Did you know that there’s a brand new account that the government is putting $1,000 into for some kids that just started on July 4th? Does your child or grandchild qualify? If you’re not familiar with Trump accounts and this is the first time you’ve heard of them, well, you’re gonna wanna stay tuned because they can be a very powerful way to get your child or grandchild kickstarted for their own retirement.
I’m Anthony Saccaro, and I wanna welcome you to today’s show. You’re listening to The Providence Financial Retirement Show. We are your retirement income source and this is the place where retirees come for income. And we’ve got a fantastic show for you today because we’re going to talk about financial independence.
And I figured because it’s the weekend of July 4th, there’s really no better time to talk about financial independence and retirement independence than on Independence Day weekend. In addition to Trump accounts, which may help your children be financially independent in their own retirement, we’re gonna talk about Roth conversions, which could help you be independent from taxes.
We’re gonna talk about analysis paralysis, which could help you be independent from the mentality of retirement and the fear and concerns that a lot of you have in retirement. And we’re also gonna talk about debt and retirement and how you can be financially free and independent from debt. So we have a good show in front of us and we’re certainly gonna take some of your listener questions along the way.
And I’m glad you’re here joining us and I’m sure you’re gonna be glad that you’ve joined us as well. Let’s start with a listener question. It comes from Marcus in Pasadena and he wrote in, “My daughter just had twins in March and I keep hearing about these new Trump accounts that are supposed to start up right around July 4th.
I want to do something for my grandkids but I don’t really understand how these are different from a 529 or just opening them a Roth IRA myself. Is this actually worth doing and how do I even get started?” Marcus, thank you for taking the time to write in the question and I’m really glad you asked because we get this question a lot What is a Trump account?
Well, a Trump account allows you to open up an IRA for any minor child, anyone under the age of 18. And if a child is born between 2025 and 2028, as it sounds like your daughter’s twins are, then the government is gonna give them a $1,000 each as seed money for their own retirement. There’s no restrictions, there’s no contingencies, there’s no income limits like there are in a lot of different plans.
If the child was born between 2025 and 2028, as long as they’re US citizens and have a Social Security number, then the government will deposit $1,000 into each of their Trump accounts. And if they let those Trump accounts grow all the way until they’re retired, oh my gosh, based on historical rates of return on the stock market, that $1,000 could turn into a half a million dollars or so for each child.
And that means that if you don’t open up a Trump account for them, it would really not be a smart move, as there really are no drawbacks. You also asked how it’s different from a 529 or from just opening a Roth IRA on your own. Well, a 529 is designed for college expenses, and as long as those funds are used for college expenses, then all the earnings are gonna be tax-free.
The primary difference, though, between a 529 and a Trump account is that 529s are not owned by the minor child. They’re owned by the person that started them, usually a parent or grandparent. Whereas when you contribute to a Trump account, it is the child’s money And it’s an IRA, so at 18 they could cash it out if they want, but if they’re smart, they’ll let it grow until their retirement.
It’s also similar with a Roth IRA. If you open up a Roth IRA in your name, it’s your account. Roth IRAs grow tax-free, and you can always give them some of that money later down the road, but it’s not truly their account. It’s still your account that you can do with whatever you want. With a Trump account, though, it really is truly the child’s.
Once you make a contribution to that child’s IRA, that Trump account, it’s their money. You can’t take it back. And once again, because the government’s going to give each qualifying child $1,000 as long as they were born between 2025 and 2028 and they’re a citizen with a Social Security number, it’d be silly not to open one, because it truly is free seed money to jumpstart their retirement.
If you wanna learn more about Trump accounts, we’ve put together an explainer for you, a commission report that talks about Trump accounts. You’ll certainly learn the ins and outs of Trump accounts, and you’ll even learn what the government says they could grow to if the qualifying child leaves the money there until their retirement.
And it’s eight pages, so it’s a pretty detailed report. You’re gonna wanna get it, and we’re gonna send it to you free of charge just because you’re listening to The Providence Financial Retirement Show. If you’d like to get this report, really easy. All you need to do is go to providencefinancialradio.com/report.
Again, that’s providencefinancialradio.com/report. Leave us your information, and we’ll email it to you, and you’ll be able to learn what you need to know about Trump accounts and how valuable they can be for your minor children. Just go to providencefinancialradio.com/report, and we will get it right out.
You’ll have it shortly. I’m Anthony Saccaro, really glad that you’re joining us here for The Providence Financial Retirement Show. We’re spending this show over the Fourth of July weekend talking about how you can be independent from some of the concerns that a lot of you have when it comes to your retirement.
We’re gonna talk about how to be independent from taxes, independent from some of the retirement worries that you have, and even independent from debt. We just touched on Trump accounts and the seed money that they’re gonna put into a qualifying child’s account, and the idea is to help that child be somewhat more independent in their own retirement than if that seed money was never deposited at all.
I wanna shift our focus, though, and talk about something that I’ve talked about frequently here on The Providence Financial Retirement Show and also that I talk about frequently with those of you who have called in and people that are sitting down in front of me in our office, and that is being independent from analysis paralysis Retirement is gonna be the most expensive purchase that you ever make in your life, and you only get one shot.
So it’s natural to wanna do a lot of analysis, but one of the things that I find that really is quite disturbing to me is for those of you that wanna retire and really can retire, but are continually analyzing whether you can retire or not, and continuing to be paralyzed by this analysis, even to the point where you might be working five or six or seven years longer than you want just because you are uncomfortable retiring.
It’s not that you don’t wanna retire, it’s not that you can’t retire, it’s just that sometimes we’re paralyzed into continuing to do what we’ve already done because retiring can be a very uncomfortable experience. To take it even further, once you are retired, the analysis doesn’t just stop. You now have to analyze things like when do I start to take Social Security?
Do I do Roth conversions? What about required minimum distributions? Do I just let them happen, or are there some proactive things that I can do to actually make them more beneficial? What I find that a lot of people do when it comes to making these type of decisions, because they don’t really know what to do, they don’t even know how to analyze it, is they procrastinate.
And that’s just another word for it. They get paralyzed by the analysis that they intend to do. The consequence of that really boils down to the fact that they let retirement happen to them instead of making retirement what they want it to be. They’re being reactive, and they’re not being proactive.
It’s this uncertainty that causes people to be paralyzed, to do nothing, and that translates into an uncomfortable retirement, the fear of the unknown. If you’re a regular listener of the Providence Financial Retirement Show, you know that I’ve often said that it’s that unknown that creates anxiety. And yet, when you turn that around and you become proactive and you work with a financial advisor who specializes in retirement, that unknown can become known, and that’s gonna remove a lot of the stress that a lot of you are feeling.
If you ask me what we do for our clients at Providence Financial, it is to help you develop a plan so you can have the clarity that you want in retirement. You can take all those pieces of the retirement puzzle and put them into a picture so you know what retirement looks like, and that will help you have the confidence, clarity, the peace of mind, and the stress-free retirement that you deserve.
And that’s exactly what we try to accomplish here on the Providence Financial Retirement Show. If that all sounds fantastic to you and you wanna have that same level of peace of mind that our clients have, but you’re not even sure how to get started, I’m gonna suggest that you get a copy of my book, More Life Than Money.
It’s an Amazon number one bestseller in multiple categories, and you’ll learn about the most common mistakes that I’ve seen retirees make over my career, so you can be armed in making sure that you don’t make those same mistakes. And because I want you to have this information so that you’re not worried in retirement, but you actually have a stress-free retirement, I’m willing to send you a copy of More Life Than Money absolutely free of charge.
If you want a copy of More Life Than Money, all you need to do is go to providencefinancialradio.com/book. Again, that’s providencefinancialradio.com/book. Leave us your information, and we’ll ship a hardcover copy of More Life Than Money right out to you, and you’ll have it in just a few days. But you’ll learn what you need to know to be able to have the peace of mind and stress-free retirement that I know that you want.
To claim your free copy of More Life Than Money, just go to providencefinancialradio.com/book and you’ll have it in a few days. But I know you’re gonna enjoy reading it. And you’ll learn what you need to be financially independent from the worry that a lot of you have in retirement. Providence Financial Radio.com/book.
That’s where you need to go to get it
Thank you for staying with us. My name is Anthony Saccaro. You’re listening to the Providence Financial Retirement Show. We’re doing a special 4th of July weekend show and talking about how you can be independent when it comes to your retirement, independent from that feeling of anxiety, independence from taxes we’re gonna touch on, and we already went through the Trump accounts and how these Trump accounts can actually help your kids get a head start to their own retirement independence when they get to retirement age.
This is gonna take us to our next listener question of the day, though, and it comes from Diane in Bakersfield, and she wrote in this: “I’ve done okay saving over the years, and my advisor tells me I’m in good shape, but I don’t really feel financially independent. I still feel like I’m watching every dollar.
How do I know if I’ve actually hit financial independence or if I just have a number that looks good on paper?” And Diane, thank you for taking the time to write in that question. The first thought that comes to mind, Diane, is that financial independence has nothing to do with your number. It has to do with how you feel about your number, and it has to do with your income and what your goals are in retirement, and can you accomplish your goals without having to worry about running out of money before you run out of life?
That’s the number one concern that retirees have today, and recent statistics have shown that more people today are worried about running out of money even more than they are worried about death. And that totally makes sense because people are living longer today, and running out of money is a very real concern.
And it really is not about the number. Some of you think that if you just had more money, you’d feel more financially independent. I find, though, that the more money people have, the more they spend, the more their lifestyle costs them, and there are still the same concerns with individuals that have a lot of money and individuals that don’t have a lot of money.
I remember some time ago I talked to an individual who was a single lady, had about ten million dollars, and was very uncomfortable with her retirement. She had a lifestyle that cost her four or five hundred thousand dollars a year, and ten million dollars doesn’t last that long when you have that kind of a lifestyle And after talking with her, I would describe her retirement, as much as it might sound silly, as miserable.
She was not living a happy retirement at all, and yet she had a lot of money. So it’s not a dollar amount that determines whether or not you’re financially independent. It’s more of a mindset. That’s also not to say that the money is not important. What I’m gonna suggest, though, is that what’s more important than the money is actually the income.
My definition of a successful retirement is as much income as you need until the day you die. What’s very true about any size portfolio is how much income can it give you without having to worry about running out of principal, without having to worry about spending it all? And the difference between living a confident retirement where you know you’ve got enough income to last the rest of your life and just continuing to have a portfolio and let retirement happen to you and always wondering, is how that portfolio is invested.
Most of you, again, regardless of the size of the portfolio, are simply making withdrawals from your accounts, and your portfolio is not focused on an income-related strategy. That simply means that you’re having to sell principal to get your income, and you’re hoping that your principal lasts as long as you do.
You’re in a silent race against time, knowing that every time you spend more money, you’ve gotta sell more principal. That means you have less principal left. This translates into you not knowing how long that principal’s going to last. And if we knew when you were gonna die, that would be okay, but we don’t know that And it’s that unknown that creates this anxiety, this worry and concern that a lot of you are feeling.
You also know that in this situation, if you’re invested in the stock market or mutual funds, as many of you are, if the market goes down and we have a major correction or worse, then every time you sell principal, you have to sell more and more principal to maintain your lifestyle, which means that you’re gonna cannibalize your portfolio even faster.
And having been a retirement advisor for well over a quarter of a century, it’s this, the selling of principal, that creates anxiety. But if you took that same portfolio, your portfolio, and you invested it for interest and dividends, you’ll be glad to know that you can spend your interest and dividends without ever cannibalizing your principal.
And now you don’t have to wonder how long your principal’s gonna last, because it’s gonna last indefinitely if you’re not having to sell principal to get your income. And that’s what creates the confidence and clarity and the peace of mind that our clients at Providence Financial have. Because they’re living off the income their portfolio gives them, they’re not living off just the withdrawals that they’re making.
If you happen to be a new listener of the show, and this is the first time you’ve heard of this, but it makes sense, living off your interest and dividends so you don’t have to cannibalize your principal, but it’s a new concept to you and you wanna learn more, well, I have something for you. We created an animated video that’s only seven or eight minutes long And it’s fun to watch because it is animated, but it talks about the case for fixed income, how to turn your portfolio into an income stream without having to touch your principal.
And many times when I say that, many of you are thinking it’s an annuity. Well, no, it’s not an annuity. It’s a strategy, and an annuity may not be found anywhere in that strategy. If you’re curious though and wanna learn more, I wanna send you this animated video absolutely free of charge. All you need to do to claim it is go to providencefinancialradio.com/video.
Again, it’s providencefinancialradio.com/video. Leave us your information. We’ll email it to you shortly, and all you gotta do is press play, and you’ll be able to watch this video, and you’ll learn how to create income from your portfolio from interest and dividends so you too can have the peace of mind that you deserve and never have to worry about running out of life before you run out of money.
To get your free video, just go to providencefinancialradio.com/video and you’ll have it shortly. I’m Anthony Saccaro. Thank you for taking time out of your day to join us. You’re listening to the Providence Financial Retirement Show. We’re doing a special Independence Day weekend show because it is Fourth of July weekend, and we’re spending our show talking about how you can feel financially independent when it comes to your own retirement.
And we’re in the middle of answering Diane’s question. In short, she has the numbers to make her feel like she’s financially independent, and her retirement advisor is saying that she’s okay, but she doesn’t feel financially independent. So what does financial independence look like? And I wanna give you four pillars that I think are really going to help you when it comes to financial independence.
What are the things that you can do to actually feel like you’re financially independent? Pillar number one is you wanna have a guaranteed income floor. This oftentimes comes from Social Security or pension or maybe annuity income that covers your essential and your non-negotiable expenses, like your housing and your food and your insurance and utilities.
And when you have an income that covers the essential, then all of a sudden market drops don’t feel like emergencies anymore. You’ve already got your basics covered. If your Social Security and pension and other sources of income, not including your investments, if they don’t cover your basics, that’s okay as long as your other investments are producing income in the form of interest and dividends like we just talked about, because you can count on your interest and dividends to give you extra income.
But you don’t wanna be in a situation where you’re having to cannibalize principal to make the basic expenses. Pillar number one, though, is that you have to have that guaranteed income floor. Pillar number two is you have to have liquidity for unexpected expenses. You wanna have some cash or near-cash reserves that are sized for real life.
If the roof goes… No, let’s do that again. If the roof needs replacing, or a car, or a health surprise, you don’t wanna be forced into having to sell principal on a down market to cover these unexpected expenses. Life is such to where we know that there’s gonna be some unexpected things. Matter of fact, the unexpected things in a good retirement plan are actually expected, so you have to plan for that.
So pillar number two is that you need the liquidity for those unexpected expenses. Pillar number three is you wanna be tax-diversified. I’ve said many times here on the Providence Financial Retirement Show that your tax strategy, in some ways, is actually more important than your investment strategy.
That’s simply because if you’re tax-inefficient, it could make retirement a lot more expensive than it has to be. And in a few minutes, we’re gonna talk about one way to be more tax efficient as well, so you’ll wanna stick around for that. But that takes us to our fourth pillar, and that is, you wanna have a plan that survives you.
Many of you are worried about the spouse who survives you that might not know much about the finances. It’s very common that one spouse handles all the investments and finances, and if that spouse passes away, the other spouse would feel completely lonely and have no idea what to do. This also creates anxiety, and a lot of times the anxiety comes from the spouse that knows that they don’t know if something happens to you.
So the four pillars, once again, is a guaranteed income floor. Pillar number two is liquidity for the unexpected. Number three is tax diversification, and number four, you have to have a plan that survives you. Thank you, Dan, for taking the time to write in this question, and I certainly hope the information I’ve given you, the four pillars, help you actually feel more financially independent than you currently feel.
Thanks for writing in. If you’d like to dive deeper and learn more about these four pillars and other things that we haven’t even had a chance to talk about here in this show today, you’re gonna wanna get a copy of my book, More Life Than Money. It’s an Amazon number one bestseller in multiple different categories, and you’ll learn about these four pillars and some of the more common mistakes that I’ve seen retirees make over my career and how to avoid them.
I’ll send you More Life Than Money absolutely free of charge just for being a listener here of the Providence Financial Retirement Show, but you have to ask for it, and you can do that by going to providencefinancialradio.com/book. Again, it’s providencefinancialradio.com/book. Leave us your information and we’ll get a brand-new copy of More Life Than Money right out to you.
You’ll have it in a few days. Just go to providencefinancialradio.com/book and you’ll have it soon. But I know you’re gonna enjoy reading it. And certainly the information you learn will help you to have a more independent retirement, and that’s what it’s about.
Thank you so much for being with us here today for our special 4th of July Independence Weekend show, where we’re spending our time talking about how you can feel financially independent in retirement. We’ve already talked about Trump accounts and why it is that the government’s willing to add $1,000 of seed money to children who are born between 2025 and 2028 to help them begin their journey of retirement independence.
And we also talked about how you can feel free and independent from analysis paralysis, because I know that so many of you are concerned about your retirement and putting off decisions that you know need to be made. We’re gonna move into a discussion, though, about how you can feel financially independent when it comes to your taxes.
And Kevin from Victorville is gonna kick us off with his question, and he wrote in this: “My wife and I both retired last year. I was 61, and she just turned 60, and neither of us is taking Social Security yet, and we’re still a few years out from having to deal with required minimum distributions. Our financial guy mentioned something about this being a good window to do Roth conversions, but he didn’t really explain why now is better than any other time, and I wanna understand the reasoning before we just start moving money around and creating a big tax bill for ourselves.
Can you please give us some understanding?” And the answer, Kevin, is yes. I’m certainly more than happy to have that conversation with you. And since we get that question a lot, we might as well do it in front of hundreds of thousands of other listeners. When it comes to Roth conversions, there’s definitely a window of time where it makes more sense to do them than any other opportunity, and you’re in that window of time based on your question.
I often refer to that period of time as a bridge gap or a bridge window. That’s the time period from when you stop working, but before you hit RMD age, and particularly before you start taking Social Security. That’s that bridge gap. And during that bridge gap, it oftentimes makes sense to do Roth conversions because your income is generally lower.
You’re not taking Social Security yet, and you’re retired, so you’re not working. Just so I don’t assume that you all know what a Roth conversion is or why it’s something you might even consider, let me give you those details first. When you have a traditional IRA or some type of free tax retirement account, you’ve never paid tax on that money, and that means that at some point down the road when you wanna make withdrawals to support your lifestyle or when the government forces you to through required minimum distributions, you’re gonna wind up having to claim that income as fully taxable income.
And that makes retirement a lot more expensive than it necessarily has to be. If you’re in the 25% effective tax bracket, you’ll need to withdraw 25% more than you actually need from your portfolio, so by the time you pay the taxes, you have enough left to live the retirement you want. When you do a Roth conversion, what you’re effectively doing is converting a part of your IRA into a Roth IRA.
You’re gonna pay the taxes when you do the conversion, but everything that goes into the Roth IRA will then be tax-free forever, and that’s what a Roth conversion is. The reason that this bridge gap is such a powerful time period to do Roth conversions is because you’re no longer working, that means you don’t have any wages and your income’s gonna be lower, and you’re not of required minimum distribution age yet, because you cannot convert RMDs.
And if you’re not taking Social Security yet, like Kevin, then your income’s still gonna be lower yet And it’s a very opportune time to do Roth conversions. Kevin then, I’m gonna suggest that your financial guy mentioned that it’s a good time to do Roth conversions, and that’s the reason why. You’re in that bridge period, you’ve retired, you’re not taking Social Security yet, and you still have some years before RMD age.
So I think you got a great financial advisor, and I would certainly consider working with him to follow that advice. Don’t forget to bring your CPA in, though, because Roth conversions count as income, and there could be some ramifications that you’re not even aware of. I truly appreciate you taking the time to write in that question.
If you’re like Kevin, though, and you wanna learn more about Roth conversions, maybe you’re wondering whether it’s something that even makes sense for you, we’ve put together a short commission report. It’s really an explainer on Roth conversions, and you’ll learn everything you need to know about what they are and how they work and whether or not they make sense for you.
There are certainly people that they do make sense for, and there’s also a lot of you that they don’t make sense for. Well, how do you know the difference? Well, that’s explained in this report, and I wanna send you this commission report absolutely free of charge so you have the information you need to decide whether or not it makes sense for you to do a Roth conversion.
If you want that report, all you need to do is go to providencefinancialradio.com/report. Once again, it’s providencefinancialradio.com/report. We’ll email it to you shortly, and all you’ll have to do is take some time to read it. To claim your free report about Roth conversions, just go to providencefinancialradio.com/report and we’ll send it right out.
I’m Anthony Saccaro. Thank you for joining us today for the Providence Financial Retirement Show. We’re spending our time together talking about how you can feel independent from some of that financial worry that many of you have in retirement. We just touched on Roth conversions because Kevin asked a question about whether a Roth conversion makes sense for him, and I spent some time talking about the fact that he’s in that bridge gap time period, and it probably does make sense for him, and for those of you who might be in that bridge time period as well.
And yet, when it comes to Roth conversions, there’s a lot to think about, and I gave you a few of those things before, and I offered you that Roth conversion report, which for those of you that requested it are gonna be really glad you got it, but I almost feel like I rushed through that a little bit. So I wanna just give you some things to think about when it comes to Roth conversions Some of these things that we’re gonna talk about are just very practical things and objections or things that I’ve heard about maybe why it doesn’t make sense to do a Roth conversion.
There’s a lot of myths out there, and I wanna just debunk a couple of those. The first myth that I wanna talk about is that you have to convert everything, and that’s not true at all. You don’t have to convert everything, and most of the times it doesn’t make sense to convert everything. Your situation is certainly gonna be a big dictator of what it does make sense to convert.
But again, most of the times not doing a full conversion on your entire IRA is what makes the most sense. The clients that I have that have the most flexibility when it comes to minimizing their taxes have about half in IRAs and half in Roth IRAs or other type of taxable accounts. When we’re recommending a Roth conversion for one of our clients at Providence Financial, oftentimes we want them to fill the bucket.
And all that simply means is that whatever current tax bracket they’re in, let’s do conversions to take them to the top of that bracket, but not put them into the next bracket. And that’s what I mean by fill the bucket, and it’s really a very efficient way of doing conversions and not paying any more tax on that money than you are on the rest of your income.
I’ll give you an example. If you’re a married couple over the age of 65 years old, you can make about $130,000 a year of adjusted gross income and never leave the 12% tax bracket. Many of you are probably only making 75,000 or $80,000 a year or so, which means you could actually do conversions of $50,000 or more and only pay 12% tax on that conversion But after paying the 12% tax, the amount you converted is gonna grow tax-free forever.
Now imagine doing that for five or 10 years. It can be very, very advantageous as a long-term tax strategy. You’ll pay some more tax this year than you normally would, but you’ll save a lot more tax over your lifetime than if you never did it. So it’s really a long-term strategy as opposed to a short-term gain.
One thing, though, that you have to pay attention to is the IRMAA tax. This relates to your Medicare, and IRMAA stands for Income Related Monthly Adjustment Amount. When you do a Roth conversion, it counts as part of your IRMAA, and depending on the amount you convert, it may cause you to have to pay more for your Medicare Part B premiums.
And whenever I have a Roth conversion discussion with someone, this is often forgotten about, and that’s why I’m bringing it to your attention, so you can not forget about it if you’re thinking about doing a Roth conversion. If you’d like to learn more about Roth conversions and whether or not they make sense for you, or just how to minimize your taxes in retirement with some other tax saving strategies, in my book, More Life Than Money, I spend a lot of time talking about how you can be as tax efficient as possible in retirement.
If that’s a concern of yours and you wanna learn more, then you’ll wanna get a copy of More Life Than Money, which you can do easily by going to our website and asking for it. And we won’t charge you. There’s no obligation. If you want a copy, go to providencefinancialradio.com/book. The website again is providencefinancialradio.com/book.
Leave us your information and you’ll have a copy show up on your doorstep in just a few days. To claim your free copy of More Life Than Money, go to providencefinancialradio.com/book and we’ll get it right out. And that way, you can learn what you need to do to be more tax efficient in your situation.
Thank you for staying with us. You’re locked into the Providence Financial Retirement Show. We are your retirement income source, and this is the place where retirees come for income. My name is Anthony Saccaro, and I’m your host, and we’re spending some time today talking about how you can feel more independent from the financial worry that a lot of you have in retirement.
In the previous segments, we’ve already covered Trump accounts and why it is that the government is willing to seed $1,000 into children’s accounts who are born between 2025 and 2028. We’ve also talked about how to feel more independent and free from analysis paralysis. And in our last segment, we talked about taxes, how to be more in control of your taxes, and why Roth conversions might actually make sense for a lot of you and be more effective as a long-term tax strategy than some of you have ever thought.
We’re gonna change conversation now and talk about how you can be independent from debt. And we’re gonna lead off with a question from Susan in Carlsbad. It’s short and sweet. Here it is: Should I pay off my house before I retire? Like I said, short and sweet, but very powerful because it’s a very common question The answer is, it depends.
And I’m an attorney, and there’s often a joke that the answer for every question is, it depends. And that’s really true because it does depend on the exact situation. But I wanna give you a couple of things to think about so that you can make a good decision for yourself whether or not you should pay off your home before you retire.
Now, generally thinking, it’s a great idea. Going into retirement without a home payment makes a ton of sense. But the other side of the coin says there are times when it may make sense not to pay off your home as well, and that’s what I wanna give you some talking points to think about. There’s two different things that I want you to think about, Susan, in answering your own question.
Two different sides of the same coin. The first side is the emotional side, and the second side is the mathematical side. We need to take some time and talk about the emotional side first. I’ve talked to a lot of retirees who can’t stand the idea of owing anybody anything, and that includes a mortgage.
They might have a very low interest rate. From a mathematical standpoint, it might make sense to keep that mortgage as long as possible, but they know that they owe somebody something, and that really diminishes the amount of peace of mind that they have just because they’re in debt. They understand the logic of it, they understand the math behind it, but they’re still very uncomfortable.
When you don’t have a mortgage payment, then you require less monthly income, and that means that there’s less pressure on your portfolio to perform. And for many retirees, the idea of, “I own my home outright,” is the single biggest contributor to feeling independent. And peace of mind has a real value. A paid-off house is one less variable to worry about when markets get rocky The emotional component of retirement often is not talked about nearly as much as I think it should be.
Mathematically, you might have a great retirement, but emotionally, if you’re torn up inside because you have a mortgage or for many other reasons, then do you really have a successful retirement? That’s not what retirement’s supposed to be, always worrying and always wondering. And one of the ways that you can have more peace of mind than you maybe have at the moment is by understanding what the various risks are in retirement so that you can do what’s necessary to avoid them.
And it’s because of this that we put together a short animated video that talks about the seven most common retirement risks that I’ve identified over my quarter-century career of being a retirement advisor and what you need to do to avoid those risks. If you wanna get a copy of this video, you’re gonna enjoy watching it because it’s fun, it’s animated, and it’s only seven or eight minutes, but it’s pretty powerful as well.
I wanna send it to you by email free of charge. You just have to ask for it, and you can get it by going to providencefinancialradio.com/video. The website again is providencefinancialradio.com/video. And when you watch this fun animated video, you’ll learn what you need to know about the seven most common mistakes, again, along with what you need to know about how to avoid them.
To claim your free video, just go to providencefinancialradio.com/video and we’ll get it right out. You’ll have it in your inbox shortly. I’m Anthony Saccaro. You’re listening to the Providence Financial Retirement Show. We are your retirement income source, and this is the place where retirees come for income.
Thank you for taking time out of your day, wherever you might be, to join us. Really glad that you’re here. We’re talking about how you can feel financially independent in retirement. We’re currently talking about debt in retirement, and particularly, should you have your home paid off in retirement? And there’s a two-sided answer to that.
First is the emotional side, which we just talked about, but now we’re gonna talk about the mathematical side. And there are certainly some things that you need to consider beyond emotion. If you take the emotion out of it, then it becomes a mathematical question as to what makes the most sense: pay off the mortgage or keep the mortgage?
And there’s four questions that if you start to get answers to these questions, you’ll probably have a good idea and be on the right track. Question number one is: What is your mortgage interest rate? If it’s under four percent, like many of you, then the math tilts towards keeping it and investing instead.
But once you get closer to maybe five, six, or seven percent especially, paying it off starts to look a lot more attractive. So question number one is what’s the mortgage interest rate? Question number two is where is the payoff money coming from? If you’re paying it off through your Social Security income, your pension income, income that you have without touching your other financial resources, there’s an argument to be made that that could make a lot of sense.
But if you’re having to take money out of your retirement account to make your mortgage payment, there might be some other impact on that that you might not even be aware of. Those additional withdrawals may be coming from principal, which means you’re cannibalizing your principal to pay off your mortgage, and that probably wouldn’t be a good idea, and it may also be putting you into a higher tax bracket.
Once again, may not be a good idea. So question number two is where is the money coming from? Question number three is what does it do to your liquidity? A good gut check is this. After paying off your mortgage, if that’s the direction you decide to go, would there still be a comfortable cash reserve left for emergencies, or does that payoff drain your safety net?
In other words, what will you have left if you were to pay off the mortgage? A final question number four then is does the standard deduction change the picture? With today’s higher standard deduction, many retirees no longer itemize, and that means that the mortgage interest deduction that used to help you offset some of your income, that argument goes away.
Because if you’re not itemizing, then the interest that you’re paying on your mortgage doesn’t help you at all, and I find that a lot of people that we talk to aren’t even aware of that. They think that because they have mortgage interest, it’s automatically gonna be deductible, and that is not the case if you’re using the standard deduction.
And if you answer these four questions, I think you’ll really be on a good track to deciding whether or not it makes sense to pay off your mortgage or not before you retire. And Susan, thank you for taking the time to write in your question. I know it does take time out of your day to do that. And I certainly hope that I’ve given you some things to think about, both emotionally and mathematically.
If you’re on the brink of retirement or you’re newly retired and you have some of the concerns that we talk about here on the Providence Financial Retirement Show just in the last few segments and even over the years that I’ve been doing this show, and you wanna learn more, you feel like you don’t have that peace of mind or the confidence and clarity that you deserve, but you want it, that’s exactly why I wrote my book, More Life Than Money.
In that book, I talk about the 10 most common mistakes that I’ve seen retirees make and what you need to do to identify them and also to avoid them. I know you’re gonna enjoy reading the book, and you’ll learn something from it as well, and I wanna send it to you free of charge just because you’re a loyal listener here of the Providence Financial Retirement Show.
To get your free copy of More Life Than Money, just go to providencefinancialradio.com/book. Again, it’s providencefinancialradio.com/book. Leave us your information, and you’ll have it within just a few days. We’ll ship it right out. Once again, to get your free copy of my Amazon number one best-selling book, More Life Than Money, go to providencefinancialradio.com/book, and we will send it right out.
I’m Anthony Saccaro. Thank you for joining us for today’s special 4th of July weekend Independence Day show, where we’ve talked about how to be independent from the worry and concern that a lot of you have. I certainly hope you’ve learned something that you didn’t know before and something that will help you have more confidence and clarity and the peace of mind and stress-free retirement that you deserve.
Thank you for being with us. Have a great week, everyone. God bless.
Disclaimer: This transcript is provided for educational and informational purposes only and reflects a general discussion from a live radio broadcast. It is not intended as personalized financial, tax, or legal advice. Individual circumstances vary, and listeners should consult a qualified professional before making decisions.