Don’t Carry Debt Into Retirement

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Learn more at TimothyPlan.com Hi, I'm Rob West. It's a disturbing trend. More people than ever are retiring with debt.

That reduces their lifestyle choices and increases the likelihood they'll have to return to work at some point. Today we'll talk about carrying debt into retirement and how you can avoid it. And 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 journey.

Okay, so the latest numbers on this aren't good. According to the Federal Reserve's 2022 survey of consumer finances, the percentage of folks 65 to 74 with debt rose to 65%. When the Fed began tracking this statistic 35 years ago, only 50% of people that age were in debt. Debt will certainly crimp your lifestyle in retirement. And for many people, it could mean having to go back to work at some point.

Proverbs 22-7 warns the rich rule over the poor and the borrower is the slave of the lender. A recent report by T. Rowe Price showed that 20% of people who previously retired are back working full or part time. Another 7% of retirees said they're actively looking for work. The major reason, of course, is the need for more income. The rapid rise in inflation over the past few years caught many retirees off guard. On average, things are around 15% more expensive today than they were just three years ago. Many retirement budgets, especially those that include debt, are stretched to uncomfortable levels.

Now, what can you do about it? Well, obviously, you don't want to carry debt into retirement if you can avoid it. If you're 5, 10 or 15 years away from retirement, set a goal of having all your debts paid by the time you retire.

If you can eliminate a mortgage, car payment or other debt, you can live on less. Having a financial margin, especially in retirement, is critical. Debt hems you in, especially when the economy slows down and the stock market declines.

Note the word win because the economy moves in cycles. You have to prepare for the downturns that will inevitably come. Now, how can you make your goal of retiring debt-free a reality? Well, first, think about ways to get more margin in your budget. Start with cutting expenses. Do a budget overhaul and get rid of things you're just paying out of habit. You can also increase your income.

Can you get some work on the side? Think of increasing your income and decreasing expenses as a kind of a one-two punch to knock out debt that much faster. Now, there's one really big move you can make, literally. You can downsize to a smaller house. Whether you have a mortgage or not, this can be a lifesaver, especially if you're still paying off your house. If you can downsize enough, you may have sufficient equity to pay off your existing mortgage and purchase a smaller home with cash only, or at least a much smaller mortgage. Moving to a smaller home will lower other expenses like property taxes and maintenance costs. If downsizing isn't an option, do what you can to speed up your mortgage payments.

We've talked about increasing your income and lowering expenses. Use that margin to put extra on your mortgage principal. That will reduce the interest you'll have to pay. Making just one extra payment a year can shave off several years of payments over the life of the loan. Now, what about credit card debt? Well, inflation also rears its ugly head there because credit card interest rates go up right along with inflation. If you have credit card debt, you have to make more than the minimum monthly payments. Put extra money on the card with the smallest balance. When that's paid off, go on to the next.

That's called the snowball method, and studies show it's the strategy most likely to succeed. We recommend that you not tap into your home's equity to pay off consumer debt. For one thing, it converts unsecured debt to secured debt, and if you fail to make the payments, you could lose your home. Also, if you haven't corrected the behavior that led to the credit card debt, paying it off with a home equity loan may simply increase your debt problem. If you have more than $4,000 in credit card debt, contact our friends at Christian Credit Counselors. They'll put you on a debt management plan to help you pay off your debt 80% faster than going it alone. Do you know one call that we've never gotten here at Faithfi? It's from the person who paid off their consumer debt or their mortgage and regretted it. We just never get that call.

So if you make a plan to get out of debt before you retire, you'll greatly improve your chances of staying retired, and that means you'll have more time and resources to give back to God's kingdom. All right, your calls are next. The number 800-525-7000. That's 800-525-7000.

We'll be right back. We're grateful for support from Movement Mortgage, who provides residential home loans in all 50 states. Guided by a mission to love and value people and a goal to redefine the mortgage process, Movement seeks to help others achieve their financial goals.

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For licensing information, please visit nmlsconsumeraccess.org. Faith in Finance is grateful for support from Soundmind 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 a short video webinar on profit and peace of mind, no matter what's happening in the market, is available at soundmindinvesting.org. Thanks for joining us today on Faith in Finance. I'm Rob West. Looking forward to taking your calls and questions today.

Anything financial is in play today. The number 800-525-7000. That's 800-525-7000. You can call right now. Let's begin today in Illinois.

Wanda, go right ahead. Thank you for taking my call. So my question is a tax question. So I'm still legally married. My husband left me about three and a half years ago. So my question is, do I still have to keep filing married filing joints? We do not live together, have not lived together in over three and a half years.

Yeah. Well, I'm so sorry to hear that. You have options here, and I would default to your tax preparer for what you ultimately want to do. But let me just talk at a high level as to your filing status. You know, you have the option to file married filing separately. That would probably be the default option because if you're still legally married, unless you qualify as head of household, then you would typically file married filing separately. So each spouse would report their own income and deductions and you're responsible for your own tax liability, not your spouse's. Now, the downside of that is you may lose some tax benefits in the process, the earned income tax credit, any education tax credits, some retirement tax advantages, and then both spouses either itemize or take the standard deductions or take the standard deduction.

You can't mix them. And this would be best if you're protecting yourself from your spouse's tax issues, so you're not taking liability. And if you want financial separation, but you don't qualify for head of household.

Now, that would be the second option. But you would have to meet the requirements that you've lived apart from your spouse for at least six months of the year, that you've paid more than 50% of the cost of keeping your home during the year, and you have a qualifying dependent living with you for at least half the year. And then if you did, then you'd get lower tax rates than married filing separately, a higher standard deduction, more tax credits available. The third option would be you still filing married filing jointly, you know, so long as you're comfortable doing that, because in that case, you would have a shared liability, you're both responsible for any errors or audits or unpaid taxes. And so if you're on good terms and trust each other financially and want those better tax benefits, and you agree to file together and neither of you has remarried, then you still have that option of married filing jointly.

And there would be some tax benefits to doing that. Okay, well, I do have my my daughter, my our youngest daughter that still lives with me. She's 21. I mean, she's, I can't claim her because she works about 25, you know, 30 hours a week. But I mean, she will qualify me for head of household because I do support us in our household. And I mean, I would just, you know, I would rather file that. But I mean, I want to do the right thing. I don't want to, you know, get in trouble with the IRS. And I certainly don't want to get in trouble with the Lord either. I you know, I want to do things correct. You know what I mean? I do. Absolutely.

And I appreciate that. And we certainly want to help you honor the Lord and do everything above board with regard to the IRS. And the bottom line is the IRS gives you options and it's very clear what you will qualify for and what you won't. And if you, you know, meet the dependency requirements for your child, and you know, the age requirements, so the child would have to be for a qualifying dependent to claim head of household, it would have to be either a child, a stepchild, and so forth. And then they'd have to be either under 19 at the end of the tax year or under age 24 if they're a full time student, or any age if they're permanently or totally disabled.

So you'd have to meet that. Then there's a residency requirement, they have to live with you for more than half the year. And then there's a financial support requirement, you have to have paid more than 50% of household expenses, and they can't have provided more than 50% of their own financial support. And then your child must be your dependent for tax purposes. And if you're separated, like in this case, you have to have primary custody, even if the other parent claims the child for the child tax credit. So I would check with your CPA on that just to make sure that your situation does qualify, particularly, you know, whether or not this is your dependent. But you have the option to, you know, either married file jointly, if you all are comfortable with that.

Otherwise, married filing separately or head of household would be the better option if you qualify. Okay. All right. Well, thank you very much, Rob. I appreciate your time. Of course.

Thank you for calling Wanda. I appreciate you being on the program today. Brenda is in Kansas. Brenda, thanks for your patience.

Go ahead. I inherited a traditional IRA from my mother when she passed away in 2017. And we've had conflicting opinions as to whether this needs to be dispersed in 10 years or not. Hmm, yeah. Well, because this was inherited in 2017, it falls under the pre-secure act rules, which means that the distribution requirement timeline depends on whether the original owner, your mom, had already started taking required minimum distributions or not. Do you know? No, I'm not sure about that. I think so.

Because when we inherited, I had to start doing RMDs then too. Okay. What was her age at the time? 83. Okay.

Yeah. So she would have been taking RMDs. So if so, and that's the case here, then you have to keep taking those RMDs each year, at least at the rate the original owner was taking them, using the longer of either your own life expectancy or the original owner's remaining life expectancy, if longer, which it wouldn't be in this particular case. So the 10-year rule does not apply. And so as long as you started taking RMDs annually, which it sounds like you did since 2017, then you can continue to do so over your lifetime. And that's called the stretch IRA method. That's no longer available. But because you inherited this in 2017, as long as you're taking out at least what she was taken out and, and you, you know, then you have the ability to stretch it out over your lifetime.

Oh, thank you. Is there any way we can donate this? I know I can't donate the RMD until I'm 70 and a half, and I'm 67. Right.

Yeah. So a qualified charitable distribution is possible from an inherited IRA, but you're right, you do have to get to 70 and a half, it's going to be a wonderful tool when you get to that point. Because you'll be able to get that money out, satisfy the required minimum, and not recognize it as income, which means you can get more into the kingdom through your giving. There is no other way to do that prior to age 70 and a half, it requires that you first take the distribution, which recognizes it as income. And then when you give it away, as long as you itemize, you could then count that as a charitable contribution to offset some taxes.

But there's not any way to do it before it comes out, which would require that it gets recognized as income prior to age 70 and a half. Okay, great. That's the answer we wanted to hear. Well, great, Brenda, thank you for calling today. May God bless you. We appreciate you being on the program.

Let's see, we're gonna take another break here in just a moment. We also have other lines open today in our final segment, we'd love to tackle your question or hear your testimony. Maybe God's been at work in your financial life, you'd like to share that with our listeners as an encouragement today, we'd invite you to be a part of the program.

The way to do that, just head to the phones and call us right now at 800-525-7000. By the way, if you'd like to connect with an advisor, you know, we talk often hear about investment advisors, so many of these issues require a trusted financial professional. And I would go a step beyond that to say, a competent financial professional who shares your values as a Christ follower. Well, that's the CKA designation, Certified Kingdom Advisor, and you can find a CKA in your city when you go to faithfi.com and click find a professional that's faithfi.com.

We'll be right back. If you enjoy 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. We're grateful for support from Timothy Plan. For more than 30 years, they've served clients on a biblically responsible journey to invest in a way that honors God and gives dignity to people's lives. More information is at timothyplan.com. The investment objectives, risks, charges, and expenses are contained in the prospectus and summary prospectus available at timothyplan.com.

Mutual funds distributed by Timothy Partners LTD and ETFs distributed by Foresight Fund Services LLC. Thanks for joining us today on Faith and Finance, helping you live out a biblical worldview and pursue faithful stewardship in your financial life. I'm Rob West. We've got, it looks like three lines open, 800-525-7000. If you have a financial question today, you can call right now. Let's go back to the phones.

Arkansas is where we're headed next. Hi, Jody. Go ahead. Hi, thanks for taking my call. I sure enjoy your program.

I drive a lot and I listen to you almost every day. Awesome. I'm 61 and I'm still working full time and I don't, you know, think I'm going to retire anytime soon, meaning probably not the next year or so, but I don't have a 401k, but I've got some property that we own and we owe about, I don't know, 70,000 on it. But the current market shows that I should be able to sell it for like 250-350,000.

And I just have no clue where to put the money that would help us if I did get to retire. And I just have no clue about that. Yeah. Is this a rental property, Jody?

No, it's not actually. It's just a property we own. We did live there. It does have a single family home on it and it's not being utilized.

And I just seen the horror stories of people renting property and they get bad renters and they tear it up and I just didn't want to go down that road. Yeah. Yeah.

Okay. Well, yeah, I mean, I think that's the decision because we want to leverage this asset the best you can. You certainly could sell it and you'd probably have some capital gains on it if it's worth more than what you originally paid for it. You know, you would take the selling price minus the original purchase price minus any improvements you made to the property and expenses related to selling it, and that would leave your gain. And then if you've owned it for more than a year, I suspect you'd have a long-term capital gain. And for most folks, that would be 15% on just that gain. So you'd have some taxes and then whatever's left after you paid the gain and you paid off the mortgage, then obviously you could invest that.

The question is, where do you put that? And you'd still have a significant sum left over. Let's say you do get $350,000 and you pay off that mortgage of $70,000 and you pay the gains. I mean, let's say you have somewhere between $250,000, $275,000. I'd probably hire an advisor to manage that for you and he or she could put that to work and try to grow it alongside you continuing hopefully to sock some money away, either by adding to that or putting money into a Roth IRA. And the idea would be you work as long as you can and then perhaps even try to delay Social Security to age 70.

And that way you would get 30% more than you're scheduled to get, roughly maybe 25 to 26% actually, which is a higher check. And if you're debt-free and you've got at that point, let's say, $400,000 or $500,000 that you could convert to an income stream, then I think you'd be in pretty good shape. I think the other option is you do think about becoming a landlord, and plenty of people do it.

And as long as you've got the reserves and you can cash flow this thing. The nice part about that is you've not only have the appreciation of the property over time, but somebody else is paying the mortgage for you. And hopefully, because the mortgage is small, they could pay the mortgage for you and the taxes and the insurance on the property and you might even have a little bit left over to continue to reinvest either to accelerate the mortgage payoff or to fund that Roth IRA I was talking about. But you would have to be willing to step into that role as landlord. And yes, they could damage the property, which is why you'd need to set a portion aside for some maintenance.

But there's plenty of people that do it and love it. And you've already got the property. So you're kind of halfway there.

But give me your thoughts on all that. Well, I mean, I feel like it is kind of wasting away, so to speak. And it is in a rural part in the Ouachita Mountains. The National Forest is one of my boundaries. There's a lot of wildlife on it and stuff. And, you know, people are trying to say, well, you know, you could Airbnb it or, you know, do things like that. And I just I guess I just haven't I don't know enough about stuff like that.

And I just, you know, I haven't gone down that that path. And I am debt free other than that mortgage that I have. So I mean, my wife and I are blessed. We just we are just getting things paid off now. And she's just a few months younger than I am.

So we're both basically, you know, sixty one. So we are raising a grand grandchild, a 14 year old girl. And so that's taking a lot of our income that we make now. It's pretty expensive raising a kid nowadays compared to when we raised our kids.

But it was something that the Lord laid on the heart that we needed to do to give her a chance in life. So, well, yeah, I just definitely don't want to waste. I've wasted too much money in my life.

And finally, you know, trying to get right with the Lord to where I'm not squandering what he's allowing us to have. Yeah, no, I hear you and I can certainly appreciate that. Well, I think that's really the decision you have to make. I mean, you could certainly Airbnb it and you could explore that. That obviously the just the churn involved in that where you got people constantly coming and going is kind of a whole different deal and can result in more wear and tear on the property. Versus you finding kind of a long term renter that you properly vet that comes and stays and makes that their home.

You know, that could be a nice middle ground to this thing. You could even get a property management company to kind of oversee the, you know, the maintenance of the toilet stopped up or something like that. There's a cost to that probably 10% of the rent, but, you know, it would take that burden off of you. And again, allow you to, to make that mortgage payment through that rental income, let that property continue to grow. And now hopefully, because you're not making the mortgage payment anymore, you've got more to stock away in stocks.

And I kind of like the idea of you having a couple of different asset classes going, stocks and real estate. But I think that's the decision for you and your wife to pray about if you decide to sell it, I'd reach out to a certified kingdom advisor on our website to help you manage that. It's faithfi.com.

Just click find a professional. Call me back anytime if you have other questions, Jody. Well, folks, as we round out the broadcast today, first of all, thank you for your time for tuning in and listening to the broadcast each day. I'm grateful for your questions and your testimonies because, you know, my experience in doing this for a long time is that our financial journey is one of the key ways that God shapes our spiritual journey.

And you might say, how is that, Rob? Well, you know, the way we handle God's money is one of the most tangible expressions of what we value and where we've placed our trust. And it's that daily demonstration of how we're going to allocate God's resources.

And ultimately, these are heart issues. Jesus said, where your treasure is there, your heart will be also. So we know that our money follows, excuse me, our heart follows our money. And so we want to be thinking about the story we're telling with regard to what's most important to us.

And if our spending doesn't align with that, we'll take a step back and say, you know what, maybe I need to take another look at my budget. Maybe I want to be doing more, giving more, saving more, blessing the people on my path, using money as a tool to accomplish God's purposes, not spending so much on interest on the debt I've accumulated. Well, each day we want to help you make steps in that direction. By the way, lots of great resources at our website, faithbuy.com. Not only can you find a certified Kingdom advisor, but you can click on the button there at the top of the page that says app and learn about the Faith Buy app and how we can actually help you put in place a spending plan to manage your money using the envelope system and a modern digital expression. It's all there in the Faith Buy app.

You can download it today at faithbuy.com. Big thanks to my team today, Devin Patrick, Jim Henry, Sandy Dickinson, and everybody here at Faith Buy. Hope you have a great rest of your day and come back and join us tomorrow. We'll see you then. Bye-bye.