Author: OnceUSave

Tariffs are bad. All sane economists know they are bad. Bad for the country that imposes them, bad for the country they are being imposed on, bad for global trade, they make the world poorer, they make the world less safe.

And it is not like they haven’t been tried before. Economists widely believe that the Smoot-Hawley tariff bill of 1930 was a contributing factor that caused the Great Depression. The tariffs enacted on imported goods at the time led to retaliatory tariffs from other countries. World trade declined by 65% over a span of five years and the rest as they say is history.

Politicians use tariffs to win back votes with a promise that they’ll bring back jobs lost to free trade. But why would a rich country like America want those kinds of jobs? Do we think that the Lululemons and the Nikes of the world will start making t-shirts and sneakers here? And if they ever do, are their customers willing to pay many times more for their products?

In an ideal world, we want freer trade and healthy competition between countries. We want a country that is good at making t-shirts to continue making them while the rich nations continue making products higher up in the value chain. Walmart making t-shirts in Bangladesh means cheaper prices for us while providing a source of income for the worker in that Bangladeshi factory who would otherwise starve. They can then feed, clothe, and educate their kids.

You say why is that our problem? It becomes our problem because unemployed people destabilize countries. They end up electing leaders who seek to exact revenge for their grievances on the wider world. There is evidence that say that the 1930 tariffs gave rise to Hitler, and we know how that turned out. The more we trade with other countries, the less chance of wars because there is too much to lose on both sides.

And imagine having to spend $100 on a t-shirt that should cost $20. That means we have less money to spend on other things. We eat out less, we buy less of other stuff, we have fewer disposable savings to invest in new businesses. Business activity then shrinks. Businesses curtail new investments, reduce hiring, and start laying off workers and the doom loop accelerates. Everyone suffers.

And tariffs impact the poor the most as a lot of their income is spent on meeting basic needs whose prices inadvertently rise due to tariffs. They reduce their spending but there is only so much they can cut.

Free trade on the other hand makes the world richer. When Bangladesh gets enough business from the rich world, their GDP rises. People there get rich and start buying iPhones and sneakers. Which means a growing market for companies like Apple and Nike to sell their products into.

Not all businesses like free trade. Imagine you are the buggy maker when automobiles didn’t exist. You’d want to protect your business at all costs to make sure your buggy-making business continues to thrive. And if the buggy-making industry had enough clout, they’d help elect politicians that will not allow an automobile factory to get built and we’ll all be poorer for it.

But businesses in general don’t like tariffs and we see it with how the stock market reacts to their impending enactment. And we know why. Tariffs cause input costs to rise so that is the first hit to profits. To top it off, people buy less stuff when a business raises prices for the product it sells to offset the increase in input costs.

So, business revenue declines and the cost rises which means less profits. And since business value is derived from future profits, its stock price declines.

But why the sudden drop in stock prices? Shouldn’t the markets have priced the impact of the tariffs over time? Good questions and the only thing we can conclude is that the market did not think it would really happen and to the extent it did happen and hence the resetting of expectations.

But calmer heads will prevail. Maybe it is a negotiating tactic, and the tariffs get scaled back.

The good thing is that the stock market is behaving exactly as it should. Stock investing is supposed to be risky. If there was no risk, the prices of stocks would rise to a point where no excess return exists over safe Treasury bonds. Price declines hence are healthy. The risk with owning stocks must show up from time to time to make investing rewarding over the long term.

What do you do as an investor? That is where your plan comes in. If you see gaps to fill in your plan and if you have cash to invest, it is time to invest. Who doesn’t like a discount on owning the world’s best businesses?

And once you have done everything that needs to be done, sit tight and go live your life. You own a 50-year plan so what happens from one year to the next hardly matters over that time span.

Thank you for your time.

Cover image credit – Julius Silver, Pexels

I am not into budgeting as much, not because it does not help but because it is a chore. No one likes chores. And hence the many budgeting tools we find around us that help us seamlessly categorize our expenses to help find the problem areas.

But even that is an overkill, and I can attest to that. Because if we can get the big budget items right, the minor stuff hardly matters. That of course assumes that the minor stuff truly stays minor unless it turns into $100 lunches every other day.

Elizabeth Warren in her book All Your Worth that she co-wrote with her daughter, lays out the 50/30/20 budgeting framework that if adopted, could sort out most money problems from our lives. She is the same Elizabeth Warren who is a sitting United States Senator and remains a consumer finance champion for all of us. She is also the key reason why the Consumer Finance Protection Bureau as an entity exists. The CFPB as it is called is a highly effective agency that I have personally used several times to “rain” down on the abuse by banks and other financial institutions. Hope it stays around because the current madness in Washington wants it not to stay around which will be bad for all of us.

So, what is the 50/30/20 framework? It is about splitting our after-tax income into the needs, wants and save buckets and allocating our family expenses accordingly.

The needs bucket includes things like housing, transportation, food, insurance and utilities.

The wants is the money we spend on things like vacations, eating out, gadgets – all the stuff that we can reluctantly, yet easily curtail from our spending if the time comes.

The save bucket was not needed as much in the past as most had access to employer-provided pensions so saving for retirement was a done deal. Plus, retirement years were not as many. I mean folks did not live as long, which then reduced the need for a big savings bucket.

That is not the reality today. No one has access to pensions. We need to plan our own pensions. Plus, we are living longer. We will in fact spend more years retired than years working and hence the need to really save big.

And 20 percent is the bare minimum we must do if we want to have a chance at a comfortable retirement.

Putting some numbers behind that framework; say you make $100,000 a year so after taxes, you’d take home $70,000. And say you reserve half of that for the needs bucket. That is rough living in many of the jobs-rich parts of our country but then that is the way we have collectively decided to live so unless that changes, this will remain the unfortunate reality.

And our sprawl-dependent suburban living means we are required to spend money on cars instead of relying on public-transit or being able to walk or bike to work, school and stores but again, blame the city planners and the suburban way of life that is foisted upon us even if we want to choose otherwise. That is not counting the rest of the negative externalities around things like sprawl-induced climate change that will increasingly become a big factor in our lives.

And then there are the costs. Housing of course takes a big bite out of our monthly cash flow and everything costs more when one family lives on one piece of land that needs to be served with all the necessary infrastructure. Property taxes, maintenance and insurance are just the visible costs. Then there is the big opportunity cost for us and for society with all that productive wealth getting permanently parked into dirt.

Plus, excessive indulgence on homes is fraught with risks. We would never tie most of our savings to a single stock or a sector, but we do that all the time with housing, exposed to one local market in one geographical region with our fortunes rigidly tied to the economic ups and down of that region. Again, it is not our fault but that is how it has evolved to be.

And one of the reasons the rich get richer is because they own most of the productive investments in the country. Data compiled by the Federal Reserve shows that the top 10% of Americans own 93% of all the publicly traded stocks. Where is most of the middle-class wealth? In homes because somehow the real-estate lobby has convinced us that homes are investments. They are not.

Granted, there is some bias in the data as it includes the likes of Bezos and Gates so quite naturally, their proportional wealth parked into their homes is tinier as compared to their stock holdings. But it is also obvious that the more of the means of production (businesses) you own, the wealthier you will be due to the way our economy works.

Back to the diatribe, since a car is a necessity, that is the next big cost we must pay for. How big is the damage? The Bureau of Transportation Statistics puts the annual car ownership cost at $12,000 on average which includes depreciation, maintenance and the rest. It does not yet include the biggest cost of them all and that is the opportunity cost of what else we could have done with that money were we not forced to spend it on owning and running a car. That is enough money to fully fund a great retirement if that cost didn’t exist through our working lives.

Talking about costs, I read a paper on how cities like Copenhagen and many others in the enlightened parts of the developed world greatly benefit by not having designed their cities around an auto-dependent way of life. And is it any wonder that these cities routinely rank as some of the happiest places to live?

Figures from the finance minister suggests that every time someone rides 1 km on their bike in Copenhagen, the city experiences an economic gain of 4.80 krone, or about 75 US cents. If that ride replaces an equivalent car journey, the gain rises to 10.09 krone per km, or around $1.55. And with 1.4 million km cycled every day, that’s a potential benefit to the city of between $1.05m and $2.17m, daily.

What makes Copenhagen the world’s most bike-friendly city?
Sean Fleming, World Economic Forum, October 5, 2018

Back to the budgeting framework, the needs budget already gets swallowed by the two biggest costs. That is not yet counting things like insurance, childcare etc. that we must spend money on.

But the money must come from somewhere so then it comes down to reducing our wants. So much for spending money on fun things in life.

But the 20 percent of the save bucket is something that we cannot skip on because no one is coming to the rescue to pay for our respective retirements.

And of course, that money cannot be sitting in bank accounts. We have got to put it to work or else we’d have a whole another set of problems. Not as bad as being broke but almost equally bad due to what inflation does to our savings over time.

So, 50 percent for needs, 30 percent for wants and then save the rest, at the minimum.

Thank you for your time.

Cover image credit – Mikhail Nilov, Pexels

The money that you have been contributing to your 401(k) plans has not been taxed yet. You have deferred the taxes that were due for years but at some point, the government wants its share. And that tax applies to all the money that is in the plan but not all at once.

The earliest you can start taking money out of your plan is when you turn 59 1/2. Thank the government for adding the 1/2 year to make things unnecessarily complicated but once you turn 59 1/2, you can take money out of your pre-tax accounts like 401(k)s and IRAs penalty free. If you take money out before that, you pay a 10% early withdrawal penalty. Taxes are still due on the money you take out.

You can take as much of your money out from your plan in a given year but whatever you take out, it is counted as income on which you pay the required tax. You will receive a 1099-R that will state the amount you took out that you will then file with your tax return.

You can choose not to take the money out at 59 1/2 years of age and let it continue to grow tax deferred. But the government isn’t going to allow you to defer taxes forever. You must start taking money out of your pre-tax accounts when you turn 73 or at the latest by April 1st of the year after you turn 73.

I would not wait till April 1st of next year once I reach age 73 because then I would have to take two RMDs that year (the first by April 1st for the previous year and the second by December 31st for that year). That would be bad, taxwise.

The minimum amount you must take out is called the Required Minimum Distribution (RMD) and it follows a set schedule defined by the IRS. You take that money out, pay the required taxes and move on.

So, say you are 73 and the balance in all your pre-tax accounts as of December 31st of last year is a million dollars. You’ll then divide that number by 26.5 which means you must withdraw a minimum of $37,735 from your accounts that year.

If you don’t take your RMDs on time and in the right amount, the penalty is bad. For every dollar you don’t take out when you were supposed to, the IRS charges a 25% penalty tax. That would be an additional tax of 25% of $37,735 = $9,433 on top of the income tax you’ll pay on $37,775. So do it right and do it on time.

And come next year, when you are 74, and say the IRA balance, even after taking the prior year distribution, stays at a million dollars by December 31st of that year, your RMD would be the million divided by 25.5 (which comes to $39,215) and so on for every year after that.

You’ll have to calculate your RMD for each IRA and employer-sponsored plan like a 401(k) separately. When you take RMDs from your IRAs, you can withdraw them from any account you choose.

For example, if you have two IRAs and one has an RMD of $10,000 while the other has an RMD of $20,000, you can take the entire $30,000 from one of the IRAs or you can take a certain amount from each, it is up to you as long as the total adds up to $30,000.

Employer plans like 401(k)s work differently. You must take each RMD amount from the specific account it was calculated for. So, if you have three different 401(k)s, you’ll have to take three different RMDs from each one of them separately.

That is why it is best to consolidate all 401(k)s and IRAs into a single IRA to make the RMD estimation and tax planning easier.

But imagine this scenario. Husband and wife, both working and have amassed a million dollars each in their pre-tax accounts in their forties. If left untouched with no new contributions, that money would conservatively grow to $5 million each. So, taking RMDs when they turn 73 means $10 million/26.5 = $377,358 in RMD income that year. Add to that income from other sources like dividends and interest and we are likely talking $500,000 in total income, keeping them in the same high tax bracket they were trying to avoid.

To add salt to that tax wound, they have no deductions left. They have no mortgage interest to deduct or new 401(k) contributions to reduce their taxes once retired. Not to discount that tax rates are certain to be higher in the future than they are today.

So, for all these reasons, tax planning strategies like Roth contributions and conversions, gift giving and estate planning increasingly become a big part of good financial planning to minimize lifetime taxes instead of taxes in any given year.

Thank you for your time.

Cover image credit – Anastasia Shuraeva, Pexels

During the Californian Gold Rush, folks who sold picks and shovels to the gold miners made more money than the miners themselves.

We have all heard of AI, that incessant talk about artificial intelligence and how it is going to change our lives. Well, AI has entered the world of stock picking. There is a lot of money to be made and like how the gold mining analogy goes, we know who is going to make all that money.

But why can’t AI-based stock picking systems work? In fact, why won’t any publicly accessible stock picking system work?

They don’t work because markets are a complex adaptive system. The variables that influence the prices are so many that it is hard to capture them with a neat little algorithm. And the mix of variables changes with time. New variables get born each day while the old ones die off and no system can reliably predict which ones they will be in advance.

And then there is the overfitting problem with any system that relies on past data. It can predict the past very well but cannot predict the future. Because the future evolves in ways the models cannot capture. Just think back to the Covid pandemic or the war in Ukraine or any other exogenous event that came out of the left field. No system can predict these events in advance. And even if they do, there is no way to know how stock prices will react to them.

And it is not like stock-picking systems didn’t exist before the advent of AI. They came in the form of newsletter writers who dispelled stock recommendations. Then there were the formulaic approaches to stock picking like the Dogs of the Dow where you rotated in and out of the 10 highest dividend paying stocks in the Dow each year. Then there is momentum and value investing, there is thematic investing…all these are built on some rules.

And once these rules start to show a profit, the world knows about them and then that edge is gone. This is how markets work. Excess profits invite competition, which then drives down those profits.

So, if you built a system that can reliably predict the best stocks to buy, I would not tell anyone. Because the moment the world knows about it, that system will stop working.

Thank you for your time.

Cover image credit – Cottonbro, Pexels

Most 401(k) plans allow you to borrow up to half your vested balance or $50,000, whichever is lower for up to five years without triggering any taxes or penalties. But here are reasons you should not contemplate that option:

• You miss out on big time growth: The value of a portfolio invested in stocks and bonds rises for more years than it falls. But when you borrow money from your 401(k), those stocks and bonds that you own in your 401(k) get sold when the money is withdrawn. Compound interest now works in reverse for you, putting a gigantic dent in your eventual 401(k) balance.
• You might have to pay back the loan at the most inopportune time: If you change jobs or get laid off when you have a loan outstanding, the entire loan balance becomes due instantly or else it is considered an early withdrawal which is then subject to taxes and a 10% early withdrawal penalty.
• You lose out on free money: Most plans do not allow new contributions into your 401(k) until the loan is paid off. So, if your employer matches your contributions, you do not get that match.

There is also this argument that you are paying taxes twice but that is a weak one and I’ll explain why. Say you need $50,000 and you have two options:

• You can borrow money from your 401(k) but that money is pre-tax money. You then pay back that loan from your paycheck, but that paycheck money is after-tax money. At retirement though, you’ll pay tax on that money again when you withdraw from your 401(k) so in theory, you paid taxes twice which is technically true.
• But then what is the alternative? You need the money, and you don’t have any surplus cash so instead of borrowing from a 401(k), you borrow from a bank. Your 401(k) is left alone to keep on growing. But the loan that you’ll pay back to the bank is still from your paycheck which is after-tax money.

So, both cases are similar if you consider opportunity costs. In the first case, the opportunity cost is yours to suffer as the loan money you took out from your 401(k) is not participating in the markets.

In the second case, the bank suffers the opportunity cost but then the bank is not going to loan you the money for free.

The opportunity cost penalty hence exists in both cases, but that cost is worse with 401(k)s due to the other factors that get tagged along.

So, the best solution is to try to not find yourself in a situation where you need to borrow by setting aside healthy emergency reserves and if you must borrow, don’t do it from your 401(k).

Thank you for your time.

Cover image credit – Karolina Grabowska, Pexels

There is no clear definition of a bull market except when the stock market seems to be uninterruptedly going up year in and year out and you sense a feeling of euphoria all around, that can be called a bull market. But that is a bad deal for you because what is the point of making 20% on a measly $50,000 investment balance you are likely to have at the beginning of your career.

And that is not the least of the bad things because from now on, with all future contributions that you’ll make in your plan, you’ll be buying the same set of investments at a 20% mark-up. Who likes to pay more for anything and especially for a thing that you will keep buying over and over again for decades?

But if that 20% bump in return came later after a lifetime of diligent investing, now that is a completely different ballgame. We are talking about real money here because a 20% bump on $5,000,000 is life changing whereas a 20% bump on $50,000 is barely worth it.

You want the big gains to come later with itty-bitty gains during the early and middle phases of your career. I mean you want the markets to go nowhere while you are working and feeding your plan with fresh savings. And then right when you are about to retire, you want the biggest, baddest bull market in history to allow for all that accumulated dry powder to explode higher.

That is the ideal and only a lucky few get to live it. Lucky not just from the perspective of timing but lucky from the perspective of persevering through it. Let me explain why.

Say you happen to land your first job in January of 1966 when the Dow Jones Industrial Average stood at a mere 1,000 points. It would continue trading below that mark for the next seventeen years. Imagine watching the market go nowhere for seventeen long years?

The Dow once again breached 1,000 points in December of 1982 before breaking out, never to look back. That would come to be the setting stage for one of the greatest bull markets in stock market history.

So, if you entered the workforce in 1966 and started to stuff your investment accounts with fresh savings, you bought more and more of business profits at constant to down prices.

And when the market turned, you were technically done. I mean your savings did all the work while you chilled.

But with headlines like below towards the later stages of that extended bear market, how many folks do you think remained invested? And how many at that kept feeding their plans for the entirety of that period? Bet not many.

Because to stick with your investments for that long of an underperformance with recurring crashes in the interim requires conviction. And conviction comes with knowing what you are investing in and why.

But without conviction, you won’t be around to stick with your investments and follow through on your plan. Because you’ll bail at the worst possible time and then it is mostly over.

And guess what was in vogue as an investment back then? Gold. Everyone wanted to invest in gold. When stocks treaded water, gold did like twenty times in ten years during the 1970s.

But gold is not an investment. It can never be an investment. No commodities are investments.

And you’d think people got into gold before that big run-up? Not a chance. They got in right when that cycle was about to end. And that cycle likely ended forever.

Why do I say that when the price of gold is a lot higher today than in the seventies? Because we have not factored in inflation yet.

So, if you bought gold thinking it is an investment, you’ll be sad today.

But back to the topic at hand, what appeared to be the worst of times to invest when the stock market treaded water was in fact the best of times. And had you stayed invested and continued to plow new money into the markets, you got rich.

How do I know? Because the next underwhelming phase in the stock market came during the decade of 2000s. The stock market as measured by the S&P 500 did not go anywhere for the entirety of that decade. That is not to discount that you also had to endure through two big market crashes in the interim – the Tech crash of the early 2000s and the subprime crash of 2008.

But had you stayed invested and continued to plow new savings into the market, well, you know the story.

Also, that underwhelming stock market performance only applied to the S&P 500 index that was dominated by the growth stocks of the era. Value stocks did fine. Small cap stocks did okay but international stocks is where all the action was.

That story flipped again in the decade of 2010s. Growth stocks did great but value and international stocks underperformed. That cycle will turn again, we just don’t know when. Nobody does.

Yet we must prepare for it. We must prepare for all possible scenarios because outcomes are never in our control, but the process is. And good planning requires getting the process right. Outcomes then fall in place on their own.

Thank you for your time.

Cover image credit – Becerra Govea, Pexels

Benjamin Graham is considered the father of value investing. In his seminal book the The Intelligent Investor, he lays out approaches on how to pick stocks that are selling for less than their stated value. Graham‘s most famous student, Warren Buffett took some of the learnings and applied it to a style called Cigar-Butt investing where he bought discarded stocks that had one last puff left and were selling below fair price. He would buy these short-term mispriced stocks, wait for the market to reprice them and sell, making a quick buck in the process.

But discarded stocks are discarded for a reason. Cigar-Butt style businesses are not the kind of businesses you want to hold for the long-term. And real wealth lies in long-term ownership of quality businesses bought at fairer prices while waiting for cash flows these businesses generate to flow to you. Buffett later revised his approach by mixing Graham‘s teachings with teachings of other investing greats and used his business savvy to build Berkshire Hathaway into what it is today – a company so remarkable, a company so shareholder-friendly that there is none around.

One of Graham‘s key metric to picking stocks was the price to book ratio. The more physical assets a business has, the more its book value. And the lower the price you pay per dollar of book value, the better a buy.

But had you followed that, you would have missed out on all the Microsofts and the Googles and the Apples of the world because these asset-light businesses do not have much book values. Their value is in their products, in their people, in the systems they have built, in the market footprint they cover, in the brand they maintain, all these are not part of the book value calculation.

So, metrics evolve as business landscape change. There is this thing called the Buffett Indicator that tells us how expensive or cheap the market as measured by the Wilshire 5000 index is compared to the GDP of the United States. The higher the ratio, the more richly valued the stock market is.

But that is again an increasingly flawed metric because…

• GDP or Gross Domestic Product in economic terms is considered a flow that measures the total value of goods and services produced in an economy in a given year. The stock market on the other hand is a stock metric that measures the total market value of all businesses since their inception. They are two different things and comparing them is almost meaningless.
• U.S. businesses these days get more of their sales from outside the U.S. than they did in the past. GDP does not include those sales. That means the numerator which is the market value of all Wilshire 5000 companies reflects a larger addressable market than what the denominator, the GDP captures.
• And the quality of businesses has changed. Wilshire 5000 in 1975 is not the same as Wilshire 5000 in 2025. They have two totally different kinds of businesses. Manufacturing was a bigger part of the economy and hence the stock market back then whereas now, the top businesses are asset-light and uber-profitable.

The other famous metric that is increasingly unreliable is the price to sales ratio. Price again is the market value of a business and sales is the annual revenue that a business generates in a given year. But how can we compare the price to sales ratio of an automobile business from the 1970s to a software business today?

These metrics hence should be taken in context. Markets are not static. And it is safe to assume that markets are long-term efficient. They take all these into account and price businesses accordingly.

But the best part for us is that we don’t need to guess whether it is the right time to invest or not. We have a 50-year horizon and that is plenty of time for things to sort themselves out.

The only thing we should do is to live a great life while continuing to feed our plans. And knowing that you have a plan and are making progress helps. It makes your life structured creating that mental space that you can divert to other important things in life. And it relieves you from worrying about things that don’t need worrying about.

Thank you for your time.

Cover image credit – Andres Ayrton, Pexels

The short answer is no but before that, a bit about why everyone should have an estate plan in place.

Imagine you have little kids and something bad happens to both of you and you don’t have an estate plan, the state gets to decide who raises your kids and who gets your money. Estate planning is all about you documenting your wishes instead of letting the state decide for you.

A good friend of mine brought up Trust&Will where you can get your estate planning done for a decent price. Another option that you may consider is FreeWill. I have yet to try either of them, but the sites look legit, and I plan to use them the next time I update my plan. I do that every time there is a major life event which happens to be the case for me now.

These sites mainly offer two kinds of estate plans: a Will and a Revocable Living Trust. The choice between the two comes down to whether you want to bypass the probate process or not.

Probate is a legal process in which the court determines the validity of a Will and then executes the demands of the said Will. As long as you have done a decent job at naming beneficiaries for your assets, the probate process is in fact a good thing as in the rare off situations, it protects inheritors from potential conflicts of interest and malfeasance by the executor.

In fact, the most important job in the estate planning process is identifying a good executor who will faithfully carry out your wishes. The rest of the stuff is mere paperwork.

Back to avoiding probate, a Revocable Living Trust bypasses the probate process. This argument is what gets sold most times to steer people towards a Revocable Living Trust instead of a simple Will but you don’t need the added complication and cost that comes with a Trust if your sole goal is to avoid the probate process because…

• The beneficiary designations in your retirement accounts like IRAs and 401(k)s supersede everything else. The money in these accounts flow directly to your beneficiaries without much intervention from the system.
• Life insurance proceeds also flow to the assigned beneficiaries outside of the probate process.
• For the rest of your accounts, if you have Transfer-On-Death (TOD) designations in place, the assets will transfer over according to your wishes outside of the court system.
• Transfer of real assets like a home is usually the reason people opt for a Revocable Living Trust but even there, you can add a TOD deed to pass down your home to your beneficiaries without much court intervention.

And if you do opt for a Revocable Living Trust, you must make sure to fund that Trust by retitling the deed to your home and your other non-retirement assets to that Trust’s name. Not doing that defeats the purpose of creating the Trust.

And besides the decision to choose between a Trust or a Will, there are other equally important things that you need to prepare for. And they apply regardless of the option you choose.

• Advanced Healthcare Directive: A legal document that lets you specify your health care preferences in advance and choose someone to act for you in case you’re ever unable to communicate.
• HIPAA Authorization: Authorizes trusted individuals to receive your protected health information for specified purposes.
• Power of Attorney: This is a legal document that allows you to appoint someone to act on your behalf if you are unable to. The appointee will then be able to manage your personal, financial, and medical affairs if you are away or incapacitated.

I like to keep things simple, so I’d opt for a Will but if you do decide to do a Trust, make sure to follow through on funding that trust.

Thank you for your time.

Cover image credit – Pixabay

Let us use saving for retirement as an example. The first thing you would want to know is the amount you would spend in the first year of your retirement. You’d then want to inflation-adjust that amount each year through retirement.

You’d then want to know how long retirement will last. A 100-year life expectancy is what I would assume but you can adjust that number to what you think is right. Average life expectancy for anyone born in these United States is eighty years.

You can use these pieces of information to know the target amount to save up to that will generate the income you need in retirement. This process of taking money out of your savings is called annuitizing your savings.

But once you know the target amount to save up to, you’d then want to bring that amount to the present, assuming reasonable rates of return. You would then subtract from that what you have already saved, and that difference is the amount you’d want to save from now till you retire.

So, say you are 50 years old and have $1.75 million saved spread across several accounts. And you want to retire in 10 years and draw $75,000 in inflation-adjusted income for 40 years in retirement. That is planning for a 100-year life expectancy that we just talked about.

How much more would you need to save each year till you retire? Crunching the numbers gets us $32,000 to save each year.

But say with everything remaining the same, you want more spending buffer that allows you to draw $100,000 in income from your savings. This will now require you to save $130,000 each year.

For $25,000 more spending power, you need to now save FOUR times more each year. How? That is because you are drawing $25,000 more in inflation-adjusted money from your portfolio for 40 years in retirement, but you only have 10 years to save for it. And blame compound interest for that twisted math.

But say that savings goal is tough to meet, and you can delay retirement by just two years to age 62. To guarantee the same $75,000 income stream for now 38 years in retirement, you only have to save $5,000 more each year. Much easier.

And for a $100,000 annual income in retirement, you’d need to save $80,000 more each year. That is a far cry from the $130,000 required before. Two years of working more eases things quite a bit.

Knowing how much to save for a big goal like retirement sorts other things out in life. Once you know that you are on track, you can then spend freely on things that matter in the present knowing that the future is taken care of.

Thank you for your time.

Cover image credit – Vlada Karpovich, Pexels

I am a worrier by design which means I try to protect what I need to protect through liberal use of insurance – life insurance for life, health insurance for health and auto insurance for my car.

For my car? I don’t buy auto insurance to protect the value of my car because at some point in your life, the value of your car becomes an inconsequential fraction of all the other assets you own.

In fact, I raise my deductible to the maximum allowed ($2,000 in my case) to pay out of pocket any damage to my car under that amount. That should reduce the collision and comprehensive coverage you pay by several hundred dollars each year.

And once the fair market value of my vehicle drops to say below $10,000, I remove collision and comprehensive coverage entirely. You take your chances because you can afford to. That should save another several hundred dollars each year.

What I do not scrimp on is liability coverage because that is what helps protect my assets. Because think about it – what is the biggest risk to your assets for someone who is regular rich? You look down on your phone for a split-second and you rear-end into another car, causing major injury to the other party or worse.

So, I buy maximum liability coverage on my auto policy to protect my assets against these unforeseen events. Not that I should be looking down on my phone anyway.

This below is the liability coverage I have on my auto policy that protects others but indirectly protects me…

Bodily Injury $300,000/$500,000 : Pays $300,000 per individual or $500,000 per accident if I am responsible for causing someone injury or death in an accident. It also pays for my legal defense.

Property Damage $100,000 : Pays in that amount if I am responsible for damage to another person’s property. That could be paying for any damage my car does to the other party’s car or home or anything that is deemed valuable.

The liability coverage below pays out to me and my passengers…

Uninsured & Underinsured Motorist $300,000/$500,000 : Pays for injuries caused to me and my fellow passengers by an uninsured, underinsured or hit-and-run motorist. It also pays for damage to my vehicle.

Out of these three, the bodily injury damage is what I deem most important. Because in a major accident and assuming it is your fault, this would be your first line of defense.

But we all know $500,000 per accident is not sufficient coverage in case you happen to hit a car full of lawyers. So how do I protect my assets beyond that?

Through umbrella insurance. If you own say a million dollars in umbrella insurance and if the accident damage totals to a million dollars, the first $500,000 will be paid by your auto liability coverage and the remaining will be paid by the umbrella insurance policy you own.

Umbrella insurance is designed to add extra liability coverage over and above say what your auto or homeowners’ insurance covers. It provides gap insurance when a claim exceeds the limits built into these policies.

Insurance companies will require you to own maximum liability coverage before they let you add an umbrella policy on top and hence the $300,000/$500,000 bodily injury liability you see above on my auto policy.

And because of that, umbrella policies are fairly cheap to own, like $500 a year for a million dollars in coverage. And it gets cheaper from there for each million you add.

I would gauge the amount of assets you are trying to protect and buy the umbrella coverage accordingly. I’d say $2 million in coverage is plenty for 99% of the regular rich.

Thank you for your time.

Cover image credit – Matheus Bertelli, Pexels