July 02, 2023
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On this episode, Suze shares an email from a listener who takes issue with some advice Suze gave about paying off a mortgage.
Music: Music (in).
Suze: July 2nd, 2023. Welcome everybody to the Women and Money podcast as well as everybody smart enough to listen. So in two days, it will be July 4th,
Suze: July 4th, the day that we celebrate
Suze: independence, independence of the United States of America and hopefully independence for every single one of us. One of the greatest forms of independence. However, in my opinion, is financial independence because nothing can make you feel more dependent, more afraid, more insecure
Suze: than not having the money to pay your bills knowing you won't have enough money to be allowed to retire, knowing that you don't have enough money to possibly help your kids pay for their college education, not having enough money to pay for your health care needs. If you happen to get ill, not having enough money to pay for your cars and your homes when they break down, not having enough money.
Suze: In my opinion, is one of the greatest forms of the lack of independence there can possibly be because when you are not financially independent,
Suze: you end up being dependent on either friends, family credit cards, payday loans, home equity lines of credit or whatever it may be.
Suze: So every one of my shows or podcasts or talks that I have ever given
Suze: the goal, the goal has been to lead you down the road to financial independence. Because once again, I will remind you what is the goal of money. The goal of money is for you to be secure. And when is it that you are secure, you are secure. When you feel financially independent and financially independent, doesn't just mean
Suze: that you have enough money to pay your bills or retire or any of those things. It also means that you have the ability to be independent of the financial advice that anybody else gives you
Suze: so that you call the shots. You know, if you're getting good advice, you know, if you're getting bad advice, you can be independent because you are financially powerful.
Suze: And that is when you truly own the power to control your destiny,
Suze: your financial destiny.
Suze: So to be truly secure, to be truly financially independent means, you also not only have to have the money, but you have to know about the money that you have. And that brings me to an email that I got a little bit ago. Actually, I got this email on June 17th and it was from somebody by the name of Alex.
Suze: And I want to read you his email
Suze: and then I want to talk about this concept that he is addressing because believe it or not, it really has to do with financial independence.
Suze: He says, Suze, I love your podcast. Yes, I am a man and yes, I soak up your woman and money podcast like a sponge. Remember everybody, the subtitle to this podcast is and everyone smart enough to listen.
Suze: He goes on to say, I have to say you are dead on with most of your advice and I agree 99% with your recommendations. One thing that confuses me a bit
Suze: and does not fit in your otherwise totally rational approach is your attitude towards mortgages. You repeatedly recommend to pay off outstanding mortgage loans as soon as financially feasible. And at least by the time of retirement,
Suze: I'm 50 years old and retired about three years ago, I have a 15 year mortgage with 10 years left to pay off at a two and three quarters percent interest rate and will not even think about paying any penny more than my scheduled monthly payments. It
Suze: not make any sense to put more of my money into the mortgage than required while the stock market and nowadays, even 100% safe government investments pay me 4% or more on my savings. Instead,
Suze: I understand that some folks will get emotional about outstanding debt and will have trouble sleeping at night until they paid off their mortgage.
Suze: I do not in capital letters, I do not have such fears. I have the cash to pay off my loan but well invested in very profitable assets and I'm going to pay off all of my loan in an instant. Should the interest rate situation change out of favor? I sleep very well at night if I regret anything.
Suze: It's probably that I only opted for a 15 year loan instead of a 30 year loan back when interest rates were so low.
Suze: I just wanted to clarify this. I am sure you will absolutely agree to this rational approach. It just doesn't always get across that clear when you talk about paying off mortgages or not. Yours, sincerely, Alex. I have to tell you, I loved this email from Alex and I wanted to just pull his strings for a little bit.
Suze: I answered this email and I said, I absolutely disagree with you and I'll deal with this on a podcast. And then I let that sit with him for a little bit
Suze: and then I wrote again and I said, but Alex, in your particular situation, I'm fine with you doing exactly what you are doing.
Suze: But in honor of Alex, really caring and having done really so well with his money that he was able to retire at the age of 47 I wanted to number one honor him and I did wanna make it very clear
Suze: because one of the greatest forms of financial independence is truly owning your own home outright.
Suze: Now, to just be clear as to what I have always said is if you own a home
Suze: and you know that you are going to stay in that home for the rest of your life,
Suze: then you should probably make it your number one goal to have that home paid off by the time that you are retired.
Suze: And one of the reasons that I have always said that is that not many people today. And when I talk, I have to talk to the majority of people I'm speaking to or who I know that are listening, not just those who are in a different financial situation, but their financial situation is typically in the minority.
Suze: And in my opinion, it's really in the minority that somebody could retire at 47 years of age and have enough money outside of retirement accounts like Alex does that he could afford to just very easily pay off the mortgage on his home. If interest rates were to go down,
Suze: very few people are in that type of financial situation.
Suze: So let me just first address that
Suze: it was back in 2008,
Suze: 2007, 2006. Do you remember those years?
Suze: And those were the years when real estate, especially 2005, 2004 real estate was skyrocketing.
Suze: Absolutely skyrocketing and interest rates weren't so bad back then, but the stock market was absolutely skyrocketing as well.
Suze: And I had people right into the Suze Orman show just like Alex because I've been giving this advice now for a long, long time, probably about 30 years or more.
Suze: And they would say to me, Suze,
Suze: I have my money invested in the stock market and I am making far more in the stock market now than I am making on the interest that I am paying on my home loan. In fact, it was back then. And I know I've said this before, but just in case for all the new listeners that have not listened to past podcasts, I was a question
Suze: that was answered on one of the talk shows or one of the game shows and I can't even believe it. I can't remember what it was right now. But anyway, and they won a million dollars and they won by being able to answer the question and I was the answer to that question.
Suze: So this person came on the Today Show with me. They called in, I was physically on the Today Show and I advised them to take their money because after their million dollar winning, maybe they would have $600,000 left. They had $400,000 left on their home.
Suze: And my advice to them was pay off the mortgage on your home.
Suze: The hate mail that came into the Today Show towards me saying that was the worst advice they have ever heard in their lives because this person who won this money could take that money invested in the stock market, get greater returns than what they would get. Having just simply paid off the mortgage on their home.
Suze: And how could I tell them that?
Suze: However, I did tell them that
Suze: then a few years later this, the real estate market and the stock market absolutely crashed.
Suze: And now this person, even though they didn't have the equity they once had in their home, they still had a home that they could live in because they paid off the mortgage
Suze: if they had taken that money. And if they had listened and invested it in the stock market,
Suze: they would have not only lost a considerable portion of that money in the stock market during those days, but they also would have lost tremendous value in their home
Suze: and they probably would not have even been able to sell it for what they owed on their mortgage. If they had a job where they would have been able to pay at least the mortgage payment during those times, they most likely would have lost that job as well.
Suze: And they would have been in serious, serious trouble.
Suze: That isn't the only time I have seen that happen.
Suze: I've seen that happen in California when real estate absolutely crashed. When all kinds of things have happened over the 40 years, I've been doing this.
Suze: So I've always found that for me personally, true, financial security is just not getting the most out of every penny,
Suze: but making sure that every penny is doing the most for me and for me personally,
Suze: one of the things that makes me feel seriously secure is owning my own home outright. Now, obviously, maybe Alex, because now I'm talking to you, I'm in a different position than you. And why is that? Because I am sure I have far more wealth than you.
Suze: Although I hope that's not true. I would love if you had more wealth than me. And even though I can make more,
Suze: I want to feel more secure and I still like owning everything outright.
Suze: And I can tell you that even though I have tens of millions of dollars that were in treasuries, there was a period of time there not so long ago when, in fact, the government was in doubt of paying their debt and what would happen to treasuries if they defaulted on their debt. I was not that secure
Suze: because I didn't know what was really going to happen to treasuries. We hoped that everything was going to be ok. Sheila Bair, the old chairman of the FDIC told us everything would be ok.
Suze: But I had thousands of emails of people who had money that they thought was invested, safe, secure and sound,
Suze: that didn't feel that secure
Suze: and they would write me and they would say Suze, all of my money that I was gonna use to pay off my mortgage. If I ever lost my job is invested in treasuries. Do you think it will be safe?
Suze: So, of course I said, yeah, everybody tells me it will,
Suze: but I can tell you everybody felt insecure about that happening.
Suze: So all of us just have to take that always into consideration as well. You say that you understand that some folks will get emotional about outstanding debt and have trouble sleeping at night until they're paid off. And you say you do not have such fares that you have the cash to pay off your loan.
Suze: So the question goes to where exactly is that cash kept? Because if in fact, it is in the stock market
Suze: and if in fact, you feel that if something went on, you could get at that money right away, please remember that when catastrophes happen
Suze: such as 9 11 and some other things can happen,
Suze: the stock markets can close down so that you cannot sell anything and they can stay closed down for four or five days until they want to open up. And then when they open up, your stocks can open up so much lower than what you thought they were at when everything closed, that maybe you would not get back
Suze: as much money as you thought you needed to get back to do what pay off the mortgage on your home
Suze: So if you have money, everybody
Suze: and you want to do what Alex has done
Suze: and you happen to have a very low interest rate lower than what you are currently getting on the money that you may have in certificates of deposits and, or treasuries that you know, you can get at, at any time. They are not in
Suze: a taxable retirement account. They are where you can get them without any tax ramification or surrender charge whatsoever.
Suze: And you want to keep that money there
Suze: earning more
Suze: after taxes than what your interest rate on your mortgage is after taxes. Because remember everybody as time goes on,
Suze: even if your mortgage is at two and three quarters percent, eventually, there will not be a tax write off or very much of a tax write off on that two and three quarter percent mortgage.
Suze: As time goes on the interest deduction on your mortgage payment goes down and down and down. So you get less of a tax write off. So you have to be very careful because there will always come a time
Suze: when it makes more sense if all you're doing is putting your money and getting safe interest. There always comes a time where it makes sense to still pay off the mortgage. Let me give you an example. Let's just say, and I don't know if this is true or not, but let's just say Alex had a $400,000 mortgage
Suze: and he's paying like I said, two and three quarters percent and it was a 15 year mortgage. So his mortgage payments would be write this down everybody $2714 a month.
Suze: And let's say he did that every single month for 13 years. At the end of 13 years, Alex, you're gonna only owe $58,000 right around there. Ok? But your interest right off at that point in time, just so, you know,
Suze: will be about $1500 of interest for the whole year. And let's just say you're in a low tax bracket, a 20% tax bracket. So it will only save you $300 in taxes. So let's just say
Suze: that you have that 58,000 sitting in a safe account, like you say, making 4% obviously taxable, you would earn $320 in interest on that
Suze: in the 20% tax bracket. It would cost you $464 in taxes.
Suze: So you would actually be losing and $164
Suze: on that example. So we can work numbers any way we want.
Suze: But there usually always comes a time
Suze: where it makes sense to pay off the mortgage on your home with cash that you have rather than just paying it out little by little by little. So again, just to be clear, everybody, if you have the money outside of a retirement account
Suze: not in the stock market but in a safe, safe liquid place where you could get at it at any time
Suze: and you rather earn the interest in there rather than paying off your home. I don't have a problem with that,
Suze: but you just have to keep an eye on it for the majority of people though, most of your money is in a retirement account
Suze: and most of your money is in a retirement account that is taxable.
Suze: So that if you needed to, for whatever reason, pay off your mortgage right away
Suze: to take it out of a taxable account makes absolutely no sense whatsoever.
Suze: So if you're in that type of situation where the majority of your money is in a retirement account or even a certificate of deposit, that there would be a penalty fee or Series I bonds or whatever it may be.
Suze: I will still say you are far better off paying off your mortgage by the time you retire.
Suze: That's number one, number two, you may feel like you have money in the stock market that is invested and in case anything happened, you would use that money to pay off your mortgage. Remember what I just said a little bit ago about the possibilities of what can happen in the stock market and don't think it can't happen. It has and it can again
Suze: for most of you, however, where you think, oh, I'm just going to work till the day. That I die and I'm just gonna pay off my mortgage, little by little and invest the rest and nothing will ever happen. And it's ok.
Suze: You better think twice about that. Everybody
Suze: anything can happen at any time. Not just you lose your job,
Suze: but you're in a car accident, you get sick, you can't work anymore.
Suze: Whatever happens that affects your ability to pay that mortgage.
Suze: You would be far better off having taken the efforts in that case to pay down your mortgage by the time you retire. So for the majority of you that are listening to me
Suze: that don't have the amount of money you owe on your mortgage somewhere safe and sound.
Suze: Your goal needs to be to pay down your mortgage by the time you retire, if you know, you want to stay in that house for the rest of your life.
Suze: So I wanted this to be a Suze School
Suze: because out of all the lessons that we can learn,
Suze: especially on this financial independence pre holiday since it's not for another two days,
Suze: one of the greatest lessons
Suze: is to obviously do whatever you can financially speaking to make the most out of your money. I mean, in the podcast that I gave on Father's Day and again, thank you everybody for all your very, very kind responses to that podcast
Suze: where you have to make the most out of every penny.
Suze: You also have to make your pennies, make the most out of how you can live a secure life
Suze: because there's one thing about having a lot of money,
Suze: there's another thing about also having a lot of security,
Suze: no matter what happens when it happens, how it happens in your life. And if you can do that,
Suze: then you truly have financial independence. So, Alex, I thank you for writing in that email. Maybe I made more sense to you or not, but at least I want you to know that I respected your efforts tremendously. And I applaud you
Suze: for having done such a great, great job at the age of 50. All right, everybody. What are you doing here?
KT: Suze, do you know what today is?
Suze: Oh, you bet I do.
KT: It's your niece's birthday.
Suze: I know Alexis Tandy,
Suze: Alexis Tandy from both KT, myself, Columbia, the whole family. We want you to know that we love you so very, very much and we wish you the happiest happiest of birthdays. So Alexis
Suze: join us in saying, Today. Wherever we go, we will create a more peaceful, joyful and loving world and Alexis. If you do that, we promise you you and everybody will be unstoppable.
KT: Happy birthday.
Suze: Yeah, baby doll, love you.
Music: Music (out).
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