Amy: Tonight, why we wish members of the Fed would maybe just keep their mouths shut. You're listening to "Simply Money," presented by Allworth Financial. I'm Amy Wagner, along with Steve Sprovach. You know, it doesn't take much these days to spook investors. Of course, all eyes have been on the Federal Reserve, our nation's central bank. And then when you have one speaking out, I think it's like people then overreact to whatever is said. And I think they actually, like, even look at it and it's like, what color tie were they wearing? That probably means something. Did they look to the right or to the left? That also means something. Like, people are dissecting these things a lot.

Steve: No kidding. I mean, why is the market down? Because somebody on the Fed's lips are moving.

Amy: Yes, exactly.

Steve: You know, it really seems that way.

Amy: It's like, what are they saying today?

Steve: And Jerome Powell, he's gotten good. When he first started as chairman of the Federal Reserve, he said things that were probably too honest, probably. You know, he didn't have a filter.

Amy: He learned his lesson the hard way, right?

Steve: And markets just would collapse. I mean, it was almost comical to watch him speak and watch markets go down. He's gotten a lot better. I wish he could kind of teach the rest of the members of the Fed how to do that, because, you know, they're saying some things that are not making markets happy.

Amy: We need, like, Fed Public Speaking 101.

Steve: Exactly. Exactly.

Amy: Now we're talking about someone from the Fed in Richmond. Friday, Richmond Fed Reserve president Tom Barkin, he said, "Inflation's just too high, and I'm really not yet convinced that we've done enough. And so I feel like we're probably gonna go back to interest rate increases." Keep in mind, this whole time, the markets have been, like, "Eh. We're done." Right? "You guys are saying these things, but you don't really mean it. You're done."

Steve: People are tired of all this, you know, and by "the people," I mean...

Amy: Enough is enough.

Steve: ...investors. Yeah. Well, first of all, okay, Tom Barkin. Yeah, he's saying demand hasn't slowed enough. We're not feeling enough pain. I mean, depressing guy, you know. The economy's weaker, but it's not weak. He's a non-voting member. So, I hate to say it, Tom, but whatever you say doesn't matter. If you can't vote on policy, I could care less what your opinion is, you know. But markets are listening.

Amy: At least someone does care, unfortunately. Yeah.

Steve: Exactly. Exactly. And then you've got Waller. He's the head of the San Francisco Fed, and he's talking about, well, yeah, we definitely, you know, need to take a look at some interest rate increases. And, you know, I'm thinking to myself, wait a second. He's the guy that was asleep at the switch when two of the biggest banks in the country, which happen to be in his region, collapsed. Because nobody was paying attention to how they were lending out money. And the problem was they were lending out money in things that would drop in value when interest rates went up. Well, wait a second. He's on the Fed. He knows interest rates are going up. And yet the banks that he was more or less supervising collapsed because, "Oh, I'm gonna vote to raise interest rates. I wonder if I have any banks that would get hurt by this decision that are under my supervision?" You know, that would be an important question.

Amy: Well, not only that, but now we know that this really didn't catch anyone off-guard, that the bank had been warned about this issue several times before. In fact, there had even been this, like, internal presentation at the Fed, saying, "We're gonna use Silicon Valley Bank as an example of what not to do, because they seem to be kind of treading on thin water right now." And so then it's all of a sudden, like... And, you know, the point, I think, that some of these Fed members are starting to make is, like, we're not responsible for the banking industry. We only have a couple of tools in our toolbox, and that is raising or lowering interest rates, and then quantitative easing. They put both to work, right, during the pandemic, they've kind of laid off of quantitative easing, and now they have been hitting this button, or using the tool of raising and lowering interest rates. But they also were looking at the fact that banks could also tighten their lending standards during this time, and that it could actually have a very similar impact on the economy to raising interest rates. Lots of variables here.

Steve: Yeah. Banks can do that, and it would have a similar impact until it had a horrendous impact. Because if banks stop lending, and you have what commonly is called a credit crunch, if banks stop lending, the economy comes to a standstill. You know, and that worries the Fed as much as high inflation. So, that's, you know, they're walking a whole bunch of different tightropes. But Amy, you said something that I think we should talk about a little bit. You brought up, they only have a couple of tools, which is correct, to address economic slowdowns. One of them is quantitative easing. And the Fed is, you know, all the bonds that they bought up to stimulate the economy during COVID, they're slowly getting rid of. And by slowly, not really slowly. Ninety billion dollars a month of bonds are being dumped on the market.

Well, what happens when you sell a whole bunch of anything all at once, the prices go down. With bonds, when prices go down, the interest rates go up. So, it's the Fed's way of increasing interest rates without declaring an increase in interest rates. And that's never been done before. And I don't think enough people are talking about this because...

Amy: Yeah, that's a great point.

Steve: But, yeah. By dumping all these bonds on the market, the Fed is still increasing interest rates, even though when they pause, like they did in the month of June. And we have no idea what impact that has on the economy, but right now it looks like it's bringing inflation down at a pretty good clip.

Amy: You're listening "Simply Money" tonight, here on 55KRC, presented by Allworth Financial, as we talk about when members of the Federal Reserve speak, the markets listen, and sometimes they kind of overreact. You're right, though. They're in a very difficult position. You know, and they're trying to figure out, okay, what's the impact that banks probably... And we do know that some banks are sort of tightening lending standards, at least from over the last several years. So, that is happening. You know, the effects of that yet to be seen long-term.

And then, of course, quantitative easing, it's brand-new territory, so there's no precedent for this. And, raising interest rates at the same time. I'm really glad, actually, that they paused to say, let's just take a little breather and see how all these things sift out before we make another move. The tightrope that they're walking is also, "Hey, listen, we're trying to avoid a recession. At the same time, we're also trying to avoid stopping this momentum too soon, and keeping inflation too high, when the goal is 2%, and we're not really there yet."

Steve: Yeah. I mean, frankly, they don't know if they've done too much or not enough at this point. So, yeah, they need to see some more data, because data determines policy. You know, we see numbers and we are all excited because the headline inflation rate that came out a week ago, the consumer price index dropped from 4.9% to 4%. Well, okay, that's the way the Fed calculates it, Amy, but, you know, for the month, it was 0.1%. That's how they came up with that number. I don't know about your math, but my math tells me 12 times, 12 months, in a year, times 0.1%, that's 1.2%. So I could argue that we're pretty much on target already. I'm not sure where this 2% target came from, but we're pretty much there already. And that's why, if I were on the Fed, I'd be very dovish. I'd be saying, "Hey, let's give it a few months. Let's see how the data comes in, because we may have done enough, guys."

Amy: I'm pretty sure, actually, the 2% came from, like, an economist in New Zealand. Really.

Steve: Oh, that makes sense.

Amy: Yeah. Like, it was, like, some random thing, like, "Hey, this is what we're gonna do." And just, kind of, all these other central banks said, "Ah, 2%. That sounds about right. We're gonna adopt that too." And so, yeah, it's interesting to hear...

Steve: These are PhDs in economics, right? Is that what we're talking about? Just checking.

Amy: Exactly. Exactly.

Steve: Unbelievable.

Amy: You know what, though? As we talk about what the Federal Reserve is doing and how markets are reacting, consumers don't seem to be super spooked. There is a consumer confidence study that is done monthly by the University of Michigan, and it's higher than it has been, at least in the recent months.

Steve: Yeah. This is where the University of Michigan calls consumers and basically says, "What do you think? Are we looking good, or...

Amy: How you feeling?

Steve: ...are we not looking...?" Yeah. Yeah. And the highest we've seen it before the pandemic was a number of 101. The lowest we saw, which was just last summer, was 50. And, you know, we're looking at a pretty high number. It's a little bit below the recent peak of 88, but it's pretty darn good. Here's what bothers me about this, and I'm struggling with this. I wanna feel good about this number, Amy, but when you call people, that when you see these interviews on the street and they can't name the current president, they don't know who George Washington was, name the two houses of Congress, and we're depending on their answers on this to derive where the economy's heading, I take this one with a grain of salt. But, if consumers say, "No, I'm shutting down. I'm worried about my job. I just lost my job. My neighbor lost their job. I'm not spending any money," well, when consumers drive 75% of the economy, whether it's a misinformed opinion or not, if they stop spending, the economy goes into recession. So, we gotta watch it. Yeah.

Amy: Yeah. I was gonna say, I actually disagree with you. I actually think that this is a really good indicator, because you don't necessarily need that outside knowledge of the broader economy. You just need to know, how am I feeling at my house? Am I spending more? Am I saving more? Am I worried to spend? Am I worried about losing my job? Right? And it's just kind of, like, a very personal response, but when you collectively put those responses together, and a lot of people are worried about losing their jobs, then a lot of people stop spending, to your point, you know, our entire economy is made up, three-quarters of it, by what we're all spending from day to day. So, when people pull back on that, it does have a huge impact on the broader economy. So people are out there still saying they're a little bit nervous about things, but these numbers prove, at least right now, kind of what the Federal Reserve members are seeing, which is that the economy seems to be resilient to a lot of what they're doing.

Steve: Yeah, and, you know, let's just take a step back, and if we weren't talking about inflation every day like we are, and I guess we should, but if we weren't talking about inflation, okay, we got a debt deal done. Okay? Unemployment's at a 50-year low. Consumer sentiment is good. Jobs are crazy strong right now. We're looking at numbers, no matter what sector you look at, that if we weren't talking about inflation, and just saying, "Hey, how's the economy doing?" we'd be saying, "It's great guns." Markets should be at an all-time high. You know, these are great things to see.

So what I'm wondering is, has the Fed done enough, and is it possible that we're gonna bring inflation down? We might not hit 2% this year. I don't think anybody expected that. But we've already cut it in half, from 9% to 4%, and let's say by the end of the year, we're down to 3% or 3.5%, to me, that's a win, with a strong economy. They might pull this off without us going into a recession, because the numbers aren't indicating any imminent recession at this point in time. This may be an all-time win for the Federal Reserve if we keep going in this direction.

Amy: To your point, the numbers aren't indicating it, but think over the past year how many headlines have predicted...

Steve: Oh, yeah.

Amy: ...I mean, absolute devastation.

Steve: It's like that sign at a bar, it says, "Free beer tomorrow." You know, there's a recession tomorrow. There's a recession coming next month. We've been saying that for six, eight months. And at some point you gotta give up and say, hey, maybe there is no recession. I don't know. We'll see.

Amy: Yeah, yeah. Great point. Housing starts also up right now, interestingly, almost 22% in May. My husband and I went to HOMEARAMA last night, in Newport. And one thing that I noted, kind of for the first time, I love going to those home shows. All of the houses are usually sold. I think only one or two of the houses were sold. You know, these are 1.2, 1.9...these are really big, fancy, nice houses with a view of the river. But at the same time, they're, like, "This is still on the market. We're selling it with all the furniture in it. Everything that you see can be yours." And I've never seen anything like that before. So I thought that was really interesting, as, is this a sign that maybe, at least in the upper echelons of the economy, people are slowing down spending? I don't know. Obviously, housing starts are up, but these expensive houses weren't moving the way that they have in the past.

Here's the Allworth advice. Don't let fear about the Fed or the economy lead you to making poor financial moves. Do not act on emotion. Coming up next, what many investors did during the downturn of 2022 that's actually some really good news. Music to our ears. You're listening to "Simply Money" here on 55KRC, THE Talk Station.

You're listening to "Simply Money," presented by Allworth Financial. I'm Amy Wagner, along with Steve Sprovach. Straight ahead at 6:43, how to earn money for life by donating to a charity, and is it the right move for you?

You know, after years of, you know, year over year, charities getting more and more money because of the generosity of people, we sort of took a step backwards last year. And I think when you think about how high inflation was, and people were looking at their budgets, or lack of a budget, but know that the money is tight, and trying to figure out where are we gonna give less, or what are we gonna do less with? I guess I'm not super surprised by these numbers.

Steve: No. And it bothers me because I think charitable giving is real important...

Amy: I do too.

Steve: ...for everybody to do. Yeah. And if you adjust for inflation, we're looking at charitable giving numbers being down over 10% over the previous year. That's a big drop-off, and that's gonna hurt a lot of charities. But, you know what, this is what happens. This is one of the unintended consequences of legislation. We got something called the standard deduction a few years back, and this year, the standard deduction is $27,700 for a couple filing jointly. So, in other words, you don't have to give a dime to charity and you get to deduct $27,000. If you give less than $20,000 to charity, basically, you're not getting any additional deduction for that gift. And I think, Amy, unfortunately, a lot of people are saying, you know what, it would be a good thing, but if I'm not getting any tax break for it, I'm just not gonna bother. And that bothers me. Obviously, if you itemize, and you give more than $27,700, or have deductions more than $27,700, yeah, you can still deduct it. But man, this is rough, and this is gonna hit a lot of charities where it hurts.

Amy: And those specifically hurt the most by this, nonprofits that serve people in need. We're talking about food banks, homeless shelters, youth and family service organizations, right? Organizations that really could use that money right now. And keep in mind, too, giving to charities also do help you save money on taxes, right? Not necessarily with the standard deductions, but there are other ways that you can save. So, hopefully, maybe that was the one year, and we've only seen, I think, decreases year over year four times since they've been keeping these numbers. So it is a rare occurrence.

Steve: Yeah. Maybe talk to your tax advisor to see if there's some way you can get a deduction for your charitable giving. Yep, absolutely.

Amy: So, last year, lots of people got spooked and ended up taking money out of the markets, and to those people, we begged and pleaded, like, please, if you are smart, you are a long-term investor, you don't do that. But on the flip side of that, there are some people who, now, we're starting to see some numbers coming in that made some really good decisions last year, despite the fact that inflation was high and markets were down. Tonight, we're celebrating you if you're one of those people.

Steve: Yeah, exactly. And Vanguard did a really, I think, a great study of workers and the money that they continue to put into 401(k)s. And, you know, Amy, it's one of those things that it's driven me crazy for over 40 years. When stock prices are down, you should be loading up, saying, "What a great opportunity. We're batting 1,000 on comebacks. Stock prices are cheaper. I'm not paying top dollar. Hey, do we have any extra money we can put into these things that are cheaper, that are on sale right now?" And yet, you know, human nature is the exact opposite. You know, we run scared. But at least in 401(k)s, workers continued to put money in despite what they may have been feeling about the economy, and averaged a 7.4% of their pay going into 401(k)s. That's a good number, and I was happy to see that.

Amy: Yes. And only 6% of those who had self-directed retirement accounts, right, traded money last year, made major changes with those. So, that's good. That's a low number. That is exactly what we would wanna see, because those people are probably making very emotion-based decisions, based on fear. So, that's a good one. And to your point about the 401(k)s, when you add in what company matches in, total average contribution rate last year, north of 11%. And we would say, listen, when you start getting serious about putting money in your 401(k), 20% should always be kind of the goal, but at least 10%, right, is gonna get you moving in the right direction. So, these numbers aren't bad. They're not necessarily completely out of line with what we would hope, when you consider the fact that we do have a retirement crisis in our country.

Steve: Oh, yeah, I agree. And, you know, when you have payroll deduction every single paycheck going in, you're really dollar-cost-averaging. And we talked about how advantageous that is, because it takes away the emotional component. All right, your 200 bucks or 300 bucks or whatever it is, is going into your mix of investments, whether they're up, down, or sideways, and volatility becomes your friend because regular investments wind up giving you a very low average cost of investment on your 401(k) investments. This is good stuff.

Amy: Yeah. And, you know, we've mentioned these statistics before, but we crunched, Allworth, crunched data from 1945 through the end of last year. In years after the S&P 500 fell 20% at any given time, the average bounced back just a year later, up 14%. After three years, up 28%, five years, close to 50%, up 47%. And you never know when those good days are gonna come in. Often they're in the midst of bad days. So, for those who are making kind of those emotion-based decisions, statistics after statistics, numbers after numbers will show you, when you look back at history, it doesn't pan out in the long term. You do not come out ahead by pulling your money out of the market.

Steve: Well, you teed me up for Sprovach's two rules for investing.

Amy: Oh, perfect.

Steve: Okay? Rule number one, don't sell in times of panic. Okay? Pretty self-explanatory. Rule number two, when things really get bad, and this time is different, refer back to rule number one.

Amy: This time is never different.

Steve: You'll be fine. You'll be fine. Absolutely.

Amy: Yes. Great point. And I also think that many times, if you have made these emotion-based decisions, and you look back, right, over the course of your investing career, maybe the thing to do is say, "Maybe I need to work with a professional, even if I have investing totally figured out." Sometimes you just need someone else who is invested in you and your long-term financial health, saying, "But did you think this through?" Right? And giving you some perspective. We did that a lot to people in the beginning of the pandemic, and, you know, we were able to talk people off of a lot of those financial cliffs, and they were better off for it in the long term.

Here's the Allworth advice. If you were on a rollercoaster and you decided to jump off during that ride, the consequences wouldn't be good. Same story here.

So, should you ever close a credit card? This is a good question. If so, when? We've got answers for you next. You're listening to "Simply Money" here on 55KRC, THE Talk Station.

You're listening to "Simply Money," presented by Allworth Financial. I'm Amy Wagner, along with Steve Sprovach. People have lots of different theories about credit cards. There are some out there that would say you should never, ever have them. I would say here at Allworth, we think they're great tools if you use them responsibly. So, what does that look like? And is there ever a time when you should actually close that credit card? Joining us tonight, our credit expert, Britt Scearce. I actually really like this question because I think there's probably a lot of different layers to it. One thing to think about when closing a credit card is credit history is a big part of your credit score.

Britt: It is. I mean, it's 15% of your FICO credit score. And, in general, you wanna keep accounts open as long as possible. They not only measure how long you've had accounts open, but they also measure the average age of each of your accounts. All of that goes into and helps contribute to your FICO score. So, in general, the advice is to keep accounts open as long as possible. But, you know, sometimes you do have a situation where, you know, should I close this account? And, for one, we see this a lot whenever someone is going through a divorce situation, and they're both on a particular card, they've both been using it for many years and that card is helping both credit scores, of both spouses.

Steve: Well, Britt, Britt, and you've been open in the past about your credit history and how you struggled and ran into some credit issues years and years ago, and early in my marriage, we did also. We struggled a little bit financially, and once you clean up your credit cards, I mean, the natural inclination is, "I don't need these 10 cards. They got me in trouble before. Let's shut down all but one or two." Why would that hurt you?

Britt: Well, it's not necessarily a bad thing to close down things. If you certainly have a spending issue, if you have a spending challenge, you know, where you just overspend on credit cards, well, it could be a good thing to close many of them. But, here's the thing. The makeup of your FICO score, you know, 15% of it is based on how long you've had accounts open. So you need to have at least some accounts that are open and that have been established, preferably for over 12 months, but especially the ones that are older, they're really helping your credit score.

Steve: Even if you were behind at certain points in the past couple of years?

Britt: Yes. Just because you got behind on a particular card, that credit history is gonna remain on your credit report for seven years regardless. So, if you get it caught up, and you start paying on time, after two years, the old credit history, that, yes, it's still reporting from five years ago or whatever, but it is really not affecting your credit score all that much after about 24 months. So, getting it caught up, and if that's an account that you've had open since 1996 or something like that, that longevity of that account is helping you. Getting it caught up and getting it paid down to zero, or maintaining a very small, below 20% debt utilization on the card, that will actually help your credit.

Amy: But you started to touch on something earlier, and it's something actually that I dealt with. And that's if you are going through a divorce. And I remember, during this time, and my friends make fun of me because I'm super crazy, over-the-top about my credit score, making weird decisions that probably no one else would do. But I was really stressed out about that. I was like, we've had these two credit cards for a really long time. They're helping our credit history. If we close them up and open new ones, it's not gonna do us any good. What we ended up doing in our situation was he kept one of the credit cards, right? Took my name on it. I kept the other one, took his name off of it, and we were able to continue with that length of the credit history, at least on one of those cards. I'm just wondering, is that what you recommend? Does that make sense or is there something else?

Britt: That is certainly just fine to do. Absolutely. If you wanted to be able to keep both accounts open, you can reach out to your credit card service provider and say, "Hey, is there a way that you can drop me off of this card and open another card for me, you know, and keep the same history," or keep the same open date. And some credit card issuers will do that for you, especially in those situations.

But during a divorce, you definitely wanna separate out those accounts. You do not wanna remain on your ex's accounts. You want them to refinance mortgages out of your name. You wanna make sure that credit cards are no longer in both names. And sometimes that can, if you're losing one of the accounts that has been open for a long time, in the long run, it may hurt you a little bit, but that history doesn't immediately drop off of your credit report. It actually does still stay on. Good pay credit history will stay on your credit report for about 10 years. So, you know, as long as you have other accounts that are also open, have been established for a while, paid as agreed, low utilization, you're gonna find that your credit scores are still gonna be very good.

Steve: Okay. So, your advice is keep open the credit cards, even if you just use them once every three or six months or so, so that you've got that unused credit line, that'll help your score. When is it a good time to say, "Okay, let's just get rid of this card or these cards. I just need to do that." Tell me when that would make sense.

Britt: Well, if you have a card that's charging you a high annual fee that they just refuse to stop, you know, charging you, and it's like, okay, you know, if that's your account that you've had open since college, I mean, yes, it is helping you. But if it's just charging you a lot of money every year and you don't use it and you have other established credit, you could cancel it. You know, it's a matter of do not close out all of your accounts. If you go and close every account that you have open, eventually that is gonna start to hurt your credit score because you have no open active accounts. In order for FICO to generate a FICO credit score for you, you need to have at least some accounts that are open and being used enough to show activity that they can generate a FICO score for you.

So, I would say, you know, I'm a big fan of no debt. I'm a big fan of paying everything off and having no payments. But I would still keep two or three open credit cards that I use just enough to show activity, just so that I maintain a high credit score. So, you know, credit doesn't just affect when you wanna borrow money. It affects your auto insurance, it affects your homeowner's insurance. It can affect your ability to get a job, all of that sort of thing. So, I would say, you know, keep open at least two or three accounts. Use them for paying subscription services, like maybe Netflix or Amazon Prime, or, you know, your Cooper's Hawk Wine Club or something like that. You know, just pay it right off every month.

Amy: Sign me up for that. Hey, Britt, I wanna get your take on this. I'm sure you've heard from these people through the years, we have all these workshops that people come to, and I've had many people stop me and say, "You'd be so proud of me. We just cut up all of our credit cards. We paid them all off, and we just, we're done with them. We cut them all up." And I'm like, "Oh." Actually, you know, I wanna say, "Actually, that's not what we necessarily believe is the best thing to do for your credit." It's, you know, to your point, you can get them out and just pay a subscription, or a tank of gas on it once a year or whatever. But what's your take when someone comes to you and says, you know, because there are people out there that do advocate for no credit cards at all. What do you say to people that say, just, is it smarter to cut them all up and get rid of them?

Britt: Well, I'm a big fan of no debt, but that's the only area that I really disagree with that particular philosophy. I don't believe you should, you know, if you truly have a spending addiction, a spending problem, and you really just cannot have an open, you know, account anywhere, if you have that kind of an issue, then maybe that is best for you to just go all cash, and not even worry about your credit score. You know? I mean, if they get you in that kind of trouble. I don't think that's the majority of people, though. I think most of us, you know, we wanna get out of debt and not have monthly payments, and, you know, without having any credit open whatsoever, and eventually getting to where you have absolutely nothing open, it will make it harder for you to do things like, yeah, there are places that will do manual mortgage underwriting and so forth, but it is more difficult.

Amy: Credit cards are a tool, right?

Britt: [crosstalk 00:28:20] They really are. And if you have no credit, or if you have, you know, low credit scores, that's gonna affect things like renting an apartment, turning on utilities. I mean, your life, you know, you just kinda get to be responsible, with at least a couple of accounts, maintain them, play the game, have at least a couple of accounts open, use them just enough to show a little bit of activity every now and again so they don't close them on you. And you'll maintain a decent credit score and you'll be able to function really well in the financial world.

Amy: Understanding how your credit cards affect other things, like your credit score, your insurance, all of those things, are really helpful. So, Britt, we always appreciate you coming on with your expertise. Britt Scearce, our credit expert. You're listening to "Simply Money," here on 55KRC, THE Talk Station.

You're listening to "Simply Money," presented by Allworth Financial. I'm Amy Wagner, along with Steve Sprovach. If you've got a financial question, you...are just keeping you up at night, you don't know the answer to, we'd love to talk about it right here on the show. There's a red button you can click on while you're listening to the show. It's right there on the iHeart app. Record your question. It's coming straight to us.

And straight ahead, you get those emails, or maybe you get a postcard in the mail about a class action lawsuit. Is it worth your time or should you ignore it? We'll get into that, coming up next.

You know, there's a new way to earn income in retirement, and it comes from some changes that come out of Congress over the past year. So, tonight we're just gonna pick this apart and see whether we think it's a good thing or maybe not a good thing for you.

Steve: Yeah. You know, Congress passed a bill, no major legislation. There was a whole bunch of little, tiny fixes to some previous bills that, the Secure Act bill. But they passed it between Christmas and New Year's, Amy, and so we're still...

Amy: Nobody was talking about it.

Steve: Yeah, no, we're still finding, oh, okay. They passed that. Well, that's interesting. What the heck is that all about? And one of the things that was in this bill is a feature that allows retirees who are 70 and a half or older, in other words, you're already taking out required minimum distributions from your IRAs, it allows you to donate up to $50,000 from your IRA to something called a gift annuity for a charity. And this is interesting. There's some, I think it's got some win-win features to it.

Amy: It does, because the charity gets the money. But here's the deal. They hold the annuity. The annuity pays you a guaranteed amount over years. Right? There's a woman who took out $25,000 out of her IRA, and set up this gift annuity with her alma mater. So, then, the school had a fixed payout of 7% that she was getting every year with that money. Now, when she passes away, if that whole $25,000 balance has not been paid out, then the charity keeps the rest of it. That's how this works. The interesting thing, though, about this, which I also think is worth mentioning, is it's a one-time thing. You can't be doing this every year with every charity that is near and dear to your heart. At least that's my understanding.

Steve: Yeah. I mean, the devil's in the details. It's $50,000 total. So, yeah, you can do $25,000 this year and $25,000 next year in this.

Amy: Yes.

Steve: And keep in mind, by 70 and a half, it means it only applies to somebody already subject to required minimum distributions. But here's the way, and talk to your tax advisor before you sign any paperwork on this. But if you're already forced to take money out from your IRA because of required minimum distribution rules, and you don't really need the money, but you kind of would want some of it to work for you, you can gift up to $50,000 to a charity that has this gift annuity feature, and they agree to pay you back, depending on your age, anywhere from about 5.5% to, if you're over age 90, almost 10% per year.

So, in other words, they're guaranteeing you income for life. So you get a required minimum distribution payment into a charity, which offsets how much you have to take. You have to take the money out anyway. So if you give it to a charity, it's not taxable to you, and they in turn pay you for life. That's not a bad deal if you're looking for some kind of income. Yeah, the income's taxable, so you're not gonna beat the IRS on this deal, but you know what, if you wanna support a charity and get some income that's guaranteed, it makes sense. The catch is, yeah, there's 1600 charities that have these gift annuities, but there's somewhere around 35,000 charities total. So you've gotta make sure that the charity you wanna give the money to has this gift annuity option.

Amy: And how safe is it? Well, this is a new thing, but for those who have really researched them, they say they're kind of as safe as the charity is, right? I mean, there's lots of 501(c)(3)s that are so good, that have been out there forever. And, I mean, big ones, like Red Cross and universities and things like that...

Steve: A lot of the big ones, yeah.

Amy: ...that are well established. Yeah. If this is a new charity, right, that's just popping up, maybe you make sure you do your research on how well-run and how well-funded that charity is, because you could give this gift and then the charity could also go away at some point.

Steve: Yeah. That's a concern.

Amy: Here's the Allworth advice. It's important to utilize a fiduciary financial advisor so they can help you determine whether something like this, a gift annuity, could fit into your overall plan. Coming up next, how to take financial advantage of class action lawsuits. You're listening to "Simply Money" here on 55KRC, THE Talk Station.

You're listening to "Simply Money," presented by Allworth Financial. I'm Amy Wagner, along with Steve Sprovach. You've probably gotten an email or a postcard in the mail saying, "We think you might be eligible for this class action lawsuit." What do you do? Most of the time you probably just toss the card into the garbage can and say it's not worth it. I will tell you though, several years ago, I got one. It was the Takata airbag recall, or whatever. I looked it up online. It was completely legit. I filled out a little bit of paperwork. I didn't have to put a lot of personal information out there, so I felt like, you know, very little risk. We'll see what kind of reward. I actually got two separate checks over the course of the last few years, and I would say maybe in total $400, $500.

Steve: Really?

Amy: Yeah. Yeah. In fact, the second check... I got the first check, I don't know, a couple of years ago, and then I got the other one just a few months ago, and I was like, I thought this was all done. And they said, no, there was actually more money left over. And so they paid out a second round in this class action lawsuit. I wasn't expecting it. My point is, you might wanna give these a second thought if one comes your way.

Steve: Yeah, I mean, there are some scams out there, so don't just, you know, start giving out banking information so they can deposit money. But generally when you get these cards or these notifications, there's a suit administrator, and that's an 800 number of, this is where I can call to ask questions. And between a Google search and calling the suit administrator should give you a pretty good idea of whether or not it's a legitimate deal or not. But, you know, here's the thing. You expect, okay, you know, millions of dollars are at play here. But really, how much am I gonna get?

I remember a few years ago there was a big settlement. It was, you know, tens of millions of dollars, for anybody who traded gold over the course of a couple of years. And, you know, when I did the math, I'm thinking, you know, there may be $4 or $5 that's gonna wind up getting into your hands. And obviously, the lawyers are the big winners of this, but you know what, sometimes, so many people opt out or just don't bother with this, that you actually get some pretty decent money. I mean, we've got a coworker that wound up getting quite a bit more than expected.

Amy: Yeah. Yes. This was a producer who tried that sort of weight loss diet app Noom, and there ended up being a class action lawsuit associated with that. And he just opted in, and all of a sudden, they...and they said, listen, like, don't expect a ton here, but maybe a few hundred dollars. He wasn't, you know, necessarily holding his breath. Nine hundred dollars Venmo'ed to his Venmo account, which I think is interesting and a different way of doing it. I know, the couple of class action lawsuits that I've ever participated in, they just cut a check to me. So I would be really careful about that. But several years ago, I actually did a story on this for Fox 19, and I actually looked at, there's websites out there that have open class action lawsuits, and you can click on it. And I'm looking at one now. I mean, Meta has one, Facebook. There's a pork price-fixing class action lawsuit. One to do with chicken too.

Steve: I eat bacon.

Amy: Yeah, exactly. So, I don't know, you know, if you have to send in some of your receipts from, you know, one of the grocery stores or what, but there's a lot. I mean, there's dozens of lawsuits that are out there. And I'm not saying this is a way that you're gonna go and get rich, but it might be worth checking out to see if there's anything out there that maybe you would, you know, qualify for. Because the couple of people that we actually had kind of follow up with these, actually got some money. And some of them were just, like, "I bought this product several times and they figured out they had overcharged for it," or something like that. I don't know, 50 bucks here or there? Probably worth your time.

Steve: If I were gonna have money deposited into a Venmo account, which I don't have, but if I did have one... I listen to Dave Hatter way too much. He scares me. He scares me.

Amy: Tinfoil hats.

Steve: But I would have it attached to an account with $1 in it, because I don't want anybody having access to an account that they can potentially pull money out of. But, I mean, things like Google, if you did a Google search between 2006 and 2013, yeah, it's 10 years ago, but they were giving your search information to third parties, in violation, allegedly, of their own policies. They settled for $23 million. Now, I think there's more than a couple of Google searches that were done during that period of time, but, you know, maybe you'll get some money.

Amy: Yeah. Seven dollars and seventy cents is actually how much you're estimated to receive. So, I don't know. Maybe it is or isn't worth that, but it's definitely worth looking into.

Thanks for listening tonight. We hope you're gonna tune in tomorrow. We're talking about hard questions to ask if you really want to never work again. You've been listening to "Simply Money," presented by Allworth Financial here on 55KRC, THE Talk Station.