Changes to retirement programs while you were on Christmas break

Posted on January 26, 2023January 26, 2023 by Danielle

The so-called Secure Act 2.0, signed into law December 29, 2022, has changed some of the basics of retirement programs for 2023 and beyond, so do be aware.
The maximums you can contribute have gone up, and this may be the greatest benefit for most people who can afford to contribute.
1. Roths now have a contribution of $6,500, with a $1,000 additional catch-up if you’re over 50. This is $500 more than last year. Same for traditional deductible IRAs.
2. If you have a 401k, 403b, 457, or Roth 401k, you can contribute up to $22,500; over 50 you can add another $7,500 for a total of $30,000, up from $27,000 in 2022.
3. HSAs can now snare $3,850 for individuals and $7,750 from families, with $1,000 catch ups.

Another change was that you can delay required minimum distributions from your 401k, 403b, and traditional IRAs until 73 beginning in 2023, and until 75 beginning in 2033. I’m not sure this is actually a good idea, for several reasons:
• It encourages people to keep on working, when maybe they should consider that it’s time to stop, enjoy life, and make way for somebody younger.
• It staves off urgency to save, because, well, you may as well just work forever.
• Once you start RMDs, the required amount will be larger and could possibly kick you into a higher tax bracket where you’ll pay more taxes on your money in a shorter period of time.
• If you never actually get to spend your money, your heirs will probably be in their highest earning years and so they’ll pay more taxes on the money than a retired person might have.
Still, given the hits to investments in the past year, many people will be glad to let their investments ride a little longer without being forced to sell off in an already low market.

It’s depressing to think that the French are going to the mat to protest increasing the retirement age from 62 to 64, while Americans are faced with being forced, er encouraged, to work longer and longer or face retirement poverty on the relatively puny Social Security. And pensions—what’s that?

There are a number of other changes that depend on the discretion of plan sponsors, not individuals. For example, plan sponsors may allow linking of accounts to an emergency fund, consider student loan payments as deferrals for matching, and make emergency withdrawals available. What they actually do offer remains to be seen, and will depend somewhat (as usual) by pressure from employees or their unions. We’re likely to see that pressure exerted on big employers, but more than 99% of people work for small employers—and many don’t even offer retirement plans. So, one faint cheer for better workers’ rights.

An economical hobby

Posted on May 20, 2021May 20, 2021 by Danielle

Depending on what you choose, hobbies can be expensive. If your hobby requires a great deal of expensive equipment and travel (such as skiing or sailing), it’s going to take some careful scrutiny to fit that into a budget. It’s all going to have to come out of your discretionary budget, and only after savings have been fully funded.

I might contend that sometimes the collecting of materials for a hobby is actually a hobby in itself. Some people (ahem) can hardly resist the beauty of materials like yarn, fabric, embroidery floss, art materials…whether or not we’ll ever have time to make something out of them. In fact, making something, which means choosing one concrete creation instead of all the possible dreams, may act to spoil the fun.

However, the internet and maybe even the pandemic have taught us there are cheaper ways of acquiring knowledge—YouTube and even subscription sites are far cheaper than live lessons with an individual, or the cost of a three day conference seminar. I’m definitely not discounting the value of a live instructor, but if we’re sampling a possible new skill or trying to reactivate something we already know a bit about, it can be very economical to begin online. Online also gives you a community, no matter your location, job, previous experience, age…really, it’s opened up the world for pursuits where it can be hard to find enough people and information in one place.

I’ve seen some discouraging posts lately on some music sites. You have to be very careful to scrutinize marketing—anyone that promulgates they are the “only way to learn” while charging a hefty fee should be suspect. My strong advice is to look for a money back guarantee in case you don’t like what you’ve paid for. For example, I recently subscribed to a guitar program that I adored—for the first 30 days. Then, for some reason, the owner decided to update his well-functioning website. For one week (which I was paying for), the site was down entirely—with no extensions offered. Then, for the next 3 weeks it mal-functioned, crashed, and offered significantly less material than previously. As far as I can tell, all the “improvement” consisted of a change in theme colors. I exercised my money-back guarantee on the 59^th day, after hoping against hope that it would be fixed. Two months after, I hear it still isn’t. I feel a lot like what I felt when you have a great first date and never hear from the person again.

Having been rejected by a potential guitar teacher as pretty much too old to bother with, I’ve thought a lot about why an adult might want to take up or return to a hobby. Are you ever too old to learn something? Should teachers only be interested in young students with conservatory potential? Obviously, I believe this is defeatist, aging self-talk. After all, when possible, you should use your money on things which enhance your life. Here’s what I came up with while mind-mapping. While it’s mostly focused on guitar, perhaps it will apply to a pursuit you are considering.

Now you can recapture something you loved as a young person, but life intervened.
Now you can enjoy the sheer joy of playing an instrument without the pressure of getting into a university program. No more tryouts!
Now you have the luxury of time to perfect a piece. The process can be more important and more satisfying than any result.
You can learn to play an instrument where even the simplest pieces sound wonderful (unlike, say, violin). N.B. but if violin or French horn is your interest, you’ll put up with the sounds, as has every other learner before you.
You can get a decent instrument for far cheaper than many others (such as piano, harp).
It’s easily portable. You can play with a group or other instruments.
As an adult, your knowledge of the world of music is much larger—you’ve simply heard more than kids. If not, playing guitar can introduce a whole new world.
The instrument itself is beautiful and a pleasure to pick up every day.
You can take up a challenge to learn something uniquely beautiful and relatively uncommon that many people wouldn’t have the courage to do.

When I become disgruntled with my “lack of progress” (to where?), I plan to review this. It’s a good use of time and money to improve your life. And it doesn’t have to cost a fortune.

Working from home is great, right?

Posted on May 13, 2020May 13, 2020 by Danielle

A recent New York Times article opined that big office tower landlords are really nervous that tenants will never come back, or greatly reduce their rental footprint. Why? Because companies have discovered that many employees can work from home. You betcha.

The comments on this article were starry-eyed positive—yay, great, I love the freedom and flexibility! No boss looking over my shoulder! I can set my own schedule!

Not so fast! I ask my perennial question: when did a company ever decide to do something that was in your best interest, as opposed to theirs?

I think there are a few things missing here, and surprise, they can cost you (not the company).

Cost of space

If the employer isn’t providing space for you to work, guess who is? YOU. You’re not going to be able to work on your dining room table forever, so that means you need to find somewhere relatively quiet to work on a daily basis. That might be a challenge in many big-city apartments. This is a definite disadvantage if you can’t afford more space, have a partner who also works at home, or have kids (even when school reopens) who are home for any portion of the workday.

You might be able to deduct part of the cost on your taxes (see this article) but you’re on the hook upfront.

Cost of utilities

Do you turn the thermostat down at home when you’re at work? Turn off the lights? Flush the toilet? Your heating and air conditioning, water usage, and electricity are all going to go up when you work from home. If you’re lucky enough to have employer-provided food or coffee, that’s on you now. In fairness, you’ll save on commuting costs (and lose any employer provided subsidy for that).

Cost of equipment and tech support

Maybe your employer will provide a computer and cell phone right now, although those types of benefits have a way of disappearing over time. How about a printer? Mine went kaput a few weeks ago and it was nearly impossible to order a new one—all the affordable ones were cleaned out. A modem and maybe better internet service? Have you noticed a huge slowdown when more than one person in your home is on the internet at the same time?

I’ve always been extremely envious of people who, when their laptop starts acting up, just bring it into the IT department and exchange it for a new one. Or can get their IT person to come fix whatever is acting up on the desktop. Guess who does it when you work from home? Hope you’re good at it, because my guess is that’s going to be remote, too.

Work expands to fit the time available

I often tell potential freelancers that indeed they will be freer—but also, free to starve. Many people who work from home find that they are working more hours, not less. Yup, you might start at 10 am, but the time spent chatting with other co-workers (unless you never need a break) is gone, and what’s to prevent you from working all evening? In the stone age, most workers were off the hook when they went off the clock. I know that has changed, but I don’t see it as a positive trend that now your boss knows where to find you, and they’re also thinking your time is flexible, which means to them that you’re available 24/7. After all, now there are no off-hours.

As many newly self-employed people find out, controlling interruptions is a learned skill in itself. Now, your mom knows you’re at home. Every organization that needs volunteers, every classroom that needs assistance, every errand that no one else wants to do—well, you have flexible time now, don’t you?

Finally, big brother will probably find a way to watch you. After all, insurance companies have already promoted lower rates if you’ll let them install software on your car to monitor your driving. I’ve already seen articles on software being developed to allow your boss to monitor your time and productivity at home.

Harder for employees to organize

Divide and conquer. Employers know it will be very hard for employees to come together to unionize, and even if they do it through (the company’s) Zoom meetings, there’s a record of whom and when. One of the most important ways employees find out they’re being screwed is through casual conversation that allows them to find out who is earning what—much harder from home, and harder to establish that your work is comparable to someone else’s. Which makes it harder to ask for a raise or get promoted—out of sight, out of mind.

Good luck on getting Human Resources involved in any issue. Because they’ve never seen you. And they’re working from home, too.

Remember when companies told you that the new 401ks would offer you great tax benefits and allow you to invest however you wanted, rather than that stodgy old pension that guaranteed you lifetime retirement income? How’s that working out? Well, it saved corporations a ton of money, shifted all the risk of investing to you, and in many cases allowed the employer to quietly reduce any match over time, so their costs became even lower. Then, they shifted the costs of administering the plan to you, while increasingly restricting your investment choice since “most employees don’t understand investments anyway”. But of course, you’re to blame if you don’t have enough for retirement. Yeah, that freedom is great.

Social isolation

We’re learning a lot about that right now, aren’t we? Maybe the boss is a pain and your co-workers drive you crazy, but surely you have a few friendships there. You’re all alone at home. There’s no break, and very little real-life human contact. Even worse, people who are in a disruptive or abusive situation now have no outlet, no break to get away from it all to focus on something else. Norms break down (self-employed people always report how difficult it is to get “to work” on time), and the perspective you can get from comparing yourself to others disappears. Plus, it’s just plain lonely.

Easier to get rid of you

It’s hard to see how personal loyalties can hold any sway over management decisions. You’re just a disembodied voice on the line. In fact, one unit ought to be pretty interchangeable with another, so why not just replace you with somebody off-shore who speaks fairly good English?

“Freedom” always costs you something. And it’s pretty clear that some people are going to go willingly to the slaughter, as long as the feedlot is made to seem pretty tasty.