Simply Money

Episode Transcript

Speaker 1 (00:03):
Tonight, the FED lowers interest rates again. But is it
the right move?

Speaker 2 (00:09):
Why some people are saying no, Plus we're talking about
the explosion and wroth conversions.

Speaker 1 (00:14):
Is this something you should look into.

Speaker 2 (00:16):
You're listening to Simply Money presented by all Worth Financial
Ammi Wagner along with Steve Ruby.

Speaker 1 (00:21):
Oh how we loved to Monday morning quarterback.

Speaker 3 (00:23):
Right.

Speaker 1 (00:24):
I have said this many many times over the past
few years.

Speaker 2 (00:27):
You could not give me the job of chair of
the Federal Reserve, our.

Speaker 1 (00:32):
Nation central Bank. I honestly think you could come to.

Speaker 2 (00:35):
Me and be like, I will give you a gazillion
dollars Amy, you could have a and I'm like, Nope, nope,
don't want it.

Speaker 3 (00:41):
I'm not sure I would be able to sleep.

Speaker 1 (00:43):
No, you would never sleep.

Speaker 2 (00:46):
And so we have the FED doing exactly what we
thought the FED would do. And while some economists as saying, well,
this is what we thought they would do, they're also saying,
but do we think.

Speaker 1 (00:57):
It's what they should have done? We're splitting here. Has
it been?

Speaker 3 (01:00):
Yeah? That's fine. I mean this is a much better
conversation than they hiked him again. They hiked him again,
and they liked him again. Inflation is raging. Everything's terrible,
that's true. You know, this is this is progress. Yeah,
this is refreshing, you know, as anticipated. You know, the
last time we spoke to Andy, chief investment officer of
Worth Financial, Andy Stout, that is, he said there's about

(01:20):
a one hundred percent chance that the FED would be
reducing interest rates like they did today to by a
quarter of a percent to four point five to four
point seventy five percent. But of course there's always critics.
There's always somebody that says this is probably the wrong move.

Speaker 2 (01:36):
Well, and they say, listen, as they said it would be,
inflation has been sticky, and I think it's been stickier
and trickier to bring it down than they thought. And so,
you know, do you lower interest rates which then creates
a more inflationary environment when we still don't have inflation
to where the goal was. Keep in mind, the goal

(01:57):
is two percent, and I think there's some out there
I say, well, we have get to two percent again,
I don't know. At the same time, in the background,
we have a changing of the guard coming, We have
presidents elect Trump coming into office gosh next month already,
and some potential inflationary policies of his. Is it the

(02:19):
Fed's job to say, this is what is happening in
the Oval Office and the potential impact.

Speaker 1 (02:26):
I don't know. It's not part of the dual mandate
in black and white.

Speaker 3 (02:29):
Yeah, it's keeping inflation under control and keeping employment up,
that's their job.

Speaker 2 (02:34):
But not anticipating what the President of the United States
is going to do and what its impact will.

Speaker 1 (02:38):
Be on the market.

Speaker 3 (02:39):
I mean, realistically, though, the data needs to be looked
at to some capacity.

Speaker 1 (02:44):
Because they're potentially inflationary.

Speaker 3 (02:46):
Yeah, and that's why you said you wouldn't do this
job for a gazillion dollars because there's just so much
information to look at, including information that we don't know
anything about yet, which is a head scratcher. How do
you even anticipate what's going to happen when ultimately a
campaign promise doesn't mean it's going to come to fruition.
So you had mentioned tariffs for example. You know business

(03:06):
surveys they they uncovered a sharp uptick and optimism around
overall President elect Trump's policy. So when I'm talking about
that shining light on less regulatory burden first and foremost,
which probably according to economist outweighs the cons of tariffs,
which are extremely inflationary when when taxes go up on businesses,

(03:30):
they're going to charge more to consumers, so you're paying
more for goods and services. And deportations. Will there be
mass deportations again to the level that it's been shared,
I don't know. Again, campaign promises don't always come to fruition,
but those two elements are very inflationary as opposed to
the other side of the coin, which is deregulation well
and mass deportations.

Speaker 2 (03:50):
The reason why that would be potentially an inflationary pressure
is you've got less people to work, and the people
who potentially would be.

Speaker 1 (04:00):
Are those who tend to work at lower rates.

Speaker 2 (04:02):
So if people are going to then business, they're gonna
have to pay higher salaries for people to do jobs.
Then they're going to pass those costs on to the
rest of us. And so it's like when President Trump
took office, it took a few seconds to digest all
you know, regulations, immigration policy, tariffs, and the needle move
to kind of net positive once everything was digested in

(04:25):
that moment. Long term, will it actually be net positive
and is pro business of an environment?

Speaker 1 (04:31):
As we're hoping that remains to be seen.

Speaker 2 (04:34):
And that's part of what the FED then has to
keep in the back of their mind as they are,
by the way, walking this tightrope and want to look
backwards a little bit to say, Okay, here's what the
FED is accomplished thus far.

Speaker 1 (04:46):
We were a bit critical of them when.

Speaker 2 (04:48):
They started to raise interest rates because it took way
too long.

Speaker 3 (04:51):
Yeah, interest rates were too low for too long.

Speaker 1 (04:54):
Yes, yes, and so that was super frustrating.

Speaker 2 (04:56):
But as we were doing this show day in in,
day out, talking about nothing but inflation and the FED
trying to bring it down, this kind of conversation seeped
into what we were saying, which was is there the
potential for a soft landing? Because as the FED would
then raise interesstrates in order to try to lower inflation,

(05:18):
part of what you would expect in a normal economic
cycle would be then for the economy to seize up
a bit and maybe for us to go into a recession.
And very few times in our nation's history has the
central bank been able to raise interestrates and not hike
us into a recession. And so then we started talking
about the soft landing more and more, and it appears

(05:40):
maybe we have somewhere close to that landing. I mean,
we haven't hit the goal inflation rate, but we're not
also in a recession now, and so I just want
to provide that sort of context there to say, man,
this is a tough job.

Speaker 1 (05:56):
As we are Monday morning quarterbacking this.

Speaker 2 (05:58):
You know, it is a a tight rope and absolute
tight rope that they've been walking here.

Speaker 3 (06:03):
Yeah, they have, and I think the expectations have been
pretty clear along that path that it's going to take
a lot to get us across a finish line to
get inflation back to target goal. And when they're reducing
interest rates, that's where right now, that's where some out
there saying, well, maybe we're a little bit too early
on that, maybe we should have pumped the brakes a
little bit more.

Speaker 2 (06:24):
You're listening to simply money presented by all Worth Financial.
I mean me Wagner, along with Steve Ruby. The Fed
did today what we expected the Fed to do, lower
interest rates by a quarter of a point. And now,
of course there are some economists who are saying, well,
we knew they were going to do that, but do
we think they should have done that? Because we have
the potential for some inflationary pressures coming down the pike.

Speaker 1 (06:44):
What's next? It means to be seen. And that's the
kind of the realms and realms.

Speaker 2 (06:48):
Of economic data that the FED must digest in making
these decisions. We don't know what's going to happen next year.
They're certainly trying to figure that out. In the meantime, though,
what does all of this mean to you? I think
we always come back to you've got to control what
you can control. I think it's really important to be
educated on the nation central bank, on the way that

(07:09):
the economy works, on the potential impacts to you. But man,
you could lose sleep and go crazy. Bye, Well, is
this what the FED.

Speaker 1 (07:17):
Should have done? Are we going to have more inflation?

Speaker 2 (07:19):
Our egg price is going to go up again next year?
You know who knows about that? That's that's not what
you can control. Again, you need to be educated about it.
But what you can control is what you need to
focus on.

Speaker 3 (07:29):
Yeah, soft landing or not. When it comes to the
economy here, the markets will go up and they will
go down, and we will have recessions. You know, most
of us are investing for the long term to some capacity,
even if it's for passing money onto a legacy when
you're gone, you're investing for the long term still, yeah,
So not making decisions based on short term fluctuations in

(07:50):
the market from you know, noise and talk is important. Yes,
these things, you know, interest rates and what's happening with
the inflation does impact us day to day. If food
prices go up, that can be challenging for a lot
of folks out there, But you still owe it to
yourself to maintain some kind of a long term financial
plan Tied to that, I would say when it comes
to you know, interest rates going down and what that

(08:11):
really does mean for your money, first and foremost, your
short term cash savings, high yield savings, money markets, CDs,
stuff like that. It's going to start to pay less interest.
We've probably seen that already. If you have high yeld savings,
you're probably getting emails, Hey, good news, we are reducing
your interest a little bit. But we still have this.

(08:34):
You know, it's funny how they kind of frame that
from a marketing perspective. I've actually seen that. So you
know that there are decisions that you might need to
make there. If you were an individual that took money
out of the markets, which we would never advocate to
park it in an account that was getting five percent,
for example, Yeah, because that is going to be going
down as far as you know. High yield savings and

(08:54):
again CDs concern where.

Speaker 2 (08:56):
We've come from in the past few years, has given
us a bit of a.

Speaker 1 (08:59):
False sense of security.

Speaker 2 (09:01):
I mean, for the longest time before we were in
this kind of high inflation environment, if you had money
parked in the bank, you were making point zero zero
zero zero zero.

Speaker 1 (09:09):
Six on that money.

Speaker 2 (09:11):
It was not parked there because at the end of
the year you had three cents more than you did
when the year started. And so it became very clear
the money that belonged on the sidelines and those accounts
that weren't making any money was only your emergency fund.
And what you need in that account I think depends
on your age and stage in life. We talk about

(09:31):
kind of three to six months of critical expenses. You know,
three months if both of you are working, in case
one of you were to lose a job, you know,
six months if maybe it's a one income household. But hey,
if you're in retirement, I like cash reserves to be
way higher than that because if part of that plan
in retirement is that you're living off of distributions, then

(09:53):
we can turn off those distributions if markets heads south,
so we're not locking in losses, and then we.

Speaker 1 (09:58):
Live off of those cash reserves. These are the lenses.

Speaker 2 (10:01):
I think that's important to look at what belongs in
those bank accounts. Not I can get five percent, so
I'm going to stock all these other dollars in. And
then on the flip side, we've got rates coming down.
Now you're making less in money markets, you're making less
from CDs. You know, are you going to shove money
back into the market that doesn't necessarily belong there? Yeah.

Speaker 3 (10:22):
I mean we've been barking for years now that you
should have your short term money parked in some kind
of a vehicle because that's going to pay interest for you. You know,
based on that long term financial plan. Changes an interest
rate shouldn't make any impact on what you're actually doing,
because you shouldn't have had too much parked in the
first place.

Speaker 1 (10:38):
Yeah.

Speaker 3 (10:38):
Now, as far as you know, lower rates reducing costs
on debt, you know, that's a good thing if you
are carrying debt, if you are planning on taking on
some debt. You know, theoretically, mortgage rates will be going
down at some point here, just not to the same
levels that we've grown used to. I think we've all
been spoiled for quite some time. But your credit card
interest rate, yeah, maybe a car note debt will be

(10:59):
a little bit cheap as interest rates fall.

Speaker 1 (11:01):
Here's the all Worth advice.

Speaker 2 (11:02):
The FEDS mandate to keep the economy and balance is
not an easy one.

Speaker 1 (11:06):
Couldn't pay me to do that job.

Speaker 2 (11:08):
But don't let it compel you to make any major
financial moves. You've got to stick with your financial plan.
Coming up next, have you had a conversation with your
invisor about a wrath conversion, because they're happening all over
the place right now.

Speaker 1 (11:21):
We'll talk about why that is.

Speaker 2 (11:23):
Next, you're listening to Simply Money, presented by all Worth
Financial here in fifty five KRC, the talk station.

Speaker 1 (11:35):
I mean me, wag you're along with Steve Ruby.

Speaker 2 (11:36):
If you can't listen to our show every single 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.
It's on the iheartapp or wherever you get your podcasts.
When you are in the accumulation phases.

Speaker 1 (11:51):
I think for many of us, when you're.

Speaker 2 (11:52):
Working that paycheck's coming in, you're on autopilot match at
the time, you know, maybe you're checking that floor one
case statement, you're seeing that it's going up. But the
closer you get to retirement, the more real. So many
financial considerations tend to be. And I find that a
lot of people end up in my office because they
have all these thoughts bouncing around in their head, and

(12:12):
one of them is I heard someone at work last
week talking about a Wroth conversion. Is this something that
makes sense for me? And you know, see if I
think it's interesting because this generation right now that's on
deck for retirement, I feel like we're collectively the guinea
pigs for four oh one k's, meaning our parents largely
had pensions, they had that three legged stule pension, social

(12:35):
Security and then your own savings to rely on. Many
of us are the first people to have a four
to one K and so when we get to retirement,
a lot of people have a ton of money sucked
into tax deferred accounts and then you're not paying you're
pulling that money out and you're paying taxes on every
single dollar, which is why this Wroth conversion conversation is

(12:59):
starting to makes sense for a lot of people.

Speaker 3 (13:01):
I love Wroth conversions. I talk about Roth conversions with
a lot of folks that I work with, as you
a lot of other certified financial planners in this industry
that take into consideration. Tax planning is an important part
of your overall financial plan. Obviously, this is a combination
of investments, taxes, even a state planning when we talk
about Roth conversion, so it kind of covers a lot

(13:21):
of topics, but at its core, what it means is
you're taking some or all of the funds and a
pool of pre tax money, usually accumulated inside of a
four to one K plan like you've mentioned, and you're
converting that to WROTH. In doing so, you do owe
taxes the year that you make that conversion, but moving forwards,
the dollars that are now in WROTH will grow tax

(13:42):
free for the rest of your life. Now, there are
some stipulations about timing of your first distributions, you know,
sit down, talk to an advisor, talk to a tax planner,
but ultimately it's solving for a tax bomb that you're
talking about. This generation experiencing because of four to one k's.
Because let's say, you know, for most of us that
are far from retirement now, rmds required minimum distributions. That's

(14:04):
going to happen when you turn seventy five years old.
If you have a big four one K when you
transition into retirement, and maybe it doubles between the time
you retire and the time you hit RMD age, Uncle
Sam is going to force you to take distributions that
might be a lot higher than you even need when
potentially we are in a higher tax bracket in the future.

Speaker 2 (14:25):
Several times in the last few weeks, I have had
someone in my office who said, I wish I would
have fully understood the benefits of money in a WROTH
account much earlier. If you are in your twenties or
early thirties, if you have a kid or a grandkid,
please talk to them about the benefits of wroth dollars.

Speaker 1 (14:44):
They're likely in their lower earning years.

Speaker 2 (14:47):
And this makes so much sense, right to stalk those
dollars away, because what we see now is these large
accounts that have accumulated all this tax defer dollars, and
you could be looking at that thinking this is going
to be a fantastic retirement, and maybe it will be.
But if you're in the twenty two percent tax bracket,
then twenty two percent of that is going to belong
to Uncle Sam. And the more it grows, the more

(15:07):
dollars you're going to owe to Uncle Sam. And in
rm ds are Uncle Sam saying, at this point in time,
here's how much you have to pay me. Doesn't matter
whether you need those dollars at.

Speaker 1 (15:19):
That time or not.

Speaker 2 (15:20):
And so Uncle Sam has far less control if you're
taking control of when you are paying these taxes. For
a number of people that I'm working with, we're especially
having the conversation I call it kind of this golden
period of time that you have once you retire and
your income goes down before that RMD age to do
some ROTH conversions.

Speaker 3 (15:41):
Yeah, it's a wonderful opportunity, especially because recently, I think
there's been an uptick in people asking questions about this
because of the Tax Cuts and Jobs Act, that's the
Trump tax cuts that are sun setting so far at
the end of twenty twenty five. Now we know with
President or elect Trump stepping into office that there could
be a change to what that looks like but I
would argue that it doesn't necessarily matter because if we

(16:03):
kick the can down the road and we think about,
you know, maybe social Security, what's going to happen there.
Our tax is going to go up for everybody. We
also are at historically low tax rates as it is,
so whether or not tax rates are going up in
a couple of years, I do believe that in the
future they will be going up to some capacity. So
locking in on current taxes, paying now so that we

(16:24):
don't have to pay later with that tax free growth
attached to it is a huge opportunity.

Speaker 2 (16:29):
Well, and people are listening for I think, to our
show into others. There's so much out there in the
financial headlines about Roth conversions. Bolden is a financial advice platform.
They saw close to one hundred and thirty percent rise
and the number of people who were jumping online to
do the Wroth conversion calculator and just this year over
the previous year. So I think it is out there,

(16:52):
people are talking about it.

Speaker 1 (16:54):
I love it, and I put lots of.

Speaker 2 (16:56):
Dollars into Wroth right now, my four one K contributions
because I like the that even if I'm in a
higher tax bracket. Now I would I like that tax
free growth in the future that has a lot of
time to grow before and into and through retirement. But
you know, when I'm building plans for clients, when I'm
working with them, one of the things that we look
at are is are there going to be dollars left

(17:18):
at the end of you know, we get to nineties
and and there's a particular page that I usually pull up,
which is expecting kind of an average return, Here's how
much you'll you'll probably have in For some clients, when
that's a pretty large number, their eyes get huge, and
then it becomes a legacy planning conversation of Okay, if
you've got only one or two kids and they're inheriting

(17:40):
this money, that's a sizable amount. If you've never paid
taxes on that money and they're inheriting this, you know,
in a tax deferred account, what is the tax implications
of that for them?

Speaker 3 (17:51):
Yeah? It can be massive, Yeah, is the answer. And
when you've done that conversion, That's what I mentioned earlier,
that it's an estate planning maneuver as well. Yes, because
when when you leave money behind in a four toh
one K pre tax or an IRA pre tax, then
chances are somebody that inherits that, let's say a child
that inherits it, and an adult child is going to
have ten years to drain that account no matter what

(18:12):
tax bracket they're in. If you raised a doctor or
a lawyer, or somebody that's just making a ton of
money doing something and they're forced to do distributions from
an IRA that you left them when they're in their
highest earning years, you didn't really do them any favors
from a tax planning perspective, right.

Speaker 2 (18:27):
A lot more of the money that you passed on
to them is going to Uncle Sam than to actually them.

Speaker 3 (18:31):
Yeah, so making that that maneuver today is an opportunity
to unlock more of a tax free legacy because they'll
still have to drain that roth IRA within ten years,
but there'll be no tax liability. I mean, right now,
I'm working with a couple that is in this situation.
They're fine financially. They have a large a couple of
large iras with pre tax money in it. And what

(18:53):
we've done is we've opened a donor advice fund. We've
donated to that fund using highly appreciated stock from a
taxable account so that they will bunch their tax filing
this year. They are going to itemize to capitalize on
that large funding, so we can increase the number of WROTH,
the amount of WROTH that they can convert this year.
So it's this whole conversation around investment planning, tax planning,

(19:15):
income planning, estate planning. I love roth conversion.

Speaker 1 (19:18):
Yeah, I think they make so much sense.

Speaker 2 (19:19):
And you know, the conversation with a lot of clients
is what is your goal for this money from a
legacy planning standpoint. We have an advisor here whose dad
is his client, and I love this conversation. But he
was sharing it with us. He said, my dad said, Okay,
what you're telling me is you want me to pay
taxes on this money now. So you're not going to
have to pay taxes let exactly.

Speaker 1 (19:39):
Dad like, yeah, I'm not doing that. That's fine. You
don't have to do the roth conversion. But it's important
to have the conversation. Thanks for listening.

Speaker 2 (19:47):
Coming up next, we've got NKU basketball, Go Norris. You've
listening to Simply Money presented by all Worth Financial. Here
in fifty five KRC, the talk station