This Faith and Finance podcast is underwritten in part by Movement Mortgage. Movement provides residential home loans and reverse mortgage options in all 50 states. Founded in 2008 during a major financial crisis, Movement was created to love, value, and serve people and communities. Learn more at faithfy.com/slash movement. Movement Mortgage LLC supports equal housing opportunity, NMLS number 39179.
For licensing information, visit NMLSconsumerAccess.org. Um Your house could be one of the most tax-efficient assets you own. Hi, I'm Rob West. For many retirees, taxes can take a significant bite out of their income. But what if the roof over your head could help you manage that tax burden more efficiently?
Harlan Akola joins us today to explain how a reverse mortgage may fit into a thoughtful retirement strategy. And then it's on to your calls at 800-525-7000. This is Faith in Finance, biblical wisdom for your financial decisions.
Well, it's always a pleasure to welcome Harlan Akola back to the program. He leads the reverse mortgage team at Movement Mortgage, one of our trusted underwriters. Harlan, great to have you here. Very thankful to be here again, Rob. Thanks.
Hartlin, after that opening, I'm sure some listeners are wondering now how can your home actually help lower your tax bill?
So that's where reverse mortgage may come into play. Why are reverse mortgage proceeds treated differently from other sources of income?
Well, so many people, Rob, think that you sell your house when you do a reverse mortgage, but you don't. They're simply loan advances. It's not earned or investment income.
So it never shows up on your 1040. It doesn't push retirees into a higher federal or state bracket or trigger any Medicare Irma surcharges. Every dollar that comes from a house is a dollar that you don't have to withdraw and pay tax on from other sources.
So you can control your brackets and the amount of money that you're making. It is not income. It is technically borrowed money.
So it never goes on your 1040. Yes, of course. And let's talk about how that can be used as a part of a financial planning strategy, particularly using this tax free home equity to manage the timing and even the amount of IRA or four hundred one K withdrawals. Yeah, it's really a big issue, even when you take Social Security because 80% of Social Security can be taxed. And when you're pulling money out of any IRAs, sometimes you're forced to with RMDs, but before that time comes, it directly lowers the annual tax bill if some of the money that you're using comes from the house itself.
So smaller withdrawals simply keep income below key thresholds, whatever the planning is, standard deductions, bracket jumps, state tax cliffs. And meanwhile, the untouched retirement balance continues to compound and grows greater often than what you lose in the amount of equity because that's continuing to grow untouched. Yeah. This strategy also may make Roth conversions more efficient. Walk us through how that works.
Well, I started working with Ed Slott a number of years ago on this. He's kind of an IRA guru. And we started running some numbers on Roth conversions because a lot of people don't want to do Roth conversions because they got to pay so much tax and it decreases the amount of money that they have in their investment account.
So most advisors believe taxes are at a low point.
So it makes sense to pay tax now, perhaps at a known lower bracket than what it is going to be later. And then that tax-free growth continues. Reverse mortgage cash can handle the conversion tax bill in April instead of pulling even more out of the IRA to pay the taxes.
So because the HECUM also covers living costs, retirees can convert only the portion that keeps them within their desired bracket.
So over time, that builds a pool of tax-free Roth assets that will never be taxed. And that, quite frankly, the heirs can inherit tax-free money instead of a taxable time bomb when mom and dad pass away. Yeah, now you heard Harlan mention a hecum. That's a home equity conversion mortgage, kind of the technical name for a reverse mortgage. Harlan, there's also a portfolio protection benefit here, particularly regarding what's called sequence of returns risk.
So how can a reverse mortgage help retirees protect their investments specifically during a market downturn? You know, this is something that I really never understood until I spent a lot of time with Dr. Wade Pfau, who does a PhD in a CFA that does tons of research on this particular issue. And you're forced to take money out when you need income in retirement, whether the market is up or down.
So, a lot of advisors simply use the reverse mortgage as a buffer asset that is drawn from whenever the markets go down. And when I saw some of his numbers, that if you never draw from your stock accounts when the market is down, you of course will never decrease the amount that's in there. Because if you lose 50% and you draw the money out at the wrong time, that will never have time to come back.
So, in strong market years, you flip the switch back and you can actually pay some of the money back if you wish to your home equity and use that heckham line of credit back and forth.
So, really think of it as a ballast that smooths retirement cash flow and portfolio volatility. That is money that is there when you need it in the future. Interesting. Interesting. Well, we could talk a lot more about this and we will in the future.
But Harlan, thanks for shedding some light on this today. We appreciate it. Thanks for the opportunity. Our guest has been Harlan Akola from Movement Mortgage. If you'd like to learn more, go to faithfi.com/slash movement.
That's faithfi.com/slash movement. We'll be right back. We're grateful for support from Guidestone, whose diversified suite of investment solutions align with Christian values to create positive change in the world. More information is available at guidestonefunds.com/slash faith. Investing involves risk, including potential loss of principal.
Carefully consider the investment objectives, risks, charges, and expenses of Guidestone Funds before investing. They're distributed by Four Side Funds Distributors LLC, which is not an advisory affiliate, a registered investment advisor, nor do they provide investment advice. We are grateful for support from Movement Mortgage, who provides residential home loans and reverse mortgage options in all 50 states. Guided by a mission to love and value people, Movement seeks to help individuals and families make informed financial decisions from buying a home to planning for retirement. More information is available at faithfy.com/slash movement.
Movement Mortgage LLC supports equal housing opportunity. NMLS number 39179. For licensing information, visit nmlsconsumeraccess.org. Great to have you with us today on Faith and Finance.
Well, we're going to take your calls and questions today, help you apply God's wisdom to your financial decisions and choices. You can call right now. We've got some lines open. The number 800-525-7000-that's 800-525-7000. We would love to dive into your question around giving or investing.
Perhaps it's staying on budget or paying down debt. Maybe it's preparing and selecting the next steward. We can talk about any of those questions and more. Again, that number 800-525-7000. Let's dive in.
We're going to begin in Chicago today. Joy, go right ahead. Yeah, I'd just like to ask for advice as far as my daughter that's going to turn twenty in December. You know, we're trying to figure out how you could start building credit. Yeah, she's not currently working right now.
She just got her license for a nail technician. But just trying to guide her, I feel like I am lost myself. I've been in my job for 25 years in the medical field. She's not interested in anything like that, but I would like for her to start building her credit. Yes.
And saving.
Okay. Yeah. Very good. And the goal when you're just starting out is to build positive credit history while avoiding debt. And so we certainly don't want to take on any debt.
We don't want to pay any interest. We don't want to develop that cycle of using debt to live beyond our means. And yet we recognize we live in a system that requires or it's helpful to have, cost-effective to have credit over time. Whether you're renting an apartment or borrowing money to buy a car that fits into your budget, all of those things require good credit.
So, there's a couple of ways to go. One would be to become an authorized user on a parent's credit card.
So, for instance, your card, if you have a long history of on-time payments and a low balance or no balance, because you pay it off every month, then your daughter could be added to your account to benefit from your account's history. Assuming the card issuer reports authorized users to the credit bureaus, which most of them do.
Now, the risk there is: even if you don't ever give her the card or she doesn't have access to charge anything, the risk is if you had a missed payment or you had a balance that crept up over 30% of the limit, meaning you had a high credit utilization, then she would get your negative history along with the positive.
So you just have to be careful there. But it is a strategy a lot of people use. The second, which is a little safer because it's separate from you, is to open a starter credit card in her own name. It could be a student card. It could be Capital One has some cards that are designed specifically for those with little to no credit, just starting out.
Could be a great option. I suspect if she's 19, she's probably already started to get the solicitations. I wouldn't just take whatever comes in the mail. I would probably, you know, look and do some research maybe on bank rate or nerd wallet and find out who has the best credit cards. The saver card from Capital One was one that a lot of students use.
But she's got to be very disciplined, and you've got to make sure there's safeguards in place because, again, we wouldn't want to enable her to live beyond her means, not understanding the dangers of debt and get into a difficult situation. Which leads me to the third option, which again is more safe. And that would be what's called a secured credit card, where you simply put a certain amount on deposit with a bank, and you'd, again, want to research who offers the most compelling secured card. Yeah. But you put a certain amount on deposit, let's say it's $200 or $300.
They give you a limit equal to what's on deposit. You charge against it with budgeted items.
So let's say, There was a monthly subscription that she was already planning on. She's going to do it anyway. And it's budgeted, meaning she's got the money for it. She could let that hit the secured card every month. She pays it off in full.
Now she's starting to get some positive credit history reporting to her credit file. And the nice part is that because it's secured, there's no risk. Because worst case, she charges up to the limit $200, she's unable to pay it.
Well, they're just gonna take the money on deposit, pay it off, and she's done. And so it's secured by the balance of the deposit, which just means there's no risk of her charging money beyond what she has the ability to pay.
So if she had, let's say, one card, either secured or unsecured, with a small recurring expense, like gas or a streaming subscription, and she paid the statement balance in full every month, she would pay no interest. She'd keep low utilization, meaning the balance versus the limit. And then she would, over time, begin to build some credit history. But let me stop there and just get your thoughts on those ideas. Oh, I really like yes, I really like and very helpful with those three ideas.
I was considering p adding her on possibly on my credit card. Even though they aren't asking me for her social security number. Um that's something that I do need again like besides her name and our home address, which she still currently lives at home. Um, is that something safe to give over the phone? um her social security numbers.
And is that necessary for them to add her social then? It is necessary and it can be safe.
So it's necessary, meaning if she's going to be added as an authorized user and you've weighed the considerations I mentioned about all the history reporting, then yes, you would have to give them her social. And it is safe so long as you know who you're talking to, meaning you initiated the call to your credit card company using the phone number on the back of the card, not somebody calling you and claiming to be from your credit card company. But yes, as long as you initiate it, you know you're calling the right company, then yes, you could give them that social and add her as an authorized user.
So Lupe, I hope that helps. You sound like a great mom. Hey, stay on the line. I want to send you a resource to pass along to her that I think will be a real blessing. It's called Open Hands Finance.
Thanks for your call. Let's go to Columbia, South Carolina. Hi, Deborah. Go right ahead. Hi, Ron.
Thank you so much for taking my call. Yes, ma'am. I have a question. My husband and I are considering a reverse mortgage. And I was wondering, is this a good idea?
And would we lose ownership of our home if we did this? It's a great question, and it may be a good idea. I like to look at it as a tool in the toolbox, not necessarily for everybody, but it may be a good one if you're at least sixty two, you have fifty percent equity in your home, And you're looking either to supplement your cash flow or to have a line of credit available. You do not lose ownership of your home with what's called a home equity conversion mortgage, which is the more common and newer version of a reverse mortgage. When you move out of the home or pass away, the reverse mortgage would need to be paid.
And often that means the home needs to be sold, but you retain ownership of it until that time. Very similar to a conventional mortgage. The only difference is with a conventional mortgage, you have a monthly payment. With a reverse mortgage, you do not. The other difference is with a conventional mortgage, you're personally guaranteeing it.
So, if for some reason the home was not valued enough at the sale to satisfy the loan balance, you'd then be responsible for that. With a home equity conversion mortgage or a reverse mortgage, the federal government is guaranteeing anything beyond the value of the home.
Now, normally, That's not an issue because the home continues to appreciate even as you're pulling money out systematically. And even if you live a long time, let's say you live to 120, you know, you still should have some equity. But if you did not, and let's say you were upside down, the home sale would be enough to cover it. Does that all make sense though? That does make sense.
If I wanted to keep the home and the family, I would just sell it to a family member. Yeah, it would just have to be, the mortgage balance would have to be repaid, and they could get that by getting a conventional mortgage or selling it. I've got to take a break. Let's finish up off the air, Deborah. We'll be right back on Faith and Finance.
Stay with us. Are you feeling overwhelmed by credit card debt? As followers of Christ, we are called to be good stewards of what God has given us. That's why our trusted partner, Christian Credit Counselors, is here to help. Their debt management program can help you pay off your debt 80% faster while honoring your commitments in full.
Take the first step toward financial freedom today. Visit faithby.com/slash ccc or call 800-557-1985. Faith in Finance is grateful for support from Sound Mind Investing. For more than 30 years, they've offered financial wisdom for living well. SMI provides step-by-step guidance for do-it-yourself investors, from those just getting started to those getting ready for retirement.
More information, including the short video webinar on profit and peace of mind no matter what's happening in the market, is available at soundmindinvesting.org. I'm so glad to have you with us today on Faith and Finance, helping you see God as your ultimate treasure and money a tool to accomplish God's purposes. You have a question today in your financial life?
Well, we've got lines open. We're ready for you. We'd love to take your call at 800-525-7000. We've got, it looks like four lines open right now: 800-525-7,000. Whatever is on your mind today, whether it's your lifestyle and your budget, maybe it's the best way to pay off debt.
Maybe you're struggling with that credit score. You're getting ready to buy a house or get a car loan and it's concerning you. Maybe you want to give wisely. Maybe you want to do a qualified charitable distribution out of your IRA.
Well, any of those topics and more, we'd love to chat with you about. The number 800-525-7000, you can call right now. Let's head right back to the phones. We'll head to Mississippi. Susie, how can I help?
Oh, thank you for taking our calls and helping us. I have one question. Sure, yeah, go ahead. I have four months emergency fund. I don't have a retirement, but I g I live off my Social Security and I own my home.
and I have seventy five thousand on the C D in a bank that I just leave.
Something came out today from the American Gold Reserve. I don't have any gold. I couldn't touch it. I don't have the money. But it said that they could take $5 gold pieces for $4.69.
A minimum of five. Since I don't have big money like other people, should I do that or not do that? Yeah. You know, I'd be careful there.
So, right now you said your house is paid off. You have about $75,000 in the bank, and then on top of that, you have four months' emergency funds. Is that right? That's correct. Yeah.
And so, normally, what we would say is, you wouldn't want generally more than 5% of your investable assets. In gold. And so, if we were to say, okay, let's set your emergency fund aside. That's not investable. But beyond that, let's say, you know, we take the $75,000, that'd be around $3,750, 5%.
If we went to a full 10%, which I would say is the most you'd want to do, that'd be $7,500.
So I think somewhere in that $3,700 to $7,000 is probably the right move for you. But keep in mind, the reason I don't love gold for you here is you don't have a lot in the way of assets to depend on, and gold doesn't produce an income, so no interest and no dividends. Its price can be quite volatile, more volatile than stocks and bonds, at least historically, that's been true. And you know, it's very illiquid because if you're buying physical gold, now in order for you to sell it, you've got to find a dealer and you might have to pay a premium. And, you know, it's just not easy, not to mention the fact that you've got to store it and somewhere safe.
So I just think, you know, for somebody who's got, you know, plenty of retirement assets and they want to have a way to have a hedge against inflation or against a you know a situation where we had a geopolitical event, then I think having that five to ten percent position in gold makes sense.
Somebody in your situation where you've got a nice nest egg, the $75,000, but you might need it in the future for long-term care or something like that. I would just be very careful about having something like gold that's illiquid, that can be expensive to sell. And that you have to store, and again, has no income or dividend associated with it. Does that make sense, though? It does.
And I think you I always hear you and you always say that you don't talk to folks if you have less than 100,000 and I know I'm nowhere near that so that's why I needed to know.
Well, I'm happy to do it. And let me just clarify for the benefit of others. I'm happy to talk to anybody. We've got a lot of people that call this program that are in a really desperate situation. And we just want to serve God's people no matter how much or how little you have.
What you probably have heard me say is that many advisors, their business model is prevents them from, or their company prevents them from taking accounts where they're managing it of less than $100,000. In some cases, it's less than $250,000.
So that's, you know, probably what you hear me referring to. That has nothing to do with me. I'm not an advisor. I just lead this nonprofit ministry to equip God's people. But you will find that a lot of financial advisors are unable to take investment accounts of less than $100,000.
So hopefully that helps, Susie. If I can help you further along the way, don't hesitate to reach out. LaDonna's in Chicago. LaDonna, go right ahead. Hi, um, I was calling.
I listen to you all the time and I I'm not calling about um Investments or anything. I have a lot of debt that I am. I am overwhelmed with, and I'm trying to get my life together and get it on track. My husband passed away a while ago, and I used all my savings that I had, and I'm just I'm just, I don't know what to do right now. I got into a program where they.
Worst. they say they were their getting my interest rates reduced so that I can uh Page Okay. a little bit at a time toward my bills, but I'm not seeing anything good. Out of it. And I don't know what the difference is.
What type of program is it, LaDonna? What's the name of the company you're working with? Uh morning law.
Okay, I'm not familiar with that. Are they describing it as credit counseling or debt management, or are they calling it debt settlement? Is there any terms that you recognize? Debt settlement. Yeah, debt settlement.
That is not something I recommend at all because the strategy of debt settlement, if that's what it is, is that they stop paying your bills. and let you get past due. And then they try to come in behind you after you get past due and use that as negotiating ability to try to negotiate a reduced payoff. The problem is, it can trash your credit in the meantime. It just creates a lot of problems.
Instead, what I would like for you to do, LaDonna, is visit with my friends at Christian Credit Counselors. They're a wonderful ministry. They're all believers. And they're going to get you into a program where you don't have to stop paying your bills. You don't get past due.
You don't have collections calling. You don't trash your credit. In fact, if you're behind because of the debt settlement, they're going to get you into the program. And often, the first thing that happens when you get into debt management or credit counseling is they re-age the account. That means you get brought current immediately, and as long as you make on-time payments, then you stay current.
But the real benefit is they're going to get the interest rate down to somewhere between 0% and 10%.
So, what I'd like for you to do as a next step here, LaDonna, if you're interested, is reach out to ChristiancreditCounselors.org. In fact, Easier than that, just go to faithfi.com slash ccc. Faithfi.com slash CCC. And that'll give you the phone number. You can contact them on the internet if you prefer, but you're going to schedule a phone call where they're going to review your situation, they'll tell you exactly what they can do for you.
And they've worked with thousands of our listeners, LaDonna, and they'll get you pointed in the right direction, okay?
Okay, sounds good. I so appreciate it. Thank you, LaDonna. God bless you, and we appreciate your kind remarks about the program.
So thankful for your calls, for you listening, being a part of the program. Thanks also for your great emails and encouragement that come through the mail as well. Let me say thanks to my team today. I certainly couldn't do this without them: Taylor Standrich, Devin Patrick, and Robert Youngblood, plus the incredible team behind those gentlemen here at Faith By. You have a great day.
May the Lord bless you and come back and join us tomorrow. We'll see you then. Bye-bye. Faith in Finance is provided by FaithFi and listeners like you.
