Inflation has jacked up the price of just about everything these past three years, but perhaps nothing so much as used cars. Hi, I'm Rob West. Other things like COVID and supply chain interruptions contributed to huge price hikes for used cars, but those factors are now in the rearview mirror.
So shouldn't things be getting better? We'll take a look at current prices and I'll give you seven steps for making a wise used car purchase. 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 decision. Okay, let's turn the calendar back to 2019. You need to get another car and you've decided to buy used. You've done your homework and the make and model you want to buy is three years old and selling on average for just over $23,000. You think that's a lot of money, but at least you know you'll have five or more years of mostly trouble-free driving, so you go ahead with the purchase. Today you're hoping that car lasts you a good deal longer because a similar purchase now will cost you, wait for it, $32,000 according to the car shopping site iccars.com.
That's a 41% increase. If you go used car shopping today with the same budget you had in 2019, $23,000, you'll have to settle for a six-year-old vehicle. And those figures take into account that used car prices have gone down nearly 7% in the last year and 1.2% in August alone according to government figures. Analysts expect used car prices to fall even more as the inventory of new cars continues to improve in the months ahead. By the way, that's good news if you're looking to buy a new vehicle as well. New car prices are predicted to drop significantly in the near term as there's now something of a global glut of new vehicles, about 5 million more than predicted sales, which will force prices down. And that will have a ripple effect on used car prices, pushing them down as well.
But what if you can't wait? What's the best way to buy a used car now? Well, the steps to making a wise used car purchase haven't changed.
Here are seven of them. The first is especially important when making a major purchase like a car. Establish how much you can afford to spend.
If you've been saving for the purchase and you're using cash, you already know that number. If you plan on financing the car, you've got to figure out how much you can spend while making sure the payments fit within your budget. You can use a loan calculator to help you figure that out. You want to put at least 10% down on the car, 20% would be better. Then try to keep the term of the loan as short as possible.
Three years is ideal. Of course, once you have the loan paid off, keep making the payments to yourself by putting them in a special savings account so you can pay cash for the next car. Okay, second, determine the make and model vehicle that's best for you. Take into account the size of your family, cargo space, safety, and of course, reliability. You may come up with two or three different vehicles that meet your needs.
That's okay. Having options will probably make the car hunting experience easier. Three, go online to Kelley Blue Book or Edmunds to get the estimated value of your chosen vehicles.
We'll put links to all of the sites we mentioned in today's show notes. You can plug in a vehicle's year, make, model, and mileage to get an idea of what you should expect to pay. Four, you can start searching online at AutoTrader, Craigslist, Autolist, and CarMax. Make a list of the vehicles that seem to be priced fairly for their condition.
Five, contact the seller and ask for the vehicle identification number or VIN. You then use that to get a vehicle history report and you can do that online at Carfax and AutoCheck. Make sure it has a clean title and that it's not been in a serious accident or totaled by an insurance company. Also check the mileage.
Sometimes shady characters will spin back the odometer to make the vehicle appear to have fewer miles. If the vehicle history checks out, then move to step six. Ask the seller to allow you to take the vehicle to an independent shop of your choosing to have it inspected. If the owner or lot sales person says no, that's a deal breaker.
Just walk away. Now if the car checks out at the repair shop, you can move on to step seven, which is to make an offer. Since used car inventories are still limited, you probably can't haggle very much. But if you've done steps one through six properly, you at least know that the car you're buying is in good shape and should last many years if you take proper care of it. Alright, so those are your seven steps for buying a used car. I hope you find them helpful. And by the way, be patient.
If you're willing to put in the time and work, you'll find the right car for you. Alright, your calls are next at 800-525-7000. That's 800-525-7000.
I'm Rob West and we'll be right back. You can manage your money, get top biblical financial resources and interact with a community of like minded believers where you can ask questions, get answers and share what you're learning. Go to faithfi.com and click the word app to get started.
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This institution is not federally insured. Welcome back to Faith and Finance. I'm Rob West. It's time to take your calls and questions today on anything financial. We'd love to hear from you with lines open. Len standing by today to receive your call at 800-525-7000. That's 800-525-7000. You can call right now. Let's dive in. We're going to begin today in Tampa, Florida. Fred, thank you for calling, sir.
How can we help? Hello, how are you? I'm doing well, thanks.
Good to hear. Hey, just a number of questions, something very general. What is the average that you would want to retire at 65? With all of our monthly expenses, about $3,000 a month, what should we have in the bank to retire on?
Yeah, so you're looking for a number and, you know, general rule of thumb for that would be, and don't let this catch you off guard because if you're not anywhere close to this, we can talk about kind of how you move forward from here, but a general rule of thumb would be 10 to 12 times your income. And the idea behind that is to say, okay, if you have 10 times your income, let's say you were making $60,000 a year, that would mean you need to have $600,000 in the bank and that would throw off at a 4% withdrawal rate $24,000 a year. Okay, so that would allow you to pull $2,000 a month. Now, you might say, well, if you were making $60,000 a year, that's $5,000 a month, you're only talking about pulling two and that's right.
There's two other factors here. The second factor is Social Security, which for most folks, it was intended to make up no more than 40% of your pre-retirement income, but that would add, let's say, you know, another $2,000 to $3,000 a month between you and your spouse. And then the third factor is that most people live on 70 to 80% of their pre-retirement income. So if they were living on $5,000 a month, you know, 70% of that is, you know, $3,500 a month. If they live on the full 80% of that, that's $4,000 a month. But the idea is that, you know, 10 times your income at 4% withdrawal rate plus retirement plus the fact that you're living on 80% of your income because your house is now paid off maybe and your kids are off the payroll and you drop your life insurance and you're not, you know, eating out at lunch, you know, during the work day, your expenses have dropped.
And, you know, that's a general ballpark toward how most folks approach this. Now, the variables are maybe you live on less than 80% of your pre-retirement income. Secondly, maybe you haven't saved 10 times your income, so you're working longer. Maybe you work past 65 and do a couple of things. One, continue to save in a tax-deferred environment like a retirement plan so it has more time for the compounding growth to work for you. And for every year you wait beyond full retirement age to take Social Security, that's increasing by 8% a year. So there are, of course, some levers you can pull to modify this, but that would at least be a starting point if you look at just kind of a general rule of thumb. Does that make sense though, Fred?
It does. What tax planning could be done now that would help in the future when we do retire? I've been watching a couple of shows and I'm hearing a lot of tax planning now and not quite sure what to make of all that. Yeah, I mean, for the average person who's not in a high income bracket or doesn't have a lot of assets or with appreciated real estate or big appreciated stock outside of a retirement plan, we don't have to get terribly creative in the sense that most people, their tax strategy is to save in a tax-deferred environment or better yet, save in a tax-free environment through a Roth IRA or a Roth 401K. So that as you're saving during your working years, that money is growing either tax-deferred or tax-free, so then you're pulling it out hopefully in a lower income status and therefore paying lower taxes in retirement. And then in the traditional form, you pull it out and pay tax on it as you take a distribution or in the case of the Roth IRA or 401K, all that growth is now being taken out tax-free.
There are other options. For instance, you could do what's called a charitable gift annuity. Some folks will do that where they'll take an asset, give it away to a ministry in exchange for a lifetime payout of income with some tax advantages and then what remains at death goes to that ministry. There are other strategies using donor advised funds that allow you to give but to take an asset and give it away before you sell it and then reduce your capital gains to create more giving opportunities.
So there are things you can do but for the average person, I think we don't have to overcomplicate it. I think the big idea is for your working years, you just want to try to get as much as you can up to what's an appropriate savings goal. I don't want you to over accumulate.
This is not about the mindless accumulation of wealth but whatever is an appropriate savings level for you after prayer and consideration about how much is enough, that needs to be done in the tax deferred company sponsored retirement plan or IRA or both because that's going to give you the most tax advantage while you're saving and it keeps the taxes from putting a drag on the investment returns during your accumulation phase. Right. Well, we've been stuffing a fair amount in 401k both myself and my wife.
We're not mass accumulation just to mass accumulate but we have seen my mom go through cancer and how that ate at my dad's finances. He retired from the Navy. He still has. He did a good job of beating up finances over four and a half years. So we wanted to make sure we were going to be ready for that.
Yeah. Well, another consideration there, and I'm glad you brought that up, Fred, and I'm sorry to hear what your dad has been walking through with your mom. But long term care insurance can be another vehicle there because you're right, if something is going to erode your assets in that season of life beyond just normal living expenses, it's most often going to be the need for long term care and, you know, 70% of Americans 65 and older will need long term care, usually somewhere between two and three years. And that's expensive. You know, full nursing care can run you nine or $10,000 a month now. And so if you can afford it, if you can fit it into the budget, and that's a big F, just been on your age and your health status and so forth.
Getting that somewhere around age 60 could provide a daily benefit for a period of time to be able to step in and compensate you or help you pay the cost of long term care if, you know, either of you can't perform a certain number of those activities of daily living. And, you know, that can be a great assistance to offset that risk that you're describing there that can be really challenging for folks. And my dad had $5,000. It would pay up $5,000 a month. But when all this happened, as you mentioned, the costs were $7,000, $8,000, $9,000 a month.
Yeah, yeah. So there was that difference between what the policy would actually be and where she was at. And that's why having somebody who really specializes in evaluating these policies, helping you understand what you're getting, helping you understand the gap between the daily benefit that would be paid out and what might need to be paid out for skilled care, and how you're going to accomplish that and what savings goals you need to have to cover that or whether you need to get a more robust policy with a bigger, you know, benefit paid out on a daily basis. So all of those things come down to wise and prudent planning, having good godly counsel, and, you know, just saving diligently and living and limiting your lifestyle to the best of your ability. Well, Fred, it sounds like you're asking all the right questions.
Perhaps a certified kingdom advisor could be helpful to you as you think through all of this and do some planning around retirement. You can find one at our website, faithfi.com. Just click Find a CKA. God bless you, my friend.
Thanks for calling. We'll be right back. 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 and 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. On behalf of the amazing team that makes this possible each day, we're so glad you're along with us today. Here's our hope and promise to you. We want to be hopeful and encouraging, help you to be a wise and faithful steward of what God has entrusted to you. But we also want to really help you make practical decisions. You know, handling God's money faithfully is about wise decision making.
You know, all the answers aren't there in God's word, but we do see principles and themes and big ideas that I think we can apply to our daily financial decisions. We want to help you do that here on this program. It looks like just about every line is full. There might be room for one more question at this moment. 800-525-7000. All right, back to the phones we go.
We're going to my hometown, Fort Lauderdale, Florida. Hi, Sarah. Go right ahead. Yeah, so I'm on disability and I heard you say at 65 they're going to cut it off. I'm now 60. Should I break myself for decreased income? Yeah, so what happens there is once you reach age 62, you can apply to receive benefits based on your work record. Of course, the longer you wait, the greater your monthly benefit would be all the way up to age 70. And so if you are, you know, so when we're talking benefits here, the Social Security Administration will then look at how much you'll receive based on your work record, and compare that to your disability benefits, and then give you the larger of the two. So it's in your best interest, Sarah, if you still qualify for disability benefits to stay right where you're at and allow your work record benefits to continue to grow. Okay, thank you. You know, concrete facts based on your particular record.
So I would go to the Social Security Administration, ssa.gov and schedule a meeting so they can explain all of that to you. And then you'll know exactly what you should be expecting. Thanks for your call today. We appreciate it.
Pina is in Spring Hill, Florida. Pina, I know you called yesterday, we weren't able to get you on. So I'm delighted you called us back. How can I help you? Yes. Thank you for calling, taking my call and God bless you.
And I'm a fan of your program. I want information about a reverse mortgage. My older sister, she's now over 80. When they bought the house, they went into a reverse mortgage, her husband passed. And I don't think she has any, I guess if she can save it, save the house.
That's the question. I want to know if it can be saved the house. And if she can't, can a sibling can do that? Yes. Now, what would happen is, at that point, once she passes, then the amount that they paid out to her, you know, through the reverse mortgage would need to be paid back.
And so whoever inherits that house would then either have to satisfy that amount in order to keep the house by writing a check or getting their own mortgage, or sell it and then cover the amount that's owed to the reverse mortgage company. You know, at that time, does that make sense? Yes. Can she do it while she's alive? Yes. So the person who got the reverse mortgage, can they pay it off?
Yes, absolutely. So that it can be paid back, and she could get it back to where she owns it free and clear. But as long as she's taking a reverse mortgage, there is an amount that's growing over time with interest that must be paid back when you die or move from the home. And it's possible to use up all of the equity so that, you know, eventually you would get the person inheriting the home would get nothing. The estate would get nothing when the house is sold if she uses it all up. As long as she keeps the homeowners insurance and property taxes paid, she can stay there as long as she wants. But that amount is going to have to be repaid, you know, by her estate, you know, at her death or by her if she moves and sells the home. It sounds like you're interested in this for yourself.
If you wanted to get more information, our great partners at Movement Mortgage do offer reverse mortgages, and they could walk you through just a better understanding of how these things work. They're national lenders, and they share our values. And so we have high trust there. You can get more information at movement.com forward slash faith.
That's movement.com forward slash faith. Thanks for calling Pina. Let's head to Kentucky. Hi, Dan. Go ahead. Hi, Rob.
Just real quick. My wife and I just retired to southeastern Kentucky. I retired at the end of June with 41 years of federal service. We've already had one visit with a CKA turned over some of the pertinent estimates and budget related items to that advisor, but we're going to meet now in a few weeks.
I wanted to know if you could recommend some sources or resources that would help me educate myself going into this phase of investing. We're debt-free for the first time in our lives, and we want to stay that way. Yeah, that's great. I love what you're describing here, Dan.
You guys are making some great decisions. Give me a sense of what it is you want to—is it really just how to approach this next season of life in terms of how you're going to spend your time and how you'd prepare to live out what God has for you next? Is it really getting up to speed on investments and understanding investing, or is it wealth transfer and all the questions that come with putting your estate plan together?
Where do you feel like your biggest need is today? The biggest need is asking the right questions and going into this phase of investing. I would like to remain retired, as it were, to be able to serve in ministry wherever the local body needs us, and to that end, I don't want to put our—we haven't made a decision yet on a home, and so we need to take that into account. But at the same time, I don't want to put our finances in a situation where I'm going to have to go back to work if I don't have to, not because I'm adverse to it, but I'd rather have the freedom to do ministry more effectively.
Yes. I think a great place for you to go would be a website called faithandinvesting.com. This is put out by the Eventide Center for Faith and Investing, and it's basically an educational initiative, and there's even a course there that I think would be helpful for you.
There's one for advisors, but there's also one for individuals, so between those free articles and then that course, I think that'll give you what you're looking for. Again, it's faithandinvesting.com. Hey, all the best to you, Dan. God bless you. We appreciate you being on this program. Hey, we're almost out of time, but I wanted to let you know that you don't ever have to miss a program. Just download our FaithFi app for your mobile device and take us with you anywhere. Thanks for joining us today. I look forward to talking with you again next time on Faith and Finance. Faith and Finance is provided by FaithFi and listeners like you.
