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529 vs. Coverdell

MoneyWise / Rob West and Steve Moore
The Truth Network Radio
August 9, 2023 2:35 pm

529 vs. Coverdell

MoneyWise / Rob West and Steve Moore

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August 9, 2023 2:35 pm

It’s great to have options but it can lead to some confusion when you’re trying to decide how best to save for your kids’ college education. On today's MoneyWise Live, host Rob West will explain that 529 savings plans aren’t your only option for college savings, and he’ll share about an alternative that you may not have heard of before. Then Rob will answer your calls and financial questions. 

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It's great to have options, but it can lead to confusion when you're trying to decide how best to save for your kids' college education.

Hi, I'm Rob West. It's no secret that I'm a fan of 529 Savings Plans, and there are plenty of good reasons for it. But it's not your only option. Today I'll compare 529 Education Savings Plans to Coverdell accounts. 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 decisions. Okay, so we almost always advise parents to open a 529 plan to pay for their kids' college expenses. And no doubt, it's a great tax-advantaged way to save. But a Coverdell account has at least one advantage that makes it worth considering.

But first, let's look at how the two plans are similar. To start, like 529 plans, Coverdell Education Savings accounts, or ESAs, give families a tax-advantaged way to save not only for college, but also for elementary and secondary expenses. That was always true for the ESA, but not the 529.

Five years ago, the 529 was changed, so parents could use it for K-12 education up to $10,000 a year for qualified expenses. Now, what do I mean by tax-advantaged? Well, it doesn't mean that your contributions to either an ESA or 529 are deductible on your federal tax return, although some states will give you a break there. It does mean that your earnings are allowed to grow tax-free in both types of accounts. So for either plan, you pay taxes on the money going in, but no taxes when you make withdrawals for qualified educational expenses, and those are generally defined as tuitions and fees, books, and some room and board expenses. Also, when you apply for college aid using the Free Application for Federal Student Aid, or FAFSA, both ESAs and 529s will be counted as family assets. You're probably thinking, well, if they're so much alike, why do we need both?

Well, there are major differences between the two. First, ESAs were really designed for low and middle income families, so they come with income restrictions. Your modified adjusted gross income can't exceed $190,000 for married couples filing jointly, or $110,000 for single filers. 529 plans don't have income restrictions, although individual state 529 plans may set their own maximum balance, and those range around $235,000 to over a half a million dollars.

So that distinction could be important for some folks. ESAs have an income limit, 529s do not. But that's not the only difference, and here's where the major advantage of the Coverdell ESA comes in. It's in your investment options. A 529 plan is similar to a 401k when it comes to investing. You can only invest in the options provided by the plan, and they tend to be traditional assets like mutual funds. An ESA, on the other hand, is more like an IRA. In fact, they were actually called education IRAs until the name was changed 20 years ago. You can open an ESA at a bank, credit union or brokerage firm.

And from there, you can invest in almost anything, including individual stocks and bonds, real estate investment trusts, mutual funds and exchange traded funds. So flexibility is the key advantage that the Coverdell ESA has over the 529. And now you may be thinking, well, if ESAs are so great, why do you usually recommend 529 plans?

Well, it's because ESAs also have two disadvantages. First, contributions are lower with ESAs. You can only put $2,000 a year into an ESA. With a 529 plan, individuals can contribute up to $16,000 a year without having to fill out a federal gift tax form 709. Contributions above that count against an individual's lifetime gift exclusion of $12.06 million.

So it's certainly not a problem for most folks. The ESA has one other disadvantage, an age restriction that the 529 does not have. You have to make all of your contributions to an ESA before your child turns 18 and then use those contributions and earnings before the child reaches age 30. That could be a problem for students who might consider grad school, especially med school, which requires an additional four years of study. In that case, the 529 is definitely better than the ESA.

Now, one final word, whether you choose an ESA or a 529, it's important to start saving early to make the most of compound earnings over the years. All right, your calls are next. The number, 800-525-7000. I'm Rob West and we'll be right back.

Stay with us. Great to have you with us today on Money Wise Live. I'm Rob West, your host. We'll be taking your calls and questions here in just a moment. The number to call, 800-525-7000. We've got some lines open today.

We'd love to hear from you at 800-525-7000. Why do we take an hour a day to talk about money? Well, it's not so we can get more of it. It's not so we can retire early and live the quote unquote good life. Remember, we were created to be workers before the fall to do productive and meaningful work. God's calling doesn't have an expiration date.

So why then? Well, I think it's because our financial journey is one of the key ways God shapes our spiritual journey. It's an opportunity to reflect what's most important to us as we handle the King of Kings resources. We recognize it's a tool to accomplish his purposes. And it's one of the clearest indicators into what's going on in our lives spiritually.

That's what the late Larry Burkett used to say. It's a tangible expression every day of what we value, whether we're spending or deploying capital in investments, whatever it might be. So we want to be found faithful.

How do we do that? Well, we go back to God's word in every area of our lives. You see, once we give our lives to Jesus, it's about stewardship. What have we done with what we've been given?

Well, each afternoon we gather together to talk about just that pull the principles and the big themes from God's word out so we can apply them to what we're dealing with in terms of money, because money issues are hard issues. They're just symptomatic of what's going on underneath. You might think of an iceberg where 10 percent is above the water line. That's the money.

But it's everything underneath the 90 percent beneath the water. That's our values and our priorities, the why behind the how. That's what we want to talk about.

And in dealing with the money issues, we're ultimately dealing with the heart issues as well. So today, let's come together and talk about what's on your mind and we'll see if we can apply wisdom from God's word to your decisions and choices. The number to call again, 800-525-7000. Let's see, we'll begin today in Chattanooga, Tennessee, and welcome Terry to the broadcast. Hi, Terry. How can I help you? Yes, thank you for taking my call.

Sure. OK, I am 60 years old and I've got some money put back. I'm putting 26 percent into my 401k. Should I continue to put that much in at this time? Well, you know, the answer is it depends, Terry. So let's talk about that. Obviously, 26 percent is a lot of money, but I suspect it's because you're trying to play catch up. Is that right?

Absolutely. OK, so tell me, you said you're 60 years old. How long do you plan to continue to work, at least in this current job? Well, the current job, I can stay here until I die as far as they are concerned. It's a good place to work.

Yeah, that's great. And do you plan to transition to whatever God has next for you anytime soon, or do you plan to just continue to work for the foreseeable future? I'm planning to work for right now, but I'm open to whatever God leads. OK, but is there a date where you're either going to stop paid work or see a reduction in income down the road based on your current plans in the next five or ten years?

No. OK, all right, so you'll just keep going as long as you can. What have you accumulated in that retirement account at this point?

Right now, last time I looked at it was one hundred and eighty six thousand. OK, and if you were obviously if you're continuing to work, then you've got plenty of means to cover your expenses. I think the next step for you, Terry, would just be to try to establish that retirement savings goal.

And one of the best ways to do that is to try to calculate your retirement expenses. So in retirement and again, we don't follow the cues from the world. It's not just about retiring from paid work or just to pursue a life of leisure.

There's nothing wrong with leisure and enjoying what God has entrusted to us and family and relationships. But we also realize that we should be in service to the Lord throughout the whole of our life. Now, at some point, either because you can't physically or because God has something else for you, you may stop paid work or see a dramatic reduction in that pay. So the question would be at that point, what will your expenses be? Oftentimes in retirement, we see folks living on somewhere between 70 and 80 percent of their pre retirement income.

Why 70 and 80 percent? Well, we're no longer saving for the future. Kids are hopefully off the payroll. Maybe the house is paid off at that point. So that reduces lifestyle spending.

We drop the life insurance. I mean, we're not spending as much in gas to commute or work clothes, things like that. So calculating that monthly budget for retirement will be key because that's going to help us back into how much you need when you factor in Social Security and any other retirement assets. Then your 401k or retirement account will be one piece of that. Now, remember, Social Security wasn't intended to cover more than 40 percent of your pre retirement income.

And in some cases, it's less than that. So the way we make up the rest of that, whether that's another 40, 30 or 40 percent of our pre retirement income is going to have to either come from a pension or retirement savings, something like that. And typically, if it's coming from something like a 401k, we might look at building enough up in the way of assets that you can pull out four percent a year. So, you know, if you could get that up to maybe three hundred thousand and we were to say, OK, we're going to, you know, pull out four percent a year out of that portfolio.

Well, that'd throw off twelve thousand a year. So that'd give you an extra thousand dollars a month you could add to Social Security. So that might give you a goal to get to three hundred thousand. If you're going to need more than a thousand a month from the retirement plan, well, then you just have to continue to build that or you'd have to increase the withdrawal rate, which could cause you to deplete that account over time. The idea behind four percent is if it's managed properly, we can preserve that principal balance. You could live off the income and never see that balance depleted. So I think that's really the ultimate decision as to what's the right percentage for you to set aside. And it really comes down to what is the goal for how much you're ultimately trying to accumulate. Does that make sense?

It does. OK. Now, I've got an online savings account that I put money into every month, plus my savings account with my normal bank that I put money into. Good. Well, obviously you're living well within your means or you wouldn't be able to put 26 percent of your pay into your 401K. So I think perhaps the next step for you, Terry, is to take some time to begin to calculate what your monthly expenses are today. And you may already know that.

And if so, great. But then take a look at what expenses might be in retirement, which of those might come off the table and cause you to be able to bring that monthly spending down and then try to back into, OK, what can I expect from Social Security and what would I ultimately need to build this retirement account up to? So I've got enough to generate the income I need to supplement Social Security so I can maintain my lifestyle. And that would be your goal. And then you can determine, OK, if I continue at the current rate of twenty six percent and I work another five years, what will I have then? What about 10 years?

What would I have? And you can figure out kind of how much you're ultimately trying to accumulate, because the idea is to have a financial finish line. So we know that you are on track to achieve that goal. We don't want to over accumulate because you might want to do some additional giving or you may have other opportunities in the shorter term for being able to use some of that money. But that would at least tell you, do I need to lower it because I'm over accumulated or am I still playing catch up and therefore I need to stay at this twenty six percent level because that's ultimately going to allow me to realize my goal.

And that's really what it comes down to. By the way, Terry, if you need some help with all of that, you could do some retirement planning with an advisor. We recommend the Certified Kingdom Advisor designation. You could find a C.K.A.

right there in Chattanooga. There's some good ones. Just head to

Click find a C.K.A. I'd interview two or three. And what you're looking for is not really investment management. You're just looking for hourly planning to help you do some retirement projections. Thanks for your call today.

Eight hundred five two five seven thousand. We'll be right back. Stay with us. Thanks for joining us today on MoneyWise Live. I'm Rob West, your host, taking your calls and questions. We've got some lines open today.

Eight hundred five two five seven thousand is the number to call. Let's head to Columbia, South Carolina. Teresa, I understand you have a testimony for us, is that right? Yes, I do. I wanted to share my story of how I've been transformed by the Ministry of MoneyWise. Oh, we always like those stories. You go right ahead.

OK. I started listening to Larry Burkett in the late 90s and then MoneyWise and truly believed in biblical money management principles. But my actions did not match my beliefs and I had pervasive bad habits. And one of the main causes of my problems is what you always warn folks about, which is bailouts. Once I used inheritance to get out of credit card debt, another time I added it to my home loan, which is a horrible idea. And actually, that led to foreclosure. And once I withdrew from my 401K and all of this horrible stress because I live beyond my means and spit impulsively, all that goes along with credit card debt and I failed to predict for or save for large expenses.

But the things that I've learned from on MoneyWise, the principles applied, one of the first ones was living below 30 percent of your household for your household expenses. And I realized I was way over that. And so I moved. And then I, I, I heard you talk about Christian credit counselors. And so I enrolled with them and I had $14,000 in credit card debt and they said it'd be four and a half years to pay it off. And they were wonderful, absolutely wonderful.

I recommend them to anyone. But I was so motivated and faded by the program that I was able to pay it off in three years by making extra payments. And I just wanted to share with you and your listeners the most important thing that I've learned is how to not fall into those traps and to learn how to live without that money that I was paying back each month for credit card debt and become a steward instead of it.

And that money is now set up as two automatic drafts to a different bank like you recommend and to savings. And it just, the main thing I think I've grown into is not falling into the spiritual traps and of mismanaging money. And I was never able to grow until I've truly felt the long-term impact and consequences of my behaviors by going through that three years.

Like you recommend, you know, don't do a quick fix. And so I just wanted to thank you and encourage your listeners that no matter how hopeless your situation seems like what I was, God and his resources and a desire to honor him can get you to a place of financial stability. And I'm an example of that and I just thank you and for partnering with God and rescuing me from myself.

Wow. Teresa, what an incredible story. It's not because of anything I've done, but it's because you've applied the wisdom from God's word to your situation here. I've got a couple of questions for you, but first, will you just share what is it like now that you're out from under this burden of debt?

Talk about what God is doing in your life and the freedom that comes from that now. Oh my goodness. I've never known this kind of freedom. I'm 52 years old and I got my first credit card when I was 22. And I've been, you know, in this just ongoing trying to get ahead of it all these years.

It's been horrible. And this is the first time in my life I have, I feel like, oh my gosh, you know, I can save money and I can be responsible and, you know, and it truly did, you know, come from going through that process. And I wouldn't have this kind of freedom if I didn't have to really, really live on a shoestring, figure out what a want and a need were, and not get hijacked by wants. Yes.

Yeah, that's exactly right. Well, it's an incredible story and I'm so thankful that you took the opportunity to share it. You know, here's what jumped out at me. Number one is you were willing to do the hard work and you're right. That's, it's the process of going through that that allows us to make changes.

You know, the word discipline and the word discipleship, it's the root of both words. And there's something about going through the hard work that trains us and causes us to change our habits. And that's why when we try to rush in and pay off the credit cards with the home equity loan, or we try to get the consolidation loan, we don't train ourselves in what we need to change. And by you doing that hard work month after month, using Christian credit counselors to pay down that debt, you learned along the way, like we all do, and you now are a changed person.

You'll never go back to where you were before. The other thing is you were willing to make hard decisions, including selling your home. You know, we, some of us will find that we have too much house and that's just really hindering our ability to be good stewards because we're never going to be able to live within our means because that biggest expense is just too high. And so to be able to get the total household to spending down below 30% or your principal interest mortgage taxes and insurance payment below 25% is just critical.

It's not that's a magic number, but it's going to right size your whole budget, which just makes everything else easier. And then you were able to seek some wise counsel. You saw the value in saying, I can't do this alone. Christian credit counselors was your partner in that.

Obviously you benefited from the MoneyWise community as well and the godly wisdom that we're able to share from the Bible. So Teresa, thank you for calling in, for sharing your story. I know you've been an encouragement to many today and I appreciate it. God bless you. Thank you.

All right. Well folks, that's what it's all about. It's life change. It's about applying the principles from the Bible to our situation as we look through a biblical lens at every facet of our lives, our kids, our marriage, our walk with Jesus, and yes, our money as well. And when we submit to his ways, not our own, then we reap the benefits and the blessings that come with that. You heard that at Teresa's voice today. Much more to come on MoneyWise Live just around the corner.

Stay with us. Thanks for joining us today on MoneyWise Live. I'm Rob West, your host. We're taking your calls and questions on anything financial.

800-525-7000. But what an encouragement from Teresa in the last segment. It's amazing to hear from God's people who have applied God's wisdom in their financial life and they have the amazing testimony to share of what he has done. You know, as we lean into the promises of God, we know that his ways are higher than our own. And so when we're willing to submit, including this area of money, doesn't mean things are always going to go great.

We're still going to have plenty of trials. Just look at the Apostle Paul for that. But we put ourselves in a position to experience God's best and the blessing from knowing that we're pursuing his ways in our life, including in this area of money.

You know, so often we fail to invite God into our financial life in prayer and in practice, just as we submit to his ultimate ownership of everything in our role as stewards. Let's head back to the phones. Muskegon, Michigan. Hey Shane, thanks for calling. Go right ahead. Hey Rob, love your show. Thank you for your ministry. Thank you, sir. I am calling today because my company does not offer a 401k and I've been saving approximately $4,000 so far that I plan on opening an IRA with.

Okay. What I'm wondering is, previously I've heard of a different company that you suggested that uses kingdom objectives for their portfolios and their decisions on which companies to invest in. I was wondering if there's something like that for those that are just starting out with less money. Yeah, it's a great question and although this whole space of faith-based investing is growing pretty rapidly, there are limited options when you're just starting out. Now, you can use some of these faith-based investing fund families and just pick several high quality mutual funds and go that direction and that would be a great option for you even with a smaller IRA. I do think the IRA is a great solution for you, at least as a starting point.

Now, you're going to hit that maximum contribution limit of $6,000 at least for this year and probably want to be able to put a bit more away but I think if you don't have anything, certainly starting and being disciplined to at the very least fully fund your IRA every year would be a great choice. Now, in terms of using faith-based investing solutions, I would look at some of the fund families on our website at You could check out Eventide. You could check out our friends at Crossmark Global. You could look at the Inspire Fund Family.

You could also look at Guidestone. Any of those all offer really high quality mutual funds with various investment objectives, some that are on the fixed income side, some that are more on the equity side and then a mix whether it's large cap and small cap, international and domestic. Another fund family would be Praxis as well. You could use any of those to construct a portfolio that makes sense for you in terms of your age and your risk tolerance and know that your investments, your deployment of capital is aligned with your values.

I hear that that's important to you as you ask this question. I think using one of those fund families would allow you to get started, get this money growing for you. It's a great time right now with the market down pretty significantly but these are high quality investments that really are aligned specifically with Christian values.

Does all that make sense? Thank you, yes. So the high quality mutual funds would fall into an IRA? Oh yeah, you can buy these mutual funds.

So you'd probably want to open that IRA at a Schwab or a Fidelity, one of the discount brokerages and then you could purchase these mutual funds through that IRA on those platforms. Gotcha, okay. Thank you very much. You are very welcome, Shane. Thanks for calling. If we can help further, don't hesitate to reach out. Donna's in Troy, Missouri. Hey Donna, you're next on the program. Go ahead.

Thank you for taking my call, Rob. I'm on Social Security Disability and I was wondering if there was some type of account that you could have and still get your Medicaid and Medicare premiums. Is there some type of trust fund or something if somebody leaves you some inheritance? Ah, yeah. So you're looking for, you don't want to be disqualified for those based on your assets, is that right? Yes, sir.

Okay. You know, that would ultimately be a question you'd want to talk to an attorney about who could help you with some of those limits. I mean, there are income and asset limits that ultimately disqualify you from those programs and there really aren't a whole lot of ways around them and not that we would want to try to get around them because they're there to limit that program for folks who don't have those types of assets. Did you receive an inheritance, Donna, that you could perhaps use to fund some of your expenses moving forward?

Not yet. I was just looking for the possible future, you know, something in the future. Yeah, and that's always a good idea. You want to be well planned and understand the implications of any money you might receive on and how it will affect any benefits or entitlements you're receiving through the U.S. government.

And so I think that's a good idea. So basically, what you'd want to do is reach out to an attorney who specializes in this area just to find out more about what those income limits are so you can do some planning and asset limits and understand the implications of when that money is received, how it will affect the benefits you're currently receiving. So I would reach out to a certified kingdom advisor in your area, ask for a referral to an attorney who can help you understand that. Generally, an elder care attorney will specialize in these types of issues and can help you talk through any legal instruments that might be necessary that could offer some protections here if, for instance, you had long-term health care issues that needed to be addressed through some sort of trust that could be put in place if that's needed. But that gets pretty complicated pretty quickly, so I wouldn't want to necessarily try to give you any advice here over the radio. So I think you ought to seek some wise counsel there. Again, just head to our website,

Click Find a CKA and ask for a referral to an elder care attorney. And Donna, let us know if we can help further in the future. God bless you.

Edner in Indianapolis, go right ahead. Good afternoon, Rob. How are you?

Doing well, thanks. Can you hear me? I sure can.

Go right ahead. Oh, yes, sir. I just wanted to say that thank you for answering my call and I listen to you as much as I can and I love your show. I think I'm a little bit wiser by listening to you. Well, I certainly hope so.

I'm glad to hear that. Because I never really thought about saving money or anything like that. But ever since I started listening to you, it just got me thinking. But yesterday I heard you was talking about I bonds and then I kind of looked it up, but I didn't see much. But the interest is like a nice something. I was wondering, is there something that you can use for like retirement purposes or something if you put money on it every year?

How does that work? You cannot, Edner, you can't put an I bond into an IRA or any type of retirement account. It's got to be non qualified money. So you would want to think in terms of a savings account that you have where you have at least a one year time horizon, but it's outside of any retirement account. So this would be money probably outside of your retirement, not a part of your emergency fund because you're not going to be able to get to it for a year. But if you've got money up to $10,000 per person per calendar year, I bonds are great right now. As you said, paying 9.62% that will adjust probably down somewhat in November, but it'll still be a great rate.

Go to treasury, open an account, and then you can transfer the funds in. Thanks for your call in there. We'll be right back on MoneyWise Live. Stay with us. Glad to have you with us today on MoneyWise Live.

I'm Rob West. We're taking your calls and questions today on anything financial, applying the wisdom from God's word to our financial decisions and choices today. Let's head right back to the phones.

WMBI in Homewood, Illinois. Michael, you're next on the program, sir. Go ahead. Yes, sir.

Thank you for having me. I guess I'm struggling with how to navigate the squeeze. What I mean by the squeeze is that all of the variables outside of your efforts to control your expenses that are continuously going up. Right now, my property taxes and my escrow and my mortgage insurance went up. My gas taxes at the pump has gone up, gas expense at the pump has gone up.

All these different things that are squeezing the individuals in the body of the Christ. When you try to have this strong savings effort, trying to do the right thing by putting as much as you can into your 401k and all of these things in your latter years, it just feels like it's just frustrating because it doesn't look like you're able to do what you planned out to do. Yeah.

Well, I can certainly appreciate that, Michael. You're exactly right. I mean, the average American family now spending $500 a month on average more per month just on basic living expenses, cooling and heating the home and putting gas in the car and food on the table and a whole host of other issues, not to mention the incredible inflation we've got, the increases in car prices if we're trying to buy a new or used car, what's going on in the housing market. So I think, first of all, we have to recognize that these are unexpected expenses that we couldn't have anticipated, which is why we talk so often about having that three to six months worth of emergency reserves, because whether it's an unexpected loss of a job or a major appliance going out in the house that wasn't at the end of its useful life, you couldn't have anticipated it would need to be replaced or sky high inflation higher than it's been in 40 years, the emergency fund can be used to kind of right size some of these expenses for you to stay on track. And the key is it's temporary, you know, the Fed has made it its mission, they have a singular focus on getting inflation back down to their target of 2%. Now whether they're going to get be happy with 4% and back off the gas pedal and help us avoid a recession, or at least make it a mild recession still remains to be seen if they insist on getting it back to 2%, it could be deeper and longer than we expected.

But regardless, it is temporary, this too shall pass. And so I think the key is, how do we weather the storm in the meantime, and that's either going to be pulling from our emergency reserves with a recognition that once these prices normalize, then we'll get back to refund that emergency fund for the next unexpected expense. Or if we don't have that fund built up, then it's, you know, we were already living paycheck to paycheck. Well, then we're stuck with making some really hard decisions about how we can cut back because ultimately it comes down to can we live within our means? Living within your means is essential to being able to have any kind of margin available to fund those priorities that we have that align with our values, like being able to save for a car replacement or retirement or a college education or being able to respond with additional giving as needs present. All of that is required in being able to live within our means. And it may be that for this season, we've got to pull back on some of those other things we were saving for just to make the budget balance, because obviously that's paramount. So I realize it's all easier said than done.

Everybody's dealing with this, Michael, right now. And I think it just requires to go back and take another hard look at that spending plan with fresh eyes and say, OK, I know I've got to keep food on the table and the utilities paid and the house payment current and gas in the car so I can get to work. But everything else is on the table and a candidate to be cut or reduced and might need to cancel subscriptions and, you know, cut back on discretionary spending, those kinds of things.

I mean, this is one of those seasons where we've got to take a fresh look at our budget and make some hard choices. So give me your thoughts on that, though. Well, yeah, I think all of that is great. I truly appreciate that.

I just it's so hard to have a student who just attended college. And again, my frustration is, you know, things like, you know, a mortgage and my escrow is just higher than my my mortgage payment. I'm trying to do the right thing. So I keep the house. Do I pay the house off because I'm so close to paying it off maybe five years away or do I sell it? But if I sell it because the home prices are up, I'm just putting myself in another debt situation. You know, the best thing about my cars are paid off. And that's what keeps me from buying another car.

I just I keep on trying to talk myself into God's principles, but it's just frustrating because when I look at biblical texts, I don't see the squeeze. I see these tax, of course, I see, you know, drought periods, but I don't see the squeeze where you're increasing. Everyone's looking for an increased margin, you know, for whatever, justly or not.

And the only person impacted are the individuals who have to pay it. You know what I mean? And I feel like the economy is polarized either it's the haves and have nots, there's no middle ground anymore. Yeah. Yeah. Well, I certainly understand that. And a lot of what we're experiencing right now is a result of violation of biblical principles, frankly.

I mean, easy money has led to the situation we find ourselves in today. And now we're trying to right size what has come to roost. And that is going to be painful. It already has been and it will continue to be. And, you know, at the end of the day, God's principles apply to individuals and nations. And although we're still in a much better shape if we're grading on a curve versus the rest of the world, we've got our own challenges and some big headwinds and bigger challenges down the road just given the aging of the workforce, the fact that we're not replenishing that, and we've got sky high debt levels that as interest rates rise, I mean, we could be looking at, well, the amount of money it's going to take to service our debt in the future is just astronomical. So we've got to make some hard choices as a country, but we also need to make some hard choices as individuals. A lot of this clearly not of our own doing in terms of there's nothing we can do but to try to, you know, accommodate and live within, you know, this challenging environment.

And it might be that despite the fact you want to get out of debt, and I can certainly appreciate that, this is a season not to be sending extra to the house and really just focus on shoring up what you have, making sure you're living within your means, and waiting for a period where this has passed, things revert back to a more normal situation, and then maybe you get back to getting that house paid off, but don't lose hard, my friend. Just stay the course, continue to apply these principles, and like Teresa shared earlier in the program, as we do that and make the hard decisions with the long term in mind, ultimately we will experience God's best, and at the end of the day we can trust him as our provider for our needs, not necessarily our wants, but it doesn't mean it's going to be easy. So I appreciate you checking in with us. I don't have a silver bullet for you today other than to say trust the Lord and stay the course, and these principles will work over time.

There's no doubt about that. God bless you. Now, Robert's in Chicago, you're next on the program, sir, go ahead.

Yes, Rob, thank you for taking my call, I enjoy your ministry, I listen almost daily. My question is, well, concerned, I want to pay off my car, I have about another year, but I'm just tired of sending in payments, so I just want to just pay it off, and I know my credit is going to take a hit, and, you know, how big and how long, you know, I just want to, I'm tired of just sending in payments every month, I just want to pay it off. Yeah. Robert, as far as I'm concerned, if you have the ability to pay it off, you do it and don't look back. Could it affect your credit score? Yeah, it probably will.

Why? Well, you know, ultimately it's going to change your credit mix. You know, this installment account is going to come off the record or it'll still be there, but it's no longer an active account, so it's going to change your credit mix. It may change the overall age of your accounts, you know, that will certainly could affect you, but it's going to be minor and it's going to be temporary. The key is that you remain as an on-time payer, keep your credit utilization low, meaning the balances you're carrying versus the limits on the revolving accounts, and there's no reason to pay a dime of interest more than you have to for credit score purposes.

Yes, we need to keep our credit score in mind, and there are some significant implications if we allow that to get away from us on the downside, but any kind of impact that would have come as a result of you paying off this car is not worth you hanging onto this debt any longer than you have to. Are you planning to go out and seek credit for any additional purchases, house, car, credit card in the near future? No. Okay. So then it doesn't even really matter. I mean, it's an arbitrary number that only matters when you need it, and it doesn't sound like you really need it.

You're trying to get out of debt, not go back into debt, so I wouldn't think twice about any impact on the credit score, sir. Oh, okay then. Thank you very much. Okay.

I'm going to pay it off this week. Okay. I'm so glad you are. That's great.

God bless you. Hey, Fort Myers, Florida is where we're going to finish up today. Glenn, you'll be our final caller. Go ahead. Hey, Rob. Thanks for taking my call. Yes, sir.

I retired in 2016, and I had about just under $600,000 in my 401k, and I rolled it into Vanguard Funds, diversified in, at that time, 50% bonds, 50% stuff. We're losing you a little bit there, Glenn. I think we've got a bad sell signal if maybe you can shift to the right or to the left.

We'll see if we can clean that up a little bit and let you keep going. Okay. Is that even better?

It is better. So I understand you had nearly $600,000 when you retired. You moved it into Vanguard, and you think you had an allocation of 50-50 between stocks and bonds. Is that right?

Right. And of the 50%, I had 30% in international stocks and bonds and 70% in domestic stocks and bonds. So I've been very happy with Vanguard. And over the first four or five years of my retirement, I was able to have an income stream of about $3,500 a month and not even touch my principal.

I wanted to wait until I was 70 to file for Social Security and get the max because my wife and I are debt-free and we can live on Social Security plus a part-time job I have. So my question now is that $600,000 has gone down to about $500,000, and I'm currently invested 60% bonds and 40% stocks. Okay. Let's do this.

Unfortunately, I'm out of time, but I want to be able to finish, so you stay on the line. We'll talk a little bit more off the air. Folks, thanks for being along with us today.

MoneyWise Live is a partnership between Moody Radio and MoneyWise Media. Thank you to my team today. Hope you'll come back and join us tomorrow. We'll see you then. We'll see you next time.
Whisper: medium.en / 2023-08-10 13:33:27 / 2023-08-10 13:50:12 / 17

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