Thursday, September 16, 2021

Financial and FIND Planning for Later Life

 Anyone who read my latest book, Flipping a Switch, knows that I am not a fan of the “R word,” retirement. To me, it implies that people focus exclusively on leisure and are no longer productive. 

As I wrote in the book, many older adults want to continue making contributions by using valuable knowledge, skills, and contacts that took decades to build. The “R word” simply has too many negative perceptions (e.g., irrelevance, diminishment, and bored people endlessly watching television).

In Flipping a Switch, I coined a new term as an alternative to FIRE (Financial Independence, Retire Early). It’s FIND (Financial Independence, New Directions). By avoiding the “R word,” FIND encompasses many possible life options- whether financial independence occurs at ages 30 to 45 or 55 to 70. 

Unlike FIRE, FIND does not imply the automatic end of someone’s working career but, simply, that people have the freedom to live their best possible life on their own terms.


Regardless of how you view the “R word,” there is lots of information out there about planning for happiness and financial security in later life. Below are eight insights that I gleaned from recent webinars and podcasts:


Plans Don’t Always Pan Out- According to the 2021 Retirement Confidence Survey (RCS), people don’t always leave the labor force when they plan to: 46% exit earlier and 6% work longer than planned. Workers in the RCS said they plan to retire at a median age of 65 and retirees said they did at 62. Once they retire, most people stay retired. It is generally a “full stop.”


Income Certainty is Important- Studies have found that knowing you have a sum of money in an annuity to last the rest of your life is more valuable to most people than having that same amount of money (e.g., $500,000) in an account that you have to manage and take withdrawals from. Building “floors” of retirement income with a pension and/or annuity helps lessen stress about having enough money and having to actively manage it.


Past Practices Help Predict the Future- Some people are well prepared for financial security in later life and others, not so much. In one recent study, 41% of Americans said “it’s going to take a miracle” to be ready for retirement. The savings habits and retirement savings accounts (e.g., Roth IRA and 401(k)/403(b) plans) that people start in their 20s and 30s will inform their “future self” in their 60s, 70s, 80s, and beyond.


It’s Not All About Money- A traditional “full stop” retirement does not work anymore for many people. Two big challenges are feeling “lost” and disconnected and filling approximately 2,500 hours a year that were previously spent working and commuting. Many new retirees go from a brief “honeymoon” period to feeling that something is missing as a life of leisure gets old fast. Experts recommend focusing on things that make you happy and “reasons to get out of bed every day.”


Some People Like to Work- Ironically, people with the most savings and capacity to choose leisure are choosing labor instead. Why? Jobs and work provide identity, self-esteem, a sense of purpose, and a sense of community. Older adults should live life their way and not the way marketers and other people think that they should (i.e., a “default life”).


It’s All About Balance- Retirees need to have some equity assets (e.g., stock and mutual funds) for growth to hedge inflation but not too much money in equities to increase sequence risk (i.e., the risk of market downturns early in retirement). Many financial advisors recommend a “three bucket” approach with equities in Bucket 3 for long-term growth. Today’s low interest rates decrease the probability of success (not outliving your money), especially for conservative investors.


Plan for Getting Older- When people plan for retirement, it is easy to “forget” that they also need to plan for getting older (i.e., their 70s, 80s, and 90s). Pre-retirees tend to focus their plans solely on the years immediately after leaving a long-time career and mentally “see” themselves looking and acting like a 60-year old in their 80s. This is a common cognitive bias.


The Three M’s- Older adults need three things to be happy in later life: Money, Medicine (health), and Meaning. Every newly-minted retiree is “an experiment of one.” People who have a reason to get up in the morning and continue to grow live longer. Getting older is not a choice but growing older is. Three financial issues that older adults tend to underestimate are longevity (you could live to 95 or 100), later life health care costs, and home repairs if they “age in place.”

Thursday, September 9, 2021

The Great Re-Evaluation of 2021

We are now 18 months (March 2020- September 2021) into the pandemic. Worse yet, there is STILL no end in sight. Instead of “getting back to some semblance of normal,” we’re hearing a lot about increasing COVID-19 cases, breakthrough infections, booster shots, mask mandates, vaccine hesitancy, and events that are being cancelled (e.g., the 2021 Financial Planning Association conference).

On September 30, I will be doing a free, one-hour webinar for the New Jersey Coalition for Financial Education (NJCFE) about COVID-19 and Your Finances. This webinar will provide an overview of dozens of pandemic-related impacts on American families and action steps that people can take to stabilize or improve their finances.

Topics to be covered in the webinar include inflation, budgeting, taxes, investments, and charitable gifting. Another topic that I will be discussing is “The Great Re-evaluation,” the pandemic-inspired mindset shift that many people have had in the way they view their lifestyle, jobs, relationships, residence location, and more.

COVID-19 prompted a fundamental reset in the lives of many Americans who were freed from pre-pandemic routines, had more time for self-reflection about their dreams and feelings, and began to envision a different future. 

Has it changed your thinking, spending, habits, and plans? 

Below are five key aspects of life that many people have been re-evaluating:

Employment- The “Great Resignation” is underway as people are quitting jobs at a much higher-than-normal rate. In April 2021 alone, 4 million workers walked away from jobs and polls show many more are planning to change employers, and even industries, after 18 months of living a new lifestyle and acquiring new contacts and skills. Many are seeking higher pay, better benefits, shorter commutes, remote work options, flexible work hours, and better overall work-life balance. I can personally name at least a dozen colleagues who recently left long-time employers to pursue new career paths.

Retirement- COVID-19 has cut both ways. For some workers, it crystalized their mortality and the number of “good years” or even “summers” they have left, so they exited the workforce sooner than planned to enjoy a more relaxed lifestyle. Some retired due to concerns about personal safety. Others realized they want to work longer, especially if their job now provides the ability to work from home and flexibility in work hours and location. Unfortunately, as the Center for Retirement Research noted, not everyone can delay their retirement. Black workers and those with less education are less likely to do so.

Health Impacts- From sports stars and Olympians to ordinary people, we are seeing increased attention paid to mental health and overall wellness during a time of stress and uncertainty. This includes a desire for increased life balance and fewer stressful, hard-charging, work days. People are now viewing commuting time, work-related travel, and 60+-hour work weeks through a different “lens” and many do not want to resume this lifestyle. Financial planning industry thought leader Michael Kitces recently wrote about “subtraction” strategies that people can use to simplify stressful lives.

Relationships- Again, COVID-19 has cut both ways. Some people experienced “too much togetherness” during COVID-19 lockdowns and ended less-than-solid relationships. Others reported a new-found closeness with their family and friends that they want to continue going forward. COVID-19 undoubtedly informed numerous decisions about marriages, divorces, and parenthood. Differing viewpoints about mask-wearing, vaccination, and indoor gatherings have also affected relationships.

Spending- More mixed impacts from COVID-19. For some people, COVID-19 inspired a YOLO (you only live once) FOMO (fear of missing out) mentality because it showed that the future is unpredictable and not a given. This may have led to “let’s do (or buy) things while we can” over-spending. Others with lower expenses  (e.g., commuting and child care) as a result of COVID-19 may now have adequate emergency reserves and a thoroughly ingrained savings habit.

Finally, a sobering note of caution. Some people, especially those living on the “financial edge,” have not had the ability to “re-evaluate” their lives. Out of financial necessity, they continue to work, often in public-facing jobs with high COVID-19 transmission potential, or they stay in unsatisfactory, sometimes even abusive, relationships. Some are now facing eviction.

Bottom Line: The ability to “re-evaluate” your job and your lifestyle is a privilege that is not realistically available to everyone. If you have the opportunity to do a post-COVID re-evaluation and re-set of your life, make the most of it!

Wednesday, September 1, 2021

The Financial Costs of Being Unvaccinated

 I’ve been thinking a lot lately about COVID-19. It drives many of my everyday decisions like sitting outside at restaurants in 90 degree Florida weather (“I’d rather sweat than die”), events that I choose not to attend, and interactions with other people.

I recently posted the message, below, on all of my social media channels to implore people to get vaccinated. It tells the true story of an unvaccinated person who recently died. Many people followed up with words like “sad” and “unnecessary.”

According to the Kaiser Family Foundation (KFF), COVID-19 hospitalizations in June and July cost the U.S. health system over $2 billion dollars! Most were unvaccinated individuals. Being a certified financial planner®, I started to wonder what costs COVID-19 patients, themselves, were incurring and decided to research the financial costs of being unvaccinated.

My thinking is that this information could motivate some people to get vaccinated. At the risk of touching what can, unfortunately, be a politically-charged topic, even one life saved is a victory!  An analogy is that many smokers will not be motivated to quit by seeing the long-term cost of cigarettes, but a few might be. 

Below are 10 potential expenses for people who remain unvaccinated without a solid medical or other legal reason to do so.

Full Disclosure: It should be noted that some- but not all- of these financial impacts (the loss of a breadwinner's income following death, medical bills, the cost of a funeral, wealth depletion, and financially-stressed survivors) can occur whether someone who gets COVID-19 was vaccinated or not. However, the risk of incurring debt from the virus and experiencing resulting financial stress is lower when you are vaccinated because you are less likely to die or need very expensive health care. 

¨     Loss of a Breadwinner’s Income- When people die, their income stops. Period. Add in some time value of money calculations and the loss is further magnified. Using simple math, losing the income of someone earning the 2021 U.S. median income of $61,937 for 20 years is a loss of $1,238,40 of potential income, excluding raises and promotions.

¨     Loss of a Job- Employers are starting to wield “sticks” instead of dangle “carrots” to get their workforce vaccinated. Some unvaccinated workers may lose their jobs as employers announce “zero-tolerance” mandatory vaccination policies in conjunction with a required return to workplaces. Most legal experts say this is permissible as long as employers make reasonable accommodations for workers who are unvaccinated for reasons such as disability and pregnancy.

¨     No “Sick Day” Paychecks- Delta Airlines announced in August that it will limit the number of paid sick days that unvaccinated employees will be allowed to take if they contract COVID-19. It will also charge unvaccinated employees $200 monthly health insurance premium surcharges starting November 1. Other employers are expected to enforce similar policies.

¨     Funeral and Burial Costs- Average funeral costs vary by state but, on average will cost between $7,000 and $9,000. According to Federal Reserve research, 36% of U.S. households in 2020 would have difficulty paying a $400 emergency expense. Simply put, financially fragile families cannot afford a funeral without selling assets or incurring new debt.

¨     Crushing Medical and Other Debt- Fair Health reported that 15% to 20% of people who get COVID-19 and seek treatment may need a hospital stay and the average hospital stay cost is $73,300 for a patient without health insurance and $38,221 for an insured patient. Some bills for long hospital stays are well into six figures. Many waivers that initially exempted patients from out-of-pocket COVID-19 expenses have expired and patients may be “on the hook” for costs that third party insurers do not cover, including ongoing “long-COVID” medical bills that could last for years.

¨     Financially-Stressed Survivors- Unvaccinated people who are hospitalized and/or die and incur debt as a result of COVID-19 put undue financial (as well as emotional) stress on their survivors. Cases have been reported of families swamped by medical expenses, getting hit with balance billing statements despite Congressional bans, and declaring bankruptcy to escape mounting medical expenses. When unvaccinated people lack health or disability insurance or die without life insurance, the situation is even more dire for survivors, who may need to seek public assistance to get by.

¨     Wealth Depletion- As noted above, COVID-19 is expensive. While commercial payers are expected to pay some expenses, so, too, will patients and their families. Some have turned to crowd funding their medical bills on the GoFundMe website. Every dollar that is withdrawn from savings or unable to be earned due to death or COVID-19 treatment or quarantine represents a “hit” to wealth that an individual or family might otherwise accumulate.

¨     Possible Insurance Impacts- To date, the largest life insurance companies say they are not currently considering vaccine status during policy underwriting (except for those with high-risk conditions) or when deciding whether to pay a claim. In addition, vaccination status does not affect premiums for existing policies. This could change as more becomes known about the virus. Policy applicants will likely be asked if they have had COVID. As noted above, unvaccinated workers may see their health insurance premiums increase.

¨     Lack of Access to Events- The Wall Street Journal recently noted that Live Nation Entertainment, the world’s largest concert promoter, will require proof of vaccination or a negative COVID-19 test for entry at its events beginning in October. Today (September 1), the CDC asked unvaccinated individuals not to travel during the upcoming Labor Day weekend. Possible financial casualties include forgone beach house rentals, non-refundable hotel or travel deposits, and prepaid event tickets.

¨     Loss of Money-Saving “Social Capital”- Social capital is the network of relationships that people have that they can “lean on” when times are tough. Especially when people have limited financial resources, social capital is invaluable. People can drive you places, care for you or your children, and lend you money. It has been widely reported that people who are unvaccinated are losing friends. From actress Jennifer Aniston to the neighbor next door, many people do not want to be around unvaccinated friends who increase their risk of breakthrough COVID. Bottom line: people may not be there for you when you need them most.

Finally, since vaccines are free and easy to obtain, some people are questioning the costs that unvaccinated people impose on everyone in society. They are tired of experiencing “financial fallout” as a consequence of other people’s choices.

This includes taxpayers paying for Medicare and Medicaid, policyholders paying higher health insurance premiums, and those facing long waits for “routine” medical services at overwhelmed hospitals. This perspective is not unique, however. Similar comments are also sometimes made about societal costs of other "voluntary" health-related practices such as smoking.

It is now becoming more acceptable to debate, support, and even adopt, policies that mandate vaccinations, limit employer benefits, or pass along COVID-19-related costs to unvaccinated people as a way to motivate them or as a form of “punishment.” Unlike "lifestyle" factors (e.g., diet, smoking, physical activity) that primarily affect the health of one individual, vaccination status has the potential to affect large groups of people (e.g., a workplace) during a global pandemic.

Stay tuned. We are 18 months into the pandemic with many more health and financial impacts likely to come. With many diverse and conflicting viewpoints about vaccination and ever-evolving research findings and government guidelines, it is likely to be a "bumpy ride." Stay safe and be well.

Thursday, August 26, 2021

Tax-Free Investing for Those Fearing a Tax Hike


A recent article in the Wall Street Journal described a new investment trend: “Wealthy Americans eyeing potential tax increases are helping drive record amounts of money into municipal bond funds.” 

It also went on to state that tax-free U.S. municipal (muni) bonds attracted an estimated $56.9 billion in net new money during the first six months of 2021 and that financial advisors are increasingly fielding questions about muni bonds and bond funds.

With these trends in mind, now is a good time to review some basics about tax-free (a.k.a., tax-exempt) investing.

¨     Reciprocal Immunity- For over 100 years, government entities do not tax each other’s investors. This means that the federal government does not tax earnings on debt securities issued by states and cities (e.g., muni bonds and bond funds) and states do not tax earnings on federal debt (e.g., Treasury securities).

¨     Tax Benefit- Tax-free investing means that investment earnings are exempt from federal income taxes. Muni bond and bond fund earnings are exempt from federal income taxes as are earnings from Roth IRAs (if specific rules are followed). In addition, most states and cities with income taxes waive taxes on investment earnings on their own muni securities (e.g., no tax for New Jersey residents with a New Jersey-issued bond).

¨     Roth IRA Rules- You can withdraw the earnings from a Roth IRA tax free if you have reached the age of 59½, and at least five years have passed since your Roth IRA account was opened. Investors can also consider converting a traditional IRA to a Roth IRA to avoid paying tax on withdrawals made in retirement. The amount that is converted is taxed as ordinary income, however, in the year that the conversion is made.

¨     It’s Not What You Earn, But What You Keep- Knowing how investments are taxed is an important factor when making investment decisions. Investors need to compare tax-free investment yields (e.g., muni bonds) to returns on similar, taxable investments (e.g., corporate or U.S. Treasury bonds) to determine which provides the greatest after-tax return after subtracting federal and/or state income taxes.

¨     Default Risk- Investors need to consider the risk involved with tax-free securities. The governing body that issues a muni bond can default just like any other debtor. Investors risk losing all or part of their of their principal and should always check the ratings of a bond for financial stability. Fortunately, federal aid has helped many states and cities with outstanding bonds weather the pandemic easier than originally thought.

¨     Marginal Tax Rates Matter- The term “marginal tax rate” refers to the tax rate paid on a person’s last dollar of income. Federal income tax rates currently range from 10% to 37%. Tax-free securities are especially beneficial for high marginal tax bracket investors because they allow them to keep more of an investment’s return versus having to pay federal and state taxes on taxable investments.

¨     There is an Easy Formula- Investors can easily compare tax-free and taxable investment yields by using the formula, below, to calculate the taxable equivalent yield for a tax-free investment. Once you have “done the math”, the next step is to compare formula-based yields to those currently available on fixed-income securities.

Taxable equivalent yield = tax-free yield ÷ (100% - marginal tax bracket %)

Example: Assume you are in the 22% tax bracket, and have an investment with a 4.0% tax-free yield. To get the equivalent taxable yield, divide 4.0% by .78 (100% - 22%). The taxable yield is 5.13%. 

In the 24% tax bracket, the taxable equivalent of a 4% tax-free yield is 5.26% (4 ÷ (100% -24%) or .76).

In the 37% tax bracket, the taxable equivalent of a 4% tax-free yield is 6.06% (4 ÷ (100% -37%) or .63).

You can also use the What is My Tax-Equivalent Yield? calculator or the Bankrate Tax Equivalent Yield Calculator which use both federal and state income tax rates to calculate the tax-equivalent on tax-free securities.

Thursday, August 19, 2021

Portfolio Rebalancing in Later Life


One of my favorite “niche” areas of content development work, in addition to personal finance topics for military families and financial educators, is financial transitions in later life. Especially since publishing my latest book, Flipping a Switch, I spend a fair amount of time teaching and writing about financial topics that affect older adults.

Full disclosure: I count myself in this category. I have found that I have more “street cred” with older adults now that I am one of them versus presentations I made in my 30s and 40s. Not surprising. People often relate better to “people like them.”

Portfolio Rebalancing Basics

Like some of my blog posts, this one is informed by personal experience. First, some background information on the topic of portfolio rebalancing, which is the process of getting back to target asset allocation percentages (e.g., 60% stock, 30% bonds, 10% cash) when the mix of assets in your portfolio shifts over time due to market conditions and gets out of whack.

The purpose of rebalancing is to maintain desired asset allocation weightings consistent with your age, goals, and risk tolerance. Without it, stock weightings, especially, would continue to rise, increasing an investor’s exposure to risk of loss of capital. Rebalancing forces investors to “sell high and buy low” which is a proven key to investment success.

When to Rebalance

There is no clear consensus about exactly when and how to rebalance a portfolio. Some sources recommend annual or semi-annual reviews (and, if necessary, revisions) of asset allocation percentages on dates of your choosing. This is typically done in a two-step process: 1. Prepare a net worth statement with the current value of savings and investments and 2. Classify your accounts into asset classes (e.g., money market funds as cash equivalent assets and growth mutual funds as equity assets).

Other sources recommend rebalancing when your asset mix shifts by a certain percentage from target weights based on market conditions. However, there are a variety of percentage shifts suggested; e.g., 3%, 5%, or 10% from your targets. Excel spreadsheets to keep track of asset weightings are available to download on the Rutgers Cooperative Extension web site.

How to Rebalance

Once you determine a “when” to rebalance, the next step is to figure out how to do it. There are basically three options: withdraw money from (sell) the overweighted class(es), add money to (buy) the underweighted classes(es), or do both. According to research, variations in results of various rebalancing techniques are surprisingly small. In other words, if you have any type of rebalancing process and stick with it, it will likely provide some benefit versus no rebalancing at all.

Personal Experience

Now, my personal rebalancing story. For decades, I  have calculated my net worth and asset allocation using the two-step process (net worth followed by asset allocation analysis) and Excel spreadsheet templates described above. I started doing this in July when I took much of my vacation time, so I still do these calculations in July today. The process takes about three hours, mostly to look up current asset values online or from statements. Lots of passwords and text message security codes!

In July 2020, however, I skipped the asset allocation spreadsheet step. Maybe it was the pandemic or getting ready to launch my book or a multitude of freelance writing assignments last summer. In any case, I did not do it. So, in July 2021, it had been two years since my last asset allocation analysis. 

Needless to say, I was surprised how much the asset class weightings had shifted. While recent market trends had worked in my favor, it was time to dial back my stock asset class weighting. I then used the Rutgers Excel spreadsheet to create several hypothetical asset shifting scenarios until I reached my target level.

My Take-Aways 

Below are seven “Barbservations” about the rebalancing process through the “lens” of  an older adult’s portfolio:

¨     Larger Dollar Amounts- Compared to younger investors, older adults often have larger portfolio sums to rebalance.

¨     Weighting Change Challenges- Reallocation of larger amounts of money is needed to shift the asset weights of larger portfolios.

¨     Periodic Review Benefits- Especially in active markets, it is useful to address asset weighting shifts in a timely manner.

¨      “New Money” Limitations- Non-working older adults may not have “new money” (e.g., from a paycheck) to put into underweighted assets to rebalance their portfolio.

¨     Automatic Rebalancing?- If only some assets are set to rebalance automatically, consider doing manual “total-portfolio” rebalancing instead.

¨     Tax Implications- To avoid capital gains taxes by selling assets in taxable accounts, shift money in tax-deferred account assets.

¨     Portfolio Guidelines- “One-size-fits all” percentages for stock weights (e.g., 100, 110, or 120 minus your age) are not for everyone.

We are all getting older. It happens. Consider this fact when you rebalance your portfolio. A lifetime of investing is at stake.

Financial and FIND Planning for Later Life

  Anyone who read my latest book, Flipping a Switch , knows that I am not a fan of the “R word,” retirement. To me, it implies that people f...