Financial Planning

President Abraham Lincoln once said, Give me six hours to chop down a tree, and I'll spend the first hour sharpening the axe. Hi, I'm Rob West.

Obviously, Lincoln believed in planning, and his skill at it no doubt helped save the union. Are you a planner, especially with your finances? I'll talk about that first today with Ron Blue, and it's on to your calls at 800-525-7000.

That's 800-525-7000. This is Money Wise, biblical wisdom for your financial decisions. Well, our guest today is the founder of Kingdom Advisors and my friend and mentor, Ron Blue. He's a sought after speaker and author on biblical money management, but perhaps most of all, he's a financial planner at heart. Ron, welcome back. Well, Rob, thanks.

I so enjoy being a part of your program and seeing what God's doing through your ministry, so thank you for letting me participate. Well, it's always an honor to have you here with us, Ron, and there is so much to talk about when you come on the program, but perhaps one thing we haven't talked about enough is financial planning. You cover it extensively, of course, in your book, Master Your Money, and you start by revealing some key truths in this area, so I'd love for you to begin by unpacking those for us.

Well, you know, it's kind of simple when you get right down to it, and people will identify with this. Number one, no matter how much money you have or how many financial resources you have, there's always a limit. And consequently, there's never enough money for everything that's available to spend it on. So when you make a financial decision, you allocate some of your financial resources, and in reality, you're determining your destiny. This may be easiest seen when we think about saving for retirement. If I don't save for retirement, my destiny is not going to be very good. If I do save for retirement, my destiny can be much, much better.

So a dollar spent is gone forever and can never be used in the future for anything else. Therefore, Rob, I would say this, the longer term the perspective, the better the potential for a wise decision. If I can think, for example, about college for my kids when they're infants, I'm likely to make a better choice in terms of saving for that. So I think most of us are responders rather than planners.

And we respond to friends, we respond to advertising. And our emotions get really involved in our planning and spending. But let me give it to you real simply. Financial planning is allocating limited financial resources among unlimited alternatives. If you know that, you won't get as frustrated when you begin allocating those resources. Wow, that's powerful. I know you said it was simple, Ron, but if this advice you just gave was followed by people, we wouldn't see the data we see today about the debt that exists, the amount of people living beyond their means.

It sounds simple, but in fact, it's really hard. We have limited resources. There are more uses of money available than there is money. Today's decisions determine our destiny and the longer term the perspective, the better potential for wise decisions. Ron, you mentioned financial planning.

What are the real benefits of financial planning? Well, financial planning is an orderly allocation of those limited resources. And if we realize that God is interested in, at least more than interested, he's the one that provides the resources for us.

And if we believe that that he owns it, he also can give me some goals. So if my financial planning is done peripherally, I'm likely to be allocating those limited resources as God would have been limited, or as allocated other than limited. And it removes so much of the frustration when I believe that I'm walking in obedience faithfully to what God would have me to do. And so the pressures go away. A lot of the frustration goes away. A lot of the miscommunication between husbands and wives and parents and children goes away. When I have a plan, I have pre-made a lot of decisions that take away the emotional side of money, and that's huge.

Yes, it sure is. Timeless wisdom coming from God's Word, shared by our good friend Ron Blue today when we come back. Five short-term objectives to financial planning and long-term objectives as well. You're going to want to have a pen and paper handy. We're going to pause for a brief break. More with Ron Blue just after this break.

Stay with us. Thanks for tuning in to MoneyWise Live. Joining me today, one of my good friends and mentors, founder of Kingdom Advisors, Ron Blue, the author of Master Your Money, a classic. If you haven't read Master Your Money, you need to.

It really shares, I think, in a way that no one else has captured the heart of God as it relates to financial management and financial planning. And that's really our topic today. Just before the break, Ron pointed out that financial planning is allocating limited financial resources among unlimited alternatives. And given that financial resources are limited, we need to have a plan. And Ron, you were sharing some principles that go along with that. I'd love for you to share just for a moment what exactly we're trying to accomplish when it comes to our financial planning. Well, we're really trying to accomplish several things.

Let me give one illustration. When I take a vacation, it's not that I am taking a vacation, but I am trying to maybe build memories with my family. I may be thinking about recreation, if you will, recreation. And the money then just becomes a tool. When I buy a car, I'm buying transportation. So when I spend money, it is typically and almost always to accomplish something else. And money is just the tool that I use to accomplish something else. So we can get hung up on thinking too much about money rather than thinking that money is the tool. And if I think of money as the tool, but what I'm really trying to accomplish is maybe ministry, maybe it's relationships, maybe it's recreation. It could be many, many things and money is just a tool. And really, there's not many places when you lump them together that you can spend money. You spend it to live, give, pay your taxes and pay off your debt and save for the future. So you're spending money into, I used to think of it like putting it in a bucket, putting it in a lifestyle bucket or something like that. Let's drill down on that because I think that's really key because financial management can seem overwhelming. Limited resources, unlimited alternatives, but when you boil it down, there's really only, and you point this out in the book, five short-term objectives to financial planning, which greatly simplifies things, and then six long-term objectives. Let's start with the short-term objectives.

What are they? Well, it's typically I spend money to give, so money is given away. I spend money to support my lifestyle, which is really all of my expenses, housing and entertainment, recreation and so forth. I have to spend money to repay the debt that I have borrowed, and I have to spend money to meet the tax obligations that I have, and I should be spending money to save for the future because you can't have anything in the future if you spend it all in the present. So those are really only five things.

In fact, you can say it this way, live, give, owe, grow. Spend it to live, spend it to give, spend it on what I owe, which I owe taxes and I owe debt, and I spend it to grow. So those are the only places that ultimately you spend money. And as you spend it in any one of those five categories, you're really saying these are my priorities. And it's an interesting exercise to go through if you look at the percentage of money spent in any one of those five categories as to what priority it really is in life.

In many cases, you don't have any choice. When you borrow money, you have to pay it back. You do have to pay for taxes, but the giving, the lifestyle and the saving are really the choices that you make. And if you can minimize the debt and minimize the taxes, you've got more money to spend on the other three. And then you have certain commitments like mortgage payments, which would be in the debt category and food and insurance and so forth. So your priorities dictate how you allocate your money among those five choices. Well, that's really helpful because as you said, it comes down to two factors, the commitments you've already made in your priorities. But so often we hear from folks, Ron, saying, what should my priorities be? What is the right priority order of these uses as it relates to giving, lifestyle and savings?

How does somebody wrestle through that? You know, you've introduced a topic that we could spend a long time on, because I think that the choices are not necessarily sequential. They are simultaneous. And by that, I mean, we could say, well, you give first to pay your taxes, pay your debt, you save and then you support your lifestyle. But it may be that you have an emergency of some sort or, you know, you have the life's hurricanes, I call them occur. And so that becomes a priority. So you just need to understand that there are limited places that you're going to be spending money. And ultimately, how you spend money is a priority decision. And your priorities are typically indicative of your spiritual belief system. So ultimately, I can look at the checkbook, and I can see what my priorities are. And I can see whether they line up with what God's priorities are.

Yes. And I know I've heard you say, Ron, it would be real simple if the Bible said, well, your lifestyle should be 62.5% of your income, it doesn't, which means we've got to be on our knees asking the Lord for wisdom as we make these decisions. All right, let's turn to the long term. And I know you said, not only is there five short term objectives to financial planning, but there's six long term objectives, meaning, really, everything you can do with money in the long term is going to fit into one of six categories.

What are those? Well, a lot of people would like to be financially independent by the time they retire. That's a long term goal. And then paying for college and caring for aging parents might be long term goals. I would put that into the providing for family needs. Thirdly, perhaps paying off all your debt.

I think it's a really great idea. People can be out of their mortgage by the time that they retire. And then long term, maybe it's a major lifestyle change when I'm 30 years old, maybe the thought of a vacation condo or a different kind of car or something is a lifestyle change. Perhaps a bigger home as the children get bigger. That's a lifestyle change. Fifth would be maybe I want to accumulate some wealth in order to maximize the amounts that I give to my church or to the ministries or to the missionaries that I like to support. So that's a fifth charitable giving. And then in some cases, people want to start their own business. And I believe that having saved to start a business is a good way to start a business rather than starting it with debt. So those are six long term goals that people will say for.

Nobody will say for all six of them. So there will be just a few that you say for and over time as you accomplish those goals, you no longer have the need to say for them. Of course, that's right. At my age, I've educated my kids.

I don't have to say for college anymore. Thank goodness. Well, Ron, you've taken something that can seem very complex financial planning, financial management, and you've distilled it to some principles and some categories that gives us just a real catalyst to move forward with confidence. We always appreciate you stopping by. Ron, thanks for being here. Well, thanks for having me. Enjoyed it as always. Ron Blue has been our guest today.

You can read a lot more about financial planning in his book, Master Your Money. Stay with us. Much more to come just around the corner. Thanks for tuning into MoneyWise Live.

I'm Rob West, your host. We're delighted to have you along with us today as we mind the scriptures and apply God's timeless truth to your financial decisions and choices, recognizing God owns everything, and therefore we're a manager or a steward. So it's our job to carefully and wisely manage everything he entrusts to us according to his wishes. What are those wishes? Well, his word is where we understand the heart of God related to money management.

In our role as stewards, we want to be found faithful, living simply, holding money loosely, recognizing that it's a tool to accomplish his purposes, and I think generosity is a natural byproduct of that, along with freedom and contentment. Well, let's try to find that together today. We've got some phone lines open. We'd love to hear from you.

What's going on in your financial life? 800-525-7000 is the number to call. That's 800-525-7000. We're going to begin today in Macedonia, Ohio. Gary, thank you for calling.

Sarah, how can I help you? Yes, I was hoping that I could get some of your wisdom on the topic of I bonds, what you think of them and what they are and so on. Yeah. Well, I like them, especially right now, just because you're going to get a far better interest rate than you will on a savings account, but you're going to need to be willing to hang on to it for at least a year, and if you redeem it prior to five years, you'll lose three months interest. They're backed by the full faith and credit of the United States government issued by the U.S. Treasury. They give investors, Gary, a return plus an inflation protection on their purchasing power. And because of where inflation is right now, we're seeing significant interest rates. So the composite rate for I bonds issued until November, excuse me, until April of this year is over 7%, 7.1, and the rate applies for the first six months you own the bond, and then that composite is going to change, pegged to inflation.

They have a 20-year initial maturity with a 10-year extended period for a total of 30 years. So I think it's a great option because you're going to get far more than you'd get, you know, as I said, in an online savings account, and you can get access to them at treasurydirect.gov. You can only put in $10,000 per person in the calendar year.

You can get that up to $15,000 if the $5,000 of that comes from a tax refund and it goes directly in. But, you know, again, given the safety, the return, and the ability to get it back after a year with minimal, you know, penalty, I think it's a great option for you. All right. Well, thank you very much. Thank you for taking my call. Happy to do it, Gary. Thank you for listening and calling, sir. We appreciate it. Let's head to Michigan. Brian, thank you for your call.

How can I help you, sir? Well, I have a question about the accuracy of the Monte Carlo software retirement prediction technique. Yeah. And how do you feel about it if it's proven, if it's accurate, what its percentage of accuracy is, things of that nature?

Yeah. Well, you know, I'm not a big fan of it. It is a tool and you need to see it as that. It can't be used one time and then, you know, you forget it. I think the idea behind it is that you continue to use it over and over again and update it along the way. Essentially, this is going to be a predictor of your likelihood for your plan to allow you to achieve your retirement results, i.e.

making your money last throughout your entire life. And, you know, it came on the heels of what was used really and is still used today as some seminal work by Mr. Bengan that we've talked about where, you know, he came out with research that gave us what is known as the 4% rule that's widely considered, rightly or wrongly, as kind of the ultimate retirement planning tool in some circles, which basically says you can safely withdraw 4% per year from your nest egg over the course of 30 years and not run out of money if you have a portfolio that's consistent with that approach. But in 2005, investment firms and advisors really began to move more toward the Monte Carlo simulation as a predictor of, again, your portfolio's probability of success, arguing that it would be an improvement over Bengan. And, you know, I think the challenge is, you know, the best case outcome would be to assemble a portfolio and a withdrawal rate that delivered a 70% or better probability of success.

You know, a lot of folks will say it's perhaps as low as 50% just in terms of its accuracy. Again, though, it's a tool and I think it ultimately comes down to, you know, something that can be used alongside other planning vehicles to analyze your strategy. You know, the biggest driver of success is going to be, you know, what you're willing to do in terms of your withdrawal rate in retirement. Are you willing to adjust your withdrawal rate over time, you know, as the market ebbs and flows, especially during the income phase where you're distributing the assets in retirement? But I don't have a problem with it as long as you don't see it as kind of the end all in, as long as it's updated along the way because, you know, your results year to year as you get closer and closer to retirement is going to give you a more accurate reading. And you know, I think the challenge is a lot of folks see that, you know, they run the simulation and if they come out and say, well, it's only a 50% probability of success and they think, well, one out of two times I'm going to fail in terms of this trajectory reaching my goals, that's pretty disconcerting. But with some pretty minor tweaks and again, your ability to adjust your withdrawal rate down the road, you know, you can get a lot higher, you know, probability of success.

So I would say it's not my favorite tool but it is a tool and I wouldn't have any problem with you using it as long as you're willing to update it as you get closer and closer to retirement. Does that make sense, Brian? Yeah, absolutely.

Can I ask a couple questions? Yeah, go for it. Okay, so the frequency of updating, would that be on a yearly basis? Yeah, typically it would be as a part of an annual planning session where that would be updated. Okay, and then your 70% or better, that's your result at the end of running the simulation and the software, right?

That's right. That's basically what most folks are looking for to say that there's at least a 70% probability of success for the plan, not the reliability of the results. That 70% or greater is the target that most folks are looking for. Okay, and then the 50% accuracy statement, that was it works out 50% of the time or did I misunderstand that? No, I think, you know, there's a lot of research that'll say it's only 50% accurate in terms of that probability of success that is coming out.

So depends on which study you look at, but again, I think it's a tool as long as you just understand that going into it. Hey, we'll talk a bit more off the air. We're going to take a break, but we'll be right back on... We're grateful you're tuning into MoneyWise Live this afternoon. I'm Rob West, your host, taking your calls and questions on anything financial. You want to talk about spending plans, debt reduction, perhaps saving for the future or giving one of our favorite topics. You can do so by calling 800-525-7000.

Our team is standing by and we'd love to hear from you. Whatever's on your mind today, 800-525-7000. Let me mention we're planning a big update to the MoneyWise app here in the next couple of weeks. We're adding a major goal setting component where for each of your categories as you're managing your spending using our money management system, you can actually set goals for each of your envelopes. We're really excited about it and it will allow you to set debt reduction goals or savings goals right there in the app. Go ahead and download it today so you're ready when the update comes out. Plus, you can access our broadcast archives, our community where you can post questions and get answers from our coaches and access all of our content. You'll find it in your app store.

Just search for MoneyWise Biblical Finance and you can download it today. Just before the break, we were talking to a great caller who was asking about the Monte Carlo simulation. I'll tell you where we landed off the air during our break is what I was saying is that the Monte Carlo simulation is a tool. Most advisors are looking for a 70% or better probability of success, meaning that your plan, the amount that you have, your savings rate, the annual return you're projecting and your ultimate withdrawal rate in retirement is 70% or better likely to succeed. But some research says that the reliability of that percentage probability is only about 50%.

So only half the time does it work out that way. The way you improve that though is by repeating it every year and making sure you update that regularly. I would also say that something like the Monte Carlo simulation is just a tool and it's not a replacement for really doing some hands-on retirement planning with a certified kingdom advisor who is a certified financial planner, somebody who can really come alongside you and understand what you're trying to accomplish. What will your spending look like in retirement? How much do you have today? What can you save over time? What giving goals do you have and what is God doing in your life?

You know, putting all of that together to do some real planning, not just relying on an algorithm in a software package somewhere. That's I think where for sure you're going to get the best results. If you want to find a certified kingdom advisor in your area, you can do that on our website at moneywise.org. Just click find a CKA. All right, we're going to head back to the phones.

Vermillion, Ohio. Hi, Ron. Thanks for calling, sir. How can I help you?

Hi, Rob. I was calling in reference to my wife has like over $15,000 in credit card debt that she let me know about. But she was thinking about clearing out her 401k, which wouldn't even equal the amount of credit card debt. So she has roughly over $10,000 in the 401k. And if she was to take it all, obviously, even with the taxes, I'm not even sure.

It's still clear, but closer to 9000. I think she said something or less. So it's not even going to clear the credit card debt if she was to do that. So I'm just looking, is that even close to the right approach?

Or should she just be looking at a credit card consolidation loan of some kind? Yeah, it's a great question. I'm not a fan of that approach, Ron.

I'm assuming you guys are under 59 and a half. Is that right? Correct. Okay, so you'd have on top of the taxes a 10% penalty. That's expensive money. And I think, you know, the likelihood is that it won't solve the real underlying problem that led to the debt in the first place, which is typically and it may not be in this case, but typically a result of living beyond your means. So I think really the key Ron here in getting this paid off and making sure it's paid off once and for all and the debt doesn't return is to make sure you're living on a spending plan, that you've got a clear budget, you know, you all are managing money and making decisions together, even though there may be one bookkeeper, that you're setting goals that you're have a system to track the flow of money.

So you're living below your means. And, you know, that gives you then the margin not only to cover the minimum payments on these, but to really accelerate that payoff with excess once you have an emergency fund in place. The alternative to pulling out of the retirement account, which again, I'm not a fan of, would not be in my mind a debt consolidation loan, where we take out a new loan and kind of roll all these together at a lower interest rate, primarily because, number one, I don't like solving debt with more debt. Number two, even though the interest rate may be lower, it's likely going to be a longer payback term and you'll end up paying more over time. So my preferred approach, Ron, is what's called debt management. It's essentially where you use a credit counseling program to get lower interest rates directly with each of the credit card issuers and through one monthly payment that fits into your budget with those lower interest rates. On average, folks in debt management pay off these credit cards 80 percent faster. You'll also build it right into your monthly plan, which, you know, doing that month after month, even though it's not going to happen quickly, I think that's going to really lead to the right disciplines that, Lord willing, will allow this debt to be paid off and never return. My friends at christiancreditcounselors.org would be my preferred place that you go.

They'd be delighted to walk with you, explain exactly how it works, and again, because of their relationship with the creditors, those interest rates will be reduced and help you pay it off a bit quicker. Tell me what questions you have, though. No, that was really, I was just looking to go in that direction. I appreciate that. Thank you. Awesome. Yeah, christiancreditcounselors.org, Ron, and I think that'll be a great solution.

They'll also help you with your spending plan, make sure you, you know, you have that set up and a good system in place to maintain that moving forward. God bless you, sir. We appreciate your call. Crossville, Tennessee, WMBW. Hi, Sadie.

How can I help you? Yeah, actually, I've got two questions just real quick. Concerning the credit card, would your credit counselors do debt on a credit card that's under $5,000?

Absolutely, yeah. I think the question is just whether it makes sense, and they'll help you evaluate that, Sadie, to determine whether you should just snowball it yourself, which just means keep all the minimums paid, free up as much margin as you can each month in your spending plan, and then attack the smallest balance first with everything you have available over the minimum payments. And that way, you get that one paid off quickly, assuming there's more than one card here, and then you just kind of roll right on down the line.

That's one way to go, but if you've got anywhere close to $5,000 in credit card debt, it's probably going to make sense for you to use a debt management program just because of the total interest savings. All right, great, because it was funny because I actually got two of those. I accidentally gave $300 tips to an Uber driver. But anyhow, I've called mainly because I've been concerned about I-bonds or wondering about I-bonds. My husband and I are very low income, but I hear you talk about I-bonds. Would that be something that low income people can do?

And if so, where would I go about getting them? Yeah, you know, I think the question is just what is it you're trying to accomplish? Is this, are you looking at retirement savings or, you know, what is the money that you would be looking at moving into I-bonds? To start saving up for retirement, because my husband and I are both, oh, this sounds so horrible, 50. But we have nothing, absolutely nothing saved for any anything. And so I want to start saving.

Sure. Do you, either of you have a retirement plan at work? No, I'm disabled. I haven't gotten on Social Security yet. So I'm not able to work. We're only living off what my husband makes.

But no, nothing. Yeah, I'd probably look at a Roth IRA as a first choice you can put in up to $7,000 a year. And I would look at just a properly diversified portfolio using to start with what are called index funds, just so you can own the broad cross-section of the market. And even though you're 50, think about it. I mean, you still have, you know, 15 plus years for this money to grow and then decades beyond that, if the Lord tarries and your health is good. We'll talk a bit more off the air. Stay with us and we'll be right back.

Thanks for joining us today on MoneyWise Live, biblical wisdom for your financial decisions. Rob West, your host. We're going to head right back to the phone. Cindy is calling from Ohio today. Hi, Cindy.

How can I help you? Hi, how are you? Great. Thanks. Good. We had signed up for a home equity line of credit and actually we're to sign the papers on Saturday.

I know how you feel about them. And we tried to get a home equity loan, but our bank does not do those. So I don't know, can you go to another bank? Oh, sure.

Yeah. In fact, I would, whenever you're seeking a loan, especially when it's one tied to your home, it's going to be around for a little while. I'd always, you know, look at a number of options.

I'd get three bids before I decided which direction I was going to go. Bankrate.com would be a great resource for you to begin to look for the lenders that have the best loan programs today. And that changes over time based on who, you know, has what money available to lend. And you'd be looking at both the term, the rate, the interest rate, and then the cost associated with it. And that's going to vary significantly from lender to lender.

I'd look at your local bank, which you obviously have done, but I'd also look at some online banks because there's no reason that it has to be with your bank. How is this money going to be used, Cindy? Are you doing home renovations or improvements? Yeah, just some home repairs. And actually we'll have our house paid off in December.

Praise God. And thinking about that too, our house loan is six and a quarter percent. And then the loan percentage rate that we got for the home equity line of credit was three. And so we were even thinking, should we pay off the house with that? Just not sure.

Yeah. Well, the challenge is that, I mean, that's obviously a high rate on that first mortgage, but you're so close to getting it paid off. Balance is probably too low to get a new first mortgage anyway. The home equity loan is obviously a lot lower, but it's adjustable.

But given the timeframe here, you know, that may actually be a decent option. What were you approved for? How big is the line? 150,000. Okay. All right. And how much are you planning to use?

Well, probably maybe 20, if that. Okay. And how much do you all have available each month to pay toward the mortgage? I pay an extra 700 plus a month on our house payment. All right. And how much do you have left on that first mortgage? It's about 13,000.

About 13,000. Okay. Yeah. So I think one option would be to kind of roll these all together. I think the second option would be you just kind of continue on this current track. You're, you know, 11 months away from getting this paid off and you get a home equity loan, not a line of credit for the home renovations. The benefit there is you won't see, you know, after an introductory period, perhaps you won't see the rate begin heading up on that home equity line of credit like you likely will now.

So you'll lock that in. You can focus on getting the first mortgage paid off this year. And then, you know, you can take all that money, the monthly payment plus the extra 700 and then begin applying that to the home equity loan. So even if it took you, you know, a couple of years to get that paid off and it shouldn't, it should happen a little quicker than that, you wouldn't have to worry about that rate, you know, heading north on you. So I'd probably look at that option.

And again, I would look at bankrate.com to find who has the best loan rates and programs right now to see how you can do this with the least cost. Does that all make sense? Yes, it does. Thank you so much. You're very welcome. Thank you for calling, Cindy.

Tom's in Fort Myers. Hi, Tom, how can I help you? Hi, I was hoping I could get some advice from you. I'm looking to retire as soon as possible. I'm 56.

I feel like 65. And my home is all paid for. I don't have any debt. And I have about $400,000 in the 401k.

Okay. And do you have a good budget, Tom? Do you understand what it would take if you were to retire? What it would take per month to fund your living expenses?

I do. Per month, it would be about $600 a month. Okay.

And what income sources do you have other than the retirement account of roughly $400,000? That would be pretty much it. Okay. My notes here from my producer said you have a small state pension. Would you be able to begin taking that? I could, but I have to be fully vested and that would be a few years down the line. Yeah.

Okay. And what did you say your monthly need would be? What would be the total monthly expenses you'd have to cover? About $500,000 to $600,000 plus real estate tax.

Real estate tax is about $6,000, $6,000. So we're talking about another $500,000. Okay.

Yeah. I mean, that sounds low to me. I realize you're debt-free and you're living modestly and that's great, but I'm wondering about those things you haven't allocated for fuel and insurance and you've got not only insurance for your car, but homeowners insurance and just unexpected expenses that come, perhaps things you don't get a bill for discretionary spending. So I'd really want you to focus in on what that true monthly budget looks like. And one of our MoneyWise coaches would be happy to help you with that because once you get an accurate picture of what it takes for you or what it will take for you to fund your budget in retirement, then you know what income you're solving for. Obviously, delaying retirement means you're going to give this portfolio a chance to continue to grow. If you were to freeze it right now at $400,000 and deploy a strategy not to grow it, but to produce income where you're focusing on capital preservation and then distribution of it, I said this earlier, we use a 4% rate of return as a typical rule of thumb that says we should be able to pull 4% a year and make that up with a very conservative investment strategy. That would give you $16,000 a year or about $1,300 a month. And the idea would be that you could maintain that $400,000 principal balance and pull the $1,300 a month. You may think that's going to cover your expenses.

I think it may be tight because I think perhaps there's some things you're not factoring in. So perhaps the idea here, Tom, is I know you'd like to retire early and perhaps your health will force you to do so. But if you can, I'd probably delay the retirement until you get a little closer to being able to take the state pension so that the two of these together, the income from the retirement account and the state pension, could give you a little bit more flexibility in terms of covering your expenses. And then obviously, once you get to where you can take Social Security, that will help even more. I just don't want you to do it too early and find that you're really tight on your spending plan and so you draw down that retirement account a little quicker than I'd like to see.

And then it ends up being something that doesn't last throughout the rest of your life because you have to pull from the principal. Does all that make sense though? It does.

It really does. Yeah, that's very helpful. It's really based on the actual expenses which I'm going to do.

Yes. Yeah, I think that's the key. So you need to start there and figure out what are your actual expenses and then can you meet that with the assets that you have? And if not, and I think it's going to be tight, we need to probably delay it, let this portfolio continue to grow over the next few years, and at least get to the place where you've got your pension to supplement. Listen, all the best to you, sir, as you think and pray through that. We appreciate you listening and calling. We're going to finish today in Georgia. Melinda, thanks for calling.

How can I help you? Thank you for taking my call. I'm 57 and I have 45,000 just sitting in savings and I would like to know what you would suggest to put that, where to put that. I'm not a big risk taker, so just want to know your opinion. Would you consider this money, Melinda, your emergency fund or is it earmarked for some other purpose? It's just savings. I have 20 set aside for emergency fund. Okay, so this is beyond that.

Yes. Okay, and when you say it's just savings, tell me about what other retirement or other investments you have. Are you contributing to a retirement plan of some kind or do you have other investments? Yes, I have a retirement plan at work that I put six percent in.

They match four percent. I have 40,000 in an annuity, so I'm kind of, you know, have a few things there. Yeah, all right, and do you see any other needs for this? I mean a car replacement or any other kind of major expenses coming down the road that you'd need to perhaps earmark this 45,000 for or is this really longer term than that? Longer term than that. Okay, and what is that time horizon, let's say to retirement? Probably about 10 years, hopefully.

Okay, all right. Well, you know, I think then the question is given the 10-year time horizon, given that you don't have any other more short-term needs, you're saving, you know, in your retirement account. I assume that's invested in a way that's consistent with your age and risk tolerance and time horizon. I think the remaining question here is just, you know, are you willing to take any risk with it? Do you want to put this into the stock market? You know, and see it invested or are you looking for something that is more guaranteed in nature?

More guaranteed. Yeah, so I think really the only option then would be, you know, we talked about I bonds, you could look at that, but you could put, you know, only 10,000 in, but that would at least get you started. TreasuryDirect.gov would be the place to go there. They're paying a little over seven percent right now through April and that would be guaranteed for six months and it's backed by the full faith and credit of the United States government. Beyond that, CDs down the road as rates increase would be an option or another annuity where an insurance company is providing the guarantee. Apart from that, you're going to have to take some risk with the money.

So I'd look at one of those three CDs, I bonds, or perhaps adding to or getting an additional annuity. Melinda, thanks for your call today. That's going to do it for us.

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