Etf, IRA, Roth IRA, Social Security, Stock Market, Trust
December 17, 2020
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On this podcast of Ask Suze (and KT) Anything, Suze answers questions from Women & Money listeners selected and read by KT.
December 17th, 2020 Welcome to the Women and Money podcast as well as the men smart enough to listen. Suze O., here and KT. There she is everybody here because this is ask Suze and KT anything Podcast? It's KT asks Suze anything podcast? Because you can't ask me. I don't know the answer. You think they don't know that? But she reads the questions that you send in and select them so I'm always surprises to what? She doesn't show them to me Before we do this. You're gonna love the first one. Is everyone ready? Are we just starting that fast? Are you ready? What do I always say? When people say Are you ready? What's my favorite comment on that? I was born ready. Hello, Suze and KT. I saw this ticktock video of what is the right age to collect Social Security. I've heard you say many times that 70 is the best age to collect. Can you please watch this 30 second video and let us know of its accuracy? So obviously we're on a podcast. No one can watch this little tik tok, but all right, so wait, wait. Let me pause the podcast for a second. I'm going to go and look at the video, and then I will come right back. So hold on a second, all right? And this particular person that I just watched has over 800,000 views. And Richard, who wrote in wanted to know, smart man, wanted me to let him know, Did I think it was accurate? So here's just I'm going to recall this video for you that I just watched and summarize what this person did. This person appears to be very smart, and he says, Let me do the numbers for you. And he then shows the difference between taking Social Security at 62, 67, and 70 Now, right down these numbers, because I think this is an important thing for you to learn from. This is a little bit of a Suze school here. So, Richard, I'm so happy that you sent in this question. If this person that this TikTok is about took Social Security at 62 monthly, they would get $2324 a month. Write it down everybody. At 67 they would get $3111 a month. And at 70 if they waited till 70 they would get $3895 a month. But then he shows that if you took Social Security starting at 62 all the way to age 80 listen closely. Now you would have collected $501,984. Write it down. If you started taking Social Security at 67 versus 62 at age 80 you would have on Lee $485,316. Write it down and he shows. And if you wait and listen to Suze Orman and take it at 70 at the age of 80 you would have only $467,400. So of course, everybody, you should take it at 62. According to this tiktoker All right, Here's the problem. It's not till age 80. Every single person out there knows that you usually need 11.7 years after you've started to take Social Security to catch up if you wait till 70. So I just want to give you these numbers. Now, to show you how wrong this person is, you're not gonna die. At 80 you're gonna probably die in your nineties. Average life expectancy right now is into your nineties. You know, not till your eighties. So if you lived all right till, just let's say you live till you were 85. Forget even living till 90. If you took it at 62 you would have approximately $641,424 if you took it at 62 if you died at 85. If you took it at 67, you would have $671,796 if you died at 85. And if you wait until you were 70 which I want you to do in most cases and you you died just 15 years later, you would have $701,000. The longer you live after the age of 80. So once you've hit like 82 years of age. If you live longer than that, you are better off taking your Social Security at 70. So this person who did this Tiktok, KT. Sure, the numbers worked. If you only live till 80 you live past then he is so wrong. I can't even tell you. So the 800,000 people that have viewed this if they take his advice, he has done serious damage to them and will hurt them. Financially speaking, which is why I am so aggravated right now, KT you started me off. Now I'm aggravated because it's people who don't know what they're talking about that hurt innocent people and go, Oh, look at the numbers. I make so much more money at 80 it's not 80. It's How long are you going to live? Obviously, if you have a terminal illness, take it earlier. But in most cases, you're going to live well into your nineties. Everybody all right? God, That's why we should do a Tiktok. No, no, no, no, no, no, no, no, no. All right. Ready? Here's the next question. Everybody. This is from Lisa. I have a 15 year mortgage that I began in 2015. The balance on the loan is $237,000 and the rate is 2.875%. I'm 55 years old. I would like to retire in five years. I plan on staying in my home, but I'd like to be mortgage free. Should I spend the next five years making extra principal payments or increase my contribution to my 401K. All right, Lisa, let me see if I could answer this question for you. If you currently only owe about $237,000 on this mortgage after five years of already paying on it. That means your original mortgage was approximately $330,000 which also means at a 2.85% interest rate that your monthly mortgage payments are about $2275 a month. KT is looking right now. I am impressing her with numbers anyway, to stick with me here. What that then means that in five more years when you do go to retire, you still will owe approximately $127,000 on your home. However, your mortgage payments are still going to be $2,275 a month, or approximately $27,300 a year. Where are you going to get that $27,300 a year from? Your only 60, that means that your only access to money maybe from your retirement accounts, because you're too young at this point to be collecting Social Security and possibly other sources of income. So where is that money going to come from? By the way, I'm just going to divert here for a second. This is one of the reasons why I always say to everybody, Do a Roth do a Roth do a Roth? Because listen, if you had a $127,000 in a Roth IRA or a Roth 401K when you retired at 60 you could take it all out tax free and just pay off your mortgage, and that then would save you $27,000 a year of expenses. Otherwise, again you are going to have to be paying $27,000 a year for five years. And where is that money going to come from? Just one warning here, please know if you have money that's in a pretax retirement account a traditional 401K, a traditional IRA. Be careful, because if you go to take out 127,000, that's going to be taxed as ordinary income. It's still not going to be enough money for you to pay off your mortgage after taxes. So you're gonna have to take out close to possibly $200,000 to pay off 127,000 after taxes. So what would I do if I were you? Can you guess? Of course you can. I would absolutely be paying down my mortgage as much as I possibly could. If you happen to have an extra $2000 a month, you would then have it paid off in five years from now. That's just what you need to know. You know, if you had done this five years ago and had a 10-year mortgage and had scheduled this to be paid off at 60. It would have been just in extra $1000 a month, and you would have owned your house outright. So everybody listening to the answer of this question, this is a really important question. Is that think about these things ahead of time so you know how much to pay on a mortgage, so It really is paid off by the time you retire. Lisa, you're gonna feel great without a mortgage when you're 60. You know what? Nothing makes a woman feel more secure than owning her own home outright. Do remember the day that you paid your house out. Yeah. Feels great. Okay, Suze. Next one is from Kate. If my husband and I filed taxes, married, filing separately, can he contribute to his Roth 401K? That would be another great quiz for you. What do you think the answer to that is? KT? Of course he can. I love that. Yes. Now, why do you think she asked that question? Because she said my husband and I filed taxes, married, filing separate? Yes. And what that means, KT is when you are married and you don't file jointly and you file separately. If you make over $10,000 a year, you cannot have a Roth IRA. You can't have a traditional IRA. So the fact that she files separately is why she's asking this question. Do those laws apply to a Roth 401 K and they do not. Exactly. Exactly, she says. All right, go on. So, Suze, here's another Roth question since this is, since this is from Jonathan, this is another smart man. I love these smart man. I'm 30 years old and have about $6000 in a rollover IRA. I was laid off in May due to, I guess, Covid my question is, since I was laid off, my Roth rolled over into a rollover IRA account, which I've been told is inactive. So it's just sitting there. Since I'm only 30 I have time to be a bit aggressive. What would you recommend I do with the six K that's just sitting an inactive roll over IRA. Should I invest in one or two ETF’s? If so, are there any that you can recommend? I've had my eye on spy SPY. You know what that is? some spider. It's a spider. It's the 500 Index Standard and Poor's spiders. No, you don't. You don't. You like Spider? No. You like VTI the Vanguard Total stock market index better. Okay, but spiders, spiders, spiders bite you. Alright, Listen to me, Jonathan. I know that you you have your eye on spiders, the SPY, which is the symbol for the exchange traded fund that duplicates the Standard and Poor's 500 index, which is an index made up of 500 large cap stocks. I would like to see you have more diversification than that. So I have been suggesting to everybody now for quite a long time that I would rather see you by the Vanguard Total Stock Market Index, ETF symbol VTI, Victoria Theresa Isabel. And so what is that? Why can't you just say VTI? Because what if they didn't understand what I was saying? Everyone knows VTI What if they think I'm saying Total Index Jesus. Simple. VTI while there you go. So I would rather see you dollar cost average into that. Now listen to me closely. I also really, really love another exchange traded fun with the symbol of ARKK. What are you going to say, I’m guess what it is. So, it's the Park Innovation Fund, which is a fun by Kathy Woods, who? And she is absolutely brilliant. I would do a little bit of both of those. I would do the majority and VTI and then some into ARKK. Now what you have to remember and everybody should remember this is that even though the stock market has been going up and up and up over this past year, it actually over the past 10, some odd years. Eventually one day that will really change. And I know that last March it went down and that it went right back up. So a lot of you are like Okay, well, that wasn't so bad. There is going to come a time when these markets will go down for a long period of time, maybe a year or two or so when that happens, and it's very possible everybody that that could start happening in April or May of next year. So I need you to be careful here that if you are investing that is the time. This is the time that I want to make sure that you invest via a dollar cost averaging technique. Do not. If you have $6000 Jonathan to invest all at once, don't put 3000 in one account 3000 and another do it little by little. Do it like $500 a month over the next year and then continue to do it if the market does go down, especially at your age, which so you should be wishing and praying and hoping that it does go down so that you can buy more shares. Remember to just continue to dollar cost average and don't freak out if that happens. All right, KT. Okay, this next question is a little bit long, but I think a lot of listeners may find themselves in this position. I just read your article about the importance of discussing finances with our partners at the beginning of a relationship versus after getting married. We did share our financial information during our engagement. I had a little savings, a car payment and about $5000 in credit card debt. My fiancee's portfolio looked impressive. He had saved and invested close to a million dollars. What I didn't know what the time were the right questions to ask in terms of how much risk there was in what he did for a living and how volatile real estate development could be. Between 2005-2008, finished project paid $2 million. His real estate business was booming. Then the recession hit. The housing bubble was a huge impact for us. He had invested a great deal of money with a local homebuilder, and by 2007 he had $7 million in outstanding loans. We had to sell our house. I had no full knowledge of the enormity of his investment because he was handling the money and paying the bills. I take responsibility for not being more involved. I didn't know he and his business partner bought a plane. I was busy with a three year old and getting a double hip replacement. My main question now, at the end of 2020 how do I get past the hurt from the risky and non transparent financial choices my husband made? It's a daily effort for me. So what did you like about this question? How come you chose it? I think many relationships evolve, and they find it awkward to continue the financial conversation. Just curious KT you know I always wonder, why does she pick some of these? So what's important here for this person to understand that we're not going to use the name of this woman because I don't think we should for some reason is this. You have to get rid of your resentment. You should not be resentful to this, to your husband on any level. It's not like he wanted to lose money. It's not like he wanted the housing bubble to happen. He was investing. He was making money. He was working hard at it. He was doing great and boom, it fell out from him. So rather than being mad at him because it's not like he made a mistake, the economy crashed and his mistake was he was taking advantage of a good economy before it crashed. That's all. You have to stick with him for goodness, for health, for wealth, for debt in every possible way. So you can't be resentful at him. You could be angry at yourself if you want because you didn't ask the questions. And you could be angry at yourself because you just didn't care because you were taking care of your child. That is not an excuse. You should have been involved. And yes, maybe he's just doing things with money. But what did you do to show him that you weren't interested? Now, if you had said to me in this email that you asked him and you wanted to know, but he didn't want to tell you now I'd be upset at him. But you never tried. So now what do you want to do? Do you love him or don't you? Is he a good guy or isn't he? Do you want a relationship or don't you want a relationship with him? And if you want to be in this relationship with him, then you have to support him right here and right now. And maybe $2 million isn't a lot to him because he knows what he's capable of doing. He's done it before, and maybe he needs that attitude. Because if he just felt like he was totally defeated right now, maybe he wouldn't be able to do what needs to get done to get out of the situation. So the truth is, here, what I would say to you is, you change your perspective, you be supportive of your husband, you get behind him and ask him to share every part of his finances with you. If he wants to do that, great. If he doesn't write and again now, we have a different answer. That was great. You like that? A lot. All right. I think that's gonna help a whole lot of people in relationships. Well, you just can't blame somebody because they lost money when the economy crashed. You just can't do it. But anyway, go on. This is from Karen. I sent the paperwork in to have my e trade brokerage account re titled to my and my husband's Living revocable trust. The account title now has our names with you a d followed by the date of our trust. I thought you a d meant irrevocable trust. I contacted them and they said they reviewed the account and they can confirm the trust is listed as revokable trust. But the trust names shows incomplete due to character limitations. Where do your thoughts, Suze? So first of all, everybody, let's talk about the difference between a revokable and an irrevocable trust. The types of trust that I talked to all of you about all the time, our revokable living trust revokable means you can change your mind any time you want, just like I do all the time. Every week, every week. We told them that. Nothing is done and you know nothing is in stone an irrevocable trust. Once you set up an irrevocable trust, it cannot be changed. Most people set up irrevocable trusts to protect the money that's in the trust from a state taxes and other things. So your trust, especially if you were doing the trust that you got through our website and the must have documents that I talk about all the time. And by the way, I am seeing emails coming in asking me is the offer for $69 for the must have documents still available? Of course it is. Just go to suzeorman.com/offer, and it is SUZE, and you can get $2500 worth of state-of-the-art documents for $69. But that's not what this question was about. And so if that's the type of trust you're talking about, a revokable trust than what's going on here with your brokerage firm is this. The title of a trust would be, For instance, Suze Orman, trustee for the Suze Orman Living Revokable Trust, dated December 17th, 2020 if today was the day that I had it notarized. Sometimes your brokerage accounts in your bank account statements, they don't have enough room to put all of that. So instead, they put the initials UAD, which stands for under the agreement date. So rather than putting December 17th, 2020 they just put UAD, which refers to December 17, 2020. If today was the day that you had it notarized, so your trust is absolutely legitimate and everything is just fine. Next question. Dear Suze and KT, my dad was an investment banker. We didn't talk about money much, and his advice to me when I asked for it was to get a Suze Orman book and teach myself. So here I am. I thought you would like this. I'm 38. When I was 25. I had $1000 and I asked my dad to invest it. He split it between the Growth Fund of America and the Income Fund of America, I've not been able to contribute to it much at all, but plan to begin maxing out my Roth IRA contributions starting 2021. I know you prefer funds with the lowest fee. When I asked my dad recently his opinion on this, he said, You get what you pay for. When I look at my American fund accounts, it looks like the only fees are a $10 annual fee. So my question for you, Suze, very respectfully to both you and my father is Do I continue to contribute my max to the existing American funds or open a new account at a discount brokerage and put it in a VTI? What's VTI stand for? Vanguard Total Index Fund, baby in CTF. KT. So let me answer that for this person. But, you know, I don't want to go against her father since he was the one who recommended me to her. When you look at your funds, it's not just $10 a year that maybe the fee that they're charging you to have a retirement account. However, if you look at the American Growth Fund and the Income Fund, every time you invest in there, there is a 5.75% load. The American funds are loaded mutual funds. So again, what does that mean? If you go back to a few podcasts ago, every time you invest, 5.75% of the amount of money that you invested goes to the financial advisor who sold you that from. So the fund has to go up 5.75% in value number one just for you to break even. Also, the American Growth Fund has an approximate, I think it's 10.64%, expense ratio, which means that's how much the portfolio manager and you pay him or her that every year out of your return. That's how much the portfolio manager gets paid to manage the fun on the American Income Fund. Its 0.57% on the Vanguard Total Index ETF it is a total expense ratio of 0.3%. Hardly anything at all. If I were you, would I open up a new Roth IRA at a discount brokerage firm and invest in the Vanguard Total Stock Market Index ETF Oh, you betcha. I would. Sorry, Papa. Guess what? Sometimes you get what you don't pay for. I bet. He'll like that. All right, Suze, this is.. Oh wait. You know, it does make a difference. Do you know how you know? I always think people don't think. Oh, well, what's the difference? Between 0.3% and you know 0.64% or whatever. Maybe over years, it could be a lot of money. You know, if she put $50,000 let's just say she had some money and she put $50,000 in the VTI versus the American Growth one. Do you know the difference in that expense ratio could amount, and they did the exact same returns because they're pretty even, they're both, American funds are great funds, but that could cost her almost $15,000 in difference. So it mounts up over the years. Just so you know, a little amount of money matters. Okay, Go on. Okay. This is a happy holiday question, Dear Suze, Happy holidays, you know. Aren't you excited that it's kind of the year end? So one week from today, today's the last day of Hanukkah in another week and a half. It's Christmas, then New year. And then bingo, 2021 here we come. Okay, dear Suze. Happy holidays. Suze, can I put my house in a trust if I have a loan on it? Someone told me today for me to do so. I needed to have paperwork done or the bank would not allow it. Could you please explain? So first of all, when you have a home and you take it in the title of your living Revokable trust, which is what I want all of you to do, listen, to pass podcast to find out why. There are some banks, not all, but there's some banks that don't want you to take out a mortgage on a home if it's held in trust. Don't ask me why that's true. They're archaic, they don't make sense and it's just their rules. So normally, when that happens, what you have to do is just transfer the title out of the trust into your individual name, take out the mortgage and then transfer it back into the title off the trust. If that's the case, however, and you're dealing with a bank that wants you to do that, can you do me a favor and just find another bank? Just do that so you absolutely can put your house in trust. If, however, you haven't put your house and trust yet and you are about to take out a mortgage, take out a mortgage if it's a great mortgage. And after you've done that, put your house in trust, right? We're changing things up today, everybody. Which is we decided that Suze decided everybody, tell them what you're gonna do. She's She is changing it up, not KT. So go for it. What are you doing? So what I'm doing is right. Rather than KT asking me the question for the quiz. I'm going to ask KT the question because KT really represents the listeners. Your them. I'm me. Yeah. We don't like to answer the question right. I'm representing all of you. Listen, we do not like to answer the quiz Give it up, give it a shot. Go for it. See what happens. Hi, Suze. Here's the question. Here's the quiz. Is it better to list my 18- and 20-year-old Children as beneficiaries for my retirement accounts? My Roths 401 k and 403 B and life insurance policies, or to list my living revokable trust as the beneficiaries? So the question is, is she better off leaving her kids as the direct beneficiaries? On her insurance policies and retirement accounts or should she leave her revokable Trust as the beneficiary? Which one can the trust be a beneficiary? You have to answer the question. Hmm. Way all. No, wait a minute. Wait a minute. We everyone knows that you love trust, and we all have to have a will and a trust. So leave it to the trust. I'm gonna just guess, Right? So for the trusted, I get it right? Yeah, baby, I did it right. Did you did Also happy. I just know that you always say, Put everything in the trust Only right only, if your beneficiary for a retirement account is anybody other than your spouse So here's what you all need to understand. If you have a living Revokable trust and you are married. Your spouse's name should always be the beneficiary of any retirement account. Why? Because a spouse has different privileges than anybody else. They could take over your retirement account as if it was their own. That is not true for your Children. Mhm. So if you are married, the primary beneficiary is always your spouse. Secondary beneficiary is always your living revokable trust. If you are not married and your beneficiaries are going to be your Children, whether they're minors or not doesn't matter. Your beneficiary is always to be the living revokable Trust. Now, why is that? She could very well leave her two Children. They're no longer miners as the beneficiaries of her life insurance policy and everything. But in 18 and 20 that's still really young and what if there was a lot of money in those policies, or in the retirement accounts? Do you really think that a kid could handle a half a million dollars at the age of 18 or 20? I do not. So if you left it as the living Revokable Trust as the beneficiary, you could leave directions in the trust as to how much money do they get at what age. You want to make sure that you protect your kids if they're going to get a large sum of money even and a large sum of money could be $10,000 to them. So the answer to this quiz is make it the living revokable trust. All right, Travis. Okay, Suze, That means this is the end of this one. Anything you want to say before we start on? Stay safe, everybody. Alright? I second that were a mask. And keep your distance right? Yeah. All right. See you soon. Bye.
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