Emergency Fund, Financial Planning, Life Insurance, Roth IRA
October 15, 2020
Listen to Podcast Episode:
On this podcast of Ask Suze Anything, Suze answers questions from Women & Money listeners (as read by KT) Marcella, Mahala, Kelly Jo, Christi & Steve, the Boyers, Alana, Lori, Amy, and Nicole.
Suze Orman’s Women and Money podcast is proudly sponsored by credit unions; a safe home for your money, rain or shine. October 15, 2020, welcome to the Women and Money Podcast as well as the men smart enough to listen. This is Ask Suze Anything. This is where you write in and ask a question and if chosen, it's answered on the podcast. The best way to do it, actually the only way to do it, is to go to the Women and Money app, you can download that at Apple Apps or Google Play, search for Suze Orman, and you ask your question right there. And guess what? Here I am again. Suze O. with... It's KT! Everyone knows that I'm here, they expect me to be here. So this first question is from Marcella, and Marcella sounds like a great gal. Hi, Suze. I've not skipped a beat during this pandemic, and the company I work for has been thriving. I need your inspirational words. What do I say to my boss when it comes to that time for the in-person review? I haven't been able to truly advance due to the constant heavy workload. I've done the same thing for six years. I don't see room for advancement unless someone leaves the company. Please share your thoughts as to how I may ask for a significant raise. Thank you in advance for all you do. And this is my favorite part. And I love, love, love KT on the podcast. I love you to Marcella. Yeah, so I just want to tell everybody before I answer this question, so here it is. It's Thursday morning, it's early, and KT is sleeping, OK? And I say I go, come on, let's get up, we got to do this, thus posts at 5:00 in the morning, you got to get up and do it. And KT's like, OK. I said, do you want me to just do it without you? She says, no, they expect me now, Suze, they expect me to be there. So I'm like, OK, no problem. Marcella, listen to me. You really have to adjust your attitude here, and you cannot blame the fact, listen closely to me, I'm saying this out of love to you. You can't blame the fact that you haven't gotten the promotion on your company, on the fact that you're not going to get a promotion unless somebody leaves. You have got to make those that you're dependent on a paycheck for, dependent upon you. You have to do everything above and beyond the call of duty, and when you go in there and ask for a raise, you have to do it with the most power you have ever felt before in your life. I would not go in there and ask for a significant raise because if you ask for a significant raise, they're going to say what? They're going to say yes or no to you. I would go in there and I would make it an either-or question. I would go in there being powerful, being strong, being smart, and I would go in there feeling really secure in who I am. And I would say I want a 10% or 15% raise. That is not a yes or no question, that's an either-or question. And let's see what they say because it takes a really strong boss to say I'm not giving you either. If you really feel you deserve a raise, then maybe it's time, even right now in the pandemic that you start thinking about maybe this isn't where you are meant to stay. To be able to leave a place that you're already working at you need an eight-month emergency fund, you need to be out of credit card debt, you need flexibility. So, if you decide you know what, I'm out of here because they're not appreciating me, that you can leave. Just remember this one saying that I'm going to leave you with. When you undervalue who you are, the world undervalues what you do. Can you just think about that? Are you undervaluing yourself? Do people feel like they don't need to give you a raise because what are you going to do? You're not going to say anything about it. Just think about what I just said. All right, next question. That was good, that's good advice, I think that's really important. Suze, this is from Mahala. Hi, Suze. I hear you talking about life insurance a lot. You tell us to get $1 million in coverage but could you specify which term insurance? I was looking into it and I see term life 10 years, 20 years, etcetera. It's so overwhelming, how do I choose? Mahala, you never heard me say you had to have $1 million of insurance. You just need to have enough insurance that if you unexpectedly died, that there would be enough death benefit so that if it were invested at, like, 3% or 2% it would generate the income that was lost. Your real question is, however, how do you know if you should have a 10-year, 20- year, or 30-year policy and what does that mean? When you buy term insurance there are many different kinds of term insurance that you can purchase. You can purchase annually renewable, which means every year your policy renews, but your premium goes up. You could buy a five-year, 10-year, 20-year, or 30-year policy like, I just said, and those are the years where the premium is guaranteed at the same level. So if you've got a 20-year level term policy for all 20 years, your premium would be level. Again, just go to www.SelectQuote.com, put in your information and five quotes will come up and you select the one that's cheapest. OK, Suze, the next question is from Kelly Jo. Hello, I am 36 and have finally met the person I want to spend the rest of my life with. (I'm happy for her.) We are both financially independent. Are there any financial benefits to getting married? It's not something I have ever seen myself doing, but for this person, I just might do it. Thank you so much. Well, let me ask you this, KT. For years, we were together and we weren't allowed to get married, and then a few years ago, it was passed where gay marriage was legal. Any benefits? Alright, want me to answer Kelly? I don't want you to answer Kelly, I want you to answer me. Is there a financial benefit, any benefits, period? Yeah, but forget financial, I don't even care about financial benefits. The biggest benefit is that you say you're married to each other. That's like the most beautiful thing you can do. I love being married, I love married life. I like saying that, you know, we're wives and spouses and we're married. It's really, who cares about the financial benefit? I don't care about that. Well, there you go, Kelly. Now you know. But just in case you want to know, financially speaking, it's this. Especially when you get older, if you're married or maybe even not when you're older, both of you have retirement accounts. Maybe you have a substantial amount of money in the retirement account, and let's say he dies. All right, you get to take over his retirement account as if it were your retirement account. You can't do that if you're not married. Also, maybe you acquire a whole lot of money one day and you want to leave it to your spouse, estate tax-free? Well, guess what? You could leave your spouse billions of dollars, and he or she doesn't have to pay any estate tax on it because you never know in the future what they're going to do with estate tax limits. Then there are other things, like Social Security and possibly being able to claim half of your spouse's Social Security or take over their Social Security, which may be larger than yours when they die. And there's really about oh, I'd say exactly 1142 financial benefits to being married. But truthfully, I liked KT's answer. Love, baby, love. Love. I'm so surprised you didn't ask me if I loved being married, but OK though, I know you do. But KT, it hurts me that you don't wear your wedding ring. Well, you know why. I have arthritis in that knuckle and it won't fit. It makes me sad. Well, we'll get a new one, get a bigger one. OK, ready? The next one is from Christi and Steve. Hi, Suze. I listen to you all the time and look forward to your weekly podcast. My husband is 51, I'm 50. We're playing catch up with saving for an emergency fund. We currently have about two months of an emergency fund in our credit union. We are saving at the same time in our Roth IRAs, contributing $550 a month combined, and my husband is still contributing some money in his TSA account. What do you think about having an emergency fund in a Roth IRA? Does it need to be kept separate at a bank? I want to contribute as much as I can to our Roth IRA, but I want to be secure in our emergency savings. Thanks. This is from Christi. I love this question, Christi. So you betcha. You can use a Roth IRA as your emergency account and no, it does not have to be kept at a bank. I, personally, would be keeping it at a discount brokerage firm. Very shortly, TD Ameritrade is going to be Charles Schwab, so it would be either a Charles Schwab or Fidelity or one of those. But here's what you need to do. You need to make sure that the money that you put into a Roth IRA, while you are building up your emergency fund outside of your Roth, is invested in a money market account. It is not to be invested in the stock market because if you need it, you don't want to have to get it when possibly the markets are down. So, you would just simply put it in a money market account at the discount brokerage firm that you are with. Then, once you have built up an emergency fund outside of the retirement account, then you can go back to your Roth IRA and invest all of that money. Remember, any money that you originally put into a Roth IRA, you can take out at any time, regardless of your age or how long it has been in there without taxes or penalties. But what's good about you putting that money in there is the max that you can put in because you're 50 or older, is $7k a year. So this way you're getting $7k in, $7k in, $7k in, and if nothing goes wrong and now you've built up your emergency fund outside of your Roth, now you have $21k more in a Roth IRA that you wouldn't have had in there if you hadn't done it this way. So, Suze here's another topic on the Roth. This is from the Boyers. Hi, Suze. We're three years out from retirement. Should we convert at least some of our traditional IRAs into Roth IRAs? We have the cash money that could be used to pay the additional taxes due to the increase in income from converting. We currently make about $120k a year in gross taxable income. We expect to make $76k a year from railroad retirement and draw approximately $36k a year from our retirement savings. We need advice. Thank you for considering us. Alright, Boyers, here's what I think. Because I don't know how much you actually have in your traditional IRA I can't accurately answer this question, but when you are three years out from retirement and you need $35k from your traditional IRA in order to live, I would not be converting money to a Roth IRA unless you have so much money in there that you can easily take $35k out and not really notice it. But, I don't think that's the case here somehow, so you aren't long enough from retirement to be doing this. If you told me that you weren't going to retire for another 10 or 15 years and there was time to make up for the taxes that you paid in growth on the account, I would have said something different. But three years to take out $35k? I don't think so. Suze, here's a question from Alana. My question is about my mom. She has a whole life policy and she's 68. I told her that now people are saying term insurance is better. So at this point in her life, what should she do with her policy, leave it as it is or make changes? She has two adult kids and a one-year-old grandchild. She seems to think the cash value could go to him at her death. What's your advice? So, this again is a hard one to answer only because I don't know, does your mother have money? Can she afford these premium payments? And does she enjoy wasting money? Truthfully, I really don't like whole life insurance, I've never liked whole life insurance, and I'm never going to like whole life insurance. So the point being, I would look at what the cash value is today. Truthfully, the kids don't need insurance anymore because they're grown. The one-year-old child, alright, grandchild, nice that you could leave them something, but not for what it's costing her. So, if she's healthy and you have to know that she is healthy, you never cancel a policy until you know if the person is healthy. I would probably cancel this policy, take whatever cash value there is, and I would invest that money and it could be invested for the one-year-old. You could have a custodian account for the grandchild or whatever it may be, but I sure wouldn't be wasting money on whole life insurance. Should she buy term? No, she doesn't need insurance. Listen, everybody, you only buy insurance when you need insurance, you don't keep insurance because one day you had insurance, and maybe now you don't need it. Get rid of it, every penny counts today. And as I've said, you have to count every penny and not throw it away in a whole life insurance policy if you happen to be healthy. KT, tell them the story about your whole life insurance policy. Oh my, I think we told them in the very beginning. I met Suze and we didn't even know each other that long, and I mean, we knew each other for a few months. She told me that I had to cancel my whole life insurance. I said what? She said, just cancel it, and I knew that when I canceled, I was going to lose. How much did I lose? You lost $150k. And I was so proud that I had this policy, which every year on my birthday, I put in $15k or $20k. I put in quite a bit. And Suze said I'll tell you what, KT. You cancel it, you lose that money, let me make that investment for you. Because she still had a $50k cash value in this policy. She said, let me take the money and invest it for you, and I'm going to show you the difference of growth. Well, here I am, everybody. She made me really rich. All right, all right. There you go. So this next question is from Lori B. Hi, Suze. My partner and I have been living together for six years in a home that he built with his dad 20 years ago. We have similar incomes and do not have any joint accounts or common property and will not be having children. Since moving in, I have been paying $1200 a month in rent to him. This amount has increased over the years in direct correlation with my income. I agree that this is fair since we're sharing a household. We're now engaged but I'm uncomfortable with two scenarios. One, if he passes, I could theoretically be kicked out of the home. He has told his sister, who is his executor, verbally, that if he dies I should be allowed to stay in the home for as long as I can pay for the upkeep, utilities, and taxes that currently are about equal to my rent amount. Once I leave the house it will be transferred to his blood heirs. The second part of this, the mortgage will be paid off in the next eight years. He said that he still expects me to pay the same rent amount, mortgage or not. I can't help feeling that paying all of this rent is a bad investment since I never acquire a transferrable asset. What is your advice on our situation? He's 47 and I'm 41 so hopefully, neither of us will die soon. I would like to have a plan for these scenarios that is fair for both before we're married. There will be a prenup but currently, I am more concerned about having a will that could formalize his wishes as it relates to myself and the house. Can I just say something, Suze? After reading this, she's getting like the bad end of the deal, both ways. Yeah, she is. So Lori, listen to me. First of all, you don't need a will, what you need is a revocable trust where he leaves you a life estate in that house if you're ever going to stay there, which we're going to talk about in a second. But you cannot trust his word to his sister. How many times have I seen a family turn on the spouses or the girlfriends or the boyfriends of their brother and sister and said, sorry, you're out of here, I want the house, I'm going to sell it, whatever? So, just leaving it for a sister doesn't make any sense. And what happens if all of a sudden he's gone and he's visited his sister and his family and they're on vacation together or they're just out on a holiday trip together and he and his sister die, they're in a car accident? It happens. Then what, then who protects you? What I don't like is his nonchalant attitude about protecting you. Now, I know a lot of you may not enjoy that I keep saying what KT and I do, but I think it's a really good example and that when you're in a relationship with somebody and they have more than you, it should be their desire to protect you, their desire to not have to make you pay for everything. And it's just not right. When KT and I first met, KT had a home and she only had $150k left on her mortgage and it was in her name. And just a few years into the relationship, I paid off the $150k mortgage for her because I wanted her to own her own home outright. So, then what we decided to do was to renovate her home, OK, that was in her name, which I paid for. What do you want to say, KT? No, and I said, OK, great Suze, let's put the title in both names and she refused, and I over and over and over again because it didn't feel right, I said, wait a minute. I trust you, we love each other, put the title of this home, very valuable property, by the way, in San Francisco. Put the title in both names, that's what's fair, and she refused. All she wanted was for me to feel very secure, that if anything ever happened, I had now a really valuable home after that renovation. And so the point that we're both really trying to make here to you is that that should be the feeling of the person that you want to marry, not oh, it's all right, I told my sister this and that. Oh, and after it's paid off, you're going to continue to pay money. No. A marriage is about money as well, where that money could be invested, and it could be growing for yourself and give you security so that one day if you ever did decide to leave that particular house, you could buy your own home. You might not want to stay there forever, you don't know how you all feel about living there. If God forbid, something happened to him, maybe the memories would be too intense for you to stay there. I'm not liking this relationship girlfriend, and there is no way that if you asked me if you should be marrying him, that I would say you should be. I don't like it at all. Wait a minute, wait a minute. She's not liking it, Lori, and I don't like it either, Lori. Alright, so go on to the next question. OK, Suze, this is from Amy. Hi, Suze, I'm 53, and I have $320k in a Thrift Savings Federal retirement, I have $10k in credit card debt with zero interest for a year, I have a three-month emergency fund and savings, I have a 30-year fixed mortgage at 2.99%, I have two Parent Plus student loans for $10k each. Here's my question. My son is a sophomore in college and I have twin girls who will be in college in 2022. Should I continue taking out $10k Parent Plus loans each year to help pay for my children's college, or should I take advantage of the Cares Act with no penalty withdrawal from my Thrift Savings to pay for college? I'm considering taking out $85k to pay for college. I don't plan on retiring for 12 years. Help. Boy, she needs your help, Suze. Whoa, Oprah would say she needs a Suze Slap Down! Those kids can pay for their own school, but that's not even the point. Amy, I really need you to listen to me, and I need you to start thinking differently about money. First of all, you can only take money out of a Thrift Savings plan or an employer-sponsored plan if you've been affected by COVID, which means that somehow you got laid off because of COVID or you weren't able to get another job because of COVID. But if you're still working and everything is great, your employer may not agree to $85k taken out. And even if you were able to take it out, you don't get to just take it out, $85k with no taxes on it. That $85k will be divided by three, so approximately $28k or $20 some odd thousand dollars a year you're going to have to pay tax on that money over the next three years. But it's not $85k, girlfriend, that you're taking out. You need to think about this as what would that $85k be in 12 years when you go to retire? And even just a 4% rate of return, which is nothing, you would have $137k. You take it out and what's left in your TSP is like $235k. After 12 years you're going to have only $380k in there, just a little bit more than what you have right now. You just lost 12 years. Again, if you left it in there, you'd have over half a million dollars and possibly more if the stock market continues to go up. And so this is not something that you should do. Parent Plus loans are incredibly expensive. You don't have the money to fund your children's college education, let's just get real here. Look at what you don't have. You don't have money, you have a three-month emergency fund, that's five months short. You know you have a 30-year fixed-rate mortgage. You have two Parent Plus loans now, you have $10k... No, you have to have a good talk with your kids right now, and if they're going to continue in college, they're going to have to either finance it themselves or go to community college. You need to get real here, seriously, because you're going to be in trouble 12 years from now. This is from Nicole. Hi, Suze. My husband has been offered early retirement with his company. He has the option of taking his standard retirement paid as a monthly joint annuity of $3284 a month for life, with a 2/3 survival benefit included. I don't know what is. I knew it, I knew it, I knew it. Go on. All right, wait, because I had to know that because I have an idea of what I would do. You can't tell them what you would do when you don't know what a 2/3 annuity is. That's why, that's going to make my decision really clear once you tell me what that is. OK, he can also take the retirement annuity as a lump sum of $703k which we would roll over into an IRA. Additionally, there are other 401ks as well as savings. Which would you choose to do, lump sum or annuity? We like the idea of security with the annuity, but we're a bit worried that inflation could wipe out the value of the annuity. He is only 60 and I am 58 and we're both in good health. We would love to hear your opinion as I listen to you often and respect your ideas and knowledge. Nicki, all right... Now wait, wait, Suze. Tell me, what's the 2/3 survival benefit? All right, so 2/3 survival benefit is he's getting, I think you said $3284 a month. He dies, she gets 75% of that, 2/3 of that, she gets 75%. So, it drops from $3284, it's going to drop to about $2463 a month, every month, for the rest of her life. Both of them die in a car crash, together, all $700k is gone. Hm, well. All right, let me just answer this question because all of you should know what a joint and survivor annuity is. I just want to say this. If you are ever taking a joint and survivor annuity, they normally also offer a 100% joint and survivor annuity, which means whatever the spouse's benefit is, they die, you get the exact same amount. That's what I would be telling you to do. But in this particular situation, I don't want you to take the annuity and the reason that I do not want you to take the annuity is because of your ages, 60 and 58. If you have other money available to you and you're still so young, all right, if you have other money available and you can get by. Obviously, you're probably going to be taking on another job because this is early retirement, meaning you weren't expecting to retire. So all right, and the reason that I want you to do that is I just want you to think logically. You have $703k. The $3284 that you would get per month if you took it is only a 5.6% return on the money. If in fact he died and you got $2463 a month, that's only a 4.2% return on the money. That is not very good. You could get that in good-paying dividend-paying stocks, all kinds of ways. So what I rather see you do is take the money, the $703k, and very simply, you probably aren't really going to retire for another 10 years. So if that's true, if you invested that money within an IRA at just a 4% annual average rate of return, that would be over $1.05 million which could easily give you an income alone without you ever touching the principal. The exact same thing the annuity would give you right now. And I understand very well that you wouldn't be getting the income now, but you're not going to need the income now, and you don't want to add to your tax bracket by taking $39k a year in the annuity payment, not when you're this young. So no, roll it over. So that brings us to the end of Ask Suze Anything. KT, I love being here with you. You do, really? Listen, if I didn't, do you think you'd be sitting there? But look how fast it goes, right? I'll tell you, no one else could sit here, and look at the way you're dressed right now! We won't go into it. All right, everybody, until Sunday, you stay safe. Hi, I'm Sarah, and I'm Robert, and we're from Suze Orman's Women and Money podcast team 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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