March 23, 2023 • 36 mins
On this episode of Ask Suze & KT Anything, Suze answers questions about settling student loan debt in default, trust beneficiaries, mortgage interest, cost of living adjustments and more!
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
KT (00:34):
Good morning. Everybody. Welcome to the Ask K T and
Suze Anything Women and Money podcast. Today is March 23rd,
2023 it's the third month. So we have a 3
23 23
and I'm looking at Suze and I don't think she's
awake yet. So I'm not supposed to be doing all
(00:55):
this until she's, she's like kind of totally awake. I said, Suze,
everyone missed me so much. Let me just get in
there and say hi to them.
Suze (01:03):
KT, It was only one week that you weren't on.
KT (01:05):
Did you miss me? Did you did everyone miss me.
Let them wright in.
Suze (01:10):
Trust me. I don't have
to ask them. I know that they did, but you
know who KT missed and has been missing the past week?
KT (01:21):
Suze is so busy. She's figuring out bank failures. She's figuring
out what people should do right now. She is so busy.
We don't see each other, we see each other for
a cup of coffee
in the morning, which we just had to start this.
Then we see each other at night and at night
I'm so tired. I just fall asleep.
Suze (01:43):
But it is what it is. But KT, you have
to admit
that it's been really a crazy week or so... roller
coaster and with everybody really being worried about their money,
the safety of their money, what should they do? What
should they not do? And I think it's really important
(02:04):
that we're doing everything that we're doing.
KT (02:07):
I mean, have you all seen her on TV? She's
been on TV for the past week.
Suze (02:11):
Yes. But the last thing I did, she said, oh,
you don't look so good. You looked a little blotchy,
didn't you tell me?
KT (02:17):
I did tell you that and she told me it
was my TV screen. That's what she told me so.
Suze (02:24):
Well, I don't want to think I'm the one who's
blotchy with the lighting or something. Anyway, we're going to
do a normal Ask KT and
Suze Anything, meaning it's not gonna be about the FDIC.
It's not gonna be about SPIC, it's not gonna be
about all of these things. It's going to just be
(02:45):
about questions that all of you need to know the
answers to. So KT let's get ready ready. All right,
let's do it.
KT (02:59):
First question Suze, is from Lauren. Good morning, Suze and KT, I have a question regarding defaulted
student loan debt.
My significant other defaulted on his loans greater than five
years ago. He has about $100,000 to pay. What is
the best way to pay the loans back? Is it
(03:19):
best to hire a lawyer or pay the third company
debt agency directly? Love your advice and always look forward
to listening. Lauren.
Suze (03:31):
The advice I really hope to give you is that I hope the significant other isn't somebody that you're legally
attached to like your spouse. Because when you see somebody
has defaulted on a student loan
and now you're the one writing me to ask me,
how do I fix it for this person? It just
concerns me, Lauren, but that's all I'm gonna say about that.
(03:55):
Here's what I would do if I were you, I
would not hire a lawyer because a lawyer can't do
anything for this situation.
A third company debt agency directly cannot do anything for
this situation. The only person that can do something for
this situation is your significant other period. They need to
(04:18):
get it out of default. So therefore, and for those
of you who don't know what default is default means,
you have just stopped paying on it and the student
loan company is loving you
and they're loving you because when it is in default,
the interest rates still accrue and maybe you owed $30,000
(04:40):
to begin with. And then it goes to 50,000. And
now as Lauren just said, it's at $100,000
and given in most cases currently, you cannot just charge
this in bankruptcy. Oh, they'll just let it go from
100,000 to 150,000 and so forth. And then one day
(05:00):
they come knocking at your door, they even have the rights,
not only
to garnish your wages, but to garnish your social security check.
So this kind of debt currently follows you all the
way into old age. And in most cases, there is
absolutely nothing that you can do about it. Therefore, this person,
(05:21):
he is to contact,
right, the student loan company and find out what does
it take to get this loan out of default. Chances
are he will go on a pay as you go method.
Where a certain percentage of his income currently, it's only
about five or 10% goes towards this debt, but it
(05:45):
has ruined his credit. That means if you were to
marry him and you were to ever apply for a
mortgage or something in both your names. I'm sure his
FICO score is down the drain that would affect everything
that you do.
So what you need to do is get him to call,
not you but him, to get on this and call
(06:09):
the student loan company that he owes this debt to
and find out what does he have to do to
get it out of default. You are not to save
him in this situation. Do you hear me, girlfriend? KT
next question? OK. Wait, wait, wait, wait, wait, wait.
So I realized we started the podcast but I didn't
(06:33):
make a really important announcement.
KT (06:36):
I know what it is. Next week, a week from today.
Suze (06:40):
Do you want to tell everybody?
KT (06:42):
Suze's doing an unbelievable webinar called Prepare For the Financial
Climate Change.
Suze (06:50):
Do you like that? Do you like that title?
KT (06:52):
Yes. Yes.
Suze (06:54):
Do you want me to tell everybody what you're doing?
So I am, it's free, everybody and to register, you
would simply go to Suze S U Z E Suze
Orman dot com slash webinar. It is a week from today, Thursday,
March 30th. It will be live at three PM Pacific time,
(07:16):
six PM, East coast time.
Do you know how many people have already registered? And
we just announced it?
KT (07:22):
I think it was like 18,000 or something right around.
It's great and we didn't even do any promotions yet.
Suze (07:30):
No, all the emails and everything.
KT (07:32):
Is there a limit?
Suze (07:33):
No, but we are expecting about 50,000.
KT (07:36):
Sign up everyone, free, free, free, free, free. She's gonna
really impart some pretty important advice to about climate change.
Suze (07:47):
KT, it's not, it's financial climate change. I'm not talking about
the environment here, right? But
every single podcast, I impart some really important information. So
here's the thing. Everybody join us and have fun because
you never know what will happen. All right, KT, next question.
KT (08:11):
Ok. Next question is from Robin. Suze and KT, I love your podcast. Both of you
and your Unstoppable theme song. So I'm learning so much
and I'm a federal retiree and fine with the Thrift
Savings plan, which is T S P and the Federal
Employees Group Life Insurance, which is F E G L I,
(08:32):
the standard order of precedence beneficiary assignments being a spouse,
then Children in equal shares. I understand this order of
precedence is followed when no beneficiary forms are on file. So, Suze,
what are the advantages and disadvantages to naming a revocable
(08:53):
living trust as beneficiary?
Suze (08:59):
So here's the bottom line girlfriend. There are tremendous disadvantages to you if you do not
name a beneficiary because if you don't name a beneficiary
on and everybody listen to this
or a 401k or a 403 B or whatever it
may be or your Roth IRAs or your life insurance policies,
(09:22):
those investments will have to go through probate. You never ever,
ever want to go through probate. And when you have
a designated beneficiary, it avoids probate. So if you don't
have anybody, you don't have a spouse, you don't have children,
(09:42):
you don't have anybody like that
that's automatically designated, then yes, you absolutely should name your
living revocable trust as your beneficiary and then whoever you
have named in that trust to receive this money they
will receive it without probate. There you go. Next question, KT.
KT (10:04):
Ok. This is from Mel. Hello to the Fabulous Suze and KT.
Speaking of interest, can you please explain how mortgage interest works?
If I have a low mortgage interest rate of 3%
and are only four years into a 30 year mortgage,
is it better to put an extra 10,000 yearly to
(10:28):
pay off the 400,000 loan or invest the 10,000 safely
with T bills or CDs at 5%?
Suze (10:39):
Oh, Mel this is an interesting one for me to
answer because the financial institutions that you all get your
mortgages from
are kind of a little tricky if you ask me.
And I say that because
it's assumed that you most likely will be selling your
(10:59):
home within seven years of purchasing it. And even though
you got a 30 year mortgage
And you would think that they would spread that interest
equally over all 30 years, that's not how it works.
It works where they load the interest up front so
(11:22):
that if you happen to sell your home, they got
paid far more interest than if they had done it
any other way.
So maybe I can make a little bit of sense
here for you. You say that you have a $400,000
mortgage
30 year mortgage and it's at 3% and you have
(11:47):
only been paying on it for four years if you
were to look at your amortization schedule. You would find
out that your payments on that are probably about $1,686
a month.
However, in that first year, only $686 of that went
(12:11):
to pay down your principal, $1,000 went for interest. Here
you are four years later
And now only about $771 is going towards principal. $914
is still going towards interest. Now,
(12:36):
if you were to put $10,000 a year, every year,
at the beginning of the year into this mortgage, you
would pay off this mortgage in about 15 or 16
years versus, you still have another 26 years to go
(12:58):
if you just keep paying the 1686 a month that
you're paying right now.
So that's something for you to think about because a
ten-year difference is a tremendous difference. Now, you're asking me
what would be better financially doing that or taking that
(13:18):
$10,000 and investing it?
Do you understand how it's impossible for me to answer
that question?
Because I would have to assume that what you invested
that $10,000 a year in, gave you a return of 3%, 4%, 5%
(13:38):
whatever it may be. But I can't make that assumption
because I don't know, I don't know your investment skills.
I don't know if these markets start to go crazy.
Will you sell out? Will you get afraid? I don't
know about that.
But let me tell you what I do know something about.
I know that nothing makes a woman in particular feel
(14:04):
more secure than owning her own home outright.
And what have I told you year in year out
is the goal of money. The goal of money is
to make you feel secure. So, here's the question back
to you. How would you feel knowing
(14:25):
that in another 15 years or so you would own
that home outright? How would that make you feel? Not
how much money would you have if you invested $10,000
a year?
But how would owning your own home outright in 15
years make you feel? Now what you didn't do is
(14:46):
you didn't tell us in the email, how old you are.
How many years you're gonna continue to work? Are you
gonna keep this home forever? Are you not? So there's
so many things that go into this answer that I
can't answer because I don't have enough facts about you. However,
I can say this, think about what just happened with
(15:10):
S V B, Silicon Valley Bank. And could it go
on and what happens in the markets? Are you sure
you want to go on an emotional roller coaster with
investing over a long period of time? I'm not sure
you have what it takes, but you know your emotions
and what kind of investor you are.
(15:32):
And remember my law of money, it's better to invest
in the known versus the unknown. The known is if
you put $10,000 towards this mortgage, Oh, you will have
it paid off sooner than later.
The known is it will make you feel secure. The
(15:53):
known is if you happen to get sick or in
an accident or something and now you can't work and
you can't afford to pay the mortgage. You don't have
to worry about it because hopefully it will be paid
off by then. Now, obviously, if you're gonna sell the
home in a few years, if you're gonna move whatever,
then you would not pay off the mortgage.
(16:16):
But assuming you're gonna keep this home and this is
your forever home and you have an extra $10,000 to
do so, even at this low interest rate, I most
certainly would pay it off. Not because it's the right
thing to do possibly financially. It is the right thing
to do psychologically emotionally personally. And therefore in the end financially. So that is my answer to you girlfriend.
KT (16:49):
I like this name, Leslie Anna. I have a pension
which today I can take $635 a month with COLA
or 832 without COLA.
My thought is to take $832 without Cola as the
better option. Lifespan in our family is in your nineties
(17:11):
just like you, Suze. Suze, tell everyone what COLA means.
I thought it was a drink when I started reading it.
I thought she forgot Coca Cola and Rum
Suze (17:23):
COLA, KT, C-O-L-A stands for cost of living adjustment. And what
we don't have here, Leslie Anna is even though your
lifespan in your family is till the 90s. How old
are you?
We also don't know if you were to take that money,
(17:44):
the 8 32 right now, what would you do with
the difference between the 635 that you would get with
COLA versus the 832 without COLA? However, I want to
say something to you.
Inflation is pretty high right now, which means the cost
of living adjustments for social security and things like that
(18:08):
is also very high in about the 8% area. If
it continued at, let's just say 8% in just four
or five years, you would be at the 832, if
you took the 635 with COLA.
(18:28):
She wants to know, should she take $635 a month
with the cost of living adjustment or just get 832
a month right now with no cost of living adjustment?
So the question has to be how long if she
took the one for 635 with the cost of living adjustment,
(18:53):
would it take her with inflation to equal the $832.
But it all depends on what the cost of living
adjustment is. If it's at 8%, it will take her
about five years. If it's at 4%, it will take
(19:13):
her about seven years. If it's only at 3%, it
will take nine years.
So, what you Leslie Anna have to know is that
over the past 20 years, the average cost of living
adjustment has been 2.2%. But many of those last 20 years,
(19:36):
we were in a period of time where there was
no inflation whatsoever. Look at where we are right now.
Look at where they just raised the social security checks
by over 8%.
So I have to tell you if you're in your
60s or even early 70s and you don't need that
(20:00):
extra $200 a month right now, which by the way
is taxable. So that's not exactly what you put in
your pocket. Does that extra $2400 a year,
the difference between the pension without COLA the pension with COLA,
which is about $200 more a month or $2400 a year.
(20:21):
Does that put you in a higher income tax bracket?
Does that make your social security taxable? Does that make
your Medicare B premiums taxable?
I have a feeling if you are in your sixties
or again, early seventies, you are in good health. And
your lifespan carries over to you. I would absolutely do
(20:42):
the cost of living adjustment at 635. That surprised you.
KT (20:48):
It did because I would go for the money. But what
you just said, makes total sense. I can't imagine it
going down dramatically to 2%.
Suze (20:59):
It could and they want it to. But as all of,
you know, nothing is working on inflation. So I just
would think that it's going to take a number of
years and all she would have needed in that situation
would have been four or five years at the current
cost of living adjustment and she'd be at what she
(21:21):
is now. So
that's given the economic circumstances, that's what I would do,
given her personal circumstances that's up to her because I
don't know, does she have money? Does she not? Can
she pay her bills? Can she not? But that will be up to her. And next question my KT.
KT (21:40):
This next question is from one of the best...
Suze (21:43):
Oh, we're at that time. Again, you need a haircut. I'm looking
at you.
KT (21:49):
I am getting you getting one in two days, a
short one for the summer. Ok. This next question is
from Laurie V and Laurie is probably one of your
very top of the class Suze students.
She goes on, I'm not gonna share this with all
of you because it's a really long update on how
(22:11):
well she's doing with her money, but she ends it
with this sentence, I try to always stand in my
financial truth, live within my needs, but below my means
and spend according to my needs versus wants, great student.
So here's your question, here's Laurie's question. What happens Suze,
(22:31):
when you retire? Do you want me to answer it, Suzie?
Suze (22:34):
What does that mean? What happens?
KT (22:36):
You have fun.
Suze (22:37):
Is that how she ends it?
KT (22:38):
No, no, no. This was after she told me all
about her.
Suze (22:42):
But is her question, what happens after you retire?
KT (22:44):
For instance, taking out RMDs. Can you take it out from
just one retirement account or do you take it out
across all retirement accounts? So how are you taxed with
your Social security and RMDs? But to
the question is what happens when you retire? You're supposed
to have fun, Laurie.
Suze (23:06):
Well, the real question there was not that KT her
real question really is about RMDs, required minimum distributions if
you have more than one retirement account, meaning you have
money in a 401k. Maybe you have money in a
traditional IRA. Maybe you have an Ira rollover. Maybe
(23:29):
you have a SEP IRA, a simple IRA. Any money that
you have that is in a traditional IRA, meaning you've
never paid taxes on it. All of those sums have
to be added together and your required minimum distributions are
figured out on that. You can take that amount from
(23:52):
one account, but it's on all the money that you have,
which is again why
I happen to love Roth retirement accounts because with a
Roth IRA or now, even because of the Secure Act
two point oh, Roth 401k s, you do not have
to take out R M DS anymore. And that's a
(24:14):
big deal then why is that a big deal? Because
you ask here, Laurie, how are you taxed with your
social security and R M DS
when you take out required minimum distributions from a non
Roth retirement account, they are absolutely counted towards your income.
(24:37):
So depending on your income and the level that it's at,
you will pay income tax on your social security and
probably your part B of your Medicare premium. That's what
you need to know. Next question KT.
KT (24:56):
This is from Karen.
Suze (24:57):
Do you know that I love, say next question KT!
KT (25:01):
If I have a three month CD at 3% and
the maturity rate has gone up to 4% and I
decide to leave that CD there, do I automatically get
the new higher interest rate for the next three months
or do I have to cash it out and buy
a new CD to get a new higher rate?
Suze (25:24):
So let me give you an example using the Alliant
Credit Union CDS when you sign up for them right
now and you would do so by going to my
alliant dot com slash ultimate, you have the ability to
renew the CD. So currently, let's say you did a
(25:46):
three month CD at 4.85%
and it absolutely matures in three months. If you signed
up to have it renewed, it would automatically roll over
into whatever the interest rate is being given on the
new three month CD. So that's how it works. If
(26:07):
you don't want that to happen,
then you usually just contact your firm wherever you bought
it from and you make sure that it doesn't renew
if you don't want it to automatically roll over.
KT (26:21):
Ok, Suze, one more question before my quizzie time. Ready?
This is rather long. It's from Lindsay. Hi, Suze and KT,
on the March 2nd podcast Suze answered a question about
paying financial advisors.
I have a financial advisor who charges a set percentage
(26:42):
on my portfolio, but he has all of my money
in eight different mutual funds.
Suze (26:48):
Danger, sign, danger, sign, danger.
KT (26:50):
Wait, wait, wait. Well, she's already in danger zone. It
doesn't seem like he's actively managing my money at all.
Suze (26:58):
He's not.
KT (27:02):
Wait, wait, Suze, he just took my money and purchased mutual funds that
sit long term.
Suze (27:07):
He did.
KT (27:09):
I can tell where this is going everyone. Last summer
when I started to realize this, I stopped DCA, Dollar
cost averaging into the account and opened my own vanguard account
that I now manage. Yeah, baby. Yeah. You rock girl. Now,
my question is, what do I do with the money
(27:31):
in the portfolio that he manages. Wait, she has a
big question mark after the word manage.
So anyway, she said the mutual funds he has me
and aren't available through Vanguard. So I don't know what
the equivalents are, blah, blah, blah. Should I wait until
the account recovers what has been lost since January 2022?
(27:52):
I really want to get away from this guy so
I can start saving more money.
Suze (27:57):
If you really want to get away from him. It's
like you're in a relationship, just image this Lindsay, right?
You're in a relationship with somebody that you really want,
to get away from because it's a bad relationship. You know,
they don't really pay attention to you. They're not doing anything,
they're costing you money, you're providing for them, you're supporting them.
(28:21):
What are you gonna do? You're gonna wait until you
think one day that relationship may get good. No, you
are going to leave right now and go wherever you can.
N aybe vanguard doesn't do the mutual funds that this
person did for you.
But chances are maybe another brokerage firm might. So you
(28:42):
would check with Fidelity or Schwab and things like that
or if you have a loss in these. Now, listen
to me closely. You have a loss in these accounts
and you don't want to continue paying the management fee
to him as well as the management fee, believe it
or not within the accounts and they're outside of a
(29:05):
retirement account, which I think they are because you didn't
say they were in a retirement account. Sell them.
Sell them at a loss. Now, you have a loss
that you can take off your taxes. If you have
nothing to offset that loss, you can offset $3,000 a
(29:26):
year of income
until that entire loss is used up. Now, you have
that money and you can invest it however you want,
you might decide you want to simply keep it safe
and sound right now because the markets very well could
continue down
and put it in either a certificate of deposit or
(29:47):
a treasury bill or you may decide to continue to
dollar cost average into your Vanguard companies that you're in
or even if you were to open up another company
at a discount brokerage firm, another one if you wanted
to into
some good dividend paying ETFs and they're out there. So no,
(30:11):
you are not to stay with somebody who's being disrespectful
to you. You are paying isn't paying any attention to
you and you don't even want to be with this
person anymore. Break up. Financial divorce court has just decided.
KT (30:26):
I like that. Ok. Quizzie time.
Suze (30:33):
All right. Quizzie time is where I pick out a
question that I think all of you should know. And
I ask KT the question, she has to think about
it
and then you should also be thinking about it and
I tell you whether or not she has it right.
(30:56):
Are we ready, KT? Are your financial engines roaring?
KT (31:02):
No.
Suze (31:04):
Are they started at least?
KT (31:05):
Yes. But I'm never real excited about quizzies, which everyone knows.
But go ahead, I'm willing to play.
Suze (31:12):
Shall we all play a guess? Here? She's got to
get it right. She's got to get it wrong?
KT (31:16):
Don't ever bet with Suze everybody
Ever don't ever ever bet because Suze always wins.
Suze (31:22):
If I were a betting woman here, I would say
KT is going to get it wrong, but I really
hope you get it right. All right. Hi, Susie and KT,
I had a question about protection on your money.
FDIC covers anything issued by a bank, not anything Lisa
up to 250,000. Unless you have multiple beneficiaries. Then it's
(31:43):
more and credit unions by N C U A. What
is SIPC, S-I-P-C?
Does it cover investments if they are held in a
brokerage account only? Are there any other protections to look for?
Can you explain? Thank you both, Lisa.
KT (32:05):
Ok. Can I answer it? But do I have to explain?
I don't know exactly what it stands for but it
has to do with my statements I get for my
stock portfolio. I see it all the time. It's on
like every one of them.
Suze (32:21):
And you've never asked what it's about?
KT (32:23):
I figure. No, I figure it's something that has to
do with protecting me. There's a p in it. Protection.
Really. I, I don't know exactly what it means but
I think it has to do with my stock portfolio.
Suze (32:38):
But you don't. So, for instance, if your stock portfolio
were to go down, would it protect you against those losses?
KT (32:48):
I'm not sure. I'm not sure.
Suze (32:51):
I told you she wouldn't know.
KT (32:53):
I'm not sure.
Suze (32:54):
That that means (wrong answer noise) you either know or you don't know.
I'm not sure is not an answer.
KT (33:01):
Security s wait, what is it? What's the initials?
Suze (33:05):
S-I-P-C.
KT (33:10):
Security Protection Investment company?
Suze (33:12):
That's close. But anyway, it stands for securities investor protection Corp. Ok. Company. Right.
So you got that part, right.
But what it does everybody is, it gives you up
to $500,000 of insurance per customer. But that includes up
(33:33):
to only $250,000 in cash. For instance, Lehman Brothers went
under and you had money in there, right? That protected you.
However, it does not protect you against loss with investments
and many people make that mistake. It only protects you
(33:57):
if the brokerage firm essentially goes under or something happens
to them.
If you bought stocks and let's say you bought $250,000
of stocks and now those companies went belly up, the
companies themselves were bad, they just went belly up. All
(34:17):
of them. Too bad. Investments are not protected against investment loss.
SIPC protects you against the brokerage firm itself
going under. And again, a lot of times when there's
a loss like that, another brokerage firm will buy all
(34:37):
the assets that are in there. So then everybody really
is protected. But KT that is a perfect lead in
to what Suze School this coming Sunday is going to be
all about. I'm going to go into detail
about the difference between a money market account and a
(35:00):
money market mutual fund. Got that everybody? You have got
to know the difference of the two and the difference
of what is covered by FDIC as well as what
is covered by SIPC and what does it really mean?
So that's what Suze School is gonna be about. All right, KT, that ends this.
(35:25):
Are you ready? You know how we end it, right?
KT (35:27):
I do. Are we ready?
Suze (35:28):
Are you ready? Are you sure?
KT (35:31):
Wherever we go today...
Suze (35:34):
No.
KT (35:34):
whatever we do today... today we will create... All right, you do it.
Suze (35:40):
All right, everybody. So there's only one thing that we
want you to say every single day and it is
as follows
more peaceful, joyful and loving world. You bet we will
and if you do, you will be unstoppable.
Good morning. Everybody. Welcome to the Ask K T and
Suze Anything Women and Money podcast. Today is March 23rd,
2023 it's the third month. So we have a 3
23 23
and I'm looking at Suze and I don't think she's
awake yet. So I'm not supposed to be doing all
(00:55):
this until she's, she's like kind of totally awake. I said, Suze,
everyone missed me so much. Let me just get in
there and say hi to them.
Suze (01:03):
KT, It was only one week that you weren't on.
KT (01:05):
Did you miss me? Did you did everyone miss me.
Let them wright in.
Suze (01:10):
Trust me. I don't have
to ask them. I know that they did, but you
know who KT missed and has been missing the past week?
KT (01:21):
Suze is so busy. She's figuring out bank failures. She's figuring
out what people should do right now. She is so busy.
We don't see each other, we see each other for
a cup of coffee
in the morning, which we just had to start this.
Then we see each other at night and at night
I'm so tired. I just fall asleep.
Suze (01:43):
But it is what it is. But KT, you have
to admit
that it's been really a crazy week or so... roller
coaster and with everybody really being worried about their money,
the safety of their money, what should they do? What
should they not do? And I think it's really important
(02:04):
that we're doing everything that we're doing.
KT (02:07):
I mean, have you all seen her on TV? She's
been on TV for the past week.
Suze (02:11):
Yes. But the last thing I did, she said, oh,
you don't look so good. You looked a little blotchy,
didn't you tell me?
KT (02:17):
I did tell you that and she told me it
was my TV screen. That's what she told me so.
Suze (02:24):
Well, I don't want to think I'm the one who's
blotchy with the lighting or something. Anyway, we're going to
do a normal Ask KT and
Suze Anything, meaning it's not gonna be about the FDIC.
It's not gonna be about SPIC, it's not gonna be
about all of these things. It's going to just be
(02:45):
about questions that all of you need to know the
answers to. So KT let's get ready ready. All right,
let's do it.
KT (02:59):
First question Suze, is from Lauren. Good morning, Suze and KT, I have a question regarding defaulted
student loan debt.
My significant other defaulted on his loans greater than five
years ago. He has about $100,000 to pay. What is
the best way to pay the loans back? Is it
(03:19):
best to hire a lawyer or pay the third company
debt agency directly? Love your advice and always look forward
to listening. Lauren.
Suze (03:31):
The advice I really hope to give you is that I hope the significant other isn't somebody that you're legally
attached to like your spouse. Because when you see somebody
has defaulted on a student loan
and now you're the one writing me to ask me,
how do I fix it for this person? It just
concerns me, Lauren, but that's all I'm gonna say about that.
(03:55):
Here's what I would do if I were you, I
would not hire a lawyer because a lawyer can't do
anything for this situation.
A third company debt agency directly cannot do anything for
this situation. The only person that can do something for
this situation is your significant other period. They need to
(04:18):
get it out of default. So therefore, and for those
of you who don't know what default is default means,
you have just stopped paying on it and the student
loan company is loving you
and they're loving you because when it is in default,
the interest rates still accrue and maybe you owed $30,000
(04:40):
to begin with. And then it goes to 50,000. And
now as Lauren just said, it's at $100,000
and given in most cases currently, you cannot just charge
this in bankruptcy. Oh, they'll just let it go from
100,000 to 150,000 and so forth. And then one day
(05:00):
they come knocking at your door, they even have the rights,
not only
to garnish your wages, but to garnish your social security check.
So this kind of debt currently follows you all the
way into old age. And in most cases, there is
absolutely nothing that you can do about it. Therefore, this person,
(05:21):
he is to contact,
right, the student loan company and find out what does
it take to get this loan out of default. Chances
are he will go on a pay as you go method.
Where a certain percentage of his income currently, it's only
about five or 10% goes towards this debt, but it
(05:45):
has ruined his credit. That means if you were to
marry him and you were to ever apply for a
mortgage or something in both your names. I'm sure his
FICO score is down the drain that would affect everything
that you do.
So what you need to do is get him to call,
not you but him, to get on this and call
(06:09):
the student loan company that he owes this debt to
and find out what does he have to do to
get it out of default. You are not to save
him in this situation. Do you hear me, girlfriend? KT
next question? OK. Wait, wait, wait, wait, wait, wait.
So I realized we started the podcast but I didn't
(06:33):
make a really important announcement.
KT (06:36):
I know what it is. Next week, a week from today.
Suze (06:40):
Do you want to tell everybody?
KT (06:42):
Suze's doing an unbelievable webinar called Prepare For the Financial
Climate Change.
Suze (06:50):
Do you like that? Do you like that title?
KT (06:52):
Yes. Yes.
Suze (06:54):
Do you want me to tell everybody what you're doing?
So I am, it's free, everybody and to register, you
would simply go to Suze S U Z E Suze
Orman dot com slash webinar. It is a week from today, Thursday,
March 30th. It will be live at three PM Pacific time,
(07:16):
six PM, East coast time.
Do you know how many people have already registered? And
we just announced it?
KT (07:22):
I think it was like 18,000 or something right around.
It's great and we didn't even do any promotions yet.
Suze (07:30):
No, all the emails and everything.
KT (07:32):
Is there a limit?
Suze (07:33):
No, but we are expecting about 50,000.
KT (07:36):
Sign up everyone, free, free, free, free, free. She's gonna
really impart some pretty important advice to about climate change.
Suze (07:47):
KT, it's not, it's financial climate change. I'm not talking about
the environment here, right? But
every single podcast, I impart some really important information. So
here's the thing. Everybody join us and have fun because
you never know what will happen. All right, KT, next question.
KT (08:11):
Ok. Next question is from Robin. Suze and KT, I love your podcast. Both of you
and your Unstoppable theme song. So I'm learning so much
and I'm a federal retiree and fine with the Thrift
Savings plan, which is T S P and the Federal
Employees Group Life Insurance, which is F E G L I,
(08:32):
the standard order of precedence beneficiary assignments being a spouse,
then Children in equal shares. I understand this order of
precedence is followed when no beneficiary forms are on file. So, Suze,
what are the advantages and disadvantages to naming a revocable
(08:53):
living trust as beneficiary?
Suze (08:59):
So here's the bottom line girlfriend. There are tremendous disadvantages to you if you do not
name a beneficiary because if you don't name a beneficiary
on and everybody listen to this
or a 401k or a 403 B or whatever it
may be or your Roth IRAs or your life insurance policies,
(09:22):
those investments will have to go through probate. You never ever,
ever want to go through probate. And when you have
a designated beneficiary, it avoids probate. So if you don't
have anybody, you don't have a spouse, you don't have children,
(09:42):
you don't have anybody like that
that's automatically designated, then yes, you absolutely should name your
living revocable trust as your beneficiary and then whoever you
have named in that trust to receive this money they
will receive it without probate. There you go. Next question, KT.
KT (10:04):
Ok. This is from Mel. Hello to the Fabulous Suze and KT.
Speaking of interest, can you please explain how mortgage interest works?
If I have a low mortgage interest rate of 3%
and are only four years into a 30 year mortgage,
is it better to put an extra 10,000 yearly to
(10:28):
pay off the 400,000 loan or invest the 10,000 safely
with T bills or CDs at 5%?
Suze (10:39):
Oh, Mel this is an interesting one for me to
answer because the financial institutions that you all get your
mortgages from
are kind of a little tricky if you ask me.
And I say that because
it's assumed that you most likely will be selling your
(10:59):
home within seven years of purchasing it. And even though
you got a 30 year mortgage
And you would think that they would spread that interest
equally over all 30 years, that's not how it works.
It works where they load the interest up front so
(11:22):
that if you happen to sell your home, they got
paid far more interest than if they had done it
any other way.
So maybe I can make a little bit of sense
here for you. You say that you have a $400,000
mortgage
30 year mortgage and it's at 3% and you have
(11:47):
only been paying on it for four years if you
were to look at your amortization schedule. You would find
out that your payments on that are probably about $1,686
a month.
However, in that first year, only $686 of that went
(12:11):
to pay down your principal, $1,000 went for interest. Here
you are four years later
And now only about $771 is going towards principal. $914
is still going towards interest. Now,
(12:36):
if you were to put $10,000 a year, every year,
at the beginning of the year into this mortgage, you
would pay off this mortgage in about 15 or 16
years versus, you still have another 26 years to go
(12:58):
if you just keep paying the 1686 a month that
you're paying right now.
So that's something for you to think about because a
ten-year difference is a tremendous difference. Now, you're asking me
what would be better financially doing that or taking that
(13:18):
$10,000 and investing it?
Do you understand how it's impossible for me to answer
that question?
Because I would have to assume that what you invested
that $10,000 a year in, gave you a return of 3%, 4%, 5%
(13:38):
whatever it may be. But I can't make that assumption
because I don't know, I don't know your investment skills.
I don't know if these markets start to go crazy.
Will you sell out? Will you get afraid? I don't
know about that.
But let me tell you what I do know something about.
I know that nothing makes a woman in particular feel
(14:04):
more secure than owning her own home outright.
And what have I told you year in year out
is the goal of money. The goal of money is
to make you feel secure. So, here's the question back
to you. How would you feel knowing
(14:25):
that in another 15 years or so you would own
that home outright? How would that make you feel? Not
how much money would you have if you invested $10,000
a year?
But how would owning your own home outright in 15
years make you feel? Now what you didn't do is
(14:46):
you didn't tell us in the email, how old you are.
How many years you're gonna continue to work? Are you
gonna keep this home forever? Are you not? So there's
so many things that go into this answer that I
can't answer because I don't have enough facts about you. However,
I can say this, think about what just happened with
(15:10):
S V B, Silicon Valley Bank. And could it go
on and what happens in the markets? Are you sure
you want to go on an emotional roller coaster with
investing over a long period of time? I'm not sure
you have what it takes, but you know your emotions
and what kind of investor you are.
(15:32):
And remember my law of money, it's better to invest
in the known versus the unknown. The known is if
you put $10,000 towards this mortgage, Oh, you will have
it paid off sooner than later.
The known is it will make you feel secure. The
(15:53):
known is if you happen to get sick or in
an accident or something and now you can't work and
you can't afford to pay the mortgage. You don't have
to worry about it because hopefully it will be paid
off by then. Now, obviously, if you're gonna sell the
home in a few years, if you're gonna move whatever,
then you would not pay off the mortgage.
(16:16):
But assuming you're gonna keep this home and this is
your forever home and you have an extra $10,000 to
do so, even at this low interest rate, I most
certainly would pay it off. Not because it's the right
thing to do possibly financially. It is the right thing
to do psychologically emotionally personally. And therefore in the end financially. So that is my answer to you girlfriend.
KT (16:49):
I like this name, Leslie Anna. I have a pension
which today I can take $635 a month with COLA
or 832 without COLA.
My thought is to take $832 without Cola as the
better option. Lifespan in our family is in your nineties
(17:11):
just like you, Suze. Suze, tell everyone what COLA means.
I thought it was a drink when I started reading it.
I thought she forgot Coca Cola and Rum
Suze (17:23):
COLA, KT, C-O-L-A stands for cost of living adjustment. And what
we don't have here, Leslie Anna is even though your
lifespan in your family is till the 90s. How old
are you?
We also don't know if you were to take that money,
(17:44):
the 8 32 right now, what would you do with
the difference between the 635 that you would get with
COLA versus the 832 without COLA? However, I want to
say something to you.
Inflation is pretty high right now, which means the cost
of living adjustments for social security and things like that
(18:08):
is also very high in about the 8% area. If
it continued at, let's just say 8% in just four
or five years, you would be at the 832, if
you took the 635 with COLA.
(18:28):
She wants to know, should she take $635 a month
with the cost of living adjustment or just get 832
a month right now with no cost of living adjustment?
So the question has to be how long if she
took the one for 635 with the cost of living adjustment,
(18:53):
would it take her with inflation to equal the $832.
But it all depends on what the cost of living
adjustment is. If it's at 8%, it will take her
about five years. If it's at 4%, it will take
(19:13):
her about seven years. If it's only at 3%, it
will take nine years.
So, what you Leslie Anna have to know is that
over the past 20 years, the average cost of living
adjustment has been 2.2%. But many of those last 20 years,
(19:36):
we were in a period of time where there was
no inflation whatsoever. Look at where we are right now.
Look at where they just raised the social security checks
by over 8%.
So I have to tell you if you're in your
60s or even early 70s and you don't need that
(20:00):
extra $200 a month right now, which by the way
is taxable. So that's not exactly what you put in
your pocket. Does that extra $2400 a year,
the difference between the pension without COLA the pension with COLA,
which is about $200 more a month or $2400 a year.
(20:21):
Does that put you in a higher income tax bracket?
Does that make your social security taxable? Does that make
your Medicare B premiums taxable?
I have a feeling if you are in your sixties
or again, early seventies, you are in good health. And
your lifespan carries over to you. I would absolutely do
(20:42):
the cost of living adjustment at 635. That surprised you.
KT (20:48):
It did because I would go for the money. But what
you just said, makes total sense. I can't imagine it
going down dramatically to 2%.
Suze (20:59):
It could and they want it to. But as all of,
you know, nothing is working on inflation. So I just
would think that it's going to take a number of
years and all she would have needed in that situation
would have been four or five years at the current
cost of living adjustment and she'd be at what she
(21:21):
is now. So
that's given the economic circumstances, that's what I would do,
given her personal circumstances that's up to her because I
don't know, does she have money? Does she not? Can
she pay her bills? Can she not? But that will be up to her. And next question my KT.
KT (21:40):
This next question is from one of the best...
Suze (21:43):
Oh, we're at that time. Again, you need a haircut. I'm looking
at you.
KT (21:49):
I am getting you getting one in two days, a
short one for the summer. Ok. This next question is
from Laurie V and Laurie is probably one of your
very top of the class Suze students.
She goes on, I'm not gonna share this with all
of you because it's a really long update on how
(22:11):
well she's doing with her money, but she ends it
with this sentence, I try to always stand in my
financial truth, live within my needs, but below my means
and spend according to my needs versus wants, great student.
So here's your question, here's Laurie's question. What happens Suze,
(22:31):
when you retire? Do you want me to answer it, Suzie?
Suze (22:34):
What does that mean? What happens?
KT (22:36):
You have fun.
Suze (22:37):
Is that how she ends it?
KT (22:38):
No, no, no. This was after she told me all
about her.
Suze (22:42):
But is her question, what happens after you retire?
KT (22:44):
For instance, taking out RMDs. Can you take it out from
just one retirement account or do you take it out
across all retirement accounts? So how are you taxed with
your Social security and RMDs? But to
the question is what happens when you retire? You're supposed
to have fun, Laurie.
Suze (23:06):
Well, the real question there was not that KT her
real question really is about RMDs, required minimum distributions if
you have more than one retirement account, meaning you have
money in a 401k. Maybe you have money in a
traditional IRA. Maybe you have an Ira rollover. Maybe
(23:29):
you have a SEP IRA, a simple IRA. Any money that
you have that is in a traditional IRA, meaning you've
never paid taxes on it. All of those sums have
to be added together and your required minimum distributions are
figured out on that. You can take that amount from
(23:52):
one account, but it's on all the money that you have,
which is again why
I happen to love Roth retirement accounts because with a
Roth IRA or now, even because of the Secure Act
two point oh, Roth 401k s, you do not have
to take out R M DS anymore. And that's a
(24:14):
big deal then why is that a big deal? Because
you ask here, Laurie, how are you taxed with your
social security and R M DS
when you take out required minimum distributions from a non
Roth retirement account, they are absolutely counted towards your income.
(24:37):
So depending on your income and the level that it's at,
you will pay income tax on your social security and
probably your part B of your Medicare premium. That's what
you need to know. Next question KT.
KT (24:56):
This is from Karen.
Suze (24:57):
Do you know that I love, say next question KT!
KT (25:01):
If I have a three month CD at 3% and
the maturity rate has gone up to 4% and I
decide to leave that CD there, do I automatically get
the new higher interest rate for the next three months
or do I have to cash it out and buy
a new CD to get a new higher rate?
Suze (25:24):
So let me give you an example using the Alliant
Credit Union CDS when you sign up for them right
now and you would do so by going to my
alliant dot com slash ultimate, you have the ability to
renew the CD. So currently, let's say you did a
(25:46):
three month CD at 4.85%
and it absolutely matures in three months. If you signed
up to have it renewed, it would automatically roll over
into whatever the interest rate is being given on the
new three month CD. So that's how it works. If
(26:07):
you don't want that to happen,
then you usually just contact your firm wherever you bought
it from and you make sure that it doesn't renew
if you don't want it to automatically roll over.
KT (26:21):
Ok, Suze, one more question before my quizzie time. Ready?
This is rather long. It's from Lindsay. Hi, Suze and KT,
on the March 2nd podcast Suze answered a question about
paying financial advisors.
I have a financial advisor who charges a set percentage
(26:42):
on my portfolio, but he has all of my money
in eight different mutual funds.
Suze (26:48):
Danger, sign, danger, sign, danger.
KT (26:50):
Wait, wait, wait. Well, she's already in danger zone. It
doesn't seem like he's actively managing my money at all.
Suze (26:58):
He's not.
KT (27:02):
Wait, wait, Suze, he just took my money and purchased mutual funds that
sit long term.
Suze (27:07):
He did.
KT (27:09):
I can tell where this is going everyone. Last summer
when I started to realize this, I stopped DCA, Dollar
cost averaging into the account and opened my own vanguard account
that I now manage. Yeah, baby. Yeah. You rock girl. Now,
my question is, what do I do with the money
(27:31):
in the portfolio that he manages. Wait, she has a
big question mark after the word manage.
So anyway, she said the mutual funds he has me
and aren't available through Vanguard. So I don't know what
the equivalents are, blah, blah, blah. Should I wait until
the account recovers what has been lost since January 2022?
(27:52):
I really want to get away from this guy so
I can start saving more money.
Suze (27:57):
If you really want to get away from him. It's
like you're in a relationship, just image this Lindsay, right?
You're in a relationship with somebody that you really want,
to get away from because it's a bad relationship. You know,
they don't really pay attention to you. They're not doing anything,
they're costing you money, you're providing for them, you're supporting them.
(28:21):
What are you gonna do? You're gonna wait until you
think one day that relationship may get good. No, you
are going to leave right now and go wherever you can.
N aybe vanguard doesn't do the mutual funds that this
person did for you.
But chances are maybe another brokerage firm might. So you
(28:42):
would check with Fidelity or Schwab and things like that
or if you have a loss in these. Now, listen
to me closely. You have a loss in these accounts
and you don't want to continue paying the management fee
to him as well as the management fee, believe it
or not within the accounts and they're outside of a
(29:05):
retirement account, which I think they are because you didn't
say they were in a retirement account. Sell them.
Sell them at a loss. Now, you have a loss
that you can take off your taxes. If you have
nothing to offset that loss, you can offset $3,000 a
(29:26):
year of income
until that entire loss is used up. Now, you have
that money and you can invest it however you want,
you might decide you want to simply keep it safe
and sound right now because the markets very well could
continue down
and put it in either a certificate of deposit or
(29:47):
a treasury bill or you may decide to continue to
dollar cost average into your Vanguard companies that you're in
or even if you were to open up another company
at a discount brokerage firm, another one if you wanted
to into
some good dividend paying ETFs and they're out there. So no,
(30:11):
you are not to stay with somebody who's being disrespectful
to you. You are paying isn't paying any attention to
you and you don't even want to be with this
person anymore. Break up. Financial divorce court has just decided.
KT (30:26):
I like that. Ok. Quizzie time.
Suze (30:33):
All right. Quizzie time is where I pick out a
question that I think all of you should know. And
I ask KT the question, she has to think about
it
and then you should also be thinking about it and
I tell you whether or not she has it right.
(30:56):
Are we ready, KT? Are your financial engines roaring?
KT (31:02):
No.
Suze (31:04):
Are they started at least?
KT (31:05):
Yes. But I'm never real excited about quizzies, which everyone knows.
But go ahead, I'm willing to play.
Suze (31:12):
Shall we all play a guess? Here? She's got to
get it right. She's got to get it wrong?
KT (31:16):
Don't ever bet with Suze everybody
Ever don't ever ever bet because Suze always wins.
Suze (31:22):
If I were a betting woman here, I would say
KT is going to get it wrong, but I really
hope you get it right. All right. Hi, Susie and KT,
I had a question about protection on your money.
FDIC covers anything issued by a bank, not anything Lisa
up to 250,000. Unless you have multiple beneficiaries. Then it's
(31:43):
more and credit unions by N C U A. What
is SIPC, S-I-P-C?
Does it cover investments if they are held in a
brokerage account only? Are there any other protections to look for?
Can you explain? Thank you both, Lisa.
KT (32:05):
Ok. Can I answer it? But do I have to explain?
I don't know exactly what it stands for but it
has to do with my statements I get for my
stock portfolio. I see it all the time. It's on
like every one of them.
Suze (32:21):
And you've never asked what it's about?
KT (32:23):
I figure. No, I figure it's something that has to
do with protecting me. There's a p in it. Protection.
Really. I, I don't know exactly what it means but
I think it has to do with my stock portfolio.
Suze (32:38):
But you don't. So, for instance, if your stock portfolio
were to go down, would it protect you against those losses?
KT (32:48):
I'm not sure. I'm not sure.
Suze (32:51):
I told you she wouldn't know.
KT (32:53):
I'm not sure.
Suze (32:54):
That that means (wrong answer noise) you either know or you don't know.
I'm not sure is not an answer.
KT (33:01):
Security s wait, what is it? What's the initials?
Suze (33:05):
S-I-P-C.
KT (33:10):
Security Protection Investment company?
Suze (33:12):
That's close. But anyway, it stands for securities investor protection Corp. Ok. Company. Right.
So you got that part, right.
But what it does everybody is, it gives you up
to $500,000 of insurance per customer. But that includes up
(33:33):
to only $250,000 in cash. For instance, Lehman Brothers went
under and you had money in there, right? That protected you.
However, it does not protect you against loss with investments
and many people make that mistake. It only protects you
(33:57):
if the brokerage firm essentially goes under or something happens
to them.
If you bought stocks and let's say you bought $250,000
of stocks and now those companies went belly up, the
companies themselves were bad, they just went belly up. All
(34:17):
of them. Too bad. Investments are not protected against investment loss.
SIPC protects you against the brokerage firm itself
going under. And again, a lot of times when there's
a loss like that, another brokerage firm will buy all
(34:37):
the assets that are in there. So then everybody really
is protected. But KT that is a perfect lead in
to what Suze School this coming Sunday is going to be
all about. I'm going to go into detail
about the difference between a money market account and a
(35:00):
money market mutual fund. Got that everybody? You have got
to know the difference of the two and the difference
of what is covered by FDIC as well as what
is covered by SIPC and what does it really mean?
So that's what Suze School is gonna be about. All right, KT, that ends this.
(35:25):
Are you ready? You know how we end it, right?
KT (35:27):
I do. Are we ready?
Suze (35:28):
Are you ready? Are you sure?
KT (35:31):
Wherever we go today...
Suze (35:34):
No.
KT (35:34):
whatever we do today... today we will create... All right, you do it.
Suze (35:40):
All right, everybody. So there's only one thing that we
want you to say every single day and it is
as follows
more peaceful, joyful and loving world. You bet we will
and if you do, you will be unstoppable.
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