Amy: Tonight, here we go again, another Fed rate hike and a sneak peek of what they might do next. You're listening to "Simply Money." I'm Amy Wagner, along with Steve Sprovach. I don't know, Steve, no major surprises today. Kind of what we heard...

Steve: No.

Amy: ...from the Federal Reserve, right? Hiking interest rates for now, and other kind of supersized hike. Three quarters of a percentage, was kind of exactly what we were thinking.

Steve: Yeah. I mean, my biggest fear was 1%. If it was 1%, it would have rocked markets. There was nothing today that really jumped out and surprised me. And markets did not react kindly. I mean, the Dow was up 160 points at 1.59, and when the announcement was made at 2, it immediately dropped down 200.

Amy: Go figure, right?

Steve: Yeah. Yeah.

Amy: Nothing surprising in the announcement, and yet here we go.

Steve: Well, when Chairman Powell of the Federal Reserve opens his mouth, I rarely see things go green on market indexes. But with that said, it's kind of reassuring to me that, okay, they kind of told us this is where they were gonna be, this is what they did. I think the only reason markets reacted negatively, Amy, is that there's nothing that you can reach out and grab and say, "Yeah, but at least they're gonna get better. At least we've got a handle on this." You know, the hopeful thoughts that we had about a month and a half ago, of, "Yeah, they're leading us to believe they'll be able to start turning rates around sometime in the middle of 2023, and actually drop rates," that wasn't there today. And I think investors are really just getting a hard dose of reality that this is serious. It's not something that's gonna go away overnight.

Amy: Well, and I wanna talk about the dot plot and something called the terminal rate, right? Because that's not something we talk about all the time. First of all, the dot plot is simply where every voting member of the Federal Reserve thinks interest rates will go into the future, and this dot plot that was released today, went, for the first time, into 2025, right? The beginning of 2025. So, they're saying, looking out into the future based on everything we know today, here's where we think things are going to go.

Steve: Yeah.

Amy: They don't put their initials. There's no AW next to Amy Wagner's dot, SS next to Steve Sprovach. So, it appears random, but you get a sense of where these members are thinking that things are going to go. And the terminal rate is the highest rate at which that dot plot signals that at least as of now, they're anticipating that we're going to have to go.

Steve: Yeah, where is that interest rate gonna be when they're done hiking? That's really what we're looking at.

Amy: Yes. When we get to the point where the Fed feels like we've done everything we need to do, we need to go no higher. And now they're saying that's 4.6%, right?

Steve: Yeah.

Amy: They think we'll get there next year. So, we can see pretty aggressive hikes, right? Continuing in the near term. And then also, they're saying we don't anticipate lowering rates for possibly another two years.

Steve: Yeah. Yeah. And, you know, I give credit to Andy Stout, the chief investment officer of Allworth Financial that we have on every Monday. He said, when I asked him, "Is there a change going on with the Federal Reserve policy? Have they raised the terminal rate?" And he said, "Yeah, it kinda looks that way." Because they were talking, the Federal Reserve was saying they were gonna peak out on their interest rate hikes when it got up to around 3% and 3.25% to 4%. And up until today's announcement, we are looking at, yeah, they have changed. Now, we are looking at 4.25 to 4.5, and this dot plot says, no, it's pretty much closer to 4.6.

Now, this can change. I mean, it really depends, Amy, on what the inflation data looks like when it comes in for September and then, obviously, October, November. And I think as we start to see the inflation data compared to one year ago, well, we're starting to get to the point where the inflation numbers were starting to get pretty high a year ago. So, the year over year is actually gonna start to look I think, a little bit better. So, there's optimism out there. But today, again, this is a hard dose of reality. No, the Federal Reserve is saying we're gonna have to raise interest rates a little bit higher. We're not gonna stop till we get up into the mid-4% range. I'm just happy there was no big negative surprise of 1% or anything like that.

Amy: I look at these numbers, and I actually really hope that they're right. I hope that we don't have to go any higher than 4.6%. And we always like to provide historical perspective here. In one of the things I've kind of been looking into and researching is the fact that often, in order to bring the inflation rate down, the Fed funds rate has to be higher than the inflation rate, right?

Steve: That's their thought process. Yep, yep.

Amy: Yes. And we are... I mean, keep in mind the current inflation rate is right around 8%, right?

Steve: Yeah.

Amy: So, we are still very, you know, far south of that. And so, are we going to have to continue hiking? You know, and I think the Federal Reserve is looking at are these set of economic circumstances that we're in right now different, right? From what has had to happen in the past. And I think they're very hopeful, based on these projections, that they are. But, yeah, we are still below the current inflation rate with the Federal funds rate, and it will be really interesting to see, okay, is this enough? Will this be enough? Will these continued rate hikes be enough, this aggressive path, or are we going to have to go north of where that inflation rate lies? And that would be not a very pretty place.

You're listening to "Simply Money" here on 55KRC. It is a big day in the world of the Fed and the American economy as we digest tonight what happened today. The Federal Reserve, no surprises, hiking the Fed funds rate, which is, of course, just the rate that banks charge each other to loan money overnight by three-quarters of a percentage point, and then, of course, you can see the ripple effects after that. And short-order mortgage rates go up. The amount you have to pay on your credit card, if you don't have your credit card paid off, if you're going to take out a loan on a car, all of those things in short order will follow and get higher as well.

Steve: Yeah. What we're starting to see are some forecasts showing the slow down in the economy because the Fed is taking this seriously, Amy. I mean, right now, the jobless rate is about 3.7%. The Fed today said they're forecasting the jobless rate to be as high as 4.4% in 2023. They've been saying all along we've gotta have a little bit of pain. This job market is so robust that until we can slow the economy down, we're not gonna have a lot of success bringing inflation under control.

Amy: Well, they're tied together, right?

Steve: They are.

Amy: I mean, inflation and the job market are tied together and inextricably. I mean, so when you try to pull inflation down, right, then businesses who, of course, employ all these workers, it's more expensive for them to borrow money to do the things that they need to do. And as the economy slows down, right, workers are laid off and it becomes this cycle. As you raise the Fed funds, right, you can also expect that to impact the job market. I think the problem that the Feds see right now is they have done one and it has been devoid of the other, right? And they haven't seen the reaction that they were expecting.

Steve: Well, we've been saying from the get-go, there's a good 6, maybe as long as 12-month lag between what the Fed is doing. The increase in interest rates that they do today, we don't see an economic impact on that for at least six months.

So, they started raising rates several months ago, and, okay, now, maybe, we'll start seeing the impact. The immediate impact that I saw was the real estate market. I mean, we just got numbers that this is the seventh month in a row that real estate sales are down because mortgage rates, they're back up over 6%. So, that market just boom, you know, that was stopped dead in its tracks or slowed down dead its tracks, but the rest of the economy, it takes time for the impact of higher interest rates to filter through.

And the Federal Reserve really doesn't have any other tools to slow the economy down. So, you know, with this lag, we're looking at forecasts of a slow down in the economy, and based on today's data, it looks like we may start getting some traction. But I'll tell you what, Amy, we've gotta see September's numbers and October's numbers have some slow down showing in the economy, or else the Fed is gonna be forced to continue to raise rates at a pretty good clip.

Luckily, we get a reprieve. They don't meet again until November. So, take the month of October off. We can just relax a little bit and see what happens with, you know, what are the new numbers looking like? What are the inflation numbers for September when they come out about the second week of October? And we will not see the Fed meet again until November 2nd.

Amy: Nothing politically charged about that, right? Just a week before.

Steve: Oh, right before the midterms.

Amy: Right?

Steve: Yeah.

Amy: Before the midterm election. And, of course, you know, there's a deep, long history here of the Federal Reserves saying, "We are divorced from politics."

Steve: Oh, we'll find out on November 2nd.

Amy: We will definitely see how that plays out. Here's what the Fed's goal is, of course, getting inflation under control, but they hope to have headline inflation down to 5.4% by the end of this year, 6.3% in August, and then they say, "Okay, if we continue on this path, kind of where the dot plot maps us out to go..." which appears to be way more aggressive than we would've thought, even just back in months.

Steve: Just a couple of months ago. Yeah.

Amy: Yes. They say if we continue on this path, they do feel like inflation will fall back to 2%, which is the goal here by 2025. So, we will certainly keep an eye on that. Here's a "Simply Money" point. Just expect market volatility to continue until there is clarity on the impact these rate hikes are having on the inflation rate. No major surprises today.

Coming up next, applications for adjustable rate mortgage is way up. Are we headed down the same road as 2008? Well, the answer is absolutely not. And why you might wanna actually take advantage. We'll get into that next. You're listening to "Simply Money" here on 55KRC THE Talk Station. You're listening to "Simply Money." I'm Amy Wagner along with Steve Sprovach. If you can't listen to "Simply Money" every night, well, subscribe to our weekly podcast. It's the best of "Simply Money." You'll find it on the iHeart app or wherever you get your podcast. Straight ahead, it's 6:43. Are you saving too much for retirement? Why in the world will we ever even pose such a question? We'll explain. Coming up.

All right. So, we've heard it all, right? And just when we thought headlines could not get any worse, we ran across one in MarketWatch. The story isn't buried somewhere down the page. It is right at the top. And the headline makes it sound like this is the missing link, right? To explain why stock markets are down in September. Okay, Well, I'm thinking, gosh, there's a lot of reasons why markets are down right now, you know?

Steve: Yeah, yeah. Corporate profits, you know, economic cycles.

Amy: Inflation, Feds hiking interest rates.

Steve: But, no. Apparently, and this is a study done by four different universities. And the reason they concluded the stock market is down in September, seasonal affective disorder. People are just depressed. We're getting past summertime, you're not feeling it, and that's why you're pulling money out of the market. It's one of the more ridiculous stories I ever heard, but you know what, Amy, when I dove into it, they actually make a little bit of a reasonable argument.

Amy: They make a little bit of a reasonable... I think my problem with it is the headline, right? The missing link as to why the markets are down. I can guarantee you, and I'm not an expert on any of these things, but there are much larger reasons at play...

Steve: You think?

Amy: ...right now with why the markets are down. Then the fact... I mean, I think a lot of people are like, whatever. Seasonal affective disorder, that's like December, January, right? When it's gray and cold. Yes, but this article cites the fact that the transition from August to September has more people saying, mm, I feel fine in August, and I feel a little different, a little off, a little more sad. I think seasonal affective disorder kicks in a little bit more in September.

It is that transition that they are saying is leading to people making different choices about their money being invested in the stock market. I'm not saying that they don't lay out a reasonable argument for this, I'm just calling like the BS flag on this one.

Steve: Yeah. I mean, it's one of those things that I'm sure you can make a correlation of, "Hey, Tuesdays are good for stocks." You know...

Amy: Right.

Steve: ...they are different things. You can...

Amy: People who wear purple on Saturdays have better stock market returns in even-numbered years.

Steve: Yeah. Exactly.

Amy: I mean, you can make an argument for anything.

Steve: Yeah. I wonder how much of this is, okay, let's come up with a conclusion, and then let's move the data in to make that conclusion sound reasonable. They say they pulled out all other data points that are more economically related to stocks going up and down. And I question that a whole heck of a lot. But then they ran the study for Australia, and guess what? It was exactly six months different. And that made me go, "Mm, okay, maybe it is a little bit more than a total coincidence." But I'm sorry. I get people determine what they wanna do regarding buying and selling and putting money in and taking money out, but there is so much more money being conducted in and out of the market on algorithms and program trading. I'm not sure that individuals play all that much part into something like this.

Amy: And if this, like, rings true for you, right, if you are making decisions based on like which months you're happier and sadder...

Steve: Suck it up, buttercup.

Amy: ...please, please, do me a favor, work with the financial advisors that can talk you out of making these really, really bad decisions with your money because oh, my goodness. Anyway, that was a headline we were like, we just have to call this one out on the show because it is just so bad.

Steve: I'm feeling down. I think I'm gonna pull everything out of the market. Come on.

Amy: Don't ever, ever, ever do that. And the fact that MarketWatch, like... You know, I was telling someone else about it, and they were like, "Oh, did you see that on Facebook somewhere? No. Actually, MarketWatch.

Steve: MarketWatch. Yeah.

Amy: It was the largest headline yesterday, on the day, of course, at the Federal Reserves, like, first day of meetings. Seems like maybe there was something else more pertinent. Anyway, I will move off my soapbox to talk about the housing market because, of course, it is slowed significantly. I mean, so fast I think that probably a lot of people have whiplash, right? Overnight we essentially doubled mortgage rates. And because of that, there's a lot of people who are trying to figure out, "Okay, maybe there's not as much competition out there. So, if I wanna still buy a house, how can I make this work? Because let's face it, I'm gonna have to pay a lot more." And adjustable-rate mortgages are starting to become more popular right now.

Steve: Yeah. And I'm old enough to remember when they first came out. Because with our first house, this would've been about 1984, I guess, we did an adjustable-rate mortgage. And I'm gonna tell you, I'm not a big fan. If you know exactly what you're doing, they can work for you, but be really careful.

Here's the reason. First of all, Amy, people are flocking to them. If you are buying a $300,000 home on a 30-year fixed loan, when those rates were 3% and that was only a couple of months ago, your monthly payment was 1,250 bucks. We just broke 6%. And at 6%, the exact same mortgage is 1,800 bucks. I mean, that's 550 bucks more each in every month. So, when that happens, I mean, you're gonna take a hard look at what else you got? You know, okay, what is this adjustable rate mortgage? And the devil's in the details.

Amy: Yeah, devil's in the details. One bank is offering...so, for five years, right, it's locked in. And I think for a lot of people, you're like, "Oh, five years." You know, like, "I don't have to worry about it. Great." 5.25%, something like that, that's better than what we're looking at, better than... Certainly, it could end up being a month from now. The problem is where it goes five years from now, right?

Steve: Exactly.

Amy: What kind of financial situation are you gonna be in? Who knows where rates will be then? And you've got no control over the situation at that point, where it's going. The reason why I think some people are having kind of very negative flashbacks is because this is a lot of what contribute to the entire housing market collapse, right, of 2008. People were buying homes that they absolutely couldn't afford, and once those adjustable-rate mortgages started to adjust, they couldn't make ends meet anymore.

Steve: Yeah. And when you look into it, at first they seem attractive. And, you know, if it's a five-year fixed rate and it's lower than a 30-year and you fully plan on paying off that mortgage in less than five years, okay, I could argue that. I know somebody that's actually doing that. He's retiring in three more years.

Amy: That's impressive.

Steve: And he got a better rate on the arm.

Amy: But how many people pay off a mortgage in less than five years?

Steve: Exactly. And that's the problem. And they all have... And when I say the devil's in the details, you gotta look at the adjustments. What's it based on? What interest rate? So that you know, okay, if that's the interest rate that it's based on, or if it's on LIBOR, what is LIBOR? What is the current rate on that? How much does it tend to go up? You need to understand that stuff before you sign papers for, you know, $200,000, $300,000, $400,000 mortgage.

So, usually, there's an annual adjustment. Sometimes it's every three years, but there's an adjustment that's usually capped at 1% or 2%. And so, in other words, you've got a 5.25%, a year from now it adjusts, and it may only be able to adjust 1% up or 2% up, but you need to know that. And generally, there's a cap. No more than 5% over the life of the loan. If you understand that, go in with eyes wide open, and it still makes sense for you, okay, but I fear most people don't understand it. And these mortgages account for about 10% of the mortgages being issued right now. So, a lot of people are using them.

Amy: One thing that is different, right, this time around that is to the good side of this, is that homeowners have so much more equity in our homes now, right?

Steve: Yeah.

Amy: Still very low supply. Home equity is increased by close to 30% in the last year. 63% of those in the U.S. with a mortgage have an average of $60,000 of equity in their homes. I mean, people were buying homes before they had zero equity. It was an absolute mess. And as we have seen in the lending industry, right, much stricter, tighter regulations on who can get loans. Because of that, what we're seeing is it actually arms people who are getting these adjustable rate mortgages. First of all, they're more regulated. You have to have 20% down in most cases.

Steve: Yeah, not like the old days, and that's a good thing.

Amy: Yes. Exactly. We're at literally, you could [inaudible 00:19:22] Sure, we'll give you an arm for the $600,000 house, right? I mean, what could possibly go wrong there? Well, now we're seeing people who have to have the foresight to have 20% that they can put down, right? And that probably kind of automatically lends itself to a different kind of buyer. And then at the same time, you have people who often have higher incomes. So, just go into this with eyes wide open. Read the fine print.

Here's the "Simply Money" point, if the timing is right for you to buy a home, always make sure you can afford it regardless of what the numbers say today, especially with these adjustable-rate mortgages. Coming up next, the benefits of being a financially fit employee. We'll tell you what that means. You're listening to "Simply Money" here on 55KRC THE Talk Station.

You're listening to "Simply Money." I'm Amy Wagner, along with Steve Sprovach. You go to work every day, right? The daily grind. You probably know what some of your benefits are as far as paid time off and maybe insurance, but does that company provide anything when it comes to financial wellness? Joining us tonight is Al Riddick, a good friend of ours. Of course, he's the president of Game Time Budgeting. Also, there are companies out there that actually offer some sort of financial wellness programs to employees, and I bet most of us don't even know about them.

Al: That is so, so true, unfortunately, Amy. And it's kind of like this, when you are an employee of a corporation, you wanna take advantage of all that they have to offer.

Ay: Of course.

Al: So, definitely. So, when it comes to your financial wellness, first of all, look at it like this. You are getting paid to make sure that you have the right mindset, behaviors, and systems in place with money. So, if your employer is offering up a program that will allow you to enhance your skillset in what I consider to be one of the least mastered topics, which is personal finance, you should definitely take advantage of that.

Amy: And what do these often look like? What kind of form do they come in? How do we know about them?

Al: So, first of all, if you are already employed or pursuing a new job, even in the interviewing process or once you start learning about your employee benefits, you can always look at your company's portal to see what is available to you. So, typically you will see some type of button or icon that says financial wellness. So, once you click on that button, you might start to see things about how to create a budget, how to pay down debt, how to make sure you're planning appropriately for retirement, how to save for college, how to go about a car buying process. There are tons of topics, Amy, but if individuals don't click on their employee benefits portal and start to peruse some of that information, you might be sitting on a pot of gold that you don't even know about because you haven't taken time to investigate what is at your disposal.

Amy: So, the first step there is to just seek it out, right? Research what's available to you. Al, I wanna talk about, though, from an employer's perspective. If you are listening and this is not something that you offer to your employees, what's the benefit? Is there a benefit to employers in offering this to the people who work for them?

Al: So, the biggest benefit, first of all, is reducing cost. Now, Amy, I'm sure you probably know tons of people that own companies, and cost containment or cost reduction is a big plus, right?

Amy: Yes, sure.

Al: So, when we talk about employee financial wellness and reducing cost, this cost, so far as employee stress, comes in the form of lost productivity cost. So, let me give you a quick example, Amy. So, I recently did a workshop with an insurance company, and it was with their sales team for two particular states. So, it was 15 people who answered a survey, basically stating how much time they spent at work trying to resolve personal financial issues.

Amy: Oh, yeah.

Al: So, get this, Amy, because I was told the average salary range, I figured out that it was costing that particular region $187,000 in lost productivity just for those 15 people to experience financial stress.

Amy: Wow.

Al: Now, I don't know about you, but that's, like, you can afford to hire a new employee to go drive more revenue. But nobody's tracking these types of things, unfortunately. But just to give you another example. In addition to reducing lost productivity cost, you're probably gonna experience better engagement, higher retention rates, better focus among your employees, and they're gonna be less stressed as well. Why? Simply because they are now learning how to better manage money.

Amy: Well, I think when you say lost productivity, of course, you get people's attention, but when you put dollars and cents behind it of actually how much of it, and then people are really paying attention. I wanna go back to employees and talk about, listen, if you're thinking about financial wellness, maybe this is even a topic or a concept you've never even considered before, you kind of talk about it as a journey. Talk about how that is a journey.

Al: So, financial wellness, to me, is a journey because we have to start, like everything else in life, Amy, at the beginning. So, what does that look like? Like, what are some of those thoughts and behaviors that you learned as a child about money that now come into play as an adult? Because everything we learn about money is not really the truth. And I'll give you a quick example, Amy. When I was growing up, right? I literally thought that if someone drove a BMW or a Mercedes-Benz, that meant they were rich. Now, obviously, you cannot go through life with that type of mentality expecting...

Amy: That just means they have a higher car payment than you do, right? That's what it means.

Al: Exactly. Exactly. So, I always say step one, you have to come to your real truth about personal finance and how you relate to money. Step two, you have to learn what is it that you value in life because for a lot of us, Amy, we think that we value things that we really don't. And let me break that down even further. A lot of us live a life based on how we want other people to perceive us, but not based on the things that we actually value. Is that making sense, Amy?

Amy: It makes a hundred...especially if you think about social media and how people present themselves and compare themselves to other people on social media. I think it makes perfect sense.

Al: Exactly. That's so true. And then once you get down to what you value, let's put that with some numbers, so to speak. So, obviously, you know how much money is coming into your household, but I always dare people to actually categorize how they want that money to behave.

So, if you know that X amount of money is going toward your mortgage or your rent, go ahead and allocate that money there and, of course, go through all of your expenses. But now that we know what you value, if you like to travel, how much money can you put towards your travel account on a monthly basis so that when it's time to take that vacation, you don't have to finance it with a credit card?

And if I could mention one more thing, Amy, once you understand what you value, don't forget to track your expenses on a routine basis because for some people, when we hear the word budget or creating a spending plan, you know, we start to tense up or it makes us anxious. However, if you can't or if you don't track your expenses on a day-to-day basis, how in the world can you keep score in this personal finance game that we're all playing?

Amy: That's a great point. And Al, I also wanna just tackle one more thing really quickly. I always think about, okay, what are the boundaries, right, from between...that would keep someone from taking advantage of, you know, financial wellness information at work? And I think for some people there's this concept of separation of church and state, right? Like, I don't want anyone in my company to know anything about my financial situation. And if I'm taking advantage of these materials, are they gonna know that I have debt? Are they're gonna ask for information from me in order... And I wanna talk through that. Is there any kind of anticipation that there would be a sharing of information or is this simply just like reading something online?

Al: So, I think it does depend on the company. But I will say this because, obviously, there are thousands and thousands of corporations in America.

Amy: Sure.

Al: But a lot of times with these personal financial wellness corporations, so to speak, there is a certain level of privacy involved with your respective financial coach because, obviously... Let's say you have a consumer products company, right?

Amy: Yeah.

Al: They are not in the business of financial wellness. However, they may have partnered with a corporation that does provide this service. So, typically, there is a certain level of privacy between you and your assigned coach. And even with the online materials that they may provide, these are things that you can follow or courses that you can take that are created, in a way, so that you can get out of them what you need to enhance your financial life, if that's making sense.

Amy: Makes perfect sense. So, if you have been working for a company for years or recently made a switch or thinking about making a switch, do the research, right? Figure out if that company provides financial wellness information, take advantage of it. 9 times out of 10, you will learn something that you can apply to your life that will help you. Of course, great insights as always from Al Riddick, president of Game Time Budgeting. You're listening to "Simply Money" here on 55KRC THE Talk Station. You're listening to "Simply Money." I'm Amy Wagner, along with Steve Sprovach. Straight ahead, the crazy things that you would not believe that people are actually returning to Amazon. We will explain.

You're saving too much for retirement, right? Said almost no one ever. But actually, I think it happens more often than people would think, especially, I think, here in the Cincinnati area. And maybe it's just because I grew up here. But, you know, I'm half Wagner, half fast Bender. I have German roots, and we are known to be somewhat conservative with our money, right? Savers more than spenders, which my children, of course, love very much. But I think in this area, we tend to have a lot of people, who nose to the grindstone, work and save, work and save, work and save, right?

Steve: I grew up in a family and a neighborhood where people kept the stickers on their car when they bought it, just so everybody can see what they paid for it. And then, you know, it's, like, if you didn't have at least two mortgages, you weren't keeping up.

Amy: Oh, boy.

Steve: And I love that attitude of, you know, let's be good savers. I'll disagree. I don't think you can save too much. I mean, you know, having good savings habits and having more than maybe you need is not the worst thing in the world. I mean, you know, the worst case scenario is, okay, your kids inherited more than they thought. But I see it on a regular basis, where, you know, I'll run a plan for somebody, Amy, and they just don't believe that they may be giving their kids $2 million or $3 million. And, you know, when you look at the dollars and cents coming in and going out, some people are just really, really good at saving and it's almost scary.

Amy: Well, on the flip side, right, I've heard many horror stories of people who worked really hard and saved really hard, and said, "I'm not gonna travel now. I'm saving my money. I'm working, I'm putting in my time. And once I get to retire..." And then something happens with their health, right? And they're gone, and it's like, argh, they never enjoyed their money.

So, I'm not necessarily saying that you can save too much. But I am saying that there is a happy medium, a balance between saving your money for later and also enjoying it now. There is a now famous investor, right, that we work with here at Allworth, who once he retired... It was a couple. Once they retired, we said to them, "Hey, you've got money to spend. Like, we know you like to travel, you like to go to the beach once a year, you can afford to fly first class." And at first, he was like, "Oh, no. I don't know."

Steve: What a waste of money. Yeah.

Amy: We ran the numbers. Ran the numbers. Look, you can afford this, okay? So a couple of years go by and they're starting to, you know, fly first class pretty regularly. Then they call back, "Hey, we thought about chartering a plane for our family." And it's like, "Okay...

Steve: You created a monster.

Amy: ...dial that back. Dial that back a little bit." But it is difficult for a lot of people to flip that switch from saving all the time to spending. And there are certainly people who spend way too much, right? In your working years and don't have enough in savings, but there are people, and we do talk to them, we do see them, who have a difficult time spending money after they've been saving it for so long.

Steve: Yeah. And by the way, that person is the exception. I have found it very difficult to turn a saver into a spender in retirement or at any stage in life. But, you know, this is interesting. There was a pretty big study done recently by the Center for Retirement Research at Boston College, and they came up with a shocking conclusion, that people tend to reduce spending as they age. Shocker. I mean I've done this for 40 years, and here's one of the rules. First of all, if you're not spending more than you thought you were gonna spend in the first two years of retirement, you're doing it wrong.

Amy: Yeah.

Steve: I mean, you're supposed to enjoy life while you're healthy. And I...

Amy: Which is eye-opening.

Steve: Yeah.

Amy: Why do you think it is that so many people go into retirement thinking, "I'm gonna spend less." Because you're not commuting anymore? That doesn't make sense to me.

Steve: No, it doesn't. And there are some...they're called rules of thumb, and I think they're just...they're stupid.

Amy: Rules of dumb.

Steve: Yeah. I've seen one rule, supposedly, that you only need 70% of your income in retirement. I find that a lot of people spend as much in retirement as they were spending before retirement. Yeah, cut out buying a new suit or new outfit for work or, you know, the commuting expense, but that's about it. I mean, you actually have more time on your hands, so you might play a few extra rounds of golf. You may travel more. And I think that people, when they prepare for retirement and put together a budget, how much do we spend? They tend to cut things out. "Well, we don't need Netflix in retirement. We don't need this, we don't need that. We'll keep our spending at this level," so that they feel some comfort. And then they keep doing what they were doing before they retired and spend more than they expect and take that trip that they were putting off when they didn't have time.

So, conclusion number one is if you spend a little bit more the first two years of retirement, that's okay. But conclusion number two is I have found over 40 years that people slow down when they get in their late 70s and into their 80s. Even if their health is fantastic, they just don't go out as much. They don't spend as much. And most financial plans, mine included, assume a steady increasing with inflation rate of spending. And that's good if you still have money left over, assuming that you continue to increase your spending, but most people don't.

Amy: Yeah. Not the reality.

Steve: No.

Amy: I think it goes back to the balance, right? You wanna save, and you absolutely do not wanna be one of those people, that so many fear when you get to retirement, which is outliving your money, right? You wanna be able to sleep well at night knowing that you're good and taken care of, and you can do what you need to do. Especially in your later years, that you can afford doctors or medication or whatever it is that you need to treat if you have health issues. At the same time, you know, enjoying retirement those first few years, spending time with the grandkids, traveling, whatever it is. So, I think planning ahead for that, what that will look like. And I'm a huge fan, as you know, of open, honest communication. Figuring out with your spouse, right? What's this gonna look like for us?

Steve: To the nth degree. Yes.

Amy: To the...Yeah. I know. My husband and my kids are like, "Oh, we have to talk about this again." There are no secrets when it comes to money in our house, for sure. Here's the "Simply Money" point. Saving for retirement can help make your golden years certainly more enjoyable. But just don't forget to also enjoy life now, right? There is absolutely a balance there.

So, did you know you can return Amazon purchases at places like Whole Foods and Kohl's? Wait until you hear the kind of things people are returning to those places that has actually caught the workers completely off guard. You're listening to "Simply Money" here on 55KRC. We are THE Talk Station. You're listening to "Simply Money." I'm Amy Wagner, along with Steve Sprovach. Okay. So, if you ever return an Amazon purchase, you know, to somewhere like Kohl's, Whole Foods, UPS, you know, it's super convenient. You know, I've done it before.

Steve: I didn't even know those were options.

Amy: Well, I knew Kohl's did it several years ago because they were trying to get more foot traffic into the store. But it's super easy. We've got a UPS by us, and I just print out the label and take it in with the box. Apparently, though, you can even take it back like as it is, and they'll just kind of figure it out for you, especially at Kohl's. But the kinds of weird things, first of all, that people are buying and returning... And I'm sure these workers probably feel like they have seen everything possible at this point. But hey, you're someone who loves cars, restoring cars. So, I guess there was a guy who was restoring a Corvette, and he had 51 auto parts that he ended up not needing, and all at once, took them. Can you imagine being like...

Steve: No.

Amy: ..."What I'm I supposed to do?" How do you even get it in? By the way, when you take it to Kohl's, they're very smart about this. You can't return it in the front of the store. It is a very back corner, so you have to walk past everything...

Steve: The walk of shame.

Amy: ...else in the store to get to it. I'd love to see pictures of this guy returning 51 auto parts to Kohl's.

Steve: I'm that person that never returns something. If I order something and it's not quite what I need, my attitude is that's on me. It's not their screw-up. Why should they have to deal with my inability to know what I need? But a lot of people don't share that. There was somebody... And figures, it's in Florida. No comment. But there was somebody who returned a vacuum that they had used and still had crap in it.

Amy: Yes.

Steve: Come on.

Amy: Also in Florida, in Orlando.

Steve: What are you gonna do? Put it back on the shelf?

Amy: Yes. In Orlando, of course, people return strollers, car seats, and wheelchairs. I mean, talk about working the system here. I live somewhere else. I'm gonna order this, have it delivered to Orlando, use it to go through Disney with my kids, and then return it to Kohls. Like, that's just not right.

Steve: No. One and done doesn't work. Yeah, I would rent a stroller. I wouldn't buy it and return it, so it was a freebie. To me, that's just wrong. You know, it's not me. Sorry.

Amy: One in five eCommerce orders were sent back last year. I mean, and we're talking about mattresses, lawnmowers, tires, gallons of motor oil. Even this was returned at one of these stores, a used bidet. I don't even know who thinks to, first of all, order these things online, use them, and then return them. However, Amazon does have a place where you can return. And this is not for used items, but actually overstock items. And these are like really good name brand electronics and clothing and things like that. So, if you've never been to the Amazon outlet tab, right, the store that's within Amazon, that definitely is worth checking out.

Steve: [inaudible 00:38:53].

Amy: Yeah. Especially kind of going into the holiday season with supply chain issues, that is a good place to turn to. Just remember, don't buy something that you don't need. You've been listening to "Simply Money" here on 55KRC THE Talk Station.