Takeaways From a Conference About Retirement Savings

I recently attended (virtually) a conference about retirement savings sponsored by the Employee Benefit Research Institute (EBRI). Below are some of my key take-aways:

Funded Contentment- I ever heard that phrase before. It means a person’s ability to underwrite a happy and meaningful life. The focus is on having enough money instead of reaching a specific number (i.e., dollar amount of retirement savings). Instead of a “greed is good and more is better” mentality, many retirees want to focus on meaning and purpose in later life.

Narrative Species- One speaker noted that humans are not a “numeracy species” focused on math and numbers but, rather, a narrative species. In other words, people learn best about personal finance (and other topics) through stories and case study examples.

Automatic Non-Decisions- An easy way for people to save money for retirement is to “turn decisions into non-decisions.” In other words, take action once to automate financial transactions such as payroll deductions for a 401(k) or regular automatic deposits to buy stock or mutual funds.

The Impact of Vividness- When people’s “future self” is made vivid through aging apps and other tools, they are more likely to make decisions and sacrifices today to have a better future in later life. For example, they might save and invest more money and eat more healthy food.

RMDs as an Income Withdrawal Strategy- Findings from a study of the effects of increasing required minimum distribution (RMD) age from 70.5 to 72 to 73 were reported using data from a sample of over 3 million IRA owners. The study found that not a lot of people take RMDs until they are required to do so. As the RMD age got pushed back, so did the frequency of people taking later distributions. In other words, changes in RMD age as a result of the two SECURE acts affected investor behavior because many retirees use RMD rules as a default income withdrawal strategy.

Retiree Financial Challenges- Retirees with significant sums in tax-deferred accounts are facing challenges from RMDs, which can trigger tax on Social Security, higher income taxes in general, and higher Medicare premiums call IRMAA. Even still, people have an aversion to withdrawing money from tax-deferred accounts earlier than RMD age.

The Impact of Guaranteed Income- Older adults with guaranteed lifetime income (e.g., pension or annuity) are more likely to spend money and less likely to feel financial stress than those who withdraw money from investments to pay living expenses. The latter group is subject to longevity risk (risk of outliving savings) and sequence of returns risk (risk of withdrawing funds during a market downturn) and tend to hold back on spending. The #1 fear of retirees is running out of money.

Cultural Norms- In some cultures, family members serve as a de facto “emergency fund” for each other. This expectation can hinder the financial progress of those who save. Some people may want to have a place for their money that relatives don’t know about because it is hard to say no to family members. 

This post provides general personal finance or consumer decision-making information and does not address all the variables that apply to an individual’s unique situation. It does not endorse specific products or services and should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.

Seventeen Bad Financial Habits

Good habits play a crucial role in personal finance by fostering discipline and consistency: 

1. Setting aside a portion of income builds financial security and emergency savings

2. Avoiding impulsive spending and practicing delayed gratification prevent unnecessary debt and promote smarter purchasing decisions

3. Regular investing, such as contributing to retirement savings accounts, takes advantage of compound interest and market growth over time

Conversely, bad financial habits can drain wealth, increase stress, and prevent people from achieving financial security. Below, alphabetically, are seventeen bad financial habits to avoid:

Cosigning Without Understanding the Risk- Being responsible, potentially, for someone’s debts.

Delayed Retirement Savings- Missing out on decades of investment growth and compound interest.

Financing Everything- Using loans for furniture, appliances, and vacations instead of saving up for them.

Forgoing Employer Matching- Missing out on “free money” (e.g., 401(k) match) to increase future retirement security.

Ignoring Credit History- Not monitoring or improving your credit can cost money over time.

Impulse Buying- Making unplanned purchases without considering their budgetary impact.

Incurring High-Cost Debt- Using payday and car title loans and high-interest credit cards.

Investing Without Research- Buying stocks, crypto, etc. without fully understanding them.

Lack of Tax Planning- Ignoring tax-saving moves such as Roth conversions, bunching, and QCDs.

Lifestyle Creep- Increasing expenses as income rises instead of saving or investing this money.

Living Paycheck to Paycheck- Not saving any money and using each paycheck to cover expenses.

Not Having Financial Goals- Lacking plans for savings, investments, and major purchases.

Not Shopping Around- Overpaying on insurance, loans, purchases, or subscription services.

Paying the Minimum on Credit Cards- Incurring high interest costs and prolonged debt.

No Emergency Fund- Leaving yourself vulnerable to unexpected expenses such as car repairs.

Not Tracking Expenses- Spending money mindlessly without keeping tabs on where it is going.

Using Credit for Necessities- Buying food, etc. with plastic and revolving a balance with interest.

Estate Planning for Pets

In my book, Flipping a Switch, I have a chapter titled “Green Bananas, ROLE Calculations, and Lasts.” A key take-away is, as people age, their time orientation changes. 

Sometime in her mid-70s, my Mom started using the phrase “People my age don’t buy green bananas anymore.” While the green bananas analogy is an extreme example, people do start performing return on life expectancy (ROLE) calculations as they age. In other words, “mental math” comparing how long things might last in relation to their age and life expectancy.

                                   

There is, perhaps, no better example of ROLE calculations than the decision to get a pet in your 60s and beyond. Unlike young adults, who fully expect to outlive one or more pets, older adults often stop to ask “what if the pet outlives me? What happens then?” Without advance  planning, when pet owners pass away, their pets often end up in an animal shelter and, unfortunately, many healthy pets who are not adopted are euthanized. 

What to do? I recently attended a class, Estate Planning for Pets, where I learned that pets are considered property and have no legal rights. Thus, it is up to pet owners to plan for their four-legged friends’ future. Below are five key take-aways:

Learn About Pet Life Expectancies- Average life expectancy for dogs and cats is 10-12 years and 10-14 years, respectively, but there are caveats. Larger dogs live for a shorter period of time than smaller dogs and spaying and neutering a puppy can increase lifespan. Indoor-only cats live longer than those who spend significant unsupervised time outdoors.

Consider Adopting an Older Pet- Older adults who want a pet often take a big gamble when they get a puppy. An alternative strategy is to visit a local animal shelter or pet rescue agency and adopt a dog or cat that is, say, 3 to 5 years old. This way, the pet’s remaining life expectancy will be more in synch with its owner’s.

Designate a Pet Guardian- Talk with friends/family about concerns for your pet’s future and identify someone to care for your pet if something happens to you (e.g., injury, death). Also designate a “Plan B” pet caretaker in case the primary pet guardian is unable to step up. Make a list of your pet’s favorite foods, medical issues, vaccination records, and exercise routines.

Create a Pet Care Fund - Set aside money for surrogates to care for your pet. Consider creating a pet trust fund based on pets’ actuarial life expectancy. The trust will include funding for pet caregivers to use for pet food, vet bills, etc. and also include a residual beneficiary to receive remaining funds, if any, after all pets named as trust beneficiaries pass away.

Don’t Assume- Some people do not make any contingency plans for their pet. Instead, they just assume “my family will take care of my pet.” Sometimes, however, family members cannot. If you assume someone will care for a pet, it is a hope- not a plan. That said, it is not uncommon for family or neighbors to temporarily take care of pets until a permanent solution is put into place including transferring a pet to a prepaid pet lifetime care facility.

This post provides general personal finance or consumer decision-making information and does not address all the variables that apply to an individual’s unique situation. It does not endorse specific products or services and should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.

 

Income Tax Math

 Tax season is winding down. We’ve all heard the saying “In this world, nothing is certain except death and taxes.” The quote is attributed to one of America’s founders, Ben Franklin. There is also one thing that is certain about income taxes. They involve math calculations.

Below is a description of seven income tax features that involve mathematical calculations:

Tax Deductions- About 90% of taxpayers take the standard deduction and the rest itemize deductions when they are larger than their standard deduction. Either way, these calculations require subtraction. First, adjustments to income are subtracted from total income to get adjusted gross income (AGI). Next, deductions are subtracted from AGI to get taxable income.

Extra Standard Deduction- Older adults use addition to increase their standard deduction as per annually inflation-adjusted IRS regulations. In 2025, single individuals can add $2,000 to the $15,000 standard deduction for all taxpayers ($17,000 total) and a couple, both age 65+, can add $1,600 each to the $30,000 standard deduction for all taxpayers ($33,200 total).

Effective Tax Rate- This is the tax rate that you pay on your total income, reflecting the fact that different tiers of income are taxed at different tax rates. This calculation requires division. To calculate your effective tax rate, divide your tax bill (i.e., the amount owed) by your taxable income. For example, $12,000 owed on a $85,000 taxable income = 14.1%.

Required Minimum Distributions (RMDs)- RMD calculations, which affect older adults at age 73 or 75 (depending on year of birth), also require division. They are mandatory withdrawals from retirement savings accounts (e.g., 401(k) plans). The year-end balance in a tax-deferred retirement account is divided by an age-based divisor (e.g., 26.5 for age 73). For example, a 73-year old with a $150,000 account balance must withdraw $5,660.

Refund or Overpayment- This calculation involves subtraction and the result will be a positive or negative number. If total tax payments from payroll withholding are greater than total tax owed, taxpayers get a refund. If tax payments fall short of the amount owed, taxpayers must make a payment to the IRS by the tax filing date, typically April 15.

Business-Related Mileage- Self-employed taxpayers and business owners are eligible to deduct business-related mileage. Employees are unable to do so. This calculation involves multiplication: i.e., multiplying the number of miles driven by the annually inflation-adjusted business mileage rate (67 cents per mile in 2024 and 70 cents per mile in 2025).

Tax Computation Worksheet- This form is used to calculate tax owed on taxable incomes over $100,000 and involves both multiplication and subtraction. First, taxpayers multiply their taxable income by their marginal tax rate (i.e., 22% to 37%). Next, they subtract a designated amount for taxes paid on income taxed at lower rates. The result is the amount of tax owed.

This post provides general personal finance or consumer decision-making information and does not address all the variables that apply to an individual’s unique situation. It does not endorse specific products or services and should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.

What to Do With a Windfall: March 2025 Edition

Windfalls are unexpected and often sudden sources of income. In other words, a stroke of good financial luck. Common examples include receiving an inheritance or bonus and winning the lottery. 

Each year, by late March, millions of Americans have received a windfall from income tax refunds. This year, as a result of the Social Security Fairness Act (SSFA), about three million Americans (myself included) also received a retroactive payment and benefit increase as a result of the elimination of the Windfall Elimination Provision (WEP) and Government Pension Offset (GPO). 

Suffice to say, millions of Americans currently find themselves flush with cash received from income tax refunds and/or SSFA payments. This begs the question: what to do with this money? Below are a dozen solid suggestions to handle a one-time chunk cash:

1. Pay off high-cost debt (e.g., credit card bills and loans) and overdue bills.

2. Start or replenish an emergency fund with a target goal of 3 to 6 months’ essential expenses.

3. Start or increase deposits to tax-deferred employer retirement savings (e.g., a 401(k) plan).

4. Fund a traditional or Roth individual retirement account (IRA). 

5. Start or increase deposits to a 529-college savings plan for children or grandchildren.

6. Make extra principal payments on your mortgage to shorten its term and lower the total interest cost.

7. Invest in your home with improvements that have a high payback, such as landscaping and bathroom or kitchen upgrades.

8. Buy needed “big ticket” items (e.g., furniture, electronics, or a major appliance), for cash instead of using a credit card.

9. Purchase a few hours of a certified financial planner’s time to get advice and a financial check-up.

10. Take action to achieve goals on your “financial bucket list” (e.g., travel and a new car).

11. Invest in your human capital (think certification courses, college classes, and professional conferences).

12. Make gifts to family members and qualified charities.

Also remember that windfalls can have a downside. Lower income windfall recipients can be disqualified for public benefits such as housing subsidies, SNAP, utility assistance, and Marketplace health care plan premium subsidies. 

Higher income recipients could find themselves in a higher tax bracket, paying increased taxes and, for older adults, the IRMAA surcharge on Medicare premiums. 

It is wise to double check your tax withholding for 2025 if you are the recipient of a substantial windfall.