I'm so glad you're with us here on the Clark Howard Show. You know, our mission is to serve you with advice and information that empowers you to make better financial decisions in your life. And it's that time of year that you're going to start seeing all the tax forms rolling in over the next couple of weeks. and there are those of us who have very simple tax returns and we're going to file as soon as we can because we're getting some money back. I got info for you I want to share with you. And also every time this comes up always generates a lot of hurt response and a lot of Clark stinks is when I share why your default position should be waiting till age 70 to claim Social Security. Okay, don't file your Clark Stinks yet. Let me tell you what I have to say later in this podcast and YouTube show. Right now, I want to talk about filing taxes this year. there has been so much confusion and misinformation about how you file your 25 return in 26 and what I'm talking about is geared towards people who tend to file simpler returns earlier in the tax season and it involves you not having to pay for tax prep so last tax year when people prepared taxes in 25 for their 24 return most people in the country had a choice of two ways to file your taxes for free in the news stories this is a complicated story the gist of what people gathered from what they may have seen or heard or read is that there's no more free filing of income taxes this year for last year and that's not what happened. We had last year something known as direct file which is how most countries have tax prep done where the government already knows so much about you that a huge percent of taxpayers don't have to do any tax prep it's just automatically done for them. Well, it was the decision of the U.S. Treasury to do away with direct file. So people took from that that in order to do your taxes, you were going to have to pay. But we've had an older system that is also free called FreeFile. FreeFile is still with us. and free file is not as easy as direct file was but what free file lets you do depending on your income levels you may be eligible for free preparation of your tax return and free filing of your tax return and private companies that choose to participate in free file set limits that can be at what the federal guideline is, or they can make it available to far more people. As a general rule, about 65-70% of us are eligible for free file, but a lot of people don't even know it's out there. And again, it's not as easy as direct file was. You're going to have to prepare just using software, your return, and again, depending on which private company is participating. If you live in a state with a state income tax, they may also give you free state filing for free, prep and filing, or they may not. So it'll just depend. You got to find the match game of what works for you doing your return. Why am I talking about it now when even for early filers, we're still a bit away from when you can do it because I want you to know before you go pay for tax software you may be income eligible for free filing free prep free filing and if you can find one that's the perfect match that provides free federal and free state then you still owe your tax but you're not going to have to pay to do it to file it Krista all right the first question is from Joe in Texas Joe state that does not have a state income tax. So you don't have to worry about that part about the states. Joe says my house is worth about $400,000 and I have around $160,000 and nine years remaining on my 3% mortgage. Good number. People will be very jealous of that. I have enough saved and invested that I could pay off the full amount and still have enough in the emergency fund. I know prevailing wisdom is to not prepay with this lower rate, but does the math change if I were to pay this off, then plan to invest the full $2,500 a month payment into monthly investments moving forward. So Joe, yeah, the conventional wisdom is you'd never give up that 3%. The question is, the money that you would use to pay it off and then build money back, what are you earning on it? if the money that's sitting there idle that's earning whatever in savings money market cds whatever if that money not the overall money but that money is earning equivalent to three percent or less the psychology of somebody being a super saver like you of having no mortgage debt I know this is heresy I'd say go for it I mean from a practical dollars and cents you don't want to give up that three percent mortgage gives you more flexibility in your life but it sounds like you don't need the flexibility if you could pay it off and you still have plenty of rainy day money and you just like the idea of being mortgage debt free yeah I can see you like definitely paying it off even though it would make more sense and you have to worry about it because you hate debt so much I do despise debt no doubt But when people could earn on savings for the last several years five plus percent If you had a 3 mortgage would you have kept it I would have kept it if I was earning 5 plus percent and had a 3 mortgage But today, what you can earn on savings rates are coming down into the threes. And now we're at a point where it's almost a toss-up between what you're earning in savings and what the interest rate is on the mortgage. And since money's not an issue for Joe, and then he can dollar cost average into investing going forward, it is a coin toss what he would do here. Charlie in Texas says, I finally worked up the courage to ask you this question regarding selling our previous two homes or keep them rented out. They're both profiting around $800 a month each. These mortgages are at 3.3% and 4% bought 12 and 6 years ago. Even though it's been fairly easy thus far, managing the properties ourselves is starting to feel stressful. We're worried about getting unlucky with the next set of tenants, despite trying to create bulletproof leases, and perhaps more repairs will be needed. Not to mention if we move out of state, paying 7% to a management company, plus all the pricey handyman work they may outsource, seems like a lot. If we sell both, the $500,000 to $700,000, if invested even in a high-yield savings, could potentially earn more than currently invested in real estate. Naturally, in the current market, having a home listed for months without an offer could eat into that equity. Right now, we are renting a house with our two kiddos as we are testing out an area, not sure if we want to settle yet or move away to another city. If we were to purchase another residence, we may need to sell at least one home, depending on the size of the next house. We both work from home and my career takes up a large creative space studio area where my clients come and shop, which warrants buying or living in a big, giant, beautiful home, thus needing to sell property. Okay, so Charlie, what an interesting scenario you posed to me because what I hear, what I'm interpreting may not be what you're feeling, but I hear you are over being a landlord. That's what I hear. and if you think about rental properties as a business it's a business you don't like now using your example if you sell them and you put the money in savings you're going to earn a similar amount but not effectively because every month the tenants are helping to pay down that mortgage creating more equity and the tax treatment of investment real estate is superior to the tax treatment on money and savings or money market CDs that are taxed at ordinary income tax. So they're not equivalent, but one is no work. The other is work. I've been a landlord, gosh, since 1983. Being a landlord is not for the faint of heart. Some people just love it. others sound like you it's like wow this could happen that could happen I got this expense what happens if we got a big maintenance problem what happens if we got a nightmare tenant sounds to me like being a landlord is a no fun zone for you so that's how I'd make the decision because this is a business a side business you're running and you're not too keen on it If I read that right, that's why you sell. Unfortunately, the housing market in Texas generally is pretty lousy right now. So your time to decide you want to wash your hands of rental property may not be the best. But then all real estate markets are local. And in a big metro area in Texas, they're hyper-local. So I think you need to see what those properties would be worth and how quickly or slowly real estate is moving in the neighborhoods of each of those properties and then make that decision. If the market is really stinking, then you remain a landlord longer than you may want to. Jenny also in Texas says, I'm curious if you could give us your... You realize these are all Texas questions. Oh yeah, that's right. I'm curious if you could give us your thoughts about what mail or information should be shredded versus tossed in the trash. Do the credit card offers with the invite code need to be shredded? I use to shred almost all my mail, but I've struggled to keep up with that after having two little children. And someone else wrote in about like what tax documents, other things do you keep? And a lot of people think about that this time of year. Yeah. So Jenny, first of all, congratulations on having two little children. and this is when you learn patience in life with two little children at the same time. So you got a triage here, right? So those credit card solicitations, good idea to continue to shred those. There's an open invitation in those to somebody causing real havoc. But if you don't want to do that, if your credit's frozen, then those credit applications aren't going to hurt you. And you just throw them in the trash if you want. If your credit's not frozen, you need to get it frozen anyway. If you don't know how to do that, go to clark.com slash credit freeze. When both little ones are napping, it'll take you about 15 minutes to set up credit freeze with all three credit bureaus really pretty easy and it'll provide protection for that as to what you keep that's a completely different question maybe we should address that as a new year's kind of housekeeping thing on one of our podcasts sure but for stuff that has any sensitivity where somebody who's trying to do bad stuff would look at wow this is this is a gold mine right here from Jenny, that would be something you want to shred. And again, if your credit's frozen, you don't need to shred those solicitations for credit if it's just something you'd like to not have to deal with anymore. And hope the kids are cooperating on napping and sleeping for you. coming up ahead going to the other end of life and that is when you old enough to take Social Security I have truly hurt people hurt them to their core with what I've said about Social Security in the past. And I'm going to do it again straight ahead. All right, here I'm stepping in it again. And I always say, unless circumstances demand it, that you wait till age 70 to take Social Security. And it is very hurtful to people when I say that who at an earlier age than 70 took Social Security. So why do I say that? Because Social Security is the best pension any of us have out there for us. And every year you wait, the amount you get is so much higher. But only 1 in 10 people wait till 70. Only 1 in 10. 90% of people claim earlier. Even though the benefit you get by waiting to age 70 is a hugely larger check from day one. and the inflation adjustments, the COLAs, cost of living adjustments that you get every year, are based on that initial much higher check. You don't break even mathematically till age 83. So people are like, wait a minute, I'm not going to live to 83. Why would I ever wait to take it? So, people overwhelmingly take it early. So, almost a fourth of people take it the day they're eligible, their 62nd birthday. But if you do so, that versus somebody who waits till 70, person waits till 70, their monthly check is 77% higher. 77%. And remember, for the rest of your life, it's so much higher. but at the same time you got all those years if you take it at 62 I take it at 70 I don't break even with you till I'm 83 and am I going to live to 83 who knows who knows I mean likelihood is a toss-up right but the percent of people that are going to live to 90 or beyond is far higher than you might imagine. And I saw something recently that if you ask people the question, this may have been in one of the Barron stories I read about this, if you ask people the question, do they regret when they took Social Security taking it early? In their 60s, nobody does. In their 70s, very few people do. But by the time people hit 80 and beyond, they're like, gosh, I wish I would have waited. I didn't think I was going to live this long. And then you got a huge number of people. Okay, so this is from Barron's. It's actually data compiled by the American Academy of Actuaries. A male at age 65, what chance is there that male is going to live to 90? This is much higher than I would have imagined. 33%. 33%. 13% will make it to 95. 3% will make it to 100. But then you look at women, almost half of women who are healthy at age 65 will be alive at 90. So remember that break even of 83? Later in life when you may not be well enough to even work part time, you're getting a much bigger check. 77% bigger. So that's my thing. delaying social security is about protecting yourself against living a really long time so you got a third of men are going to make it to 90 nearly half of women going to live to 90 so it's longevity insurance if you wait but a lot of people can't wait you know a lot of employers engage in age discrimination and people are forced out of their career maybe in their 50s They're limping along to the day they turn 62 to take Social Security. I get that. That's a guilt-free zone. Any circumstance where, let's say, your health is very poor and the odds of you living a long time very unlikely, you take the Social Security. so if it's just a matter of dollars and cents there are times that getting the dollars earlier makes sense on the other hand if it's just because well i don't know social security is going to be around so i'm in great shape but i'm going to take it early because i'm going to get what i can get that's an excuse not a reason so i'm ready for the clark sinks remember just go to clark.com slash Clark Stinks. And we did last time I talked about social security. We had a comment section for people just to comment on it. And people, I read it and I want to thank all of you who posted your comments. And they were different than a Clark Stinks kind of thing. They were comments about why they took it. It was through our newsletter. 62, 65, whatever. And the reasons were so clear and made so much sense. And people didn't regret taking it early for the majority of the newsletter audience. So the point is that from strictly math for a healthy individual who can afford it, waiting till 70 is clearly the right answer. And again, only one in 10 people do that. All right. Tyler in Missouri says, is there such a thing as saving too much money in your HSA? I love that. I'm 34. My wife is 33. We have three children. We are healthy and do not have significant medical expenses yet. We've been maxing out our HSA plan for a handful of years. Currently, we have about $70,000 in there. That's great. Would there be any point we would consider stopping our contributions and just letting it grow? This accounts for about 15% of our savings. Right. First of all, you're savings maniacs. It's only 15% of your savings. Yeah. Such young ages. Yeah. So Tyler, you keep doing what you're doing. You keep putting money in the HSA because most medical bills occur later in life And so building up the HSA as a tax war chest is phenomenal And then later in life, when you're going to have a lot of unreimbursed out-of-pocket medical expenses, you've then got that tax-free money that's grown tax-free all through the years that you spend tax-free on those medical bills. But let's say you get really later in life and you're both the miracle health people of all time and you never have any meaningful medical expenses. The HSA system and the rules could be even more generous later because there's a lot of political momentum around HSAs. The ability to spend the money past age 65 is favorable the way it's set up now. Not nearly for any purpose, but not nearly as favorable as it is being completely tax-free used for medical expenses. So yes, I would keep putting money in the HSA in addition to the other things you're doing if you can afford it. Marie in Oregon says, long time Clarkie. I recently received a letter from my credit card company that says we may reduce your credit line to better match your credit needs. Your overall credit usage with us and other issuers is low. Because of this, we may lower your credit limit from $8,100 to $4,050. My credit score hovers at about 835. I have no outstanding debt and pay my bills on time. I have five credit cards with limits totaling $56,000. I have one card I use for almost everything and rotate the other four on a monthly basis. Most of the cards I've had for decades. Retired and able to live on Social Security, which thanks to your info I waited to take, and RMDs. My question is... Required minimum distributions from investments. Right. When looking at credit history, can they see where you're spending? That is, I've had an increase over the past few months in medical co-pays and other medical expenses. Nothing I haven't easily been able to handle, but might this raise a red flag? What's a girl to do? Okay. First of all, Marie, you're doing everything right. Everything right. Normally, the second most important factor in what makes up your credit score is extremely low utilization of the available credit you have. So the default rate on credit cards and delinquency rates have been going up and up and up over the last year. And so the big banks that issue a lot of the credit card market are really getting scared. My wife just got a notice from a credit card. They said that she wasn't using it enough. So they were going to cut her limit 90%. Wow. Yours was half, but hers was 90%. And that was kind of a slap, you know, because there she is using very low utilization. They're saying, okay, so we're going to, we're going to just going to cut your limit to where it's almost nothing. And so this is a panic from the big credit card issuers. And the big banks control a huge percent of credit card market share. So what they're worried about is somebody who's been using very little available credit, might lose their job or something. Your case, you're retired, not an issue. And then all of a sudden, charge up these cards to the max, then default on them, which was a pattern that happened during the Great Recession. So that's what's happening is the card issuers are terrified how much available credit they have sitting out there right now. What you do is you contact them and say, well, if I start using it more, will you not reduce the limit? And then you have to decide, will you use that card more so that you don't get your limit reduced? Susie in Hawaii says, are the Built and Bloom Plus credit card reporting programs legitimate ways to boost my credit score? I believe these are both free options for reporting on-time rent and utility payments to the credit reporting agencies. agencies. So Susie, this is a huge fight behind the scenes with the credit reporting agencies and the credit scoring models. There's some things I would still call on the edge, still experimental, where rent can be reported, utility bills can be reported, other things of how you live your daily life can be reported that are not traditional credit and count in generating a credit score for you usually referred to as extended scoring models as far as lenders lenders are not using these a lot so it makes perfect sense to me that if somebody pays their rent every month on time as they should, that that should show a good record of paying bills and that that should count in applying for credit. But it's still not ready for prime time. Will it be someday? Probably. But is it today only on the edges? So it is true there are these extended scoring models that you can help through Built and Bloom, but as far as how it's working overall, it's still the very conventional things on what credit you have, how you're paying on that credit, how much of that credit you're using, how many different types of credit you have, credit, credit, credit, credit, is still how most things are being done. And I want to thank you so much for joining us today. I hope you learned something today that was helpful to you. Know that we try to serve you however you want to be reached with our websites, Clark.com, ClarkDeals.com, our daily newsletters, what's available to you on social media. If you live in a market that you see me on TV or hear me on radio, it's all about reaching you to provide knowledge that will empower you so you can save more, spend less, and avoid getting ripped off. Have a great rest of your day.
