Pod Insights The Clark Howard Podcast 12.09.24 The Property Tax Problem / The Decision to “Unretire” About this episode Today - with the rapid rise in home values, property taxes have gone up all over the country. North Dakota tried and failed to eliminate property taxes on election day, and other states are trying to figure out a way to give homeowners some relief. Also today - there’s a trend in the country that has both positive and negative consequences - “unretiring”. Clark discusses a different way to think about retirement that can help ease the transition for many. Property Taxes: Segment 1 Ask Clark: Segment 2 Tiered Retirement: Segment 3 Ask Clark: Segment 4 Mentioned on the show: Clark's Christmas Kids 2024 What Is an Amortization Schedule? Use This Chart To Pay Off Your Mortgage Faster Amortization Calculator and Schedule - Clark Howard What Is Term Life Insurance? Best Term Life Insurance Companies, Plans & Coverage How To Buy Term Life Insurance in 7 Easy Steps Thinking About Unretiring? You’re Not Alone Is It a Good or Bad Idea To Buy a Rental Car? Clark.com resources Episode transcripts Community. Clark.com Clark.com daily money newsletter Consumer Action Center Free Helpline: 636-492-5275 Learn more about your ad choices: megaphone.fm/adchoices Learn more about your ad choices. Visit megaphone.fm/adchoices
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0:58 Speaker 02 Price and participation may vary. Promotion pricing may be lower than meal pricing.
1:06 Speaker 03 It's my pleasure to welcome you here to the Clark Howard Show on today's national holiday, also known as my wife Elaine's birthday. So excited to later today get to celebrate my wife's birthday with her. And what we're all about here, our mission, is serving you with advice and information that empowers you so you make better financial decisions in your life. And remember, we are in the midst of our 34th year of Clark's Christmas Kids, where we ask you to help us see that children in foster care have gifts to open Christmas morning,
1:51 Speaker 03 gifts that they specifically asked for at a time that the adults in their lives let them down. We step up and step in to see that these kids have a Christmas somewhat like other children are able to have. Just go to clarkscrimiskids.com. If you don't have time to go through and pick out a child and pick out the gifts they want, we'll take a donation from you for any amount of money. You know, I've had the fallout in questions from people about the big run-up in property taxes in state after state across the country.
2:32 Speaker 03 And during the recent election cycle, the voters of North Dakota had a chance to eliminate property tax and chose not to. Other states trying to figure this out, what do you do to not force people out of their homes, particularly older residents, maybe that are retired? I want to talk about that. And later, speaking of being older, there's a trend in the country called unretiring. Yeah, unretiring. I want to tell you what it's about and what are the implications for us as a country, and particularly younger workers, too.
3:11 Speaker 03 So I was stunned because I was sure, but I'm always wrong on this stuff, that when the voters of North Dakota stepped into the polling booth, that they would eliminate property taxes in the state. Because what's happened over the last many years around the country is with the run-up in home values, property taxes have gone up in tandem, and it's been really, really ugly for people making those payments. I mean, it's been tough stuff. But the voters in North Dakota were like, wait, wait, wait. We don't have a viable plan.
3:53 Speaker 03 My reading of it is that voters were like, we don't have a viable plan to replace the billions of dollars in taxes that underpin so much of state and local services. If we have no idea how we're going to make up that money, this is a bad idea. But people all over the country are feeling the stress of property taxes going up, up and away. It is really a budget buster for a lot of people on fixed income. So any of a number of ideas are being bandied about. A number of states have provisions where this all started in California.
4:35 Speaker 03 With Prop 13 back in, if I remember right, 1979, which capped the growth in property taxes on someone once they were already in a home. What happens is you end up with this enormous disparity. Somebody who buys the next door home much later may be paying 10 times the property tax of someone who bought a home a long time ago. So it creates its own inequity right there. And so there have not been easy solutions to this with property tax, but there's clearly a problem. I'm a longtime volunteer and sponsor with Habitat for Humanity.
5:17 Speaker 03 And what's happened in a lot of urban cores where we have built, as volunteers, built Habitat homes, is those areas have suddenly become hot and in, and the Habitat homeowners get priced out of their own home because the property taxes become so large that they can't afford to stay anymore. And they have to sell this home that they worked so hard for, did sweat equity to be in, they pay that mortgage, and yet they can't stay because they can't afford the property taxes. So we need a different process for this. We need a different way of doing so that doesn't create enormous inequity between people
6:02 Speaker 03 who come in later in a neighborhood and people that were early. Because if you just do a straight cap, you end up with that great disparity. And it's not at all unusual that a longtime resident in a neighborhood in states that do have the caps end up paying a 10th or 15th of the property tax of somebody new in the neighborhood. That's kind of crazy, right? So we need to come up with solutions. And the one that I gave a couple of years ago that generated a number of Clark stinks is the idea of a big state, small state compromise that... People would have their property taxes adjusted. They were longtime residents, but that they would only absorb half of the increase in
6:47 Speaker 03 value over the years that they lived there in terms of property tax increases. Just my idea that people didn't like. I'd love, when you post your Clark stinks about this problem, to offer up solutions. Because this is one I don't have a magic answer to. I can just tell you what we're doing right now. Pricing people out of their homes, simply with what the tax bill becomes, is wrong.
7:13 Speaker 04 All right, we'll go to questions. This one came in from David in Georgia. First, a little background about my situation. I'm 33 years old and currently going through a divorce.
7:23 Speaker 03 I'm sorry about that.
7:24 Speaker 04 Fortunately, it's been amicable and fairly straightforward in terms of finances, with the exception of one aspect, the house. I'm interested in keeping the house and my spouse is not. The marriage settlement agreement states that I am to buy her out of the home by paying her an equal portion of the equity in the home. This seems fair. However, while both of our names are on the deed, the mortgage loan is in her name. We bought this home in 2021 and secured a 2.8% interest rate.
7:51 Speaker 03 2.8, wow.
7:53 Speaker 04 My questions are, one, if it's possible to assume the mortgage, my lender hasn't been very clear in terms of whether it is or isn't assumable. What are the best steps to take in order to increase the chances of a successful assumption? I'm worried about having to refinance and having the mortgage skyrocket due to the higher interest rates.
8:10 Speaker 03 Can I stop you there and deal with that first?
8:13 Speaker 04 Yep.
8:14 Speaker 03 Because this is a complicated question. All right. You can never trust the lender on whether or not a loan is assumable or not. There are more loans that are assumable without an escalating interest rate than I realized is has come clear during the cycle of the mortgage rates being, gosh, two and a half times. What your existing loan rate is and you don't want to end up in a situation where you cannot afford that home because the mortgage would be 7.5% or whatever. So you got to get your own loan documents out and read through them. And if you can't, if you get to the part on this, if it's not understandable to you,
8:58 Speaker 03 you pay a real estate attorney for an hour of his or her time to go through it and tell you what your rights are. Do not trust the lender on this at all.
9:10 Speaker 04 So two, what is the best way to pay my spouse her share of the equity? Should I take out a home equity loan? And if so, should I go through my current lender or someone else? I'm also a member of a credit union if that's a feasible option. Thank you for all of the knowledge you've bestowed upon me over the years. I'm undoubtedly in a better position to deal with this hardship due to the steps I've taken financially leading up to this moment, but no less lost about how to handle this situation.
9:37 Speaker 03 So David, again, best to you and to your former spouses. You work through the next phase of each of your lives. So the answer to the second question isn't even relevant till we know the answer to the first question. So if you're able to find out that yes, you are able to assume, you're able to keep that 2.8% interest rate, then you go to the step you talked about and a home equity line of credit, if you can underwrite for it and it will cover the amount you owe your former spouse for her share of the ownership, yes, you do the home equity line of credit.
10:22 Speaker 03 Credit unions generally are lower interest rates on those than from banks. The interest rate floats, but the long-term trend on interest rates for home equity lines of credit, moving down, not sideways, are up. If you're not eligible to assume that, you have to start all over with a new loan, then hopefully you'll be able to do a cash out loan where you are able to get the money in the loan that will pay off your former spouse and you'll have that mortgage. Problem though, you're going to be facing a rate 7% plus or minus. And that's a big, big number.
11:06 Speaker 03 And you've got to be honest with yourself. Can you afford what the payment would be per month on that? Plus the money you've got to pay out your former spouse? If it's not possible for you to be able to afford that, don't do it on a wing and a prayer and think everything's going to be fine. You may have to make the difficult decision at that point to give up the house, sell it, and you each take your share of the equity. But that would be obviously the last option with your preference being remaining in the home.
11:43 Speaker 04 Brenda says, "A few weeks ago, my mortgage holder sent a letter telling me my mortgage had been sold. I'm aware of this practice years ago with another home. The part that has me really worried is that the new lender, the new company, has a very strange name."
11:58 Speaker 03 Yeah, I'm familiar with them.
11:59 Speaker 04 Do you see it? "I'm a former Realtor and I've never heard of this company. It seems so informal, I'm afraid it's a scam. Do you have insight into this company? I need to send my mortgage payment to them in a few days."
12:10 Speaker 03 Okay, they're not a scam. And they are actually a fairly sizable player in the mortgage market now. They use the really goofy name they use so it seems more approachable and not like it's a big bad bank. People don't seem to have problems with them until they have one. And when they do, the customer no service based on reviews you see online are terrible. What I say with mortgage servicing assumption is you verify, then trust. And what I mean by that is print out your own amortization schedule.
12:53 Speaker 03 For your loan, based on the cut over time, the balance you have, the interest rate, all that, you can very easily see every month that the lender is applying your payments as they should, and that your balance is going down as it should. So that if there's a problem, you immediately notice it, and it's much easier to fix. This is really important. Anytime a loan is sold, servicing of a loan is sold, that you run that amortization schedule, because many times in the switch over from one servicer to another, they mess up on the balance and not in your favor.
13:33 Speaker 04 Joe in Pennsylvania says, is term life from AAA a good idea, or should I look for another option?
13:39 Speaker 03 So, term life insurance, level term insurance in particular, is a really good product I wish a lot more people would buy. The way it works is insurer contracts with you for typically a 15 to 30-year window, whatever it is you want, sometimes 10-year, but usually 15 to 30. And you have a set premium for that entire period of time on a large amount of insurance. Regular term insurance, which I don't know if the AAA is a level term or regular, annual renewable term, the premium goes up every single year. I don't recommend that.
14:23 Speaker 03 It's better for you to have a set amount of insurance with the intention of owning it for a period of time you're trying to insure, for your kids to grow up into adulthood, for you to cover your working lifetime. Whatever the specific financial goal you're trying to protect with the insurance, that you buy up for that period of time and lock it in. If AAA has a competitive premium on a level term policy, fine, but it's good to comparison shop. And I have a guide I'm very proud of at Clark.com that walks you through how to shop for and buy a level term insurance policy. Again, that's a significant difference in term.
15:08 Speaker 03 Term insurance versus level term. There are rare circumstances. Where a term insurance policy known as ART is a good idea to buy? Usually it's not. You want the level term policy where they've committed to a premium for the entire time zone that you're trying to protect in your life. Coming up ahead, speaking of life spans, when are you too old to work? When should you bag it? And this thing of people unretiring that has become a real trend ever since we had the inflationary cycle. We're going to talk that through.
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16:06 Speaker 02 Price and participation may vary. Promotion pricing may be lower than meal pricing.
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17:40 Speaker 03 People look at work so differently, one to another. And when I talk to people in the financial industry about, you know, who work with clients, and my friend Jonathan Clements and I have talked about this whole thing, that there are people who love what they do, love work, and can't imagine not working. I fit in that category. I love working. When I don't love working anymore, I have the great privilege of having enough money that I won't have to work. I choose to work and look forward to it.
18:25 Speaker 03 And there are people who can't stand their job, can't stand it, and count every single day till they can bag work. They might have a countdown clock on their phone, counting down till they're done. Who knows? They hate work and they want out the door. So people have all different motivations. There are people who can't wait to retire, do so, and then find they're bored to death. And they'll maybe go back to work part-time. But the biggest thing that's happened in recent times is people are going back to work because they gotta. They thought they were set financially.
19:11 Speaker 03 Got into retirement and realized, I don't have enough money. I can't pay my bills. I can't do anything because I don't have enough money. And I saw a Kiplinger item that the number of people who were retired going back to work is an all time record percent. We had the inflationary cycle, but also people live longer typically than they expect. And you got to make that money last a long, long time. So my thing is phasing out of work. I think that's a really important thing to do because a lot of people look at it as all or nothing. That's the mistake that I think people make.
19:55 Speaker 03 It's too much a shock to most people's system for getting money for a second. To go from working, that that's what you do five days a week to not working at all. A lot of people just can't handle that because there's not enough. You may have decided, I'm going to fish all the time, or I'm going to play golf, or I'm going to do this, that, or the other. And it's not enough to fill your days. And you get bored and you may even find yourself boring at that point.
20:29 Speaker 03 So work part time keeps people engaged. If you take early social security, age 62, which so many people do. It's an argument for a different day, why I like people to wait, wait, wait till age 70. But if you have taken it really early and you're like, hey, that's not enough money for me to live on, or I don't have enough to do. You can do some amount of work, part time work and not get punished for earning that money. There's a limit that you can earn and be involved, be active in some way.
21:10 Speaker 03 It's just a strong belief that I have that people look at this as a light switch. Today I work full time, tomorrow I work not at all. And it doesn't work for most of us. You've got to think about both of those things. The need for money and the need for purpose, meaning, routine, activity.
21:36 Speaker 03 Whatever it is.
21:37 Speaker 04 All right, we'll go to questions now. This one came in from Thelma in California. Please discuss the good, the bad, and the ugly of buying a car from a rental car company.
21:47 Speaker 03 So Thelma, it is my belief today that Thelma and Louise would want to drive a car they bought from a rental fleet off the side of a cliff, hopefully with them not in it. But the rental car fleets are trouble prone to buy as a used vehicle. And here's why. The rental car companies were set up to maintain vehicles with the most basic of maintenance, usually for four to 10 months. That was the historical cycle in the car rental business, is they would buy what were
22:28 Speaker 03 called program car or fleet purchases from the manufacturers, and they would keep them for less than one model year, and they would go into the resale market. They would have relatively high miles for a one model year old vehicle, but they were a decent purchase. Today, the nature of the rental fleet has changed entirely, and the rental agencies have not kept up with how they've changed it. I rent about, oh, about 30 vehicles a year. This year it's more. But I rent vehicles all the time.
23:10 Speaker 03 And I can tell you the quality of the rental vehicles I'm seeing, they are atrocious, pathetic, pitiful. I mean, I virtually never get in a rental vehicle that doesn't have warning lights on the dash. So the rental companies were not prepared for keeping vehicles so much longer as they do now to odometer readings beyond 50,000 miles. And right now, they're radioactive to buy from those rental fleets, stay away from them till the rental companies either adjust to having real maintenance on their fleets, or they go back to owning them only for less than a model year.
23:55 Speaker 04 Darren in Missouri says, "What is the best way to give my 20-year-old son my 11-year-old truck? And are there any legal or financial considerations I need to know about? I plan to buy a new vehicle next year, and instead of selling or trading the truck, would like to give it to him when he graduates with an electrician degree and starts his career. He purchased his current car when he turned 16 and has always covered all expenses related to it, but it's more than 24 years old-
24:19 Speaker 03 24, I love it!
24:21 Speaker 04 ...has more than 250,000 miles and is beginning to have mechanical problems, and I think the truck would help him as he gets started as an independent adult. Thank you for your help. On a side note, my son listens to your podcast as well and has for several years. He is already open to Roth IRA and started contributing 15% of his income, all while also saving up around $40,000 so far for a down payment on a house from working after-school jobs. He earned several scholarships and has a 529 plan, so he will be graduating from college without any debt and plans to put his leftover 529 plan money in his Roth. Listening to you helped to get him thinking responsibly and carefully about money at an early age. Thank you."
25:02 Speaker 03 Well, let me tell you, Darren, you should be so proud-
25:05 Speaker 04 Oh, yeah.
25:06 Speaker 03 ...of your 20-year-old son. The maturity that you stated, and you obviously have pride in him, and I could feel the pride coming off the page from your words. This is great news. He bought the older vehicle himself. He's got one that's older than he is!
25:24 Speaker 04 It's incre- he sounds incredible, really.
25:26 Speaker 03 This is great.
25:27 Speaker 04 Yeah.
25:28 Speaker 03 And he's got money habits that are going to benefit him through his lifetime. So, just give it to him as a graduation gift. There'll be no tax implications. I mean, an 11-year-old vehicle, is that what it is? It's gonna be worth less than $18,000 anyway, and you can gift anyone that much money in a year without any paperwork or anything at all. This is great, wonderful. Congratulations to him, and you gave me credit here. The credit goes all to you. Your son learned the values he has- Under your roof.
26:06 Speaker 04 Okay, Shane in Florida says, I currently have, or Shan, I currently have a loan via Ford Credit on a 2023 Mach E GT with a 0% APR that I got in March of this year. Knowing what I know now, nothing bad about the car, but just EV technology and updates coming in general, I wish I had done a lease on it versus an auto loan. Cut to today, and Ford has introduced a fair amount of price drops and incentives on the F-150 Lightning that didn't exist earlier this year when they did it on the Mach E, and I'm considering making the change. My concern, of course, is that even with the 0% interest on the Mach E and every payment has gone to loan principal, I'm upside down on the value of the car. What sort of things should I be mindful of if I were to consider getting the Lightning and leasing it?
26:50 Speaker 04 Currently, I'd like to stay within 1% rule of the lease payment compared to the selling price of the truck. Am I just out of luck getting a decent deal, given the negative equity on the car? I do own a 2017 F-150 that is paid off. We've only kept it because of the size and the ability to haul stuff versus the Mach E. If I were to get the Lightning, then there's no need to keep the F-150, and I could sell it privately. I could apply that to the auto loan, but I'm not sure that makes a lot of sense, given the 0% loan rate. At the same time, I don't want to put lots of money down on a lease, since it seems to ruin the benefits of the lease. Any suggestions or words of wisdom here? I enjoy having an EV and want to continue with them in the future.
27:31 Speaker 03 Charis of our crew who runs Clark Deals, what's her title?
27:36 Speaker 04 She's the, you called her Chief Deal Digger the other day.
27:38 Speaker 03 Whatever her title is. General Manager. She has a Mach E and loves it, just loves it. It's a really fun car to drive. Electric vehicles depreciate quicker than gas engine vehicles because the technology is moving at light speed. It's moving so much faster than traditional internal combustion engine technology moves. So they get so much better and cheaper so, so fast. Lightning fast, coming to the F-150 Lightning.
28:15 Speaker 03 The F-150 Lightning has been a marketplace failure. Ford has temporarily idled the production line. They've got to work off all that inventory. That's why you're seeing all those deals on it right now. I've talked to Lightning owners and they are not ecstatic about some of the range issues and the amount of charge time it takes for the Lightning. It's like a first generation attempt. So if it were me, as much as you're salivating over the Lightning, getting into it, you love the Mach-E.
28:56 Speaker 03 You have an eight model year old F-150 with a traditional engine. I wouldn't mess with what you've got going on right now, particularly because you're upside down now, at least for now, in that 0% loan on the Mach-E. I would keep driving it, you love it, and treat the F-150, the older one you've got, as kind of like a utility player. When you need it, you've got it to haul stuff, but day to day, what you're doing, most of your driving in, is the fun Mach-E, and you're not taking more complexity into your life and more cost into your life.
29:39 Speaker 03 I know it's not what you wanted me to say, but it's what I feel is the right answer in this case. And I hope you have an absolutely great day on today's national holiday honoring my wife Lane's birthday. And know what we're about, you learning ways to save more, spend less, and avoid getting ripped off. And we'll be with you tomorrow.
30:09 Speaker 01 Your sausage McMuffin with egg didn't change, your receipt did. The sausage McMuffin with egg extra value meal includes a hash brown and a small coffee for just $5, only at McDonald's for a limited time.
30:21 Speaker 02 Price and participation may vary. Promotion pricing may be lower than meal pricing.
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