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Learn more at guidestonefunds.com slash faith. When your kids are little, summers seem long. You're ready for school to start again in the fall. But what if your child is finally ready for college? Well, summer doesn't seem long enough to prepare for such a major transition. I am Rob West. What's next after high school? If you've got teenagers, it's an inevitable question. We'll talk about some big transitions today, and then we'll take your calls at 800-525-7000.
That's 800-525-7000. This is faith in finance, biblical wisdom for your financial journey. These days, senior year in high school seems like one long college application push, even if your child isn't really interested in a four-year degree.
So let's talk about that first. No matter what kind of pressure you're getting from the school counselor or your friends, consider what's best for your teenager and your wallet. That's right, finances should be a part of the what's next conversation right from the start. The goal should be to avoid college debt altogether. So start saving early, and when your child is in high school, talk about what you can and cannot afford. Investigate scholarships and encourage your child to investigate alternatives to four-year college, including tech schools, online classes, and even the military. When a student who's applying to college starts senior year in high school, their parents have to fill out the Free Application for Federal Student Aid, or FAFSA, which will determine their eligibility for student financial aid.
Even if you don't think you'll be eligible for need-based scholarships, you still have to complete the FAFSA each year if they're in college, since most schools require it regardless. Going to college is a major transition both personally and financially. If you're the parent of a college-bound student, especially a first-year student, here are a few things you need to discuss before they leave the fold. First, help your young adult to understand the cost and value of education. Emphasize the importance of working hard academically to justify the expense. Encourage your child to get a part-time job if possible to help with their expenses at school. Whether or not your child has decided on a major, talk to them about the link between academic success and career opportunities.
A strong college record can result in higher earning potential for the graduate. Find out the resources their school offers for free tutoring, career guidance, and student support. Make sure your freshman knows it's okay to seek help at school. Have a conversation about budgeting.
Be clear. How much spending money will your student have each month and what is it for? They do need to have discretionary money, but help them put together a plan so they don't end up spending it all on pizza. Talk to your student about credit cards. According to collegefinance.com, 65% of college students have some credit card debt with an average of over $3,000 in debt per student.
The most common credit card mistakes college students make are only paying the minimum amount and missing a payment. Talk to your student about values. College is a big step into independence, and your child will have opportunities to make important choices. Share your moral and financial values with them again, and ask them about theirs.
Let them know you'll pray for them and that they can depend on you to support and love them no matter what. Starting college is a major transition for students and their families. A little communication and a pre-planned budget can go a long way to prepare them for a successful first year. As your student nears the end of their college experience, another transition looms on the horizon. I'm talking about career choices and life in the real world. Whether or not your student has a job lined up after graduation, talk to them about their plans and dreams.
Your wisdom and experience can be invaluable as they make their way, but try to listen more and talk less and offer your advice only when they ask for it. Unfortunately, inflation, student loan debt, and the cost of apartment rentals and home ownership are making it difficult for many young adults to make their way. You may find yourself in a boomerang situation where your 20 or 30 something offspring returns to the nest. According to a survey by the Pew Research Center, close to 27 million young adults moved home during the pandemic, and many of those are still living with their parents. The study goes on to state that a quarter of U.S. adults ages 25 to 34 were a part of a multi-generational family household in 2021, up from 9 percent in 1971. Finally, whether you're the parent of high schoolers, first year college students, or young adults just starting out, be prepared to let go. Whether they're out on their own or still under your roof for a while, they'll be okay and you'll survive.
After all, God loves them even more than you. All right, your calls are next, 800-525-7000. That's 800-525-7000. Stick around. If you enjoyed 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.
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This institution is not federally insured. All right, we're going to go back to the phones. We'll get to as many questions as we can before we round out the broadcast today.
To Tampa, Rebecca, go ahead. Yes, I want to know that if a mortgage and a small loan, if a small extra payment a month be about the same as making one yearly payment to principal only, does it make a difference? It does. You know, the sooner you pay toward the principal, the better, because every month that goes by that you're not paying interest on the amount that you reduced through that principal reduction payment is good for you. So all things being equal, if you were to send $100 a month starting in January versus $1,200 all at one time in December, you'd be better off doing the $100 a month. Now, if you could do the $1,200 in January, that would be better than $100 a month for the year.
You see my point here. So the sooner we can make that payment to principal, the better. And if we do that systematically either through an annual principal reduction payment or through a monthly small amount to principal reduction, both of those are going to work for you.
But if you're really just looking to crunch the numbers and figure out which is better on paper, paying it off sooner rather than later is always better. Okay. Is that helpful? It is, yes. Thank you.
Okay. You're welcome. Let me also mention, Rebecca, if you're comfortable on the internet, there's a lot of great mortgage calculators out there. If you just type in, you know, principal reduction calculator, you'll find a lot of free calculators where you can put in your loan amount, the balance that you have today, the interest rate, the scheduled payment, and then you can start playing with the calculator to say, how much interest would I save if I pay $25 a month? How much would I save at $50 a month? How much would I save if I do, you know, $1,000 right now? And you could see that play out in the amortization schedule will tell you exactly what the benefit is.
And you may find that, you know, that's the incentive you need to do a little bit more just because you see how quickly those numbers add up. Let's go right back to the phones to Chicago. Hi, Larry, go ahead. Hi, thank you for taking my call. I listen every day and pick up great tidbits for you. I'm about 65 years old and I'm financially secure and I'm wanting to do something for my grandson.
He's going to be two in August. And what I want to do is I want to make something as, as hands-free as possible because my daughter's not the most astute with taxes and I know I'm not going to be around forever. So mutual funds with regard to, you know, municipal bonds are okay.
And I've done a uniform gift to the miners with my daughter previously, but I was around to manage it. So is there any suggestions you have that I could like throw 20 grand at here or there or anywhere and kind of not worry about it again? Yeah, it's a great question, Larry.
And perhaps one of the indexes would be a solution for you that would work well. So it would not be a systematic contribution. You're looking at a one-time contribution probably? Yeah, a one-time contribution that I really, nobody really has to keep track of the tax consequences. And, and I don't know how that's going to happen because I know those are the two things that are always going to happen, right?
Taxes and getting called home. Yeah, exactly right. Yeah. I mean, somebody's going to have to handle the taxes and depending upon how this account is titled is going to ultimately determine who's responsible for paying the taxes. The only challenge with the UTMA or the UGMA, which is a custodial account is that it becomes the child's asset at the age of majority. So when she turns 18, if she's either not spiritually or financially mature enough to handle it, it's her money and she can do with it what she wants. So are you comfortable with that or would you rather you or your daughter be the one to decide when she gets it? No, to let them fly on her own and make their own mistakes and learn from it. Okay.
All right. So then you could do a custodial account because I suspect, I mean, along the way she probably won't have, you know, much in the way of income. And you know, then you wouldn't have to worry about it. With that custodial account, you know, the, the, the custodial accounts are subject to what's called the kiddie tax. So this rule applies to unearned income up to a certain threshold.
And then over that threshold, the child child pays taxes at the parent's rate. So somebody is going to have to look after that just to make sure that the filings happen appropriately. But it should be fairly simple. I mean, I think the key is to put this in something where you don't need active oversight of it. And that's probably going to be one of the index solutions where you just pick a broad market index, you drop the money in, and then you're just knowing, okay, I'm capturing the broad moves of the market, maybe it's the S&P 500, you know, or the Russell 1000.
So you're not picking winners and losers, you're just saying, as the broad market does well, this account is going to do well over time. And then obviously, there will be, you know, taxes that will have to be paid along the way, you know, for any distributions, meaning dividends. But, you know, until it's sold, there's not going to be, you know, much in the way of taxes that will have to be paid, if anything, given that it's in that custodial account. So you could, you know, go to a Schwab, for instance, and open like the Schwab intelligent portfolios where they kind of use one of these robo advisors to manage it for you. It's very low cost, probably one fifth of 1% a year.
And, you know, it would make sure that it's properly diversified among largely stocks, but probably a smaller allocation of bonds, but only using the exchange traded funds. And you know, as long as your daughter could hand that over to a CPA or somebody who's filing her taxes, then they can include it. Well, thank you so much. I really appreciate you doing what you do. Happy to do it, Larry. And thanks for your call and your kind remarks, sir. I appreciate you.
Let's stay in Chicago. Hi, Sally, go ahead. Hi, thanks for taking my call.
I have a couple of questions. I just turned 69 a couple of weeks ago and I have about $300,000 in 401k. And what I'm interested in, I've talked to a couple of people that have annuities and I was wondering if you can explain the lifetime benefit of annuity and, um, how does that really work?
The other thing is I also am by myself, I'm divorced and I don't have any children and I'm kind of worried about, uh, what's going to be happening with my longterm care. If, if you have any input on that and how do I go about obtaining that? Okay. Yeah. So you're probably, we're talking about what's called for the first part of the question, a single premium immediate annuity. It can be also called an income annuity. And basically it's designed to give you peace of mind and make sure you never outlive your retirement savings. So usually you, your lump sum, uh, is then, uh, you know, paid in from a 401k or other investments. And then, you know, you can either let that grow, uh, or you can annuitize it, which then converts it into an ongoing guaranteed stream of income for a specified period of time or for a lifetime.
And then, you know, eventually you can make withdrawals on that. So is that the kind of thing you're looking for? I believe so. Yes. Yeah.
So what I would do, I'm sorry, go ahead. I just said I got some information from a friend that did that and, uh, she's getting, I believe about $7,000 a month. And she also had a longterm care, um, combined with that.
And I really couldn't understand everything that she was trying to tell me in a short period of time. Yeah. Got it. All right, let's do this. I'm going to take a quick break. If you'll hold the line, let's pick this up on the other side of the break and we can talk more about this guaranteed annuity and longterm care along with it. These are some great questions, Sally.
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That's christiancreditcounselors.org or call 800-557-1985, 800-557-1985. We are grateful for support from Sound Mind Investing in the Faith and Finance Program. If you have money in a retirement account or just a general investing account, you know the stock market can sometimes seem like a roller coaster, but it is possible to enjoy both profit and peace of mind in investing no matter what's happening in the market. You can see a short video webinar on that topic at soundmindinvesting.org. Since 1990, Sound Mind Investing has sought to offer financial wisdom for living well. Soundmindinvesting.org. Welcome back to Faith and Finance. I'm Rob West. We're taking your calls and questions today.
All the lines full, so we're going right back to the phones. Before the break, we were talking to Sally in Chicago. She's got almost $300,000 in a 401k. She just turned 69. She's looking to get an annuity that would pay her an income stream. Her friend has an annuity that also has long-term care included.
She's wondering about whether or not that makes some sense. Sally, as I was sharing before the break, some of the benefits of annuities are being able to take a lump sum like you have, convert it to a guaranteed return, which gives you peace of mind, and you get tax deferral as it's growing. So it's continuing to grow in a tax-deferred environment just like you are in the 401k.
And then at some point down the road, you could convert that to an income stream or you could do it right away if you needed the money right now. The other option is what you referred to as adding long-term care. A lot of times these will be called long-term care annuities. Basically, it's just a combination of one of these fixed annuities with long-term care insurance. The benefit there is that number one, the underwriting is more liberal.
So traditional long-term care insurance insurers are pretty strict about who they'll insure. The long-term care annuities aren't as stringent. So that's a benefit. You continue to get the tax deferral. And then normally, you would take out the interest from an annuity and it would count as taxable income. But if you take it as long-term care insurance benefits, that's not taxable.
And then you still get the guarantees inside it. Now, what you need to know in terms of maybe some of the downsides is often with a long-term care insurance policy you'll get coverage from day one. Whereas with the annuity, with the long-term care insurance rider, it may take time for that to vest. And so you can't get that benefit right away. It also requires often if it's a single premium policy that you come up with the money right up front. So these things are complex, but this could solve for a couple of things you're looking for, namely a peace of mind type investment where you're not taking any risk, a reasonable rate of return, and knowing that you have the benefits of the long-term care, which in this season of life perhaps is the single biggest risk you have just given the fact that nursing home care can run $9,000, $10,000 a month. And so if something's going to erode your assets, it's most likely going to be related to healthcare.
So I think your next step, if this sounds attractive, would be to get with an advisor who could help you think through all of these options, even help you determine what would be the best company and secure the policy if in fact, you know, that's the direction you decide to go. Does all that make sense though? Yes, it does. The question that I have, like on that amount of money and about $300,000, how much do you in average you think you would get a month as a secure income? Yeah. You know, there's really no way to tell without running one of these illustrations just because it involves not only your age and the balance, but the medical underwriting. And then also, you've got to look at, you know, the impact of the long-term care insurance because then it's not going to grow quite as quickly.
So I would recommend that you know, rather than me giving you a number here, just kind of off the cuff, I'd rather you have some actual illustrations run that factor in all of your details and then, you know, see if that's going to meet your needs because I understand you're also solving for a monthly income need to cover your bills. And so that's going to be a key part of this. Right.
Right. Thank you so much. That was very helpful. I really appreciate it. Do you by any chance have anybody here in Chicago that you would recommend to me to speak with?
Yeah, I would reach out to a certified Kingdom advisor and I'd probably call two or three and talk to them over the phone and just get a feel for who might be the best fit given your age and stage of life and the things that you're looking for, your needs. And so the way to do that is on our website. Are you comfortable using the internet? Yes. Yes.
Okay. So just head to faithfi.com. That's faithfi.com. And then right there at the top of the page, it'll say find a CKA and that stands for certified Kingdom advisor.
And then you can search by your zip code and you'll see all the CKAs there and in your area and you could reach out to two or three and do a phone interview. Great. Thank you so much. God bless you for everything you do every day. And you too, Sally. Thanks for being on the program. We appreciate it.
Let's stay in Chicago. Greg, go ahead. Oh, thank you for taking my call. The question that I have is pertains to required minimum distribution. I work for the federal government and so I have a thrift savings program and I understand that the current age where you have to take a required minimum distribution is 72? Yes. Is that correct? That is correct. Well, yeah, and it's going up to 75.
But yeah, for most folks currently it's 72. Okay. So if I'm 72 and I'm still working, am I still required to take that distribution? No.
Have you been doted? Yeah. So if you are still working, you do not have to take the required minimum distribution until you retire. And this applies really to any retirement account that would normally be subject to an RMD. If you're still employed, then you don't have to take that required minimum from the plan that your current employer sponsors. Now, that does not apply if you have other accounts. So IRAs, Simple, SEP, retirement plans from previous employers, those would all have a required minimum even if you're still working.
But for that plan with your current employer, as long as you're still working and you don't own more than 5% of the business, which you don't with the US government, and you have that employer-sponsored plan, then you do not have to take that RMD until you retire. And you said that that age is going to go up to 75. Is that predicted to happen this year? No.
Yeah. It comes a little later. So it was through the SECURE Act 2.0, and it's for retirees who reach age 74 after 2032. So it's down the road a ways.
Right now, it's 72, and then it will eventually go to 73 in 2033, I believe it is. So it's going to be a while before it heads up, but it is continuing to move higher. But as long as I'm still working, I'm not required to take that distribution.
From the plan with your current employer, that is true. Okay. Well, thank you.
That was the question that I had. Okay. Very good. Thanks for your call today. We appreciate you being on the program. Well, folks, that does it for us today.
I'm Rob West. Thanks to our amazing production team and to you for listening. I hope you'll join us again next time right here on Faith in Finance. Faith in Finance is provided by Faithfi and listeners like you.
