Social Security Optimizer by T. Rowe Price: New Free Retirement Income Tool

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T. Rowe Price (TRP) announced a new free tool called Social Security Optimizer to help decide when to start claiming Social Security benefits. You enter information like age, marital status, life expectancy, spousal information, and “Monthly Benefit Amount At Full Retirement Age”. It will ask you to register with your email address, but it is otherwise free. (After you register, you also get access to other free TRP tools.)

The new tool, which provides tailored insights through analysis of an individual’s specific circumstances, estimates when to begin claiming Social Security and how much they should expect to receive. Social Security Optimizer can also model life expectancy to see what claiming strategies will yield the most amount of money over time based on the inputted life expectancy. Individuals are guided through a short series of questions. The tool will then estimate the optimal age to take Social Security, the optimal age for their partner to take Social Security, and the amount of benefit the individual (and their partner) will receive, given their assumed life expectancy. The Social Security Optimizer also pairs broader education and resources to help individual investors and plan participants make more informed decisions.

Based on my initial tests, the tool is on the basic side. They do recommend a specific claiming strategy and provide some useful background information about how Social Security works, but it doesn’t go into much detail about all of the possible scenarios. I was honestly hoping for something more full-featured given that in March 2023, T. Rowe Price announced that it was acquiring Retiree Inc., which included several advanced software tools for both individuals and professional financial advisors like SSAnalyzer.com, Income Solver®, and Social Security Solutions™.

I’d still recommend checking it out, as Social Security claim timing is a big decision and I think exploring and using all available information is a good idea. These tools can introduce a lot of people to ideas that they would have not otherwise considered, like perhaps having one spouse claim as early as possible (age 62), and then have the other claim as late as possible (age 70).

Other free third-party Social Security tools that I recommend trying out include Open Social Security and SSA.tools.

A reminder that this tool (and all the others) will help to maximize the total income that you receive from Social Security. Often this means one or both spouses delay their claim date to age 70. This works out fine if you have alternative sources of income while you delay your claim start date. However, if you need the Social Security income to retire sooner (often now), then that is a new variable to work in. Income that lets you retire and stop working today when you are younger and healthier may be worth more than what comes out of some discounted interest rate analysis.

I’ve also found there is often a behavioral psychology element. For example, if one spouse stops working first while the other continues to work, the non-working spouse may feel an urge to have their “own income” and want to start claiming Social Security as soon as possible.

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UBS Global Investment Returns Yearbook 2024: The Haystack Keeps Changing

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The 25th edition of the UBS Global Investment Returns Yearbook is available for free download in a 56-page PDF Summary Edition version on the UBS website. (Credit Suisse took over the publication of this yearbook in 2009, and UBS was voluntold to acquire Credit Suisse in 2023.) Hat tip to Abnormal Returns. This publication provides a nice “big picture” overview of the long-term performance of global financial assets:

With the depth and breadth of the financial database that underpins it, the UBS Global Investment Returns Yearbook is widely recognized as the unrivalled authority on long-term investment returns. We present a historical record of the real returns from equities, bonds, cash and currencies for 35 markets, spanning developed and emerging markets and stretching back to 1900.

The late Jack Bogle was often credit with the saying: “Don’t look for the needle in the haystack. Just buy the haystack.”

If you look at the entire haystack of individual companies, over time there are a lot of losers and a few big winners. If you buy the entire investable US stock market, or the entire investable world stock market, you can be sure that you own all the eventual winners. Even if you bought the S&P 500 index in the 80s or 90s, you would eventually own Apple, Google, Nvidia, and so on. For example, who knows who the final winner in the AI battle will be?

I recommend scrolling through the Yearbook Summary just to look at the cool charts with data from 1900. Check out how different the US stock market looked in 1900 vs 2024:

I think about international diversification in a similar way. Inside a recent WSJ article (gift article) about Japan’s Nikkei stock index reaching its previous high from 1989, there was an updated chart of the historical breakdown of global stock market value between the US and the rest of the world. Upon closer inspection, I realized that the chart is based on one from the UBS Yearbook.

The US made up only about 15% of the world’s market cap in 1900, had a recent low of about 40% in 2010, but after the recent run is now over 60%. What will happen in the future? If you think US stocks will outperform the rest of the world over the next decade or longer, you are then betting that this 60% number will continue to increase. And it might! It’s been as high as about 70% in the past.

As for me, I simply don’t know. I’ll hopefully have 40+ more years being invested in the stock market, and the haystack will continue to change. I choose to maintain diversification and “own the haystack” when it comes to both individual US companies and global countries. I prefer to know I’ll own the needles and have less worry, even at the cost of potentially somewhat lower returns.

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Study: 100% Stocks The Best Portfolio For Both Accumulation and Retirement Income?

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The academic paper Beyond the Status Quo: A Critical Assessment of Lifecycle Investment Advice by Anarkulova, Cederburg and O’Doherty had a conclusion that caught my eye. From the abstract:

We challenge two central tenets of lifecycle investing: (i) investors should diversify across stocks and bonds and (ii) the young should hold more stocks than the old. An even mix of 50% domestic stocks and 50% international stocks held throughout one’s lifetime vastly outperforms age-based, stock-bond strategies in building wealth, supporting retirement consumption, preserving capital, and generating bequests.

Now, the actual paper was not written for non-academics and there was very slim pickins’ in the “easy-to-understand graphic that summarizes our results” department, but I’ll try my best. They studied 8 different portfolios, summarized below. (They also picked the names.)

  • TDF. Follows the asset allocation of the most popular target-date funds, which use a glide path that starts at 90% equities but reduces equity percentage over time.
  • Balanced. 60% US stocks, 40% bonds.
  • Balanced/I. 30% US stocks, 30% International stocks, 40% bonds.
  • Age. (120-Age)% US stocks, (Age-20)% bonds.
  • Age/I. (60-Age/2)% US stocks, (60-Age/2)% International stocks, (Age-20)% bonds.
  • Bills. Invests only in Treasury bills.
  • Stocks. 100% US stocks.
  • Stocks/I. 50% US stocks, 50% International stocks.

In the chart below, the authors show the equivalent savings rate that would have been required to reach the same level of “expected utility of retirement consumption” (retirement income provided + leftover money at death) throughout the entire lifecycle of a 10% savings rate during the working years and then spending it down at a 4% withdrawal rate in retirement.

Let’s look at the highlighted pink box. This is the line for the best performing portfolio of 50% US stocks, 50% International stocks (“Stocks/I”). In order to have gotten the same amount of retirement income + bequest as a 10% savings rate with Stocks/I, you would have had to save 14.1% with a TDF, 16.9% with the Balanced portfolio, and so on. Note that staying in cash “bills”, you would need to ratchet up to 47% savings rate!

In another chart, we see that 50% US stocks, 50% International stocks (“Stocks/I”) also creates the highest income replacement rate in retirement, based on a 10% savings rate. This is true on average (50% percentile) and even in the worst-case scenarios (5th percentile), as long as you stayed with the plan. The drawdowns would have been temporarily more severe over certain periods of time, however.

My takeaways are:

  • You might consider a 100% stock portfolio with international exposure, if you really have the stomach for it. I’d probably recommend waiting until after you have survived a 50% crash first. Optimally, your portfolio would grow so much that by retirement, you may not even need a 4% withdrawal rate.
  • All of the other portfolios that contains some bonds (TDF, Balanced, Balanced/I, Age, Age/I) had very similar results over the entire lifecycle of accumulation and spending down. They still did pretty well.
  • Everyone should definitely own a good chunk of stocks, as trying to accumulate enough money with just safe “cash” in the form of Treasury bills or bank accounts is going to require in the neighborhood of five times the savings rate.
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CFP Course Notes #1: The 7-Step Financial Planning Process

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Whew! 😅 I just passed my first mid-term test in about 20 years. The first half of Fundamentals of Financial Planning, the first course from my self-paced CFP program, included coverage of the official 7-Step “Financial Planning Process”. The image above was found in my course materials, but the text (and I believe the graphic itself) is from the CFB Board’s Financial Planning Practice Standards.

Below are my completely non-official notes and takeaways. Remember, this is from the perspective of the financial planner.

Step 1: Understanding the Client’s Personal and Financial Circumstances

  • You must explain, obtain, and analyze all of the qualitative and quantitative information needed to fulfill the scope of your engagement.
  • Qualitative topics include (but are not limited to) health, family, goals, risk-tolerance, and priorities.
  • Quantitive topics include (but are not limited to) income, expenses, cashflow, savings, investments, assets, liabilities (debts), estate plans, and retirement/work benefits.
  • If the client is unwilling or unable to provide sufficient and accurate information (both personal and financial), you must terminate the engagement.

Step 2: Identifying and Selecting Goals

  • Identify potential goals for the client, using the information gathered in Step 1.
  • This means that in addition to the goals the clients brings up themselves, you may find other ones like adequate life insurance or a clear estate plan.
  • After developing this list of potential goals, work with the client to select and prioritize amongst these goals.

Step 3: Analyzing the Client’s Current Course of Action and Potential Alternative Courses of Action

  • Analyze the client’s current course of action. What are they doing now? Will their goals be met this way?
  • Analyze potential alternative courses of action. Find at least one alternative for any goal that won’t be met with current action.

Step 4: Developing the Financial Planning Recommendations

  • Develop a specific recommendation of action for each selected goal. It’s possible that the recommendation is to “stay the course” for one or more goals.
  • If an alternative is presented, work out why it is better than the current action. Include any assumptions and estimates used in your calculations.
  • Consider if each specific recommendation is independent or must be implemented along with another recommendation.

Step 5: Presenting the Financial Planning Recommendations

  • Present your recommendations to the clients. Your goal is to have the client understand all of the factors that were considered and why the recommendation presented is the best recommendation.

Step 6: Implementing the Financial Planning Recommendations

  • Now that the recommended actions have been agreed upon, who is responsible for implementation? Might be you (the financial planner), might be the client.
  • What products, actions, or services are the most appropriate for the job?
  • Select and implement!

Step 7: Monitoring Progress and Updating

  • Who is responsible for monitoring and updating? Might be you (the financial planner), might be the client.
  • If you (the financial planner) is responsible for monitoring and updating, then you must regularly monitor the client’s progress and keep the process going. Update with current client information, update goals, update recommendations, etc.

Other random thoughts:

The CFP Board makes a big deal about the difference between “Financial Advice” and “Financial Planning”. Financial Advice is the more limited act of making a recommendation to act or not to act, often focused on a specific niche topic. On the other end, the most encompassing (and expensive) term is Financial Planning, which requires you to follow all their Standards and obtain a deep understanding of the client’s personal and financial situation. Accordingly, CFPs will ask you to sign an Engagement Letter that clearly outlines the services and products being provided (and how you’ll pay for them).

I also spent a good deal of time learning how to use the HP-12C financial calculator to solve for internal rates of return, time value of money, cash flow analysis, amortization, and other financial scenarios. I have an engineering background, but had never used this calculator before, so I had to order a new one online. In the meantime, I used an HP-12C emulator to do the coursework. It’s definitely handy for finance.

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Taking a Self-Paced CFP Education Course For Fun and… Personal Knowledge

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While pondering potential goals for the New Year, I ended up poking around Certified Financial Planner (CFP) Certification Education Programs. I have been toying with the idea of taking one of these courses off and on for years, which helps you fulfill the first two requirements of obtaining the CFP certification:

  • Education. Completion of CFP Board-approved coursework, and a bachelor’s degree in any discipline from an accredited college or university.
  • Exam. Pass the CFP® Exam, which is 6 hours long and consists of 170 multiple-choice questions covering a variety of topics.
  • Experience. Complete 6,000 hours of professional experience related to the financial planning process, or 4,000 hours of apprenticeship experience that meets additional requirements.
  • Ethics. Pass the Candidate Fitness and Standards Background Check.

I have no plans to pursue a career as a financial planner, as even helping my parents with their portfolio is stressful enough on it own. Accordingly, I don’t plan on completing the Experience requirement and thus won’t be able to obtain the actual CFP certification. So why bother spending thousands of dollars and hundreds of hours of time?

  • I do plan on managing my own portfolio and financial situation (and portfolio of my parents) for the next few decades and beyond.
  • I know that I enjoy financial topics in general and am curious to fill any knowledge gaps that I have.
  • I’m curious about what the CFP board thinks is important and “correct”.
  • Hopefully I will find some useful information to share with you readers.
  • Even at a robo-advisor-like annual management fee of 0.30%, a $1 million portfolio would still cost $3,000 in fees each year. For someone who has accumulated a significant portfolio, it doesn’t seem completely reckless to spend $3,000 learning this stuff instead.

I read some reviews and comparisons, and somehow ended up on the website for the University of Georgia Self-Paced Online CFP® Program. This wasn’t the most well-known program, or the oldest program, but it seemed like a decent CFP Board-registered program and covered all the required topics at a relatively affordable cost of $3,250 (+$750 for optional textbooks). There are six courses and a capstone course where you develop an actual financial plan:

  • Fundamentals of Financial Planning
  • Insurance Planning
  • Investment Planning
  • Income Tax Planning
  • Retirement Planning
  • Estate Planning
  • Developing the Financial Plan

I filled out the form for a “free Demo”, and shortly thereafter received an e-mail offer for $700 off the “sticker” price. This offer has since expired, but I share this story for those seriously interested as you might also decide to express interest and see if you get an offer. The course itself appears to be run by a third-party called Greene Consulting, which runs the CFP courses for five different universities including UGA. (Yes, I checked them all, and they all list the same prices.)

Get instant access! Test drive the platform and learn why thousands of people have selected this Online CFP® Certification Education Program over the competition.

Complete the form below and get instant access to our online platform. View sample courses and interactive content.

Note: I have no affiliation with this program besides being a paying customer. Oh yes, I forgot, I impulsively bought the program after receiving the discount offer. I had already “anchored” myself to paying the $3,250 and felt it was a good deal… I fell for the old infomercial trick! Still, if you compare prices for CFP courses (full core content, excluding textbooks), this was definitely the cheapest net price that I’ve found.

This self-paced program allows you up to 21 months to complete all of the courses. My plan is to complete one course per month starting this month (February), and so right now I’m only about halfway through the first course “Fundamentals of Financial Planning”. I did go ahead and purchase physical textbooks (I’m old-fashioned… and old), but I haven’t had to open them yet. They use the financial textbooks from Money Education, and I paid $750 through UGA for the complete set.

Note that many financial professionals decide to take an additional “exam cram course” with lots of practice questions that is solely focused on passing the CFP Exam. This adds roughly another $1,000 on top of the ~$925 to actually take the CFP Exam itself! I don’t know if all that extra cost will be worth being able to say “I passed the CFP Exam!” when I don’t need the CFP certification for career advancement purposes.

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Consistently Investing $850 a Month x 10 Years = $160,000 (2014-2023)

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Instead of only looking at year-to-date or last year’s return numbers that are often quoted in the media, I always try to also take a longer-term perspective (especially on down years) by looking back over a longer period. How would a steady investor have done over the last decade?

Target date funds. The Vanguard Target Retirement 2045 Fund is an all-in-one fund that is low-cost, globally-diversified, and available both inside many employer retirement plans and to anyone that funds an IRA. It currently holds over $75 billion in assets. When you are younger (up until age 40 for those retiring at 65), this fund holds 90% stocks and 10% bonds. It is a solid default choice in a world of mediocre, overpriced options. This is also a good benchmark for others that use low-cost index funds.

The power of consistent, tax-advantaged investing. For the last decade, the maximum allowable annual contribution to a Traditional or Roth IRA has been roughly $5,000 per person. The maximum allowable annual contribution for a 401k, 403b, or TSP plan has been over $10,000 per person. If you have a household income of $67,000, then $10,000 is right at the 15% savings rate mark. Therefore, I’m going to use $10,000 as a benchmark amount. This round number also makes it easy to multiply the results as needed to match your own situation. Save $5,000 a year? Halve the result. Save $20,000 a year? Double the numbers, and so on.

The real-world payoff from a decade of saving $833 a month. What would have happened if you put $10,000 a year into the Vanguard Target Retirement 2045 Fund, every year, for the past 10 years? With the interactive tools at Morningstar and a Google spreadsheet, we get this:

Investing $10,000 every year ($833 a month, or $384 per bi-weekly paycheck) for the last decade would have resulted in a total balance of approximately $159,000. That’s $100,000 in steady contributions and $59,000 in investment gains.

Early + Steady is better. There is a popular example of the power of compound interest that shows how someone who started saving at age 25, saves and invests for 10 years but then stops and never saves a penny again still beats someone who starts saving at 35 and keeps on saving for 30 years. Acorns provides a nice illustration:

Early + Steady + Longer is even better. The “Rule of 72” shows us that with just 7.2% annual returns, your money will double every decade from now on. After another 10 years, every $100k will be $200k. After another 10 years, that $200k will be $400k. Once you have that initial momentum, it just keeps going.

Now throw in half of your annual salary increases, and you’ll be honestly surprised at what it grows to after 20 years.

Here are my previous “Saving for a decade” posts:

Bottom line. Over time, with consistency and starting early, the yearly investment return swings smooth out. You can truly build serious wealth with something as accessible and boring as automated investments in a IRA/401k plan buying a Vanguard Target Retirement fund (or a simple collection of low-cost index funds).

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.


MMB Portfolio Dividend & Interest Income Update – Year-End 2023

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Here’s my quarterly income update as a companion post to my MMB Portfolio Year-End 2023 performance update. I prefer to track the income produced as an alternative metric to performance. The total income goes up much more gradually and consistently than the number shown on brokerage statements (market price), which helps encourage consistent investing. Here’s a related quote from Jack Bogle (source):

The true investor will do better if he forgets about the stock market and pays attention to his dividend returns and to the operating results of his companies. – Jack Bogle

Here is the historical growth of the S&P 500 total dividend, which tracks roughly the largest 500 stocks in the US, updated as of Q3 2023 (via Yardeni Research):

That is a much smoother ride than the price index. I imagine my portfolio as a factory that churns out dollar bills, or a tree that gives dividend fruit.

More details on dividends. Stock dividends are a portion of profits that businesses have decided to distribute directly to shareholders, as opposed to reinvesting into their business, paying back debt, or buying back shares. The dividends may suffer some short-term drops, but over the long run they have grown faster than inflation.

In the US, the dividend culture is somewhat conservative in that shareholders expect dividends to be stable and only go up. Thus the starting yield is lower, but grows more steadily with smaller cuts during hard times. Here is the historical growth of the trailing 12-month (ttm) dividend paid by the Vanguard Total US Stock ETF (VTI) via StockAnalysis.com.

European corporate culture tends to encourage paying out a higher (sometimes fixed) percentage of earnings as dividends, but that also means the dividends move up and down with earnings. The starting yield is currently higher but may not grow as reliably. Here is the historical growth of the trailing 12-month (ttm) dividend paid by the Vanguard Total International Stock ETF (VXUS).

The dividend yield (dividends divided by price) also serve as a rough valuation metric. When stock prices drop, this percentage metric usually goes up – which makes me feel better in a bear market. When stock prices go up, this percentage metric usually goes down, which keeps me from getting too euphoric during a bull market.

My portfolio income history. I started tracking the income from my portfolio in 2014. Here’s what the annual distributions from my portfolio look like over time:

  • $1,000,000 invested in my portfolio as of January 2014 would started out paying ~$24,000 in annual income over the previous 12 months. (2.4% starting yield)
  • If I reinvested the dividends/interest every quarter but added no other contributions, as of January 2024 it would have generated ~$50,000 in annual income over the previous 12 months.
  • If I spent all the dividends/interest every quarter and added no other contributions, as of January 2024 it would have generated ~$37,000 in annual income over the previous 12 months.

This chart shows how the annual income generated by my portfolio has increased over time and with dividend reinvestment.

Isn’t that a more pleasant way to track your progress?

TTM income yield. To estimate the income from my portfolio, I use the weighted “TTM” or “12-Month Yield” from Morningstar (checked 1/5/24), which is the sum of the trailing 12 months of interest and dividend payments divided by the last month’s ending share price (NAV) plus any capital gains distributed (usually zero for index funds) over the same period.

My ttm portfolio yield is now roughly 2.63%, about the same as last quarter’s value. That means if my portfolio had a value of $1,000,000 today, I would have received $26,300 in dividends and interest over the last 12 months.

What about the 4% rule? For goal planning purposes, I support the simple 4% or 3% rule of thumb, which equates to a target of accumulating roughly 25 to 33 times your annual expenses. I would lean towards a 3% withdrawal rate if you want to retire young (closer to age 50) and a 4% withdrawal rate if retiring at a more traditional age (closer to 65). I truly believe too much time is spent debating this number. It’s just a quick and dirty target to get you started, not a number sent down from the heavens!

During the accumulation stage, your time is better spent focusing on earning potential via better career moves, improving in your skillset, and/or looking for entrepreneurial opportunities where you can have an ownership interest.

As a semi-retired investor that has been partially supported by portfolio income for a while, I find that tracking income makes more tangible sense in my mind and is more useful for those who aren’t looking for a traditional retirement. Our dividends and interest income are not automatically reinvested. They are another “paycheck”, as our other paychecks now vary much more than before. Then, as with a traditional paycheck, we can choose to either spend it or invest it again to compound things more quickly. Even if we spend the dividends, this portfolio paycheck will still grow over time. You could use this money to cut back working hours, pursue a different career path, start a new business, take a sabbatical, perform charity or volunteer work, and so on.

Right now, I am trying to fully appreciate the “my kids still think I’m cool and want to spend time with me” period of my life. It won’t last much longer. Whenever I ask for a hug, I get one! (I’m actually dreading when I have to delete this sentence from my updates!) I am consciously choosing to work when they are at school but also consciously turning down work that doesn’t fit my priorities and goals. This portfolio income helps me do that.

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.


MMB Portfolio Asset Allocation & Performance Update – Year-End 2023

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

Here’s my year-end 2023 update for my investment holdings (published January 2024), including all of our combined 401k/403b/IRAs and taxable brokerage accounts but excluding our primary residence and side portfolio of self-directed investments. Following the concept of skin in the game, the following is not a recommendation, but a sharing of our real-world, imperfect, low-cost, diversified DIY portfolio.

“Never ask anyone for their opinion, forecast, or recommendation. Just ask them what they have in their portfolio.” – Nassim Taleb

How I Track My Portfolio
Here’s how I track my portfolio across multiple brokers and account types. There are limited free advanced options after Morningstar discontinued free access to their portfolio tracker. I use both Empower Personal Dashboard (previously known as Personal Capital) and a custom Google Spreadsheet to track my investment holdings:

  • The Empower Personal Dashboard real-time portfolio tracking tools (free) automatically logs into my different accounts, adds up my various balances, tracks my performance, and calculates my overall asset allocation daily. Formerly known as Personal Capital.
  • Once a quarter, I also update my manual Google Spreadsheet (free to copy, instructions) because it helps me calculate how much I need in each asset class to rebalance back towards my target asset allocation. I also create a new tab each quarter, so I have an archive of my holdings dating back many years.

2023 Year-End Asset Allocation and YTD Performance
Here are updated performance and asset allocation charts, per the “Holdings” and “Allocation” tabs of my Empower Personal Dashboard.

Humble Portfolio Background. I call this my “Humble Portfolio” because it reminds me to accept the repeated findings that the ability to know when stocks or bonds will outperform is exceedingly rare. Charlie Munger believes that only 5% of professional money managers have the skill required to consistently beat the index averages after costs.

Instead, by paying minimal costs including management fees, transaction spreads, and tax drag, you can essentially guarantee yourself above-average net performance over time.

I own broad, low-cost exposure to productive assets that will provide long-term returns above inflation, distribute income via dividends and interest, and finally offer some historical tendencies to balance each other out. I have faith in the long-term benefit of owning businesses worldwide, as well as the stability of high-quality US Treasury debt. My stock holdings roughly follow the total world market cap breakdown at roughly 60% US and 40% ex-US. I add just a little “spice” to the broad funds with the inclusion of “small value” factor ETFs for US, Developed International, and Emerging Markets stocks as well as diversified real estate exposure through US REITs.

I strongly believe in the importance of knowing WHY you own something. Every asset class will eventually have a low period, and you must have strong faith during these periods to earn those historically high returns. You have to keep owning and buying more stocks through the stock market crashes. You have to maintain and even buy more rental properties during a housing crunch, etc. A good sign is that if prices drop, you’ll want to buy more of that asset instead of less. I don’t have strong faith in the long-term results of commodities, gold, or bitcoin – so I don’t own them.

I do not spend a lot of time backtesting various model portfolios, as I don’t think picking through the details of the recent past will necessarily create superior future returns. You’ll find that whatever model portfolio is popular at the moment just happens to hold the asset class that has been the hottest recently as well.

Find productive assets that you believe in and understand, and just keep buying them through the ups and downs. Mine may be different than yours.

I have settled into a long-term target ratio of roughly 70% stocks and 30% bonds (or 2:1 ratio) within our investment strategy of buy, hold, and occasionally rebalance. My goal has evolved to more of a “perpetual income portfolio” as opposed to the more common “build up a big stash and hope it lasts until I die” portfolio. My target withdrawal rate is 3% or less. Here is a round-number breakdown of my target asset allocation along with my primary ETF holding for each asset class.

  • 30% US Total Market (VTI)
  • 5% US Small-Cap Value (VBR)
  • 20% International Total Market (VXUS)
  • 5% International Small-Cap Value (AVDV)
  • 10% US Real Estate (REIT) (VNQ)
  • 15% US “Regular” Treasury Bonds or FDIC-insured deposits
  • 15% US Treasury Inflation-Protected Bonds (or I Savings Bonds)

Performance details. According to Empower, my portfolio is up about 15.1% for 2024. The S&P 500 is up about 25% YTD, while the US Bond index is up around 6%. My overall return lagged the US broad market due to my international stock holdings and bond holdings, but I am still happy with my risk positioning (also see above regarding ups and downs).

Yet again, there was little action on my part this year. I didn’t sell a single share of anything, and that’s how I like it. I did reinvest some dividends and interest into TIPS, but the timing plus the year-end bull run of the US stock market still left me again with a higher stock percentage. Unless something extreme happens, I plan to use my future cashflows to rebalance back into bonds.

I’ll share about more about the income aspect in a separate post.

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2024 Retirement and Benefit Plan Limit Increases: 401k, 403b, IRA, HSA, DCFSA

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The beginning of the year is also a good time to check on the new annual contribution limits for retirement and benefit accounts, many of which are indexed to inflation. Our respective incomes have been quite variable these last few years, so I regularly adjust our paycheck deferral percentages based on expected income for the year. I still try to max things out if I can, or at least stay on pace to do so. This 2024 SHRM article and this 2024 IRS article have a nice summary of 2024 vs. 2023 numbers for most employer-based retirement and benefit accounts.

401k/403b Employer-Sponsored Accounts.

For example, you could break down your applicable limit down into monthly and bi-weekly amounts:

  • $23,000 annual limit = $1,916.67 per monthly paycheck.
  • $23,000 annual limit = $884.61 per bi-weekly paycheck.

The higher maximum limits are useful are for those folks that have the ability to contribute extra money into their 401k accounts on an after-tax basis (and then potentially perform an in-service Roth rollover), or those self-employed persons with SEP IRAs or Self-Employed 401k plans.

If you are contributing to a pre-tax account instead of a Roth, you could also use a paycheck calculator to find the detailed impact to your after-tax “take home” pay.

Even if you aren’t hitting the limits, consider increasing your salary deferral contribution rate 1% higher than last year. This can still make a substantial difference if you keep it up.

Traditional/Roth IRAs. The annual contribution limits are up $500 from last year, now $7,000 with an additional $1,000 allowed for those age 50+.

  • $7,000 annual limit = $583.33 per monthly paycheck.
  • $7,000 annual limit = $269.23 per bi-weekly paycheck.

Most brokerage accounts (Vanguard, Fidelity, M1 Finance) will allow you to set up automatic investments on a weekly, biweekly, or monthly basis. As long as you have enough money in your linked checking account, the broker will transfer the cash over and then invest it on a recurring basis. You may even be able to sync it to take out money the very same or next business day as when your paycheck hits (for example, every other Monday after your paycheck hits every other Friday).

Health Savings Accounts are often treated as the equivalent of a “Healthcare IRA” due the potential triple tax benefits (tax-deduction on contributions, tax-deferred growth for decades, and tax-free withdrawals towards qualified healthcare expenses). This assumes that you have a high-deductible health insurance plan (more popular every year as they are cheaper for employers too), you can cover your current healthcare expenses out-of-pocket, and you can still afford to contribute to the HSA. Up a little for 2024.

Healthcare Flexible Spending Accounts are still an commonly-available option for others. Up a little for 2024.

Dependent Care FSAs are easy tax savings if you have children in daycare and/or preschool. These are not indexed to inflation. They can also be used to pay for before and afterschool supervision and summer day camps.

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Top FDIC-Insured Savings Account Interest Rate vs. Inflation (2017-2023)

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Whenever an article mentions the “average savings account rate”, I find that information useless. There are a lot of zeros in that average! But this Axios article has an interesting chart comparing the top savings rate vs. the rolling 3-month inflation rate from January 2017 through December 2023. That’s more applicable. Via reader Bill.

This serves as a good reminder that back in July 2021, the absolute top interest rate on an FDIC-insured savings account was redlining at… 1.00% APY. And that was actually a very good relative rate as the Vanguard money market fund with a yield of essentially zero (0.01% APY). Conservative savers had a very hard time earning hardly any interest and were falling behind inflation.

As of December 2023, you are now able to take zero principal risk and yet earn 5% from both the top savings accounts and the top money market funds. Every $10,000 should earn you $500 a year in interest. Every $100,000 should earn you $5,000 a year in interest. $1,000,000 will earn out $50,000 year, absolutely guaranteed. Best of all, that amount is finally a good margin higher than inflation at the moment.

But for those of us with long investing horizons, we must remember that over that long horizon, cash (as tracked by Treasury bills) has historically only just barely kept up with inflation. Sometimes cash wins, sometimes inflation wins, but over the long arc, it’s basically been a a draw. Even if we rate-chase and gain an extra 1% of “alpha”, that’s historically still not as good as stocks for the long run.

So while I still chase rates, 2/3rds of my investment portfolio remains held permanently in stocks. Here’s a chart of the S&P 500 total return for 2023 year-to-date (credit Ycharts). Up 25% as of this writing (12/14/23).

I did not predict that. This should also serve as a reminder that any 2024 S&P 500 forecasts you read this month are also garbage.

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New & Improved “No Risk” Portfolio: Stock Upside with 100% Guarantee to Beat Inflation

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Allan Roth has another thought-provoking article called Beat Inflation Handily, and Risk-Free with a very attractive proposition:

Do you want an expected return of nearly 6% annually above inflation but also want to be assured you will beat inflation in a worst-case scenario? Until now, I would have responded “only in your dreams.” But today, that dream is a reality.

Previously, he wrote about a simpler “No Risk” Portfolio that guaranteed your money back in nominal (face value) terms. For example, if you started with $100,000, you’d end up with $100,000 after 10 years. However, inflation would mean that the buying power of your $100,000 would be less after 10 years.

This new & improved “No Risk” portfolio uses individual TIPS to guarantee that even if your stocks go to zero, your total money invested will at least match inflation and maintain buying power. This is because current TIPS guarantees returns of roughly 2.5% above inflation, all by itself.

At current TIPS yields, this can effectively be achieved with roughly 50% stock index ETFs and 50% individual 25-year TIPS. At current yields, every ~$50,000 in 25-year TIPS will end up at a real (inflation-adjusted) $100,000 after 25 years. That means you could throw in ~$50,000 into stocks and every single penny from your stock index ETF returns is gravy on top!

Here’s how the total annualized real (after-inflation) return of your portfolio would look, depending on real (after-inflation) stock returns:

I don’t plan to change my portfolio to this one. Instead, it serves as a useful tool and alternative perspective about asset allocation. There are clear benefits from holding guaranteed bonds, both of the nominal and inflation-linked type. You may think insuring against a total loss from stocks is overkill, and I would tend to agree. But it sure does feel nice to have a floor somewhere, as there have been decades historically where stocks have experienced a negative real return.

Stocks offer some of the highest historical average returns and the highest expected future returns. But if you haven’t experienced a prolonged bear market, your faith hasn’t been truly tested yet. If you’re in your 20s, the stress is different than if you are in your 60s. Imagine the peace of mind from knowing your “worst-case” scenario is still a reasonably-comfortable retirement for you and your loved ones.

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Savings I Bonds November 2023: 1.30% Fixed Rate, 5.27% Total Composite Rate

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Savings I Bonds bought from November 1, 2023 through April 30, 2024 will have a fixed rate of 1.30%, for a total composite rate of 5.27% for the first 6 months. The semi-annual inflation rate is 1.97% as predicted (3.94% annually), but the full composite rate is dependent on the fixed rate for each specific savings bond and so it is a little bit higher. This total composite rate is a bit lower than current short-term Treasury yields, and the fixed rate is about 1% lower than that of current short-term TIPS yields. Press release.

Every existing I Bond will earn this inflation rate of ~3.96% eventually for 6 months; you will need to add your own fixed rate that was set based the initial purchase month. See you again in mid-April for the next early prediction for May 2024.

Original post from 10/13/23:

Savings I Bonds are a unique, low-risk investment backed by the US Treasury that pay out a variable interest rate linked to inflation. With a holding period from 12 months to 30 years, you could own them as an alternative to bank certificates of deposit (they are liquid after 12 months) or bonds in your portfolio.

New inflation numbers were just announced at BLS.gov, which allows us to make an early prediction of the November 2023 savings bond rates a couple of weeks before the official announcement on the 1st. This also allows the opportunity to know exactly what a October 2023 savings bond purchase will yield over the next 12 months, instead of just 6 months. You can then compare this against a November 2023 purchase.

New inflation rate prediction. March 2023 CPI-U was 301.836. September 2023 CPI-U was 307.789, for a semi-annual inflation rate of 1.97%. Using the official composite rate formula:

Composite rate formula: [Fixed rate + (2 x semiannual inflation rate) + (fixed rate x semiannual inflation rate)]

This results in the variable component of interest rate for the next 6 month cycle being ~3.94% to 3.96% if you use a fixed rate of between 0% and 1%.

Tips on purchase and redemption. You can’t redeem until after 12 months of ownership, and any redemptions within 5 years incur an interest penalty of the last 3 months of interest. A simple “trick” with I-Bonds is that if you buy at the end of the month, you’ll still get all the interest for the entire month – same as if you bought it in the beginning of the month. It’s best to give yourself a few business days of buffer time. If you miss the cutoff, your effective purchase date will be bumped into the next month.

Buying in October 2023. If you buy before the end of October, the fixed rate portion of I-Bonds will be 0.90%. You will be guaranteed a total interest rate of 0.90 + 3.40 = 4.30% for the next 6 months. For the 6 months after that, the total rate will be 0.90 + 3.96 = 4.86%.

Comparing with the best interest rates of October 2023, these rates lower than what is available via regular nominal Treasury bonds and other deposit accounts.

Buying in November 2023. If you buy in November 2023, you will get ~3.96% plus a newly-set fixed rate for the first 6 months. The new fixed rate is officially unknown, but is loosely linked to the real yield of short-term TIPS. My rough guess is somewhere between 1% and 1.5%. The current real yield on short-term TIPS is higher than it was during the last reset, when the fixed rate was set at 0.9%. Every six months after your purchase, your rate will adjust to your fixed rate (set at purchase) plus a variable rate based on inflation.

If you have an existing I-Bond, the rates reset every 6 months depending on your specific purchase month. Your bond rate = your specific fixed rate (based on purchase month, look it up here) + variable rate (total bond rate has a minimum floor of 0%).

Buy now or wait? Between those two options, I would buy in November as you’ll likely get a slightly higher fixed rate and a higher initial inflation rate. If you’ve already bought for 2023, you’ll eventually get the newer inflation rate after six months. However, right now you might prefer to buy TIPS instead (especially if you have tax-deferred space available) as they will likely have a higher real yield.

Unique features. I have a separate post on reasons to own Series I Savings Bonds, including inflation protection, tax deferral, exemption from state income taxes, and potential tax benefits if used toward qualified educational expenses.

Over the years, I have accumulated a nice pile of I-Bonds and consider it part of the inflation-linked bond allocation inside my long-term investment portfolio.

Annual purchase limits. The annual purchase limit is now $10,000 in online I-bonds per Social Security Number. For a couple, that’s $20,000 per year. You can only buy online at TreasuryDirect.gov, after making sure you’re okay with their security protocols and user-friendliness. You can also buy an additional $5,000 in paper I bonds using your tax refund with IRS Form 8888. If you have children, you may be able to buy additional savings bonds by using a minor’s Social Security Number. TheFinanceBuff has a nice post on gifting options if you are a couple and want to frontload your purchases now. TreasuryDirect also allows trust accounts to purchase savings bonds.

Concerns about TreasuryDirect customer service. Opening a TreasuryDirect account or conducting other transactions can sometimes be a hassle as they may ask for a medallion signature guarantee which requires a visit to a physical bank or credit union and snail mail. This doesn’t apply to everyone and seems to have gotten better recently, but plan to experience some delays in any transaction that you try to accomplish (registration changes, converting paper bonds, changing bank accounts). They just seem to be overwhelmed in general.

Bottom line. Savings I bonds are a unique, low-risk investment that are linked to inflation and only available to individual investors. You can only purchase them online at TreasuryDirect.gov, with the exception of paper bonds via tax refund. For more background, see the rest of my posts on savings bonds.

[Image: 1942 US Savings Bond poster – source]

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.