Life Insurance, Must Have Documents, Roth, Roth IRA, Saving
February 17, 2022
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On this podcast of Ask KT & Suze Anything, Suze answers questions from listeners about paying off mortgages, property tax increases after adding to a trust, life insurance, retirement, and more.
February 17, 2022. What's today? KT Today is Ask KT and Suze Anything. But if you ask Suze the question, you'll get the right answer. You're doing pretty good lately, KT. Pretty good here. That? Pretty good. But I'm getting better with the Roth guy, right? You're getting better with the Roth guy. So anyway, this is where if you want us to answer your question, you write in to Ask Suze SUZE Podcast @gmail.com or via the Women & Money app. And if Miss Travis selects it, we will answer it on the podcast. Suze answers, better get that straight. Everybody. Suze will. And let's tell everybody what's a week from today. Okay, so we have an update. We have a health update, a great one on 24th of February. Suze is going in finally for this little sinus surgery, which is going to open up all of her opportunity to breathe, probably expel more hot air than she usually does. And the good news is that we're here in Florida. We're actually going to record a couple of podcasts that should take us through next week and the following week. And then thereafter you're going to get a new voice everybody. Hopefully right and hopefully I'll feel a whole lot better. I'm actually really looking forward to this. Yeah, me too. Great for a long time coming. All right. What do you get for me today? 1st question is from Diana. Dear Suze and KT first, I'd like to thank you for the content that you share with all of us podcast listeners your episode on Roth IRAs last week provided a wealth of knowledge that I was completely unaware of for this particular topic. Me to Diana. It says. It won't matter how many times she listens to that podcast. But here's her question which doesn't have to do with Roth. It has to do with our friends at Alliant. I had a quick math question. The advertisement for Alliant at the start of the episode says that $100 is a 16.7% return on your money when you deposit a total of 1,200. But I would have thought that the percentage would be more like 8.3% If you get a chance. Suze could you please explain how the 16.7% was calculated? Yes, I'd be more than happy to my dear Diana. So, for those of you listening right now There is a special opportunity with Alliant Credit Union. You go to MyAlliant.com and if you put in now listen closely $100 a month. It has to be 12 consecutive payments of at least $100 a month. At the end of that 12th month. What happens Alliant gives you $100. However It's not, you put in $1,200 let's say in January and then in December you get that $100 if that were the case and you had to put it all in at the beginning of the year. In one lump sum plus Alliant gives you .55% interest. Yeah. Then it would be like an 8% or 9% yield because you had $1,200 in there. But truthfully everybody to all of you have $1,200 that you can put in at one time. Maybe. Yes, maybe no. But the majority of you if you just put in $100 a month and you do that every month at the end of 12 months you get that $100 bonus. So, you don't have all of that money in there for 12 months. You have a little in there then a little more and a little more. So, when you do the calculations on that it comes out to a 16.7% yield. Now what you have to understand, no way with the legislators or the regulators or anybody allows me or Alliant to say 16.7% if it wasn't true. So, your math is wrong. My math and Alliant math are not. All right. Yeah. I would never ask Suze a math question like that. No, but it makes sense. It makes sense. Those people do simple math. You put in $1,200 right and then you times it you know by eight or 9% and it's 100 bucks. And you think wait a minute. Why is it 16.7 because you don't put in $1,200 all at once. Okay. Next question is from Geraldine, I have a question regarding paying off my mortgage or taking advantage of the tax benefit. What do you recommend pay your house in full or continue to take advantage of the tax benefit? Does it depend on how much you owe? I think she's missing some information for you. Right, well not really because I can kind of generalize that. Here's the thing. Geraldine you have to look at how the tax benefit works. So, when you first take out a mortgage, the mortgage company gives you the biggest tax write offs during the 1st 7-10 years. Why do they do that? They do that because they are wishing and praying and hoping that you most likely which you probably will sell that home within 7 to 10 years. Where the mortgage companies are so brilliant is that they are getting the entire interest rate almost from that loan. As if you had kept it for almost 30 years and they're putting that into your beginning years, and you think how great that is. But you're not really paying down the principal. So, they're getting their interest on the money you get a tax write off. However, if you plan to keep this home for really a long period of time, then the truth of the matter is the sooner you pay it off, the better you are. The tax benefit doesn't really prevail anymore. After 20 years, it really doesn't, then it's almost all principal. So it all depends not on how much you owe, but it depends how long you have been paying that mortgage for and how long you are going to keep that house, check your amortization schedule, which every bank will give you a mortgage company. And you'll see as the years go on, the interest that you pay goes away and then there's no tax benefit at all to you in the later years. Okay. Next question is from Wendy. Hello, Suze and KT, my husband and I are encouraging his parents to establish a living revocable trust by using your Must Have Documents. They have been hesitant to establish a trust for years. Their concern that the property tax bill will increase after the title has changed from their names to the name of the trust. They owned the home outright and they live in Florida. So, Suze, should they expect an increase in their property taxes? If the title is changed, you know, Wendy, I have to say, it's that's a shame when people don't do that, which would be good for them based on what they think will happen when they do something versus finding out what actually the truth is absolutely not. When you change your property from your individual name, into the title of the trust. There is absolutely no difference in property taxes whatsoever. None. There's no difference to your income taxes whatsoever. So, the excuse that they've been using is absolutely irrelevant and something that they absolutely need to get out of their head now. With that said, remember everybody, it is just to the end of February of 2022 where if you go to SuzeOrman.com/offer where they Must Have Documents are $69. After that they're going to $99 again. The Must Have Documents are a will, a living revocable trust, an advanced directive, a durable power of attorney for healthcare and financial power of attorney. Those if you went to a lawyer would cost you about $2,500. These are legal documents. It's the exact same documents that KT and I use. Maybe our assets are a little different, but they are legal documents and really everybody. The greatest thing about it is every time you make a change; you just go back to the program and you change it. It comes with an activation code that you can give to all your family members. So, it's like giving a $2,500 gift to one, $2,500 gift to another. What in the world are you waiting for millions and millions of people over the years have used these legal documents? Really. They're the best thing you will ever do. It just does it. Next. Next question is from Andrea. Good morning Suze. Is it a good morning? It's a great morning. What makes it great for you? Well it's a beautiful day and we're up really early. We're having her, we're sipping her little coffee and you have your sweetie. I don't drink coffee anymore. She sips an um like a chai latte. She refers to it as her sweetie and it's really nice. It's a beautiful scent. What's cute Everybody when I say to KT right can I have a sweetie? Sometimes she thinks that means I want to kiss and sometimes that's all you get. I know not bad. Either way I win. Hi Suze. I currently live as a single woman at the age of 58. I have no children of my own, but my brother has twins who are about to turn 15. I have a $250,000 term insurance policy from when I was married, I divorced in 2018. The premiums are currently about $370 a year. I have kept the insurance policy going thinking it would be a nice thing for my nieces when I pass but I realize now that this may be wasteful, and I could be investing that money elsewhere. I feel like I should keep that policy so my family and friends would benefit from my death. Can you please help me to make this decision, Suze, or sense out of this decision? Andrea what are you thinking? What are you thinking? Somebody's going to benefit from your death. Nobody benefits from your death my love, when a death happens and people love you, there is a loss that all the money in the world could never replace. And in the meantime, what you are not getting is that you have a term life insurance policy, you are only 58 years of age. The reason that it's so cheap right now is because they know you're not going to die, You're not going to die at 58, 78. In most cases you die normally when you are about 88-98 years of age today, unless there's an illness. So, what's happening here is that as you get older all of a sudden, these premiums that you are paying when your term is up. So, you've had this policy for a while now and once you reach a certain age, then that term will be up and then they will reprice it. And then you'll say I'm not paying that much money. So, get rid of it now. It makes absolutely no sense. As long as you know that you are 100% healthy that there's nothing wrong with you and get rid of it and just start taking that money and investing it or going out and having a good time. I don't care what you do with it. But enjoy your life and benefit from your life now versus worrying about somebody benefiting from your life after you have died. I didn't think you were going to give her that answer. What did you think I was going to say? Well, I thought that you were going to tell me that that's a nice amount of money to leave to the twins. Oh, you're saying that because it's a twin, but she's not going to leave that to the twins. KT you're going to be probably. Term insurance is insurance that's good for a specific term or a specific period of time. And the reason that you have term insurance is during your younger years, if something were to happen to somebody or you and people are financially dependent on you or your dependent on somebody else. If there was to be a premature death, there would be money that since the insurance company knows that actuarially speaking, you are not going to die within that term. They're usually five-year term, 10-year term, 20-year term, maybe 30 that their premiums are so cheap because they're pocketing money because you're not going to die. So, once you start getting older and your term is up. Oh, now they start charging you because they know that you, that you probably will die with it and you're going to pay for it. So no, don't waste your money. No, but let's remind people that you're a big believer in term versus whole life. Oh really? Okay. All right. Next question. Life insurance in most cases, it's one of the biggest rips offs out there. Okay. All right. And so is universal life and variable life. Okay, next question started in, this is from Ryan, your fellow night owl. Should I ask more about that? Suze Ryan signs off Suze. I'm your fellow night owl. Do you have like a little secret relationship with Ryan at night? Well many of you who know that you write in to the Ask Suze Podcast a lot of times when I answer these, is that one or two or three or four a.m. In the morning? That's when I normally do right. And the truth of the matter is I don't really like to sleep. I have so much fun. I love my life so much that it's like, I don't want to waste all this time going. Do you know what I figured out KT when I was younger, I want to hear this that if you sleep seven hours a night, I think it was. I know you do, but I think I did something like this, and you live till seven, whatever you like sleep away like 21 years of your life. Oh, I remember you told me that because I wanted more and I'm like, why would I want to eight hours even though I know sleep is what everybody says keep you, keeps you healthy. So maybe you should listen to me. Okay. Alright, so Ryan's question is, it's great to hear your voice again Suze. So, Ryan, just waiting a couple more weeks. It's going to be even better. So ready. I could really use a loving push in the right direction. I feel like I've been standing at a real estate crossroads for far too long. I purchased my home three years ago and I have 190,000 remaining on a 15-year fixed at 3.25%. I'm now entering my late thirties. And thanks to your mantra, live below your means, I'm debt free with a passion to save that. Suze's boy that said I currently have enough saved without touching my emergency fund to play pay off my mortgage. But is that the right move for me? Is it better to refinance my current mortgage to a 10 year at 2.67% keeping the majority still liquid in my Alliant Savings Account to then invest in downturns in the market? Is there a third option? All right, Suze. There's your night owl. So, my little night owl, here is my advice. You are 30 years of age. Do you wish you were 30 again, KT? No, a little? No. What if you were 30 and you had met me at 30? Oh my God. We would have so much fun. No, but we always said that we met each other at the right time. You were very different at 30 and I was both. Yeah, I was a waitress and I was in the height of my career, moving fast forward. You would have loved me as a waitress. I love being a wanted to tell you that was maybe one of my favorite jobs in life. I'm sorry. I'm so sorry I got off track here. Which is this at 30. This is the time that you want to be taking that money and investing it in the stock market. Taking advantage of downturns, hoping, and wishing and praying that the market goes down because you have 30 40 hopefully 50 years till you need this money. Are you kidding me? That's what you want to do. So no, do not pay off your mortgage number one. Number two. Alright. Should you refinance? So, let's actually try to do the numbers on this. You say that you bought this home three years ago and you have $190,000 left on your 15-year fixed at 3.25%. That means and I'm just going to guess at this that you have that your original mortgage was $193,000 and that therefore your payments would be about $1,422 a month. If you refinance now at 190,000 at 2.67% your payments. If it's for a ten-year fixed rate mortgage will be about 1,872. That means it's going to cost you $450 more a month. So that is a lot of money. However, if you can afford it doesn't make sense for you to do that. Number one, do you have the desire to own this home outright in 10 years? Do you? Because really at this point, given that you had a 15-year mortgage, you have 12 years left on it and now you're only going to refinance for what, another 10 years. I'm not sure it makes sense to do that depending on what your closing costs. Because remember Ryan, every time you refinance, maybe you could refinance for no closing costs, but usually it was quite a few $1,000. So, then the question also becomes, do you have a better use for that $450 extra per month to be putting it in the market. So, I don't know. But somehow my gut tells me you should leave everything exactly how it is and take all the extra money. You can every single month and just keep investing, investing, investing. What's the difference? 10 years, 12 years, you'll be 42, you know, for two years. I'm not sure it's worth it. Yeah. I wouldn't, I wouldn't do it two for two years. I wouldn't do it. No. I take that extra money and try to make more with it. I'd invested in. What would you invest? Wait, there's a name of a stock. That's real good right now. It's I am not telling you. Stop asking me, Okay. Next question is from Nancy. Now the reason I picked this one. I loved her subject. Suze. It says stupid versus feeling secure. So, I want to tell Nancy there's nothing stupid about asking a financial question. Ever take it from me. Right, Suze. I take it from KT. Alright. Dear KT and Suze. Thank you for your compassion and connection to your app listeners. Your advice always feels so personal. Like you are the only ones who get it. So, here's um I can tell you I'm absolutely one of the ones that gets it. That's for sure. Sometimes no, KT, you connect to them. You cry, you laugh, you get it. I do get it. But sometimes I'm clueless. You're clueless, but I never feel stupid ever. And that's why everybody loves. I never feel stupid Nancy. You're not KT. You are one of the smartest women I've ever met in my life because I picked you. No and everything in life. Oh my God. Anyway, go on. Okay, so here's the question, Suze. I'm struggling with a life insurance dilemma. My husband is 57, 20 years ago we purchased a term insurance policy. 20 years ago. 20 before the term was up. We tried to get a new policy, but he was denied to due to some health issues. So just to let everyone know her husband has a pacemaker. The company is letting us continue the policy. But at a higher rate that will go up each year? Which you just explain? So, I feel like an idiot paying approximately $700 a month, Wow for a $900,000 policy and coverage. But I have this feeling in my gut that if we cancel his policy, something will happen to his health and I will be in finance. I will be, it says I'll be screwed financially. He didn't want to say that. You know, you can say it, it's okay. Just read it. He's the primary earner. I could not afford to pay our mortgage on my own. Do we keep paying this high amount? Is it wasteful or is it what I need to do to feel secure? Good question Suze. That's from Nancy, that have been your quizzie. Oh Hmm. I don't know how to answer. I just think $700 a month is crazy Nancy. I think it was last Sunday, maybe three steps to living a super life. And one of them is to trust your gut to trust yourself more than you trust others. And we sometimes get this feeling and there's a reason why we get the feeling. Now obviously you have been paying this money and while he was healthy and he was younger, The goal of term insurance was that you would invest and save enough over those 20 years so that after 20 years you wouldn't need insurance anymore and therefore you would be okay no matter what happened. But obviously Nancy that isn't what you did. So, did you buy a home that was too expensive. Did you spend more money than you should have figuring it's okay? If something happens, we'll be okay because we have $900,000 of term insurance. Now you're in a situation where $700 a month is a lot even towards a mortgage payment. So, you however are going to have to do what makes you feel secure because death can happen at any moment. Trust me, I know that big time. Right, KT. We know that we know that everybody. So, you have to trust your gut here more than no matter what I say to you. But in the meantime, this is what I would be doing. If you decide to keep this policy, you have got to get yourself in a situation where you own your home outright sooner than later. If that is where you want to stay or you can now make it where you play that your husband has died and not listen to me closely now you're in a situation and you didn't have this $900,000 policy, what would you do? Would you have to sell the house? Would you have to downsize, what would you have to do? And if there are things that you would have to do it now do it now. Alright, sell your house now while the market's high, maybe rent for a while so that if something were to happen you would be okay and then maybe you could get to the point where you could cancel this $900,000 policy because you would be okay no matter what happened and then you would have $700 more a month to do something with and build up your money. But that is what you need to do to feel secure. Which is the question. The main question you asked me so to feel secure, you have to live below your means but within your needs. So, what do you need Nancy to feel secure right here and right now because eventually $700 a month for this $900,000 policy? It's going to be 1,000 a month than 1,200 a month. Then 2,000 a month. It is going to go up every single year. So, you have to take actions right here and right now that make you feel secure where you are secure without relying on a life insurance policy. Okay. KT is looking at me, what would you do exactly what I told her to do exactly what I told her to do? Yeah, I would right now if my fear is if he died, I couldn't afford the mortgage on the home. I would get rid of the home and get something that I could afford. So, do it now. Do not wait, Suze, guess what time it is now quizzie time. You knew that you were a lot of questions. Questions. It's quizzie time. All right, KT now everybody here's how we play quizzie time. I pick out a question KT has read this question when she went over questions, but she didn't know what was going to be her quizzie. But it's also your quizzie and your quizzie is it's time that you start thinking about. How would you answer these questions if it was your particular situation? So, let's pretend you have to answer this as well. Let's not pretend. Let's do it. Alright, I'll take one for the team. Everybody You take it girlfriend. There’s Suze and KT, my mom is 58. That means she's young, KT and has a Roth IRA of 25,000 and a traditional 401K of 20,000. Now it's important to look at the amount of money that somebody who is the age of 58 has saved because what does that tell you off the bat, KT about this person. She started saving a little late a little late and she doesn't make that much money tells us one or the other about them or both. After speaking with her, she disclosed that she will be expecting Social Security to satisfy her monthly income needs. So, mom thinks when she takes Social Security that it will satisfy her monthly income needs. First of all, I would doubt that is highly true income needs actually go up as you get older and this is also a person. And I'm going into detail here because these are the things I want you all to think about, this is a person that obviously hasn't been very realistic about saving for their future because they obviously started late thinking everything would be okay. So, as I'm looking at these questions, this is what I'm thinking. She just did her taxes recently and has the option to max out her traditional IRA to receive a tax break or to max out her Roth IRA. So, she now gets to choose one or the other. Okay, being a fan of yours, I encouraged her to choose the Roth option. But after further thought I was thinking a traditional contribution, maybe more tax beneficial in the long run, she is expecting to make less money in her later years than what she is earning now, is it better for her to claim the tax break now while she is in a relatively higher tax bracket, then have to pay more taxes on the money she contributed versus when she takes the money out, please help. I would appreciate your wisdom and guidance. So here is the question, KT and I'll be very concise. Should she continue to contribute to a traditional IRA, or should she continue to contribute to a Roth IRA, Which one? Roth. You're sure, yeah. Ding Ding Ding Ding Ding for sure. Why? Because the Roth because Roth is always better. All right. Everybody let me answer this for all of you, which is especially Nicholas, Nicholas, your mother cannot be making that much money right. It's impossible for her to have this little at 58 in her retirement accounts. Also, it's not about the tax savings here. It is about having total access to that money all of it at once in case something was to happen. Do a Roth IRA forget about the tax benefits right now don't do traditional? Just that simple. Remember when you have money in a traditional, if you then convert now there's the five-year rule. Everything starts to go crazy on you, number one. Number two, when you start taking money out of a traditional, it starts to do what count towards your Medicare B premiums impossibly will make her Social security taxable and traditional absolutely are affected and ruled by required minimum distributions. Do a Roth do a Roth, do a Roth. You got that one right, KT. I knew Roth would be the way to go. I'm, I know how I can trick you. There's got to be a quizzie that I can do where the answer is traditional and you're just going to say Roth no, I have to think about it. You have to think about it. So, until Sunday, make sure everybody takes advantage of the Alliant Credit Union offer, go to MyAlliant.com. Take advantage of the Must Have Documents offer. Go to SuzeOrman.com/offer and join me on Sunday for Suze school. See you then. Bye bye.
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