November 15, 2024 Best of Simply Money Podcast
Navigating market volatility post-election, preparing for a possible lost decade, and understanding Required Minimum Distributions.
On this week’s Best of Simply Money podcast, Amy and Steve discuss how the markets are reacting to the anticipated pro-business policies of the incoming Trump administration. They explore the potential implications for stocks, bonds, and other investments, highlighting the importance of understanding market trends and avoiding reactionary financial decisions.
They delve into specific examples, such as Tesla's soaring market valuation, and discuss the rising strength of the U.S. dollar. Plus, they address the recent changes in the bond market and the potential impact of Trump's fiscal plans on investors.
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Transcript
Amy: Tonight, we are already seeing a pretty big impact on stocks, bonds, and other investments from last week's election. You're listening to "Simply Money," presented by Allworth Financial. I'm Amy Wagner along with Steve Hruby. You know, Steve, I think when we talk about volatility, when we use that word, most people picture markets going down. But volatility also means markets going up unexpectedly, right? Maybe more than anticipated. And we are seeing some volatility right now.
Steve: You bring up a good point. Volatility sounds like it's a negative connotation, but it means ups and downs. It means bumpy. And there's nothing wrong with bumpy when the long-term trend in the markets is still up. So, yes, we did set the expectation of volatility, which can mean in both directions. And, lately, stocks have absolutely been soaring. A lot of this fueled by expectations for pro-business policies from Trump-elect's upcoming administration, Republicans on the verge of controlling presidency, Senate, and House, actually.
Amy: And I think, you know, corporations needed to take a beat, and, really, it was only a beat just to digest, okay, President Trump is our president-elect, and as the result of that, okay, so we're thinking through regulations, we're thinking through tariffs, we're thinking through tax cuts, we're thinking through all these things. Okay. And I think as they look at those, and Andy Stout, our chief investment officer, was mentioning this earlier this week on the show, the result for corporations is sort of what they feel like a net positive, right, for them moving forward. And as the result of that, all systems go, the stock market responded accordingly.
Steve: Yeah, I mean, I think the way that Andy summarized that yesterday evening when we interviewed him was a really great perspective on why the markets are behaving the way they are, because, you know, you could look at the other side of the coin too and say, well, you know, we have tariffs and deportations, which are both extremely inflationary, but at the same time, the balance of deregulation and tax breaks comes out on top, according to the markets right now anyways.
Amy: Yeah. And here's an example, right? A company that stock is just going gangbusters right now, Tesla. Speaking of volatility, we've seen lots of volatility with Tesla over the past couple of years. Well, Tesla's market valuation topped $1 trillion late last week, of course, after that post-election rally lifted their stock by more than 25%. What was going on there? Well, hopes that the incoming Trump administration would benefit that company and maybe even hamper electric vehicle competitors. So it's just like, okay, wait, this is working. And by the way, you know, the name Elon Musk, right, in relation to the company Tesla, he saw President Trump being elected as such a positive thing for his company. He donated millions of dollars to the cause and countless hours. I mean, I think Elon Musk was out there, like, knocking on doors, right?
Steve: And it worked out for him.
Amy: Yeah, the end result initially, at least, you know, in the wake of this election is exactly what he expected. I mean, the company's valuation has gone way up.
Steve: Yeah. Now, talking about the dollar here, obviously a key gauge of the dollar's strength, its highest level in four months on Monday, as many of the greenback's rivals weakened across the world. The dollar has been rising in recent months with Treasury yields, expectations that Trump had the upper hand in the race for the White House. Wall Street, they're widely viewing Trump's policies on the horizon here. Again, like, tax cuts and tariffs is helping boost U.S. dollar.
Amy: You know, as we talk about these different sort of asset classes and how they're responding so far to this election, I just want to remind you that this is so far. This is just one...
Steve: So far, yeah.
Amy: This is just a little less than one week in. And so we're not saying, oh, like, cryptocurrency, right? It's now above $80,000 for the first time this week. You know, of course, a rally fueled by crypto optimism. And we've had Donald Trump kind of talking about a number of things in that cryptocurrency market that looked like crypto-friendly regulations, right? He used to call crypto a scam, and he is now embracing digital assets. He's making a bunch of promises too, right, scaling back federal regulations, vowing to fire the SEC's chairman, pledging to build a U.S. crypto reserve. And he also talks about, and I think this is in typical kind of Donald Trump speak, making the U.S. the crypto capital of the planet. I mean, and so crypto is on its hair there as well. Why am I talking about so far? I'm not saying go out and buy a bunch of crypto.
Steve: Exactly.
Amy: This is one week in. We need to wait until the water settle a little bit to be able to determine. And history really can only tell us kind of looking backwards what the end result is. So please don't make any kind of changes to your long-term financial plan. Leading up to the election, people were tempted to make those based on fear because we didn't know what was going to happen. Now, we've got certain parts of the market, certain asset classes going on a tear as the result of this. So don't react with greed and go buy something that doesn't necessarily make sense for your plan long term. You're listening to "Simply Money," presented by Allworth Financial. I'm Amy Wagner, along with Steve Hruby. As we are just talking about, hey, what is the reaction of the markets to this election so far, I think we could say they've been pretty good. Your 401(k), probably pretty happy right now.
Steve: Yeah, it's been on a tear for a couple of years here, and the news recently has certainly propped things up. But, you know, you bring up a good point here. It's don't react on this stuff in the short term, because I want you to think about a president over the span of your lifetime that has actually fulfilled every single campaign promise that they have offered when they're on the campaign trail. A lot of this stuff is reactionary based on cryptos going up, Bitcoin topping $80,000, based on firing the SEC chairman, and making the U.S. the crypto capital of the planet. I'm not sure that all of these things are actually going to come to fruition. So it's not that...you know, because things are on a tear as far as Bitcoin is concerned, it doesn't mean sell your retirement assets and put them into crypto when it's at an all-time high.
Amy: Let's talk about the bond market now, too, because this is kind of one area where investors in the bond market are looking at President Trump, some of the promises he made on the campaign trail and saying, "Okay, this may not be so good for us."
Steve: Yeah, I mean, the election here has had a totally different impact on bonds. Right after the election, the 10-year Treasury bonds rose to 4.479%, which was a 4-month high. Higher bond yield does mean a declining bond market, though, because bond prices fall as yields rise. Bond traders voice unease with Trump's fiscal plans, and that's being reflected in what's happening with bond prices currently.
Amy: Yeah, it's like other pieces of the economy are like, "Great, great, great." But here's the deal. When he's talking about preserving and extending tax cuts, right, many Americans are like, "Great, fantastic." We were worried that these were set to sunrise next year. But the problem then is if you keep kind of moving down, okay, what happens then if those tax cuts are preserved or even extended kind of beyond how they normally stand, well, then that could mean a larger, right...it's going to widen the federal budget deficit. And then also he's talked about tariffs, and that could reignite inflation. And so as the bond market looks at specifically how will this affect this market, I think the worries have now translated to rising yields. And, you know, investors are going to expect to receive a higher yield in the interest rate in exchange for kind of lending that money, taking on what could be more risk.
Steve: Yeah, and, you know, in the current economic cycle, bond investors, they're perceiving there to be more risk in holding U.S. debt if there's not an eye on a plan for reducing spending, which currently there isn't. So this is obviously going to have ripple effects in the current bond market, which is reacting not so favorably as opposed to what we've talked about today with stocks, specifically Tesla, Bitcoin, and so on.
Amy: You know, as I'm listening to us speak, we're saying this market is perceiving this, it's assuming that. That's just kind of the reminder I want to talk about at this point, is, listen, we don't exactly know what's going to happen yet. I mean, we haven't even had an inauguration. And so this is based on, to your point, promises that are made on the campaign trail. And this is not ever an attack on the president once they come into office. This is what we see time and time again on both sides of the aisle. Big promises made, and then, okay, let's see what happens in the first 100 days in that first year. Many times people have tried to make investments based on how they think regulations might impact a certain sector, a certain company, a certain asset class. And then we look back, and we're like, oh, interestingly, things went the opposite direction with that company or that sector.
And so while we're talking about, hey, listen, this is how things are just shaking out in this first week, I just want to go back to the point I was making, which is that don't make any changes if you didn't already have crypto as an investment. And I would still say it's more of a gamble, right? We're still waiting for regulations to shake out with the crypto market. I think there's still a lot of unknowns here. But if you didn't have...if you didn't count on crypto being a smart long-term investment for you before, I don't think it makes sense to jump in right now, right, or jump out of the bond market based on the reaction for this first week or go all in on the stock market because these big American companies are thinking this deregulation is going to be a good thing for them because we just don't know yet. All of these initial moves are based on assumptions, not necessarily factor reality.
Steve: Yeah. The diversified mix within your investment portfolio is always the best way to weather the storm over the long term. Yes, if we pull back the curtains a little bit on bonds currently, why these long-term yields are rising and hence bond prices falling. Many investors right now expect that the federal government under Trump is going to maintain a higher deficit spending. In doing so, as the federal deficit grows, investors take greater risk, and they expect to be paid a higher interest rate for loaning money to the government, which is exactly what you're doing when you have bonds. But that doesn't mean, like you said, it's time to walk away from bonds because bonds serve as a cushion or a pillow to soften the blow when we inevitably have some kind of a pullback in the stock side of our portfolio.
Amy: Yeah, you go all in on stocks right now, and the market goes down, and, suddenly, you're going to be regretting making decisions based on just this first week of reaction to this election. Here's the Allworth advice. Listen, reach out to your financial advisor, ask whether there's maybe anything you should or should not be doing with your long-term financial plan right now. But I would say don't make any decisions based on just one week in the markets. Coming up next, if the stock market had what's called a lost decade, would you still be okay? We're going to look at that next.
You're listening to "Simply Money," presented by Allworth Financial, here on 55KRC THE Talk Station. You're listening to "Simply Money," presented by Allworth Financial. I'm Amy Wagner, along with Steve Hruby. If you can't listen to our show every night, you don't have to miss the thing we talk about. We've got a daily podcast for you. Just search "Simply Money" on the iHeart app or wherever you get your podcast. Coming up at 6:43, required minimum distributions. So much confusion around something that Uncle Sam makes us do. We will make sure that you understand the latest here coming up in just a few minutes.
Okay, no question. Since 2022, the stock market has been on its hair. Your 401(k) is looking really good. And I think, in that place, it's really easy for investors to feel like you can do no wrong, right? We forget what it feels like when we have those losses in the stock market. And, recently, there has been kind of a term floating around all over in the financial media, the lost decade. We've experienced these before, right? You look at from 1999 to 2009, right? The S&P 500 actually generated an annualized total return of almost a negative percent over that period, 10 years. And if you were in the market, you were down almost a percent. And, of course, the other period of time was the Great Depression decade of the 1930s. So we have experienced this before. It hurts. It's not fun for anyone. We're not saying one is coming. There are some people in the financial news world that are talking about this, but it's worth at least exploring, hey, if this were to happen, would you be prepared? And what can you do to prepare?
Steve: Well, some of these people in the news world, as you say, that are talking about this potential for an upcoming loss decade are actually basing that information from Goldman Sachs and JP Morgan, both of which have cautioned for a potential dramatic reduced returns going forwards. How bad might things get according to them? You know, Goldman says that the S&P 500 could be... So if you notice, I'm using words like could, maybe, potential. Now, this is important to highlight, but could be one of the weakest areas of returns in the past century. This is a major prediction that you do not need to act on. There's other companies that don't think there is a loss decade in front of us. But either way, you owe it to yourself to stay invested, because that is the way to keep up with inflation, which is a killer in your portfolio, especially if you're retired currently.
Amy: Well, we're not saying this is happening. And I think you make an excellent point, right? These are absolute predictions. And we have seen more times than not these predictions never come true. But I think it's an exercise worth thinking through of what if this were to happen. If you're years away from retirement, okay, you stay invested, right? You keep the same market exposure that you've always had. But what happens if you're getting closer to retirement and, all of a sudden, you're watching those...you know, your investments down, down, down, right? What can you do? What should you do?
I would say there are a few practical steps. And one of the things that I talk to the investors that I work with, and this is all the time, even when markets are up, is let's build some cash reserves, a year or two's worth of expenses. Why? Okay, that can sound crazy right now when the markets are on a tear. Why would you pull money out of the market? Why would you want large cash reserves? Well, because when the market goes south...it inevitably will. I don't know if it's going to be a decade worth or a year's worth or six months, but you don't want to take distributions out of that portfolio when they're at a loss. And so if you've got money sitting there on the sidelines that you can live off of in the meantime, you just turn off those distributions and the losses are on paper. You're not actually realizing them.
Steve: I want to highlight the fact that you just kind of went against a typical rule of thumb. So we've had these conversations before where rules of thumbs may not always serve you best. And one of them is you need to have a three to six-month emergency fund, three months for a double-income household, six months for a single-income household. But things change when you transition into retirement to protect yourself and buy time against volatility. One to two years is certainly not a bad place to be for exactly the reasons you just spelled out. You know, we also want to make sure that we're simply planning for the worst-case scenario. When you're working with a financial advisor, a certified financial planner, and they're building financial plans for you, you know, I have a lot of fun with this, I try to blow people's plans up. What I mean by that is I kick out longevity and say you're going to live for a lot longer than you think you are. We increase assumptions about spending, especially inflating earlier in retirement and then later in retirement. We assume really terrible returns and then simulate what that might look like in this situation to see if your money lives longer than you do. Even if all these things go wrong, one of them would be, you know, a version of a lost decade or more.
Amy: Yeah. And I think that's great because think about the peace of mind you'll have. We do so much research. We look at so much research in doing the show. The number one concern that retirees have is outliving your money. So if you have Steve throwing your plan up against the wall and stomping on it, saying if all these terrible things happen and we're still okay, you will sleep better at night. You know, one of the things that I point out to clients when I'm working with them and we look at their plan is we're assuming really conservative rates of return, you know. And someone was just pointing that out to me the other day. They're like, "Why do you only have 5% or 6% in this plan?" If, you know, in reality, over the past couple of years, I'm getting 20% plus icing on the cake, right, you don't want to plan for 20%, then markets go south, and, all of a sudden, your numbers don't work, and you're not sleeping at night. So I think another thing that you can do is, first of all, plan for all the worst-case scenarios but also just assume some really conservative rates of return, you know, beyond historical norms. Because then if we do have something like a lost decade or several years of down investments, you're probably going to be okay.
Steve: And it does make sense to revisit your risk often as you get closer to approaching retirement. You know, you don't want to be in a situation where you're a couple of years out from retirement, and the markets slide into a bear market paired with a recession, and your portfolio gets kicked in the teeth. Ideally, we're not driving down the fast lane passing cars on the left when we're approaching the exit, which represents your retirement. Ideally, we are slowing down a little bit, pulling back the risk, getting into the right lane, and not having, you know, a 90/10 portfolio when we're 64 years old, maybe pulling back to a 70/30 or a 60/40, depending on your own risk tolerance, your need to take risk, your ability to take risk. Obviously, there's a lot of moving parts there, but, you know, it's important to make sure that we are at a place that we need to be as far as our investment asset allocation is concerned as we get closer and closer to transitioning into retirement.
Amy: I like this metaphor of yours about driving down the road and getting into that right lane. You know, I think some people, though, on the flip side, want to pull over to the side and stop driving, you know, entirely, right?
Steve: Can't do that.
Amy: Yeah, you can't do that, which means you also need some stock exposure. You know, I've seen people kind of lean towards, you know, 30/70, and it's like, okay, now your concern is inflation, the silent killer of retirement, and you're not getting maybe enough market exposure to outpace inflation. So there's a Goldilocks point here for everyone. And the key is kind of figuring out what your unique asset allocation actually is. Here's the Allworth advice. Market swings, they're really just...they're going to happen. What matters is how your portfolio is positioned based on your needs, your dollars, your risk for tolerance on the road to that point. Coming up next, a warning about one thing in your house that could be spying on you and why that matters for your money. You're listening to "Simply Money," presented by Allworth Financial, here on 55KRC THE Talk Station.
You're listening to "Simply Money," presented by Allworth Financial. I'm Amy Wagner, along with Steve Hruby. It's a Sunday afternoon. The Bengals are on. You're watching the game on your TV. Maybe you're a little frustrated, but maybe you should be more than that. Maybe you should be downright scared. Why? Because your TV could be spying on you. I'm not making this up. Dave Hatter, our tech expert from Intrust IT, is here to explain. Seriously, our smart TVs are, like, watching us?
Dave: I know this is a shocker to you, right, Amy? That your smart TV, smart in air quotes, right? You can't see me doing the air quotes, would be surveilling you like all of your so-called smart devices. So...
Amy: Just creepy.
Dave: Yeah, especially because most of these new smart TVs have microphones and cameras in them, right? A lot of them you can talk to, which just adds to the surveillance angle of it, which means it not only is potentially tracking everything you watch, how long you watched it, that sort of thing, but also potentially, you know, capturing your reaction to things through the camera, listening to you on the microphone, etc. So, yeah, it's...
Steve: I don't like that. Our TVs are literally watching us.
Dave: Well, you know, someone named George Orwell wrote a book about that [crosstalk 00:21:03], you know? The telescreen is now your new Vizio TV hanging on your wall.
Amy: You know, I know people, Dave, who will put, like, a little Post-it note over their laptop, like, where the camera is just so that it, I don't know, can't come on or look at them when they don't know it. Like, can you do something like that with your TV, or is it just kind of it is what it is?
Dave: Well, yeah, you could. And, you know, when people say that seems paranoid, remember, just cause you're paranoid doesn't mean they're not out to get you. They are, Amy. But when you see, like, the FBI director or people like Mark Zuckerberg at events and they've got the camera covered on their computer, you think they might know something that you don't know...
Amy: Probably.
Dave: ...and that maybe that's not as crazy as it seems. So, yeah, assuming that your smart TV has a camera in it, you could certainly cover it up. You know, my big problem with all these so-called smart devices, the internet of things, it's not necessarily that they're surveilling you. I mean, it's kind of built into their nature. And a lot of these companies make this stuff for next to nothing because your data is more valuable to them in the long run than the purchase price of the device.
Amy: Crazy.
Dave: It's the people who don't understand what they're signing up for. You know, if you decide to plug a whole bunch of smart devices into your environment, doorbells, thermostats, TVs, whatever, and you fully understand that these things are going to be surveilling you in all kinds of different ways, and you agree to that, okay, I mean, you're an adult, that's on you. My issue with all of this is the privacy washing and then the dark patterns. Like, you can go into your smart TV and in some cases turn off some of this capability, but it's usually buried. If you can control it at all, it's usually buried deep down inside the menu. And then, like, they give you the warning, "So if you turn this off, this thing will happen." So it's the lack of informed consent that really aggravates me about this, not so much the surveillance itself, because you can make a case that some of that surveillance means you get more relevant programming.
Steve: I don't care. I'd rather have them not watching me. You know, that's...
Dave: Me too.
Amy: Me too.
Steve: I was going to ask, you know, what are the actual positives here? And that's the only thing I could think of, is tailored programming, I mean, tailored marketing. What do I care about that?
Dave: Well, I agree with you completely. Again, you know, you can make that argument that, over time, as the company behind the TV watches what you like. And in some cases, it leads to, like, in-program ads. You know, they know that you're watching show X, show X fits into this sort of demographic. So you're going to get ads as a result of that, you know. Are you going to get more relevant ads? Probably. But, you know, versus the value to them for the psychographic data they're capturing about you. Yeah, that's not worth it to me. You know, I just seem to go back to the old rabbit ears and the aluminum foil days, you know. We did not have oversurveillance.
Amy: I was just going to say that. Like, I remember actually having to get up off the couch and touching the TV to customize it to what I want to watch. So I don't mind if it's not feeding me programs that are like other things that I've watched if getting that in exchange, it's watching me and then disseminating information about me. I mean, there's something about when you're online and you're looking something up, that's creepy enough, but something actually watching you in the privacy of your home, to me, this feels like next level.
Dave: Well, you know, Amy, I really can't disagree with you. Like I said, I'm not a fan of most of these internet of things devices, because when you get right down to it, most of them have perverse incentive from a marketplace perspective and your privacy. You know, these things are cheap and in some cases free, because they want to get into your house. They want to collect your data, right? And the easier they are to use at the expense of privacy and security, the better for the manufacturer, right? They want market share. They want speed to market. They want ease of use because that makes it more likely you'll use it and keep using it versus a focus on privacy and security.
And it's not just the privacy aspect. You know, there's all kinds of security problems with these things too. A recent study showed that most of these smart TV manufacturers don't put out software updates for their products for more than two years. So if you have a 4-year-old smart TV, it is a security dumpster fire most likely, because there are search engines designed, like Shodan, to find these devices online. And if there's a known vulnerability in a certain device, and I can find it in your network, I can potentially exploit that to get to other devices like your computer or your office. So the privacy thing is a big problem. Again, if you really dig into this, I think most people would be shocked at how much data they're collecting. At one time, Vizio TVs were apparently screenshotting whatever you were watching every second.
Steve: Wow.
Amy: Oh, gosh.
Dave: It's crazy stuff.
Steve: And, you know, I think about this too, because I have a 9-year-old daughter, and she picks up the remote and pushes a button. I didn't know about this. She showed me. She pushes a button, talks into the TV, and the TV does what she wants, which means that there is a microphone built into the remote. Does that mean that we're being listened to as well?
Dave: Well, now think about it. That's a smart and important question. Of course, it means you're being listened to. Otherwise, how could it respond? Any device that is voice...
Steve: But at all times she has to push a button. She has to push a button for it. So are these things able to listen to us when the button's not being pushed?
Dave: Well, do you trust that it's not?
Steve: Probably.
Dave: In theory, it's not if you have to push the button, but any device that's voice-activated... There was another interesting study a couple of years ago where they took a bunch of these so-called smart devices like Alexa, put them in a room, turned the TV on for 24 hours, and then recorded how often they activated. Because, in theory, they only activate when you say their wake word or press a button or something, right? If you go find that study, I predict you will be shocked at how often they activated at times that don't make any sense. Now, is it nefarious? Probably not. It's generally...again, we're going to focus on the ease of use, right? If I make things too hard to use, if you have to say something a certain way to get it to respond or whatever, you're probably going to get frustrated. So I'm not saying these things are all evil and that there's, like, an evil plot behind it. I'm saying, because they have to focus on ease of use for the consumer, you often have a much looser approach to the amount of data they're collecting. So could...
Amy: So, Dave, you mentioned before you can get into the TV, but you almost need a PhD in technology in order to figure out how to turn these things off. What can we do to protect ourselves? Is the answer don't buy these devices? I don't even know. Can you buy TVs that aren't smart TVs anymore?
Dave: I think it's really hard to find a TV that's not smart, Amy. I think you're making another important point. You know, you can. If you buy a smart TV, again, I think you're going to be hard-pressed to find one that's not smart. You know, you could just use it as an old-school over-the-air TV, but that, obviously, significantly reduces its functionality. You can go into the settings and dig down in there and see what you can turn off. Much of this will be based on an advertiser ID. Sometimes you can change that. Anything that tracks me with an advertiser ID, if it'll let me change it, I just change it occasionally to foul up their algorithms because I'm just that kind of guy. But, you know, you can get into the settings and see what you can turn off. You know, if you want to get really nerdy, you could try to set up your router to block packets being sent back to the manufacturer. You know, there are ways to potentially reduce the surveillance and the amount of data they're collecting, but it's going to depend on your particular TV. It's going to depend on your particular setup and, frankly, how nerdy you are, or do you have access to a tinfoil-hat-wearing nerd like me? They can tell you what to do.
Amy: Probably worth the time, though, to go in and at least look at the privacy settings and see if there's something you can do in additional steps to protect yourself. Great advice as always. Always eye-opening from Dave Hatter, our tech expert from Intrust IT. You're listening to "Simply Money," presented by Allworth Financial, here on 55KRC THE Talk Station.
You're listening to "Simply Money," presented by Allworth Financial. I'm Amy Wagner, along with Steve Hruby. Do you have a financial question that's keeping you up at night? 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. Right now might be a really good time to take note of how much money you are spending. Here's the hint. We're going into the holiday season. You may need a budget. We'll get to that in a few minutes.
Okay. It would be so nice if every dollar that you ever made, you had complete and total control over. If you're thinking, "Wait, don't I?" well, here's the deal. When you get to retirement, and you have a large amount of money built up in your 401(k) or your IRAs, right, in traditional tax-deferred dollars, you don't have complete control because, at that point, Uncle Sam is going to say, "Okay, you haven't paid taxes on this money for long enough. It's been in this account. It's been invested. It's been growing. And, now, we're going to tax you on every dollar you're going to pull out. And if you don't need that money at the age of 73, we're going to tell you how much you have to pull out and win." This is called required minimum distributions. It is Uncle Sam saying, "Show me the money."
Steve: Yeah. In short, they want to squeeze some tax dollars out of you while you're still alive. That's the bottom line. Now, keep in mind, when you made a pre-tax contribution to an IRA or a 401(k), you did get a deduction upon making that contribution, which was a benefit at the time. So we do owe taxes when we take money out of these pre-tax accounts. But the bummer behind the RMD is even if you don't need the money, Uncle Sam is going to force your hand. Meaning, and this is at 73 years old at this point, a couple of years from now, it's getting kicked to 75, but the penalty for missing a required minimum distribution, up to 25% of the amount that you were supposed to draw. On top of that, you still have to pay the income taxes. So you definitely don't want to miss the RMD deadline, which is December 31st of every single year.
Amy: Isn't that nice of Uncle Sam? Reserving the stiffest penalty possible for people who are in retirement, making sure that you get this right. And if you just want to pull back the curtain on what's going on in the Allworth offices right now, we are dialing people, we are calling clients left and right to make sure that we have taken care of these RMDs, that these have all been satisfied, that this money has been moved out of these accounts. If this is something that you have not done and you're over that age of 73, please look into this for yourself before the end of the year. One good thing, though, to take note of...and I'm like, you know, sometimes it's like, why did it take the government this long to figure this out? So if you were putting money into a Roth IRA for years, RMDs never applied to you. You paid taxes on the money at the point of putting it in that account, and then that account grows tax-free. There's no RMDs, but for a while there, Uncle Sam was saying, "Okay, but we're going to treat Roth 401(k)s differently." If you're confused, I wonder why. You know, I feel like there's so much confusion over Roth 401(k)s versus Roth IRAs. And, now, some of that confusion is gone because if you do have money invested in a Roth 401(k), there are no longer RMDs required for those accounts.
Steve: Yeah, it was a very clunky system because...
Amy: It was so stupid.
Steve: ...you were being forced to pay...you were being forced to take out a higher RMD amount based on money that you didn't owe taxes on. So they closed that gap. I mean, there was a solution. It was pretty easy. It was roll your 401(k) into a rollover IRA and a Roth IRA. Once those assets were separated out and they were in the Roth IRA, there's no required minimum distribution, which is still an option at this point. But if there's a really good reason to stay in your 401(k) and you're retired, you're not being penalized based on the full balance of your 401(k), just the pre-tax amount, which is an improvement.
Amy: Yeah. So, essentially, now, your Roth 401(k) is on equal footing with your Roth IRA other than the income limitations on those Roth IRAs, right? Those don't apply to your Roth 401(k). Again, I understand why this is confusing, because it is. Let's go to RMDs if you have inherited accounts. So maybe you're nowhere close to the age of 73, but you inherited an account, an IRA, from one of your parents.
Steve: Yeah. So what used to be called the stretch IRA, this is, if you inherited an IRA prior to 2020, then you could stretch out the RMDs that you needed to take over the course of your own lifetime. Most beneficiaries now have to distribute the entire account within 10 years of inheritance. A little bit of a bummer. We used to be able to keep that money working for us, not the case anymore.
Amy: And I think this is where you have to be really intentional about this. If you're inheriting a significant IRA, right, it could bump you up into a higher tax bracket if you have to take out one-tenth of that every year. So this is where, hey, plan for this, think through this, and understand maybe the implications of it as well.
Steve: Yeah. I mean, there's a lot of moving parts with an inherited IRA. I think this is one where you certainly need to sit down and talk to a financial planner, an accountant if you have one to make sure that you're not making any mistakes and ending up penalized, to make sure that you aren't taking out more than you need to as well, because there can be some benefits of deferring these distributions depending on your current income situation.
Amy: Here's the Allworth advice. Ask your financial advisor, does it make sense to take advantage of these new rules so you can keep more money in your pocket? Coming up next, spending season is upon us. A word to the wise. Next. You're listening to "Simply Money," presented by Allworth Financial, here on 55KRC THE Talk Station.
You're listening to "Simply Money," presented by Allworth Financial. I'm Amy Wagner along with Steve Hruby. Listen, if you've been to any major retailer, like, actually walked in a store or even maybe gone online in the past few days, you have probably come to the realization that Black Friday is no longer a day. Thanksgiving deals, whatever you want to call it, Cyber Monday, it is just all like one two-month-long extravaganza of spending. And it's already started.
Steve: It's not the week before Christmas yet, so I personally haven't noticed.
Amy: Of course.
Steve: But, apparently, Target, they couldn't wait to unveil their holiday shopping specials. There's deals through the month of November to give customers a bang for their buck. Apparently, deals of the day starting on November 1st, actually.
Amy: You know, I remember when Black Friday was like the Super Bowl of shopping. You know, people would get the ads. They'd be combing through them. They'd be figuring... And, now, it's just like a blip on the radar. Nobody even cares because the deals start November 1st. Same at Walmart, right? They've already released some of their Black Friday plans. They've got special sale dates through Cyber Monday. So you don't have to wait until then. And I will say this is also a time where, hey, if you are a default-to-Amazon shopper, it does make sense to just shop around. Look at Target. Look at Walmart. Look at your other options. I've learned that in the past with electronics for my kids and toys when they were younger, that oftentimes when you get closer to the holidays, you can find better deals by just shopping around a little bit. So that can make a lot of sense right now.
Steve: So we saw some good news from the National Retail Federation, and they're expecting the upcoming holiday season to be a busy one. They're looking at consumer spending expected to surpass about 2.5% to 3.5% of what it did last year. So keep in mind these spending tips, like what you just shared. Most of the time, on top of that, you don't need to buy extended warranties. In fact, check the fine print with your credit card company. We've talked about this before. There could be coverage through your credit card if you bought something with that.
Amy: And I'm going to bring up the B word right now. We're going to talk about a budget because this is the time of year when I think people can just get really caught up in generosity to the detriment of yourself, right? One more thing, one more thing for the kids. And then, oh, I can't pay for all of this now. And, all of a sudden, buy now, pay later plans start to make sense. Listen, if you can't afford it out right now...and that does not mean putting it on your credit card and then figuring out in January if you can pay it off or not. No, do not take a balance. Do not carry a balance on that credit card. This is payoff in full at the point, right, that you're buying it or when that credit card bill is due. You know, go into this holiday season with a budget. That makes a lot of sense.
Steve: Yeah. And it's okay to set expectations. If you have a large family or a big circle of friends, the cost of gifts, it quickly gets out of control. Spend less gifts on this year by setting expectations early of what that might look like. Conversely, if you just start your shopping about five days before Christmas, that could help.
Amy: I'm a huge fan of this.
Steve: [inaudible 00:38:10].
Amy: I caught what you just said there. Yes. No, do not wait until the last minute. A plan for this is the opposite.
Steve: I like that advice.
Amy: It's the anti-Steve-Hruby holiday spending plan. But, listen, also realize that experiences a lot of times will last far longer, those memories, than any of the things that you will buy. So maybe think about taking your family, you know, to something fun altogether. Thanks for listening tonight. We hope you're going to tune in tomorrow. We are breaking down the October inflation report. You've been listening to "Simply Money," presented by Allworth Financial, here on 55KRC THE Talk Station.
Steve: You bring up a good point. Volatility sounds like it's a negative connotation, but it means ups and downs. It means bumpy. And there's nothing wrong with bumpy when the long-term trend in the markets is still up. So, yes, we did set the expectation of volatility, which can mean in both directions. And, lately, stocks have absolutely been soaring. A lot of this fueled by expectations for pro-business policies from Trump-elect's upcoming administration, Republicans on the verge of controlling presidency, Senate, and House, actually.
Amy: And I think, you know, corporations needed to take a beat, and, really, it was only a beat just to digest, okay, President Trump is our president-elect, and as the result of that, okay, so we're thinking through regulations, we're thinking through tariffs, we're thinking through tax cuts, we're thinking through all these things. Okay. And I think as they look at those, and Andy Stout, our chief investment officer, was mentioning this earlier this week on the show, the result for corporations is sort of what they feel like a net positive, right, for them moving forward. And as the result of that, all systems go, the stock market responded accordingly.
Steve: Yeah, I mean, I think the way that Andy summarized that yesterday evening when we interviewed him was a really great perspective on why the markets are behaving the way they are, because, you know, you could look at the other side of the coin too and say, well, you know, we have tariffs and deportations, which are both extremely inflationary, but at the same time, the balance of deregulation and tax breaks comes out on top, according to the markets right now anyways.
Amy: Yeah. And here's an example, right? A company that stock is just going gangbusters right now, Tesla. Speaking of volatility, we've seen lots of volatility with Tesla over the past couple of years. Well, Tesla's market valuation topped $1 trillion late last week, of course, after that post-election rally lifted their stock by more than 25%. What was going on there? Well, hopes that the incoming Trump administration would benefit that company and maybe even hamper electric vehicle competitors. So it's just like, okay, wait, this is working. And by the way, you know, the name Elon Musk, right, in relation to the company Tesla, he saw President Trump being elected as such a positive thing for his company. He donated millions of dollars to the cause and countless hours. I mean, I think Elon Musk was out there, like, knocking on doors, right?
Steve: And it worked out for him.
Amy: Yeah, the end result initially, at least, you know, in the wake of this election is exactly what he expected. I mean, the company's valuation has gone way up.
Steve: Yeah. Now, talking about the dollar here, obviously a key gauge of the dollar's strength, its highest level in four months on Monday, as many of the greenback's rivals weakened across the world. The dollar has been rising in recent months with Treasury yields, expectations that Trump had the upper hand in the race for the White House. Wall Street, they're widely viewing Trump's policies on the horizon here. Again, like, tax cuts and tariffs is helping boost U.S. dollar.
Amy: You know, as we talk about these different sort of asset classes and how they're responding so far to this election, I just want to remind you that this is so far. This is just one...
Steve: So far, yeah.
Amy: This is just a little less than one week in. And so we're not saying, oh, like, cryptocurrency, right? It's now above $80,000 for the first time this week. You know, of course, a rally fueled by crypto optimism. And we've had Donald Trump kind of talking about a number of things in that cryptocurrency market that looked like crypto-friendly regulations, right? He used to call crypto a scam, and he is now embracing digital assets. He's making a bunch of promises too, right, scaling back federal regulations, vowing to fire the SEC's chairman, pledging to build a U.S. crypto reserve. And he also talks about, and I think this is in typical kind of Donald Trump speak, making the U.S. the crypto capital of the planet. I mean, and so crypto is on its hair there as well. Why am I talking about so far? I'm not saying go out and buy a bunch of crypto.
Steve: Exactly.
Amy: This is one week in. We need to wait until the water settle a little bit to be able to determine. And history really can only tell us kind of looking backwards what the end result is. So please don't make any kind of changes to your long-term financial plan. Leading up to the election, people were tempted to make those based on fear because we didn't know what was going to happen. Now, we've got certain parts of the market, certain asset classes going on a tear as the result of this. So don't react with greed and go buy something that doesn't necessarily make sense for your plan long term. You're listening to "Simply Money," presented by Allworth Financial. I'm Amy Wagner, along with Steve Hruby. As we are just talking about, hey, what is the reaction of the markets to this election so far, I think we could say they've been pretty good. Your 401(k), probably pretty happy right now.
Steve: Yeah, it's been on a tear for a couple of years here, and the news recently has certainly propped things up. But, you know, you bring up a good point here. It's don't react on this stuff in the short term, because I want you to think about a president over the span of your lifetime that has actually fulfilled every single campaign promise that they have offered when they're on the campaign trail. A lot of this stuff is reactionary based on cryptos going up, Bitcoin topping $80,000, based on firing the SEC chairman, and making the U.S. the crypto capital of the planet. I'm not sure that all of these things are actually going to come to fruition. So it's not that...you know, because things are on a tear as far as Bitcoin is concerned, it doesn't mean sell your retirement assets and put them into crypto when it's at an all-time high.
Amy: Let's talk about the bond market now, too, because this is kind of one area where investors in the bond market are looking at President Trump, some of the promises he made on the campaign trail and saying, "Okay, this may not be so good for us."
Steve: Yeah, I mean, the election here has had a totally different impact on bonds. Right after the election, the 10-year Treasury bonds rose to 4.479%, which was a 4-month high. Higher bond yield does mean a declining bond market, though, because bond prices fall as yields rise. Bond traders voice unease with Trump's fiscal plans, and that's being reflected in what's happening with bond prices currently.
Amy: Yeah, it's like other pieces of the economy are like, "Great, great, great." But here's the deal. When he's talking about preserving and extending tax cuts, right, many Americans are like, "Great, fantastic." We were worried that these were set to sunrise next year. But the problem then is if you keep kind of moving down, okay, what happens then if those tax cuts are preserved or even extended kind of beyond how they normally stand, well, then that could mean a larger, right...it's going to widen the federal budget deficit. And then also he's talked about tariffs, and that could reignite inflation. And so as the bond market looks at specifically how will this affect this market, I think the worries have now translated to rising yields. And, you know, investors are going to expect to receive a higher yield in the interest rate in exchange for kind of lending that money, taking on what could be more risk.
Steve: Yeah, and, you know, in the current economic cycle, bond investors, they're perceiving there to be more risk in holding U.S. debt if there's not an eye on a plan for reducing spending, which currently there isn't. So this is obviously going to have ripple effects in the current bond market, which is reacting not so favorably as opposed to what we've talked about today with stocks, specifically Tesla, Bitcoin, and so on.
Amy: You know, as I'm listening to us speak, we're saying this market is perceiving this, it's assuming that. That's just kind of the reminder I want to talk about at this point, is, listen, we don't exactly know what's going to happen yet. I mean, we haven't even had an inauguration. And so this is based on, to your point, promises that are made on the campaign trail. And this is not ever an attack on the president once they come into office. This is what we see time and time again on both sides of the aisle. Big promises made, and then, okay, let's see what happens in the first 100 days in that first year. Many times people have tried to make investments based on how they think regulations might impact a certain sector, a certain company, a certain asset class. And then we look back, and we're like, oh, interestingly, things went the opposite direction with that company or that sector.
And so while we're talking about, hey, listen, this is how things are just shaking out in this first week, I just want to go back to the point I was making, which is that don't make any changes if you didn't already have crypto as an investment. And I would still say it's more of a gamble, right? We're still waiting for regulations to shake out with the crypto market. I think there's still a lot of unknowns here. But if you didn't have...if you didn't count on crypto being a smart long-term investment for you before, I don't think it makes sense to jump in right now, right, or jump out of the bond market based on the reaction for this first week or go all in on the stock market because these big American companies are thinking this deregulation is going to be a good thing for them because we just don't know yet. All of these initial moves are based on assumptions, not necessarily factor reality.
Steve: Yeah. The diversified mix within your investment portfolio is always the best way to weather the storm over the long term. Yes, if we pull back the curtains a little bit on bonds currently, why these long-term yields are rising and hence bond prices falling. Many investors right now expect that the federal government under Trump is going to maintain a higher deficit spending. In doing so, as the federal deficit grows, investors take greater risk, and they expect to be paid a higher interest rate for loaning money to the government, which is exactly what you're doing when you have bonds. But that doesn't mean, like you said, it's time to walk away from bonds because bonds serve as a cushion or a pillow to soften the blow when we inevitably have some kind of a pullback in the stock side of our portfolio.
Amy: Yeah, you go all in on stocks right now, and the market goes down, and, suddenly, you're going to be regretting making decisions based on just this first week of reaction to this election. Here's the Allworth advice. Listen, reach out to your financial advisor, ask whether there's maybe anything you should or should not be doing with your long-term financial plan right now. But I would say don't make any decisions based on just one week in the markets. Coming up next, if the stock market had what's called a lost decade, would you still be okay? We're going to look at that next.
You're listening to "Simply Money," presented by Allworth Financial, here on 55KRC THE Talk Station. You're listening to "Simply Money," presented by Allworth Financial. I'm Amy Wagner, along with Steve Hruby. If you can't listen to our show every night, you don't have to miss the thing we talk about. We've got a daily podcast for you. Just search "Simply Money" on the iHeart app or wherever you get your podcast. Coming up at 6:43, required minimum distributions. So much confusion around something that Uncle Sam makes us do. We will make sure that you understand the latest here coming up in just a few minutes.
Okay, no question. Since 2022, the stock market has been on its hair. Your 401(k) is looking really good. And I think, in that place, it's really easy for investors to feel like you can do no wrong, right? We forget what it feels like when we have those losses in the stock market. And, recently, there has been kind of a term floating around all over in the financial media, the lost decade. We've experienced these before, right? You look at from 1999 to 2009, right? The S&P 500 actually generated an annualized total return of almost a negative percent over that period, 10 years. And if you were in the market, you were down almost a percent. And, of course, the other period of time was the Great Depression decade of the 1930s. So we have experienced this before. It hurts. It's not fun for anyone. We're not saying one is coming. There are some people in the financial news world that are talking about this, but it's worth at least exploring, hey, if this were to happen, would you be prepared? And what can you do to prepare?
Steve: Well, some of these people in the news world, as you say, that are talking about this potential for an upcoming loss decade are actually basing that information from Goldman Sachs and JP Morgan, both of which have cautioned for a potential dramatic reduced returns going forwards. How bad might things get according to them? You know, Goldman says that the S&P 500 could be... So if you notice, I'm using words like could, maybe, potential. Now, this is important to highlight, but could be one of the weakest areas of returns in the past century. This is a major prediction that you do not need to act on. There's other companies that don't think there is a loss decade in front of us. But either way, you owe it to yourself to stay invested, because that is the way to keep up with inflation, which is a killer in your portfolio, especially if you're retired currently.
Amy: Well, we're not saying this is happening. And I think you make an excellent point, right? These are absolute predictions. And we have seen more times than not these predictions never come true. But I think it's an exercise worth thinking through of what if this were to happen. If you're years away from retirement, okay, you stay invested, right? You keep the same market exposure that you've always had. But what happens if you're getting closer to retirement and, all of a sudden, you're watching those...you know, your investments down, down, down, right? What can you do? What should you do?
I would say there are a few practical steps. And one of the things that I talk to the investors that I work with, and this is all the time, even when markets are up, is let's build some cash reserves, a year or two's worth of expenses. Why? Okay, that can sound crazy right now when the markets are on a tear. Why would you pull money out of the market? Why would you want large cash reserves? Well, because when the market goes south...it inevitably will. I don't know if it's going to be a decade worth or a year's worth or six months, but you don't want to take distributions out of that portfolio when they're at a loss. And so if you've got money sitting there on the sidelines that you can live off of in the meantime, you just turn off those distributions and the losses are on paper. You're not actually realizing them.
Steve: I want to highlight the fact that you just kind of went against a typical rule of thumb. So we've had these conversations before where rules of thumbs may not always serve you best. And one of them is you need to have a three to six-month emergency fund, three months for a double-income household, six months for a single-income household. But things change when you transition into retirement to protect yourself and buy time against volatility. One to two years is certainly not a bad place to be for exactly the reasons you just spelled out. You know, we also want to make sure that we're simply planning for the worst-case scenario. When you're working with a financial advisor, a certified financial planner, and they're building financial plans for you, you know, I have a lot of fun with this, I try to blow people's plans up. What I mean by that is I kick out longevity and say you're going to live for a lot longer than you think you are. We increase assumptions about spending, especially inflating earlier in retirement and then later in retirement. We assume really terrible returns and then simulate what that might look like in this situation to see if your money lives longer than you do. Even if all these things go wrong, one of them would be, you know, a version of a lost decade or more.
Amy: Yeah. And I think that's great because think about the peace of mind you'll have. We do so much research. We look at so much research in doing the show. The number one concern that retirees have is outliving your money. So if you have Steve throwing your plan up against the wall and stomping on it, saying if all these terrible things happen and we're still okay, you will sleep better at night. You know, one of the things that I point out to clients when I'm working with them and we look at their plan is we're assuming really conservative rates of return, you know. And someone was just pointing that out to me the other day. They're like, "Why do you only have 5% or 6% in this plan?" If, you know, in reality, over the past couple of years, I'm getting 20% plus icing on the cake, right, you don't want to plan for 20%, then markets go south, and, all of a sudden, your numbers don't work, and you're not sleeping at night. So I think another thing that you can do is, first of all, plan for all the worst-case scenarios but also just assume some really conservative rates of return, you know, beyond historical norms. Because then if we do have something like a lost decade or several years of down investments, you're probably going to be okay.
Steve: And it does make sense to revisit your risk often as you get closer to approaching retirement. You know, you don't want to be in a situation where you're a couple of years out from retirement, and the markets slide into a bear market paired with a recession, and your portfolio gets kicked in the teeth. Ideally, we're not driving down the fast lane passing cars on the left when we're approaching the exit, which represents your retirement. Ideally, we are slowing down a little bit, pulling back the risk, getting into the right lane, and not having, you know, a 90/10 portfolio when we're 64 years old, maybe pulling back to a 70/30 or a 60/40, depending on your own risk tolerance, your need to take risk, your ability to take risk. Obviously, there's a lot of moving parts there, but, you know, it's important to make sure that we are at a place that we need to be as far as our investment asset allocation is concerned as we get closer and closer to transitioning into retirement.
Amy: I like this metaphor of yours about driving down the road and getting into that right lane. You know, I think some people, though, on the flip side, want to pull over to the side and stop driving, you know, entirely, right?
Steve: Can't do that.
Amy: Yeah, you can't do that, which means you also need some stock exposure. You know, I've seen people kind of lean towards, you know, 30/70, and it's like, okay, now your concern is inflation, the silent killer of retirement, and you're not getting maybe enough market exposure to outpace inflation. So there's a Goldilocks point here for everyone. And the key is kind of figuring out what your unique asset allocation actually is. Here's the Allworth advice. Market swings, they're really just...they're going to happen. What matters is how your portfolio is positioned based on your needs, your dollars, your risk for tolerance on the road to that point. Coming up next, a warning about one thing in your house that could be spying on you and why that matters for your money. You're listening to "Simply Money," presented by Allworth Financial, here on 55KRC THE Talk Station.
You're listening to "Simply Money," presented by Allworth Financial. I'm Amy Wagner, along with Steve Hruby. It's a Sunday afternoon. The Bengals are on. You're watching the game on your TV. Maybe you're a little frustrated, but maybe you should be more than that. Maybe you should be downright scared. Why? Because your TV could be spying on you. I'm not making this up. Dave Hatter, our tech expert from Intrust IT, is here to explain. Seriously, our smart TVs are, like, watching us?
Dave: I know this is a shocker to you, right, Amy? That your smart TV, smart in air quotes, right? You can't see me doing the air quotes, would be surveilling you like all of your so-called smart devices. So...
Amy: Just creepy.
Dave: Yeah, especially because most of these new smart TVs have microphones and cameras in them, right? A lot of them you can talk to, which just adds to the surveillance angle of it, which means it not only is potentially tracking everything you watch, how long you watched it, that sort of thing, but also potentially, you know, capturing your reaction to things through the camera, listening to you on the microphone, etc. So, yeah, it's...
Steve: I don't like that. Our TVs are literally watching us.
Dave: Well, you know, someone named George Orwell wrote a book about that [crosstalk 00:21:03], you know? The telescreen is now your new Vizio TV hanging on your wall.
Amy: You know, I know people, Dave, who will put, like, a little Post-it note over their laptop, like, where the camera is just so that it, I don't know, can't come on or look at them when they don't know it. Like, can you do something like that with your TV, or is it just kind of it is what it is?
Dave: Well, yeah, you could. And, you know, when people say that seems paranoid, remember, just cause you're paranoid doesn't mean they're not out to get you. They are, Amy. But when you see, like, the FBI director or people like Mark Zuckerberg at events and they've got the camera covered on their computer, you think they might know something that you don't know...
Amy: Probably.
Dave: ...and that maybe that's not as crazy as it seems. So, yeah, assuming that your smart TV has a camera in it, you could certainly cover it up. You know, my big problem with all these so-called smart devices, the internet of things, it's not necessarily that they're surveilling you. I mean, it's kind of built into their nature. And a lot of these companies make this stuff for next to nothing because your data is more valuable to them in the long run than the purchase price of the device.
Amy: Crazy.
Dave: It's the people who don't understand what they're signing up for. You know, if you decide to plug a whole bunch of smart devices into your environment, doorbells, thermostats, TVs, whatever, and you fully understand that these things are going to be surveilling you in all kinds of different ways, and you agree to that, okay, I mean, you're an adult, that's on you. My issue with all of this is the privacy washing and then the dark patterns. Like, you can go into your smart TV and in some cases turn off some of this capability, but it's usually buried. If you can control it at all, it's usually buried deep down inside the menu. And then, like, they give you the warning, "So if you turn this off, this thing will happen." So it's the lack of informed consent that really aggravates me about this, not so much the surveillance itself, because you can make a case that some of that surveillance means you get more relevant programming.
Steve: I don't care. I'd rather have them not watching me. You know, that's...
Dave: Me too.
Amy: Me too.
Steve: I was going to ask, you know, what are the actual positives here? And that's the only thing I could think of, is tailored programming, I mean, tailored marketing. What do I care about that?
Dave: Well, I agree with you completely. Again, you know, you can make that argument that, over time, as the company behind the TV watches what you like. And in some cases, it leads to, like, in-program ads. You know, they know that you're watching show X, show X fits into this sort of demographic. So you're going to get ads as a result of that, you know. Are you going to get more relevant ads? Probably. But, you know, versus the value to them for the psychographic data they're capturing about you. Yeah, that's not worth it to me. You know, I just seem to go back to the old rabbit ears and the aluminum foil days, you know. We did not have oversurveillance.
Amy: I was just going to say that. Like, I remember actually having to get up off the couch and touching the TV to customize it to what I want to watch. So I don't mind if it's not feeding me programs that are like other things that I've watched if getting that in exchange, it's watching me and then disseminating information about me. I mean, there's something about when you're online and you're looking something up, that's creepy enough, but something actually watching you in the privacy of your home, to me, this feels like next level.
Dave: Well, you know, Amy, I really can't disagree with you. Like I said, I'm not a fan of most of these internet of things devices, because when you get right down to it, most of them have perverse incentive from a marketplace perspective and your privacy. You know, these things are cheap and in some cases free, because they want to get into your house. They want to collect your data, right? And the easier they are to use at the expense of privacy and security, the better for the manufacturer, right? They want market share. They want speed to market. They want ease of use because that makes it more likely you'll use it and keep using it versus a focus on privacy and security.
And it's not just the privacy aspect. You know, there's all kinds of security problems with these things too. A recent study showed that most of these smart TV manufacturers don't put out software updates for their products for more than two years. So if you have a 4-year-old smart TV, it is a security dumpster fire most likely, because there are search engines designed, like Shodan, to find these devices online. And if there's a known vulnerability in a certain device, and I can find it in your network, I can potentially exploit that to get to other devices like your computer or your office. So the privacy thing is a big problem. Again, if you really dig into this, I think most people would be shocked at how much data they're collecting. At one time, Vizio TVs were apparently screenshotting whatever you were watching every second.
Steve: Wow.
Amy: Oh, gosh.
Dave: It's crazy stuff.
Steve: And, you know, I think about this too, because I have a 9-year-old daughter, and she picks up the remote and pushes a button. I didn't know about this. She showed me. She pushes a button, talks into the TV, and the TV does what she wants, which means that there is a microphone built into the remote. Does that mean that we're being listened to as well?
Dave: Well, now think about it. That's a smart and important question. Of course, it means you're being listened to. Otherwise, how could it respond? Any device that is voice...
Steve: But at all times she has to push a button. She has to push a button for it. So are these things able to listen to us when the button's not being pushed?
Dave: Well, do you trust that it's not?
Steve: Probably.
Dave: In theory, it's not if you have to push the button, but any device that's voice-activated... There was another interesting study a couple of years ago where they took a bunch of these so-called smart devices like Alexa, put them in a room, turned the TV on for 24 hours, and then recorded how often they activated. Because, in theory, they only activate when you say their wake word or press a button or something, right? If you go find that study, I predict you will be shocked at how often they activated at times that don't make any sense. Now, is it nefarious? Probably not. It's generally...again, we're going to focus on the ease of use, right? If I make things too hard to use, if you have to say something a certain way to get it to respond or whatever, you're probably going to get frustrated. So I'm not saying these things are all evil and that there's, like, an evil plot behind it. I'm saying, because they have to focus on ease of use for the consumer, you often have a much looser approach to the amount of data they're collecting. So could...
Amy: So, Dave, you mentioned before you can get into the TV, but you almost need a PhD in technology in order to figure out how to turn these things off. What can we do to protect ourselves? Is the answer don't buy these devices? I don't even know. Can you buy TVs that aren't smart TVs anymore?
Dave: I think it's really hard to find a TV that's not smart, Amy. I think you're making another important point. You know, you can. If you buy a smart TV, again, I think you're going to be hard-pressed to find one that's not smart. You know, you could just use it as an old-school over-the-air TV, but that, obviously, significantly reduces its functionality. You can go into the settings and dig down in there and see what you can turn off. Much of this will be based on an advertiser ID. Sometimes you can change that. Anything that tracks me with an advertiser ID, if it'll let me change it, I just change it occasionally to foul up their algorithms because I'm just that kind of guy. But, you know, you can get into the settings and see what you can turn off. You know, if you want to get really nerdy, you could try to set up your router to block packets being sent back to the manufacturer. You know, there are ways to potentially reduce the surveillance and the amount of data they're collecting, but it's going to depend on your particular TV. It's going to depend on your particular setup and, frankly, how nerdy you are, or do you have access to a tinfoil-hat-wearing nerd like me? They can tell you what to do.
Amy: Probably worth the time, though, to go in and at least look at the privacy settings and see if there's something you can do in additional steps to protect yourself. Great advice as always. Always eye-opening from Dave Hatter, our tech expert from Intrust IT. You're listening to "Simply Money," presented by Allworth Financial, here on 55KRC THE Talk Station.
You're listening to "Simply Money," presented by Allworth Financial. I'm Amy Wagner, along with Steve Hruby. Do you have a financial question that's keeping you up at night? 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. Right now might be a really good time to take note of how much money you are spending. Here's the hint. We're going into the holiday season. You may need a budget. We'll get to that in a few minutes.
Okay. It would be so nice if every dollar that you ever made, you had complete and total control over. If you're thinking, "Wait, don't I?" well, here's the deal. When you get to retirement, and you have a large amount of money built up in your 401(k) or your IRAs, right, in traditional tax-deferred dollars, you don't have complete control because, at that point, Uncle Sam is going to say, "Okay, you haven't paid taxes on this money for long enough. It's been in this account. It's been invested. It's been growing. And, now, we're going to tax you on every dollar you're going to pull out. And if you don't need that money at the age of 73, we're going to tell you how much you have to pull out and win." This is called required minimum distributions. It is Uncle Sam saying, "Show me the money."
Steve: Yeah. In short, they want to squeeze some tax dollars out of you while you're still alive. That's the bottom line. Now, keep in mind, when you made a pre-tax contribution to an IRA or a 401(k), you did get a deduction upon making that contribution, which was a benefit at the time. So we do owe taxes when we take money out of these pre-tax accounts. But the bummer behind the RMD is even if you don't need the money, Uncle Sam is going to force your hand. Meaning, and this is at 73 years old at this point, a couple of years from now, it's getting kicked to 75, but the penalty for missing a required minimum distribution, up to 25% of the amount that you were supposed to draw. On top of that, you still have to pay the income taxes. So you definitely don't want to miss the RMD deadline, which is December 31st of every single year.
Amy: Isn't that nice of Uncle Sam? Reserving the stiffest penalty possible for people who are in retirement, making sure that you get this right. And if you just want to pull back the curtain on what's going on in the Allworth offices right now, we are dialing people, we are calling clients left and right to make sure that we have taken care of these RMDs, that these have all been satisfied, that this money has been moved out of these accounts. If this is something that you have not done and you're over that age of 73, please look into this for yourself before the end of the year. One good thing, though, to take note of...and I'm like, you know, sometimes it's like, why did it take the government this long to figure this out? So if you were putting money into a Roth IRA for years, RMDs never applied to you. You paid taxes on the money at the point of putting it in that account, and then that account grows tax-free. There's no RMDs, but for a while there, Uncle Sam was saying, "Okay, but we're going to treat Roth 401(k)s differently." If you're confused, I wonder why. You know, I feel like there's so much confusion over Roth 401(k)s versus Roth IRAs. And, now, some of that confusion is gone because if you do have money invested in a Roth 401(k), there are no longer RMDs required for those accounts.
Steve: Yeah, it was a very clunky system because...
Amy: It was so stupid.
Steve: ...you were being forced to pay...you were being forced to take out a higher RMD amount based on money that you didn't owe taxes on. So they closed that gap. I mean, there was a solution. It was pretty easy. It was roll your 401(k) into a rollover IRA and a Roth IRA. Once those assets were separated out and they were in the Roth IRA, there's no required minimum distribution, which is still an option at this point. But if there's a really good reason to stay in your 401(k) and you're retired, you're not being penalized based on the full balance of your 401(k), just the pre-tax amount, which is an improvement.
Amy: Yeah. So, essentially, now, your Roth 401(k) is on equal footing with your Roth IRA other than the income limitations on those Roth IRAs, right? Those don't apply to your Roth 401(k). Again, I understand why this is confusing, because it is. Let's go to RMDs if you have inherited accounts. So maybe you're nowhere close to the age of 73, but you inherited an account, an IRA, from one of your parents.
Steve: Yeah. So what used to be called the stretch IRA, this is, if you inherited an IRA prior to 2020, then you could stretch out the RMDs that you needed to take over the course of your own lifetime. Most beneficiaries now have to distribute the entire account within 10 years of inheritance. A little bit of a bummer. We used to be able to keep that money working for us, not the case anymore.
Amy: And I think this is where you have to be really intentional about this. If you're inheriting a significant IRA, right, it could bump you up into a higher tax bracket if you have to take out one-tenth of that every year. So this is where, hey, plan for this, think through this, and understand maybe the implications of it as well.
Steve: Yeah. I mean, there's a lot of moving parts with an inherited IRA. I think this is one where you certainly need to sit down and talk to a financial planner, an accountant if you have one to make sure that you're not making any mistakes and ending up penalized, to make sure that you aren't taking out more than you need to as well, because there can be some benefits of deferring these distributions depending on your current income situation.
Amy: Here's the Allworth advice. Ask your financial advisor, does it make sense to take advantage of these new rules so you can keep more money in your pocket? Coming up next, spending season is upon us. A word to the wise. Next. You're listening to "Simply Money," presented by Allworth Financial, here on 55KRC THE Talk Station.
You're listening to "Simply Money," presented by Allworth Financial. I'm Amy Wagner along with Steve Hruby. Listen, if you've been to any major retailer, like, actually walked in a store or even maybe gone online in the past few days, you have probably come to the realization that Black Friday is no longer a day. Thanksgiving deals, whatever you want to call it, Cyber Monday, it is just all like one two-month-long extravaganza of spending. And it's already started.
Steve: It's not the week before Christmas yet, so I personally haven't noticed.
Amy: Of course.
Steve: But, apparently, Target, they couldn't wait to unveil their holiday shopping specials. There's deals through the month of November to give customers a bang for their buck. Apparently, deals of the day starting on November 1st, actually.
Amy: You know, I remember when Black Friday was like the Super Bowl of shopping. You know, people would get the ads. They'd be combing through them. They'd be figuring... And, now, it's just like a blip on the radar. Nobody even cares because the deals start November 1st. Same at Walmart, right? They've already released some of their Black Friday plans. They've got special sale dates through Cyber Monday. So you don't have to wait until then. And I will say this is also a time where, hey, if you are a default-to-Amazon shopper, it does make sense to just shop around. Look at Target. Look at Walmart. Look at your other options. I've learned that in the past with electronics for my kids and toys when they were younger, that oftentimes when you get closer to the holidays, you can find better deals by just shopping around a little bit. So that can make a lot of sense right now.
Steve: So we saw some good news from the National Retail Federation, and they're expecting the upcoming holiday season to be a busy one. They're looking at consumer spending expected to surpass about 2.5% to 3.5% of what it did last year. So keep in mind these spending tips, like what you just shared. Most of the time, on top of that, you don't need to buy extended warranties. In fact, check the fine print with your credit card company. We've talked about this before. There could be coverage through your credit card if you bought something with that.
Amy: And I'm going to bring up the B word right now. We're going to talk about a budget because this is the time of year when I think people can just get really caught up in generosity to the detriment of yourself, right? One more thing, one more thing for the kids. And then, oh, I can't pay for all of this now. And, all of a sudden, buy now, pay later plans start to make sense. Listen, if you can't afford it out right now...and that does not mean putting it on your credit card and then figuring out in January if you can pay it off or not. No, do not take a balance. Do not carry a balance on that credit card. This is payoff in full at the point, right, that you're buying it or when that credit card bill is due. You know, go into this holiday season with a budget. That makes a lot of sense.
Steve: Yeah. And it's okay to set expectations. If you have a large family or a big circle of friends, the cost of gifts, it quickly gets out of control. Spend less gifts on this year by setting expectations early of what that might look like. Conversely, if you just start your shopping about five days before Christmas, that could help.
Amy: I'm a huge fan of this.
Steve: [inaudible 00:38:10].
Amy: I caught what you just said there. Yes. No, do not wait until the last minute. A plan for this is the opposite.
Steve: I like that advice.
Amy: It's the anti-Steve-Hruby holiday spending plan. But, listen, also realize that experiences a lot of times will last far longer, those memories, than any of the things that you will buy. So maybe think about taking your family, you know, to something fun altogether. Thanks for listening tonight. We hope you're going to tune in tomorrow. We are breaking down the October inflation report. You've been listening to "Simply Money," presented by Allworth Financial, here on 55KRC THE Talk Station.
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