401k, Car Loan, Home Loans, Investing, Retirement, Roth IRA, Saving
May 13, 2021
Listen to Podcast Episode:
On this podcast of Ask Suze (and KT) Anything, Suze answers questions from Women & Money listeners Anne, Norma, Deanna, Derrick, Camile, Miura, Nicole, Vanessa and Marcia, selected and read by KT.
Hi everybody, it's May 13th, 2021. And this is the Ask Suze and me. No, I wanted you to say KT. It's Ask KT and then I get to say Suze Anything, nope. This is Suze show and it's Ask Suze and KT. I was so excited to be able to say and Suze because then she's going to say she wants my picture on it and it ain't going to happen. I've been telling her that, I think you should all write in and tell us, don't you think the little tiles should be me and KT. Just come in here to help move it along and help ask the questions that none of us know the answers to and that I'm not afraid to ask Suze anything. All of you are a little afraid, but I'm not. They are not afraid to ask. Ask me the first question, My dear. Hey, all right. First question is from Anne and it said, you brighten up my day and I always look forward to hearing what you have to say each week. So, she's writing because she just discovered that her mother-in-law is in debt. Now, Anne thought that she had straightened out her mom mother in law's finances five years ago and was led to believe that everything was ok. But Suze mom just admitted that she's been carrying a balance for five years living above her means and has switched to Bank of America zero interest credit card. So, Anne's worried because she said the house that the mother-in-law lives in and there's no mortgage on this house, it's a condo worth about 100 and 25,000. So, Suze, this is the question Anne is worried because the house and the banking are in her husband and her mother in law's name. So, she's asking when her mother-in-law passes, are she and her husband responsible for paying off her debt? Now the mom has about $15,000 in savings. So, she has, let me see if I have this right. She has $125,000 condo that she owns outright with her son. She has about $15,000 in maybe checking and savings and then she has some amount of credit card debt. But we don't know how much credit card debt she actually has. All we know is she has debt and Anne thought that mommy didn't have any debt. So, the first thing I would say to you Anne is how come you didn't know, why weren't you more involved? What you have to know and listen to me closely, most people who claim bankruptcy, claim it twice. Most people who get into debt, they get out of debt, they get right back in debt because the real thing that's never, never truthfully figured out is why do you spend more than to begin with? So, you cleared up mama's credit card debt and then you didn't check in again? So, this is a warning sign that you need to check in because here's the problem. It's not, are you going to be responsible for mom's credit card debt upon her death? Because you're not going to be, that's not a big deal. As long as the credit cards are in her individual name and not her name and your husband's name. The real problem is what happens when she maxes out her cards, what happens when she no longer has $15,000 in savings and she doesn't have any money to pay condo fees or whatever it may be. I'm sure she's getting social security, but obviously she has been living on more than just her Social Security check. So, if she continues to live like this Anne then you're going to be in trouble because what if she needs care? What if she needs more medication? What if she needs something? Then while she's alive, you're going to be financially responsible. So, you and your husband need to get a plan right now. Not are you worried about if she dies and therefore are you responsible for this debt? It's are you going to be responsible for her living expenses while she is still alive? That needs to be your worry girlfriend. So, check that one out. But in terms of debt. No, you're not responsible for. It sounds like an intervention. It doesn't sound like an intervention. What it really sounds like KT is, you can't think that you've just fixed a problem and then not keep checking in on it. Because again, I want all of you to understand that if you have an elderly parent who is spending more money than they should and you get them out of debt, then you should be watching their statements. You should be watching every day and say, you know what mom or mother-in-law or whatever you call her, but mom, I'm going to come over. I'm going to sit down once a month and I'm going to go through all your bills with you to make sure that's something isn't going wrong. So, you cannot set and forget it. You have to set it and be involved. All right, next KT. Next one is from Norma. How come you didn’t say that was good. I thought that was a really great answer and it was really great. You didn't say so, KT. All right, tell anybody what I do when I give a talk, I give a talk and I come off stage or I come off zoom now. And what do I do? I immediately go to you and what do I do KT? She asks me to rate it. She said, how was that? What was I, what was I KT? And it's always a 1 through 10. She always gets a 10, once she got like a seven and I have to tell you, it devastated her. She said what? Why? And it was because she was, I don't remember the reason, actually. That’s good. You don't have to remember the seven KT, but she usually does weigh over it, but I always get for KT for some approval. So even when I answered a question here, it's like, I'm looking at her face to say, did you like that? Was it okay? Anyway, 0kay, here's a question from Norma. But this this question is like whoa. This might take quite a bit of an answer or we can send Norma to study a little bit about our must have documents. So, I have a question about the must have documents. What is the advantage Suze of having the power of attorney? It's the only document I don't understand. Why are they must have, can you tell me the benefit of that document. So, let's get Norma on the right Track. I think to get Norma on the right track here, we need to tell everybody what they must have documents are. But first, let's answer one question, why are they must haves. Because you must have them, right? There are four documents in life that every single one of you must have. And it's almost as if the less money you have, the more you need these documents, the four Must Have documents are a will, which is simply a document that says where your assets are to go upon your death. A living revocable trust, which also says where your assets are to go upon your death. But it does so by you avoiding probate, which is a costly court procedure and a good living Revocable Trust also has an incapacity clause in it that says, if you become incapacitated, who's going to pay your bills for you? Who's going to write your checks for you? And it is a fabulous way to go. The next one, which really is two, but it's one is an advanced directive and a durable Power of Attorney for Healthcare, which is in advance of you getting sick. You give a directive to your medical staff as to you want to be resuscitated, do you not? The durable power of attorney for healthcare is who is going to make the decision to possibly pull the plug or whatever else it may be? And the last one is a financial power of attorney. So why does one need a financial power of attorney? If in fact you have a living revocable trust that kind of gives you power over everything anyway. And the reason is this, it's you're not dead, you have become incapacitated and you have a retirement account an IRA, 401k something like that. A financial power of attorney allows the person with the financial power of attorney to make all the changes they need to within the IRA. To make sure that it's okay for you to get at that money for you, without that it becomes very difficult. So, it's really just when you're also incapacitated and you have retirement accounts. Um what are you looking at me? Because I think we have to explain a little bit more. So, the financial power of attorney let’s say that you're married and your spouse becomes incapacitated. Could I be the financial power of attorney? Absolutely and then you would be able to make decisions if I die, KT, it's very easy because you inherit it. Not a big deal. But if I don't die, I become incapacitated. I can't make decisions and you need to get at that money. You need to do things with it because you need to live on it. Whatever it may be. That's what the financial power of attorney really is used for, Now, for those of you, I just explained the four must have documents. If you went to see an attorney, in most cases it would cost to at least $2,500 for those four must have documents alone. Or you could go to SuzeOrman.com/offer and for $69 you could purchase the must have documents which are state of the art documents that you get to do in your own home created by my own trust lawyer. They are fabulous, tens of millions of these have been purchased over the years. You can change it anytime you want. You get free updates. You should go ahead and check it out. Get it everybody. Alright. This next question is from Deanna and I love the subject. Deanna this is great. It said read me KT, read me, read me KT. That was the subject. So it says hi KT and Suze, I'm 59 a half-years old. I owe $147,000 on my mortgage. I'm currently paying an additional 1,000 every month to the principal. I do not want a mortgage when I retire in eight years. And she said see Suze, I really listen. I have $85,000 in a conventional IRA. And $75,000 in a Roth IRA plus 400K in a 401K. Should I cash out both IRAs and pay off the mortgage and then start saving again in a new Roth? Thank you for your help. So, what should Deanna do? So, here's the scoop girlfriend. You're putting in $1,000 a month extra towards your mortgage. So that's $12,000 a year. And you're going to do that for another eight years. So that's $96,000 that you are going to be putting in. You currently owe $147,000. So, you could easily say in eight years from now, you're going to only owe $51,000 at that point in time. What you could do is nothing, other than continue to just pay that extra $1,000 a month and then eight years from now. You would just simply take $51,000 out of your Roth IRA and pay it off in full. But now you have all of that money still sitting in the Roth IRA, earning money and growing for you rather than just being in the mortgage. So, I would continue on the path that you are on and just simply continue to put $1,000 a month away. Now do not touch your retirement accounts, do not touch them, continue to contribute to them, continue to build them and then at the end, whatever you have left on your mortgage, take it from your Roth IRA and you'll own it outright. That's what I'd be doing. She's still young. She would be what, 68? Well, she's going to be 67. If she retires in eight years, she's going to retire at about 67 and then her Social Security will kick in if in fact she takes it at that time, she'd be great. But why take out so much money from your Roth and your traditional and no, just leave that all there continue to let it grow, pay the $1,000 and then paid off in full from the Roth. Which is why I like Roths by the way, because KT, let's say she didn't have a Roth IRA, Let's say all she had was her $400,000 in her 401K. That she continued to let grow and her $85,000 that she has in a conventional IRA. Eight years from now when she would need $51,000 to pay off her mortgage, she would probably have to take out close to $80/$90,000 from her traditional retirement accounts because their taxable. You don't want to do that Deanna. But do you understand why everybody I keep telling you do a Roth, do a Roth, do a Roth. All right, now we know. Next question is, are you in your body or did you just leave your body? You just said now I know you're not in your body. No, now we know. All right. So, the next question is from Derek. We have a man question. I love that. It's a credit freeze question. Hi, Suze, in order to be proactive against preventing identity theft, do you recommend freezing my credit at all three bureaus? If so, does the timing matter? I'm about to pay off the remaining balance of my mortgage in a few weeks. Should I wait to freeze my credit until after the mortgage is paid off or is that irrelevant? Why do you have that look? What is your question? Because I'm wondering that is the question. The question is, what is your question? Well my question is, what does one have to do with the other? What does paying off the mortgage have to do with freezing credit? Nothing, right. Yay. This should have been a quizzie because I'm reading this saying, Derek that has nothing to do with the. Derek, you would freeze your credit immediately. And for those of you again who don't know freezing your credit means that you contact the three credit bureaus and your credit is locked down. Tell them the name that of the three the Bureaus, Equifax, Experian and Trans Union. Most people don't know that. All right, and when you freeze your credit, the only downside of that is if you want to apply for a credit card, if you went to check your Fico score, you can't even do that yourself. So, your credit is frozen in time and nobody could do anything with it, including you. Unless you unfreeze it, do what you need to do and then freeze it back again. But Derek, it has nothing to do with your mortgage on any level. Now here's what it would have to do with, not if you were about to pay off the remaining balance of your mortgage, but if you were about to refinance, if you were about to take out a home equity line of credit, then I would tell you don't freeze your credit right now because you're not going to be able to do so because the lenders won't be able to check your credit. But in this case, Derek. Oh, just freeze it away and get rid of that mortgage, boyfriend. There you go, Derek. And then Suze, here's another one. This is a great short question. This is my favorite. Look at this one line, one line, everybody. I'm looking at this with a big smile on my face. This is from Camille. I love you, Camille. It says hi Suze should I be jealous? Yes. Hi Suze. Does it matter where I decide to open a Roth IRA account? Oh you betcha. It does, girlfriend. So many times people open a Roth IRA and they do it at a bank, they do it at an insurance company, they do it at a mutual fund company. If I were you the only place that I would open up a Roth IRA. Would be at a discount brokerage firm such as Charles Schwab, such as TD Ameritrade, such as Fidelity or Etrade. So that you could buy any investments that you wanted to, you could buy mutual funds, you could buy individual stocks, you could buy exchange traded funds, you could buy preferred stocks, you could do anything that you wanted. Even with some of these, you're going to be able to buy Bitcoin. Not that you're going to be able to buy Bitcoin in a Roth, but you might be able to buy a Bitcoin ETF in a Roth. So yeah, it makes a big difference. So, stick to the firms that I just named. All right, Next question is special, Suze. This is a June 5th, 2021 question. Who has my birthday? That's why, the subject it says June 15. Are you looking forward to my birthday? Yeah. Are you looking forward to your birthday? No. Oh, come on. Why? I don't know. I'm just not. I mean I'm just being honest, KT because you're turning seventy. Yeah. Does it scare you. It doesn't scare me. But, but I mean it's a reality and I'm sure other people go through things like this. Our Friend Dennis Just turned 70 and I said Dennis, how's it feel to be an old man? You know what he said? He said, you know what? I feel great. I've earned this rite of passage. That was his answer to Me, but I love that Danny. I know, but KT, I think about things like your mom that died at 82, Which is, would be only 12 years from now KT. Got to make the best of it. Yeah, but I think about my dad that died at 71. I think about all these things and what makes me sad about it isn't that I would die. I don't personally care. But then I wouldn't be with you. I think about your mom who made it to 97 and your auntie, what was she like, 95, Mommy would have gone on forever, Everybody. But for some reason she didn’t want to. Suze, you have great genes. You're going to be around for a long time. Yeah, but KT, I want to tell you something. I don't want to be around without you so you better have good genes too. And I'm not sure you do. Mine are happy. All right. This is from our birthday girl and I hope I pronounce your name correctly, but it's Myura. So, she shares she's turning 60 by the way. Suze's turning 70. And Myura has an interesting question. She's been married for 38 years and she and her husband have accumulated a really nice nest egg. They're doing very well actually. And the question is so they've got about $2 million. But where is that? They've got about $2 million and I believe it's in her husband's 401K. And he's retiring next year. So. And how old is he? 70? All right. So, here's the question though. They're both doing quite well and it said we want to convert about 150,000 a year from an IRA to a Roth IRA, drawing an additional 35,000 from the IRA to pay the taxes on the conversion until all of about one million is converted to Roth. Good idea or bad idea? And again, I have one of these expressions like this like why? There might be some reasons but all their money currently is in $2 million. The majority of it in a 401K. And they want to do a roll over with it at a discount brokerage firm. Good. But once it's in the discount brokerage firm, KT what they're asking. They have $2 million. They want to convert about $150,000 a year. Pay taxes on it. Take out an additional 35,000 and it's gotten a little complicated. But is it a good idea or a bad idea? I have to tell you, you can do it for one or two years if you want to get some money into a Roth IRA. But where it's going to start to get very complicated is remember your husband is about to be 70 years of age. When he turned 72 years of age, he is going to have to start taking out required minimum distributions from the IRA. And the problem with that is you cannot take a required minimum distribution and convert that to a Roth. You have to take your required minimum distribution, okay? And then if you want to take more money and convert it whatever you can. But it's going to become very complicated for you, number one. Number two, even though I know you think it's a good idea to do this right now unless you have a whole lot more money or your children are in a seriously high-income tax bracket and you want to make sure that they get to inherit everything tax free. So, you're willing to pay the taxes now because you're going to be in a low tax bracket when you start doing this, I have to tell you, I wouldn't be doing it. I just wouldn't do it. Given that required minimum distributions are going to have to start in essentially two years, I would just be taking out that money at that point in time. I don't know. I just wouldn't be doing $150,000 a year into a Roth. That's a big tax burden. So, I have to say Myura. I know we share a birthday and I wish you a happy happy birthday. But if it were my money would I be doing that? I would not. Spend some of that money and have a great party. Well, she has to start taking it out anyway in two years. It's just that. Have a great party of your turning 60. $50,000 a year, I just want to say KT, $50,000 a year in taxes and everything over 10 years at six or seven percent is almost $800,000. It could have grown too. For what? I don't know. I just wouldn't be doing it. Okay. That's a good idea. Next is from Nicole. Hi, Suze. Hope all's well and thank you in advance for reading this. I am debating if I should purchase my current car lease. She has a 2018 Ford Edge at a three-year lease at $380 a month. It ends soon. And why are you looking at me smiling? I'm just saying sometimes KT reads all of these things that she doesn't have to read in the email to get to the question. But she likes to so I am just smiling because she's reading it. I thought a lot of people like to know what kind of car it is. Yeah, but I don't think they care about how long her car payment was for and how much it was for. I think the question is probably, even though you haven't asked yet, is should she get rid of it and buy a new car or lease a new car? Or should she buy this car? I'm getting there. I'm getting there. I'm getting there. All right. How's that feel? How does that feel that I'm telling you, you need to hurry up. Ok, because KT is always saying to me, come on, come on, go faster. Don’t answer so much. Sometimes, Suze's question answers are so long. It's like, oh my god, how are they going to remember everything? So, the buyout amount ready buyout, including taxes is $25,680. Now, she doesn't really feel like partying with 25 K in one lump sum. So, she's asking you if I finance, Should I do a three or four-year finance to listen the monthly payment or should she buy a new car? No, you shouldn't buy a new car, number one. Number two, you've been driving this car, you've least very little. You love this car because you're even thinking about buying this car. So really, the only question isn't, should you buy a new car or not? The question is, should you pay for it in full or should you finance it over three years? Never four years, three years is the max that you can finance it in my book. So that's up to you. But since you don't really want to part with $25,000 in one lump sum, don't. Just finance and interest rates are low right now. And I'm going to assume you have a good fico score. So just finance it. How do you know? Because she told me, oh and it says she's a great fico score. What's interesting though, KT, here's a quizzie for you. It says I do have a great score of roughly 860. They only go to 850, right? God, I'm so proud of. She's looking at advantage score or a credit score from credit karma. So I don't really know what real fico score is, but I'm going to assume that it's relatively okay. So, you'll get a low interest rate and you should absolutely do that. Um but I would not be buying a new car. All right, you're so cute today. What is wrong with you? Okay, this next question puts a big smile on my face, ready. It says hi Suze and KT. Thank you for all the advice over the years. Through your Tv show. And now with KT on the podcast, my entire family is a fan. That's not. It says now you with KT on the podcast. Alright, so this is some advice that we need to give Vanessa. So, Vanessa and her girlfriend were engaged last year and they're going to be married this summer. I'm happy you girls are getting married. Yeah, listen to this though. Vanessa would like to have a prenup but also list her fiance as a beneficiary of the trust. Is it possible to do both? So that upon her death she would inherit my assets. But if we ever got divorced, my assets would be protected. So, Vanessa's concern and is asking, Vanessa, this is KT here telling you this is I agree with you that question. And her concern is she went through parents that got divorced and I get it. I get it. So, what should she do? So, here's the thing you should do a prenup. But whatever you do, if you do a prenup, don't get yourself in a situation where one day your girlfriend or your then wife says, can we dissolve the prenup? Don't ever dissolve a prenup. You hear me? No, because the prenup that and then it would be a postnup. What's important here to understand is do the prenup, make sure you each have your own lawyers, make sure that each of you make changes to the prenup. So, it's obvious that you read it because otherwise if you just sign one and then later on then the spouse can always say, or you could say I didn't read it, I didn't know what I was signed. And use different lawyers, use different lawyers and make sure you do it at least six months to one year before you get married. However, of course, you can also leave your spouse as beneficiary of your trust and if you ever do get divorced, then all you have to do is change your trust. You can change that to anything you want. But you also have to remember this, once you legally get married and now you've been married for a while. You have to make sure that you understand that everything that you earn while you are married or you accumulate while you are married, the prenup isn't going to protect you against that. A prenup will protect you against what you're bringing in, that was in your individual name, before you were married. So, you'll have to split something there at that point in time. But you can change your trust any time you want, especially if you use our must have documents. Vanessa ordered them. Great. Do you know? She said she's getting married this summer. So, you better do this prenup now you've got to do it quite a few months before the well May, June, July, August, September, I would not be married before September. If I would get married in September, do a full, we got to get married on September eight, which is the day we got married. Yeah, the next question is from Marcia, she is 71 years old. She's a widow and now she lives. See, that's what I'm talking about. Remember I said to you that you asked me, am I looking forward to my birthday. And I said no and Marcia's 71 and she's a widow. Do you understand? I'm not going anywhere. But do you understand I mean, it happens, things happen anyway. I don't mean to be a downer there, but I think about those things, KT. All right, go on. Maybe I just read too many emails. Too many emails. But here's the thing Marcia has a really important question for you. So, she's doing fine. She's got four properties with no mortgage. She has them all paid off, and her brother, ready, and you know that her husband passed. So, they've got all these homes. The brother keeps advising Marcia to take out a reverse mortgage. And the reason he wants her to take it out is she needs to do a little work on the log cabin, which is one of her favorite homes that she's going to keep. So, what do you what should we do here? I don't know, Suze. She's got four homes. Sell them, now you don't have to sell all of them, Marcia I want you to think about this. Real estate is at the top of its game. Right now, it's over the top. You are never ever to take out a reverse mortgage. You could tell your brother Suze Orman said, are you kidding me? No way. Especially right here and right now with interest rates as low as they are. What I would like to see you do is choose one of the four, one of the four. You can keep three and sell it and let that be the house that gives you the money to fix up the log cabin. If the log cabin is what you want to keep. I don't know, maybe you could look at and go, I just want to keep the log cabin and sell the other three and take advantage of these high real estate prices or whatever it may be, but I would not be doing a reverse mortgage. All right, KT, know what time it is quizzie time. Are you ready? What is this one? This one is interesting because it says hello KT Suze and Colo. We have to show him this one. He'll love that. I wish you all could just meet Colo in person. I'm gonna put him, I'm going to have him come on the podcast with us but not let him know. He's too shy as soon as and we're just on microphones. Can you imagine when we put a camera on him? He's like a deer in headlights, totally shy. All right. Here's the quizzie everybody. And I want you all to listen because you have to answer this quizzie, as well. All right. So, this is from Donna, and Donna and her partner will be selling a residence and moving to a beach home that they purchased last year. Okay. Now what's great is that, you know, she's worked as a nurse. So first of all, we want to say thank you so much, my dear Donna, for all the nurses and all the health care workers out there. I mean, how do we even pay them back? I mean, what do we even do to show you how much we appreciate you. But anyway, you have money. Everything's good. You have mutual funds, retirement accounts that have at least $1 million dollars each in them. Okay. She also has an emergency fund KT of $89,000. They have the must have documents. So, how's she doing so far? What kind of grade would you give her? She is like a ten, really great. She has no credit card debt at all, no car loans, nothing. On the beach home, however, she still owes $200,000 and it's a 30-year loan at 3.3%. And she's going to have $240,000 in cash after she sells her residency. So, the question is, what's the best thing for her to do with that $240,000? Should she pay off the beach home mortgage? Should she fund her Roth accounts? Should she keep the loan on her beachfront property for tax write offs for a few years? Should she invest some, what should she do with this $240,000? How old is she? She is 61, pay off the mortgage. Yeah baby, I got it right. You did. And here's the reason why. Did all of you get that right? Donna you owe $200,000 on a home that you are both going to move there and live there. That's going to be your home. So, remember when you retire, I want you to own your home outright. You're paying 3.3% on it. You're really not making that much of an income. I looked at a few other things that you said you're taking home for $45,000 annually. Not that much. Pay off the mortgage, now that's still going to leave you $40,000 because you owe 200,000, you have 240. That means you can still fund your Roth IRAs if you have earned income, you can still invest some, you can even take a vacation, so you could do anything you want. But truthfully don't get tricky here, don't get tricky and pay off the mortgage. I would take that extra money and put it into my beach house maintenance fund because you live on the beach and I can tell you, you're going to need more maintenance than you thought. I know, we know, speaking from experience, big experience. All right, Miss Travis, that was a good one, that is a wrap. Okay, good. Right, well listen everybody listen up for Sunday because this Sunday is going to be really fun. Why? It just is it's gonna be really fun. No, I just want you all to know. We don't have a clue what we're doing Sunday. So therefore, she's just putting it on into the atmosphere. That is going to be fun. Fun, fun, fun, fun. Alright, everybody until Sunday, which is going to be fun even though we don't know what we're doing. You stay safe and now we love you all so very, very much. Bye bye bye.
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