So teach us to number our days that we may gain a heart of wisdom. Psalm 90, verse 12. Hi, I'm Rob West. If you're a few years away from retirement and your savings isn't quite what you want it to be, you might feel like you've run out of time, but maybe you don't need a time machine to solve the problem. Today, Mark Biller joins us with some encouraging words about beefing up retirement savings. Then it's on to your calls at 800 525 7000. That's 800 525 7000.
This is faith in finance live on Moody Radio. Biblical wisdom for your financial decisions. Well, Mark Miller is the executive editor at Sound Mind Investing and underwriter of this program. He and his colleagues provide a wealth of biblically grounded wisdom and financial stewardship. It's always a great joy to have Mark with us on the program. Mark. Welcome back.
Thanks, Rob. Good to be with you.
Let me mention, while Mark is here today, we want to be sure to tackle your investing related questions. That's Mark's domain that in retirement related issues where we'll be focusing, the first part of our conversation is really the order of the day. So if you have a question you'd like to get in the mix today related to investments, call right now 800 525 7000. We've got some lines open 800 525 7000. We'd love to hear from you today.
We will be getting to those calls in just a moment. Mark, of course, as people near retirement, one question seems to weigh heavily on their minds. And that is, have I saved enough? I'm sure you've experienced that as well.
Oh, absolutely. Rob. You know, even people who've saved quite a lot wonder if they'll have enough. And that's largely because there's so many uncertainties around retirement specifically related to health care. And a lot of those tend to accumulate late in life, so you can feel like you're in good shape as you you near retirement age. But it really is hard to project exactly what you're going to need and so forth. So a lot of people are
wondering if they're going to be okay financially. Of course, if a person is getting close to retirement and they realize that they really don't have enough saved, you can't go back in time. You can't take the time machine like you mentioned a minute ago, and go back 30 years and boost your savings rate. But the good news and what we're going to talk about today is all is not lost. There is one simple solution that can really move the financial needle quite a bit, and that
is to work a bit longer. So a few years ago, there was a study on this topic which concluded that at least for some people, getting close to retirement age, working even a little bit longer than they'd planned can have the same effect as having saved a higher percentage of their income over the last three decades of their careers.
Hmm. Interesting. Now, that seems to challenge everything people have about compounds. Maybe you should undo it more.
Yeah, absolutely. So it was a Stanford study in 2018 titled The Power of Working Longer. And the key takeaway from the research I'll give you the quote, was delaying retirement by 3 to 6 months has the same impact on the retirement standard of living as saving an additional one percentage point of income for 30 years. Now that's
pretty amazing on the face of it. And of course, for people nearing retirement with the fear they hadn't saved enough, that was a big relief because, you know, a few more months of work does seem like a relatively small price to pay to make up for multiple decades of under-saving. But of course, Rob, as you know, with any research, the output is only as good as the input and you have to know what the assumptions were that went
into the research. And in this case, some of those assumptions do take a little bit of the shine off. But that said, there are still some important and encouraging implications for people getting close to retirement. Feeling a little short on savings.
It is a big claim, though, Mark, that it could just buy a few months, make that kind of difference. So why don't you unpack those assumptions before the break here?
Sure. So there were four main ones. They focused on a theoretical worker called John, and the assumptions were that John started saving at age 36, put 6% of his pay in a 401 K and got a 3% match. Second one was John was going to retire at age 66, which is his full retirement age. Claimed Social Security right at the beginning of retirement And then the last one's a doozy. He was going to use all his retirement savings to purchase an inflation indexed annuity.
That sounds kind of random. Well, we'll certainly circle back on that, plus much more. And what takeaways can you apply to your financial life as you prepare for retirement? Perhaps feeling a little behind the game. Mark Biller is here today to explain this study. This all comes from the article you'll find at Sound Mind Investing. Org. Retirement preparedness. What a difference a little time can make. Back with Mark Biller and your calls right after this. Stay with us.
The opinions offered during this program represent the personal or professional opinions of the participants, given for informational purposes only. Any information provided is not intended to replace advice from a financial, medical, legal, or other professional who understands your specific Of its situation.
Do you feel a little behind in your retirement savings? Well, perhaps we have some answers for you today. Mark Biller is here. He's executive editor at Sound Mind Investing and underwriter of this program. We're talking about a study that, uh, SMI featured in a recent edition of the SMI newsletter. It's called Retirement Preparedness. What a difference a little time
can make. And it basically that concluded a Stanford study from 2018 essentially that by delaying retirement 3 to 6 months, even it might have the same impact on the retirement standard of living as saving an additional one percentage point of income for 30 years, which is a pretty significant claim. Now. Before the break, Mark shared with us some of the assumptions which, uh, you know, assumptions are obviously everything in terms of the the outcomes of this study. But, Mark,
what can we begin to take away from this? And why do you think delaying retirement had such a significant impact in their model?
Yeah, well, the biggest thing, Rob, was definitely the impact that delaying has on your Social Security benefits. So by waiting to start his benefits beyond his full retirement age, John, in the example in the study, was able to ramp up his Social Security. And as we'll probably dissect here in a minute, that has multiple layers to it. And then the second factor in the study was that John
was able to get the higher, higher annuity income. Again, we said right before the break that he used his retirement savings to purchase an annuity, which of course we probably wouldn't recommend going that route. Certainly with all of your retirement savings. But that's what they did in the study. And with an annuity, the older you are when you buy that, typically the more you can get, the more monthly benefit you'll get with the same amount of money
because you're older. So the annuity is thinking, well, we're not going to have to pay as long, so you get more for your money. So those were the two big reasons that it really helped us in the model that they used.
So then Mark, in your estimation, how do these assumptions hold up against reality? Because it sounds like, you know, at least one of them around the annuity piece is problematic.
Yeah. You know, with with any kind of retirement planning, um, you have to go through the variables and you have to match it up with the individual. Because every individual is different. Their income may be higher or lower. They may have started saving earlier or later their retirement portfolio. Uh, investment performance could be different. There's just a whole bunch of variables. That last one, that annuity piece. That one is quite the wrinkle. But I think as you dissect
this study that was kind of a minor piece. So I think we can kind of set that to the side. It certainly doesn't invalidate the conclusions. The biggest piece of this really came from Social Security. And thankfully that's something that anybody can manipulate that variable when they're thinking about when they start claiming their benefits.
Yeah. Very good. We're going to jump into these phone calls here in just a moment. But first Mark, then, uh, assuming those assumptions might be a little off, uh, what practical encouragement might we take away that is applicable here?
Yeah. It's that the power of delaying those Social Security benefits. Um, they said in the study that he took his benefit at his full retirement age, which is 66, in the study. But as you move closer to 70, as you delay that for each month that a person delays claiming their benefit past that full retirement age, their monthly benefit amount increases by two thirds of 1%. That's kind of a weird number. So let's go with 8% per year that you delay, your benefit goes up by 8% per year.
And because those Social Security benefits are already indexed for inflation, really what we're saying, Rob, is when you wait beyond your full retirement age to claim Social Security benefits, you're basically buying yourself and potentially your spouse and increasingly attractive inflation adjusted annuity. And that's a really compelling offer.
Yeah, no doubt about it, Mark. That's really helpful. Um, there are other financial advantages to working longer. We will get into those, uh, between now and the end of the broadcast. This is really helpful though. And again, folks, if you want to check this out, I just had to sound mind investing. All right, let's begin to dive into your questions today, Mark, taking your investing and retirement related questions today at 800 525 7000. We'll begin with Barbara in New Hampshire. Go right ahead.
Hey, guys. Thank you for taking my call. Sure. I am looking to invest, um, the money sale money from my mother's house. She's going to go live into a retirement village, and I am trying to take the entire amount and invest in the best way I can to get her the best interest, um, that she can get every month. Um, you know, to be able to, um, avoid, um, dipping into, uh, the principal of the house, and she can just live off the interest, um, right now, she
has a savings account with about 20,000 in it. That doesn't make anything but what I was going to do. I was going to just leave that the way it is, because right now she's running about an $800 deficit per month to make her bills once she goes into the village. The retirement community, she's running about $800 short. So I was going to just let her keep dipping into this present savings account to make up that deficit, and that
will carry her for about the next two years, roughly. Um, what I was going to do with the money from the house was put it into a high yield savings account, and but I'm not sure how to do it. I need to split it because I don't want to go over 250 because the FDIC usually doesn't cover it over 250,000, so I was going to put at least 250 in 1 high yield savings account. But now I'm left with about 90 left over, and I'm not sure what I should do with it. Do I do another, um, high
yield savings or do I do? Or, you know, what should I do with this?
Yeah. Mark, did you follow that?
Yeah, I did. Um, Barbara, good questions. And, you know, the easiest it sounds like, you know, you've you've narrowed down what you'd like to do with the money. The high yield savings account certainly seems like a good idea to me. Uh, keep that money very safe, very liquid. Um, the FDIC limit that you noted of $250,000 per institution.
The easiest way around, that is what you're suggesting, to just find a second high yield savings account at a different institution that you like, and you could split the money between those to get get around that problem. Um, CDs are fine, but you do lose the liquidity. I'm not sure you're going to get a lot more interest out of those at this point, but you could certainly shop those. Uh, shopping online is usually a good idea to see the full range of, uh, yields available to you.
So that would be my recommendation.
Yeah, I would agree with that, Barbara. I think Mark's right on. Keep in mind different account types carry the additional coverage. So if you had one account in your name, you could get 250,000. If you had one jointly held you and your mom, you could get another 250,000. You can go to Bankrate.com. Or if you want to find a banking partner that shares your values, you could go to join Christian community.com for Christian Community Credit Union. Thanks
for your call. We'll be right back. Hey, thanks for joining us today on Faith in Finance Live. I'm Rob West with me today, my friend Mark Biller. Mark is executive editor at Sound Mind Investing, an underwriter of this program. You can learn more at Sound Mind Investing. Dot. Learn how to become an SMI member and, uh, get the newsletter delivered to your mailbox each month. You can also check out the SMI private client group. Uh, you can
also read the article we're talking about today. Retirement preparedness. What a difference a little time can make. Again, all of that at sound mind investing. Uh, Mark, before we dive back into the phone calls here, uh, we talked about this study that you referenced as a part of this article from Stanford in 2018. Really, this big idea was if you can just delay your retirement by even six months, you could have a pretty profound impact on making up for some lost time in your retirement savings.
One of those key factors was the higher Social Security. If we take it early, let's say 62, we're going to take a 30% haircut, maybe 32%. If we wait until age 70, though, we could have as much as 24% more. No studies I've seen say you need to live at least 12.5 years on average, and it's going to vary based on, you know, your income and your benefit and
so forth when you're full retirement age was. But let's say on average, it takes 12.5 years to be paid back for what you didn't get in benefits between full retirement age and age 70. Obviously, if you outlive that, then you enjoy this higher check for the rest of your life. But that is a factor to consider where you might look at family history and your health, things like that. Right?
Yeah, 100%. It's a very individualized decision because of, you know, health histories and individual health outlooks. You know, one thing that we run into on the planning side, Rob, is a lot of times when we talk to people about this, you know, you throw out numbers like that and a lot of people just kind of immediately like, oh, I don't think I'm going to, you know, make it that long, you know, maybe 80, but 82, 85. I don't know. And, you know, one thing that we kind of will, will
come back with is that. And of course, these are just rough averages here. Every individual is different. But the rough averages actually say that if a couple makes it to good health to age 65, and both of them are in reasonably good health, the percentages actually say that it's 50 over 50, that at least one of them is going to live to be 90 years old or older.
And so when you look at it that way, the idea of not breaking even on a delayed Social Security decision until you're like 82 years old, well, if you're only playing for one or the other and figuring an extended benefit beyond age 82 out into their 90s, you know that that really gets people's attention. Um, because, you know, we always hear, you know, the average age is like 77 or 78 or whatever. That's the average length of life. But those numbers shift a lot. If you both make
it to retirement age in reasonably good health. So you really do need to plan for quite a few years, potentially in retirement.
Well, and as you point out in the article, you're essentially by waiting and getting this higher check, maybe 2,425% higher, you're buying yourself an increasingly attractive, essentially inflation adjusted annuity because you get that cost of living adjustment every year, right?
Yeah. That's right. And that's the biggest thing that people are really worried about when they go into retirement is what if inflation accelerates? What if, you know, my investments can't keep up and my standard of living declines. And you know, the article talks about a couple of other
benefits that maybe are obvious, maybe not. But by delaying your retirement, you're you're not drawing money out of that nest egg as soon, and presumably since you're continuing to work, you're actually building that that nest egg up even bigger. So you're making it bigger. You're not drawing it down as quickly so it doesn't have to last as long.
And then you actually mentioned a great point when we were talking earlier about replacing, uh, usually a lower income year in your, um, your work history that that determines what your benefit is going to be, because most people towards the end of their career, they're earning more than they were earlier in their career. So it can actually even boost the actual benefit itself, which I thought was a great point.
Yeah, no, it can make a lot of difference. All right, let's head to Chicago. John, you've been waiting patiently, sir. Go ahead.
Hi, uh, I apologize. Hi. Uh, good. Good to be on the show. Bob and Mark, I appreciate you taking my call. Sure. Just wanted to know if, uh, I have a an investment with my 401 K. Uh, it's about 25,000, um, 48 years old. I'm married with children, and I wanted to try to increase my, um, portfolio by investing in different vehicles. Uh, right now, by taking out from the 401 K and investing in different vehicles
so that I can be prepared for retirement. And I would like to try to retire at least by at least 70. Excuse me. By. Yeah, by 77 years old. Uh, to to have that Social Security benefit. Uh, yeah. What are your thoughts on that?
Well, give us a little bit more on that. So what did you have in mind? Were you actually thinking because you can't roll out that 401 K until you separate from service, and you don't want to take it out because you'd have the penalty because you're under 59.5 and then you would no longer have the tax deferral. So what is it you were thinking? Did you have access to something called a brokerage window, where you can invest in investments beyond your plan or something else?
So what I'm able to do now, I'm able to take out without being without any tax, uh, hits, uh, because my job will allow me my my my, my work, my employer will allow me to, uh, take the funds right back out of my check, uh, as as if it was a loan. Uh, so it's being lent to me with no interest or not being hit, so I can. So it can be taken right back out of my checks.
Yeah. So you're going to borrow it from the 401 K and then turn around and invest it. Is that what you're thinking?
That's correct.
Okay. Yeah. The challenge with that is there is interest. I mean, even though you're paying it to yourself, you have in fact borrowed the money. And if you ever separate from service, even unexpectedly, it's all going to be considered a distribution, which then would be subject to a penalty if you're not 59.5 and be taxable unless you could pay it all back. And then when you turn around and invest it outside the 401 K, you're going to have the taxes, uh, placing a drag on the investments,
which is not the case inside. But let's do this. We've got to take a break. I want to get Mark to weigh in on this. Uh, so, John, you hang right there. We'll come back to you. Uh, as soon as this break is done. Uh, Wayne in Spokane. Uh, Spokane coming your way as well. We'll be right back on Faith and finance live. Great to have you with us today on Faith and finance live. I'm Rob West.
Mark is here today. He's an investing expert. He's the executive director at Sound Mind Investing, an underwriter of this program. We're talking about retirement preparedness and the benefits of delaying retirement as one solution, one big, uh, or at least part of the solution toward, uh, being ill prepared for retirement. Perhaps not saving enough. Before the break, we were talking
to John in Chicago. He feels like he's in that position and wanting to know what to do, and had an idea about borrowing from his 401 K to then invest outside of the 401 K. John I shared a few of the reasons why we're not fans of that. You know, if you're separate from employment, it's all a distribution that then runs the risk of the penalty. The investments outside would be subject to taxes and no longer in that tax deferred environment. So there's a lot of
reasons not to do that. I want Mark to weigh in. But first, what were you planning to invest in? Were you trying to kind of invest in something that you thought could perform better?
Uh, yes. Correct. Some stocks or some, uh, anything in that vehicle, some stocks or some bonds or anything that could definitely, uh, bring uh, uh, what would you call that? Uh, quick returns.
Yeah. Is there a is there a brother in law involved with a hot stock tip or something? Uh, no, I'm just kidding. No problem. Mark. Your thoughts on all this?
Yeah, I think John, what Rob was, was talking about before the break is really important because what what can happen is when anytime you borrow from a 401 K for any reason, um, it, it opens the door for things to potentially snowball against you in a bad way.
And the reason that I say that is that provision that Rob was talking about, where if you end up separating for service for any reason, and unfortunately, the one that most people, um, don't think about at all, but is being let go from the job where the decision
is not in their hands. Um, if that were to ever happen, then a lot of things start to happen really fast at a time when you're already potentially reeling by losing the income from the job, now you've got to come up with the money to repay the loan to the 401 K. And if you can't, then the penalty kicks in. You owe taxes potentially right away on the distribution, which you probably don't have the money to pay the taxes. So now you get into additional penalties
on your income taxes. There's just a lot of bad things that can kind of line up like dominoes if things go against you. Now, of course, hopefully they wouldn't. But the point is that it opens a door to a lot of risk, and it's probably unnecessary risk if you're planning to invest in things like stocks and bonds that you could invest in, maybe in a little bit different way within the 401 K plan itself, the 401 K plan is there to give you these tax advantages.
So we'd be really hesitant to not only forgo those tax advantages by taking the money outside the plan, but also then to layer in these additional risks that can line up when you're borrowing from the 401 K. So I would I would be really cautious with that one. John. Um, I can't say that it wouldn't work. Um, because certainly it could. But you're layering on a lot of risk when you take that approach.
Yeah. And the odds are, John, that you have other options in that plan. That could be a great investment. And maybe you need to change the investment mix using the investments inside the plan. Also, don't you know, miss the idea that your most powerful wealth building tool is your own income? So the extent to which you can dial back lifestyle spending and get that, you know, percentage of your income going into your 401 K out of every check up is really going to be your most
powerful tool to help make up for lost time. Hopefully that's helpful to you. We appreciate your call today, sir. God bless you. Questions for Mark Biller. Today investing related questions call. Right now we've got some lines open. 800 525 7000 is the number to call. Let's go to Spokane Wayne. You've been waiting patiently, sir. Go ahead.
Well, the first thing I have is a comment. And that is, is maybe we are overthinking investing because many people think they can beat the market, but most don't. And if you look at SMEs best returns over the last five and ten years, it's just the basics is the best return. So maybe we should just get index funds at low cost and call it good.
Yeah. Well, before we get to your question mark, I'd love for you to weigh in on that. Your thoughts on just keeping it simple?
Yeah, I mean, that that works for a lot of people. Um, I will I will definitely admit that it's been very difficult for any type of active management to beat. Just simple indexing, really. Since the financial crisis in 2009, um, it's been a perfect environment for indexing. All of the the dips in the market have been fairly short, short lived. We've had kind of the, the classic v-bottom recoveries that have been fast and sharp recoveries from all of the
bear markets. So it really has been a perfect environment for buy the dip and index investing. Um, and that's why we have an indexing strategy as one of our, our options. And it has been the top performer for the last, you know, 10 to 15 years. Um, the decade before that was the complete polar opposite story. So, you know, those feel like long time periods, and a lot of people tend to look at a period like 10 to 15 years and say, well, that's long enough
for me. Um, as a student of market history, you see that these cycles go back and forth. Active managers do great for a while. Then, you know, the index does great for a while. So not too surprising there. I wouldn't put all of my eggs in any one basket. That's why we offer multiple strategies in the first place. But all of those observations, Wayne, are dead on. They're absolutely correct.
Yeah. And I don't mean to say, you know. Yeah, but this time is different. And yet, Mark, I'd love your thoughts on this. It seems like just the environment we're set up for for the next decade may seem to be that that perhaps could favor and tip back toward the active manager, do you think?
You know, I'm I'm biased in that direction, Rob. I do think that, you know, when you look at, um, especially. Look, if you go back to the last period when we had a more inflationary environment with rising interest rates, you look at the period from like 1968 to 1982. Um, the reason that active management was so big in the 80s and 90s is because indexing was horrible from, you know,
the mid 60s until that period. So nobody wanted to do it anymore at that point, because just like today, you'd had 15 years where things had gone the other way in a in a big way, and active managers had looked so good. So they're going to be periods when active managers look great. They're going to be periods when everyone says, why are we bothering with these active managers? Yeah,
it just goes back and forth. And so as with most things, you know, having some exposure, some diversification even between strategies makes an awful lot of sense.
Yeah. And that's why again, as Mark said, there's multiple strategies offered at SMI. You can check it out. SMI. Excuse me. Sound mind investing? All right, Wayne, I know we didn't get to your question, so let's do that right after this break. I apologize, I'm going to have to ask you to hold again. But if you you can, we'll come right back to you and and get to that primary question. Brad, you've been waiting patiently there in Tampa will be coming your way as well. I'll probably
have room for probably up to two additional questions. 800 525 7000 Mark Biller is here today. If you want to read the article we've been talking about, it's titled Retirement Preparedness. What a difference a little time can make. You'll find it sound. Mind investing? Stay with us. We'll be right back. Hey, thanks for joining us today on Faith and finance live here on Moody Radio. I'm Rob West with me today, my friend Mark Biller from Sound
Mind Investing. All right. Right back to the phones we go. Wayne is in Spokane. Wayne, let's get to that main question that you had. Go ahead sir.
Yes, I had a question on senior loan ETFs and wondering if that would be a good option as far as diversification and maybe using that in place of part of the bond portion of the portfolio.
Okay. Yeah. Mark your thoughts.
I haven't I haven't looked real closely at those lately. Wayne what what have you seen that has you thinking that those look attractive right now.
Well they're 8% return.
Mhm.
And of course, that's assuming that you maintain the value of what you bought. But they're paying about 8% per annual. They're paying uh monthly the equivalent of 8% per year.
Yeah. Um, yeah, I would, I'd have to look at those a little bit more. Um, to be honest with you, uh, Wayne, I, you know, my impression of those is that they, um, they are not particularly sensitive to interest rates, which is good, but they can can definitely have more company risk, which, of course, that's why you go into an ETF, um,
and hopefully spread that risk around. But I would have to look a little more at the specific, um, you know, risk profile and, and why those are yielding so much more. My guess is that it's because they are, um, going down the quality ladder in terms of the companies that are involved there. Rob, what are your impressions about those products?
Do you. Yeah, I mean, I would certainly defer to you, Mark, but I would just say, generally speaking, what I'm familiar with here is that, you know, these loans would be below investment grade, which would typically carry a higher default risk. Um, and so that's how they get those higher payouts. Um, I mean normally there's liquidity risk, but I guess if it's packaged in an ETF, that's not an issue. I
would also be interested in the fees. A lot of these have higher expense ratios than that can erode some of the returns. Um, you know, obviously, you know, it's helpful in the sense that it can hedge against, you know, rising, uh, you know, inflation and so forth. But, um, and it's collateral backed. Um, but I would just look at, uh, whether we're taking an elevated amount of risk in terms of potential default, especially if we were to get into a recession, uh, or something like that. So I would
be careful there. I certainly wouldn't make it a, you know, a significant portion of the portfolio. What percent would you be comfortable with for something that might have an elevated risk profile mark that still fits into the fixed income category?
Yeah. You know, the thing that gives me a little pause is that those yields are so much better even than, um, high yield bond funds. And so, you know, when I'm thinking about riskier bonds and high yield bonds, to have something that's paying even more than that, there's got to be more embedded risk in there somewhere, or else they wouldn't be getting those returns. So, you know, a good
high yield, um, allocation within somebody's bond portfolio. You know, high yield generally performs pretty well until you get into a recession. And most of the time you're not in a recession. So if someone's got a good sized bond portfolio, I wouldn't have a problem putting, you know, 20 or 25%
in high yield. Since this seems more risky. I'd probably be inclined to go a little bit lower than that with a product like this, and I would really look into the details of the specifics of that fund, of any senior loan fund. We have not focused on those a whole lot. I wish I could give a little more detail, but yeah, any time you're getting that type of a yield, Wayne, you have to just recognize that there's a reason for it. Nobody gives that away for free.
And so you probably are going down the the ladder in terms of the quality of the companies. And the time to really be paying attention to that is anytime you have heightened recession risk, because that's when you tend to have trouble with high yield bonds in general. You're really it's really more of an equity like investment profile as opposed to a traditional bond profile. So those would be the the things to look for and look out for.
Very good Wayne. I hope that's helpful. And just for the benefit of our listening audience, senior is not like senior living. This is senior, meaning they have priority over other debts in a case of a bankruptcy. But if these are made typically to below investment grade companies in terms of their credit ratings mark, that might be equivalent to like a junk bond, right?
Definitely. And I would say possibly even below what we would normally think of as junk bond, because junk bonds typically are not yielding 8 to 10% in those funds right now. So that's that's the concern. Yeah.
Very helpful. Let's go to Tampa. Hi, Brad. How can we help?
Hey. Good afternoon. Uh, I have my first job out of college. I was there eight years. I have a pension plan of several times over the years, they've tried to buy me out. I've got until May 23rd this year to decide if I want to get bought out. I can get a lump sum payment, a monthly payment until I pass away. Or I can just wait until I officially retire and start drawing it then. So what would be the best course of action?
Yeah, and this one comes up a lot. Marc, how do you counsel folks to make this decision?
You know, a lot of it. You know, as is often the case with these types of things, Rob, as you get a big it depends. It really depends on the the terms of the specific deal. Um, we have an article on our SMI website that is, uh, lump sum versus annuity that helps people kind of walk through that decision so they can look at the exact details that they're being offered and kind of line up, which
makes more sense. Brad, did I understand you correctly that, um, you're eight years out of college, so the.
No, no, I that was my first job. Okay.
Okay.
That's what I wanted. 63 now.
Okay.
I'd like to go for about five more years, maybe. And I have a another pension plan that will be pushing almost 30 years by the time I do retire.
So okay.
That that and my 401 K are going to be my major source of income after I retire.
Yeah. Well I would definitely look to see is there an inflation adjustment with the pension, any type of inflation rider or anything with the annuity that's being offered? And do you know roughly what the the rate of return of that is that's being offered.
I know what the lump sum payment would be and the monthly payment would be. But no, to answer your question, I'd have to check into the other things you just mentioned.
Yeah. Well, what you're trying to do is, um, you're basically trying to figure out what is the implied interest rate of the annuity. Like what is the rate of return that you're getting in the annuity? And so if it's if that internal rate of return is low, then people are more likely to take the lump sum thinking, I can invest that on my own and make a
better return. If the implied rate of return is relatively high, then that's generally a fairly attractive thing to have that annuity, especially if you have a 401 K apart from that, because then you've got a blend of income streams and that can be a very attractive thing. Rob, do you have any quick pointers on how to size that up?
I mean, I think you're right on Mark, and I think that the bottom line is and Mark shared this earlier is once you reach age 65, your life expectancy increases. So if you're fairly healthy, expect to live past 85.
Of course, no one knows ultimately, but if that's a reasonable assumption and you're comfortable investing, you know, on your own and looking for higher returns, and you can, you know, outpace the internal rate of return provided by that income stream through the annuitization on your own and then still have something to show for it in the end, perhaps to leave as an inheritance or something you could tap into if you needed it. That's where I think the
lump sum can shine. If you would rather, you know, pass that off or you have some health concerns or, you know, longevity is not on your side in the family, you know, and you would value having that guaranteed income for life. Well, you know, then that may be the better option. But I think as a starting point, start with the financial side, calculate essentially the the internal rate of return you would be getting by taking that monthly payout.
Compare that to what you might do reasonable reasonably without taking too much risk on your own. And I think that may begin to give you some clarity as you weigh. way than those other considerations like health status and so forth. Does that make sense?
Sure. Yes it does, yes it does. Thank you so much.
Excellent. You're welcome. Brad, we appreciate your call today, Mark. Tie a bow on this for us. You know somebody who's listening right now saying, I just feel like, you know, I'm behind, uh, you know, the game here. I haven't saved enough. I'm staring down retirement in the next five years. What counsel would you offer them today?
Yeah, I think the biggest takeaway from today's conversation, Rob, is that Social Security gives people a little bit of an out if they haven't saved enough for their retirement. And while it can be hard emotionally, if you've kind of fixed on a particular retirement date or retirement age to consider, maybe I'm going to need to work a little bit longer. The decision to do that can really make a big difference to your retirement income situation, so
it's definitely worth running the numbers. You can go to the Social Security Administration website and look at what the difference would, would be to your benefit amount by changing your, uh, your retirement date. That's a good first step. And then to prayerfully consider if that's if that's a good way for you to to boost your retirement income.
Yeah. No doubt about it. Not to mention the other benefits of continuing to stay engaged and productive healthwise, spiritually and and otherwise. Mark, we always appreciate your time. You have so much to share with us. Thanks for your partnership and for your presence today.
I'm so happy to do it. Thanks for having me, Rob.
All right. That's Mark Biller, executive editor at Sound Mind Investing. Check out this article when you visit Sound mind Investing. Big thanks to my team today Amy Taylor Dan Ryan Amanda couldn't do it without those. And everybody here at Faith by Faith in finance live is a partnership between Moody Radio and Faith fi. We'll see you tomorrow.