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Donor Advised Funds

MoneyWise / Rob West and Steve Moore
The Truth Network Radio
October 28, 2020 8:03 am

Donor Advised Funds

MoneyWise / Rob West and Steve Moore

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October 28, 2020 8:03 am

God’s Word is clear that Christians should be generous. But it leaves room for how we practice that generosity. On the next MoneyWise Live, hosts Rob West and Steve Moore chat with Valerie Hogan of the National Christian Foundation about a way to make your giving more efficient and effective. We’ll learn more about donor advised funds on the next MoneyWise Live at 4pm Eastern/3pm Central on Moody Radio.

Rob West and Steve Moore
Rob West and Steve Moore
Rob West and Steve Moore
Rob West and Steve Moore
Rob West and Steve Moore
Rob West and Steve Moore

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Don't forget to join us next week for Truth Network. that movement of funds, and then you can distribute or grant out all those funds right away, or you can take your time or do strategic giving at various times with those funds. So it is a mechanism to hold the funds and other things for giving and for charitable purposes.

Yeah. A really powerful tool, again, that may be a new concept for many folks. Now, Valerie, I assume that there's some folks out there listening today saying, well, this must be for those that have a lot more than I do. I don't have enough to give through a donor-advised fund. Tell us who can benefit from what you all call, as you said, a giving fund administered through the National Christian Foundation. Well, many folks can benefit from having one of these donor-advised funds, or if you think of it as a charitable checking account, for a lot of different reasons. If you're a tax accountant or you've been thinking yourself about bunching donations, in other words, you're having some kind of event this year or in any given year that would cause you to have a wise charitable deduction in that year, but maybe you want to give this year and next year out of it.

Bunching those donations, that would be a reason. If you'd like to give anonymously, I mean, maybe you have—we definitely encourage giving to charities and churches and interacting regularly with them, but let's say you have a charity that you just want to give a one-time donation to, but you really don't want to land on their mailing list. Giving anonymously is another thing you can do with a donor-advised fund. Also, if you're going to want to involve your family, maybe grandkids, in the giving, a donor-advised fund is a great way to hold the funds and then let them be involved in the research and the granting out of these monies.

Very good. I think this is really key to be able to give in a way that's wise and efficient, as you said, using this tool. Anybody else, Valerie, before our first break here that you think should absolutely consider a giving fund? Certainly.

Definitely. If you have all of the things I mentioned before, but then in addition, your advisors, your financial planner, your accountant has been telling you that you might want to look into a donor-advised fund or telling you, stop writing checks and look about giving other things, maybe appreciated stock, maybe shares of a business, maybe commercial or residential real estate, those types of things that you definitely want to consider. Or maybe if you have a foundation that served an original purpose, but it's not serving other purposes, you may want to look at a donor-advised fund as well.

Excellent. You alluded to the fact that we can put many things into a giving fund, not only cash, but other assets. We'll talk about that and plenty more right around the corner as we continue to unpack what I think is often one of the most effective and underutilized giving tools out there, the giving fund or the donor-advised fund from the National Christian Foundation. You're listening to MoneyWise Live.

He's Rob West. I'm Steve Moore. We're blessed today to have Valerie Hogan with us from the National Christian Foundation. We'll talk more about giving funds, tax advantages, year-end giving, and much more. Stick around.

We'll be right back. Many people are experiencing financial challenges such as credit card debt, downsizing, dead-end jobs, and depleted savings. In fact, more than half of all divorces are the result of financial pressures at home.

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Or, call 800-557-1985. Nice to have you joining us today on MoneyWise Live. Rob West is your host.

I'm Steve Moore. We're chatting with Valerie Hogan about the National Christian Foundation, often referred to as NCF. They put together donor-advised funds to help all of us do a better job, a more thoughtful job when it comes to our giving to organizations that we really want to help in the long term.

Rob? Well, Valerie, I love this idea of a charitable checking account, a vehicle, if you will, to contribute cash and other assets. We'll talk about that in a moment. For the purposes of giving, making things a lot simpler, a lot more streamlined. By the way, one tax receipt at the end of the year. Folks may be thinking, well, this has to be a complicated process to set up, and yet that's not the case. So give us a sense of how one goes about opening a giving fund.

Certainly. Well, one of the things you can do is just go to our website, so that would be, and you can look at opening what we call a giving fund, and that's the donor-advised fund. And you can do it right there online with just some basic information. It's easy to open a fund online, or you can check in with one of the regional offices or our national office, and they can work with you through that, even on pen and paper.

We still do that occasionally as well. But once you open that fund, you have a lot of options. You can start looking to grant out, and one of the great benefits is that National Christian Foundation does help you research those places, make sure they are a legitimate 501c3, they are in line with your values, and then you can grant out to many places out of that one fund, so that's very convenient. You also have options to do some other more complex things. You can have that money in there, and if you have some of it that you are looking to grant out later, you can grow that money.

There's some investment options for those funds, and again, it's growing those charitable donation sizes for when you're ready to grant them out. So talk about the tax side of this, Valerie, in terms of when the deduction is acknowledged. Is it when it goes in, is it when it comes out, and what are the benefits of the tax treatment? Oh boy, it's right away.

And so folks love this. You get the one receipt right away, so you can grant out to multiple charities out of this with that one receipt right away. And so you may be looking to grant out some now, or maybe not at all. Maybe you're looking to fund maybe a building fund for your church, an orphanage, something like that. So you can get the receipt and that tax deduction, let's say in this year, or right when you do that, but then grant the monies out later. So your tax accountant should be jumping up and down cheering for all the tax complexity and strategy, but one receipt.

And we don't get to see that too often, do we? That's right. Valerie, you can open a donor-advised fund in lots of different places, though people may not necessarily be aware of that, but what makes opening a fund with NCF somewhat different? Oh, and this is something I love to talk about and why I'm with them. At National Christian Foundation, we have shared values with you. And so for us, it's more about the transformation, not just the transaction. We have a giving community, and we are centered around these shared values. And I think one thing that just highlights a different right-of-way is our vision and our mission. Our mission is mobilizing resources by inspiring biblical generosity.

Vision is every person reached and restored through the love of Christ. What you're not hearing out in there is a goal of assets under management. And so we have those things at the heart of what we do. We do tax strategy and all of those great transactional things with excellence, but our mission and vision and purpose is a little different.

Yeah. You know, one of the things I've found with NCF that's different is, yeah, they have these wise giving strategies. They have probably the most competent team of gift planning attorneys and experts anywhere around giving strategies that are wise and even very complex. And yet they want to see the money getting into the hands of the ministries, the people doing God's work. It's not about getting into a donor-advised fund and leaving it there.

It's about mobilizing it through God's activities, which is so wonderful about the National Christian Foundation. Valerie, we alluded to this idea that you can put things inside a giving fund other than cash. Talk about other assets and the opportunities there.

Oh, yes. Well, that's one thing you touched upon was that we have wonderful, brilliant experts that have just for decades been taking in these what we call complex charitable gifts or complex assets. So they might be things like shares of a privately held company, mineral and oil rights, in addition to appreciated stock, mutual fund shares, maybe it's commercial real estate, residential real estate. They can even do strategies with a give and hold so that you're not necessarily selling the business right now, but you want to do some charitable giving through that right now. So we have just folks that there's just a broad array of different strategies they can use to help you look at your whole balance sheet. And so you in partnership with us and your tax and financial planners can take a look at everything and decide what are the best things to do at what best times. Yes.

That makes sense. Valerie, as an attorney, you would know that so often years ago when we would think about giving in this way, we would think of setting up a foundation. And yet the complexity, the cost, the legal work was so prohibitive. That's what I love about a giving fund is it just makes it so simple and easy and cost effective to set up. Isn't that your experience?

It is. And we have had multiple folks come to us that are looking to do something different than have their charitable foundation. They may still want to run it, but in some cases, the things that they're giving into that foundation are maybe only getting a basis deduction. Maybe they're not getting fair market value, so they might want to use a donor advised fund for those kinds of gifts or to take in those kinds of assets.

It may also just be getting too complex or too costly, and it's not serving their original purpose. There are some things foundations can do. You can employ family members. That's something you can't do in the donor advised fund and other vehicles, but sometimes unless you want to do those few things, it makes more sense to do them through a donor advised fund or even a supporting organization paired with a donor advised fund.

And that may be simpler and less costly than the foundation option. Valerie, some people may be saying to themselves, NCF, not sure I've ever heard of these folks. How old are you? How long have you been around? How many people have you helped? Well, when you say you, I'm going to go with National Christian Foundation as to who you're asking how old is. So we've received about 3.7 billion in complex gifts.

We've granted out $12 billion since 1982. We've served over 63,000 charities, so we've seen some things. We've learned some things, and we've helped hopefully multiple givers and charities come together to accomplish kingdom purposes.

That's great. Valerie, for more information, I know you all have some videos and some explainer documents, lots of resources on your website. Just a few seconds left, help our folks understand where they can go to learn more.

Oh, yeah. If you want to go to, you can look for things like the Giving Fund video, also the Giving Fund concept sheet, and there is a resource called Maximize Your Giving in 2020. Excellent. We're so thankful for the National Christian Foundation. Valerie, thanks for stopping by today.

Thank you for having me. Valerie Hogan of the National Christian Foundation has been with us today. You'll have links to the resources she just mentioned in today's show notes at Well that music reminds us it's time to take a brief break.

It will be all so brief, so please don't go anywhere. This is MoneyWise Live. Your host is Rob West.

I'm Steve Moore, back with more after this. Do you know if you have enough? Enough money? Enough house?

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You'll find it all in Master Your Money by Ron Blue, available when you click the store button at Hebrews 4-12 says, For the word of God is quick and powerful and sharper than any two-edged sword. Here's Beth Moore with a quick word. We've been beaten half to death by life today. We come before God and wham, we're just, we're going to double click.

We're going to click on refresh, because our minds, we need a fresh page, anybody? And our thinking, our downward thinking needs to come up. I promise you, God has got some up thoughts about your down situation, that I promise you. Here's a quote by Schreiner, The means of transformation does not bypass the human personality or brain.

Thank you, Lord. Human beings are altered as their thinking is altered, but why is it we thought this whole thing was going to take place without us fully engaging our brain and our personality in it? We thought we were really going to live out this transformation in our going in and out life, are going to work, walking around, eating, sleeping life, we really thought we were going to have a true impact in every area of life, all the while our brain and our personality is going to be totally disengaged from it. And the thought is, if you're going to live out the true transformation that God has for you, and if I'm going to live it out, it will be through the total engagement of our brains, our personalities, you were given a great personality.

Human beings are altered as their thinking is altered, as their thinking is altered. You've been listening to Beth Moore with a quick word. Beth would love for you to tune in each Tuesday night for Bible study. Classes begin at 9.30 p.m. Eastern, 8.30 Central on TBN. Maybe you had to miss a Tuesday, no problem, go to That's

You can watch the latest episode of her television program and more. The financial wealth you leave behind could be the best thing that ever happened to your loved ones, or the worst. In Splitting Heirs, giving your money and things to your children without ruining their lives, Ron Blue explains why it's important to make these decisions now, instead of forcing your heirs to do it later.

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West Palm Beach, Florida. Hello, Gina. Thanks for holding, and what's on your mind? Oh, thank you. Well, I got myself in a little bind, but it wasn't really my fault. Nevertheless, I bought a new car, and I got big payments for six years, but I had to get gap insurance because of the crime of people stealing.

Really? So if I basically, I know, and if I basically pay my car off, let's just say if I make extra payments and pay it off early, then it would probably be even with my Kelly Blue Book, you know? Sure. Because I got like a six-year loan out, and I want to bring it down to making extra payments to make it for three years. I make a little bit of money in my savings account. Would it be better for me to keep my money into my savings, wait for the three years for my car to come up to the Kelly part, you know? Because if I did it now, then, you know, if it got stolen, it would get paid off because of the gap. Sure.

So would it be better for me to make extra payments now or put it in my savings and then wait for the three years, let's just say, and then pay the car off? I hate having the loan, but I was like forced to do this. Yeah. Yeah.

No, I certainly understand. That's a great question, Gina, and for the benefit of our audience, Gap Insurance really is designed to do just what Gina is talking about. It's covering the difference between the balance of the loan and the market value of the car. And so oftentimes folks can be upside down, especially if you make a small down payment, you drive it off the lot, you lose 30% of the value, all of a sudden you're underwater. If for some reason the car was totaled or, as she said, stolen, now all of a sudden the loan won't be paid off because the value of the car is less than what is owed and so the Gap Insurance steps in.

It does tend to be somewhat inexpensive because very few claims are made against it. And if yours seems costly, you may want to shop around for a cheaper policy. But I like the idea of you having it for the reason you mentioned. Once you get to the place where you are keeping up with where the balance is no higher than the value of the car because you're paying it down quick enough, then you can drop that policy.

You don't need it anymore. In terms of where to put those excess funds, I suspect and fairly confident that the interest rate on that car loan is higher than what you're going to be getting in your savings account. So it's actually better for you to go ahead and pay it against the principal balance of the car to keep that declining so you're paying less interest as opposed to putting it into your savings account, assuming you have some other savings you can use for emergency funds. So I like your plan, I'd keep the Gap Insurance, perhaps shop around for a cheaper policy if there is one, but let's take your excess funds that you're using to pay it down so you're not upside down on the car and let's pay it directly against principal. Does that make sense, Gina? Okay, so what you're saying is go ahead and just make double payments maybe and just bring it down maybe to half of my loan so I'm not losing my money on my interest. Correct.

And then you can drop that gap policy when the balance is low enough on the note such that your existing insurance would cover the full value of the car and be able to pay off the car note because it's down low enough where the value of the car will suffice. So I think you're headed in the right direction here and I appreciate your call today very much. It was a great question.

Let's go to Sioux City, Iowa next. And Doug, you're on MoneyWise Live with Rob West. Yes, hello. Thank you for taking my call. I'm calling about this required minimum distribution on a 401k. Okay.

How do you calculate that? Yeah, well, so what you're talking about there is the required minimum distribution that you have that is triggered at age 72. Do you use a CPA to prepare your taxes? Yes.

Okay. That would be the person I would reach out to and I would do that now because there is a certain schedule when you need to take that RMD each year beginning at that point. However, that doesn't apply this year since under the CARES Act, RMDs are suspended for 2020. The IRS publishes a table that is going to be based on your age, life expectancy, and the balance on the account that will tell you exactly what that required minimum amount is. You just need to take at least that much. And you could go ahead and look that up on the IRS website,

Just look for required minimum distribution table. But I'd go ahead and reach out to your CPA and begin that conversation now so you're ready when the time comes and you know exactly how much you need to take and when you're going to do it. And then work with your investment advisor if you have one to determine where you want to pull that from if you don't already have that amount in cash. It's probably going to be, and this is a rough number, you certainly don't want to use this, it's going to be around $22,000 or so. But again, you're going to want to get somebody to calculate the exact amount based on your age and using that table and the balance in the account. The only other thing I'd mention is if you are a giver, Doug, don't miss the opportunity to use the qualified charitable distribution to satisfy that RMD where you do giving out of your IRA to your church or another ministry, perhaps in lieu of giving you were going to do out of cash, which will give them the full amount and you not have to pay any tax on it. And it's called a qualified charitable distribution. Very easy to do and it's a very effective tool for somebody who doesn't need the money that the IRS is requiring they take out. So check that out if you will and then connect with your CPA on the exact amount. Doug, we appreciate your phone call today.

Thanks very much. Rob, we had a caller earlier today and he had to leave us, but essentially he was wondering at $25 a month, how could he begin a savings plan? $25 a month, does it sound like a lot? Still a possibility, obviously? Oh, absolutely.

Yeah. And in fact, with a lot of the new FinTech financial technology that's out, it's easier than ever to get started with a small amount. I'm thinking of Betterment, I'm thinking of Wealthfront, even the Schwab Intelligent Portfolios. You can open an IRA or a Roth IRA or a traditional and set up a systematic contribution right into one of those accounts. They'll use ETFs, very low cost or even free index based ETFs to build a portfolio based on a question and answer process that you'll work through and it's very low cost. It really has opened up retirement savings to anyone, no matter how much you have to put in each month.

Steve, we're glad that you tried to reach us today and we hope you heard Rob's response. This is MoneyWise Live, back with more calls right after this. How should we as Christians think about investing? What if we could invest our money in a way that aligns with what we believe? At Eventide, we believe it is possible to love God and love our neighbor in the very practice of investing. We design investments for performance and a better world so you can invest for the future with a sense of wholeness and purpose. We call this investing that makes the world rejoice. More information is available at Christian Healthcare Ministries enables believers to show love for one another by sharing each other's health costs through CHM's voluntary health cost sharing programs. Members uplift each other spiritually and financially. CHM is an eligible option under the Affordable Care Act and a Better Business Bureau accredited charity.

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Go to, Money and life run on the same track, but unfortunately sometimes it seems like your money is heading in a different direction from your goals. In Never Enough, Three Keys to Financial Contentment, author Ron Blue helps you to break down all your financial options to a basic four and then shows you how to keep it all chugging along in the right direction on the same track. Never Enough, Three Keys to Financial Contentment, available when you click the store button at

With SRN News, I'm John Scott. Wall Street taking a deep nosedive today as surging coronavirus cases in the U.S. and Europe threaten more business shutdowns and pain for the economy. All three major indexes down more than three percent.

Hurricane Zeta speeding toward Louisiana and intensifying, with landfall expected as a category two hurricane this afternoon. New Orleans, where a pump system failure raised risk of flooding as squarely in its path. UPS's profits and revenue surged in its most recent quarter. With so many people getting what they need delivered to the front door, the consolidated average daily volume at UPS jumped 13 and a half percent. Profit jumped 12 percent to 19 or 1.96 billion rather. The Dow plummeted 943 points today.

The NASDAQ was down 426. This is SRN News. This is Money Wise Live. Your host is Rob West. I'm Steve Moore. Today's broadcast is a reprise edition of the program, but I think the upcoming information will help you and bless you and make you a wise steward of what God's given you.

Oakley, Kansas. Hello, Barry. What's on your mind? Good afternoon.

Hi. I'm almost 59 and a half. I will be 59 and a half in one month. I have a 401 with a previous employer and a 401 with my present employer. I would like to be able to give that after I turn 59 and a half to someone that is purchasing a home, but I'd like to give it to them for them to pay it off, but I'd like to know what the tax ramifications and anything else that would be troublesome to me.

Yeah. Well, Barry, I'm not a CPA. I'll just tell you generally, though, what you're talking about here from a tax standpoint. I mean, really, the main tax implication is just, as you said, as long as you wait till after 59 and a half, you're not going to have a penalty, but all the money you pull out is going to be taxable as income in the year of the withdrawal. So if you're talking about a substantial sum of money, you could inadvertently push a poor portion of your taxable income into a higher bracket, and that would perhaps give you a reason to say, I'm going to spread this out over perhaps at least a couple of tax years, again, depending upon how much you're talking about adding to your taxable income for any given year.

That would be the first consideration. Secondly, just recognize that this is expensive money in the sense that it is money that is going to need to be taxed, and so therefore, you're going to have to take out a good bit more than you actually need for the gift just to cover that because, of course, you want to set that aside and even pay that in prior to filing day and depending on when you pull it out. I think the other consideration is just, is this the best source of funds? I appreciate your generous heart and your desire to bless someone with a gift, but is there another place to pull it from? Is this money you're counting on for the longer term to be there to provide income for you in this new season of life to be able to cover unexpected or long-term medical expenses, things like that? Could you accomplish this another way without pulling it out from a 401k? In terms of gift taxes, there's an annual gift tax exclusion or exemption that is $15,000 that doesn't count toward the lifetime gift tax exemption, but anything over that $15,000 per individual that you make a gift to or if you're married, $30,000, $15,000 each, you and your spouse will go against the lifetime gift tax exemption, which right now is sitting at about $11.5 million. So that's not an issue for most people, but you just want to understand the implications of that. So I think at the end of the day, again, I like the idea you want to bless someone, but just understand that the taxes will be an issue.

You may want to spread it out and is this the best place to pull these funds or could you do it somewhere where you're not impacting your ability to fund retirement either now or in the future? Do you follow that though? Yes, I do. Okay. Any thoughts? No, not really. I know there's probably other questions I should ask on this, but I know your time is limited and I need to write them down and who would I need to talk to to find out more, be able to ask more questions?

Absolutely. I would visit with a CPA, someone who could really help you explore these issues and make sure you understand and plan appropriately for whatever tax would be due. You'd also benefit if you haven't done this from a retirement plan, just so you have a financial finish line that you're working toward and you have a goal that you're saving toward over the balance of your working life.

So you know, am I on track ahead or behind? Can I do additional giving even beyond this and really have a plan? Those two professionals would probably be different folks, although that's not necessarily the case. The CPA and then the financial planner to help you with retirement planning. I'd recommend somebody who shares your values and that's why we trust the Certified Kingdom Advisor designation and you could find both types of professionals at our website.

Just go to and then click on Find a CKA and you can punch in your zip code there in Kansas and hopefully find somebody near you and I'd interview a couple of them before you decide on who's the right person to assist you. Barry, you sound like a generous guy and we're glad that you called today. God bless. Thanks very much.

Out to West Richland, Washington. Doug, what's your question for Rob? Hey guys. Thanks for taking my call and thank you for the financial education you've given me over the past few years.

It's been amazing. Thank you. My wife and I, after much prayer and counsel, have decided to retire early. I'm 57, she's 55. Our last day at work will be next month. We've got currently 401Ks through our employer, both of us do, and they're currently set at a 2030 target fund. We're just wondering, since we won't be touching that money for a while, should we go ahead and reduce it anyway to a more conservative, like a 2020 or a 2025, or should we just leave it where it's at and don't touch it? Do you happen to know, Doug, in that 2030 target retirement fund, what the allocation is to stocks versus bonds percentage-wise? I think we're about, I want to say, like 60, 40 around there, maybe a little higher on the stock side. Okay.

Yeah. So I think the key here is, oftentimes, you'll see a rule of thumb that you take 100 minus your age, or because people are living longer, 110 minus your age, and that would give you the stock portion that you would want to have. So for you, I'm saying that would come out at somewhere between 53% in stocks down to 43% in stocks. So let's call it between 40 and 50% in stocks, where you'd have between 50 and 60% in bonds. But that's assuming that you're going to begin to transition to generating income from these investments when you reach retirement, because most folks will not have accumulated enough or will not have enough in the form of guaranteed income sources like Social Security. So they're having to convert retirement savings into an income stream to supplement other income sources, and that's why they need to get really conservative. But we still want an allocation to stocks, because if you're going to live a long time, you're healthy, and the Lord tarries, we need this money to last for decades.

So we need to have a growth component in there. You're probably a little bit more aggressive than that, but I think as long as you're comfortable with that, given the fact that you are not, if I understand correctly, going to be drawing from these retirement assets, specifically this 401k, and it's going to be able to continue to grow, you could stand to take a little bit more risk rather than 40 or 50% in stocks, you're up at 60. So I think that's really something you and your wife need to pray through and just say, would we be okay if there was a, let's say, a 20% decline? And do we have the staying power emotionally and the time horizon that we could let it come back and we wouldn't get to the bottom of a market in a bear market and get tired of it at a 20% decline or 25% and go to cash or go to all bonds and then miss the recovery which is what so often happens. So I think you almost have to anticipate the downside of a portfolio with a 60% allocation to stocks and just make sure you, with a good bit of honesty to yourself, make sure you really believe you could weather that storm and wait for it to come back.

If you or she or together you say, you know what, that would just really give us some real sleepless nights, well then I think that's your answer. We need to start to dial it back toward a larger allocation to bonds. Does that make sense, Doug? Yeah, very much so. Thank you. Okay. Very good.

Yeah. Thanks for your call, sir. And God bless you. Thanks, Doug.

We appreciate that. You're listening to MoneyWise Live with Rob West. Today's broadcast is prerecorded, so we won't be taking any calls, but we have some calls lined up and some great information coming your way that I think you'll find usable at the very, very least. This is MoneyWise Live. I'm Steve Moore. We'll be right back.

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Managing God's Money is available when you click the Store button at Always great to have you with us today. After all, it's a call-in program, and if you don't call in, then we just have to talk amongst ourselves, and really, we've kind of covered it all. So let's go back to our phones, and we've covered it all pretty much, don't you think? I guess, probably. Yeah. No, there's probably something we haven't covered. Something theological, perhaps. The end times. Eschatology. Right. No, let's not do that.

That's true. Chicago, Illinois. Amelia, thanks for putting up with us. How can we help you today? Thank you for taking my call. I have a question regarding retirement.

Just a little background. I have $27,000 in liquid, $145,000 in the market, $45,000, that is, and I'm planning to retire in five years. I'm 55 right now. I cannot collect pension until I'm 59 and a half. I'm finishing up my master's.

I'll be done in February, and I have $17,000 in student loans, which, by the way, I'll have loan forgiveness if I work four years. Cool. Here's my question. What is the best strategy if my pension puts a delay of 10 years to collect? Okay. So you had originally mentioned that you could start collecting the pension at 59 and a half, but you're thinking that may not be possible. Is that right?

That's what I'm thinking. You know, things are changing. I know just the other day you guys did this big section on retirement, and that's one of the things you mentioned, that those days of having a pension are long gone, and I'm thinking, well, if that's the case, that may happen to me too.

Yeah. Although, keep in mind, you know, what we're saying is that companies in general are phasing out pensions, moving from what they call defined benefit plans to defined contribution plans, the difference being with a defined benefit, you get a stated amount of money for life or a lump sum on retirement and usually a gold watch to go with it, and that was back when people worked for the same company for 20 or 30 years. Today, they've replaced that with defined contribution plans, meaning they give you a vehicle to put the money in, but it's up to you to contribute to it. But, excuse me, if you have a pension plan already in place that you've been contributing to or that's going to be available to you based on a certain number of years of work, although they could make changes to that, it's pretty likely that it would be there. But are you saying you want to factor into your planning the fact that you may need to survive without it for another five years?

Is that what you're trying to work toward? Yeah, five, four years, whatever. I don't know if it's better to because I can retire, but I won't collect, so I'm just wondering if it's because, you know, there's just rumors going around and it's a little scary seeming that I'm so close to retirement that they may put a delay of X amount of years before you can collect. I see. Okay. Well, it's never a bad thing to run these scenarios just to have a plan for what you would do. That $145,000, you know, let's say that grows to, you know, and you're contributing to that currently or no? I am.

Okay. So let's say that grows in the next five years to $200,000 for the sake of argument. We would typically look at taking about 4% a year from that, which would be $8,000. If you add that, you know, to any other income sources, would you plan to continue to work an extra five years or would you want to try to do this by still retiring at the time you were planning on retiring if this all went down with the pension? If everything went down with the pension, I was possibly thinking to retire so that at 59 and a half, I would collect and then still work elsewhere. I see.

Okay. Well, the bottom line is the first thing we have to do is we have to get your retirement budget set. So we have to know what would your expenses be in retirement. You're no longer saving for retirement because you're in retirement.

So that comes off and, you know, hopefully you're debt-free at that point or at least closer to it than you are now. And so we'd recast your budget based on what you think your expenses will be in retirement. At that point, we have to look at what the income sources are that are available. If you have a pension, great, we'd factor that in.

At some point, we'd have Social Security, whether you take that early or wait till full retirement age, at some point that would kick in. And if one of those is not available, then we either have to make that up with you continuing to work to draw an income or in addition to that or instead of that, taking your retirement assets, the roughly $145,000 a day plus whatever it grows to in the next five years plus the contributions you're going to make. Again, we said, let's say that's between $200,000 and $225,000. You know, that could be converted to an income stream, but that's not alone probably going to cover your budget because that's, you know, probably $8,000 at the most, maybe $10,000 unless you need to pull more than that, which is going to eat into the principal. So I think you just need to begin to run these scenarios to say, if I get my pension plus drawing $8,000 a year from my retirement account, will that cover my budget?

And if so, great. Then we go to scenario number two, what if I don't get my pension and I have to continue to work? Well, what would I expect to bring in in the form of income? And then what I add, you know, drawing from my retirement account on top of that. And we just have to kind of work through the numbers at that point, but it all starts with having really a clear budget set out for those retirement years. Does that make sense to you, Amelia?

It does. I'm just, you know, because I just recently refinanced. I had, I just got into a 15 year mortgage. I'm at a 2.25 interest and yeah, and I'm just trying to figure out, well, what's the best way to do this? Well, you know, at this point it sounds like you have, you have a great mortgage.

I love that rate. I love that you didn't do a new 30 years, you only have 15 to go. And so I think the key right now is for you to keep your lifestyle modest and just continue to work as long as you can so that you have options. And if you don't get the pension as expected, you just continue to keep that income. At some point, the pension will start paying out. At some point you'll start collecting social security and all these answers will begin to make themselves clear. But in the meantime, it's about continuing to keep that income flowing for as long as you can. Amelia, thank you very much.

Let's go to Birmingham, Alabama quickly and Peggy, what's your question for Rob West? Hi there, I'm 68, single, I own my own home, I have no debt, I have $20,000 in savings. I do own my own business, I hope to work another seven years. I have $190,000 invested conservatively in stocks and bonds.

One is, should I liquefy the 190 because of the election? I can't afford to lose everything and I am totally alone. I see. No family.

Yeah. Well, Peggy, first of all, let me just encourage you, you know, it sounds like you're doing a lot of things right. You've got equity in a business, you're continuing to work, you've got a plan for how long you're going to work, you're 68 years old, you're completely debt free, including your mortgage, you've got a healthy stock and bond portfolio, I mean, you're doing a lot of things right. But you know, this thought that perhaps you need to, you know, pull out of the stock market because of what could happen in the election, I just don't want to encourage you to go in that direction. Number one, most of what's probably going to happen over the next couple of months in the market is already priced in, in terms of the political cycle and the election that we have coming. Number two, as long as you're invested properly, meaning you have the appropriate amount of stocks versus bonds, risk levels, diversification that's oriented toward your goals and objectives, not beating the market or beating somebody else, you know, your neighbor's stock and market returns, but getting an appropriate level of return with a commensurate amount of risk based on your time horizon, which you've already said is seven years until you stop working.

But even then, you're going to, if the Lord tarries and you have good health, you're going to need that money to last could be for a couple of decades or more. And so having a stock allocation, despite what could happen over the next, you know, couple of months, that's not the time to pull out of the market. What we want to look at is the long term trends. We've been through elections before, even tumultuous ones. You know, if I would have said to you last January, we're about to have a major pandemic hit the world and the stock market is going to go from an all time high to a bear market in the shortest period of time in history, you probably would have pulled out of the market.

But guess what happened? It went down that fast, but it came up just as fast. And so the challenge is, as soon as you start to try to time the market, you've got to not only pick the exit point, but you've got to pick the entry point. So instead, what history says and what all the data says is that the better approach, Peggy, is just to stay invested in a long term strategy, to buy the dips, to invest systematically and recognize there's going to be ebbs and flows through political cycles, through pandemics, through bear markets and recessions. But as long as we're invested properly, we're going to do well over time. And as soon as we try to react emotionally or try to pick a time to get out and get back in, it's just always a losing proposition. So I just want to encourage you, don't go in that direction.

Stay fully invested, assuming you're in the right allocation for your age and objectives. You know, Rob, thinking back, we're both old enough to have seen some ups and downs. And when you look at the downs, when people did lose a fair amount of money, none of those down times were predicted. No one said, you know, in a couple of months there could be a pandemic or it was never connected to anything that we could really see.

Not that that major groups of people agreed on. So I think what you're saying is that, you know, ups and downs will always be the best you can do is stand there for the long haul. And when you look back at the history of the stock market, going back to World War One and before, it's always come back and it's always been the safest, best place to be. Right.

Well, that's exactly right. For decades, Steve, if you go back the last 100 years, every 10 year period has its major upheaval. And we don't get out of the market then. If we stay invested, it always comes back and it always moves to higher ground.

The key is having the right mix of investments that are appropriate for you at the time. Thanks, Rob. Do appreciate that. And thanks to our technical crew today for helping in the background, pushing all the right buttons. Amy, Aaron, Dan and Jim. MoneyWise Live is a partnership between Moody Radio and MoneyWise Media. Thanks for listening. We'll discuss this again next time.
Whisper: medium.en / 2024-01-31 21:49:45 / 2024-01-31 22:12:13 / 22

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