Steve Sprovach: Tonight, how you might want to digest the newest inflation report. You're listening to "Simply Money," presented by Allworth Financial. I'm Steve Sprovach, along with Steve Hruby. Well, we've been talking about it all week, and the monthly inflation report finally came out. All eyes are on it, because the report generally drives stock market movement, which drives your 401(k), and, you know, it was okay. But the Consumer Price Index, that's the primary index that we use for looking at inflation, it was up a little higher than expected.

Steve Hruby: Yeah. So, the yearly rate on inflation moved up from 3.2% in July to 3.7% in August.

Steve Sprovach: And we knew it was gonna go up. We were expecting 3.6%, so it's really only a tenth of a percent higher than we were expecting. What's driving it?

Steve Hruby: Oil prices.

Steve Sprovach: Yeah.

Steve Hruby: That's it. Oil prices.

Steve Sprovach: Yeah. When you fill up your tank, you've seen, it's gone up 40, 50 cents in the last month. So, yeah. That's the headline inflation. That's the consumer price index. And I don't care how much politicians or the media says, "Well, yeah, but we really wanna look at core inflation." I'm sorry, I use gas. I fill up my tank. Oh, and by the way, core inflation doesn't include food. Most people that I know eat food. I mean, so, okay, we'll talk about core inflation in a second, but the headline inflation, the consumer price index, went up quite a bit.

Steve Hruby: Well, it's also what the headlines are focusing on, of course. MarketWatch, they seemed to be the most concerned about this. I'm sure there are some out there that were a little bit louder, so to speak, but they had a headline that said, "CPI Shows Biggest Increase in U.S. Inflation in 14 Months."

Steve Sprovach: Yeah. And it's true. But they're spinning it, and that drives...

Steve Hruby: Yes. That's...

Steve Sprovach: ...that drives me crazy, when all I want is data. I'll make my own conclusions. Yeah, it's up, and that bothers me. But when you see words, and, in the same article, when MarketWatch came out and announced these, they said the rate leapt.

Steve Hruby: Leapt. Yes.

Steve Sprovach: Leapt to 3.7%. I don't think that's so much a leap as it is a bump. You know, but we're getting into semantics, for crying out loud.

Steve Hruby: It's a baby step. It's not...

Steve Sprovach: It is, but it's the wrong direction. That's the problem I've got.

Steve Hruby: It is the wrong direction, but saying that it "leapt" is misleading, in my opinion, and I don't appreciate it.

Steve Sprovach: Yeah. Well, there you go. Your feelings are hurt. Words can hurt...

Steve Hruby: Yeah, they can.

Steve Sprovach: ...according to Steve Hruby.

Steve Hruby: You know, they said this can cast a negative tone over the financial markets. So, the key here is to remember that if it bleeds, it rates.

Steve Sprovach: Yeah. They want clicks. Yeah, they want you to pay attention to their website.

Steve Hruby: So the ad revenue flows in. So, you see these scary headlines, and they have no fiduciary responsibility to make sure that you are making the right choices in your financial future. This type of thing bugs me. That's why I said that, because when I started my career, I was in a 401(k) customer service role. And you could tell when there was something spooky in the headlines, because people would call in and they would say, "I wanna put everything in a money market. Can I do that in there?"

Steve Sprovach: Yeah. The phones would just light up, I bet.

Steve Hruby: Yeah. And at the time, I wasn't in a role where I could, you know, hit the pause button and say, "Why do you wanna do that?"

Steve Sprovach: Okay. So, you could not give advice.

Steve Hruby: Not when I was in customer service, before I ever got my securities licenses, and eventually became a certified financial planner. So, these headlines, they bug the crap out of me, if I'm being honest, because...

Steve Sprovach: And that's why they're dangerous. Because the average person sees these headlines and says, "This sounds really bad. I need to do something."

Steve Hruby: Yeah. I need to act on my emotion...

Steve Sprovach: Exactly.

Steve Hruby: ...and call my 401(k) provider and put everything in cash. That's why, when, you know, it's a noisy headline like that, and it says it leapt, it bugs me. It does.

Steve Sprovach: Okay. So, that's the headline Consumer Price Index. And I mentioned, okay, there's something called core CPI, core Consumer Price Index, and that cuts out food and energy. The reason we pay attention to the core CPI is because that kinda gives you an idea of what the longer-term trend is. And that news was good, but not as good as we were hoping. That actually came down a little bit.

Steve Hruby: Yeah. So, that's the key here, because yes, the Fed does view core rate as a better predictor of future inflation trends, because food and energy are volatile. When you strip that out, it's something that they pay more attention to when they're making decisions about what they're gonna do with interest rates. Prices rose three-tenths of a percent when stripping out food and energy. But the annual rate, this is the key, the annual rate fell from 4.7% in July to 4.3% in August.

Steve Sprovach: Yeah. And we were looking for 4.2%. So, again, a tenth of a percent miss, but that's still, it's pointing in the right direction. That's the inflation number that the Fed looks at. So, here's why it's important. Again, the CPI, the Consumer Price Index, which went up, that's you. That affects you, filling up with gas, going to Kroger, and that sort of things. That went in the wrong direction. But the core CPI affects the Federal Reserve and their decisions on whether or not they need to raise interest rates again, which I don't think they're gonna do next week. But November might be on the table, because these numbers, they're coming down, but they're not at the 2% that the Fed wants. We might be at 3% by the end of this year, though.

Steve Hruby: We certainly could be. And this MarketWatch article that we're talking about, that I'm stuck on here, by the way, it spent no time talking about the fact that annual rate in core CPI fell.

Steve Sprovach: Yeah. Exactly. You're listening to "Simply Money" on 55KRC. I'm Steve Sprovach, along with Steve Hruby, and we're talking about the inflation numbers that came out. And it's kind of a mixed bag. On the one hand, yeah, gasoline prices are up, so headline inflation is up. By the way, it's about a dollar a gallon more in Phoenix. I was talking to my son out there. They're paying about $4.50 a gallon for regular. I mean, we've always got it pretty good here in Cincinnati, and I'm not happy about the price of gas around here. Never mind some other areas of the country. Here's a point I think we need to make. The Federal Reserve, when they raise interest rates to slow down the economy, that's not gonna bring the price of oil down. That's not gonna affect the prices at the pump.

Steve Hruby: Yeah, that's true. I mean, what the Fed does doesn't have an impact on oil at all. So, you know, we do wanna note that despite the fact that core inflation is lower, it is still more than double the rate that the Fed wants, at 2%. And, you know, we're waiting to see what happens next week. What are they gonna do? Allworth Chief Investment Officer, Andy Stout believes there's not enough out there that the Fed's gonna kick up interest rates again this next time around, but come November 1st meeting...

Steve Sprovach: Maybe.

Steve Hruby: ...maybe.

Steve Sprovach: Yeah. About a 50-50 chance in November, based on what we know today. But the Fed's always been upfront about if the data changes, our policy's gonna change. I don't think they're gonna change. I don't see them increasing interest rates when they meet next week, primarily because all the different presidents of the various Federal Reserve banks around the country, they're pretty much all on record saying, "We're doing what we need to. We like the numbers. We need to give these numbers a little bit of time to work their way through the economy and see what the impact is." So, you know, when they're on record saying, more or less, "We're good. We don't need to raise interest rates," they can't turn right around in a week's time and raise interest rates. Markets would go ka-blooey if they did something like that.

Steve Hruby: Yeah. If we're talking about the language, we did talk about this on Monday this week. You know, looking into the language that these different Fed presidents use, and a lot of it is kind of a wait-and-see. We're not gonna do anything now, but we're not closing the door on future interest rate hikes. Because, just like you said, they do look at all the new information to decide what they're gonna do. So, what should we do?

Steve Sprovach: Well...

Steve Hruby: What should you do with your 401(k)?

Steve Sprovach: ...I wouldn't do anything.

Steve Hruby: That's right.

Steve Sprovach: I wouldn't make any changes. I mean, this is fun stuff to talk about. It's aggravating to think about, you know, how much is it gonna cost me next time at Kroger? Can you believe the prices of some of these things? By the way, the number one increase that I saw in, month over month, in prices going up, was food at schools. Schools are back in session, and they're charging your kid 57% more for...

Steve Hruby: That was the highest...

Steve Sprovach: Oh, by far.

Steve Hruby: ...on the list. I saw that too. Isn't that remarkable? Price-gouging families...

Steve Sprovach: Yeah. Yeah. I know.

Steve Hruby: ...as they send their kids back to school.

Steve Sprovach: Yeah, yeah. Isn't it great? Yeah. Car insurance was up almost 20%. Car repairs, up 17%. Rents are finally slowing down. And I think that's because the prices of real estate, that skyrocketed over the past couple of years, well, when you're talking close to 8% on a 30-year mortgage, there aren't as many investors out there going out and buying up a house to offer it for rent. Yeah, when they had to pay more, they're gonna charge more for rent. Well, that's pretty much slowed down to a crawl right now. And it takes, well, up to a year, most leases are a year, for that adjustment in home pricing to impact rents. And rents were only up 8% last month. So, that, I think, finally, we're seeing shelter costs get back down to somewhat normal, but there again, I don't see them going down. I know you like your eggs. Eggs were one of the biggest...

Steve Hruby: Eggs finally went down a lot.

Steve Sprovach: Yeah, down 16%.

Steve Hruby: Sixteen percent. There we go.

Steve Sprovach: Yes. And, so you're saving money now, but you're gonna spend more on the cardiologist later.

Steve Hruby: Unfortunately, yeah. So, you know, we talk about inflation all the time. You know, it's a hot topic right now. And one of the reasons why we invest isn't just to get rich quick. You know, you're putting money in a 401(k). Hopefully, your employer matches it. You build an asset allocation that you're comfortable with, not making emotional decisions when the markets have some volatility. So, we invest in the long term also to keep up with inflation, itself.

Steve Sprovach: No question.

Steve Hruby: Because if we're at that target 2% rate that we wanna see, even then, the value of goods and services, or the cost of goods and services doubles about every 22 to 23 years.

Steve Sprovach: Yeah. And if you're on a fixed income, yeah, you get cost-of-living increases in social security, but pensions? Corporate pensions don't go up.

Steve Hruby: Very rarely is there a cost-of-living adjustment.

Steve Sprovach: Yeah, exactly. So, you've gotta pay attention to inflation. And, you know what? What really bothers me, and I'm fine, if you're smart and wanna go through the effort and do your own financial plan, knock yourself out. You don't always have to hire a professional. But I've seen some financial plans out there that don't account for inflation. That's mind-boggling to me.

Steve Hruby: Yeah, that's one of the biggest areas for improvement that I see when I have somebody come in and, you know, they're trying to get an understanding of where they are, and they built their own spreadsheet, and they didn't even bake inflation into it.

Steve Sprovach: Yeah. That's a big miss.

Steve Hruby: Well, yeah. It's a huge miss.

Steve Sprovach: That's a big miss. Here's the Allworth advice. Don't worry about your 401(k) as it relates to inflation, because your plan should already account for volatility. Coming up next, what could be the worst example of timing the market that there is, and why you might as well just call it gambling. 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. Hey, if you can't listen to "Simply Money" every night, very next day, just get it on our daily podcast. You can listen the next morning during your commute, at the gym, whatever you happen to be doing. And if you've got some friends that could use some financial advice, tell them too. Just search "Simply Money" on the iHeart app, or wherever you get your podcasts. Straight ahead at 6:43, we're tackling questions about company matches, the bond market, and more, in our "Ask The Advisor" segment.

Okay. So, you know, they can't get out of their own way. Bed Bath & Beyond, or as I call them, Bed Bath & Bankrupt, because that's what they are.

Steve Hruby: I see what you did there, Steve.

Steve Sprovach: Yeah. Some of the former employees there just got some really bad news about one of the investments in their 401(k) called a guaranteed interest account.

Steve Hruby: Yeah. So, those that had invested in the guaranteed interest account, that they believed was actually low-risk, saw losses of about 10%. And this was in relation to the plan's termination because of the bankruptcy.

Steve Sprovach: Yeah. And I think this is important for everybody listening, because most 401(k) plans, yeah, you've got your stock choices, you've got your bond choices, always a money market, with zero risk and very little interest. But most plans have something called a fixed account. And a fixed account may be bonds, but it may very well be an insurance product. And that's what burned these people. I'm not anti-insurance, but this is a fixed account that generally pays more interest than the money market. But it's really a contract with an insurance company, kind of like a CD issued by the insurance company, that's backed by the insurance company. And it may have some features, which Bed Bath & Beyond apparently had, where, when the plan terminates, they cash out these contracts, and there may be significant losses. We're talking about upwards of 10% losses with these people.

Steve Hruby: Yeah. So, just to be clear here, this is out of the ordinary. Because this is part of a plan termination, because of the bankruptcy. So, had these investors in the Bed Bath & Beyond 401(k) plan been able to hold these contracts, without the plan terminating and forcing an early payout... Because, just like if you cash out of a CD early, you lose interest. This is a similar type conversation.

Steve Sprovach: Yeah. But I'll bet you most of these people had no clue...

Steve Hruby: Exactly.

Steve Sprovach: ...that this was a feature.

Steve Hruby: They didn't know. And unfortunately, because of the timing, some of these people actually got moved into this investment before the plan terminated.

Steve Sprovach: So, basically, it's down because interest rates went up as much as they did, which, last time this happened was 50 years. So, congratulations on your luck, I suppose. Just because a plan terminated when the Federal Reserve increased interest rates 11 times in a year and a half, you got to hosed.

Steve Hruby: Yeah. And even if your employer is stable, just remember, it can be wise to spread out retirement savings across different accounts. I'm talking about if you leave one employer and join another. Maybe sit down and talk with an advisor about the pros and cons of moving your money to a rollover IRA, that's not tied to any particular employer-sponsored plan.

Steve Sprovach: Yeah, pros and cons. Be careful with that.

Steve Hruby: Yeah. So, there are pros and cons. And you need to have that conversation, because there are reasons to have it in a 401(k) as well.

Steve Sprovach: And if you're in the fixed account in your company's 401(k) plan, research it a little bit. Find out what you actually own. Okay, one of our mantras on this show is, "don't time the market." You can't predict the future. And when you're timing, especially short-term, you're gonna get burned more often than not, because basically you're gambling. And we're seeing a huge uptick in what I think everybody can call is gambling. It's certainly not investing. And that's short-term options trading. You've got some experience in this field.

Steve Hruby: Yeah. I mean, I come from a place where, once upon a time, I have securities licenses that allow me to oversee options trading for teams of individuals that help retail clients with processing these types of trades. Options trading, in this day and age, with how easily accessible it is through certain apps, like Robinhood, can be very, very dangerous to the everyday investor.

Steve Sprovach: Well, let's talk about why it is speculative. Most people, you know, think of the stock market as, "Okay, I buy some shares of stock, if it goes up, I sell it at a profit," okay? Options are not buying the shares of stock. Options are buying the ability to buy stock at a certain price, within, usually, nine months or thereabouts.

Steve Hruby: Yes. Yeah, think of it as a bet between two investors. One side has the right to buy the underlying stock. One side has the obligation to sell the stock. Furthermore, you don't even have to own the stock to buy these contracts. So, you can borrow house money from your brokerage firm...

Steve Sprovach: For a fee.

Steve Hruby: ...at interest. Yeah, for a fee, is the key there. And what's happening is these short-term options contracts, they have incredible profit potential. Because the likelihood of it becoming actually in the money, as you would call it, is so low that it almost never happens. So, this is where speculation comes into play, because what happens with these brokerage firms now is, we used to have to go through a rigorous questioning, with the brokerage firm understanding your background with investing in options, how long you've been investing in stock.

Steve Sprovach: I don't think these apps are doing that.

Steve Hruby: No, these apps, they just don't care.

Steve Sprovach: So, here's what we're seeing, literally, and the reason we're talking about this, there's been a 40% uptick in activity in short-term options that expire within a day. So, basically, you know, yeah, this option could be a nine-month option, but you're buying it the day before it expires and becomes worthless. So, you're betting on a one-day movement of either an individual stock or a stock index, and it's worthless if it goes the wrong way in that one day. Robinhood is one of the apps that is seeing a huge amount of activity in this. And brokerages, they're not gonna give up on this because they made about $2 billion trading options on behalf of investors just last year. It's a huge money-maker for them.

Steve Hruby: That is amazing. Two billion dollars in profits off people where one side is always gonna lose, because, remember, again, it's a bet...

Steve Sprovach: Yeah. It's a bet.

Steve Hruby: ...between two investors. So, these brokerage firms are making a killing off of it. Which is why that barrier for entry is so low now. You can get on there, and I'm not advocating for this...

Steve Sprovach: Oh, no, no. No.

Steve Hruby: You can get on the Robinhood app, answer a couple of questions, and be trading very complex option strategies quickly.

Steve Sprovach: Yeah, and I think this number sums it all up. Brokerages made $2 billion last year, but investors on average lost $2.1 billion over a year and a half's time. It's almost the same timeframe. It's gambling, because if you walk in a casino, yeah, pretty light fixtures, free drinks, all that stuff. Guess how they paid for that? In the long run, the investor, or the gambler, is going to lose. The house always wins.

Steve Hruby: Yeah, and keep in mind, it's pretty easy nowadays to go out and on some message board, maybe Reddit, maybe even WallStreetBets, if you're familiar with it. That's how a lot of these guys and gals on there made quick money, because they weren't actually buying GameStop, for example. A lot of them were buying call options, which is the right to buy at a specific price point. So, if the price went way up, then you could buy it lower than where it was, and that's where the profit comes from. But that's all speculation.

Steve Sprovach: It is. It's gotta be money that you assume is gonna be gone. Don't invest real money. Here's the Allworth advice. Don't try and time the market, period. The end. Coming up next, how to make the most out of the student loan payments that are starting back up for millions of people. 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. All right. We're out of delays. The time has come for the, 44, yes, 44 million Americans to start paying on their student loans again. We're talking about $1.6 trillion in debt, and they gotta start paying it back in October.

Steve Hruby: That is such a massive number. Isn't that remarkable? So, how we got here, the pause began back in March of 2020. This was emergency COVID-19 relief measure, that was extended over and over again, oftentimes at the last minute. And this has caused borrowers to kinda tune out this news every time.

Steve Sprovach: So, wait a second. So, are you telling me you don't think every borrower out there can continue to make payments into their own bank account for when they would have to start making payments again?

Steve Hruby: No. Every single one of them did that, Steve. You're crazy.

Steve Sprovach: Nobody did that.

Steve Hruby: I know. Not a single... Well, there were a handful of people that probably did, but that's the minority.

Steve Sprovach: And we're talking about, I mean, the numbers, again, they're staggering, $1.6 trillion. Forty-four million people are affected by this. And, yeah, you're gonna have to start making payments. The average payment, well, the average student loan amount is about $29 grand per person. So, okay, that's basically, you bought a car. The average payment's about $300 a month. Yeah, that's right about where a car payment is. And that's taken a lot of money out of the economy that had been going into the economy. In my opinion, it's one more shoe to drop on the reason that you're gonna see the economy continue to slow down, because this is $300 a month that you're not using to go out, to spend on retail. This is money just going towards paying off a stinkin' loan that may or may not have gotten you a better job.

Steve Hruby: Yeah, that's a good point. I mean, I finished with significant student loans.

Steve Sprovach: You and me both.

Steve Hruby: Yeah, I was the first person in my family to go to college, to get any kind of an advanced degree after high school, for that matter, and, you know, I got the grants. I did. You know, I come from a family that did not have much, so I got, you know, Pell Grants and whatnot. But I still finished with $40,000 in student loans.

Steve Sprovach: Did you really?

Steve Hruby: I did.

Steve Sprovach: Yeah. So, but you paid it back.

Steve Hruby: I did.

Steve Sprovach: And that's the point that I don't get. A lot of people say, "Well, I shouldn't have to pay this back." Why? Yeah, if you sign papers to pay back a loan, you owe that money. And yeah, the current administration, they were trying to figure out ways to reduce the amount of student debt. Well, that's unconstitutional, apparently. They did squeak by, and some people are under the assumption that, "Oh, no. They're still getting rid of $10,000 or $20,000 of debt." No. That's a very narrow segment that may or may not be allowed, after it works its way through the courts, of people that have been making income-based payments, reduced payments, for over 20 years. So, if you didn't have reduced payments and made those payments for over 20 years, guess what? You've gotta make your payments. Certain things, I think, if you owe student loans or if you've got a kid that owes money on a student loan, you need to check as we're getting into, closer and closer to October. You can't just sit on your hands. You have to check a few boxes.

Steve Hruby: Yeah. So, again, the payments, they don't restart until sometime in October, but interest is gonna start accruing on September 1st. Already. It's already started accruing. So, there's things you need to do. First of all, check your address. So, start at...

Steve Sprovach: Yeah. If you moved in the last three years, they may not be aware.

Steve Hruby: Yeah. And there's also, your loans are sometimes sold, from one organization to another. So, many borrowers have gotten a new loan servicer that they might not even know at this point. There's, thirty million borrowers have actually gotten a new loan servicer.

Steve Sprovach: Yeah. So, I think step one is, go to studentaid.gov and review your contact information. So, obviously, make sure they've got the correct address, you know who the service provider is, but also, which bank account are they drawing it from? They haven't drawn it in three years, so you might have either closed that account, or you might have just drained it, and they're gonna hit you for whatever your payment is, and if you don't have the money in there, you got an insufficient funds deal.

Steve Hruby: Yeah, it's been a while. Yeah, I mean, at this point, for how long the moratorium's been, you know, that there may be a need to reauthorize those automatic debits, to start the loan payments again. You mentioned public service loan forgiveness a moment ago. Again, that's supposed to wipe out debt after 10 years of, again, income-based payments. So, this is for also people that are working for not-for-profits or government jobs. You're gonna wanna recertify that you're in an eligible job before December 31st.

Steve Sprovach: Yeah. That might've expired. And if that's your game plan, make sure they've got that on record and re-certified. You're listening to "Simply Money" on 55KRC. I'm Steve Sprovach, along with Steve Hruby, and we're talking about, yep, those student loan payments are starting back up in October. Okay. So, if you haven't done anything in the last three and a half years, you may wanna look at some options. There's obviously, the default is, "I've gotta pay it back within 10 years," but there are some other types of repayment plans that you may wanna look into.

Steve Hruby: Yeah. I mean, there's a half-dozen different repayment plans. We're not gonna get into all of them today, you know, but it's between the standard 10 years of steady payments and other income-driven repayment plans. That's important to know about, because, if you're at a place now where you can't necessarily afford to add on this new payment, and you're struggling, then...

Steve Sprovach: There are options.

Steve Hruby: Yeah. You look at one of these income-driven repayment plans, and it can kick down that amount that you're obligated to pay to a much more manageable level.

Steve Sprovach: Yeah. It's based on your income, so, okay. It's gonna be a much lower amount than possibly if you were at a high-paying job at this point in your life, and kept with the original terms. There's another program that's new, that very few people are aware of. It's probably just with larger employers, but if you work for a larger employer, or smaller for that matter, still, you wanna run this by HR. There's a new COVID-era tax provision that allows employers to pay up to $5,250 towards your student loans, without it counting as taxable income to you, and that's only through 2025.

Steve Hruby: At this point.

Steve Sprovach: Yeah. So, check with HR. Your employer may help make payments for you.

Steve Hruby: Yeah. And specifically, an Employee Benefit Research Institute survey, they found last year that half of larger employers already offered, or they're planning to adopt this benefit. If it's not available, maybe lobby for it.

Steve Sprovach: Yeah, and while you're talking to your HR department about it beginning in 2024, employers can also opt to count your student loan payments the same as they would your contribution to the company's 401(k) plan, for the purposes of providing an employer 401(k) match. Pretty good deal if your employer opted in. Here's the Allworth advice. If you or someone in your family has student loan debt, explore all of your options to get it paid off. Coming up next, one of our favorite segments, when we get to answer your questions. Stay right there. 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. Should you be bundling your flight, hotel, and rental car when you travel? What the experts say. That's coming up straight ahead. All right. If you've got a financial question you'd like for us to answer, there's a red button you can click on while you're listening to the show on the iHeart app. Record your question. It goes straight to us. We would love to hear from you. Tony in Burlington was asking us, he said, "My employer matches my 401(k). Does this money count towards my yearly limit?"

Steve Hruby: This is the easiest answer yet.

Steve Sprovach: Well, answer it.

Steve Hruby: No. That's the answer. That's it.

Steve Sprovach: Yeah. You can put up to $22,500 of your own money into the plan, if you're over 50, another $7,500, to bring it up to $30,000. But you know what? There's a $66,000 total, that if your employer wants to give you all of that extra money to bring the potentially $30,000 contribution up to $66,000? Yeah.

Steve Hruby: Yeah. And so, technically, there's the lower limit, that's your contributions. And then there's the higher limit, which most people never get to experience, and that's the most money that can enter your plan. So, in that situation, yes. So, I do amend my answer. It's a...

Steve Sprovach: Kinda...

Steve Hruby: Situational.

Steve Sprovach: Timothy has a question that I think a lot of people are asking themselves after 2022. "What's your take on the bond market lately? Are bonds still a safe investment?" He said, "I'm nearing retirement, trying to figure out how to protect my money." And this is a favorite subject of mine, because bonds got killed in 2022. Most of the bond indexes were down over 10% in 2022. And bonds are an area where people say, "Wait, I thought this was my safe money. I thought this was my shock absorber on the volatile money, which is in the stock market." First of all, bonds are, think of them as a CD, but they're issued by somebody other than a bank. When you buy a CD at a bank, the bank guarantees the return of your money when it comes due, and an interest rate in the meantime, and you really can't cash it out beforehand. If you do, you know, you're gonna get hurt. They're gonna penalize you.

But a bond has a maturity date also. And if you hold a bond until it comes due, you should be getting your money back unless that company went bankrupt. So, if you hold a bond till maturity, you should be fine. The problem gets into, "Well, wait a second. I bought a bond that doesn't come due in five years. I'm only two years into owning it, and interest rates went up." Well, if that bond pays 2% interest, and bonds coming out because of higher interest rates since then are up to 3%, nobody wants to buy your bond if it's paying a lower interest rate. So it goes down in...

Steve Hruby: So the price goes down.

Steve Sprovach: ...value. But the other lesson is, when interest rates come down, guess what? They can go back up.

Steve Hruby: Yeah, exactly. And so, you know, what we've been talking about is, maybe we see another interest rate hike this year. But in...

Steve Sprovach: Yeah, but we're probably close to being done.

Steve Hruby: Yeah. In 2024, most economists out there, Andy Stout, chief investment officer of Allworth Financial himself included, do see interest rates falling, in which case your bond prices are gonna go back up.

Steve Sprovach: Yeah. And that's the point. Again, if you hold a bond till maturity, you should get your money back, unless that underlying issuer went bankrupt or had some major financial issues. But if you're like the average person and you've got bonds in a 401(k), you're probably thinking to yourself, "Wow, these aren't good anymore. I lost a lot of money last year." Yeah. Only because interest rates went up. And when interest rates come back down, bonds should and will rebound. We saw it in '82 and '83, so whenever the Fed changes their policy and reduces interest rates, expect your bonds to go up. They're not like stocks, which are more a guessing game. Bonds move up and down substantially for one reason, one reason only, and that's changes in interest rates. And they're like a teeter-totter. Interest rates go up, bond values go down. Interest rates go down, bond values go up. I think we beat that to death, but yeah, you know what? It's...

Steve Hruby: Thanks for the question, Timothy.

Steve Sprovach: Yeah. But it's important, because a lot of people have quite a bit of their 401(k) in bonds, and are wondering, what's going on? Okay. David in Lawrenceburg, his dad just started getting his monthly social security check. It's about 1200 bucks. But he also has a pension and some other investments. "I heard he might have to pay taxes on his social security benefit. Is that true?"

Steve Hruby: Yeah, it depends on his income...

Steve Sprovach: He might.

Steve Hruby: ...across the board. If you're married filing jointly and you have over $32,000 in income, then 50% of your social security benefit is taxable. If it's $44,000 in income, then 85% of your social security check is taxable.

Steve Sprovach: And again, that's the adjusted gross income, your income after deductions, plus half of your social security benefit. So, it doesn't take much to bring it up to those numbers.

Steve Hruby: Yeah. And you're not paying 50%. You're not paying 85%. You're paying your ordinary income tax rates on that percentage of the benefit itself.

Steve Sprovach: Yeah. So, the answer is, could be. You're listening to "Simply Money" on 55KRC. I'm Steve Sprovach, along with Steve Hruby, and we're answering your questions. And Tyler from Oakley says his wife and he have a six-month-old daughter. What type of life insurance should they be getting for her?

Steve Hruby: Well, they ask what type of life insurance they should be getting. So, that makes me wonder, not for her, but for themselves, is how I see that. So, you know, when you're looking at expanding beyond what your employer offers, for example, a lot of folks I work with, they're focusing on term insurance, because it has the lowest premium for the highest death benefit. And you can also align that for your timeframe till you're going to be either debt-free or retired, no longer earning income. So, the way I read this from Tyler, is looking at term policies for themselves. As far as an insurance policy for a six-month-old daughter...

Steve Sprovach: Is she working? Do you need to replace the income that she's not making if she passes?

Steve Hruby: Yeah. There's people out there that, over time, that have bought, you know, policies for babies, but for the most part...

Steve Sprovach: I don't like it. Yeah.

Steve Hruby: ...yeah, that's somebody trying to get a commission, I think.

Steve Sprovach: I agree. Chris and Anne from Finneytown, "We're trying to save for college for our two kids, but we're also trying to save for retirement. It's a challenge." Yes, it is. I've been through it too. "Any suggestions for how to deal with these competing priorities?" This is a tough one. I mean, you can't do everything.

Steve Hruby: Yeah. I mean, sit down and build out a financial plan with a fiduciary financial planner that can help you understand where you are and what gaps need to be closed. Because what I'll say is that, you know, and unfortunately loans are a hot topic right now. We've talked about them today. We had a whole segment on them. Remember, though, that kids, they can borrow for college if they need to. But you typically can't borrow for retirement.

Steve Sprovach: Well, good point. And the problem with saving for college, first of all, I mean, tuitions have gone ka-blooey. I mean, $60 grand, $70 grand a year for some colleges. And college comes sooner for most people than retirement. I mean, if you've got, you know, 12, 13-year-old kids, well, that's only 5 years off. Your retirement might be 20 years off. So, it's hard to do both. Split dollars, put some money in both directions, but by all means, make sure you continue to participate in your 401(k) to at least get the company match.

Steve Hruby: Yeah. And when it comes to a 529, remember, this is a great vehicle for saving for college, where the money doesn't have to come from only you, that there are, you know, people out there that...

Steve Sprovach: Hit up the grandparents.

Steve Hruby: Exactly. I mean, honestly, it is an opportunity to tell friends, family, extended family, close family, for birthday gifts, or Christmas or whatever holidays you celebrate.

Steve Sprovach: Good call.

Steve Hruby: Use that.

Steve Sprovach: I'm doing exactly that for my grandkids, because I don't know how you can pay for college these days. Coming up next, whether bundling your hotel, flight, and car rental gives you a better deal. 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. The cost of travel adds up. And you've already booked the flight, you've already booked the hotel, the rental car. But shouldn't you just bundle them all up to get a special deal? Well, sometimes, yeah, but not always. Sometimes that's not a great deal.

Steve Hruby: Yeah. So, bundling reduces your options to travel partners only. That's the problem. So, for example, Costco Travel doesn't currently offer flights with Southwest or Spirit. So, you're limited to what they're going to provide you with in that situation, and it doesn't give you as much of an option to shop around when you're bundling.

Steve Sprovach: Yeah. Exactly. I mean, you use Orbitz or Kayak or something like that. You've gotta cost-compare, because, you mentioned Southwest. If you fly Southwest, and you're trying to book a car through their partners, they don't even include Enterprise, which tends to be my go-to.

Steve Hruby: The cheapest.

Steve Sprovach: Yeah. And I'll tell you, there's another group out there, and I haven't seen this group bundled with anybody else. Have you ever heard of Turo, T-U-R-O?

Steve Hruby: Yeah. It's like Airbnb, but for vehicles.

Steve Sprovach: Exactly. And it's pretty darn slick. turo.com. I haven't used it yet. I've got a sister who uses it all the time, and it's basically people letting you use their personal car. Some people have expanded it into a business, but some people, it's literally just their extra car. And I've found savings anywhere from 50% less, 25% less. And they'll even pick you up at the airport sometimes.

Steve Hruby: You know, what I haven't looked into is how much I could make off of that, renting out my electric vehicle, for example. Is there money to be made there? Probably not.

Steve Sprovach: Do you really want somebody else potentially driving your car and backing into somebody...

Steve Hruby: Not really.

Steve Sprovach: ...in your parking spot?

Steve Hruby: I don't want anybody staying in my bedroom either. That's why I don't rent out my place for Airbnb.

Steve Sprovach: Well, and I think that's why I personally wouldn't do it, but I'm more than willing to save some money and use them instead of a normal rental car agency. I fly Allegiant quite a bit. I mean, they're dirt cheap, and I think their reputation as being poor and old airplanes is totally undeserved. I'm really happy with Allegiant. And they let you bundle, and we've used rental cars through Allegiant sometimes, but you've gotta read the fine print, because the first time we bundled and got a rental car, when we got to the counter, we still owed money, even though we paid for the rental.

Steve Hruby: Oh. Interesting.

Steve Sprovach: Yeah. So, they separate out the local taxes and fees for that airport that you have to pay separately from what you paid online. If you know that going in, that's okay. If you don't know it going in, that's kind of a rude surprise. So, yeah, you gotta cost-compare and look at the options.

Steve Hruby: Yeah. So, if there's a change like that, or if there's a change to your travel plans too, then you're not just subject to the agency's policies, but also the travel provider's policies, too...

Steve Sprovach: Yeah. So...

Steve Hruby: ...which can make making changes more difficult.

Steve Sprovach: So, the answer of, does it work to bundle? Sometimes yes, sometimes no. You really gotta go ahead and cost-compare, and look at it from both directions. Hey, thanks for listening. Tune in tomorrow. We're gonna talk about some changes for 2024 that could impact how much you pay for stuff. You've been listening to "Simply Money," presented by Allworth Financial on 55KRC, THE Talk Station.