t arrive until early 2000—more than three years after he issued his warning. And in those intervening three years, the market more than doubled. Investors who got more cautious in response to the initial warning would have missed out on significant gains.

Along the same lines, consider what occurred with the pandemic. When Covid appeared in 2020, it seemed to arrive completely out of left field with no warning. The reality, though, is that certain experts did have pandemic risk on their radar. A 2019 risk assessment by the Federal Emergency Management Agency (FEMA) highlighted the risk of a pandemic among a short list of concerns. The problem, though, was that the report was vague, describing a risk but without any indication when it might occur. It was like a clock with no hands.

It was because of examples like this that the fund manager Peter Lynch has said, “It’s futile to predict the economy, interest rates, and the stock market...If you spend 13 minutes a year on economics, you’ve wasted 10 minutes.”

That’s humorous, but where does that leave us? On the one hand, we know better than to consult storefront psychics. But economic indicators aren’t terribly reliable either. Investor Howard Marks offers a helpful answer. In his book Mastering the Market Cycle, Marks offers this suggestion: Imagine, he says, a jar filled with a mix of balls of various different colors. No one can tell with the naked eye how many there are of each. But if you can at least have a sense of the mix, that can be helpful. By the same token, no economic indicator should be seen as conclusive, but taken together, they may provide a sense of where things stand.

What does this mean in practical terms? Suppose, for example, you’re considering rebalancing your portfolio and wondering how aggressive to be in reducing risk. You could use Marks’s guideline in this case. If the market seems high, you might be a little quicker to reduce risk. But at the same time, we should always keep in mind the “irrational exuberance” episode as a cautionary tale. It’s a reminder to never veer too far in any one direction. As I’ve suggested before, a center-lane approach often represents the best path forward.

 

Adam M. Grossman is the founder of Mayport, a fixed-fee wealth management firm. Sign up for Adam's Daily Ideas email, follow him on X @AdamMGrossman and check out his earlier articles.

 

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She was a beautiful young girl, going through some hard times, living on the street and surviving by the good will of others. A middle aged man and his wife, well, he considered himself to be middle aged but was actually well beyond the half way point, offered to take her in. She was a little creeped out by the offer. 

Always on guard, she wondered what was the catch, what was expected in return. But they seemed to want nothing in return, just someone to hang with, maybe watch a little Netflix together. A warm, dry place to live, they didn’t even ask for help buying the groceries. 

Anyway, these were the thoughts I had this morning when Chrissy told me she had just ordered $100 worth of food and litter for Sophie the Wonder Cat. Pets are often not inexpensive guests, still, they enrich our lives. We were happy to rescue Sophie, but sadly there are many great cats and dogs waiting for the right human to come along and offer them a second chance. 

 

The post Too Good to be True appeared first on HumbleDollar.

This author says is better than I ever could, great perspective:

https://www.meaningfulmoney.life/post...

The post Go While You Still Can appeared first on HumbleDollar.

Hi HD Community, I need your help.  Today is my last official day of work, having been abruptly terminated with a fellow group of Sr. Managers as part of a corporate restructuring.  To be honest, I was not surprised or even particularly upset with the decision as I know the company is struggling and I have been unhappy in my role for some time.  Some quick background...I am recently 59, happily married for 35 years with two adult children who are both out of the house and on their own.  As with most members of this community, I was a diligent saver and invested wisely throughout my career.  As a result, I am in the very fortunate position that I do not need to work if I choose not to...at least not for the money.  Here is where I could use some help...as part of my severance, I am being paid 'continuing compensation' for the next several months.  Like unemployment, it comes with the stipulation that if I find a new job, ANY job, I am obligated to tell them and the payments will cease.  In other words, I am completely disincentivized from seeking employment until the payments run out!  So, here is where I can use your help...I want to stay happily married and feel productive while I search for my next role.  What ideas do you have for how I should spend my 6 months "paid vacation"?  NOTE:  I am not bragging or seeking congratulations.  I am truly worried about how I fill my days and not slip into depression.  I am hoping that one (or more) of you will have some viable suggestions for me.  Thanking you in advance.

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