What's most important to you when it comes to choosing your financial advisor? Someone who's aligned with your biblical values. How about someone who will take the time to explain your options? Certified Kingdom Advisors are professionals who meet high standards in competence and integrity and have been trained to offer biblical financial advice.
To find a Certified Kingdom Advisor in your area, visit faithfi.com and click Find a CKA. Folks always ask us, how much will I need to retire? And the answer is, it depends. It depends on your needs, lifestyle, and one important factor.
Hi, I'm Rob West. That other important piece of the retirement puzzle is, how much are you willing and able to cut from your budget? I'll talk about that first today, and then it's on to your calls and questions on any financial topic at 800-525-7000.
That's 800-525-7000. This is Faith and Finance, biblical wisdom for your financial decisions. Okay, I think we can assume that just about everybody will have less income during retirement. So it's really helpful that many of the expenses associated with work, especially work outside the home, go away when you retire. Because of this, many experts say you'll only need 75-80% of your working income when you retire.
Now, why is that, you ask? Well, because your transportation, clothing, and dining out expenses, mostly for lunch, drop considerably when you're no longer working. That's all good, but the problem is, studies show the average retirement budget is only about 60% of working income. So if you're working and making, let's say, $75,000 a year, you'll need at least 75% of that, or a little over $56,000 in retirement. But if you're on track to generate only 60% of your working budget from Social Security benefits and income from your investments, you'll be short $11,250 a year, or about $940 a month. That means you'll have to work longer to build more savings that generate more retirement income, or continue to work part-time to make up that $940 monthly shortfall, unless you're able to cut your retirement expenses enough to close that $940 gap, or at least make it smaller. Now, how do you do that?
Well, let's start with the one that's probably the most obvious. It's the big house you raised your family in, but which is now largely empty because they've all moved on and have their own houses. Do you really need all that room?
Probably not. So now's a great time to downsize into something smaller. Besides lowering your maintenance costs, utility bills, and taxes, downsizing should leave you with cash left over that you can convert into an income stream, getting you closer to your retirement needs.
As long as you've lived in the home for two out of the last five years, you can exempt the first $250,000 in capital gains on the sale of your home, or $500,000 for married couples. And if you're worried about having enough room when the grandkids visit, take some of that savings and get bunk beds or air mattresses. They have really nice ones now with built-in air pumps. Now, the next biggest way to cut your retirement budget is with transportation. If neither you or your spouse is working, do you really need two vehicles? Probably not, and you can sell one and pocket more cash, plus cutting repair costs, registration fees, and insurance premiums. And if you and your spouse sometimes have to be away from home in two different places at the same time, consider using a ride-sharing service and leave the driving to someone else.
It might cost you three or four dollars a mile, but you can afford that occasional expense with all of the money you're saving. Now, let's look at insurance next, and specifically disability and life. First off, disability insurance is designed to replace lost income when you're recovering from an injury, an illness, and not able to work.
Obviously, if you're retired and not working, you have no working income to replace, and therefore you have no need for disability insurance. Yet some people still carry it, drop it the day you retire. Now, what about life insurance in retirement? Well, if your children are now grown up and out of the house, providing for themselves and their families, they're no longer dependent on your income, so you can cut back on life insurance, which by the way, gets increasingly expensive as we grow older. Also, look at interest on credit card balances and other consumer debt.
It's never good, but downright terrible when you're retired and trying to adjust to a smaller income. Take some of that cash you've freed up with the previous suggestions and pay off the credit cards just as soon as you can. Oh, and one final thought. You'll probably have plenty of time in retirement, so consider giving more of it to your church or favorite ministry. Christians shouldn't retire from something, but to something.
Folks, this can be one of the most incredible seasons of your life if you lean into it and ask God what He has as you leverage your wisdom and experience for His glory. All right, your calls are next. The number, 800-525-7000. By the way, you can call that 24-7, 800-525-7000.
I'm Rob West, and 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. 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. What's most important to you when it comes to choosing your financial advisor? Someone who's aligned with your biblical values? How about someone who will take the time to explain your options? Certified Kingdom Advisors are professionals who meet high standards in competence and integrity, and have been trained to offer biblical financial advice. To find a Certified Kingdom Advisor in your area, visit faithfi.com and click Find a CKA. You're listening to Faith and Finance, where we talk about how we handle God's resources.
How are you using God's resources? We're talking about it, and the lines are open to take your calls and questions. 800-525-7000 is the number to call.
Cleveland, Ohio. Teresa, thanks for calling. Go right ahead.
Hi. My question is, do I stay in this high interest car note at 21%? Do I get out and the credit union says, if I pay them the $6,000 difference, they'll refinance the loan for me? Or should I just take that money, the $6,000, if you have all my other bills? Yeah. All right. Well, let's unpack this a little bit, Teresa.
I'd love to help you explore this a bit more. So you have a car loan. What do you owe on that car loan? It's at 31%. I mean, it's at $31,000. I'm sorry. $31,000, but the interest is at 21%.
21%. Okay. And what is that car worth today? Do you know?
I just got it, it's a 2019 Honda Pilot. Okay. All right. Now, beyond that, what other debts do you have that you were looking to pay off?
Well, they're small. I bought some furniture. So I'm almost done paying for that. It's like maybe $1,500 on that. It's little bills, utilities, just little things like that. And I have one credit card, well, two credit cards, I'm sorry, and I've been trying to pay them out the way. All right. Are you able to pay those off in full each month, or are you carrying a balance? I'm carrying a balance. That's what I was trying to figure out, should I know what can I do about this car loan?
Yeah. Well, the car loan is really not a solution for the credit cards. We need to right-size your spending, and this big car loan is not going to help that. In terms of you refinancing, I mean, why is that interest rate so high? What is your credit score?
645. Yeah. Okay. All right. And so talk to me about, you talked to the lender.
You got this from a credit union, and they say they're willing to refinance it for you? Is that right? Right. If I give them $6,000, I'll have to pay under $31,000. Okay. So you owe $31,000 today, but they want you to get it down to $25,000?
Yes. Okay. And if you pay the $6,000, what will they lower the interest rate to? 9%.
To 9%. Okay. Where would the $6,000 come from? Some money I have.
Okay. Would that leave you with an emergency fund, or would that deplete all of your cash reserves? Well, it will deplete my cash reserves, but what I've been doing is I retired early as my husband had passed away, so I got my early retirement. I put this in an IRA right now, and I put in some stocks right now, so whenever it grows over $4,000, I took just that $4,000 out, and I left $110,000 there.
All right. So you have money in a retirement account. Is it in an IRA? What type of account is it? It's an IRA. Okay. And you said it's worth how much today? How much is in the IRA?
It's $110,000. All right. And are you living off an income that you're pulling from that $110,000, or do you have other income sources that cover your bills? I work two jobs. Okay. So I'm doing okay. All right.
So you're working two jobs, but you took early retirement from a different job. Is that right? Yes.
I've been on the bus for 28 years. I see. All right. So you've got $110,000 in an IRA, and you're working two jobs, and the jobs are what's covering your bills right now. What other retirement assets do you have?
Anything besides the $110,000? No, that's about all. Okay. So you're not getting any retirement income.
The early retirement just gave you the lump sum, which is what's now in the IRA? Yes. Okay. And what is your age? I'm 55. 55. So you're planning on working for another 10 or 15 years?
No. I'm hoping to leave at another four or five. Okay. And so how would you fund your living expenses if you retired in five years? Well, I'm thinking about keeping the one job, and I like that job because I get paid every week.
So it puts $600 in my pocket every Thursday, so I'm cool. Okay. And so you're going to try to keep that job for a long time. Is that right? Yeah. I mean, keep it up.
It's a sit down. I'm going to have to kill myself. Yeah. Yeah. Okay. All right.
Let's do this. There's a lot of moving pieces here, Teresa, and here's what I'm most concerned about is I want to get your budget squared away so you know exactly what your income and expenses are. I want you to have a plan for where you go from here in terms of obviously that car loan. I don't love the fact that you've got a $31,000 car loan right now just given what I'm hearing about the rest of your financial life, and I definitely don't like you having that car loan at 21% interest, but I'm also not convinced that the best way out of this is necessarily to put the $6,000 down.
And so we just need to look at that whether there might be an option to refinance that with another lender who might do it with the current balance just given your credit score at 640 or it may be that you should, in fact, go ahead and do that. Would you have to pull the whole six from the IRA or do you have other liquid savings outside of a retirement account? Well, I pulled it out.
I pulled it now. They didn't tell me I needed to do that, but I can pull how much I need now like right now. Okay, so you already took some money out of the IRA? Yes, but the taxes on that is 30%. Well, yeah.
Well, it's going to be added to your taxable income and then you're going to have 10% on top of that. Did you do that in the last 60 days by chance? Yes, about like maybe six months maybe. Oh, okay. So, yeah, you wouldn't be able to put that back in then.
You'd have to get that back within 60 days. All right. So here's what I'd like to do rather than just trying to rush to a decision on this, given the complexity of your situation, all the moving pieces, I'd like to do something for you just to kind of help the situation. We're going to connect you with one of our certified Christian financial counselors.
This will be at no expense to you. We'll cover the cost on it. But what I'd like to do is have the counselor work with you to look at all of the numbers, not only your budget, but help you with looking at your assets and liabilities and then looking at this car note and helping you make the decision on what is the wise thing to do from here that's going to set you up for success in the future and try to get this interest rate down. But I don't want to get caught into a trap of just, you know, automatically assuming we need to pay it out of your savings. There may be some other options.
So would you be open to working with somebody who might be able to help you explore this a little further? Yes. All right. You stay on the line. We'll get your information. Teresa, I'll have one of our certified Christian financial counselors reach out to you and we'll see if we can help you get to the bottom of this. We appreciate you calling today. Quickly to Ohio. Gary, I understand you have a question. Go ahead, sir.
Yes. About home title lock, it's advertised that they can steal your title. And when they go to the title agency, they say that we can't do anything.
What is that about? How do they steal someone's title? Yeah, it's fraud. So somebody would have to go into the county deeds office and fraudulently transfer your title into their name. And when they do that, then they could take out a mortgage against it that they have no intention to pay. And then when they find out they're not going to get paid, they could try to foreclose on it. But it would be wrongful foreclosure because they don't actually own the home. They transfer the title fraudulently. There is no insurance to protect you there. So that's an unnecessary expense. This fraud is very rare. And at the end of the day, it's fraud, so it wouldn't hold up in court.
If you want to do something, I'd put an alert on your deed with your county records office and have them alert you if any changes are made. Thanks for your call. We'll be right back. We're grateful for support from Eventide Investments on the faith and finance program. Eventide's approach to values-based investing is grounded in the belief that humankind was created in the image of God with intrinsic dignity, value, and worth. Eventide calls this investing that makes the world rejoice. More information is available at eventideinvestments.com. That's eventideinvestments.com. As the leading advocate for the Christian financial industry, Kingdom Advisors serves the public by promoting the integration of a biblical worldview across every aspect of the financial services industry. And we serve a growing network of thousands of Christian financial professionals, equipping and empowering them to carry biblical financial wisdom to their clients, peers, and community. For more information, visit kingdomadvisors.com. That's kingdomadvisors.com. Welcome back to Faith and Finance. I'm your host, Rob West.
The number to call is 800-525-7000. I'm looking forward to hearing from you as we take your calls and questions from across the country. In fact, let's head out to Miami. Hi, Marilyn. Go right ahead. Well, hello there, and thank you for taking my call.
Yes, Marilyn. I am going to be 55 in August. I'm going to try to hang in another year of working. My house needs repairs. It's paid off, but it's falling apart.
And I don't know where to even begin to inquire on where to take out a loan. So I want to make, you know... Yeah. So tell me about the house that you have. What is it worth, roughly? Do you know?
Probably about $4,000 to $4,500. Okay. And what do you owe on it? Nothing. Okay.
You own it free and clear. Great. And you're taking out about $50,000 or so, so you're looking to get a mortgage, correct?
Not a mortgage, but I need to make a loan for these repairs. Yeah. All right. I'm just not quite sure what my best option is.
Yeah. Well, because you don't have a mortgage right now, basically this loan that you get will be in first position, which is a good thing. You're probably wanting, just because of the size of it, a lot of times with a new mortgage, they want it to be over a certain amount.
And so you've got a smaller amount, which is good. You're going to be looking at a home equity loan. I wouldn't get... Well, let me ask this. How quickly are you looking to pay this back?
Probably not going to be so quick because of the income I'm going to be living off when I stop working. Okay. Yeah.
Very good. Are you able to wait perhaps up to a year or do you really need to do it right now? I'm going to try to... I guess I could wait. That's probably the time I'm going to retire, retire, if God willing.
Okay. Well, you may want to do it a few months before you retire while you've still got documented income. Now, obviously you'll have income in retirement, and you can use that as well. But what I'm looking for is I'd love for you to get a home equity loan, not a line of credit, which is a fixed interest rate, but I would love for you to wait until rates come back down.
And they will sometime, in my opinion, over the next year. I think we're at the top end of the range of rates right now, just because the Federal Reserve has been raising the Fed funds rate, which has pushed mortgage interest rates up in an effort to slow the economy to fight inflation. And as a result of that, we have still, even though they've come off their highs, we're still pretty high on interest rates, which is just going to make that monthly payment and the interest that you ultimately pay back larger than what it will be, I think, sometime over the next year. So what I'd probably do is hold off if you can, especially if money is going to be tight as you head into retirement, wait for rates to come down, which is probably later this year or early next year. Do it then and then lock in with a home equity loan, not a line of credit. You want a fixed interest rate and you could go to bankrate.com to find those loan programs to see who has the most competitive rates and terms.
So again, you're looking for a home equity loan, but if you can, I'd hold off until probably early next year and watch the interest rates and wait until you can lock in at a lower rate if you have that flexibility. I hope that helps, Marilyn. God bless you. Thanks for calling today.
To Illinois. Hi, Bea. Go right ahead. Oh, hi. Thank you for taking my call.
Yes, ma'am. I was wondering, when you take money and pay like a large amount of money, I'm trying to pay off my mortgage, does that have to be reported to the government by the mortgage company that we gave a large amount? Not the mortgage company, but the bank. So when you take a withdrawal of $10,000 or more from your bank account, federal law requires, according to the Bank Secrecy Act, that they report that to the IRS. And the purpose of that is to prevent money laundering and tax evasion.
So they're automatically going to have to fill out a form and they're trained to spot folks who are trying to get around that. So for instance, if you were to pull out $9,999 to try to stay under that $10,000, that's going to trigger them to take another look at it. But the bottom line is you're not doing anything fraudulent. You're not trying to launder money or avoid taxes.
And so the fact that they're reporting it, probably you're never going to hear another thing about it. And if they wanted to look into it further, they'd see that it's your money you're taking out, you're paying off your mortgage. So I wouldn't think twice about it. But it's not your mortgage company, it's your bank. Okay, so then I don't need to take like $5,000 and keep giving them $5,000. I can give them the whole $20,000. Yes, I wouldn't be concerned at all about that requirement for reporting.
I would just pull the money out that you need or write the check and pay off that mortgage. Okay. And another question, do you know anything about IULs? I do. Yeah. So it's a universal life policy.
What is it that you're thinking about there? Is that something good to have? You know, I'm not a big fan of indexed universal life. I mean, why folks buy it? You know, it's typically because they want the life insurance combined with the higher return potential. So inside that policy are sub accounts, which are basically mutual funds that are invested. And so it's a way to get, you know, tax free capital gains. And along with the insurance, you know, to have the higher return plus the death benefit.
The reason I don't like them B is they're complicated, they're expensive. So there's a slew of fees and other costs. You've got the premium expense charge, the administration expense, the riders, the fees, the commissions. And then if you want to get your money back, there's a surrender charge. On top of that, there's a cap on the returns. So what happens is they often set a maximum what they call participation rate of less than 100% and it can be as low as 25% in some cases. So in exchange for the downside protection in those years where the market is doing well, you're not going to get 100% of the upside. So it limits your actual rate of return that's credited toward the account, regardless of how well the policies underlying indexes are performing.
And so for those reasons, the cost, the cap on the upside and just the loss of your capital, I'd rather you buy life insurance if you need it as pure insurance and then do your investing outside of an insurance product. Okay. Thank you very much for helping.
Okay, B. Thank you for your call today. Well once again, our time went by way too fast, but tune in next time and we'll do it all over again. Before we go, I'd like to thank our incredible production team, Amy, Devin, Jim, Robert, Brandy, Rob, and Ben. Couldn't do it without them. Have a great rest of your day and I'll see you again next time for another edition of Faith and Finance. Faith and Finance is provided by Faith Buy and listeners like you. Thanks very much.
