Amy: Tonight, well, look at this, inflation numbers continuing to move in the right direction. We've got the retirement account strategy that could save you thousands and much more. You're listening to "Simply Money," presented by AllWorth Financial. I'm Amy Wagner, along with Steve Sprovach, who is in for Steve Hruby. Gosh, Steve, you know each day, at least currently, the past few days, have brought in new economic data pointing to the fact that likely the Federal Reserve will be looking at making the first interest rate cut that we have seen in a really long time next month.

Steve: Yeah, the so called experts were pretty much... They nailed it. You know, they said, "Yeah, we'll probably come in about 0.2% inflation for the month of July. That translates out to 2.9%. And guess what, that's exactly what happened.

Amy: You know, and they haven't been nailing it a whole lot lately.

Steve: We don't like surprises. Yeah.

Amy: It's nice when they nail it. And we're like, oh, this was exactly what we were expecting. In fact, so nice. Markets like that. They kind of shrug it off.

Steve: But, you know, there's somebody out there listening that's saying to themselves. Yeah, but really? It feels like it's a lot worse. I was talking to my wife this morning. I said, you know, "Give me an example," because I'm not allowed to go shopping, she does.

Amy: She's the one who does the shopping.

Steve: And she was at Costco and she said, well, I put back the tuna fish because the 5 or 6 pack or whatever it is, it's usually 11 bucks, is 15 bucks. And that's not 2.9%, you know. So real consumers out there know that this is not an easy time. And the fact that inflation is only 2.9%, which by the way, that's the lowest it's been since March of 21. So this is a good thing, but it means prices are still going up, just not as quickly as they were a year ago.

Amy: Well, and to your point about Costco and the tuna fish, what the Fed really looks at is core inflation. Because they know those food prices are super volatile. They know energy prices are super volatile. So when they strip that out, the yearly rate of core inflation went down from 3.3% to 3.2%. Now, listen, keep in mind, the Federal Reserve's goal here is 2%, but they also have been saying for a really long time, the closer we get to 2%... And keep in mind, we were up to nine plus percent at one point.

Steve: Oh, no kidding. Yeah, that was scary.

Amy: I mean, it really hurts. They said, the closer we get to this 2% range, the more we're going to have to claw at it and fight at it. And so I think what happened was, a few months ago they said, okay, we've maybe done all the raising of interest rates that we need to do to get inflation down, but we're not going to start cutting rates immediately because we're just going to sit on this for a while. We know there's a lag time when we do these interest rates increases. We want to make sure that it kind of fully works its way through the economy, and then we're going to reassess where we are. And I think when you look at data like this, it really points to the fact that they've done what they needed to do.

Steve: Yeah. And keep in mind, the Federal Reserve, they set the primary interest rates that the banks and everybody else follows. They're meeting in almost exactly a month. So everybody's talking about what are they going to do. And a lot of experts were saying, oh, they were going to start reducing rates back in May and June. No. I don't know where they come up with that.

Amy: They were even saying seven rate cuts this year.

Steve: Exactly, exactly.

Amy: In January.

Steve: Yeah, But you know what, if you are... I can't imagine going out home shopping right now and looking at 7.5% mortgages, when two years ago, three years ago, they were, you know, 2.5%, 2.75%. I mean that's hundreds and hundreds of dollars a month more that's not getting you more house, it's just more money going to the bank. So, you know, any prospect of reducing interest rates is a good thing. You know, so when they get together a month from now, today's numbers just gives the Federal Reserve that much more ammunition to say, yeah, maybe things are starting to slow down and we can start bringing interest rates down. Don't expect a 1% drop. I mean, we're talking maybe a quarter of a percent, maybe a half a percent, more likely a quarter of a percent, but it's a start.

Amy: Well, and I'm glad you touched on how much they will lower rates. Because you know, it's like the Federal Reserve, while they have this huge job, they don't have a lot of tools to use in order to do it. And their number one go to tool is the lever for interest rates, right? And ideally, they just want to bump it a tiny little bit, you know, bump at a little bit in one direction or a little bit in the other direction and wait and see. So I think if you were to, you know, put Jerome Powell, his feet to the fire, the Chair of the Fed, and say, "Ideally, when you start to cut rates, what would it be?" He'd say a quarter point, a quarter point and then let's see. But I think now the question is, are there enough cracks in the economy, particularly when you look at the labor markets, to say or to make the case for, actually, we're not going to lower interest rates by a quarter of a point. We might be looking at half a point, which just means you're kind of throttling things more. And the potential fallout becomes a little bit greater.

Steve: Well, he doesn't want to make the same mistake Paul Volker made in the early eighties. And what happened back in the early eighties, and that's when inflation really got out of hand, and the Fed said, you know, after they raised rates up to 12, 13, 14%. I mean, you think, this is bad. Just think about... I had an 11% mortgage for my first mortgage. A lot of people listening, they had higher mortgages. And, you know, the Federal Reserve was under a lot of pressure back then, get rates back down to normal, the economy is grinding to a halt. And they did. They dropped rates very quickly, sooner than expected. And guess what, inflation heated right back up again and they had to do it all over again. They called it a double dip recession. Yeah. And the only thing I like to double dip is ice cream cones.

Amy: I was just gonna say, give me a double dip of [crosstalk 00:05:55].

Steve: Why am I thinking about ice cream? That's not the... But anyway...but no, that's definitely in Jerome Powell's memory bank. And he doesn't want to be the next guy pointed out as saying, oh, yeah, that Powell guy that used to run the Federal Reserve. He screwed up and drop rates too soon and put us back in, you know, two, three recessions. So he's being cautious. And I think he's nailing it so far. So we'll see what happens next month. But, you know, there's a lot of reasons that we can justify, finally, maybe they're gonna start bringing interest rates back down. Don't expect them to get where they were, but at least off of the recent highs.

Amy: You're listening to "Simply Money," presented by AllWorth Financial. I'm Amy Wagner, along with Steve Sprovach, as we digest these latest inflation numbers, which look like we're heading in the right direction here. And the Federal Reserve would then be on course to start making intro straight cuts. You know what I think is so terrible and difficult about what the Federal Reserve is trying to do. Right? They met earlier this month, a couple of weeks ago, and they kept rates where they didn't do anything. They said we're going to hold off until... But they kind of were really clear about the fact that they're really seriously looking at cutting rates next month. Then the next day or two days later, and those couple of days afterwards, new numbers came out about the labor market. And then all of a sudden, everyone was like, oh, the Fed, terrible, Monday morning quarterbacking, right? They should have cut rates this month. You know, too late for that. But I do think we are really likely looking at some cuts next month.

Steve: But they don't have to be ultra reactionary too. I mean, markets would love that, because markets thrive on, you know,
I'm going to buy or I'm going to sell based on what I think is going to happen. And they're always making predictions. But, you know, here are some of the things that when I dove into these numbers a little bit, rents. Rents were rising very rapidly. Home prices have gone stratospheric compared to a few years ago. And, you know, if you're a landlord, if you own a house that you're running out, well, there's one year leases, there's some lag time between how long you...with the prices increasing, that you can change the rate on the rents that you charge on the properties. You know, rents are rising more slowly. I talked about cars yesterday. You know, that's my little indicator of how the economy is doing exactly.

Amy: The Steve Sprovach [crosstalk 00:08:10].

Steve: Exactly. Yeah, if it burns gas, I'm interested. But used cars, I mean, they're damn 26% from their highs. Remember how nuts it got?

Amy: Yes, because I had to buy two during that time.

Steve: Yeah, these are good signs. These are really good signs. And then if you're going to take a look at the market, there's an analyst from Wells Fargo named Chris Haverland, and he thinks what we're going through right now is just like what Greenspan of the Federal Reserve was dealing with in 1995. And when Greenspan started dropping rates, S&P 500 earnings, profits were up 12% over the next year. And the S&P 500 went up 40% over the next year and a half. So, you know, I'm always an optimist, but when the Fed starts loosening interest rates up a little bit, there's good reason to be optimistic.

Amy: Which is funny that you bring out that. And I actually saw that same research about 1995, because you'll also read headlines right now talking about the sky is falling and we could be looking at the worst recession that we've seen in decades, and that kind of thing. And I think, gosh, that makes investors so nauseous when you read headlines like that. And It's like, this could go either way. Yes, a recession is coming, one is always coming. Could be next week, next month, two years from now. Nobody really knows. But all we can look at is the data that's in front of us. And none of us really has control over that. So let's talk about what we can control.

Steve: Yeah, what you can do. Just like, you know, it was... When interest rates were rising rapidly, you don't want to lock
in rates and then next month have a CD issued or offered by your bank 1% higher than what you just locked into. So if you were smart, you kept your money in a money market that does adjust pretty much constantly. But now we're getting at the point where we may be looking at the highest rates we're going to see in a while. So if you've got money, like we've always talked about in an emergency fund, and a portion of that, you're okay locking up for a period of time. I mean, you could buy CDs that are six months, but you can also buy five year CDs. And guess what, some of the credit unions around here, they're offering in the high 3% range, 3.7, 3.8%, on a five year CD. Now, if you need access to that money in less than five years, uh-ah, I mean, this is just for a portion of your money. But even six months, we're looking at 4, 4.25%. Now I'm talking about credit unions. You pull up some local bank websites, on some local bank websites, I have seen six month CDs 0.01%. So don't just walk in...

Amy: Right back to where we started.

Steve: Yeah. So don't walk into your bank and say, give me a six month CD. I heard the rates are high. Why don't you do...spend five minutes, do a Google search, and decide, okay, here's a place down the street that's offering way better than the bank I've been dealing with for 20 years. Let me go in and talk to them.

Amy: Yeah. It's funny because we were kind of on the front end of this, when the federal is started to raise interest rates. You were paying more on your credit cards, you were paying more for mortgage. Yet you were like, well, where's that money at my bank? Where's that money in that high yield savings account? You had to shop around. I mean, some banks really never adopted, but in a lot of cases, you were able to get 4.75, 5, 5.5%, right, if you found the right situation on even just a high yield savings account. Well, even just the whisper of those interest rates starting to come down, you see banks starting to lower those rates. So now is really the time to do your research and lock those rates in. That makes a lot of sense.

Steve: No question. And, you know, we talk about bonds also. Well, you know, what if you're in a bond mutual fund and interest rates drop, that bond fund may do well also, So, you know, just do some research. Once you start getting into bonds, they're a little bit confusing to most people. Sit down with a professional that knows what they're talking about, a fiduciary who's working in your best interest, not in his best interest, and sort through, do you want to make any changes
in your 401(K), or your other accounts?

Amy: Here's the AllWorth advice. Call your qualified financial professional, right, while while you can, now, in order to determine whether looking into rates on bonds makes sense for your portfolio. Shop around. Coming up next, why holding certain financial advisors to a fiduciary standard may not really happen. We'll get into that. You're listening to "Simply Money," presented by AllWorth Financial, here on 55KRC THE Talk Station.

You're listening to "Simply Money," presented by AllWorth Financial. I'm Amy Wagner, along with Steve Sprovach. If you can't catch our show every night, you don't have to miss a thing we talk about. We've got a daily podcast for you. Just search "Simply Money." It's right there on the iHeart app or wherever you get your podcasts. Coming up at 6:43, the retirement account move that could save you thousands of dollars. We'll tell you what that is, and maybe whether it could make sense for you. Okay, you know, different countries, we talk about this global economy, but the situation is different in each country. And they have different economies and challenges. One challenge, though, that seems to be resonating not only here in the U.S., but in China and other larger countries, is the fact that a larger number of people are retiring than coming into the workforce.

Steve: Yes, we are.

Amy: I'm looking at you right now.

Steve: You're picking and I don't care.

Amy: Well, you're trying to retire and we keep bringing you back in your studio. But yeah, you're retiring. All your friends are retiring. Everyone on your baseball team is retiring. All of your people are retiring.

Steve: We're old.

Amy: Same thing is happening in China. A larger number of people are retiring than coming into the system. And I think the interesting thing too about the Chinese economy is, they actually retire at younger ages there than we consider kind of the norm here.

Steve: Yeah. How about 50? Female blue collar workers can retire with pension in China at 50. And that may be in the past tense because China's got some challenges. China is talking about raising retirement ages across the board because they're running out of people to pay for it. I mean, this sounds familiar, doesn't it?

Amy: Very familiar.

Steve: I mean, we talk about social security in this country and how when it was first started, there were 40 workers paying for each retiree. And now it's about two and a half workers paying for each retiree. And a lot of people are saying, China's going to invade Taiwan. China's going to do this, China's going to do that. China's got some problems. They've got a lot of problems. They had that one child policy for a couple of decades. Okay? So, demographically, they're in collapse. I mean, they have very few workers paying for a lot of retirees. Deglobalization, I don't want to get in... I mean, that could be a topic all by itself. But one thing that came out of COVID is, wait a second, all of our ibuprofen comes from China? This comes from China? And so every country in the world is slowly working towards not depending on China for very important things. Their real estate market is collapsing. They've been over-reporting gross domestic product. It's hard to get a number, but the consensus is, by 5%. Well, they just announced 5% GDP growth, so in other words, maybe it's really zero.

You know, there's a lot going on with China. And now, they're trying to figure out how to pay for all of these retirees. And you want to hack off some old people, just tell them, oh, no, you're getting all excited about retiring next year, you're going to have
to wait five more years.

Amy: Well, and I think that's the problem with what's happening over there as well, is when is this going to start? And what does this mean? And what age is it going to look like? So they kind of announced, hey, we're going to change things, but they didn't give anyone specifics. That's not the kind of thing that like... That would drive me insane. Right?

Steve: Yeah, exactly.

Amy: You're gonna tell me you're going to mess with my social security, but you're not going to say whether it's going to impact me, or my children, or my dad?

Steve: Yeah, just a little further.

Amy: Yeah. Yeah, so kind of a mess over there. But I think that this particular issue that they're dealing with is one that we can really understand. As we've talked many times on the show about the Social Security trust fund running dry around 2034. Does that mean you're not going to get any benefit? No, it doesn't. But it means that maybe you get 75 to 80% of your promised benefit. Why is that? Well, because we have so many more people retiring than paying into the system.

Steve: Unless they make changes.

Amy: Unless they make changes.

Steve: Exactly.

Amy: And if they do, unlike China, they better be clear about what's going to happen. And I'm also going to tell you, because we've become very familiar with what happens in Washington, they're going to wait to the eleventh hour to do it, right? [Crosstalk 00:16:28].

Steve: The 59th minute, 59th second. Yeah, exactly. Because politically, that's the third rail. They don't want to touch it.

Amy: Yep. And speaking of Washington, a new Labor Department rule that we've talked about on the show. It raises the legal bar for if you are sitting down with an investment advisor, what kind of standard that they are held to. This is something that we have been applotting, but now it looks like it may not go through.

Steve: Why is this an argument? I mean, working in the investor's best interest, isn't that a good thing? You know? And for some reason... And it's pretty much the big brokerages out there, they're saying, "No, we don't want to have to do that. No, that's hard, that's hard." It's not hard. You know, I've played both sides of that.

Amy: Well, and also, I don't think it's just hard. It's less profitable for some people. And that's the biggest difference.

Steve: Follow the money, right? I mean that's always the case with something like this.

Amy: People are fully operated machines.

Steve: Yeah. And it looks like, man, this is going to court. And the Labor Department may overturn this. The Labor Department wants to... I'm sorry, it's the courts may overturn it. The Labor Department is looking at cleaning up the rollover business. Why? Follow the money, that's where the big money is. If somebody retires from a company and they've got a million, million and a half, $2 million in their 401(k), there's a whole lot of people that want to get their hands on it. And that's because the commission products out there... Now, I retired as a fiduciary, okay? And a fiduciary, by definition, is where you work in the best interest of the client. If there's a 10% commission being paid on a product, but that's not the best investment for that customer, you are held to a legal not just ethical, legal bar to... There's no reason to discuss that with the client if there's something better, if that works for them. But a lot of people don't feel that way.

Amy: Well, and I also think as an investor, you're probably scratching your head right now if this is the first time you've heard of this. You can't imagine going into your doctor and you tell them what's going on with you. And they give you advice. And then you have to ask the follow up question of, is that really the best thing for me? Or if you go to your attorney and you ask them a question and they give you advice, and then you have to follow up with, is that really the best thing for me? That's why this fiduciary rule, which really, this is a kind of fiduciary lite. We saw another version of this several years ago that was overturned. This is a less stringent policy. But can you imagine sitting down on a table with someone who's giving you financial advice, telling you you need to buy this annuity, you need to buy this product, you need to invest in these mutual funds. Okay, they're suitable. You can make the argument for, this isn't the worst thing that I can tell this investor. But is
it the best thing? No, it's not that either.

Steve: Well, and the numbers are crazy. I mean 7% commission. I've seen 10% commission. So, put this in numbers. If you've got a million dollars in your 401(k) and there's somebody sitting down with you that seems to make sense, you like what he or she is telling you, and they stand to make on a million dollars, between 70 and $100,000 when you sign that paper. Is that really in your best interest? So don't be afraid. Hey, if I sign this paper, how much money do you make? And if they hum and haw, just keep at it. Or say, if I move this investment elsewhere in the next year because it wasn't really what I thought. What's it going to cost me? These are legitimate questions.

Amy: Ask the questions. Here's the AllWorth advice. Always ask how an advisor is going to make his or her money before you hand yours over. Coming up next, we're firing up to "Simply Money" scam tracker to make sure you're aware of the new ways criminals are trying to rip you off, and also your college students. You're listening to "Simply Money," presented by AllWorth Financial, here on 55KRC THE Talk Station.

You're listening to "Simply Money," presented by AllWorth Financial. I'm Amy Wagner. On a personal note, I am gearing up for my daughter, my baby, heading off to college, the first one to leave the nest in the next couple of weeks. And now, I understand, not only do I have to worry about her being outside of my home, I have to worry about her being the target of scams. Because there are scams directed of course at college age students. So joining us tonight to tell us all, and specifically me and my daughter as well, what we need to be watching out for, of course, is our good friend from the Cincinnati Better Business Bureau, Jocile Ehrlich. Gosh, it's like everyone, everyone has to watch out. But now these kids are leaving home for the very first time and they're being targeted by scammers.

Jocile: Okay, so you and your daughter sit down and listen to this again and again and again.

Amy: We will.

Jocile: We know that you have your daughter leaving, but anybody who is going off to college, if you have a family member going off to college or a friend going off to college. Here are some financial scams that we've been seeing a lot of recently. The first is phishing emails. We've talked about phishing emails a gazillion times. You need to be alert for official looking emails or texts coming from the financial department, or the bursar, or the dean of your department asking for your log in information to your bank account, or your social media account, or any account that you might have. Whatever the reason that they give you, your log in information is private and shouldn't be shared with anyone for any reason. Sharing it is just an open invitation to scammers to use that personal information that might be stored on that site for whatever purposes they want, including ID theft, financial theft, maybe even blackmail.

Amy: Well, you know, Jocile, as I'm hearing this, I'm thinking, you and I, like, we've done these segments many times. I think many of us, adults, like, we've been targeted by these scams before. But these kids are in such a new place. I mean, they're not used to having financial aid. They're not used to people reaching out them necessarily directly. And so I can see where they are just a fantastic place for scammers to focus on because it's a whole new world for them.

Jocile: It is a new world and they don't know how to respond as an adult necessarily, and to question these things. If someone in authority says do X, they assume that doing X is the right thing to do. They've got to take a step back. And we as parents, as friends, as responsible adults, need to keep saying, "Okay, guys, stop and think. You do not have to do everything a person in authority tells you to do. You need to protect yourself."

So another scam that we are seeing involves fake credit card offers. Now, we all know that new graduates are often getting solicited by credit card companies, but not all credit card offers are legitimate, as I'm sure you tell your clients time and time again, Amy. As tempting as these offers might be, some of them are just an attempt to steal your personal information. Check out any alleged credit card companies at bbb.org before you hand over your personal information.

Now, another big one we're seeing is rental scams. Yeah, we have to chuckle at that. Housing is so expensive. And finding affordable housing isn't easy. So it's hard for a young person especially not to jump on an opportunity to rent an apartment close to campus, especially if it's advertised as affordable rent. Now, just remember that scammers often post pictures that they've stolen from other online apartment rental postings. Always, always, always tour the apartment in person on the inside, not just from the outside, to be sure that the apartment is really available for rent before you send your money off that you might never see again.

Amy: You know, I love that you're bringing this up, Jocile, because also things have changed since since I was in college. I mean, it used to be we didn't even start looking for, if we were freshmen, where we were going to stay for the next year until like the spring. And now there's this like frenzy, at least where my daughter's going to school, where it starts in the fall for the year before. And there's this kind of scarcity that the kids feel like we need to get it, we need to get it now. And so I think in the midst of okay, we feel like we got to jump on the first good thing that we see. We don't understand that if it looks or sounds too good to be true, it probably is quite yet. And we don't understand that we need to ask questions and see these things in person and have our parents look at this as well. And so I just think it could be a recipe for disaster.

Jocile: Well, you bring out the really good point there. At this point in their lives, a lot of people are trying to separate from their parents. But in this transition phase, it's really important to include your parents or trusted family members in any of these decisions. Because you and I have been around the block a few times. We know where the skeletons in the closet are, if you will. Young people don't have that life experience yet, so hopefully, they will say, "Mom, dad, this is what I'm thinking. What do you think?" Really try and instill that in them at this very critical point in their lives.

Amy: And parents ask questions if your kids aren't bringing it up to you, right? Ask questions, are you seeing credit card offers? Are you thinking about where you're going to stay next year? What are your thoughts about where you want to live and what the rent situation is? Ask the questions.

Jocile: Oh, that is such good advice, Amy. One more scam that we are seeing is a scam that targets college students regarding test preparation. The scammers are pretending to be from companies that help you pass exams, but once you start communicating with them, the scammers use those messages to blackmail you into sending them money out of fear that you'll be expelled for cheating. So yeah, that just is beyond me. How are they getting students to put themselves in a position that they could be accused of cheating. So just be so careful. Tell your students to be careful, that they question anything. If something just doesn't feel right, talk to someone they trust.

Steve: And what about recent college grads?

Jocile: Oh, so many scams in this arena as well. The first one is scammers impersonating recruiters. We've seen them impersonate Wall Street firms, major tech companies, national retailers. And it's usually on social media, though not always. The recruiter may say they went to the same college as you did, and they name drop faculty. They talk about maybe campus landmarks or even memories of their days back at good old and school name here. Or they might name drop a dean or a professor, saying that person recommended the student as a top candidate. After a number of virtual interviews, you get a very lucrative job offer and also the HR paperwork asking for personal information. These alleged recruiters are identity thieves. And they're using publicly available information, the dean's name, the well known professors, school traditions, all
that stuff that they can find online at the drop of a hat, they're finding where you went to school on your social media accounts. You know, they do their homework. You know, Susie went to University of Cincinnati. Here's a list of all the main people that you see. So that's how that goes.

Another scam we're seeing on social media is appointment setting jobs. They claim you can make big money working from home. Yeah, yeah, yeah. Some red flags for this dream job is first, they're going to focus on recruiting other people more than actual appointment setting. Or they're going to promise a very high income. Real appointment setting jobs usually involve scheduling calls for sales teams. It's a normal job with a modest income. And they might also require upfront payment for training. Legitimate employers will never ask you to pay to get a job. So both of these job scams may also have a fake check element. And we've talked about fake checks many, many times. If a recruiter sends a check as a signing bonus or a work from home stipend, then tells you to send some of that money back to them or to another new hire, it's a scam.

Amy: You know, and parents, I just want to once again remind you, we're hardened by these things, right? We've been targeted before. We know. Our children are new. They're new to college. They're new to getting these jobs, and looking for recruiters, and trying to find the perfect landing for the first place. And so, Jocile Ehrlich, from the Cincinnati Better Business Bureau. Just great reminders, have these conversations, make sure that they have their guard up and that they do not become victims of scammers right out of the bat. You're listening to "Simply Money," presented by AllWorth Financial, here on 55KRC THE Talk Station.

You're listening to "Simply Money," presented by AllWorth Financial. I'm Amy Wagner, along with Steve Sprovach. Do you have a financial question you want us to answer, you just need a little help with? There's a red button you can click on while you're listening to the show. It's right there on the iHeart app. Record your question. It's coming straight to us. And straight ahead, in case you need this reminder, we've got to break down all the reasons why debt is an absolute killer when it comes to your money. You know, Steve, if I think often, when the markets are volatile, and let's face it, we've seen a little volatility here in the past few weeks.

Steve: A little bit. Just a touch. Just a touch.

Amy: For so many people, it's like, you're looking at this, you feel like you don't have any control. And it's almost like I need to do something. I need to do something. I need to switch something around. I need to buy something, or sell something, or whatever it is. And we would say, most of the time you just got to swallow those feelings and stay put, right? Just keep things the way that they were before. But sometimes there might be something that you can do, or you at least could consider doing, and it might be more beneficial to you when markets are down.

Steve: Yeah. And I want to talk a little bit about Roth conversions. By the way, this is a good time to talk about it, because we always talk about Roth conversions in November and December, when most people feel like, I got too much going on, I can't even think about this. Well, you know, this is a good subject to tackle now because you've got time to sort through it, talk to your accountant during a time when they're generally not that busy. Wouldn't it be great if you could take money out of your IRA that you normally show as income and pay tax on, but not have to pay tax on it? That's what a Roth is. I mean, that's what a Roth is. Well, wait a second, I got all this money in an IRA, I'm gonna have to pay tax, and you're telling me I can move it into a Roth and not pay tax when I pull it out? Yes, I'm telling you that. But as you might have guessed, there's a big catch and that catch is, when you move money from a traditional IRA to a Roth IRA, the amount you move is a taxable event then. The government's saying, well, we won't tax you later, but we're going to tax you now on the amount you convert.

And that may or may not work out for you. But if you're ever gonna move that money, well, if your values are down, okay, that means you can move the same number of shares and have less amount of dollars being transferred over and you come out on top.

Amy: One major caveat to think about when you're thinking about a Roth conversion is how much makes sense to move over.

Steve: Oh, you got to be careful.

Amy: You have to pay such close attention to which tax bracket you're in. I've seen people do this, DIYers, doing it on their own. Oh, I like the idea of a Roth conversion. You know, that Roth money gives me more flexibility in retirement. I completely agree with that. But they convert too much, and then it bumps them up into the next tax bracket. Because that money that you're converting, to the IRS, it looks like money that you made that year. It doesn't matter that you already had it and been sitting there for decades.

Steve: Oh, you're not gonna be happy when you get your 1099 if you don't pay attention. Yeah. Yeah. So here's the way it works. So if you're married and filing jointly, you go from paying 12% tax on your income that year to 22%. That's a big old jump. I'm going to work this out in my head. That's about 10% more.

Amy: It's really difficult math if you got that right.

Steve:So you go from 12% to 22% tax rate at $94,300 in 2024, adjusted gross. That's after deductions. Okay? So in other words, if you show $100,000 of income, that excess above 94,300, you're being tax at 22. You don't want to do that. So we call it filling up the tax bracket. This is something you have to talk to your accountant first. But hey, if you made $60,000 in adjusted gross, or expecting to make that this year, well, you know, I can make the argument of move the other $34,300 from a traditional IRA to a Roth IRA to take you up to ninety four three, and you're only paying 12% tax on that. And then that money comes out tax free later on.

Amy:Yeah. And all that growth, right, it grows tax free. Yeah, I think Roth conversions can make a ton of sense. You just have to be really careful with them. And there's also something called the backdoor Roth. And this is where there are income limits on what you can put into a traditional IRA. And so I've had many people come to me and say, well, I make more than that cut off, you know, and so I can't put money into a traditional IRA. Okay, well, you can backdoor that money into a Roth. So you put it in a traditional IRA.

Steve:You can't deduct it. That's a non-deductible IRA. You can make a million dollars in do a non-deductible IRA.

Amy:Yes, yes, yes, yes, So then you put that money and then you transfer that into a Roth. It's kind of this like little mechanical move that you can make. You open one account, you move it into another account. But suddenly that's called a backdoor IRA. Again, you're going to have to pay the money, those taxes...at that point that you move it into that account. But if you're careful and you do it right, it can give you a lot more funds [crosstalk 00:34:37].

Steve: Yeah. And talk to your accounts before you do any of this.

Amy: Yeah, it can be incredibly beneficial. We're talking about thousands of dollars. You just got to make sure you do it in the right way. Here's the AllWorth advice. We don't recommend changing your portfolio every time you feel panic about the markets. We will always, though, recommend looking for ways to save on taxes of course, legally. Coming up next, the four letter word that can wreck your money, your retirement plan. We're going to talk about debt. You're listening to "Simply Money," presented by AllWorth Financial, here on 55KRC THE Talk Station.

You're listening to "Simply Money," presented by AllWorth Financial. I'm Amy Wagner, along with Steve Sprovach. Bankrate.com just came out with its 2024 credit card debt report. And well it's not a really pretty picture. Let me just say that. And I also want to start by saying that you and I called this a few years ago.

Steve:Oh, that was an easy call. Yeah.

Amy:During the pandemic, when we couldn't spend money on anything, and the government was putting money into our accounts in the form of stimulus money, we saw the U.S. savings rate, the average person was saving 30% of your take home. And we said this will never last.

Steve:Yeah, we went out on a limb with that prediction.

Amy: Yeah. Well, no longer are people not saving at that 30%... I mean, I've seen it down, it's just like 3.6%. Now we're taking on debt in record level.

Steve: Well, bankrate.com, they're a great organization. And they did a survey, and roughly half the people they surveyed said, oh, yeah, I carry a balance on my credit card. Which tells me the other half are probably lying because there are very few people that pay off their credit cards. Obviously, our listeners pay them off every month, because that's the only smart thing to do with a credit card, pay it off every month. If you buy something that you can't pay off at the end of the month, don't buy it. Don't buy it. Yeah.

Amy:I have always said, what you want to do if you have credit cards, and I'm not against credit cards in any way, shape, or form, is to be the worst customer of that credit card company. And that means you pay those bills on time and in full every month. They're not making a bit on you in interest and they're not making anything on fees or extra charges. Right? That's where you want to fall. Now we're seeing at least half of people admitting to the fact that that's not where they are. And also 4 out of 10 people said, I've got more debt on credit cards than I have in actual emergency savings set aside. That's a recipe for disaster.

Steve: Yeah, they cancel each other out. You don't have savings if you've got that much in debt. And, you know, we're not here to beat people up over the head by any stretch. I pay off my credit cards every month, and so I don't really care what the interest rate is because I don't pay it. One of my credit cards just announced, it was either 31 or 33%. I mean, go to the mob, they got better rates. I didn't really say that, did I? But anyway...

Amy: I wouldn't have suggested turning there, but you're from New Jersey.

Steve: It's getting ridiculous. So don't fall into their trap. And if you have gotten yourself, and I was there early in my marriage, I mean 40 years ago. I let things get away from me. Well, here's what you gotta do. You got to literally lock up the card. You just don't use it. Literally lock it up and decide how am I gonna pay these cards or this card down as soon as possible. It's no fun. It's like losing weight. Nothing happened fast. Every month, you wish you had more money, but instead you're paying down your credit card. But it's the only way you get ahead. And once you get yourself into that mindset, you're going to be a new person, both financially and mentally.

Amy: You mentioned mindset, I think that's the key here. You have to have the mindset of enough is enough. I'm not going to pay this credit card company any more money in the form of interest. And so you have to shift. And it might mean that you cut back on spending other places in order to spend this down. You have to figure out...

Steve: You have to change something.

Amy: Right. Whether the snowball of paying off the least amount of debt or the highest interest rate, the avalanche method, makes the most sense for you. But you got to get it going. And then once you tackle it, you make sure you wipe it off and you never go back there again. Thanks for listening. We hope you're going to tune in tomorrow. We're talking about the best ways to protect your money. You've been listening to "Simply Money," presented by AllWorth Financial, here on 55KRC THE Talk Station.