401k, Podcast, Retirement, Roth IRA, Saving, Saving Money, Savings, Women And Money
July 11, 2019
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In this episode of Ask Suze Anything, Suze answers questions from Women & Money (and the men smart enough to pay attention) listeners Nicholas, Shaylee, Amanda, and more.
Ask Suze anything. Alright, let's get to our questions right away. First one is from Nicholas. Hi Suze. I'm one of the few men wise enough to listen to your podcasts and enjoy hearing the financial lessons. Recently, another pundit recommended stopping all retirement contributions until the debt is paid off. My wife and I are 32 years old and paying off around $30,000 in student loans from a second degree she earned. We have also been contributing 12% split between Roth 401K and traditional 401K. Not accounting for market timing since we are knocking on all-time highs, shouldn't we continue to contribute to retirement, where we can expect 8% returns versus paying off loans at 4%? What are your thoughts on this, and paying off debt versus saving for retirement. Nicholas, what's so hard, especially when you do a podcast, or a tv or radio show or whatever it may be, is to give advice that's good for absolutely every single person out there. Because every one of you is absolutely special. So first of all, you're only paying 4% on your debt. It would be very, very different if you were paying 27%, 29%. Very different. Also your age, you are still so young, Very different than if you were writing me and you were 62 or 72. Then of course you want to get rid of your debt first. But that's not the situation here. Also, you have got to take into consideration, if where you are working, if you are an employee and you have a Roth 401K or traditional 401K, or tsp or 403B, or whatever it may be. And they match your contribution, you put in a dollar, they give you 50 cents, they give you a dollar for every dollar you put in. Are you crazy? That is 100% return on your money. So truthfully that advice in that situation where you are young, your interest rate is really low, it could even be tax deductible in your situation because it's interest on a student loan, and probably your retirement accounts match, that is horrific, horrific, horrific advice in my opinion. Now let me just do the numbers and show you why. Let's just say you're 32 years of age, which you said you are. And let's also just say that the $30,000 that you owe in student loans, you're throwing $500 a month towards that. So in five years your student loans would be paid off, you would have no more debt. Because you are so young, and you aren't investing that $500 a month, you are losing the compounding effect of money. Alright so we're talking about $30,000 of student loan debt. Now listen to what this would have cost you if you follow this person's advice. You're 32. And let's just say you are going to work into your 70s. I truthfully believe as time goes on, social security is going to be raised to 70,72, you're all going to be working a lot longer. So you continue right now to put $500 a month every single month into your Roth 401K, and you do that every single month. And rather than an 8% annual average rate of return, let's just assume a 6% annual average rate of return. Let's get even more conservative. Do you know at the age of 72 you would have $958,000 in your Roth 401K? But if you don't contribute to your Roth 401K for the next five years and you put that $500 a month towards your $30,000 of student loan debt, okay? And now you start when you're 37 years of age contributing, and you do so at $500 a month every single month for the next 35 years. Do you know that at the age of 72 you would have only $690,000 in your Roth 401K? Right, I want you to think about that. $958,000 if you continue to contribute right now, versus 690,000 if you wait just five years to contribute. Those five years cost you about a quarter of $1 million. To do what? Pay off $30,000 in student loan debt? Are you kidding me? Numbers do not lie. So I would continue to pay off my student loan debt at the 4% or whatever, but I would be fully maxing out my Roth IRA. I would be fully maxing out my Roth 401K up to the point of the match. If you don't qualify for whatever reason for a Roth IRA because you make too much money, then I would be maxing out my Roth 401K. Absolutey. But I would not be at the age of 32 postponing retirement contributions on any level. Next is from a Shaylee. Suze, both me and my husband make a decent living and invest in real estate properties that we rent out. My husband recently took out a loan from his 401K without telling me. We live in New Jersey and now I do not trust him with my finances. How do I protect my assets so that if he borrows alone, I am not liable for it? I know you say communication on key finance decisions is key for husband and wife, but that is nonexistent in our relationship. I do not want to divorce him because we have a kid together. But at the same time, I don't want to put my hard-earned assets and money at risk. Please help. Shaylee, first of all, before I even talk about the money, you say in this email, I do not want to divorce him because we have a kid together. That is not a reason in my opinion that you should not want to divorce him. Do you really think that your kid can't pick up on the tension between you and your husband? Of course your kid can. You stay in a relationship because you love that relationship. Because you love that person. You like that person. That person honors, that person respects you. But most important, you know you can trust that person. Not being able to trust a person with money. Remember on a few podcasts ago, I asked all of you to substitute the word life for money, right? So if you can't trust a person with money substitute life. You can't trust a person with your life. And if you can't trust a person with your life, what in the hell are you doing staying there? For what reason? Tell me you love him. Tell me you're mad at him. Tell me you like him. Tell me whatever. But don't tell me you're staying because of the kid. You want to show your kid that you stay because you want to for yourself, and you raise that kid in a really loving environment. Now parents out there, if you disagree with me, I would love to hear it. Send me an email, tell me about it. I get sometimes having to stay because you don't have the money to leave. But it doesn't seem like that is the situation here. Because you say you make a decent living and invest in real estate. So you have money. Now in relationship to the fact that he took out a loan from his 401K without telling you. That's one thing. But you're asking me, how are you not going to be liable for it? How do you protect it? Listen, it's his money. It's an individual retirement account, meaning it's the person's individual 401K. Meaning it is your husband's retirement account. If he cannot pay back the loan, let's say he loses his job. He quits, and now he can't, for whatever reason, pay it back, he will simply owe ordinary income taxes on it, and possibly a 10% penalty if he wasn't 55 years of age or older in the year that he left service of that company. How does it affect you? If he, for whatever reason, cannot pay back that loan, and the two of you file joint income taxes, so you're married filing jointly, then you two are going to take a hit because it's both of your taxes. But it's not like you're going to be liable to pay back that loan. But what concerns me more than anything, is why, why are you staying? Really? This one is from Amanda. Dear Suze. We are paying $5,000 extra a year on $108,000 mortgage, and we plan to do so every single year. I don't know if this is our forever house, probably not. But I would like to have it paid off sooner than later. Would you agree that it is a good plan, or should we wait until we find our forever home and then start paying it off? I would like to have it paid off by the time we are 40. Thank you very much for the podcast. You are amazing, I feel like I'm listening to a friend every week. So listen to me, my friend Amanda. Here's the scoop. I would continue paying it off. Why? Because you said you wanted to. So many times we think that this isn't our forever home, and before you know it, 10 years, 20 years, 30 years pass and you're still there. I'll never forget the first home I ever bought. And I didn't think I was going to keep that home. So I didn't really care about the mortgage that I got. This was way back when. And on, and on, and on. Because I thought I'd sell it in five years. I kept that home for over 15 years, and I had gotten a 30-year mortgage. And I kept thinking to myself, if I had just gotten a 15-year mortgage, my house would be paid for in full by now, why didn't I do that? And I didn't do that because I didn't think I was going to stay there. You might just stay there. Plus, you say you want to have it paid off by the time you're 40, which means you must be relatively young right now. Do you know how incredibly secure that would make you feel, knowing that you own your home outright at the age of 40? Oh my god, you would love that. Then the whole world of possibilities open up for you, because a lot of times what you will find is that when you think this isn't your forever home, and then you get older and you go look at other homes, you find out, oh my god, you're going to pay just as much, if not more, than what you currently have for less home! You'll pay more in property taxes, more in insurance, all of these things. So yeah, if that's what you want to do, just do it. All right. Another one. Now this one, I'm just going to tell you, I find very sad and very depressing. Because it's written to me from the daughter, of obviously a mother, and the mother who has no idea of the financial stress and concern that she is putting her daughter under. Alright, so here we go. Are you ready again? I'm not going to use the name for this one. Dear Suze. I am writing to you because I have a very serious concern about my mother's finances. Her and my dad separated 18 years ago. After they separated, my mom at the time was in no position to pay for the mortgage alone. However, she did not want anyone to know she was separated, and refused to sell the house. What people thought of her has always been her top priority. She was drowning in debt for almost a decade. After lots of support and guidance from us daughters, she decided to sell the house. During the whole time, I supported her and told her this is her opportunity for a fresh start, and that I would help manage her money with all the tools you have taught me over the years. However, as soon as she sold her house, she went ahead and bought a condo, and a brand new car without consulting me or anyone else. The worst part about it is, she bought a condo that was in bad shape. She also accumulated more debt. I could tell she was mismanaging her entire life and finances to make a long story short. She ended up selling that condo as well, and moving into a small rental apartment. After that, I found out that she spent the entire rest of her profit from the condo. $501,000. All right now, I was shocked, disturbed, and disappointed. Through lots of digging, I found out she gambled it all away. She is currently living off of her work paychecks, overdrafts, and taking cash off credit cards. She calls our family, her friends and co-workers all the time to borrow money. We always lend it to her. Until yesterday, she called me and asked for $1,000 and I said no. I could not keep giving her money, not knowing what it was being used for. I told her if she needed specific things, such as help with a bill, groceries, etc., I will pay that bill and go and buy the groceries. But no more cash. I have asked her over, and over again to sit down with me and allow me to see the damage and figure out what the next steps are from here, but she refuses to. I am scared and worried for her. I don't think she gambled the money away because she liked casinos, but because of the hurt from her separation, and not taking care of herself and her spirit over the years, and not being happy in general. What makes me feel even more awful about the situation is that I don't like the way I feel when I'm around her. I don't like seeing the disrespect she has for herself, her body, her money. It is not anything I aspire to be. What is our best next step with our mom? She is 63 with no assets except her car. If you can provide me with some guidance, that would be great. Love you, Suze. Now, I will answer this email on the air because I think it's important that all of you understand what goes on in life, financially speaking, between parents, children, the life of money. Just so you know, I did go back and forth with many emails with this woman and gave her specific advice as to what I thought she should do in her particular situation. But I will tell you generally what I said to her. And it is this. How many times do I have to say to you, helping is hurting and sometimes hurting is helping. I personally would get together every single friend, relative person that I know that her mother goes to for money. That every single one of you, the sisters, the daughters, the brothers, I don't care who it is. The friends, the relatives, the people at work. You need to gather every single one of them, and talk to them, and tell them under no circumstances on any level will they give her any money whatsoever. And it's not just about money in cash. You are not to pay her food bills for her. You are not to pay her utility bills. Your mother is only going to change, when she hits in my opinion, absolute rock bottom. And you should tell her this. The daughters should all go there and say mom, I'm gonna tell you what we did just to save you embarrassment. Listen, if your mother was embarrassed 18 years ago about divorcing her husband and blah, blah, blah, blah, she's going to be seriously embarrassed now that every single person knows that she doesn't have a penny to her name. And that in my opinion, is what you need to do. Because she is going to have to really face this in front of everybody, because it's not until she admits that she needs help, that you are able to give it to her. Because otherwise you're just going to prolong this, and prolong this, and soon she's going to be 73, 83, and she's going to have all of this debt, no money, and then what are you gonna do? She can't work anymore. She's still young. She's only 63 years of age, there is time for her to turn this around. So you, are going to have to be strong, and watch her hit rock bottom so hard, until it knocks some sense into her. At the same time, she needs to go to gamblers anonymous. And you can go with her, but she needs professional help. Your mother is an addict. It doesn't matter why she is, it doesn't matter that she's ashamed, and this, and that it. Doesn't matter. When you are an alcoholic, when you are a drug addict. Whenever. What, a gambler. You need professional help. And there are such incredible groups out there, that you can just go to. There's no shame in it. There's no shame on any level, having to do that. I have relatives that have had to do that, and are still doing it. Who cares? They are fabulous people. But what makes them really fabulous, is that they admit it. They know they had a problem, and they're dealing with it. So that's what you have to do. But you have to gather together, and probably I would write a letter and have every single person sign it that you talked to. And say mom, don't bother going to these people. Don't bother because they're not going to help you. But if you start going to gamblers anonymous, or whatever it may be, then I'll buy you food, I'll stick with you. But you have to go every single week. And if you miss one week, in fact, the truth is she should go every single day. But if you miss a meeting, then you're on your own mom, you're on your own. Now obviously, there was other advice that I gave this woman one-on-one. But again, I wanted to do this question on the podcast. Because of how many questions like this I get. You know, years ago I used to get questions from parents telling me how worried they are about their children. My child does this, he spends money. She does this. Now the majority of my questions from family members that are worried about other family members are all from the kids worried about their parents. So we have two issues that are coming up on this podcast over, and over again in the emails that I am getting from you. And by the way, if you would like to possibly have your question answered, on air, please send in your question to asksuzepodcast, that's S U-Z-E, firstname.lastname@example.org. And if chosen, I will answer it on the air. But the two issues that are coming up with the majority of emails that are coming in, are financial abuse. So many of you, for the first time, are realizing because you have a name to put on something. Because Suze Orman is talking about financial abuse and you're all saying, oh my god, I can't believe it. I've been in a financial abusive relationship for the past 20 years and I didn't even know about it. So because we have put a name on it, more and more of you are recognizing it. So I would love to hear from all of you that think you're in a financially abusive relationship. Talk to me about it. Tell me about it. Especially because of the community that we will be starting, that just deals with financial abuse. And the other issue is, kids who are worried about their parents. And when I say kids, can be a 15-year-old, I've had somebody right in at 18, 25, 35, 45, 55. If you have a mom and dad and you're worried about them, you are kids because you'll always be there baby. But what's so sad, is what they're putting their babies through, and they don't even know it. So I'll let that be the last question for today's Ask Suze Anything. But remember, sometimes helping is hurting, and sometimes hurting is helping.
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