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August 21, 2020 8:03 am
At that's real re.
When Social Security was introduced 85 years ago, Americans had much shorter lifespans and many workers relied on guaranteed pensions for retirement income. But those days are long gone.
Social Security benefits have become far more important to the average retiree than was ever intended. But many workers fail to make the most of them. Today, financial planner and teacher Rob West shares some ways to increase those benefits. Then it's your calls on anything, financial, anything at all. Eight hundred. Five to five. Seven thousand eight hundred five to five. Seven thousand nine. Steve Moore. And welcome to Money Wise Line.
All right, Rob, if you don't mind, set the stage for us here, how exactly has the landscape changed for Social Security over the years?
Well, you already mentioned that in 1935 when the program was introduced, pensions were common and provided guarantee retirement income for as long as you lived. You know, you'd stay in a job forever. You'd get a gold watch and a check for life.
Now, I can't help but think that one of the reasons employers no longer provide pensions is because the average lifespan of Americans says increased considerably over the years. In 1935, it was around 60 years. Get this, today, more than seventy nine years is the typical. The result is Americans now need many more years of retirement income. And studies show that if workers were allowed to conservatively invest the same amount of money they contribute to Social Security, well, they'd be far ahead at retirement. All of which is to say you need to make the most of your potential Social Security benefits. And the reason I say potential is because decisions you make can raise or lower those benefits.
That's right. And how exactly do you make the most of your Social Security benefits? What do you do? What do you not do?
Well, there are many things you can do, but some of them are fairly complex and only apply to certain people. But we have five that everyone should be able to do and no one is make sure you work a full 35 years. That's because the Social Security Administration uses your highest 35 years of earnings to determine your level of benefits. Any year's less than 35 count as zeros and factor in to lower your benefits. If you work more than 35 years, though, each additional year of higher earnings replace one of the lower earnings and the net result is a higher monthly benefit.
Yeah, that's really critical. Good to know what's next.
Well, our second tip, Steve, is to actually work more as you near retirement. You see, after age 60, your earnings count more and they have a greater positive impact on your benefits. Sometimes people scale back work as they near retirement, but that can actually lower your benefits. So if possible, work more hours after age 60 until you retire, not fewer.
Yeah, and I don't think many people are really aware of that one. So that's really critical. And that's why we're telling them about it, right?
Well, that's exactly right. All right. Let's dove into number three. And we've talked about this one several times.
DeLay benefits until you reach at least your full retirement age, which for most people working today is 66. Every year that you delay receiving benefits beyond your full retirement age, well, you increase your benefit by eight percent a year and every year after age 62, that you elect to receive benefits. But before your full retirement age, well, that will cost you eight percent in benefits. But let's look at the reward for waiting. Let's say you're eligible to receive two thousand dollars a month at age 66 by waiting until age 70 to receive benefits. That monthly amount would increase from 2000 to twenty six hundred and forty dollars. That's a 32 percent gain.
Yeah, that's pretty hefty. And all you have to do, all you have to do is just live long enough to get that increase.
That's exactly right. It's a calculated risk. But remember, people are living much longer these days. Remember that life expectancy? I said it actually jumps up to 82 and 83 for men and women, respectively. Once you reach age 65. So that number is pretty high.
All right. Let's do tip number four. This one's for married couples. DeLay your benefits while claiming those of your spouse. You see, if you and your spouse have both reached full retirement age, go ahead and claim spousal benefits. But let yours continue to grow into your reach, age 70. That way, in a sense, you get the best of both worlds by receiving some benefits now and then more later.
OK. And I think we have time left for tip number five. Yeah.
That would be watch out for taxes on your Social Security benefits. If you continue to work after you begin receiving benefits, anywhere from 50 to 85 percent of those benefits could be counted as taxable income.
The IRS uses a fairly complicated formula to determine what percentage of your Social Security income is taxable. But in simple terms, the more you can spread out income from other sources, the better off you'll be. And I'll give you an example of that right around the corner.
All right. Good deal. And right around the corner, we're taking your phone calls today on anything, financial, anything at all. Eight hundred five to five, 7000, we're reading for you.
Do you know if you have enough enough money out of house? Do you know how much is enough?
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I just love life, Phil. And so what's wrong with that? You know, my friend, I was disabling. Really hadn't. Yeah. What is wrong with that? Well, I prayed quickly and I'm sure my next thought came from God. Okay, Stan, let's read first John 215, where it says, Do not love the world nor the things in the world. If anyone loves the world, the love of the father is not in him. Then I asked to both Stan and myself, Do we love God more than what he's given to us? Oh, I've got it. It's all about loving God. Right. I said so, friend, we can enjoy what it's given to us, but we need to love God first and foremost with all our heart.
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If you happen to have a question about, oh, I don't know, maybe dad or insurance giving, housing saving, any of those kinds of things, well, more than likely the Bible has some input as read in regards to those topics. So give us a call today.
Maybe we can help you with that 805 2.5, 7000 again, toll free, 800, five to five, 7000 for a couple of minutes today. We're talking a bit about Social Security and how you can maximize your benefits. Any further information for us, Rob?
Well, yeah, just an example of what we were talking about there just a moment ago, Steve. When we say if you continue to work after you begin receiving benefits, you could have a reduction of anywhere from 50 to 85 percent of those benefits in that it would be counted as taxable income. The IRS uses a formula to determine what percentage of your Social Security income is taxable. But in simple terms, the more you can spread out income from other sources, the better off you'll be. Here's an example. The recent securer act delayed the age at which you have to take the required minimum distribution for your IRA. So it went from 70 and a half to 72. Well, that means that potentially you could have six years in which your Social Security benefits aren't taxed at all. If you delay taking distributions during that time. So that would be one way to do it. I also think a a good idea is to consult with a financial adviser on the best ways to maximize excuse me, minimize, I should say, your tax liability during retirement. We, of course, recommend that you see a certified Kingdome adviser. This would be somebody who has the experience and training competency, but also shares your values. And you can find one by going to moneywise live, dawg. Just click on Find a C.K..
OK. Good information. Taxing Social Security benefits. The government giveth and yes, the government taketh away. All right. Here's her. Here's our phone number one more time. Eight hundred five to five. 7000. Anything that's of concern to you. Of you. Let me try that again. Anything that's of concern to you financially is of interest to us. So give us a call right now. Chicago, Illinois, hello. Tammy, what's your question today?
Hi. My question is, what does it mean to be a present?
Yeah. According to the IRS, Tammy, vesting in a retirement plan means ownership. So basically, it means that each employee will vest or own a certain percentage of their account in the plan each year. So an employee who is 100 percent vested in their account. It means they own essentially 100 percent of that account and the employer can't forfeit take back that amount for any reason. And so basically, it's based on the years of service and a based on your particular plan. And it requires you are there working for a certain number of years in order for you to have full access to the retirement plan that is there. And so once you reach that hundred percent vested status, you have full access or you could say ownership of that account. Does that make sense?
Yes, it does. And so does it mean that you will continue to continue to receive money from your employer?
Oh, yes, absolutely. You'll continue to get contributions on whatever schedule they were already making contributions. It's just now that you have 100 percent ownership of whatever's in there and whatever continues to go in there. Prior to that 100 percent vesting, you didn't have access to all of that money because you hadn't met the vesting schedule to reach 100 percent.
OK. Jamie. All right. Thank you. We appreciate your call. Thanks very much. Oaklawn, Illinois. Hey, Christian, you're on with Rob West.
All right. Thank you very much once again for answering my call and taking my call. Happy to grab this.
I'm sorry. I just wanted to touch base back. I'm in the process of refinancing my house from 30 year to 50 year, the three point seventy five interest mark right now for the 30 year conventional.
So I had three questions. It's real quick. The first one is already. They did a heart credit check with my bank to see what they can do for me since they did that, to my understanding. Do I have 14 days left to shop around? And will that affect my credit if I do so? And and the other one is if I don't go with the refinancing.
How much can I pay as a principal extra? The most that I could pay to bring down years on a 30 year. They don't offer me a good interest.
Yes. Well, Christian, to your first question, you're speaking about the impact of your credit check on your credit score. So whenever you're shopping for a new loan, whether it's a mortgage or you've applied for a credit card, where you're out there seeking that credit, not somebody making what's called a soft inquiry because they want to offer you something, try to sell you something, but where you initiate the credit check based on credit you're seeking.
They do lump those inquiries for the same type of credit into one over a 14 day period. And what basically that allows you to do is, OK, but the next 14 days, I'm going to go and shop the best lender for this car loan or the best lender for this mortgage. And all of those inquiries over that 14 day period for that same type of loan are going to be considered one inquiry. And so you want to maximize that period of time because inquiry's hard inquiries that happen even for the same type of transaction after that 14 day, are going to be another inquiry, hard inquiry on your credit, which is going to further reduce your score. And the challenge there is it's not long term because the score will come back. The challenge is if you're right there on the threshold of meeting a certain minimum score to qualify for a certain rate or terms. And that additional inquiry after 14 days pulls you down below that threshold, you may no longer qualify for the terms. You did that just a week before because they required a 740 and now your score dipped down to 735, for example. So I think it's really important to be ready to move know which creditor or which lenders you're going to be applying or seeking credit with. So you can maximize that 14 day window. As to the principal reduction, Christian. I think the key is, I mean, you can reduce as much principal as you want at any time. That's what's great about a mortgage with an amortized loan. It's it's, in effect, simple interest because the interest is determined in advance. You're not paying interest on interest. But here's the key. At any time you can make a payment directly to principal. The key is you just have to do that in light of your cash flow, your current expenses and your other goals and priorities. I want to get out of debt as quickly as you can, but I also recognize you have limited resources and competing priority. His financial decisions and goals are similar, simultaneous. They're happening at the same time. So did that get, though, to the heart of your question on the principal reduction or are you asking about something else?
You pretty much did. And yes, my score is at a 20, so it dropped down to four points. And yeah, I wasn't sure if I could shop around. But you pointed that out. I mean, I guess I could shop around, but knowing that they're going to stop them. But it won't be that long. I think I'll still be in good stand. I just I think well, check with one more and make my decision on that.
Well, let me let me encourage you here first. Christian, you've got an eight 20. That's a phenomenal score. I mean, you will be able to qualify for the best terms and rates at just about every probably every lender you apply with. And even a second inquiry is not going to pull you down below what you're looking for. So well done on having a good score. I would absolutely shop at. I'd look for at least three and whoever you've checked with. I'd probably go to bank rate dot com and find a couple of additional lenders because week to week, some of them have better programs than others. You should be able to knock a point off of that rate and have this makes sense to you as long as you're going to stay in that home for at least five years with no problem, given that you're at three point seventy five right now. So shop around, take advantage of these historic lows. But one last thing. Don't extend the term if you can make that possible.
Christian, good to hear from you. Sounds like you're really heading in the right direction. We wish you the very best. Let's go to Ohio next. And Sharon, you have a question about, well, your Social Security.
Yes, my husband retired about eight years ago. He's 75. I just turned 70 in July. I'm still working full time, a whole lot of hours full time.
So do I need to start withdrawing from sources, Kerry?
Yeah, you actually do not. You don't have to begin collecting at age 70, but your benefit will not increase if you delay past your seventieth birthday. So I would go ahead and start taking those benefits because there's not a real significant reason to wait, because you're not going to be increasing any further than you already have once you reach 870.
OK. And I would be able to just invest that money then since I'm not going to really be using it.
That's exactly right. Right now. Yes, ma'am.
Is there any of the amount I can say about how often it like I should I do it every every quarterly or, you know, a little every month, which are so much?
Well, your Social Security benefits will come as a monthly check. You won't withdraw those. It will just come as a benefit in the mail.
Sharon, we hope that helps you. Thank you very much. Sounds like you're in a good position as well, and she can continue to work and collect Social Security at the same time.
Right. That's exactly right. Once you reach full retirement age. Yeah. Absolutely. She doesn't have any issue there.
All right, great. And there's no issue if you'd like to give us a call and chat today, anything.
Financial 855 7000. You're listening to Moneywise with Rob West. I'm Steve Moore. Back with more right after this.
God cares a great deal more about our money than most of us imagine. In fact, Jesus says more about our use of money and possessions than about anything else, including both heaven and hell in managing God's money. Author Randy Alcorn breaks it all down and it's simple, easy to follow format that makes it the perfect reference tool. If you're interested in gaining a solid biblical understanding of money, possessions and eternity, managing God's money is available when you click the store button at money wise live dot org.
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How often does God use our pain to birth our passion? If you've got a godly passion about something, God made you passion about some. I'd love to know where that thing wrote it, because I'm just gonna tell you, if I were a betting woman, I'd bet you ninety nine times out of 100 it came from some kind of pain. Do you know why I'm in a ministry of the word? Because my mind I'm telling you. I've told you before I had a broken man, had a book mind. But I'm telling you, my emotional mind was in pieces and it wouldn't have been long until every single thing would have gone with it. Aren't I my worst nightmare, the worst crisis I've ever been through in my early thirties? Well, not with such intensity with God. And what came out of that? God healed my mind with his word up before I even knew my mind was broken. I had begun to God. It had begun to lotta a firearm of a love for his word. And little by little, before I even realize how broken my man was, God was already put them back together. God was already rebuilding my mind.
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That's money wise by Rob West, taking your calls today.
And Rob, just before the break, we were speaking with Sharon, who at age 70, was still working.
She was wondering about taking Social Security and a follow up you wanted to end?
Well, yeah. You know, there is one way, though, that she could see an increase in benefits. She's not going to continue to see that automatic eight percent a year increase that you receive past full retirement age up until age 70. But keep in mind, if you're replacing any of your years, 35 years with higher earnings, then you could actually see an increase in your benefits. So that would be one reason to wait. And it really would just come down to is what she's earning now higher than any of the earnings years she had over these 35 years that are being used to calculate. If so, she could certainly continue to do that, but she'd probably want to visit with her Social Security Administration office to compare what she'd be giving up in terms of not taking that payment, which she said appropriately she could start investing versus the increase. I don't think there's going to be enough of a reason to do that. I think it's probably going to be better to go ahead and start claiming it so she can put that money aside.
But I did want to make sure that she knew that there is technically a way that the benefits could increase. Yeah, good call, Rob. Thank you very much. Let's go to Austin, Texas now. And Alicia, how can we help you?
All right. Thank you for taking my call. Thank you for all that you do to educate us.
Oh, thank you. Sure.
I turn 65 in November and I need to know what I need to know about Regius registering for Medicare.
I get confused when I look at all the different parts and advantage plan and all of that. And so I was wondering if you could just give me a quick primer on Medicare, what I need to take into consideration before enrolling?
Yeah, well, I think that the key is you want to make sure that, first of all, that you are enrolling as soon as you can, which is the period that begins three months before and extends three months after reaching age 65. Many people who are late to do so have to pay a penalty every year for the rest of their lives in the form of higher premiums. So if you fail to enroll during your initial Rollman period, you can always enroll during the general enrollment period, which is January 1st through March 31 of each year, though that coverage doesn't begin until July. And the late penalty may apply. The general enrollment period is also when you can switch between different types of Medicare plans. So if you want to switch between the original Medicare Parts A and B and the Medicare Advantage plans, that's the time to do that each year. So I think you want to make sure you go ahead and do that sooner rather than later. Does that make sense, Aleesha?
Yes, it does. OK, that's good. Give me a general overview of the different part.
Yes. An advantage.
Sure. Yeah. So Part A is the inpatient hospital coverage.
Then you've got B, which is the outpatient and the medical coverage, and then C is an alternate way to receive your Medicare benefits. And then you've got the D, which is the prescription drug. So those are really the pieces that most people are concerned about. And, you know, as you begin to get familiar with it, there's tons of reading that you can do out there. And I would encourage you to do that just so you understand what you're getting into the just Google it and you can find any number of opportunities there. The Medicare Advantage has a fixed network of doctors and hospitals. They're a type of Medicare health plan offered by private companies that contract with Medicare to provide all of your part A and B and many of them off also offer the prescription drug plan and coverage. So I would absolutely look at those just to see what's there. They also offer extra coverage in many cases like vision, hearing and dental. And that's going to be the part, the Medicare C, which is where the advantage plans come in.
So hopefully that gives you just kind of a quick overview as to when you need to do it, what each each of the pieces and parts are. And, you know, I would definitely go out, begin to shop around, look at the various options and get familiar with it as soon as you can.
Thank you, Alicia. We're glad that you called today. Glad you got through as well. Thanks so much. Rob, a quick email. This one's from Carolyn. She says, Dear Robin, Steve, I need a more reliable car. How can I figure out if I should buy or lease?
Yeah, well, you know, we're not big fans of leasing cars here. It's going to be the most expensive years of that car in the sense that you're paying for it when it's going to experience the most depreciation. You've got limited miles. You've got certain wear and tear provisions. You're gonna get yourself locked into a monthly payment. I just wouldn't go there. It typically is a very costly way to do it. Instead, buy a two or three year old, good quality, highly rated car and drive it till the wheels. All right. Questions that money wise that.
Org if you'd like to send an e-mail to rob questions at Moneywise dot org, I'll call eight hundred five two five. Seven thousand.
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Hi, I'm Chris Fabri, the moody radio verse of the week is found in Second Corinthians one, three and four.
Praise be to the godfather of our Lord Jesus Christ, the father of compassion and the God of all comfort who comforts us in all our troubles so that we can comfort those in any trouble with the comfort we ourselves receive from God. At Second Corinthians one, three and four, the moody radio verse of the week.
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God cares a great deal more about our money than most of us imagine. In fact, Jesus says more about our use of money and possessions and about anything else, including both heaven and hell, in managing God's money. Author Randy Alcorn breaks it all down in a simple, easy to follow format that makes it the perfect reference tool.
If you're interested in gaining a solid biblical understanding of money, possessions and eternity, managing God's money is available when you click the store button at Moneywise Live dot org.
With SRN News, I'm Jon Scott.
Wildfires in California have claimed at least six lives and forced tens of thousands of people from their homes. More evacuations are expected as the hot and gusty winds continue. Over 150 buildings have been burned. Tropical Storm Laura has formed in the Atlantic Ocean, becoming the latest in an active storm season. U.S. home sales rose a record breaking twenty four point seven percent in July, extending last month's rebound after the rotavirus all but froze the housing market this spring. The National Association of Realtors says that sales of existing homes jumped one month last month to a seasonally adjusted annual rate of five point eighty six million. On Wall Street, stocks finished higher today, the Dow gained 190 points, the Nasdaq ahead 46, and the S&P 500 was up 11. This is SRN News.
It's a great day to have you listening. Thanks so much for joining us.
This is a program all about God's timeless financial wisdom as it meets your financial choices and decisions. We can help you. Give us a buzz, as they say. Eight hundred. Five to five. 7000. Rick is in Spring Grove, Illinois. Rob. Say hi there, Rick.
We're so glad you called today. How can we help her?
Yeah, hi. Thank you for taking my call.
I have a couple of things I want to talk about, the major thing. And then there's other thing related to it. So the first thing is, is a couple months ago, my my wife's uncle passed away. But he didn't have any children. He didn't have a spouse. So he gave all of his inheritance to my wife and her two sisters. And it's a significant amount of money.
He had various accounts, ECD and bank accounts, and he had to like packing retirement accounts, a health savings account, and just a lot of stuff everywhere, like when we went through his condo. So. So the first thing is, is I'm trying to figure out how to what to do with that money, but should just try to roll it over to some kind of, you know, IRA or something for my wife or if we should spend some money, because I know you spend all of it or you get a lump sum of it. Then there's there's an issue where it ends up costing you more in taxes or something like that. I was trying to look it up and I actually went on the website the other day looking that up. So that's the first thing related to that. And then we also just sold our home recently at the end of July. And and what I bought it for and the improvements I made on the house and what we sold it for. There was a profit of maybe 60 or 70 thousand dollars. And so I kind of want to know what to do with that. So both of it's kind of we got her money.
And Bob, you want to figure out what the best way is to put that money invested or roll it over or do something with it, so.
Sure. Well, Rick, I appreciate that. I'm sorry to hear about your family members passing. Certainly you want to be a good steward of these resources, and that's why you're calling today. So we're delighted you did. I would encourage you and I'm going to give you some general thoughts. I'm not an accountant. You obviously need a CPA. If you don't have one who can help you navigate all this, I think you also need an investment professional who can really step in, perhaps do some planning with you and your wife in light of these assets that you've come into and help you not only with the planning side, but the ongoing asset management, just to make sure that you put them to good use, that they're invested in such a way that's consistent with your goals and objectives now that you're the steward of these funds and you're not taking unnecessary risk. Generally speaking, you would there would not be any tax due on inheritance for the person receiving them. Now, that doesn't mean that an estate may not have taxes, although the threshold is very high. So, for example, in 2020, the federal estate tax exemption is more than eleven and a half million dollars for an individual. So most people, their estates doesn't pay any taxes, but they would handle any taxes prior to it reaching the air. But everything you inherit is does not result in taxable income for federal or state income tax purposes for the person receiving the funds. Now, what you're talking about, though, is the what you do with the assets after you receive them. And they eventually will and sometimes immediately will create incomes, tax concerns. And so that's where you need to make well-informed decisions to handle the inheritance properly and understand the various types of assets you're receiving. So, for instance, you'll receive cash and securities as well, the securities, the stocks or other security investments. We'll have a stepped up basis, meaning the cost basis becomes the date of death, and then you'll either have a gain or a loss in a resulting taxes. You know, as you move forward retirement accounts, you mentioned an IRA and that one needs to be handled properly. And that gets pretty technical as to whether you know who you are related to, the person that you're receiving the inheritance from and what schedule by which do you need? Or does she need to start taking withdrawals from that IRA? And there's been some changes in that as of late. It will also have to do with her age. But obviously all the money that's coming out of that account will be taxable as you pull it out. Real estate, art, collectibles, life insurance. I mean, they all have their own considerations from a tax standpoint as well as a management standpoint. So I would just make sure you seek some wise counsel to help you navigate all of this as to your home.
This was a home you were living in, is that right?
Yeah, we were living in it for about six years and I mean improvements on the home. We had purchased it for about one hundred and twenty five thousand and we sold it for 235 and. But they got a ten thousand dollar credit. So in essence, that's one hundred thousand dollars. But there was probably 30 to 40 thousand dollars put into it. So still leaves us with about a 60000 dollar profit.
Yeah. Yeah. Well, the good news there is as long as you lived in the home two out of the last five years as your primary residence, you're exempt of capital gains on the first quarter of a million for an individual, half a million dollars for a married person. So you shouldn't have any capital gains to speak of based on what you're describing.
Rick, it sounds like you and your wife are doing really well on a number of different levels there. One last thing we'd like to mention, when you find yourself in this scenario, which often is just once in a lifetime, you want to make sure that you ask God what he would have you do with a portion of it. We just want to encourage you to be generous as God would have. You have you do that whether you're a little involved with a local church or there are other ministries that you support. And we're glad to hear that things are going well for you guys. Thanks very much for your call. US squeeze in one more Spokane, Washington. Hey, Ralph, what's your question?
My question is, I'm retiring in next March. And our financial counselor was telling us about annuities. And I've been talking to people and trying to figure out. So as one person told me, annuities are not guaranteed. So is there such a thing as a guaranteed annuity?
Well, essentially, you are. The guarantee comes from the insurance company. And so you're relying on the insurance company. And there are provisions if the insurance company fails by which, you know, the state would step in. But when you hear the word guaranteed annuity, essentially what you're talking about, there would be what's called a fixed annuity. And a fixed annuity is basically an annuity that pays a guaranteed, again, according to the insurance company, a guaranteed rate of return on the assets inside the annuity, as opposed to what's called a variable annuity, where the return will vary over time based on some underlying performance metric. It could be tied to a particular index or mutual funds, as opposed to the fixed annuity, which, you know, has a specific interest rate that is applied to the contributions. And then there's two phases of that, Ralph. There's the accumulation phase where either that guaranteed interest rate or or the variable rate produced by the investments underneath it will allow the account to grow. And then eventually you reach the annuitization phase where you begin to withdraw. Regular payments could be monthly, could be annually from that contract until you'd until you die. It's not my favorite way to go. I mean, where it can be helpful for some folks is when they don't want to take the risk of managing or hiring somebody to manage their assets for them. And they want to transfer that risk to the insurance company in exchange for that, quote unquote, guaranteed payout.
I'd rather you keep access to your funds and just have it managed in a way that's going to produce the income you need and still give you access to the capital because there's so many limitations with an annuity in terms of getting it out, the fees and expenses and the like. Great question, Ralph. And we're glad that you called today. Thank you very, very much. This is money wise live. We'll be right back.
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Welcome back to Moneywise Live. Let's go right back to our phones.
Randy is calling in, listening from Kenai, Alaska. Randy, thanks for calling today. How can we help?
Hi, thank you so much for taking my call.
I really appreciate your ministry. I am 67 years old now. I started taking Social Security at age 65, but I'm still working and I average about fifty thousand a year. And so I'm still paying into Social Security. Well, I get increases in my adjustment as I continue to work.
Yes, ma'am. Couple of ways you'll see increases. One is called the COLA, which is the cost of living adjustment.
And you would obviously receive that annually based on the what's called the CPI w, which is the factor that the the Social Security uses to determine the cost of living increase. But the second would be based on your earnings. So if you had less than 35 years of working and so therefore you had some zero earnings years, you'll replace those zero earnings years with your new earnings. If you work 35 years or more, then the IRS will check to see if your new year of earnings is higher than the lowest of those 35 years after considering something called indexing, where they kind of adjust them for the current day. And so that gives you a second way to see additional increases. And they'll notify you of that and they'll pay a one time check for the increase and then continue paying that higher amount moving forward. So, again, it's going to come down to how your current year's earnings relate to the 35 years that the IRS had been using previously to determine what your payment is going to be.
Randi, thank you very much for calling today. Hope that information helps you quickly down to, well, from Alaska to Florida. And Kathy, what's your question?
Hi, thanks for taking my call. Sure.
My house, my husband, I have two homes. One of them is our primary and we have a mortgage on that of about one hundred and sixty five thousand left. We've been chipping away at it and paying a little extra toward it. We've got a bunch of equity in this house. We also have an investment property that unfortunately we bought when the rate when the prices were high. We lived in there at the time. It's now an investment property we rented out. That carries a mortgage of about three hundred thirty thousand. We were trying to get that refinance. But the question is, would it be why to since the rates are lower now. Why is to refinance the mortgage on our primary?
Well, including the mortgage from the second tier of that investment property and paying that off and then having a lower rate for the whole the whole amount.
Yeah. The challenge here, Kathy and I certainly can appreciate what you're trying to do. And yes, on paper, that can make some sense just in terms of the total amount that you would be paying in the costs of the interest, because on your primary residence, you're going to get a lower interest rate than an investment property. And you do have good equity, which you already mention. The only reason I'm hesitating is because I like to see investment properties handled as a business separate print from your personal finances in a sense, where you'd make a real concerted effort to get completely out of debt personally, including your home where you live, because technically that's not an investment. Yes, it will appreciate. But the definition of an investment is when it's accomplished its purpose, you sell it and you don't monitor the ebb and flow of the prices of your home, looking to sell it as soon as it's at an optimal price because it's where you live, it's your home. And I'd also not like for you to put your primary residence at risk. If something were to happen in your financial life that would it cause you to be unable to make the payment for that mortgage? I'd rather you have your home and eventually own it free and clear, at least have a lot of equity in it and then be able to, you know, worst comes to worst, let that investment property go. Not that we'd ever want to do that. You'd obviously want to liquidate it, pay off the mortgage. But I just like to keep these two things separate. Given their uses and what they are now, there'd be plenty of people out there saying, Rob, that doesn't make any sense, because why would you pay extra interest when you don't have to? And that would be true. There is a cost to doing it this way. I just like for you to have the security and peace of mind to know that you own your home as opposed to having this large mortgage on your primary residence, even though you'd know you'd have this other asset, even though it's somewhat illiquid, you could sell it and pay off, you know, the first mortgage on that primary residence. Now, all that to say doesn't mean you may not be able to improve your situation with the investment property. Is the investment property cash flowing such that you can cover the debt service and all the expenses related to it?
We've been we've been paying extra toward it for the past few years. It doesn't what the what it ran for doesn't quite cover everything.
OK? All right. Yeah. So, you know, if you could improve the situation, get a better terms, get a lower rate. I mean, ideally, you would allow that thing to stand on its own and cover all of its own expenses, even put something away in reserve to be able to, you know, take care of maintenance and repairs and things like that. Obviously, you're not in that situation, but you're still building equity and it's something you're going to have down the road. Tell me, though, does all that makes sense, though, related to keeping these two things separate? And what are your thoughts on that?
Yeah, it does. The reason I was asking is we did try to refinance the second property, the rental. But because there's not the appreciation in the real estate over there that we thought there was the loan to value is going. It's just not going to work out. Whereas we have plenty of equity in our primary, you know, that we it's just sitting there and and there. Yeah. Right. Would it be much better on the private.
It makes sense, Kathy, to if you were to only pull a very small portion of it over when it makes sense to refinance, given the rate that you have on your primary residence, could you improve it enough and keep the term at or lower than what it is today if you just add a little bit to it so that you could go ahead and refinance the investment property as well. But you're not moving 100 percent of the debt over to follow where I'm going with that.
I do, yes. Yes. You're just saying to add the difference that would bring it to the 80 or actually with 75 percent loan to value. Correct. To our primary and then continue with the refinance separately on the investment property.
That's what I'm thinking. But you'd only want to go to that cost of refinancing your current property and adding a small portion if you could improve your situation on the whole note, meaning I don't want you to extend it, you know, to this longer term. I want you to get a better rate. You know, I want you to be able to justify the cost of the refinance. And if it made sense on its own, then maybe it makes sense to add a little bit to it and get the LTV where it needs to be on the rental property. Just a consideration. You guys may decide, you know what, at the end of the day, we were comfortable putting it all in our primary residence. I just want you to think and pray through that before you make that decision.
Thank you, Kathy. We do appreciate your call today. Great questions. One more. Cleveland, Ohio. Hello, Linda. What can we help you with?
Hi, Linda. You're with us. Linda in Cleveland, hi, are you with us?
You hear me? Yeah, just go right ahead.
OK, great. So I'm so glad I get to talk to you guys, I have a really quick question. So I'm approaching. I just turned 60, so I'm starting to look at retirement. My retirement goal age is 67. And so my what I'd like to do is I'd been leasing a car and I know that's not the best thing, but I've been in leasing a car forever and my lease is up in November. So my goal is to buy a car and have it paid off by the time I retire. And so right now, I've looked at a few options. And I know I've always been told you should never buy a car brand new. However, I have access to the X plan. And right now they have a zero percent interest. So I wanted to run that by you guys and get your thoughts. As far as I'm better off buying a car that's two or three years or a year or two or whatever years old and be paying interest, or would it be OK to just get a brand new car and then pay it off with no interest and go that route?
Yeah, Linda, we're not against necessarily buying a new car.
I mean, the reason why we say for most people it makes sense to buy a two or three year old car is because essentially you're missing out on the years where there's the most depreciation that occurs within a car, which is in the first couple of years after you buy it. And so you're buying it on the other side of that. And if you could buy a good, reliable car that you're going to pay off over time and then, you know, own it, drive it as long as you can, it just tends to be cost effective. Now, you're making a a fair point here that, you know, perhaps there's a benefit in this zero percent financing that you're not going to have with what you borrow to buy the used car.
And you need to factor that in. I think the key is whether you buy new or used, that you buy something that fits within your budget. You've really counted the cost. You understand. You know what type of car you need that's going to be reliable. And if you want to go ahead and buy the new car, it fits into the budget. You take advantage of the zero percent financing. What I like about what you're describing that I think makes either one work is you're talking about buying something and then drive in for a really long time. And, you know, that's the way we approach new cars so much. The last minivan we let go of, oh, we had two hundred thirty five thousand miles on it. And I just think that's a cost effective way to do it. So no problem in buying new again. Just make sure it fits into your budget and you're not stretching to buy something because cars are fairly expensive these days.
Linda, we're glad that you got through today. Thanks for your kind words and we appreciate your phone call. Thanks very, very much. And with that, Rob, we're pretty much going to put a bow on it. I'd like to mention one more time the money wise E magazine is something that's fairly new to us and for our listeners. It's a quarterly publication, a special podcast's within that publication, articles, stories that will inspire you, encourage you and challenge you. And best of all, Rob, is the subscription rate is is pretty good these days.
Well, yeah, we just cut it in half. It was zero and it's still zero zero yet free. So sign out money wise lived out our gloomy also mentioned. We'd love for you to prayerfully consider supporting this ministry. We can't do what we do without your generous support. Just click donate that money wise live aboard.
Thanks very much, Rob. Moneywise live as a partnership between Moody Radio and Moneywise media. My thanks to Amy, Judy, Gaby and Jim Hatemi for their assistance today. Thank you for listening. Have a wonderful weekend. Join us again on Monday.