Don’t Carry Debt Into Retirement

This faith and finance podcast is underwritten in part by Christian Credit Counselors. If you're struggling with credit card debt but don't know where to start, our trusted partner Christian Credit Counselors offers a debt management program that can get you out of credit card debt 80% faster while honoring your debt in full. Contact them to get out of debt today at ChristianCreditCounselors.org. Paying off debt is always a good thing, but paying it off before retirement is one of the best financial moves you'll ever make.

Hi, I'm Rob West. It's a disturbing trend. More people than ever are retiring with debt.

That reduces their lifestyle choices and increases the likelihood they'll have to return to work at some point. Today we'll talk about carrying debt into retirement and how you can avoid it. And then it's on to your calls at 800-525-7000.

That's 800-525-7000. This is faith and finance, biblical wisdom for your financial journey. Okay, so the latest numbers on this aren't good. According to the Federal Reserve's 2022 survey of consumer finances, the percentage of folks 65 to 74 with debt rose to 65%. When the Fed began tracking this statistic 35 years ago, only 50% of people that age were in debt. Debt will certainly crimp your lifestyle in retirement. And for many people, it could mean having to go back to work at some point.

Proverbs 22-7 warns the rich rule over the poor and the borrower is the slave of the lender. A recent report by T. Rowe Price showed that 20% of people who previously retired are back working full or part time. Another 7% of retirees said they're actively looking for work. The major reason, of course, is the need for more income. The rapid rise in inflation over the past few years caught many retirees off guard. On average, things are around 15% more expensive today than they were just three years ago. Many retirement budgets, especially those that include debt, are stretched to uncomfortable levels.

Now, what can you do about it? Well, obviously, you don't want to carry debt into retirement if you can avoid it. If you're 5, 10, or 15 years away from retirement, set a goal of having all your debts paid by the time you retire.

If you can eliminate a mortgage, car payment, or other debt, you can live on less. Having a financial margin, especially in retirement, is critical. Debt hems you in, especially when the economy slows down and the stock market declines.

Note the word win because the economy moves in cycles. You have to prepare for the downturns that will inevitably come. Now, how can you make your goal of retiring debt-free a reality? Well, first, think about ways to get more margin in your budget. Start with cutting expenses. Do a budget overhaul and get rid of things you're just paying out of habit. You can also increase your income.

Can you get some work on the side? Think of increasing your income and decreasing expenses as a kind of a one-two punch to knock out debt that much faster. Now, there's one really big move you can make, literally. You can downsize to a smaller house. Whether you have a mortgage or not, this can be a lifesaver, especially if you're still paying off your house. If you can downsize enough, you may have sufficient equity to pay off your existing mortgage and purchase a smaller home with cash only, or at least a much smaller mortgage. Moving to a smaller home will lower other expenses like property taxes and maintenance costs. If downsizing isn't an option, do what you can to speed up your mortgage payments.

We've talked about increasing your income and lowering expenses. Use that margin to put extra on your mortgage principal. That will reduce the interest you'll have to pay. Making just one extra payment a year can shave off several years of payments over the life of the loan. Now, what about credit card debt? Well, inflation also rears its ugly head there because credit card interest rates go up right along with inflation. If you have credit card debt, you have to make more than the minimum monthly payments. Put extra money on the card with the smallest balance. When that's paid off, go on to the next.

That's called the snowball method, and studies show it's the strategy most likely to succeed. We recommend that you not tap into your home's equity to pay off consumer debt. For one thing, it converts unsecured debt to secured debt, and if you fail to make the payments, you could lose your home. Also, if you haven't corrected the behavior that led to the credit card debt, paying it off with a home equity loan may simply increase your debt problem. If you have more than $4,000 in credit card debt, contact our friends at Christian Credit Counselors. They'll put you on a debt management plan to help you pay off your debt 80% faster than going it alone. Do you know one call that we've never gotten here at Faithfi? It's from the person who paid off their consumer debt or their mortgage and regretted it. We just never get that call.

So if you make a plan to get out of debt before you retire, you'll greatly improve your chances of staying retired, and that means you'll have more time and resources to give back to God's kingdom. All right, your calls are next. The number 800-525-7000.

That's 800-525-7000. When you hear the phrase rich toward God, what comes to mind? Surely it doesn't mean making God rich. Is it about us becoming rich so we can give?

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That's 800-525-7000. We'd love to hear from you today tackling anything that's on your mind financially as you live. That's your lifestyle. Give. That's your giving for charity and your church and other ministries. Owe for debt and taxes and grow your short term and long term savings and investments. Live, give, owe and grow.

And here's the really interesting thing is God's word speaks to every one of them. Lines are open. Our team is standing by. You can call right now. 800-525-7000. All right, let's head to the phones. To Texas we go. Hi, Mike.

How can I help? Yes, sir. I really enjoy your show.

I try to listen to it every day. Well, thanks. I had a question about financial advisor. I retired in January 23 and in 22 I was still working in the company that, you know, one of the big firms that had my 401K. You know, they contacted me about, you know, financial advisor and stuff and I talked to him. And so anyway, I went with him and everything like that. But, you know, I told him I want to be real conservative, you know, because I'm retiring within a year and stuff like that.

Well, to make a long story short, you're like six or seven months, you know, he lost over $100,000. So I finally just said, you know, I'll just take it back, you know, because I've always done the best I could do better myself. So my question is, is that I've talked to a lot of different advisors, but how do you know what are the steps to choose a good financial advisor? You know, they all say that, you know, they do good and, you know, they've done this and done that. But how do you know what steps or questions can you ask before we find out? Yeah. Yeah, that's a great question.

You know, I can certainly appreciate where you're coming from, Mike. And the bottom line is there's no way to know what an advisor necessarily will do from the point you hire them forward. I mean, you can get some clue based on, you know, a conversation around historical performance.

And you might, you know, ask a series of questions around that. You know, what would clients who are in my kind of risk profile have earned historically? You know, using your strategy, whatever that might be, because there's a wide range of approaches, whether they use individual stocks and bonds. Maybe they use mutual funds or ETFs or a combination of the three to build portfolios. But they could give you an idea of, you know, what that historical performance has looked like, even though they, of course, can't guarantee that that's any indication of what will happen moving forward. You do want to ask what types of investments they use, how they get compensated, how do they monitor or how will you monitor and how often will they report investment performance? You know, do they consider the impact of income taxes on investment choices?

I mean, things like that. Ultimately, you know, you're looking for a trusted professional, you know, and I think that's where starting with the Certified Kingdom Advisor designation, we believe is a great start because at least you know this person shares your values. They've met extensive experience requirements.

You know, somebody who's been in the business 10, 20, 30 years, you know, typically if they're doing what you described year after year for their clients, they're not going to be in business very long. So that historical, you know, experience is important. They've had pastor and client references.

They've been trained to bring a biblical worldview. But, you know, at the end of the day, you want to build a trusted relationship. You want to understand that their investment strategy aligns with what you're looking for. And given that you have some expertise and experience in this area because you've done it yourself in the past, obviously, you'll be able to kind of talk shop with them a little bit and maybe get a little bit deeper than the typical client. In terms of how they're going to manage it moving forward.

And so, you know, I think that's about the best you can do. Of course, you know, if you look at their current holdings for, again, somebody in their risk profile, you could look at, you know, based on some of the if they own mutual funds, how have those funds done and, you know, those kinds of things. So I think just doing your homework, interviewing two or three, and then at the end of the day, you know, prayerfully select someone that you feel like is going to be a good fit for you because they've taken the time to get to know you.

They're curious about you and what God's doing in your life. And you feel good about not only the strategy that they'll employ on your behalf, but, you know, the questions you ask around fees and historical performance. I think that's about the best you can do. I do think, despite your experience in the past, Mike, you know, when you build up the assets that you have over a lifetime and you've been working hard and you put away a nest egg, I think having that wise counsel, somebody who's arm's length, who's not emotional in terms of the buying and the selling, but can take more of a rules based approach and a disciplined approach to investing, you know, is the better solution than managing it yourself unless you have a particular expertise or skill set in that area. But I realize, you know, to some degree, you're trusting your discernment and, you know, in your interview process without having any guarantees about where the market's going to go or how their strategy will perform at the end of the day. What's your idea about being a fiduciary or not being a fiduciary in a financial advisor? Yeah, I mean, I prefer a fiduciary. I'm not saying that's the only way to go.

But, you know, I think at the end of the day, if somebody has a legal responsibility to act solely in the best interest of the other party, that's a good thing when it comes to making investment decisions on behalf of your clients. And so I think that would be something, you know, you would be want to be looking for and asking about in your in your interview process. Okay. All right. Well, thank you for your help.

You're welcome, Mike. And yeah, I think, you know, as you interview other advisors, I would head to our website as a part of that process. You can find Certified Kingdom Advisors there in Texas when you go to faithfi.com. Faithfi.com right there at the top of the page that says find a professional and you can search for the CKs that offer the investment services. I'd interview at least two or three. There's also a list of questions right there that you can download to use as a part of your interview process. Let's go up to Texas.

Hi, Gregory, how can I help? My question is I'm looking at buying a piece of property for 330,000 acres, four acres over here behind where I live and my friend's going to sell it to me. But should I pay cash or should I finance it? Because I have no credit, but I have lots of treasuries and CDs. Yeah, well, I think just given where we're at, you know, you've got kind of a double whammy working against you there if, you know, we've already got higher interest rates, but you make a great point, Gregory.

Historically, they're not high, but versus the last 20 years and what we become accustomed to, they are. But nevertheless, with real estate prices high on top of higher than, you know, the last two decades worth of interest rates on top of the fact that you don't have a lot of credit. I kind of like the idea of you buying that with cash so long as, you know, you have the ability to do it. And when I say the ability to do it, I mean, you know, we're not pulling from your emergency fund that your liquid reserves and you've still got enough working for you for retirement because if this is not going to be income generating land, then you're just counting on the pure appreciation of this. And so you need to look at that versus what, you know, that money could be doing elsewhere and just compare the potential return on investment. Does that make sense? Your assumption on the land is it is going to be generating income.

Oh, it is. Yeah, RV park and four acres and then I'm going to build a travel trailer park and another five acres. And I'm just wondering if I should take my cash out of the treasures and CDs versus financing it to my bank. Well, I mean, you're going to do better financially by in this environment, despite these higher CD rates, you're still going to be paying more in interest than you're going to be earning, even if you get five and a half percent for a one year CD, because with bad credit and rates, even for the best credit seven and a half, you know, plus, you're probably going to be up eight, eight and a half percent, maybe more. And so I think for that reason, I'd probably pull it out. You could always refinance it down the road, you know, if you wanted to. But I think at this point, I'd probably pay the cash. It just doesn't make sense on paper, given where we're at with interest rates today. And I love the fact this is going to be income generating. That makes a lot of sense.

So I think I'd come down on go ahead and pull it out of the treasuries and just buy it for cash. Hey, Greg, thanks for your call, sir. God bless you. All right, back with your questions, 800-525-7000 right after this break.

Stick around. If you enjoy this radio program, you're going to love all of the many different resources waiting for you at FaithFi.com and the FaithFi app. You'll find powerful wisdom, free podcasts, articles, videos and more from leading voices such as Randy Alcorn, Howard Dayton, Ron Blue and our own Rob West. Grow in wisdom and knowledge by connecting with a community of thousands of Christians striving to be good and faithful stewards at FaithFi.com or by downloading the FaithFi app. If the heavy burden of debt is robbing you of freedom and peace of mind, Christian credit counselors can help. We're a nationwide nonprofit credit counseling organization that has helped over 300000 individuals in the last 27 years get out of credit card debt 80 percent faster while honoring that debt in full. To learn how Christian credit counselors can help you visit Christian credit counselors dot org. That's Christian credit counselors dot org or call 800-557-1985. Thanks for joining us today on faith and finance.

We've got slides open today. We're ready for your phone calls. The number to call is 800-525-7000.

Again, that's 800-525-7000. You can call right now. Let's head right back to the phones.

We'll go to Bradley, Florida. Hi, John. Thanks for calling. Go ahead.

Hi, Rob. Thank you for taking my call. Yes, sir. I'm a disabled veteran and I get disability from the VA and I get disability from Social Security, but my Social Security will become a retirement in two years and I don't know if the VA will also become a retirement. But will I pay taxes on both when I turn 67 in two years or will I not pay taxes on the VA?

Yeah. Your VA disability payments are not taxable and would not be included in your reported gross income. Your Social Security benefits may be taxable.

If they're less than $25,000, you would owe nothing between $25,000 and $32,000 up to 50%. And so now I would check, do you normally use a CPA or do you do your taxes yourself? My daughter does them for me. She has a TurboTax. Okay.

Got it. Yeah, I mean, so that should pick it up. But the tax-exempt portion of the VA benefits is included in the combined income formula used to determine the taxable portion of Social Security benefits. So that could increase your tax liability because depending upon what your combined income is determines what percent of your Social Security is taxed.

And so it could be up to 50%, could be up to 85%. So although your VA disability benefits are never taxable, the combined income is what drives how much tax you pay and on what portion of the Social Security. So that's where, you know, you just want to be aware of that and she'll need to factor that in as she's completing her taxes. And if you need, you know, a second opinion, you could reach out to a CPA. But bottom line is your VA benefits will not be taxable, but your Social Security may be and it's really going to come down to your total combined income. Can I give you my total income? Yeah, I wouldn't be able to get into the kind of the numbers of it per se, but I would just say, you know, at the end of the day, just recognize that the total of that combined income will ultimately determine, you know, how much you pay.

And you could find that those schedules pretty quickly, depending upon which tax year we're talking about and so forth. So you could find all that information online. But we appreciate you calling today, John, and thank you for your service to our country, sir. We're very, very grateful. Let's head to Texas.

Hi, John, how can I help? I got a couple of questions. At what age do you have to take out like you have a 401k through Walmart or somebody? What age do you have to take it out of there? Well, you don't ever have to take it out and you don't even have a required minimum so long as you're still employed. But then once you separate from the company, and certainly when you roll it to the IRA, if that's what you do, which is what most people often do once they separate from employment, either because they retire or go to work somewhere else, they'll roll it to an IRA to keep it in that tax deferred environment, but open up the possibilities in terms of the investment choices and the fees that you're paying and that kind of thing. But you won't have to take it out until age 73 when the required minimum hits, that's eventually going to 75 years old. And then the IRS publishes a table that says, okay, based on the balance in the account, and your age, and therefore your life expectancy, here's how much you have to take out every year.

That would be the only time you have to take anything out. Okay, cool. Yeah, we have some family members that one of them has dementia, and with a 401 and then her daughter's 50 have stroke, and she's gonna need some of that money to take out to live on.

So there's a way to get it where it's not taxed so high and penalized. Yeah. So yeah, I think so who is it that has dementia? Okay, the mother.

Okay. And she has a house. Is there any way to protect the house and the 401 without, you know, she has to go in a home later or? Yeah.

So what I would probably do is connect with an elder care attorney just to talk through all this. What is her age right now? 67. And the daughter's 50. Okay. So and it's the mother's 401k. Is that right? They both worked at Walmart and they both have 401. I see.

Okay. So, you know, there is something called the rule of 55. This would be the first time that she'd be able to take the money out without incurring the penalty. So normally, if you're under 59 and a half, you'd have a penalty when the money comes out of 10%. And then you'd add to that, you know, any distribution is taxable. And so it'd be added to the taxable income. So the 10 plus the tax, federally and state tax, I mean, let's say that could be 30, 35%, right off the top.

If you're 55, and you lose your job or leave your job, you can begin taking distributions from your 401k without paying that early withdrawal penalty, again, as long as you're 55 or older. So that would be the first thing with regard to protecting those assets. You know, I think that's where talking to an elder care attorney is going to be important. It's always important to have legal documents up to date, but certainly with the diagnosis of dementia, you know, or if a stroke, it's important to make sure those wills, financial power of attorney, healthcare power of attorney, that all of those are up to date. And then of course, a living will or what's called an advanced healthcare directive. And then the estate attorney can help with the preservation of assets in the event that either of them need skilled nursing, or to help them qualify for Medicare, or excuse me, Medicaid, while preserving the assets for the heirs, you know, in this case, your mom, the mom for the daughter. And then, you know, if they have, as the dementia progresses, of course, they could likely have increasingly difficulty with money management tasks. And that's where having that trusted family member or caregiver selected to manage the finances is going to be really important.

But some of those things can be put in place with, you know, an irrevocable trust or, you know, some of the other tools that they have, you know, special needs trust to protect assets and preserve Medicaid eligibility. So I think that may be the next step here, John, is to visit with a godly elder care attorney. Okay.

All right. Well, you've been very helpful. I appreciate your time. Well, you're welcome, John.

If you don't have somebody that you know of, you could reach out to a certified kingdom advisor there in Texas, they would all have estate attorneys that they work with. And they would, you know, you could say, Listen, I'm looking for somebody who's a believer. So just go to faithfi.com, click find a professional, do a search, and you could call any one of those CKs and just say I'm looking for a godly elder care attorney, can you make a referral and they would like to be able to do that without any trouble. Hey, God bless you, John. We appreciate your calling on behalf of your family members.

Well, that's going to do it for us today. I hope you found something helpful and encouraging today. But above all else, I hope you were encouraged to go back to God's word. You know, in our role in managing God's money, we always need to be reminded that God owns it all. We're stewards and money is a tool to accomplish God's purposes. So as stewards, we have to understand the heart of the master. We find that in scripture. A big thanks to my team today, Taylor, Devin, and Pat, and we'll see you next time right here on Faith and Finance. Faith and Finance is provided by Faithfi and listeners like you.