Just Do Ten Things Right

Recently, I was hired by the Marion County (FL) Medical Society to do a keynote presentation at their meeting. A pre-program survey of their members indicated they wanted to learn about a variety of financial topics in 45 minutes. What to Do? I remembered the book, The Index Card, where ten tips related to many aspects of personal finance were shared on an index card. 

I titled my presentation “Just Do Then Things Right.” Below are the ten recommended action steps that I discussed with my audience that I consider essential for financial well-being:

Spend Less Than You Earn- Live below your means with positive cash flow; i.e., where income is greater than expenses. You can’t save, invest, or build wealth for retirement if you don’t get this foundational action step right. Spending plan (budget) worksheets are a useful resource.

Strive to Pay Credit Card Balances in Full- Try to pay credit card balances in full every month as a convenience user so no interest is charged. If this is not possible, pay more than the minimum payment to reduce the cost of interest and shorten debt repayment time.

Try to Save At Least 15% of Your Income- Save as much as you possibly can and gradually work up to a 15% savings rate if you cannot save that much now. Studies have shown saving 15%+ of income can result in a significant nest egg- sometimes as much as $1 million- in later life.

Invest for the Long Term- Consider investing in equities (e.g., stock, growth mutual funds, stock exchange-traded funds) for financial goals that are five or more years away. Buy inexpensive securities with low expense ratios and beware of pitches for fraudulent investments.

“Max Out” Tax-Advantaged Retirement Savings Accounts- Contribute as much as you can afford, up to annual IRS maximum limits, to retirement savings accounts including traditional (pre-tax) and Roth (after-tax) IRAs and qualified employer plans (e.g., 401(k), 403(b), TSP).

Diversify x 3 (D3)- Diversify investments three ways: 1. Investment diversification (different asset classes; e.g., stocks, bonds, and cash), 2. Time diversification (hold investments over time to reduce their volatility), and 3. Tax diversification (mixture of tax-deferred, taxable, and tax-free securities).

Protect Yourself With Adequate Insurance- Insure against large financial risks including disability (to protect your earning ability), liability, and property damage. Consider adding an umbrella insurance policy if your assets (not exempt by state law against judgments) total $1 million+.

Practice Tax Avoidance- Take advantage of legal strategies in the tax code to reduce your tax liability. Specific strategies include retirement savings plan contributions, Roth IRA conversions, tax deductions and credits, tax loss harvesting, tax-free investments, and gifting to qualified charities.

Get Your Estate in Order- Prepare legal documents (e.g., will, living will, power of attorney) and update them as needed, discuss end-of- life wishes with personal representatives, review beneficiary designations on insurance policies and retirement plans, and prepare a digital assets inventory.

Keep Learning About Personal Finance- Learn one new thing every day about a personal finance. Ways to do this include books, newspapers and magazines, blogs, podcasts, seminars, social media platforms, and traditional media outlets (e.g., radio and television). 

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.

More Q&A About 2024 Events and Trends

 As I noted in last week’s post, I recently presented a 90-minute 2024 Personal Finance Year in Review webinar for OneOp, and, after the webinar, answered follow-up questions from webinar participants. Below are some additional questions that were asked and my responses: 

What was the purpose of the 10 year requirement where non-spouse beneficiaries must take RMDs annually during  a 10-year payout period?

Congress and the IRS know that many owners of tax-deferred retirement accounts (e.g., traditional IRAs, 401(k)s, 403(b)s, TSP), especially “super-savers” with $1 million + balances, will die and leave money in their plans. Prior to passage of the first SECURE Act in 2019, non-spouse beneficiaries could stretch required minimum distribution (RMD) withdrawals over their own life expectancy (i.e., the so-called “stretch IRA”). Now they have 10 years to withdraw inherited funds. 

The part of the 10-Year Rule that was finalized in 2024 applies to RMD withdrawals from tax-deferred accounts by non-spouse beneficiaries (e.g., adult children). Non-spouse beneficiaries must now take RMDs annually during the 10-year payout period following the account owner’s death if the account owner died on or before his or her required beginning date (RBD), which is April 1 of the year following the year that the account owner turned 70½, 72, or 73 (depending on birth year).

What is the purpose of this requirement? Very simply, income for the federal government. With the 10-Year Rule, the U.S. Treasury gets non-spouse beneficiaries’ money faster. Instead of having to wait for a life expectancy of, say, 40 to 80 years (e.g., young grandchild), they get it within a decade.

A 2024 financial term was “spaving” (spending to save money). How does “spaving” work? 

Some common examples of “spaving,” where shoppers must spend money to save money and often overspend by buying more items than they need, include the following:

• BOGOs: buy one item, get one free

• Buy one full price item, save 25% or 50% on the second item

• Reaching a certain spending threshold (e.g., $50) to qualify for free shipping

• Buying items in bulk to get a significant amount of savings

• Tiered loyalty programs where shoppers get better rewards when they spend more money

Re: the National Association of Realtors (NAR) settlement. Does that mean that commissions will remain standard unless a buyer negotiates it? How do home buyers find an agent?

The NAR settlement that went into effect on August 17, 2024 eliminated the standard 6% commission and sellers are no longer required to automatically pay a commission to the buyer’s agent as part of a listing agreement. As a result, sellers may avoid having to pay for a buyer’s agent and keep more profit from the sale of their home for themselves. Homebuyers could still ask for concessions from sellers, however, and sellers may agree if they need to move quickly or the housing market is slow. Buyers now have more control over the agent that they work with and their compensation. Home buying and selling has ALWAYS required negotiation and now even more so. To find a reliable realtor, buyers and sellers can ask for personal referrals from friends and family or search websites like Realtor.com, Zillow, and the local multiple listing service (MLS). 

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.

Q&A About 2024 Events and Trends

As I noted in an earlier post, I recently presented a 90-minute 2024 Personal Finance Year in Review webinar for OneOp, an organization that provides professional development for military family service providers. After the webinar, I answered follow-up questions from webinar participants. 

Below are some questions that were asked and my responses: 

If CPI (inflation) rates are coming, why are prices not coming down? What is the relation of one to the other?

Unfortunately, there is no direct relationship between the Consumer Price Index (CPI), which measures the rate of change in prices of a “basket” of goods and services over a 12-month period (e.g., 2.7% from 11/23 to 11/24), and prices for individual goods and services themselves (e.g., housing, child care, cars, food, and insurance). Therefore, even though inflation, as measured by the CPI, cooled somewhat during 2024 from 3.1% in January to 2.9% in December, prices on many items have not gotten lower for many reasons (e.g., rising labor and material costs, natural disaster losses, supply and demand issues). This is especially hard for young adults, who never experienced the aftermath of inflation before, to comprehend. Many expected prices to return to where they were five years ago before the pandemic. In addition, inflation “bubbled up” several times in 2024, reversing the CPI’s downward trajectory.

As mortgage interest rates come down, do you think we will find people who are more willing to move and/or buy other homes if refinancing at a lower rate will enable them to have more income to work with?

Yes, but it will take some time. Remember, about 60% of current homeowners with mortgages have interest rates below 4% and, as of 12/19/24, the average 30-year fixed mortgage rate was 6.72% (5.97% for 15-year mortgages). That is a big difference, which is contributing to the “rate lock effect” (sellers staying put) and a housing stock shortage. Eventually, as market interest rates for mortgages get closer to homeowners’ current interest rates, they may be more likely to sell.

With the U.S. savings rate based on disposable income, is this net income (after taxes)?

The U.S. personal savings rate, published by the Bureau of Economic Analysis (BEA), is calculated by dividing personal saving by disposable income in a series of steps as follows: 1. Start with personal income, 2. Subtract personal taxes, 3. Subtract personal outlays (i.e., expenses), and 4. Divide personal savings by disposable personal income. Disposable personal income is the portion of people’s incomes left after they pay taxes and spend money. For more details on the BEA personal savings rate formula, read more here.

Have you seen an increase in people choosing to lease a car instead of buying?

Leasing made a comeback in 2024 and now accounts for 25% of new vehicle purchases, up from 17% during COVID era inventory shortages. SUV vehicles dominate vehicles being leased and EV leasing is growing. For more details, read more here.  

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.

Barbservations About Social Security Fairness

After decades of failed attempts, H.R. 82, the Social Security Fairness Act (SSFA) passed both the House and Senate with bipartisan support and was signed into law by President Biden. The law will repeal the Windfall Elimination Provision (WEP) and Government Pension Offset (GPO) that reduced public sector workers' earned Social Security benefits. 

For some Americans with lower incomes, passage of this bill will be life-changing. They lost (or would have lost) much of their own earned SS benefit and/or Social Security benefits as a spouse or widow(er) simply because they worked in a public sector job.

For me, the law is simply about fairness, not financial survival. Yes, it is personal. Full Disclosure: I am one of the about 2.8 million people affected by the Social Security Fairness Act. For the 32 years that I have been operating Money Talk and have been self-employed, I have paid (and still pay) 15.3% of net business earnings in FICA tax as both an employee and an employer. I also earned Social Security credits (i.e., quarters of coverage) from work during my teens and early 20s. 

After I ended my Rutgers Cooperative Extension career in January 2020 and started claiming a federal pension, my earned SS benefit took a big haircut due to the Windfall Elimination Provision (WEP). I wrote more about how I was “WEPed” in a 2023 blog post for 403bwise.

Some people have referred to folks like me who earned both Social Security and pension benefits in a derogatory way. They call us "double dippers." That is not true at all. Instead, we took the initiative (or found it financially necessary) to become "dual earners" (e.g., with side hustles or second jobs) or had a mix of public and private sector jobs throughout our careers. Either way, we met the qualifications for both types of benefits.

I recently listened to a Next Gen Personal Finance webinar about teachers with side hustles. One worked for Disney and another at a local stadium near his hometown. In the future, teachers in some states (note: 33 states opt-in to Social Security, 13 states (including DC) opt out, and 5 states allow school districts to opt-in or opt-out) and others with jobs not covered by Social Security will get full Social Security credit for their "outside" work. Like me, they will no longer have benefits earned from entrepreneurship or private sector jobs cut because they also had public sector employment. 

This is huge and will affect many teachers/school staff and those with long public sector careers (e.g., police officers and firefighters) or other types of jobs not covered by Social Security who still managed to earn the 40 quarters of coverage required to be eligible for benefits like I did. That is the reason for this post....to spread the word. Be sure to check this out if you or your family are affected by this law. 

Finally, it is important to note that the Social Security Fairness Act will put more stress on an already precarious government program as its opponents rightly pointed out. The 2024 Social Security Trustees report projected depletion of the trust fund by 2035, necessitating an accompanying 17% benefit cut. Congress will need to decide on potential remedies to shore up Social Security (e.g., raising the wage cap, FICA tax, tax on Social Security, and/or full retirement age) in the years ahead. 

Keep paying attention to Social Security-related legislation. This post that I wrote for 403bwise provides additional information. It is certainly possible that the WEP and GPO could be tweaked and restored in some way. People are already talking about more means-tested WEP and GPO 2.0 formulas with better data analysis capabilities than what the government had in 1983, when the now newly repealed WEP and GPO first went into effect. 

One final thought: it is generally wise to accumulate retirement savings in an IRA, employer tax-deferred retirement savings plan, and/or taxable (brokerage) account. Do not rely on a pension and/or Social Security alone.

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.

Financial Highlights of 2024

My one-person company, Money Talk (read: me), may be the only entity in the U.S. that does a “deep dive” summary for clients of each year’s personal finance research, events, and trends. I recently presented a 90-minute 2024 Personal Finance Year in Review webinar for OneOp and wrote a blog post about 2024 financial milestones for 403bwise.

Why look back on the past year? For insights about how to manage money during the year ahead. Below are ten data points that caught my attention during 2024:

SHED Study- The 2024 Federal Reserve Survey of Household Economics and Decision-making (SHED) study found that 63% of adults could cover a $400 emergency with cash. Conversely, 37% of survey respondents could not. Not surprisingly, inflation was reported as the top financial concern.

Value of Financial Education- A study by Tyton Partners and Next Gen Personal Finance calculated a lifetime benefit of about $100,000 per student as a result of taking a one-semester course in personal finance. Impacts resulted from avoiding high-cost debt and larger retirement savings.

Retirement Planning and Longevity- Healthview Services issued a white paper cautioning consumers and financial advisors not to automatically assume a life expectancy of age 95 in retirement savings calculations and to consider health status and chronic diseases as key variables.

Inflation- The Consumer Price Index (CPI), which measures price changes over a 12-month period (e.g., November 2023 to November 2024), was “sticky” in 2024. The CPI was 3.1% in January and 2.7% in November. At two points during the year, the CPI trended upward after previously declining.

Interest Rates- There were three Federal Reserve interest rate cuts during 2024 totaling 1% bringing the federal funds rate to a range between 4.25% and 4.5%. Consumers were impacted as borrowers (e.g., lower interest on credit cards) and as savers (e.g., lower interest on money market funds).

Credit Cards- Annual percentage rates (APRs) on bankcards hovered around 20% during 2024 and the average APR on retail credit cards was over 30%. One reason: record high margins charged by credit card issuers above the prime rate or other metrics that variable rate credit cards are tied to.

Housing- “Rate lock gridlock” continued during 2024 with an estimated 60% of homeowners having mortgage interest rates below 4% and unwilling to sell their homes, which would require them to have a higher rate mortgage. Home affordability fell to low levels not seen since the 1980s.

Savings- The U.S. personal savings rate declined throughout the year from 5.5% in January to 4.4% in November. In addition, banks started to pay lower annual percentage yields (APYs) on savings accounts after the Federal Reserve started cutting interest rates.

Investing- Both the stock market and cryptocurrency (e.g., bitcoin) had noteworthy gains in 2024 but also major price pullbacks. In short, volatility was the name of the game. Major stock market indices all reached fresh highs (e.g., the DJIA started at 37,715 and crossed 45,000 before retreating).

Taxes- Final regulations for required minimum distributions by non-spouse beneficiaries of tax-deferred plans were finalized and the IRS processed tax returns through its new Direct File program.

What’s next for 2025? Time will tell. Best wishes for happiness, success, and financial well-being.

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.