Credit Score, Emergency Fund, Family, Loans, Retirement, Roth
April 15, 2021
Listen to Podcast Episode:
On this podcast of Ask Suze (and KT) Anything, Suze answers questions from Women & Money listeners Pam, Penny, Christina, Larry, Kate, Julie and Arlene selected and read by KT.
April 15, 2021 Ask Suze and KT Anything, here we are again. Can you believe we're still doing this, KT? No, I love doing this. But today is a really great day, KT. Do you know why It's a great day? Can you, can you? I'm very happy today. And I've been up super early and getting ready for what? Oh, it took her a little while everybody. There was a little pause there, but she now has that same big, smiling face. Colo is coming. Our Colo's coming this afternoon. We're very excited that he's going to spend a week here in Florida. We're back in Florida and we can't wait to see him. Yes, and while he's here, we're getting him his vaccine. Which is the main reason that we're bringing him here because it's very difficult at this moment anyway to get one over in the Bahamas. So, we just want our boy safe and sound. I totally forgot. I didn't, I've been that's why I've been cooking. I thought she was cooking for me, nope. Of course not. Anyway, so, we have a really great day with a very diverse selection. Before we start. I want to say something. Can I say something? Okay, Today's my day though. God, do you all understand the monster that we have all created here? There's no monsters. So, a lot of you are saying when you see me or whatever, emailing me other ways, how do you even get to ask a question on Ask Suze Anything to KT and you? And I'm like, oh yeah, we've been forgetting KT to tell everybody how to send it in, how to send it. So, you can do it a few ways. You can send in an email with your question to ask Suze at the email@example.com. That is one way. The other way is you can download the community app on google play, apple apps and all you have to do is search for Suze Orman and sign up for the Community app and you can ask it right there. All right, I had to get that out of the way, KT. And you can also take a little lesson from my first question, which is from Pam in the subject area, she wrote a short question. Yeah, but you want to know what is so funny. They say a short question. Then they go on for 10 pages. Send me pages and pages. But this one's kind of fun and it's very simple. Hey KT. Anyway, just wait a minute. Are you telling me they're not even saying KT and Suze anymore, it says, hey KT? Just a quick question for Suze. Pam you're very clever and I put you right on top of the list. So here it goes, Suze. I have excellent credit. Always pay off my credit card monthly, etcetera. She has one card American express with a credit limit of $20,000. However, I have applied for several credit cards over the years, but unfortunately the application is never approved. Why is this happening? Well obviously, you have had your American Express card now for most likely some time, but between the time that you've got your original American Express card and now have you taken the time, to literally check your credit reports. Because, obviously something is going on your credit reports or is on your credit reports that's preventing you from getting another credit card approved. That would mean has somebody stolen your identity? Has somebody run up credit and you don't even know? So, the best way to do it is to go to annualcreditreport.com and you can get your credit reports absolutely free there once a year. So do that, check your credit reports. You might also want to check your Fico score. You could also do it on Credit Karma just to see what they're saying and that's free. And I would just check there, because obviously there's something going on that you are not aware of. You know KT that's why it's so important to always check your scores and your reports. You know, with identity theft today it is so easy especially for the elderly. There's medical identity theft, there's financial identity theft, so it's really important to check your credit reports all the time. Yeah, and Suze and I are really careful. We still sit every week and shred our mail, that is in you know that has personal information on. But even more important than that KT. It's right now, all about electronic and have you been hacked or have you not? All right, good advice. Okay, so Suze. Next question is from Penny and this is relevant. I love that name, she likes Bill too. Yeah. Do you think if we had kids we would have named them Bill, Buck, and Penny? No way. What would we have named them? Betsy. I would not have. No, that's your favorite. She always names all her car's Betsy. We have no idea why. It's just that she likes that name. We only just have one car. Just so you know it's 10 years old. We have a few golf carts though. All right, go on. All right. You ready? This is from Penny. Hi, Suze. I have Obamacare. Wait, a penny for your thoughts. Oh, stop. Alright. Alright, everybody ready. This is my Thursday, it's KT's. I'm running the show, Suze. You're answering my questions. All right. All right. Hi, Suze. I have Obamacare, which I can afford with my subsidies. My accountant told me that because I rolled over a $5,000 from my traditional IRA to my Roth IRA that it is going to cost me $1,600 to pay back for my marketplace subsidies. First of all, do you know what a subsidy is? It's a government subsidy, right? She's being subsidized. She's being subsidized. She's getting aid. She's getting aid. And what she's saying is because she actually rolled over from a traditional IRA to a Roth IRA, which you know, it's a conversion. She can do that. Her accountant is saying that for 2020 because that's what she's asking about. That he or she is telling this woman, penny, that she's going to have to pay back the $1,600 in subsidies that the government has given her. Yeah, they told her to hold off on all of this. Right? So, want to hear the answer to this one, KT. She needs a new accountant so fast. It's not even funny Penny, like really Penny. So, your accountant really needs to brush up on the AARP provision out. Listen this is only for the tax year 2020, no matter what, no one has to repay an ACA, which is the Affordable Care Act, premium subsidy. Or just, let's put it another way, there's no income threshold to do it. So, if you got the subsidy you get to keep it regardless of your income ended up being for 2020 period. But remember this is just for 2020. So, the truth of the matter is, Penny, your accountant is really way behind the times. That would scare me if I were you okay? You know, here's the truth KT. I shouldn't even know that because I'm not a CPA, I'm not an accountant. My specialty is personal finance. So, because the tax laws are so complicated and there's so many things you need to know, like what you study at all the time. Yes, but still I'm not when you have an accountant, that's what they're paid to do. Also, you know today is, don't you? It's April 15, it was Tax Day. But didn't they change it to May 17? Unless see this is another thing, everybody should know, if you're paying estimated tax payments, it is still due today. You do not get to wait until May 17 to pay an estimated tax payment. Do you know what estimated tax payments are? You estimate what your income is going to be for the year and you pay it in advance? No, you what you do, is that you have four dates a year. Whatever your estimated income tax is going to be, if you don't work for somebody or whatever, you have the ability to pay it in four equal installments, usually January 15, April 15, June 15, and I think it's September 15 and you have to just make it those days that's all. But also, do you want to talk a little bit about taxes you don't like when people get a return? No, I don't. Tell them why. Well, this is interesting, you know I used to really years ago because the average tax return KT is about $2,500 a year. Years ago, when you got a refund. You know the truth of the matter is you are giving an interest free loan to the government because they weren't paying you really interest on that money. So, you could have just adjusted your withholding, so you didn't get a refund and then that money could have gone into a bank account or something that was paying you five or six percent at the time or to fund your retirement account. So today because interest rates are so low it doesn't matter as much. But if you're getting a $2,500 or $3,000 refund and you don't have an emergency fund, you have credit card debt. You have funding your own retirement account. You need to adjust your withholding so that you get an extra $200 or $300 a month. They could do what go right in there or better yet have it go right into your Alliant ultimate opportunity savings account where you would be making 0.55% interest. And if you put in at least $100 a month for 12 consecutive months at the end of the time you would get another $100 which is like a 16.7% return on your money. I just have to say something else. Now you've got me started. I don't even know how that happened. I don't even know how that happened. But I really need you all to get for you to get $100 of interest on a savings account today at 0.55% interest, you would need to deposit $18,000 at once in that account. That's what makes this account by Alliant credit union. And you would simply go to myalliant.com to apply. That's what makes us account so extraordinary. Which is why I'm going to talk about it and talk about it and talk about it. Because it's true once it goes away this year. No way is it going to come back. Yeah. Also remember everyone Suze really fought hard for the first three months of this year to please ask Alliant to extend. And they did they recognize the value, and they even made this year for them a savings here. So do it. All right. So, the question, well I took over your show for a little. So next question is from Christina from Missouri. All right. Hi Suze, I'm a new fan. Welcome Christina. Welcome to the Suze family. So, I have recently been left money by my mama. My problem is that even though she left it to me, I know why you chose this. Why? Because she called her mother her Mama. Yeah. I called my mom, My mama. I knew it. Okay. So, you want me to continue this is your show. So, here's I'll just summarize for all of you. So, Christina's Mama left her the money. She obviously is the most responsible daughter. And she asked her to take $70,000 and apply it for her sister's care and income. Her sister's 59. She's on disability and she's in OK health. But here's the catch everyone, ready for this, the Mama kind of knew a little bit about the sister and she said I want to make sure that she's taking care of Christina because if you just give her that money, she's going to blow every penny with her boyfriend. The boyfriend lives with her and he doesn't have a job right now. So, there you go. Suze is being asked by Christina, what could she do to make this money last a lifetime? And how could she give? What should she give her every month to live on? All right, my dear Christina, first of all? Um, what's going to set in in my opinion is guilt, for you. That you have the $70,000, that it's supposed to go to your sister and you're going to want to give her more money than truthfully in my opinion, you should be giving her, I think you need to plan that she gets income for the rest of her life from that. So, the very first thing I would do if I were you is I would take this money and hey, I would put the $70,000 in Alliant credit union where you could get .55% and that's where I would leave it. I would then try to figure out how long did I think my sister was going to live? You could very easily give her starting now, $180 a month and you could do that every month and the money would last at least until she was 92 years of age. If you wanted to, if you gave her $200 a month, it would last till she was 89, 250, it would last till she was 82. 300, it would last till she was 79. I would start out lower however, and just see how does she do with that extra money? And what does she do with it? Because as time goes on, you may find that she actually needs more money. Maybe you need a nurse to come in and take care of her. So, the less you give her right now, the more that's left for you to have in a lump sum in case she needs it. The one thing you have to do however though, is set this up so that the beneficiary of this money, it could be in your individual name, but the beneficiary should be a trust. The trust should be set up that says the money goes into this trust where you have appointed somebody to continue to take care of your sister. You have to think of it like that. But that's what I would be doing, Christine if I were you. So don't give her the full amount of money. Are you kidding me? Also, she has to remember she's on disability, KT that may mean she's on SSI. So, she has too much income. She'll get disqualified from that. So, Christina. You need to check into that as well. Okay next question is from Larry who said he's your hugest fan. Do you think he's a bigger fan than you? Are you my fan? Yes. Why? Because I love you. All right no problem. Okay so here's from Larry. First of all, this is a man smart enough to listen we like that your hugest fan. And it's a simple question but I just want to set the stage here. Larry is 60 years old. He's collecting government unemployment. He's done really well. He owns his Manhattan Co-op for 24 years now. No mortgage. 20,000 in the bank, 14K in savings. But here's his question when you say Suze, save at least eight months of an emergency fund. Does that include CD Savings and retirement accounts? Or should it be separate from all of those? So interesting question there. Larry, listen to me closely now, and this is for those of you who are really in retirement about to be in retirement which is very different than if you were 20, 30, or 40. What you really need to do is figure out what your guaranteed sources of income happened to be. And you should read the book the Ultimate Retirement Guide for 50+. Because I go into great detail about this because, really, when you are older and you have money invested in the stock market let's just say you do within an IRA. That's money that maybe you're planning to live on. You would need however at least three years in cash, to carry you, for you to be okay because the last thing you want to do is to access money in a retirement account if the markets are going down. So, rather than an eight-month emergency fund, I would like to see you have three years of expenses in cash. How much is three years? You first will add up all your sources of guaranteed income, income that you know is never going to change whatsoever. You then look at what your absolute expenses are. Let's just say you're guaranteed income is $2,000 a month. Your expenses are $4,000 a month. That means you are $2,000 a month short or $24,000 a year short. Or almost $75,000 a year of what I want you to have in cash when you retire. Especially if you have money in an IRA, that is invested in the stock market. Was that more confusing or did that make sense? No, that makes sense to someone in Larry's age group and position. Larry said that it's doubtful that he's going to start working again. Just that you have to be prepared, because the main point of what I was trying to make everybody, is when you are in retirement and if your money is going to be coming from your IRA, your Roth IRA, your 401K. And it's all invested in stocks and these markets start to go down. The last thing you want to do is be selling as the market is going down because it's money that you need. So, you want three years during retirement of money in cash for you to live on in case the markets do go down. All right, Okay. Next one is from Kate in California. Hi Kate. Is that KNC, get it Kate in California? Suze is in one of those funny word game, did you do a crossword puzzle recently or something? She's in lots of crossword puzzles. I don't know if you know that, but the New York Times always sneaks a Suze Orman question in their big Sunday puzzle. All right, right. And I always get it wrong. Come on this is from Kate in California. Hi Suze and KT. I'm not there yet. Not even retired yet. But I'm trying to plan ahead. I'm 63 work for the state earning approximately 75,000 gross and my husband gets $12,500 SSA. So, here's the question. When I retire, I'll have almost $40,000 in vacation holidays to be put into my 401K or 457. Should that be a traditional or a Roth taxes would be withheld at a higher rate of about 36%. If she does the Roth and it would really put me in a higher tax bracket for that year. All right. There you go. All right. Do you know the answer, KT? Well, you know what I'm surprised about this isn't a quizzie but so, so wait. Can I tell you what I'm a little bit surprised about, I'll have almost 40,000 in vacation holidays. Does that mean that she forfeited vacation time and got paid? Uh, I didn't know that. You can do that. When was the last time you had a legitimate job? The reason no. When I was working, if you didn't take your holiday time, you would lose it. You couldn’t roll it over. That's obviously not how it works. This is a government job. All right, so let me go on. Let me answer her. All right, go for it. I don't know the answer, but you like a Roth. So, I'm not sure if that's the way to go. You can have your cake and eat it too in this situation, when it comes time for you to retire, take the $40,000 or whatever amount of money it is and put it into a traditional IRA 401K, 457 whatever it is. Okay, so you do not pay taxes on it. Now you retire. Now hopefully your income has gone down, considerably from when you were working and then little by little, if you want to convert it to a Roth. So don't take $40,000 and put one lump sum into a Roth where you have to pay taxes on it, put it into a traditional retirement account and then after you have retired, converted little by little to a Roth. Next question is from Julie, Hi Suze and KT, I'm a newly hired employee eligible for SC state retirement benefits. South Carolina, yep, they offer two different options. And once she enrolls, she said, I'm unable to change it down the road so she doesn't want to make a mistake. And the first option is a defined benefit plan. Alright, that pays out monthly for life, plan bears all the risk for investment performance. You know, that one second option is defined contribution plan, which appears to operate close to the 401K if she understands it correctly. 401k KT, just so you know, is a defined contribution plan. So, let's go back in history just a little bit for everybody. You know, way back when actually, when I first started back in 1980, even a little bit before that, all corporations had what was called a defined benefit program where you simply worked for this corporation. And if you stayed with them for 20, 30, 40 years when you retired, you had a defined benefit, it was a pension plan, but normally the corporations funded it and it was fabulous because that guaranteed you an income for the rest of your life. You didn't have to think about investing it, you would know exactly what you would get, it was all taken care of for you. And then the bright minds that were around at that time thought about, I know, let's make it so that the employee has to save for their retirement on their own. It will cost the corporations less money in the long run will give them a little match, but in the long run it costs us far less. And now the retirement burden is on the employee. So, they changed it from a defined benefit which is a pension to a defined contribution plan and a defined contribution plan, is your contribution amount is defined. So, for instance, when you contribute to a Roth IRA. The contribution is defined. The most that you can put in this year is $6,000. If you're under 50, $7,000 if you're 50 or older and a defined contribution plan at a corporation which is a 401K, 403b, a TSP. The most you can put in is like $19,500 if you're under 50, $26,000 if you are You know 50 or older. And so, the contribution amounts that you can put in are defined for you. What's not defined for you is what income will that provide for you later on in life? Because the markets will go up, the markets can go down, you don't know how that money is really going to work out for you. So given that most corporations today Julie, do not even offer defined benefit plans anymore, I would so take this defined benefit plan, especially if you plan to work there for the rest of your life. Why are you looking at me like that, because I think because I was listening to you and most companies don't even do this. No, they don't do it. She's go for it, go for it as long as she's going to stay working there, if she's just going to stay working there for like a year or two, then she would really be better off to do a defined contribution that she could take with her and everything like that. I'm sure the company's going to match, but if she really plans on working there forever or hopes to, I would absolutely do the pension plan and then on my own I would be contributing to a Roth IRA or a traditional IRA or whatever I could. Good. Alright, okay. Next question Suze is from Arlene and it says hi Suze and KT, I love, love, love, love, love listening to your podcast. All right, so my name is Arlene, I'm a Dominican 28 years old and came from a family that always struggled with money. I think a lot of you out there can relate to this. Here's what Arlene's looking for: financially she's in $40,000 of student loan debt, 23,000 in credit card debt. She said, Suze, I feel like I'm drowning financially, I'm living paycheck to paycheck. So, I decided to apply for a personal loan through a company to help clear some of my debt. I was approved for $20,000 with an interest rate of 14.99% and payments of $665 next month, starting next month. Considering I'm going to start paying the student loans. Well basically Suze, here's the question, what should I do with the $20,000? That will be most beneficial for me in the future. Arlene here's what I want you to do. I do not want you to take out this personal loan, I do not want you to take out this personal loan. I do not want you to take out this personal loan. Just that simple. Why? If you take out the personal loan and now you pay off all your credit cards. What is going to happen is you're going to have these five credit cards that have available credit limit on it. And before you know it, not only will you have $20,000 in personal loans but you may very well max out these credit cards again because that's exactly what happens. You don't want to close down these credit cards after they're paid off because that will hurt your Fico score. What I would do if I were you is rather than paying 15% interest. Are you kidding me? On a loan? I would be going to NFCC.org. This is the non-profit organization that I want you to go to. It'll cost you about $10 or $15 a month. It will take you about five years to pay off this credit card debt. But what happens is, the NFCC has a deal with most credit card companies, because they rather have you pay something than you not pay anything and you just claim bankruptcy on it or you just stopped paying it. And because of that, they are able to negotiate the interest rates for you in most cases down to 0%. Right, these are legitimate agencies. You pay them, they pay the credit cards. It's just that simple. She still keeps the credit cards open and it doesn't hurt her score. That's right. They just lower the interest rates and you pay the organization and because you're paying the organization and they're paying the credit card companies, the credit card companies feel like they're going to get money back. You could lower your interest rate big time, just by contacting nfcc.org. Just that simple then you would be paying that off over a five-year period of time and then you would start to deal with your student loans. Now if your student loans, if you're finding that you really can't afford to pay them back on the standard repayment method, then there's nothing wrong with you looking at paying them back under an income-driven repayment method. And maybe I'll do a Suze school on that next Sunday because chances are the laws currently have changed on income-based repayment programs and I think they're worth looking into now. So, I'll take I'll do that on Sunday’s this coming Sunday if KT allows me. Alright Suze, you know what time it is now? Okay, this is this is not my favorite and she promised she would give me one, that I would get right that I knew the answer to. Let's see if she's keeping her word everybody. This was the topic. It's about annuities. Oh no annuities, KT. You don't even know about annuities. That's why I'm going to probably not get it right. So anyway, ask me the question, this is a guess. Okay, are fixed annuities tax-free after maturity? Are there any other advantages of investing in fixed annuities? So, this person is asking everybody that they obviously have been told if they invest in a fixed annuity, an advantage of the fixed annuity is that it's tax-free after it matures and they want to know in essence, are there other advantages besides that? Okay, let me just jar my memory because Suze and I did a lot of work around annuities a couple years ago. If I recall if you have any annuity, the tax benefit happens when you take, you know, the you have to keep something to keep like your original investment or the money you earn from it? Ehhhh. All right. Are there any tax advantage? Ther are tax advantages there are, but not where you're going? All right. So, let me just answer this. She got that wrong, that’s not fair. She always says that here's what I want you all to understand about annuities. Annuities are not and I repeat, are not a tax-free investment. An annuity is simply a contract between you and an insurance company, that if you simply deposit money into the annuity and you earn a fixed interest rate on it, which is what a fixed annuity is. You do not pay taxes on that interest. The interest is tax-deferred. Tax deferred until when, until you withdraw it and when you withdraw it, it is taxed to you as ordinary income. So, annuities are absolutely not tax-free after maturity. They are tax-deferred and totally taxable when you take the money out. Are there any other advantages of investing in fixed annuities? No. And one thing you have to remember is if you put, let's just say $25,000 in a fixed annuity giving you a fixed interest rate for a specific period of time and that $25,000 grows to $75,000, let's say that's true over 20, 30, 40 years. Who knows? And you die and you leave it to your beneficiaries and they take it out, they are going to, owe ordinary income tax on $50,000. The difference between what you put in and what it was worth. Big thing that you need to think about, everybody. There are so many reasons I don't like annuities, KT, that's what I just said. I can't believe that was my quizzie, as soon as I hear the word annuity, I'm like, oh no. Listen, there's some good things about annuities. I'm not saying that there aren't, but you really have to know about how they work because most annuities come with a surrender period, which means you put your money in there, you can't take it out without penalty for 5, 7, 10 years. Most come with an age restriction, that you can't take out your interest or whatever until the age of 59 a half. There's also an estate premium that you just need to know about them. Do you know there was a time that I was the nation's expert on annuities? Did you know that? No. Why? Because I knew more about annuities than almost any other person. Right, so there you go right there. That brings us to the end of KT's Thursday. Yes. But you know what? Sunday's coming up. Sunday is going to be a nice day to the 18th. Don't miss Sunday. Why? You don't even know what we're doing Sunday yet. You said we're going to do a really great Suze school on Sunday. Alright, everybody. Hope you enjoyed today's ask Suze an KT anything and join us on Sunday to then. Maybe we'll have Colo come on and, say hi to everybody because he'll be here. Actually, he’ll be here working, helping us do some repair work. Maybe I'll have him come on and say hi. That would be fun. He's so cute. Soon as I tell them it's on, he gets nervous. All right, everybody, we love you. See you Sunday bye bye.
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Answer Yes or No to the follow statements.
I pay all my credit card bills in full each month.
I have an eight-month emergency savings fund separate from my checking or other bank accounts.
The car I am driving was paid for with cash, or a loan that was no more than three years, and I sure didn’t lease!
I am contributing at least 10% of my gross salary to a retirement plan at work, or I am saving at least that much in an IRA and/or regular taxable account.
I have a long-term asset allocation plan for my retirement investments, and once a year I check to see if I need to do any rebalancing to stay on target with my allocation goals.
I have term life insurance to provide protection to those who are dependent on my income.
I have a will, a trust, an advance directive (living will), and have appointed someone to be my health care proxy.
I have checked all the beneficiaries of every investment account and insurance policy within the past year.
So how did you do?
If you answered yes to every item, congratulations. If you are working on improving on a few items, I say congratulations as well.
As long as you are comitted to truly creating financial security, I applaud you. If that means you are paying down your credit card balances, or are building up your emergency fun with automated payments, that’s more than fine. You are on your way!
But if you found yourself saying No to any of those questions, and you’re not working on moving to Yes, then I want you to stand in your truth. No matter how good you feel, you have some work to do before you can honestly know what you are on solid financial ground.
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