Credit Score, Debt, Emergency Fund, IRA, Retirement, Roth IRA, Savings
February 04, 2021
Listen to Podcast Episode:
On this podcast of Ask Suze (and KT) Anything, Suze answers questions from Women & Money listeners Karen, Liam, Gigi, Gayle, Iona and Davida selected and read by KT.
February 4th, 2021. Welcome, everybody. You know what today is KT? February 4th. You're so funny. This is Ask Suze and KT, everyone knows it's Suze and KT show, but next year it possibly could be, KT asks Suze. What would you ask me If you could ask me something? I'd ask you to ask me something. Every day I ask her things all day long. Sell, sell, sell, sell, sell. She says, why aren't we selling? But KT, what do you think? We're talking about the stock market. So, I hate the stock market. KT, don't tell people you hate the stock market, no, no, no, no. I hate when she makes a ton of money and tells me they say, Suze, sell it. Don't lose it. Sell it. She goes. No, aren't you glad I didn't sell the other day? I'm really clear. She made bundle more. But KT, before we do questions, what do you think about GameStop? How do you think I did on Sundays Podcast? Great. Oh, you called it girlfriend. Really perfect. Everyone's telling me Suze for the first time made sense out of all this news called GameStop. Even Columbia. You all know Coehlo. He said Oh KT, I know GameStop. I used to go there rent games. They're never going to go back in business again. They might you don't know. But for those of you, just a little update. Most of you, as I told you, bought into the stock. And if you don't know what we're talking about, where have you been? But anyway, at about $325 a share, it's now around $9500 a share right in there. Alright, so it has gone down considerably. And just so you know, when a stock goes down, like about 70% it has to go up almost 300 some odd percent just for you to break even. Just think about that everybody. Also, KT, I just have to say this. Can I say something else s? There are so many great ways to make money. Did you see the earnings on Google? Did you see all these stocks that are skyrocketing today? Can't you just simply want to invest in companies that have good earnings, have a good product that really have someplace to go versus making money because you're getting people to short stocks and cover. Really everybody, that's all I want to say. Okay, here we go. Suze, here's our first question. Hi, Suze. I've been listening to your podcast for years now. I'm proud to say my husband and I have been debt free since 2018. We sold our first home, paid off student loans, car payments, credit cards and switched to renting, investing for retirement and building a big emergency fun. She's doing great. So what does she need me for? Listen to this. I can relate to this one. I'll tell you a story. After now, we just tried to get pre-approved for a home loan to buy a house. It turns out I have no credit scores due to credit in activity since 2018. My husband, on the other hand, has excellent credit because he kept an open credit card. Our new lender has advised me to immediately get added to my mother's credit card, my husband's credit card and even take out a car loan to start building credit right away. Is this sound advice? What should I do to start? Now, even though I make a great income. I have savings and investments and no bad credit. The lender said I would not be approved for a home loan for another 30 days. Presuming, I take the steps to build my credit. My husband has a pre-approved loan on his own. I was hoping to co-sign for this one. What's your advice, Suze? She said, Wait. She said, I feel like a moron due to this oversight. You're not a moron, right, Suze? Why did you switch your face when she said co-signed? You don't do that. I'm like you give the advice, and then I'm going tell my story. Oh, here we go. This is going to be listened to KT and Suze talk today. But anyway, what was your name? Glenn Anne. Glenn Anne a few things. Okay, Number one, if your husband can qualify for the loan all on his own, and he has a really high FICO score, so you're going to get a really low interest rate. Why doesn't he just take it out on his own big deal and then add you on the title to the house that's all. So, you're on the title, you own the house. You're just not responsible for the loan. That way, if ever he's not your husband again. Oh, did you just win big? Truthfully, True. If you could do that, you should do that. Is it true that your mother, if she has a high FICO score, could add your name on to her credit card and then that her FICO score would become your FICO score? Same thing with your husband and all that. It's true. Do not take a loan out on a car just to get a FICO score. What I would do if I were you. If you have a house that really you want right now to buy, have your husband do what I said. Open up a credit card in your own name, start charging on it and paying it off in full every month and your FICO score will come back. I'm not too worried about it to just keep your life simple okay. So wait, I'm going to tell my story really quick. Of course, you plenty. And the same thing happened to me when you moved back from Asia to America. My good credit didn't count in the United States. And I had to start all over and open cards. Well, that's what she has to do. But she's lucky enough, right that she has a husband with a good FICO score that is pre-qualified for a loan. You should have known me back then. I wish I did. Oh, my God. I wouldn't have to work like you're working now. Everybody knows you don't work Sundays. Okay, Ready? This is from Karen. Hi, Suze. My husband and I are both retired and currently funding our revokable trust. We want to put money from our traditional IRAs in the trust, but we aren't sure if there's a product that we can move that money into that can go into the trust. We want that money to be income producing while it's in the trust. We know that we will be paying taxes on the money we take from the pretax IRAs, and we'll need to do that over time. Is a Roth IRA an option for us? Thanks for your help. So, Karen, if you change money from your traditional IRA, which is pre-tax and you take it out just to put it in the trust you said it. You're going owe taxes on that. And even if you do it little by little, you're still going owe taxes on it. I don't know. Given that it's in a traditional IRA. Why don't you just leave it there? Let it continue to grow tax deferred. Wait until you're no longer working or whatever, and just make sure that the beneficiary of the IRA is first your spouse and then the trust. But honest to God, I would not be withdrawing money from a traditional IRA just to get it into the trust to possibly get it into a Roth IRA. I wouldn't be doing it. I would just leave it where it is, especially if you're in a high-income tax bracket. What does that look for now? Because this next question is really long. I'm going do my best. But I might pertain to quite a few of you out there. And it's from a man, we love man questions. So, this says Dear Suzy. I'm soon to be a 60-year-old married man who was smart enough to listen and you're 2021 predictions have got me thinking about my plans for retirement. I plan to take Social Security at 70 and not begin to take withdrawals from my retirement accounts until that tim., I have a TSP retirement with the balance of 750,000 invested in the lifestyle 2040 fund. You tell them what that is. You tell them, he's a military man so the lifestyle 2040 Fund is something Suze’s going explain to all of us right now. I knew the TSP part. The savings plan. The Lifestyle 2040 plan is simply the money is invested as if he is going to continue to work until he retires in the year 2000 and 40. So they invest the money properly for somebody who is retiring at that time. So, they're selling things and buying things. They're getting more conservative as time goes on and that's what that is. KT. Okay, Is it good? What if it was a lifestyle 2080 plan? What would that mean? They'd be dead. Alright, nevermind. Go on, continue on. My husband is employed, but my retirement assets are the ones we're counting on. He will also continue to work in the years ahead. So, here's the question hearing you predict and fully expecting the market to correct or drop this year, perhaps as early as March and remain volatile for a few years. Should I restructure how my retirement savings is invested to prevent losses? Well, good luck on that, right, Suze, I I have considered moving a good portion of the balance of my TSP for a period of time into the G fund, which will protect it in the event of a significant market drop. My understanding is that I can easily return it to the Lifestyle fund, which is the 2040, or any of the other funds with no real cost to me, other than possible loss of gains from keeping it in an expanding market. So, the question is, should I do nothing and just wait and write out any correction knowing I plan not to touch most of this money for 5 to 8 years? Or should I reallocate to s more conservative investment allocation? What are your thoughts? I hate to do nothing and possibly risk losses that folks looking at retirement back in 2008 suffered. Thank you for all you do. This is from Liam. I love that name. One of the men smart enough to listen, Liam. So, a few things number one, we don't really know what's going happen in the markets, we don't. It's doing right now what I thought it would be doing, which is, I said that it probably for February and March, will seriously go up. And I think that's what we're going to see happen all the way through March. Then we'll have to see. Currently, as you probably know, the G fund and just so everybody knows, the G fund within a TSP plan, which is the thrift savings plan, which is what federal employees invest in, is currently paying about 0.76%. Now, if you think about it, even though that's a little interest rate overall in comparison, it's a pretty high interest rate for you to be guaranteed with absolutely no risk to your principal at all. I have a saying that if you don't know what to do when it comes to, is the market going to go up or is the market going to go down, do half put half in and see what happens when you see these markets start to decline. Just something for you to think about. Also, you know, a long time ago when I was doing retirement planning and really seeing clients, we would look at their retirement accounts. And when you actually have enough money to retire, you don't really need any more, even at low interest rates, whatever it may be. When you have enough and you know you have enough and you're within a few years of retirement, why not keep that money safe and sound and invest of their money that you may have to take advantage of upward movements in the market? And if downward movements in the market happen, who cares? So just think about that. But we're going have to wait another month or two for us to really see. Is this market going to decline? What's going happen? But if it does start to decline, the good thing is you are in a lifestyle 2040 fund, so they probably have you more conservatively invested than if you were in, like a 2060 fund or you weren't going to retire for many years. So, we're going have to wait and see, but if you don't know what to do and you want to protect what you need, protect what you need. And by the way, yes, you can transfer back to any other funds with no fees. Next question. KT. Hi, Suze. I'm currently trying to dig myself out of financial ruin, so this is a fast forward. After a divorce, my two-year-old needed a transplant. I needed to leave my job to care for my daughter. In those two years, my emergency fund had dwindled to zero. I began to live on my credit cards and eventually spent all of my 401K. Consequently, I fell behind on my credit card payments and now have a total of four charge offs. What's that? No. What is the charge off? See, Only KT would ask that question because obviously she's never not paid her credit cards in full at the end of every month. It means KT that you haven't been paying your credit cards. So, the credit card companies have charged off the debt. They've said KT Travis is never going to pay these bills. She hasn't been paying these bills, so we're just going to write it off as a debt. So, we get to take it off our taxes. And you were going to sell this debt to some lender. Right? So, they've charged it off. So now it appears on your credit report as a serious ding ding ding. Okay, so the rest of the story I've paid off my car based on your three-year financing rule and all four charge offs. Also, she paid them off. I'm not telling you about why she didn't have to. Wait and kept other credit cards, three, I've managed to maintain what's left of my credit. My FICO, well, listen to this, everyone, my FICO score dropped from 814 to 626. I pay all my bills on time. Keep a low credit card utilization rate or 5%. My score remains stagnant. So, is there any way to remove the charge offs from my credit report? Are they the reason why my score hasn’t increased? Many Thanks. Oh, and then she wrote a sweet note. This is from Gigi. She said, Suze, you're amazing, so relieved you recovered from your surgery. Tell everybody about my progress seems like ages ago. So, Suze does very diligently, therapy with acupuncture and massage, almost daily to work on her left arm, which still gives her a little bit of problems, its little nerves that have to find their way home. And this week, after this very intense, almost daily therapy. We're seeing the light at the end of the tunnel and I started crying everybody. I was so happy I started crying with such joy. It's been heartbreaking for me to see Suze in pain, and this process has been quite painful. But we're blessed. We're happy that she's going to be great. And we're seeing the light of the tunnel. Yeah, there you go. So, Gigi, a few things and a few things that I want all of you to know. Once you are 90 days past due on your credit, right? 90 days. You now have a serious ding on your credit report, and even if you pay it off, it's not going to help your FICO score on any level. So, a lot of people feel like, oh, I have a charge off. If I pay that off, it's going improve my FICO score. No, it won't. Once you are 90 days past due, you have been dinged big time. So, what that means for all of you, by the way, is if you are laid on credit cards and now you're able to start paying them off again, start paying. Look at the credit cards that are not 90 days past due, and those are the ones that you should concentrate on and the ones that are 90 days or longer past due. Well, really, at that point, it's not going help you a whole lot. So, just so you know that. The only thing that's going to help you is time, time doesn't matter how much money you save, it doesn't matter what's in your 401 K plan. It doesn't matter about the Roth IRAs or anything like that. What they want to see is that you are consistently paying your bills. You're not getting in trouble again, and you're just going to have to be patient. If you do want to help your FICO score, as it was suggested by one of the earlier emails that we read that all you have to do. Is if you know people such as a parent or anybody that has a high FICO score. If they simply add your name onto their credit cards as an authorized user, then that should help your FICO score as well. It cannot hurt. There's no matter what you do. But if they're FICO score starts to go down and they become delinquent, then it will hurt your FICO score. So just be patient, girlfriend. Really? You're in the six-hundreds before you know what, you'll be back in the seven-hundreds back in the 800 everything will be okay. If you can get through what you got through with your daughter. Your FICO score really is no big deal. Yeah, she can do it. Okay. Next question is from Gayle. I'm 62 years old. I was married to a great guy for 30 years, but not really great with money. We had twin sons and they're now 24 years of age, but my husband passed away in June 2019. I always thought I was getting his pension, and so did he. Apparantly, he checked the wrong box on the pension form, and I got nothing. You know, Suze, we get a lot of these questions. Yeah, but before you even go on KT, Gayle, I want you to listen to me. Normally, if a spouse takes less than a 50/50 pension, which means that upon his or her death that the spouse would get less than half off what the, your spouse is getting the spouse legally has to sign off on that. I find it very strange that if he checked the wrong box, which said upon his death, you get nothing. That they did not make you say okay or give permission for that or that would allow spouses all the time to exclude their spouse. And if you're married legally, you can't do that. You should go back and check if there was a violation from the corporation that they did not require him to have you signed permission to get less than a 50% joint and survivor benefit. If that's the case, Suze, do they do they owe her the money? You bet they do. I would so check that out if I were you. It just doesn't seem right. That's great advice, because we get quite a few of these Gayle, so find out. So, she then says he did have 175,000 life insurance policy. I also paid 60,000 for a year round two-bedroom, two bath mobile home a mile from the beach in September 2019. I only have 80,000 in savings. The total cost to run and operate my mobile home is 800 a month. I rent it for $1400 a month. I'm making about 600 a month from the mobile home. So how many does she meant it out for the whole year or so. She rents it out for eight months out of the year. Okay, so my question is I was offered $100,000 for the mobile home. It's 25 years old. Should I sell it and invest the 100k or keep it? Well, I have to tell you, my dear Gayle, if I were you, I would keep it. Okay. Oh, my God. Wait a minute. If this was a quizzie, I would have got another eh. Why don't you sell? It was 25 years old. Are you ready? Yeah. You sure? Yeah. It's going fall apart. She's getting $1400 a month for it. Her costs are 800 a month, so she nets $600 a month and she does that for eight months. That's $4800 a year. And the house all right, if she gets $100,000 for this mobile home, that's a 4.8% return on her money because she's also going to probably have to pay taxes on that 100,000 if she sells it. So, where today is she going to get a 4.8% return on her money? And also, I'm sure if she only rents it for eight months a year, she's using it for the other 4 or 3 or whatever it may be and enjoying it. So, no Gayle, keep the home. I think it's a great investment for you. All right, Suze. Next question. This is from Iona. I initially had only traditional retirement accounts until listening to you. Since then, I have diligently invested in only Roth accounts. After your recent podcast, I decided to speak to my accountant about slowly transitioning my traditional to Roths. He shared a view that I believe has some merit. And so I want to share it with you. The accountant said by the time many Roth accounts are ready to retire, the government will change policies removing some of the Roth benefits we enjoy today. For example, he believes the distribution of Social Security funds will be dependent on our other retirement funds, such as Roth. Although they may not change the Roth policies, they will find a way to tax the benefit through other means. What's your take on this, Suze? So lastly, I maxed out my HSA. I was advised HSA are a great vehicle not taxed on the front end or the back end. Would you agree? And that's from Iona. Iona. First of all, absolutely HSAs. And I've said this before and you could go back and look at other podcasts that the health savings account, if you're able to have one and can afford it, is the absolute best retirement account of all, because you put in money and you get a tax deduction when you want to take money out when you use it for a qualified medical expense. So that is the catch. It is tax free. And while it's in there, you can also invest it and let it grow. So, I love health savings accounts as far as what your accountant said are you kidding me? Are you just kidding me? I was going to say you need a new accountant. Well, he may have some merit. Who cares? Because if you do a traditional IRA or you do something else right now, you're still going to be taxed on Social Security. You're still going have all those things go wrong for you, so why not just go for it? I would do a Roth. I would do a Roth. I would do a Roth. If you think about it, it's not just what happens when you retire. What if you need the money before you retire? Remember any money that you originally contribute to a Roth IRA? You could take out it anytime you want without taxes or penalties, regardless of your age or how long it's been in there. When you leave it to your beneficiaries, let's say you never take it out because you don't have to take it out and you leave it to your beneficiaries. It will be tax free. Do I think that the government is going to come in and change how Roth IRAs work? I do not. Do you know that forever they've been saying that when these first came out, people would say, Oh, Suze, why would we do a Roth IRA it's not always? Please just do a Roth. That's what I think. Okay, Suze, we have one more question. This is from Davida, So Hi, Suze. KT, I have a quick question for you. How much can you contribute, max per year with all your accounts combined like a 401K and IRA and HSA. My friend mentioned that you can't max the 401k and the IRA. But I thought those were completely separate. This should have been your quizzie KT. Right. So, first of all, what's in HSA? Health savings? That's my girl. Okay, so here's what need to know. Davida, your friend could not be more wrong if he or she tried. So you didn't tell me how old you are, so I'm just going to give you a nice idea. If you're under 50 and you are single, cause I'm assuming you're also single because you didn't say anything else other about yourself, right? The most you can put into an IRA, whether it's a traditional or a Roth, is $6000 if you're under 50 or 7000 year if you're 50 or older. The most you can put into a 401 K plan, whether it's traditional or Roth under 50 is $19,500 a year, or $26,000 a year if you are 50 and over. Health savings account your maximum contribution that you can put in under the age of 55, by the way, so in HSA is different is $3600 a year, 55 older you can put $4600 a year. So, if you total all those up under 50 it would be $29,100 that you could put somewhere. 50 or older it would be $37,600 and you absolutely can do all three. All right, KT, this one is for you. Is it quizzie time? It’s quizzie time now all of you need to play along. Okay. Hi, Suze and KT, but I swiped this one from you. I recently lost my grandpa due to Covid. I'm so sorry. It's from Amanda. I'm so sorry, Amanda. I found out that he left me $5000. I am trying to figure out the best way to use this money. I have debts including my car loan, mortgage and approximately $7000 on a loan for my wedding last year. I do not have a 12-month emergency fund, but I do fully fund my Roth IRA and max the match amount for my company in my 401k. Here's the quizzie, KT and everybody, would it be better to pay off my wedding loan of $7000 or increase my emergency fund? Or is there another suggestion you have? So, she's got $5000, she has a $7000 wedding loan. She has other debt, but she does not have a 12-month emergency fund. What should she do, KT? Well, I would do half. I do half of the money in an emergency fund and half to start paying off the wedding loan so Grandpa would be happy that he paid for part of that wedding. What? What would you all do? Do you agree with that answer? Because these are the things that you need to think about so that if that ever happens to you, you kind of know what you should do. You know why I said that? Why is it makes you feel good? You're doing both. You're paying down the loan and you're starting finally to kick into the emergency fund, which is really, really important, right? So, I think that's what I would do. So, what would you do? I'm going about to tell you, thank you very much. Right. So, it's how do I give you half ding, ding, ding ding and a half wrong. She's going to say, put it on the emergency fund, right? Do you think that? Yeah. Would you? Absolutely not. Oh, ding ding ding. So, Amanda, this is what I would do if I were you. I would take the $5000 and I would pay down your wedding. And the reason I would do that is I have a feeling that the interest rate on your wedding loan is at a pretty high rate. And I just think Grandpa would be so thrilled to know that he essentially paid for your wedding, which you got right, KT. Now, why wouldn't I put it in an emergency fund? What is she going to do if she doesn't have enough money? She says that she doesn't quite have the 12-month emergency fund, but she also told us that she has because she fully funds her Roth IRA. So, she can pull out emergency money from that Roth if she needs. If you need it. Correct. And if she's fully funding her Roth. She's got some good emergency funding it to at least $6000 a year, because I'm assuming, she's under 50. And if she's done that for two years or three years, so she has 12 or $18,000 that she could pull from there in case of an emergency. So, a Roth can serve as an emergency fund as well. Okay, Amanda, there you go. Make grandpa happy. All right, everybody, that does bring us to the end of another, Ask Suze anything on Sunday. I think we're going to go to Suze School again. Just so you know, because I want to continue talking about what happened with GameStop and a few of the lessons that I really want us to take away from this. So, we could be true investors knowing what stocks to buy because they deserve to be bought. What stocks to sell because they deserve to be sold. And to really know how to be smart with money. Remember everybody, if you want to send in a question, you can do so on the app. Just go to Google play or Apple App, search for Suze Orman, and you can download the Women and Money app, which is a fabulous app. And right there is where you can ask questions. If we choose it, we will answer it on the podcast. You know, when I used to do the CNBC show at the end of every single show, I had a saying and I loved that saying, do you remember KT? What it was? What will first, then money, then things. But do you remember how I used to totally say it? I used to say, and remember, there's only one thing that matters when it comes to your money and it is this; people first, then money, then things. Now you stay safe. And I may just start doing that again right here on the podcast. See you on Sunday, bye bye.
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Answer Yes or No to the follow statements.
I pay all my credit card bills in full each month.
I have an eight-month emergency savings fund separate from my checking or other bank accounts.
The car I am driving was paid for with cash, or a loan that was no more than three years, and I sure didn’t lease!
I am contributing at least 10% of my gross salary to a retirement plan at work, or I am saving at least that much in an IRA and/or regular taxable account.
I have a long-term asset allocation plan for my retirement investments, and once a year I check to see if I need to do any rebalancing to stay on target with my allocation goals.
I have term life insurance to provide protection to those who are dependent on my income.
I have a will, a trust, an advance directive (living will), and have appointed someone to be my health care proxy.
I have checked all the beneficiaries of every investment account and insurance policy within the past year.
So how did you do?
If you answered yes to every item, congratulations. If you are working on improving on a few items, I say congratulations as well.
As long as you are comitted to truly creating financial security, I applaud you. If that means you are paying down your credit card balances, or are building up your emergency fun with automated payments, that’s more than fine. You are on your way!
But if you found yourself saying No to any of those questions, and you’re not working on moving to Yes, then I want you to stand in your truth. No matter how good you feel, you have some work to do before you can honestly know what you are on solid financial ground.