Blog posts on personal finance

Posts selected fromManagement Blog - Engineering Blog - Investing Blog and other blogs

• Personal Finance Considerations for Going into Debt for Education

  I think taking on debt for education is a sensible financial decision. But the level of the debt that is sensible must be considered.

  When I went to college (too long ago) it was expensive, but not nearly as expensive as it is now (in the USA at least – I am not as familiar with the costs outside the USA other than knowing in many places that university education costs are very reasonable).

  I don’t have any hard cutoff where I think taking on debt no longer makes sense. But I do think I would include cost as a major factor when deciding what college to attend if I were facing that decision today.

  ...

  As I have said before the reason to chose a career is because that is the work you love, but in choosing between several possible careers it may be sensible to consider the likely economic results. And in choosing how much to spend on your education considering your future earnings is wise.

  continue reading: Personal Finance Considerations for Going into Debt for Education
• Using Annuities as Part of a Retirement Plan

  Annuities have a bad reputation, with a history that makes that bad reputation sensible. The main problem is the high costs (and often hidden costs) of many annuity products. Combine with large sales incentives this has led to annuities being abused by sales people and financial companies while providing poor returns to investors.

  However the attributes of annuities fit a specific part of a retirement plan very well.

  ...

  The best roll for an annuity in retirement planning in my opinion is to serve as a protection against longevity. The longer you live the more risk you have of outliving your investment savings. Life annuities have the benefit of continuing for as long as you live.

  continue reading: Using Annuities as Part of a Retirement Plan
• ACA Healthcare Subsidy – Why Earning $100 More Could Cost You $5,000 or More

  One of the benefits of the USA Affordable Healthcare Act (ACA) is that health insurance costs are subsidized for those earning less than 400% of poverty level income. The way that this has been designed you could get $5,000 (or more, or less) in subsidies if you earn just below the 400% level and $0 if you earn just above.

  ...

  60 year old in Virginia - earning $48,200 would receive $7,073 in subsidies (60% of the cost*). Earning $48,300 would mean receiving $0 in subsidies (for this and also examples, the examples shown are for a single individual, you can use the tool to try different scenarios).

  ...

  The subsidy levels for those with very high health insurance costs (especially those over 50 years old, or with a family) are very large. If you are close to the subsidy cutoff level the costs of going over can be huge, costing you $5,000 or even over $10,000 just by making an extra $100.

  continue reading: ACA Healthcare Subsidy – Why Earning $100 More Could Cost You $5,000 or More
• Retirement Portfolio Allocation for 2020

  The markets continue to provide difficult options to investors. In the typical market conditions of the last 50 years I think a sensible portfolio allocation was not that challenging to pick. I would choose a bit more in stocks than bonds than the commonly accepted strategy. And I would choose to put a bit more overseas and in real estate.

  But if that wasn’t done and even something like 60% stocks and 40% bonds were chosen it would seem reasonable (or 60% stocks 25% bonds and 15% money market – I really prefer a substantial cushion in cash in retirement). Retirement planning is fairly complex and many adjustments are wise for an individual’s particular situation (so keep in mind this post is meant to discuss general conditions today and not suggest what is right for any specific person).

  This post was written before #covid19 became the enormous economic clamity it has become. Based on the poor preparation to fight Covid19 by the USA and Europe I sold some stocks and reduced global exposure and emeriging market exposure.  I didn't reduce it to zero or anything close to that, but as I say I am usually overweight stocks and I had reduced how much I was overweight due to high stock valuations and with the likely Covid 19 problems I further reduced stocks to make my portfolio probably even a little bit underweight stocks (but still over 50% stocks).

  I am more active than most people should be with their investments (I think it works for me but maybe I should be less active too, I just pay much more attention than most people and feel I can make some adjustments that are sensible.).

  continue reading: Retirement Portfolio Allocation for 2020
• US Savings Bonds – Actually a Good Investment Option

  I will admit I have only recently looked at US Savings Bonds as an investment option. Series I USA savings bonds are based on the inflation rate and given how strongly the Fed has been surpassing interest rates this offers an option to get a higher rate of interest.  The rate is calculated as follows:

  Composite rate = [fixed rate + (2 x semiannual inflation rate) + (fixed rate x semiannual inflation rate)]

  2.22% = [0.0020 + (2 x 0.0101) + (0.0020 x 0.0101)]

  This is calculated based on a fixed rate of .2% (showing how depressed interest rates are) and 1.01% inflation rate for a 6 month period (which also is low but compared to interest rates pretty high).

  You may buy series I US savings bonds online via TreasuryDirect. In a calendar year, you can acquire up to $10,000 in electronic I bonds.

  continue reading: US Savings Bonds – Actually a Good Investment Option
• Individual Stock Portfolio Investment Planning

  Early last year when studying my portfolio I decided my two biggest positions (Apple and Google – those ready the blog won’t be surprised due to my 10 stocks for 10 years posts) continued to warrant the large portion of the portfolio they held. I also decided that I would systemically sell say 1% of Apple and 2% of Alphabet a year (the Apple dividend was also paying about 1% – actually it was more then but is much less now).

  That was just a long term plan that helped me think about the long term portfolio management. But that, like all investment decision, was subject to revision. As both continued to soar I decided it made sense to sell more but maintain a similar plan, just maybe selling 2% and 4% a year...

  continue reading: Individual Stock Portfolio Investment Planning
• New Health Care Insurance Subsidies in the USA

  Under the new law, nobody will have to pay more than 8.5% of their income on health insurance. The government will also pick up 100% of COBRA premiums through September. COBRA is health insurance for people who’ve lost their jobs.

  The Kaiser Family Foundation calculator lets you get a quick idea of what your approximate subsidy benefit. A 55 year old earning $55,000 would be entitled to a subsidy of $4,700 about 50% of their health insurance costs (based on the USA average). For a 50 year old the subsidy would be $2,900 or 38%. For a 60 year old the subsidy would be $6,800 or 59%. For a couple of 35 year olds and 2 children the subsidy would be $12,100 per year or 72%.

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• The Growing Use of Apprenticeships in the USA

  Apprenticeships are a great option for many people. For one thing you don’t have to take on a huge debt burden (previous post: Personal Finance Considerations for Going into Debt for Education). Also for many careers and apprenticeship is what is needed, not a college degree.

  continue reading: The Growing Use of Apprenticeships in the USA
• Saving for Retirement

  Saving for retirement is not complicated, it is just a matter of priorities.

  ...

  Savings for retirement is difficult mainly because of our trouble planning for the long term, it is not at all a complex problem. The fable of the ant and the grasshopper illustrates this point very simply and it is really that simple. ...

  continue reading: Saving for Retirement
• How to Safely Spend Savings in Retirement

  There are no super simple answers in my opinion. But ideas like 4% (or 3.5% or …) do get you at least in the right ballpark for what has worked historically in the USA with specific portfolios

  ...

  No one blog post is going to provide an answer to the question... There are some very good posts, articles and studies on the topic, here are a few:

  • The Silliness of the Safe Withdrawal Rate Movement – “The correct answer to “what is a safe withdrawal rate?” is “something around 4%, probably in the 3%-6% range.” Not 3.59% or 4.21%.”
  • Bill Bengen: How to Monitor and Adjust Withdrawal Plans

  ...

  continue reading: How to Safely Spend Savings in Retirement
• Fed Funds Rate Changes Don’t Presage Mortgage Rate Changes

  The recent drastic reductions again emphasize (once again) that changes in the federal funds rate are not correlated with changes in the 30 year fixed mortgage rate. In the last 4 months the discount rate has been reduced nearly 200 basis points, while 30 year fixed mortgage rates have fallen 18 basis points.

  continue reading: Fed Funds Rate Changes Don’t Presage Mortgage Rate Changes