Investing, Retirement, Roth, Roth IRA, Stocks
January 20, 2022
Listen to Podcast Episode:
On this podcast of Ask KT & Suze Anything, Suze answers questions from listeners Anita, Stephanie, Bill, Johanna, Maila, Ted, Terry, Samantha, May, Mika and more, selected and read by KT.
January 20, 2022. Good morning, Suze. I know why you're so happy today KT. You better believe it. I'm going Wahoo fishing as soon as we're done with this great podcast. Look at her little face. I'm not going with her, right? But Colo and KT are going because the season, Wahoo season, it's almost over, almost over at the end of February and it's been so cold here, hasn't it? Really chilly willy yeah, I know I have on a big sweatshirt. I'm so cold this morning, KT, how come we built a house with no heat in it because we live in the Bahama. Alright, alright, everybody, this is asking KT and Suze Anything and here's how it works. It's very, very simple. You want to ask us a question now, why wouldn't you want to ask us a question, KT? Do you know why they wouldn't want to ask us a question? Silly if they don't ask silly, silly, silly. If you want to ask us a question, just write your question into ask Suze podcast. That's S U Z E Podcast at gmail.com. And if KT chooses it, we will answer it on the podcast. However, and all of you know, this is true for all of you that I've answered personally I to go through those emails and if one of them catches my eye, I will answer you personally. All right, KT, what's the first question? We have a great lineup today. Just you know, by the way, every week you say that, but you say that every week we look at this pile. I have over 20 I think I have about 15 questions, I don't think we'll get through them all, but we may. So, let me give it a shot. This is from Anita. Hi Suze and KT. I'm a huge fan. It was Suze's guidance with the recommended emergency savings that helped me keep my home when I was unexpectedly laid off without any severance in 2010. I paid the home in full in 2020. Congratulations. Yeah baby! So, here's her question. My dad told me he made me the executor of his estate when he passes. I'm having a hard time asking about his accounts and his wishes. I don't want any family members to think I'm asking because I want his money. I think it would be a nightmare not knowing where his accounts are held and to figure out his wishes. I once worked up the courage to ask where he wanted to be buried. And even that conversation was really hard. So, Anita's asking Suze, I don't even know if he has a will or anything. What advice can you give her? Anita. He told you that he has made you the executor of his estate. When somebody is the executor of an estate. That means that there is a will in place because trustees and successor trustees take care of revocable trust. Wills executors are the name of the person that's been named to take care of that business. However, with that said, you listen to me and you listen to me closely. Your father told you didn't ask him, He told you he made you the executor of the estate. Therefore, you should go back to him and sit down and say to him, Dad, what does that even mean? What does that mean? You know? That's like making me the captain of a boat and I've never been on a boat before, so I'm never going to get that boat to where it needs to go, possibly I'll even sink it. So, dad, what does that mean? And engage him in an intelligent conversation because to be the executor of an estate is a big deal, it means you settle every single bank account, credit card, everything that's out there, you give the people the money that are supposed to be getting the money so you have to know where all the money is which leads into, then Dad, after he tells you what that means. Well, how am I going to do that? If I don't know where the money is. So, can you give me a list of where everything is. But the other thing that I want to say to everybody, stop making this conversation that you need to have with your elders, with your parents. One that you are afraid of having if you know your intentions, if you know that you are not talking to them because you want their money than just stop it, stop it right then and there and have the courage to ask the questions that need to be asked before it's too late. Otherwise I promise you you're going to wish you had. Next question KT. Okay greetings, KT and Suze. I so enjoy your podcast and particularly the two of you and your love for one another. So beautiful. On the scale of 10 how much do you love me? 20. That's all? Okay, ready. I understand Suze that you personally prefer ETFs over index funds. Would you please explain why what are the advantages and disadvantages of both investments? First of all, an ETF can be an index ETF and it can be the exact same index as you follow with a mutual fund such as my favorite, The Vanguard Total Stock Market Index Fund is a mutual fund. The Vanguard Total Stock Market Index ETF is an ETF both of them. However, follow the exact same index got that. Next, however, I like ETF over mutual funds because number one many mutual funds have a minimum Vanguard sometimes has a $3,000 minimum to be able to partake now that we have slices of stocks and ETF which means you have $10 to invest. You can invest it in that via many brokerage firms. I like ETFs because of that. Number one. Number two, I also like that you can buy and sell an ETF at any time, the market is open. That is not true for a mutual fund. You can only buy or sell the mutual fund and get the closing price of what it closed that day. Now I've done past podcast on this. So, find that podcast and you'll find out more in detail. But yes, I like ETF over mutual funds. Okay. This is one of my favorites Suze. Oh wait, let me guess. Let me, can you all guess out there. What do you think the topic on this next email question is? It starts with an “R”. If we ever get a little doggy, I'm going to call it Roth? If we ever had a child, I'd call him or her Roth. Alright, ready. Well, we know we're never going to have a child so and so we could have a dog. That's possible. Hi Suze and KT I want to thank you for all your help over the years. I'm one individual who has always been taken advantage of the backdoor Roth. I know late last year you told everybody the backdoor Roth option might be going away. What's happened to that? Am I still able to do a backdoor Roth in 2022? Stephanie, you can still do it, do it, do it, do it because why they haven't gotten around to it yet? So, you're still able to do it. Go KT! Okay. This is from Bill. Hi KT and Suze, I'm glad you're recovering well. I like that people know that you're still recovering Suze. That makes me happy. Doesn't make me so happy. I thank you for all the great financial. Do you think my voice will ever come back? It will. But you must stop talking. She talks all day like a parrot here. She talks to the bird; she talks to her plants. She talks to Colo all day long. She talks to me, so I try to make her sit and just be silent. Okay, ready? I thank you for all the great financial and life advice you provide to everyone. I truly appreciate you. So, this is now about introducing her to series I bonds. Before buying for 2022 do you think we should just buy them now or wait until closer to April before the rates change and see how inflation is going and if you think it's good Suze to buy them now? Should we just invest the entire 10,000 or invest a little and see how the rest of the year goes. And then Bill asks this important question. Suze, what are you doing? I thought that was so funny. What am I doing with what? I think with your I bonds. Oh, I buy them as soon as I possibly can Bill, by them now. If you have $10,000 by all $10,000 now and lock in the interest rate which you will get for the next six months when that's over. I guarantee you that you know in May when they change interest rates and everything, it's going to be either the same. Maybe a little higher. Who knows? But who cares? So, do it now. What are you all waiting for? Remember? It just doesn't make any sense to wait. I can't. Just do it okay. Next is Johanna, Hi Suze and KT. I was laid off in May 2020 and I have about 690,000. Wow. In my old employer's retirement account. The expense ratios vary from 0.08%, to 0.86%. Do you all know what that means? Expense ratios anyway? You should go on. If not listen to past podcast, go on. Should I consider an IRA direct rollover? If so, how do I go about doing that? I'll be 44 years old this year. That's from Johanna. Johanna, here's what I would tell you. Your expense ratios that you have are fabulous. No problem with those. Okay. The problem is when you have that much money and then you do an IRA rollover with it. The new question becomes, now, what do you invest in? So, if you don't have the confidence to take $680,000 and do an IRA rollover into a discount brokerage firm to invest in everything then I probably wouldn't do it, or you could do it little by little theoretically. However, it is far better to have an IRA rollover where this money is invested because of the variety of investments that you can make versus what I'm sure they're offering you in your 401K plan from your ex-employer. But the question again becomes, do you feel secure enough to do that and if you don't leave it where it is or do it little by little. The next email’s from Hawaii and I'm kind of proud because I know how to pronounce her name. It says Aloha KT and Suze. My name is Mayila Connie, I. E. Colla how's that Suze? It's actually easy, easy to pronounce Hawaiian names. You know why? All of the syllables all the letters are flat. They're all as you read them. E is E. A is A. I is I. So May-Ella. I did do that. May-ila Connie A E AH Colla. Okay, I'm proud of you. KT. Go on. All right, so here's what she said, you'll like this. I hope you're feeling better. May your voice get better soon. Your raspy voice is pretty cool to hear though. Oh good good good, good. And then she said she listens to you every week when she works out in the morning. But here's her question. She's happily married. They have three kids, 12, 9, and 6. Her husband's 43 she just turned 40. What she's not happy about is they have accumulated debt. Suze, they have $32,000 of credit card debt. They have a combined income of about 120,000. However, they're barely making ends meet Hawaii's very expensive and what they want to do. And the question is we'd like to get out of this credit card debt so we can then focus our energy on paying off our mortgage and heloc. Then we would be debt free. So, she's asking if she should look into, I guess debt consolidation companies or whatever advice you can give them in terms of getting out of this $32,000 of credit card debt. The most important thing to get out of credit card debt is to number one always pay more than the minimum payment due and number two make sure that you have the lowest possible interest rate available. So, this is the time that you look at your Fico score's your credit scores and if you have a good one 700 or above 720 or above. Then I would apply if I were you if you have a high interest rate to lower interest rate cards or do a balance transfer to a card that has a 0% interest rate for like 21 months. They are out there. So first you have to do your homework and make sure that you have the lowest possible interest rates available to you. Next. You are to line up your credit cards from the highest interest rate to the lowest interest rate. Next you are to put and do this on paper. Everybody you are to put the minimum payment that is currently do on this month's statement and each one of those credit cards Then you are to total up the minimum payments that are due in total. All right. And you are to add 20% to that. So, let's just say after adding up all your credit card minimum payments that are due it comes to, oh let's just say $800 a month. You are to add 20% to that or $160. Then what I want you to do is take that $160 that you are going to find somewhere, and you are going to add that to your monthly payment of your highest interest rate card. Got that. Now the minimum payments due that you have all written down for this month or you have written down for this month, you are never going to pay less than that. So you're going to pay the minimum payment due on your highest interest rate card plus the $160 in this example when that card is paid off, you're going to take that minimum payment that was due the $160 and roll it down to the next highest interest rate card that you have been paying. That fixed minimum payment due as of this month and you're going to continue to roll that down until all your cards are paid off. It is just that simple if you do that, you will be out of credit card debt before you know it. Now. One last thing can you just put all those credit cards away, put them in your freezer, freeze it right here because the key to it is you cannot use these credit cards anymore. Period. Aloha and Mahalo. Oh my God she has, she, we have to start videotaping these podcasts. She has the biggest smile on her face. Makes me want to have a huli huli chicken. What the heck is huli huli chicken? You've never made me huli huli chicken. We have to go to Hawaii for that. I love Hawaii. I wish we didn't live so far from Hawaii. Well we live on the other side. Do you know that I used to boogie board all the time on really big waves, not only in Hawaii but like in Half Moon Bay? Everything I did, did you ever get a real tumble in? Oh my God! In Hawaii the first time I caught this huge wave, I didn't understand that it sucks up all the water. So, in front of you there is no water and I tumbled and tumbled. I didn't do that again. Alright, okay, this next one is from Ted, I'm so happy you're feeling better, your advice has served me well over the years and I feel financially secure at age 60. However, in September 2021, I invested $10,000. 2.75% of my rollover IRA and Schwab US TIPS ETFs. Okay. I was thinking that because of the high inflation it would be a good investment as a hedge against stock market volatility. I received dividends of $181 and the current value for 160 shares is 9,860. The interest rates have not yet risen. Why are the TIPS losing value? Because you don't understand how tips especially tips ETF work first of all. Want me to tell everyone what TIP is? Yeah. When you go into a restaurant and leave some Treasury Inflation Protection Security. Did you look that? I did Suze. Because I thought you'd say KT, do you know what a TIP is? And I didn't want to say yeah, I'm a big tipper. You're not as big a tipper as me. Never will be. Here's the thing. And on Sunday I guess I need to do a Suze's school on the difference between I bonds and TIPS. Treasury Inflation Protection Securities which you also can buy through US Treasury direct. But to answer this question very simply it's these TIPS don't raise the interest rate tips. The interest rate is fixed. What changes is the amount of money so either the if inflation goes up, they add that inflation to your principal. But that's how it always works. If you buy an individual TIP, if you buy a TIPS ETF they tend to work like regular bonds. And so, when interest rates go up the value of your TIP ETF will go down. So that's what's been happening to you. If I were you, I would do a Series I bond or a Treasury Inflation Protection Security directly through Treasury Direct where you can buy individual ones and that would be far better off. Wait, I have to say one other thing. KT everybody. You have got to get this right. When I talk about series I bonds do not put them in the same category as when I'm talking about corporate bonds, municipal bonds, Treasury bonds and so forth. But it's really important. So, when I say I don't like bonds right now and then you get confused because I'm telling you all to buy series I bonds. They are not the same. They are not the same. Do not put them in the same category. This this next email is from Terry. Hi team SOKT. Do you like that one? I like SOKT but should we tell them what? Really? What how we do our initials? Really? KOST yeah KOST that we don't forget it because it's KOST. So, it's Kathy Orman Suze Travis, KOST. Okay, I wish I could change my name to your last name. No, this is fine. All right. This is this is a question from Terry. To be Suze Orman Travis. This is a question from Terry that I think lots of people will relate to. Is not playing with me today. People. This is an important question about a widow. So, let's listen up. My husband died when I was 53. He began taking his social security benefits when he was 62 before he died. I'm now 57 and my understanding is I will be able to take a portion of his social security benefits when I turned 60 then I will be able to change from his to mine. Mine will be higher once I turn 67 I just want to make sure I don't have to switch from his to mine when I am eligible for mine at 62 and can wait until my full retirement age of 67 or 70. Is that correct? It's kind of like a little riddle here. So, can you just give people the simple rule Suze? It's a little riddle here. It's not a riddle. It's just how it works. So yes, Terry when you turn 60 you will be able to collect your deceased husband's social security that he was collecting. However, because you're collecting it before your full social security age you will only get 71.5% of what he was getting at that time. When you turn 67 your full social security age you then will switch if you want to whatever amount that will be. And or if you wait till 70 or whatever age between 67 and 70 you will get that full amount at that time. But because he took Social Security early, he was penalized. And now in terms of not getting his full social security and when you take it at 60 which you should by the way you will get 71.5% of what he was getting. Okay good. You set that straight? Okay Suze. Next question is from Samantha. Hi KT and Suze. I have a quick question about retirement. I'm 54. I plan to work until age 70 at that time. I hope to have over, wow, I hope to have over $2 million 401K. If I only take three or 4% out per year won't my gains make up that difference. So provided the market does reasonably well after I retire, I understand there's no guarantees won't my money keep replenishing. Sam. So, Samantha you're 54, 70 is 16 years away and somehow you say you hope to have over $2 million 401K. However, what will 16 years from now what will that $2 million, $2 million, what will that buy? And how did you figure out that you would have $2 million dollars if inflation keeps up at 7,8,9, 10% a year then what will that $2 million dollars by no way for us to know because we don't know what inflation is going to be. Number two. Hopefully you figured out that you would have $2 million based on maybe a 3 or 4% annual average rate of return. So that's important because we've just gone through you know many years of a bull market, everything's great. Well guess what bare markets can last 15 or 18 years as well. So, you have to plan every year according to what is happening now. With that said if you only take out three or 4% it also depends on what are your expenses are those stocks, are those investments generating income for you? So, a safe way to also play it is to make sure that you have high dividend paying stocks within that retirement portfolio so that it at least pays you the income that you know you're going to need because if the market start to take a hit that two million could go to one million in one year very easily then watch. So, there's no way for me to say in 16 years from now is that going to be enough? I have absolutely no idea but you have to look at it at the time and be really, really conservative and make sure the biggest thing is that when you retire, if you own a home, you own it outright, You own your car outright. You have no credit card debt; you have a lot of money in emergency savings accounts that you really have set yourself up. So, it costs you very little to live. Oh, she, I'm not sure if you like that answer or not. I just was thinking that the first thing you said was 16 years away. I mean she's calculating, who knows what's going to happen in 16 years. Yeah, that's why I like the what ifs and you can see it happening right now, KT, you know the other day on the Today Show, which we watched every single morning, They did a whole thing on orange juice and how much more orange juice is going to cost you now and again, we all know that everything is costing more. So how do we know what things are going to be costing 16 years from now? And you know, so we have at the same time we have inflation going up. So, everything is costing more. We have the stock market taking serious hits in certain areas. And so, do you have as much money as you thought you had, if you were retiring this year, you may feel like, oh, now what am I going to do? So, it's interesting, KT things change very quickly. So, this next question is a good question. This is for me. No, but this relates a little bit to what we just talked about. Hi Suze. Our company offers traditional 401K. And Roth 401K. I'm 47 years old and had always been contributing to the traditional, they just offered the Roth last year. Which one is more beneficial for my age? May’s putting 15% of her income in right now. So, she's asking which one is more pay. KT you know how to answer this one. Roth go for the Roth. But let me ask you this Suze, she's been contributing to the traditional, so you just leave that, leave the traditional, just start putting new contributions into the Roth. If your income can tolerate it, meaning you're not in that high of a tax bracket given that you're still so young, you can start converting little by little money from your traditional 401K to your new Roth 401K. Just know you will owe taxes on any amount that you convert but you have enough time to make up for that tax loss and everything. So as much money as you can have in a Roth situation, you absolutely should. And if you have more money, open up a Roth IRA if you qualify it for its income wise because you can have both KT. So, Suze and keeping in the spirit of Roth, KT, can I say something right, the Roth retirement accounts really are the most extraordinary place to save money bar none. So the reason that I like that you choose so many questions about Roth, is that every single one of our podcast listeners, KT need to understand the importance of having a Roth retirement account at work, a Roth IRA, a Roth whatever you can have, because there will never, ever, ever again be a retirement account that's as beneficial as a Roth in the long run. Okay, so all the nurses out there, listen up, this is from Mika, I'm a registered nurse for the VA, they offer a traditional TSP with a 3% match and a TSP Roth. I've recently heard you talk about how you love the Roth’s and prefer that over the 401Ks And TSPs which makes complete sense to me. But what about that? Free money from the match. So, the question is should I contribute 3% to the traditional TSP just to get the match and then max out my Roth in addition to that. Should I consider moving those TSP funds into the Roth? So, I just answered that a little bit ago about converting from a traditional 401K to a Roth 401K. So, Mika the same would apply to you. However, please listen to me and everybody, you need to get this one point really straight. If you put money all of your money into a Roth 401 K, a Roth 403B, A Roth TSP, and your entity that you work for matches your contribution, they just simply match what you put into the Roth portion into the traditional TSP. You do not have to put your money into the traditional TSP, the traditional 401K, the traditional 403B, to get the match. That's simply where the match goes because your employer wants a tax write off. So, you could fully fund or do whatever you want with your Roth employer plan and you will still get the match in the traditional one. You all have to understand. That's how it works. So yeah, continue to put whatever you want into the Roth TSP and you probably qualify for a Roth IRA and you should have a Roth IRA as well. Alright, it is quizzie time KT, I'm ready, Suze. Then I'm going fishing everyone. Alright, I know the sun's almost up. You gotta get out there. Hi, Suze and KT, I have been listening to your podcast for several years and appreciate the wealth of information that you provide. They love you, KT. My question is in January. Listen up everybody because this is not just a quizzie for KT, this is a quizzie for all of you. In January 2022 I converted for the first time $60,000 from my traditional IRA to my Roth IRA couldn't you have done it in like you know, half in 21 half in 22. But that's beside the point. The question is, when am I required to pay the federal taxes on this conversion? Now, they converted just this month January. Okay, is it by the end of the first quarter of 2022 or when I file my 2022 taxes in April of 2023? Which one? Well I have a feeling it's at the first quarter, but I want to say it's when you file your taxes, however people can extend the filing of the taxes. Right? That has nothing to do with the answer. Okay, so I'm going to go with the first quarter. Unless both of those. Are you positive? Maybe both of those are wrong. Okay, I'll go with the first quarter. It was when you file your taxes. Yeah, that's what I thought. Taxes for anything really that you do in 2022 especially when it comes to converting money from a traditional retirement account to a Roth do not need to be paid until you file your taxes and the latest state you can do so is April of 2023. So that's the answer to that. However, I do just have to make a comment when you are thinking about doing a conversion everybody and you're thinking about converting at the beginning of the year, unless there's been a dramatic income change for 2022 for instance versus 2021. Why once you have done $30,000 in 2021 in December, $30,000 in January of 2022 you then would have split that tax liability because $60,000 all at once is a lot of money. So, don't do it that way. How many fish you're gonna catch today? I knew you were gonna ask me that question. I'd like to catch three, but I'll be happy with one Wahoo on the boat. But I'd like to catch three Wahoos on the boat. So, when she asks how many fish, you always have to specify Wahoo because we catch fish all day. We catch Barracudas, we catch Mahi, we catch all kinds of fish, but we want Wahoo and how are you supposed to say it? Three on the boat, at least at least three Wahoo on the boat. Never limit what's meant to come your way everybody. So, until Sunday we want you to make sure that there's only one thing that you know, we want for you and that is to be safe, strong, and secure. see you Sunday, good luck fishing KT. Thanks Suze. 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.
Saving, Investing, Home Ownership, Retirement
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