Steve S.: Tonight, the signs that you are about to make a really, really bad financial decision. You're listening to "Simply Money," presented by Allworth Financial. I'm Steve Sprovach, along with Steve Hruby. Yeah, this is an important segment, because we talk about finance all the time, Steve, but, you know, there's a lot of times when people make financial decisions that really, really, really cost them later in life. And I think that's part of my job description. It's, okay, yeah, we manage money, we put plans together for people, but really, at the root of it all is we try to keep people from doing something financially stupid that's gonna hurt them later in life. Let's talk about some of the big mistakes that you and I have both seen over the years.

Steve H.: Yeah. So, the first one that we'll touch on is you have to put an expense on a credit card. There's a difference between leveraging a credit card for points, cash back, other benefits, things like that, and needing to put a cost on a credit card, because that means that you didn't prepare ahead of time.

Steve S.: Well, that's the point I wanted to make on it. A credit card is not inherently bad. But if you put a charge on a card that you know you can't pay off at the end of the month, that's the final link in a chain of bad financial decisions.

Steve H.: Yeah. Credit card debt can really begin to snowball, and have a major impact, because some of these credit cards, you could see interest rates at 29%. That's madness.

Steve S.: Oh, yeah. Yeah. I think the average is somewhere around 20%. We've had Britt Scearce on. He's our local credit expert, and he's up-front about one of the reasons he became a credit expert, is the trouble that he found himself in many, many years ago, but with having too much credit card debt. And when you get to that point, and I struggled with that a little bit when I was in my early 20s, when you get to that point, you really feel like "I've got no place to turn. I mean, this has gotten out of control. I'm barely making minimum payments. How the heck do I fix this?" And it's kind of like losing weight. You didn't get yourself in that situation overnight. You're not gonna get yourself out of that situation overnight. But when you wind up putting expenses on credit cards, man, that's a hole that is a pretty deep hole that's gonna take you a while to get out of.

Steve H.: Yeah. That little magical card that can make you live a lifestyle of the rich and famous, just throwing money all willy-nilly, and that's certainly not something that you want to get yourself into, because, as you said, it can be really hard to get out of it. So, the best way to avoid that is, you know, pay for things with cash.

Steve S.: I agree with you.

Steve H.: Use your debit card. Use money that you know you have. And if you don't, don't buy the thing.

Steve S.: Yeah. I mean, there are needs and wants, and sometimes what we think we need are really a want, and kind of a, I don't really even want it, but it would be nice. And that goes on a credit card that you can't pay off. There's a reason why Dave Ramsey uses envelopes with cash. I mean, that's a great way of saying, "Okay, this is actual cash. I could be doing something else with this money, but instead, I have to use it to pay my credit card, because of what I bought three months ago, five months ago, still making payments on it." And for the exact opposite reason, that's why casinos don't use cash. They use chips. They want...

Steve H.: That's a good point.

Steve S.: They want you to have that disconnect with the emotional toll of handing a $20 or a $100 bill over, because once it's a chip, it's a chip. It's just got a different color, and this color is worth more than this color. And they want that disconnect. And that's why Dave Ramsey gets back to actual cash inside of envelopes for everything. So you feel the pain.

Steve H.: Yeah. So, the second thing that may lead you to make a poor financial decision is if you do not have an emergency fund. This kind of goes hand in hand with not putting expenses on credit cards...

Steve S.: I think...

Steve H.: ...because if you have that emergency fund, and a need arises, then you don't have to put it on a credit card because there's your emergency fund.

Steve S.: I think that is the solid foundation of anybody's, and everybody's, financial budgeting. I mean, you have to have an emergency fund. And you can get into the, okay, three to six months, after retirement, a year to two years. "I don't want that much. I've got a home equity line of credit I can fall back on." You can do all that [inaudible 00:04:28] You have to have at least some money to fall back on. I'm thinking of someone in particular that had a whole lot of credit card debt that wasn't being paid off every month, and a decent emergency fund.

Steve H.: That is an emergency.

Steve S.: And I said, that's not an emergency fund. You have...

Steve H.: That's your credit card.

Steve S.: ...zero net worth, because, yeah, your emergency fund equals your credit card balance. You need to use that emergency fund to pay off your credit card. And this person said to me, "But then I won't have an emergency fund." Well, you never really had it, you know?

Steve H.: Yeah. That's money that should be put towards the emergency, which is the spiraling credit card debt at that point.

Steve S.: Yeah. So, let's just say, okay, I had to buy four new tires for the car, wasn't expecting it. Not an emergency, but you didn't plan for the expense, but you've got an emergency fund. You can still put it on your credit card, and use your emergency fund to pay off that credit card at the end of the month, and then just stop using your credit card until you get your emergency fund back up to where it was.

Steve H.: Yeah. That's great. I mean, credit cards aren't inherently evil. They're not mistakes unless you're making mistakes with them.

Steve S.: You're listening to "Simply Money" on 55KRC. I'm Steve Sprovach, along with Steve Hruby, and we're talking about the big financial mistakes that can hurt you, not just now, but in the long run. And we've talked about emergency funds, we've talked about credit cards. How about bad advice from influencers? This is something, you know, I wouldn't have talked about 10 years ago, but people are getting advice from absolutely unqualified people on the internet.

Steve H.: Honestly, probably half of the folks I meet with have some kind of a question about something they saw online, an article they clicked on, something that somebody shared on Facebook, some kind of social media expert peddling the next big thing, unfortunately, oftentimes, preying on fears of a volatile market. So, part of our job as financial advisors is to make sure that people don't make emotional, knee-jerk reaction decisions to things like this.

Steve S.: Yeah. And usually, it starts out as something like, "Hey, I heard," or, "They say you should be putting money in crypto," as an example.

Steve H.: Who's they?

Steve S.: Who's they? Yeah. Exactly.

Steve H.: Are they fiduciaries that have a responsibility to make sure you are making good decisions, or...

Steve S.: [crosstalk 00:06:43] done in 10 or 20 years?

Steve H.: ...are they trying to get you to click on their article so they can sell ads?

Steve S.: I think the biggest and worst example of this was when I first started hearing about, and we talked about it on the show, non-fungible tokens. Remember the NFTs?

Steve H.: Yeah.

Steve S.: What a mess. What a mess. And there were celebrities, with supposed credibility, saying this is the greatest thing since sliced bread. And a lot of people were putting money into these things. No. No. Didn't exactly work out in pretty much every case.

Steve H.: Yeah. Not that they were ever worth anything, but they're worth a lot less now than they were when people bought these things. So, you know, I also see folks bringing into meetings fancy packets that look like they cost $50 to produce, saying that here's all the reasons why you should sell all of your worldly possessions and put it into gold.

Steve S.: Yeah. Yep. Yep.

Steve H.: And it's remarkable. I'll flip through some of these sometimes, and I can't believe how much it looks like they cost $50 to make these ads.

Steve S.: Yeah. Yeah. And, you know, it's, you mentioned, based on fear. Yeah. It's okay to put a little bit of your money in precious metals, I suppose, but they're preying on fear, saying, "Okay, the financial world's gonna blow up, and you need to buy gold because gold is here forever." When you tear into it, no, it's not a great investment in 9 out of 10 years. I remember back in 2008, 2009, when there was a legitimate concern, is the financial structure of this company imploding? And gold did go up, okay. How many of the people that bought gold when it was near the bottom sold near the top? I would say almost zero.

Steve H.: Yeah. Very few.

Steve S.: Almost zero. Because, you know, that's the type of thing, okay, I was afraid then. I'm still afraid. I still need this. Okay. So, you didn't capitalize on that one big swing, and since then, it really hasn't done much of anything. How about the person that says, "Yeah. I'll get to it." You and I both encountered that.

Steve H.: Yeah. I mean, that's just procrastination. I see that all too often. And another part of what we do is attempt to hold people accountable, anyways, to doing the things that they said they were gonna do, that is essentially homework that we prescribe to folks we work with, to make sure they're making good decisions. Yeah. You know, things that you can do to help with that, you know, if it's about increasing savings, set up an automatic 401(k) contribution increase. Something simple like that, if you're still working, because if you get cost-of-living adjustments periodically, and you increase your savings by 1% each year, that might be something that you're not even gonna feel when that increase happens, but at least it's gonna get you saving more.

Steve S.: I'll tell you where I usually see it. And I'm sure you've seen this quite a bit too, but, you know, I've done this 40 years. You want a financial plan, and you wanna be, have some reassurance you're not gonna run out of money when you retire, or when you recently retired. How can anybody run a financial plan to see if you run out of money if you don't know how much you spend?

Steve H.: Yeah. Gotta have that budget. The dreaded B-word.

Steve S.: Yeah. And I've actually had people say, "Hey, I've never done a budget. I ain't starting now." Well, that's up to you, you know. Because if it turns out you don't spend as much as you think, you're okay. But in pretty much every case, you spend a little bit more, in some cases, a lot more than you thought you were gonna spend. I've had people swear to me, "Oh no, I don't spend more than $2,500 a month." "Okay, let's put pencil to paper on this one." It's usually double if not more than that.

Steve H.: That's why I stress-test plans, to kind of set a maximum spending, to shine light on that. What about if you're feeling pressured?

Steve S.: That happens a lot in our industry.

Steve H.: Unfortunately it does.

Steve S.: Usually by commission-based investment advisors.

Steve H.: Yeah. "Limited-time offer." "Deal of the day." "You're gonna regret not working with me." "This is something that you need to do, or else you're gonna run out of money."

Steve S.: Most of the time that, you're being pressured because they're gonna make a lot of money off of you.

Steve H.: Exactly. And it sickens me, too. That really bothers me.

Steve S.: And you know what? If it's a good investment today, it's gonna be a good investment tomorrow, then it's gonna be a good investment the day after that. A very wise man, no, once said to me, when, you know, he had somebody sit in his office, an investment advisor, and they walked out without signing any paperwork. I said, "Aren't you concerned?" He says, "No. No. What I gave him was good advice, and they'll be back." And in pretty much every case, they were. You should never be in a hurry to make a good decision, especially a big decision.

Steve H.: Exactly.

Steve S.: You know, you just retired. I've got this huge 401(k) dollar amount, and yeah, I gotta get something done now. No, you don't.

Steve H.: Or I have a decision to make with my pension.

Steve S.: Yeah. And in some cases, you are under the gun on that, but that's where you've gotta get a whole bunch of advice from a whole bunch of different people, and just bear down and focus on the timeframe that you are given.

Steve H.: Well, if you sit down with a fiduciary financial planner that isn't a commissioned sales rep, then they're going to help you understand what your options are. They're going to help you understand the implications of option A versus option B, and how it affects your long-term... Whether or not your money lasts longer than you do.

Steve S.: I agree. And have an understanding. You don't have to be an expert in the field, but have a rough idea of what's going on with your money. What is your advisor proposing you to do with it? You don't have to be a Ph.D. to understand some of the basics. You know, is your money being put into commission mutual funds, or are you working on a fee basis? Certainly, little things like that. Here's the Allworth advice. We recommend hiring a fiduciary financial advisor, who can help save you from, yep, yourself. Coming up next, we're tackling two big marital money topics that could impact you or someone you know. You're listening to "Simply Money," brought to you by Allworth Financial on 55KRC, THE Talk Station.

You're listening to "Simply Money," presented by Allworth Financial. I'm Steve Sprovach, along with Steve Hruby. Hey, if you can't listen to "Simply Money" every night, just go ahead and listen to the podcast the very next day. You can listen to us during your commute, at the gym, wherever you happen to be. And if you've got some friends that could use some advice, tell them too. Just search "Simply Money" on the iHeart app, or wherever you get your podcasts. Straight ahead at 6:43, it's your turn to ask the advisor.

All right, Hruby. So, I don't know if you went through this. I didn't, because we were broke, but when you decide to get married or divorced, the financial implications, they can be huge. And I wanna focus on two specific topics that we haven't talked about in a long time. Don't get too much attention. One is prenuptial agreements, and the other is something that's becoming a more and more common phrase, gray divorce. Let's talk first about prenuptial agreements. Becoming more popular, and probably should be becoming more popular.

Steve H.: Yeah. I don't necessarily disagree with that. I don't have one myself. If anything, it would've made more sense for my wife, because she comes from money and I come from completely nothing.

Steve S.: Understood.

Steve H.: So, she married into debt. She had no debt when she graduated college. And that's where we met, was in college.

Steve S.: You caught her at a weak moment, didn't you?

Steve H.: I guess I did.

Steve S.: That makes two of us that married over our heads. Please continue.

Steve H.: Yeah. Congratulations.

Steve S.: Exactly.

Steve H.: So, I'm happy for you. But, you know, in all seriousness, so, when we think of prenups, you know, you might think of celebrities or tabloids, but you don't have to be rich and famous to have one, because what they do is they give couples the opportunity to communicate about their finances, and establish a clear framework.

Steve S.: That's the key, because...

Steve H.: It's communication.

Steve S.: ...you're in love, and, yeah, you decide, yeah, gonna get married, take that big step. But the money side, it almost seems gauche to talk about money at that stage, at that happy time in your life. But it is so important. Not everybody's like Amy Wagner, in the family she grew up, where it was dinner talk every single night. Open books about finances. I didn't grow up that way. I know you didn't grow up that way. And, you know, this gets a couple talking about, all right, it's, you know, let's talk about what would happen if, not that you're planning on it, but, you know, I don't plan on dying tomorrow, but I've got a will.

Steve H.: Exactly.

Steve S.: And a prenuptial agreement is kind of a will for a marriage. What would happen if?

Steve H.: Yeah. What would happen if the marriage ended? So...

Steve S.: Yeah. Exactly.

Steve H.: ...it's one of those things where it's better to have one and not need it than it is to need it and not have it. So, when might you need one? So, there's certain situations, like if you're going to be inheriting a family business, if you have children from a previous marriage, if you are, like me, entering a marriage with significant debt, again, I got away with it, without having to do the prenup. But that's certainly, it's a way that can give both partners, and families, in these situations, peace of mind if something were to happen.

Steve S.: And you mentioned children from a previous marriage. I'll add on top of a prenup, some estate planning.

Steve H.: That's true. That's...

Steve S.: I've got a really good friend, and in his case, it wasn't a marriage that went bad. It was mom passed away and dad remarried. And the kids had a real hard time. They didn't dislike stepmom, but they thought stepmom, okay, well, wait a second. Is she gonna get everything now, and it doesn't come to us, you know, when dad passes? Because she was younger than dad. And, you know, it wasn't until dad realized that, wow, this is a big concern of my kids, that he opened the books and showed them, no, let me show you the trust I set up, how it's going to work, and I did not forget about you guys. But they needed to see that. And in that case, he had to sit down with a lawyer and make sure, okay, all the assets I had accumulated prior to this remarriage go to my children. And after the marriage, maybe it's a different distribution, but you have to have that in writing, and you have to communicate that to your children if that happens to be the case.

Steve H.: Yeah. So, I like the comparison. They kind of go hand in hand, a prenup with a will. Ideally, you have them, but you don't need them any time soon. You're listening to "Simply Money" on 55KRC. I'm Steve Hruby, along with Steve Sprovach, and we're talking about the financial implications of ending your marriage, and how you can prepare ahead of time. We touched on prenups. The second is gray divorce.

Steve S.: Yes. You're looking at me, because I am gray.

Steve H.: Yeah. I am. I did. I honed in. I looked at you. I looked at hair.

Steve S.: I am still waiting for my wife of almost 40 years to wake up one morning and say, "What was I thinking?" I mean, I married over my head too. Yeah. You know, but no, this is becoming a thing, and an unfortunate thing. But a lot of people in marriages of 20, 30, 40, some cases, 50 years, for whatever reason, they're saying, "Nope. I'm doing this on my own." And a lot of these situations are being initiated by the female, which catches a lot of people by surprise.

Steve H.: You say "for whatever reason," but according to research from AARP, nearly 7 in 10 cases of divorce after 50 come from women.

Steve S.: Yeah. And I think the reason that that surprises me is I grew up in a household where dad worked. Mom didn't until she took a part-time job later in life. Okay. If there's one breadwinner in the family, it kind of makes it tough for the non-breadwinner to call any shots, or leave a marriage that is not working for whatever reason. That's not necessarily today. I mean, you've got a lot of two-income families, and it's not a big difference in income in quite a few of those cases.

Steve H.: That is absolutely true. And a lot of people, they're waiting until maybe their children are out of the house.

Steve S.: Yeah. That's a big reason.

Steve H.: That's a big reason to wait. And, you know, keep in mind that there was a study, I wanna bring this up, because it was from my alma mater. It was, according to the Center for Family and Demographic Research at Bowling Green State University, in Ohio, older women who experience divorce see a standard of living decline by 45%, whereas men, 21%.

Steve S.: Okay. So, the women are initiating the divorce, yet they're being hurt more by the cost or the standard of living afterwards.

Steve H.: Yeah. So, you need to think about the financial considerations. If this is something that's on the horizon, you know, how will divorce affect retirement? Does somebody have to return to work? Does somebody have to work longer?

Steve S.: Yeah. Well, I think that's a great example of why you need to pull an advisor into the situation, why you need to pull an accountant into the situation, before you proceed with this, because, all right, for whatever reason, that's the best decision you need to make at that point in time. But go into it with eyes open. I mean, know what the financial ramifications are going to be, because one person never lives as cheap as two people. I mean, that's the bottom line.

Steve H.: That is, and you're no longer sharing incomes if it is a double-income household. You're no longer sharing expenses, but do we need to change how much we're saving? Do we need to change timeframes? Again, it's important to sit down with a fiduciary financial planner, and speak with an attorney. Have a team on your side, to help you navigate changes like this.

Steve S.: I was gonna mention just one more example of where you need to have an attorney, and put what you need to put in writing, in writing. Here's the Allworth advice. When it comes to marriage and divorce, communication is about as important as it gets. Coming up next, so, you suddenly received an inheritance. What's the first thing you should do? What questions should you be asking? We're gonna tackle that next. You're listening to "Simply Money," presented by Allworth Financial on 55KRC, THE Talk Station.

You're listening to "Simply Money," presented by Allworth Financial. I'm Steve Sprovach, along with Steve Hruby. Losing a loved one, and then receiving an inheritance. Yeah. That stirs up a whole bunch of emotions. But when the dust settles, and you're staring at, in some cases, a pretty decent chunk of money, what are some of the questions you should be asking yourself?

Steve H.: Yeah. I mean, the amount of money that you receive, it can be a little subjective about whether or not that's enough to live off of. So it's important to make sure that you understand, will this inheritance change your lifestyle? Because it may be tempting to make quick, emotional decisions when you're already going through something that's very difficult, losing, you know, a parent or a loved one, where that led to this inheritance. So, you know, are you gonna buy a bigger car? You gonna buy a bigger house? Are you thinking about retiring from these assets?

Steve S.: I've gotten calls. You know, unfortunately, you do this long enough, you're gonna get these calls. "Steve, bad news. My spouse passed away," in some cases, I've heard "last night." I mean, I'm one of the first calls they make. And, "Thanks for letting me know. I'm sorry for your loss. What do I need to do?" How about nothing? Take care of yourself.

Steve H.: Yeah. Breathe.

Steve S.: You know? Yeah. Breathe. Take your time, okay? Yeah, we have things in place like beneficiary designations, and, you know, hopefully, you've got the will and estate plan and all that stuff worked out. Give that time. Take care of yourself. You just went through a major, major event, okay? If it was a parent, and you're a child, yeah. Pretty emotional. There, again, there's nothing you need to do on the financial side right ahead. There's almost nothing you can do right away.

Steve H.: Yeah, that's true.

Steve S.: Yeah. But think of yourself, and take the steps necessary for dealing with the loss of a loved one first. And when the dust settles, that's where you come in with the questions. One of the first questions I hear people ask is, "How much am I gonna owe on this? How much tax do I owe?" In most cases, and there's a couple exceptions, but in most cases, no. An inheritance, that's tax-free.

Steve H.: Yeah. I mean, it depends on the assets that you're inheriting.

Steve S.: It does.

Steve H.: So, property receives a step-up in basis at the date of death. If it's in a taxable brokerage account, they have some, you know, P&G stock or something like that, it's very common in this area of the country, obviously, those assets receive a step-up in basis, meaning the tax liabilities are only gonna be the gains on top of, after date of death. But if you're inheriting an IRA, for example, or a 401(k), these are taxable assets.

Steve S.: Yeah. And I've seen, okay, a son or a daughter receives, they're called beneficiary IRAs at that point, from a parent. Okay. You're gonna be required to take distributions, just like mom or dad was, and those distributions remain taxable. So, the new rule on beneficiary IRAs is, okay, you're gonna have to take out required annual distributions, but also, if there's any money left over after 10 years, and there should be, you gotta clean that account out. It's gotta be totally depleted by the end of the 10th year. And that may be a substantial sum of money that you're gonna have to pay tax on.

Steve H.: Yeah. In short, you may have inherited a bit of a tax bomb, so to speak. And if you don't sit down and work with a team that can help you navigate what's happening, and how these inheritances might have an effect on your financial future, you could be in for a surprise.

Steve S.: I'm gonna add one. Are you sure you're getting the money? Okay. I've seen cases where the person who thought they were getting the money, and mom or dad said at some point in time, "you're getting the money," didn't get it because of a remarriage or something like that. You need to know the beneficiaries, and what they are before you count your chickens. I mean, you don't wanna spend the money before you get it. That's for sure. You're listening to "Simply Money" on 55KRC. I'm Steve Sprovach, along with Steve Hruby, and we're talking about some of the aspects of inheriting money, and what you should and shouldn't do. Now, you made a good point earlier. Is this gonna make a big lifestyle change? I mean, some people say, okay, getting $50,000, "I'm gonna do this, I'm gonna do that. I'm gonna quit my job," and wait a second, $50,000 isn't as much as it used to be. You know, are you sure of the amount that you're going to get? It could possibly be even less.

Steve H.: Yeah. And if you are thinking about quitting your job, remember that we're not... Some of us, fortunately, are not just working for an income. A lot of folks I work with that are, they could retire, but they're still working, they do it because it provides purpose, structure, social interactions. So, again, don't make these emotional decisions that you could regret later on. And let's also think about how would the person that left you the inheritance want you to use those dollars.

Steve S.: Oh, I've got a great story about that. So, some of my favorite people I've worked with for years, let's just say, Aunt Kate left the money. And Kate did not have any heirs. She had nieces and nephews. Okay. Direct heirs. Substantial amount of money. And every single one of the nieces and nephews, who are grown adults, that's their first question is, okay, I've got this beneficiary IRA, I have to take distributions, it's a decent amount of money. What would Ann Kate like me to do with this money? What would she have done with this money? And what was most important to Aunt Kate was education. So, all of the sons and daughters of the children that received, or the nieces and nephews that received the money, guess what? It's funding their educations. Can't ask for a better legacy than something like that. So, that's a case where, absolutely, they're honoring the legacy of the person who left the money.

Steve H.: I like that. That's a good story. Hearing stuff like that, it's very refreshing for something that's already a bit of a grim subject, but, yeah, that's a great way to honor who left them the inheritance. Now, you know, we always talk about this, but it's important to make sure that you have a team on your side that can help you navigate this stuff, that, you know, can help remove the emotional aspects from big changes like this, and you receiving an inheritance. So, you know, the legalities around wills, trusts, estates, obviously, they can be very intricate, so having an attorney to help you navigate the legal side of things...

Steve S.: And again, this is after you've had a chance to breathe and let the dust settle. And, okay, now, you know, so-and-so has passed, we've had the funeral, now it's time to sort through everything. You mentioned the legal side. If there was a trust left, trusts usually have strings attached to them. They have rules.

Steve H.: That's right.

Steve S.: And you have to abide by those rules. And that's something that, yeah, I would want, if there is a trust, whoever drew up the trust, whoever the attorney is, make sure they explain to you, as the inheritor, "Here's the only reasons you can spend this money, according to the person who set up the trust."

Steve H.: Mm-hmm. So, maybe you have to respect what they wanted you to do.

Steve S.: Yes. Yes.

Steve H.: What about an accountant? So, we did touch on taxation, but, you know, depending on the size of the estate, and how diversified it was between different types of assets, property, IRAs, annuities, life insurance, cash, 401(k)s, there can be different tax implications, so making sure that you have either an accountant on your side, or a fiduciary certified financial planner that can help you navigate that is important.

Steve S.: I'll give you a great example. I mean, we talk about beneficiary IRAs. Yeah, you have to take distributions, and clear them out after 10 years. Annuities, they're a whole different ball game. And most inheritances are tax-free, but there might be a non-qualified annuity, in other words, not an IRA, just a, you know, joint annuity account. And when it goes to the beneficiary, you may be required to start taking distributions, depending on how the annuity is set up. You may decide, I wanna cash it out. And there may be some deferred taxes that you're gonna owe as a beneficiary. So, you know, before you make decisions, sit down with an accountant and/or an advisor, and figure it out. You know what surprises a lot of people when they inherit some assets, especially if it's from a brokerage firm or managed money, is that the broker that was handling mom and dad's money says, "You need to give me a whole bunch of information before I can put this into your name," and, "Wait a second. I'm not even using you. I don't wanna give you any information." And they're surprised when the advisor or the broker says, "You have to, or you don't get the money." I mean, that's one of the basic rules.

Steve H.: Yeah. I mean, that's also the reason why I encourage folks I work with to consolidate and make sure they have everything together. You know, when I meet with somebody, I give them a business card to give to, you know, their estate planning documents, and just let it sit there, so folks know who to call. Try to get them to set expectations with their children and their beneficiaries about what will happen in the future. Because you do bring up a good point. There's a lot of paperwork involved, and you do need to open accounts in your name in order to inherit the assets.

Steve S.: To inherit them, yeah. And, you know, just because mom and dad use that particular advisor, you may or may not want to use that advisor for yourself.

Steve H.: And that's fine. Still open the account.

Steve S.: That's fine. Exactly.

Steve H.: You still open the account there, and then you can transfer.

Steve S.: You still have to open it for it to be transferred. Exactly. Here's the Allworth advice. An inheritance can feel like a financial shock, but the most important thing to do is stay calm, take your time deciding what to do with the funds, and please, honor your loved one's legacy. Coming up next, we're tackling questions about inherited IRAs, Social Security, and more. You're listening to "Simply Money," presented by Allworth Financial on 55KRC, THE Talk Station.

You're listening to "Simply Money," presented by Allworth Financial. I'm Steve Sprovach, along with Steve Hruby. Straight ahead, our help for you, thanks to the lessons that we've learned the hard way. Okay. So, if you've got a financial question you'd like for us to answer, just click that red button while you're listening to us on the iHeart app. Simply record your question. And it does go straight to us, and that's where these questions come from. CT in Boone County says his father recently passed. Sorry to hear about that, CT. His father recently passed, and left CT his IRA. What are his options?

Steve H.: Yeah, again, sorry to hear about your loss, CT. Never fun. But, you know, what needs to happen next is you need to open an inherited IRA, in your name. It's probably gonna be at the same firm that your father used. And then you can move it afterwards if you want. You can work with the same person or not that was helping your father, but you're going to have options, because you can cash it out, which is, there's no early withdrawal penalty on an inherited IRA, but there are [crosstalk 00:30:37]

Steve S.: Yeah. Yeah, you could be 40 years old and totally clear it out, and there's no additional 10% penalty.

Steve H.: But there is taxes.

Steve S.: You never avoid that.

Steve H.: And that's based on your income tax bracket. So, if it's a large account, and you cash it out, then you may kick yourself into a higher tax bracket and end up paying more taxes on that distribution than necessary. If you want to keep the account working, staying invested in the markets, then you can let it ride. You have 10 years to drain that account, based on current IRS regulations.

Steve S.: You used to be able to carry that forever, but just a couple of years ago, they changed the law, and yeah, it's gotta be cleared out by end of the 10th year, I think is the phraseology.

Steve H.: Yeah. So, they're forcing you into required minimum distributions. You can do it annually, just to make sure that that account is drained by the end of 10 years. But that's something you're gonna have to do, and you need to think about the taxes in this situation.

Steve S.: All right. Kelly in Winton Woods says she's 59, she's been divorced for a few years, has not remarried. She heard that she can get Social Security benefits based off of her ex's work record. How's that gonna affect her Social Security record, and how does that work?

Steve H.: So, this is certainly something I've helped folks that I work with over the years. Because if you were married for over 10 years...

Steve S.: That's the key.

Steve H.: That is the key. You have to have been married for 10 years, and you have to have not remarried.

Steve S.: Which she did not.

Steve H.: Yes. If half of their benefit is higher than your full benefit, then you can collect on theirs.

Steve S.: Yeah. That's the spousal benefit, which is eligible to anybody who's married. My wife worked quite a bit when she was younger, but did a lot of volunteer work later. So, her personal benefit is not as much as half of my benefit, and so she has the choice of which one to draw. Well, you take more money. You know, and this is a case where she can draw off of her ex's, even though she's not married to them anymore, and he doesn't have to know a thing about it.

Steve H.: He doesn't know. It doesn't affect them. It's fine. Just don't get remarried if half of their benefit is higher than yours.

Steve S.: Exactly. All right. John in White Oak. "I've held a lot of jobs over my career. They've been in different industries." So, he's got old 401(k)s, a 403(b), which is basically a 401(k) if you work at a nonprofit, like a hospital, and a 457, another type of retirement plan. He wants to know, is there a way he can put all of these into one account, even though they're different types of retirement plans.

Steve H.: Yeah. So, these employer-sponsored retirement plans that John has had over his span of his career, oftentimes they have pre-tax dollars in them, maybe some Roth, but ultimately, you have the option to, if you wanna put them together, either consolidate into a rollover IRA, or, if you're still working, there are pros and cons to having an IRA versus consolidating into a single workplace and sponsored retirement savings plan, like your current employer's 401(k).

Steve S.: Yeah. Be careful if the first advisor you sit down with says, "Oh, yeah. Just put them in a rollover. I'll take care of it." Okay. Might be a good choice, but let's get some other options too. And your company's 401(k) very well may accept all of these different types of plans if you don't wanna hire an advisor. And if you're between 55 and 59 and a half, which is the differences in ages for that 10% penalty on distributions, you probably do wanna take a look at putting it into your current employer's 401(k). So, it's not a gimme that it's a rollover, but can, to answer the question, can you consolidate? Yeah. You can consolidate.

Steve H.: Sit down and talk to a fiduciary financial planner to help you navigate the best options for your financial situation.

Steve S.: Okay. Quickly, Jake and Sarah from Edgewood, "Is there a rule for how often we should be rebalancing our investments?"

Steve H.: I mean, there's different schools of thought on this one. This is a good question. You know, if momentum's on your side, maybe one or two times a year. Sometimes it's based on portfolio drift. If your asset allocation is off by 5%, you sell some of the ones that have done well, you buy some of the duds. Because that, really, what you're doing is buying low and selling high in that situation.

Steve S.: Yeah. Or taking some chips off the table when things make a run. I've seen a lot of different studies. I keep it simple. I just tell everybody, yeah, rebalance every year. Once a year. That's enough. In an IRA, no tax consequences. In a taxable account, take a look at taxes before you make a choice, because you may wind up paying some extra tax. Coming up next, your chance to learn from our mistakes. What we wished we knew when we were young. You're listening to "Simply Money" on 55KRC, THE Talk Station.

You're listening to "Simply Money," presented by Allworth Financial. I'm Steve Sprovach, along with Steve Hruby. You know, especially when you've done this a long time, people think you're perfect. You're a money manager, you're an expert in finance, you've never made a mistake. I can very, very honestly say no, I've made a few mistakes, and I'm sure you have too. We were talking a little bit earlier today about some of the things that we kind of wish we did differently when we were young when it comes to finance.

Steve H.: Yeah. I mean, this is tough for me because, you know, a lot of advisors have stories about their parents, you know, making mistakes with the money that they had when they were transitioning into retirement. My folks didn't have any money. You know...

Steve S.: Yeah. Same here. Same here.

Steve H.: I've inherited from both of them. I got $37 from one and nothing from the other.

Steve S.: Really?

Steve H.: Really. So, you know, my mistakes are gonna be focused more on the younger years, because I was also the first in my family to go to college. And I didn't have a lot of guidance or help understanding...

Steve S.: Probably racked up some student debt.

Steve H.: Yeah. I wish I would've known more about the process of going after scholarships through the schools. Because what I ended up doing is getting several local scholarships, rather than some that were available from the universities that I could have went to. So, I think that's a good one. Another is, you know, maybe consider, if you are making this decision for yourself, or if you're talking about it with your kids, nothing wrong with starting your education at a two-year university and then transferring to a four-year, or even considering trade school.

Steve S.: And you can save a lot of money doing that.

Steve H.: Well, you can make a lucrative career from the trades, too, and live a happy and fulfilling life, and still save a lot of money, and get toys and have experiences. College isn't the only answer. It worked out for me. I got a wife out of it, and I am where I am now.

Steve S.: That's right. You met at college.

Steve H.: Yes.

Steve S.: Yeah. Now, in my case, I made a big change in my financial life, in my early 30s. I met up with two guys that I really didn't know, they were friends of a friend, and helped start a company. And one thing, when you're an entrepreneur, an entrepreneur, I define as the ability to work 80 hours a week and get paid little to nothing for a period of time. It's a big step.

Steve H.: It is. It's terrifying.

Steve S.: You know, and I give my wife credit, but because of that, I had to put off my savings plan. I had to put off saving, and had to do a whole bunch of catch-up. Everything's fine. You know, everything worked out fine. This was a conscious decision. But what I learned, very rapidly, is the value of saving when you're younger. It's incredible how much less money you need to put away, to come up with, let's just say, the proverbial million dollars at retirement. It might be $300 a month when you're 25. It might be $3,000 a month if you don't start till you're 50.

Steve H.: Yeah. So, this is the same exact feedback. Because, you know, there was a career switch in my life. I plead the fifth as to what my previous career was. But I didn't have the opportunity to save a whole lot. I wish...

Steve S.: I'd be proud of your Chippendales career.

Steve H.: Thank you. Thank you. I really wish I would've had the opportunity to put stuff aside, maybe start a Roth IRA, just to get compounding interest working for me. Because I didn't start really saving until I was in my late 20s.

Steve S.: Yeah. Compound interest is the greatest invention ever. Save early, save often. Hey, thanks for listening. You've been listening to "Simply Money," presented by Allworth Financial on 55KRC, THE Talk Station.