How to Buy Happiness with Jonathan Clements

Episode: 178
Originally Aired: September 21, 2016
Topic: How to Buy Happiness with Jonathan Clements

The Lange Money Hour - Where Smart Money Talks

The Lange Money Hour: Where Smart Money Talks
James Lange, CPA/Attorney
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Please note: *This podcast episode aired in the past and some of the information contained within may be out of date and no longer accurate. All podcast episodes are intended to be used and must be used for informational purposes only. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. Past performance may not be indicative of future results. All investing involves risk, including the potential for loss of principal. There is no guarantee that any investment strategy or plan will be successful. Investment advisory services offered by Lange Financial Group, LLC.


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  1. Introduction of Jonathan Clements, Author and Personal-Finance Adviser
  2. Buy More Happiness, Not More Things
  3. Bet on a Living Long Life
  4. Achieve Financial Freedom Early in Work Life
  5. Rewire Your Brain to Overcome the Instinct to Spend Now
  6. Think Big About Your Ability to Earn Income
  7. To Win, Don’t Lose

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Welcome to The Lange Money Hour: Where Smart Money Talks with expert advice from Jim Lange, Pittsburgh-based CPA, attorney, and retirement and estate planning expert. Jim is also the author of Retire Secure! Pay Taxes Later. To find out more about his book, his practice, Lange Financial Group, and how to secure Jim as a speaker for your next event, visit his website at Now get ready to talk smart money.

1. Introduction of Jonathan Clements, Author and Personal-Finance Adviser

Dan Weinberg:  And welcome to The Lange Money Hour.  I’m Dan Weinberg along with CPA and attorney Jim Lange, and tonight, we’re very excited to welcome Jonathan Clements back to the show.  He’s one of the country’s foremost experts on personal finance. Jonathan was a columnist for The Wall Street Journal, where he worked for almost 20 years. He also spent six years as director of financial education for Citi Personal Wealth Management. These days, Jonathan is involved with a financial startup, sits on the investment committee of Creative Planning in Leewood, Kansas, and regularly blogs at Jonathan has written six books on personal finance, including the best-seller The Little Book of Main Street Money and the Jonathan Clements Money Guide 2016, but tonight, we’re going to focus on his latest, How to Think About Money, which came out earlier this month.  In this episode, Jonathan and Jim discuss the book’s five core insights:  buy more happiness, bet on a long life, rewire your brain, think big and win, don’t lose. To find out what all of that means, in depth, stay right where you are over the next hour.  And with that, let’s say good evening to Jim Lange and Jonathan Clements.

Jim Lange:  Why don’t I start by saying a little bit about Jonathan and what we’re going to hear.   Jonathan and I actually did 30 columns together when he was with The Wall Street Journal, and he really nailed the technical stuff like Roth IRA conversions and contributing money to 401(k)s and matching money and the best estate plan and asset allocation, and all the types of things that you would expect an excellent financial author  to write about.  But then, as his, let’s say, work matured and he matured, he became a little bit more philosophical, and he wrote a book called The Little Book of Main Street Money, and in that, he had different ideas that were not such, say, hard financial ideas but more soft things about money, things about personal behavior, just some various strategies and different ways that, in a way, is a perfect segment into his most recent book, which is How to Think About Money.  Jonathan wrote this book, which, I think is fabulous, and while we are having him, let’s say, reconnect, I will tell you a personal story that is 100 percent consistent with Jonathan’s thinking.

2. Buy More Happiness, Not More Things

So step Number 1 is “Buy more happiness.”  So how do you buy more happiness?  And one of the things that Jonathan has said, both in this book and in prior books, is that buy experiences, don’t buy things.  So what does that mean?  So what a lot of people do is they say, “OK, I now have some money.  I’m going to buy a bigger house.  I’m going to buy a faster car.  I’m going to buy fancier clothes.  I’m going to do all these things.”  But then the excitement of those purchases wears off, they just become part of the background, and, in many cases, years later, they are discarded when you’re cleaning out your closets, et cetera. So what Jonathan says is buy experiences.  Now, let me bring this to my own personal family.  My wife’s father, his name is Walter, for the last ? I don’t know, since I can remember, probably at least 15 years, maybe 20 years ? has had a family gathering, and he has three children, maybe eight grandchildren, and now even some great-grandchildren, and he pays for all of us to spend a four-day weekend in the Poconos.  And it’s at a resort, for those of you in western Pennsylvania, it’s a little bit like Nemacolin, you know, it has a lake, it has bicycle trails, it has a golf course, it has tennis courts, it has miniature golf, it has a bunch of the types of things that you would expect at a resort.  They have a comedy club.  You might even think of it a little bit like the place in Dirty Dancing. But anyway, he pays for the whole crew to come, and he pays for everything.  He pays for the airfare, he pays for the rooms, he pays for ? I guess he doesn’t pay for alcohol, but he basically sponsors the entire family, and it certainly costs him a lot of money, and he’s now 92 years old.  At some point, he’s going to pass and he will pass on a little bit less money than he would’ve had he not spent this money on that.

On the other hand, what he will also have passed on is keeping the family together, that I think is priceless.  So my daughter, who is 21 years old, and she’s been going to these things probably since she can remember, probably even before, she knows all her cousins, and they are part of each other’s lives.  They’re on Facebook.  Now, none of them live in Pittsburgh, by the way.  None of them even live near Pittsburgh, but she feels like she is part of a family.  Now, let’s say he hadn’t done this.  Would she see them occasionally on Thanksgiving, on other holidays, maybe weddings, maybe funerals?  Yes, but is that really the same as seeing them in good times and for four days?  And Walter has one rule, and his rule is ? and it’s not even a written rule, but it’s an informal rule, which is “We eat three meals together.”  So all of us, we gather every morning, have breakfast together.  They actually have a little room for us, which is really nice, and we hang out with the family.  Different people sit at different tables on different days, but everybody gets to know each other much better, we all know what we are doing, and it really feels like a wonderful family gathering.  And I don’t think that there’s anything that people could do, assuming they have some disposable income, that is a better idea than using that money to buy the experiences that most likely will handle both family and friends.

And another thing that I do in my own life, so it’s maybe a tiny bit embarrassing, but some of my best friends are actually the guys I went to high school with, and we have gathered every year for the last 30 years to get together for a four-day weekend, and right now, we’re scattered all over the country, but everybody, you know, takes the time, takes the money to fly into Pittsburgh, and we hang out for about five days, and we’re really wild and crazy guys, you know?  We do something athletic in the day and we stay up until 1:00 and play bridge, drinking Diet Cokes at night.  You know, we really are wild and crazy.  But the idea is we’re buying experiences, we’re not buying things, and I think that that is very useful for us.

All right, so I started the show talking about some of my own experiences and family experiences with buying experiences and not buying things, which I think, basically, is consistent with your step Number 1, “Buy more happiness.”  So can you tell our listeners what you mean when you say “Buy more happiness?”  And by the way, “Buy more happiness” is one of the first steps in Jonathan Clements’ new book, How to Think About Money, which I highly, highly recommend.  I always think Jonathan is one of the two best financial authors in the country.  He sometimes doesn’t like that.  He wants to be clearly Number 1, but I think that this is his best, let’s call it, “soft money” book, and the title is perfect because it’s exactly what it is, How to Think About Money. Step 1: Buy More Happiness.  Jonathan, could you please tell our listeners what you mean by “Buy more happiness?”

Jonathan Clements:  This notion that money buys happiness is sort of firmly ingrained in conventional wisdom, and I think, on some level, all of us believe this, that if we had more money, we would indeed be happier.  But the statistics tell a completely different story.  There’s been this survey conducted every year or two since 1972 called the “General Social Survey.”  In 1972, roughly 30 percent of Americans described themselves as very happy.  In 2014, the last time the survey was conducted, 30 percent of Americans described themselves as very happy.  Over this 42-year stretch, U.S. inflation adjusted per capita disposable income, in other words, our standard of living, more than doubled.  We are twice as well off today as we were 42 years ago, and yet our reported level of happiness has not gone up.  So something’s going on here, and more money clearly isn’t buying happiness.

But it doesn’t mean that it can’t.  It just means that we need to be a whole lot more thoughtful about how we spend our money, and Jim, I quote the tail end of your comments about these family reunions, these high-school reunions that you have, and that’s one of the great ways that you can get more happiness out of your dollars, to buy experiences rather than possessions.  But it’s not enough just to buy experiences.  What you really want to do is to purchase experiences that are enjoyed with others.  I mean, this is one of the reasons why we tend to get more happiness out of experiences because we get to hang out with our friends, we get to hang out with our family, and this is crucially important.  It’s crucially important not just to our happiness, but actually it’s also crucial to our health.  One of the things that researchers have found is that if you have a robust network of friends and family, the boost to your longevity is roughly equal to the boost that you get by not smoking.  That’s how important friends and family are.  So if you want to get more happiness out of your dollars, step Number  1: Buy experiences rather than possessions, and when you have those experiences, have them with other people.

Jim Lange:  Well, I think that that’s great advice, and I’ll tell you what just came to mind.  If you’re a smoker and you like to hang out with non-smokers, you could actually get double benefits by quitting smoking, because then your non-smoker friends will want to hang out with you, and you get the benefit of being with those friends.  But I think that that is really interesting that here we are, we’re better off by double, but we are less happy, and I think some of the things that you’re talking about, buying experiences, and not just buying them by yourself, so we’re not talking about, you know, going to a beautiful place and climbing the mountain by ourselves, but with our friends and with our families is really just such important advice, and I have a lot of clients who, very frankly, spend less money than they could certainly afford, and they always say, “Well, what should I spend money on?  You know, I don’t need a big car.  I don’t want a big car.  I’m perfectly comfortable with my existing house.  I’m perfectly comfortable leading the type of life that I live.”  And then, when I talk about family vacations and experiences, that’s the one area where I can make some headway.  So I think it is great advice.

3. Bet on Living a Long Life

Could we do one more step before we go to break?  And I think that this is important, and it’s a combination of, let’s say, changing life expectancies and the way that we should talk about money, because you have Step 2 as “Bet on a long life.”  So what do you mean by that, and what impact does that have on, let’s say, the investors, or the people who are, let’s say, nearly retired or already retired?

Jonathan Clements:  So if you look at what’s happened to life expectancy in the U.S., you go back to 1900.  If you were a man and you were born in 1900, your life expectancy was age 52.  That means, you know, the median person, the average man who was born in 1900 lived to age 52.  If you were a woman, on average, you lived to age 58.  A hundred years later, in 2000, those numbers for men have increased by 28 years, and the number for women has increased by 26 years.  So our life expectancy during the course of the 20th century rose roughly 50 percent.  Moreover, when people look at life expectancies, they often make a crucial error, which is they look at life expectancy as a birth, but what happens is, the longer you live, the longer you can expect to live.  So if you are age 65 today, your life expectancy is significantly higher than your life expectancy as of birth because all the people who died before reaching retirement dropped out of the stats.  So if you are age 65 today, and you are part of, for want of a better term, sort of the affluent upper-middle class, you know, you’ve had a life where you’ve regularly gone to the doctor, you paid some attention to your diet, you’ve exercised with some regularity, insurers these days are betting that if you’re a man, you’ll live to maybe 88, 89.  If you’re a woman, you’ll live to age 90.  What we’re looking at today are extraordinarily long lives.  You know, you can count, if you’re amongst the upper-middle class, at least nine decades on this Earth, and this has huge financial implications, and I discuss those in the book.  I mean, there’s the obvious investment implications, your time horizon is super long so that you can afford to take the risk of investing in stocks.

4. Achieve Financial Freedom Early in Work Life

But I’d actually like to focus on something quite different and, I think, even more important, and it’s this: When you get into the workforce in your early 20s, I would encourage you to focus relentlessly on trying to quickly achieve some measure of financial freedom.  I even go as far as to suggest if you’re in your 20s, you shouldn’t be pursuing your passions.  You shouldn’t be trying to become a rock musician or an actor.  What you want to do is go out and get a job that’s going to pay you a lot of money so that you can save a lot of money so that you can have some measure of financial freedom relatively early on in your life, and then you can use that financial freedom to fully enjoy the decades that follow, and you’re going to want to have that financial flexibility.  The fact is, you know, at age 20, you have seven more decades to fill.  You’re going to have turmoil in the job market.  You’re going to want to change careers because you get burned out on the first occupation you settled on.  You’re going to want to be able to pay for a long retirement, and the way you set yourself up for that is to start saving diligently as soon as you enter the work force.

Jim Lange:  Let me ask you a question that might be a little bit more on point for some of our listeners, because frankly, people at 20, 30 or even 50 don’t tend to listen to, or read for that matter, things on financial planning or long-term security.  A lot of times, when I talk about safe withdrawal rates and I ask clients how long they’re going to live, they always say, “Well, Mom lived until 83,” or “Dad lived until 91,” or whatever it might be.  So these aren’t people born in 1900.  They might’ve been born in 1940 or 1950, and then I always ask them, “Yeah, but you take care of yourself much better than Mom and Dad did, didn’t you?”  And they always say, “Yes.”  Is it fair to even say people born in those years are still ? and let’s say that they are 60 or 65 years old today ? that they really do have a life expectancy of 20 years, 30 years, and they have to be thinking like that as opposed to thinking that they’re going to live as long as their parents?

Jonathan Clements:  So a couple of things to throw in here, Jim, and first of all, if you’re 60 or 65 and you are the patriarch or the matriarch of a family, you should be talking to your 20-year-old grandchildren about how they should approach this long financial life they have ahead of them, and you should be encouraging them to start saving early.  But even if you’re age 60 and you’re solely focused on yourself, keep this in mind: You know, you could easily live another 30 years, and if you’re married, you have two tickets for the life-expectancy lottery.  So even if one of you dies relatively early in retirement, there’s a good chance that the other one will live a long time.  When you look at these joint life expectancies, you have a couple and they’re both aged 65, there’s a very good chance that one of you will live to at least age 90 because you do have those two tickets to the life-expectancy lottery.  Moreover, as you invest, remember if you’ve got money that you plan to bequeath to your kids or to your grandchildren, your investment time horizon doesn’t extend to the point when you die, rather it extends to whenever you think your children or grandchildren are going to use the money.  Let’s say that you are age 60 and you have money that you plan to bequeath to your granddaughter, and she’s going to use that money to pay for her own retirement.  The life expectancy of that money might be 50 years.  It’s entirely prudent to invest that money that you’ve earmarked for your granddaughter heavily in the stock market.

5. Rewire Your Brain to Overcome the Instinct to Spend Now

Jim Lange:  Well, Jonathan, again, congratulations on I think (is) my favorite of your books, although I like everything that you’ve written, but the most recent one is How to Think About Money, and it’s not necessarily a technical how-to, but it’s frankly trying to get more happiness from money and from your life and how to think about money in a number of areas. 

So we’ve already talked about buying more happiness and how to do that.  We’ve talked about the potential longevity that people should be thinking about, not just for their own life but for the life expectancy of their investments, but Jonathan, step Number 3, you say “Rewire your brain.”  So how can our listeners read a relatively short, easy-read book and have their brains rewired?

Jonathan Clements:  As we all know, you know, it’s a struggle to be a good saver.  We’re constantly tempted to spend.  It’s a struggle to be a good investor.  You know, we’re constantly buffeted by the swings in the market and second-guessing ourselves.  So you ask the question, well, why?  Why are we so bad at saving?  Why are we so bad at investing?  And a lot of it has to do, I believe, with the instincts we inherited from our hunter/gatherer ancestors.  You know, our hunter/gatherer ancestors did not have to save diligently for four decades in 401(k) plans so they could retire to endless rounds of golf, bridge and early-bird dinner specials.  Instead, the sole focus of our hunter/gatherer ancestors was to survive until tomorrow.  You know, long-term planning consisted of figuring out what was for dinner, and those are the instincts that we have within us.  You know, we tend to be inclined to consume whenever we can.  We’re not natural savers.  We tend to be what’s called “loss averse,” which means that when the market goes down, we really feel that pain.  We tend to imitate others because, historically, that’s how you figured out how to survive.  What that means in the investment world is we tend to fall to investments that are popular and tend to be overpriced.  So there are all these mental mistakes that we make that we can attribute to the instincts we inherited from our hunter/gatherer ancestors, and these many, many mistakes have been extensively documented in the literature devoted to behavioral finance, and in the book, you know, in terms of the mistakes that have been discovered by specialists of behavioral finance, three strike me as being especially problematic.  One is, you know, we tend to spend too much and save too little, two, we tend to be overly self-confident when it comes to investing, meaning we think we can beat the market, we think we can figure out which way interest rates are headed next, and third, we tend to be too loss averse, which means that when the market goes down, you know, many of us freeze, and some minority of us tend to panic and sell at the worst possible time.

Jim Lange:  Well, I think that that’s a great way to think about things.  By the way, it is the exact opposite, that is, our instincts, our animal instincts, are the exact opposite of what we should probably be doing.  So for example, you might be very attracted to something that just went up or be very repelled by something that just went down.  On the other hand, if you have, let’s say, one of the sound financial strategies is to rebalance, where you’re doing the exact opposite, where you are mechanically selling, let’s say, a sector that just did particularly well, and you are mechanically taking that money and buying something that a sector, for example, that didn’t do well, and usually, we’re talking about sectors in a variety of low-cost index funds that goes 100 percent against human nature, because normally, like you said, when things go up, we want in.  When things go down, we want out.  But if you do that, you’re essentially buying high and selling low, which is going to put you in a bad place years from now.  So is that kind of what you’re referring to as “rewiring your brain”?

Jonathan Clements:  Absolutely.  And so you say to yourself, “OK, so I have this instinct to rush into the stock market when prices go up, and to get out, or, at least, stop investing and, you know, freeze when the market goes down.  So how can I get myself out of this way of thinking?”  And in the book, I describe a couple of different ways that you can try to get a firmer grip on investing, and one of the ways that I personally like is to take the stock market and think about a line gradually rising into the future, and the number I pick is 6 percent every year.  That’s my forecast for long-run stock returns based on expected economic growth and current dividend yields.  So I imagine a line rising steadily at 6 percent every year.  When the market has returned more than 6 percent over the past year, that tells me that, you know, we essentially borrowed from the future, and somewhere down the road, we may, you know, have to give a little back.  You know, while the market’s done well and it makes me smile, I may pay a price down the road.  Conversely, when the market has a stretch of poor performance and we’re below that 6 percent a year line, yeah, I don’t feel so good about it but I know there’s a very strong likelihood that we’ll have a period of catching up at some point in the future, and that makes it a good time to be an investor and a good time to rebalance.

Jim Lange:  OK, so it sounds like you’re a little bit of a classic “buy and hold with the rebalance investor” using low-cost index funds. Is that fair?

Jonathan Clements:  Jim, you know me!  That’s absolutely who I am!  I mean, I’ve been kicking around Wall Street for three decades, and I’ve taken to telling people there’s a reason we talk about Warren Buffett and his record of outperforming the market over 50 years, and the reason we talk about him, about the spectacular verifiable record of outperforming the market over 50 years, is because he’s the only one. There isn’t anybody else that I know of!  The reason we talk about Warren Buffett so much is because there is nobody else with that sort of record.  Warren Buffett is the exception that proves the rule, and the rule is this: Your chances of outperforming the market over a lifetime investing is so statistically small as to be barely worth considering.  So what should you do?  You should simply buy the market at the lowest possible price, and the way you do that is with index funds.

Jim Lange:  All right, well, let me ask you another question, because that implies that you’re not a market timer.  You’re not going to try to guess when the market’s up and when the market’s down, et cetera.

So, I have a very good friend.  He is a high-level financial adviser and he advises people that have portfolios of between 10 and a hundred million dollars, and this is his analysis, and this show, now, is September 21st, 2016, and we have an election coming up in less than two months, and he’s saying, “Hey, the market is betting that Hillary is going to win, and if Hillary wins, the market isn’t going to get all that excited, but is just going to more or less stay on track.”  On the other hand, if Donald Trump wins, and, at least, if we listen to Nate Silver, he has at least a 40 percent chance of winning at this point whatever your politics are, that because of the uncertainty that he would bring to the government, that the market will go down substantially.  So what he is doing is he’s saying, “Hey, even though I’m normally not a market timer, you ought to take all your money, put it in cash, because I don’t think there’s that big of an upside if Hillary wins, but there’s a huge downside if Trump wins, and if Trump wins and your money’s in cash and you just missed a big drop, that you can maybe go back in and save a lot of money.”  How would you respond to that type of advice?

Jonathan Clements:  At some level, the analysis is correct, all right?  The market looks ahead.  Investors look ahead, and prices today reflect all currently available information, and the market’s expectation today is that Clinton will win and Trump will lose.  But, and there is a big “but” here, if you got out of the stock market, one, you’re going to incur trading costs, two, you may trigger a massive tax bill, and three, you’re selling today based on everything that we know today, but what we know about the market is that it is driven by news, and the news isn’t just about the U.S. election.  It could be that we get some spectacular economic-growth report that sends the stock market soaring.  It could be that there is a medical breakthrough that causes the stock market to soar.  The market is driven by news.  What we know today is already reflected in prices.  If the news turns out to be good and not bad, as perceived by investors, the market may do incredible things over the next couple of months, and one of the things that we know about market gains and losses is they tend to come in very short bursts.  So if you’re a market timer, you have to be extraordinarily lucky because it’s so easy to miss out on a big market move.

6. Think Big About Your Ability to Earn Income

Jim Lange:  OK, well, I think that that’s a very good answer.  We are here with Jonathan Clements, the author of actually many good books, but my favorites, let’s call it on the soft side or the more philosophical side, are The Little Book of Main Street Money, and I know that that’s not his most recent one but I think that that’s a fabulous book, and then his most recent one, which is How to Think About Money.  So we have talked about buying experiences, not buying things, we’ve talked about longevity, we’ve talked about changing some of the ways that you think in terms of, let’s call it, human behavior versus a way that, let’s say, a more disciplined, more thoughtful investor would think about money, but Jonathan, your step Number 4 is “Think really, really big,” not just kind of big, but really, really big!  Can you tell our listeners what you mean by “Think really, really big”?

Jonathan Clements:  So we tend to deal with our financial lives in different buckets.  So we think about our insurance as separate from our bank accounts, and our bank accounts as separate from our mortgage, and our mortgage is separate from our retirement savings, and yet, these are all part of our financial lives and they’re all connected, and if you want to manage your money rationally and get the most out of the dollars that you have, what you need to do is look at the big picture, and for most people, when they manage their money, the central organizing principle is their so-called “human capital” or lack thereof, and your human capital, that’s just a fancy academic phrase for your income-earning ability.  What your income-earning ability looks like, what’s the nature of your paycheck, or whether you no longer have one, is crucial to designing your financial life, and particularly, there’s four ways that your paycheck, or lack thereof, influences your financial life.  First, that paycheck that you earn for four decades is the source of the savings that’s going to pay for all your goals.  You got to take a little piece of every paycheck and put it aside for retirement, for the kids’ college, to make the house down payment.  Second, you can think of that regular paycheck as comparable to collecting interest from a bond.  So you can think of yourself as almost like a bond kicking off four decades of regular payments.  So early in your working career, you can diversify that big bond position by investing heavily in stocks, but as you approach retirement and the day when your human capital disappears, when you’re no longer going to collect a paycheck, what you want to do is to shift towards more conservative investments, not entirely, but maybe move half your portfolio into bonds and keep the other half in stocks to reflect the fact that you no longer have this big human-capital bond.  Third, the way you handle your debt should be driven by your human capital.  Early in your life, it’s rational to borrow money.  You can smooth out your consumption over your lifetime by taking out student loans and taking out mortgages and taking out car loans, but as you approach retirement and the end of that regular paycheck, you want to get rid of all those debts because you’re no longer going to have a paycheck to service them.  And finally, the last thing you want to think about is protecting your human capital, and that drives your insurance needs.  Early in your life, you probably want to have a substantial amount of disability insurance.  If you’re married, you know, your family depends on you, you’re going to want to have life insurance.  But as your wealth increases and you can afford to self-insure and it won’t matter if you have a disability, it won’t matter to your family, at least financially, if you go under the next bus, you can start to drop those insurance policies.

Jim Lange:  Well, I think that that’s a great piece of advice, and I’m going to take it one step further.  You said that ? I’m quoting you exactly ? “We need to bring together all of these financial pieces.”  So I think, unfortunately, when people often come to me at the beginning and I look at everything in a pretty thorough manner, I actually ask them to fill out a complete list of assets.  I look at income.  I look at expenses.  I look at the whole thing, and what I often find is that people’s financial position is the result of many individual decisions, each of which seemed to make sense at the time.  Maybe they have a Roth, maybe they don’t.  Maybe they have an index fund, maybe they don’t.  Maybe somebody did a will for them 20 years ago, maybe somebody did a will for them five years ago.  Maybe they’re retired, maybe they’re not.  Maybe they read an article or they listened to Jim Cramer or something like that, and where they are is the result of many individual decisions.  But what I think makes more sense, and I think it’s consistent with what you’re talking about, although you’re bringing the element of human capital, is that all of these things should be looked at together.  And consider that, for example, if somebody has a pension, their short-term needs for cash are significantly less than somebody that, say, doesn’t have a pension or Social Security.  So that person can invest significantly differently.  Money invested in a Roth IRA that is likely to have a very long investment horizon should not be invested in cash and other short-term securities but should be invested for the long-term.  So I think when you say “Bring all financial pieces together,” I think that that really makes a lot of sense.  Is that what you’re kind of getting at when you’re saying “Think really, really big,” and then you’re adding the important element of human capital?

Jonathan Clements:  Exactly, and this really goes to a very crucial decision, which is if you’re going to use a financial adviser, what sort of financial adviser are you going to hire?  And if you’re walking into a brokerage office, and all the investment adviser’s talking to you about is what mutual funds, or what stocks, or what bonds you’re going to buy, and they aren’t talking about your broader financial picture, you’re in the wrong place.  If somebody isn’t trying to connect all the dots and talk to you about insurance and taxes and your portfolio and your estate plan, they’re not going to be able to do a decent job for you.  You need to have all of these pieces looked at, preferably by one person who sees the big picture and understands how everything is connected.

Jim Lange:  Well, obviously, it’s self-serving, but I couldn’t agree with you more, and I think that that’s one of the things that our office provides because we are both estate attorneys, CPAs, and we love to run the numbers.  We’ve talked about this before.  We love to do long-term projections and show you the result of optimizing the Social Security strategy, optimizing the Roth IRA conversion strategy, optimizing how much money you could spend, talking about what’s going to happen with pending law and the death of the stretch IRA.

By the way, there is one tiny area ? we usually agree on most things, but there is one tiny area that I might take the liberty of disagreeing with you.  I am not as excited about paying off your house as you are.  In fact, I sometimes recommend that people usually don’t take a reverse mortgage, but keep that in mind as a potential resource.  In fact, actually, you and I, if you remember, we did a column together, and actually, I’m going to now quote Jonathan Clements to Jonathan Clements, and he said that you could take 60 percent of the equity in your home and consider that a resource to spend.  So let’s just do a quick example.  If you have, let’s say, a home worth $200,000 and you take 60 percent of that, that’s $120,000, and then, let’s say that you’re using a 5 percent safe-withdrawal rate because you’re 65 years old.  That potentially allows you to spend another $6,000, whether you get a reverse mortgage or not, on the theory that if you ever needed to, you could.  Is that right?

Jonathan Clements:  Jim, I dare to disagree with you that the equity in your home can be seen as a financial last resort.  I mean, if you live longer than you imagined, if you start to go through your savings, certainly tapping into home equity through a reverse mortgage is a viable strategy, and I’ve suggested it to people.  But you’re not going to be able to get that much through your reverse mortgage if you already have a mortgage on the house.  So it’s still crucial to make sure that you have all debts paid off by the time you quit the workforce.  That way, you have the option of later taking out a reverse mortgage.  If you retire and you’ve still got a big mortgage on the house and you start to run through your other savings, you’ve got a problem.

Jim Lange:  Well, I would agree with that.  But I think that we could both agree that while it’s certainly not ideal to plan on having a reverse mortgage, just having that in the back of your mind as a possibility is a potential resource.

7. To Win, Don’t Lose

So the other thing that you like to talk about, and actually, one of our presidential candidates likes to talk about, is he says, “Win, don’t lose.”  So what do you mean by “Win, don’t lose” in your book How to Think About Money?  Which, by the way, is I just think a fabulous book.  I teaches people, let’s say, not the technical side of how much to convert to a Roth or collect now, collect more later method of Social Security strategy or whatever, but really just a more philosophical but I think a very, very useful book, How to Think About Money, by Jonathan Clements, and the last step that at least we’re going to have time to cover on the show is “How to win, don’t lose.”  And Dan, how long does Jonathan have to answer this question before he runs out of time?

Dan Weinberg:  We have about three minutes or so.

Jim Lange:  OK, Jonathan, three minutes if you can squeeze that in.

Jonathan Clements:  So the fifth and final insight in my new book is called “To win, don’t lose.”  So what do I mean by that?  Well, let’s take a step back.  The goal of managing money isn’t to be the richest family in the neighborhood.  It isn’t to prove how clever you are.  It isn’t to beat the market averages.  Instead, the goal of managing money is to have enough to lead the life that you want.  We all get just one chance to make the financial journey from here through to retirement, and you don’t want to mess it up!  So how do you avoid messing it up?  Well, what you want to do is have a strategy for both investments and insurance that limits major downside risk, and I’m not saying you should buy every insurance policy out there.  I’m not saying you shouldn’t go anywhere near the stock market.  What I’m saying is, you should avoid the losses that can derail your financial life, and there are two ways that wealth dies.  It can die slowly and it can die quickly.  The slow death we’ve already talked about, the slow death that comes from paying for active management, from creating too much, for not paying attention to taxes.  If you want to avoid the slow financial death, what you should be doing is being really smart about taxes, making full use of retirement accounts, and investing heavily or entirely in index funds with low annual expenses.  But even if you avoid the slow death, there’s still the risk of the quick financial death, and what I’m talking about here are things like not bothering to buy disability insurance even though you can’t afford to self-insure, or betting everything on a handful of stocks or a single sector of the stock market, or not having health insurance, or putting everything in a couple of heavily mortgaged rental properties.  The problem with these strategies is you can go along for years without any ill consequences and maybe even think you’re pretty darn clever, and then, one day ? bam!  You’re set back financially by 10 or 20 years.  So if you want to make this journey from here through the end of your retirement safely and without that major financial loss or without that slow financial death, make sure you have the right insurance and make sure you follow a prudent investment strategy.

Jim Lange:  Well, I think that that is great advice.  So we are wrapping up our interview with Jonathan Clements, the author of actually multiple books, the most recent of which is How to Think About Money, and Jonathan, could I ask you one last question?  Because I think your blog is so excellent.  If our readers wanted to check out your blog and be the beneficiary of your great wisdom, what would be a good resource, or what would be the URL that they can go to to find your information?

Jonathan Clements:  So I blog regularly at my website, which is, and if you go to the site and you like what you read, you should check out the free newsletter that I put out every couple of months, and if you want to get on the distribution list for future newsletters, as I said, it’s completely free, I send it out every other month, just shoot me an e-mail at

Jim Lange:  Which I’d, by the way, recommend that everybody do in addition to buying the book How to Think About Money, by Jonathan Clements.

Dan Weinberg:  All right, thank you to Jonathan Clements, and, of course, as always, to Jim Lange.