Amy: Tonight we've got new inflation data, we now know the cost of living increase for Social Security for next year, and we've got the pros and cons of retiring early. You're listening to "Simply Money," presented by Allworth Financial. I'm Amy Wagner, along with Steve Sprovach. A lot of major money news, a lot to get to, so we're getting straight to it. We have the latest numbers out about inflation. Not exactly what we were hoping to see, but not terrible, either.

Steve: I'm okay with it. Yeah, I mean, we are so hyper-focused on inflation and the monthly numbers that everybody has been waiting the last couple of days, CPI comes out Thursday. What are the numbers gonna be? CPI comes out... And the numbers came out actually a touch higher than we were expecting. We were expecting for September the Consumer Price Index to be up 0.3% for the month. It came in at 0.4%. That works out to, yeah, we were hoping for 3.6%. It came in at 3.7% on the year.

Okay, a little bit higher, but that's okay. You know, that's just a little bit off Core CPI, which you and I don't care about, but the Federal Reserve does, because they're looking for trends when they set interest rate policy. Core CPI eliminates gas and food, and that was up 0.3% for the month, which is exactly what was expected, or a 4.1% annualized rate.

Nobody's upset about these numbers. You know, would have been great if they came in a little bit lower than expected. Okay, one came in a touch higher, one came in exactly as we were looking at. To me, it's a nothing. It just says, okay, inflation isn't going back up to the 9% it was at. They are continuing to be able to bring it down, with that target of 2%. To me, this doesn't give the Fed a whole lot of ammunition to raise rates anymore. We'll see what happens, but we might be done on interest rate increases.

Amy: And I wanna add a little context to these numbers, right, because we're throwing a lot of numbers out. We hit a 40-year high of inflation a little over a year ago, right, June of 2022, north of 9%. It was 9.1%. The Federal Reserve, our nation's central bank, their goal is to keep inflation at 2%. We were way hot. We were way, way over that, of course, and since then, they've done everything they can, raising interest rates in order to bring this back down. And we actually got to around 3% the first half of the year. We've ticked up a little bit. We've got the cost of rents, housing, car repairs, auto insurance, a number of things kind of ticking a bit higher. But that's kind of to be expected. And we've said that all along. Once we get closer and closer to that 2% number, it's gonna take longer and longer, and more tweaking and more splitting of hairs...

Steve: Oh, yeah.

Amy: ...you know, in order to make it, to get it back down to that point. So, it's not gonna be like when they first started raising interest rate hikes, and we just, "Oh. Down a couple of points. Down a couple of points." It's not gonna be like that anymore. It's going to be kind of a long, slow, steady process. But I think you make an excellent point, Steve. When you look at these numbers, it's not a lot of fodder for the Federal Reserve to say, "Oh, gosh. Okay, we need to hike again."

And I think it was just a few months ago we were looking at the likelihood of maybe one more hike this year. And I was just looking, November 1st is the next... Well, October 31st is the next meeting. But the next time we hear from the Federal Reserve about a potential rate hike would be November 1st, which, by the way, is my birthday, and they would never hike on my birthday.

Steve: Obviously.

Amy: But it's actually less than about, like, 10% chance of hiking right now. And if you look at the last meeting, in late September, there was about a 30% chance of a hike in November at that point. So, the farther in time we get, the more data that comes in, the more it looks like, "Hey, we might be on the right track here, and maybe we don't have to raise interest rates again."

Steve: Yeah. And I'm with you on all of that. And when you dive into these numbers a little bit, okay, why was it a 10th of a percent higher than expected? Shelter costs. Well, okay. Shelter cost means rents went up, and prices of homes went up, and mortgages. Well, mortgages are gonna go up because of interest rate increases. I mean, we're looking at, you know, 7.5% on a 30-year mortgage.

But rents, yeah, well, okay, if you're gonna buy a rental property and then offer it for rent, you paid a lot more in the last couple months than you would have a year or two ago. That trend is gonna be over soon. There's no question in my mind, because the whole real estate market has slowed down dramatically, with mortgage rate increases, but there's about a 12-month lag time because most leases are 12 months in length. So, I'm not really worried about it, and I agree with you. The low-hanging fruit definitely has been picked, and it's gonna take some time to get from 3.5% to 2%, but it's only going from 3.5% to 2%, and 2%, to me, is not, "You have to keep doing something until you hit 2%." Two and a half's okay. Yeah, you know, let's just...

Amy: Ballpark.

Steve: ...stop obsessing. Yeah, stop obsessing over inflation as long as it stays down in these ranges, and as long as we don't have any more supply chain disruptions, because in my...my pet theory, Amy, is that a lot of this inflation was because of supply chain issues. You know, if you can't get it, well, what you can get, you're willing to pay more for if you need it that bad. And those have pretty much cleared up. I mean, my theory is based on nothing other than the voices in my head. Which can get pretty loud sometimes. You know, I have no data to back this up.

Amy: But sometimes those voices make sense. And right now, they are making sense.

Steve: I listen to them all the time. Yeah.

Amy: I'm sure you do.

Steve: It's just a cacophony, yeah. I mean, it just gets too loud at some point.

Amy: You're listening to "Simply Money," presented by Allworth Financial. I'm Amy Wagner, along with Steve Sprovach, as we listen to the voices in his head, which are saying, "Hey, inflation is likely headed in the right direction. The Federal Reserve will probably not have to hike rates again when they meet next month."

And also, we've got jobless claims coming in, and they remain low, below 210,000 claims for the fourth straight week. That means people aren't freaking out. They're not losing jobs, they're not... And that was an expected byproduct of raising interest rates. We expected that people would be losing jobs, companies would be tightening their belts, layoffs would happen. We started talking about a soft landing over a year ago, but it was like this pie in the sky, like, "Oh, this would be a tough thing."

Steve: We're doing it.

Amy: And it looks like we're pulling it off.

Steve: Yeah. Yeah. I mean, there's always gonna be some questions out there, that, all the lights on your commute to work are never gonna be all green. You're gonna hit a red light at some point...

Amy: Sure.

Steve: ...but you get through it. And, you know, right now, the big questions are, okay, the UAW strike. It's getting worse. Well, and that strike, it only impacts about 150,000 union workers, but they're doing it at the assembly plants, and that means that maybe a non-union plant, producing water pumps, as an example, "Okay, well, we're not on strike. But if they're not assembling cars, they don't need our water pumps until they solve that strike at the assembly plant."

So, you know, there may be issues like that coming through, and we have seen... Remember, we were talking about there were two jobs for every unemployed person about a year and a half ago. Well, it's down to one and a half. But it's still one and a half jobs for unemployed...

Amy: Still in favor of the worker.

Steve: Yeah, exactly. So, you know, is there gonna be a recession? Yeah. Is it gonna be anytime real soon? Probably not. I don't see anything this year. Is there gonna be one next year? I don't know. That's down the road a bit. Don't worry about it. It's a nice day outside.

Amy: Normal part of the business cycle, right?

Steve: Exactly.

Amy: One is always coming. How far off it is, we don't know. As we talk about the fact that inflation is continuing to trend down, maybe a tick up this month, but, it also means that, look, Social Security, just announcing the cost of living adjustment for next year.

Steve: Raise time.

Amy: Yes. I mean, last year, or this year, 8.7%, it was the largest increase we've seen in decades. And now they're saying, "Okay, this year, or 2024, we're looking at a 3.2% increase," which is right in line with the numbers that we're seeing.

Steve: You know, if I were drawing Social Security, I would say, "Oh, that stinks." But as an investment advisor, I am real happy, because that's related to inflation. And when inflation was up around 8.7%, wow, you wanna kill a financial plan, you start drawing a pension, if you're one of the lucky few to get a pension, and that pension does not have a cost of living increase, it doesn't buy a whole heck of a lot 10 years down the road. I mean, so, Social Security has a cost-of-living increase, and we're back getting pretty darn close to what is normally, I mean, the 40-year average on a COLA increase, cost of living increase, with Social Security, is 2.6%. So, 3.2%, yeah, it's only about 50 bucks for the average person. You know, that'll buy you a half a tank of gas, but it's better than not getting 50 bucks.

Amy: Well, the thing is that you can't look at it as a raise, because it's not above what you're already paying. You're paying more for everything else. And, you know, also, I think for those who are on Social Security, a lot of times, one of the things that you're consuming, maybe more than any other group, is healthcare, which always outpaces the rate of inflation, right? And so, you know, I just think, yes, you got more money last year, but you were not getting ahead anymore because of it. It was just trying to keep up with the fact that you were paying $10 for a dozen eggs.

Steve: Yeah. Or, I mean, you get 50 bucks more, but then you find out your Medicare premium goes up 50 bucks.

Amy: Inevitably every year.

Steve: You know, what the government giveth, the government taketh away. I'll tell you what's interesting, though. I mean, they index the benefit for Social Security with inflation. You know what they don't index for inflation with Social Security is the amount that you're taxed on. That's frozen since 1984. So, in other words, you know, people that haven't drawn Social Security and are starting to go through the process, a lot of times say, "Wait a second. They're gonna tax this?" Yeah, it doesn't take much.

You know, if you make more than $32,000 a year adjusted gross income, that's not a big number, and you file jointly, 85% of your benefit is gonna be subject to income tax. That number hasn't changed since '84. I mean, back then, $32,000 meant a lot more than it does today. It's pretty rare that you do not have to pay income tax on your Social Security benefit, because the government never increased that with inflation.

Amy: And last year, I'm sure there were a number of people who were getting Social Security who had only been taxed on a certain part of it, a certain percentage of it, who got bumped up, and were taxed on even more, because, to your point, 1984, we've been dealing with the same formula for this...

Steve: [crosstalk 00:10:45.136]

Amy: ...yet, as we've been doing these cost-of-living adjustments, when you look at a close to 9% increase, that's gonna bump more people into either that tax-paying realm or paying more taxes. So, they're probably, to your point, what the government gives, they also taketh away, they could have given you more, but then taxed you more on that same amount of money, right? It's just how these things work, important to understand how they do. You know, modest increase for next year, more than the typical average.

Steve: Yeah. [crosstalk 00:11:14.940]

Amy: Certainly not as much as last year, which is good news for all of us collectively, because it does mean that inflation is heading in the right direction. Coming up next, we're talking about some tax moves you might wanna make sooner rather than later. 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 can't listen to our show every night, you don't have to miss a thing we're talking about. 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 podcasts. Coming up at 6:43, tackling the pros and cons of retiring early. In fact, some people are retiring really, really early, like, in their 30s or 40s. We'll tell you how they do that.

Okay, so, if you've ever thought about buying an electric vehicle, one of the reasons you might wanna do that is because there's a tax break with it. And that's going to change starting in January.

Steve: Well, yeah, the government is attempting, I'm saying attempting to simplify the process, because, I'm gonna tell you about how they simplified it, and you're gonna shake your head and said, "I still don't know what the deal is." But in the past, and I know you had an EV, and...

Amy: I do. Yeah.

Steve: ...in the past, it was, yeah, certain models, certain cars that were electric cars...

Amy: Not all of them.

Steve: ...you can get up to a $7500... No, not all of them. You can get up to a $7,500 tax credit. A credit is way better than a deduction, because if you owe $7,500 in income tax when you're done doing your tax form, and you get a $7,500 credit, you pay zero. It's right off the bottom line. But you didn't get that until you filed your taxes. Well, the new law, beginning January 1st, is, with a big old asterisk on it, it is, oh no, it comes off as soon as you buy the car. So, in other words, you know, you're paying $7,500 less when you buy the car. You still have to account for it when you do your taxes. But that's a $7,500 savings right off the bat. I'm just wondering, what are the odds that the MSRPs on some of these electric cars...

Amy: Go up.

Steve: ...just went up 7500 bucks? I'm just saying. Just the cynic in me.

Amy: I mean, there's a pretty good chance. So, I think for anyone who's thought about buying an electric vehicle, the question now is, "Well, do I buy it now, or do I wait until 2024?" And the answer is clear as mud. It depends. Because it depends on the list of EVs, electric vehicles, that qualify for this tax incentive could be shrinking, depending on where they're built, if some of the parts come from China, the origin of battery manufacturing, all kinds of things that they're looking at here. So, the car that you are thinking about buying right now, you could actually get that tax credit on in 2023, but in 2024, it might also not be eligible.

Steve: Yeah. That car might not have made the list. So, you know, if you're thinking of buying one, you probably should check now and find out whether or not, is that potentially subject to being pulled off that $7,500 list January 1st or not? The other big question is you still have to meet income requirements. In other words, if you make over $300,000 adjusted gross and filed jointly, you don't get that 7500 bucks. So, you know, do you know now where your income is gonna be if you're on the borderline? What happens if you get the credit, file your taxes, and you come out at $301,000? I don't know. These are questions. Again, the government stepped in to simplify it, and there are still some questions as far as I'm concerned.

Amy: One thing, though, that is clear. If you're thinking about leasing an electric vehicle, does not count. You actually have to purchase the car to get the tax credit. Speaking of taxes, we wanna put something on your radar right now. You may not have thought about this recently. I was actually just talking to a friend about it over the weekend. Back in 2017, President Trump signed into law sweeping tax changes. For many of us, it brought us down in the tax bracket that we're in. But as everything in Washington usually happens, these things only have a certain time period that they exist for, and then they either expire, or Congress has to re-up them. And one has no idea at this point which direction that could go, and because that would mean they would have to come to a consensus to continue them.

Steve: Can you imagine?

Amy: So, if there is no consensus, right, these tax provisions, these laws provisions, are set to expire at the end of 2025. So, let's talk about what that might mean.

Steve: Yeah, I like a pretty sunset as much as anybody else, but when it's a law that sunsets, especially with income taxes, I don't like sunset provisions.

Amy: Nope.

Steve: And they had to put this in. That's the only way they were gonna be able to get it through. So, yep, income tax rates were reduced in 2017 under the Trump administration, and the only way they can get them passed was with them sunsetting at the end of 2025. So, I'm sure, Amy, I'm sure Washington is getting together right now and they're talking about, "Hey, we wanna get ahead of this thing, and, you know, make sure we keep these in place, or, you know, let's do some..." No. You know this is gonna be a last-second battle, and whether it happens or not, I don't know. But if they don't do anything, income tax rates are gonna go up substantially January 1 of 2026.

Amy: I mean, let's figure out where this falls on their list. They've gotta keep the government from shutting down yet again. Social Security is out there somewhere that needs to be tackled. I mean, their list is long, and they don't get to anything until the day before it sunsets, to your point. So, we'll see how this goes. But yeah, I think it's important to remember either where you were, or, if you earn more, maybe you Google it, you pull up that old tax bracket to see where you might end up now. It could be somewhat significant difference in what you would pay in taxes, which means, and we've talked about this many times on the show, putting money into an IRA or a Roth IRA, putting money into a traditional 401(k) or a Roth 401(k).

Why would you look at the Roth option? Well, you're paying taxes on that money now, but you never know where taxes are gonna be in the future, case in point, the end of 2025. If you're gonna be bumped up a tax bracket, it makes sense to go ahead and pay those taxes now, while they're lower, get the money into those accounts, than having to pay on the back end, when you take it out.

Steve: It might make sense. I mean, a Roth conversion, for certain people, is a really cool strategy, but you wanna run it by your accountant first. And if you're pretty convinced tax rates are gonna go up, yeah, there might be certain advantages to doing it, especially, you know, in the next couple of years, before 2025 sunsets all these things.

The other big deal that's gonna be sunset is estate taxes. And most people think, "Okay, this doesn't affect me. I don't get it." And thankfully, we've simplified estate taxes a lot, at least if you're an Ohio resident. Ohio residents used to have to pay estate tax, in other words, tax that your estate paid after you died before that money went to your heirs on anything over $25,000. Well, thankfully, Ohio made that unlimited. There is no estate tax for residents, unless I'm mistaken, but I'm pretty sure I'm accurate on that, for estate tax for residents of Ohio. But federally, yeah, that's gonna sunset also. And that's gonna drop down to a number that it's gonna affect a lot more people in 2026. So, you know, whether or not you need to do any estate planning, I don't know. But, you know, we're just trying to warn people, let's get a little bit ahead of this, before it does sunset.

Amy: Another heads up about this, for those who are charitably inclined, this could also be a difference for you. When this tax law went into effect, it increased the annual deduction limit for your cash contributions to charities to 60% of your adjusted gross income. It had been at 50% before. That limit will go back down to 50% in 2026. So, for those who make a pretty significant donation, you probably wanna do it now, at least if you're looking for the tax deduction, which, to some people, that is part of that equation. So, just a lot of potential changes coming on the horizon here. I certainly hope they will address this before. One never knows.

Steve: Yeah. And if you have questions, this is a great time of year, and you wanna do some year-end tax planning anyway, before December 31st rolls around. Most accountants, this is their slack time. It gets crazy by the second, third week of January. And don't be afraid to call your account and run some of these ideas by them now.

Amy: Here's the Allworth advice. Now might be a good time to hire a certified tax professional who can help you weigh the pros and cons of making some of these tax moves before 2025. Coming up next, we've got a look at the latest ways scammers are trying to rip you off. 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. There is a day, a week, a month for everything. But this one we think is an incredibly important one, one that you need to be paying attention to. This month is National Cybersecurity Awareness Month. And joining us with some tips and some warnings about some potential scams, as she does every month, is our good friend, Jocile Ehrlich from the Cincinnati Better Business Bureau. I do think, Jocile, sometimes we go a little overboard on, like, National Bacon Day and National Ice Cream Week and all the things. But this is important, and I think it's becoming increasingly so, because every one of our lives take place so much digitally.

Jocile: Well, first of all, you can't go overboard on National Bacon Day.

Amy: That's a good point.

Jocile: But let's talk about cyber security.

Amy: I love that you get that, too.

Steve: You know who said, "I hate bacon?" Nobody ever.

Amy: And I [crosstalk 00:20:50.528]

Jocile: Touché. Okay. So, it is, October is National Cybersecurity Month. So, we talk about scams all the time. I thought we'd take a few seconds to talk about things you can do to protect yourself, so that maybe you don't get hit with some of these scams.

Amy: So important.

Jocile: To help keep your sensitive information safe, don't reuse the same password for multiple logins, especially if it's a simple or a weak password. Don't use your pet dog's name or your husband's name or any of those simple things. That information is very accessible to scammers. It's best to use a different strong password for every account. And I know you're all saying, "Oh, my gosh. How am I ever going to remember that?" Actually, even better than that is using a passphrase. That's what all the cybersecurity experts are recommending. Something out of the blue, three or four words that you can use.

And how are you gonna remember it? Don't write them down in a notebook that you keep by your computer. Please, please, please don't do that. [crosstalk 00:21:54.247]

Amy: I am a human firewall.

Steve: [crosstalk 00:21:54]

Jocile: Yes. Use a password management tool. There are many of them out there on the internet that will help you to keep track of all of your different logins. You may have noticed now that more and more of your accounts are asking for multifactor authentication, or giving you that option. Take advantage of this. It is not hard at all. It's very simple. Set this up for any account that is offering you that service. It is a service to help you protect yourself.

For an added layer of security, opt to use an authenticator app on your phone, rather than a text message code. And don't forget, update all of your software on all of your devices. Updates can include important security fixes. So, install any software updates on your phone, your computer, your tablet, as soon as they are released, or better yet, set up automatic updates, so that you don't have to remember it. They will automatically update whenever they're released.

Finally, antivirus software, one of the best investments you can make. You know, we talk about these scams, and people downloading malware onto your computer because you've clicked on something. If you have the antivirus software, that goes a long way to protect you if you do accidentally click on something that you shouldn't have clicked on. Just make sure that you keep that updated as well.

Steve: So, we're talking about, and not just cybersecurity, but, you know, there's lots of scams out there right now, Jocile, and I happen to be coming up on 65. So, Medicare is becoming very important in my life. And I'm amazed at the amount of solicitation I'm getting already on Medicare and open enrollment, and that is an area that seems also to be ripe for potential scams. What do you have to look out for?

Jocile: Well, this is another calendar-driven situation. Open enrollment happens October 15th through December 7th. And this is like Christmas time for scammers. You know, almost 19% of the population is on Medicare, so scammers are just dialing for dollars right now, as they go about impersonating Medicare agents.

Now, how the scam works is, during this open enrollment period, you get a call from somebody claiming to be a Medicare representative. Caller ID on your phone might even say "Social Security" or "Medicare," you know. They're trying to validate themselves. In one version of the scam that we're seeing, they offer to help to find the best plan for you. Then they ask you for your Medicare or your Social Security number. With that information, they can steal your identity, or, with your Medicare number, they can commit Medicare fraud.

Another tactic is to tell you you have to pay to apply for these Medicare plans. So, they'll need your bank or your credit card information. Don't fall for it. You could find your bank account emptied, or unauthorized charges made on your credit card.

Steve: Wow.

Jocile: Now, some ways that you can spot these scams is to remember, legitimate Medicare employees already have your Medicare number on file.

Steve: That's a good point.

Jocile: They don't need to ask for it. And like we've said before, they're not gonna call you out of the blue, asking for your personal information. You'll usually get a letter in the mail before you ever get a phone call from any government agency. Now, another thing, don't let yourself be rushed or threatened into choosing a plan. There are no extra benefits, no extra discounted pricing for signing up early, and your benefits cannot be taken away from you if you do not sign up for a plan. And last, never trust that caller ID displayed on your phone, because scammers can fake caller IDs.

Amy: And Jocile, something else that you have mentioned is, Bed Bath & Beyond was just down the street from me. They closed recently. They had great sales, they were always sending out coupons. Fake Bed Bath & Beyond sales, that's going on?

Jocile: Oh, that is happening, especially, you know, Christmas, again, is coming, so people are starting to buy all of their presents. Bed Bath & Beyond, as you just mentioned, it's been in the news a lot lately after declaring bankruptcy. Then they closed their stores earlier this year. And then they were acquired by overstock.com. Back in August, Overstock rebranded to Bed Bath & Beyond. So, scammers have been taking advantage of all of this confusion around these changes. They're posting ads on social media for a bogus going-out-of-business sale, with massively marked-down Bed Bath & Beyond products.

You know, and you go there, you click on the social media ad, which I tell you never to do. But you do it anyway. And you're taken to a site that looks legitimate. It's got the Bed Bath & Beyond logo, it's got the detailed product information, like you're used to seeing on their website, you buy some things and you wait, and you wait, and you wait, but they never come. You email customer service. You never hear back. You get a message saying your items were delivered to the wrong state, and to contact a delivery service. When you try to look your order up online, it's not there. The fact is, you ordered from a bogus site. Discounted products were never available. Now, we've talked about...

Amy: You know, Jocile, as I'm listening to you talk about these scams, the one thing that these scammers always do is they take some kind of kernel of truth. You have the fact, to your point, that Bed Bath & Beyond has been in the headlines recently, right? So, it makes sense that of course, they had declared bankruptcy, that there would be a huge sale. You know, Steve was just talking about the Medicare open enrollment scam. Well, it is open enrollment period, so, that's the kernel of truth. So, they take something that's in the news, that you would know about, and then they just use it to exploit it, and take advantage of people. And I think that's where they really get people.

Jocile: Right, because people, they've heard it, it's top-of-mind for them. So, the getting a call makes sense. It's open enrollment period. I get a call. Let's go down that path and see where it leads. But again, in the case of Medicare, they're not gonna call you. So, that's your red flag. You need to stop, and think, slow down, "Does this really make sense?"

And, you know, we were talking about the Bed Bath & Beyond website, the bogus websites. Those can be really convincing, with the URL maybe only being off by a couple of letters. So, always double-check that URL. Some common tricks that scammers are using for URLs, if a word has an M in the URL, instead of an M, they would replace it with an R and an N, because...

Amy: Oh, gosh.

Jocile: ...visually, those two next to each other look like an M. Or they spell it with a different vowel.

Amy: If only these people used these things... They're smart people. If only they could use it for good. Instead, they're using it to try to take advantage of us. Jocile, thank you, as always, for these great reminders. And especially remember, it's National Cybersecurity Awareness Month. Make sure you are always vigil. 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 have a financial question that's bothering you, 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. We'd love to help you figure that out.

And, straight ahead, we've got some important things to know before you go and cancel that credit card. Sounds like a good idea? It may not be. Retirement. How many times have you thought about that? Maybe it's every Monday morning when your alarm has gone off for as long as you can remember. There is, I would call, a movement. It's called FIRE, Financial Independence, Retire Early. There are blogs, stories, podcasts, all kinds of information about this. There are people in their 30s who have retired, retired, for the rest of their lives. The lifestyle that they lived up to that point, though, don't sign me up for that.

Steve: No, these are savers on steroids. And this is a serious movement. I mean, yeah, it's called the FIRE movement, but it's basically people who, you know, "retire early" usually means, ah, yeah, maybe at 62, maybe at 60-something. No, these are people that wanna retire at 40, or 45. And they're doing every... I mean, you should call it the ramen noodle movement, because these are people that will eat ramen noodles for breakfast, lunch, dinner, never go out. You know, we target 10% saving. They target 10% spending. I mean, literally, you know. They're trying to save so much money, and good for them. That's, you know, their goal in life. Good for them. And they wanna retire in their 40s, so they can sit back, relax, and enjoy life, and not have to go to work each and every day.

It's interesting. It all got kicked off in the early '90s. There was a book called "Your Money or Your Life." And then in 2010, the update is kind of called "Early Retirement Extreme." And these are people that, it's a community that you can track. There's lots of YouTube channels. And I'll tell you what. It is a movement that is attracting a lot of people that are just sick and tired of going to work.

Amy: If it sounds interesting to you, understand this. You have to be committed.

Steve: Oh, yeah.

Amy: Committed on a level that I could never possibly sign up for. I actually really like my job, so I don't need to be done. But I remember reading a blog a few years ago. It was a woman who, from this area, but she moved to New York, and had a pretty big Wall Street job, six figures. She was doing really well. She lived in a studio apartment, on a mattress on the floor. Never even bought a bed...

Steve: Wow.

Amy: ...didn't buy furniture, lived on ramen noodles, ate...you know, I mean, just, and saved, saved, saved, saved. You know, and then she ended up retiring, I think it was late 30s or early 40s. The interesting thing is, though, she also got bored. She wrote about it a lot. But then she was also contemplating going back to work. So, I think there's some lessons to be taken from this. You don't necessarily have to do it to the extreme of, you know, saving 90% of what you're making. But there's a lot of people who get to retirement and they're not ready because they haven't saved enough. And if it's you, if you have concerns about the fact that you may not have enough, maybe you do dial it a little bit more toward that saving more and spending less. It's definitely doable.

Steve: Well, and yeah, there are certain really large targets that you have to hit to be able to pull this off. You know, it depends on how much do you need, you know? Well, it depends on how much you spend. That's, you know, the way you start any financial plan is not how much you have. You need to know that, but, you know, what's your cost of living? And if you're getting by on next to no spending to be able to save up enough, I think the goal is that you don't wanna live that way the rest of your life. You wanna travel, you wanna do fun stuff, and so, in other words, you're gonna be spending more once you do retire than you did while you were saving for retirement. The numbers I'm seeing are anywhere from 25 to 40 times your annual spending is the amount you need.

So, to put that in perspective, if you're spending 50 grand, okay, you need about $2 million to be able to retire at any age. And that assumes...and I think this is a good thing everybody should pay attention to, a 4% distribution rate. You know, the best question is not, "Am I gonna run out of money?" It's, "Okay, how much can I draw off of my investments and live to be 150 and not worry about running out?" Well, you know, 4%'s under attack, but I think that's a good starting place. In other words, if you have $100,000, don't draw more than $4,000 out a year. If you have a million, don't draw more than $40,000 out a year. And that, in addition to Social Security, which you're not gonna get in your 40s, you're gonna have to wait till your 60s, can that support the lifestyle you wanna support? Not the way that, you know, you've been... It'll support the way you've been living, but not the way you probably wanna live. I mean, I don't know, Amy, to me, money is a tool. It's not the be-all and end-all. It's a tool to help you live the way you wanna live.

Amy: It would be a tough road ahead, right? And I think about the people who come in and talk to us, and they're in their early 60s, and maybe they are either looking to retire, or lost their job, they were downsized, they're trying to figure out, "Can I make it on the plan that we already had?" And one of the major concerns to them is healthcare, right? Before you're eligible for Medicare, that's a huge cost. Well, you dial that back to your 50s, your 40s, and you're gonna pay for it, you know, until the age of 65. That's a really heavy lift financially.

And then there's some new data that's come out about longevity. And this is something that you've gotta plan for. You know, it's, you can't just say, "Well, I think I'll make it till 75." Well, let's look at this. Data shows that a non-smoking 65-year-old woman who is in really good health has a one in three chance of living to 95. Man, the same condition, one in five chance. If you're living to 95, 100 years old, and you are retiring in your 40s or 50s, that's half of your life, right, that you have to make sure that you've saved for. It's a lot to think about.

So, just, before you head down that path, make sure you've thought it through. Here's the Allworth advice. Life is about the journey, not the destination. Save your money, but also you can smell the roses along the way too. Coming up next, we've got the do's and don'ts if you're thinking of canceling a credit card. 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. Most of the people who are out there giving general financial good money advice, most of us are on the same page. But there is, I would say, one point that some of us differ on, and that has to do with credit cards. I can't tell you how many times I've been out and someone will come up to me and say, "You would be really, really proud of something that me and my family, my spouse, and I have done. We cut up all the credit cards." Like, "Mmmh, okay." The thought behind [crosstalk 00:36:19]

Steve: We hang out with different crowds. None of my friends say that to me.

Amy: These are people, like, out in the community. My friends, we're big fans of credit cards, not necessarily because, you know, we carry debt, but because they're a smart tool to use. And so, I think if you have ever thought about canceling a credit card, you also need to know the downside of that.

Steve: Yeah. And, you know, it's all about what comprises your credit score. I mean, you need a good credit score, because you pay less interest when you do have to borrow money. And, you know, it's a long, complex calculation on how to get there. But, you know, basically, 10% is gonna be new credit, okay? So, if you take out a new credit card, well that's gonna ding you a little bit. Fifteen percent credit history. You wanna keep your credit cards open, even if you don't use them, because you wanna keep that history showing of many, many years. Ten percent is credit mix, and, you know, all this stuff adds up to a good credit score.

The final 30%, this is the biggest chunk, 30% is the amount you owe versus what you could owe. And that's called your credit utilization ratio. In other words, you got a $15,000 line of credit, you bang it for 100 bucks a month, you got a nice credit utilization score. You got that thing maxed out, you ain't got credit left on that, and that's gonna knock you down a little bit. So, these are things that you should know, and closing a credit card account is gonna ding a little bit.

Amy: Yeah. And I think you just...the general knowledge of understanding how these things work can go a really long way in making sure that you don't make these bad decisions. It's kind of like paying off a mortgage. Paying off a mortgage, that can also ding your credit score, if you've got less...

Steve: Yeah, but do it anyway.

Amy: Yes. And it's okay, right? It's gonna pull you back a couple of points, but, you know, maybe a year, you take a 20-point hit, but that's okay. It's still such a great thing. But, again, credit cards are tools, and if you're paying them off every month, that's the key here. So, just keep in mind, pay them off every month, even if you're just putting a tank of gas once a year on that credit card that you've had since 1990, that's okay.

Steve: That's what I do with one of my retail credit cards. I use it about every three months, for literally a dollar or two. Keeps it open.

Amy: Thanks for listening. Tune in tomorrow. We're providing financial advice for each generation, because it turns out, based on your age, it's not all the same. You've been listening to "Simply Money," presented by Allworth Financial here on 55KRC, THE Talk Station.