According to the latest Retirement Confidence Study, Americans are not feeling comfortable in their ability to save because of inflation.
KNPR talked with SMA Wealth Management in Las Vegas on tips for navigating through these uncertain times.
TRANSCRIPT
YVETTE FERNANDEZ, KNPR: We just got on the other side of the tax deadline, there were a lot of changes to the tax code. If people usually expect a refund or on the other side of the spectrum, if they expect to pay, how do the tax code changes affect both of these groups?
BRAD ZUCKER, RETIREMENT FINANCIAL CONSULTANT AND PRESIDENT: What's very important to understand is the goal for every April is to bring that tax liability down as close to zero as possible. Certainly, you don't want to have to pay extra money to the IRS because you owe in taxes. And you just as much don't want to get back a large check from the IRS because you're getting back your own money with zero interest. And the government took that money and made over 35%. So, tax planning is a year-round event. Tax preparation is done in April.
FERNANDEZ: Very good distinction to make. Last year, our gas prices were skyrocketing, primarily we're told, due to Russia's invasion of Ukraine. But that war is still going on, and our gas prices have the sort of stabilized a little bit more. What's really happening behind the scenes? And does this mean we're going to see a more stabilized status? And is that sustainable? Or are we going to see more changes happening? What can you tell us?
ZUCKER: Yeah, I think it's a great question. And what we have here is from March-to-March, prices rose 5%. But that increase is still 1% less than February-to-February. So, we are actually seeing a slowdown, and that is largely attributed to the fuel costs, which are down significantly from a year ago, when the Ukraine war started. That's good news. However, core inflation, which removes fuel and food prices was actually up compared to February. So, we have a federal reserve that continues to spike interest rates to help bring down inflation. And many are predicting another quarter percent rate hike when the Fed meets at its meeting in early May.
FERNANDEZ: Right. That's one of the things the Fed has continued to do is increase these interest rates to keep all this under control. And now we're seeing interest rates twice as much as they were last year. What is your expectation? Do you think it's going to continue to go up? Do we ever get to a spot, and what is that spot, where we say enough is enough? Because right now we're hearing so much from people are who are not able to make their ends meet at the end of the paycheck, are we at a point of diminishing returns?
ZUCKER: What's happening right now is the Fed continues to raise interest rates just cause inflation remains stubbornly high, and there's a number of economic factors that are outside of the Feds control. They will more than likely continue to raise interest rates, possibly three more times before January of 2024. The goal is to bring down inflation, which is hovering over 5%, down to the target of 2%. And one of those key factors, as you know, is the job market. Every month, the job market continues to remain hot. And when interest rates go up, most corporations begin layoffs and pay cuts and that might bring down the job market and then you'll see inflation now is getting under control.
FERNANDEZ: So basically, we're having to exist between bad and worse? Inflation and recession?
ZUCKER: Yeah, well, the recession is possibly going to happen in 2023. But most experts agree this is not going to be a long-lived recession, certainly not what we saw back in 2008, 2009, when we had the banking crisis. Today, bank balance sheets are very, very strong. So, they should be able to ride out an economic recession.
FERNANDEZ: You were talking about jobs. Today we're hearing how these high interest rates are having a detrimental impact on the average person. And in combination with rising costs of just about everything that we've discussed, really. We're hearing people say they can't keep up with these rising costs to make their ends meet. But even people in high paying jobs, we're seeing them, like for example in the medical field, they're taking part in protests and even job walk offs, wanting higher pay. The way we see this, is this getting going to get worse before it gets better, generally speaking?
ZUCKER: I think that the latest news that we're seeing, on February and March inflation reports, is showing that the feds spiking of interest rates is starting to help bring down inflation. What we have at the grocery store, we saw inflation on food prices stabilize for the first time in months, things like meat and fish and eggs were down almost one and a half percent. Fruits and vegetables were down again by more than 1%. On the other hand, you've got 60% of Americans that are living paycheck to paycheck, and they're not sure if they should put food in the refrigerator or gas in their tank. We have many Americans now are relying on credit cards, and other debt, just to make ends meet. And today we see credit card debt at an all-time high of more than $4.8 trillion.
FERNANDEZ: So, what should people do? What is your advice for those Americans who are living paycheck to paycheck and find themselves as one of the 60% who are living paycheck to paycheck, as you said, and relying on credit cards?
ZUCKER: Yes, I think that's a great question, there are a few money moves. First, you need to find ways to cut back on your spending. So, if you don't have a monthly budget, now is the time to make one by listing down everything from soup to dessert, because everything has gone up in price. When you are out grocery shopping, look for the best deals, you may even want to create a meal plan, but stick to it as you go along the way. Also, you should always wait 24 hours before you make a large purchase to give yourself time to decide, hey, do I even need this and make sure that you are price tracking so that you're getting the best deal. Another money move is to make sure that the money you save is working to your advantage. You could put money in short term low risk treasury bonds, but they're not going to give you a giant return. They're not designed to do that. They're designed to keep your money safe, because it's backed by the government. We have bonds today that have a high yield because the earnings are in fact tied to the consumer price index. So they're designed to keep you from losing value due to inflation. But you must remember, you gotta wait at least one year before you could redeem those federal bonds. Some if you cash out before five years, you could actually lose interest. Finally, you can negotiate your bills, you could call your cell phone company or your internet provider and negotiate for a lower bill. You could call your car insurance company and see if you can lower the premium based on your profession, how old your car is, and whether or not you have an anti-theft device and call your credit card company. One poll recently showed that those that called the credit card company were able to waive their late fees and lower the interest on their balance.
FERNANDEZ: The majority of people, what should they be focusing on if they had to choose between one of these great ideas that you just gave? Should they be trying to reduce their costs? Or should they try to save? Obviously, I think it's probably best for both. But if they have to make a choice because they can't afford both, what would you say?
ZUCKER: Perfect. The first thing you want to do is to cut expenses before you can build saving money. So, if we think about something as simple as cutting the expense on your land line for your telephone, because you've got a cell phone, or even eliminating your gym membership, because you created a home gym during the pandemic and don't use that service, these little steps begin to add up. And once you pay off any credit card debt, and you've cut these expenses, now you begin your savings. I always recommend while you're working, if you're covered by an employer plan like a 401K, at least 10 to 15% of your paycheck right into that employer retirement plan. If that's not feasible right now, at least put enough to get a company match. So, I do think the first step is to eliminate expenses, eliminate debt, then you begin savings.
FERNANDEZ: Perfect. Anything else you think that we need to cover?
ZUCKER: Absolutely. Always have emergency reserves, commonly found in a bank account. If the car breaks down, a pipe breaks in the wall, or an unexpected trip to the emergency room: you've got a cash reserve you could access tomorrow morning without any fees or charges so that you don't dip into your retirement account with taxes and penalties.
FERNANDEZ: Excellent. All right, Brad Zucker. Thank you very much.
