September 22, 2025 • 39 mins
On this episode of Simply Money presented by Allworth Financial, Bob and Brian get Allworth Chief Investment Officer Andy Stout’s take on the Fed’s latest rate cut and what it really means for investors. They also cover new IRS rules pushing high earners’ 401(k) catch-ups into Roths, why HSAs are the most overlooked tax break, and how to protect your retirement from sequence of return risk. Plus, real listener questions on private REITs, pensions, and illiquid wealth—and a quick December tax trick that could save you thousands.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:05):
Tonight, interest rates are falling, retirement rules are shifting, and
are you missing out at one of the biggest tax
breaks available to you. You're listening to Simply Money, presented
by all Worth Financial. I'm Bob Sponseller along with Brian James.
Well this week starts in a lower interest rate environment.
All Wors Chief investment Officer Andy Stout is here. Andy
(00:27):
manages more than thirty billion dollars worth of investments across
the country for all of our clients, and we want
to get his take on the Fed interest rate cut. Andy,
any surprises at all with what happened with the Federal
Reserve last week?
Speaker 2 (00:43):
No, not from the actual movement of the Fed where
they lowered rates by a quarter of a point, but
there was some surprise that even though they brought rates
down from it was arranged by the way of four
and a quarter to four and a half, now it's
at four to foreign of course, still pretty high. Still
doesn't really help your mortgage rates that much, by the way,
but it is a move in a direction that could
(01:06):
help over time.
Speaker 3 (01:07):
But what they're what the.
Speaker 2 (01:08):
Surprise was, Bob, was in the economic projections that Fed provided. Normally,
when you look out the interest rate environment and what
the FED does out there.
Speaker 3 (01:21):
It's going to be based on a few things.
Speaker 2 (01:22):
It's going to be based on, you know, where they
think GDP is going, where they think the unplant rate's going,
and where do they think inflation is going. Right now,
they change their forecast, so they think GDP is going
to be higher this year and next year than what
they thought in June. They think the unemployment rate's going
to be lower, and they think inflation is going to
be higher. All those actually argue for higher interest rates,
(01:44):
not lower interest rates. So even though we had those
three projections move, it certainly started the meeting off with
a little bit of a head scratching. While those all
things are very important things that Fed looks at, I mean,
these are the main economic indicators, and they're saying we're
cutting rates despite our rejections indicating that normally we would
think you should be keeping right high.
Speaker 4 (02:05):
So any how, how worried do you think the FED
really is about this slowdown in jobs? What are they
trying to stay to stay ahead of since we had
that pullback in that reporting.
Speaker 2 (02:15):
Well, so when the Fed's looking at the unemployer rate, inflation,
and GDP and all those are arguing for lower rates.
You're probably thinking, well, why did they cut rates and jobs?
Is the reason we've seen some massive revisions over the
past really two annual reports.
Speaker 3 (02:32):
When I say and reports what the BLS does?
Speaker 2 (02:35):
The Bureau of Labor Statistics, some fund government agency that
apparently gets their job reporting very wrong, very frequently.
Speaker 3 (02:44):
They revised a lower from basically.
Speaker 2 (02:48):
March twenty four, twenty twenty four through March twenty twenty five,
by nine hundred and eleven thousand jobs. In other words,
they said employers added nine hundred and eleven thousand fewer
jobs than what we originally said. That's a huge miss
across the board once they got better data, and they
had a similar problem the year prior where they revised
lower the number of new jobs by eight hundred and
(03:09):
eighteen thousand for that basically.
Speaker 3 (03:11):
March to March twenty twenty three to twenty twenty four period.
Speaker 2 (03:15):
So in other words, what we're seeing is that the
labor market while looks pretty solid on the surface, I
mean with four point three on a player rate, but
it's definitely more fragile underneath the surface. When you look
at these revisions that are going. It just indicates that
the FED is not looking at the economy from a
point of view of the labor market having a position
(03:36):
of strength of a starting period, but more of a
position of some weakness.
Speaker 1 (03:42):
Andy, I want to go back to this FED, you know,
two percent inflation mandate. I've heard more than a few
pretty respected economists over the last week say that perhaps
the FED is outdated on this whole thing and they're
shooting at the wrong target. Do you have any thoughts
on that. Are we going to see some federal reserve
(04:04):
reform going into twenty twenty six that might change around
the edges some of these dual mandate targets that they're
going after, and do you have an opinion on that
based on what you actually see going on in the economy,
because I know you look at a ton of different factors,
you know, other than unemployment and inflation when you look
(04:25):
at this or when you build this recession scorecard that
you and your team build and maintain on a regular basis.
Speaker 2 (04:34):
Yeah, that's a really good question, and there's a lot
of nuance in there, Bob. So when you think about
the and I know I don't often give you that
sort of a high level compliment.
Speaker 3 (04:45):
So you know, take that one through the bank there.
Speaker 1 (04:48):
Don't let it go to your head, Bob. I'm I'm
gonna record it and play it back often. Well, well,
let's keep it serious here now. I appreciate it. I'm
interested in your answer.
Speaker 2 (05:00):
Yeah, So they're not going to probably change anything in
the near term. So what the Fed looks at they
look at core PC, which is different than CPI. CPI
is the big inflation number that most people talk about.
PC is a little broader and includes a few of
their things and core exclusiveon and energy, and that's where
they want it to be at two percent. And what
we're seeing with these changes in the projections, it appears
(05:21):
that they're getting i'll call it more tolerant with inflation.
Speaker 3 (05:24):
I don't expect them to change their target.
Speaker 2 (05:27):
That's a two percent target, because they actually just came
back a few months ago from some larger study they
did and they basically solidified their inflation objective. Now, with
that being set, fetchair Pals term ends in the middle
of next year, so we'll have a new feed chair,
(05:49):
probably have someone handpicked by President Donald Trump, and that
person may be more open to letting inflation run a
bit hotter than you know, what the current regime has
and and therefore they could be more open to, you know,
lower interest rates because they're not as worried about inflation.
So I could see a ship maybe the middle of
(06:09):
the next year. But as far as any sort of
i'll call it institutional revision, that seems unlikely.
Speaker 3 (06:17):
Uh. And is it the right number they're looking at? Yeah,
I think core pc is the right number if you're
going to be looking at inflation.
Speaker 2 (06:24):
I mean, obviously it's really hard to say two percent
is a target. I mean, putting a hard number on
it is a little bit of a you know, it's
risky because it's you're keeping one number constant. But there's
so many things changing in the economy. I mean, the
FED does not have an unemployment rate for gas. I
mean they're they just say, you know, low one employment.
(06:46):
They say full employment more specifically, and they say stable prices.
That's their dual mandate. But they put an actual number
on that core PCE.
Speaker 3 (06:54):
Now. I don't think that will go away.
Speaker 2 (06:56):
I just think maybe tolerance becomes, you know, the word
of the for the FED.
Speaker 4 (07:01):
This sounds an awful lot like lower for longer from
you know, not that long ago. And I believe that
if I remember correctly, that became a political flash point
there when it was handy for somebody to kind of
throw that in faces. So am I thinking correctly there
is this is this kind of a rerun of what
we've been through before.
Speaker 2 (07:19):
Well, I think it's a rerun from the perspective that
everybody wants the FED to do something different than what
they're doing.
Speaker 3 (07:29):
The FED becomes a scapegoat.
Speaker 2 (07:31):
So when you think about where the FED sees pressure,
I mean, this isn't the first time they've had, you know,
outside pressure, and this isn't the first time the FED
has been blamed for, you know, messing up because it's
a very difficult job and quite frankly, they do mess
up a fair amount.
Speaker 3 (07:47):
But it's never it's easy to say that in hindsight,
I mean, just to be honest about it.
Speaker 2 (07:52):
Uh, but when you're in the throes of it, you know,
that's where it is to become a little bit more challenging.
As far as lower longer, I mean that was really more.
We were at zero percent FED funds, right and we
were at inflation going nowhere. I mean, we sub two
percent inflation for quite a long period of time, and
(08:13):
the commune was doing okay, and there was really, you know,
no need to really raise rates because the Fed actually
wanted inflation to get a little too, a little.
Speaker 3 (08:22):
Bit higher than where it was.
Speaker 2 (08:23):
But obviously we're in a situation where you know, it's
you know, careful what you wish.
Speaker 3 (08:26):
For a sort of thing.
Speaker 1 (08:28):
You're listening to simply money, presented by all Worth Financial
on Bob Sponseller along with Brian James, joined tonight by
all Worth Chief Investment Officer Andy Stout. Andy, let's let's
boil this down to just practical moves that we should
or shouldn't make given the announcement last week. Should should
we be making any changes to our overall asset allocation
(08:49):
as result as a result of this Fed announcement last week?
I know you said the ten year bond didn't really move,
mortgage rates didn't really come down. Is there anything to
be doing right now of a drastic nature? Or is
this just a you know, is this just a regular
news event?
Speaker 2 (09:08):
Yeah, I mean as important as I like to, you know,
want my job to be, Uh, this is more of
just a regular event for you know, most investors out there.
I mean, if you're going to be changing your allocations
every time a you know, and I mean it's an
important event. But if you're going to be changing your
allocations and changing your investment mix whenever one of these
(09:29):
things come up, you're going to be chasing returns. You're
going to have the fear of missing out, you know,
all that you probably end up doing, or you know,
most likely is you end up buying high and selling low,
which is the exact opposite of what you want to do.
It's better to certain I mean, certainly have a financial
plan that drives that investment mix, and then make sure
you stay grounded in reality, I mean, the real, the
(09:50):
real important thing is understanding cycles and understanding you know,
Marcus go up, markets go down.
Speaker 3 (09:57):
You know, here's what you can expect over a long
period of time, and here's the vault. Importantly, here's the
volatility you can expect.
Speaker 2 (10:02):
Because if you know volatility is coming, you're not going
to freak out and make an emotional decision, because when
you make those emotional decisions, that is when you hurt
your own retirement.
Speaker 4 (10:13):
Andy, I think this would be a great time to
maybe do a little bit of of fixed income one
oh one, meaning yeah, we know we always talk about
not trying to time the stock market, that kind of thing,
and none of these headlines really drive that. However, there
are bonds, there are on the fixed incomes CIDIT of
your portfolio. There are things you want to own a
declining rate environment and things you don't. Could you kind
of take us through just so everybody can can hear
(10:34):
that from your from your mouth, you know, what are
the things to avoid and just just at a high
level rising rate environment versus you know, declining.
Speaker 2 (10:41):
Rate Well, so that's also quite nuanced because when you
say a rising rate environment and a declining rate environment,
that really depends on which part of the yield curve
is actually increasing a deep creasey because what the Fed
can do, and the Fed is lowering short term rates
right now and they'll probably lower them again, that's what
the market is price. However, long term rates went up
(11:02):
last week, So in that situation, you know what you
have is you have lower short term rates, but longer
term rates have actually increased a bit. So let's just assume,
and this is a big assumption that when we say
lower rates, we're talking about longer term and shorter term
bonds all moving in the same direction. So when interest
rates go down in general, you would expect bond prices
(11:24):
to go up. And in that scenario, if short term
rates and long term rates are moving together, you know,
by the same amount the long term bonds if there.
If rates are going down, long term bonds should outperform
short term bonds. Now, if rates are going up, then
you would expect short term bonds to outperform long term bonds. Now,
(11:44):
the other thing to keep in mind is, you know,
what does that economy look like behind the scenes. I mean,
are we in a situation where you know, the economy
is you know, in a free fall, or are we
in a stable environment. If the economy is stable, typically
corporate bonds you know, could do better than measury or
government bonds.
Speaker 1 (12:01):
Uh.
Speaker 2 (12:02):
Conversely, you know, if we're in some economic trouble and
you see a lot of risks out there, and then
you start to see the Fed cut rates because they're
worried about the economy. What has outperformed every other as
a class during those time periods has really been long
term government bonds. That's your ultimate flight to safety security.
(12:23):
So when when stuff hits the fan. Long term treasury
bonds are usually a pretty good option for investors to
be in.
Speaker 1 (12:32):
All right, yep, yep, all right, good stuff Andy, as always,
thanks for joining us tonight. All right, Coming up next,
the I r S is forcing some high earners into
rath ketchups, and are you sleeping on the best tax
break you've got available to you? We'll talk about all
of that next. You're listening to Simply Money, presented by
(12:52):
all Worth Financial fifty five KRC the talk station you're
listening to Simply Money there's outed by all Worth Financial
on Bob Sponseller along with Brian James. If you can't
listen to Simply Money every night, subscribe and get our
daily podcasts. And if you think your friends or family
could use some financial advice, let them know about us
(13:15):
as well. Just search Simply Money on the iHeart app
or wherever you find your podcast. Straight ahead of six
forty three, we've got advice on roth versus, pre tax savings,
private reads, pensions, and even caring for aging parents. All right,
if you're fifty years old or older and trying to
ramp up retirement savings, listen up. A new IRS rule
(13:38):
just finalized under the Secure Act two point zero will
change how you make those extra so called catchup contributions
to your four to one k, especially if you're a
high earner. This is important, Brian break it down for us. Yeah,
this one's gonna sneak up on a lot of people.
Speaker 4 (13:55):
So catch up contributions are you know a lot of
people probably sounds from it now they've been around for
a while. But if you're fifty year older, the IRS
made it possible a couple decades ago to go ahead
and start saving a little more money, meaning you could
go up to thirty thousand dollars. This year changes a
little bit every year, However, this year says that starting
in twenty twenty six, so next year, actually, if you
(14:17):
earn more than one hundred and forty five thousand dollars
and these are that's in terms of wages that are
subject to Social Security tax, there's some nuances there, but
if you that's gonna still gon be most people.
Speaker 1 (14:26):
If you earn more than one hundred and forty.
Speaker 4 (14:28):
Five thousand dollars, any catchup contributions you make to your
four oh one K are gonna are gonna have to
be go in on the Wroth side. So in other words,
what that means is, if you are over fifty, you
can throw extra money and like we said, for twenty
twenty five, that's seventy five hundred dollars on top of
the regular limit of twenty two to five. But basically
these dollars will now have to go in after taxes.
Speaker 1 (14:47):
These are the ketchup dollars.
Speaker 4 (14:48):
The good news is it's good there's gonna grow tax
free as per the Wroth rules, so that's not the
worst thing the world. But you're still gonna have to
pay taxes on those dollars going in as the catchup.
There's no immediate tax deduction. You w paying taxes now
on those dollars.
Speaker 1 (15:02):
Yeah, here's the thing to watch out for you. If
your four to one K plan currently doesn't offer ROTH contributions,
and I think, Brian, it's safe to say most companies
now do, but there's still some out there that don't.
You know, heading into the fourth quarter of twenty twenty five,
please check with your HR department and make sure that
(15:23):
your four oh one K plan does add ROTH contributions
if it doesn't allow those right now, you know, especially
if you're over fifty years old, because you could literally
be leaving money on the table here if your plan
doesn't get updated with the times. Yeah, I would say,
wrote one quick thought on that.
Speaker 4 (15:41):
I would say if they if set this aside, if
your plan doesn't yet offer roth contributions, then chirp let
let your employer know that, Hey, I would like a
little more flexibility because we're really fifteen twenty years past
when that was possible.
Speaker 1 (15:54):
Yeah, for sure. You're listening to Simply Money presented by
all Worth Financial on Bob Sponseller along with Brian James.
Speaking of taxes, some new details are unfolding about health
savings accounts, specifically the lack of knowledge about them. Brian,
we talk about these accounts all the time on this show.
The message doesn't seem to be getting through to a
(16:15):
lot of folks. Triple tax got agreed. You've got some
new data here from Voya. Yeah.
Speaker 4 (16:20):
The reason we talk about these all the time on
these airwaves is because it's triple tax free deducted on
the way in. Don't pay taxes on the investment choice.
As long as you're not ignoring something that looks like
a bank account, that's the big pitfall and when you
pull it out for healthcare reasons, you never pay taxes
on the entire dollar amount. But anyway, so this new
research from Voya says that only about six percent of
Americans ages eighteen through thirty four we're able to correctly
(16:43):
identify the full range of benefit benefits offered by HSA's.
And of course there's tax advantages involved investment options using
them both for medical costs and long term savings. There's
a lot of moving parts to these, Bob. But yeah,
the message that definitely does not seem to be getting
out there, that said, you know, younger folks, of course,
are are stretched pretty thin. There may just not be
extra dollars available to be put to be put into
(17:06):
healthcare savings accounts. But it would be nice if companies
did a better job communicating, especially.
Speaker 1 (17:11):
When Brian, when you are eighteen to thirty four years
years old, how much time were you spending thinking about
a health savings account?
Speaker 4 (17:18):
None, Bob, didn't really think about my healthcare plans at all.
Speaker 1 (17:22):
But this, I would throw this out. There's still only
six percent.
Speaker 4 (17:25):
I would say, there's there a higher percentage of people
in this age cohort who are really interested in understanding
how to maintain there or how to take advantage of
every tax opportunity that's available to them. So if this
is ringing a bell a little bit, don't don't think
of it only as a health savings account. That's what
people got hung up on. You can use this as
a tax advantage retirement account. You can plow money into it,
(17:46):
hang on to your receipts for ten, twenty, twenty five,
thirty years really, and you pay your bills out of
your pocket, right, just pay your bills normal. If you
have the ability to do this, those dollars that you've
put into your HSA can come out thirty years from
now based off of expenses that you incurred now in
twenty twenty five, and they'll come out tax free because
you're simply saying, hey, this expense I had twenty five
(18:08):
years ago, yep, that's the one I'm paying with this
distribution i'm making here now in twenty fifty. It's kind
of a subtle way to use that tool, but it's
not as well known as it should be. They can
really be a powerful tax planning tool. And remember, you
have got to get those dollars into something that can grow.
If you're simply using the bank or whatever the financial
institution is that your company sets you up with your employer,
(18:30):
then it's probably just a bank. You can move it
around and put it in mutual funds, but you're going
to have to jump through some hoops to do it,
but they are worthy hoops.
Speaker 1 (18:38):
Yeah, what it comes down to is a little bit
of delayed gratification, right Brian, Paying these bills out of
pocket now and socking that money away for ten, twenty,
thirty forty years, you know, on a tax free basis
wonderful planning strategy, but you got to have some discipline
upfront and be willing to do it. And let's not
forget for those posts sixty five unused HSA funds can
(19:03):
be used for non medical expenses. They're tax just like
an IRA, but you're not penalized. So think about this
as just an extra IRA account. So there's a lot
of good things and really little to no downside around
taking full advantage of that HSA account.
Speaker 4 (19:22):
Yeah, and again these are the if you are someone
who likes that scavenger hunt of what else can I do?
Speaker 1 (19:27):
How do I do? I've done?
Speaker 4 (19:28):
I maxed out my four oh one K and I
know about megabackdoor wroth rollovers and backdoor wroth rollover. What
else is there? Well, HSA, that's for you. That's the
next thing to look at and take the h out
of it. If you're thinking tax planning, it is a powerful,
powerful tool. You do have to have a high deductible
health care plan to go alongside with it. So again
there's moving parts here, but great tax planning opportunity.
Speaker 1 (19:49):
And we are heading into benefit season.
Speaker 4 (19:51):
Maybe this year, tell yourself you're going to read a
little more about that high deductible plan option.
Speaker 1 (19:56):
Here's the all Worth advice and HSA isn't just for
a safety at for health costs. It can also serve
as a stealth long term wealth builder. Next a deep
dive into sequence of return risk. You're listening to Simply
Money presented by all Worth Financial on fifty five KRC
the talk station. You're listening to Simply Money presented by
(20:21):
all Worth Financial on Bob Spondseller along with Brian James.
Most seasoned investors understand that markets fluctuate up and down.
What often goes unnoticed, however, is the timing and the
magnitude of those potential fluctuations. And how profoundly it can
impact a retirement strategy. For those drawing income from their portfolios,
(20:44):
the order in which returns occur can quietly erode wealth,
even when the average annual return appears very healthy. What
we're talking about here is a very important topic for
income retirement income planning called sequence of return risk.
Speaker 4 (21:02):
Brian walked through some of the data here. When does
the bad stuff happen? That is a sequence of return risk.
Let's go through an example here using two investors. Let's
assume everybody earns the same average annual return. There's no
difference there over a twenty year retirement period. However, one
experiences strong market performance in those early years, while the
other one takes a punch to the face right out
(21:23):
of the gate. This is what we're describing here as
anybody who retired and let's say two thousand and seven
or twenty twenty one, and then right after we had
the eight and twenty two, which were some of the
worst years the market has ever had. But we just said,
their same average annual rate of return. So their average
return is identical, but the outcomes are not. So why
(21:43):
does this happen? Well, once withdrawals begin as they typically
do in retirement. That's kind of the point, right we retire,
we're going to draw on our nest egg and spend
our own dollars. Well, the order in which these returns
really starts to matter. When losses happen early, you're both
drawing income, you're spending money down, and your portfolio of
shrink at the same time. So for example, let's say
we thought we always talk about that four percent rule.
(22:03):
Let's use that if the market pulls a ten percent
out of your assets and it's down and you're withdrawing
four percent based on that rule we talk about all
the time, Well, your portfolio took a fourteen percent hit
in year one. That doesn't necessarily sink the ship, but
it does change the metrics a little bit.
Speaker 1 (22:19):
So everyone withdrawal.
Speaker 4 (22:20):
Compounds that damage locks and losses and reduces that base
that the future growth depends on.
Speaker 1 (22:26):
Yeah, and this is why it's critical. And we talk
about stress testing and portfolio all the time, not only
for concentrated stock exposure or things like that, but the
main reason to stress test a retirement income plan is
this sequence of return risk. And that's where some of
this sophisticated software really is worth its weight in goal
(22:48):
because it can go through all these different iterations of
historical market volatility based on all kinds of different asset
allocation strategies, and really as how a portfolio and a
retirement you know, a retirement nest stake will perform given
the best and worst case scenarios of this sequence of
(23:10):
return risk. It's critical that when you sit down and
get ready to retire and develop an income strategy, that
you have factored this in. What are some other things
that we can do about or should do about sequence
of return risk when we when we start to get
ready to retire and actually turn this pot of money
into an income stream.
Speaker 4 (23:29):
Brian, Well, you might you might think about looking what
we call a multi bucket strategy, which is break down
all your spending goals into short term which might be
you know, zero to twenty four months. In that bucket,
you would want to keep that in cash or really
really short term bond funds, money market funds, high yield
savings accounts, anything you can identify your normal spending that
(23:51):
you would spend down also any one time things are
you going to buy a car, or maybe you got
to replace the hvac or something else, something else out
there that's going to be one time significant expense. That
stuff should be very very very short term in nature
and very little risk. Then then next is the mid term,
so something like three to seven years. Maybe maybe these
similar things. You know, you got to make some expenses for.
(24:12):
This could be like maybe it's a wedding or you know,
just other things you know is out there that might
be something you put into a little more high quality
fixed fixed income, you know, even even throw some stocks
in the mix for modest growth, lower volatility. And then
of course we have our long term investments. That's really
where we spend most of our time thinking, because this
is where we have growth type orient investments and this
(24:34):
is really your eight year plus bucket.
Speaker 1 (24:36):
Here.
Speaker 4 (24:36):
Some people bob do this with individual accounts, you know,
I have I have this account that's for the next
two years, and then this account for the midterm, and
then this this account over here. Other people just kind
of arrange the entire portfolio inside one account to make
sure that it covers all these different needs. There's a
few ways to do it, but again, the whole point
is breaking down your spending goals in terms of when
those dollars are needed.
Speaker 1 (24:57):
Well, Brian, for those that listen to this show on
a summ what regular basis, I think they hear me
talk about this all the time because this happens in
my office when people come in for meetings, I urge them, please,
if you're gonna take that big cruise, or replace a
vehicle or do home you know, large home repair projects,
please just let me know about it ahead of time
(25:18):
so that we can get out in front of this.
And even if we've got an account where all the
money's in kind of one asset allocation strategy, we can
segregate these short term needs, these big lump sum needs
out of a portfolio and really avoid and bypass some
of this sequence of return risks that we're talking about.
(25:38):
But you've got to communicate with your advisor if you
have one, so we can help you with this kind
of stuff. Do you have similar conversations with your clients.
Speaker 4 (25:47):
Absolutely, And it's just a matter of understanding exactly you
know what somebody needs. And a lot of times this
is this is where it helps to have an advisor
simply because you've got somebody in arms length away that
can really really help you understand based on stuff you've
told them before, based on their own experience of things
that maybe you haven't mentioned but they might be aware of,
to help you look under every stone for when those
(26:08):
things might come up.
Speaker 1 (26:10):
Here's the all Worth advice. Even the wealthiest investors aren't
immune to bad timing. Let's face it, none of us
are immune to that. Protecting your retirement from sequence of
return risk means structuring income taxes and withdraws so market
downturns don't derail your long term strategy. Coming up next,
(26:31):
real listener questions that could save you from some very
costly mistakes. It's our ask the advisor segment. You're listening
to Simply Money presented by all Worth Financial on fifty
five KRC. The talk station. You're listening to Simply Money
presented by all Worth Financial. I'm Bob Sponsller along with
Brian James. Do you have a financial question you'd like
(26:54):
for us to answer. There's a red button you can
click while you're listening to the show right on the
iHeart app. Simply record your question and it will come
straight to us. All right, Brian leading us off tonight
is Jeff in Anderson Township. Jeff says, I got one
point two million dollars in retirement accounts? Do I pull
from taxable accounts first or my IRA to make that
(27:16):
money last longer?
Speaker 4 (27:18):
Okay, Jeff, congratulations on obviously a pretty successful career if
you put this a large sum amount into your retirement accounts.
So yeah, so we don't know much about Jeff's taxble accounts.
He doesn't tell us how much there is. Sometimes the
urge is to well, I can cut these iras are
pre tax I don't want to pay taxes ever, so
I'm gonna wait, wait, wait, wait, wait until you know
(27:40):
as long as I possibly can before I have to
pay taxes on these dollars. Well, remember, we've got that
thing hovering out there around age seventy three or seventy five,
depending on when you were born, called a required minimum distribution.
That's when the IRS shows up on your doorstep and says, hey,
the gravy training has come to an end. It's time
to start paying taxes on these dollars via the required
minimum distribution. So draining or draining your taxable accounts first
(28:03):
and ignoring your iras may put you could could result
in you being in a higher bracket. You know, So
Jeff's one point two million dollars is probably going to
generate fifty sixty thousand dollars in annual that's based on
now depends on how far. We don't know how old
Jeff is either, but that money will grow from here
on out, and that's going to put him in a
minimal bracket at least for a long time. So I
would say, look at those different factors and see what
(28:26):
you need first of all, and then you might you
might consider going ahead and taking some out of the IRA,
because you can figure out which bracket you want to
stay under. You can control it, but you could take
over time. You could take those dollars out and pay
taxes at lower brackets over time, versus letting it all
go and then being stuck while holding the bag when
retire minimum.
Speaker 1 (28:44):
Distribution time comes around. So let's move on to Bill
and Linda and Mason.
Speaker 4 (28:48):
They've been they're hearing about private reads and private credit
funds and they're wondering if they're worth considering at their
wealth level or are those two risky?
Speaker 1 (28:55):
Bob, Well, when I read how their actual question was worded,
they say, we've been pitched private reads and private credit
funds so, yeah, I have no idea what your current
wealth level is. I don't know what your financial plan
looks like or if you even have one. But my
spidey senses go up right away when I hear the
(29:16):
word pitched, because pitched often means someone is trying to
sell you some of these things that come with front
end commissions. And so my first question is do you
have a financial plan and have you factored in these
potential investments from a risk tolerance standpoint and an asset
allocation standpoint as part of a coordinated financial plan. If
(29:40):
the person that is pitching these things to you have
never done that kind of work for you, or all
of this sounds foreign to you, don't walk run away
from this pitch and go work with a fiduciary financial advisor. Now,
all that being said, private rates and private credit funds
can they can can positively improve your yield, and they
(30:03):
do work in certain situations. But you got to look
at the liquidity, the fees, the risk. These things can
get awfully complex in a hurry. So I think before
you jump into any of this kind of stuff, I
strongly urge you to sit down with a good fiduciary
financial advisor if you don't already have one, or have
a good one who can truly match this stuff or
(30:27):
discard it based on your personal planning needs. I hope
that helps all right. Next up is Dan and pleasant Ridge. Brian,
this is a great question, Dan says, I've heard people
talk about treating their pensions like the bond portion of
a portfolio. Can you explain that for me?
Speaker 4 (30:45):
Yeah, this is a concept where you know, a lot
of people think of social Security as the only source
of income in retirement, of true income versus just spending
down a pile of money. But there are still pensions
out there and for people in this situation, and I
would I always like to point out, you know, if
you worked in a situation where you were feeding money
into a pension that probably came somewhat at the expense
(31:07):
of a larger four oh one K or you know,
or some other type of a pile of money type
of retirement asset. But remember that pension a lot of
times can be your ace in the hold because if
you're you're a married person, for example, now there's three
paychecks coming in, two social Security and one pension. So
what Dan's question is is, so since I have that
income coming in, right, I have these couple different sources
(31:28):
of income. Well, what does that mean I should do
with my investments in the answer is, well, you've got
a predictable stream of income. Probably I assume you've got
Social Security in the mix as well. We don't know
what type of pension this is. Could be state pension too,
But if those pension checks and so security are going
to be enough to pay your bills, then that means
you could lean your portfolio much more toward the aggressive side.
Speaker 1 (31:50):
I'm not a believer at all, Paul that or I'm.
Speaker 4 (31:54):
Sorry, Dan that that that you should have your assets
be super conservative just because as you were retired or
just because you're a certain age. It has everything to
do with when you're going to need these dollars. If
you've got multiple streams of income coming in to support
your retirement, and therefore you won't need to touch these
dollars for ten twelve years, let them be aggressive. Your
pension can in that point serve as your bond portion.
(32:14):
So it's really kind of really a frame of thought there, all.
Speaker 1 (32:17):
Right, Paul.
Speaker 4 (32:17):
In Westchester, Paul says their net worth is about two
million dollars but a lot of it is not liquid.
It's tied up in their house and the rental property
they have, and they're wondering how they deal with making
sure there's enough liquidity for retirement.
Speaker 1 (32:29):
Well, Paul, the simple answer here is you need a
financial plan. You need to take a look at what
your income needs and wants are in retirement and what
the sources of that income are going to be when
you factor in social security a pension if you have one,
and if you don't have a pension, then more of
that monthly income nut is going to have to be
(32:50):
met through either rental property income or investment assets, or
a combination of the two. So you know, the potential
danger here is that worth looks great on paper, but
as you just stated, you're pretty i liquid, so it's
really of no use to you because you can't turn
it into a monthly income stream at retirement. So I
(33:10):
think again, sit down with a good advisor, run some
scenarios based on what you and your and your wife
really need and want in terms of income and retirement,
and if it makes sense to maybe move some of
that real estate into more liquid assets that can generate
your the income that you need. Might need to talk
about doing that, and you need to factor in tax
(33:33):
ramifications and all that in the mix. But again, sit
down and develop a good financial plan that factors in
retirement income and hopefully a good advisor will help you
get you where you need to be. All right, Coming
up next, a quick mental check you can do every
December that could save you thousands and thousands of dollars
(33:54):
in taxes and it really only takes about five seconds.
You're listening to Simply Money presented by all Words Finance
on fifty five KRC the talk station. You're listening to
Simple Money present up by all Worth Financial on Bob's
funt Seller along with Brian James. All right, time for
(34:14):
a quick December money trick. This one could save you
money on taxes and it takes about five seconds. Brian
lay it on us. This is this is good stuff
right here, the five second tax filter. Here's how it works.
Speaker 4 (34:28):
Every time you make a financial move in December, whether
that's you know, donating to a charity.
Speaker 1 (34:32):
So this has closed the book's time of year.
Speaker 4 (34:34):
Maybe you're gonna look at it and sell it under
performing stock or buy a big ticket item, you know,
a little holiday present for somebody stop and ask yourself
one simple question, is this going to improve my tax
situation this year?
Speaker 1 (34:45):
Or is it gonna cost me?
Speaker 4 (34:46):
Because you know, if this is the end of the year,
then it's only gonna be three four months before you
have to figure out do do the math for the
for the final outcome that year. So that's really it though,
that's the filter because this December is that month where
little decisions have big tax consequences. So you're either going
to lock in those losses or realize some gains, or
you know, giving it a way that's deductible or not,
(35:06):
meaning you may or may not be able to deduct
something in April, and so you need to understand what
the impact of that is. I would start by figuring
out where are you tax wise. It's November December, we're
you know, eleven months through the year, so most of
your tax situation not all, definitely, not all, but most
of your tax situation is already in stone. You can
figure out what dividends have you've received in taxable accounts,
(35:28):
what capital gains have been generated. All that kind of
stuff is available from your investment custody. Ands you of
course can look at your pay dubs and your bank
accounts and things, and look for what interest has been
paid so far, and you can figure out what dollar
amounts of those various items have come your way already,
and then you can reposition those decisions. Is this a
good year to make a sizeable charitable contribution? For example,
(35:51):
if it's been a big year for perhaps you sold
a business or something like that, then you might want
to look at a donor advice fund to support charities
that you've always supported. But as we've talked about before,
you can make one lump sum contribution and dole it
out from the donor advised fund in a slow manner,
as opposed to giving it directly to a given charity.
Speaker 1 (36:12):
That's one idea, all right, Brian. Let's face it, we're
moving into the season now where we're going to start.
We're going to get inundated with advertisements for charitable giving.
Most charitable giving in the country gets done in the
fourth quarter of the year. I don't think that comes
as any surprise to most people. We're getting invited to
fundraising events and things like that, so charitable giving is
(36:34):
on everyone's mind. And I continue to run into too
many people who just write those checks, and look, it's
out of a huge heart and a desire to help
the charity, and I love that. But what we're saying
here is just pump the brakes a little bit and
think about if there's a better way tax wise to
do this charitable giving, because we all want to see,
(36:56):
if possible, more and more money go to these charities
that you can care about rather than to the irs. So,
you know, just as a reminder for a married couple,
you got to have you know, roughly thirty thousand dollars
in itemized deductions, you know, to even be able to itemize.
So a lot of charitable giving is not getting deducted
(37:16):
from your taxes right now. And that's why we're calling
this thing out. You can bunch charitable gifts, you know,
not give one year and then double up the next
year to get you over that threshold. You can give
away appreciated stocks, ETFs and mutual funds and avoid the
capital gains taxes and get the deduction you know, if
you itemize, or as Brian just mentioned, use a donor
(37:38):
advice fund to pile in some of this money and
get the deduction and give it away later. So there's
a lot of things you can be doing out there,
but you got to think a little bit and coordinate
with your CPA and your advisor to take full advantage.
Speaker 4 (37:52):
Yeah, Bobby, you touched on one thing. I want to
kind of flesh it out a little bit. Donation of
appreciated stock. If you bought something for ten bucks to
share it and it's now worth twenty bucks a share, well
you now have a ten dollars gain if you sell that.
Some people might just sell it and say, stick that
money in my checking account, So I want it so
I can turn around and write a check to my
church or whatever charity I'm interested in. That's the wrong
(38:13):
move because what you've done in that case is you've
incurred taxes for the privilege of giving the proceeds away
from that sale. So what you can do is contact
that charity. They're going to have a financial account, a
brokerage account, investment account somewhere, and they're gonna use They'll
have a little brochure with their logo on it that
explains the seven steps you got to follow, including an
account number, and it is something called a DTC number
that identifies the custodian all this stuff. They will know
(38:35):
how to do it, and you can then transfer those
shares in kind. You're not selling, you're simply saying, hey, custodian,
please send X amount of these shares to this account
and then my charity will sell it and nobody pays taxes.
Speaker 1 (38:48):
Yeah, and remember smart investors too have more tools direct indexing,
tax loss harvesting. There's a lot of things you can
and should be thinking about that out there. So this December,
before you hit send on that donation or sell on
that stock, take five seconds and ask yourself that one question.
Thanks for listening. You've been listening to Simply Money, presented
(39:08):
about all Worth Financial on fifty five KRC, the talk
station
Tonight, interest rates are falling, retirement rules are shifting, and
are you missing out at one of the biggest tax
breaks available to you. You're listening to Simply Money, presented
by all Worth Financial. I'm Bob Sponseller along with Brian James.
Well this week starts in a lower interest rate environment.
All Wors Chief investment Officer Andy Stout is here. Andy
(00:27):
manages more than thirty billion dollars worth of investments across
the country for all of our clients, and we want
to get his take on the Fed interest rate cut. Andy,
any surprises at all with what happened with the Federal
Reserve last week?
Speaker 2 (00:43):
No, not from the actual movement of the Fed where
they lowered rates by a quarter of a point, but
there was some surprise that even though they brought rates
down from it was arranged by the way of four
and a quarter to four and a half, now it's
at four to foreign of course, still pretty high. Still
doesn't really help your mortgage rates that much, by the way,
but it is a move in a direction that could
(01:06):
help over time.
Speaker 3 (01:07):
But what they're what the.
Speaker 2 (01:08):
Surprise was, Bob, was in the economic projections that Fed provided. Normally,
when you look out the interest rate environment and what
the FED does out there.
Speaker 3 (01:21):
It's going to be based on a few things.
Speaker 2 (01:22):
It's going to be based on, you know, where they
think GDP is going, where they think the unplant rate's going,
and where do they think inflation is going. Right now,
they change their forecast, so they think GDP is going
to be higher this year and next year than what
they thought in June. They think the unemployment rate's going
to be lower, and they think inflation is going to
be higher. All those actually argue for higher interest rates,
(01:44):
not lower interest rates. So even though we had those
three projections move, it certainly started the meeting off with
a little bit of a head scratching. While those all
things are very important things that Fed looks at, I mean,
these are the main economic indicators, and they're saying we're
cutting rates despite our rejections indicating that normally we would
think you should be keeping right high.
Speaker 4 (02:05):
So any how, how worried do you think the FED
really is about this slowdown in jobs? What are they
trying to stay to stay ahead of since we had
that pullback in that reporting.
Speaker 2 (02:15):
Well, so when the Fed's looking at the unemployer rate, inflation,
and GDP and all those are arguing for lower rates.
You're probably thinking, well, why did they cut rates and jobs?
Is the reason we've seen some massive revisions over the
past really two annual reports.
Speaker 3 (02:32):
When I say and reports what the BLS does?
Speaker 2 (02:35):
The Bureau of Labor Statistics, some fund government agency that
apparently gets their job reporting very wrong, very frequently.
Speaker 3 (02:44):
They revised a lower from basically.
Speaker 2 (02:48):
March twenty four, twenty twenty four through March twenty twenty five,
by nine hundred and eleven thousand jobs. In other words,
they said employers added nine hundred and eleven thousand fewer
jobs than what we originally said. That's a huge miss
across the board once they got better data, and they
had a similar problem the year prior where they revised
lower the number of new jobs by eight hundred and
(03:09):
eighteen thousand for that basically.
Speaker 3 (03:11):
March to March twenty twenty three to twenty twenty four period.
Speaker 2 (03:15):
So in other words, what we're seeing is that the
labor market while looks pretty solid on the surface, I
mean with four point three on a player rate, but
it's definitely more fragile underneath the surface. When you look
at these revisions that are going. It just indicates that
the FED is not looking at the economy from a
point of view of the labor market having a position
(03:36):
of strength of a starting period, but more of a
position of some weakness.
Speaker 1 (03:42):
Andy, I want to go back to this FED, you know,
two percent inflation mandate. I've heard more than a few
pretty respected economists over the last week say that perhaps
the FED is outdated on this whole thing and they're
shooting at the wrong target. Do you have any thoughts
on that. Are we going to see some federal reserve
(04:04):
reform going into twenty twenty six that might change around
the edges some of these dual mandate targets that they're
going after, and do you have an opinion on that
based on what you actually see going on in the economy,
because I know you look at a ton of different factors,
you know, other than unemployment and inflation when you look
(04:25):
at this or when you build this recession scorecard that
you and your team build and maintain on a regular basis.
Speaker 2 (04:34):
Yeah, that's a really good question, and there's a lot
of nuance in there, Bob. So when you think about
the and I know I don't often give you that
sort of a high level compliment.
Speaker 3 (04:45):
So you know, take that one through the bank there.
Speaker 1 (04:48):
Don't let it go to your head, Bob. I'm I'm
gonna record it and play it back often. Well, well,
let's keep it serious here now. I appreciate it. I'm
interested in your answer.
Speaker 2 (05:00):
Yeah, So they're not going to probably change anything in
the near term. So what the Fed looks at they
look at core PC, which is different than CPI. CPI
is the big inflation number that most people talk about.
PC is a little broader and includes a few of
their things and core exclusiveon and energy, and that's where
they want it to be at two percent. And what
we're seeing with these changes in the projections, it appears
(05:21):
that they're getting i'll call it more tolerant with inflation.
Speaker 3 (05:24):
I don't expect them to change their target.
Speaker 2 (05:27):
That's a two percent target, because they actually just came
back a few months ago from some larger study they
did and they basically solidified their inflation objective. Now, with
that being set, fetchair Pals term ends in the middle
of next year, so we'll have a new feed chair,
(05:49):
probably have someone handpicked by President Donald Trump, and that
person may be more open to letting inflation run a
bit hotter than you know, what the current regime has
and and therefore they could be more open to, you know,
lower interest rates because they're not as worried about inflation.
So I could see a ship maybe the middle of
(06:09):
the next year. But as far as any sort of
i'll call it institutional revision, that seems unlikely.
Speaker 3 (06:17):
Uh. And is it the right number they're looking at? Yeah,
I think core pc is the right number if you're
going to be looking at inflation.
Speaker 2 (06:24):
I mean, obviously it's really hard to say two percent
is a target. I mean, putting a hard number on
it is a little bit of a you know, it's
risky because it's you're keeping one number constant. But there's
so many things changing in the economy. I mean, the
FED does not have an unemployment rate for gas. I
mean they're they just say, you know, low one employment.
(06:46):
They say full employment more specifically, and they say stable prices.
That's their dual mandate. But they put an actual number
on that core PCE.
Speaker 3 (06:54):
Now. I don't think that will go away.
Speaker 2 (06:56):
I just think maybe tolerance becomes, you know, the word
of the for the FED.
Speaker 4 (07:01):
This sounds an awful lot like lower for longer from
you know, not that long ago. And I believe that
if I remember correctly, that became a political flash point
there when it was handy for somebody to kind of
throw that in faces. So am I thinking correctly there
is this is this kind of a rerun of what
we've been through before.
Speaker 2 (07:19):
Well, I think it's a rerun from the perspective that
everybody wants the FED to do something different than what
they're doing.
Speaker 3 (07:29):
The FED becomes a scapegoat.
Speaker 2 (07:31):
So when you think about where the FED sees pressure,
I mean, this isn't the first time they've had, you know,
outside pressure, and this isn't the first time the FED
has been blamed for, you know, messing up because it's
a very difficult job and quite frankly, they do mess
up a fair amount.
Speaker 3 (07:47):
But it's never it's easy to say that in hindsight,
I mean, just to be honest about it.
Speaker 2 (07:52):
Uh, but when you're in the throes of it, you know,
that's where it is to become a little bit more challenging.
As far as lower longer, I mean that was really more.
We were at zero percent FED funds, right and we
were at inflation going nowhere. I mean, we sub two
percent inflation for quite a long period of time, and
(08:13):
the commune was doing okay, and there was really, you know,
no need to really raise rates because the Fed actually
wanted inflation to get a little too, a little.
Speaker 3 (08:22):
Bit higher than where it was.
Speaker 2 (08:23):
But obviously we're in a situation where you know, it's
you know, careful what you wish.
Speaker 3 (08:26):
For a sort of thing.
Speaker 1 (08:28):
You're listening to simply money, presented by all Worth Financial
on Bob Sponseller along with Brian James, joined tonight by
all Worth Chief Investment Officer Andy Stout. Andy, let's let's
boil this down to just practical moves that we should
or shouldn't make given the announcement last week. Should should
we be making any changes to our overall asset allocation
(08:49):
as result as a result of this Fed announcement last week?
I know you said the ten year bond didn't really move,
mortgage rates didn't really come down. Is there anything to
be doing right now of a drastic nature? Or is
this just a you know, is this just a regular
news event?
Speaker 2 (09:08):
Yeah, I mean as important as I like to, you know,
want my job to be, Uh, this is more of
just a regular event for you know, most investors out there.
I mean, if you're going to be changing your allocations
every time a you know, and I mean it's an
important event. But if you're going to be changing your
allocations and changing your investment mix whenever one of these
(09:29):
things come up, you're going to be chasing returns. You're
going to have the fear of missing out, you know,
all that you probably end up doing, or you know,
most likely is you end up buying high and selling low,
which is the exact opposite of what you want to do.
It's better to certain I mean, certainly have a financial
plan that drives that investment mix, and then make sure
you stay grounded in reality, I mean, the real, the
(09:50):
real important thing is understanding cycles and understanding you know,
Marcus go up, markets go down.
Speaker 3 (09:57):
You know, here's what you can expect over a long
period of time, and here's the vault. Importantly, here's the
volatility you can expect.
Speaker 2 (10:02):
Because if you know volatility is coming, you're not going
to freak out and make an emotional decision, because when
you make those emotional decisions, that is when you hurt
your own retirement.
Speaker 4 (10:13):
Andy, I think this would be a great time to
maybe do a little bit of of fixed income one
oh one, meaning yeah, we know we always talk about
not trying to time the stock market, that kind of thing,
and none of these headlines really drive that. However, there
are bonds, there are on the fixed incomes CIDIT of
your portfolio. There are things you want to own a
declining rate environment and things you don't. Could you kind
of take us through just so everybody can can hear
(10:34):
that from your from your mouth, you know, what are
the things to avoid and just just at a high
level rising rate environment versus you know, declining.
Speaker 2 (10:41):
Rate Well, so that's also quite nuanced because when you
say a rising rate environment and a declining rate environment,
that really depends on which part of the yield curve
is actually increasing a deep creasey because what the Fed
can do, and the Fed is lowering short term rates
right now and they'll probably lower them again, that's what
the market is price. However, long term rates went up
(11:02):
last week, So in that situation, you know what you
have is you have lower short term rates, but longer
term rates have actually increased a bit. So let's just assume,
and this is a big assumption that when we say
lower rates, we're talking about longer term and shorter term
bonds all moving in the same direction. So when interest
rates go down in general, you would expect bond prices
(11:24):
to go up. And in that scenario, if short term
rates and long term rates are moving together, you know,
by the same amount the long term bonds if there.
If rates are going down, long term bonds should outperform
short term bonds. Now, if rates are going up, then
you would expect short term bonds to outperform long term bonds. Now,
(11:44):
the other thing to keep in mind is, you know,
what does that economy look like behind the scenes. I mean,
are we in a situation where you know, the economy
is you know, in a free fall, or are we
in a stable environment. If the economy is stable, typically
corporate bonds you know, could do better than measury or
government bonds.
Speaker 1 (12:01):
Uh.
Speaker 2 (12:02):
Conversely, you know, if we're in some economic trouble and
you see a lot of risks out there, and then
you start to see the Fed cut rates because they're
worried about the economy. What has outperformed every other as
a class during those time periods has really been long
term government bonds. That's your ultimate flight to safety security.
(12:23):
So when when stuff hits the fan. Long term treasury
bonds are usually a pretty good option for investors to
be in.
Speaker 1 (12:32):
All right, yep, yep, all right, good stuff Andy, as always,
thanks for joining us tonight. All right, Coming up next,
the I r S is forcing some high earners into
rath ketchups, and are you sleeping on the best tax
break you've got available to you? We'll talk about all
of that next. You're listening to Simply Money, presented by
(12:52):
all Worth Financial fifty five KRC the talk station you're
listening to Simply Money there's outed by all Worth Financial
on Bob Sponseller along with Brian James. If you can't
listen to Simply Money every night, subscribe and get our
daily podcasts. And if you think your friends or family
could use some financial advice, let them know about us
(13:15):
as well. Just search Simply Money on the iHeart app
or wherever you find your podcast. Straight ahead of six
forty three, we've got advice on roth versus, pre tax savings,
private reads, pensions, and even caring for aging parents. All right,
if you're fifty years old or older and trying to
ramp up retirement savings, listen up. A new IRS rule
(13:38):
just finalized under the Secure Act two point zero will
change how you make those extra so called catchup contributions
to your four to one k, especially if you're a
high earner. This is important, Brian break it down for us. Yeah,
this one's gonna sneak up on a lot of people.
Speaker 4 (13:55):
So catch up contributions are you know a lot of
people probably sounds from it now they've been around for
a while. But if you're fifty year older, the IRS
made it possible a couple decades ago to go ahead
and start saving a little more money, meaning you could
go up to thirty thousand dollars. This year changes a
little bit every year, However, this year says that starting
in twenty twenty six, so next year, actually, if you
(14:17):
earn more than one hundred and forty five thousand dollars
and these are that's in terms of wages that are
subject to Social Security tax, there's some nuances there, but
if you that's gonna still gon be most people.
Speaker 1 (14:26):
If you earn more than one hundred and forty.
Speaker 4 (14:28):
Five thousand dollars, any catchup contributions you make to your
four oh one K are gonna are gonna have to
be go in on the Wroth side. So in other words,
what that means is, if you are over fifty, you
can throw extra money and like we said, for twenty
twenty five, that's seventy five hundred dollars on top of
the regular limit of twenty two to five. But basically
these dollars will now have to go in after taxes.
Speaker 1 (14:47):
These are the ketchup dollars.
Speaker 4 (14:48):
The good news is it's good there's gonna grow tax
free as per the Wroth rules, so that's not the
worst thing the world. But you're still gonna have to
pay taxes on those dollars going in as the catchup.
There's no immediate tax deduction. You w paying taxes now
on those dollars.
Speaker 1 (15:02):
Yeah, here's the thing to watch out for you. If
your four to one K plan currently doesn't offer ROTH contributions,
and I think, Brian, it's safe to say most companies
now do, but there's still some out there that don't.
You know, heading into the fourth quarter of twenty twenty five,
please check with your HR department and make sure that
(15:23):
your four oh one K plan does add ROTH contributions
if it doesn't allow those right now, you know, especially
if you're over fifty years old, because you could literally
be leaving money on the table here if your plan
doesn't get updated with the times. Yeah, I would say,
wrote one quick thought on that.
Speaker 4 (15:41):
I would say if they if set this aside, if
your plan doesn't yet offer roth contributions, then chirp let
let your employer know that, Hey, I would like a
little more flexibility because we're really fifteen twenty years past
when that was possible.
Speaker 1 (15:54):
Yeah, for sure. You're listening to Simply Money presented by
all Worth Financial on Bob Sponseller along with Brian James.
Speaking of taxes, some new details are unfolding about health
savings accounts, specifically the lack of knowledge about them. Brian,
we talk about these accounts all the time on this show.
The message doesn't seem to be getting through to a
(16:15):
lot of folks. Triple tax got agreed. You've got some
new data here from Voya. Yeah.
Speaker 4 (16:20):
The reason we talk about these all the time on
these airwaves is because it's triple tax free deducted on
the way in. Don't pay taxes on the investment choice.
As long as you're not ignoring something that looks like
a bank account, that's the big pitfall and when you
pull it out for healthcare reasons, you never pay taxes
on the entire dollar amount. But anyway, so this new
research from Voya says that only about six percent of
Americans ages eighteen through thirty four we're able to correctly
(16:43):
identify the full range of benefit benefits offered by HSA's.
And of course there's tax advantages involved investment options using
them both for medical costs and long term savings. There's
a lot of moving parts to these, Bob. But yeah,
the message that definitely does not seem to be getting
out there, that said, you know, younger folks, of course,
are are stretched pretty thin. There may just not be
extra dollars available to be put to be put into
(17:06):
healthcare savings accounts. But it would be nice if companies
did a better job communicating, especially.
Speaker 1 (17:11):
When Brian, when you are eighteen to thirty four years
years old, how much time were you spending thinking about
a health savings account?
Speaker 4 (17:18):
None, Bob, didn't really think about my healthcare plans at all.
Speaker 1 (17:22):
But this, I would throw this out. There's still only
six percent.
Speaker 4 (17:25):
I would say, there's there a higher percentage of people
in this age cohort who are really interested in understanding
how to maintain there or how to take advantage of
every tax opportunity that's available to them. So if this
is ringing a bell a little bit, don't don't think
of it only as a health savings account. That's what
people got hung up on. You can use this as
a tax advantage retirement account. You can plow money into it,
(17:46):
hang on to your receipts for ten, twenty, twenty five,
thirty years really, and you pay your bills out of
your pocket, right, just pay your bills normal. If you
have the ability to do this, those dollars that you've
put into your HSA can come out thirty years from
now based off of expenses that you incurred now in
twenty twenty five, and they'll come out tax free because
you're simply saying, hey, this expense I had twenty five
(18:08):
years ago, yep, that's the one I'm paying with this
distribution i'm making here now in twenty fifty. It's kind
of a subtle way to use that tool, but it's
not as well known as it should be. They can
really be a powerful tax planning tool. And remember, you
have got to get those dollars into something that can grow.
If you're simply using the bank or whatever the financial
institution is that your company sets you up with your employer,
(18:30):
then it's probably just a bank. You can move it
around and put it in mutual funds, but you're going
to have to jump through some hoops to do it,
but they are worthy hoops.
Speaker 1 (18:38):
Yeah, what it comes down to is a little bit
of delayed gratification, right Brian, Paying these bills out of
pocket now and socking that money away for ten, twenty,
thirty forty years, you know, on a tax free basis
wonderful planning strategy, but you got to have some discipline
upfront and be willing to do it. And let's not
forget for those posts sixty five unused HSA funds can
(19:03):
be used for non medical expenses. They're tax just like
an IRA, but you're not penalized. So think about this
as just an extra IRA account. So there's a lot
of good things and really little to no downside around
taking full advantage of that HSA account.
Speaker 4 (19:22):
Yeah, and again these are the if you are someone
who likes that scavenger hunt of what else can I do?
Speaker 1 (19:27):
How do I do? I've done?
Speaker 4 (19:28):
I maxed out my four oh one K and I
know about megabackdoor wroth rollovers and backdoor wroth rollover. What
else is there? Well, HSA, that's for you. That's the
next thing to look at and take the h out
of it. If you're thinking tax planning, it is a powerful,
powerful tool. You do have to have a high deductible
health care plan to go alongside with it. So again
there's moving parts here, but great tax planning opportunity.
Speaker 1 (19:49):
And we are heading into benefit season.
Speaker 4 (19:51):
Maybe this year, tell yourself you're going to read a
little more about that high deductible plan option.
Speaker 1 (19:56):
Here's the all Worth advice and HSA isn't just for
a safety at for health costs. It can also serve
as a stealth long term wealth builder. Next a deep
dive into sequence of return risk. You're listening to Simply
Money presented by all Worth Financial on fifty five KRC
the talk station. You're listening to Simply Money presented by
(20:21):
all Worth Financial on Bob Spondseller along with Brian James.
Most seasoned investors understand that markets fluctuate up and down.
What often goes unnoticed, however, is the timing and the
magnitude of those potential fluctuations. And how profoundly it can
impact a retirement strategy. For those drawing income from their portfolios,
(20:44):
the order in which returns occur can quietly erode wealth,
even when the average annual return appears very healthy. What
we're talking about here is a very important topic for
income retirement income planning called sequence of return risk.
Speaker 4 (21:02):
Brian walked through some of the data here. When does
the bad stuff happen? That is a sequence of return risk.
Let's go through an example here using two investors. Let's
assume everybody earns the same average annual return. There's no
difference there over a twenty year retirement period. However, one
experiences strong market performance in those early years, while the
other one takes a punch to the face right out
(21:23):
of the gate. This is what we're describing here as
anybody who retired and let's say two thousand and seven
or twenty twenty one, and then right after we had
the eight and twenty two, which were some of the
worst years the market has ever had. But we just said,
their same average annual rate of return. So their average
return is identical, but the outcomes are not. So why
(21:43):
does this happen? Well, once withdrawals begin as they typically
do in retirement. That's kind of the point, right we retire,
we're going to draw on our nest egg and spend
our own dollars. Well, the order in which these returns
really starts to matter. When losses happen early, you're both
drawing income, you're spending money down, and your portfolio of
shrink at the same time. So for example, let's say
we thought we always talk about that four percent rule.
(22:03):
Let's use that if the market pulls a ten percent
out of your assets and it's down and you're withdrawing
four percent based on that rule we talk about all
the time, Well, your portfolio took a fourteen percent hit
in year one. That doesn't necessarily sink the ship, but
it does change the metrics a little bit.
Speaker 1 (22:19):
So everyone withdrawal.
Speaker 4 (22:20):
Compounds that damage locks and losses and reduces that base
that the future growth depends on.
Speaker 1 (22:26):
Yeah, and this is why it's critical. And we talk
about stress testing and portfolio all the time, not only
for concentrated stock exposure or things like that, but the
main reason to stress test a retirement income plan is
this sequence of return risk. And that's where some of
this sophisticated software really is worth its weight in goal
(22:48):
because it can go through all these different iterations of
historical market volatility based on all kinds of different asset
allocation strategies, and really as how a portfolio and a
retirement you know, a retirement nest stake will perform given
the best and worst case scenarios of this sequence of
(23:10):
return risk. It's critical that when you sit down and
get ready to retire and develop an income strategy, that
you have factored this in. What are some other things
that we can do about or should do about sequence
of return risk when we when we start to get
ready to retire and actually turn this pot of money
into an income stream.
Speaker 4 (23:29):
Brian, Well, you might you might think about looking what
we call a multi bucket strategy, which is break down
all your spending goals into short term which might be
you know, zero to twenty four months. In that bucket,
you would want to keep that in cash or really
really short term bond funds, money market funds, high yield
savings accounts, anything you can identify your normal spending that
(23:51):
you would spend down also any one time things are
you going to buy a car, or maybe you got
to replace the hvac or something else, something else out
there that's going to be one time significant expense. That
stuff should be very very very short term in nature
and very little risk. Then then next is the mid term,
so something like three to seven years. Maybe maybe these
similar things. You know, you got to make some expenses for.
(24:12):
This could be like maybe it's a wedding or you know,
just other things you know is out there that might
be something you put into a little more high quality
fixed fixed income, you know, even even throw some stocks
in the mix for modest growth, lower volatility. And then
of course we have our long term investments. That's really
where we spend most of our time thinking, because this
is where we have growth type orient investments and this
(24:34):
is really your eight year plus bucket.
Speaker 1 (24:36):
Here.
Speaker 4 (24:36):
Some people bob do this with individual accounts, you know,
I have I have this account that's for the next
two years, and then this account for the midterm, and
then this this account over here. Other people just kind
of arrange the entire portfolio inside one account to make
sure that it covers all these different needs. There's a
few ways to do it, but again, the whole point
is breaking down your spending goals in terms of when
those dollars are needed.
Speaker 1 (24:57):
Well, Brian, for those that listen to this show on
a summ what regular basis, I think they hear me
talk about this all the time because this happens in
my office when people come in for meetings, I urge them, please,
if you're gonna take that big cruise, or replace a
vehicle or do home you know, large home repair projects,
please just let me know about it ahead of time
(25:18):
so that we can get out in front of this.
And even if we've got an account where all the
money's in kind of one asset allocation strategy, we can
segregate these short term needs, these big lump sum needs
out of a portfolio and really avoid and bypass some
of this sequence of return risks that we're talking about.
(25:38):
But you've got to communicate with your advisor if you
have one, so we can help you with this kind
of stuff. Do you have similar conversations with your clients.
Speaker 4 (25:47):
Absolutely, And it's just a matter of understanding exactly you
know what somebody needs. And a lot of times this
is this is where it helps to have an advisor
simply because you've got somebody in arms length away that
can really really help you understand based on stuff you've
told them before, based on their own experience of things
that maybe you haven't mentioned but they might be aware of,
to help you look under every stone for when those
(26:08):
things might come up.
Speaker 1 (26:10):
Here's the all Worth advice. Even the wealthiest investors aren't
immune to bad timing. Let's face it, none of us
are immune to that. Protecting your retirement from sequence of
return risk means structuring income taxes and withdraws so market
downturns don't derail your long term strategy. Coming up next,
(26:31):
real listener questions that could save you from some very
costly mistakes. It's our ask the advisor segment. You're listening
to Simply Money presented by all Worth Financial on fifty
five KRC. The talk station. You're listening to Simply Money
presented by all Worth Financial. I'm Bob Sponsller along with
Brian James. Do you have a financial question you'd like
(26:54):
for us to answer. There's a red button you can
click while you're listening to the show right on the
iHeart app. Simply record your question and it will come
straight to us. All right, Brian leading us off tonight
is Jeff in Anderson Township. Jeff says, I got one
point two million dollars in retirement accounts? Do I pull
from taxable accounts first or my IRA to make that
(27:16):
money last longer?
Speaker 4 (27:18):
Okay, Jeff, congratulations on obviously a pretty successful career if
you put this a large sum amount into your retirement accounts.
So yeah, so we don't know much about Jeff's taxble accounts.
He doesn't tell us how much there is. Sometimes the
urge is to well, I can cut these iras are
pre tax I don't want to pay taxes ever, so
I'm gonna wait, wait, wait, wait, wait until you know
(27:40):
as long as I possibly can before I have to
pay taxes on these dollars. Well, remember, we've got that
thing hovering out there around age seventy three or seventy five,
depending on when you were born, called a required minimum distribution.
That's when the IRS shows up on your doorstep and says, hey,
the gravy training has come to an end. It's time
to start paying taxes on these dollars via the required
minimum distribution. So draining or draining your taxable accounts first
(28:03):
and ignoring your iras may put you could could result
in you being in a higher bracket. You know, So
Jeff's one point two million dollars is probably going to
generate fifty sixty thousand dollars in annual that's based on
now depends on how far. We don't know how old
Jeff is either, but that money will grow from here
on out, and that's going to put him in a
minimal bracket at least for a long time. So I
would say, look at those different factors and see what
(28:26):
you need first of all, and then you might you
might consider going ahead and taking some out of the IRA,
because you can figure out which bracket you want to
stay under. You can control it, but you could take
over time. You could take those dollars out and pay
taxes at lower brackets over time, versus letting it all
go and then being stuck while holding the bag when
retire minimum.
Speaker 1 (28:44):
Distribution time comes around. So let's move on to Bill
and Linda and Mason.
Speaker 4 (28:48):
They've been they're hearing about private reads and private credit
funds and they're wondering if they're worth considering at their
wealth level or are those two risky?
Speaker 1 (28:55):
Bob, Well, when I read how their actual question was worded,
they say, we've been pitched private reads and private credit
funds so, yeah, I have no idea what your current
wealth level is. I don't know what your financial plan
looks like or if you even have one. But my
spidey senses go up right away when I hear the
(29:16):
word pitched, because pitched often means someone is trying to
sell you some of these things that come with front
end commissions. And so my first question is do you
have a financial plan and have you factored in these
potential investments from a risk tolerance standpoint and an asset
allocation standpoint as part of a coordinated financial plan. If
(29:40):
the person that is pitching these things to you have
never done that kind of work for you, or all
of this sounds foreign to you, don't walk run away
from this pitch and go work with a fiduciary financial advisor. Now,
all that being said, private rates and private credit funds
can they can can positively improve your yield, and they
(30:03):
do work in certain situations. But you got to look
at the liquidity, the fees, the risk. These things can
get awfully complex in a hurry. So I think before
you jump into any of this kind of stuff, I
strongly urge you to sit down with a good fiduciary
financial advisor if you don't already have one, or have
a good one who can truly match this stuff or
(30:27):
discard it based on your personal planning needs. I hope
that helps all right. Next up is Dan and pleasant Ridge. Brian,
this is a great question, Dan says, I've heard people
talk about treating their pensions like the bond portion of
a portfolio. Can you explain that for me?
Speaker 4 (30:45):
Yeah, this is a concept where you know, a lot
of people think of social Security as the only source
of income in retirement, of true income versus just spending
down a pile of money. But there are still pensions
out there and for people in this situation, and I
would I always like to point out, you know, if
you worked in a situation where you were feeding money
into a pension that probably came somewhat at the expense
(31:07):
of a larger four oh one K or you know,
or some other type of a pile of money type
of retirement asset. But remember that pension a lot of
times can be your ace in the hold because if
you're you're a married person, for example, now there's three
paychecks coming in, two social Security and one pension. So
what Dan's question is is, so since I have that
income coming in, right, I have these couple different sources
(31:28):
of income. Well, what does that mean I should do
with my investments in the answer is, well, you've got
a predictable stream of income. Probably I assume you've got
Social Security in the mix as well. We don't know
what type of pension this is. Could be state pension too,
But if those pension checks and so security are going
to be enough to pay your bills, then that means
you could lean your portfolio much more toward the aggressive side.
Speaker 1 (31:50):
I'm not a believer at all, Paul that or I'm.
Speaker 4 (31:54):
Sorry, Dan that that that you should have your assets
be super conservative just because as you were retired or
just because you're a certain age. It has everything to
do with when you're going to need these dollars. If
you've got multiple streams of income coming in to support
your retirement, and therefore you won't need to touch these
dollars for ten twelve years, let them be aggressive. Your
pension can in that point serve as your bond portion.
(32:14):
So it's really kind of really a frame of thought there, all.
Speaker 1 (32:17):
Right, Paul.
Speaker 4 (32:17):
In Westchester, Paul says their net worth is about two
million dollars but a lot of it is not liquid.
It's tied up in their house and the rental property
they have, and they're wondering how they deal with making
sure there's enough liquidity for retirement.
Speaker 1 (32:29):
Well, Paul, the simple answer here is you need a
financial plan. You need to take a look at what
your income needs and wants are in retirement and what
the sources of that income are going to be when
you factor in social security a pension if you have one,
and if you don't have a pension, then more of
that monthly income nut is going to have to be
(32:50):
met through either rental property income or investment assets, or
a combination of the two. So you know, the potential
danger here is that worth looks great on paper, but
as you just stated, you're pretty i liquid, so it's
really of no use to you because you can't turn
it into a monthly income stream at retirement. So I
(33:10):
think again, sit down with a good advisor, run some
scenarios based on what you and your and your wife
really need and want in terms of income and retirement,
and if it makes sense to maybe move some of
that real estate into more liquid assets that can generate
your the income that you need. Might need to talk
about doing that, and you need to factor in tax
(33:33):
ramifications and all that in the mix. But again, sit
down and develop a good financial plan that factors in
retirement income and hopefully a good advisor will help you
get you where you need to be. All right, Coming
up next, a quick mental check you can do every
December that could save you thousands and thousands of dollars
(33:54):
in taxes and it really only takes about five seconds.
You're listening to Simply Money presented by all Words Finance
on fifty five KRC the talk station. You're listening to
Simple Money present up by all Worth Financial on Bob's
funt Seller along with Brian James. All right, time for
(34:14):
a quick December money trick. This one could save you
money on taxes and it takes about five seconds. Brian
lay it on us. This is this is good stuff
right here, the five second tax filter. Here's how it works.
Speaker 4 (34:28):
Every time you make a financial move in December, whether
that's you know, donating to a charity.
Speaker 1 (34:32):
So this has closed the book's time of year.
Speaker 4 (34:34):
Maybe you're gonna look at it and sell it under
performing stock or buy a big ticket item, you know,
a little holiday present for somebody stop and ask yourself
one simple question, is this going to improve my tax
situation this year?
Speaker 1 (34:45):
Or is it gonna cost me?
Speaker 4 (34:46):
Because you know, if this is the end of the year,
then it's only gonna be three four months before you
have to figure out do do the math for the
for the final outcome that year. So that's really it though,
that's the filter because this December is that month where
little decisions have big tax consequences. So you're either going
to lock in those losses or realize some gains, or
you know, giving it a way that's deductible or not,
(35:06):
meaning you may or may not be able to deduct
something in April, and so you need to understand what
the impact of that is. I would start by figuring
out where are you tax wise. It's November December, we're
you know, eleven months through the year, so most of
your tax situation not all, definitely, not all, but most
of your tax situation is already in stone. You can
figure out what dividends have you've received in taxable accounts,
(35:28):
what capital gains have been generated. All that kind of
stuff is available from your investment custody. Ands you of
course can look at your pay dubs and your bank
accounts and things, and look for what interest has been
paid so far, and you can figure out what dollar
amounts of those various items have come your way already,
and then you can reposition those decisions. Is this a
good year to make a sizeable charitable contribution? For example,
(35:51):
if it's been a big year for perhaps you sold
a business or something like that, then you might want
to look at a donor advice fund to support charities
that you've always supported. But as we've talked about before,
you can make one lump sum contribution and dole it
out from the donor advised fund in a slow manner,
as opposed to giving it directly to a given charity.
Speaker 1 (36:12):
That's one idea, all right, Brian. Let's face it, we're
moving into the season now where we're going to start.
We're going to get inundated with advertisements for charitable giving.
Most charitable giving in the country gets done in the
fourth quarter of the year. I don't think that comes
as any surprise to most people. We're getting invited to
fundraising events and things like that, so charitable giving is
(36:34):
on everyone's mind. And I continue to run into too
many people who just write those checks, and look, it's
out of a huge heart and a desire to help
the charity, and I love that. But what we're saying
here is just pump the brakes a little bit and
think about if there's a better way tax wise to
do this charitable giving, because we all want to see,
(36:56):
if possible, more and more money go to these charities
that you can care about rather than to the irs. So,
you know, just as a reminder for a married couple,
you got to have you know, roughly thirty thousand dollars
in itemized deductions, you know, to even be able to itemize.
So a lot of charitable giving is not getting deducted
(37:16):
from your taxes right now. And that's why we're calling
this thing out. You can bunch charitable gifts, you know,
not give one year and then double up the next
year to get you over that threshold. You can give
away appreciated stocks, ETFs and mutual funds and avoid the
capital gains taxes and get the deduction you know, if
you itemize, or as Brian just mentioned, use a donor
(37:38):
advice fund to pile in some of this money and
get the deduction and give it away later. So there's
a lot of things you can be doing out there,
but you got to think a little bit and coordinate
with your CPA and your advisor to take full advantage.
Speaker 4 (37:52):
Yeah, Bobby, you touched on one thing. I want to
kind of flesh it out a little bit. Donation of
appreciated stock. If you bought something for ten bucks to
share it and it's now worth twenty bucks a share, well
you now have a ten dollars gain if you sell that.
Some people might just sell it and say, stick that
money in my checking account, So I want it so
I can turn around and write a check to my
church or whatever charity I'm interested in. That's the wrong
(38:13):
move because what you've done in that case is you've
incurred taxes for the privilege of giving the proceeds away
from that sale. So what you can do is contact
that charity. They're going to have a financial account, a
brokerage account, investment account somewhere, and they're gonna use They'll
have a little brochure with their logo on it that
explains the seven steps you got to follow, including an
account number, and it is something called a DTC number
that identifies the custodian all this stuff. They will know
(38:35):
how to do it, and you can then transfer those
shares in kind. You're not selling, you're simply saying, hey, custodian,
please send X amount of these shares to this account
and then my charity will sell it and nobody pays taxes.
Speaker 1 (38:48):
Yeah, and remember smart investors too have more tools direct indexing,
tax loss harvesting. There's a lot of things you can
and should be thinking about that out there. So this December,
before you hit send on that donation or sell on
that stock, take five seconds and ask yourself that one question.
Thanks for listening. You've been listening to Simply Money, presented
(39:08):
about all Worth Financial on fifty five KRC, the talk
station
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