- So Far: A Market Surprise 0:00
- Midyear Portfolio To-Dos 8:58
- Rethinking Dividends 14:38
- Estate Tax Changes Coming 19:45
- Life Changes = Plan Changes 28:28
- Brian’s Take: Real Estate Risks 35:13
Midyear Market Check: Resilience Amid the Headlines
As 2025 hits the halfway mark, what do the markets, the economy, and your portfolio really look like? On this week’s Best of Simply Money podcast, Bob and Brian dissect the surprising strength of the markets despite geopolitical tensions, tariff fights, inflation fears, and political division. They explore what’s fueling the market’s growth, the role of earnings and inflation, and why long-term investors should stay the course.
Plus, insights into Kroger’s strategy shift, the truth about dividend reinvestment, key estate tax updates, and how life changes like retirement or divorce can—and should—reshape your financial plan.
Download and rate our podcast here.
Bob: Tonight, the state of the markets, the economy, and your portfolio, as we have officially eclipsed the halfway mark in 2025. You're listening to "Simply Money," presented by Allworth Financial. I'm Bob Sponseller, along with Brian James. Brian, it is amazing to just ponder the fact that 2025 is now halfway over. It's amazing how time flies when you're having fun and getting older, or both at the same time.
Brian: You know, Bob, if I were Rip Van Winkle, and I fell asleep on January 1st of this year and I just woke up this morning and I looked at the markets, I would go, "Wow, must be a nice, quiet year, with absolutely nothing going on, nothing to worry about. We're all just kinda skipping through the meadow with the butterflies and the unicorns," right? Absolutely not. We've been through an awful lot of stuff. The market has been extremely volatile this year. As we're sitting here right now, things are looking okay, again, as long as you ignore the headlines and all the vitriol and the hate that flies back and forth all day long.
Bob: Yeah, despite that two-week stretch in April where, you know, "Liberation Day" took hold, and caused a couple weeks of craziness and volatility, the markets actually look really good right now, as we approach the second half. Let's just throw out a couple quick numbers. The Dow Jones ended the first half of the year up 3.6%, the NASDAQ ended the first half of the year up 5.5%, and the good, old broad index, our tried-and-true S&P 500, ended the first half of the year up 5.5%. Brian, we talk about it all the time. The markets, over the long-term, average, I don't know, somewhere between 9% and 10%. Just leave it alone and let it go, and I'll be darned if you don't take these numbers we just read off and multiply it times two, it projects out at about 10% for the year. Funny how that works. [crosstalk 00:01:58]
Brian: Better than anything else you're gonna find over the long term. That doesn't mean, we're not jumping up and down saying mortgage your house and throw everything in the market. That's not the point. But at the end of the day, for the portion of your portfolio that is geared toward keeping up with inflation and helping you pay your bills over the remainder of your life, you gotta have something in there. Don't get married to the guarantees, those kinds of things. Those things have their place, but they're not gonna help you with inflation. So, I think the interesting thing to look at, though, Bob, is over the last six months, we've really seen, almost, it's a tale of two cities here, a tale of two markets. We've seen the best and the worst that the markets can be.
So, you mentioned, at the beginning of April or so, there was a few weeks there where things got really bumpy. That was kind of the most intense part of the tariff arguments. At that point, the S&P 500 was down almost 15%. The NASDAQ, which is, the what they always call it, the tech-heavy NASDAQ, because it's most of those big technology companies that we've been paying so much attention to for the last couple decades, that was down 18% or 19%. Both of those have now turned around. S&P 500, as you just said, is up about 5%. The NASDAQ is also up about 5%. Deep into the hole, and then back out on top, and then some. So, we're now, currently, knocking on wood here, knocking on this fake wood here, we are currently back in growth mode. We'll see if we get to keep it.
Bob: Well, let's share... Let's just kick this back and forth for a couple minutes. Why do you think things are doing so well so far, after all the volatility from back in April? And I, you know, I've got my reasons why I think it's the case. What do you think? Why have things calmed down so much and recovered from what was going on in early April?
Brian: So, the market runs on two things. It runs on fear and greed. And in between those times, we get bored. So generally, usually, if you look at the market day to day, it normally does a whole bunch of nothing. Up a little bit, down a little bit. It's the really volatile times where the money is made and where we tend to lose. But, and when we had that right, when we had those scary headlines there in early April, it did spook the herd a little bit, and we saw a lot of volatility as a result of it. Now, underneath all of this, as we're sitting here right now, there's still a relatively strong economy. Yes, there's an awful lot of chaos out there. And if we keep arguing, if we're still arguing and fighting like we are right now 10 years from now, then that's not gonna be a good situation. However, when we remember that all of the fighting usually results in some kind of conclusion, because absolutely no one benefits from eternal chaos, eventually, cooler heads will prevail, and we make intelligent business decisions and we move on. That seems to be happening. Even with these tariff arguments, people are coming back to, the countries are coming back to the table. We're coming to some level of agreement, good, bad, or indifferent. And as we always say, Bob, the market doesn't, is not worried about the scary headlines. It can pivot with whatever. Companies will find way to make profits, but they need to know what playbook to use.
Bob: Well, and that leads into the point I wanted to make. I mean, markets, I don't care who's in the White House, what's going on in the media, what have you. Markets respond to a few things. Number one is earnings. If companies are making more earnings, and earnings are growing, that's gonna be good news for the stock market. What causes profits to go up? Lower inflation, lower taxes. People are employed. People have jobs. People are spending money. All those things are happening right now. And if you went into January, and you just look from January to today, of all the things everyone was worried about or thought was really bad was gonna happen, I mean, we've had conflict in the Middle East. We've dropped bombs on Iran. We've had trade wars and rhetoric. We've had uncertainty with tax laws, on and on and on, and extreme political division. In spite of all that, inflation is relatively tame. We haven't had taxes go up. We're probably gonna have tax policy get passed here in the next week or so that, you know, makes these tax laws permanent from back in 2017. We're moving into second-quarter corporate earnings. I mean, in spite of all the uncertainty out there, the economy marches on, companies pivot, companies make adjustments, they make money, people are employed, people are spending money. Life goes on, and I think this is just real illustrative of the point is, do not pay attention to these crazy headlines every day, because it will derail you off of a sound, long-term plan.
Brian: I still have people who talk about inflation as though we are in that 8%, 9% range from three years ago. And that's just not the case anymore. From two or three years ago, I guess it is. But anyway, that's just not the case. We're not there. But, we've had it beaten into us that inflation is a problem. It's a huge problem. Well, inflation is about 2.4% right now. We've only got numbers through the first five months of the year. We'll hear, in a couple of weeks, we'll hear what June was. But so far, inflation is 0.1%, a tenth of a percent, month over month. Year over year, we're 2.4% more than we did in May last year. So, that means inflation's almost back down. We want it at 2%. That's what the Fed wants to hear, to kinda declare that the inflation dragon has been slain. But it's almost like we're trying to lose those last couple pounds of belly fat. We've been stuck at 2.4% for a while now. That is not terrible. We were a heck of a lot lower than 9% inflation. We are only slightly higher than where we wanna be. And at this point, it's kind of like, you know what? Life happens. This is not a thing to worry about so much anymore.
Bob: You're listening to "Simply Money," presented by Allworth Financial. I'm Bob Sponseller along with Brian James. Back to that point on inflation, I know the headline CPI is at 2.4%. We know the Fed looks at core CPI, and that's trending at more at a 2.8% rate, and I think that's why the Fed has been reticent to lower interest rates. We'll leave that topic alone for now. But, you know, looking ahead, the Fed has indicated the possibility of maybe two rate cuts later on in 2025. Brian, we headed into the year expecting five rate cuts, so the fact that that's down to two or one, some people have said maybe even zero, the fact that the markets are doing fine, and are growing, I think makes your point, that inflation is not at a point where it is getting in the way of good, sound, fundamental economic growth.
Brian: Yeah.
Bob: Would we like it lower? Sure. I think the housing market could sure use a little jolt here if we lower rates. But other than that, things seem to be working pretty well.
Brian: Yeah. So, under...and that brings us back to the point of this whole topic here, which is that the market, given all the crazy headlines, the markets are actually still up. Hopefully, you weren't one of those folks who panicked when the tariffs talks got crazy, and sold out, went to cash, and made that flight to safety we always hear about when the markets get bumpy. I always wonder who is actually do...who is flying to safety right now? None of my clients are panicking when these headlines come out, and I'm certainly, for the ones who are nervous, we're having conversations about long term, so on, so forth. So, I always wonder who these people are, who are flying to Treasury bonds and cash and gold. And what are they gonna say two years from now, when they've had to time their way back in?
Bob: Yeah, let's pivot for a few minutes on what people should be doing here at the mid-year. Mid-year is a good time to just take an overall look at your portfolio, now that volatility has calmed down, at least for the short term. Now is where you can look at a 30,000-foot view of what your overall plan looks like. Does it make sense to rebalance? Have you had some good growth in some of your stocks, or some of your stock ETFs? Now is a good time to trim some of those gains, get your portfolio back in balance. You know, ask yourself, how much money have I made? Am I still on track? You know, compare your returns not just to the overall market, but to your personal goals and the goals of your financial plan. Don't just look at year-to-date numbers, but also one, three, and five-year average numbers, in terms of return, and don't overreact to short-term moves. Look at long-term on your asset allocation strategy. And along with that, reassess your risk tolerance. If you did get super nervous back in April, and almost had to be talked off the ledge, now that things have recovered, ask yourself, am I more aggressively allocated than maybe I really wanna be? If that's the case, now's the time to ratchet down that risk exposure, if that's something that your plan will tolerate.
Brian: Yeah, and one other thing out there, some of you may be out there, if you were thinking this in this situation, if you were, in April, kicking yourself because the market took a huge hit and you were going to do something because you got a bill to pay, I don't know, pay off a loan, do something to the house, gotta buy a car, whatever, but you needed to take that out of something that's in the investments, well, first of all, don't think that way. You should have an emergency fund. We should be planning ahead for all this stuff. But second of all, if that was you, well, congratulations, you get a bit of a reprieve. You got all that money back and then some. So, don't look to keep riding it. Consider yourself lucky. If that money is coming out, take it out now, while the market's at an all-time high.
Bob: Yep, absolutely. Here's the Allworth advice. A mid-year portfolio checkup is less about chasing performance, and more about just making sure your investment plan still fits your life today. Coming up next, a new study suggests it might be time to rethink one of the most common investing habits. We're gonna talk about that. You're listening to "Simply Money," presented by Allworth Financial, on 55KRC, THE Talk Station.
"Simply Money," presented by Allworth Financial. I'm Bob Sponseller, along with Brian James. If you can't listen to "Simply Money" every night, subscribe and get our daily podcast. You can listen the following morning during your commute to work, or at the gym, or out for your evening walk. And if you think your friends could use some financial advice, tell them about us as well. Just search "Simply Money" on the iHeart app, or wherever you find your podcasts. Straight ahead at 6:43, we go deeper into when it's time to change your long-term financial plan. All right, Brian. We've got some headline news from Kroger tonight. Interim Kroger CEO Ron Sargent said on June 26 that the retailer wants to ramp up some new store construction in 2026, and that's coming off the heels of some layoff announcements earlier, so it doesn't look like Kroger's done growing and modernizing. They're just reshuffling the deck, so to speak, positioning themself for future growth.
Brian: Yeah, and we're so fortunate to have Kroger here, based in town, one of the largest grocers on the entire face of the Earth, and that would include the universe, too. I always wonder, what would Barney Kroger think if he was standing at the base of that tower downtown with his little vegetable cart, looking up at it? But, anyway. Appreciate those of you out there who keep us fed. So, Kroger has announced that they wanna shutter 60 unprofitable stores over the next year and a half, and planning to reinvest those savings back into the business. Now, some people might look at this and they might just kinda glance at the idea, "Oh, Kroger is shutting stores down. Well, that's not...that that must mean business isn't good. They're having to kinda retrench, and all that kinda stuff." This isn't really the case. They're simply making the company more profitable. Now, I hope these are in places where, that have other alternatives for groceries. You know, we never wanna hear that some places, some neighborhood has lost its grocery store, that kinda thing, but unfortunately, Kroger has a duty to its shareholders. It has to do what it can do to make sure that the business is profitable and it's healthy going forward. And, groceries are a razor, razor, razor-thin margin, about as thin as you can possibly get. They gotta get it right.
Bob: Yeah, sometimes we all forget, and I know I've forgotten until I've done a little traveling, and then spent some time out in Colorado, and see, like, King Sooper stores and all that. That's all part of Kroger. So, I mean, Kroger is active in 35 states now, and the District of Columbia, so they're talking about store closings that amount to just 2% of its total store volume of over 2700 stores nationally. So, this is not a big change, not a big move. None of the stores in Cincinnati, northern Kentucky, or Dayton are going to be shut down. So, again, this is just some shuffling of the deck, and modernizing some stores that need a little upgrade.
Brian: Yeah. We're a little spoiled here in Cincinnati. We get to see the crown jewels of what a Kroger's supposed to look like, because they tend to build the prototype stores here, but I'm thinking of when I'm down in Red River Gorge or something like that, and you stumble across the world's tiniest Kroger down there. Lovely people, but the stores down in those places don't look like the ones we're used to here.
Bob: Well, maybe when they redo that store, they'll put indoor plumbing and an indoor bathroom in it.
Brian: It's not that bad. They're just small, Bob.
Bob: Oh, okay.
Brian: They're just smaller. Fewer people
Bob: All right. Let's move on before I get myself in trouble. All right. Tonight, we're diving into a new study from Vanguard, titled "The Dividend Reinvestment Puzzle." Brian, I wanna get into this. This is a very interesting topic to cover. And I have to suspect a lot of people that listen to this show have reinvested dividends for years, if not decades. Vanguard has a new study out on is this a good thing or not?
Brian: Yeah. So, and for some reason, for the last couple weeks, I've talked to a lot of prospective clients who come in with that notion, that I wanna own a bunch of stocks that spit out a bunch of dividends, and I wanna live off of them because then I'm not spending my principal. And I remember that, Bob, from 20, 30 years ago, as well as my grandparents talking about it. And I think it made a lot of sense at that time. But Vanguard's own study is starting to, is looking at the kinda things that says maybe that's not the greatest idea. So, with the cons of this, when you're automatically reinvesting your dividends, you're buying more of the same stock or the same fund, regardless of the current valuation or your portfolio's allocation. These might not be stocks that you would look at new if you didn't already own them. You might not wanna buy more. Well, dividend reinvestment means you are buying more, whether it's, they're companies in a good situation or not.
Bob: Well, and I have to think that when Vanguard talks about a con of dividend reinvesting, I think they're talking about the people, like you said, they've had this stock for years and years and years. And it probably makes up a very large portion or percentage of their overall portfolio. And yet, buying too much of even a good thing can cause you to be under-diversified, and inadvertently subject your portfolio to too much volatility if that one company happens to have a hiccup or two.
Brian: Right. And not all companies. It's tough to have a truly diversified portfolio and focus on your dividend payers. Your dividend payers tend to be your biggest, oldest blue chip-type companies, that have the ability to pay out some of their profits in the form of a dividend. And they use that to attract investors. If I'm a big, old company, and I've got good cash flow and a solid product line and all that stuff, then I...but I don't have a great, sexy growth story, then I might have to say, "Hey...we're good. We're gonna be around for a while, and we're gonna give you a little piece of the action," versus a company like, for example, Apple is a great example of a company where you can say there's a lot of money goes into research and development. Apple does technically pay a teeny, tiny dividend, but that's really for show, I think. Nobody buys Apple because of the dividend coupons. But anyway, they put a lot of money... They, instead of paying a dividend, they reinvest all of that into R&D and new products that can come to market. So, if you decide you don't want that, you want all dividend payers, you're gonna wind up with a portfolio that is heavily weighted towards some industries, and you're gonna miss out on others that can be really, really profitable over time.
Bob: Well, if you over-tilt your overall portfolio to value stocks, I mean, that's really what we're talking about here, for the most part...
Brian: Right.
Bob: ...these big dividend players, you're not participating in some of these big growth sectors, like AI, or semiconductor stocks, or things that are really growing. And that's where you wanna make sure, and I think this is the point Vanguard's trying to point out here. Just don't let the, all the benefits of dividend reinvestment cause you to be overweighted to sectors or industries that don't expose you to true growth, that's gonna allow that portfolio to get you the returns that you really should be getting out of a broadly-diversified portfolio, right?
Brian: And don't convince yourself that there are tax benefits. There could be. If you have a significant sum of money outside of IRAs, outside of 401(k)s, then yes, dividend income can be a little more tax-efficient, but on the other hand, if you...like most people around here, we're a Fortune 500 city, right? We all work for big companies. Not all. Most work for big companies, or smaller companies that support those big companies. Therefore, we have employers, we have 401(k)s. It's all tax-deferred. That means the tax, the more favorable taxation you get off of dividends doesn't help you, because you're taking money out of your IRA or your 401(k) at ordinary income rates anyway.
Bob: You're listening to "Simply Money," presented by Allworth Financial. I'm Bob Sponseller, along with Brian James. Just so we don't come across as being anti-dividend reinvestment, let's make sure we touch on these age-old...
Brian: They have a role. They're...yeah.
Bob: ...principles of what does work, and all the benefits of dividend reinvesting, because they are plentiful, the benefits.
Brian: Correct. And we're not talking about going all in on anything, but when people come wanting a dividend portfolio, they tend to have a notion that this will act like kind of like a CD or a bond, where it'll just spit out income and they won't have to worry about it. And that's not the case. These stocks can be just as volatile as anything else. And they are really, really impacted by things like interest rates.
Bob: Here's the Allworth advice. Automatic dividend reinvestment may not be for everyone, with your entire portfolio. Investors should consider personalized strategies, that align with their financial goals and tax situations. Coming up next, something that many people never even consider when doing estate planning, and that's taxes. You're listening to "Simply Money," presented by Allworth Financial, on 55KRC, THE Talk Station.
You're listening to "Simply Money," presented by Allworth Financial. I'm Bob Sponseller, along with Brian James. Joined today by our estate planning expert, Dan Perry, from the law firm of Wood + Lamping. Dan, thanks so much for being with us today, and I know you wanna talk about a very loaded topic, and that's estate taxes.
Dan: There's been a lot of talk this week about the Trump tax bill. You know, what's in it? What's included? And anytime Congress proposes any kind of tax change, in my world, people always talk about the death tax, or the estate tax. So, the estate tax is a tax that is assessed on the total value of your assets, which transfer at death to your heirs or beneficiaries, including your property, your financial accounts, everything in your name. And as of 2025, the estate tax only applies for estates worth more than $13.99 million per individual or $27.98 million for married couples who elect what's called portability upon the death of the first spouse. You see, you can leave an unlimited amount of property and assets at death to your spouse without incurring estate taxes. However, this means that that estate tax exemption I just mentioned is more or less wasted due to the death of the first spouse. And portability permits the transfer of that unused estate tax exemption to the surviving spouse, which creates a $27.98 million estate tax exemption for that surviving spouse, as of 2025. dealing
Brian: Hey, Dan, I'm dealing with a situation related to portability as we're speaking. And the thing that occurs to me, I'm not an attorney, and thankfully, we have people like you to help us through these situations. But portability, in my brain, used to be called an A&B bypass trust. I know those are very different things, and they're not as related as I'm pitching them to be here. But can you kinda weigh in on, if I do nothing, I can simply file an IRS form, and I've taken advantage of both tax credits? How is that different from the old A&B bypass approach?
Dan: So, yeah, there's, in order to gain portability, you do have to file an estate tax return, and elect portability upon the death of surviving spouse. The old AB trust more or less is directing the trustee, upon the first spouse's death, to elect that, be forced to elect that portability. But it's very important to file that estate tax return. There are time limits. [inaudible 00:22:14] it can be wasted. Now, with estate taxes, the current rate for estate taxes can be as high as 40%. So, as an example, you have an estate worth $15 million, only $1.01 million above that exemption is gonna be taxable. However, this high exemption is currently temporary. Unless Congress acts, it's set to sunset, or expire, down to approximately $7 million per person, starting in 2026, subjecting more estates to the estate tax. Under the Biden administration, there was a discussion of reducing the estate tax exemption to $3.5 million. And the new Trump tax bill proposal has discussion about raising that exemption to $15 million per person.
Now, in addition to estate taxes, certain states also have estate taxes. Luckily, Ohio isn't one of them. Kentucky does have what's called an inheritance tax. So, unlike estate taxes, which is gonna be paid by the estate, inheritance taxes are gonna be paid by the persons inheriting those assets. The Kentucky inheritance tax can reach as high as 16%. However, close family members, such as spouses, children, and grandchildren, siblings, are exempt from that inheritance tax. But it's important to watch out for inheritance taxes if you are in a state where the inheritance tax would apply.
There are also a variety of ways to limit estate taxes, and one of the most common ways is with lifetime gifting. You can gift up to $19,000 dollars per person annually, without touching what's called your lifetime exemption from the gift tax. You see, you can gift away $13.99 million dollars in taxable gifts during your lifetime. And that would be a gift in excess of that $19,000 dollars per year. But every taxable gift you make reduces your lifetime exemption from the estate tax. So you need to be careful. So, for example, a couple could gift $38,000 to each child or grandchild, $19,000 times two, without even making any taxable gifts.
Another way is by transferring assets to an irrevocable trust, to remove those assets from a person's taxable estate. And one option is with what's called an irrevocable life insurance trust. And that is a trust in which the death benefit, pays upon your death, will be owned by the irrevocable life insurance trust, what we call an ILIT. And this can provide a cash-free benefit to your beneficiaries named in the trust, but it can also be used to provide liquidity for anticipated federal estate taxes. So, I've represented many family farms in the past. And an issue that's common in that situation are that we have a taxable estate, but there is very little liquid assets. And the surviving family doesn't wanna be put in a situation to sell the family farm just to pay the estate tax. And that's where an ILIT can be very beneficial, and provide that necessary liquidity, to pay those anticipated estate taxes.
Another option is with charitable giving, where you can donate, where donating to charities is gonna reduce your estate, and reduce your taxable estate, as well as offer some income tax deductions. Charitable trusts can also be used, and one common example is what's called a charitable remainder trust. And that's where you gift assets into a trust. You get an income tax deduction the year you make the gift. An income stream comes back to you for a set number of years, and at the end set number of years, the balance of that trust goes to the charity, and that gift is removed out of your taxable estate. And those are just a few examples.
Bob: All right. Dan, as we get through the second half of 2025 here, we could be just hours, if not just days away from some kind of new tax bill getting passed through Congress. What are you seeing? I know you guys follow this stuff closely. What are you seeing in terms of numbers for where that estate tax exemption, on the federal side, where do you think that's ultimately gonna settle out?
Dan: So, as of right now, if Congress does nothing, which is possible, in 2026, we're gonna have a $7 million estate tax exemption, per person. Portability will still exist, so a family could pass $14 million without estate taxes. The Trump tax bill has put in a proposal of a $15 million exemption. What we're seeing right now is that there's a lot of negotiation and discussion between both political parties. And I would be surprised if we settle on a $15 million exemption. What we're thinking is likely gonna happen is somewhere between $7 million and $15 million is gonna be the exemption.
Bob: What's your best advice now for families, how to plan here, during the second half of 2025, based on what we know, and I guess, just as importantly, what we don't know?
Dan: So, the only guarantee right now is that the federal exemption is going to be cut in half if nothing happens. So, 2025 is a critical year to engage in estate tax planning. Portability, again, lets that surviving spouse use the deceased spouse's unused estate tax exemption. And what we're thinking families should do is they may wanna lock in that current $13.99 million exemption, and get essentially $14 million out of their estate, before this estate tax exemption expires. But with all this planning, you should also be reviewing things annually, because asset values can grow faster than you expect, and can push you over those exemption limits.
Bob: All right. Great stuff, as always, from Dan Perry, our estate planning expert from the law firm of Wood + Lamping. Thanks so much, Dan. You're listening to "Simply Money," presented by Allworth Financial, on 55KRC, THE Talk Station.
You're listening to "Simply Money," presented by Allworth Financial. I'm Bob Sponseller, along with Brian James. You have a financial question you'd like for us to answer? There's a red button you can click while you're listening to the show, right there on the iHeart app. Simply record your question, and it'll come straight to us. Financial planning should not be a set-it-and-forget-it proposition. It is a dynamic framework, that must evolve when life's biggest changes come down the pike. Brian, we're gonna talk tonight about looking at some of what these life changes are. We're gonna talk about what happens in people's lives, and what should signal some very important changes, as we monitor one's lifetime financial plan.
Brian: Yeah, Bob. In a perfect world, everybody would have built a financial plan, you know, either on their own with some knowledge and a good amount of work, or with a professional, to help you kinda figure those things out. But ideally, and again, life doesn't work this way, but, ideally, you've done that in advance of any of these crazy topics happening to you. And that's important because that way, you would have set a kind of a baseline, to know, "Here's the path I was on. Now, with whatever this new information is, here was the impact." And I've found, when people have done this, then they understand that when they can see it, then the impact is usually not nearly as much as they thought it was going to be.
So, first one, you know, here's a curve ball that kinda comes out of nowhere is, of course, divorce. So, obviously, you know, you may have made your financial plan with the assumption of two incomes, and two people helping carry the weight and so forth. And sometimes, of course, things just don't kinda work out. And divorce is, setting aside all the emotional stuff, that's enough weight to carry, but there's a lot of moving parts to the different things you're gonna have to decide on who gets what. And it's one thing to decide who gets the house and who gets the dog and all that. But the more complicated stuff, there are executive compensation packages out there that one spouse might have gained during the marriage. The other spouse will have some kind of entitlement to that, but it can be tied up. It can be super complicated out there. There's also, you know, for certain investment structures, there is carried interest, which, you know, that's a common thing found inside of hedge funds and more complicated investments. Not easy to split up. Closely-held businesses you might have in the family, generational trusts, that maybe you set up for kids, and sometimes grandkids who don't even exist. There's a awful lot of moving parts to these different things. And again, a lot more complicated than who gets the dog.
Bob: Yeah. And then, post-divorce, you know, I run into this. Thankfully, most of my clients have not gotten a divorce. I haven't had to deal with this personally a lot, but it's, during the times I've had to deal with it, you know, there's been some surprises that come up. And one of them is post-divorce estate planning. People just forget, as you said, with all the emotion involved, and all the sense of loss, and all the change, people simply forget to update their IRA beneficiaries, and beneficiaries of the assets, leaving it to the heirs that they wanna leave their assets to. Brian, I know you've run across this. I run across this more times than I wanna remember. People leave their now ex-spouse as the beneficiary of the retirement plan, and it's just because they got caught up in doing everything else, and they forgot to do some of this basic blocking and tackling.
Brian: Yeah, and there can be a lot of emotion going on here. Sometimes it's an amicable divorce, and the new spouse gets along with the old spouse, and everything is fine. But in a lot of cases, and this is where, you know, these are the water cooler stories that we talk about when, you know, an ex-spouse is left as the beneficiary, they don't get along, and sometimes it's to an extreme. And now, all of a sudden, the person who owns the assets is getting questioned by new spouse as to why didn't you ever take the name of your old spouse, your ex-husband, ex-wife, off of this account? That person's gonna get a bunch of money. And it's not necessarily, don't assume that the courts will sort this out and go, "Well, no, this person is your spouse now, so that's the one who should get the money." That's not the case, because there are legit reasons. If we have a Brady Bunch situation, a lot of times, people will get married, but then they'll keep their own assets separate within their own families, and if my spouse is gonna be caring for my kids, potentially, I may want him or her to go ahead and inherit my assets, so that my kids are okay. So they will not be assumed that the new spouse is the one who gets it. If the name on the piece of paper is different, that's who's gonna get the money.
Bob: All right. Let's move on to another very common adjustment phase, and that's just retirement. Adjusting to a new stage of life after you retire. Hopefully, people are planning at least two to five years ahead of time for this one. But even those that do, you know, for folks that retire, it's not just, you know, give two weeks notice to your employer and be done. There's a lot of stuff that needs to be done, adjusting to this new stage of life. Let's get into some of those things.
Brian: Yeah, of course. And again, I'll go back to what I said earlier. If you have a financial plan before retirement, then it's gonna be a lot smoother transition, because yes, things are gonna change. Your income sources are gonna change. Your spending is gonna change. Your daily routines are gonna change. A lot of people tend to hide behind that unknown of, "I don't know what's coming, therefore...and I don't have time to think about it. I'll think about it this weekend," and then they get busy this weekend, and they haven't ever done a financial plan. Retirement comes along, and they've never thought about it, and it seems positively terrifying. It does not have to be that way. So you wanna make sure that you've looked at what does it look like to withdraw money out of my investments, versus someone else handing me money? I have different types of tax treatments across my investments. It's gonna make sense to pull from this one sometimes, from the tax-free, versus the income taxable, versus the stuff I pay capital gains on. So, it changes. You wanna make sure you understand what the different impacts are.
Bob: All right. And another situation that definitely requires the adjustment of a long-term financial plan is unfortunately the death of a spouse or a loved one. Brian, we have this come up often, and I think there's some things that you definitely should do, but there's also some things you shouldn't do, and I have always counseled people, when they've lost a spouse or what have you, don't make any major decisions, major changes, for at least 6 to 12 months, because you gotta allow things to just settle in. But there are some things that you should do right away, just to make sure that estate is settled correctly, and you've got your assets positioned the way they need to be positioned when it's just one of you moving forward.
Brian: Yeah. And some of the things that you need to be thinking about is if there's an opportunity to claim cost basis step-ups, then you should go ahead and do that too.
Bob: All right. Here's the Allworth advice. With the right preparation and guidance, transitions are a chance to realign your finances with what matters now. Coming up next, we've got Brian's bottom line, where he's gonna help us with some advice on managing our personal real estate holdings. You're listening to "Simply Money," presented by Allworth Financial, on 55KRC, THE talk station.
You're listening to "Simply Money," presented by Allworth Financial. I'm Bob Sponseller, along with Brian James, and it's time for Brian's bottom line, where he's gonna give us some straight-talk advice on managing our real estate holdings.
Brian: So Bob, stop me if you've heard this one before. We have clients that will come in, and they've retired. They've got some assets. They're looking to kind of change things around a little bit. And a lot of times, they'll come up with the idea of, you know what, never owned real estate before. I'd like to try that, get some rental income going and, you know, get property appreciation, all that kinda stuff. And, you know, I feel like the world exists of two people, two kinds of people. There are people who buy one and cannot wait to unload it, and then there are people who buy several of them, and understand how the game works, and are okay with the commitments that come along with it. And I'm speaking of, you know, real estate is not that great of an investment from an appreciation standpoint. It's one thing to look at what property was worth a long time ago, what it's worth now. Yeah, you can do math and see that that's a huge return. But along the way, you have to remember, every year, you're paying property taxes. You're paying for upkeep. You have to replace the heater and all the, the hot water heater and the furnace, all that kinda stuff comes along. And that is a drain on the portfolio.
So, but again, that doesn't mean don't do it. Just go in eyes wide open. And I'm bringing this up because I just had this conversation yesterday with a young person who's starting to go down this path, a child of my client. And one of their, they're just getting started, not married yet. And they're talking about, "I wanna buy a property somewhere, and live in it for five years, after which we'll probably outgrow it with kids and so forth. And then I wanna continue to own it. And then we'll buy a bigger house for ourselves, and we'll rent the other one out." And in my mind, I'm going, all right, you're, at that time, you're probably gonna have young kids, three, four, five years old at that time. You're gonna be busy, and you're either gonna need to learn how to do the work when your tenant calls and says something's broken, or you're gonna have to pay a property management company. Those property management companies take about 10% out, and when you factor in the fact that you're probably gonna have a mortgage in the mix here, you might be looking at a 20-year timeframe before you can really net out a profit on this. So, again, just go in eyes wide open. Real estate is not, it's not an annuity. It doesn't pay out like a CD, without all those moving parts. You know, you just wanna be sure you understand, and you want what the outcome of those types of situations really is.
Bob: I feel like I'm getting a free postmortem portfolio analysis from Brian James, because what you just described was my exact experience, Brian, buying a condo, that I absolutely had to buy, down in Florida, in 2008. And it was great. It was beautiful down there. Loved it. But it was right when my kids were getting into their active years, playing sports. I didn't know I was gonna be coaching for years and years. We could never get down there. We just didn't have time to get down there. But yep, the... We had to hire a management firm to rent it. They take their 10%. You're still getting the tax bill. I'm getting the phone call at, you know, 6:00 in the morning, saying the toilet didn't flush. And yeah, after about a six-year period of this euphoria, it was time to just sell the thing and move on. All right. Thanks for listening. You've been listening to "Simply Money," presented by Allworth Financial, on 55KRC, THE talk station.
Brian: You know, Bob, if I were Rip Van Winkle, and I fell asleep on January 1st of this year and I just woke up this morning and I looked at the markets, I would go, "Wow, must be a nice, quiet year, with absolutely nothing going on, nothing to worry about. We're all just kinda skipping through the meadow with the butterflies and the unicorns," right? Absolutely not. We've been through an awful lot of stuff. The market has been extremely volatile this year. As we're sitting here right now, things are looking okay, again, as long as you ignore the headlines and all the vitriol and the hate that flies back and forth all day long.
Bob: Yeah, despite that two-week stretch in April where, you know, "Liberation Day" took hold, and caused a couple weeks of craziness and volatility, the markets actually look really good right now, as we approach the second half. Let's just throw out a couple quick numbers. The Dow Jones ended the first half of the year up 3.6%, the NASDAQ ended the first half of the year up 5.5%, and the good, old broad index, our tried-and-true S&P 500, ended the first half of the year up 5.5%. Brian, we talk about it all the time. The markets, over the long-term, average, I don't know, somewhere between 9% and 10%. Just leave it alone and let it go, and I'll be darned if you don't take these numbers we just read off and multiply it times two, it projects out at about 10% for the year. Funny how that works. [crosstalk 00:01:58]
Brian: Better than anything else you're gonna find over the long term. That doesn't mean, we're not jumping up and down saying mortgage your house and throw everything in the market. That's not the point. But at the end of the day, for the portion of your portfolio that is geared toward keeping up with inflation and helping you pay your bills over the remainder of your life, you gotta have something in there. Don't get married to the guarantees, those kinds of things. Those things have their place, but they're not gonna help you with inflation. So, I think the interesting thing to look at, though, Bob, is over the last six months, we've really seen, almost, it's a tale of two cities here, a tale of two markets. We've seen the best and the worst that the markets can be.
So, you mentioned, at the beginning of April or so, there was a few weeks there where things got really bumpy. That was kind of the most intense part of the tariff arguments. At that point, the S&P 500 was down almost 15%. The NASDAQ, which is, the what they always call it, the tech-heavy NASDAQ, because it's most of those big technology companies that we've been paying so much attention to for the last couple decades, that was down 18% or 19%. Both of those have now turned around. S&P 500, as you just said, is up about 5%. The NASDAQ is also up about 5%. Deep into the hole, and then back out on top, and then some. So, we're now, currently, knocking on wood here, knocking on this fake wood here, we are currently back in growth mode. We'll see if we get to keep it.
Bob: Well, let's share... Let's just kick this back and forth for a couple minutes. Why do you think things are doing so well so far, after all the volatility from back in April? And I, you know, I've got my reasons why I think it's the case. What do you think? Why have things calmed down so much and recovered from what was going on in early April?
Brian: So, the market runs on two things. It runs on fear and greed. And in between those times, we get bored. So generally, usually, if you look at the market day to day, it normally does a whole bunch of nothing. Up a little bit, down a little bit. It's the really volatile times where the money is made and where we tend to lose. But, and when we had that right, when we had those scary headlines there in early April, it did spook the herd a little bit, and we saw a lot of volatility as a result of it. Now, underneath all of this, as we're sitting here right now, there's still a relatively strong economy. Yes, there's an awful lot of chaos out there. And if we keep arguing, if we're still arguing and fighting like we are right now 10 years from now, then that's not gonna be a good situation. However, when we remember that all of the fighting usually results in some kind of conclusion, because absolutely no one benefits from eternal chaos, eventually, cooler heads will prevail, and we make intelligent business decisions and we move on. That seems to be happening. Even with these tariff arguments, people are coming back to, the countries are coming back to the table. We're coming to some level of agreement, good, bad, or indifferent. And as we always say, Bob, the market doesn't, is not worried about the scary headlines. It can pivot with whatever. Companies will find way to make profits, but they need to know what playbook to use.
Bob: Well, and that leads into the point I wanted to make. I mean, markets, I don't care who's in the White House, what's going on in the media, what have you. Markets respond to a few things. Number one is earnings. If companies are making more earnings, and earnings are growing, that's gonna be good news for the stock market. What causes profits to go up? Lower inflation, lower taxes. People are employed. People have jobs. People are spending money. All those things are happening right now. And if you went into January, and you just look from January to today, of all the things everyone was worried about or thought was really bad was gonna happen, I mean, we've had conflict in the Middle East. We've dropped bombs on Iran. We've had trade wars and rhetoric. We've had uncertainty with tax laws, on and on and on, and extreme political division. In spite of all that, inflation is relatively tame. We haven't had taxes go up. We're probably gonna have tax policy get passed here in the next week or so that, you know, makes these tax laws permanent from back in 2017. We're moving into second-quarter corporate earnings. I mean, in spite of all the uncertainty out there, the economy marches on, companies pivot, companies make adjustments, they make money, people are employed, people are spending money. Life goes on, and I think this is just real illustrative of the point is, do not pay attention to these crazy headlines every day, because it will derail you off of a sound, long-term plan.
Brian: I still have people who talk about inflation as though we are in that 8%, 9% range from three years ago. And that's just not the case anymore. From two or three years ago, I guess it is. But anyway, that's just not the case. We're not there. But, we've had it beaten into us that inflation is a problem. It's a huge problem. Well, inflation is about 2.4% right now. We've only got numbers through the first five months of the year. We'll hear, in a couple of weeks, we'll hear what June was. But so far, inflation is 0.1%, a tenth of a percent, month over month. Year over year, we're 2.4% more than we did in May last year. So, that means inflation's almost back down. We want it at 2%. That's what the Fed wants to hear, to kinda declare that the inflation dragon has been slain. But it's almost like we're trying to lose those last couple pounds of belly fat. We've been stuck at 2.4% for a while now. That is not terrible. We were a heck of a lot lower than 9% inflation. We are only slightly higher than where we wanna be. And at this point, it's kind of like, you know what? Life happens. This is not a thing to worry about so much anymore.
Bob: You're listening to "Simply Money," presented by Allworth Financial. I'm Bob Sponseller along with Brian James. Back to that point on inflation, I know the headline CPI is at 2.4%. We know the Fed looks at core CPI, and that's trending at more at a 2.8% rate, and I think that's why the Fed has been reticent to lower interest rates. We'll leave that topic alone for now. But, you know, looking ahead, the Fed has indicated the possibility of maybe two rate cuts later on in 2025. Brian, we headed into the year expecting five rate cuts, so the fact that that's down to two or one, some people have said maybe even zero, the fact that the markets are doing fine, and are growing, I think makes your point, that inflation is not at a point where it is getting in the way of good, sound, fundamental economic growth.
Brian: Yeah.
Bob: Would we like it lower? Sure. I think the housing market could sure use a little jolt here if we lower rates. But other than that, things seem to be working pretty well.
Brian: Yeah. So, under...and that brings us back to the point of this whole topic here, which is that the market, given all the crazy headlines, the markets are actually still up. Hopefully, you weren't one of those folks who panicked when the tariffs talks got crazy, and sold out, went to cash, and made that flight to safety we always hear about when the markets get bumpy. I always wonder who is actually do...who is flying to safety right now? None of my clients are panicking when these headlines come out, and I'm certainly, for the ones who are nervous, we're having conversations about long term, so on, so forth. So, I always wonder who these people are, who are flying to Treasury bonds and cash and gold. And what are they gonna say two years from now, when they've had to time their way back in?
Bob: Yeah, let's pivot for a few minutes on what people should be doing here at the mid-year. Mid-year is a good time to just take an overall look at your portfolio, now that volatility has calmed down, at least for the short term. Now is where you can look at a 30,000-foot view of what your overall plan looks like. Does it make sense to rebalance? Have you had some good growth in some of your stocks, or some of your stock ETFs? Now is a good time to trim some of those gains, get your portfolio back in balance. You know, ask yourself, how much money have I made? Am I still on track? You know, compare your returns not just to the overall market, but to your personal goals and the goals of your financial plan. Don't just look at year-to-date numbers, but also one, three, and five-year average numbers, in terms of return, and don't overreact to short-term moves. Look at long-term on your asset allocation strategy. And along with that, reassess your risk tolerance. If you did get super nervous back in April, and almost had to be talked off the ledge, now that things have recovered, ask yourself, am I more aggressively allocated than maybe I really wanna be? If that's the case, now's the time to ratchet down that risk exposure, if that's something that your plan will tolerate.
Brian: Yeah, and one other thing out there, some of you may be out there, if you were thinking this in this situation, if you were, in April, kicking yourself because the market took a huge hit and you were going to do something because you got a bill to pay, I don't know, pay off a loan, do something to the house, gotta buy a car, whatever, but you needed to take that out of something that's in the investments, well, first of all, don't think that way. You should have an emergency fund. We should be planning ahead for all this stuff. But second of all, if that was you, well, congratulations, you get a bit of a reprieve. You got all that money back and then some. So, don't look to keep riding it. Consider yourself lucky. If that money is coming out, take it out now, while the market's at an all-time high.
Bob: Yep, absolutely. Here's the Allworth advice. A mid-year portfolio checkup is less about chasing performance, and more about just making sure your investment plan still fits your life today. Coming up next, a new study suggests it might be time to rethink one of the most common investing habits. We're gonna talk about that. You're listening to "Simply Money," presented by Allworth Financial, on 55KRC, THE Talk Station.
"Simply Money," presented by Allworth Financial. I'm Bob Sponseller, along with Brian James. If you can't listen to "Simply Money" every night, subscribe and get our daily podcast. You can listen the following morning during your commute to work, or at the gym, or out for your evening walk. And if you think your friends could use some financial advice, tell them about us as well. Just search "Simply Money" on the iHeart app, or wherever you find your podcasts. Straight ahead at 6:43, we go deeper into when it's time to change your long-term financial plan. All right, Brian. We've got some headline news from Kroger tonight. Interim Kroger CEO Ron Sargent said on June 26 that the retailer wants to ramp up some new store construction in 2026, and that's coming off the heels of some layoff announcements earlier, so it doesn't look like Kroger's done growing and modernizing. They're just reshuffling the deck, so to speak, positioning themself for future growth.
Brian: Yeah, and we're so fortunate to have Kroger here, based in town, one of the largest grocers on the entire face of the Earth, and that would include the universe, too. I always wonder, what would Barney Kroger think if he was standing at the base of that tower downtown with his little vegetable cart, looking up at it? But, anyway. Appreciate those of you out there who keep us fed. So, Kroger has announced that they wanna shutter 60 unprofitable stores over the next year and a half, and planning to reinvest those savings back into the business. Now, some people might look at this and they might just kinda glance at the idea, "Oh, Kroger is shutting stores down. Well, that's not...that that must mean business isn't good. They're having to kinda retrench, and all that kinda stuff." This isn't really the case. They're simply making the company more profitable. Now, I hope these are in places where, that have other alternatives for groceries. You know, we never wanna hear that some places, some neighborhood has lost its grocery store, that kinda thing, but unfortunately, Kroger has a duty to its shareholders. It has to do what it can do to make sure that the business is profitable and it's healthy going forward. And, groceries are a razor, razor, razor-thin margin, about as thin as you can possibly get. They gotta get it right.
Bob: Yeah, sometimes we all forget, and I know I've forgotten until I've done a little traveling, and then spent some time out in Colorado, and see, like, King Sooper stores and all that. That's all part of Kroger. So, I mean, Kroger is active in 35 states now, and the District of Columbia, so they're talking about store closings that amount to just 2% of its total store volume of over 2700 stores nationally. So, this is not a big change, not a big move. None of the stores in Cincinnati, northern Kentucky, or Dayton are going to be shut down. So, again, this is just some shuffling of the deck, and modernizing some stores that need a little upgrade.
Brian: Yeah. We're a little spoiled here in Cincinnati. We get to see the crown jewels of what a Kroger's supposed to look like, because they tend to build the prototype stores here, but I'm thinking of when I'm down in Red River Gorge or something like that, and you stumble across the world's tiniest Kroger down there. Lovely people, but the stores down in those places don't look like the ones we're used to here.
Bob: Well, maybe when they redo that store, they'll put indoor plumbing and an indoor bathroom in it.
Brian: It's not that bad. They're just small, Bob.
Bob: Oh, okay.
Brian: They're just smaller. Fewer people
Bob: All right. Let's move on before I get myself in trouble. All right. Tonight, we're diving into a new study from Vanguard, titled "The Dividend Reinvestment Puzzle." Brian, I wanna get into this. This is a very interesting topic to cover. And I have to suspect a lot of people that listen to this show have reinvested dividends for years, if not decades. Vanguard has a new study out on is this a good thing or not?
Brian: Yeah. So, and for some reason, for the last couple weeks, I've talked to a lot of prospective clients who come in with that notion, that I wanna own a bunch of stocks that spit out a bunch of dividends, and I wanna live off of them because then I'm not spending my principal. And I remember that, Bob, from 20, 30 years ago, as well as my grandparents talking about it. And I think it made a lot of sense at that time. But Vanguard's own study is starting to, is looking at the kinda things that says maybe that's not the greatest idea. So, with the cons of this, when you're automatically reinvesting your dividends, you're buying more of the same stock or the same fund, regardless of the current valuation or your portfolio's allocation. These might not be stocks that you would look at new if you didn't already own them. You might not wanna buy more. Well, dividend reinvestment means you are buying more, whether it's, they're companies in a good situation or not.
Bob: Well, and I have to think that when Vanguard talks about a con of dividend reinvesting, I think they're talking about the people, like you said, they've had this stock for years and years and years. And it probably makes up a very large portion or percentage of their overall portfolio. And yet, buying too much of even a good thing can cause you to be under-diversified, and inadvertently subject your portfolio to too much volatility if that one company happens to have a hiccup or two.
Brian: Right. And not all companies. It's tough to have a truly diversified portfolio and focus on your dividend payers. Your dividend payers tend to be your biggest, oldest blue chip-type companies, that have the ability to pay out some of their profits in the form of a dividend. And they use that to attract investors. If I'm a big, old company, and I've got good cash flow and a solid product line and all that stuff, then I...but I don't have a great, sexy growth story, then I might have to say, "Hey...we're good. We're gonna be around for a while, and we're gonna give you a little piece of the action," versus a company like, for example, Apple is a great example of a company where you can say there's a lot of money goes into research and development. Apple does technically pay a teeny, tiny dividend, but that's really for show, I think. Nobody buys Apple because of the dividend coupons. But anyway, they put a lot of money... They, instead of paying a dividend, they reinvest all of that into R&D and new products that can come to market. So, if you decide you don't want that, you want all dividend payers, you're gonna wind up with a portfolio that is heavily weighted towards some industries, and you're gonna miss out on others that can be really, really profitable over time.
Bob: Well, if you over-tilt your overall portfolio to value stocks, I mean, that's really what we're talking about here, for the most part...
Brian: Right.
Bob: ...these big dividend players, you're not participating in some of these big growth sectors, like AI, or semiconductor stocks, or things that are really growing. And that's where you wanna make sure, and I think this is the point Vanguard's trying to point out here. Just don't let the, all the benefits of dividend reinvestment cause you to be overweighted to sectors or industries that don't expose you to true growth, that's gonna allow that portfolio to get you the returns that you really should be getting out of a broadly-diversified portfolio, right?
Brian: And don't convince yourself that there are tax benefits. There could be. If you have a significant sum of money outside of IRAs, outside of 401(k)s, then yes, dividend income can be a little more tax-efficient, but on the other hand, if you...like most people around here, we're a Fortune 500 city, right? We all work for big companies. Not all. Most work for big companies, or smaller companies that support those big companies. Therefore, we have employers, we have 401(k)s. It's all tax-deferred. That means the tax, the more favorable taxation you get off of dividends doesn't help you, because you're taking money out of your IRA or your 401(k) at ordinary income rates anyway.
Bob: You're listening to "Simply Money," presented by Allworth Financial. I'm Bob Sponseller, along with Brian James. Just so we don't come across as being anti-dividend reinvestment, let's make sure we touch on these age-old...
Brian: They have a role. They're...yeah.
Bob: ...principles of what does work, and all the benefits of dividend reinvesting, because they are plentiful, the benefits.
Brian: Correct. And we're not talking about going all in on anything, but when people come wanting a dividend portfolio, they tend to have a notion that this will act like kind of like a CD or a bond, where it'll just spit out income and they won't have to worry about it. And that's not the case. These stocks can be just as volatile as anything else. And they are really, really impacted by things like interest rates.
Bob: Here's the Allworth advice. Automatic dividend reinvestment may not be for everyone, with your entire portfolio. Investors should consider personalized strategies, that align with their financial goals and tax situations. Coming up next, something that many people never even consider when doing estate planning, and that's taxes. You're listening to "Simply Money," presented by Allworth Financial, on 55KRC, THE Talk Station.
You're listening to "Simply Money," presented by Allworth Financial. I'm Bob Sponseller, along with Brian James. Joined today by our estate planning expert, Dan Perry, from the law firm of Wood + Lamping. Dan, thanks so much for being with us today, and I know you wanna talk about a very loaded topic, and that's estate taxes.
Dan: There's been a lot of talk this week about the Trump tax bill. You know, what's in it? What's included? And anytime Congress proposes any kind of tax change, in my world, people always talk about the death tax, or the estate tax. So, the estate tax is a tax that is assessed on the total value of your assets, which transfer at death to your heirs or beneficiaries, including your property, your financial accounts, everything in your name. And as of 2025, the estate tax only applies for estates worth more than $13.99 million per individual or $27.98 million for married couples who elect what's called portability upon the death of the first spouse. You see, you can leave an unlimited amount of property and assets at death to your spouse without incurring estate taxes. However, this means that that estate tax exemption I just mentioned is more or less wasted due to the death of the first spouse. And portability permits the transfer of that unused estate tax exemption to the surviving spouse, which creates a $27.98 million estate tax exemption for that surviving spouse, as of 2025. dealing
Brian: Hey, Dan, I'm dealing with a situation related to portability as we're speaking. And the thing that occurs to me, I'm not an attorney, and thankfully, we have people like you to help us through these situations. But portability, in my brain, used to be called an A&B bypass trust. I know those are very different things, and they're not as related as I'm pitching them to be here. But can you kinda weigh in on, if I do nothing, I can simply file an IRS form, and I've taken advantage of both tax credits? How is that different from the old A&B bypass approach?
Dan: So, yeah, there's, in order to gain portability, you do have to file an estate tax return, and elect portability upon the death of surviving spouse. The old AB trust more or less is directing the trustee, upon the first spouse's death, to elect that, be forced to elect that portability. But it's very important to file that estate tax return. There are time limits. [inaudible 00:22:14] it can be wasted. Now, with estate taxes, the current rate for estate taxes can be as high as 40%. So, as an example, you have an estate worth $15 million, only $1.01 million above that exemption is gonna be taxable. However, this high exemption is currently temporary. Unless Congress acts, it's set to sunset, or expire, down to approximately $7 million per person, starting in 2026, subjecting more estates to the estate tax. Under the Biden administration, there was a discussion of reducing the estate tax exemption to $3.5 million. And the new Trump tax bill proposal has discussion about raising that exemption to $15 million per person.
Now, in addition to estate taxes, certain states also have estate taxes. Luckily, Ohio isn't one of them. Kentucky does have what's called an inheritance tax. So, unlike estate taxes, which is gonna be paid by the estate, inheritance taxes are gonna be paid by the persons inheriting those assets. The Kentucky inheritance tax can reach as high as 16%. However, close family members, such as spouses, children, and grandchildren, siblings, are exempt from that inheritance tax. But it's important to watch out for inheritance taxes if you are in a state where the inheritance tax would apply.
There are also a variety of ways to limit estate taxes, and one of the most common ways is with lifetime gifting. You can gift up to $19,000 dollars per person annually, without touching what's called your lifetime exemption from the gift tax. You see, you can gift away $13.99 million dollars in taxable gifts during your lifetime. And that would be a gift in excess of that $19,000 dollars per year. But every taxable gift you make reduces your lifetime exemption from the estate tax. So you need to be careful. So, for example, a couple could gift $38,000 to each child or grandchild, $19,000 times two, without even making any taxable gifts.
Another way is by transferring assets to an irrevocable trust, to remove those assets from a person's taxable estate. And one option is with what's called an irrevocable life insurance trust. And that is a trust in which the death benefit, pays upon your death, will be owned by the irrevocable life insurance trust, what we call an ILIT. And this can provide a cash-free benefit to your beneficiaries named in the trust, but it can also be used to provide liquidity for anticipated federal estate taxes. So, I've represented many family farms in the past. And an issue that's common in that situation are that we have a taxable estate, but there is very little liquid assets. And the surviving family doesn't wanna be put in a situation to sell the family farm just to pay the estate tax. And that's where an ILIT can be very beneficial, and provide that necessary liquidity, to pay those anticipated estate taxes.
Another option is with charitable giving, where you can donate, where donating to charities is gonna reduce your estate, and reduce your taxable estate, as well as offer some income tax deductions. Charitable trusts can also be used, and one common example is what's called a charitable remainder trust. And that's where you gift assets into a trust. You get an income tax deduction the year you make the gift. An income stream comes back to you for a set number of years, and at the end set number of years, the balance of that trust goes to the charity, and that gift is removed out of your taxable estate. And those are just a few examples.
Bob: All right. Dan, as we get through the second half of 2025 here, we could be just hours, if not just days away from some kind of new tax bill getting passed through Congress. What are you seeing? I know you guys follow this stuff closely. What are you seeing in terms of numbers for where that estate tax exemption, on the federal side, where do you think that's ultimately gonna settle out?
Dan: So, as of right now, if Congress does nothing, which is possible, in 2026, we're gonna have a $7 million estate tax exemption, per person. Portability will still exist, so a family could pass $14 million without estate taxes. The Trump tax bill has put in a proposal of a $15 million exemption. What we're seeing right now is that there's a lot of negotiation and discussion between both political parties. And I would be surprised if we settle on a $15 million exemption. What we're thinking is likely gonna happen is somewhere between $7 million and $15 million is gonna be the exemption.
Bob: What's your best advice now for families, how to plan here, during the second half of 2025, based on what we know, and I guess, just as importantly, what we don't know?
Dan: So, the only guarantee right now is that the federal exemption is going to be cut in half if nothing happens. So, 2025 is a critical year to engage in estate tax planning. Portability, again, lets that surviving spouse use the deceased spouse's unused estate tax exemption. And what we're thinking families should do is they may wanna lock in that current $13.99 million exemption, and get essentially $14 million out of their estate, before this estate tax exemption expires. But with all this planning, you should also be reviewing things annually, because asset values can grow faster than you expect, and can push you over those exemption limits.
Bob: All right. Great stuff, as always, from Dan Perry, our estate planning expert from the law firm of Wood + Lamping. Thanks so much, Dan. You're listening to "Simply Money," presented by Allworth Financial, on 55KRC, THE Talk Station.
You're listening to "Simply Money," presented by Allworth Financial. I'm Bob Sponseller, along with Brian James. You have a financial question you'd like for us to answer? There's a red button you can click while you're listening to the show, right there on the iHeart app. Simply record your question, and it'll come straight to us. Financial planning should not be a set-it-and-forget-it proposition. It is a dynamic framework, that must evolve when life's biggest changes come down the pike. Brian, we're gonna talk tonight about looking at some of what these life changes are. We're gonna talk about what happens in people's lives, and what should signal some very important changes, as we monitor one's lifetime financial plan.
Brian: Yeah, Bob. In a perfect world, everybody would have built a financial plan, you know, either on their own with some knowledge and a good amount of work, or with a professional, to help you kinda figure those things out. But ideally, and again, life doesn't work this way, but, ideally, you've done that in advance of any of these crazy topics happening to you. And that's important because that way, you would have set a kind of a baseline, to know, "Here's the path I was on. Now, with whatever this new information is, here was the impact." And I've found, when people have done this, then they understand that when they can see it, then the impact is usually not nearly as much as they thought it was going to be.
So, first one, you know, here's a curve ball that kinda comes out of nowhere is, of course, divorce. So, obviously, you know, you may have made your financial plan with the assumption of two incomes, and two people helping carry the weight and so forth. And sometimes, of course, things just don't kinda work out. And divorce is, setting aside all the emotional stuff, that's enough weight to carry, but there's a lot of moving parts to the different things you're gonna have to decide on who gets what. And it's one thing to decide who gets the house and who gets the dog and all that. But the more complicated stuff, there are executive compensation packages out there that one spouse might have gained during the marriage. The other spouse will have some kind of entitlement to that, but it can be tied up. It can be super complicated out there. There's also, you know, for certain investment structures, there is carried interest, which, you know, that's a common thing found inside of hedge funds and more complicated investments. Not easy to split up. Closely-held businesses you might have in the family, generational trusts, that maybe you set up for kids, and sometimes grandkids who don't even exist. There's a awful lot of moving parts to these different things. And again, a lot more complicated than who gets the dog.
Bob: Yeah. And then, post-divorce, you know, I run into this. Thankfully, most of my clients have not gotten a divorce. I haven't had to deal with this personally a lot, but it's, during the times I've had to deal with it, you know, there's been some surprises that come up. And one of them is post-divorce estate planning. People just forget, as you said, with all the emotion involved, and all the sense of loss, and all the change, people simply forget to update their IRA beneficiaries, and beneficiaries of the assets, leaving it to the heirs that they wanna leave their assets to. Brian, I know you've run across this. I run across this more times than I wanna remember. People leave their now ex-spouse as the beneficiary of the retirement plan, and it's just because they got caught up in doing everything else, and they forgot to do some of this basic blocking and tackling.
Brian: Yeah, and there can be a lot of emotion going on here. Sometimes it's an amicable divorce, and the new spouse gets along with the old spouse, and everything is fine. But in a lot of cases, and this is where, you know, these are the water cooler stories that we talk about when, you know, an ex-spouse is left as the beneficiary, they don't get along, and sometimes it's to an extreme. And now, all of a sudden, the person who owns the assets is getting questioned by new spouse as to why didn't you ever take the name of your old spouse, your ex-husband, ex-wife, off of this account? That person's gonna get a bunch of money. And it's not necessarily, don't assume that the courts will sort this out and go, "Well, no, this person is your spouse now, so that's the one who should get the money." That's not the case, because there are legit reasons. If we have a Brady Bunch situation, a lot of times, people will get married, but then they'll keep their own assets separate within their own families, and if my spouse is gonna be caring for my kids, potentially, I may want him or her to go ahead and inherit my assets, so that my kids are okay. So they will not be assumed that the new spouse is the one who gets it. If the name on the piece of paper is different, that's who's gonna get the money.
Bob: All right. Let's move on to another very common adjustment phase, and that's just retirement. Adjusting to a new stage of life after you retire. Hopefully, people are planning at least two to five years ahead of time for this one. But even those that do, you know, for folks that retire, it's not just, you know, give two weeks notice to your employer and be done. There's a lot of stuff that needs to be done, adjusting to this new stage of life. Let's get into some of those things.
Brian: Yeah, of course. And again, I'll go back to what I said earlier. If you have a financial plan before retirement, then it's gonna be a lot smoother transition, because yes, things are gonna change. Your income sources are gonna change. Your spending is gonna change. Your daily routines are gonna change. A lot of people tend to hide behind that unknown of, "I don't know what's coming, therefore...and I don't have time to think about it. I'll think about it this weekend," and then they get busy this weekend, and they haven't ever done a financial plan. Retirement comes along, and they've never thought about it, and it seems positively terrifying. It does not have to be that way. So you wanna make sure that you've looked at what does it look like to withdraw money out of my investments, versus someone else handing me money? I have different types of tax treatments across my investments. It's gonna make sense to pull from this one sometimes, from the tax-free, versus the income taxable, versus the stuff I pay capital gains on. So, it changes. You wanna make sure you understand what the different impacts are.
Bob: All right. And another situation that definitely requires the adjustment of a long-term financial plan is unfortunately the death of a spouse or a loved one. Brian, we have this come up often, and I think there's some things that you definitely should do, but there's also some things you shouldn't do, and I have always counseled people, when they've lost a spouse or what have you, don't make any major decisions, major changes, for at least 6 to 12 months, because you gotta allow things to just settle in. But there are some things that you should do right away, just to make sure that estate is settled correctly, and you've got your assets positioned the way they need to be positioned when it's just one of you moving forward.
Brian: Yeah. And some of the things that you need to be thinking about is if there's an opportunity to claim cost basis step-ups, then you should go ahead and do that too.
Bob: All right. Here's the Allworth advice. With the right preparation and guidance, transitions are a chance to realign your finances with what matters now. Coming up next, we've got Brian's bottom line, where he's gonna help us with some advice on managing our personal real estate holdings. You're listening to "Simply Money," presented by Allworth Financial, on 55KRC, THE talk station.
You're listening to "Simply Money," presented by Allworth Financial. I'm Bob Sponseller, along with Brian James, and it's time for Brian's bottom line, where he's gonna give us some straight-talk advice on managing our real estate holdings.
Brian: So Bob, stop me if you've heard this one before. We have clients that will come in, and they've retired. They've got some assets. They're looking to kind of change things around a little bit. And a lot of times, they'll come up with the idea of, you know what, never owned real estate before. I'd like to try that, get some rental income going and, you know, get property appreciation, all that kinda stuff. And, you know, I feel like the world exists of two people, two kinds of people. There are people who buy one and cannot wait to unload it, and then there are people who buy several of them, and understand how the game works, and are okay with the commitments that come along with it. And I'm speaking of, you know, real estate is not that great of an investment from an appreciation standpoint. It's one thing to look at what property was worth a long time ago, what it's worth now. Yeah, you can do math and see that that's a huge return. But along the way, you have to remember, every year, you're paying property taxes. You're paying for upkeep. You have to replace the heater and all the, the hot water heater and the furnace, all that kinda stuff comes along. And that is a drain on the portfolio.
So, but again, that doesn't mean don't do it. Just go in eyes wide open. And I'm bringing this up because I just had this conversation yesterday with a young person who's starting to go down this path, a child of my client. And one of their, they're just getting started, not married yet. And they're talking about, "I wanna buy a property somewhere, and live in it for five years, after which we'll probably outgrow it with kids and so forth. And then I wanna continue to own it. And then we'll buy a bigger house for ourselves, and we'll rent the other one out." And in my mind, I'm going, all right, you're, at that time, you're probably gonna have young kids, three, four, five years old at that time. You're gonna be busy, and you're either gonna need to learn how to do the work when your tenant calls and says something's broken, or you're gonna have to pay a property management company. Those property management companies take about 10% out, and when you factor in the fact that you're probably gonna have a mortgage in the mix here, you might be looking at a 20-year timeframe before you can really net out a profit on this. So, again, just go in eyes wide open. Real estate is not, it's not an annuity. It doesn't pay out like a CD, without all those moving parts. You know, you just wanna be sure you understand, and you want what the outcome of those types of situations really is.
Bob: I feel like I'm getting a free postmortem portfolio analysis from Brian James, because what you just described was my exact experience, Brian, buying a condo, that I absolutely had to buy, down in Florida, in 2008. And it was great. It was beautiful down there. Loved it. But it was right when my kids were getting into their active years, playing sports. I didn't know I was gonna be coaching for years and years. We could never get down there. We just didn't have time to get down there. But yep, the... We had to hire a management firm to rent it. They take their 10%. You're still getting the tax bill. I'm getting the phone call at, you know, 6:00 in the morning, saying the toilet didn't flush. And yeah, after about a six-year period of this euphoria, it was time to just sell the thing and move on. All right. Thanks for listening. You've been listening to "Simply Money," presented by Allworth Financial, on 55KRC, THE talk station.