Amy: Well, maybe today's the day you don't wanna check your 401(k). Did the Federal Reserve mess up the timing of an interest rate cut? We got a lot to get to. You're listening to "Simply Money" presented by Allworth Financial, along with Steve Hruby. Okay. There is just a lot to talk about tonight. Market's all over the place. So much data. Those also beginning to question the Federal Reserve, our nation's central bank, and are they on the right path here? We're gonna get to all of it. We've got Allworth's Chief Investment Officer, Andy Stout, joining us right now. Andy, I'm just gonna let you start where you wanna start because there's a lot to talk about.

Andy: Well, I think the thing to talk about is the market, right? It's been a...

Amy: Yeah, let's start there.

Steve: I agree.

Andy: It's been a tad volatile over the past couple of days. Really, Friday and today have been, you know, quite the roller coaster ride. I mean, I guess roller coaster if it's only going down, at least as of the past couple of days. Now, the thing I wanna point out though, and I use that roller coaster analogy quite intentionally, is that markets, they go in cycles like roller coasters. There's going be ups and there's going to be downs. I mean, we've been in a pretty strong up for a while. And those downs, they come quick and they can be scary, kind of like a roller coaster. But what happens over the long run is those cycles, you tend to move higher and higher over time. So market cycles do work in your favor. The thing that we all need to realize is that, you know, if we make a decision to, you know, jump outta the roller coaster at the bottom, well, or on the way down, you're gonna miss that ride back up. And that's what you definitely want to make sure you stay invested for.

Steve: So, let's talk about some specifics here, starting with the Fed's policies, for example. I think a lot of people are under the impression that there's a level of the Fed being out of sync with the current economic climate, maybe keeping interest rates high for too long, causing the economy to slow down much quicker than desired. Can you shine some light on that in your perspective, Andy?

Andy: Yeah. So, there's been a few reasons for the volatility pickup, and I would say there's three primary causes. One being what you just mentioned regarding the Federal Reserve. So, the Federal Reserve met last week, and what they did was nothing. They left interest rates where they were at the 5.25% to 5.5% range. And that was expected by pretty much everyone. They did open the door for a September cut though. So, that is a good thing for the markets, you know, where we're at right now, amidst this volatility. In terms of the Fed being behind the curve, well, we had a jobs report come out that was anything but good. When you look at the details, you know, it was pretty poor across the board. Now, the Federal Reserve wants there to be full employment and they want stable inflation.

You could argue we've had full employment, but now we've seen the unemployment rate start to move higher and higher. I mean, we were at about 3.5%, not too long ago, and now we've seen the unemployment rate tick up to 4.3%. So, you're seeing a weakening of the job market. And there's other job-related data that suggest things are getting worse for employees. Specifically, we've seen the number of jobless claims, which are people collecting unemployment benefits. That's starting to move higher and higher. We're seeing the number of job openings come down. We're seeing quit rate come down. That's basically the percent of people who are just quitting their job with nowhere to go because they have the confidence that they can find another job. So, it shows that they don't have as much confidence with the quit rate continuing to drop.

So, these are all indications of the job market starting to falter. And when you look at where we're at right now at a 4.3% unemployment rate, you know, that's certainly not a good thing by any stretch of the imagination. And what's driven that was basically a large influx of people into the labor force, specifically 420,000 people entered the labor force in July. And when you look at the increase in employment and the increase in unemployment, the number of unemployed people jumped a staggering 352,000. So, the reason for the increase in the unemployment rate was that, and that's causing a lot of concern that the U.S. economy could be really close to a recession. So, we're watching a lot of indicators, whether or not to determine, you know, we are in a recession or close to one.

Amy: Andy, I think it's so easy to kind of Monday morning quarterback what the Federal Reserve has done. I think it's so interesting because, earlier last week, I don't know that anyone was calling for a lot of rate cuts during last week's meeting. And then it's like, gosh, the next day or two, as more data comes out, then all of a sudden everyone's like, "What's the Fed doing?" What's your take on it?

Andy: Yeah. I've seen some things this morning where it's like people are calling for an emergency rate cut. The Fed needs to cut, like, right now and then cut by 150 basis points or 1.5% in September, essentially bringing the interest rates down by almost 2% over the course of the next two months. That seems a bit aggressive. I mean, that's not going to happen. You know, I mean, highly unlikely something like that would happen. That said, it doesn't mean that the Federal Reserve isn't watching this fairly closely. And if you look at, you know, where we were prior to Wednesday and even after Wednesday, everything was fine. And then you started to get some other data to come out.

Now, we already talked about the jobs report with the unemployment rate going a little bit higher or decent amount, higher than expected. Also, the number of jobs that employers added came in well short of expectations. On top of that, last week, we got what's called the ISM manufacturing survey, and it showed a larger decline for the manufacturing industry than what was expected. But then, you know, we got some other news that doesn't necessarily suggest the Fed is behind the curve, the economy part does, but there are some other things driving this current rotation.

Amy: Andy Stout is joining us as he does every Monday. Andy, we always appreciate your take on things on Mondays, but I think especially today. We've come out of this period where we have had no volatility, really no fluctuations, more than 2% that we've seen over more than a year. And then all of a sudden, we come into this place over the past couple of trading days where we've seen major volatility, and I think it's really jolting us as investors. You mentioned there was a few things that you thought were leading to the market volatility that we're seeing right now, obviously, the labor market. What else do you think is going on here?

Andy: All right. Well, thanks, Amy, for picking up the clue for that leading question as to what those other two things were. The first is something that doesn't get a lot of attention outside of financial process, but I think it might be one of the bigger reasons we're seeing this volatility. Now, I'll try not to get too much into the weeds, but essentially it's related to what's called the yen carry trade. Okay, this sounds kind of weird, but it's a real thing. This is where investors borrow in a cheap currency like the Japanese yen and invest in a currency that yields more. What happened last week was the Bank of Japan surprised many investors by actually raising rates and signifying more rate hikes. Yes, I'm saying hikes, now we're talking about cuts for the U.S. Central Bank. But over in Japan, they just hiked. And that's caused about a 9% increase or almost 10% increase in the yen. And that's resulted in the Japanese stock market essentially losing about 18% in 2 days, lost 12% today, that's its largest loss since black Monday of 1987.

But anyways, how this works is that because of the move in the wrong direction for those investors, who are levered by the way, what happens is they're forced to sell their positions. And that liquidation, you know, causes essentially more selling because they're selling into weakness. And in many cases, they're buying into strength like U.S. Treasury. So, they're pushing the market in areas that it was already headed. So what essentially happens, I mean, the bottom line is selling leads to more selling in a negative feedback loop. So, this unwinding of this trade because of losses results in even more selling. And that might be the biggest reason for the abruptness of the move in the markets lately. So, you have that, the yen carry trade unwinding where essentially, maybe think about it this way, traders were caught on the wrong side and they had to undo their positions. And because they're levered, it just magnified everything.

Steve: And that had to do with the Japanese bank increasing interest rates?

Andy: Yeah, they raised rates. They were at a range of 0% to 0.1%, and they raised to a 0.25%. So not a big move, but they also signaled future cuts or future hikes down the road this year. The other thing I wanna really quickly mention is the technology earnings. While they've come in pretty good from a beat rate and a growth rate, what Wall Street has turned their attention to is, "Hey, Amazon, Apple, Alphabet, Meta, Microsoft, show me what you're doing with AI. Show me how you're making money with AI. Show me the money." They don't have anything to show. They've invested billions and billions of dollars and the return on investment has been pretty poor so far. And investors' patience, it's getting quite a bit...Well, obviously, you can see it's getting stretched pretty thin with the Nasdaq actually in correction territory. And after this morning's route, you know, we have seen that level violated even more, so.

Steve: So through all of this, there are some good news for those of us with highly diversified portfolios. There's actually some gains in other asset classes outside of tech.

Andy: Yeah. And that's a really good point. I don't wanna just come out as, you know, a downer and say, the world's coming to an end because it's not. Things will get better. Things go through cycles. When you look at other areas that have done well, you know, at least recently you've seen some dividend-paying stocks hang in there pretty good. We actually saw, you know, last week at least, real estate was up pretty good as was consumer staple stocks and utilities. Really anything that had a decent dividend performed a little bit better.

And also bonds have been doing pretty well. I mean, we talked about the problem with bonds or investors struggling with bonds, and no one will want to have anything to do with bonds. Just use cash. But bonds have done extraordinarily well. They're up about 2.5% last week. And if you look at over the past year, they're now up almost 8%, just the bond market, in general. And certain bonds do better than other bonds. But on average, the aggregate bond index is up almost 8%. So that's a really strong investment thesis to keep your mind attuned to. And that is to stay diversified, to have an investment mix that is set for your personal timeframe. Don't just stick it in an 80/20 or a 20/80. Have an investment mix that's for you so you can weather those ups and downs and avoid those costly emotional decisions.

Amy: Great reminder, especially on days like today. Here's the Allworth advice. These are the days where you stick with your long-term plan and maybe even stick your head in the sand, right? Ignore the headlines, ignore the noise. Stick with what you know is right for you. Coming up next, there's an article that claims that the S&P 500 is acting exactly like it did right before the big financial crisis. Is this scare tactics? Is it reality? We'll get into that next. 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 Hruby. If you can't listen to our show every night, you do not have to miss a thing. We have a daily podcast for you. Just search "Simply Money." It's right there on the iHeart app or wherever you get your podcast. Coming up at 6:43, parts of the financial planning process that those of you who want to retire early often forget about. We'll tell you what they are. You know, we tell you time and time again that a highly diversified portfolio is really what's key. You just cannot predict what's going to happen today with the company that seems to be outperforming all of those. And we've spoken a lot, Steve, over the past year, year and a half about this company, Nvidia, and there's been tons of headlines about how it can't go wrong. Why don't you check it today?

Steve: Yeah, I think we've always tried to share both sides of the story with that one because technically it can go wrong. There's all kinds of things that can go wrong with an individual security. In this case, the U.S. Department of Justice has actually opened up an antitrust probe to investigate whether or not the chip giant allegedly abused its market dominance in AI chips.

Amy: Yeah. And essentially what they were saying is that Nvidia, yeah, I think maybe abusively, at least what these allegations are, when they were working with certain vendors, certain other companies, they would say, "Oh, if you're going to get this from another company, then we're gonna charge you more for this other product that you're buying for us. Or if you are getting chips from us, you know, then we also expect you to buy these other components that we think that you will need." And so kind of sounds, again, these are just allegations, but the allegations are sort of strong-arming, right, because they are in a position of power.

Steve: They sure are.

Amy: And that's kind of what has made Nvidia such a stock market darling is the fact that they seem to be so far ahead of other companies in developing these chips that go into...that are used for AI and everything else. You know, and now the question is, okay, were they abusive from that position of power? This is, again, very early, very early on in these allegations. But again, markets just responding to the fact that these allegations are out there and that this investigation has been opened. At the same time, Nvidia has not reported earnings yet, right? They're one of the last ones of these major tech stocks. The other ones have not fared so well, I think. So, also in anticipation of what might come from them, you know, you see kind of this pretty big drop over the past few days and I think it's just a reminder of you have to be diversified.

Steve: Yeah. Having too much of one stock in your portfolio can certainly throw you a curve ball, even derail your retirement. That's why people say that you should have no more than 5% or 10%. We've been saying for a long time that something can get Nvidia. We don't know where this is going to take us, but it's certainly a lot better than, I guess, like a Terminator situation.

Amy: Anything, anything is better than a Terminator situation. I'm glad you pointed that out.

Steve: Runaway AI.

Amy: Yeah. Yeah. You know, one of the things I think that is kind of the bedrock of what we stand on here on the "Simply Money" radio show is the fact that we believe in looking at history to tell us maybe where things could go in the future. And I think most of the time looking backwards can help us show, like, where we might be moving in the future. But I also think that sometimes looking backwards for some might be a bit of an overreach or might be sort of a fear factor. And we have came across something recently, an article which looks at the tech boom versus the dot-com boom. We've talked about this many times in saying, "Are there similarities here? Should we be worried?"

Steve: Yeah. You might have caught this one on Baron's because it's loud. It says, "The stock market doesn't look like the dot-com bubble. It's something worse." That is fear-mongering. I don't appreciate this. It's something that gets me worked up. But when people purposely drive fear, so you click on their article and you read it, but when you do read it and you read all the way through, you notice that maybe it's not as scary as it actually sounds.

Amy: Yeah. So, he's writing about the differences and the similarities between then and now. And he kind of looks back and says, "Listen, if you look back about the months and the couple of years leading up to 2007, the patterns that we're seeing in the stock market today when it comes to these tech stocks look really, really similar to what we saw in the dot-com boom leading up to 2007." So it's like, "Okay, we talk about history, we talk about history repeating itself. Should we be worried? You know, should we run for the hills?" Well, you know, no one has a crystal ball. But I think, to your point, there's a lot of fear-mongering going on in this article. I also think what's interesting, if you pay close attention to what he's saying in this article, you know, the headline is scary. The first few points are scary. And then he kind of backs away from how strong his tone is about the fact that this could be, you know, far worse than what we saw in '07, '08.

Steve: Yeah. It's funny because scary, you can cherry-pick the date a little bit when you're making comparisons. You know, I didn't analyze whether or not he did that. I read the article and saw that this is a fear-mongering headline that may create a situation where you act on emotions and make bad decisions with your investments. For example, selling when the markets are having periods of volatility, making adjustments to your asset allocation on the short-term rather than focusing on your long-term goals because once you dive into the article code and he actually read it after, you know, he shares all of his data, he posits the question, is it really different this time? Who knows? Only time will give you the answer. You know, after all that, it's like, come on, really all this fear-mongering followed by, maybe it's not actually different because it's not. That's the part that I agree with.

Amy: You know, I think someone in the media, over the past couple of years, came up with this term, the Magnificent Seven. And I think as investors, when you hear terms like that, it's like magnificent, I don't wanna miss out on that, right? That greed kind of kicks in. And we have been saying the whole time, listen, like, these Magnificent Seven stocks, these tech stocks that seem like they can do no wrong, we have just seen... And if you wanna look at history, those are the kinds of history lessons that you look at, going all in on a particular company or a particular sector just never works out well. And so I think if there's anything that you need to look back at '07, '08 and say, "What should we learn from this? What should we take away from it?" Moving forward is the fact that diversification is so important because it can look like nothing can go wrong with a particular company or a particular sector, yet we've just seen this time and time again, you don't know what it is or where it's gonna come from or when it's going to come, but we have seen absolute, like, Goliaths just hit from out of left field.

Steve: Yeah. So please don't read an article and then act emotionally on it. Focus on the long term, focus on building your diversified investment allocation that can weather the markets over a long period of time. Not having too much of your nest egg in one stock can certainly smooth out that path towards retirement.

Amy: Here's the Allworth advice, right? Our takeaway to this article, to this headline, to this way of thinking, don't panic, don't make financial decisions based on emotion, regardless of what happens. And we saw like a lot of greed, and now I think we're starting to see a lot of fear here. Coming up next, which financial marital approach leads to the most happiness in a couple, yours, mine, ours? We'll get into that next. 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 Hruby. When it comes to couples and money, well, first of all, we know there can be a lot of stress there. It can be just a huge point of conflict in a lot of marriages and relationships. And I think there's different ways to approach money. There's yours, mine, ours. And we have seen, you know, through the years, Steve, you and I have seen people anywhere on the spectrum. And I think the question is, what works best? Well, there's some new research out that might not show necessarily what works best financially but what might lead to the highest level of happiness when it comes to your money and your marriage.

Steve: Yeah, it's a good way to look at it because this data comes from a Bankrate survey conducted last year, and it found that about 6 in 10 of married adults or those living with a partner kept some or all of their assets and finances completely separate. That's separate planning all across the board. Now, those that kept their money separate say they found it best to divide the mortgage, car payment, Netflix, whatever bills are based on what you actually use. Couples who do this say it's liberating and prevents fights over money, but it doesn't necessarily mean that they are happy.

Amy: Yeah. In fact, this is what the research shows. Couples who keep their money separate in often cases are less happy in their relationships than those who merge their finances, right? There's several studies that we've seen over the past five years. I'm just gonna give you my take right here and right now, and we can get into a little more of this research. I really think the key is not whether you keep your money separate or you put it all together. I think the key is that you have transparency that both of you know what the other person is doing with their money. Now, it doesn't have to get down to the granular level of you spent $50 on Amazon, I need you to tell me what that was for. But, you know, we have seen also lots of research on financial infidelity in hiding accounts, and hiding credit cards, and hiding money, that's never gonna turn out well in a relationship. So, I think you can figure out whatever works for you, but I still think the conversations have to happen pretty regularly over, what are our financial goals, what are we trying to reach together? And I don't care whether your money is in separate pots or all together in one. I think you need one singular vision moving forward about what you're trying to get to when it comes to your money.

Steve: The key here is communication, honesty. No financial infidelity, which is a major driver towards ending marriages. So, you know, when we dive into the details of this study that Bankrate did it, it was actually a two-year experiment. It looked at 230 newlywed or engaged couples. And at the onset, all participants had separate bank accounts, that was the baseline. The researchers that did the study, they divided the couples into three groups. One group was asked to keep separate accounts, the second group was asked to merge money into joint accounts, and a third could structure the accounts however they saw fit. Interestingly enough, those that had their own decision to make typically kept their accounts separate throughout the study. There was a series of surveys over the longevity of this 2 years looking at 3, 6, 9, 12, and 24 months later. And at the end of the two-year period, couples that merged their accounts felt like the relationship was better compared to those that had separate accounts.

Amy: Yeah. Those joint accounts kind of helped the partners feel like they really had shared goals that they were working on together. You know, if you and your spouse sit down and you say, "Okay, our goal is that we can retire at the age of 65 with X dollars in investments and that we can help our daughter with her marriage, or, you know, pay for her wedding to this point," what whatever those goals are, if you see that the money together in your accounts is working and growing toward those goals, I think that can be incredibly beneficial. Now, that's not to say that if you have separate accounts, you can't still see the same things. But I think that Steve goes back to what we were saying, transparency, communication. Maybe you keep separate spreadsheets, but once a month you come together and you show, "Okay, here's what I'm doing with mine. Here's what you're doing with yours." Now, there's a lot of people that I've talked to through the years that say, "I'd like to surprise him," or, "I'd like to surprise her. I don't wanna have to say, 'Well, this is where that money went to.'" It's a trip for their 50th birthday or for our 20th wedding anniversary, whatever that is. So, I really have seen it work both ways as long as everyone is together on the same page.

Steve: Well, the thing is is that joint accounts force your hand. It forces open communication, which is what you started with before we even dove into the study. You said it's all about having open lines of communication, and there are platforms that can help with this, whether or not you have joint or separate accounts. Expense-splitting platforms, Splitwise is one that we came across, its default setting is to split every bill in half, and 97% of the couples that use it stick with it. So, this is having separate accounts, but forcing communication. And that communication and transparency can help track to make sure that you guys have shared goals, shared values, shared expectations around money. And that's what actually leads to happiness here.

Amy: You know what's interesting too, coming into this profession, I think I probably would have thought that most people that have separate accounts have roughly the same kind of incomes and they just keep it all separate. But actually what I have found the most people who have success with keeping separate accounts are because one's the breadwinner and maybe the other one isn't the breadwinner but they are very strongly active in home and taking care of the kids and making sure the household is moving forward. And there feels like there's kind of this discrepancy if they're using the same account of that person who isn't necessarily bringing in the paycheck feeling like they're accountable to the other person. And I've seen many times in situations like that where the separate accounts kind of gives both of them a feeling of autonomy beyond maybe what they would normally have.

So, I would say go into this with an open mind, but I also would say, Steve, for anyone who is engaged, who is looking at taking a relationship to the next level, these are the kinds of conversations you have to have now. You do not wanna walk down that aisle and the next day one of you looks at the other one and says, "Okay, let's merge our money." And the other one says, "Oh, absolutely not. Heck, no."

Steve: Not happening.

Amy: And then all of a sudden right off the bat, you've got, you know, money and difficult conversations and people are not on the same page. So, this is the kind of thing that I think is critical to have conversations about once a relationship turns serious.

Steve: Yeah. And you bring up some good points because there are reasons for keeping money separate. It provides autonomy, that's exactly correct. You know, it lets spouses share responsibility for managing money, leaving room for both to gain financial knowledge on their own to share with each other. But it really boils down to communication. That's it. Making sure that you have a shared understanding of what's happening. If you have separate accounts and you're using it to hide what you're spending, that's a problem. That's called financial infidelity and not having conversations about it unless it's like a surprise vacation, like you said, or a gift, something like that, that can certainly lead to problems. So, it's just open conversations, transparency, making sure that you're on the same page when things are getting more and more serious.

Amy: Yeah. So, research shows, right, that couples who merge their money tend to be happier over the long term, that tend to feel like they're more on the same page, you know, sharing and working together toward those financial goals. And then we would also say we've seen it work well both ways. Again, it's transparency and communication. Here's the Allworth advice. Money is just one of the biggest sources of stress in a relationship. Just whatever you decide, be transparent, open, and communicate it well about it all. Coming up next, the major parts of the financial planning process that those who want to retire early may not take into account, right? Some major misses we have seen, we'll tell you what they are. 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 Hruby. Do you have a financial question you 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, one type of insurance we would say you may not have, but we highly recommend it. We'll get into that in just a few minutes. You know, for many retiring young, retiring early is a lifelong dream. But also that dream can't happen if you don't have a proper financial plan in place. And, Steve, we see this all the time. Someone will come in, they say, "I'm gonna retire early. I've got seven color-coded spreadsheets that show that I can, and this is ironclad." And then we look at it and we're like, "Ah, you missed something."

Steve: Yeah, it's pretty easy to miss something when you're building your own spreadsheet. I mean, there's lots of moving parts when it comes to transitioning into retirement. You know, most of us only do it once, so you wanna make sure that you're not making some big mistakes. And in no particular order, I would say tax planning is a big one because you can voluntarily give Uncle Sam a lot more in taxes than you need to by not implementing proper tax planning strategies. Now, keep in mind, tax planning and tax filing are two different things. Tax filing is just filling out the paperwork. Tax planning could involve deciding which accounts you pull from to generate your paycheck now that you're no longer getting one through employment. A lot of people that transition into retirement have pools of money that include pre-tax, Roth, after tax, different accounts have different rules, and some, you need to focus on the long term, such as your pre-tax money when you're 73, 75 years old, depending on how you old you are now, there's RMDs. So taking advantage of maybe doing some Roth conversions after your income falls off and you're now in a lower tax bracket. We could start strategically moving some of your pre-tax into Roth so that you can subject those dollars to tax-free gains and diversify the future tax liability.

Amy: And I think this is a strategy and this kind of way of thinking can get dicey for a lot of DIYers, right? If you have been kind of just looking at that money, putting that money aside, maybe maxing out the 401(k) if you can, or putting as much aside for that retirement, you feel like, "Okay, I've got this under control." But when that money quits coming in, when you're no longer saving money, and now you're starting to spend that money down, I think this is where tax strategies become incredibly important. Because when you only have a pot of money that is so big and no more money going into it, how much you can keep in your pocket becomes that much more important. So, I think tax planning is huge. I also see people forgetting to plan for healthcare and coverage, right? If all these years you've been working for a company and they're offsetting 90% of the cost of healthcare, right? And I think, Steve, too many people also think, "Oh, well, I've been paying into Medicare all these years, so once I turn 65, it's like this magic time where all of a sudden all my healthcare is taken care of." And then reality hits. And I also think one major issue that I see with people in building their own spreadsheets and planning for retirement or an early retirement is you're not planning for enough inflation when it comes to those healthcare costs.

Steve: Especially those healthcare costs. Healthcare inflates at a much higher rate than everything else. Your housing, utilities, groceries, gas, only exception would be if you're continuing to save somehow for college for someone, or for yourself even. College expenses typically inflate a little bit more quickly than your healthcare costs. But even healthcare and tax planning go hand in hand because if you realize too much income by doing a Roth conversion, then you could kick yourself into a higher tax bracket. You could find yourself paying IRMAA taxes, which means your Medicare Part B premium gets inflated by a certain factor depending on how high you went. So planning for healthcare coverage is a big one. Not just the inflation side of it, but are you gonna use Cobra? Are you gonna go to the exchange? Are you gonna work part-time somewhere that offers you some kind of a medical benefit? Are you gonna switch to a spouse's coverage? There are many options, and it's easy to make a bad decision or a wrong decision that can't necessarily be unwound if you didn't plan accordingly.

Amy: Yeah. Talking about planning for healthcare coverage, you've set me up beautifully...

Steve: You're welcome.

Amy: ...to make my next point, my most...

Steve: So, I'm gonna talk about HSAs, okay?

Amy: No, no, you're not taking my thunder away from me. This is where I think it becomes critical if a high deductible healthcare plan makes sense to you to try to maximize an HSA. This is a gift from the federal government, unlike anything else that they give us, triple tax advantage, meaning the money goes into that account, you don't pay taxes, it then grows if you invest it tax-free. And then if you take that money out for qualified healthcare expenses, and Steve, you were just making the point of how expensive healthcare is in retirement, that money goes into the account, it grows, you pull it out, and you never pay taxes on that money. There's really nothing like it. And I think this becomes a huge tool for planning, not only to retire, but if you have your sights set on retiring early, this can be a critical component of that.

Steve: Yeah. And they're wonderful. Triple tax advantage is really hard to beat. There's also those that don't properly estimate expenses, they think, "I'm gonna need less money because I'm retired." But what you don't realize necessarily is that you're entering your go-go years of retirement. A lot of us make that transition to retirement. No longer working full time. How are you gonna spend your days? How are you gonna spend your weekends? What are you gonna do? Are you gonna start knocking items off your bucket list and travel the world? If so, you may have higher expenses entering into retirement, into your go-go years, and then you hit your slow-go years when you're older and you're not doing quite as much. Maybe your legs don't carry you as far, your back hurts, whatever that is. And then you have your no-go years where you're not doing a whole heck of a lot at all. So, a lot of people will not properly estimate expenses, especially tied to inflation.

Amy: Here's the Allworth advice. A fiduciary advisor can help catch the parts of financial planning that might fall through the cracks. And that is really key if you're planning to retire early. Coming up next, we're talking about a kind of insurance that can protect you on a day when it's raining or even storming. We'll explain. 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 Hruby. See, a lot of the things that we preach on the show is investors being sold insurance products they don't necessarily need. But today we're kind of flipping that on its head and we're saying, "Hey, there is a kind of insurance that you might really need that could really help you, and you may not have any of it."

Steve: Yeah. This is one that I do recommend quite often.

Amy: Highly recommend.

Steve: Yeah. It's umbrella insurance. That's where...It's extra insurance that provides protection beyond existing limits for coverage from other policies. Oftentimes, you're able to get this just through your homeowner's insurance policy, but if your net worth is high enough, you may need to go outside and purchase a separate policy. But what it does is it protects your assets from lawsuits related to, you know, kind of freak accidents, acts of God, things like somebody slipping on your icy driveway, a neighbor's child injured in your backyard, a trampoline, a pool, a swing set, even claims of defamation after an online post. You know, hopefully, we have self-control and we're not doing something like that. But if we do get dinged with something like that and there's a judgment against us, then this is an area where umbrella policies could be leveraged. The most popular, I would say, is from serious car accidents. Now, it's important to realize that the big question is, how much do I need? And typically, it's as easy as understanding what your net worth is and getting the amount of umbrella coverage that covers a little bit above your net worth.

Amy: So, if you do the calculation and your net worth is a million dollars, we'll then get a million-dollar umbrella insurance policy. And I think, "Oh, like that sounds like it can be really expensive." It's really not. Now, the cost of umbrella insurance has gone up by about 7% over the past couple of years. But we're talking about, if you get a million dollars in coverage, it's about $330 a year, right? And I think for that kind of peace of mind, it can be really smart. My poor family, you know, I just look at the world, I think, through different lenses because of what I do. And over the course of the past year, we've had neighbors get this huge swing set put in. We've had another set of neighbors get this ginormous trampoline, and I really wanna just walk out and say, "Hey, that looks like a lot of fun. Do you have umbrella insurance?" And you mentioned a lot of reasons why you would want that. And I'm gonna throw another one in. If you or your spouse coaches a team, right? If someone gets hurt on that little peewee football practice or whatever that is, that can come back on you. So just so many reasons why having this kind of coverage becomes really, really critical. And yes, your normal insurance that you have should have some degree of coverage, but this is just that extra layer of protection.

Steve: Normally, your homeowner's insurance is gonna get you what you need. I mean, some of them cover $1 million, $2 million, $3 million, $5 million. And, you know, think of it this way, essentially that premium that you pay for your umbrella policy is pretty much keeping an attorney on retainer. That's what you're doing here because you're protecting your net worth against some kind of off-the-wall situation that most of us don't expect to happen. But if it does, it can be extremely devastating to our net worth. If you are found liable for something and the courts decide that you are, then they can go after what you have. And if you have that umbrella policy, then that can protect you and not ruin you financially.

Amy: Which is a bedrock of a financial plan, is not only be able to build those resources, but be able to protect them once you have them. Thanks for listening. You've been listening to "Simply Money" presented by Allworth Financial here on 55KRC THE Talk Station.