Personal Finance Financial Planning & Investing

[4Q Basket Case]

At the bottom of this post is an article from the WSJ on what comfortable retirement looks like.

I don't like the title of the article because it quotes a number that's off-putting to a lot of people....they see the quoted figure, think "I'll never get there," and stop reading.

The real value I see is how the interviewees really did get there. One was a surgeon who made a lot of money before retirement, and has since gone back to work, not because he has to, but because he loves it. Don't pay attention to him...he's the outlier.

The rest of them had good jobs, but nothing like being initial investors in Google or Amazon or Microsoft. They were workaday people in good, but not glamorous fields -- an airline pilot (who spent the first 13 years of his working life in the Air Force), a veterinarian, a software salesman.

What they all did was start saving early, truly maxed out 401K and IRA contributions -- true maximums, not just the max that their employers would match -- and kept on keeping on for decades.

Also, note their spending in retirement. "The book" would say they could spend over $200K a year. Even in retirement, only the 80+ year-olds do that — and they obviously have a shorter time horizon now than when they were younger. Most spend well below that and still get to do pretty much whatever they want, whenever they want, in the style that they want.

When talking about football, we often say, "The same things win now that always did -- consistent execution of fundamentals, control the LOS, and don't turn the ball over."

Here’s the financial analogue to that. "The same things make a workaday person rich that always did -- start saving early, don't confuse wants with needs, use that definition to save as much as you possibly can, invest the money in low-cost equity funds, and keep on keeping on (Every. Single. Stinkin’. Paycheck.) no matter what the news says."

Here’s What a $5 Million Retirement Looks Like in America - WSJ

 

[BamaNation]

Quicken.com has a good post today on the different types of accounts and their uses, what is typically invested in each, and pros/cons of each. Not totally comprehensive but a pretty good pocket guide on info that we have covered in-depth in this series (see the first post in this current thread or the Personal Finance link in the navigation menu at the top of the site)...

Types of Investment Accounts: Pros, Cons & Examples

Choosing an investment account. Which type is right for you?

www.quicken.com

 

[4Q Basket Case]

Excellent article from today’s WSJ about the dangers of trading stock options with extremely short expiration dates — five days to a few hours.

Amateurs Pile Into 24-Hour Options: ‘It’s Just Gambling’

Rookie speculators try to strike it big on short-term investments that often act like lottery tickets.

www.wsj.com

It’s behind a paywall, but the gist is that, used right options are a great way to lock in a sales or purchase price if, for whatever reason, you can’t execute the desired transaction for a while . They can also generate income.

Used wrong, they’re nothing more than gambling, and a great way for over-confident newbies to lose their shirts.

 

[BamaNation]

In case you missed it... IRS has updated various tax-related #'s ... links and examples provided below.

• Brackets for 2024 (taxes filed in April 2025)
• 2024 401k (etc) retirement plan contribution maximums increase

2024 Federal Income Tax Brackets and Rates for Single Filers, Married Couples Filing Jointly, and Heads of Households

Tax Rate	For Single Filers	For Married Individuals Filing Joint Returns	For Heads of Households
10%	$0 to $11,600	$0 to $23,200	$0 to $16,550
12%	$11,600 to $47,150	$23,200 to $94,300	$16,550 to $63,100
22%	$47,150 to $100,525	$94,300 to $201,050	$63,100 to $100,500
24%	$100,525 to $191,950	$201,050 to $383,900	$100,500 to $191,950
32%	$191,950 to $243,725	$383,900 to $487,450	$191,950 to $243,700
35%	$243,725 to $609,350	$487,450 to $731,200	$243,700 to $609,350
37%	$609,350 or more	$731,200 or more	$609,350 or more

Source: Internal Revenue Service, "Revenue Procedure 2023-34."

2024 Standard Deduction

Filing Status	Deduction Amount
Single	$14,600
Married Filing Jointly	$29,200
Head of Household	$21,900
Additional Amount for Married Seniors	$1,550
Additional Amount for Unmarried Seniors	$1,950

Source: Internal Revenue Service, "Revenue Procedure 2023-34."

 

[whatsamatta U]

If I read the info correctly for standard deduction, a married couple with both over 65 (my situation) would deduct an extra $3100.
Seems like I had read that the extra deduction also included blindness.
Being retired with no mortgage, it will be hard to itemize and beat the standard deduction.

 

[whatsamatta U]

Something that I don't believe has been discussed. When withdrawing from your 401k you can specify some as a charitable contribution and not pay taxes on that part.
You won't be able to use that amount as a itemized deduction, but would be beneficial if you file using the standard deduction..
Let me know if this is correct.

 

[BamaNation]

Something that I don't believe has been discussed. When withdrawing from your 401k you can specify some as a charitable contribution and not pay taxes on that part.
You won't be able to use that amount as a itemized deduction, but would be beneficial if you file using the standard deduction..
Let me know if this is correct.

caveat: I am not a tax accountant, tax preparer, financial advisor, or tax attorney so consult yours before you implement anything said here!

but...

I think the way to do this would be to roll over 401k funds to an IRA and then do a qualified charitable deduction from the IRA to the charity. You can also have RMDs go to the charity.

Investopedia says this:

• Distributions from traditional individual retirement accounts (IRAs) and 401(k)s are generally taxable.
• You must take required minimum distributions (RMDs) from a traditional IRA or 401(k) at age 73 or 75, depending on your birthday.
• You don’t pay taxes on RMDs from a traditional IRA when you use them to make a qualified charitable donation (QCD).
• You can’t make a QCD directly from your 401(k), but you can roll over your funds to an IRA and then make a donation.

You rollover funds from 401k to IRA and then could donate it directly to a charity or setup a Donor Advised Fund (DAF) at somewhere like Fidelity where you can donate shares/$ to, take the normal tax benefit of doing so, and then donate to your charities of choice at any point after that. If you donate shares/funds to the DAF those will continue to grow (hopefully) in the DAF account and proceeds can be used to donate (by selling or using dividends). Fidelity . Vanguard, and Schwab (among others) can help you set one up. Bogleheads has some great info on donor-advised funds.

Obviously, this can get complex so make sure you understand the consequences (good & bad) of any withdrawal or transfer from/to 401k/IRA or into/out of the DAF. Also, if you donate to a DAF you don't always get the final final say of when shares are sold or where your donation goes (because this is a donor advised fund and not a donor owned fund.)

There was a recent court case where the custodian (Fidelity) sold shares that had been donated by a couple to their DAF just as the price went down and/or caused the price to go down further. The couple argued that Fidelity's actions reduced the impact of their donation by 30% (from ~$60mm to ~$40mm) and that Fidelity miscommunicated (at best) or broke promises about how/when it would sell the stock which ultimately drove the whole price of the stock down because of the large sell transactions. I would think this is certainly atypical but it is a risk.

 

[Bamaro]

caveat: I am not a tax accountant, tax preparer, financial advisor, or tax attorney so consult yours before you implement anything said here!

but...

I think the way to do this would be to roll over 401k funds to an IRA and then do a qualified charitable deduction from the IRA to the charity. You can also have RMDs go to the charity.

The key here for a QCD is to have the IRA withdrawl go directly into a check payable to the qualified charity.

 

[BamaNation]

The key here for a QCD is to have the IRA withdrawl go directly into a check payable to the qualified charity.

Yep - that's what I was trying to state but you did it much more clearly!

 

[4Q Basket Case]

Charlie Munger was Warren Buffett's right-hand man. A lot of people say he was actually the driving force behind Berkshire Hathaway's outsized returns, and Buffett was the more affable face man.

Munger died at age 99 this past Tuesday. Here's an article on his 12 investing tenets.

12 Lessons on Money and More From Warren Buffett and Charlie Munger | Morningstar

I personally like the first 10 and am not so wild about the last two.

#11 is about winning the birth lottery. Not in the sense of being born to wealthy parents, but in the sense of being born into an era that values what you personally do well.

I don't like that one because it can be construed to sit back and say, "I'm not valued, and it's a function of the time I was born. I can't control that, so I'm going to sit and moan and whine about how unfair life is, sit in a folding chair in my open garage, yell "Get off my lawn!" a lot, and generally throw rocks at others who are luckier than me."

It's admittedly a ton easier to abdicate responsibility for your own financial well-being than it is to take responsibility by the horns for 40 years or so. But the easy way out is a fool's choice, and this tenet could be interpreted as excusing that. People who do take responsibility aren't lucky. They're determining their own financial future.

#12 contends that happiness is a function of having low expectations. For reasons similar to #11 above, I don't like that one either. It unintentionally excuses behavior that leads to low outcomes because, hey, I didn't expect anything better anyway.

If you follow Charlie Munger's, Warren Buffett's, and Jack Bogle's financial philosophies, you won't be surprised at the first 10 of Munger's tenets.

For the workaday Joe and Jane, which Mrs. Basket Case and I once were, the secret to financial success is that there is no secret.

 

[2003TIDE]

FYI for all the Mint users, it is going away in January. They haven't done a great job announcing it, probably on purpose. It will be converted over to Credit Karma. During the conversion my understanding is that it will only pull the previous 3 years data. There will also be no budgeting feature if you currently use that in Mint.

That said I've yet to find a great free alternative, but i signed up for Quicken Simplifi yesterday for $2/mo and really like it. The watchlist feature replaces the Mint budgeting feature, and IMO is way better. It shows current spend for a category, the 12 month avg, and projected spend for current month. I was also able to export 12 yrs of tranactions from Mint to CSV and Simplifi can import that format along with all the category tags.

That is all. I'll let you guys go back to the X's and O's discussion.

 

[BamaNation]

FYI for all the Mint users, it is going away in January. They haven't done a great job announcing it, probably on purpose. It will be converted over to Credit Karma. During the conversion my understanding is that it will only pull the previous 3 years data. There will also be no budgeting feature if you currently use that in Mint.

That said I've yet to find a great free alternative, but i signed up for Quicken Simplifi yesterday for $2/mo and really like it. The watchlist feature replaces the Mint budgeting feature, and IMO is way better. It shows current spend for a category, the 12 month avg, and projected spend for current month. I was also able to export 12 yrs of tranactions from Mint to CSV and Simplifi can import that format along with all the category tags.

That is all. I'll let you guys go back to the X's and O's discussion.

I've been using Quicken for 30 years. I have found no workable replacement for what it does and what I need it to do. For some stupid reason, I went a year without using it about 15 years ago and my financial planning / life became chaotic because I had no comprehensive understanding of what I was doing.

There are some other programs out there and some open source options, but none of them are easy to use. Quicken is and it works. You can look at the links above and passionate discussions on bogleheads.org but for me it comes down to ... what works, what's going to stick around, what's the most bang for the buck and what handles just about everything that I throw at it including some complex stock option / restricted stock stuff. Quicken is clearly the answer and the bugs are few and far between these days. If you have a simple financial life, even moreso.

Some people balk at the $50-$100 each year. For me, it's the best $100 I spend all year long. Same for TurboTax for taxes.

 

[4Q Basket Case]

Suggestion for those applying for a home mortgage:

The bad news is that the days of 3% 30 year mortgages are gone. Probably forever, certainly for a while. That cloud, however, has a silver lining.....

The value of extra principal you might pay is also much greater. That can help you own your home free-and-clear quicker.

If you're applying for a 30-year $200,000 mortgage, and the interest rate is 7%, your monthly principal-and-interest payment is $1,330 (Important Note: This does NOT include property taxes, insurance or any PMI).

You could pay on a 20-year schedule and the payment rises to about $1,550. If you can get really ambitious, and pay on a 15-year schedule, the payment is about $1,800

Now here's the thing not many people think about: You can have a 30 year note, but pay it on a 15 or 20 year amortization schedule. Then, if you have an emergency, you can drop back to the lower 30-year payment until the dust settles and you return to the original plan -- paying more than your contract requires.

Yeah, it hurts the first few months. Then it just gets baked into your monthly budget and you don't really think about it much anymore.

The huge advantage is that, if you pay off your 30-year mortgage after 20 years, that’s 10 years -- 120 monthly payments -- you don't have to make. In the case above, that's 120 x $1,330 = $159,600

If you can stomach the 15-year payment, that goes to 180 x $1,330 = $239, 400.

So you get the benefit of a shorter amortization schedule (that you created yourself), but keep the flexibility to go to the lower payment in case something unexpected comes up.

Aside from the increased monthly outflow, one downside is that 15 and 20 year notes typically carry a lower interest rate than a 30-year. But the difference usually isn't much, and to my mind is the price of the flexibility and peace of mind.

The other downside is that you have to have discipline, especially as regards the definition of an "emergency."

The kids wanting to go to Disney World isn't an emergency. Wanting a new F-150 Lightning isn't an emergency. The newest, baddest perimeter-weighted, godamighty carbon, adjustable aerodynamic whipsy-doodle driver certainly isn't.

Losing a job or getting sick or hurt and unable to work is. Fixing the transmission on your 6-year-old Ford, so that you can avoid buying a new one for a while longer might be (though you really should have an emergency fund for stuff like that).

And you have to do it every single stinkin' month. If you make the higher payment only when it's convenient, the whole thing falls apart.

Yes, it's hard. Yes, you sacrifice some fun and some toys. And for that reason, not many people do it. But Mrs. Basket Case and I did. And I'm telling you....when the mailman brings a thick envelope containing your cancelled note and mortgage, that is one of the most fantabulously glorious feelings in the world.

And then you have 10 - 15 years of NOT making mortgage payments injecting a bunch of newly freed-up cash flow into your monthly budget -- providing funds for both additional investment and some guilt-free fun and toys.

 

[whatsamatta U]

Good advice @4Q Basket Case.
My wife and I paid off the house appx 10 years early by setting a budget and adding all we could to the mortgage payment. When she retired, we put her social security check towards the mortgage. This and having a year's worth of savings really paid off big time.

 

[4Q Basket Case]

Nice article from a 30-something in Portland, OR on how to keep lifestyle creep from intruding on your investments. Kudos to her for prioritizing investment while she still has her most precious and most perishable commodity -- time -- on her side.

I finally got smarter about my money in my 30s. Here's how I've avoided lifestyle creep. (msn.com)

I had only one nit to pick. She was proud of her Roth IRA reaching $5,000 (so far so good), so she could buy into a green energy fund (Oops!).

Forgetting the debate as to whether green energy is actually green, she's created an industry concentration, and her portfolio isn't yet big enough to be making a political statement.

Plus, you can't invest in "clean energy," as a commodity. You invest in companies that try to generate clean energy.

The distinction is important because developing companies have risks, most especially if the industry itself isn't mature. If, for example, wind turbines get supplanted by a better technology, your money in an existing wind turbine company is gone. If someone comes up with a solar cell that can generate energy under cloud cover, that company will go gangbusters. But existing solar cell manufacturers and farms will get blown out of the water. Same thing if someone comes up with a commercially viable and scalable battery technology that blows lithium-ion out of the water.

These are just examples, but you get the idea. And a developing industry is far more susceptible to disruptive technology than a mature one.

On top of which, no company trying to generate clean energy benefitted from her investment. The people who sold the stock did. Unless there's an IPO (or issuance of new stock) in there somewhere, the company got its money long before she invested. So she didn't help any company. She helped somebody who, for whatever reason, wanted to sell.

At this stage in her investing life, she'd be a lot better off in a diversified index fund -- S&P, Russell 3000 or similar. Later on, when she has a nest egg big enough to make a difference at retirement, she can put some money in an investment that is essentially politically-motivated, treating it as something between a charitable contribution and a sports bet.

 

[BamaNation]

For those who may have leftover 529 funds (college savings funds), you can now (as of Jan 1) rollover those funds into a beneficiaries' Roth IRA. There's a good article from WCI last week explaining this, the process, and the caveats.

Once the 529 has been established for 15 years, 529 beneficiaries can roll up to $35,000 from their 529s into their Roth IRAs. This is not an addition to their annual contribution but a replacement for it. Basically, if you oversave for college, newly graduated students can use their $6,000ish per year for something besides Roth IRA contributions and still get their Roth IRA funded. There is no income limitations either, like with direct Roth IRA contributions.

The 529 to Roth IRA Rollover (Including for Yourself) | White Coat Investor

For months, people have been talking about the new option of rolling over an overfunded 529 into a Roth IRA. But is it worth doing?

www.whitecoatinvestor.com

 

[BamaNation]

A 2024 Personal Finance Calendar from schwab.com. Morningstar has a very good one, also, but this one is free.

Charles Schwab

www.schwab.com

here is link to the Morningstar Tax Calendar compiled by Christine Benz ($ paywall):

Your 2024 Tax Fact Sheet and Calendar

Bookmark this guide to stay abreast of the tax-related dates and data that should be on your radar this year.

www.morningstar.com

and to her 2024 financial to-do list ($ paywall):

Your 2024 Financial To-Do List

As the new year dawns, here’s your plan to get financially fit, one job at a time.

www.morningstar.com

 

[NationalTitles18]

Something that might interest you finance nerds :

 

[Bamaro]

IRA Contribution Limits
The maximum contribution for the 2024 tax year is $7,000 a year. The "catch-up contribution" for those over 50 remains $1,000. This limit is an increase from the 2023 tax year, where the standard contribution limit for both traditional and Roth IRAs was $6,500.

 

[4Q Basket Case]

An article from the March 9 WSJ on the high costs of alternative investments and funds.

When Wall Street Rolls Out the Red Carpet for You, Who Pays? - WSJ

Unless you have a subscription, it'll be paywalled. The Cliffs Notes version is:
- Alternative investments and funds generate lots of fees for the broker: Upfront loads, high annual expenses, and often sales fees when you want to cash out.
- This eats into your returns to an incredible degree, and exponential math over years exacerbates the issue.
- The ones who win with alternative investments tend to be the brokers.
- They're really pushing these investments today because they don't make much money on index funds.

I also took away that right now, today, we're in a golden age of investing. Not because of high returns -- I don't think today's long-term returns for US stocks are any more or less than history shows. Rather because we can have a highly diversified portfolio for cheap and thereby keep far more of the long term investment returns for ourselves than our parents and grandparents could.

Here's the deal: Cheap index funds didn't become widely available until the mid-1980s. Before that, you had to build your own portfolio by buying a wide range of individual stocks. Because you had to buy 100 shares to avoid "odd lot" brokerage fees (much greater than the already-high fees for so-called round lots), and you had to do that for a whole bunch of stocks, it also required a pile of money beyond the means of most investors. And even if the investor could afford the purchases, he or she had to ride herd on that portfolio -- something beyond the expertise of most people.

Which is why, before Jack Bogle popularized the cheap index fund, individual investors viewed the stock market as much more of a gamble than it had to be. And they were right. Unless you have enough of them and are diversified enough for the law of large numbers to kick in, Individual stocks are a bit of a gamble. Contrasted with a diversified index fund which is far less volatile and much surer in the long term.

Bottom Line: Don't put your money into "alternative investments" unless and until you fully understand all of the associated fees and expenses, and understand the impact they will have on your return over years. It is highly improbable that you'll put your money into something that beats the long term risk / reward ratio of an S&P or Russell 3000 index fund.