If folks thank you for reaching out and promise to circle back, you know they’ve done time in the corporate world.

Got to Believe

I CAN ALREADY hear the groans. “Oh brother, here we go again with another of those religious wackos. I’m glad I don’t have to worry about all of that faith-based nonsense. My finances have nothing to do with faith.”
Really?
How about the guy spending his last dollar on a lottery ticket at the corner market? Or the victims of Bernie Madoff? Or the 65-year-old Enron employee fully invested in company stock in summer 2001?

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The Dreaded Letter

WHEN I CHAT with clients about the IRS and mention audits, many turn white with fright. To alleviate angst, I explain that years of underfunding have forced an understaffed IRS to significantly scale back its enforcement efforts. But my reassurances are insufficient to assuage the fears of some clients, so I alert them to tactics that can make audits less traumatic and expensive.
Let’s start with the bad news: Audits are basically adversarial proceedings.

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Choosing Badly

TIME VALUE of money, asset class, diversification, dollar-cost averaging: This is the language of investment professionals. But it isn’t the language of everyday Americans, including those saving for retirement in their employer’s 401(k) plan.
Trust me, I know. During my nearly 30 years overseeing 401(k) plans, including providing financial education to participants, it became clear to me that using such plans as intended wasn’t easy for most people.
For diversification, employees would often invest in several different mutual funds all focused on a similar collection of U.S.

Read more »

Latest Blogs

Got to Believe

I CAN ALREADY hear the groans. “Oh brother, here we go again with another of those religious wackos. I’m glad I don’t have to worry about all of that faith-based nonsense. My finances have nothing to do with faith.”
Really?
How about the guy spending his last dollar on a lottery ticket at the corner market? Or the victims of Bernie Madoff? Or the 65-year-old Enron employee fully invested in company stock in summer 2001?

Read more »

The Dreaded Letter

WHEN I CHAT with clients about the IRS and mention audits, many turn white with fright. To alleviate angst, I explain that years of underfunding have forced an understaffed IRS to significantly scale back its enforcement efforts. But my reassurances are insufficient to assuage the fears of some clients, so I alert them to tactics that can make audits less traumatic and expensive.
Let’s start with the bad news: Audits are basically adversarial proceedings.

Read more »

Choosing Badly

TIME VALUE of money, asset class, diversification, dollar-cost averaging: This is the language of investment professionals. But it isn’t the language of everyday Americans, including those saving for retirement in their employer’s 401(k) plan.
Trust me, I know. During my nearly 30 years overseeing 401(k) plans, including providing financial education to participants, it became clear to me that using such plans as intended wasn’t easy for most people.
For diversification, employees would often invest in several different mutual funds all focused on a similar collection of U.S.

Read more »

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Numbers

SEATTLE, LAS VEGAS and San Francisco saw the largest home-price increases over the past 12 months, all climbing 10% or more, as measured by the S&P CoreLogic Case-Shiller price indices. Chicago and Washington, DC, notched the smallest gains, rising just 2%.

Act

HOW MUCH HOUSE CAN YOU AFFORD? Ponder the question from two angles. First, there’s how much you could potentially borrow. You can find out at HSH.com. Second, there’s how much it makes sense to borrow. If you took on the maximum mortgage possible, would you have enough left over each month to save for retirement and the kids’ college?

Think

TAX EFFICIENCY. We should minimize our portfolio’s tax bill, so we keep more of what we make. That means making full use of retirement accounts, while thinking carefully about which investments to hold in our taxable account. For instance, we might allocate bonds and restrict trading to our 401(k) and IRA, while using our taxable account to buy and hold stock index funds.

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Unanswered

THERE ARE MANY FINANCIAL DEBATES that shouldn’t be debates at all. Folks strike strident poses, but often their positions don’t reflect a careful weighing of the arguments. Rather, they either have a vested interest or their ego is invested. Think of commission-hungry insurance agents who pound the table for cash-value life insurance, or retirees who took Social Security early and then insist that early is always best.
In most of these cases, if we marshal the facts and apply some reasoning,

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Jonathan Clements

About Jonathan

Jonathan Clements is the founder and editor of HumbleDollar. He spent almost two decades at The Wall Street Journal, where he was the personal finance columnist. His latest book: How to Think About Money.

Money Guide

Everything you need to be smarter about money—all in one place.

Start Here

Four Percent Rule

BY THE LATE 1990S, WITH ALMOST two decades of robust investment returns under their belts, investors would talk about 6%, 8% and even 10% as a reasonable rate at which to draw down a retirement portfolio. But researchers begged to disagree—and the financial markets provided brutal confirmation, hitting stock investors with back-to-back bear markets in 2000–02 and 2007–09. Today, 4% is considered a safe withdrawal rate (though even that number has been called into question). What does that 4% represent? Let’s say you retired with $500,000. A 4% withdrawal rate suggests you would pull out $20,000 from your portfolio in the first year of retirement and thereafter step up that sum each year with inflation. For instance, if inflation ran at 3% a year, you would withdraw $20,600 in year two, $21,218 in year three and so on. Any dividends and income you receive would count toward the annual sum withdrawn. Also, this 4% is pretax. After all those years of tax-deferred growth in 401(k) plans and IRAs, the tax bill comes due in retirement. Once Uncle Sam takes his cut, you will have less than 4% to spend. Here’s another way to look at that 4% withdrawal rate: If you know how much retirement income you want from your portfolio, you should aim to amass 25 times that sum by the time you retire. Need $20,000 in first-year retirement income from your portfolio? To generate that sum using a 4% withdrawal rate, you’d want 25 times $20,000, or $500,000, saved by retirement. According to studies, a 4% initial withdrawal rate coupled with annual inflation adjustments should allow you to make it through a 30-year retirement without depleting your savings. This might seem like a meager income stream. But it’s necessary because of a major danger: sequence-of-return risk. Next: Sequence-of-Return Risk Previous: Your Safety Net
Read more »

Money Guide

Everything you need to be smarter about money—all in one place.

Start Here

Four Percent Rule

BY THE LATE 1990S, WITH ALMOST two decades of robust investment returns under their belts, investors would talk about 6%, 8% and even 10% as a reasonable rate at which to draw down a retirement portfolio. But researchers begged to disagree—and the financial markets provided brutal confirmation, hitting stock investors with back-to-back bear markets in 2000–02 and 2007–09. Today, 4% is considered a safe withdrawal rate (though even that number has been called into question). What does that 4% represent? Let’s say you retired with $500,000. A 4% withdrawal rate suggests you would pull out $20,000 from your portfolio in the first year of retirement and thereafter step up that sum each year with inflation. For instance, if inflation ran at 3% a year, you would withdraw $20,600 in year two, $21,218 in year three and so on. Any dividends and income you receive would count toward the annual sum withdrawn. Also, this 4% is pretax. After all those years of tax-deferred growth in 401(k) plans and IRAs, the tax bill comes due in retirement. Once Uncle Sam takes his cut, you will have less than 4% to spend. Here’s another way to look at that 4% withdrawal rate: If you know how much retirement income you want from your portfolio, you should aim to amass 25 times that sum by the time you retire. Need $20,000 in first-year retirement income from your portfolio? To generate that sum using a 4% withdrawal rate, you’d want 25 times $20,000, or $500,000, saved by retirement. According to studies, a 4% initial withdrawal rate coupled with annual inflation adjustments should allow you to make it through a 30-year retirement without depleting your savings. This might seem like a meager income stream. But it’s necessary because of a major danger: sequence-of-return risk. Next: Sequence-of-Return Risk Previous: Your Safety Net
Read more »
Home Call to Action
Jonathan Clements

About Jonathan

Jonathan Clements is the founder and editor of HumbleDollar. He spent almost two decades at The Wall Street Journal, where he was the personal finance columnist. His latest book: How to Think About Money.

Free Newsletter

Unanswered

THERE ARE MANY FINANCIAL DEBATES that shouldn’t be debates at all. Folks strike strident poses, but often their positions don’t reflect a careful weighing of the arguments. Rather, they either have a vested interest or their ego is invested. Think of commission-hungry insurance agents who pound the table for cash-value life insurance, or retirees who took Social Security early and then insist that early is always best.
In most of these cases, if we marshal the facts and apply some reasoning,

Read More »