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Retirement Facts

MoneyWise / Rob West and Steve Moore
The Truth Network Radio
August 9, 2023 2:36 pm

Retirement Facts

MoneyWise / Rob West and Steve Moore

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August 9, 2023 2:36 pm

You work hard all your life, so you don’t want your retirement day to roll around and find out you’re not prepared. But as you prepare, what facts will help you put solid plans in place? On today's MoneyWise Live, host Rob West will share some facts that will help you as you make your retirement plans. Then Rob will answer your calls on various financial topics. 

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Encouraging Word
Don Wilton
The Verdict
John Munro

New York Yankees catcher Yogi Berra once said about planning, if you don't know where you're going, you'll end up someplace else. I am Rob West.

Well, old Yogi was a master of unintended humor, but he sure was right about planning. And planning for retirement is hard if you don't have all the facts. I've got several for you today, and then it's on to your calls at 800-525-7000.

That's 800-525-7000. This is MoneyWise Live, biblical wisdom for your financial journey. Well, you work hard all your life, so you don't want your retirement day to roll around and find your someplace else. Having all the facts is critical if you want to avoid surprises, and better to have the facts now while you can still make needed adjustments to your financial plan.

Our first fact is certainly good news. The odds are you'll probably live longer than you think, but unfortunately, that will also likely put more strain on your retirement savings. You may have heard that the average life expectancy is around 79, but that's the average for all age groups combined, and that makes the figure somewhat misleading. If you look at the life expectancy only for those who make it to age 65, and 70% of us will live at least that long, half of women reaching that age live to at least 87, and half of men reaching 65 will make it to 84. That means younger workers should plan for 20 years or more of income in retirement, and those folks currently retired who may still have all their assets in fixed income securities should move some of it, 20-30%, into index or mutual funds to offset inflation or risk running out of retirement savings some day.

Now, the next fact shouldn't surprise anyone, but it seems like it does. For the vast majority of people, Social Security won't come close to meeting your income needs in retirement. Financial advisors recommend having a retirement income of around 75-80% of your working income. Social Security was never intended to do that. At most, you can depend on Social Security for around 40% of the income you'll need in retirement. The solution, again, is to increase your retirement holdings. The sooner you do it, the easier it is because of compound earnings. Now, our next retirement fact is that most Americans aren't saving enough for retirement.

Again, no surprise. The median retirement savings for Americans aged 55-64 is only $107,000. If that seems like a lot, you may be disappointed. You can only safely withdraw 4% of that a year, or you'll begin drawing down the principal of your retirement holdings. That amounts to just $350 a month, not much of a supplement to Social Security. And remember, $107,000 was the median savings, meaning half of workers approaching retirement have less than that. There was a time when pensions were commonplace. Social Security was really designed back in the 1930s for folks who didn't have a pension.

Today, the vast majority of workers don't have that benefit, and for those that do, the median annual payout is just over $9,000 a year. That means most workers absolutely must have a defined contribution plan like a 401k or IRA. But according to a report by Vanguard, a third of American workers have no workplace retirement plan.

The solution is obvious. If you're not saving in a qualified retirement plan, open one and start today. All of this leads us to our next fact about retirement. Since so many these days are financially unprepared for it, many are staying in the workplace well after they reach Social Security eligibility. Bloomberg reports that nearly 20% of people 65 and older are still working full or part time.

The Bureau of Labor Statistics puts the actual number of those workers at around 10 million. One out of five workers of all ages say they'll never be able to retire. And one more retirement fact for you, and this one has to do with Medicare. A lot of folks think that once they reach age 65, Medicare will cover all of their healthcare needs.

It won't. For example, Medicare doesn't cover most assisted living expenses. And studies show that around 70% of those reaching 65 will need long term care, which could run more than $4,000 a month. Medicare covers only the first 100 days of care at a skilled nursing facility and only then if it results from a hospital stay of three days or more. The solution there is long term care insurance, which as you probably know, can be quite expensive.

The best time to buy it is in your mid 50s and you want to get the longest term offered. I hope that's helpful. Your calls are next. 800-525-7000. I'm Rob West and we'll be right back. Stick around. Thanks for joining us today on Money Wise Live. I'm Rob West, your host. This is where we apply the wisdom from the Bible to your financial decisions and choices. We've got some lines open today. 800-525-7000. It would be our privilege to speak to you today to understand what's going on in your financial life and see if we can help you move forward. Again, 800-525-7000.

We've got a number of lines open today and Clara managing our phones, you'll be able to speak to her and we'll try to get you on the air quickly. As we talk today in our opening segment about retirement facts, it's a good time to mention that if you need professional help with your investing, insurance or estate planning needs, you might want to consider finding a Certified Kingdom Advisor in your area. These financial, legal and accounting professionals have completed a rigorous certification program to give biblically wise financial advice as a part of their practice. They've also met high standards in character and competence, also have furnished pastor and client references and met an extensive experience requirement as well.

You can find a local Certified Kingdom Advisor professional by going to and clicking the button that says Find ACKA. All right, we're going to dive into your questions today. What would I say if you were to hear the state or what would you say to the statement? The way you handle money is the clearest indicator into what's going on in your life spiritually.

Well, the late Larry Burkett used to say that all the time. That's a convicting question to ask, isn't it? It's convicting for me. I'm sure it is for you as well. The question really drives to the idea that if money is really the most tangible evidence of what's going on in our lives, it's a way we work out our values and our priorities. Our checkbook, check register if we don't use that anymore, our digital financial account record is a clear indicator into where our priorities are, what's important to us. That really follows this idea what Jesus said and that was where your treasure is there, your heart will be also. So if the way we're handling our money doesn't tell the story we wanted to tell about what is in fact truly important to us, perhaps it's time to take a hard look at how our values intersect with the financial decisions and choices we're making every day as we live within our means and avoid the use of debt and have some long term goals and some margin in our financial life. And yes, as we give generously.

Well, that's what we try to do here on this program every day is encourage you as you lean into the scriptures and apply God's wisdom to the financial decisions you're making every day. Alright, let's head to the phones again, 800-525-7000. We've got a few lines open. We're going to begin today in Pittsburgh. Hey, Danae, thanks for calling. Go right ahead.

Hi, thank you for taking my call. My question today is, is we have a couple, the small investment properties, they're just duplexes that my husband and I had purchased as a way to have some income coming in and for our retirement years. But we've had much difficulty, especially during COVID, we weren't able to, you know, we could take people to the magistrate to try to get rent, but they didn't have to pay it. And so we took quite a hit during COVID. And it doesn't seem to be getting a whole lot better because there's still all the COVID money out there.

And so they're getting lots of help, but they can apply for this assistance. And, but then we don't get it for like three months after. So we're not getting any rent for like three months. And the one building in particular, we pay all the utilities. So at this point, my husband and I are trying to decide, should we stay the course, keep the properties, hope things get better.

And then we have that income for retirement years, or we're both actually in our early fifties, or should we sell the property, just pay off the mortgage and go to the state of the course and keep the properties that, you know, we do have that money. Today, obviously being a landlord can be a real challenge. It's not for everyone. COVID and the moratoriums on evicting nonpaying renters have certainly made that more difficult. You're speaking to some of the challenges there. From a simple business perspective, are you in the black on the rentals with cashflow? You know, as you look at just kind of how this has played out over the last year.

Yeah, we don't have any mortgages on the places that we have that we just have a few and we don't have any mortgages. And right now we're, we're doing okay there for a while. We weren't during COVID. It was, it was pretty bad, but it's, we're doing okay. But it's still, we're still having very much difficulties with having tenants pay the rent and we just, it's a lot of frustration and headaches. Yeah.

Okay. Well, I mean, obviously these are cash flowing positively and that's largely driven by the fact that you've tied up so much money in the properties. I love the fact that you're debt free and this allows you to build an uncorrelated, you know, investment that's different than the other asset classes like stocks and bonds. Are you all also saving outside of this in retirement accounts or has this, you know, prevented you from doing that?

No, we, we do have some, we had arrived to that game later in life. My husband and I, we were young, didn't have real good job. I had stayed home with my children so I didn't have a job for 12 years.

And then when they did start working, I had started a nonprofit and I didn't have access to a retirement plan. So we, we felt like we got in late and so we don't have the kind of money that you should have when you're 50 years old. So, you know, we had bought these properties thinking, Oh, well we'll have that. But you know, now we just don't know because we do carry a mortgage on our house, our personal house. So we thought, should we try to get rid of that or stay the course?

Yeah. So I think this, what this comes down to is really number one, the appreciation that you're experiencing. So if you're at least generating enough to cover the maintenance and reserves, taxes and insurance, and you're throwing off a, you know, a decent amount of income that you could then reinvest perhaps into tax deferred environments, that's obviously a positive. And then at the same time you, you've got all the equity, but you're experiencing the appreciation in the asset and, you know, real estate historically has done well. So I think, you know, from that standpoint, it probably makes sense as long as you know, these particular properties, either location or the kind of property they are, is not experiencing as much appreciation. But then the second element of the equation here is the non-financial side, which is just, do you all want to be landlords moving forward?

I realize you're a little jaded perhaps from the COVID years, if it's better now and you're comfortable staying the course, I think that's a kind of a hard conversation you and your husband need to have. How much time is this taking for us to do this? And do we enjoy this work? Is it worth it? Or would we rather liquidate this to and move toward a more passive investment? You know, while real estate prices are still high, should we take this, move out of this and move it into the market where prices are low? You know, we've had a significant sell off here and perhaps that more passive investment, given the timing of the high real estate market, even though it's softened a bit, but moving into stocks and bonds, which is, you know, declined significantly in value, that then accomplishes several things. It, you know, moves you to a passive environment where you're getting out of being a landlord and you're taking advantage of these depreciated prices.

So I think that's one option to consider. You know, I'm not negative on real estate. If this is something you all wouldn't mind continuing to do now that things have improved, then I think you could make a case for just continuing to stay the course so long as you take that money and redeploy it into other asset classes, namely stocks and bonds. But give me your thoughts quickly.

I've got about 30 seconds. Yeah, I think that's good. I just, I guess our big question was, should we stay the course or should we get our own mortgage paid off? So yeah, and that really comes down to a conviction on your part. You know, there's not a huge benefit in you paying off your mortgage versus keeping this. It really just comes down to which is going to, you know, both are appreciating at the same rate.

You know, and I think it really comes down to would you have more peace of mind if your home was paid off in full or are you comfortable maintaining that mortgage and having two assets appreciating at the same time? We've got to hit a break. You stay on the line. We'll talk a little bit more off the air and we'll be right back.

Stay with us. Thanks for joining us today on MoneyWise Live. We talked to Danae off the air there for a few moments and where we concluded was, you know, she and her husband are on pace to pay off their current residence in the next five years. I said, really, as long as they have that paid off by retirement, sooner is better. But at least by retirement, that's the key because that's going to take this biggest expense out of the equation in terms of their lifestyle. And then they're left with this ultimate decision is the best place to grow our wealth in real estate with that huge chunk allocated to a duplex. Sounds like maybe even a triplex that's completely paid off. That's appreciating but has a good bit of work along with it as a landlord or in stocks and bonds.

And she concluded, you know what? We kind of like real estate. We don't really like the volatility of stocks and bonds. So they're going to hang on to that property and perhaps think about taking the cash flow plus the other surplus they have and tried to build up their investable assets each month moving forward.

So they have both of these assets growing over time. Danae, we appreciate your call today. We've got a few lines open. Eight hundred five to five. Seven thousand is the number to call. Let's head back to the phones.

East Lake, Ohio. Hey, Al, thanks for calling, sir. Go ahead. Hi, how are you today? I'm great. Certainly appreciate you taking my call.

I do have a question for you. I recently retired. I retired early and my company had a really good stock sharing and I had a real good chunk in that stock sharing. So I have one K and then when they released the stock, I put those in RIA or IRA. But I'm just wondering, I also put a good chunk of money because I was worried about like income down the road. Like I wanted some guaranteed income. I put like an annuity. So I have guaranteed income for 20 years. I just want one of your thoughts on like guaranteed income and because I know I'm not making a lot of money on that, but also it's taking a little of the risk out. What are your thoughts on that?

Yeah. You know, I'm not a huge fan now of insurance products for long term savings. One of the benefits is clearly what you just described and that's guaranteed income. If that's what you're looking for to transfer the risk away from yourself and the market risk to an insurance company that's going to provide you a guaranteed return.

If a fixed income, clearly a guaranteed return or a variable product, at least a floor where you're not losing money and you get a portion of the upside. And then obviously there's customizable features. There's all kinds of varieties of these things. The reason I don't love them is there are some tax penalties associated with them. They tend to have high commissions and fees and surrender charges. So if you want to get your money back, you know, it can be challenging at least for a period of time without taking a hit on that. And they tend to be complicated.

So they just, you know, in some cases are difficult to understand. And so I'd rather if you have the right time horizon with the right investment mix, get the full benefit of the money working for you 100% of the upside. And with that, assume the downside risk as well. But if this gives you peace of mind, I can certainly appreciate that.

And I think there's something to be said about knowing that at least for this portion of your retirement assets, you do have that guaranteed income that you can count on that you can use to supplement security and social security and whatever else you have, then it could be invested and that would be above this amount. So I'm not opposed to it, although it's generally not my first choice. Does that make sense? It makes perfectly sense. I definitely certainly appreciate it. We have time for just one more little part of that question.

Yeah, sure. Like what I have in the stock market right now is like 60, 40. So it's, you know, 60% stocks. And I know I've been taking a lump on that lately, but you know, that's just a ride the course thing, right? You just got to kind of ride it out. I know stocks are low right now and I bought when they were really low, but it's going to take a wallop for a while.

Well, that's right. You know, yeah. And sometimes we need some encouragement in the midst of a market like we're in like this. So let me offer that, you know, yeah, you've got to just take a long term view and recognize that during the past dozen years, we had a raging bull market with easy money and low interest rates and a lot of strong corporate earnings.

Very strong consumer, you know, post the great recession. And, you know, obviously we're paying the price for some of that that was brought on in part through COVID, the pandemic and supply chain issues, but really largely just the incredible monetary policy and stimulus and all the easy money policies that we've had for a long time. That comes to roost in the form of inflation. And we're experiencing that in a significant way right now. And the Fed has acknowledged this is not temporary or transitory.

This is something that's real. And they came a little late to the party, but their gloves are off and they're going to fight inflation with every tool at their disposal, namely raising interest rates at a pretty good clip. In fact, historically, it's been really fast and that will continue. At least that's what they're saying until we see signs that inflation is going to moderate. So given that, the market's going to be under some pressure because there's a fairly good chance that we could see at least a mild recession as we close out this year and into next year. Now, the market will recover ahead of the economy. And so that's why it doesn't make sense even in a period like this to get out of the market and go to cash, because there's just no way to determine when that recovery will occur. Just ask the folks who got out of the market at the beginning of the pandemic only to see the fastest bear market turn into the fastest bull market in history as the recovery happened very quickly.

And it'll be a little more prolonged in this case, just given some of the uncertainties and that it's going to take more time to work its way through the system. But the market will recover. Longer term, we've got some real challenges and headwinds that have macro trends attached to them. But everybody that I trust, economists that are God-fearing people that really are skilled in this area, believe that we will get through this.

It won't be terribly painful in terms of the recession itself. And the market will recover. And if that's the case and we believe that's true, then this is a time not to actually retreat, but to lean in and say, we're going to continue to invest because right now I can buy more shares with the same amount of money. And so now's the time to continue my investments. Does that all make sense? Well, that makes perfectly sense.

I'll tell you what, you are mister educated on this topic. Well, I appreciate your call, Al. Thanks for listening and calling in today. We're grateful for our time with you. If we can help you further down the road, don't hesitate to reach out. Dan, Ken, Lisa, Lori, we're coming your way.

We also have a few extra lines open today at 800-525-7000. You know, as we go back to God's word, we see some clear principles. We should live within our means. We should avoid debt. We should have some liquidity in our financial lives. We need to have a long term perspective. So we need to set long term goals and we need to give generously.

And if we do that, we'll experience God's best. We'll be right back on Money Wise Live. Thanks for joining us today on Money Wise Live. God's wisdom for your financial decisions, not because it comes from me, but because it comes from God's word.

We try to pull the principles of the Bible out to apply to your financial decisions and choices. All the lines are full, which means we need to go back to the phones. Akron, Ohio. Hey, Dan, thanks for your patience. Go right ahead.

Thank you for taking my call. I will be turning 70 in January of 2023. And I hear there will probably be an 8% increase or a little more in Social Security in January of 2023. So to get that increase, do I need to start my benefits in December 2022 at age 69 and 11 months for the increase to be credited to an open account? Or if I start my benefits in January 2023, which would be first paycheck in February of 2023, will the 8% be added to such from my very first month onward? Yeah, you don't have to do anything to receive that Social Security cost of living increase, Dan. It will happen automatically and it will be applied at any point based on whenever you start collecting. So you will enjoy that adjustment along with everybody else as you receive those benefits. 66 million Americans will receive those benefits and that annual inflation adjustment, as you said, we won't know officially what it is until tomorrow. That's when it's released. But based on the inflation data so far, we're hearing that it could be as much as 8.7%.

Now, we'll have to watch that. I mean, that would translate into an average monthly increase of about $144, which boosts the typical benefit from $1,658 to about $1,802. So a huge increase, but that's alongside massive increases in the cost of living as a result of inflation.

So it sounds good, but it's just offsetting what these Americans have already been spending in terms of higher prices. But to answer your question, you don't have to do anything. It'll come automatically, okay? So the account doesn't have to be open.

When I open it like in January to be paid in February, it will be accredited to all new accounts? Yes, sir. That's exactly right. Thank you. Okay, Dan. Thank you for your call, sir. We appreciate it. To Cleveland, Ohio, Ken, you're next on the program. Go ahead. Awesome.

Hey, three Northeast Ohio in a row. This is cool. Hey, first of all, thanks for taking my call. A big shout out to the kingdom advisors, too.

First of all, we've been with ours for over 20 years. The godly guidance we received from the kingdom advisors has just been spectacular. So I want to appreciate your support and promotion.

I thought I'd go ahead and share that kudos with you. Hey, look, I'm set to inherit about a couple hundred thousand dollars. How about 10 years away from retirement? We have about $400,000 in IRA and 401k at this point. We've got some mortgage debts at like 2.4%, a lot of other low interest debt like maybe just a couple of credit card loans here and there. I think it amounts to close to $40,000. Anyway, long story short is I'm thinking I'd like to maybe bump up, you know, how should I use that inheritance, right?

Should I use it as one lump sum into a retirement so that I can, you know, try to, you know, boost the amount for my retirement a little bit faster or does it make sense to, you know, set aside the three to six months cash, you know, take care of some of those things first and then what's ever left over, you know, put that into the retirement. Yeah, that's a great question. What is your age, if you don't mind me asking? 58. 58.

Okay, very good. And you said you've got about 40,000 in debt. Does that include the mortgage or is that outside of the mortgage? That's outside the mortgage. Okay, and you don't currently have an emergency fund, is that right?

We have about 10,000. Okay, and what are your monthly expenses roughly? Yeah, it's probably close to 5,500 a month.

Okay, so let's say it's, you know, an even 6,000. If we were to do three months expenses, that'd be 18,000, six months 36,000. I think that's a no brainer to put into a high-yield savings account.

That gives you some sort of buffer for the unexpected. I would wipe out those credit card loans, especially if a good bit of those are on credit cards or wipe out those loans, especially if a good bit are on credit cards just because with interest rates heading higher, any of those that have variable rates, those are headed north and that's a guaranteed return equal to that interest rate. So let's say we were to put, you know, 25,000 into the emergency fund or if you don't feel like you need that much, maybe 15,000 since you've already got, you know, 10,000 set aside and then we were to take the 40,000 and wipe that out, that's 55,000. So that would leave you with 145,000 left. You're not going to be able to just drop that into a retirement account. I mean, if it's a 401k, it has to come through salary deferral. So the best way to do that is basically to maximize what you can put into your 401k up to the contribution limit for this year, which is a little more than $20,000. And even if that pulled your income down lower than what you need to cover your expenses, then you could offset that by pulling from the inheritance money. And so essentially you're getting, it's a way to get that inheritance money into the 401k through salary deferral by living on it and just really dropping your paycheck if you can follow me on that. The other option is to, you know, put some money into Roth IRAs. You could put 7,000 each, you and your wife, into two Roth IRAs since you're over the age of 50. So that would cover, you know, at least 14,000 of that.

So those would be two options. You know, beyond that, you could look at accelerating the payoff of your home. You could also look at I bonds, which would be another great option. They're paying 9.7% right now. You can put in up to 20,000 between you and your wife, 10,000 apiece this year.

And you know, that great rate of return is something backed by the full faith and credit of the United States government. So there's not any risk there. But you would have to leave that in for at least a year. So those are some ideas to consider.

What are your thoughts? Yeah, it sounds great. I mean, you know, I think what I've heard from and what I needed clarification on was, you know, how much of that lump sum could I put into a retirement of some sort and because I don't never faced this situation before, right, where I've had a lump sum amount of money to do something like that with. So no, it's really helpful. Some have suggested maybe some real estate potentially, you know, as an option, just that as an investment option. But I'm not 100% comfortable with that, obviously, but some of the debt that's there, even though I have bonuses that have been coming in each year, I feel confident I could pay off the debt that way over the next couple of years.

It just makes me feel a lot more comfortable based on your recommendation. Yeah. Do you have, do you each have 401ks, you and your wife or just you?

We do. Yes. Okay. Her value is quite a bit lower at this point. But the total between both of us plus our area is around $400,000. Yeah. So if you wanted to get more into it, I mean, you all could each put over the age of 50 $27,000 away into a 401k.

That's the limit for this year. So what you would do is you would again, just go to HR and say, I want to really bump up to the max my salary deferral into my 401k. And if you say, well, that brings my check down low enough where I don't have enough for my bills, then you'd pull from the inheritance money to supplement it.

And essentially you're trading one for the other to get more into those tax deferred environments. So I think between the I bonds paying off the debt, the emergency fund and the 401k, you're headed in the right direction. We'll be right back on MoneyWiseLive. Thanks for joining us today on MoneyWiseLive, biblical wisdom for your financial decisions. Headed back to the phones to Boynton Beach, Florida. Hey, Lisa, thank you for calling. Go right ahead. Hey, thanks for taking my call. I appreciate your wisdom and all. So, yeah, my husband and I, he's 58.

I'm 52. We have two children, one in 10th and one that's a senior. We bought this house.

We owe about just under 100,000 and we have about that much in cash to our name. The reason we had moved was my husband wanted a garage so he could do his generator work out of there and all. But he may change career paths because his back, he's had some issues. I just took on a new job and then a week later he's been faced with some health issues just out of the blue.

He's bouncing back strong, but we're still not quite 100% if he's going to stay his course or shift into another career. So I guess our question is, should we pay the house off, build the garage, or just keep the cash and keep the same, you know? Sure. Yeah, great question. So you said 100,000 is the cash that you have and that's all in, correct?

I mean, you don't have an emergency fund separate from that? Correct. And to build the shell of this 2,000 square foot building, which would add onto our home, and it would add value, it'd be about 90,000 for the shell. And then we could do it, it'd all be closed. And then we'd have to add a roof and on top of that, so about another 25.

So probably all of it, even if we did it ourselves, probably 140, 150. So do we wait on that, you know, being the kids are going to be gone? Because I forgot to tell you, he's got a $2,200 a month building that he pays for a 1,400 square foot building and it's going to go up in August.

And so if he had this additional renovate, or excuse me, this add on to your home, he'd be able to drop that 2,200 a month? Yep, exactly. Yeah.

Okay. And were you all planning to do this add on anyway, or that one's still kind of up in the air? I mean, yeah, we'd like to there, you know, it would add value to the property. It's a one acre lot. It's right now currently about 1,650 square feet. If we did the garage, it would add a master in the back and then a room up front. So in essence, it would be like our retirement, you know, the home.

Yeah, very good. And what right now, how much are you all saving a month? What is your surplus on a monthly basis? Well, things have kind of shifted and changed. The kids' expenses are pretty high, you know, my daughter does lessons.

So and then her concerts and travel and then travel baseball. So those are our biggest expenses. Do you have anything left over at the end of the month typically?

Well, it's been volatile, just because it hasn't been consistent. Typically, no, because when we bought this house, it overall No, we haven't. Last question, what are your total monthly expenses roughly?

Let's say about five to 55. Okay. All right.

Well, so here's my thoughts. I wouldn't pay off the house right now unless you all just had a real conviction to do so. That would just put you in a tough spot in terms of having access to cash, even though I love the fact that you would be debt free and I want you to be debt free down the road. I don't think now's the time to do it.

So I'd take that off the table if it were me. The second thing is I really want you to have at least three months expenses, especially if you're living paycheck to paycheck. Six months would be even better, but at a minimum three. So that's 15,000 of the 100,000 at a minimum, or 30,000 if you'd feel more comfortable with six months expenses that goes into a liquid savings account.

We don't touch that. And then I'd love for you guys to be able to build the garage as soon as you can, especially because it allows you to drop this 2200 a month and that's continuing to climb. The question is whether you'd be able to service the debt on it, because let's say you just go with 15,000 in the emergency fund, that leaves you 85,000 for the add on. But if it's going to cost you 150, you still have roughly 75,000 or 65,000 that you'd have to get as a home equity loan. And if you're living paycheck to paycheck and you still have the 2200 a month during construction, I would have some concerns about your ability to service that debt. So it seems like what you may want to do is just continue to save and wait on this property a little bit longer unless you feel like it would be worth it to get it built and drop that 2200 a month, which would then be available to service the debt. I'm just concerned about the interim period. Let's say it takes 12 months for it to be built.

I mean, that's a year's worth of debt service that you'd have to pull from your savings and you'd have to account for that because you'd be going underwater as you try to service that $65,000 home equity loan, not line of credit. Does that make sense? Yeah, absolutely. And then, of course, the lease is up in August, so then he has to sign a three year lease to continue that, which we could probably get the shell built by then.

But then the other thing is being with his back, he's getting tired. Is that the wise decision? He might sell his business, shift into an office job.

So there's a lot of question marks, you know? Well, I think given all that uncertainty and his health, I'd probably just push the pause button on all of this. And I'd really focus on shoring up that emergency fund. I'd hang onto this cash. I'd start to contribute as you can to maybe you take a portion of this and put it into IRAs so you're saving for the future. But I think right now you just need to focus on dialing back your expenses as best you can so you all can live within your means.

And then perhaps once you have a little bit more clarity down the road about his health and his future work situation, perhaps that's the time then to think about whether or not you're going to build this ad on. Does that make sense? Yep, yep. Very much, Tom. Appreciate it. Absolutely. Thank you for your call today. We appreciate you very much.

Let's stay in Florida. Lori, you're next on the program. Go ahead. Hey, yeah, I just needed a couple quick questions. One is clarification on Medicare.

And then a quick question. One is clarification on Medicare and Social Security. I have a friend I'm trying to help navigate. She's retired. She just turned 65. And she was told by her former employer that she didn't qualify for Medicare or Social Security. She does get a pension. And it seemed to be something about because she chose to get a pension, that she doesn't qualify for Social Security. Does that sound right?

It could be true, absolutely. So depending upon whether you paid into the Social Security system, and some people don't when they have a pension, would determine whether or not you actually qualify for Social Security benefits. So to be eligible for most types of Social Security benefits, you have to have earned 40 credits. You get one credit for each quarter you work and pay FICA taxes.

And that's the real issue. Was there FICA taxes being withheld from her pay? So four credits a year, that's 10 years of work. Now, if you worked at some type of job where FICA taxes were not withheld, you wouldn't be eligible for those Social Security benefits. And some people won't be eligible for Medicare if they or their spouse didn't contribute for at least the 10 years as well.

So is the place to go. But that is absolutely true, depending upon her situation that she may not qualify for benefits if the FICA taxes were not being withheld based on kind of her work situation. Does that make sense?

Yes, perfectly. And then real quick, my own situation, if I were to sell my residence, my only home, and buy a new home, I guess I have up to $250,000 profit before I would have to pay taxes. Is that correct?

That's true. Yeah, if you've lived there two out of the last five years as your primary residence as an individual, you have $250,000 worth of gain on that property. So that would be the selling price minus the purchase price minus the transaction costs and any improvements you put into the property that stayed with the property to enhance the value.

All that would be subtracted from the selling price to determine your gain. And as long as that's under $250,000 as an individual, $500,000 as a married couple, then you would not pay any capital gains tax. Do I have any certain amount of days to get a new house where any amount of profit would not be taxed?

No, no. As long as you stay under that $250,000 mark, you're thinking of something called a 1031 exchange, which is not related to your primary residence, but where you're taking the gain and rolling it into another similar property. This would be for an investment property typically. You have a window of time where you have to redeploy that money. That does not apply for the exclusion we're talking about here when it's your primary residence. Whether you don't ever buy another piece of property, you still enjoy that $250,000 that you don't pay capital gains on.

Okay. And the purchase price, I actually built the home, so we had the lot and then we had construction loan. So you would just put those two amounts together for the purchase price of the home originally?

Yeah, that's right. I would check with a tax preparer just to make sure you establish that basis properly and calculate the true gain. If you feel like you're going to be close to $250,000, you want to make sure you get that right. If you feel like you're well within the limits of $250,000 for an individual, $500,000 for a married couple, you're probably fine.

But if you want some help determining exactly what that is, I would check with your CPA or accountant. Okay? Okay. Thank you so much. You are welcome.

Thanks for calling very much. Joanne, I see your question here from Tennessee. You want to know about the rate on I bonds. You said they're changing in November. I thought once you signed up for the rate, it would remain the same for six months, and that's not the case. So no matter when you sign up, that rate adjusts twice a year. It adjusts in November and then again in May, and it's going to adjust for everybody, whether you've held it for six months or not. So you will get a new rate come November with those I bonds. Thanks for checking in with us on the program.

MoneyWise Live is a partnership between Moody Radio and MoneyWise Media. Thank you to my team today and thank you for being here as well. Come back and join us tomorrow. Bye-bye.
Whisper: medium.en / 2023-08-10 13:50:12 / 2023-08-10 14:07:00 / 17

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