Amy: Tonight, big news on inflation, moving in the right direction, and why you could maybe make a 10,000% return on something you might have in your wallet. And, we're playing everybody's favorite game, retirement fact or fiction. You're listening to "Simply Money," presented by Allworth Financial. I'm Amy Wagner, along with Steve Sprovach. Today's a big day.

Steve: Yeah.

Amy: You know, several years ago, no one necessarily cared when inflation data came out, because, womp, womp. It was around 2%, it was below 2%, nobody cared. We definitely care. Over the past year and a half, we've been up to north of 9%...

Steve: North of nine, yeah. Yeah.

Amy ...coming back down, and we hope that today's numbers kind of continued on that trend, and they did.

Steve: Well, and we've been, you know, not just watching it, but does the Fed need to increase rates more, because every time the Fed gets together, they're saying, "We might have to increase rates more," so we're kind of expecting that. They're kind of leading us to believe that, you know what, this job is not done yet. Inflation is still too high. We need to take this seriously. But they've skipped rate increases the last few times. And, you know, the concern is, well, maybe they should have. Maybe they didn't need to take a break, but the Fed said, you know what, it takes time for these rate increases to work their way through the economy. Let's just sit tight and see if they're starting to bite, if they're starting to continue to, or if they're still doing what they're designed to do, without having us to raise rates further. Because if the Fed raises rates too much, we go into a recession. It's a knife edge.

Amy: We've talked about... We've talked about the tightrope, right? That they're walking.

Steve: Yeah. Yeah.

Amy: And the headline is, it is working, right?

Steve: It is.

Amy: The inflation rate fell from 3.7% in September to 3.2% in October.

Steve: That's huge. That's huge.

Amy: Keep in mind, the goal is 2%. And the closer we get to that, the harder it's going to be to get there, so that's a huge number. Now, why, right? How did it go down so much? [crosstalk 00:02:00]

Steve: Yeah. Gas. One word. Gas.

Amy: Yes, exactly.

Steve: I mean, when you fill up your tank, I fill up mine... I was in Florida last week, and I actually saw $2.89 for regular gas.

Amy: Oh, that's such a [crosstalk 00:02:08]

Steve: It almost makes you wanna go out and buy gas. You know, it's that cheap.

Amy: It doesn't make it hurt as much as it has, it does at some points, you know?

Steve: Yeah. Well, that's...okay, that's what's called the headline number. This is the Consumer Price Index. This is the number you and I look at, because this affects how you and I live, how much we spend. But the Federal Reserve looks at a different number. They look at the core CPI, or core Consumer Price Index, that cuts out gas and food. Do they not care about gas and food? No. But those are the two most volatile components, and they're looking for trends. And the news is good, but not quite as good. We actually saw an increase in core CPI, from 3.8% to 4.0%. Well, that's bad news, isn't it? No, that was a lot less than the so-called experts were expecting. So, it was less than expected, and the headline inflation rate was much lower than expected. All of that adds up to the stock market going bonkers, and that's a good thing, because this is just one more example of the numbers showing the Fed, maybe they nailed it. Maybe they did it exactly the way they needed to, and maybe we're gonna start talking a little bit more about rate cuts next year, not rate hikes.

Amy: In fact, if you look at, because the Federal Reserve is meeting again, right, next month, it's, like, December 12th and 13th. And earlier this year, there was probably a much higher chance of them hiking. But once this data came in, and obviously, anything can change between now and then, there's, like, a 99% chance, right now, the economists are predicting, the Fed just holds steady. No more rate hikes, which they had predicted another rate hike in 2023. So, it's almost like, and they kind of said, hey, there's a lag time, right, when we make these decisions, when we make these hikes, to when it actually kind of ripples through the economy. And so, now we're starting to see, okay, maybe they have done enough here. And the result, may be, maybe we don't see any more rate hikes.

Steve: We might be done. We might very well be done. And I'd read an article yesterday, kind of interesting. Morgan Stanley, there's some smart people over there. They think we're gonna start seeing rate cuts by the Federal Reserve by June of next year, and they're saying maybe as many as five or six rate cuts. Goldman Sachs, also some pretty darn smart people. They're thinking, well, it may not be until September, October of next year, and may be only three to four rate cuts. The bottom line is, we're arguing over what month they're gonna start cutting rates. That's a good thing to argue over. Because rate cuts means stock prices go up. Bond prices, which surprised a lot of people that they lost money in bonds... Wait, aren't they supposed to be your shock absorber? Not when interest rates go up a ton, and when interest rates go down, the money that you lost in bonds when interest rates were going up, you make back when interest rates go down. So, these predictions of rate cuts next year, they're all adding up to a very good likelihood that your 401(k), my 401(k) should be in better shape.

Amy: You're listening to "Simply Money," presented by Allworth Financial. I'm Amy Wagner, along with Steve Sprovach. As we talk about the latest news out today, right, the latest inflation numbers, what that means for the Federal Reserve, our nation's central bank, what it means for you and me, our 401(k)s, future mortgage rates, right? There's a lot of things that this impacts.

Steve: Yeah. Everything.

Amy: Thinking back, though, just for a little perspective on this, over the past year, year and a half, when the Federal Reserve kind of embarked on this journey to bring inflation down initially, most people in this space, and looking at the economy, looking at markets, kind of thought, in order to bring inflation down, we're probably gonna have to hike rates into a recession, to the point where Americans, we were worried about our jobs, we were worried about, you know, digging ourself out of this major ditch, that was necessary in order to bring inflation down. And I've gotta give it to the Federal Reserve. At least, at this point, it appears they pulled off maybe that soft landing that seemed like it was gonna be so hard to do, where...and I think there's a lot of reasons for that, right? The job market has just been so strong, despite what the Federal Reserve has been doing. But, you know, it was like, I don't know, it was like, if you're watching the Olympics, and you see, like, a dive, and every one of the judges holds up a 10, right? What are the odds of that happening? It's almost like that kind of a situation with the Federal...it's, like, the perfect dive, splashless into the water, and that's what the Federal Reserve [crosstalk 00:06:37]

Steve: Your mind's on someplace warmer than here, I can tell.

Amy: I know, yeah, [crosstalk 00:06:40]

Steve: Don't forget the Soviet judge. He's gonna give them a 4.2.

Amy: See? Even the Soviet judge apparently gave it a 10.

Steve: But, you know, you've gotta go on history. I mean, when is the last time we saw high inflation? '79, '80, 81? I was...

Amy: It's been 40 years.

Steve: I was around then. And yeah, what happened? The Federal Reserve, under Paul Volcker at the time, raised rates very aggressively, and did such a good job, they didn't throw us into one recession. They threw us into two recessions. It was brutal. I mean, it was absolutely brutal. But the thinking was, that's what you have to do to get inflation down. So, you know, most people that were around back then were saying, "Well, yeah, we're gonna have a recession." That's why stocks went down. And the higher interest rates is why bonds went down, and we had a real rough year in 2022. Well, you know what? If they pull this off, and it's looking more and more likely, as more and more data comes in and we don't see a recession, well, what's holding stocks back? Okay, why have we seen such a run in stocks in the first two weeks of November? Well, you know what? The real smart people and the big money out there, that does the research ahead of time, they're looking at where are we gonna be six months down the road, eight months down the road. They're not waiting for the numbers to come out. They're making their own numbers, on their own research, and you know what? If you wanna buy low and sell high, when are stocks cheap? When there's a lot of bad news out there, before the good news has come. When all the good news is out, and everybody's feeling good, that's probably the end of the road for the big increase in pricing. So, yeah, why have stocks gone up so much? If you look at your October statement and you're not happy, take a look at your statement, or take a look at the balances now, because you might be very pleasantly surprised if you weren't paying attention to what happened in the past couple weeks.

Amy: Right, we're not huge proponents of checking your 401(k) all the time, but, hey, if...

Steve: Unless the news is good.

Amy: ...if you wanna have a little peek tonight, tonight may not be the worst time to look at it. But you're also talking about when there's good news versus when there's bad news. And I have to go back to one of the things we talk about all the time here on the show, which is, I feel like the people who write these articles, who produce this content for some of these major websites that we go to for financial information, they're always looking for the sky is falling. I mean, here we have a great day for the markets, and then there's the headline out there about a death cross.

Steve: That'll get your attention.

Amy: Yeah! Yeah, with the scariest-looking woman, with her face is, like, painted like death, [crosstalk 00:09:02] and saying, like, "Hey, don't get too excited, because the death cross is coming." And "Dow sees first bearish death cross since March, 2022." What the heck are they talking about? I mean... Yeah.

Steve: Yeah. There's always something out there. Yeah. Yeah. I mean, for every good news article, there's gonna be a bad news article.

Amy: There's four bad news articles, I feel like.

Steve: No kidding. Well, the death cross, and I don't wanna get too technical, but this is something called technical analysis. There are advisors and analysts out there that look at all of these different charts, and when they see a chart that shows the 50-day moving, Standard and Poor's 500 average, versus the 200-day, short-term versus long-term, and they cross, where the 50-day, the short term, is lower than the 200-day, they go into a panic, because a lot of times, when that, when those two lines cross, the market is on the precipice and going off the cliff. But you know, I don't buy that. That's almost like saying, you know, which Bengals team was better, the '89 Bengals or the 2022 Bengals? Both went to the Super Bowl. Yeah, but it was different eras, different things were going on. How could you say one was better than the other? I stick with fundamentals. Fundamentals are, are companies more profitable and getting larger, then your little piece of the pie that is represented by your share of stock is gonna be worth more, in the long run. Short-term, anybody's guess. Long-term, yeah, you're gonna be in better shape.

Amy: I mean, there's death crosses, there's black swans, right? All these things that are gonna get headlines. It's looking at short-term trends versus long-term trends. And sometimes trends work, and sometimes they don't. But I think what you have to look at is the actual data, which shows that gross domestic product, which is the report card of the health of our economy, continues to grow. We're in earnings season. Most companies are strong and getting stronger. I mean, the American economy seems to be in a really good place. So, when you see articles like this one, I don't know, I think you just... I don't think you even click. You just go right on by.

Steve: I just stick to, just look six to nine months down the road. Are things gonna be a little better or a little bit worse? Yeah, there's a lot of things going on in the world, you know, national debt, and, you know, all the politicians and government shutdown. That's always there, you know, but the economy is what determines valuation of stocks, and ultimately interest rates determine the valuation of bonds. Where are we gonna be six, nine months down the road? I think it's gonna be a little better than we saw six months in the past.

Amy: Here's the Allworth advice. Listen, don't get too high or too low depending on the news of the day. Concern yourself with the long term, as Steve just said. Focus six to nine months down the road. How would you like to turn two bucks into $20,000? Sound pretty good? Well, you may be able to do that. It could be in your wallet right now. We'll explain. You're listening to "Simply Money," presented by Allworth Financial, here on 55KRC, THE Talk Station.

You're listening to "Simply Money," presented by Allworth Financial. I'm Amy Wagner, along with Steve Sprovach. If you miss our show one day, you don't have to miss a thing. We've got a daily podcast for you. Just search "Simply Money." It's right there on the iHeart app, or wherever you get your podcast. Coming up at 6:43, so much misinformation out there about money and retirement. We're gonna play a little retirement fact or fiction, so you can get to the truth of the matter.

Right, when you were a kid, right, were you, did you have two dollar bills? I know my son, for whatever reason, had a few two dollar bills that he took to basketball camp one time.

Steve: Okay.

Amy: And he was supposed to take it and give it to, like, they had a concession stand, and you could, like, set up an account for the week, and get stuff out of it. What my son did was he realized every kid around him thought that the two dollar bill was way cooler. So he traded the two dollar bill for someone else's five dollar bill, and someone else's ten dollar bill. And he made so much money on those two dollar bills.

Steve: Arbitrage.

Amy: Only my son.

Steve: Good for him. Well, you know, it's interesting. Two dollar bills, they go back to the 1800s, and they stopped printing them in 1966, and then inflation started to heat up, and by 1976, they said, this is kind of the new dollar bill. It's a two dollar bill. They didn't catch on. I don't know of anybody that hung on to two dollar bills, although you probably...

Amy: I actually have...

Steve: Why does this not surprise me?

Amy: ...weirdly, an envelope of two dollar bills that we still have. But yeah, so...

Steve: I never called you a nerd. Please continue.

Amy: I know. I am. Well, I am a total nerd. And so, I will be checking that envelope. But if you have any two dollar bills lying around your house, you should as well, because some uncirculated U.S. dollar bills could be worth up to $20,000. It depends on a number of things here.

Steve: That's crazy. Twenty grand for a two dollar bill.

Amy: Yeah. Yeah. So, the serial number on it, right? If you happen to have a serial number, like, from 1976 that starts with 1, you're probably in pretty good shape there. And then, when they were printed, the condition of them... Obviously, if they're all crumpled up, and, like, they've been in someone's pocket for 17 years...

Steve: Nah. Done.

Amy: ...you're not getting much for that. Here's the deal. Most of these two dollar bills are worth $2. But in some cases, if you wanna check the serial numbers on them, and the year that they were printed, if there's one with 12345678, or a bunch of all ones or all twos, it could be worth something.

Steve: Yeah. Yeah. Take a look at them. Heck, yeah. Heck, yeah. And if they've all got the same serial number, use it for Liar's Poker. You're gonna win a ton of money. Way more than $20 grand.

Amy: All right. There's some great money advice for you right there. So, the Fed's effort to slow down the economy, right? We were just talking about trying to bring down inflation, good inflation numbers, but one of the byproducts of that has been, well, the housing market has come to a virtual halt. Most people aren't buying houses because what you thought you could afford on a $250,000 mortgage last year, when you were paying 3% versus 8% now...

Steve: Big difference.

Amy: Yeah. Most people, it's priced a lot of people out of the market.

Steve: Housing affordability, just in the past year, year and a half, it's gone to its lowest point. Affordability is at its lowest point in almost 40 years, Amy. And, you know, mortgage rates are the primary reason. You know, it's interesting. I've got a brother-in-law, successful real estate broker, in Minnesota. And when I ask him about how bad he's getting hurt, "Well, we go through this all the time, Steve. I'm not hurting at all. But the people that were just doing it on a whim, spare time, yeah, they're leaving in droves." So, in his view, it kind of takes out the amateurs, which is good for him in the long run. But this is something that I think a lot of people expect. It's the instant gratification. "Well, yeah, rates went up a ton. Mortgage rates are pushing 8%. They'll probably be down by 3% or 4% sometime next year." No. I don't see it. I think they're gonna stay, maybe not at 8%, but they're not going down below 5% for probably a couple of years. So, number one, get used to it. But number two, all right, how does this affect new home buyers and people that are struggling to scrape together the down payment? Well, it's a tough market for them right now.

Amy: Yeah. Some of the research that we did on a story for Fox 19 that we aired recently said 2026 might be when the real estate market finally returns to normal. I mean, here's this number. The monthly principal and interest payment on a mortgage for a median-price home has climbed 94% in the last two years.

Steve: Double. Yeah.

Amy: I mean, you think about first-time home buyers, right? Trying to get a foot in the market. First of all, the average first-time home buyer is 10 years older than they used to be. Most people used to buy their first home in their 20s. Now, first homes are bought mid-30s, even late 30s, because people cannot afford the down payments, the interest, the payments on these things. It's just crazy.

Steve: I can't imagine. I was 24 years old when we bought our first home. By the way, 11% mortgage.

Amy: Oh, ouch.

Steve: And that was adjustable-rate, which was lower than the fixed rate, because we were taking the risk that if interest rates went up, we were gonna see higher than 11%. But I kind of, being in this business, even though I was only 24, I knew rates were likely to drop, and they did. And that turned out to be a good deal for us, which is why I think people are looking at adjustable-rate mortgages again, because if interest rates drop, they're gonna be in better shape a year, two years from now. But first-time home buyers, they're usually about 38% to 40% of all home sales. They're down to 32%. They can't afford it. And that's the lowest percentage that we've seen for first-time home buyers since 1981. Oh, did something happen in '81? Yeah, same thing. High inflation, high interest rates, exact same situation. So we're seeing the cycle go around again. And like you indicated, I mean, I think you made a great point, that this is not gonna get back down to 3%, 4%, 5% anytime soon.

Amy: So, the only people who are buying homes right now, baby boomers, right?

Steve: Old people like me.

Amy: You're the ones that have the money. You've got money that's built up through the years. You maybe got some cash.

Steve: Yeah, downsize. Yeah.

Amy: Yeah. If you're ready to make the move, well, kinda stinks you're gonna be paying more maybe in mortgage rates in the short term. But most people say, "Okay, I'm gonna go ahead and make that move right now. But the interesting thing is, a lot of the data shows most Americans agree it's a terrible time to buy a house. However, most of us also agree it's a great time to sell your house. So, there's, like, this disconnect too, right? Like, "Oh, yeah. I'm not ready to buy a house right now, but I'm happy to put my house on the market." I don't know where you're gonna go next, right? Because the other part of that equation is selling this one, buying another one.

Steve: Yeah. And it's not just realtors. I mean, the mortgage brokers, they're getting killed. I mean, if there's no activity, they don't have mortgages that they can sell. But you know what? If you can get a mortgage that you can either get an adjustable rate, or that has very, very easy refinance terms, which I think the mortgage brokers, the smart ones out there, are offering, you can probably think about refinancing two years from now. So, if you need a house, maybe bite the bullet and get what you need, and then refi down the road.

Amy: Here's a "Simply Money" point. There's a new picture kind of emerging on buyers who still feel like they can get a house, right? They're older. Many of them have sold a home before buying, so they're also wealthier. It's going to be a while before this market returns to what it was before now. And I do, my heart goes out to any of those first-time home buyers, because it's just not the best place to be. But this will rebound. Our economy, our housing market, it always does.

Coming up next, the season of giving. We're going to discuss the nuances of it that can kill two financial birds with one stone. 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 Sprovach. Tis the season for giving. That could mean maybe you've got some money set aside you wanna give to family members. Maybe it's a charity. But joining us tonight with some insights on the best ways to do that is our estate planning expert from the law firm of Wood + Lamping, Mark Reckman. Mark, it is. Tis the season. I think we're thinking about buying gifts. I know my four children, I've gotten all their Christmas gifts, or all their Christmas lists in, but there's some people out there that are thinking beyond toys and electronics, and they're thinking about actual cash giving.

Mark: Well, that's right. And giving takes all kinds of different forms. And it is that season when we start thinking about, oh, about our family and friends, but also recognizing others, and also giving thanks for what we have. And hopefully, that also means we think a little bit about folks who are less fortunate.

Amy: Let's talk about family members, right? If you're at the place, maybe toward the end of the year, and you want to give cash to family members, let's talk about the best ways to do that, and any maybe tax rules that need to be understood here.

Mark: Well, in fact, gifts to individuals, family members or friends, can consist of anything. It can be cash. It could be stocks, bonds, real estate, jewelry, cars. And the tax laws, they treat gifts, all these different kinds of gifts, they treat them the same way. Gifts can be made during your lifetime. We call that inter vivos, from the Latin, or it can be given at your death, which is called testamentary. Again, the tax law treats both of those kinds of gifts the same way. But we do have to think a little bit about caps and limitations that the tax laws put on gifts. So, the federal government... We have no state limitations anymore. They were removed about ten years ago. But the federal government does have a couple of breakpoints that you need to be aware of. Any gift of $17,000, per person, per year, does not have to be reported at all. And by the way, that $17,000 figure is going up in January, to $18,000. So, you can give as many $17,000 gifts to as many people as you wish without any reporting. That's the reporting threshold. Gifts in excess of $17,000 this year, $18,000 next year, gifts in excess of that amount are reportable, and they come out of your lifetime allowance. And you report it by filing a return with the IRS. And the lifetime allowance currently is roughly $13.4 million per person.

Amy: So, most people are going to be okay.

Steve: That's bigger than I'll be giving away this year. Yeah. But Mark...

Mark: That's right. That's right. So, it's not a realistic cap, in any sense that it affects most of us. And that's great. And that's intentional. It was set, been set up that way now for a number of years. By the way, that $13.4 million figure is scheduled, in a couple of years, to drop, to be cut in half. But even if it's cut in half, it's still sky-high.

Steve: I'm still okay. Okay.

Mark: That's right.

Steve: But there's a lot of confusion about that $17,000 number, and a lot of people remember it as $15,000, which it was a couple years ago. But that's per person. So, if you're married, you can give $17,000 to your kid. Your spouse can give $17,000 to your kid. And you know what? It doesn't even have to be your kid. It can be your child's spouse. It could be somebody on the street that you just met. There's no limitation, is there?

Mark: That's right. And including your children's spouses is a way to ship more money to the next generation every year. And by the way, that's per year. And so, if you've got a chunk of money you're trying to spread around the family, you could give $17,000 to your child and his or her spouse in December, and another one in January because they would be a new year.

Steve: And it's worth repeating, and it's not taxable to them. Gifts are not taxable in this instant, correct?

Mark: That is correct. It's not taxable income to the person you give it to. There is, however, of subtle but important detail. And that is that if you give away cash, there are no tax consequences. But if you give away appreciated assets, it gets a little more complicated. So, if, for example, you give away a stock, that you, let's say that you bought a stock for $10 a share, and now it's worth $15 a share, and you give a hundred shares of that to your son. Your son assumes your cost basis. Now, what does that mean? Cost basis is the price you paid for an asset. So, if you bought the stock for $10 a share, your cost basis is $10 a share. You give it to your son. It's worth $15 a share. He takes your cost basis, of $10 a share, which means that when he sells it, at $15 a share, he's got a $5 profit. We call that a capital gain, and that capital gain is taxable, at a reduced rate. It's taxable at a lower rate than income taxes, but it still is taxable, and it's gotta go on your 1040 at the following year.

Amy: You're listening to "Simply Money," presented by Allworth Financial. I'm Amy Wagner, along with Steve Sprovach, as we are joined by our estate planning expert from the law firm of Wood + Lamping, Mark Reckman, talking about the fact that this time of year, I think a lot of us reflect on the fact that we are very blessed, and maybe you have some money. Maybe you've got something that you wanna gift either family members or charities. And I wanna shift to talking about that now, Mark. A lot of people do this for a number of reasons. One, out of the goodness of your heart, but also, in some cases, it can be good as far as taxes.

Mark: Well, in this, and the sort of an exciting time of the year because, in fact, I just got a letter from the free store here in Cincinnati. They have a matching gift program this year, at this time of year. I'd not seen that in the past with them. That means that if I write them a $500 donation, it's matched, and they get another $500 from another source. A great way to double the impact of my gifting. Now, charitable gifting actually dropped a little bit last year, in 2022. Only for the fourth time in 40 years has it dropped. And it didn't drop a lot, about 3.5%. Nationwide, gifts to charity last year were just under $500 billion. That's a lot of money. Americans are pretty generous.

Steve: Why did it drop, would you think?

Mark: You know, that's a great question, Steve, and I don't know if...I assume it may be pandemic-related. Funny thing is, it didn't drop in the year of the, that the pandemic started. And I did a little reading, to, because I had that same question. I couldn't find a comprehensive... There's a lot of theories. I couldn't find anything I could really hang my hat on. I do think that when the stock market is strong, people tend to be a little more generous. But I don't think the stock market was particularly poor in 2022. It was pretty steady, wasn't it?

Steve: No, we had a bad year.

Amy: Well, and I wonder, too... Well, I wonder, too, though, if it's not that we couldn't spend money on other things during the pandemic. And when you saw all these charities that were doing these great things for people during a time when so many of us were scared, I think that you had excess funds, and the generosity was there. But coming out of it, and Steve and I have been talking about this a lot on the show, people are spending more, and they're spending themselves right into debt. And I wonder if maybe last year, people were just in a place where they didn't have the reserves that maybe they had during the pandemic. And I hope that we don't continue to see this trend, but when you look at inflation numbers, right, stock market volatility, I wonder if we won't continue to see this trend this year. I don't know. That remains to be seen.

Mark: Well, it will be interesting to see, and next year will start very shortly, so we'll talk about that in the, November of '24. Now, gifts to charities that are pre [crosstalk 00:27:41] I'm sorry. Go ahead.

Amy: One thing I want to hit on, though, Mark, is kind of options, as far as gift for charities, because I know we get a lot of questions here at Allworth, the investors that we work with, looking at donor-advised funds.

Mark: Boy, donor-advised funds has been the hot topic for several years now. It's the fastest-growing category of charitable gifts. So, a donor-advised fund is a mechanism that you set up. It's a fund that you set up. Here in Cincinnati, the Greater Cincinnati Foundation does a great job of working with people on this. You set up an account with them. You put in, let's say, a chunk of money. Let's say you sold your business, or you made some kind of a killing on a special stock, that was contrary to the year we just talked about, that you have some material asset, you sell it, you wanna give some money away. You can put $100,000 or $200,000 or $300,000. There's no cap. You can put a chunk of money into a donor-advised fund, and they will set up a fund there. And periodically, usually annually, although it could be more often, but periodically, you would sit down with them and decide how much of that goes to a charity this year, or more than one charity. And a lot of families will do this as a way to create a family legacy, so that the children would be involved in deciding where this money goes. And these are called donor-advised funds. And it's sort of like setting aside a set dollar amount that you're gonna give to charity later, but you'll be treated for tax purposes like you gave it all away this year.

Amy: Lots of flexibility with these. Mark Reckman, our estate planning expert from the law firm of Wood + Lamping, on ideas of the ways that you can give this time of year, and have the most impact. You'll need 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 Sprovach. If you've got a financial question, maybe you and your spouse aren't on the same page about, or it's keeping you up at night, there's a red button you can click on, and it's while you're listening to the show, right there on the iHeart app, record your question. It's coming straight to us. We'd love to help you figure it out. Straight ahead, maybe you can help us figure this out. Tipping. I still...still, so frustrated. You go to buy, like, a quart of ice, your pint of ice cream, and they want you to tip, and I'm like, "What?" We're going to get into tipping, and obviously I've got lots of thoughts on that. We're gonna get into tipping in a few minutes. But for now, we're gonna make sure that when it comes to retirement, that there is no fiction in your financial plan, that you are rock-solid. And so, we just try to make it a little fun. We play our game, financial retirement, fact or fiction. And I'll just start with the first one here. Fact or fiction, a Roth conversion can lower your tax burden.

Steve: You know, this is one of the first ones I've ever answered where it's fiction now, but it's fact later. I mean, everybody says, "Well, wait a second. Isn't a Roth IRA where you don't have to pay any income tax on distributions? Why don't we just put all of our money into them?" Well, there's a tiny little catch. When you take your traditional 401(k) or IRA and move it to a Roth so it becomes tax-free, you pay the tax now.

Amy: Yeah.

Steve: So, it's the old FRAM oil filter. Yeah. Pay it now, or pay it later. Well, you pay it now, and hope that you live a good, long life, and that 30, 40 years from now, you can pull out a much larger amount, tax-free. Of course, that's if they don't change tax laws. Washington doesn't do that, do they?

Amy: Yeah. Good luck with that.

Steve: Yeah, but it's something to look at. You will pay more tax today, but it's for tax-free distributions later.

Amy: And I will say, I'm a huge fan of Roth accounts, just from the flexibility that they give you. So, if you have all of your money in tax-deferred accounts, well, yes, it will trigger maybe a pretty significant tax bill now. If you've got money outside of that account that you can pay the taxes with, I think these can make a lot of sense.

Steve: Yeah, and don't do it yourself. Talk to your tax advisor, because you may have some room in that tax bracket to fill up at, say, 12% tax, and do it, but you may not. And you wanna know that ahead of time, because that could be a real nasty surprise.

Amy: Fact or fiction, cash is king. I think this one is a little misleading, because it kind of depends on what you're talking about. I actually am a big fan of, especially when you get close to retirement, having a large emergency fund, that's mostly cash, that's, that way, if you're going into retirement, and all of a sudden, the markets go south, you're not pulling out of those investments when they're down. You're living off of that pool in that emergency fund. So, at that point, I would think cash is king. The problem is if you have too much of your portfolio, of all the money that you saved, in cash, and you feel safer about that because it's not in the markets, it's not exposed to volatility, what you're not thinking about is inflation, right? Taxes [crosstalk 00:32:36]

Steve: That's the silent killer.

Amy: Exactly.

Steve: Yeah, cash is a good thing. You know, three years ago, we were getting no interest. So, you know, why? You're getting 3%, 4%, 5% in a money market, federally insured, today. And so, a lot of people are feeling really comfortable with cash. The problem is, in a money market, interest rates go up and down as fast as the Federal Reserve sets interest rates, and they're gonna come down. I mean, we're talking about next year. So, what happens when inflation is at 4%, and you're earning 3% on your money market account? Well, first of all, it's taxable. And second of all, you might not see it. It's kind of like watching your kids grow. But inflation is making things more expensive faster than you're able to keep up with it in your money market account. So that's why we call it "going broke safely." All right, you mentioned an emergency fund. Fact or fiction, Amy. You no longer need an emergency fund once you retire.

Amy: Actually, I think fiction. I think you want a larger emergency fund when you retire...

Steve: Yeah. I agree.

Amy: ...because you never know what's gonna happen, and you don't have the means to replenish it as easily as you did, obviously, when you were working. So I absolutely think that the emergency fund is critical to look at, and maybe even beef up a little bit [crosstalk 00:33:51]

Steve: Well, here's why I not only agree, but I say you definitely wanna beef up, because it takes on a different role. When you're working, an emergency fund is for unexpected expenses, a new roof, new HVAC, whatever the case is. In retirement, when you're very likely drawing from your investment accounts, well, wait a second. The market went down in 2022. Why don't you shut off the distributions you're taking from your investments when the market went down in 2022, and instead draw from your savings account? Well, yeah, but that depletes my emergency fund, my savings account. Yeah, but once the market goes back up, and it does in a year, year and a half, whatever's going on, that's when you replenish the savings account, after your investments have gone up. So it gives you a big old buffer, so you don't draw from investments when they're down.

Amy: Here's another one. Fact or fiction, when choosing a financial advisor, that CFP, Certified Financial Planner designation, is something you need to look for.

Steve: I say fact. And since I am a CFP, I'm a little bit biased...

Amy: Self-promotion.

Steve: ...but I'll add the ChFC, the Chartered Financial Consultant, very similar. It makes you a fiduciary. And a fiduciary means that this person, with a CFP or ChFC designation, are working in your best interest, not the company's best interest. Their obligation is to you as the investor, and that's a really important distinction, because now, all of a sudden, they're not trying to sell you a 7% commission annuity.

Amy: I was just talking with an investor here at Allworth last week, this great guy, Tom Hover [SP]. And he said through the years, he's worked with different advisors, you know, and different reasons why maybe they didn't end up working out. But he said when he first came here, and his advisor sat down and explained what a fiduciary is, and that we have to do it. We're obligated by law to give you advice that's not in our best interest, that's in your best interest. And as a result of that, you know, he's like, "I understand it, and this is where I am."

Coming up next, how you may be over-tipping without even realizing it. What you need to know. 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 Sprovach. You know, we all love the people who are in our lives that make things easier. When you go to a restaurant and they serve you, listen, as a mom who has four kids at home, and is used to serving everyone else, that's really nice. But, kind of think the tipping has gotten a little out of hand lately.

Steve: Ya think?

Amy: My son's birthday... Yeah. It was my son's birthday party, and I went and picked up a few pints of ice cream for his birthday, and then they show me the tip screen when I go to... I literally got them out of the freezer...

Steve: You bought what they sold. Yeah.

Amy: ...myself, and put it on the counter. You want me to tip you for ringing me up?

Steve: You risked frostbite, and they're asking...

Amy: Yes.

Steve: ...and they've got the nerve to ask you to give them a tip.

Amy: It feels a little... I have tipping fatigue. I feel like it's a little out of control.

Steve: Well, it started during the pandemic, and, you know, you felt bad. Because, yeah, you couldn't go out, and everybody's doing takeout. Yeah, let's support these people, because, let's face it, if you're a server, you're not exactly in the top 1% of incomes in the country. I've been there. Were you ever a server?

Amy: It was not. I was a hostess, but not a server. I would have dropped dishes on people's laps. Without a doubt.

Steve: Okay. It's hard work. You don't make a lot of money, and it's something where, yeah, I think the best tippers are former servers. I was a waiter all four years of college, and so I tip well. But when they're selling you a product and there's no personal service, you're just literally reaching over the counter to hand them your money or your credit card, is a tip really required? I think we're starting to see a little pushback on that.

Amy: Well, and I think I've always thought, okay, I guess I understand. It's not an easy job to be a server, right? To bring that food out, to make sure you get everything right. But someone was just saying they went into a fast food restaurant recently, where they ordered at the counter, carry outs, and then they showed them the tip screen.

Steve: Yeah.

Amy: It's one thing to keep in mind, too, when they bring those bills in front of you, is they'll often have at the bottom, so you don't have to do your math, "Here's a 15%..." Well, actually, they don't even start at 15%. Here's a 20%, 22%, 25%, right? What they don't often tell you is that that already has the taxes and all the other fees and charges baked into it. So you're not even tipping on just the bill, just the service, you're tipping on everything else. So keep that in mind.

Steve: This has gotten under your skin a little bit. I can tell.

Amy: Yeah. Very few things that really annoy me on this level. This annoys me.

Steve: Yeah. I'm a 20%-plus tipper, I mean, to ensure proper service. That's what tips are for. That's where it came from. And I'm all in on that. I tip 20%-plus if the service is good. Maybe quite a bit more plus. But you know what? It's getting kind of ridiculous. If they're not serving you, why?

Amy: I would pay more at a restaurant that would pay their servers in a way that the tips were not necessary. Thank you for listening to my rant. We hope [crosstalk 00:38:48] tune tomorrow. We're talking about what you might not be prepared for in retirement. You're listening to "Simply Money," presented by Allworth Financial here on 55KRC, THE Talk Station.