Podcast Episode - Ask KT & Suze Anything: Should We Buy or Rent When We Retire?

On this edition of Ask KT and Suze Anything, Suze answers questions about ROTHs, IRA contributions, spousal credit card debt, plus a “Should I Do It?” quizzy and so much more!

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Podcast Transcript:

Suze: May 16th, 2024. Welcome everybody to the Women and Money podcast. As well as everybody smart enough to listen. This is the KT and Suze edition. Notice how fast I'm going KT? You know why?

KT: You know why she is so excited tonight is the night, everyone.

Suze: That's not why I'm going...

KT: Why are you going so fast?

Suze: So you don't interrupt me in the introduction just that simple.

KT: But tell them tonight is the night.

Suze: Well, it's actually this afternoon...

KT: But it is kind of tonight.

Suze: (Suze makes a roaring sound) What is it? What's that? Lions and tigers and no bears, no bears. So it is true. In another few hours, we leave for South Africa and we're so excited about it. I can't tell you.

KT: It's kind of like going home.

KT: We, we haven't been in the country in many years and we just love it there. We used to love it there.

Suze: We went there all the time. I did so much work there.

KT: And so this is just play. We're finally taking a vacation, everyone.

Suze: I told KT that when we go somewhere now, I don't wanna work at all when I'm there. I don't want to give a little talk. I don't want to be on a TV. I don't want to be on anything. I just wanna go and not have to think about anything because if I know I have to do something, it's all I think about until it's done.

Suze: And so it's not play for me. So you agreed to that, right?

KT: Absolutely.

Suze: All right. But this is the ask Suze and KT Anything addition. This is where if you want, you can write to Ask Suze podcast at gmail.com and tell us what you want to know. And if KT chooses it, we will answer it on the podcast. Sometimes I answer you absolutely directly. But you got to listen to the podcast to see if in fact, we picked your, pick your questions. So to that end, let me just tell all of you what our plans are for while we are away because it's one thing, yes, we could just put on the best ofs. But if I don't have to put on a best of, I really don't want to.

Suze: And given how many questions have come in over the past few months,

KT: Especially Roths, everybody, right.

Suze: We've decided that before we leave, we will do quite a few ask Suze and KT anything podcasts and then while we're gone, that's what Robert will be playing. So don't worry, we still have new stuff coming. It just won't be done. We're not exactly live but all right. I think it's time.

KT: I'm ready to ask Suze and KT anything. So, as I was saying, I received a mountain of questions for Roth and I think the whole show again on Roth may be a little bit sleepy. So, what I've done is I have half the show on my Roth questions. The next half will be just different topics that I picked here and there.

Suze: And did you do that in case not everybody cares about a Roth? How do you feel about it? Why? Why don't you tell us?

KT: Or they feel like me about Roth? Confused, confused, confused. No, I'm not, I'm not. I'm only kidding. I get it. I can answer all of these questions. If you like. You want me to try?

KT: You should see her face. Do you want me to try? Oh my goodness. She's speechless. She has an expression of shock. All right, here we go. So can you convert to Roth any time

KT: What if I retire? But I'm not 59 and a half? Do I need to have income from a job in order to qualify for conversion from a traditional to a Roth? Suze, can you convert and save in a Roth 401k in the same year?

KT: You want me to give them the short quote for it? Yes. Yes. Yes. Yes. Yes.

KT: Alright. So, but summarize that. Just so people get it, you summarize it. But did I get that right? Yes, I learned about my Roth.

KT: But you better summarize it in real language.

Suze: So, of course, you can convert to a Roth any time if you want to. No problem whatsoever. What if I retire? But I'm not 59 and a half?

Suze: You can still convert, makes no difference. Right. Do you need to have income from a job in order to qualify to convert from a traditional to a Roth? No, you don't need to have income to convert from a traditional to a Roth. And can you convert and save in a Roth 401k in the same year? Absolutely.

KT: Right. Ok. Next question, I have a Roth IRA account with Vanguard. It was opened 10 years ago. About three years ago I opened an additional Roth IRA at Fidelity. Now, I'm trying to consolidate and simplify my accounts and I would like to combine the accounts from Vanguard and move them to Fidelity. Here's the question,

KT: I understand my fidelity IRA will not qualify for the five year rule. When I spoke with an investment advisor. He told me that it's OK to close my Roth IRA and transfer everything to fidelity in spite of having fidelity open for only three years. Is his advice, correct?

Suze: Well...

KT: uh oh, I better not answer that. I know you like fidelity, but you better answer this because I'm not sure.

Suze: Yeah, baby.

Suze: All right. So at least she's being honest. Now, listen, you had a Roth IRA with Vanguard that was open for 10 years. It was a Roth IRA got that then three years ago, you opened an additional Roth IRA at Fidelity. That one was only open for three years. So now you wanna combine your Fidelity account with your Vanguard account. Both of those were Roth IRAs.

Suze: So whether you know it or not, they do a combination. You don't have to have each Roth IRA have a five year holding period. You just needed to open up one Roth IRA, which you did at Vanguard 10 years ago. And that means that all of your Roth contributions regardless of where they are held fall under the 10 years ago that you opened it with Vanguard. So you don't have to worry about it at all. All your Roth IRAs currently are outside of the five year rule. OK. Would you have answered it like that?

KT: No, I can't answer. I can't talk about Roth the way you can.

Suze: You think?

KT: But this is from David.

Suze: But wait, did you just learn something there? What was it?

KT: About the 10 year rule.

Suze: What about it?

KT: Is that once you...

Suze: You were not listening?

KT: I was and this is the next question about the same thing.

Suze: But you weren't listening.

KT: I was listening.

Suze: So why does the account at Fidelity that was only opened three years ago now have a 10 year holding period on it?

Suze: I knew it. I knew it. I knew it. I knew it. I so knew it. She doesn't listen to me. She doesn't care what I'm answering. She is not present as I am telling you everything. She's already reading the next question which goes to the fact you cannot multitask, multitasking is the ruination of perfection. And that was such a perfect answer. I can't even tell you. All right. Next question. KT I am not telling you the answer to that. You'll have to listen to the podcast.

Suze: You find that funny. Do you?

KT: She yells at me all day long. You OK, whatever she does is like all day long. So it doesn't bother me that much if any of you are worried out there, don't worry after 23 years, hey, any of you worried that Suze, like really squashes me like a fly, don't. OK. Here's Dave...

Suze: I could be so angry at her really angry. This, I'm kind of just playing this up everybody, but I can really be angry at her, you know, in a relationship, you can get angry at one another and I'm looking at her really angry and she just starts to laugh at me.

KT: It's her expression and then it's like, doesn't look normal when she's angry because she's basically a very happy person. Very positive person. So when that angry face comes up it's like what?

KT: Ok, this is from David. Hi, Suze. In an email.

Suze: So what is the secret to success of a long term relationship?

KT: Laugh it off, laugh it off, baby, laugh it off. This is from our friend David. He said hi, Suze.

Suze: What makes him our friend?

KT: I just love his name. Can I say his last name because he's Italian. Accameta. I, I love your name. David. Ok. Hi, Suze.

KT: You sent an email that was titled IRA distribution update for 2024 where you say the same 10 year rule applies for Roth IRAs Can you please clarify whether or not the distributions are taxable?

KT: You want me to answer that?

KT: Yeah, I'm only kidding.

Suze: All right. So David, a little bit of confusion here, obviously, I was talking about inherited IRAs and as you know, because of the Secure Act that passed back in 2019, December 20th, I believe it was anybody who died after 2019 and you leave an IRA to a beneficiary other than what's called an eligible beneficiary, meaning like your spouse or things like that. So now you're known as a non eligible beneficiary, which would probably be your child or somebody like that.

Suze: You have 10 years to wipe that account clean. You can no longer take it over the beneficiary's entire lifetime called a Stretch Ira which you could before 2020. So you have 10 years to wipe it clean.

Suze: What I was saying that applies also to a Roth IRA. Even though your Roth IRA distributions will be tax free.

Suze: The truth of the matter is if you had an inherited Roth IRA, you would want to leave your distributions in there for the full 10 years till you had to take them out so that the money would grow tax free. So you would have even more money that you never paid taxes on after you took it out and you could take advantage of the tax-free growth of a Roth IRA in a traditional IRA that is inherited.

Suze: You, of course, would want to take it out little by little over 10 years because if you wait till 10th year to take it out, now you're gonna owe ordinary income taxes on the growth of that money over 10 years. And now once again, you partnered with Uncle Sam to just make Uncle Sam more money than you truthfully. So that's what I was talking about.

KT: Next question is from Marilyn. Hi, Suze. I have an IRA regular, I can withdraw it without penalty.

Suze: But what does she mean? KT when she says regular?

KT: Regular Ira.

Suze: Which means what?

KT: What do you mean?

Suze: What is it pre taxed or after taxed?

KT: Well, that's her question.

Suze: I asked you a question. Is a regular or traditional IRA pre-tax or after tax?

KT: Pre-Tax

Suze: That's my girl. Go on.

KT: So, hello, Suze. I have an IRA regular I can withdraw it without penalty because I'm 60. The interest rate used to be higher but now it's 0.50% fixed. Does that sound normal?

Suze: They probably are in an annuity, does it say?

KT: It said, it said it is in annuity service with, you know, and then they name the firm and then it said, I asked them how much it would be if I withdrew it. The rep said 10% and there's a 10% surrender, which would be $1500 because the total I have in it is 15,000 and change. What should I do?

Suze: Do you all, do you understand? Everybody? Can I just say something to all of you? Right. Which is why in the world would you put an annuity within and IRA? That is the question at hand and there is only one answer to that question is you would never ever do so in 99% of the circumstances, you have an IRA, whether it's a Roth Ira or a traditional IRA or what's called a regular IRA that is known as a tax sheltered vehicle.

Suze: What you own in that retirement account doesn't also need to be tax sheltered because you're already in a tax sheltered vehicle.

Suze: An annuity if you buy it outside of an IRA is also tax sheltered. So you have purchased a tax sheltered investment within a tax sheltered vehicle. That makes absolutely no sense whatsoever. Especially since an annuity normally comes with what's known as surrender charges.

Suze: Surrender charges are you will have to pay a percent of the amount of money that you put in every single year for a specific number of years. Usually that is 7 to 10 years and those surrender charges usually go from 10% to 7% to 6 to 5 to 4. So that over maybe 10 years it goes to zero. Why are there surrender charges? Do you know KT? Why do you think?

KT: So everyone else can make your money from your money?

Suze: That's true. True. But the reason is this, the annuity was sold to you by a financial advisor that financial advisor got a commission, a hefty commission to sell it to you. If you come out of that annuity, they wanna make sure the annuity company that they get the money that they paid to the financial advisor back and who is going to pay them back? 

Suze: Not the financial advisor, but you the person who bought the annuity and that is why there is usually a hefty surrender charge on it. So they kind of have you trapped, right? They entice you by giving you a high interest rate to come into this annuity. You'll make 5% a year, whatever it may be maybe then the year is up, they lower your interest rate, which is what they did here to 0.50%.

Suze: And now you wanna take it out because you're not getting what you thought you were originally getting. And your rep says, oh, if you take it out there is a 10% surrender charge.

Suze: Do you understand why? In many cases, I seriously hate annuities, not all annuities, but the majority of them, which is why I am going to be doing a susie school again on variable annuities because I recently have gotten two emails that are so upsetting and I'll read them to you so upsetting about all the money that these people lost, their parents lost in variable annuities and why they lost them. So sorry, I went on a Suze tangent there but that was a good little mini Suze School that you needed to know Marilyn if I were you, I would be just cutting my losses right here.

Suze: Let's just say you don't want to spend the $1500 of a surrender fee. Actually, your exact surrender fee would be $1572. But let's just say you don't want to spend that, ok? And you leave your $15,722.85 in this annuity. And let's just say, as you said in your email that the fixed rate is now 0.50%. Do you know that means that you would only earn $78.61 a year in interest.

Suze: And let's say the surrender charge was just for another five years. Although I do think it's for another 10 years since it was 10%. But anyway, let's just say the surrender charge was for another five years. And then you would have decided to take it all out in five years from now, you would have 16,000 $120 period.

Suze: That's a whole $400 more in five years. All right. So let's say you do exactly what I told you to do. Surrender it and get out now.

Suze: All right. So now you have a surrender charge of 1572 or $73 which leaves you only $14,151. All right. And then you do an IRA transfer, custodian to custodian transfer to either an Ira at Schwab Fidelity Alliant, whatever it may be, whatever you're comfortable with and you lock in just 4% for the next five years. Do you know that you would have $17,388 even with that $1572 surrender charge? You are to run. You are not to walk, you are to run. You are to surrender this. You are to transfer it and everybody listening to me, you are to learn from Marilyn's story. If you decide to do any annuity, ask the question, how long is the surrender charge? How much is the surrender charge? Ask every question that you possibly can before you find yourself in a situation that you don't want to be in? All right, Katie. Ok. That should have been a Suze School.

KT: Ok. Now I'm gonna move away from my Roth and IRAs into some just basic, good old fashioned question very quickly. All right, this is about credit card debt question from Jane in the state of California. If something were to happen to my husband, am I responsible for his credit card debt? My name is not on his card and I have not signed for anything in a contract with him that went on the card.

Suze: Why do you think the answer to that is?

KT: The answer is absolutely yes. You're responsible because California is a community property state.

Suze: So KT yeah, ding ding ding and so in the state of California where you just heard KT say is a community property state, you most likely will be held responsible for your husband's credit card debt that was incurred during the marriage, even if your name is not on the card and you did not sign any contract related to the debt. Why this is because debts incurred by either spouse during the marriage are generally considered community debts and both spouses can be held liable for them. However, everybody listen to me. If your husband incurred those debts before the marriage or after a legal separation, guess what? They are considered his debts and you would not be responsible for those unless you specifically agreed to take on such debts. All right, there you go. Go on KT.

KT: Ok. Next question is from Lee. Suze, can you explain about indexed universal insurance? Right. Watch your face. Everybody.

KT: I have heard you say you don't use insurance as an investment vehicle, but from what I've been reading, it may be a good vehicle for tax reduction.

KT: We are both retired, have a comfortable pension income with a healthy retirement accounts.

Suze: So why would you want to ruin it?

KT: By the way, you are absolutely correct about Roth IRAs versus traditional. Anytime I have an opportunity to talk about such, I shout from the rafters. Roth Roth Roth. Now, Lee, you better shout something else.

Suze: Now listen to me, Lee, right. If I am absolutely correct about Roth versus Traditionals and you shout it from the rafters, why would I not be absolutely correct about index universal life policies? Especially when you hear that they could be a good vehicle for tax reduction. I am not going to go into why they are horrific. I don't like them. I think you should stay away from them. At this point in time. I have done many podcasts in the past telling you stay away. I know that they're selling it to you under the pretense that you can get a tax free loan. Can you please underline the word loan? You don't want a loan, a loan means that it's paid back even though. It's at a 0% interest rate. 

Suze: Trust me, it ends up possibly getting you in trouble. Stay away. Let me see if I can hear you, Lee, shout it, shout it louder. Give me a little louder. Can you hear Lee? Can you hear? Can you hear Lee KT?

Suze: I can't hear you, Lee.

Suze: Oh, go on.

KT: All right, Suze. Next question I have is about social security. Hi, Suze. I'm going to be 61. This coming June. Happy Gemini.

KT: I'm working part time and I have a pension through work. However, if I apply for social security at age 62 I can get about $550 a month. Can I apply for social security and continue working part time? Which I make about 48,000 to $52,000 a year. She makes that part time until I am 67 and invest that 550 which is her social security in a very good brokerage account. Well, what do you say? What do you say to that one?

KT: First of all? Can you do that? So part time?

Suze: Well, you can do that if you want, but should you do that? Absolutely not. Why is that, first of all given that you are making part time? 48,000 to $52,000 a year.

Suze: What's going to happen is Social security is going to withhold $1 in benefit for every $2 over $22,320. So what does that mean to you? Let's just say you make $50,000

Suze: that's $27,680 over the limit. So how do you figure this out? You divide $27,680 by two that gives you $13,840 and you divide that by 12. So you will be deducted $1153 from your social security check and you're only making about $500 you said in social security. So the truth of the matter is you just can't do it.

Suze: All right. You know what that means, KT.

KT: Time for my quizzy.

Suze: That's right. So this one is an interesting one because sometimes there isn't a right or wrong answer.

Suze: It's just an opinion that people have to take into consideration and then decide. So this is kind of, do you approve or do you deny? So everybody play along with KT as to how you would answer this. Hi, Suze and KT. I love to listen to wise women.

Suze: My husband and I don't agree on whether to buy a home or rent. I am retired collecting pension, Social Security and he is about to retire in 3 to 5 months and plans to collect between his pension and his social security $9000 a month.

Suze: So this couple, everybody is probably pretty well set financially. All right. They have approximately $100,000 saved. They have $850,000 in an IRA in an annuity and in a Roth and they have no debt of any kind and they want to look to move to a friendlier senior state.

Suze: We can relate to that. So I'm telling you their finances. Right. Because why this isn't necessarily a financial decision because they can really afford anything they want to know. Should they buy a home or should they rent next financial on them? Are you all writing this down? You're writing it down? KT? All right. I see that. That's why I asked you, they will sell their current home for approximately 450,000 to $500,000 with no capital gains tax.

Suze: All right, they are in their seventies and they are not sure if they are up to the challenge of doing daily housekeeping maintenance and all of that at their age. KT, can you relate to that?

KT: Yeah.

Suze: It gets harder. Everybody, when you get older and so many times, KT and I look at each other and go really, really, there is a tremendous difference for the majority of us, everybody between 62 and 73. Would you agree with that?

KT: Actually it's after 70 you start to feel it. Yeah.

Suze: And so unless you keep yourself going to yoga every day, stretching every day being like Mrs Boo, Mrs Boo lives on our island and she's Norwegian and she is in incredible shape. She's in her eighties. You would think that she was in her forties? All right. But the majority of us you see walking around the island limping a little, walking a little slower than 10 years ago. But anyway, Jean goes on to ask with the cost of skyrocketing hoa fees that condos want and possible assessments as well.

Suze: The question is this, since condos are out, how about a home? That's what my husband prefers. He believes that he will be able to handle the maintenance.

Suze: I prefer a luxury senior community apartment and enjoy some of the money from the home sale, traveling and socializing. We will still have free flying privileges in retirement. What are your thoughts?

Suze: Do you approve that we buy a home? Which is what my husband wants or do you approve that we move into a luxury senior community apartment? 

Suze: Think about it, think about it. So this really isn't a thing. Everybody about money, they have the money, depending on the house they buy to do anything they want.

Suze: This is where decisions come in. When people first then money, then things apply. This is a decision as a financial advisor that you cannot just look at money, you have to look at the wants and the needs of the people that you are dealing with.

Suze: So, Miss Travis, what would you say to Jean?

KT: Suze, my choice is to go with the wife. She's smart. She knows that he's not gonna want to mow the grass every weekend. Do the gardening. Try to deal with maintenance. Why bother? It takes a great deal of time to take care of a home.

Suze: There's more reasons KT than just that.

KT: Ok. What are your reasons?

Suze: And here's why Gene, I so want you to do exactly what it is that you want to do. First of all, in order to move in to many of these adult senior communities, you both have to be healthy.

Suze: You can't move in. If one of you is seriously ill, you have to do it. In most cases. Not all before something has gone wrong medically. OK. Number one, number two, chances are actuarially speaking, men die before women do. I don't know why that is, but it's absolutely true. I'll never forget going into my mother's senior community where she lived and had an independent apartment there as well as KT's mother.

Suze: 90% of the people, there were all women. There were very few men. You could count the men that were there on one hand and I got news for you. The men that were there.

Suze: We're all very happy because they had, they were princes, they were like king kings there, surrounded by women. Your husband probably shouldn't hear this part of the answer though. The thing is the last thing you want is for something to happen to your husband as he's aging and it can happen at any time at 65 at 68 at 70 71 or so on. That's number one. And that is not the time that you then want to have to sell the house, get everything ready and then move, do it. Now, do it. Now where you have community around you, both of our mothers loved it.

Suze: There was happy hour and there were education classes and there were movies and there were swimming and there was golf and there were all of these things. They loved it. Absolutely loved it. And all of them also have, if something does go wrong, assisted living in most cases, as well as skilled.

Suze: So therefore, you should really do it now. And I would hope that your husband would listen to this financially. Ok. You could afford either.

Suze: But given the fact that you don't want to and that you have doubts and that you want to continue to travel and you just want everything to be taken care of and not have to watch him either shoveling snow. If that's where you happen to move or mowing a lawn or getting a new refrigerator or whatever goes wrong and something always goes wrong.

Suze: Then hubby bear, listen to your wife here because in the long run, you're gonna be so happy that you did. All right, Miss Travis. Yes?

KT: I have to just share this with everyone when my mom moved. From New Jersey to Florida in her independent living facility, which was really nice. She sat out under a palm tree in her little back porch in her apartment and she looked at all of her Children and she said, why didn't I do this five years ago?

Suze: And that was a situation, by the way where KT's father had a stroke, had one of his legs amputated because of it and on and on and they needed, they had to move.

Suze: Yeah, they had to move. And so it was interesting. It was interesting. So anyway, this time are we all packed?

KT: I am so packed. I am so ready. I can't wait to get on that plane.

Suze: I know we're gonna run a little bit over, but that's ok. Tell everybody how we bought matching outfits for all the girls. Yeah. So Suze goes online. She's a great online shopper. I'm not and we looked at, we both have pretty extensive weather wardrobes for all the travels we do in the world, but we didn't have any new safari clothing.

KT: And when you're on safari, they ask you to wear certain colors and not to wear, you know, like white and black and blue jeans, things like that. So I said, Susie, we don't have that much khaki and different colors and she went online and found some great sites that were extremely affordable. And I said $20 get these for all the girls. I said, get this for all of us and she bought it.

KT: Couple of things that are still a surprise. So we're not gonna talk about it yet for all of us to wear on day one. Don't you love that?

Suze: We're gonna be a pod, a pod. We call ourselves a pod because they're the dolphin women, two men and the men didn't want to play with us. They didn't want us to get him anything so fine. I didn't. All right until Sunday was Suze's school.

Suze: And obviously I will be taping that right now after this, by the way, so that you have a new Suze school from me and then you're going to probably have Ask KT and Suze Anything. There's only one thing that we want you to remember when it comes to your money and what is it people first then lions, tigers then things and if you do that you will be unstoppable. See you soon. Bye bye.