Amy: Tonight, how are you supposed to act when you check your portfolio when it's down? Or what are you supposed to do when it goes up? You're listening to Simply Money, presented by Allworth Financial. I'm Amy Wagner, along with Steve Sprovach. I don't always do as I say. Yesterday, I actually checked my 401(k) balance. I try to ignore it at times when I'm pretty sure that it's down, and it was.

Steve: That means you're a human. That's Okay.

Amy: I had that little nauseous feeling in my stomach when I looked at it. Then I clicked out of it. But it's interesting. I was in Dallas for work last week, talking to someone that I met at a conference. He was talking about the fact that he checks the markets and his portfolio several times a day.

Steve: Okay.

Amy: Poor thing.

Steve: That's a little overboard.

Amy: Yeah. Do you also pay a lot of money to a therapist? Because that would absolutely drive me insane. That's a lot. We wouldn't say, listen, to check it constantly and to know if you're up a tiny bit or down a tiny bit, that could absolutely drive you crazy. But we also know...

Steve: But it's human nature.

Amy: Yes. You are going to check it. [crosstalk 00:01:09]

Steve: It's your money. Especially if you're near retirement or if you are retired, this is important. It's one of the most powerful emotions. I mean, we're emotional as humans anyway. What triggers the strongest emotions? Well, losses of your financial stability. Yeah, that might be one of them.

Amy: Yeah. That's a big one.

Steve: Yeah, yeah. I think it's important to realize a couple of things, Amy, that, first of all, checking your account six times a day, not healthy. I agree with you 100%. But you at least want to be aware of what's going on. It doesn't mean you have to do anything. There's a big, big difference in performance between paying attention and seeing where it is and paying attention, getting panicked, and selling at the wrong times. I think that's what we're really getting to is when things go down, you remember those times a lot more than when things go up. It just sticks in your head that, oh, I wish I had what I had before the drop. That's a strong emotion.

Amy: Loss aversion, right? I mean, yes, you remember those losses. You have to understand, though, the second that you start putting money into that 401(k), that IRA, that brokerage fund, whatever, the minute you start investing, you are taking on some risk. There is volatility in the market. There will always be volatility in the market. In fact, on average, the market fluctuates about 15% every year, right, between the bottom and the top.

Steve: You need to make that point again, because I don't think people realize that that's a normal downturn, even in good years. Fifteen percent is the average drop within any one year. So, that's the cost of admission, folks. I mean, if you're going to be invested in the stock market, and you should be, at least for some of your money, because that's the way you beat inflation, just acknowledge that there are going to be times where, on average, you may very well have seen a 15% loss that year. That's a big deal.

Amy: So, what do you do, right? I mean, this volatility is part of it. If you are someone who, when you check, that kind of has this knee-jerk reaction that you need to do something, I think you have to figure out a way to talk yourself off of that ledge or find an advisor or someone that you can work with that can remind you, hey, this is your long-term plan. What we have seen far more often than not is someone who has that knee-jerk reaction. Oh my gosh, my investments are down 10%. I'm going to do this. I'm going to put it in cash. I'm going to switch to some alternative investment. I'm going to do something else. I'll take it out. Maybe I'll put it back in. None of those things ever pan out better than just leaving it in the market and letting it ride. If you don't believe us, get out your laptop and google market history. Look at the S&P 500 over the past 100 years, right? It goes down in tiny little pieces. But overall, the trajectory is up and to the right, which is, for most of us, exactly what we want our investments to be doing.

Steve: Yeah, let me go over some hard numbers instead of just saying, don't do anything. Don't worry about it. Over the past 10 years... And you don't want to be 100% stock, but we've got to go off of something. So, if you look at the Standard & Poor's 500, the 500 biggest U.S. companies over the last 10 years, the S&P 500 has averaged 12.4% annual return. Okay, but let's go back 20 years, because, hey, Steve, that doesn't include '08 and '09. All right, well, 20 years, yeah, you're right. It is less. It's only 9.7%. Well, how about the last 30 years? Because '99, 2000 and '01 were brutal years. Okay, 9.9% average return per year. So, let's just call it 10%. This is 40 years of experience. I can sum it up into two rules for making money in the long run. Rule number one, if you buy into, okay, you're going to average 10% in the stock market, all you have to do to average 10% is leave it alone. Well, then rule number two is, okay, the four most dangerous words are this time it's different. You're going to say that to yourself 100 times during the course of your life. Revert back to rule number one. Just leave it alone. Leave it alone. I know we've got different things going on in our lives, but if you want to get a halfway decent return on your money, please don't panic. It's the most powerful emotion. Don't panic and sell at the wrong times, because it's only a loss when you sell. All you need to do is leave it alone, and then it's just a downturn, not a loss.

Amy: You're listening to Simply Money, presented by Allworth Financial. I'm Amy Wagner, along with Steve Sprovach. As we're talking about practical things you can do when you check that portfolio and it's down, sometimes it's up, sometimes it's down. But we're talking about the down part of it right now, because I do think that's probably the one that you have the largest emotional reaction to. Steve, you just mentioned those four words that you hate, right? This time, it's different. I want to bring up the pandemic as an example of that, because it really was. This time, it's different. We have never had a global pandemic before in our lifetime where the entire economy was shut down. I mean, there was nothing to say, oh, when this happened in 1980 or 1965, here's how this went. We didn't know. Markets were in a free fall that February and that March. I remember there was a buzz in the Allworth offices like nothing I've ever seen before. I mean, no one could even use the restroom at that point because there were so many clients calling in, saying, "I need to go to cash, I need to go to cash, I need to go to cash," right? It was our job to try to say, "Listen, we don't know what's going to happen here. But the only history that we have is that the market has recovered 100% of the time." Well, for the few people who we just couldn't talk out of that fear-based decision-making, they lost out. I mean, who would have thought that the market was going to start recovering while the pandemic was going to rage on with no answers for months and months after that?

Steve: You know, I said this time, yeah, that was different. But you know what? It's always something different. It might be a war that wasn't expected, Russia invading Ukraine, the government shutting down, near-collapse of the financial system like in '08 and '09. I mean, yeah, these are all different, but they're not. It's all kind of the same, an unexpected event that doesn't last for the rest of your life. I think that's the key because markets always recover. I mean, you just said there, we're batting 1,000 on recoveries. Yeah, we are. That's not going to change. So, you know, when there's a downturn, big emotion, try not to do anything. You'll be fine. Let's talk about the good stuff, though, the upturns. Because that's a pretty strong emotion in a different way. When things are going great, you think they're going to keep going great, and prices are going to go to the moon. They don't do that either.

Amy: My favorite example of this is one of our investors that we work with, who's probably now one of the most famous ones because I love this story. Late '80s, pushing '90, it had been a time when the market was just going gangbusters. He calls us up at Allworth, and he says, "Put me 100% in stock. I just can't lose right now." You can get greedy at a time when you check your portfolio, and all of a sudden, you're like, "Oh, I'm doing really well." You know, you can't necessarily think that you're getting smarter because the market is, like, I just can do no wrong. I'm going to buy this, and I'm going to do that. No, no, no. Your long-term plan is your long-term plan. Fear and greed have a huge impact on those. If you can just divorce those emotions from the way that you think about your money in that long-term financial plan, you're going to be far better off.

Steve: I'll be honest with you. I get more nervous when things are going good than when things are going bad. Because I know when things are going bad, yeah, they don't go down to zero. They always recover.

Amy: They're always going to be better.

Steve: Yeah, I wish it would go back up yesterday. But I don't get nervous when things are down. When things are good and things are going up, I get nervous because I know things go up more than they should. Things go down more than they should. When they're up more than they should, you don't know when it's going to end. You know it's going to end at some point. Well, this is a time where maybe you should do something. And by doing something, I don't mean lock in your gains, go to cash, and wait for the next dip. No, no, that's a losing proposition. But what you can do is rebalance. Because you're probably not 100% stock. Most people aren't and shouldn't be 100% stock. But you know what? If you are 60% stock and 40% bonds, well, after a big upswing, you might unintentionally be 70% stock and 30% bonds. You know what? If you leave that alone, eventually you'll be 75%, 80% stock. Now you're carrying more risk in stocks than you initially wanted to when you were 60%. Rebalancing. I don't think you have to do it that often, maybe once a year. But when things are good, it's a great time to rebalance, which just means take the excess off the table. Leave the house money there. Redistribute so you're back to 60/40 or whatever your initial allocation was. That's a really smart way of not just getting higher risk than you intended to, but also without timing the market, just keeping your risk within your comfort zone.

Amy: I like that you're talking about what you can do. Because often, if your account is way up or way down, there's really nothing that you can do to control that. I mean, it's done by the markets. So, what you can do is control what you can control. So, when you figure out what that proper allocation is for your age, for your risk level, for when you plan on retiring, for how much money you've saved, for all of those things, kind of keeping within that balance is great. Then also just making sure you don't take on more risk. I think when things are going well, that's when people start to say, what else is out there? Tech stocks. You think about during the pandemic when everyone was going gangbusters on Zoom and Peloton. What could possibly go wrong? Everyone has a Peloton bike that's being shipped to their house right now. Then there was some bad PR. Then people started getting back out there. Then things weren't looking as good for Peloton. They had mass layoffs. So, I think that you can easily, when things are going good, say, well, I can't imagine what could possibly go wrong with this company, with this market, with this economy. But you never know what's coming around the corner. So, we have this kind of simply money rule that we would say, hey, if you can stick to this, you're going to be far better off. That's no more than 10% of your entire portfolio in individual stocks. I'm not talking 10% Peloton, 10% in Zoom, or whatever it is. Combined individual stocks, 10%, that's going to reduce your risk when times are down a lot. A lot better sleep.

Steve: Yeah, diversification is a key. Also, get your financial plan drawn up. Do it yourself. Hire a professional. But that keeps you on the straight and narrow of, okay, what are my average returns? Will I run out of money or not? And should keep you from reacting drastically to whatever the latest good or bad news is in the market.

Amy: Here's your Allworth advice. If you have a long-term financial plan that takes into account your risk tolerance, your time horizon, history shows you'll often reap the rewards by mostly doing nothing. Coming up next, how to know when it's time to fire your financial advisor. You're listening to Simply Money, presented by Allworth Financial, here on 55KRC, THE Talk Station. You're listening to Simply Money, presented by Allworth Financial. I'm Amy Wagner, along with Steve Sprovach. If you miss our show one night, you don't have to miss a thing that we talk about. We've got a daily podcast for you. Just search Simply Money right there on the iHeart app or wherever you turn to get your podcast. Coming up at 06:43, we're playing a little fact or fiction, what you need to know when it comes to planning for your retirement. We talk about money on here. We talk about the conversations between you and your spouse and you and your children and all of those. But there's also another very important relationship when it comes to your money. That's if you work with an advisor. It's critically important, I would say, that you find someone that's a good match for you. Not everyone is going to be.

Steve: No. And keep in mind also, your advisor is kind of interviewing you. Because this is something that... [crosstalk 00:13:38]

Amy: It's a relationship. It goes both ways.

Steve: It has to work both ways. I'll tell you what, one of the biggest keys on whether or not you've got a good relationship with your advisor is, who's doing all the talking during the meeting. If the advisor is, if you're talking, you can't really listen. I think a good relationship involves a lot of listening on the part of the advisor. Because otherwise, how are they going to know what your dreams and goals are? Because their job is to try to provide you the financial means to attain them. Well, if they're telling you what's important, it's not really a good relationship.

Amy: I'm going to say a couple of other things about this too. When I was in my 20s, when I had first gotten married, we went in to meet with someone. We had just moved back to the Cincinnati area with someone who my dad had been working with for years, my family had been working with for years. We went in, and we sat down. He did not look at me the entire time. He didn't talk to me the entire time.

Steve: He just talked to the husband.

Amy: He talked to the husband. Yes. I was thinking, hello, I am right here. I am just as involved, of course, in these money-making decisions as he is. I was so upset by it. Then also, we ended up opening a 529 for our daughter at that time, so college savings. That was the only thing that we ended up doing. We ended up moving all of our money somewhere else. But it was just a couple of months ago. I was out for a run in my neighborhood, and I got a call from this number that kind of looks like it was a number that I knew, and I answered it. It was that advisor saying, hey, haven't heard from you in a few... Literally, it's been over decades. You have this 529 with us. Why don't you come in and let me...? I'm thinking, oh my goodness, you have no idea, right? So, you have to make sure that there is an ongoing relationship. It's not transactional. They're not selling you a product. They're not selling your home or helping you buy a home. This is, hey, we're gonna come together. We're gonna come up with a long-term financial plan for you. Then we're both gonna meet up, I would say, once a year and talk through this. Are you keeping on the plan?

Steve: Yeah, at least. I'm gonna add another one because this is something that really evolved. I've done this for over 40 years. Really, for the last, I'd say, 20 to 30 years, the term fiduciary has become more and more important. I'll give you the real quick answer to what fiduciary means. It means that advisor is working in your best interest, not just ethically, but from a legal standpoint. That's tough to do if you're dealing with commissions. I just don't like commissions because, to me, it's a biased relationship when somebody makes a big chunk of money upfront when you decide to invest money in whatever it is you decide to invest in. Fiduciary is a really important part of a relationship. The two key designations that you should be aware of are CFP, Certified Financial Planner, and CHFC, Chartered Financial Consultant. You're dealing with a fiduciary when you deal with those. Now, I'm not saying other designations aren't gonna work in your best interest, but you know up front that those are two where they do. I mean, that just comes with the designation. It's a whole different ball game when that advisor is on your side of the table and working in your best interest as opposed to the other side of the table trying to convince you to buy something, in most cases, that charges a commission. Really important.

Amy: I think also when your conversations with an advisor turn to things like tax planning or estate planning, and they say, "Oh, I don't know, just talk to a CPA." "Just talk to an estate planning attorney." Well, they may not be the absolute expert in those things. They should definitely know.

Steve: They should have some broad knowledge, though.

Amy: Yeah, they should, yeah, know how those components kind of fit into your overall plan. They're kind of the ones that should kind of be the main point of contact. And, okay, maybe you wanna talk to this person, but here's where I think this could go. So, I think they're also part of that larger conversation because they'll probably have the most holistic view of your financial picture of any other professional that you're working with.

Steve: You're listening to Simply Money on 55KRC. I'm Steve Sprovach, along with Amy Wagner, and we're talking about not just what to look for when you hire an advisor, but what to consider when you're considering firing an advisor. And, one of the things, fees are important. They are. No matter how much somebody tries to make it a minor part of the relationship, you're always going to think, as the consumer, "No, I need to know what I'm paying. I always look at what I'm paying before I hire anybody or contract with anybody for any reason." There are some advisors that just try to beat around the bush and say, "Oh, no, the company pays me. No, it doesn't come out of your pocket directly. No, it's not a..." How about a number? How about 1%, 1.5%? If you're hiring a fiduciary, 1% to 1.5% is pretty much the game plan for 1.5%. Yeah, you should get financial planning and a whole bunch of other services thrown in. If it's less than 1%, well, I wonder, what are they really doing unless you've got a couple million dollars when the fees are naturally gonna come down? But, to get answers like, "Well, it's a commission, you pay us up front, and it's around..." No, I would wanna know, if I'm buying a particular commission product, whether it's an annuity or a front-load mutual fund, 5%, 6%, what's the surrender charge? Five years, six years, seven years? How much do you actually make? What goes to you? What's the actual dollar amount? Those are permissible questions. They're okay to ask.

Amy: Well, you should ask, and if there's tap dancing or any lack of transparency, if you're just not getting a good vibe from that person that they are not being just completely transparent with you, I say you fire them or you walk out the door if you have not hired them yet. A fee-based plan where the better you do, the better they do, right? It just aligns your interests, and, yes, the fiduciary is all...they're legally obligated to do the best thing possible for you. And I've seen far too many people just chasing returns, and so they jump around, they jump around from advisor to advisor. I think I heard this advisor can give me this. That's not a relationship, and that's not the best way to look at your financial plan over the long term. Here's the Allworth advice. When handing over your life savings to a financial professional to work with you, make sure they're the right match for you on every level. Coming up next, we're talking about asking for a raise, but maybe they're not asking the person that you might think. You're listening to Simply Money, presented by Allworth Financial, here on 55KRC, THE Talk Station. You're listening to Simply Money, presented by Allworth Financial. I'm Amy Wagner, along with Steve Sprovach. We talk all the time about how important it is to have open lines of communication with your spouse when it comes to money, right? Everyone should be on the same page. What happens if one of you maybe was on the same page, and now they suddenly are not? Joining us tonight, our good friend, Al Riddick, from Game Time Budgeting. Al, I love how open you are about the conversations that take place between you and your wife, and talking about money. Recently, you had one that, well, we talked to you that day, and I can tell you, it threw you off your A game. You weren't expecting it.

Al: Not at all, not at all. So, Amy, since you already set it up, can I go ahead and explain what we're talking about today?

Amy: Yes, please explain.

Al: So, recently, my wife came to me, and she basically said, "I would like a raise in my allowance." So, just to give you a little bit of a backstory, we've been married about 21 years, and during that time, or actually, before we even got married, we agreed that we would pay ourselves an allowance, which would basically be fun money. So, each individual, we could do whatever we wanted to do with this money, and your spouse could not say one word. So, I get a message from my wife one day, stating that she wanted a raise in her allowance. Not only did she say, "I want a raise," she had a dollar amount in mind.

Amy: Oh.

Al: So, as you can imagine, Amy and Steve, I crunched the numbers and discovered that her request was actually a 60% increase in her allowance. So, when I picked myself up off the floor, I was like, "Oh man, that's a lot of money."

Amy: Well, and I mentioned this, but we were talking to you the day that this whole conversation had gone down, and you were still in a little shock about it. But I said, "Please, can we talk about this at some point?" Because I think this is a normal give and take, and not everyone looks at their money the same way that you guys do, and you're so responsible about it. Each dollar that goes out of your house has a job, so it's all assigned. So, you call it an allowance, but it's kind of just your fun money for both of you. But let me ask you this, Al. You said you've been married for 21 years, and you've had this agreement in place that whole time. How many raises have you given yourselves over the course of that 21 years?

Al: So, this is the funny part. For myself, Amy, I have had zero raises. Can you believe it?

Amy: Al, inflation!

Al: I know, right? But think about it. Well, I won't tell you how much money it is, but to me, it's always been a lot of money, right?

Amy: Yeah.

Al: Because I'm such a low-maintenance guy, and for the things that I enjoy, they don't really cost a lot of money, so it's not a big deal to me. My wife, on the other hand, can you believe out of 21 years of marriage, she only requested a raise one time, and it was 10%? And, of course, I was like, "I don't care. If it'll make you happy, let's do it." So, that's the backstory there.

Amy: Okay, so how'd this conversation go?

Al: So, with this conversation, if my memory is correct, of course, I started crunching some numbers because I always wanna know how financial decisions are going to impact cash flow. So, we crunched some numbers, and then I discovered, well, I guess you could say I discovered, that we could eat this amount of money, and it really wouldn't be a big deal. But I thought it would be intriguing if I posed another question to my wife. So, I was like, "You know what? I'm totally cool with a raise. It's not really gonna impact our lifestyle that much, if at all." I said, "However, would you prefer to just have an increase in your monthly allowance, or would you rather have a one-time payout that would be equal to the same amount of money that you would get in your raise through December of 2024?" Amy. And she said, "You know what? That's a lot of money." She said, "So, I don't want it all at once because I might spend it." So, she opted for the monthly increase, and I have to tell you two, that was the sexiest answer I could ever hear because that reaffirmed for me how my wife can practice delayed gratification. So, of course, I got excited.

Steve: You have a unique relationship with each other. I'm just thinking about if my wife came to me and said that, and I told her, "No, how about this?" I'm not sure I'd be out of the hospital yet.

Amy: You'd be in a doghouse in the backyard.

Steve: At any point, did you ever compare her request to what the cost of a divorce lawyer and half of your net worth would be? Did that ever go through your mind?

Al: I did not, Steve, but I kinda got the feeling because when I thought about it, I was like, "Man, we've been married 21 years. She's only requested a raise one time." And, of course, when you look at inflation, cost of living, and things of that nature, the amount of money, even though it's still a lot in my mind, when you think about it over 21 years, it's not that big of a deal. Plus, I forgot to throw in an extra little caveat here for you two. So, my wife also just got a raise, so that made the decision even easier.

Amy: You know, Al, I also wanna talk about this because a lot of people, their relationships, and the way that they handle money isn't exactly the same way that you and your wife do. So, your wife coming to you asking for a raise sounds just a little crazy, but you guys run your home and your cash flow like a business, right? So, in a business-type situation, you would have two partners coming together. Maybe one of them is saying, "I think I should be paid more." Then that's a conversation that takes place. So, I just wanna be clear, is that kinda how you and your wife think about it? You're running a business in your household?

Al: That is definitely how we think about it. And just to make one small correction, when my wife came to me, it wasn't as though she was asking me for a raise. It's more of, this is a topic that I think we need to discuss. You know what I mean? [crosstalk 00:26:40]

Amy: We need to put this on the table, yes.

Al: Exactly, let's put this on the table. Obviously, the way that my mind works, I'm crunching the numbers, I'm looking at data and things of that nature. And because we calculated that we could absorb this without really impacting any of our goals so far as saving for retirement, vacation account, philanthropy, and things of that nature, we always, as a team, make sure that we crunch the numbers and then make the decision, wherein, I'm assuming some people might get a little bit emotional about a request like that without looking at the numbers, and then you just blurt out an answer. But to me, I believe that the numbers should help you make a quality financial decision. Does that make sense?

Steve: Yeah, it does. I think that is so different than, I'm thinking of a woman that I know who's...she has no idea how much her husband makes, and he gives her an allowance. And it literally is an allowance, this is how much you get per month. You're not in that situation. This is a partnership, and the two of you are very open about money coming in, money going out, and that's a healthy relationship. Communication is key on emotional subjects like this.

Al: Oh, definitely. And just to give you another example, Steve, recently, my wife, she called me, and she was like, "Hey, I think I found a great vacation for us during the Christmas holiday." Then my first question was, "How much does it cost?"

Amy: You didn't even ask where it was?

Al: Exactly, I didn't even ask. Then she's like, "It's a really nice resort. I think you'll love it." And because, obviously, I've been married for 21 years, I know her taste when it comes to selecting a resort. So, I was like, "Book it." I didn't find out where I was going until later that night.

Amy: Oh, my goodness. That's great.

Al: But the cool part is, we already had the money in our vacation account, so it was really an easy decision.

Amy: Al, I love how transparent you are with how your home runs, how your marriage and your relationship runs. Glad that you guys were able to come to a consensus and everyone got a raise. We learned a lot from you. You've been listening to Simply Money, presented by Allworth Financial, here on 55KRC, THE Talk Station. You're listening to Simply Money, presented by Allworth Financial. I'm Amy Wagner, along with Steve Sprovach. If you have a financial issue or just a question that's kind of burning in the back of your mind, there's a red button you can click on while you're listening to the show. It's right there on the iHeart app. Record your question. It's coming straight to us. We would love to help you figure it out. Coming up, we're gonna help you change the way you think about saving. Yes, it might just be a little mindset shift that you need there. We're gonna play now, Retirement Fact or Fiction. You know, we like to have fun with this. We like to say it's a game, but there's a very serious reason why we do this. The more people that we talk to, the more articles that we read, the more media that we consume, we realize there are so many myths out there...

Steve: Oh, no question.

Amy: ...about money, about retirement. This is just our way of like throwing some out there and then busting them, giving you the truth of the matter so that you actually have the best concept of what's best for you moving forward. We're all over the place with these, so keep up with us. Here's the first one, Sprovach. Fact or fiction, if you inherit a stock portfolio that has achieved significant gains, you, if they are the person who's the heir, will not have to pay taxes on the gains.

Steve: Believe it or not, that's a fact, but I'm gonna say with an asterisk. Because, the reason I say with an asterisk, there's a big tax advantage to inheriting stock. And locally, we talk about Procter & Gamble a lot. Well, your parents or grandparents may have had shares that they paid next to nothing four decades ago. When they passed away, you inherited it through the probate system, through a will. And guess what? Your grandparents didn't have to pay tax because they passed away without selling the stock. Well, that means you have to, right? No, it's called a stepped-up cost basis. The only reason you may have to pay a little bit of tax is from the date of their death if it went up in price before you had a chance to sell it. Yeah, that little tiny bit, you'll be responsible for paying a gain. It may have gone down, and you actually have a loss. But the bottom line is, yeah, that's a huge tax break when you inherit highly appreciated stock. Fact.

Amy: I mean, we're in Cincinnati. There's a lot of people who have got Procter & Gamble stock, right?

Steve: Oh, no question.

Amy: If that's been in your family and maybe your parents, your grandparents bought it, and then they willed it to you and you got it, think about the fact, if you had to...if you were gonna sell that stock at some point and had to pay the difference between what they paid for it. So, this stepped-up basis is a huge advantage tax-wise.

Steve: Yeah, big deal. All right, I got one for you. Fact or fiction, Amy? Medicare will cover most of your nursing home or assisted living costs.

Amy: Fiction.

Steve: Yeah, [inaudible 00:31:41].

Amy: This is a huge one because I know for so many people, it's like you work all these years. Most of us have healthcare coverage through our work health insurance plans. Then it's like, oh, I get to 65 and I don't have to worry about it anymore because, well, there's Medicare. Well, Medicare only covers certain things, hospital stays. There's a lot that's not covered. So, then you need to figure out, okay, dental and vision and prescription coverage. Also, yes, it does not cover, if something happens to you and you have a long-term care situation that needs to be taken care of, this is why we would say you need to plan for it, whether long-term care insurance is a policy, self-insuring is an option. I was actually just talking to our insurance expert, Jodi, last week. And she was saying like, "This is a significantly important conversation that you need to have and think through." And don't get to 65 and think Medicare's got me covered because it doesn't.

Steve: No, it doesn't. I've got a family member that's going through this decision right now. Yeah, there's up to a hundred days covered for recovery from a condition, rehab, but that's it. At best, a hundred days of basically help coming out of a bad situation. A long-term care, no, not at all.

Amy: Here's one for you. I'm interested to hear what you say. Fact or fiction, if you've got a choice, you're better off investing in an IRA than a Roth IRA.

Steve: I'm gonna say fact, kind of on that. You know, the younger you are, the more of a fact it is because, man, a Roth IRA. And you know as well as I do, Amy, getting tax-free distributions is a lot better than taxable distributions. And people that were super-efficient and saved up a ton of money in their 401(k) over their lives, yeah, at some point, you're gonna live off of that money. If it was a traditional IRA or traditional 401(k), that's a taxable distribution. So, to get 30,000 a year, you gotta take out 35,000 or 40,000 to account for the taxes. A Roth IRA, if you're over 59 and a half and it's been in there more than five years, in most and...well, it should be tax-free on the distribution. Tax-free is a good thing. That's why I say the longer it's in there, the better off you are, because if you do a Roth in your 30s and that builds up to be a big number by the time you retire, it's awesome, even though it is after-tax when you put the money in.

Amy: I love it. I actually love the flexibility of a Roth. To your point, Steve, so many people have money in a traditional 401(k). You're looking at that balance. Say there's a million dollars in there and you're thinking, oh, I'm set, right? I've got a million dollars. Okay, well, when you go to take that money out, you have to pay the piper. With Roth IRAs and Roth 401(k)s, you've already paid the taxes on them. You've locked in today's tax rate, not knowing maybe where your taxes are gonna be in the future. So, I think this is a really smart strategy. Here's another important one I wanna cover. Fact or fiction, you wanna get a refund when you file your taxes each year. Everyone talks about how much money they're getting back. Should they be bragging?

Steve: And fiction. No, why would you give the government money? I mean, the bigger the refund, the more money you gave them that you're not earning interest on. Yeah, it's a tax-free loan to the government. Please, try to work it as close to zero as possible. If you gotta pay a couple of bucks or get a couple bucks back, that's plenty. Big refunds, no. Force yourself to save instead of doing it that way.

Amy: Please understand, a tax refund is not new money to you. It's just the government regifting the money that you gave to them to hold all year. It makes zero sense to try to get a huge refund. Coming up next, we've got a new way for you to look at saving. You're listening to Simply Money, presented by Allworth Financial, here on 55KRC, THE Talk Station. You're listening to Simply Money, presented by Allworth Financial. I'm Amy Wagner, along with Steve Sprovach. When you hear these words, saving money, do you kind of get hives? Are you like, oh, it also leads to that horrible B word called a budget, and I hate doing that? And as much as I know I should be saving money, inflation's high right now, and it's just hard to. We just think maybe if you kind of rephrase...reframe the way that you think about saving, it might help you a little bit.

Steve: Yeah. And how about, instead of saving, let's look at the word profit. I love talking to Al Riddick because he thinks of his money as a business. This is the cash flow coming in, this is the cost of life, and let's build in a profit margin. That's the way he saves money. I love that concept because every corporation in the world is looking at if you save the pennies, the dollars take care of themselves, and the more money left over is the profit for the company and is the profit for you and your family. So, yeah, instead of saying, okay, what's left over, how about let's try to figure out what our average profit per month is gonna be, and how do we increase profits?

Amy: I love the word profit, right? It's just a positive thing. There's progress in it. It signifies a gain. I think money is a tool, and you have always made an excellent point of making...it's a tool that gets you to be able to do the things that you wanna do.

Steve: Enjoy life.

Amy: But I also think that you either control your money or your money controls you. There's so many people who get themselves into these horrible debt spirals, and they can't figure out how to get their heads above the water, and their money is controlling them. But when you start to look at the money that's flowing into your household and flowing back out as a business, it helps you take the emotion out of that spending and say, "Okay, what's the best thing? How do we drive the highest profit out of this?" That answer is the decision that you have as far as, okay, what's next with that money?

Steve: Yeah. So if you say I wanna profit of $500 this month, your follow-up is, how do I get there? What do I need to do to have that $500? It doesn't mean penny-pinching like crazy, but you've gotta obviously pay attention to where the money goes. I'll give you a great example. I had a recall on my car, and it was gonna replace certain parts of the exhaust system. I said, you know what? This is a pain. I've gotta find all these papers, I've gotta put this application together. Then I realized, wait a second, this is about $1,800 worth of repairs. I'll spend two hours doing that, $900 an hour. Yeah, they can hire me for 900 bucks an hour. So, I did it, and it worked out great. Think of money in terms of profit.

Amy: Yeah, I think if you just develop that mindset of, this is a business, right, it takes the emotion out of it, and it's gonna help you get ahead much further, much more quickly. Hey, thanks for listening tonight. You've been listening to Simply Money, presented by Allworth Financial, here on 55KRC, THE Talk Station.