401k, Debt, Roth IRA, Saving, Social Security
October 08, 2020
Listen to Podcast Episode:
On this podcast of Ask Suze Anything, Suze answers questions from Women & Money listeners (as read by KT) Tracy, Kierra, Grant, Katie, Sam, Diane, Brijesh, Sue, and Debbie.
Suze Orman’s Women and Money podcast is proudly sponsored by credit unions; a safe home for your money, rain or shine. October 8, 2020, and welcome to the Women and Money podcast as well as the men smart enough to listen. Suze O. here with KT is in the house again. KT, this is her permanent job now, you know. So, I said to her... Wait, wait, wait, it's not my permanent job when I'm here with you every now and then, it's fun, but it's not my permanent job. They don't want to hear me all the time, they like listening to you. How do you know what they want? They voted already, stop this, KT. But anyway, this is Ask Suze Anything and this is where you write in and you write in simply to the Women and Money app and you can download that on Apple Apps or Google Play, please search for Suze Orman. And it comes to me, and you know, many of you now have been getting personal responses back from me because I'm able to do it again so you want to take advantage of that. But if your question is selected, it will be answered on this podcast. Today is October 8, what is that day today? Awe, today is Louise Hay's birthday? Yes. And for those of you who don't know, Louise Hay would have been 94 today. She died approximately, well, it was three years ago. It was August 30, 2017, to be exact. And Louise Hay had to be one of the most incredible women that was ever put on this planet. Not only was she so much fun, but she also touched the hearts of millions and millions of people and created a company by the name of Hay House. And Hay House produced all of those and still does, all of those books of loving yourself and everything else. And Hay House has been our partner now, KT, for over 20 years in almost every single thing that we do. So, let's in honor of Louise, what should we do? What should we do to honor her today? Well, you know what would be great? Any of you out there listening that knew of Louise or followed her or had an experience with her, tell us about it. Go to the app and share it with us. We would love that because Louise was just such an inspirational, great, great woman. And she was so far ahead-of-her-time with every possible thing. But maybe we could also do a thing where you know, a lot of you have questions about your money all the time, and it's almost as if you need to take a course about money. And as you may know, or you may not know, I offer a seven lesson course online that is fabulous, that over 500k people have already taken. So, why not KT? In honor of Louise's birthday, all of you can take it for free. It would be $54 if you had to pay for it, but if you all go to www.SuzeU.com, and put in the activation code, the passcode, LOUISE, you can download that for free and tell as many people as you want. Louise would want you to share it with everybody, put it on the Internet, post it, do whatever you want with it. Because today, KT, look at KT's face, she is like... You're going to crash the website. Good, let's crash it! Let's all learn about money at your own pace, and then that's there for you. So, tell everybody about it, it's a gift from Louise up in the heavens to all of us here still down on earth. All right, Miss Travis, what do you got for me today? OK, the first question is from Tracy. Hi, Suze. I have $40k in student loans, and then she writes, I know you're screaming at me... Tracy, what are you thinking? What were you doing? I can't believe it. All right, $10k in a timeshare and the student loan interest rate is 6.6%, I'm not sure about the timeshare, but most likely higher. Then she says, I'm under contract with my house, I will make close to $200k and profit. The question is, do I pay off the student loans and timeshare or buy a condo with cash and then work on the others? Then she said my credit score will be above 620 or better by December. I appreciate your podcast, you are awesome, so is KT. I'm telling you, everybody. Tracy didn't say that, Tracy didn't say that, I just decided to add that. Alright, no problem. So, Tracy, here's what I would do if I were you. Even at a FICO score of 620 that would qualify you for an interest rate on a mortgage of about 3.99% which is under the interest rates that I'm sure you're paying on the timeshare and obviously, under the 6.6% you're paying on your student loans. Not only that, it would be tax-deductible. So what I would do if I were you, I would pay off the student loan and the timeshare, and I would buy the $200k condo. I would put $150k down and take a $50k mortgage, and that's that. So that's what you should do. All right, girlfriend, what's next? OK, this next one I really like, this is from Kierra. Hello. Wait, do you like it because Kierra said how much she loves you on the podcast? No, no, no. You're going to like this one. All right, listen, everyone. Hello, my parents are big fans of yours and have your books and listen to your podcast. I am 13 years old. I save my money all the time for college and for the future. Do you have any tips for saving at a young age? Thank you so much. You know, you can save money, but you can also invest it. And if you go out there because you say you have money that you're saving, where do you get that money from? Are you babysitting, are you walking dogs, are you doing something that's generating income? If you are, you could open up a Roth IRA and in a Roth IRA, you could start investing for your future, and you would have so much money in the long run, it's not even funny. But here's the thing. Even more important than saving, it's spending. You have to be really, really careful as you get older that you don't let your friends influence you and say, oh, you should have a new iPad. You should have a new this, let's go do this, let's go out there, let's spend money here, let's buy these clothes. Always remember that I've said this to you, always buy what you need versus what you want. Get a lot of pleasure out of saving and continue to invest and I promise you, you will be a multi-millionaire by the time you are my age. Just do it. Did you like that? Yeah, she's going to be more than a multi-millionaire, she's 13. I know she'll be like a multi, she'll have more than both of us combined. You go, girlfriend. I hope that's true. OK, ready? Suze, here's a question from Grant. Hi, Suze, love your shows and the helpful financial info you always give, I really appreciate it. I was just curious about your opinion on this scenario. (Now, I'm just ad-libbing here a little bit. He's speaking in the third person.) If you are midway through your career and you have approximately $550k invested in a traditional 401k, it's a TSP in this case, does it make sense or is it still beneficial to make future contributions to a separate Roth TSP? Just curious if starting over with a Roth will cause me to lose out on any compound interest from the original high balance? Or, is a Roth still the better way to go since it's about 17 years until retirement? Thanks so much, Suze. All right, so what Grant essentially is asking is he has $500k in a pretax retirement account, and he wants to know if he'll lose out on the compounding of that if he were to open up a Roth retirement account. And Grant, no, you have to think about it differently. That money in your traditional TSP is going to compound no matter what. But what you're not thinking about isn't how much it grows to, it's how much of that growth do you get to keep? The big mistake all of you are making is you are continuously putting money in a traditional 401k, 403b, TSP, IRA, a traditional meaning before tax because you want the tax write off. I don't care about the tax write off today, I care about what you see in your retirement accounts is what you get to keep. And later on, especially 17 years from now, especially if you start your Roth TSP now, all the money that you have in there when you go to take it out is going to be tax-free. If you die and any money that you give to your beneficiaries, they get to take it out tax-free. Just think about the deficits and the debt that the United States of America happens to be in, think about the debt that was created because of this virus and all the stimulus packages. Do you honestly believe the tax brackets are not going to go up in the future? If you believe that I have a bridge to sell you, so pay the taxes now, let it grow tax-free so that later on in life you don't have to worry about it. What is that look for again? That was good that I like that, that was very clear and good advice. You know everybody, sometimes KT says to me, you're not clear, you just go on too much. Wait, sometimes I just think the answers are way too long. I'm trying to get better at that. And the shorter answer she gives you, the more you remember. But everybody, the reason that I do that is that there's so much you need to know and it's my passion that you really understand what I'm saying to you. And sometimes, I feel like I have to say it again and again and again because you don't get it. However, with a podcast, you most certainly can just play it again and again and again. All right, let's do the next one. Don't feel bad, everybody, she does it to me too. She tells me the same thing over and over again. All right, ready? And why do I do that? To get it through my thick head. Don't say that about yourself, you don't have a thick head. OK, this is from Katie. Hi, Suze. My husband's company offers both a traditional and Roth 401k. They match the traditional for the first 6%. We have opened a Roth IRA at the bank for both of us in 2019 and 2020 for the maximum allowed by law. Does this mean we cannot contribute through the company Roth? Any help you can give us would be greatly appreciated. Best wishes, Katie. I have a feeling, Katie, that KT chose this because your name is Katie. Is that why you chose this one? There's always a method to her madness. Anyway, first of all, you have to understand that your company will match your 401k contribution even if you are contributing to a Roth 401k. Their contribution, their match goes into a traditional 401k. So, you would have two at the same company because they want a tax write off for that match. But you don't have to put money into a traditional 401k to get the company match. That's number one. Number two, you absolutely can contribute not only to your company 401k, and you can max it out, you can max it out all the way to $19,500 if you're under 50 or $26k if you're 50 or older, all right? And have a Roth IRA as long as you're making under the adjusted gross income needed to qualify for a Roth and then you could contribute a maximum of $6k if you're under 50 or $7k if you are 50 or older. Again, the maximum that you can make of adjusted gross income to max out your Roth IRA is if you are filing single, which you're not. But if you were would be $124k a year or if you are married filing jointly, it would be $196k a year. OK, the next question is from Sam. Hi, Suze. What's your view on owning a home with a significant other outside of marriage? Are you in the camp that romantic partners should only purchase homes together after marriage? If not, what legal or financial documents would you recommend that we put together? You know, Sam, what's interesting is, as you obviously know, KT and I are married now but there were years and years that we weren't able to get married, you know, so most of my adult life, truthfully, with all the people I've been with, legally, we weren't allowed to get married. So did that prevent me from owning homes in both names, even though legally we couldn't get married? No, it did not. So, if you happen to be in a situation for whatever reason with a significant other, and you don't want to get married but you feel like you are married and you feel like you want to spend the rest of your life with this person and, you know without a shadow of a doubt financially, they are responsible. You know, their FICO scores, you know what kind of debt they have, you know as much about them financially speaking as you do, personally speaking, then I don't have a problem with it at all. The only thing you want to make sure of is that both your names are on the title so that you equally own it 50-50 and your names possibly are both on the mortgage if you have a mortgage. Not necessarily, though, because maybe one of you has a higher FICO score than the other and can qualify for a mortgage on their own. So if both of you apply and one of you has a lower FICO score, most likely your interest rate is going to be based on the one with the lower FICO score. So, sometimes people take out a mortgage in an individual name, even though the deed is in both of your names, and I would do it as joint tenants with right of survivorship. So that is how I would do it if I were you. Where does he get those documents? What documents? He said legal or financial documents. I mean, the best way to do it would be a living revocable trust. But the easiest way to do it, seriously, is joint tenancy with right of survivorship, which simply means that upon the death of one, it goes automatically to the other regardless of what their will or trust says. So, they're protected because sometimes people think KT, they could get around it. Oh, I'll take the house out of title in both of our names, and then in my will or my trust, I'll leave it to somebody else. It doesn't work that way. So how you hold title to an asset is more important than how it is stated in your will or trust. That's it. That's good to know. All right, this next question is from Diane. I am a widow, 66 years old, and still working. I have $30k+ in credit card debt that I need to get rid of. I have excellent credit, but the credit cards are becoming unmanageable. I'm drowning. I have no savings, nothing from my late husband. My choices are to refinance my $155k mortgage on my Bronx home or in January, close my Morgan Stanley account that has about $31k value in money market stocks, etcetera. I'm going to take my social security, but that would not pay off my credit cards. I need advice, Suze, please help me. So, Diane, this one is actually really simple. If I were you, please do not refinance your mortgage, leave it exactly how it is. Then, I would take out half of the money that I had at Morgan Stanley to pay down half of my credit card debt. I would see if I could get credit cards at a 0% interest rate or the lowest interest rate possible and pay it that way. But I would not take all of your money out of Morgan Stanley, you need some cash there, but don't take it all out to pay off debt. Take out half of it, but don't refinance, that's what you should do. This next question is from Brijesh. Hi, Suze. I have a 17-year-old daughter who wants to become a vet. She wants to go to a four-year degree college out of state. The expenses for four years would be $130k which would cover tuition and the dorm. I think this is too much. I have suggested that she goes to a two-year community college, which would only be $8500 for both years. I am being bullied by my teen to send her to her college of choice. What is your take on this? I don't want to raid my retirement and pay since I have another teen who will be ready to go to college in about four years. Wait, can I answer this, Suze? Yes, all right. First of all, Brijesh, absolutely do not raid your retirement, number one. Absolutely don't go there. I would do this, I'd say, listen, if you really want to be a vet, go to the two-year community college, get incredible grades, and then get a scholarship to go on to the vet school for your four-year degree. And at that point, you'll have enough information and knowledge to take out your own student loans. There you go. Yeah, but here it creates, this is what you really have to understand. Most vets graduate with $130k to $250k worth of debt. And I was a commencement speaker for a veterinary school, and I got to hear a whole lot about the debt that these kids were graduating with. The sad part about it is most vets when they graduate, only make $45k or $50k if they're lucky a year. So, what happens is the debt grows and grows and grows. So your kid has to get a grip on reality, you are the parent here, she is the kid. And if she's bullying you, the fact that she's bullying you, are you kidding me? You can tell her to go and take a hike, and she could bully you as much as she wants, but no, you're not going to take money out, it's not your problem. And if that's something that she wants to do, then she's got to figure out how to do it on her own. OK, Suze, next question is from Sue. She said, I recently saw your PBS special where you said that it's a good idea if one can stay for the social security benefits until the age of 70, earning an interest rate of 8% for four years. However, I've been advised to start now when I turned 66. I was told that in those four years if I wait, I'll be losing a lot of money that I could not replace and was told I could make up for the lost money in about 10 years from now. I don't know what to do. A couple of people have done the math for me and see that it would be better to collect it at 66. I would be getting approximately $1337. If I wait until I'm 70 and I would be receiving approximately $500 more a month. So at 70, I'd be getting about $1800. Like I said, I don't really know what to do. This man has insisted that I would be losing money if I don't collect when I am 66. My brother says it all depends on what age I die. Another four more years my brother said I could put the social security money away, whereas in my 70s I would almost be forced to spend the money to live on. These guys don't know what they're talking about, Suze, and it says any help with this question sure would be appreciated. Sue, I need you to listen to me. So I don't quite have enough information on you. Are you still working? What's going on? But I have a feeling that you are still working and therefore, all right, you're 66 and you decide to collect this social security. It may be because you're still working and you make over a certain amount of money you have to pay tax on this social security, so are you really pocketing $1337 a month or not? Chances are you are not after taxes because it's possible that 85% or so your social security may be taxable to you because of the income that you are making, number one. So here is the question for you. You collect the $1337 a month, and now you put it into an account, you save it like everybody is telling you to do, and that will give you approximately $64k after four years. If you had waited those four years, you would get an extra $500 a month or $6k a year. How much would that $64k have to earn to generate for you $6k a year? The answer to that would be 9.3%. Given that interest rates are so low, why in the world would you take social security right now if you don't need it because you're just going to be saving the money, putting it into an account at almost 0% interest rate that is taxable to you and then cut out a possible 9.3% guaranteed return on your money in just four years from now? That makes no sense to me at all. You can listen to your other people, you can listen to your brother. You know, you'd have to wait 10 years to get that money back. But really Sue, in the meantime, you're getting an extra $500 a month at the age of 70. And if you just live to 80 from that point on, you have made money. So your brother's right, it all depends when you die, but if you're healthy, if you don't have any illnesses, if everything is great, I would so be waiting until I was 70, I can not even tell you. OK, this next question is from Debbie. Hi, Suze. I have a simple but complex question to ask you. I wanted to know if you thought whether it was a smart move to continue to finish college or to stop to pay off all of my debt, then come back to finish college a few years from now? The reason I'm considering all of this is that my student loans and credit card debt are tied to my grandpa, who is in ill health and has been in and out of the hospital multiple times over the last few years now. All I know is that my grandparents raised me and it would hurt me so much if they never got to see what their hard work has done for me because I love them more than anything, especially my grandpa, who has sacrificed so much for me. I feel in my gut that time is ticking and I don't have a lot of time left to do things anymore. So I need to choose quickly whether I want to show them the finished product of my degree and career or that I've repaid them back and that no one has to stress any longer about large, looming amounts of debt. Suze, I hope to hear from you with guidance to make a decision. Oh, Debbie, that's such a sweet email in so many ways. I would actually have a talk with my grandpa if I were you and ask him because I've learned over the years that when you get older, especially if you have a child or a grandchild, your joy in life is that grandchild and the money that you can give them so that they can be more and so that they can have more. And so I'm not exactly sure that your grandpa would get more joy out of getting money back than getting more joy out of seeing you graduate and become what he obviously wants you to become. So, I would sit down and I would talk to him and I would say, Grandpa, I love you more than life itself and it's killing me because I see that you're not well and, and I don't know what to do. It's like I don't want you to think that I owe you all this money and everything and that maybe you're stressing about it. So, Grandpa, what do you want me to do? And whatever Grandpa tells you, Debbie, that's what you should do. All right, KT. That brings us to the end of this podcast. Anything else you want to say? Yeah. Happy birthday, Lulu. Yeah, Lulu is Louise Hays, that is her nickname. We miss you, Lulu. And until next Sunday, all of you, you stay safe. Hi, I'm Sarah, and I'm Robert, and we're from Suze Orman's Women and Money podcast team here to tell you that Alloya's member credit unions are so proud to have brought you this episode. You know, Robert, credit unions live by a people helping people philosophy. Absolutely, Sarah. And that means when you bank with a credit union, you can trust that they have your best interest at heart. The fact is, regardless of circumstance, a credit union will have your back and keep your money safe, that's the credit union promise. Go to www.MyCreditUnion.gov to find a credit union that fits your needs. That's MyCreditUnion.gov. 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.
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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.
Credit & Debt, Saving, Investing, Retirement