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Treasury Inflation Protected Securities (TIPS) are a Generational Bargain Right Now

Howard Schwartz | Jul 27, 2026

"When TIPS had real yields to maturity of 0% or 1% they made no sense. Now that yields can be 2% or 3% they are much more interesting. I have been buying individual holdings with a 2% yield to maturity minimum in my deferred accounts and can hold to maturity. If they get cheaper can buy more. Im worried how high longer dated yields can go if Treasury has to attract investors so focusing on shorter maturity. Very easy to buy at Schwab."

- James Mcglynn

FIFA Financials

R Quinn | Jul 19, 2026

"I’m thinking that many of the 80,000 in MetLife stadium for the final game were not in the “if one can afford it.” group."

- R Quinn

Widow Tax

ArticleJohn Urban | Jul 25, 2026

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.

Inflation, prices, COLAs, retirement and the last 16 years

R Quinn | Jul 27, 2026

"I know we have been over this many times before. But hypothetically which do you think would benefit a surviving spouse more assuming both spouses live past age 70? A monthly benefit 24% higher or a lump sum of $500,000 + to do anything desired with including generating monthly income and a legacy?"

- R Quinn

Fear of the Unknown…

gnussen623 | Jul 22, 2026

"exercise, keep moving. enjoy liberation. theoretically all the saving of money is so's we can have time. it's like buying time. it does and can compound."

- John Kaczka

Market Indicators

ArticleAdam M. Grossman | Jul 25, 2026

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.

Degrees of Doubt: When Higher Education Misses the Mark

Mark Crothers | Jul 16, 2025

"As a retired career-long educator from the early 1980's to 2020, I observed the American education system transition to a focus on ever-increasing testing, largely coming from federal initiatives such as "A Nation at Risk" and "No Child Left Behind". As a result, increased amounts of time that students spend in a classroom are devoted to preparing to do well on the next standardized test and significantly less time is available for teachers to work with students to develop critical thinking and problem-solving skills. Preparing for a test is not the same as learning new concepts. Our state commissioner of education, commenting probably 25 years ago about increased testing, said something to the effect of: "I grew up on a farm. We didn't weigh our cattle more to see if they were gaining weight; we fed them more". I believe that is a very fitting analogy."

- Dave Melick

One Person’s Luxury, Another’s Necessity

Mark Crothers | Jul 21, 2026

"Wendy, sorry to hear of your loss. Sport, and the social side that comes with it, has been a constant thread through my life since childhood. I'd say the social aspect matters as much for the mind as the exercise does for the body. And as you say, it doesn't happen on its own — we have to make the effort. My sporting journey has evolved with age: rough contact sports like rugby and football when I was young, faster competitive sports like tennis and badminton as I moved on from contact, and now easing into gentler ones like pickleball and padel. Through it all, the constant has been the social connection."

- Mark Crothers

Can we be completely safe?

Ben Rodriguez | Dec 17, 2025

"The main problem would be picking out the millionaire next door, and distinguishing him from the guy who really is a couple hundred dollars away from being a homeless vagrant. Criminals don't even think this way; if they had money, they would flaunt it, so they are looking for people who are flaunting money."

- Ormode

Jonathan’s Parting Thoughts: No. 9

Jonathan Clements | Jul 3, 2026

"May you rest in Peace Jonathan. Right on with that advice, pretty much what Buffett says also. And for me, I am 85% Index Stocks, and 15% cash, no bonds needed."

- William Dorner

Buying a car in retirement

Julie C | Jul 11, 2026

"Julie, what happened was this: I was actually shopping for an SUV and was at the dealership test driving yet another one when my husband suggested I test drive the Camry. I relented and liked it. The next day after research, the salesperson wrote up the numbers and I signed and talked to Finance and was good to go. When I got home, I did an online search to send a link to a family member and lo and behold, the online price was $3000 less. I called and they (amazingly) apologized and rewrote the agreement - claiming an error was made by the internet team. If I had searched on line while I was originally sitting in front of the salesperson, I would've have found it. I was just lucky I wanted to share my purchase with my sister!"

- joanm114

IRMAA & late filing of tax returns

Danbo | Jul 15, 2026

"William, your analysis is helpful."

- Danbo

Treasury Inflation Protected Securities (TIPS) are a Generational Bargain Right Now

Howard Schwartz | Jul 27, 2026

- James Mcglynn

FIFA Financials

R Quinn | Jul 19, 2026

"I’m thinking that many of the 80,000 in MetLife stadium for the final game were not in the “if one can afford it.” group."

- R Quinn

Widow Tax

ArticleJohn Urban | Jul 25, 2026

Inflation, prices, COLAs, retirement and the last 16 years

R Quinn | Jul 27, 2026

- R Quinn

Fear of the Unknown…

gnussen623 | Jul 22, 2026

"exercise, keep moving. enjoy liberation. theoretically all the saving of money is so's we can have time. it's like buying time. it does and can compound."

- John Kaczka

Market Indicators

ArticleAdam M. Grossman | Jul 25, 2026

Degrees of Doubt: When Higher Education Misses the Mark

Mark Crothers | Jul 16, 2025

- Dave Melick

One Person’s Luxury, Another’s Necessity

Mark Crothers | Jul 21, 2026

- Mark Crothers

Can we be completely safe?

Ben Rodriguez | Dec 17, 2025

- Ormode

Manifesto

Jul 26, 2026

NO. 22: IF WE’RE saving enough each month for retirement and other goals, it doesn’t much matter how we spend our remaining money—and there’s likely no need to budget.

humans

Jul 27, 2026

NO. 19: WE GET great pleasure from anticipation. The best part of any event—vacation, buying a car, the family reunion—is often the period beforehand. As we look forward to such events, we can daydream about how much fun we’ll have. Want to get the most out of anticipation? Ponder purchases far in advance—and consider all manner of possibilities.

think

Jul 27, 2026

HOUSE MONEY effect. In a rising stock market, we may attribute gains to our own brilliance, bolstering our self-confidence and leading us to make even riskier bets. This is further aggravated by the “house money” effect. Like casino gamblers who get lucky early in the evening, we may feel we’re ahead of the game—and can afford to take yet more risk.

Truths

Jul 26, 2026

NO. 68: OUR HUMAN capital—our income-earning ability—should drive our asset allocation. Early in our adult life, with decades of paychecks ahead of us, we can risk investing heavily in stocks. But as we approach retirement and the need to replace our paycheck with portfolio withdrawals, we might shift half our nest egg into bonds and other conservative investments.

Money Guide

Manifesto

Jul 26, 2026

NO. 22: IF WE’RE saving enough each month for retirement and other goals, it doesn’t much matter how we spend our remaining money—and there’s likely no need to budget.

Spotlight: Taxes

Debt and taxes and the future, Quinn asks if he is wrong.

R Quinn | Jul 4, 2025

I observe the national state of taxes, deficit spending, debt and related interest payments and wonder, is the American view of this fiscal management a reflection of the personal finance habits of too many of us?
As a nation we don’t live within our means for sure, largely ignore interest payments, and apparently don’t think about our financial future or who will pay the bills some day.
As individuals, that scenario seems to reflect the lifestyle of too many Americans.

Rule of 55: Early Retirement

Bogdan Sheremeta | Nov 1, 2025

MOST PEOPLE THINK their retirement accounts are completely locked until age 59½ due to the 10% early withdrawal penalty, but that’s not really true. There are many ways to access your money earlier without the penalty, and knowing them can give you flexibility. Of course, you shouldn’t be touching your retirement accounts unless you’re ready to retire.
Here are some distributions that are not subject to the 10% penalty, per the IRS list:

Birth or adoption (up to $5,000 per child)
Series of substantially equal payments (72t)
First-time homebuyer (up to $10,000,

AARP tax calculator changed to 2025

William Perry | May 28, 2025

AARP updated their 1040 free Tax Estimator for 2025 today. The calculator is before any changes in the H.R. 1 bill passed by the House recently.
One easy work around to see how the proposed law change may impact your 2025 taxes is plugging into the AARP calculator itemized deductions – interest the H.R. 1 additional $4K and $2K (if you are filing MFJ status) if you think the additional senior standard amounts will become law in 2025 plus your standard deduction for 2025.

ID.me

William Perry | Jul 16, 2025

I still help prepare tax returns for pay. As such I am required, among other things, to annually renew my preparer pin number.
I recently received the following from the IRS in a email –
We have updated the Tax Professional PTIN System sign-in process for tax return preparers who have a Social Security number (SSN). You will now sign in using ID.me, a technology provider that conducts identity verification and credential management for access to IRS online services.

Am I missing something? What happened to taxes?

R Quinn | Jun 24, 2025

As a result of reading HD, I have become fascinated with certified financial planner videos on YouTube, some are pretty good, others not so much.
Often one thing strikes me as ironic. Some presenters look more like they will be starting college in the fall, than experienced experts and none of them look anywhere near retirement age – maybe they will FIRE, but I digress.🤑
My real curiosity is when they show a spreadsheet to see if a hypothetical couple can afford to retire.

Some people are never satisfied

mytimetotravel | Jul 10, 2025

The Washington Post has an article on yet another effort to cut taxes for the wealthy. This time it is stepping up the cost basis for capital gains to account for inflation. You’d think they’d at least wait for the dust to settle from the recent give away.
I don’t know whether the article is behind the pay wall, it’s not giving me an option to share it so I did a straight copy.

In Case You’re Wrong

Adam M. Grossman | Mar 13, 2022

"MARGIN OF SAFETY" is a concept with deep roots in finance, going back at least as far as Benjamin Graham’s Security Analysis, first published in 1934. The idea: Investors should never be too confident in any analysis and should leave the door open to the possibility that their analysis might be right but not precisely right. Suppose you’re interested in buying Microsoft stock. And suppose that, after analyzing it, you concluded that it was worth $330 a share. With the stock around $280 today, that might look like an attractive investment. If the stock rose to $330, you’d earn an 18% profit. That’s not bad. But what if things didn't work out precisely according to the numbers? Then that profit might not materialize. That’s where you’d apply a margin of safety. In this case, Graham might have recommended you wait and only buy the stock if it dropped to, say, $250. That would allow you to come out ahead even if the stock didn’t get all the way to $330. Since Graham’s time, margin of safety has become foundational for value investors. That’s why Seth Klarman, a hedge fund manager and one of history’s most successful value investors, titled his 1991 book Margin of Safety. Because of this association with Graham and Klarman, the notion of margin of safety is seen mostly as a concept within the limited domain of investment analysis—and, even more narrowly, within the domain of value investing. It is, however, an idea that I think is more broadly applicable within personal finance. At times of uncertainty, margin of safety seems like an especially important idea to revisit. In his book The Psychology of Money, Morgan Housel articulated the key benefit: “Room for error lets you endure a range of potential outcomes.” Let’s look at how this applies in practice. In the…

Their Loss, Your Gain

Adam M. Grossman | Jun 27, 2021

LONG-TERM-CARE insurance policies are, in my opinion, both a blessing and a curse. They're a blessing because they can help cover critical and costly care when a family might have no other financial options. But they can also feel like a curse. That's because of what many owners of traditional long-term-care (LTC) insurance refer to as “the letter.” This is the renewal letter that policyholders receive each year. These letters provide a menu of renewal options, each of which offers some combination of premium increases and benefit cuts. But unlike most insurance policies, which might impose a modest or at least manageable increase each year, it isn’t uncommon to see LTC premiums jump by 10%, 20% or more—sometimes much more. As a result, the options in these letters generally range from unpalatable to unaffordable to downright depressing, plus the decision is often complicated. These letters frequently present a matrix of choices, with options along multiple dimensions, including: Cost Maximum daily benefit Inflation benefit Elimination period Benefit period Total lifetime benefit Cash payment to policyholder Because there are so many variables, the renewal decision defies straightforward cost-benefit analysis, making it an agonizing annual dilemma for policyholders. If you or a family member has one of these policies, how should you approach the decision? Before getting into the details, it’s important first to understand some background—in other words, why these letters are even necessary. The fundamental problem in the LTC market isn't difficult to grasp: When insurers created these products, they miscalculated and priced them far too low. There were three reasons for this: Health care costs have increased much faster than expected. Over the past 20 years, health care inflation has outpaced the overall inflation rate by almost 1½ percentage points a year. Compounded over time, the result has been a steep increase in…

Telling Tales

Adam M. Grossman | Jul 12, 2018

WHEN YOU WERE growing up, did you ever hear stories like these? “If you swallow gum, it will stay in your stomach for seven years.” “If you keep making that face, it will freeze that way.” “If you drink coffee, it will stunt your growth.” “If you watch too much TV, your eyes will turn square.” In hindsight, these stories are funny and harmless. But problems can arise if, as adults, we make important decisions based on misinformation. Within the world of personal finance, the topic that seems most susceptible to tall tales is Social Security. I regularly hear people attack it, arguing that it’s a Ponzi scheme or that it’s going to go broke. While the program isn’t perfect, I believe it’s far better than its reputation suggests. Below are five common myths about Social Security, along with my views. Tall Tale No. 1: Social Security is going broke. Fact: It’s true that there are special trust funds that hold Social Security’s surplus tax revenue. Those funds, however, are not Social Security’s only source of funding. The reality is, Social Security is an obligation of the federal government. Unlike a private company’s pension plan, the government will have to continue making payments, whether or not there’s any surplus remaining in those trust funds. Yes, in the future, Congress could vote to reduce benefits. But the system cannot truly “run out of money.” Tall Tale No. 2: It’s just a retirement plan. Fact: While Social Security is best known for its retirement benefits, it also provides two other important programs: disability insurance and life insurance, in the form of survivor benefits. With a few exceptions, all three programs are available to every American. Tall Tale No. 3: Since Social Security provides disability benefits, there’s no need for private disability insurance. Fact: While…

When to Sell

Adam M. Grossman | Jul 10, 2022

U.S. STOCKS ARE DOWN almost 19% so far this year. The broad bond market, surprisingly, has also lost money, sliding almost 11%. At times like this—when the headlines are almost all negative—the standard advice is to avoid panicking and stay focused on the long term. I agree with that, and indeed the data are clear: Investors who attempt to time the market with “tactical” trades often suffer whipsaw. But that doesn’t mean we should bury our heads in the sand. There are at least four situations in which it might make sense for investors to sell during a down market. 1. Cash flow. The first—and most obvious—reason you might sell stocks is to meet cash needs. In general, I recommend that investors hold at least three years of expenses in cash or bonds, if not more. But what if your portfolio wasn’t structured that way before the market dropped, and you find yourself with insufficient cash and bond holdings to meet upcoming expenses? It might seem like an unpleasant prospect to sell now. That’s understandable. Ideally, we would only sell when the market is strong. Nonetheless, I wouldn’t hesitate to sell. Yes, the market is down. But relative to past downturns, things really aren’t so bad. The S&P 500 is off 18% in 2022. While that might sound like a lot, that’s relative to a high point—and comes after more than a decade of almost continuous gains. Compared to just three years ago, for example, the S&P 500 is up 37%, and bonds are down only 3%. Unloading investments at today’s prices is hardly a fire sale. If selling some shares at today’s prices would help you to build a cash reserve, I wouldn’t hesitate. You could then sleep easy, even if the market dropped further. 2. Suboptimal holdings. In my view, there are…

How to Lose Less

Adam M. Grossman | Jul 18, 2021

IF THERE’S ONE STORY that seems to have captured the investing public’s imagination this summer, it’s the revelation that venture capitalist Peter Thiel has managed to accumulate more than $5 billion in his Roth IRA—where it will be entirely tax-free to him. In its reporting, ProPublica, the news outlet that carried the story, focused mostly on the tax aspects—the fact that Thiel was able to use his Roth IRA in such unusual ways. In my opinion, though, the more notable element of this story is simply that Thiel was able to turn an initial investment of just $1,700 into more than $5 billion. That was the hard part. The tax strategy, on the other hand, wasn’t exactly simple, but it wasn’t so difficult, either. Stories like this, in fact, are a reminder that taxes are—to some extent—within our control. This is especially true when it comes to investment-related income. We all know the basics of tax-efficient investing: asset location, tax-loss harvesting, charitable giving and, of course, using tax-advantaged accounts like Roth IRAs and 529s. I definitely endorse these strategies. But those aren’t the only ones. Here are three more to keep in mind: Indexing. When it comes to the active vs. passive debate, most people focus mainly on the performance advantage of index funds. But there’s another key reason to steer clear of actively managed funds: taxes. Here’s how the research firm Morningstar summed it up: “Over the past five years, Morningstar’s Tax Cost Ratio—a measure of the reduction in returns from taxes on fund distributions—has averaged about 1.8% for U.S. equity funds,” adding that, “the return hit from taxes is nearly twice as large as that from annual expenses...” To put that in perspective, the U.S. stock market’s average annual return has been about 10% historically—so that 1.8% represents a material drag. If you own…

Taking the Slow Road

Adam M. Grossman | Oct 31, 2021

A FEW WEEKS BACK, I talked about the good-is-better-than-perfect principle. A close corollary: Approach financial decisions incrementally. What do I mean by that? An example is dollar-cost averaging, where you invest a sum of money in regular increments, rather than all at once. Does dollar-cost averaging guarantee a better outcome? No. But it takes what would be one big decision and breaks it into several smaller ones. The benefit: Each of those smaller decisions ends up carrying lower stakes. Just as important, when a decision is broken down like this, there’s more room for flexibility, so you can iterate and adjust to new information. Here are eight other situations where you might consider making decisions incrementally: 1. Asset allocation. Suppose you’ve decided to change your asset allocation. You could do it all at once. Sometimes, that’s advisable. But in many cases, it makes sense to move incrementally, for this reason: It’s often hard to know how you’ll like something until you’ve tried it. Think about it like adjusting the heat in your home. You might start by turning the thermostat to 70. But when it gets there, you might decide it’s still a little cool. Then you'd bump it up another few degrees. It’s the same with your investments. It’s very hard to know how a particular portfolio will feel, especially from a risk perspective, until you’ve tried it and lived with it for a while. To be sure, you don’t want to make adjustments every day. But if you’re considering a big move, it might make sense to take it one step at a time. 2. Rebalancing. Last year, as I’m sure you recall, the stock market dropped sharply in the early days of the pandemic. It was a great opportunity to rebalance and buy stocks at a discount. But it wasn’t easy.…

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