Steve S: Tonight, could the Fed begin cutting interest rates later this year, or will it overshoot? You're listening to Simply Money, presented by Allworth Financial. I'm Steve Sprovach, along with Steve Ruby. But before we start, I know, Ruby, this is your favorite subject, let's talk about how great the Bengals are.

Steve R: Oh, I talked about this a couple weeks ago.

Steve S: You're not a Bengals fan?

Steve R: No, no, I'm telling you, Steve, I talked about this a couple weeks ago, I think it was with Amy. You know, you were gallivanting around the country doing whatever you do. And I am a recovering Browns fan.

Steve S: Okay.

Steve R: I'm from Cleveland, born and raised.

Steve S: Who did they play last week?

Steve R: Nobody. It doesn't matter. I don't care. You're not gonna...

Steve S: Please continue.

Steve R: See, you're not gonna get me with those anymore because...

Steve S: I understand.

Steve R: And this is hard to admit, but I admitted it to listeners last time. I've given up on the Browns.

Steve S: Oh, my goodness. Wow.

Steve R: People have been telling me my whole life, "They're a garbage franchise." I've lived in Cincinnati since 2007, and I'm jumping on the bandwagon just like you.

Steve S: Yeah. I'm very comfortable on the bandwagon. But in all seriousness, great win, and I want to acknowledge that. And I love these traditions of handing out game balls to local, beverage establishments, let's just say. That's really cool. And it brings a community into the picture, and I think it's great. Hey, but that's not what we're here for, as much as I wanna talk about the Bengals. But the questions that are on the minds of economists, investors, people like you and me, can the Fed achieve a soft landing? Have they raised interest rates enough? All these things that you and I wanna know, well, we got the guy on the line that monitors this, Allworth Chief Investment Officer, Andy Stout. Andy manages billions of dollars of investments right here in Cincinnati. Andy, I wanna start right off with the Fed meets next week, what are you expecting?

Andy: I expect the Fed to raise interest rates again, but at a slower pace. So, if you remember last year, we had three quarter point or 0.75% consecutive rate hikes. And then a half-point rate hike in December. And now, when we look to this February 1st meeting, what the Fed will probably do is raise rates by a quarter point. So, getting back to the more normal pace of hikes. So, just a quarter point as opposed to three quarters or a half point. So, that's the Fed slowing down. And part of the reason is, they're seeing the inflationary environment improve a little bit, and they want to see the economic effects that these cuts are starting to have because they tend to affect the economy with a lag of about six to nine months. So, everything the Fed's doing...

Steve S: That's the killer of a lag time, yeah.

Andy: Yeah. I mean, if it was real-time, the Fed would have a much easier job. But they don't know how everything is interconnected in terms of what the ripple effects might be because it's different every time.

Steve R: So, looking at the second half of 2023, do you think they're gonna pivot, and talk about decreasing rates?

Andy: So, that's what the market has priced in right now. Basically, a quarter-point hike in February on the 1st. Another quarter-point hike, March, 22nd when they meet after that. Then basically, in the second half of the year, they have a two-cuts priced in. I don't know if I'm buying that right now. I wanna see how things play out, but the Fed has been pretty resilient in its language, talking about how they wanna see how things play out. They're really, really afraid of making the same mistake that the Fed made in the 1970s, when they...

Steve S: They've been consistent though. They've been very consistently saying, "No, don't be in a rush. We don't have any plans to do that," right?

Andy: Yeah. They certainly have. And one of the things that Fed Chair Jerome Powell talked about last year a few times, was that in the 1970s, the Fed relaxed their monetary policy too soon. And that essentially led to or at least was a big contributor to the high inflationary environment of the 1980s, the early 1980s. And Chair Powell does not want to go down as repeating that same mistake, because that was probably the Fed's worst mistake ever. If this happens again on Powell's watch, there's a good chance he would've go down as the worst Fed chair ever.

Steve S: Well, and I was around back then, and the big problem was the Fed, like you said, they relaxed too quickly. They didn't raise rates enough. And when Paul Volcker came in, he said, "Enough is enough, we're gonna get serious about this." And threw us into very intentionally two brutal back-to-back recessions. And ultimately, that's what got a handle on inflation. But it took some major, major increases in interest rates by Volcker. You're listening to Simply Money on 55KRC. I'm Steve Sprovach, along with Steve Ruby. And if it's Monday, we're talking to Andy Stout, Chief Investment Officer of Allworth Financial. And Andy, I'm getting this question all over the place. I mean, people are asking me, so I gotta ask you, are we gonna have a recession this year?

Andy: Possibly. I mean, recession risk is high. What we'd like to look at is leading economic indicators, which are data points that move before the broad economy moves. Right now, Steve, we have quite a few of these leading indicators signaling an economic slowdown ahead. So, we're very serious in monitoring this and staying on top and make sure, you know, portfolio positioning is where it needs to be in that scenario. But I will say, you know, there are some other economists out there who believe we might be able to achieve that soft landing, which means a Fed hikes, but doesn't hike us into a recession. JP Morgan, it was kind of interesting, I was reading over the weekend, they have a handful of recession models and across different markets. And basically, what they are saying is they're seeing that recession risk this year come down. And the three primary reasons for that, at least in their eyes, is inflation is slowing, gas prices have been falling, and China is reopening. They believe those three factors are really causing risks. Not necessarily to go to zero or say where they won't have recession, but the risks are falling.

Steve R: So, you know, all these activities with the Fed are happening because of inflation. So, let's talk about that for a minute. Where did we end in 2022? And where do you think inflation is gonna be by the end of 2023?

Andy: Well, if you look at inflation, there's quite a few ways to measure that, right? So, we have CPI, which is consumer inflation. That end of the year, and that's probably the most widely cited one in that end of the year, six-and-a-half percent. So, inflation prices rose for consumer six-and-a-half percent over the past year. Now, what the Fed actually prefers to look at is called PCE inflation. And the reason the Fed prefers that is because when they're looking at inflation, they like to look at something that's a little bit more broad in general. So, when we look at how inflation ended at the year in PCE, it's certainly...well, we'll get that... We don't have all the data yet. We still have November. November's was five-and-a-half percent, but we're going to get the December reading this week. And what's expected is that it'll show PCE at 5% for the entire year.

So, we got CPI, you know, at six-and-a-half, PCE probably around 5% for the year. That still is a lot higher than what the Fed wants it to be, but much better than where it was earlier. Because if you think back to June of this year, what we saw, we saw CPI at 9.1% and that had a lot of people really, really worried.

Steve R: That was a scary [crosstalk 00.07.49].

Andy: PCE got up to 7%, but still we're at high levels. This year, I mean, if you just look at the trend in inflation, it's clearly been going down. And there are certainly a few reasons to think that inflation will continue to get lower, for example, supply chain problems, those dislocations that we've seen, they're pretty much gone by the wayside. We are seeing, while the initial jobless claims, the job market is still pretty tight, we do see more and more companies starting to announce layoffs on a, you know, somewhat regular basis.

I mean, we had Apple last week, we had Microsoft last week announcing layoffs now or not Apple, I mean, sorry, Google Parent Alphabet. And when we look at that, you know, it certainly suggests that when we have these layoffs, we'll have less wage pressure in the future because there will be more people essentially looking for work. But when we think about... Go ahead.

Steve R: That's one of those areas where bad news is actually good news in this situation.

Andy: Exactly. Yeah, when we look at bad news being good news, the bad news means that the economy might be slowing, but that also brings down inflation. And that also means that the Fed may stop their rate hikes relatively soon. And that's kinda what the market's pricing in.

Steve S: Well, I mean, we're seeing, okay, we're past peak inflation. I'm comfortable with that. And it seems like we're on the right track. And it seems like these numbers keep improving. I mean, are we gonna continue to see inflation dropping? We saw in December, it was kind of interesting. Retail sales are down, industrial production down, real estate sales were down, a bunch of indexes were down. That would lead me to believe that we're probably gonna see a continual reduction in inflation. Is that what you see? And where do you think...? Gimme a number or are you uncomfortable giving me a number for 2023?

Andy: I can give a number, yeah, sure. But all I'll do, I'll give a number as what the economist average is, people who are trying to look at this on a very regular basis, very detailed mathematical models, or maybe not so detailed in some instances. But what I'll say is the average economist sees inflation at the end of 2023, at least on a year-over-year basis at 2.9%.

Steve S: No kidding. Okay, that's almost normal.

Andy: It is almost normal. And that's the big reason that the market expects the Fed to slow down and maybe even possibly pivot. But the thing that, you know, the Fed is worried about, is that there are some underlying inflationary pushes that may be masked by the drop in CPI, where if they get too loose in their monetary policy, you could see inflation spike back up.

Steve S: That's great news if that falls in place. Okay. So, last question I've got for you. We're expecting a bunch of numbers coming out this week. The one I'm most concerned about is fourth quarter GDP, gross domestic product numbers. What are you expecting?

Andy: So, fourth quarter GDP should come in positive. Right now the estimate is around 2.7%. And that's, by the way...

Steve S: That's a good number.

Andy: ...a fourth quarter compared to the third quarter and then annualized or multiplied by four is a pretty simple way to think about that. Now, the reason for that is consumer spending, which represents basically 70 or so percent of the total economy is supposed to be at about 2.8%. But when we look under the hood what's driving spending, we have goods spending and we have services spending. That's going to be lifted by services spending because the goods spending hasn't been that great this quarter. Basically, if you look at retail sales for the fourth quarter compared to the third quarter, they only increase by about half a percent. So, when you look at that, you're looking in the other areas where consumers are spending their money, and it's more on the services side. And that's really going to lift up the economy and keep things going.

Steve S: Great perspective as always, from Andy Stout, Chief Investment Officer of Allworth Financial. Here's the Allworth advice. Keep reminding yourself that your investments are for the long term because market volatility isn't going anywhere anytime soon. Coming up next, a corporate giant, staying right here in Cincinnati. And when Netflix says it's gonna eliminate password sharing, that's coming up, you're listening to Simply Money on 55KRC, the Talk Station. You're listening to Simply Money, presented by Allworth Financial. I'm Steve Sprovach, along with Steve Ruby. If you can't listen to Simply Money every night, just subscribe to our daily podcast. You can listen the following morning during your commute, at the gym. And if you think your friends could use some financial advice, tell them too.

Search Simply Money on the iHeart app or wherever you find your podcast. Straight ahead of 6:43, Why Missing the Mark on Your Life Expectancy could lead you into rough Financial Situations. We've got a series of headlines, Steve. And, you know, a bunch of things I want to touch base on. First right off the bat, right here in our hometown, GE headquarters, GE's going through some major changes. They're going through a split. I don't think a lot of people realize that they are actually splitting the company into three pieces. What's going on?

Steve R: Yeah. So, in November of 2021, GE announced it's splitting into three companies like you said. It's GE Healthcare, GE Vernova, which is its energy business, and GE Aerospace.

Steve S: And Healthcare, they're already separated out. They're public. You can buy stock in GE Healthcare.

Steve R: Yeah, that's correct. And, you know, until recently, we were unsure about whether GE Aerospace would be headquartered in Cincinnati, but we just got some good news.

Steve S: Yeah, they're gonna be right here. GE's got a really neat story of what used to be called GE Aviation now GE Aeronautical. They moved into the right aeronautical piston facility over in Evendale in 1948. Wright Aeronautical, I mean, obviously Wright Brothers, they were a huge engine manufacturer back in the day. GE Aerospace, they have something like 39,000 commercial motors, 26,000 military engines out in the field. I mean, it is huge. And I think a lot of people here were a little bit nervous that they might be moving headquarters for that division up to Massachusetts right here in Evendale.

Steve R: I know. And it's wonderful. And I read something that obviously, we're affected in many positive ways by having GE Aerospace right here in Cincinnati. But, you know, I saw that the GE Foundation committed $5 million over five years to something called Next Engineers. This is an educational program that aims to create global college readiness programs for students between 8th and 12th grades.

Steve S: Yeah. I mean, as the father of a mechanical engineer, yeah, good field, tough field, but we need lots of engineers. All right. So, there's some people that are out looking for a job, maybe they should become engineers. But Google tech job cuts, we're seeing some serious job cuts in the tech sector.

Steve R: Yeah. I mean, I feel like every week we're sharing some news with our listeners about, you know, another company that's releasing quite a few people. And right now it's Alphabet, which is Google's parent company, 12,000 jobs. It joins Amazon, Facebook, Twitter, Microsoft. You know, tech companies, they were booming. They were booming during Covid shutdowns.

Steve S: Well, I think they overhired. Don't you?

Steve R: Exactly. They overhired.

Steve S: I mean, they were picking up anybody they could and now they're, "Okay, we've got a few extra people."

Steve R: Yeah. So, when you think about it, looking at your 401(k), if you're investing in Nasdaq funds and early in Covid shutdowns, that was great for us, but now Nasdaq closed down 32.8% last year.

Steve S: All right. So, here's what everybody is waiting for. Yep, the other shoe's gonna drop, Netflix. I don't know anybody who shares passwords on Netflix or shares accounts, so you probably don't either.

Steve R: He said it that way because he uses my Netflix password.

Steve S: Yeah. No, I don't. No, I don't, but I know, I won't even go there because I'm sure mine has gotten around to family members, let's just say. But Netflix is aware of this, and they've been playing it, you know, loosey-goosey with allowing that to happen. And they're starting to figure out, you know what? There's a lot of money we're leaving on the table and they're gonna crackdown, and it looks like they're cracking down in April.

Steve R: Yeah. Greg Peters, the CEO of Netflix, he says, "The goal is to nudge users to the right price points." What a way to put it. So, you know, the rumor here is that there's gonna be between $3 and $4 paid per shared account.

Steve S: So, they're clear. I mean, if you're...I don't even know what I pay, 15, 16 bucks a month for Netflix.

Steve R: Nothing, Steve, you use my password.

Steve S: No, I don't. But I mean, they're aware that this is going on massively and they're gonna be happy if, you know, they get an average of three or four bucks a pop. So, that tells me they're figuring everybody is sharing with at least three or four other users, three or four other family members, whatever the case is.

Steve R: Yeah. The key here, Mr. Greg Peters said that the end result of increasing this or adding this $3 to $4 expense should eventually lead to increased revenue.

Steve S: Yeah. I think they're gonna find out there's only one actual subscriber.

Steve R: We have one Netflix user in the whole world, and everybody just uses the same password.

Steve S: Exactly. Yeah. So, that'll be a shock. Hey, in all seriousness, I mean, you know, I'm not a big follower of Tesla's stock. Elon Musk, I love the guy. I love what he's doing and I know I'm one of the few that seems to feel that way lately. But a lot of people are saying maybe the SEC should take a look at Elon Musk for when he sold a whole lot of shares of his Tesla stock.

Steve R: Yeah. Right before he acknowledged publicly certain weaknesses within the company, he actually sold $3.6 billion worth...

Steve S: Billion with a B. Yeah.

Steve R: Billion dollars. 3.6 billion of Tesla shares. And the timing of those, you know, stock sales leads to the crucial question of, did he know that the business had slowed right before he sold his shares?

Steve S: Well, you know, he kind of runs it. He's kind of a micromanager. He's got some real smart people working for him. But I mean, you and I both know there's something called insider trading. And it's kind of illegal. Like very illegal. And if you run a company and you have a lot of shares in that company, and you have material, non-public information, you know something that the average person doesn't know, and you go ahead and trade based on that information, it could cause some problems.

Steve R: Yeah. The SEC, of course, has not commented on this stock sale.

Steve S: Well, yeah. And the question is, did he or didn't he? And, you know, it just seems very dubious that the...I don't believe in coincidences, that the sale...and I know he sold a lot to buy Twitter and all that kind of stuff. But the sale occurred right before some relatively bad news came out. I think he's gonna have some explaining to do. We'll see about that.

Steve R: Seems like there's a lot of bad news surrounding him lately.

Steve S: Yeah. All right. Jumping a little bit, FTX. I mean, the, you know, bankrupt, Sam Bankman freed company that, you know, turned out to be missing a couple of billion dollars, that's all in cryptocurrency exchanges. The guy who runs it was the same guy who was tasked with unraveling the Enron scandal and getting people back their money. He's doing the same with FTX. And, you know, there's some good news, bad news. The bad news is, he's still looking for money. Don't know if he'll recover it. But the good news is, he seems to be finding that there's something worthwhile with that company.

Steve R: Yeah. I mean, it boils down to the fact that customers have really praised that company's technology. And, you know, that suggests that there could be value in rebooting the platform.

Steve S: Yeah, we'll see. I mean, they've got some technology. I can't believe anybody would want to invest after everything that they've gone through using that for their cryptocurrency exchange, but we'll see. He found some interesting things that may be worthwhile bringing back from the dead. Here's the Allworth advice. These headlines show that having too much money in any one particular company can lead to financial disasters. So, too much can change from day to day, stay diversified. I wanna pay less in taxes, who doesn't? We've got some tips coming up next. You're listening to Simply Money on 55KRC, the Talk Station. You're listening to Simply Money, presented by Allworth Financial. I'm Steve Sprovach, along with Steve Ruby. They are the people nobody likes. We're talking about those folks from the IRS. And, you know, two certainties in life, death and taxes. Well, paying taxes is inevitable, but there's some legal ways to keep some of that money for yourself in 2023. Let's talk about it.

Steve R: Yeah. I mean, a lot of the times it depends on the vehicle that you're saving in. So, specifically, first thing to talk about would be your individual investment account, your brokerage account.

Steve S: The type of account.

Steve R: Exactly.

Steve S: How it's registered. Yeah.

Steve R: That's correct. So, you know, an individual brokerage account, unlike qualified retirement accounts like 401(k)s or IRAs, these don't come with stipulations or rules about how and when you can access your funds.

Steve S: Yeah. I like to just make it real simple and say, you know what? You should have about three buckets to put your money in over the course of your life. One is the emergency fund. I mean, that's crystal clear. That's the zero-risk money. Just put it in savings and use it for emergencies. Getting laid off, need a new car, whatever the case happens to be. The next bucket is the long-term retirement money, 401(k)s and IRAs. That's the money that, okay, this is gonna be here for a good long time. We need to make sure this money is around down the road. But there's penalties on that money if you need to access it early. And that's where the good old-fashioned brokerage account, just, you know, if you're married, a joint account, if you're not married or even if you're married and you just want to have it just in your name, the individual account, you can invest in stocks, bonds, mutual funds, you name it. But the whole point is there's no tax advantage. But that's why you can grab that money when you want for whatever reason.

Steve R: Well, folks that I work with, I make it clear that I lead with making the most tax-efficient decision as far as where your next dollar should go. So, your 401(k), your IRA, it's deductible contributions, whereas your brokerage account is not. Now, there are options when you're selling and buying securities in a brokerage account where you can, you know, use the losses to offset gains and even, you know, take $3,000 losses against regular income. So, there's some benefits there. But as Steve said, it is a good place for intermediate cash positions because you are investing with those dollars.

Steve S: Well, let's be serious, if there's no tax advantage, first of all, the bad news is you're gonna pay taxes as you earn them or as you make profits. So, if you buy something in a joint investment account, in a joint brokerage account, and sell it at a profit, you're gonna pay tax on that profit. That's why you have full access to it any time you want. But you're only gonna pay tax on the profit, which after last year, not a lot of that going around. So, you know, if you're looking to pull some money out to pay for some expenses, even if you're retired, you might want to take a look at your taxable investment account and go into each of your positions and see, okay, is this one up? Am I gonna have to pay tax on it? All right, let's say you do have to pay tax. If you've held it longer than a year, it's a capital gain rates and those tax rates are a little bit lower than if you earn that money on a job.

Steve R: Than your regular income taxes, correct.

Steve S: Exactly.

Steve R: You know, next thing to talk about would be avoiding taxes entirely, which is your Roth IRA. I love the Roth IRA investment. Oh, yeah. You put the money in, you invest with it, and it grows tax-free. There's no taxes paid on the earnings as long as you stick to a couple of rules. First, withdrawals have to happen after the age of 59-and-a-half. And the Roth account has to have been open for at least five years.

Steve S: Yeah. But there's one catch. If you make too much money, you may not be able to put money in a Roth IRA. That's why I want to talk about Roth 401(k)s. Not every company offers this as a feature of their 401(k), but more and more are doing it. So, you might wanna talk to HR, because if you have a Roth option in your 401(k) plan, you do not have the income limits that you have if you are opening up a Roth IRA. Doesn't matter how much money you make, you can put money in a Roth 401(k). It's a great feature.

Steve R: Yeah. You mentioned something important there, Steve. And that's income limits. If you earn too much, then you're not able to actually put money into a Roth IRA. Married filing jointly If you're above 228, I mean, these income limits are pretty darn high.

Steve S: They are high, yeah.

Steve R: Yeah. It's above 228,000, you're not able to [crosstalk 00:24:48]

Steve S: But I've seen some single people get hung up on this because, you know, they make a good dollar, they're towards the end of their career, and they get a year-end bonus, and that could put you over the limit if you're single.

Steve R: Yeah. And then you have your 401(k). If your employer allows it, then you do have the ability to contribute Roth still.

Steve S: Yeah, because there are no income limits on a Roth 401(k). All right, a little bit of a tax break. I just talked to my nephew last week. He was selling his house in South Carolina, took a job in Alabama. And he was debating whether or not to rent it out. You know, does he want to go through the hassle? Does he want to just sell it? And I asked him how long has he lived there? And he said, "Well, just about two years."

Steve R: About?
Steve S: Yeah. And I said, "Well, you might wanna wait for a full two years because there is a big tax break after two years on your house."

Steve R: Yeah. Is he single or married?

Steve S: He's single.

Steve R: Okay. So, single filer, it would be up to $250,000 of gains on the sale of that property that is really just tax-free, as long as you've lived in that property for two years or more.

Steve S: Yeah. Two years outta the last five, I think is the way they phrase it. Hey, as with all things, check with your tax advisor. We're not tax advisors. We're just talking general tax information here. But that's a big deal because, you know, people with the market, the way it's been in real estate the last couple of years, you know, you might be thinking, wow, you know, if I sell it, I don't wanna pay all that in tax. Well, if you live there more than two years, you may be able, if you're single, $250,000 tax-free on the gain. If you're married, filing jointly, $500,000. That's a big number. Okay. You're retired and you're thinking of moving to a lower-tax state, I hear this all the time. Florida seems to be the state most often in the conversation.

Steve R: Oh, yeah. It's warm too. So, it has that benefit. Lots of beaches.

Steve S: Right now, it's looking real good.

Steve R: Yeah, I know, right, a lot of snow around this time of year. So, you know, talking about Florida, Steve, I've actually worked with folks specifically pilots. So, you mentioned retired. Now, this isn't as common, but, you know, pilots have pretty darn good income. And I have clients that have actually moved to Florida and commuted to save money on state taxes. Now, that's not that common, but when you're talking about retiring, that is one of the huge benefits of relocating besides beautiful weather.

Steve S: You're listening to Simply Money on 55KRC. I'm Steve Sprovach, along with Steve Ruby. And we're talking about just general tax information, or maybe we can save you a couple of bucks on what you pay Uncle Sam. Okay. So, we've talked about Roth, we've talked about saving money when you sell your house, where you wanna retire. What else can we do to save a little bit of money? I know health savings accounts are one of your favorites.

Steve R: Yeah, this is one that Amy and I, lean heavily on as far as, you know, conversations are concerned because it's the only investment vehicle that is triple taxed advantage.

Steve S: What's that mean?

Steve R: So, what that means is, when you contribute to a health savings account, it is a deductible contribution. When you take the money out for qualified non-reimbursed medical expenses, tax-free distribution. When you invest with the dollars in the account, tax-free earnings, just like your Roth IRA.

Steve S: Except one big catch on 'em. You have to have a high-deductible health insurance plan. And also, if you're collecting Medicare, you can't do HSAs anymore. Once you hit 65, that's done. Here's the Allworth advice, every dollar you can keep for yourself legally is a dollar you can use for your future instead of handing it over to the tax span. How long do you think you'll live? Why the answer to that question is so important? That's coming up next. You're listening to Simply Money on 55KRC, the Talk Station. You're listening to Simply Money, presented by Allworth Financial. I'm Steve Sprovach, along with Steve Ruby. Do you have a financial question you'd like for us to answer? Well, there's a red button you can click on. If you're listening to the show on the iHeart app, just record your question. It comes right to us.

We do listen to those straight ahead. We'll tell you what your rights are if you get bumped from a flight. You know, Steve, as financial advisors, I cringe when a healthy client, no medical issues that I'm aware of walks in and they say, "I don't know why you run your plans so long. I'm not gonna live to be in my 90s. Cut this off at 75 or 80." That bothers me. And it doesn't...you know, people just don't seem to have a real good handle on what life expectancy is.

Steve R: Yeah. I mean, it bothers me to no end as well, because, you know, ideally, we build financial plans that shows that a client's money is gonna live longer than they do.

Steve S: Yeah, what if they have the bad luck to live a good long life? You know, exactly.

Steve R: Worst case scenario, they live to 104. You run outta money when you're 79, that's a rough one. There was a new study that came out that shows that most Americans don't know how long they expect to live. This is no surprise to Steve and I, because we're having these conversations daily. But it's alarming to researchers that show a lack of longevity literacy and what that could mean to many who believe that they're prepared to retire or prepared for retirement but might run outta money in their golden [Inaudible 00:29:49].

Steve S: I'm thinking of one individual in particular, and I've known this guy for 30 years. I remember when I first started talking to him and did his plan, he said, "You don't need to run this out." We run plans generally to 92 for men and 94 for women, because there's about 25% chance that they will hit those ages. And that's good enough for me. And he told me I was crazy, and he's gonna spend more money. He's gonna enjoy life. And well, you know, I'm not sure this money's gonna last much longer than your mid-80s or so. And okay, he's not there yet, but you know what? He's looking pretty good in his late 70s. And, you know, that's the type of person, why would you assume you're not gonna live that long and spend your money accordingly if there's a chance that you might make it?

Steve R: Have you talked about where he is gonna work?

Steve S: Yeah. Well, that's the problem.

Steve R: It really is.

Steve S: Exactly. Yeah.

Steve R: It's a sad conversation that happens from time to time. You know, what I like to ask folks that I work with is, who is the oldest person you have ever known? And that can be a little bit eye-opening because you think about your network, your family, your friends, and oftentimes they're gonna know somebody that's lived till their 90s. And 25% chance that, you know, either a man or a woman in a relationship does live to 92 or 94.

Steve S: Yeah. And what's interesting in this survey, I mean, women definitely had a better handle on what their life expectancy is. They were pretty darn close. More than half knew. Okay. Yeah, it's probably gonna be in my late 80s or so. The actual answer is men generally lived 82, women till 85. But that's the median, you know, half are gonna be older than that, and half younger than that when they pass. The problem with women being accurate, though, is that there's, according to the survey, a much lower percentage of women that are financially literate. So, they know how long they're gonna live, but they don't know how to handle money to last them that long. That's a problem.

Steve R: Yeah. You know, usually, one person in the financial planning relationship is more engaged than the other between the man and the woman. That's why it's so darn important...

Steve S: A lot of times it's the guy.

Steve R: Yeah, it is.

Steve S: And I think we're seeing that change. You know, 30 years ago, I think a large majority of men handled the finances. And that's changing as roles change in families, which is, I think, a good sign. But still, you see a disparity.

Steve R: Yeah. I spend a lot of time in effort and energy making sure that both people in a relationship are part of the financial plan because they need to know what's gonna happen, especially if a woman tends to live longer than a man.

Steve S: Yeah, worst case scenario I ever saw is that the husband took care of everything, bill's, investments, you name it, he did it. And then he got Alzheimer's, and he wasn't that old either. And wife called me up, gave me the news, and she was crying and I said, "Come on in. Just bring..." Because he went so quick that she literally didn't know what bills were due, didn't know what he was doing with the money, where the accounts were. I mean, this is rough. She brought in the proverbial chew box and I walked through it all with her. And, you know, I haven't done a plan for them. I was able to, "Okay, you've got money here, you've got accounts here, you're using this person for a lawyer."

And, you know, I was able to sort through all of that. I can't imagine what would've happened if she didn't have someone, a financial planner, somebody that knew where most of this stuff was. And that's the root cause of the issue. Is number one, you know, I think it's a good idea to have a plan done by someone. But number two, and most importantly, understand each person's role and how your finances are, where they're at, and discuss it. Communication is so important on this.

Steve R: Yeah, it absolutely is. I agree with that. And it's a big part about what I work with, with the folks I'm with.

Steve S: You're listening to Simply Money on 55KRC. I'm Steve Sprovach, along with Steve Ruby. And we're talking about Life Expectancies and How to Plan Your Finances Around Your Life Expectancy. There's some key ages. One of them is, when you turn 50, okay, you can start putting a little bit more money away through a catch-up provision.

Steve R: Yeah. These are the catch-up contributions. The year you turn 50, you're able to put for the year 2023 an additional $7,500 in your 401(k), additional $1,000 into your IRAs. Another one is 59-and-a-half, you're able to take penalty-free withdrawals from IRAs and 401(k)s at that point. If you take distributions before then, 10% early withdrawal penalty.

Steve S: Well, yeah, there's a little bit of an exception in your 401(k) if it's a year that you were laid off or whatnot.

Steve R: There are exceptions. Rule of 55.

Steve S: Yeah, I leave that between you and your tax advisor. I actually know people who have 59-and-a-half parties, which to me is saying, you're paying way too much attention to pulling that money out at your first opportunity.

Steve R: I know. Ideally, this isn't money that actually leaves a retirement account. So, you need to generate income from it when you're officially retired. But still good to know, if you need something, the penalty goes away at 59 and a half in all situations.

Steve S: And most people know. Okay, you can start drawing Social Security as early as 62, but at a heavily discounted amount. And you're locked into that lower amount for the rest of your life if you draw it at 62. And I think some people get confused about full retirement age, which is for most people 67.

Steve R: Yes, 67 at this point.

Steve S: The biggest difference there is, yeah, there's an increase in benefit for Social Security from 62 to 67. Sixty-seven is important because that's when you can draw Social Security. And if you want to go back to work or continue working, you can make as much money as you want. There are no income limitations after full retirement age.

Steve R: The conversation about Social Security is obviously a very complex one. So, looking at your financial plan to help you make educated decisions is very important. But it's key to know that if you collect at 62, it's 30% less than if you waited till full retirement age.

Steve S: It's a big cut.

Steve R: So, this is one of those areas where guaranteed returns is part of the conversation. Same thing with between full retirement age and 70. It's about 8% more per year.

Steve S: And also, if you haven't heard, Congress just passed a law, required minimum distribution age was just increased to 73. Now, that doesn't help you if you've already been drawing because of required minimum distribution rules. But if you are not 73 yet, it has been increased as of January 1st to age 73 for required minimum distributions from your IRAs and 401(k)s. Here's the Allworth advice, don't shortchange how long you may live. The last thing you want to do is outlive your money. Coming up next, how to overcome travel troubles that aren't your fault. You're listening to Simply Money on 55KRC, the Talk Station.

You're listening to Simply Money, presented by Allworth Financial. I'm Steve Sprovach, along with Steve Ruby. You know, when I was younger, and that was a long time ago, Steve, as you know, flying was a pretty cool experience. I mean, people actually got dressed up. There was something called legroom, which pretty much has fallen by the wayside. And, you know, if you followed what happened with Frontier over Thanksgiving and Christmas, it's become an absolute hot mess. And, you know, we're looking at, we've gotta reverse this industry. We've gotta make an industry-wide improvement because some of these airlines are just causing tons of frustrations.

Steve R: Yeah. Wall Street Journal's annual airline scorecard found that airlines have been bumping flyers more often than in previous years.

Steve S: Happened to me.

Steve R: And during the comparable pre-pandemic period, you know, before then, this happens when... What it means to be bumped is when people are scheduled to fly and there are not enough available seats.

Steve S: Well, airlines routinely sell more tickets than they have seats, which to me is kind of crazy. But they know that there's a certain percentage of people that change their plans or just don't show up. And they're trying to get every last seat filled to get every ounce of profit out of that flight. And sometimes it just doesn't work out.

Steve R: Yeah. I couldn't imagine the frustration. You know, when I fly...my wife already tenses up quite a bit. So, if we were to be bumped, we would end up in one of those videos that you see about people freaking out at airports, I think.

Steve S: Pop quiz.

Steve R: What is it?

Steve S: Do you know who the first discount airline was?

Steve R: No. I was gonna say Frontier, but that can't be.

Steve S: No, no, this is way back before that. There was deregulation in the early 80s. Up until then, whoever you flew, it was the same fare. I mean, it was regulated and once they deregulated, it allowed the first discount airline to come in, which as far as I know was People Express. And the reason I know, my wife worked for People Express. You know what else they did, is they charged separately, this was totally new, for bags. They charged $2 a bag.

Steve R: They started that trend.

Steve S: They started two bucks, two bucks a bag.

Steve R: I'm not sure I like where this is going, from two bucks to 50 per bag and beyond.

Steve S: And if you wait until you get to the airport, some places will charge you 75 bucks. I remember seeing her at the airport explaining to somebody from...this was in New York, "What do you mean you're not gonna put my bag on the plane unless I give you two extra bucks?" That's crazy, you know?

Steve R: Yeah, it really is something. Just to put it out there, the airlines that perform the worst by far as far as bumping is concerned is Frontier Airlines. Southwest finished second to last in Wall Street Journal rankings.

Steve S: Yeah. They've gotten hammered. And, yeah, we need to get this fixed because getting bumped, not a fun experience. Thanks for listening. Tune in tomorrow, we'll talk to you about the pros and cons of target date funds. You've been listening to Simply Money on 55KRC, the Talk Station.