Insurance, Loans, Mortgage, Retirement, Roth, Saving Money
November 14, 2019
Listen to Podcast Episode:
In this podcast of Ask Suze Anything, we hear questions from Women & Money listeners Dawn, Diana, Eric, Maria, and Barbara.
Suze O. here to answer all of your questions, or at least the ones I've chosen to answer. I would love for you to be part of the Ask Suze Anything segment. All you have to do is write in an email with the question. Send it to AskSuzePodcast@gmail.com and if chosen I will answer it on the air and again, many of you know every once in a while you do hear from me, personally.The very first one today is from Dawn. The question is whether or not to get out a lump sum or monthly payment for my teacher's retirement fund in Illinois when I retire. I have a small Roth account now that I plan to add to over the next six years. But would it be better for me to take the hit and pull all of those funds for investment somewhere else or trust the state of Illinois and take out monthly disbursements?Listen, Dawn. Essentially, what you're asking me is, should you get a monthly pension from your teacher's pension in Illinois, or should you take the money out, possibly take an early penalty? I'm not exactly sure what that means. Take the money, do an IRA rollover with it and invest the money there? Here's what I'm going to say to you. I get that all of you when you have a pension or you have an amount of money that your employer is offering you, and they're offering you the possibility to take a lump sum and do something with that money, and now you have access to it, or they will guarantee you a steady stream of income for hopefully the rest of your life. And if you are married and choose the right joint and survivor benefit, to your spouse's life as well.I have to tell you, nine out of 10 times I would choose the pension, the annuity from the company that I have worked for, why? I know you'll think it's easy to get a lump sum of money, roll it over and then invest it. But here's what you have to think about. You're going to have to roll it over to a traditional IRA rollover, a pre-tax one because pensions are all pre-tax. Now, you are going to be the one who has to invest that money and decide what do you want to do with it. Next, you're going to have to know that once you turn 70 and a half, you're going to have to start required minimum distributions from that account. So, little by little, the money that you have in this account, your IRA rollover, has to be withdrawn. So essentially, all of it is gone by the time you are scheduled to die according to actuarial tables. Do you have what it takes to do all that? Or do you simply want to guarantee yourself a stream of steady income knowing that you're going to get X amount of dollars every single month for the rest of your life? I would choose that in most cases because if you did the math, you would find out that if they're going to give you X amount of money and you have to invest it to get the same stream of income, you're going to have to get about a 7.5% or 8% return on your money, which you may or you may not do. And I know that you're going to say, but, Suze, if I leave it with the company and I die, it's all gone. This isn't about what you're leaving to your beneficiaries. This is about what you need to live on month in and month out for the rest of your life, and I get that when you do a rollover that you could take it from the principal and probably get the same income. But as that money starts to go down, if the market tanks, if interest rates stay low and you are eating into that principal faster than you thought, you're going to be freaked out. So nine out of 10 times I'm going to tell you to take the pension.The next one is from Diana, she says. Dear Suze. Two and a half years ago, my husband died. I went from $5000 in credit card debt to $35,000. I am paying about $800 a month on credit card debt, and at the rate I'm going, I will have it paid off in 30 years. I've considered a consolidation loan, a refinance of my home, or restructuring the debt with those debt relief companies. I feel restructuring of the debt with one of those may be a bad idea. I want to know what you recommend. I have stopped using the cards. I do feel ashamed that I let myself get into this situation.Oh, Diana, listen. Your husband died just two years ago, and sometimes when such a dramatic and traumatic event happens in our lives, we tend to spend more. We tend to just go on and buy things we don't even need or want. We don't even know what we do with our money. You are not unusual. You know, I have a law of money that goes like this. You are to do nothing other than keep your money safe and sound for at least one year after you have suffered the loss of a loved one. How many times did I sit across the desk from a surviving spouse and she or he looked me right in the eye as if they were understanding everything that I was telling them to do? And one year after that, they would come in and they would say Suze, can you just tell me why we did this? I don't know why we did what we did, I'm like, just so confused now. And little by little, I would realize, who can hear anything when they've lost their spouse?If God forbid, anything happened to KT, and I have no doubt, everybody, that I will probably, living a natural life, will totally outlive KT. It's just in my family genes. Her family dies sooner. I don't know it for sure, and it's something that I fear almost every day of my life. And it's just, it is how it is because I can't even imagine what it would be like to not have her in my life. And as I've said many times, it is the only thing in life I fear. So if something happened to KT, I cannot imagine me being in my body for a long, long time, and I'm sure that is what happened to you.Who cares that you went from $5000 in debt to $35,000 in debt? It's only $35,000, it's only money. It's what you needed to do to get you through. All right. But to now feel ashamed about it? That's a loss as well. You have nothing to be ashamed of, you should be proud that you have made it this far. You now have everything under control, and now you need to know what should you do about it. First of all, you are not under any circumstance to refinance your home. Credit card debt is an unsecured debt. If you can't pay it, if you claim bankruptcy, if whatever it is that happens and you just don't pay attention to it at all, they can't come after you and take your home away from you or your car from you. Maybe, yes, they could sue you, but chances are, if you don't have money, they're not going to do that either. So most debt on credit cards falls into collection. So what's the worst thing that happens? You ruin your FICO, your credit score, OK, big deal. Who cares? But if you refinance your home, you have now turned unsecured debt into secured debt because it will be secured by the equity in your home. And if something happens to you and you can't make those payments, now they will foreclose on your home. And like most women, nothing makes a woman more secure than owning her own home outright. So I am asking you, please do not do that.I'm not exactly sure which debt repayment companies you're talking about, but it wouldn't kill you to go online and connect with NFCC.org. That's www.NFCC.org, and they are a debt management program that will work with you, get your interest rates down on your credit cards if they're high and give you a five-year repayment program. You can deal with five years to get out of debt. So that's what I would do if I were you. But the main thing that you have to learn from this is, do not blame yourself, do not be hard on yourself, do not have regrets. You did it, you're going to deal with it, and if you could deal with the death of your husband, you can deal with anything, girlfriend.This next one actually isn't a question. It's a statement from somebody, and I told her, oh, I will read it on the podcast for you, and it's from Marite and she says, I do not have a question and I have listened to every one of your podcasts from the very beginning. But today I have a need to tell those women who think that retirement never comes to wake up and think, what will happen when they are 55, 60, or 65? I came to the U.S. at age 29 from Eastern Europe, and I've been a nurse for 21 years in New York City. Now, I am a 56-year-old RN with a long way to go until my retirement. I found out today that my hospital has been sending out letters to staff members and offering voluntary retirement packages with an awful offer. I am so upset and distraught because management can create an environment that could make a person quit. Nobody and nothing is protected in today's corporate world. Respectfully and always with love, Maurite.I read that to you because Maurite had a need for all of you to hear that. And it's kind of interesting that she had that need because she wants to be protective of all of you. She doesn't want you to find yourself in a situation where you still think you have 10, 15, 20, 30 years to go until you're going to retire, and all of a sudden your company says bye, you're out of here. So she just wants to make you aware of that. OK, Maurite, we did that just for you.This next one is from one of the men smart enough to listen to the Women and Money podcast, Eric. He says hi, Suze. Earlier this year, in January, I was diagnosed with rectal cancer, and luckily, the cancer did not spread to other areas of my body. When I was diagnosed and realized the possibility that I may not have survived this battle, I thought to myself, oh, my word. I've been saving like crazy and not spending hardly any money on wants, and now I may not even live to retirement age. I am single and no children, and I was thinking to myself, should I just retire and be responsible and spend just about $50,000 per year for the rest of my life, or should I continue working? I know this is not an easy question to answer, and there is no right answer. I just wanted to know what you might do in the same situation, Eric.Well, actually, my dear Eric, it's a very easy question to answer. You survived, you're still here. You have many years left. Do not, and I repeat, do not just retire, live an easy lifestyle and only spend $50,000 a year. How much do you know what you're going to need to spend? Let's just say you got sick again and you survived, and now you need a nurse or you need care, or you need extra this, or you need extra that. How do you know what's in the future of your life? And now you can't just spend $50,000 year, now you need to spend $150,000 or $200,000 a year. You don't know, so you need to invest in the known versus the unknown.Remember, that's one of my main laws of money. What is the unknown? What's going to happen in your future? I get that. What is the known? The known is you are healthy today, you are back at work today, you made it through today and hopefully, you will make it tomorrow and the next year, and the next year, and they're after. You cannot live your life as if I'm not going to make it unless somebody has told you you're not going to make it. And I have even known those that were told they are going to be dead in three months that we're now 15 years later. So nobody knows. So live your life, enjoy your life, work. You tell me in the thing you like working. You're back at it, stay there and do not give up. Hear that, boyfriend?The next is from Maria. She says I got a Roth IRA from what he calls himself, a benefits advisor. This always scares me when somebody says what they call themselves. Anyway, this person said that there's insurance and the Roth account together. Now she has question, question, exclamation. I asked him about his commission because I heard you speak about this and I remember you saying we should be able to know this. Well, when I asked him, he said he gets his money from the company. And also he said that he wasn't sure why I would want to discuss such a thing?Before I even go on, Maria, are you kidding me? What do you mean he doesn't know why you would want to discuss such a thing? I really have to wonder, would he say that to a man? Why do you want to know how much you're paying me? What business is it of yours how much money I make that's coming out of your pocket? Because when somebody says that the company is paying them, who do you think is paying the company? You are Maria, and it's usually through, if it's an insurance product, their surrender charge that you have to pay if you come out early. Why is that? It's because they charge you a fee within the product, whether you know it or not, that repays the commission that he was paid. So over the next five or seven years, there's a surrender charge that usually declines by 1%, so that after five or seven years, you somehow have paid back the company what they paid him. So now, if you come out of it, they don't care.Anyway, the question goes on. So my next question was, how much money goes to the insurance and the Roth? He responded with $50 goes into the Roth and another $50 goes into the insurance. So $100 is being taken out every paycheck. From hearing your podcast, you said you shouldn't get anything like these together. Also, he said that there is a 2% guarantee on the Roth and that the percent right now is at 4%. He said I can remove the insurance and deposit all the money into the Roth. Should I at this point keep putting money in this account?You know how I've always said that you never really ask a question that you don't know the answer to? Somehow, Maria, I know you already know the answer to this. You've heard me on the podcast say that when you have a Roth IRA, do not buy an insurance product within the Roth IRA. So what happened to you? Where did you get this gentleman? Did he happen to come to your place of employment? And there you are, and you just went, OK, I'll follow you blindly, I'll do whatever you say. And you hear me say that a good financial advisor tells you how much money they are making, you shouldn't even have to ask. But yet you did ask and he says to you, why would you want to know? And yet, you're asking me what you should do. I would stop putting anything in this account altogether. I would ask him, what does it cost me if I want to transfer this account to another Roth IRA? Where should you own Roth IRAs? You should have Roth IRAs at discount brokerage firms or credit unions if you want your money safe and some to get a high yielding account. But if you open up your Roth IRA at a Charles Schwab, at a TD Ameritrade, at a Fidelity, my God, you can invest today with no commissions whatsoever. Even at Charles Schwab, you're now able to buy fractional shares. Let's say you want to buy Apple or let's say you want to buy Amazon. Let's just say it's $1800 a share. So many times you don't even have $1800 to invest all at once. But with Schwab, you're going to be able to now send in X amount of money, $100 a month or whatever it is, and buy fractional shares of Amazon if that's what you wanted to do. And what is the commission for that? Nothing. But he doesn't want to tell you. And you still don't even know what the commission is to this day, are you kidding me? You are to get out of there, but chances are, you're going to find out that the money that's been going into the insurance portion of it, there will be a surrender charge and you will not get back as much as you put in. So what should you do? I would take the hit and I would get out from under this so-called benefits advisor.This next one, and actually the last one, is from Barbara. She says my question is that my name is still on the mortgage for the house that I lived in with my ex-husband. This house is the house that he grew up in and still lives there now with our kids. The mortgage is so far behind that foreclosure procedures were started even before I left the house to live elsewhere. I have not lived there since November of 2012. I made the mistake of signing papers to remove my name from the deed so he could refinance the mortgage and get my name off the mortgage. He has not been able to refinance the mortgage, therefore, my name remains on the loan, but not on the deed and it's killing my credit. Please help.Why is it that you asked me these questions after the damage has been done? I only wish you could have asked me this and I would have said don't you dare, under any circumstance, take your name off the deed until he has refinanced the mortgage in his own name. So if you're out there listening, not just Barbara, but all the women and men smart enough to listen to this podcast. If you are ever in the situation where you are getting divorced and you own a home, and your name is on the loan and you want your name off the loan, then the loan has to be refinanced first and then your name can come off the mortgage, not the other way around.But here, Barbara, is what is confusing me about your question. You said that you haven't lived there since November of 2012 and that foreclosure procedures were started even before that. Why hasn't this house been foreclosed upon? So what is going on there? More than worrying about what you are going to do because you could just claim bankruptcy, your credit is already being killed, so maybe you just claim bankruptcy and then you're no longer responsible for it, and then you don't have to think about it anymore. But I'm wondering, what are the kids going to do? It's like, all right, he could do whatever he needs to do. But you say that our kids still live there with him now. So if this house ever does get foreclosed on, really, where are the kids going to go? So that's what you need to be making plans for. Now, I don't know how old these kids are, I actually don't even know how old you are. But if they are younger, you better be making plans for that, and that would be my main concern, more than what you're going to do to rectify this because there is nothing that you can do. So I'm actually not kidding about you claiming bankruptcy because eventually, they're going to come after you one way or the other, and either you're going to have to pay for it because your name is on the loan, because probably he's going to claim bankruptcy one day, and then you're going to be forced to claim bankruptcy or pay for it anyway. Do you talk to this man? Have you conversed with this man? Do you find out really what's going on, why haven't they actually locked the doors on this house already? So your steps, you need to have a conversation with him. You need to make plans that if your kids are young and they need a place to live, what are they going to do if one day they come home and find a lock on that door? And you are to look into claiming bankruptcy, especially if your credit has already been ruined.All right, that's about all I can take today when I think about it. But here, here is the truth. If you don't know something can you just do nothing until you find out the answer? Maybe you can write to me, maybe I'll get back to you, but I'm not the only one out there. Google, do something. What happens if, you know, I get divorced and I close down my credit cards but I haven't paid off the balance? What happens if I'm getting divorced and my spouse is going to keep the house and my name is on the title and the mortgage, what do I do? All these questions that you are asking, I wish I had time to answer every single one of them. However, that is why, probably starting in January, the app will be finished, the Women and Money app. And what is going to be great about that is, that is where you are going to go to find answers to all of your questions. We're going to be forming a Women and Money community. We're going to be able to look at all the answers to all the questions, we're going to categorize them. We're going to have a financial abuse section, we're gonna have Suze Live, we're gonna have all these things. But that is where you are going to go so that I don't get emails like I just got from Barbara after it is too late. I don't want it to be too late for you. I want you to live the lives that you deserve to live. That is why I am doing this podcast. So until next week, ask before you do. Got that? In providing answers neither Suze Orman Media nor Suze Orman is acting as a Certified Financial Planner, advisor, a Certified Financial Analyst, an economist, CPA, accountant, or lawyer. Neither Suze Orman Media nor Suze Orman makes any recommendations as to any specific securities or investments. All content is for informational and general purposes only and does not constitute financial, accounting or legal advice. You should consult your own tax, legal and financial advisors regarding your particular situation. Neither Suze Orman Media nor Suze Orman accepts any responsibility for any loss, which may arise from accessing or reliance on the information in this podcast and to the fullest extent permitted by law, we exclude all liability for loss or damages, direct or indirect, arising from use of the information. To find the right Credit Union for you, visit https://www.mycreditunion.gov/. Interested in Suze's Must Have Documents? Go to https://shop.suzeorman.com/checkout/cart/index/.
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