Episode Transcript
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Speaker 1 (00:06):
Tonight, we're talking intrat straight cuts. Are they coming?
Speaker 2 (00:10):
We delve into the four percent role when we're taking
a deep dive into your mind. What does that have
to do with your money? You're listening to simply money
presented by all Worth Financial. I'm Amy Wagner. It's hard
to think back a year and a half from.
Speaker 1 (00:22):
The so called experts thought the Federal Reserve would.
Speaker 2 (00:25):
Begin cutting interest rates. And as you know, well that
hasn't happened yet, but it appears we are on the
verge joining us tonight, of course, as he does every Monday,
all Worth, chief Investment Officer and the stout. Okay, Andy,
let's start with what happened in Jackson Hole, Wyoming, because
that's going to get us to these interra straight cuts, right.
Speaker 3 (00:45):
That is correct. So, Federal Reserve Chair Jerome Powell gave
a speech to Jackson Hole, Wyoming, and he said a
few things, and some of the more important ones were
about rate cuts and what the Fed is doing. And
basically he said that the time has come to adjust policy,
(01:07):
which means the time has finally come for the Federal
Reserve to lower interest rates. And as you said, it's
been a year and a half in the making when
markets started to price in rate cuts, and I say
markets price them, we're just looking at how certain security
is called FED fund futures trade. That's how we figure
out what is expected in the probabilities. And we've been
(01:29):
trading at levels waiting and waiting and waiting for these
rate cuts, and the FED has just not been ready
for a couple of reasons. One is that the job
market has remained pretty strong, and if you look back
really over most of the past year and a half,
we've been in a range of three point four percent
to three point eight percent on the unemployment rate. And
(01:51):
the other reason is that inflation has not come down
as quickly as the FED won. I mean, the FED
targets a two percent inflation rate, and we're not there yet.
I mean, we've had two basically years plus of actual
rate hikes, but we have not seen any real progress
or not. We've seen progress, but we've not actually gotten
(02:13):
to that Fed's two percent target. So the FED now
believes we're on the way there, and they're also seeing
some cracks in the job market. So the balance of
risks as we call it, is now suggesting, Hey, we
need to be a little bit more worried about the
job market, So let's get some rate cuss to try
to help bring things in line.
Speaker 2 (02:35):
Any what we've seen over the course of the past
several years is when the FED speaks, the markets react
in a huge way.
Speaker 1 (02:42):
And I think that Jerome pal.
Speaker 2 (02:43):
Has learned, maybe the hard way, that he better watch
what he says and not put anything out there that
he's relatively positive he's going to happen soon.
Speaker 1 (02:50):
Were you surprised with his tone with.
Speaker 2 (02:53):
These remarks from Jackson Hole or is this a little overdue?
Speaker 3 (02:58):
I was at little surprised, because, I mean, we knew
he was going to talk about rate cuts. Yeah, but
when he started talking about the pace of rate cuts
depending on data. So when we say the pace that
means will be a quarter point, where will be half point?
Then he also went on to say in about one
sentence later that the FED will do everything they can
(03:19):
to support a strong labor market. So talking about the
pace and doing everything they can, that opens the door
for that half point rate cut. And what I think
the FED will have a tough time doing is if
they do cut by half a point, how will the
markets interpret it? The FED will have a tough time
messaging that appropriately. They don't want the market to think
(03:43):
that the Fed has some inside information about something crumbling
in the background and this is an emergency rate cut,
because if that is the interpretation, what you're going to
see is you're going to see, you know, most likely
a pretty steep sell off, very very quick.
Speaker 2 (04:00):
So any what you're saying is if they were to
cut rates by half a point, that the markets could
read into that that the sky is falling and we
just don't know that yet and react in a really
negative way.
Speaker 3 (04:12):
Yeah. Absolutely, And if you look at where that market
pricing is right now, we have there's about a thirty
percent chance that the FED would the lower rates by
a half point at their next meeting on September and
a seventy percent chance that it's a quarter point. Now,
you know, we'll see they have another inflation report coming
out and another jobs market report, so that might tell
(04:36):
what happens. But regardless, if you look out the remainder
of the year, there's only three meetings and what's priced
in is one percentage point of rate cuts. That means
there has to be a half point rate cut somewhere
in there for that market pricing to come true, and
if we don't get that half point cut, it's going
to cut both ways. Right one, we could see panic
(04:58):
if we get it, but on the other side, if
we don't get it, you know, the market's already prices
us in and we saw equity markets rally on that.
You could see you could see markets decline, and you
could also stock markets decline, but you could also see
bond markets decline because interest rates would actually go up
if they don't lower rates by as much as they're
currently expected to.
Speaker 2 (05:19):
Sandy, as we talk about the fact that we are
sort of on the verge here of interest rate cuts,
what's your message to investors?
Speaker 1 (05:26):
Is there something that we should be doing right now?
Speaker 3 (05:29):
Well, there's going to be a lot of noise this week,
and honestly tuning it out because right now, if you
would have paid close attention to what the Fed's been doing,
or what the market's been expecting the Fed to do
for the past year and a half, you would have
been absolutely wrong. And still I guess there's an off
chance the Fed doesn't lower rates in September, but I
(05:49):
think that's almost a near zero, or doesn't lower rates
in September it's almost a near zero chance, but you
never know, and the market's been consistently wrong trying to
you know, position a portfolio or time the market maybe
is a better way to say it, to take advantage
of that, that's been a fool's errand really for even
(06:11):
the best of the Wall Street traders.
Speaker 2 (06:14):
You're listening to simply Money presented by all Worth Financial
and Memi Wagner along with Andy Stown, all Worth chief
Investment Officer, joining us as he does every Monday, to
help us digest everything that's going on with our investments,
so we can expect at the flour one K and
the economy. I want to shift a little bit, not
so far away from the Federal Reserve, but away from
interest rates and.
Speaker 1 (06:32):
Toward mortgage rates. What are you seeing in the housing market?
Speaker 3 (06:38):
Well, staying with mortgage rates for a second, and we've
certainly seen those improved tremendously. If you look at the
thirty year fixed rate, it peaked at about seven point
eight percent last October and it's down to about six
and a half percent today, So you know, that's certainly
very positive by you know, all stretches now six point
(07:00):
five percent still relatively high. Uh, and when you think
about it from a homeowner's perspective, for the past twenty
years or so, three percent is a low mortgage rate.
Four percent to five percent maybe about normal. But with
(07:21):
that said, we're at six and a half. That's still high,
but it's lower than what it was. People's mindsets are
that mortgage rates are still pretty high, and so that's
going to have that's going to constrain the job market.
But if we look at that drop you know we
have in mortgage rates, we have seen a minor pickup
in housing. I'll call it a bit of a small boost.
(07:43):
We had new home sales. We had new home sales
essentially jump ten zero point six percent in July compared
to you That was actually its largest month individual monthly
increase in about two years. So pretty good from that perspective. However,
when we look forward, not too optimistic that this will continue.
(08:07):
I mean, we have some certain indicators we can look
at to gauge what a new home sales activity is,
for instance, building permits and housing starts, and those have
been really low and really poor. That would suggest we're
not going to see these new home sales keep climbing
like they have climbed and on the existing home sales,
which is a much larger market by the way, they
(08:30):
ticked up a little bit last week, but there's still
at levels that are near historic lows. I mean, the
data series for existing home sales began in nineteen ninety
nine and we're near those lowest levels. Ever, so it's
not as if things are really strong right now in
the housing market currently.
Speaker 1 (08:48):
Andy, It's almost as if, like for the housing.
Speaker 2 (08:50):
Market to sort of break open a little bit, something's
got to give, and that means either rates fall substantially
or we as consumers change our mindset about what the
new normal looks like.
Speaker 1 (09:01):
As far as rates, where do you think this ends up?
Speaker 3 (09:05):
History would suggest it might be more about rates falling quickly,
and the reason they would fall click quickly would be
due to a recession. Now, you know, if we see
a recess, I don't think we see one this year.
It seems highly unlikely at this point, you know, with
just a few months left in the year. But one
next year isn't necessarily out of the equation, especially when
(09:26):
you consider that consumers are you know, certainly feeling the
pinch the saving straights at three point four percent might
even go lower when we get a new number this
UH coming out this Friday, And what that suggests is
that consumers are spending beyond their means. We can see
that with rising delinquency rates too, so you could see
that consumer spending pull back and that could slow the economy.
(09:48):
I mean, after all, consumer spending is about seventy percent
of the total economy. So I think that's the more
likely outcome for how the housing market can adjust. Now.
The other point about the adjusting, it's going to be
more of a a slower adjustment, and that would occur.
It's going to be two things that need to happen.
One is that people will need to have a mindset
(10:08):
that mortgage rates at you know, three percent not normal.
They need to adjust to maybe a five percent or
six percent mortgage right now. It will need to happen.
But we'll also need to see the job market remaining
strong because if the job market starts to really weaken,
you know what you're going to see is you're going
to see the inability for people to buy a home
(10:29):
and move.
Speaker 2 (10:30):
Yeah, a lot to digest right now, and we're certainly
glad you're here to help us figure it all.
Speaker 3 (10:35):
Out.
Speaker 1 (10:35):
Here's the all worth advice. Now's a good time to
call your qualified financial.
Speaker 2 (10:39):
Pro and ask them whether there's anything that you should
be doing right to take advantage of interest rate cuts
or to prepare for them.
Speaker 1 (10:46):
Coming up next.
Speaker 2 (10:46):
Thousands of people get remarried all the time, but should
they We're going to look into that. We'll talk about
that with our state planning expert. You're listening to simply
money percent of my all worth financial here in fifty
five KRC the talk station. You're listening to simply money
because some of my all worth financial I'm Amy Wagner.
Speaker 1 (11:09):
Love and marriage?
Speaker 2 (11:10):
Love and marriage or does love necessarily need to lead
to marriage?
Speaker 1 (11:14):
Joining us with some of the legal.
Speaker 2 (11:16):
And financial implications of that as our estate planning expert
from the law firm of Wood and Lamping Mark gregman Mark.
For many people who have been married before, this becomes
an interesting quandary. It's less about the love part and
more about the logistical part.
Speaker 4 (11:32):
No question and if statistics are at all insightful. I
read not so long Vivid not so long ago. I
read that the largest group of people who choose to
live together without being married are people over sixty five.
Speaker 2 (11:48):
Interesting and why specifically that age group.
Speaker 4 (11:52):
Do you think, Well, I think that there are so
many trappings that go with marriage, and I'm talking about
legal and financial. Look, I'm not in any position to
address moral aspects of this decision. That's not for me
to offer any opinion about. What I can talk to
you about is the legal and business aspects of the decision.
(12:12):
And there are several factors that make sense to talk
about on a money show. The first one that comes
to mind is if you get married or if you
don't get married, it very much affects your state plan.
Being married gives spouses certain rights and benefits under Ohio, Indiana,
and Kentucky law. You may like that, you may not
(12:34):
like that. It all depends on your circumstances. But in
most states, if I'm married and I die, my spouse
has a right to receive a big chunk of my estate,
regardless of what my will says. It can be anywhere
from the third to one hundred percent, depending on whether
it was the first marriage, depending on whether there's children
from the marriage. So a spouse automatically gets a big
(12:56):
chunk of your estate when you die. If you are married,
if you don't get married, you don't have that obligation.
You're free to sit down and figure out what works
for your situation.
Speaker 2 (13:09):
Let's talk about healthcare, because I think that for especially
those that sixty five and older demographic, this can become
a big one.
Speaker 1 (13:16):
I mean, I've seen people who.
Speaker 2 (13:18):
Are married decide to get divorced, not that they don't
love each other anymore, but because the medical bills of
one of them becomes more than they can bear. So
from a perspective of Okay, we're older, we love each other,
do we get married, how do you think through that
when it comes to healthcare?
Speaker 4 (13:37):
Well, and amy, I have seen that in my practice
two or three times where people to work as a
medical bill, So that's not just a theory. And this
topic of healthcare cost really cuts two ways. In most states,
spouses have some duty to pay the health care of
the spouse. In almost all states, a long stay in
(13:58):
a nursing home can improver the at home spouse, even
if you're a pre nuptial agreement. So there's that to
think about. On the other hand, in some cases, marriage
can extend healthcare benefits, so that if I have a
good retirement plan that comes with excellent health care benefits.
If I marry at seventy, my spouse will then be
(14:21):
covered under my health insurance policy. And I'm talking here
about gapkiller coverage. You know, at sixty five we all
get medicare as our primary coverage. But some of these
gap filling coverages can be quite valuable, especially if somebody
has a chronic illness mark.
Speaker 2 (14:38):
So what you're saying is actually a little bit unromantic here,
but they can have fantastic benefits, and that could be
worth marrying someone for I love it.
Speaker 4 (14:49):
We are talking about the legal issues.
Speaker 2 (14:51):
Yeah, sure, sure, okay, let's talk about ownership of the
family home here, right. Maybe you've got adult children that
you've even promised that this house is yours after I'm gone,
and then you fall in love with someone.
Speaker 1 (15:10):
How do you think through that? Ishoe?
Speaker 4 (15:12):
Well, in Ohio, getting married affects what happens to the
family home when the owner dies. Even if the house
is just in my name, if I remarry and keep
it in my name, my wife still acquires what are
called Dowur rights, and Ohio is one of the very
few states in the country that still have dour rights.
(15:32):
Kentucky and Indiana used to have it. Most states used
to have it, but most states got rid of it.
Ohio still has it. So if I remarry, my wife
acquires an interest in my house, and if I predecease her,
she gets the right to stay in that house for
the rest of her life, even if my intention is
to leave the house to my children. This is called
(15:54):
dowur rights, and couples need to decide whether that's good
for them or not good for them. It's a huge
for the surviving spouse, but more importantly, it's a huge
issue for my children or my spouse's children would otherwise
perhaps get the house.
Speaker 1 (16:09):
Which is such a different consideration for many people.
Speaker 2 (16:11):
Your first marriage, you know you're building this family together.
But for many of these second marriages, especially later in life,
you already have children, in some cases grandchildren that you
have plans for in bringing someone else into the equation,
and also their children and grandchildren can really muddy the waters.
Speaker 4 (16:28):
It certainly can, and it can affect benefits that I
already have. Perhaps I have benefits that I lose if
I marry. And for a perfect example of that would
be alimony payment. Yeah, most court ordered alimony payments terminate
upon remarriage or if you cohabitate, you can losure your
(16:51):
alimony payments, so you better be careful about that.
Speaker 2 (16:54):
What about social Security, because that's a big one, you
know for many people who've already claimed benefits, you know,
especially maybe the lower earning spouse. Many times they claim
half of their prior spouse's benefit.
Speaker 1 (17:07):
So how does that mess things up then if they
were to get.
Speaker 4 (17:10):
Remarried, Well, that's exactly right. You have to make sure
that claiming as a married person improves your position. And
there's two ways in which it affects. Number one, if
you are married, the spouse of a Social Security recipient
gets a certain spousal allowance, so you need to check
to see whether that would go up in the event
(17:31):
of marriage. In many cases it goes down, because each
spouse is receiving primary benefits. If they get married, that
may change. The probably bigger issue is survivor benefits, so
that if I remarry and I die, my second wife
or third or fourth or whatever she is she gets
(17:53):
she's entitled to receive survivor benefits under my social Security.
Now that may not matter to her because she may
have Social Security of her own. It's better you have
to sit down and look at those numbers.
Speaker 2 (18:04):
So many considerations here, whether you are getting remarried, or
whether you decide not to just make sure that you
are protecting each other from medical decisions, for who gets
that home, for just a variety of reasons.
Speaker 5 (18:16):
Right.
Speaker 2 (18:16):
There are legal and financial issues here to think through.
Great perspective, of course, from our estate planning expert, from
the law firm of Wood and Lamping, Mark Reckman. You're
listening to Simply Money, presented by all with financial here
in fifty five KRC the talk station.
Speaker 1 (18:32):
You're listening to simply Money. I mean you Wagner, along
with Steves Brevec. I think most of us know the
right thing to do with money, So why don't we
always do that? Why don't we always choose that?
Speaker 2 (18:43):
It can be a very complicated question. Joining us tonight
to help make sense of this. How Hirschfield, he's a
professor of behavioral decision making at UCLA's Anderson's School of Management.
Speaker 1 (18:55):
How we do? I think most of us, especially those
who listen to these kinds of.
Speaker 2 (18:59):
Shows, kind of know what we're supposed to do, yet
we don't always do it.
Speaker 1 (19:03):
Let's talk about why that is.
Speaker 6 (19:06):
Yeah, Amy thank you so much for having me. It's
a great question, right, and I think most of us,
You're right, have that same feeling, which is, I know
I should be doing this right, but I always find
myself having a hard time doing it. And I mean
there's lots of reasons why. We can start with the
fact that we live in the present, and the present
is so much stronger than the future. And so even
(19:29):
if we know we should put aside some money, even
if we know we should be saving or doing something
for the long run, well needs crop up and wants
crop up too right now, making it hard to do
the thing that we say we want to do. So
that's one big reason.
Speaker 2 (19:44):
Okay, you know we always talk about having a financial plan, right.
You make a financial plan for yourself. It helps you
plan for retirement or if you want to help the
kids pay for college, ye day, or a wedding, whatever
that is.
Speaker 1 (19:55):
And I think when you sit down with.
Speaker 2 (19:56):
That advisor or you figure it out yourself, it's like, okay,
this is good to go, right, I believe in this.
Speaker 1 (20:02):
I can get behind it. And then things get weird.
Speaker 2 (20:05):
The markets go berserk, the economy is a little crazy
whatever it is, and all.
Speaker 1 (20:10):
Of a sudden sticking to that plan isn't as easy
as we once thought. Why is that?
Speaker 6 (20:15):
Yeah, that's exactly right. So I mean there's a couple
of things going on here. So first off, I would
say that plans are great, and the best plans are
the ones that have an automatic component to them and
have more of a lock in that makes it difficult
for us to be our own worst enemies. If that
(20:36):
doesn't make sense, What I mean by that is we
want to make it harder for ourselves to switch gears
because of some sort of sudden worry or feeling or
concern on our parts.
Speaker 2 (20:49):
Just like our parents or our grandparents maybe used to
have a pension, right that money was there, they couldn't
touch it.
Speaker 6 (20:57):
That's exactly right, you know, And of course that's the
basic idea behind a four one K, which is really
only sort of personally managed pension. But the problem there
is the personally managed component, right, which is to say,
it's easy for us to start then sort of messing
around and can you know, convince ourselves that we need
that money right now now? Of course, there can be
(21:18):
times when we do need it, and that's you know,
that's the reason why it's good to have a rainy
day fund. I saw somebody the other day say something
that made so much sense to me, which is, you're
not a failure if you dip into your rainy day fund.
It means that you were prepared.
Speaker 1 (21:31):
Yeah, that's a great point.
Speaker 6 (21:32):
Expected expenses, Yeah, exactly.
Speaker 2 (21:35):
And we talk all the time about that rainy day
fund or that emergency fund and why you have it
there so that you're not dipping into those retirement savings.
Speaker 1 (21:42):
But you know, so many of us, you know, get those.
Speaker 2 (21:45):
Statements and we see that money either going up or
going down.
Speaker 1 (21:48):
And then there's in the present, and I think that's
a great point.
Speaker 2 (21:51):
There's things we need right now, and so it's hard
to think about the future self and retirement and especially
how I think right now when you've.
Speaker 1 (21:58):
Got markets all over the place.
Speaker 2 (22:00):
When you look at that money that has taken however
many number of years to get into that account starting
to go down. For a lot of people, the knee
jerk reaction is I'm just going to take it out,
even though I think most people know somewhere in their
heads not the best idea.
Speaker 6 (22:16):
Yeah, you know, I think this is a particularly difficult
problem to solve because you know, we're convincing ourselves that
we're doing this, we're pulling the money out because we
see the dips. We convince ourselves that this is the
right move. And I would sort of, you know, push
back and say it's the right move for who because
you know historically and of course you know, we don't
know what's happening today, but historically the data would suggest
(22:41):
that if if you have a long term goal, it's
best to just let it be, let it ride, right
and if we pull it out right now, we may
actually be ironically harming ourselves in the long term, in
the you know, for our future selves there, right. So
I would say it all depends on what are the
time of our goals are. If we have a long
(23:02):
term goal, if it's retirement and that's not for ten, twenty,
thirty years or whatever it may be, then we've built
in market valability, We've built in risk to get higher
return there. If, of course our goals are much shorter term, well,
then you know, that's a conversation that we should be
having with our advisors about how our investments in well
in safer harbors.
Speaker 1 (23:23):
I would say, absolutely, you're listening to simply money.
Speaker 2 (23:26):
Tonight here on fifty five parac as, we're joined by
hol Hirschild. He's a professor of behavioral decision making at
UCLA's Anderson's School of Management. Essentially, why do we sometimes
do things with our money where we know it's not
the best thing? How I'm wondering if in your research,
what you've learned about how we grew up with money,
how our parents dealt with money, what is kind of
(23:47):
just innate that we're not even processing. Is probably on
some kind of subconscious level of just how we've grown
up with money that affects our decision making today.
Speaker 6 (23:57):
Yeah, this is a great point, right. So a lot
of my own research looks at the relationships that we
have with our future selves and how those relationships impact
our financial decisions.
Speaker 3 (24:08):
You know.
Speaker 6 (24:09):
The gist, of course, is that if we feel closer,
in a stronger bond with our future selves, then we're
more likely to do things today that might put ourselves
in a better position tomorrow. But your question is really
about how you know historically where our childhood experiences are,
where our life experiences are, may impact those relationships and
(24:29):
those future decisions. And this is a really tricky topic,
because of course you've got some genetic influence and you've
got some environmental influence. And this is not my own research,
but other researchers have found that our life histories do matter.
In other words, how we grew up with money does matter.
But one really important caveat there is that it's not
(24:52):
like these sort of life histories or our childhood events
are sort of ever present, but rather they seem to
rear their head when the volatility arises. So in other words,
if we grew up in a financially restricted environment, whether
objectively speaking it was financially restricted or that was our
(25:12):
attitude toward money, then we start seeing that sort of
mindset creep in when we experience more volatility in the market.
On the other hand, if you know we grew up
with a more lately fair attitude, with more of a
sense that money was flush and you know that we
could have a cushion in the future, well then you
(25:33):
see people being a little bit more relaxed even when
times get tougher. So it's not just sort of a
all or nothing thing, but rather you see these childhood
influences sort of pop up when markets go volatile or
you know, when our own personal circumstances are more volatile.
Speaker 2 (25:50):
Yeah, that makes a lot of sense. I also want
to get to social media, you know, for those who
scroll through Facebook, Instagram, Twitter, you name it.
Speaker 1 (25:58):
I think we like to.
Speaker 2 (25:59):
Think like, oh, we know about social media, Like we're
not making any monetary decisions anything about how we spend
our money based on social media. But I think if
we really thought about it, we would realize that's not true.
Speaker 6 (26:12):
Yeah, you're exactly right. You know, this is it's a
it's a really interesting topic. There's been a lot of
theorizing about how sort of massive events can cause you know,
sort of quirky investor behavior, right. I mean this is
something that economists have talked about, well, it seems like
for decades, if not century, the idea that there can
(26:34):
be bubbles and bubbles are driven by sort of mania
that's driven by me seeing what other people are doing.
We don't actually know from like an empirical standpoint. We
actually haven't seen research yet looking at individual level influence
from say Twitter or Facebook or Reddit or social media
(26:55):
generally speaking, and how how those platforms then impact our
own investment behavior. It's actually a question that I've been
looking into with two colleagues right now to see whether
or not some of these sites may actually intensify our
sense of well, you know, to borrow the sort of
popula term, whether you know, these sites intensify the feeling
of fomo, you know, the fear of missing out.
Speaker 7 (27:17):
Well, think about the meme stocks, right, meme stocks that
started last year on Reddit and a frenzy that was
involved around that, And I think that's a very kind
of blatant example.
Speaker 1 (27:27):
But I also think.
Speaker 2 (27:28):
You kind of casually look at social media and you
see your college friend is driving a certain car or
going on a certain vacation, and maybe you can't really
afford that, but you think I should. And so then
do you make different decisions about credit card debt or
pulling money out of your four oh one k?
Speaker 5 (27:44):
Right?
Speaker 1 (27:44):
I just I think that we don't even on a
conscious level, think about these things, but there has to
be some kind of an impact.
Speaker 6 (27:52):
Yeah, I suspect you're right about that. And so you know,
part of the issue here, just like you said, is
that we may not be fully aware of the impact
that sort of the constant consumption of these images and
you know, comparison of experiences et cetera. Is having on
our own decisions about money and how to spend it. Again,
(28:15):
you know this is this is speculation at this point
because I'm you know, we we haven't looked at sort
of a specific influence of what I consume ontay, Facebook
or Instagram and how that impacts my decisions. But you
used to be the case that one of the advantages
of spending our money on experiences was that experiences were
(28:36):
harder to compare, and so my vacation could have been
half as much as yours, but we could have had
just the same amount of sort of positive utility from
that vacation. And now with social media, experiences are incredibly
comparable or you know, it's much easier to compare one
to another. Yes, take away some of the advantage there.
Speaker 1 (28:57):
Yeah, So just great insights from how hers feel.
Speaker 2 (29:00):
He's a professor of behavioral decision making at UCLA's Anderson's
School of Management. If you ever wondered, I know the
right thing to do with my money, but why am
I not doing it? So much of that has to
do with behavioral finance. You're listening to Simply Money here
on fifty five KRC, the talk station.
Speaker 1 (29:17):
You're listening to Simply Money.
Speaker 2 (29:18):
If somebody all worth financial, I mean you Wagoner along
with Steve Sprovack. If you've got a financial question you'd
like for us to tackle on the show. Easy way
to do it just download the iHeart app. There's a
red button you can click on while you're listening to
the show, record your question. It's coming straight to us
and straight ahead. We've got ways that you can save
on traveling when it comes maybe time to retire, and
also some ways you can save right now.
Speaker 1 (29:40):
For years and.
Speaker 2 (29:41):
Years when people talk about retiring, you will often.
Speaker 1 (29:44):
Hear this term four percent role thrown.
Speaker 2 (29:47):
Out there, and I think Steve a lot of people
like either a formula or a number because they just
want it to be.
Speaker 1 (29:52):
Very cut and dry, very black and white. What do
I need?
Speaker 2 (29:55):
So let's talk about the four percent rule, where God
started and maybe where we are with it now.
Speaker 5 (30:00):
Yeah, And what we're talking about is how much can
you take out of your investments without running out of
money while you're alive. And that's really the bottom line
of when people are putting together financial plans. They just
don't want to run out of money. And for years
and years, the norm was five percent well, in nineteen
(30:20):
seventy six, a financial advisor named Bill Bergen said, you
know what, I want to put some pencil to paper
on this, and he went back to nineteen twenty six,
so this is before the depression amy and he came
up with what he calls the four percent rule and
in short version, and what he basically said was, don't
draw more than four percent out of your investments in
(30:42):
any given year. If you can keep it at four
percent or under, there's no way you're going to run
out of money, even if you have the worst timing
in the world. In his numbers, you retired in September
of nineteen twenty nine, right before the big crash. We've
had to think that a little bit because you know,
on the one hand, interest rates were higher back in
(31:04):
nineteen seventy six than they were up until about a
year ago. So the question is does the four percent
still hold water? And you know what, I'm not going
to go through the effort of calculating out and turning
out a three point eight percent rule or four point
two percent rule, but I think it's a good idea
to say, you know what, if you stick around four
(31:24):
percent as a guideline, and you're doing a whole lot
better than somebody who takes that ten percent in a
good year and two percent in a bad year. You know,
it helps you budget you're spending and know what a
consistent amount of money that's coming into your household can
be so that you don't wind up bankrupt while you're
(31:45):
still kicking.
Speaker 2 (31:46):
And what he was using when he was calculating these
numbers was a sixty forty portfolio. So sixty percent in stocks,
forty percent in bonds. Well, at that time, the forty
percent in bonds, right, we're doing well. I mean it
was a high interest rate environment. So I think it's
a great rule of thumb. I don't think it's a
rule of dumb. Sometimes we'll say someone'll throw out a
rule of thumb and we'll say that's a rule of
dumb on this show. But I think it's a general
(32:09):
guideline and I think it's a great way to kind
of simplify things.
Speaker 1 (32:12):
But I really think it's kind of.
Speaker 2 (32:13):
A starting point of Okay, what does it look like
if I'm drawing down four percent right the stream of income?
Speaker 1 (32:21):
Is it enough for me to live on? Do I
have enough? But I don't think.
Speaker 2 (32:25):
It's a be all and all, hard fast four percent
rule anymore.
Speaker 5 (32:29):
You're listening in Simply Money on fifty five KRCM Steve
Sprovac along with Amy Wagner, and we're talking about the
four percent rule and whether or not that still holds water.
And Amy, one thing I will say is it's a
great starting point because if you're trying to figure out, Okay,
I've got social security, my spouse has social security. We don't,
unfortunately have a pension that's not going to cut it.
(32:51):
We spend more than that, we're going to need to
take some money out of our investments, our iras, our
four oh one k's, maybe a joint investment account, maybe
some savings, and what's the magic number that you can
afford to take out of those accounts. Well, if you're
in your sixties, I think four percent is a good
starting point. So you know, let's just say you've got
four thousand dollars a month coming in in social security
(33:13):
and I don't know half a million dollars in I
raise in four oh one case, okay, that's twenty grand.
That you can draw out four percent of half a million,
twenty thousand dollars, which is what about seventeen fifty a month? Okay,
that maybe that does it for you. If you've got
a million, maybe it's forty thousand a year, and re
examine that number every year to see how it's doing.
(33:34):
It's a good starting point, but I think you still
need a financial plan drawn up because you're not really
keying in inflation another one time costs into that budget.
But it's a good place to start to see. Is
this even something I can think about? Where am I
going to have to work another two three years?
Speaker 1 (33:50):
Your personal tax rate?
Speaker 4 (33:51):
Right?
Speaker 1 (33:52):
How healthy are you?
Speaker 2 (33:53):
All of those things are variables that will affect whether
the four percent rule does or does not apply well
to you.
Speaker 1 (33:58):
Here's the all Worth advice. Four percent will apply to you.
Speaker 2 (34:01):
We'll work with a qualified financial pro to nail down
your percentage that's right for your unique situation. Are you
sure you're gonna have enough money for travel and retirement?
For most of us, that's the goal. We've got some
ideas to help make it happen. You're listening to Simply
Money here on fifty five KR see the talk station.
Speaker 1 (34:20):
You're listening to simply Money.
Speaker 2 (34:21):
If percent of my all worth financial I Meani Wagner
along with Steve Sprovac. You know, for many traveling is
one of the biggest things you think about when you
want to retire. But let's face it, with inflation right now,
it's more expensive than ever to travel, So how do
you do it and maybe keep your spending under control
at the same time.
Speaker 5 (34:38):
Yeah, you know, there are ways to do it, and
of course, you know, I'll shop for deals and that
sort of thing. But have you ever heard of something
called not volunteerism, but volunteerism. You can actually volunteer in
a whole lot of different programs. Okay, you're not going
to get paid for it, but you know what, they
might give you living expenses, they might they might give
you a room on board if you go with some
(35:00):
of these projects. There's some neat deals out there.
Speaker 2 (35:02):
Yeah, there's a group called Projects Aboard of Projects Abroad,
And let's face it, one of the most expensive costs
is wherever you're staying whenever you get there. So oftentimes
maybe some meals are covered or maybe where you're staying.
Speaker 1 (35:14):
And these are like really interesting stuff.
Speaker 2 (35:16):
You can scuba dive and look at marine conservation in
Baja California for a week, there's a two week stint
in Argentina working with a certain.
Speaker 1 (35:25):
Kind of monkeys that are being rehabilitated.
Speaker 5 (35:27):
I mean this, wait, wait, wait a minute. So these
monkeys with alcohol and drug problems, what kind of recap
are they going through?
Speaker 2 (35:33):
Different kind of Oh, got to spend it on booze, of.
Speaker 1 (35:37):
Course your brain goes there.
Speaker 2 (35:39):
But I mean, if you know, if it's something that
you're interested in, right, marine biology or zoology or something,
you can have really amazing hands on experience and it
not costs as much as it could.
Speaker 1 (35:49):
Here's another thing, national parks.
Speaker 2 (35:50):
We were just talking over the weekend about how amazing
those trips are. There's a National Park's lifetime past for seniors.
Speaker 1 (35:57):
It's eighty bucks. It's a huge bargain.
Speaker 2 (36:00):
And if you were to go to a bunch of
National parks and pay for each individually, you're gonna pay
a lot more money than eighty dollars.
Speaker 5 (36:07):
Oh, my son in Phoenix has in laws to definitely
take advantage of this. You know, massive numbers of National
parks out West, Bryce, Zion, you name it, and eighty
bucks for the rest of your life. And that was
a big an. It used to be ten bucks. And
everybody griped about it going to eighty. That's a deal
and a half.
Speaker 2 (36:26):
There's also something called the North American Reciprocal Museum Association,
which is essentially, if you get a membership, there's kind
of a network of museums, zoos, gardens all across the US, Canada,
all over the place.
Speaker 1 (36:39):
And you can get reciprocal visitation.
Speaker 2 (36:41):
So if you've got a Cincinnati Zoo membership, look into
where else maybe you can use that. Also, even easy
things like the fact that you're traveled, you can probably
travel during non peak times, non peak seasons, going during
off season.
Speaker 1 (36:54):
Those kinds of things can make a big difference.
Speaker 5 (36:56):
Yeah, and don't be afraid to go to tourist spots,
but off season in the winter. I grew up in
a tourist town. Summer, Yeah, nuts, winter a whole different
personality in my view, much nicer place to visit in
the winter without the crowds.
Speaker 2 (37:10):
You've been listening to Simply Money presented by all Worth
Financial here on fifty five KRC, the talk station
Tonight, we're talking intrat straight cuts. Are they coming?
Speaker 2 (00:10):
We delve into the four percent role when we're taking
a deep dive into your mind. What does that have
to do with your money? You're listening to simply money
presented by all Worth Financial. I'm Amy Wagner. It's hard
to think back a year and a half from.
Speaker 1 (00:22):
The so called experts thought the Federal Reserve would.
Speaker 2 (00:25):
Begin cutting interest rates. And as you know, well that
hasn't happened yet, but it appears we are on the
verge joining us tonight, of course, as he does every Monday,
all Worth, chief Investment Officer and the stout. Okay, Andy,
let's start with what happened in Jackson Hole, Wyoming, because
that's going to get us to these interra straight cuts, right.
Speaker 3 (00:45):
That is correct. So, Federal Reserve Chair Jerome Powell gave
a speech to Jackson Hole, Wyoming, and he said a
few things, and some of the more important ones were
about rate cuts and what the Fed is doing. And
basically he said that the time has come to adjust policy,
(01:07):
which means the time has finally come for the Federal
Reserve to lower interest rates. And as you said, it's
been a year and a half in the making when
markets started to price in rate cuts, and I say
markets price them, we're just looking at how certain security
is called FED fund futures trade. That's how we figure
out what is expected in the probabilities. And we've been
(01:29):
trading at levels waiting and waiting and waiting for these
rate cuts, and the FED has just not been ready
for a couple of reasons. One is that the job
market has remained pretty strong, and if you look back
really over most of the past year and a half,
we've been in a range of three point four percent
to three point eight percent on the unemployment rate. And
(01:51):
the other reason is that inflation has not come down
as quickly as the FED won. I mean, the FED
targets a two percent inflation rate, and we're not there yet.
I mean, we've had two basically years plus of actual
rate hikes, but we have not seen any real progress
or not. We've seen progress, but we've not actually gotten
(02:13):
to that Fed's two percent target. So the FED now
believes we're on the way there, and they're also seeing
some cracks in the job market. So the balance of
risks as we call it, is now suggesting, Hey, we
need to be a little bit more worried about the
job market, So let's get some rate cuss to try
to help bring things in line.
Speaker 2 (02:35):
Any what we've seen over the course of the past
several years is when the FED speaks, the markets react
in a huge way.
Speaker 1 (02:42):
And I think that Jerome pal.
Speaker 2 (02:43):
Has learned, maybe the hard way, that he better watch
what he says and not put anything out there that
he's relatively positive he's going to happen soon.
Speaker 1 (02:50):
Were you surprised with his tone with.
Speaker 2 (02:53):
These remarks from Jackson Hole or is this a little overdue?
Speaker 3 (02:58):
I was at little surprised, because, I mean, we knew
he was going to talk about rate cuts. Yeah, but
when he started talking about the pace of rate cuts
depending on data. So when we say the pace that
means will be a quarter point, where will be half point?
Then he also went on to say in about one
sentence later that the FED will do everything they can
(03:19):
to support a strong labor market. So talking about the
pace and doing everything they can, that opens the door
for that half point rate cut. And what I think
the FED will have a tough time doing is if
they do cut by half a point, how will the
markets interpret it? The FED will have a tough time
messaging that appropriately. They don't want the market to think
(03:43):
that the Fed has some inside information about something crumbling
in the background and this is an emergency rate cut,
because if that is the interpretation, what you're going to
see is you're going to see, you know, most likely
a pretty steep sell off, very very quick.
Speaker 2 (04:00):
So any what you're saying is if they were to
cut rates by half a point, that the markets could
read into that that the sky is falling and we
just don't know that yet and react in a really
negative way.
Speaker 3 (04:12):
Yeah. Absolutely, And if you look at where that market
pricing is right now, we have there's about a thirty
percent chance that the FED would the lower rates by
a half point at their next meeting on September and
a seventy percent chance that it's a quarter point. Now,
you know, we'll see they have another inflation report coming
out and another jobs market report, so that might tell
(04:36):
what happens. But regardless, if you look out the remainder
of the year, there's only three meetings and what's priced
in is one percentage point of rate cuts. That means
there has to be a half point rate cut somewhere
in there for that market pricing to come true, and
if we don't get that half point cut, it's going
to cut both ways. Right one, we could see panic
(04:58):
if we get it, but on the other side, if
we don't get it, you know, the market's already prices
us in and we saw equity markets rally on that.
You could see you could see markets decline, and you
could also stock markets decline, but you could also see
bond markets decline because interest rates would actually go up
if they don't lower rates by as much as they're
currently expected to.
Speaker 2 (05:19):
Sandy, as we talk about the fact that we are
sort of on the verge here of interest rate cuts,
what's your message to investors?
Speaker 1 (05:26):
Is there something that we should be doing right now?
Speaker 3 (05:29):
Well, there's going to be a lot of noise this week,
and honestly tuning it out because right now, if you
would have paid close attention to what the Fed's been doing,
or what the market's been expecting the Fed to do
for the past year and a half, you would have
been absolutely wrong. And still I guess there's an off
chance the Fed doesn't lower rates in September, but I
(05:49):
think that's almost a near zero, or doesn't lower rates
in September it's almost a near zero chance, but you
never know, and the market's been consistently wrong trying to
you know, position a portfolio or time the market maybe
is a better way to say it, to take advantage
of that, that's been a fool's errand really for even
(06:11):
the best of the Wall Street traders.
Speaker 2 (06:14):
You're listening to simply Money presented by all Worth Financial
and Memi Wagner along with Andy Stown, all Worth chief
Investment Officer, joining us as he does every Monday, to
help us digest everything that's going on with our investments,
so we can expect at the flour one K and
the economy. I want to shift a little bit, not
so far away from the Federal Reserve, but away from
interest rates and.
Speaker 1 (06:32):
Toward mortgage rates. What are you seeing in the housing market?
Speaker 3 (06:38):
Well, staying with mortgage rates for a second, and we've
certainly seen those improved tremendously. If you look at the
thirty year fixed rate, it peaked at about seven point
eight percent last October and it's down to about six
and a half percent today, So you know, that's certainly
very positive by you know, all stretches now six point
(07:00):
five percent still relatively high. Uh, and when you think
about it from a homeowner's perspective, for the past twenty
years or so, three percent is a low mortgage rate.
Four percent to five percent maybe about normal. But with
(07:21):
that said, we're at six and a half. That's still high,
but it's lower than what it was. People's mindsets are
that mortgage rates are still pretty high, and so that's
going to have that's going to constrain the job market.
But if we look at that drop you know we
have in mortgage rates, we have seen a minor pickup
in housing. I'll call it a bit of a small boost.
(07:43):
We had new home sales. We had new home sales
essentially jump ten zero point six percent in July compared
to you That was actually its largest month individual monthly
increase in about two years. So pretty good from that perspective. However,
when we look forward, not too optimistic that this will continue.
(08:07):
I mean, we have some certain indicators we can look
at to gauge what a new home sales activity is,
for instance, building permits and housing starts, and those have
been really low and really poor. That would suggest we're
not going to see these new home sales keep climbing
like they have climbed and on the existing home sales,
which is a much larger market by the way, they
(08:30):
ticked up a little bit last week, but there's still
at levels that are near historic lows. I mean, the
data series for existing home sales began in nineteen ninety
nine and we're near those lowest levels. Ever, so it's
not as if things are really strong right now in
the housing market currently.
Speaker 1 (08:48):
Andy, It's almost as if, like for the housing.
Speaker 2 (08:50):
Market to sort of break open a little bit, something's
got to give, and that means either rates fall substantially
or we as consumers change our mindset about what the
new normal looks like.
Speaker 1 (09:01):
As far as rates, where do you think this ends up?
Speaker 3 (09:05):
History would suggest it might be more about rates falling quickly,
and the reason they would fall click quickly would be
due to a recession. Now, you know, if we see
a recess, I don't think we see one this year.
It seems highly unlikely at this point, you know, with
just a few months left in the year. But one
next year isn't necessarily out of the equation, especially when
(09:26):
you consider that consumers are you know, certainly feeling the
pinch the saving straights at three point four percent might
even go lower when we get a new number this
UH coming out this Friday, And what that suggests is
that consumers are spending beyond their means. We can see
that with rising delinquency rates too, so you could see
that consumer spending pull back and that could slow the economy.
(09:48):
I mean, after all, consumer spending is about seventy percent
of the total economy. So I think that's the more
likely outcome for how the housing market can adjust. Now.
The other point about the adjusting, it's going to be
more of a a slower adjustment, and that would occur.
It's going to be two things that need to happen.
One is that people will need to have a mindset
(10:08):
that mortgage rates at you know, three percent not normal.
They need to adjust to maybe a five percent or
six percent mortgage right now. It will need to happen.
But we'll also need to see the job market remaining
strong because if the job market starts to really weaken,
you know what you're going to see is you're going
to see the inability for people to buy a home
(10:29):
and move.
Speaker 2 (10:30):
Yeah, a lot to digest right now, and we're certainly
glad you're here to help us figure it all.
Speaker 3 (10:35):
Out.
Speaker 1 (10:35):
Here's the all worth advice. Now's a good time to
call your qualified financial.
Speaker 2 (10:39):
Pro and ask them whether there's anything that you should
be doing right to take advantage of interest rate cuts
or to prepare for them.
Speaker 1 (10:46):
Coming up next.
Speaker 2 (10:46):
Thousands of people get remarried all the time, but should
they We're going to look into that. We'll talk about
that with our state planning expert. You're listening to simply
money percent of my all worth financial here in fifty
five KRC the talk station. You're listening to simply money
because some of my all worth financial I'm Amy Wagner.
Speaker 1 (11:09):
Love and marriage?
Speaker 2 (11:10):
Love and marriage or does love necessarily need to lead
to marriage?
Speaker 1 (11:14):
Joining us with some of the legal.
Speaker 2 (11:16):
And financial implications of that as our estate planning expert
from the law firm of Wood and Lamping Mark gregman Mark.
For many people who have been married before, this becomes
an interesting quandary. It's less about the love part and
more about the logistical part.
Speaker 4 (11:32):
No question and if statistics are at all insightful. I
read not so long Vivid not so long ago. I
read that the largest group of people who choose to
live together without being married are people over sixty five.
Speaker 2 (11:48):
Interesting and why specifically that age group.
Speaker 4 (11:52):
Do you think, Well, I think that there are so
many trappings that go with marriage, and I'm talking about
legal and financial. Look, I'm not in any position to
address moral aspects of this decision. That's not for me
to offer any opinion about. What I can talk to
you about is the legal and business aspects of the decision.
(12:12):
And there are several factors that make sense to talk
about on a money show. The first one that comes
to mind is if you get married or if you
don't get married, it very much affects your state plan.
Being married gives spouses certain rights and benefits under Ohio, Indiana,
and Kentucky law. You may like that, you may not
(12:34):
like that. It all depends on your circumstances. But in
most states, if I'm married and I die, my spouse
has a right to receive a big chunk of my estate,
regardless of what my will says. It can be anywhere
from the third to one hundred percent, depending on whether
it was the first marriage, depending on whether there's children
from the marriage. So a spouse automatically gets a big
(12:56):
chunk of your estate when you die. If you are married,
if you don't get married, you don't have that obligation.
You're free to sit down and figure out what works
for your situation.
Speaker 2 (13:09):
Let's talk about healthcare, because I think that for especially
those that sixty five and older demographic, this can become
a big one.
Speaker 1 (13:16):
I mean, I've seen people who.
Speaker 2 (13:18):
Are married decide to get divorced, not that they don't
love each other anymore, but because the medical bills of
one of them becomes more than they can bear. So
from a perspective of Okay, we're older, we love each other,
do we get married, how do you think through that
when it comes to healthcare?
Speaker 4 (13:37):
Well, and amy, I have seen that in my practice
two or three times where people to work as a
medical bill, So that's not just a theory. And this
topic of healthcare cost really cuts two ways. In most states,
spouses have some duty to pay the health care of
the spouse. In almost all states, a long stay in
(13:58):
a nursing home can improver the at home spouse, even
if you're a pre nuptial agreement. So there's that to
think about. On the other hand, in some cases, marriage
can extend healthcare benefits, so that if I have a
good retirement plan that comes with excellent health care benefits.
If I marry at seventy, my spouse will then be
(14:21):
covered under my health insurance policy. And I'm talking here
about gapkiller coverage. You know, at sixty five we all
get medicare as our primary coverage. But some of these
gap filling coverages can be quite valuable, especially if somebody
has a chronic illness mark.
Speaker 2 (14:38):
So what you're saying is actually a little bit unromantic here,
but they can have fantastic benefits, and that could be
worth marrying someone for I love it.
Speaker 4 (14:49):
We are talking about the legal issues.
Speaker 2 (14:51):
Yeah, sure, sure, okay, let's talk about ownership of the
family home here, right. Maybe you've got adult children that
you've even promised that this house is yours after I'm gone,
and then you fall in love with someone.
Speaker 1 (15:10):
How do you think through that? Ishoe?
Speaker 4 (15:12):
Well, in Ohio, getting married affects what happens to the
family home when the owner dies. Even if the house
is just in my name, if I remarry and keep
it in my name, my wife still acquires what are
called Dowur rights, and Ohio is one of the very
few states in the country that still have dour rights.
(15:32):
Kentucky and Indiana used to have it. Most states used
to have it, but most states got rid of it.
Ohio still has it. So if I remarry, my wife
acquires an interest in my house, and if I predecease her,
she gets the right to stay in that house for
the rest of her life, even if my intention is
to leave the house to my children. This is called
(15:54):
dowur rights, and couples need to decide whether that's good
for them or not good for them. It's a huge
for the surviving spouse, but more importantly, it's a huge
issue for my children or my spouse's children would otherwise
perhaps get the house.
Speaker 1 (16:09):
Which is such a different consideration for many people.
Speaker 2 (16:11):
Your first marriage, you know you're building this family together.
But for many of these second marriages, especially later in life,
you already have children, in some cases grandchildren that you
have plans for in bringing someone else into the equation,
and also their children and grandchildren can really muddy the waters.
Speaker 4 (16:28):
It certainly can, and it can affect benefits that I
already have. Perhaps I have benefits that I lose if
I marry. And for a perfect example of that would
be alimony payment. Yeah, most court ordered alimony payments terminate
upon remarriage or if you cohabitate, you can losure your
(16:51):
alimony payments, so you better be careful about that.
Speaker 2 (16:54):
What about social Security, because that's a big one, you
know for many people who've already claimed benefits, you know,
especially maybe the lower earning spouse. Many times they claim
half of their prior spouse's benefit.
Speaker 1 (17:07):
So how does that mess things up then if they
were to get.
Speaker 4 (17:10):
Remarried, Well, that's exactly right. You have to make sure
that claiming as a married person improves your position. And
there's two ways in which it affects. Number one, if
you are married, the spouse of a Social Security recipient
gets a certain spousal allowance, so you need to check
to see whether that would go up in the event
(17:31):
of marriage. In many cases it goes down, because each
spouse is receiving primary benefits. If they get married, that
may change. The probably bigger issue is survivor benefits, so
that if I remarry and I die, my second wife
or third or fourth or whatever she is she gets
(17:53):
she's entitled to receive survivor benefits under my social Security.
Now that may not matter to her because she may
have Social Security of her own. It's better you have
to sit down and look at those numbers.
Speaker 2 (18:04):
So many considerations here, whether you are getting remarried, or
whether you decide not to just make sure that you
are protecting each other from medical decisions, for who gets
that home, for just a variety of reasons.
Speaker 5 (18:16):
Right.
Speaker 2 (18:16):
There are legal and financial issues here to think through.
Great perspective, of course, from our estate planning expert, from
the law firm of Wood and Lamping, Mark Reckman. You're
listening to Simply Money, presented by all with financial here
in fifty five KRC the talk station.
Speaker 1 (18:32):
You're listening to simply Money. I mean you Wagner, along
with Steves Brevec. I think most of us know the
right thing to do with money, So why don't we
always do that? Why don't we always choose that?
Speaker 2 (18:43):
It can be a very complicated question. Joining us tonight
to help make sense of this. How Hirschfield, he's a
professor of behavioral decision making at UCLA's Anderson's School of Management.
Speaker 1 (18:55):
How we do? I think most of us, especially those
who listen to these kinds of.
Speaker 2 (18:59):
Shows, kind of know what we're supposed to do, yet
we don't always do it.
Speaker 1 (19:03):
Let's talk about why that is.
Speaker 6 (19:06):
Yeah, Amy thank you so much for having me. It's
a great question, right, and I think most of us,
You're right, have that same feeling, which is, I know
I should be doing this right, but I always find
myself having a hard time doing it. And I mean
there's lots of reasons why. We can start with the
fact that we live in the present, and the present
is so much stronger than the future. And so even
(19:29):
if we know we should put aside some money, even
if we know we should be saving or doing something
for the long run, well needs crop up and wants
crop up too right now, making it hard to do
the thing that we say we want to do. So
that's one big reason.
Speaker 2 (19:44):
Okay, you know we always talk about having a financial plan, right.
You make a financial plan for yourself. It helps you
plan for retirement or if you want to help the
kids pay for college, ye day, or a wedding, whatever
that is.
Speaker 1 (19:55):
And I think when you sit down with.
Speaker 2 (19:56):
That advisor or you figure it out yourself, it's like, okay,
this is good to go, right, I believe in this.
Speaker 1 (20:02):
I can get behind it. And then things get weird.
Speaker 2 (20:05):
The markets go berserk, the economy is a little crazy
whatever it is, and all.
Speaker 1 (20:10):
Of a sudden sticking to that plan isn't as easy
as we once thought. Why is that?
Speaker 6 (20:15):
Yeah, that's exactly right. So I mean there's a couple
of things going on here. So first off, I would
say that plans are great, and the best plans are
the ones that have an automatic component to them and
have more of a lock in that makes it difficult
for us to be our own worst enemies. If that
(20:36):
doesn't make sense, What I mean by that is we
want to make it harder for ourselves to switch gears
because of some sort of sudden worry or feeling or
concern on our parts.
Speaker 2 (20:49):
Just like our parents or our grandparents maybe used to
have a pension, right that money was there, they couldn't
touch it.
Speaker 6 (20:57):
That's exactly right, you know, And of course that's the
basic idea behind a four one K, which is really
only sort of personally managed pension. But the problem there
is the personally managed component, right, which is to say,
it's easy for us to start then sort of messing
around and can you know, convince ourselves that we need
that money right now now? Of course, there can be
(21:18):
times when we do need it, and that's you know,
that's the reason why it's good to have a rainy
day fund. I saw somebody the other day say something
that made so much sense to me, which is, you're
not a failure if you dip into your rainy day fund.
It means that you were prepared.
Speaker 1 (21:31):
Yeah, that's a great point.
Speaker 6 (21:32):
Expected expenses, Yeah, exactly.
Speaker 2 (21:35):
And we talk all the time about that rainy day
fund or that emergency fund and why you have it
there so that you're not dipping into those retirement savings.
Speaker 1 (21:42):
But you know, so many of us, you know, get those.
Speaker 2 (21:45):
Statements and we see that money either going up or
going down.
Speaker 1 (21:48):
And then there's in the present, and I think that's
a great point.
Speaker 2 (21:51):
There's things we need right now, and so it's hard
to think about the future self and retirement and especially
how I think right now when you've.
Speaker 1 (21:58):
Got markets all over the place.
Speaker 2 (22:00):
When you look at that money that has taken however
many number of years to get into that account starting
to go down. For a lot of people, the knee
jerk reaction is I'm just going to take it out,
even though I think most people know somewhere in their
heads not the best idea.
Speaker 6 (22:16):
Yeah, you know, I think this is a particularly difficult
problem to solve because you know, we're convincing ourselves that
we're doing this, we're pulling the money out because we
see the dips. We convince ourselves that this is the
right move. And I would sort of, you know, push
back and say it's the right move for who because
you know historically and of course you know, we don't
know what's happening today, but historically the data would suggest
(22:41):
that if if you have a long term goal, it's
best to just let it be, let it ride, right
and if we pull it out right now, we may
actually be ironically harming ourselves in the long term, in
the you know, for our future selves there, right. So
I would say it all depends on what are the
time of our goals are. If we have a long
(23:02):
term goal, if it's retirement and that's not for ten, twenty,
thirty years or whatever it may be, then we've built
in market valability, We've built in risk to get higher
return there. If, of course our goals are much shorter term, well,
then you know, that's a conversation that we should be
having with our advisors about how our investments in well
in safer harbors.
Speaker 1 (23:23):
I would say, absolutely, you're listening to simply money.
Speaker 2 (23:26):
Tonight here on fifty five parac as, we're joined by
hol Hirschild. He's a professor of behavioral decision making at
UCLA's Anderson's School of Management. Essentially, why do we sometimes
do things with our money where we know it's not
the best thing? How I'm wondering if in your research,
what you've learned about how we grew up with money,
how our parents dealt with money, what is kind of
(23:47):
just innate that we're not even processing. Is probably on
some kind of subconscious level of just how we've grown
up with money that affects our decision making today.
Speaker 6 (23:57):
Yeah, this is a great point, right. So a lot
of my own research looks at the relationships that we
have with our future selves and how those relationships impact
our financial decisions.
Speaker 3 (24:08):
You know.
Speaker 6 (24:09):
The gist, of course, is that if we feel closer,
in a stronger bond with our future selves, then we're
more likely to do things today that might put ourselves
in a better position tomorrow. But your question is really
about how you know historically where our childhood experiences are,
where our life experiences are, may impact those relationships and
(24:29):
those future decisions. And this is a really tricky topic,
because of course you've got some genetic influence and you've
got some environmental influence. And this is not my own research,
but other researchers have found that our life histories do matter.
In other words, how we grew up with money does matter.
But one really important caveat there is that it's not
(24:52):
like these sort of life histories or our childhood events
are sort of ever present, but rather they seem to
rear their head when the volatility arises. So in other words,
if we grew up in a financially restricted environment, whether
objectively speaking it was financially restricted or that was our
(25:12):
attitude toward money, then we start seeing that sort of
mindset creep in when we experience more volatility in the market.
On the other hand, if you know we grew up
with a more lately fair attitude, with more of a
sense that money was flush and you know that we
could have a cushion in the future, well then you
(25:33):
see people being a little bit more relaxed even when
times get tougher. So it's not just sort of a
all or nothing thing, but rather you see these childhood
influences sort of pop up when markets go volatile or
you know, when our own personal circumstances are more volatile.
Speaker 2 (25:50):
Yeah, that makes a lot of sense. I also want
to get to social media, you know, for those who
scroll through Facebook, Instagram, Twitter, you name it.
Speaker 1 (25:58):
I think we like to.
Speaker 2 (25:59):
Think like, oh, we know about social media, Like we're
not making any monetary decisions anything about how we spend
our money based on social media. But I think if
we really thought about it, we would realize that's not true.
Speaker 6 (26:12):
Yeah, you're exactly right. You know, this is it's a
it's a really interesting topic. There's been a lot of
theorizing about how sort of massive events can cause you know,
sort of quirky investor behavior, right. I mean this is
something that economists have talked about, well, it seems like
for decades, if not century, the idea that there can
(26:34):
be bubbles and bubbles are driven by sort of mania
that's driven by me seeing what other people are doing.
We don't actually know from like an empirical standpoint. We
actually haven't seen research yet looking at individual level influence
from say Twitter or Facebook or Reddit or social media
(26:55):
generally speaking, and how how those platforms then impact our
own investment behavior. It's actually a question that I've been
looking into with two colleagues right now to see whether
or not some of these sites may actually intensify our
sense of well, you know, to borrow the sort of
popula term, whether you know, these sites intensify the feeling
of fomo, you know, the fear of missing out.
Speaker 7 (27:17):
Well, think about the meme stocks, right, meme stocks that
started last year on Reddit and a frenzy that was
involved around that, And I think that's a very kind
of blatant example.
Speaker 1 (27:27):
But I also think.
Speaker 2 (27:28):
You kind of casually look at social media and you
see your college friend is driving a certain car or
going on a certain vacation, and maybe you can't really
afford that, but you think I should. And so then
do you make different decisions about credit card debt or
pulling money out of your four oh one k?
Speaker 5 (27:44):
Right?
Speaker 1 (27:44):
I just I think that we don't even on a
conscious level, think about these things, but there has to
be some kind of an impact.
Speaker 6 (27:52):
Yeah, I suspect you're right about that. And so you know,
part of the issue here, just like you said, is
that we may not be fully aware of the impact
that sort of the constant consumption of these images and
you know, comparison of experiences et cetera. Is having on
our own decisions about money and how to spend it. Again,
(28:15):
you know this is this is speculation at this point
because I'm you know, we we haven't looked at sort
of a specific influence of what I consume ontay, Facebook
or Instagram and how that impacts my decisions. But you
used to be the case that one of the advantages
of spending our money on experiences was that experiences were
(28:36):
harder to compare, and so my vacation could have been
half as much as yours, but we could have had
just the same amount of sort of positive utility from
that vacation. And now with social media, experiences are incredibly
comparable or you know, it's much easier to compare one
to another. Yes, take away some of the advantage there.
Speaker 1 (28:57):
Yeah, So just great insights from how hers feel.
Speaker 2 (29:00):
He's a professor of behavioral decision making at UCLA's Anderson's
School of Management. If you ever wondered, I know the
right thing to do with my money, but why am
I not doing it? So much of that has to
do with behavioral finance. You're listening to Simply Money here
on fifty five KRC, the talk station.
Speaker 1 (29:17):
You're listening to Simply Money.
Speaker 2 (29:18):
If somebody all worth financial, I mean you Wagoner along
with Steve Sprovack. If you've got a financial question you'd
like for us to tackle on the show. Easy way
to do it just download the iHeart app. There's a
red button you can click on while you're listening to
the show, record your question. It's coming straight to us
and straight ahead. We've got ways that you can save
on traveling when it comes maybe time to retire, and
also some ways you can save right now.
Speaker 1 (29:40):
For years and.
Speaker 2 (29:41):
Years when people talk about retiring, you will often.
Speaker 1 (29:44):
Hear this term four percent role thrown.
Speaker 2 (29:47):
Out there, and I think Steve a lot of people
like either a formula or a number because they just
want it to be.
Speaker 1 (29:52):
Very cut and dry, very black and white. What do
I need?
Speaker 2 (29:55):
So let's talk about the four percent rule, where God
started and maybe where we are with it now.
Speaker 5 (30:00):
Yeah, And what we're talking about is how much can
you take out of your investments without running out of
money while you're alive. And that's really the bottom line
of when people are putting together financial plans. They just
don't want to run out of money. And for years
and years, the norm was five percent well, in nineteen
(30:20):
seventy six, a financial advisor named Bill Bergen said, you
know what, I want to put some pencil to paper
on this, and he went back to nineteen twenty six,
so this is before the depression amy and he came
up with what he calls the four percent rule and
in short version, and what he basically said was, don't
draw more than four percent out of your investments in
(30:42):
any given year. If you can keep it at four
percent or under, there's no way you're going to run
out of money, even if you have the worst timing
in the world. In his numbers, you retired in September
of nineteen twenty nine, right before the big crash. We've
had to think that a little bit because you know,
on the one hand, interest rates were higher back in
(31:04):
nineteen seventy six than they were up until about a
year ago. So the question is does the four percent
still hold water? And you know what, I'm not going
to go through the effort of calculating out and turning
out a three point eight percent rule or four point
two percent rule, but I think it's a good idea
to say, you know what, if you stick around four
(31:24):
percent as a guideline, and you're doing a whole lot
better than somebody who takes that ten percent in a
good year and two percent in a bad year. You know,
it helps you budget you're spending and know what a
consistent amount of money that's coming into your household can
be so that you don't wind up bankrupt while you're
(31:45):
still kicking.
Speaker 2 (31:46):
And what he was using when he was calculating these
numbers was a sixty forty portfolio. So sixty percent in stocks,
forty percent in bonds. Well, at that time, the forty
percent in bonds, right, we're doing well. I mean it
was a high interest rate environment. So I think it's
a great rule of thumb. I don't think it's a
rule of dumb. Sometimes we'll say someone'll throw out a
rule of thumb and we'll say that's a rule of
dumb on this show. But I think it's a general
(32:09):
guideline and I think it's a great way to kind
of simplify things.
Speaker 1 (32:12):
But I really think it's kind of.
Speaker 2 (32:13):
A starting point of Okay, what does it look like
if I'm drawing down four percent right the stream of income?
Speaker 1 (32:21):
Is it enough for me to live on? Do I
have enough? But I don't think.
Speaker 2 (32:25):
It's a be all and all, hard fast four percent
rule anymore.
Speaker 5 (32:29):
You're listening in Simply Money on fifty five KRCM Steve
Sprovac along with Amy Wagner, and we're talking about the
four percent rule and whether or not that still holds water.
And Amy, one thing I will say is it's a
great starting point because if you're trying to figure out, Okay,
I've got social security, my spouse has social security. We don't,
unfortunately have a pension that's not going to cut it.
(32:51):
We spend more than that, we're going to need to
take some money out of our investments, our iras, our
four oh one k's, maybe a joint investment account, maybe
some savings, and what's the magic number that you can
afford to take out of those accounts. Well, if you're
in your sixties, I think four percent is a good
starting point. So you know, let's just say you've got
four thousand dollars a month coming in in social security
(33:13):
and I don't know half a million dollars in I
raise in four oh one case, okay, that's twenty grand.
That you can draw out four percent of half a million,
twenty thousand dollars, which is what about seventeen fifty a month? Okay,
that maybe that does it for you. If you've got
a million, maybe it's forty thousand a year, and re
examine that number every year to see how it's doing.
(33:34):
It's a good starting point, but I think you still
need a financial plan drawn up because you're not really
keying in inflation another one time costs into that budget.
But it's a good place to start to see. Is
this even something I can think about? Where am I
going to have to work another two three years?
Speaker 1 (33:50):
Your personal tax rate?
Speaker 4 (33:51):
Right?
Speaker 1 (33:52):
How healthy are you?
Speaker 2 (33:53):
All of those things are variables that will affect whether
the four percent rule does or does not apply well
to you.
Speaker 1 (33:58):
Here's the all Worth advice. Four percent will apply to you.
Speaker 2 (34:01):
We'll work with a qualified financial pro to nail down
your percentage that's right for your unique situation. Are you
sure you're gonna have enough money for travel and retirement?
For most of us, that's the goal. We've got some
ideas to help make it happen. You're listening to Simply
Money here on fifty five KR see the talk station.
Speaker 1 (34:20):
You're listening to simply Money.
Speaker 2 (34:21):
If percent of my all worth financial I Meani Wagner
along with Steve Sprovac. You know, for many traveling is
one of the biggest things you think about when you
want to retire. But let's face it, with inflation right now,
it's more expensive than ever to travel, So how do
you do it and maybe keep your spending under control
at the same time.
Speaker 5 (34:38):
Yeah, you know, there are ways to do it, and
of course, you know, I'll shop for deals and that
sort of thing. But have you ever heard of something
called not volunteerism, but volunteerism. You can actually volunteer in
a whole lot of different programs. Okay, you're not going
to get paid for it, but you know what, they
might give you living expenses, they might they might give
you a room on board if you go with some
(35:00):
of these projects. There's some neat deals out there.
Speaker 2 (35:02):
Yeah, there's a group called Projects Aboard of Projects Abroad,
And let's face it, one of the most expensive costs
is wherever you're staying whenever you get there. So oftentimes
maybe some meals are covered or maybe where you're staying.
Speaker 1 (35:14):
And these are like really interesting stuff.
Speaker 2 (35:16):
You can scuba dive and look at marine conservation in
Baja California for a week, there's a two week stint
in Argentina working with a certain.
Speaker 1 (35:25):
Kind of monkeys that are being rehabilitated.
Speaker 5 (35:27):
I mean this, wait, wait, wait a minute. So these
monkeys with alcohol and drug problems, what kind of recap
are they going through?
Speaker 2 (35:33):
Different kind of Oh, got to spend it on booze, of.
Speaker 1 (35:37):
Course your brain goes there.
Speaker 2 (35:39):
But I mean, if you know, if it's something that
you're interested in, right, marine biology or zoology or something,
you can have really amazing hands on experience and it
not costs as much as it could.
Speaker 1 (35:49):
Here's another thing, national parks.
Speaker 2 (35:50):
We were just talking over the weekend about how amazing
those trips are. There's a National Park's lifetime past for seniors.
Speaker 1 (35:57):
It's eighty bucks. It's a huge bargain.
Speaker 2 (36:00):
And if you were to go to a bunch of
National parks and pay for each individually, you're gonna pay
a lot more money than eighty dollars.
Speaker 5 (36:07):
Oh, my son in Phoenix has in laws to definitely
take advantage of this. You know, massive numbers of National
parks out West, Bryce, Zion, you name it, and eighty
bucks for the rest of your life. And that was
a big an. It used to be ten bucks. And
everybody griped about it going to eighty. That's a deal
and a half.
Speaker 2 (36:26):
There's also something called the North American Reciprocal Museum Association,
which is essentially, if you get a membership, there's kind
of a network of museums, zoos, gardens all across the US, Canada,
all over the place.
Speaker 1 (36:39):
And you can get reciprocal visitation.
Speaker 2 (36:41):
So if you've got a Cincinnati Zoo membership, look into
where else maybe you can use that. Also, even easy
things like the fact that you're traveled, you can probably
travel during non peak times, non peak seasons, going during
off season.
Speaker 1 (36:54):
Those kinds of things can make a big difference.
Speaker 5 (36:56):
Yeah, and don't be afraid to go to tourist spots,
but off season in the winter. I grew up in
a tourist town. Summer, Yeah, nuts, winter a whole different
personality in my view, much nicer place to visit in
the winter without the crowds.
Speaker 2 (37:10):
You've been listening to Simply Money presented by all Worth
Financial here on fifty five KRC, the talk station
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