Podcast Episode - Ask KT & Suze Anything: Don’t Feel Doomed With Your Money

Emergency Fund, Family, Must Have Documents, Podcast, Trust, Will

March 21, 2024

On this edition of Ask KT and Suze Anything, Suze answers questions about investing for a 90 year old parent, paying for a family emergency, why you need a will and trust and so much more.

Listen to Podcast Episode:

Podcast Transcript:

Suze: March 21st, 2024. What's today, KT?

KT: It means spring is in the air, Suze.

Suze: And what does that mean when it springs in the air around the island?

KT: Tell everybody little chickies are born everywhere. Little peep, peep, little tiny chicky, they look like little balls of fur.

Suze: So as we ride around the island, wherever we go, we see the chicken with how many like usually five or so.

KT: Once we drove around trying to find which hen had the most babies and once Colo and I counted 13 because they usually have about from 4 to 6.

Suze: So there are hundreds of little chickens.

KT: I took a photo, I took a photo yesterday. So Suze will post it on the wall today.

Suze: All right. But they weren't our chickens. Our little chickens only had, had one little chicken, right? But welcome everybody to the Women and Money podcast as well as everybody smart enough to listen. This is the KT and Suze edition where you can ask us a question. And if you want to, you just have to write in too. Ask Suze - SUZE - podcast at gmail.com. And if KT chooses it, oh, we will answer it on this podcast. However,

Suze: before we begin, I have an announcement to make. Give me a drum roll. KT, is that a drum roll or a trumpet?

KT: A little bit of both.

Suze: So that's a tr...

KT: I don't know how to do drums.

Suze: You don't?

KT: No, no, that's a snare.

Suze: All right. So give us the announcement. What's up from Alliant Credit Union tomorrow? Which will be the 22nd of March. The interest rates on the 12 month certificate of deposit. They are going down just a teeny, teeny, teeny bit to 5.3% and for amounts of $75,000 or more to 5.35% just know that. So if you want to take advantage of the rate today and even tomorrow, because those are still great, great rates, go to my Alliant a lliant.com and remember if you already have an account there, you can actually lock in that rate for long, longer than 12 months. You can do it for 13 months, 14 months, 15 months, 16 months, 17 months. And then it makes it a really, really great rate. So as I've told all of you, I would be locking in for the longest possible rate that you can.

Suze: So I would check that out if I were you because it is obvious that interest rates are kind of starting to go down everywhere. All right, Miss Travis, what do you got for me?

KT: I have a nice assortment of questions. And the first one is from Robbie. Suze, my husband and I have been listening to your advice for decades and that is why we are in great financial shape.

KT: And then Robbie goes on to say that they have rental properties, they paid their home off. Everything they're they're doing is making them very happy. And she said she retired early from teaching to take care of her father. So here is the question. My 90 year old dad is selling his home of 55 years and expects to net about $400,000. He's in pretty good shape mentally and physically for now. And he currently lives with us. Where should we invest his proceeds, so they earn interest, but the money is not tied up in case I need it to hire someone at some point to help me with his daily needs. I thought maybe ladder some treasury CDs. And then she goes on and on. 

KT: So I, I love this question because it sounds like she's taking very good care of her dad while she can. But she's smart enough to know there will be a time that she needs help. So they're keeping his money really safe to take care of him. Very, very generous Children. So she said, what would you suggest we invest his money in that is safe and accessible if necessary.

Suze: So it's going to be how much money?

KT: About 400,000.

Suze: You know, it's interesting because it's, it's a little bit confusing right now. Only in that if you look at treasuries, which are really relatively liquid. If you invest in a treasury, they're absolutely state tax free. And if you need the money, you can always sell them on the secondary market, especially if you buy them at a brokerage firm, do not buy them from treasury direct, buy them from a brokerage firm and therefore the money is relatively liquid. However, if you look at a two year treasury as we're recording this, they're only going for about 4.67%. If you go out further, you're looking at like a 10 year, only 4.27% even a 30 is at 4.4% today.

Suze: Compare that seriously to the certificates of deposits at Alliant Credit Union. And this isn't about Alliant Credit Union. This is really about the highest interest rates out there. You could do a 12 month all the way to 17 month and lock in as of tomorrow, 5.3 or 5.35% which is considerably higher than what you would get in a two year treasury.

Suze: So it also has to do with what state you live in and are you with a high tax bracket or not? So, I would tell you to do a combination of many things. It is obvious that eventually interest rates will go down. So, are you better off doing a 10 year treasury at 4.2%?

Suze: And at least, you know, for a portion of the money anyway, at least, you know, you have locked in that interest rate and if interest rates do start to go down the value of that treasury will absolutely go up. So if you needed to sell it, you would probably make money that way versus a long term certificate of deposit where there is a penalty if you need to come out early.

Suze: So you need to think about those things. So I would do some very short term like the 12 month, for instance, with Alliant Credit Union. And again, if you already have an account there, you can extend that to 17 months and 30 days to almost 18 months, which is a fabulous fabulous rate. Then look at some treasuries and do a combination of that. You also might wanna leave some of it liquid in a money market fund. So that if you deed in money before you even thought you were gonna need money or before interest rates come down or whatever that money then is liquid for your father and its pain over 5% right now. Schwab Fidelity, they all have them also. You just might want to think about certain dividend, paying stocks  that are paying a lot higher dividend for a very small amount of money. So possibly there is still some growth and things like that. However, at 90 years of age, I probably would not be doing that. But if you go to see a financial advisor, they may recommend that.

Suze: But I have to tell you, I wouldn't be doing that, stay away from annuities at this point in time and just do a combination of the things I just said. All right, KT.

KT: I think Robbie is great for taking care of her daddy. Love that. Ok. This is another situation where a family member needs to help. The whole family said hi, Suze. Thank you so much for being available for your listeners and for helping us to make smart decisions about our money. My nuclear family has had a personal emergency and will need access to about $35,000 over the next year.

KT: I have $33,000 in my 401k from a previous employer. I don't have any other 401k accounts and just began a career as a self employed mental health therapist just started that. However, my husband is a member of the electricians union and has not only a 401k with them but also an accruing pension in order to fund my family's emergency. I'm considering two options and, and this is where it gets very tricky, Suze.

Suze: My little heart is pounding.

KT: I know option A, take out a personal loan and Christina is writing to you and she said she doesn't have a clue about how to do this. And then she said, option B, assuming this is the part that makes me a little bit sad, assuming I can roll my $33,000 into a Roth without any penalties, I could put the money there. And then if I understood you correctly access that 33,000 without being taxed, this will mean I will drain my retirement savings.

Suze: And also it's not even how it works. You to stop that there.

KT: So, but wait, then she's asking um that now she's asking question one.

KT: My husband has a 401k and a pension. Shouldn't we be ok without my 401k money? She's willing to lose all of her money. Help her with some ways she can help her family.

Suze: So, Christina, here's what you first need to understand about your second option. If you roll your traditional 401k from an ex employer to a Roth IRA, you are going to pay taxes on that $33,000 and the taxes will be ordinary income because you won't be rolling it. You will be converting it. So all conversions are absolutely taxable in the year that you convert.

Suze: So you would lose a nice portion of that to taxes. However, once you convert to the Roth, if you then want to take it out, you won't have to pay taxes on it again.

Suze: But given that it hasn't been in there for at least five years, you will pay a 10% penalty on it if you take it out at that point in time. So you're gonna lose a good portion of that. You can't do that conversion with the $33,000. It makes absolutely no sense. What so ever next? Your husband's 401k.

Suze: Hopefully your husband has at least $70,000 in his 401k.

Suze: He could take a loan from his 401k for $35,000. Use it for the emergency and then over the next five years from his paycheck, he would simply pay it back out of everything that you suggested. That is what you should do if you have got to do this. All right.

Suze: So where your option A is to take out a personal loan?

Suze: Maybe that makes sense. But I have a feeling that you would be better given today's interest rates to have your husband do the 401k loan from his 401k. If he does not have that much money in his 401k, he's only allowed to take 50% of his balance out. So, whatever that may be, we're in a bind here because you cannot put yourself in a situation where if something happens to you and you both use up all of your money and all of a sudden now you're in an accident, something happens who's gonna save you?

Suze: So you really have to judge what is this family emergency. It's a personal emergency. That means one person needs access to the money. You don't tell me what it's for, but you really have to think about this because you very well can be putting yourself in a situation where you may have to ask another family member to help you.

Suze: So I just need you to think about that. But the best choice, your husband taking a loan from his 401k for whatever money he can and helping the family member for as much as you possibly can. If that is your decision. That's a hard one, KT. Why do I just have this feeling that the personal emergency isn't a sickness or whatever.

KT: It's not life threatening, whatever it is, whatever it is. It's, it's so, it's, it's a shame that it's on her shoulders or she's taking it on her shoulders.

Suze: But I would really think twice before this because you just don't have the money. You just don't. But anyway.

KT: Ok, so Suze, the next one is from Betsy and this one's a little more enlightening.

KT: It said subject 65 year old insurance policy.

Suze: So does that mean that she's 65 or they, she has a policy?

KT: Let me read this to you. It was purchased when she was born. So it's about 65 years old. The policy and Betsy. Hi, Suze. Several years ago, my mom gave my sisters and I $500 insurance policies. She bought these when we were born.

KT: Both my sisters cashed theirs out and got about $1500 payout. I decided I really didn't need the money. So I put mine at the bottom of my fireproof box and I recently came across it when I called Prudential. I found out it was worth $9000.

KT: Yeah. Lucky her. I had to get everything put into my legal married name and attach a beneficiary. My question to you is what should I do with this policy? Leave it alone and let it grow, cash it in and reinvest it. What should I do? Thanks from Betsy.

Suze: All right. So 65 years ago, if I have this right, KT, mommy probably put in $500 into this policy in one lump sum and here we are 65 years later and it's now worth $9000. Now, Betsy, years and years ago, insurance policies were really very different than they are to this day. So what I want you to do, I want you to call Prudential and ask them, what is the guaranteed interest rate that this policy is going to be paying you minus the insurance costs because as you get older, if you're the insured on here, your insurance costs increase and increase and your actual interest rate decreases, you need to know what you are going to earn on this $9000 net.

Suze: Now, if you simply look at and I think my math is right here. $500 growing to $9000 over 65 years. That's about a 4.5% interest rate over 65 years, which is a great interest rate. So, before you cash anything out, you need to find out more about this policy because if it's going to continue to pay you 4.5% net on your money, you might as well just leave it there. But if it's not, and it's under what the current interest rates are paying or do you have credit card debt? Are you in a situation where you could use this $9000 then you might want to consider cashing it out. But I don't know enough about your situation to be able to truly answer that question for you. So therefore you need to find out the answers to the questions. 

Suze: I also need to know that you are in good health because the last thing you want to do is ever cancel a life insurance policy if you're not, and you need to consult with the tax person, how much of this $9000 is going to be taxable to you? Because if mama only put in 500 it's now worth 9000, $8500 of it could be taxable. So those are the things that you need to check out first and then make your decision from there.

KT: I have a question. If she kept it and she died and it went to her beneficiary, then it's tax free.

Suze: But we have to know...

KT: Like she's probably in great health.

Suze: But no, we have to know what is the interest rate now that she is netting and that will make the decision as well as what is her tax bracket. There's all kinds of things we would need to know which I just want to say something about.

Suze: It is very important when you, all of you listen to me. Now, when you ask a financial advisor or anybody, a question, it is essential that the financial advisor in order to really answer that question needs to know a whole lot of things before they can tell you what to do.

Suze: So when you write me and you say Suze, I have $50,000 how should I invest it every year? I cannot answer that question for you. If this was a live radio show and we could interact and I could answer everything or I could ask you what I need to know, then I could. So when you write in questions, just remember that. Ok.

KT: Next question is from Leslie.

KT: She said, Suze, I'm a 70 year old, divorced and retired woman. My alimony will end in four years along with social security. I rely on my alimony to pay my rent. I have money in an IRA and an annuity. I use a financial advisor, my debt is $9000 of credit card debt.

KT: I've always lived beyond my means and was terrible at saving. Now, I'm so disappointed in myself that I'm in this position at my age. I know you'll give me your honest opinion and my annuity is not affected by the stock market. It has $90,000 in it. My IRA has only 160,000 Suze. I feel doomed.

KT: So, what advice do you have for Leslie? And for she's gonna be 74 when that alimony runs out and she needs it.

Suze: But she didn't tell us how much of her alimony does she get, she didn't say that. But that's besides the point, Leslie, you listen to me and you listen to me closely. If you feel doomed, you are doomed.

Suze: You do not have the time to feel doomed. You do not have the time to feel disappointed in yourself. It doesn't matter that you're in this position. What matters is that you believe in who you are, you believe you have the ability to change your situation and that you don't have to be dependent on the alimony to pay your rent. When you say that you have $90,000 in an annuity, like it is a small amount of money and that your IRA has only let me underline the word, only $160,000 in it, which is $250,000 girlfriend, that could easily provide you with 10,000 a year or more, maybe we take the annuity and you annuitize it. So it gives you more income at your age.

Suze: But there are options for you that are out there. But you can't even see that because you feel so doomed. You feel the only solution to this problem is the fact that you were getting alimony. That is not the solution. Therefore, you need to change your mindset. You need to look at what is your social security along with possibly an extra $2000 a month? From what you have? Could you get along with that? Do you go and live in a different place where your rent is even less? Do you have to move? What do you have to do? But you are not doomed unless you continue to think that you are. I don't know, KT, I think at 74 with $250,000 with social security don't tell me that there isn't something that Leslie can do to make it work, but it also starts with how she feels about who she is.

KT: Stand in your truth.

Suze: And stop being disappointed. What are you disappointed in? Right? That you got in a marriage that didn't work out well, join the crowd? Everybody. That's true. With over 50% of the people in the United States of America.

KT: Ok. Next is from Marilyn. She said, hi, Suze. I bought your ultimate retirement guide and would like to clarify something. I have numerous bank accounts, brokerage accounts, and retirement accounts. I have my two Children designated as the beneficiaries on all of the accounts.

KT: And the way she set it up, Suze, she said the designation of payable on death PODs is what she did. So the question...

Suze: I already know what this question is. Why do I need a trust?

KT: Why do I need a will and a trust? How did you know that?

Suze: Because that's where this question obviously was leading up to. So let's because she got the retirement guide and you're telling them how important it is. So here's the thing, my dear, Marilyn, what happens if you don't die?

Suze: What happens if all of a sudden you have a stroke or you get dementia or you have no idea who you are anymore because you slipped on the ice and hit your head or whatever it may be a pay on death account is not going to help you at all because you are not dead.

Suze: However, if you had it where you had a living, revocable trust where you were the trustee while you were still capable. But if something happened to you, you named one of your Children, both Children doesn't matter as a successor trustee, then they could access all of this money before you died to pay your bills, to write your checks, to absolutely take care of you.

Suze: So that my friend is the reason why.

KT: And this next question confirms it ready for this one. From Doreen, from Auntie. Doreen. Hi, Suze and KT. My sister passed away at the early age of 61. I'm helping her two adult Children with her estate because my sister did not have a revocable living trust or will her estate went through California probate.

Suze: The worst.

KT: Yes, the worst is right. And, and, and here's to the point you just said to Marilyn, why it's important. My sister owned a home. She had approximately $350,000 in equity. A little bit of money in a 401k. Um, anyway, she, she didn't have that, but she owed $12,000 on credit cards because the credit cards are non secured credit are the daughters, one daughter who has been named as the executor of the estate are the daughters obligated to pay the balance of the credit card?

Suze: They're not. So really, KT, just so, you know, that question was very different than Marilyn's because that question in that situation that you just asked me, they didn't set it up with the beneficiaries. They didn't have, you know, pay on death accounts, they didn't do that. So everything went through probate and probate in the state of California takes usually 1 to 2 years just to file for probate. Could be one or $2000 or more. And in the State of California probate fees are statutory.

Suze: So, how much of their house?

KT: 350,000 in equity.

Suze: So it wouldn't even matter if it's 350,000 in equity if that house was worth $500,000 if the fair market value of that house was 7, 800,000 or a million probate fees are based on the fair market value, not on the equity in the house.

KT: Ok. So Doreen needs to really look at what the probate law is versus worrying about if the nieces are responsible credit card debt...

Suze: And how much of this is going to have to go through probate again. Doreen, it is not based on the equity in the house. It is based on the fair market value of that house. And if it's in California, I just have this strange feeling. It's probably worth 800,000 to a million dollars or more.

Suze: Do you know KT in the state of California as well as possibly other states?

Suze: You buy a $350,000 house and you just bought it, right? But you bought it for no money down. There's no equity in it whatsoever.

Suze: And now you died, $350,000 would be the value that had to be probated. It could easily be close to $20,000 between a state and executive fees.

KT: So California is really tough.

Suze: Well, California, it's one of those states that have statutory probate fees set by law.

KT: Ok. So my last question is from Mindy.

KT: Hello, KT and Suze. I have a general question if you don't mind. I'd like KT's input on this also. This is great... wondering why you tell everybody to work till they're 70 not spend much money on fun stuff until much later in life. I know many people that have died before 70 more before 80 even more who have lost their mobility or have had other health issues that would compromise their fun in retirement if they wait until 70 to retire for myself, I sold my large house and have a nest egg which I plan to spend by traveling, which is my fun ready. I plan to retire soon. I'm only 60. I wanna have fun while I can. This makes me laugh because she's asking for my advice, which I'd like to give it before you Suze.

KT: Chances of living in your nineties are much lower than chances of not yet. Your advice for people is to act as though they will live until their nineties. Following that advice, many will have large legacies to leave to their beneficiaries. So this is a very interesting reason why Mindy has this little concern.

KT: Perhaps my view is skewed because my husband had a severe stroke at 58. I took...

Suze: Oh that's it.

KT: Yeah, so ready? I took care of him for four years while he was bedridden before he died. Now, I want to have fun with my money.

KT: So she's asking my advice. So first of all, we're, we're very sorry that you know, you lost your husband at an early age and you're only now and you're 60. You want to have fun. You were a caregiver for a long time.

KT: You're more than free and welcome from both KT and Suze to have fun. We've had fun all her life.

Suze: But that has nothing to do with the advice of waiting till seventy to collect Social Security.

KT: So the social, I understand your advice about not taking social security early.

Suze: She understands that.

KT: And trying to wait till you're 70. But if you financially can retire early, why not?

Suze: No, I never said don't retire early if you can. The key to this question is that you're saying if you can, right? So you can, as long as you know that you can if you have enough money if you wait.

KT: So wait, this gets better. This is a very, very interesting... Mindy knows a lot about you and obviously me, she said I would have thought that your view, Suze would also be skewed considering your health and what you had to overcome in the last year to get back to where you are now. Yeah, I give Suze so much credit for her remarkable comeback from her illness.

KT: So Mindy's very aware and very astute and she knows I was your caregiver, but I have to say I have to always stand behind Suze because Suze's situation was a what if probably like your husband's what if?

KT: And that is what is the unknown. Mindy. You never know.

Suze: You never know. Here's the thing my friend, if you know, for sure that you have enough money, no matter what happens, you know, maybe you have long term care insurance because the question becomes Mindy if something happens to you, who takes care of you so many times during those three years, truthfully, I think to myself, what if I didn't have KT what if she wasn't there for me? Oh, I'd have to hire a full time nurse.

KT: A few of them, a few of them.

Suze: Really, And thank God I'd have the money to do so. But what if I didn't? What if in my sixties I just decided I was gonna have a whole lot of fun and do anything I wanted and just who cares? Because I'm not gonna live that long and all of a sudden look what happens to me, you know, essentially when I'm 68, 69 years of age.

Suze: So you have to think like that. But Mindy, if you have the money, you know, you have the money, you know, you have the money in case you get older and need care, then you go for it, girlfriend.

KT: Travel, travel, travel.

Suze: And if you don't have the money to carry you all the way through. All right, do it for a year, maybe two years, but just keep track of how much you have, what's happening to it. And really, therefore what happens in your life. Yeah. It's, it's so hard.

Suze: It's so hard.

KT: Yeah, there isn't one rule or answer for any of this. It all matters on the individual's situation. So, Suze has to give guidelines that really are an umbrella that can protect the majority of people too.

KT: You got a quizzy for me.

Suze: Actually, I don't know if we have time for a quizzy. We went a little long there and this is kind of like a quizzy. What we just answered from Mindy because you gave your answer. But the quiz I had for you, was a can I afford it quizzy.

KT: So maybe we'll do it Sunday. Let's do it Sunday. 

Suze: Oh, all of a sudden you're joining me on Sunday.

KT: Everyone liked me, right? Did you all like me there? Sunday? Let's do it. Can I afford it segment? That will be really fun for those of you that have never experienced one. You stay tuned on Sunday and listen up, KT's coming in to do a Can I Afford it?

Suze: You know, who else wants to join us?

KT: Colo!

Suze: So early in the morning Colo comes in and he says, when am I gonna be on the podcast again? And we both looked at him and went, you wanna be on the podcast? He listens to every single podcast and he has a comment on every single podcast. And I said, you wanna be on a podcast? He said, yeah, I said you can come in any time because everybody.

KT: Let's wake him up real early and join us for coffee.

Suze: Well he already wakes up at four o'clock and works out.

KT: We have coffee and we do these really early. Let's make him his little shot. He has a shot of espresso when he visits us and we'll get him involved. I think that would be fun.

Suze: You want to do that again this Sunday, maybe we have him say good morning to all of you. All right. But until Sunday there's really only one thing that we want you to remember when it comes to your money and it is what Miss Travis?

KT: People first, then money, then things now you stay safe.

Suze: Oh, that is my girl. And if you do that, what's gonna happen to everybody, KT?

KT: They will be. What?

KT: Unstoppable.

Suze: You go, KT!

KT: See you Sunday.

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