Podcast Episode - Ask KT & Suze Anything: Can I Afford To Buy A Ring?

On this edition of Ask KT and Suze Anything, Suze answers questions about interest rates, the 5 Year Rule on Roths, how people live off interest, plus a “Can I Afford It?” quizzy and so much more! 

Listen to Podcast Episode:

---

Podcast Transcript:

Suze: April 11th, 2024. Welcome everybody to the Women and Money podcast...

KT: Why are you giggling?

Suze: You're making me laugh.

KT: Why? Why are you giggling? It's early.

Suze: You just are. All right. So welcome everybody to the...

KT: Tell them.

Suze: I'm not exactly sure why.

KT: Because she started by saying it was 2023. But then I gave her a look. All right, here we are. Welcome everyone to the Ask Suze Anything podcast featuring KT. Keep going, Suze.

Suze: To the Women and Money podcast and everybody smart enough to listen. And as Miss Travis just told you, this is the Ask KT and Suze Anything edition. But KT, before we begin, I just wanna make two announcements because they're both happening today.

KT: We're gonna be with you all day today, everybody.

Suze: If you wanna see me—starting at approximately 11:30 to 11:50 today, I'm appearing on a webinar with CNBC talking about how you get to the next level. How to be a good leader. And for those of you who want to tune in, I talked about this and I posted it on the Women and Money Community App. But you can also go to nbcuacademy.com/events and sign up there for free.

Also today, 4:00 to 5:00—and these are all East Coast times by the way—somewhere in that hour, on CNN with Jake Tapper, I will be appearing there as well. Lots of appearances.

KT: This is a busy media week for Suze. We're very excited.

KT: And the question that came in—the first question I have—it says, "Suze, I have a few CDs at Alliant coming due soon, and I’m afraid the interest rate may be lowered again before they come due. Do you have any advice for me?" So let’s get all these Alliant questions answered, Suze.

Suze: Were you about to say "out of the way"? So here's a thought for all of you. Let’s say you have money in a money market account or a savings account at Alliant Credit Union or wherever it may be. And let’s say that you also have a $5,000 or $10,000 CD—doesn’t just have to be at Alliant Credit Union—it could be anywhere. And you’re afraid that interest rates are going to continue down, although they do seem—at least with treasuries—they are absolutely going up. So that’s something I will talk to you about on Sunday, everybody.

But here’s what you might do. Let’s say you have a $10,000 CD at Alliant Credit Union coming due in two weeks and you want to take advantage of the interest rate that you could get right now. If you have $10,000 in a money market account or savings account—wherever you have it—take that money right now and buy another $10,000 CD at today’s interest rates. Then, when your CD comes due, just take that money and replace the money in your money market account or savings account. But then you locked in the rate today that you can get.

So that’s one thing you can do if you think interest rates are going to continue down and you want to buy another CD and lock in today’s rates.

KT: All right, let’s get going now because I have a lot of questions here.

Suze: I'm not the one who's stalling.

KT: This is a question from a Suzy to a Suze. "Hi, hope you're doing well. I'm in such a pickle."

Suze: Last night, I was in an olive. Wasn’t I?

KT: No, you were in an olive craving mood. She was craving olives like at 10 o’clock at night—and she’s definitely not pregnant. So then she said to me, around 11 o’clock—and I’m already sleeping—"KT, where can we go to a really good olive store?" So I’m thinking, oh boy, Suze was in a mood. So ready? This is from Suzy to Suze.

"I’m in such a pickle. I have about $30,000 in credit card debt and can’t even make the minimum payments monthly anymore. How can I get a grip on this debt? A consolidation loan? A personal loan? Other? I’m overwhelmed with the calls." She’s getting calls already and she has no solution. What do you suggest Suze does?

Suze: Oh boy. You know, there’s a rule of thumb: when you owe more than what you’re worth, you are essentially bankrupt. So let’s just say you owe $30,000 in credit card debt. And let’s say you don’t have any savings. You have no net worth. You don’t own a home, you don’t own anything. Essentially, it’s very difficult then to get out of credit card debt even if you can’t make the minimum payments anymore.

You might want to check with nfcc.org, which is an organization that will look at what you have, see if they can take over your debt where you pay them and they pay the credit card companies. Usually they take your interest down to zero and maybe it costs you $10 a month to have them do that. And they put you on a five-year plan.

However—and I don’t say this lightly—a lot of times in life, we get into situations for whatever reason. Maybe you were sick, maybe something happened—I don’t know. But if you really can’t afford to even pay the minimum payment anymore, it is possible that bankruptcy may be an option for you.

And I know that a lot of you are like, "Wait a minute." But when it’s legal, when it makes sense, when you’ve learned your lesson and you’re not going to claim bankruptcy and then run up $30,000 of credit card debt again—because most people who claim bankruptcy, claim it twice. But if it’s legitimate—maybe you had a divorce, maybe who knows what happened—but bankruptcy in this particular case—and I just have a feeling—may be an option for you. It’s something that you probably should look into.

KT: You know, Suze, that's hard for me to say.

Suze: I know. And you know how I feel about it.

KT: I don’t like bankruptcy on any level. But there are some situations where it’s the last resort because look what it does to credit. Look what it does...

Suze: KT, I got news for her—if they’re calling her, her credit is already ruined. Therefore, she can’t do a balance transfer.

KT: Yeah, that makes sense.

Suze: I know you don’t like it. But you really have to understand that there are some people—for whatever reason—get into a situation and it just grows. And really, KT, it’s not a good thing. Because if you have debt and everything and you stop paying it, and then all of a sudden it goes to a collector and it ends up with the marshal, they can actually garnish your wages. That’s what they did to Ayana. She got into terrible trouble with three kids and everything. She ended up claiming bankruptcy—and I got news for you—her life is totally on the path for the first time ever. She has a savings account and she really learned.

Ayana happens to be a survivor of domestic abuse, everybody. I did a podcast with her a year or two or three ago—you should look it up. It’s really quite amazing how she has turned her life around. You’re very proud of her.

KT: I’m so proud of her.

Suze: And by the way, it also took me two years to convince her to claim bankruptcy. And it wasn’t until they garnished her wages and she couldn’t feed her kids that she agreed to do so.

KT: OK. Next question is from Sandy. Suze, I have a Roth that I've had for many years. I want to transfer it to a Schwab brokerage firm. Do I start the five-year limit over again? And is any new money that I put into the Roth—would that start its own five-year limit? Thanks from an enthusiastic listener.

Suze: Oh, that should be your quizzy.

KT: I'm not gonna do that quizzy.

Suze: No, because you don't know the answer and because you have a "Can I Afford It" now as a quizzy. Listen, girlfriend, if you already have had a Roth for many years and you simply want to transfer it to a Roth at another company, no—the five-year limit does not start over again. And any new money you put into that Roth—it’s a contributory Roth, obviously—does not start the five-year limit over again either.

If, however, you had a traditional IRA and you were converting it to a Roth, then the five-year period starts all over again. But not in this case. So good on you.

KT: All right. This is from Janine. Hi Suze. I'm looking at purchasing 30-year Treasury bonds. I see that the interest is paid every six months. Can the interest be withdrawn or is it only available to use once the bond is redeemed?

Janine's been looking for the answer to that question everywhere and can't find it. So she's going to you, Suze.

Suze: A 30-year Treasury bond—and you might just want to wait a little bit before buying it because now that inflation came in a little bit hot, those interest rates may continue up. So you might want to wait a little bit to do so. However, interest is paid every six months—not just on a 30-year Treasury bond but on any Treasury note or bond. Treasuries pay out every six months. They do not compound like a certificate of deposit.

Again, I’m going to talk about this on Sunday’s podcast now that I just heard this question—because when you’re looking at the interest rates of treasuries, they aren’t compounding. But when you look at the interest rates of CDs, they're quoting you the compounded rate.

So they’re going to pay out that interest to you every six months no matter what. And it has nothing to do with once the bond has been redeemed. If you’re talking about a Series I bond, that’s a whole different story.

KT: That’s a great Suze School. All right, good. Next question is from Deb. She said: I am retired and 65. I have $125,000 in my TSP—pre-tax. Question: Should I leave the money in the TSP or move to a Fidelity IRA and slowly move to a Roth IRA? Or—ready for this one? Don’t get crazy—or buy an annuity, which was suggested by her financial advisor.

The issue I have with the annuity is it would be locked in for five or seven years. The advisor says wait until the RMD is required. I have sufficient pension funds.

Suze: Well, that is the stupidest thing I ever heard—wait till the RMD is required?

KT: That's the stupidest thing from the financial advisor, not from Deb.

Suze: So Deb, here's the thing. You have $125,000 in your TSP. If all of a sudden you do an IRA rollover with it to Fidelity, what are you going to invest that $125,000 in? Who is going to advise you how to invest that money?

Because what you've done over all the years in your Thrift Savings Plan is every month—or every two weeks—you put a little bit in from your paycheck. And here, now you have $125,000.

Do I mind if you just leave it in the TSP where you're familiar with it? I have to tell you, I don’t. But if you feel confident with doing an IRA rollover with it and then little by little moving it to a Roth IRA, OK. I don’t have a problem with that.

However, just make sure that you're going to feel comfortable with what to do with $125,000. In terms of an annuity within a retirement account—don’t even get me started. That is just stupid, stupid, stupid. So you're not going to be doing that. And maybe I’ll talk about that on Sunday as well.

Remember—a retirement account is a tax-free or tax-deferred account. An annuity is a tax-deferred account. What sense does it make to have a tax-deferred account within a tax-deferred account? Makes none whatsoever. You're not doing that. Do you hear me?

KT: Makes sense to the financial advisor who gets a commission.

Suze: Probably 5 to 7%—5 to 7%! I just want to say on $125,000, where the money is locked up, we’re talking about $7,000 or more. OK?

KT: So Suze, this next question is like the million dollar question for everyone. This is from Tanya. Tanya asks, "Suze, can you explain how people are able to live off their interest? Thank you for your purpose in this life. There's no one I trust more than you when it comes to my money."

Suze: Tanya, that’s such a sweet question. Here’s what’s interesting: you work and you work and you work, and you make money and you save money and you invest money—hopefully—so that one day, when you no longer work for money, your money can work for you.

You can save it either in retirement accounts, in savings accounts, investing it in the stock market, even investing it in a home where eventually you own it outright. The key, in my opinion, to a successful retirement—where people can live off their interest—is that during their working years, they pay down all of their debt, they own their car outright, they own their home outright, they don’t have a lot of expenses. Therefore, they then have money that they’ve accumulated over the years, and that money is invested in such a way—whether it’s in treasuries that are making 5% right now, or stocks that are paying them dividends of maybe 6% or 7% or more—that they have investments that generate interest for them.

The interest that those investments are generating for them happens to be more than what their expenses are, after taxes. Maybe they buy municipal bonds so that it’s tax-free. That’s how it’s done—over time. And actually, I have to tell you, that’s what KT and I are planning to do.

We’ve accumulated money. It’s invested in such a way so that when we are no longer generating income from working—let’s just say all of that stops—the amount of money we have will generate enough interest, dividends, and income for us to pay all of our expenses. So that’s how people are able to live off of their interest. That should be your goal as well.

KT: Suze, next question: KT and Suze, I have taxable bonds in my Roth. Should I trade them for another investment in my retirement account?

Suze: So Kathy—oh KT, she has your name—whenever you have a Roth IRA, it does not matter. And this is true even if you had a traditional IRA. It does not matter if you have taxable bonds in your account. It does not matter because they’re held within a tax-free or tax-deferred retirement account.

No, you should not trade them for another investment simply because you think they’re taxable—because that’s why you own them in a retirement account. So you don’t have to pay taxes on them when you eventually withdraw the money.

The real question is: do you want to still own a bond? Or is there something better for you to be investing that money in? Because you could sell it—not pay any taxes on it at all—and then buy something else that maybe fits you better. But no, you don’t trade them for another investment just because they’re taxable. There’s no such thing in a Roth IRA while it’s in there. And if you hold it for at least five years and until you're 59½, don’t worry—you’re not going to pay taxes on anything, girlfriend.

KT: It’s quizzy time!

Suze: KT is leaving a little extra time for quizzies—that "Can I Afford It?" ones.

KT: I love these.

Suze: And this is where you write in, you ask a question and you tell me what it is that you want to buy, and I tell you if you can afford it or not. You write in to asksuzepodcast@gmail.com. And please, I need to know—write this down everybody—your expenses versus your take-home income. Do you have any debt whatsoever, and what interest rate is it at? How much do you have in an emergency fund? Do you owe money on a home? I need to know the specifics. Have you fully funded retirement accounts? What do you have really going?

If you leave out any of those really important things, I can’t answer if you can afford it or not.

KT: Hey everybody, I have an idea—Suze is going to put on the Women and Money Community App a little tile that says "Can I Afford It?" And in there will be a list of what you need to provide her so she can answer your question.

Suze: But you don’t fill it in there.

KT: No, no.

Suze: But that’s a good idea. I like that.

KT: They’re smart. They know they’re not going to fill it in on the app. They’re not going to put your information in there.

Suze: Good. KT, we got that down. Are you ready, everybody? So KT, once again, before you answer if they can afford it or not, give everybody a second to think about if they’re going to approve or deny.

This is from Lena, and I chose it mainly because of your twin sister.

KT: We nicknamed her Lena.

Suze: Hello from the land of the midnight sun, from Sweden! All right, Lena wants to buy a diamond ring that costs about $900. Write it down, everybody.

KT: Lena wants a diamond ring for $900. Got it.

Suze: And she wants to know if she can afford this ring to give it to herself. Here’s her money: besides her normal monthly expenses of approximately $2,500, her earnings are about $4,200. She has absolutely no debt. She pays off her credit cards every month in full. She owns her car outright. She doesn’t have any loans and she rents a small house.

Besides that, she has approximately $17,000 in cash, $28,000 in stocks outside of a retirement account. She has $250,000 in an IRA, a 401(k), and a Roth IRA—that’s in total. She also has $20,000 in CDs at Alliant Credit Union.

So that’s the amount of money that she has. But she goes on to say something I just want all of you to hear—because it’s like, why does she want to buy herself a $900 ring? All right. She says, "I love this ring. I dream of this ring. This ring would be my own wedding ring to me—kind of like the wedding ring I never got. Now, after an awfully long, drawn-out divorce, I’m completely on my own with no relatives or family members alive other than my daughter. And I am saving and investing my money, and I rarely shop or go get my hair done."

"My daughter feels I should buy it, as she says I never buy anything for myself. Then I think, should I invest instead of buying a ring—or just save the $900 for a rainy day? I hope you can give me advice on this."

Suze: So, can she afford it or not? She’s obviously going to pay for it out of her cash. $2,500 in expenses, $4,200 in income, no debt, credit card is paid in full, owns her car outright, rents a small house for herself and her daughter, has approximately $17,000 in cash, $28,000 in stocks, $250,000 in retirement accounts, and $20,000 in CDs at Alliant. And it’s the ring of her dreams.

KT: Yes, I think she can.

Suze: So, do you approve her or deny her?

KT: I want to approve her. Absolutely.

Suze: Lena, KT says she would approve you. And you are... approved! However, I just want you to think about something. You obviously can afford it. An eight-month emergency fund is $20,000—you’re $3,000 short of that. However, you have money in a Roth. If you spend $900, you're going to be close to $4,000 short of an emergency fund, but you have enough everywhere else that I’m not worried about that.

Let me tell you what I am worried about. You're still obviously young. You have a young daughter. And you're going to be wearing this ring on your finger. I want you to think about—will this ring really make you feel powerful? Will this ring really do what you want it to do for yourself emotionally? Will you have a ring on and someone’s going to see you and think, "Oh, she's married"—and then you're going to have to explain, if you get interested in this person, why you have a ring on your wedding finger—if that’s, in fact, where you were going to wear it?

You can afford it. But will it really give you what you feel like it will give you? Or will $900 invested that will grow and grow and grow for you—in the end—give you a whole lot more?

A ring is never a symbol of strength. A piece of jewelry or anything outside of yourself is never a symbol of strength. How you feel inside, without any earrings, rings, purses, clothes, anything—if you can feel strong with nothing, then you will feel strong with everything.

KT: I think everything you said is very true. So she has to weigh in on what decision she wishes to make. But what was really interesting is being relatively young and walking around with a ring on her finger—it’s kind of like a little bit of a yellow or red light for any possible, you know, suitors or interest.

Suze: And that’s not to say that—like with the wedding ring that I wear, and KT wears once in a while (not all the time, because she’s too active)—it means so much to me. I can’t tell you. The little gift around my neck that was given to me by someone in India is probably, truthfully, the most important thing I have.

But I can’t think of anything that I myself bought for myself that really means anything to me. Right, KT?

KT: Well, things in the jewelry category—I know that at one point in your life and career, you were infatuated by watches. Complex watches. And now she never wears them. She keeps them safe and sound—has no real interest anymore.

Suze: But they’ve all quadrupled in value. So they were also an investment. But it was never to make myself feel strong. It’s like, I don’t know. Anyway. All right, everybody. So again, in just a few hours, you can tune in at approximately 11:30 to what’s going on with CNBC. I gave you the link earlier. I’ll be on from 11:30 to 11:50 Eastern Time.

And again, later between the four and five o’clock hour Eastern Time—CNN on Jake Tapper. I can’t wait to hear what he’s going to ask me. But until Sunday, there’s only one thing we want you to remember when it comes to your money, and it is this: People first, then money, then things. That’s a good one for today, for the quizzy. Right?

And anyway, you stay safe—and if you do all that, you will be unstoppable.