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How Much Will You Need To Retire?

Faith And Finance / Rob West
The Truth Network Radio
January 17, 2025 3:00 am

How Much Will You Need To Retire?

Faith And Finance / Rob West

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January 17, 2025 3:00 am

One of the most common questions people ask is, “How much will I need to retire?” The answer is, “It depends.” It depends on your lifestyle, needs, and one key factor: how much you’re willing and able to cut from your budget. Let’s explore how thoughtful adjustments can help you bridge the retirement income gap and make this season of life meaningful and fulfilling.

Understanding Retirement Income

Most retirees experience a drop in income. While many work-related expenses disappear—like commuting, clothing, and dining out—studies show the average retirement budget is about 60% of pre-retirement income.

Experts generally recommend aiming for 75-80% of your working income to cover expenses. For example, if you’re earning $75,000 annually, you’ll need approximately $56,000 in retirement. However, if Social Security and investments only generate 60% of your income, you’ll face a shortfall of $11,250 annually—or $940 per month.

To bridge that gap, you can:

  1. Work longer to save more.
  2. Work part-time in retirement.
  3. Cut expenses to close the gap.
How to Cut Retirement Expenses1. Downsize Your Home

If your large family home is mostly empty, consider downsizing. A smaller home reduces:

  • Maintenance costs.
  • Utility bills.
  • Property taxes.

Additionally, selling your home can free up cash to convert into an income stream. If you’ve lived in the house for two of the last five years, you can exempt up to $250,000 in capital gains (or $500,000 for married couples).

2. Reduce Transportation Costs

Without work commutes, you may not need two vehicles. Selling one:

  • It cuts repair costs, registration fees, and insurance premiums.
  • Generates extra cash for your retirement fund.

Consider ride-sharing services for occasional conflicts when you and your spouse need to be in different places at the same time.

3. Drop Unnecessary Insurance Policies

Some insurance becomes unnecessary after retirement:

  • Disability Insurance: This replaces lost income when you can’t work. If you’re retired, you no longer need it.
  • Life Insurance: If your children are financially independent, you can scale back or eliminate coverage, especially since premiums rise with age.
4. Eliminate Debt

Carrying consumer debt, such as credit card balances, into retirement can significantly drain a reduced income. Instead, use the savings from downsizing, selling a vehicle, or cutting insurance to pay off high-interest debt as quickly as possible.

Embrace the Opportunity to Give

Retirement isn’t just about cutting expenses—it’s also about finding purpose. With more free time, consider serving your church or favorite ministry. Retirement offers an incredible opportunity to pour your wisdom and experience into others for God’s glory.

Retirement can be one of the most fulfilling seasons of your life. You can find contentment and purpose by thoughtfully managing your expenses and seeking God’s guidance. Remember, Christians don’t retire from something but to something. Ask God how He wants you to use this season for His glory, and trust Him to provide for your needs.

On Today’s Program, Rob Answers Listener Questions:
  • My mother-in-law gifted our house to my wife during estate planning. I know this is not ideal because it sets the cost basis to what they originally paid. Can my wife return the house and have her mom set up a transfer-on-death (TOD) deed instead?
  • I recently sold my house and have the proceeds. I want to be a good steward of this money, but I'm unsure if I should put it in a high-yield savings account, an index universal life insurance product, or something else. What would be the best investment approach for this money?
  • I'm 80 years old, and I've taken the required minimum distributions from my IRA account for about 10 years. I do a qualified charitable distribution each year and give all that to the church. But when I die, my kids are beneficiaries of the IRA, where they have to continue the minimum required distributions. I want to understand how that works for my kids when they inherit the IRA.
  • Should I put my money in the S&P 500 index fund or use the Charles Schwab Intelligent Portfolio for my Roth IRA? Which option is the best investment approach?
  • My husband just recently passed away, and I haven't received the life insurance payout yet. When I do receive it, do I need to pay a tithe on that money?
  • I just finished my divorce, and the judge is letting me keep my $24,000 401(k). I want to use that money to buy a small house because the rent is too high. Are there any fees or penalties for taking a hardship withdrawal from my 401(k) to use for a home purchase?
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Learn more at Praxismutualfunds.com. 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 $3 or $4 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 and 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. Imagine having biblical financial wisdom delivered to your inbox every week, helping you integrate your faith and financial decisions for the glory of God at faithfi.com. You can join a community of over 70,000 people who are already receiving our weekly wisdom email filled with articles, videos, podcasts, and exclusive offers on resources that will deepen your understanding of biblical stewardship. Start your journey today by creating your Faithfi account at faithfi.com.

Just click Sign Up. The original faith-based way of taking care of your medical bill costs. Learn more at chministries.org slash faithfi. Great to have you with us today on faith and finance, helping you see God as your ultimate treasure. I'm Rob West. We're taking your calls and questions, and we've got lines open. The number to call, 800-525-7000. Let's go to Indiana. Hi, Bill.

How can I help? My mother-in-law decided that she was just going to give my wife the house. So it's been given to my wife.

I'm not even sure of the details, honestly. And I know that that's not a good idea because the cost basis becomes whatever my mother-in-law and father-in-law paid for it. That's right. And that was probably 50 years ago. So I guess first question is, can she just give it back and pretend like it never happened and then get a transfer upon death deed?

Yeah. Well, she can't pretend like it never happened, but she can give it back. And so you're probably going to want to talk to an estate planning attorney.

But just generally speaking, here's how this works. You can give whatever you want to another person. If that amount goes over $18,000, then you're supposed to fill out a gift tax form because the portion over $18,000 in that year then chips away at your lifetime gift exemption of $13 million.

And that's going to change over time, but that's what it is today. So it doesn't matter that she gave her the house. She should have reported it to the IRS and that chipped away at that lifetime gifting exemption of $13 million. Now, your wife can turn around and gift it back to her mom, preserving that existing cost basis. And then your wife's going to have to let the IRS know that she made the gift.

Again, not taxable. It's just going to chip away at her lifetime exemption. Now it's back in your mom's ownership where her name's on the deed. And then at that point, you're going to want to make sure that her mom sets it up to then have your wife receive it as an inheritance at death, either by way of a trust or just through her will. Or if your state allows, you can even do what's called a transfer on death deed. But by her receiving it at death as an inheritance, now she enjoys that stepped up cost basis to the market value as of the date of death. So if she turned around and sold the home, there's no capital gains. So it just needs to be gifted back and then she needs to receive it as an inheritance. Does that make sense?

Yeah, that makes sense. I mean, we just did a transfer upon death deed from my mom's house. And then, you know, it was all just one thing down to the courthouse that got taken care of. But the other question I have is, how do we figure out what the cost basis is for something that was bought 50 some years ago? Well, it's hard. I mean, you're going to have to just kind of I mean, through public records and so forth, I'd probably get a real estate broker to help you. But it doesn't matter if you're going to she's going to receive it as an inheritance someday, because that cost basis is doesn't have any bearing on it.

Because this the new cost basis is the market value as of the date of death. Yeah, the hard part is talking my mother all into it. So So is your wife's name on the deed right now? I believe so.

Okay. I mean, that would be the first question as to whether or not that actually did happen. Usually the way you do that is through something called a quitclaim deed, where she essentially relinquishes ownership, which is a gift to your wife, and now your wife's name would be on the deed. You could check that at the county records office. I think that's step one.

If that's the case, then I think she needs to have a conversation with her mom to say, Hey, we probably didn't do this the right way. I need to gift it back to you. And then you can give it to me as an inheritance. Hope that helps. Bill, thanks for your call to Ohio.

BJ, how can we help? Real quick, I just wanted to know the best thing to do with real estate proceeds from the sale of my house. I want to be a good steward. I want to just put it in a spot that it would be the best investment for the future. Yeah, well, you've got to define the best investment for the future because that all comes down to what is your time horizon? How much risk do you want to take? And what kind of risk adjusted returns are you seeking?

So, you know, we have different buckets based on the time horizon. So if this is money you want to redeploy for some purpose in the next three years, you probably want to take as little risk as possible. If this is money you're saying no, I want to shift it away from a real estate investment with it still maintaining a long term perspective, but I want to now invest it in stocks and bonds.

Well, that's an entirely different approach. So how are you thinking about just the time horizon and the risk and return that you feel like is appropriate? Well, I really don't need it right away.

I would say within the next five years, I was looking at like high yield savings accounts online. I'm kind of leery about that. And also I've been seeing a lot with the IUL.

If that makes sense, I just want to make sure that I'm being the best steward that I can be with it. Yeah. So you're mentioning IUL and high yield savings, but I don't hear you mentioned just investments in stocks and bonds. Is there a reason you would not want to do that?

Well, yeah. So I was wondering maybe if you suggest an open I have a 401k through my job. I don't know if I should get like an IRA or I just don't know where to start with it.

That's why I'm calling you. Just a suggestion of where you would think that would be the best, the wisest, you know, path to take. Yeah, it's a great question. I think there's a number of options you could take. If you want to be on the ultra conservative end, you'd be in a guaranteed type account with there's no guarantee. I mean, everything has some risk. But essentially, in a high yield savings, you'd have the full faith and credit of the United States government. But you're going to get a very low return and it's good and it's declining as interest rates come down. Kind of moving up the risk spectrum, you could transfer the risk to an insurance company and an index universal life. It's not my favorite approach because you're locking up the money. They're complicated and expensive. I would probably rather you just connect with a certified kingdom advisor, do some overall retirement planning just to look at your overall situation, how everything's being managed, and then ultimately hire an investment advisor to manage it for you, minimizing the risk, but growing it but giving you still complete equity.

You're giving you still complete access to it if you need it down the road without a complicated insurance product involved. To do that, you'd head to our website, faithfi.com. Click find a professional and I'd find a CKA to help you hope that helps BJ. Thanks for your call today.

Let's see, we're gonna head to Mississippi and welcome Cheryl. Thank you for calling. Go ahead. Yes, I'm 80 years old and I've been taking required minimum distributions out of my account, out of my IRA for about approximately 10 years. And each year I do a qualified charitable distribution and give all that to the church. But when I die, my kids are beneficiaries on the IRA, where they have to continue those minimum requirement distributions.

Yeah, so here's the way that works. So when you when you're a non spouse inheriting an IRA, based on the secure Act 2.0, they have to exhaust that IRA meaning they have to pull all the money out within 10 years. So by December 10 31st of the 10th year following the inherited heritage of the IRA. Now, if the deceased, so in this case, that would be you has started taking required minimums prior to the IRA. And if they do death, then the heirs, the non spouse heirs have to continue those required minimums each year at a minimum. And then again, they have to exhaust the entire balance by the 10th year. So each year, they'd have to take the RMD and then by year 10, it would have to be completely withdrawn.

Does that make sense? Now they're beneficiaries. Is that the same thing as an inheritance? They're they're beneficiaries on the account. Yeah, a beneficiary on an IRA receives what's called an inherited IRA. So they the portion that they're entitled to as beneficiaries would be transferred to a new inherited IRA in the beneficiaries name. And then at that point, they would have 10 years to pull all the money out.

And then each year, they would have to take at least the scheduled required minimum since you had started that prior to death. Okay, very good. That answers my question. All right, very good. Thank you for your call today, sir.

God bless you. Well, folks, we're going to take a quick break. We come back more of your questions.

And we've got some lines open. So if you have a question, we'll try to give you an answer. 800-525-7000. You can call right now. This is faith and finance.

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Mutual funds distributed by Timothy Partners Ltd and ETFs distributed by Foresight Fund Services, LLC. Hey, great to have you with us today on faith and finance. All right, let's head back to the phones.

We're going to get to hopefully three more calls Zephyrhills. Harold, I know you're traveling in the car. You be safe. Go right ahead.

Yeah, hi. I was wondering if it's better to put my money in the S&P 500 index fund, or use the Charles Schwab intelligent portfolio for my Roth IRA? Yeah, it's a good question. You know, I mean, the only downside of the S&P 500 index, other than if you want it screened for your values, would be that you were just concentrated in primarily large cap growth stocks. And so if you use the Schwab intelligent portfolios, you're going to get a much broader mix of investments that's going to include some small and mid cap stocks, you might have some international exposure, you could bring in an allocation to the bond market. Which will do well as rates come down over the next few years.

So I think given those two options, I would probably move toward the Schwab intelligent portfolios, just so you get a broader cross section of the market. And you're not so dependent on one particular subset of the investment markets with just large cap growth, if that makes sense. It does. Yeah, I was just like, I didn't know.

I'm like, I don't know. Okay, so like the S&P and they automatically do it, I just contribute, and then they do it all. Correct. That's what it means.

That's exactly right. So they would, you would answer a series of questions, and they determine your risk tolerance and your goals and objectives. And then that algorithm running in the background would determine how to allocate that among the various indexes, and you're going to naturally have some exposure to the S&P 500. But you're going to get a lot of other indexes as well that are going to bring in some of those other companies that are smaller, you know, because remember, the S&P 500 is essentially tracking the performance. of the 500 largest companies listed on the stock exchanges in the US. And so that's leaving out a lot of companies and the S&P has done well. But it could be that over the next five or 10 years that, you know, there's other sectors of the market that are going to outperform it, maybe developed, you know, developing countries or small cap stocks, things like that.

And that's where the intelligent portfolios would give you that broader diversification. Harold, thanks for your call. I hope that helps.

Diane's in Knoxville, go right ahead. My question is, my husband just recently passed away, and I haven't received the life insurance. But my question is, when I do receive it, do I need to pay a tithe on that? You know, that's a good question, Diane, and I appreciate you wanting to honor the Lord with that, you know, that's really between you and him. You know, is it an increase?

Sure, it is. And you know, our the opportunity to give proportionately to what God has entrusted to us, you can never outgive God. And yet, God's not an accountant. He owns it all. He wants your heart. He, I think appreciates your desire to be generous and participate with him. I think there's great joy that comes with that. And so I would say if the Lord led you to give off of that life insurance proceed, I think that would be a wonderful blessing to you. And I think you'd find a lot of joy in that. Is that a requirement? Should you do that because you feel obligated? No, I wouldn't say that at all. In fact, I think, you know, you doing that out of a desire as, you know, an act of worship and joyfully and not under compulsion is the way you would want to do that if you did. But I think that's ultimately between you and the Lord.

Does that make sense? Yes, yes. Thank you very much. I appreciate it. All right, Diane, Lord bless you.

Let's go to Indiana. Hi, Mary Jane, how can I help you? Hello, thank you for taking my call. I just finished my divorce. And the judge letting me keep my 401k $24,000 and I want to buy a small house because the rent is too much high. And I just want to know if there is any fees for a hardship withdrawal. Oh, Mary Jane, my heart breaks for you.

Yes, there may be, you know, generally speaking, and you're going to need to get some counsel on this, you know, the 10% early withdrawal penalty. Well, let me stop there. What is your age? I will be 49. Okay.

All right. So generally, the 10% early withdrawal penalty on a 401k distribution before the age of 59 and a half is generally not waived due to a divorce or hardship alone. However, there are some scenarios. So if there's a QDRO, a qualified domestic relations order, and you're that allows the 401k to be divided, or if it's distributed directly to one, you know, spouse, then they pay the taxes on it, not you. And you would typically have the penalty there. If it's a hardship withdrawal, it may be permitted without penalty. In some cases, you would have to qualify for an exception, though, such as medical expenses exceeding a certain amount of your adjusted gross income, things like that. And then there are the it also can be waived. In some cases, again, if it's related to a QDRO, where it's going to the other spouse, so I would check with a CPA before you do it, just so you know, because in the normal course of a divorce, if you're under 59 and a half, and you pull it out, you are going to pay that 10% penalty plus it's added to your taxable income. Unless there's a specific hardship that complies with the IRS rules that would allow you to miss out on that. And I don't know that there's going to be one here because it's your 401k that's coming to you. So it's not his coming to you. And it doesn't sound like this is medical in nature. And so you may not, you know, hit one of those exceptions. Does that make sense? Yes, and that would be used for a first time homebuyer.

Okay, yeah. First time homebuyer. Yeah, there may be I'm trying to remember, if there's one specific for the first time homebuyer, there may be. So again, I would check with your CPA on that. But listen, I know you're going through a lot, Mary Jane, and we're going to ask the faith and finance community to be praying for you as well today. The Lord's going to be with you and walk with you and give you a vision for what's next and what he has for you in the future.

And I'm delighted to hear you're thinking about being a wise steward of what he's entrusted to you. Listen, all the best to you. And if we can help you further along the way, don't hesitate to give us a call. May God bless you.

Well, that's going to do it for us today. I'm so thankful for your calls. What a privilege it is that you invite us into your stories each day as we guide you back to God's Word and encourage you to apply the wisdom we find in Scripture to your financial decisions and choices. And let me invite you to become a FaithFi partner.

These are men and women who help us reach more people with this life changing message of God's wisdom related to stewardship. FaithFi partners support us monthly at $35 a month or more or $400 a year. And we have the opportunity to make available some great FaithFi partner benefits, including exclusive quarterly ministry updates and early release copies of each of our FaithFi studies and devotionals mailed right to your door. If you'd like to become a FaithFi partner or give a gift of any amount, just head to our website, faithfi.com and click Give.

That's faithfi.com and click Give. Well, folks, we hope you come back and join us next time. On behalf of my entire team here at FaithFi, including today's broadcast team, Taylor Stanrich, Amy Rios and Chad Clark, I'm Rob West looking forward to having you back here next time as we apply God's wisdom to your financial decisions and choices here on Faith and Finance. Until then, may God bless you. Bye bye. Faith and Finance is provided by FaithFi and listeners like you.
Whisper: medium.en / 2025-01-17 05:21:19 / 2025-01-17 05:31:21 / 10

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