Podcast Episode - Ask Suze Anything

401k, Financial Security, Mortgage Rates, Retirement, Roth IRA

October 01, 2020

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On this podcast of Ask Suze Anything, Suze answers questions from Women & Money listeners (as read by KT) Amy, Kim, Cat, Marissa, Chris, Tim, Leigh, and Fran.

Podcast Transcript:

Suze Orman’s Women and Money podcast is proudly sponsored by credit unions; a safe home for your money, rain or shine. October 1, 2020 and welcome to the Women and Money podcast as well, as the men smart enough to listen. This is Ask Suze Anything and this is where you write in via the Women and Money app that you can download on Google Play or Apple Apps and ask your question there. And if chosen, it will be on the podcast. But this isn't just Ask Suze Anything, this now is kind of Ask Suze and KT back by popular demand. Yes, you've all created a monster that I knew you were going to do. No, no, no monster, Suze. Listen, you need help. I said I'm happy to read the questions, I'm happy to select them. You get thousands of questions. I save you a lot of time by going through and picking the ones I think are great, trying to make them all make sense in a theme, and I think I did a pretty good job. Alright, everybody, we'll have to see if she did or not. I can't wait to see or hear actually, what questions she chose. Go for it, girlfriend. I'm starting with some short ones. So this is Amy, she says. Hey, Suze, love you and all you do to empower us, women, to take control of our finances and future. So here's my question. I'm currently paying off $30k in credit card debt the way you've always instructed. But I have about 10 to 12 months to go. I have a cash savings of $9k and wonder if I should leave it or use it to pay down the credit cards? I have a great pension plan through work. In addition, I have a 457b, differed comp, and Roth account, no match for either, that I contribute $500 total to each month. Should I leave it as it is or discontinue until my debt is paid? I want to do it all, and though I think I should focus on debt, I am really, really proud of the cash savings in the 457 and Roth accounts. Hey, Suze, please advise. Do you know what a 457b is? I figured if you don't know what a 457 is, many of the podcast listeners may not know. You just need to understand that retirement accounts, ones that are offered by employers can be 401ks, they can also be 403bs for nonprofits, or they're called 457s if you work for the government, so that's usually what they are. All right, so here's the thing, Amy, you say you have $30k of debt and you only have 10 to 12 months until you are paid off. That means you are making enough money to pay almost $3k a month to that debt, along with $1k a month to your retirement accounts. So, I would just keep going exactly like I'm going. I would not use my cash money to pay it down. In literally 10 months from now, you'll be out of debt, and then you'll be able to save that $3k a month towards an eight-month emergency fund because $9k is not an eight-month emergency fund, and you'll be fine. So, I wouldn't change anything but Amy, I have to tell you, I love that you're really, really proud of yourself and I'm proud of you too. All right, KT, what's the next one? OK, Suze, this is from Kim. I recently lost my job due to COVID-19. I took out a loan from my 401k while I still worked and made a payment every two weeks to pay it off. It was pre-tax dollars I used to pay my loan. Since I'm not working anymore, I contacted the company that is managing my 401k and they told me that I can pay it off as monthly payments or send in a check to pay it all off. Now, I have to use post-tax dollars to pay off my loan. What should I do here, Suze? You know, I have to tell you Kim that whether you know it or not, you are using post-tax dollars to pay off that loan even when you were working for that company. Loans that you take out from a 401k are pre-tax, remember, there are two types of 401ks. Roth 401ks that you fund with after-tax money and traditional 401ks that are funded with pretax money. When you take a loan from a pre-taxed 401k, a traditional one, and you pay it back while you're working for them, they take it from your paycheck after you have paid taxes on that money, so it's no different. So, if you were able to do that then, and you're doing that now, you're not complaining that you have to pay it back, you're just complaining that it's with after-tax dollars and the truth of the matter is, it always was. The only comment that I have to ask here is did you call the company that you used to work for? Were you laid off because of COVID, is that why you lost your job? And is it possible that therefore, this money falls under the Cares Act where it doesn't have to be paid back for three years? Or, if you can't pay it back, you can pay it over three years of taxes. Just check that out. You didn't give me enough information but I have a feeling you took this out as a loan prior to when COVID hit, but just something to think about. Alright, What else you got there? The next one is from Kat. This is my favorite. Hi, Suze, so happy to hear you are recovering well from your health issues, and you have an amazing partner, KT, taking care of you. You know, wait, I just have to stop. I was so curious why did she say this is her favorite one? I saved it to be number three because I didn't want to open up with this praise for KT. So, it says I'm an advert listener to your podcast and have been a fan for many years. I have always been a saver and started my 401k when I was 23. I'm 53 years old. My husband, who's 58, and I live within our means and have always been good at saving. We both work full time and will continue to work for another five-plus years and we have no children. We're both in excellent health by the way, extremely fit and active. Our house is paid off, and I have a rental condo also fully paid off. We have no debt except regular monthly bills and pay off our credit card in full each month. Our question to you is how to best invest our cash. My husband has about $1.4 million of cash but has always been nervous when it comes to investing in the stock market for fear of losing it. As you can see, Suze, we're very cash-heavy. With the interest rates so low there have to be other options to invest. You have mentioned the Vanguard Index Fund. What amount of cash to invest would be best? Other options you suggest? Do we hold until the economy stabilizes? Thank you so much for your guidance. So, Kat, that's quite the question here. I love that you have been following me forever and I love that you have amassed such wealth. But what's really, really important is that remember, the goal of money is for you to be secure. So, if you have $1.4 million in cash, and KT just handed me your email and I see that you have a whole lot of other things as well, we just shortened it for time. If that's what makes your husband feel secure, then I don't have a problem with you leaving it right there. The Vanguard Total Stock Market Index Fund or the Vanguard Total Stock Market Exchange-Traded Fund is not something that I would be having you invest in. I would be having you invest probably in because you have the money to do so, in individual stocks that paid me a secure dividend yield. There are many of them out there that are paying 5%, 5.5% in dividends that are solid dividends. Companies such as Cisco, Hewlett Packard, IBM, all companies that really you might want to look at only because a lot of these companies are also involved in cloud security, making sure that things on the cloud aren't stolen. But really, you might want to see a professional financial advisor and get some advice. Since I do have your email, I will send you the name of somebody that I recommend. I get no commission for doing that whatsoever or referral fee. You should always know if somebody gives you a referral, the first thing you should ask them is are you going to get paid for that referral? But I think you do have enough money right now that you need professional financial advice because it seems like you're so afraid. But, hey, if you just want to hang out right here where you are, I think you're doing pretty great. By the way, I do not own any of those individual stocks, which is why I mentioned them. I never, ever mention a stock that I own, just so you know. All right, the next one is Marissa. Hi, Suze. I'm currently contributing 16% of my paycheck into a Roth 401k with a 6% match and investing 100% in a blended fund called Retirement 2045. Currently, I have $500k. I am 52 a half years old and would like to use the IRS 55 rule and retire at age 55. I don't know about that rule. The reason why I like KT choosing these questions is that if she doesn't understand it, chances are you don't understand it, so it's a question that you really need to hear. Just before you go on, did she say she had her money in a Roth 401k or just a traditional 401k? Fidelity 401k, Roth. Roth, OK, go on. With the upcoming election 2020 should I move all my money into a stable value, a low, volatile option? Or, should I leave my investments in an aggressive blended fund during this upcoming election? First of all, two things here, the Fidelity 2045 fund is not an aggressive fund. Whenever you have a date like 2045 or 2021 those are target-date mutual funds, and those are dates that represent when you expect to retire, so they invest your money accordingly. So, the closer you get to retirement, the more they put into bonds and stable investments because the less time you have to lose. So how old is she right now, KT? OK, I'm looking, she's 52 and a half. Yeah, she's 52 a half and she wants to retire in two and a half years but her money is invested in a fund where she's not intending to retire for 25 years. So, first of all, that doesn't make any sense to me. But besides that, if I were you, two things in the next two and a half years. Given that your Roth 401k only matches up to 6% I would not be putting 16% a year in it. I would be putting up to the 6% that they match, and then the other 10% I would be doing a Roth IRA with it if you qualify for one income-wise. You can get at that money number one any time you want because you might decide in just a few years from now you really don't want to retire yet at 55. But what you have to understand here is that in a Roth IRA, you have so many other choices to invest your money in besides what your employer fund is offering. Most employer 401k plans only offer mutual funds and individual company stock, so I would want both just in case. Rule 55 is very simple. It's under the IRS 72T rule, which states once you leave service in the year that you turn 55 or older, any money that is in your 401k plan you can take out of your 401k plan without the 10% penalty because remember, most 401k plans and IRAs you cannot touch that money in any way that you want until you're 59 a half years of age or older. Because you are in a Roth 401k, Rule 55 means that you can take it out without any taxes or penalties whatsoever because it's all funded with after-tax money. So that's pretty great if you ask me. So if I were you, I would just continue on this path. I would not, however, be changing to a stable value fund at all. I am a firm believer that it is very probable that come October or so, this month, that these markets may go down. But I'm even more of a believer that over the next year in 2021 these markets are going to go up and everything is going to be a whole lot better. You know that I have absolutely said to all of you that I'm a firm believer in the stock market. The economy is a different thing. And the reason that I'm a firm believer in the stock market is that there is no other place to put money to get growth or a yield. The last question I just answered was all right, $1.4 million in cash. What are they going to do with it? There is nothing to do with that money but invest it. And most people are investing it in the stock market, which is why I think the market is still going up overall. So, I would probably if I were you, I would leave it exactly where it is. This next question is from Chris. Hi, Suze. I'm very conflicted about the decision to pay off my mortgage. My mortgage payment is $1k at a 3.37% rate. The balance is $110k. I have a 401k with a balance of approximately $108k and a savings account with $114k balance. I don't have much leftover after paying my monthly bills. I was wondering if I should use my 401k to pay it off? I'm scared to death to have zero left in savings. Please give me some advice. So, Chris, let me just say this to you. It's that you cannot use money that is in your 401k plan. This is your question, should you use your 401k plan to pay off $110k mortgage? You only have $108k in your 401k. If you take out $108k in one lump sum, that's all going to be taxed to you as ordinary income and it is going to put you in a high-income tax bracket. You'll probably lose close to $40k of it to income tax, leaving you with $60k which isn't enough to pay off your mortgage of $110k. You also say that you're scared to death to have zero left in savings. So, if I were you, no, I would not be doing that on any level. OK, Suze, this question is from Tim and he writes one of the smart men who listen. We like this one. Hi, Suze, my question is that I've been thinking about rolling over my work 401k to a Roth IRA for some time. I recently lost my job due to COVID. I was wondering if this is a good time to take a withdrawal of most of my balance of $35k then be able to spread the taxes over three years? I would start accounts for both myself and my wife so we would be able to put $24k back into the account in a short period of time. Thanks for the advice. Tim, what you have to understand is, number one, does your employer allow you to do this? Does your employer say yes, we're going to participate in the Cares Act and allow you to take out whatever money you want up to $100k from your 401k, number one? Number two, you're no longer working for this employer, so, therefore, if you're not going to go back to work for this employer, you would not be putting money back in your 401k. If I were you, I would simply be making a withdrawal, you're going to pay taxes on that withdrawal if it qualifies over the next three years, so you will pay income tax on $12k a year approximately over the next three years. Then, once you have a job and you have earned income, I would then be taking that money and funding a Roth IRA with it for you and your spouse. Just that simple. That's how I would be doing it if I were you. Suze, this next one is all the way from Hawaii. This is from Leigh, she says my mortgage is 3% fixed interest with a $113k balance maturing in December 2031. Should I refinance at 2.4% with closing costs at about $6400? And then, she says, I retired April 1, 2020, with my annuities and Social Security, my current fixed income allows me to live very comfortably. Aloha. Leigh, so here's the question, girlfriend. You currently have 11 years left on your mortgage, right? And you have a 3% fixed-rate mortgage and you're asking me if you should refinance? You have 11 years left. Should you refinance paying $6400 to refinance to go to a 2.4% interest rate? I don't think so. I wouldn't touch it, I would leave it exactly as it is. Suze, this next one is different from the other questions. It's a partnership question and I think this is important to discuss. It says, hi, Suze, I thought I could safely ask you advice on moving forward in a gay partnership, potential marriage, and living together particulars. I moved from California to Washington state to live in her house. So, the questions here are financial issues that are coming up. And Fran goes on to say, without much detail or my input in the situation, she let me know in no uncertain terms that I'll need to pay $1500 a month, including money towards her mortgage and an apartment she rented in Idaho on a lake that we both enjoy. Again, my argument was that I'm paying part of her mortgage and there are no safeguards for my life, almost like a renter with no security and it is not legally my house. She owes $200k on the house she bought 26 years ago for $180k. She took a second mortgage before I knew her. I would like to get married because I love this person but it is not legally my property. How in the world do I even begin to have a full life with a differing opinion on what is good for both of us financially. How do you begin a potential marriage with someone that you've been seeing for eight years with a house and a son who is probably the beneficiary if something should happen? I get that. Is there a way to start clean in a situation like this, especially at 62 years old? I'm more conservative with my money and she tends to spend more because she feels she deserves it because she works hard. Maybe I should buy my own house and forget mixing financials with partners at this age? So, Suze, how can I move forward and protect myself financially? I can't afford, nor do I have time, to start over and lose everything. Please advise, I really appreciate your advice. Now I'm personally interested in seeing how you're going to answer this because I know what I would do. I bet you do. So, Fran here's the thing. You have to understand this woman's situation. She has owned this house for 20 years. I find it very concerning that she bought this house 26 years ago for $180k and she now, 26 years later, owes $200k on it. That's very telling as to how she has been forever an over-spender. But I understand for 20 years, 26 years, she's owned this house, it's in her name and she has a child. So, the real question is, it's not the house and having your name on it that's going to give you security because she owes so much money on it. So if something happens to her, you're going to have to be paying your half and her half, and is this something that you even want to do? So this isn't about the house, believe it or not, even though I know Fran, you're making it about the house. This is about in your gut you don't trust her financially, and that's what's making you feel insecure. And I would not be moving in there, I would not be mixing finances. I know you say you love her, but you obviously do not trust her. And trust, as I've told you, always in a relationship is worth more than anything. Because it's not you who would want to make yourself feel secure, of course, you do. You want the person that you want to marry for her main goal is to make you feel secure, for you to feel love, for you to feel like she's going to be... You don't like that? You know what, Fran? This is KT. This isn't going to work, this relationship. I can clearly tell you from listening to Suze for over 20 years, if you can't get it right with finances, you will never get it right in a relationship. Keep your money, find your own place, enjoy each other's company on a Saturday night date or a weekend at the lake house in Idaho. But do not mix finances and housing expenses, it will only lead to constant arguments. And guess what? At 62, you should be having the time of your life. That's my input. Well, there you go, everybody. So I have to tell you, I agree with KT there. All right, Miss Travis. What do you think? That was pretty good. We'll have to let everybody else decide. Wait, are they going to vote on me again? I am not doing another poll on you. Oh, my God, everybody. All right, so tune in on Sunday, because on Sunday I'm going to take us all to Suze School. I really want you to understand a way to invest in the stock market so that you are not afraid to invest. So until Sunday, you take care. See you later everyone. Hi, I'm Sarah, and I'm Robert, and we're back here to tell you that Alloya's member credit unions are so proud to have brought you this episode. You know, Robert, credit unions live by a people helping people philosophy. Absolutely, Sarah. And that means when you bank with a credit union, you can trust that they have your best interest at heart. The fact is, regardless of circumstance, a credit union will have your back and keep your money safe, that's the credit union promise. Go to www.MyCreditUnion.gov to find a credit union that fits your needs. That's MyCreditUnion.gov. In providing answers neither Suze Orman Media nor Suze Orman is acting as a Certified Financial Planner, advisor, a Certified Financial Analyst, an economist, CPA, accountant, or lawyer. Neither Suze Orman Media nor Suze Orman makes any recommendations as to any specific securities or investments. All content is for informational and general purposes only and does not constitute financial, accounting or legal advice. You should consult your own tax, legal and financial advisors regarding your particular situation. Neither Suze Orman Media nor Suze Orman accepts any responsibility for any loss, which may arise from accessing or reliance on the information in this podcast and to the fullest extent permitted by law, we exclude all liability for loss or damages, direct or indirect, arising from use of the information.

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