S1: So teach us to number our days that we may
S1: gain a heart of wisdom. Psalm 90, verse 12. Hi,
S1: I'm Rob West. If you're a few years away from
S1: retirement and your savings isn't quite what you want it
S1: to be, you might feel like you've run out of time,
S1: but maybe you don't need a time machine to solve
S1: the problem. Today, Mark Biller joins us with some encouraging
S1: words about beefing up retirement savings. Then it's on to
S1: your calls at 800 525 7000. That's 800 525 7000.
S1: This is faith in finance live on Moody Radio. Biblical
S1: wisdom for your financial decisions. Well, Mark Miller is the
S1: executive editor at Sound Mind Investing and underwriter of this program.
S1: He and his colleagues provide a wealth of biblically grounded
S1: wisdom and financial stewardship. It's always a great joy to
S1: have Mark with us on the program. Mark. Welcome back.
S2: Thanks, Rob. Good to be with you.
S1: Let me mention, while Mark is here today, we want
S1: to be sure to tackle your investing related questions. That's
S1: Mark's domain that in retirement related issues where we'll be focusing,
S1: the first part of our conversation is really the order
S1: of the day. So if you have a question you'd
S1: like to get in the mix today related to investments,
S1: call right now 800 525 7000. We've got some lines
S1: open 800 525 7000. We'd love to hear from you today.
S1: We will be getting to those calls in just a moment. Mark,
S1: of course, as people near retirement, one question seems to
S1: weigh heavily on their minds. And that is, have I
S1: saved enough? I'm sure you've experienced that as well.
S2: Oh, absolutely. Rob. You know, even people who've saved quite
S2: a lot wonder if they'll have enough. And that's largely
S2: because there's so many uncertainties around retirement specifically related to
S2: health care. And a lot of those tend to accumulate
S2: late in life, so you can feel like you're in
S2: good shape as you you near retirement age. But it
S2: really is hard to project exactly what you're going to
S2: need and so forth. So a lot of people are
S2: wondering if they're going to be okay financially. Of course,
S2: if a person is getting close to retirement and they
S2: realize that they really don't have enough saved, you can't
S2: go back in time. You can't take the time machine
S2: like you mentioned a minute ago, and go back 30
S2: years and boost your savings rate. But the good news
S2: and what we're going to talk about today is all
S2: is not lost. There is one simple solution that can
S2: really move the financial needle quite a bit, and that
S2: is to work a bit longer. So a few years ago,
S2: there was a study on this topic which concluded that
S2: at least for some people, getting close to retirement age,
S2: working even a little bit longer than they'd planned can
S2: have the same effect as having saved a higher percentage
S2: of their income over the last three decades of their careers.
S1: Hmm. Interesting. Now, that seems to challenge everything people have
S1: about compounds. Maybe you should undo it more.
S2: Yeah, absolutely. So it was a Stanford study in 2018
S2: titled The Power of Working Longer. And the key takeaway
S2: from the research I'll give you the quote, was delaying
S2: retirement by 3 to 6 months has the same impact
S2: on the retirement standard of living as saving an additional
S2: one percentage point of income for 30 years. Now that's
S2: pretty amazing on the face of it. And of course,
S2: for people nearing retirement with the fear they hadn't saved enough,
S2: that was a big relief because, you know, a few
S2: more months of work does seem like a relatively small
S2: price to pay to make up for multiple decades of under-saving.
S2: But of course, Rob, as you know, with any research,
S2: the output is only as good as the input and
S2: you have to know what the assumptions were that went
S2: into the research. And in this case, some of those
S2: assumptions do take a little bit of the shine off.
S2: But that said, there are still some important and encouraging
S2: implications for people getting close to retirement. Feeling a little
S2: short on savings.
S1: It is a big claim, though, Mark, that it could
S1: just buy a few months, make that kind of difference.
S1: So why don't you unpack those assumptions before the break here?
S2: Sure. So there were four main ones. They focused on
S2: a theoretical worker called John, and the assumptions were that
S2: John started saving at age 36, put 6% of his
S2: pay in a 401 K and got a 3% match.
S2: Second one was John was going to retire at age 66,
S2: which is his full retirement age. Claimed Social Security right
S2: at the beginning of retirement And then the last one's
S2: a doozy. He was going to use all his retirement
S2: savings to purchase an inflation indexed annuity.
S1: That sounds kind of random. Well, we'll certainly circle back
S1: on that, plus much more. And what takeaways can you
S1: apply to your financial life as you prepare for retirement?
S1: Perhaps feeling a little behind the game. Mark Biller is
S1: here today to explain this study. This all comes from
S1: the article you'll find at Sound Mind Investing. Org. Retirement preparedness.
S1: What a difference a little time can make. Back with
S1: Mark Biller and your calls right after this. Stay with us.
S3: The opinions offered during this program represent the personal or
S3: professional opinions of the participants, given for informational purposes only.
S3: Any information provided is not intended to replace advice from
S3: a financial, medical, legal, or other professional who understands your
S3: specific Of its situation.
S1: Do you feel a little behind in your retirement savings? Well,
S1: perhaps we have some answers for you today. Mark Biller
S1: is here. He's executive editor at Sound Mind Investing and
S1: underwriter of this program. We're talking about a study that, uh,
S1: SMI featured in a recent edition of the SMI newsletter.
S1: It's called Retirement Preparedness. What a difference a little time
S1: can make. And it basically that concluded a Stanford study
S1: from 2018 essentially that by delaying retirement 3 to 6 months,
S1: even it might have the same impact on the retirement
S1: standard of living as saving an additional one percentage point
S1: of income for 30 years, which is a pretty significant claim. Now.
S1: Before the break, Mark shared with us some of the
S1: assumptions which, uh, you know, assumptions are obviously everything in
S1: terms of the the outcomes of this study. But, Mark,
S1: what can we begin to take away from this? And
S1: why do you think delaying retirement had such a significant
S1: impact in their model?
S2: Yeah, well, the biggest thing, Rob, was definitely the impact
S2: that delaying has on your Social Security benefits. So by
S2: waiting to start his benefits beyond his full retirement age, John,
S2: in the example in the study, was able to ramp
S2: up his Social Security. And as we'll probably dissect here
S2: in a minute, that has multiple layers to it. And
S2: then the second factor in the study was that John
S2: was able to get the higher, higher annuity income. Again,
S2: we said right before the break that he used his
S2: retirement savings to purchase an annuity, which of course we
S2: probably wouldn't recommend going that route. Certainly with all of
S2: your retirement savings. But that's what they did in the study.
S2: And with an annuity, the older you are when you
S2: buy that, typically the more you can get, the more
S2: monthly benefit you'll get with the same amount of money
S2: because you're older. So the annuity is thinking, well, we're
S2: not going to have to pay as long, so you
S2: get more for your money. So those were the two
S2: big reasons that it really helped us in the model
S2: that they used.
S1: So then Mark, in your estimation, how do these assumptions
S1: hold up against reality? Because it sounds like, you know,
S1: at least one of them around the annuity piece is problematic.
S2: Yeah. You know, with with any kind of retirement planning, um,
S2: you have to go through the variables and you have
S2: to match it up with the individual. Because every individual
S2: is different. Their income may be higher or lower. They
S2: may have started saving earlier or later their retirement portfolio. Uh,
S2: investment performance could be different. There's just a whole bunch
S2: of variables. That last one, that annuity piece. That one
S2: is quite the wrinkle. But I think as you dissect
S2: this study that was kind of a minor piece. So
S2: I think we can kind of set that to the side.
S2: It certainly doesn't invalidate the conclusions. The biggest piece of
S2: this really came from Social Security. And thankfully that's something
S2: that anybody can manipulate that variable when they're thinking about
S2: when they start claiming their benefits.
S1: Yeah. Very good. We're going to jump into these phone
S1: calls here in just a moment. But first Mark, then, uh,
S1: assuming those assumptions might be a little off, uh, what
S1: practical encouragement might we take away that is applicable here?
S2: Yeah. It's that the power of delaying those Social Security benefits. Um,
S2: they said in the study that he took his benefit
S2: at his full retirement age, which is 66, in the study.
S2: But as you move closer to 70, as you delay
S2: that for each month that a person delays claiming their
S2: benefit past that full retirement age, their monthly benefit amount
S2: increases by two thirds of 1%. That's kind of a
S2: weird number. So let's go with 8% per year that
S2: you delay, your benefit goes up by 8% per year.
S2: And because those Social Security benefits are already indexed for inflation,
S2: really what we're saying, Rob, is when you wait beyond
S2: your full retirement age to claim Social Security benefits, you're
S2: basically buying yourself and potentially your spouse and increasingly attractive
S2: inflation adjusted annuity. And that's a really compelling offer.
S1: Yeah, no doubt about it, Mark. That's really helpful. Um,
S1: there are other financial advantages to working longer. We will
S1: get into those, uh, between now and the end of
S1: the broadcast. This is really helpful though. And again, folks,
S1: if you want to check this out, I just had
S1: to sound mind investing. All right, let's begin to dive
S1: into your questions today, Mark, taking your investing and retirement
S1: related questions today at 800 525 7000. We'll begin with
S1: Barbara in New Hampshire. Go right ahead.
S4: Hey, guys. Thank you for taking my call. Sure. I
S4: am looking to invest, um, the money sale money from
S4: my mother's house. She's going to go live into a
S4: retirement village, and I am trying to take the entire
S4: amount and invest in the best way I can to
S4: get her the best interest, um, that she can get
S4: every month. Um, you know, to be able to, um, avoid, um,
S4: dipping into, uh, the principal of the house, and she
S4: can just live off the interest, um, right now, she
S4: has a savings account with about 20,000 in it. That
S4: doesn't make anything but what I was going to do.
S4: I was going to just leave that the way it is,
S4: because right now she's running about an $800 deficit per
S4: month to make her bills once she goes into the village.
S4: The retirement community, she's running about $800 short. So I
S4: was going to just let her keep dipping into this
S4: present savings account to make up that deficit, and that
S4: will carry her for about the next two years, roughly. Um,
S4: what I was going to do with the money from
S4: the house was put it into a high yield savings account,
S4: and but I'm not sure how to do it. I
S4: need to split it because I don't want to go
S4: over 250 because the FDIC usually doesn't cover it over 250,000,
S4: so I was going to put at least 250 in
S4: 1 high yield savings account. But now I'm left with
S4: about 90 left over, and I'm not sure what I
S4: should do with it. Do I do another, um, high
S4: yield savings or do I do? Or, you know, what
S4: should I do with this?
S1: Yeah. Mark, did you follow that?
S2: Yeah, I did. Um, Barbara, good questions. And, you know,
S2: the easiest it sounds like, you know, you've you've narrowed
S2: down what you'd like to do with the money. The
S2: high yield savings account certainly seems like a good idea
S2: to me. Uh, keep that money very safe, very liquid. Um,
S2: the FDIC limit that you noted of $250,000 per institution.
S2: The easiest way around, that is what you're suggesting, to
S2: just find a second high yield savings account at a
S2: different institution that you like, and you could split the
S2: money between those to get get around that problem. Um,
S2: CDs are fine, but you do lose the liquidity. I'm
S2: not sure you're going to get a lot more interest
S2: out of those at this point, but you could certainly
S2: shop those. Uh, shopping online is usually a good idea
S2: to see the full range of, uh, yields available to you.
S2: So that would be my recommendation.
S1: Yeah, I would agree with that, Barbara. I think Mark's
S1: right on. Keep in mind different account types carry the
S1: additional coverage. So if you had one account in your name,
S1: you could get 250,000. If you had one jointly held
S1: you and your mom, you could get another 250,000. You
S1: can go to Bankrate.com. Or if you want to find
S1: a banking partner that shares your values, you could go
S1: to join Christian community.com for Christian Community Credit Union. Thanks
S1: for your call. We'll be right back. Hey, thanks for
S1: joining us today on Faith in Finance Live. I'm Rob
S1: West with me today, my friend Mark Biller. Mark is
S1: executive editor at Sound Mind Investing, an underwriter of this program.
S1: You can learn more at Sound Mind Investing. Dot. Learn
S1: how to become an SMI member and, uh, get the
S1: newsletter delivered to your mailbox each month. You can also
S1: check out the SMI private client group. Uh, you can
S1: also read the article we're talking about today. Retirement preparedness.
S1: What a difference a little time can make. Again, all
S1: of that at sound mind investing. Uh, Mark, before we
S1: dive back into the phone calls here, uh, we talked
S1: about this study that you referenced as a part of
S1: this article from Stanford in 2018. Really, this big idea
S1: was if you can just delay your retirement by even
S1: six months, you could have a pretty profound impact on
S1: making up for some lost time in your retirement savings.
S1: One of those key factors was the higher Social Security.
S1: If we take it early, let's say 62, we're going
S1: to take a 30% haircut, maybe 32%. If we wait
S1: until age 70, though, we could have as much as 24% more.
S1: No studies I've seen say you need to live at
S1: least 12.5 years on average, and it's going to vary
S1: based on, you know, your income and your benefit and
S1: so forth when you're full retirement age was. But let's
S1: say on average, it takes 12.5 years to be paid
S1: back for what you didn't get in benefits between full
S1: retirement age and age 70. Obviously, if you outlive that,
S1: then you enjoy this higher check for the rest of
S1: your life. But that is a factor to consider where
S1: you might look at family history and your health, things
S1: like that. Right?
S2: Yeah, 100%. It's a very individualized decision because of, you know,
S2: health histories and individual health outlooks. You know, one thing
S2: that we run into on the planning side, Rob, is
S2: a lot of times when we talk to people about this,
S2: you know, you throw out numbers like that and a
S2: lot of people just kind of immediately like, oh, I
S2: don't think I'm going to, you know, make it that long,
S2: you know, maybe 80, but 82, 85. I don't know. And,
S2: you know, one thing that we kind of will, will
S2: come back with is that. And of course, these are
S2: just rough averages here. Every individual is different. But the
S2: rough averages actually say that if a couple makes it
S2: to good health to age 65, and both of them
S2: are in reasonably good health, the percentages actually say that
S2: it's 50 over 50, that at least one of them
S2: is going to live to be 90 years old or older.
S2: And so when you look at it that way, the
S2: idea of not breaking even on a delayed Social Security
S2: decision until you're like 82 years old, well, if you're
S2: only playing for one or the other and figuring an
S2: extended benefit beyond age 82 out into their 90s, you
S2: know that that really gets people's attention. Um, because, you know,
S2: we always hear, you know, the average age is like
S2: 77 or 78 or whatever. That's the average length of life.
S2: But those numbers shift a lot. If you both make
S2: it to retirement age in reasonably good health. So you
S2: really do need to plan for quite a few years,
S2: potentially in retirement.
S1: Well, and as you point out in the article, you're
S1: essentially by waiting and getting this higher check, maybe 2,425% higher,
S1: you're buying yourself an increasingly attractive, essentially inflation adjusted annuity
S1: because you get that cost of living adjustment every year, right?
S2: Yeah. That's right. And that's the biggest thing that people
S2: are really worried about when they go into retirement is
S2: what if inflation accelerates? What if, you know, my investments
S2: can't keep up and my standard of living declines. And
S2: you know, the article talks about a couple of other
S2: benefits that maybe are obvious, maybe not. But by delaying
S2: your retirement, you're you're not drawing money out of that
S2: nest egg as soon, and presumably since you're continuing to work,
S2: you're actually building that that nest egg up even bigger.
S2: So you're making it bigger. You're not drawing it down
S2: as quickly so it doesn't have to last as long.
S2: And then you actually mentioned a great point when we
S2: were talking earlier about replacing, uh, usually a lower income
S2: year in your, um, your work history that that determines
S2: what your benefit is going to be, because most people
S2: towards the end of their career, they're earning more than
S2: they were earlier in their career. So it can actually
S2: even boost the actual benefit itself, which I thought was
S2: a great point.
S1: Yeah, no, it can make a lot of difference. All right,
S1: let's head to Chicago. John, you've been waiting patiently, sir.
S1: Go ahead.
S5: Hi, uh, I apologize. Hi. Uh, good. Good to be
S5: on the show. Bob and Mark, I appreciate you taking
S5: my call. Sure. Just wanted to know if, uh, I
S5: have a an investment with my 401 K. Uh, it's
S5: about 25,000, um, 48 years old. I'm married with children,
S5: and I wanted to try to increase my, um, portfolio
S5: by investing in different vehicles. Uh, right now, by taking
S5: out from the 401 K and investing in different vehicles
S5: so that I can be prepared for retirement. And I
S5: would like to try to retire at least by at
S5: least 70. Excuse me. By. Yeah, by 77 years old. Uh,
S5: to to have that Social Security benefit. Uh, yeah. What
S5: are your thoughts on that?
S1: Well, give us a little bit more on that. So
S1: what did you have in mind? Were you actually thinking
S1: because you can't roll out that 401 K until you
S1: separate from service, and you don't want to take it
S1: out because you'd have the penalty because you're under 59.5
S1: and then you would no longer have the tax deferral.
S1: So what is it you were thinking? Did you have
S1: access to something called a brokerage window, where you can
S1: invest in investments beyond your plan or something else?
S5: So what I'm able to do now, I'm able to
S5: take out without being without any tax, uh, hits, uh,
S5: because my job will allow me my my my, my work,
S5: my employer will allow me to, uh, take the funds
S5: right back out of my check, uh, as as if
S5: it was a loan. Uh, so it's being lent to
S5: me with no interest or not being hit, so I can.
S5: So it can be taken right back out of my checks.
S1: Yeah. So you're going to borrow it from the 401
S1: K and then turn around and invest it. Is that
S1: what you're thinking?
S5: That's correct.
S1: Okay. Yeah. The challenge with that is there is interest.
S1: I mean, even though you're paying it to yourself, you
S1: have in fact borrowed the money. And if you ever
S1: separate from service, even unexpectedly, it's all going to be
S1: considered a distribution, which then would be subject to a
S1: penalty if you're not 59.5 and be taxable unless you
S1: could pay it all back. And then when you turn
S1: around and invest it outside the 401 K, you're going
S1: to have the taxes, uh, placing a drag on the investments,
S1: which is not the case inside. But let's do this.
S1: We've got to take a break. I want to get
S1: Mark to weigh in on this. Uh, so, John, you
S1: hang right there. We'll come back to you. Uh, as
S1: soon as this break is done. Uh, Wayne in Spokane. Uh,
S1: Spokane coming your way as well. We'll be right back
S1: on Faith and finance live. Great to have you with
S1: us today on Faith and finance live. I'm Rob West.
S1: Mark is here today. He's an investing expert. He's the
S1: executive director at Sound Mind Investing, an underwriter of this program.
S1: We're talking about retirement preparedness and the benefits of delaying
S1: retirement as one solution, one big, uh, or at least
S1: part of the solution toward, uh, being ill prepared for retirement.
S1: Perhaps not saving enough. Before the break, we were talking
S1: to John in Chicago. He feels like he's in that
S1: position and wanting to know what to do, and had
S1: an idea about borrowing from his 401 K to then
S1: invest outside of the 401 K. John I shared a
S1: few of the reasons why we're not fans of that.
S1: You know, if you're separate from employment, it's all a
S1: distribution that then runs the risk of the penalty. The
S1: investments outside would be subject to taxes and no longer
S1: in that tax deferred environment. So there's a lot of
S1: reasons not to do that. I want Mark to weigh in.
S1: But first, what were you planning to invest in? Were
S1: you trying to kind of invest in something that you
S1: thought could perform better?
S5: Uh, yes. Correct. Some stocks or some, uh, anything in
S5: that vehicle, some stocks or some bonds or anything that
S5: could definitely, uh, bring uh, uh, what would you call that? Uh,
S5: quick returns.
S1: Yeah. Is there a is there a brother in law
S1: involved with a hot stock tip or something? Uh, no,
S1: I'm just kidding. No problem. Mark. Your thoughts on all this?
S2: Yeah, I think John, what Rob was, was talking about
S2: before the break is really important because what what can
S2: happen is when anytime you borrow from a 401 K
S2: for any reason, um, it, it opens the door for
S2: things to potentially snowball against you in a bad way.
S2: And the reason that I say that is that provision
S2: that Rob was talking about, where if you end up
S2: separating for service for any reason, and unfortunately, the one
S2: that most people, um, don't think about at all, but
S2: is being let go from the job where the decision
S2: is not in their hands. Um, if that were to
S2: ever happen, then a lot of things start to happen
S2: really fast at a time when you're already potentially reeling
S2: by losing the income from the job, now you've got
S2: to come up with the money to repay the loan
S2: to the 401 K. And if you can't, then the
S2: penalty kicks in. You owe taxes potentially right away on
S2: the distribution, which you probably don't have the money to
S2: pay the taxes. So now you get into additional penalties
S2: on your income taxes. There's just a lot of bad
S2: things that can kind of line up like dominoes if
S2: things go against you. Now, of course, hopefully they wouldn't.
S2: But the point is that it opens a door to
S2: a lot of risk, and it's probably unnecessary risk if
S2: you're planning to invest in things like stocks and bonds
S2: that you could invest in, maybe in a little bit
S2: different way within the 401 K plan itself, the 401
S2: K plan is there to give you these tax advantages.
S2: So we'd be really hesitant to not only forgo those
S2: tax advantages by taking the money outside the plan, but
S2: also then to layer in these additional risks that can
S2: line up when you're borrowing from the 401 K. So
S2: I would I would be really cautious with that one. John. Um,
S2: I can't say that it wouldn't work. Um, because certainly
S2: it could. But you're layering on a lot of risk
S2: when you take that approach.
S1: Yeah. And the odds are, John, that you have other
S1: options in that plan. That could be a great investment.
S1: And maybe you need to change the investment mix using
S1: the investments inside the plan. Also, don't you know, miss
S1: the idea that your most powerful wealth building tool is
S1: your own income? So the extent to which you can
S1: dial back lifestyle spending and get that, you know, percentage
S1: of your income going into your 401 K out of
S1: every check up is really going to be your most
S1: powerful tool to help make up for lost time. Hopefully
S1: that's helpful to you. We appreciate your call today, sir.
S1: God bless you. Questions for Mark Biller. Today investing related
S1: questions call. Right now we've got some lines open. 800
S1: 525 7000 is the number to call. Let's go to
S1: Spokane Wayne. You've been waiting patiently, sir. Go ahead.
S6: Well, the first thing I have is a comment. And
S6: that is, is maybe we are overthinking investing because many
S6: people think they can beat the market, but most don't.
S6: And if you look at SMEs best returns over the
S6: last five and ten years, it's just the basics is
S6: the best return. So maybe we should just get index
S6: funds at low cost and call it good.
S1: Yeah. Well, before we get to your question mark, I'd
S1: love for you to weigh in on that. Your thoughts
S1: on just keeping it simple?
S2: Yeah, I mean, that that works for a lot of people. Um,
S2: I will I will definitely admit that it's been very
S2: difficult for any type of active management to beat. Just
S2: simple indexing, really. Since the financial crisis in 2009, um,
S2: it's been a perfect environment for indexing. All of the
S2: the dips in the market have been fairly short, short lived.
S2: We've had kind of the, the classic v-bottom recoveries that
S2: have been fast and sharp recoveries from all of the
S2: bear markets. So it really has been a perfect environment
S2: for buy the dip and index investing. Um, and that's
S2: why we have an indexing strategy as one of our,
S2: our options. And it has been the top performer for
S2: the last, you know, 10 to 15 years. Um, the
S2: decade before that was the complete polar opposite story. So,
S2: you know, those feel like long time periods, and a
S2: lot of people tend to look at a period like
S2: 10 to 15 years and say, well, that's long enough
S2: for me. Um, as a student of market history, you
S2: see that these cycles go back and forth. Active managers
S2: do great for a while. Then, you know, the index
S2: does great for a while. So not too surprising there.
S2: I wouldn't put all of my eggs in any one basket.
S2: That's why we offer multiple strategies in the first place.
S2: But all of those observations, Wayne, are dead on. They're
S2: absolutely correct.
S1: Yeah. And I don't mean to say, you know. Yeah,
S1: but this time is different. And yet, Mark, I'd love
S1: your thoughts on this. It seems like just the environment
S1: we're set up for for the next decade may seem
S1: to be that that perhaps could favor and tip back
S1: toward the active manager, do you think?
S2: You know, I'm I'm biased in that direction, Rob. I
S2: do think that, you know, when you look at, um, especially. Look,
S2: if you go back to the last period when we
S2: had a more inflationary environment with rising interest rates, you
S2: look at the period from like 1968 to 1982. Um,
S2: the reason that active management was so big in the
S2: 80s and 90s is because indexing was horrible from, you know,
S2: the mid 60s until that period. So nobody wanted to
S2: do it anymore at that point, because just like today,
S2: you'd had 15 years where things had gone the other
S2: way in a in a big way, and active managers
S2: had looked so good. So they're going to be periods
S2: when active managers look great. They're going to be periods
S2: when everyone says, why are we bothering with these active managers? Yeah,
S2: it just goes back and forth. And so as with
S2: most things, you know, having some exposure, some diversification even
S2: between strategies makes an awful lot of sense.
S1: Yeah. And that's why again, as Mark said, there's multiple
S1: strategies offered at SMI. You can check it out. SMI.
S1: Excuse me. Sound mind investing? All right, Wayne, I know
S1: we didn't get to your question, so let's do that
S1: right after this break. I apologize, I'm going to have
S1: to ask you to hold again. But if you you can,
S1: we'll come right back to you and and get to
S1: that primary question. Brad, you've been waiting patiently there in
S1: Tampa will be coming your way as well. I'll probably
S1: have room for probably up to two additional questions. 800
S1: 525 7000 Mark Biller is here today. If you want
S1: to read the article we've been talking about, it's titled
S1: Retirement Preparedness. What a difference a little time can make.
S1: You'll find it sound. Mind investing? Stay with us. We'll
S1: be right back. Hey, thanks for joining us today on
S1: Faith and finance live here on Moody Radio. I'm Rob
S1: West with me today, my friend Mark Biller from Sound
S1: Mind Investing. All right. Right back to the phones we go.
S1: Wayne is in Spokane. Wayne, let's get to that main
S1: question that you had. Go ahead sir.
S6: Yes, I had a question on senior loan ETFs and
S6: wondering if that would be a good option as far
S6: as diversification and maybe using that in place of part
S6: of the bond portion of the portfolio.
S1: Okay. Yeah. Mark your thoughts.
S2: I haven't I haven't looked real closely at those lately.
S2: Wayne what what have you seen that has you thinking
S2: that those look attractive right now.
S6: Well they're 8% return.
S2: Mhm.
S6: And of course, that's assuming that you maintain the value
S6: of what you bought. But they're paying about 8% per annual.
S6: They're paying uh monthly the equivalent of 8% per year.
S2: Yeah. Um, yeah, I would, I'd have to look at
S2: those a little bit more. Um, to be honest with you, uh, Wayne, I,
S2: you know, my impression of those is that they, um,
S2: they are not particularly sensitive to interest rates, which is good,
S2: but they can can definitely have more company risk, which,
S2: of course, that's why you go into an ETF, um,
S2: and hopefully spread that risk around. But I would have
S2: to look a little more at the specific, um, you know,
S2: risk profile and, and why those are yielding so much more.
S2: My guess is that it's because they are, um, going
S2: down the quality ladder in terms of the companies that
S2: are involved there. Rob, what are your impressions about those products?
S1: Do you. Yeah, I mean, I would certainly defer to you, Mark,
S1: but I would just say, generally speaking, what I'm familiar
S1: with here is that, you know, these loans would be
S1: below investment grade, which would typically carry a higher default risk. Um,
S1: and so that's how they get those higher payouts. Um,
S1: I mean normally there's liquidity risk, but I guess if
S1: it's packaged in an ETF, that's not an issue. I
S1: would also be interested in the fees. A lot of
S1: these have higher expense ratios than that can erode some
S1: of the returns. Um, you know, obviously, you know, it's
S1: helpful in the sense that it can hedge against, you know, rising, uh,
S1: you know, inflation and so forth. But, um, and it's
S1: collateral backed. Um, but I would just look at, uh,
S1: whether we're taking an elevated amount of risk in terms
S1: of potential default, especially if we were to get into
S1: a recession, uh, or something like that. So I would
S1: be careful there. I certainly wouldn't make it a, you know,
S1: a significant portion of the portfolio. What percent would you
S1: be comfortable with for something that might have an elevated
S1: risk profile mark that still fits into the fixed income category?
S2: Yeah. You know, the thing that gives me a little
S2: pause is that those yields are so much better even than, um,
S2: high yield bond funds. And so, you know, when I'm
S2: thinking about riskier bonds and high yield bonds, to have
S2: something that's paying even more than that, there's got to
S2: be more embedded risk in there somewhere, or else they
S2: wouldn't be getting those returns. So, you know, a good
S2: high yield, um, allocation within somebody's bond portfolio. You know,
S2: high yield generally performs pretty well until you get into
S2: a recession. And most of the time you're not in
S2: a recession. So if someone's got a good sized bond portfolio,
S2: I wouldn't have a problem putting, you know, 20 or 25%
S2: in high yield. Since this seems more risky. I'd probably
S2: be inclined to go a little bit lower than that
S2: with a product like this, and I would really look
S2: into the details of the specifics of that fund, of
S2: any senior loan fund. We have not focused on those
S2: a whole lot. I wish I could give a little
S2: more detail, but yeah, any time you're getting that type
S2: of a yield, Wayne, you have to just recognize that
S2: there's a reason for it. Nobody gives that away for free.
S2: And so you probably are going down the the ladder
S2: in terms of the quality of the companies. And the
S2: time to really be paying attention to that is anytime
S2: you have heightened recession risk, because that's when you tend
S2: to have trouble with high yield bonds in general. You're
S2: really it's really more of an equity like investment profile
S2: as opposed to a traditional bond profile. So those would
S2: be the the things to look for and look out for.
S1: Very good Wayne. I hope that's helpful. And just for
S1: the benefit of our listening audience, senior is not like
S1: senior living. This is senior, meaning they have priority over
S1: other debts in a case of a bankruptcy. But if
S1: these are made typically to below investment grade companies in
S1: terms of their credit ratings mark, that might be equivalent
S1: to like a junk bond, right?
S2: Definitely. And I would say possibly even below what we
S2: would normally think of as junk bond, because junk bonds
S2: typically are not yielding 8 to 10% in those funds
S2: right now. So that's that's the concern. Yeah.
S1: Very helpful. Let's go to Tampa. Hi, Brad. How can
S1: we help?
S7: Hey. Good afternoon. Uh, I have my first job out
S7: of college. I was there eight years. I have a
S7: pension plan of several times over the years, they've tried
S7: to buy me out. I've got until May 23rd this
S7: year to decide if I want to get bought out.
S7: I can get a lump sum payment, a monthly payment
S7: until I pass away. Or I can just wait until
S7: I officially retire and start drawing it then. So what
S7: would be the best course of action?
S1: Yeah, and this one comes up a lot. Marc, how
S1: do you counsel folks to make this decision?
S2: You know, a lot of it. You know, as is
S2: often the case with these types of things, Rob, as
S2: you get a big it depends. It really depends on
S2: the the terms of the specific deal. Um, we have
S2: an article on our SMI website that is, uh, lump
S2: sum versus annuity that helps people kind of walk through
S2: that decision so they can look at the exact details
S2: that they're being offered and kind of line up, which
S2: makes more sense. Brad, did I understand you correctly that, um,
S2: you're eight years out of college, so the.
S7: No, no, I that was my first job. Okay.
S2: Okay.
S7: That's what I wanted. 63 now.
S2: Okay.
S7: I'd like to go for about five more years, maybe.
S7: And I have a another pension plan that will be
S7: pushing almost 30 years by the time I do retire.
S2: So okay.
S7: That that and my 401 K are going to be
S7: my major source of income after I retire.
S2: Yeah. Well I would definitely look to see is there
S2: an inflation adjustment with the pension, any type of inflation
S2: rider or anything with the annuity that's being offered? And
S2: do you know roughly what the the rate of return
S2: of that is that's being offered.
S7: I know what the lump sum payment would be and
S7: the monthly payment would be. But no, to answer your question,
S7: I'd have to check into the other things you just mentioned.
S2: Yeah. Well, what you're trying to do is, um, you're
S2: basically trying to figure out what is the implied interest
S2: rate of the annuity. Like what is the rate of
S2: return that you're getting in the annuity? And so if
S2: it's if that internal rate of return is low, then
S2: people are more likely to take the lump sum thinking,
S2: I can invest that on my own and make a
S2: better return. If the implied rate of return is relatively high,
S2: then that's generally a fairly attractive thing to have that annuity,
S2: especially if you have a 401 K apart from that,
S2: because then you've got a blend of income streams and
S2: that can be a very attractive thing. Rob, do you
S2: have any quick pointers on how to size that up?
S1: I mean, I think you're right on Mark, and I
S1: think that the bottom line is and Mark shared this
S1: earlier is once you reach age 65, your life expectancy increases.
S1: So if you're fairly healthy, expect to live past 85.
S1: Of course, no one knows ultimately, but if that's a
S1: reasonable assumption and you're comfortable investing, you know, on your
S1: own and looking for higher returns, and you can, you know,
S1: outpace the internal rate of return provided by that income
S1: stream through the annuitization on your own and then still
S1: have something to show for it in the end, perhaps
S1: to leave as an inheritance or something you could tap
S1: into if you needed it. That's where I think the
S1: lump sum can shine. If you would rather, you know,
S1: pass that off or you have some health concerns or,
S1: you know, longevity is not on your side in the family,
S1: you know, and you would value having that guaranteed income
S1: for life. Well, you know, then that may be the
S1: better option. But I think as a starting point, start
S1: with the financial side, calculate essentially the the internal rate
S1: of return you would be getting by taking that monthly payout.
S1: Compare that to what you might do reasonable reasonably without
S1: taking too much risk on your own. And I think
S1: that may begin to give you some clarity as you weigh.
S1: way than those other considerations like health status and so forth.
S1: Does that make sense?
S7: Sure. Yes it does, yes it does. Thank you so much.
S1: Excellent. You're welcome. Brad, we appreciate your call today, Mark.
S1: Tie a bow on this for us. You know somebody
S1: who's listening right now saying, I just feel like, you know,
S1: I'm behind, uh, you know, the game here. I haven't
S1: saved enough. I'm staring down retirement in the next five years.
S1: What counsel would you offer them today?
S2: Yeah, I think the biggest takeaway from today's conversation, Rob,
S2: is that Social Security gives people a little bit of
S2: an out if they haven't saved enough for their retirement.
S2: And while it can be hard emotionally, if you've kind
S2: of fixed on a particular retirement date or retirement age
S2: to consider, maybe I'm going to need to work a
S2: little bit longer. The decision to do that can really
S2: make a big difference to your retirement income situation, so
S2: it's definitely worth running the numbers. You can go to
S2: the Social Security Administration website and look at what the
S2: difference would, would be to your benefit amount by changing your, uh,
S2: your retirement date. That's a good first step. And then
S2: to prayerfully consider if that's if that's a good way
S2: for you to to boost your retirement income.
S1: Yeah. No doubt about it. Not to mention the other
S1: benefits of continuing to stay engaged and productive healthwise, spiritually
S1: and and otherwise. Mark, we always appreciate your time. You
S1: have so much to share with us. Thanks for your
S1: partnership and for your presence today.
S2: I'm so happy to do it. Thanks for having me, Rob.
S1: All right. That's Mark Biller, executive editor at Sound Mind Investing.
S1: Check out this article when you visit Sound mind Investing.
S1: Big thanks to my team today Amy Taylor Dan Ryan
S1: Amanda couldn't do it without those. And everybody here at
S1: Faith by Faith in finance live is a partnership between
S1: Moody Radio and Faith fi. We'll see you tomorrow.