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Post by xray on Dec 18, 2022 23:23:44 GMT
MoneyWise
'This is so not OK’: Suze Orman says avoid these 5 financial blunders if you want to live your best life in retirement
Samantha Emann
Sun, December 18, 2022, 8:00 AM EST
'This is so not OK’: Suze Orman says avoid these 5 financial blunders if you want to live your best life in retirement In times of hardship, personal finance expert Suze Orman will be the first to tell you that what you don't do with your money may be even more important than what you do with it. The host of the Women & Money Podcast says that tapping your retirement money to help with short-term financial problems is something many will regret when they eventually leave the workforce. “If you can't pay your bills while you have a paycheck coming in, how are you going to pay for those exact same bills later on in life when you no longer have a paycheck coming in?” she told MoneyWise in a recent interview.
Here are five of her fundamental tips for avoiding mistakes that will affect your future financial security — so you can live comfortably in your golden years even during the current economic downturn.
1. Don't touch your 401(k) or miss out on employer matching
If you have a 401(k) or other retirement plan through work, don't leave free money on the table. Make sure you're putting enough in so that you'll receive the full matching contribution from your employer. Orman says your company might kick in 50 cents for every dollar you contribute, up to 6% of your salary. "Under those terms, if the employee contributed $3,000, the employer would kick in another $1,500," she says on Oprah.com. "Hello! That's a guaranteed 50% return on your investment." With inflation still high and many Americans' budgets falling short, you might be tempted to borrow money from your 401(k). But Orman says this is one account you shouldn't touch. “That is for when you retire. We're living longer right now. So that retirement account has to be bigger.” Taking from your 401(k) can leave you vulnerable if you ever need to declare bankruptcy, says Orman, because 401(k) accounts are protected against bankruptcy and can’t be touched if you ever need to declare it. “So if you are really in a horrific situation, and you have all this debt, you're underwater with everything, and you need to claim bankruptcy to get rid of that, you still have your retirement accounts." Orman said in an interview with MoneyWise.
2. Don’t retire owing money on your home
A survey from mortgage banker American Financing found that 44% of Americans in their 60s and 70s are still paying off a mortgage. And 17% said they don’t expect to ever pay it off. “This is so not OK,” Orman has blogged. She urges people to go into retirement mortgage-free, for two reasons: to stretch their retirement savings and to rid themselves of debt — an albatross that affects even mental health. “If you’re going to stay living in that house for the rest of your life, pay off that mortgage as soon as you possibly can,” Orman told CNBC. Without a mortgage, you'll have more financial security in retirement, she says. So work until you're 70, use excess emergency savings and do whatever else it takes to get that house debt paid off.
3. Don't retire too early
During an episode of the podcast Afford Anything, Orman was asked what she thought of the FIRE movement. That's FIRE as in "financial independence, retire early." Her blunt response — “I hate it. I hate it. I hate it. I hate it." — set off a firestorm among the FIRE faithful at the time. But she explained that it would take a lot of money to make retirement work at, say, age 35. "You need at least $5 million, or $6 million," she said. "Really, you might need $10 million." In her opinion, anything less wouldn't offer you enough protection from a potential financial catastrophe, like an expensive illness. "You will get burned if you play with FIRE," Orman told her interviewer. Orman reminded her readers in a June 2022 blog post that there are “no loans for retirement,” so it is key that you [save enough for the retirement life you want. In a June blog post, she warned that "You can’t make up for lost compounding". "Every dollar you don’t save in your 30s, 40s and 50s is a dollar that can’t compound. A $10,000 investment made at age 45 will be worth around $32,000 at age 65, assuming a 6% annualized return," she writes.
4. Don't take out a reverse mortgage in your 60s
A reverse mortgage is a type of home equity loan for seniors that allows you to receive the money as a lump sum or in monthly installments. The loan is repaid, with interest, when you die or sell the house. You can take out a reverse mortgage starting at age 62, but Orman says that's risky.
In her view, it's best to treat a reverse mortgage as a last resort for emergency money, and to wait as long as you possibly can before going that route. "If you tap all your home equity through a reverse at 62 and then at 72 you realize you can’t really afford the home, you will have to sell the home," she says. In a recent interview with MoneyWise, Orman emphasized the importance of emergency savings and what can happen if you're caught unprepared for your next financial emergency.
5. Don't go without a will
"Do you have your estate planning in place? If not, you might want to think again," Orman writes on Oprah.com. While everybody needs a will, most Americans don't have one and lack other important end-of-life documents, including a revocable living trust. That's a legal arrangement that holds your property while you're alive and transfers it to your heirs after your death, without the complicated process known as probate. According to a June episode of Suze Orman’s podcast, there is another reason to set up a living trust: an incapacity clause. “In case you are incapacitated, you get sick, then you've named somebody as successor trustee to pay your bills, to disperse money to take care of you. … A will only goes into effect if you have died.” Orman says to set up a revocable living trust for passing down your house and other major assets, and draw up a will for your other special possessions, like great grandma's wedding ring or your first-edition book collection.
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Live Long and Prosper....
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Post by Deleted on Dec 18, 2022 23:57:14 GMT
2. Don’t retire owing money on your home -
This one is debatable. We debated it before.
I have 30 year fixed at 2.75%. So general conclusion was not to pay off the mortgage early.
Though there is a big mental comfort in being debt free.
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Post by habsui on Dec 19, 2022 8:16:51 GMT
6. No kids. The key to early retirement.
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Post by retiredat48 on Dec 19, 2022 15:41:41 GMT
2. Don’t retire owing money on your home - This one is debatable. We debated it before. I have 30 year fixed at 2.75%. So general conclusion was not to pay off the mortgage early. Though there is a big mental comfort in being debt free. +1...agree 100%. Long story, but briefly, the key to inflation is owning reeal assets...houses included. And the ability to get them when ratews were low, a double-bonus. I have three homes and may buy another in a distressed family situation. Current HELOCs I have are at low rates...like 3% fixed for 17 more years on one. I will not pay this off--taking it to my grave! Raised rents on another by 20% this July. My daughter/son-in-law have a 3.4% fixed, 22 years to go, on a great $435,000 (now $650,000) house. They are retiring in two years, buying a sailboat...at age 54. They should ABSOLUTELY NOT PAY OFF THIS MORTGAGE. I know the desire to be "debt free" is a strong behavioral thing to some; but it often does not make financial sense. If mortgage payments are factored into your annual spending, what's the big deal? R48 |
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Post by retiredat48 on Dec 19, 2022 15:48:03 GMT
Part II...I am also (OBVIOUSLY) in complete disagreement with the "Do not retire early" theme. My modest portfolio is way ahead of the 29 years ago when I retired.
And BTW two of my three daughters will be retiring (financial independence) by age 55!
The FIRE people are serious ...and many are achieving such goals. But a fallback is always that one can go back to work. One can change course!
BTW I am not a big S. Orman fan...easy sell pablum for the masses...like having six months to a year of money in an "Emergency Fund"...earning zero interest--what a waste! Yet, no-one can name an "emergency" today that requires a $3000 or more payment, immediately...unless a ransom for their kidnapped children.
R48
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Post by johntaylor on Dec 19, 2022 16:06:56 GMT
Yes, debt can be used intelligently by responsible people. But debt -- like alcohol -- gets x percentage of folks in trouble.
Orman's trust advice should be taken with a grain of salt (maybe the whole shaker).
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Post by Deleted on Dec 19, 2022 17:24:16 GMT
2. Don’t retire owing money on your home - This one is debatable. We debated it before. I have 30 year fixed at 2.75%. So general conclusion was not to pay off the mortgage early. Though there is a big mental comfort in being debt free. +1...agree 100%. Long story, but briefly, the key to inflation is owning reeal assets...houses included. And the ability to get them when ratews were low, a double-bonus. I have three homes and may buy another in a distressed family situation. Current HELOCs I have are at low rates...like 3% fixed for 17 more years on one. I will not pay this off--taking it to my grave! Raised rents on another by 20% this July. My daughter/son-in-law have a 3.4% fixed, 22 years to go, on a great $435,000 (now $650,000) house. They are retiring in two years, buying a sailboat...at age 54. They should ABSOLUTELY NOT PAY OFF THIS MORTGAGE. I know the desire to be "debt free" is a strong behavioral thing to some; but it often does not make financial sense. If mortgage payments are factored into your annual spending, what's the big deal? R48 Now mortgage rates are two or more times higher than what you guys are talking about from past experience, and the fees tacked on by mortgage sellers and closing attorneys are considerable. I saw a HUD statement last week following the sale of a property. |
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Post by saratoga on Dec 19, 2022 19:38:49 GMT
R48 Hope you do not need unexpected implants. Two implants and crowns are costing me more than $3000 already after insurance and much more bill yet to come.
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Post by Deleted on Dec 19, 2022 20:39:09 GMT
If one has mortgage at 3% or less vs 6-7% and what are treasuries yielding may change the decision to pay off mortgage early or not.
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Post by retiredat48 on Dec 20, 2022 6:13:40 GMT
to @haven,...who posted: "Now mortgage rates are two or more times higher than what you guys are talking about from past experience, and the fees tacked on by mortgage sellers and closing attorneys are considerable. I saw a HUD statement last week following the sale of a property. "
R48 reply: Well, Orman has been preaching same for last decade. Most retiree home mortgages should be at 3.50% or less. Most mortgages if greater than 3.5% should have been refinanced down to these rate levels. Had plenty of time to do it.
Yes, some may have a 5+% mortgage form the past, and were unaware of the fact they could save a lot by refinancing; however, suspect simply lethargy was involved if you did not refinance.
And yes, don't take out 7+% mortgages now...wait. In the 1970's some paid 16% mortgage rates!!
Everything at a price.
R48
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Post by retiredat48 on Dec 20, 2022 6:18:44 GMT
R48 Hope you do not need unexpected implants. Two implants and crowns are costing me more than $3000 already after insurance and much more bill yet to come. It's all in the retiree budget. Just like a new roof on the house has to be replaced about every 30 years...or a replacement auto every ten years...etc. If $3000 dental, or other occasional one time large charges, is a budget beater, use HELOCs..or personal loans.. And many dentists will use a budget pay plan if costs get really high. BTW also...use a charge card and you eliminate the "emergency" of dental costs, shifting payments down the road if necessary...for a while. R48 |
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Post by FD1000 on Dec 20, 2022 14:33:41 GMT
Of course, Suzi is right. The rules are for average Joe, not for above average investors.
We bought all our big items(home, vehicles, furniture) with loans, some with 0-1% rates. Also took a home equity loan at 1.99% when we didn't need it because I can beat it and was still working.
The FIRE retirees are stupid, especially now when health care is so expensive.
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Post by retiredat48 on Dec 20, 2022 15:03:58 GMT
Of course, Suzi is right. The rules are for average Joe, not for above average investors. We bought all our big items(home, vehicles, furniture) with loans, some with 0-1% rates. Also took a home equity loan at 1.99% when we didn't need it because I can beat it and was still working. The FIRE retirees are stupid, especially now when health care is so expensive.Well, guess that includes me! No regrets...and very happy that two of my three daughters recently accomplished FIRE about age 53. I kinda like the fact my daughter will soon be sailing the Caribbean in a 39 foot sailboat, instead of working to age 70 to maximize social security annual payouts. My wife was hesitant on stopping early, of course, but now if she had a "do-over" we would have stopped at age 47...not 48! My 103 y/o living MILaw thinks I should still be working! R48 |
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Post by Deleted on Dec 20, 2022 16:50:05 GMT
Of course, Suzi is right. The rules are for average Joe, not for above average investors. We bought all our big items(home, vehicles, furniture) with loans, some with 0-1% rates. Also took a home equity loan at 1.99% when we didn't need it because I can beat it and was still working. The FIRE retirees are stupid, especially now when health care is so expensive.Well, guess that includes me! No regrets...and very happy that two of my three daughters recently accomplished FIRE about age 53. I kinda like the fact my daughter will soon be sailing the Caribbean in a 39 foot sailboat, instead of working to age 70 to maximize social security annual payouts. My wife was hesitant on stopping early, of course, but now if she had a "do-over" we would have stopped at age 47...not 48! My 103 y/o living MILaw thinks I should still be working! R48 Can't tell what may have happened if you continued working at GE - like becoming the CEO there or elsewhere. |
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Post by Deleted on Dec 20, 2022 18:29:20 GMT
Of course, Suzi is right. The rules are for average Joe, not for above average investors. We bought all our big items(home, vehicles, furniture) with loans, some with 0-1% rates. Also took a home equity loan at 1.99% when we didn't need it because I can beat it and was still working. The FIRE retirees are stupid, especially now when health care is so expensive.Well, guess that includes me! No regrets...and very happy that two of my three daughters recently accomplished FIRE about age 53. I kinda like the fact my daughter will soon be sailing the Caribbean in a 39 foot sailboat, instead of working to age 70 to maximize social security annual payouts. My wife was hesitant on stopping early, of course, but now if she had a "do-over" we would have stopped at age 47...not 48! My 103 y/o living MILaw thinks I should still be working! R48 They are lucky to get your guidance. I started investing very late and paying full for 3 kids college including private. I will be working as long as I can atleast 65. |
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Post by FD1000 on Dec 20, 2022 18:43:00 GMT
Of course, Suzi is right. The rules are for average Joe, not for above average investors. We bought all our big items(home, vehicles, furniture) with loans, some with 0-1% rates. Also took a home equity loan at 1.99% when we didn't need it because I can beat it and was still working. The FIRE retirees are stupid, especially now when health care is so expensive.Well, guess that includes me! No regrets...and very happy that two of my three daughters recently accomplished FIRE about age 53. I kinda like the fact my daughter will soon be sailing the Caribbean in a 39 foot sailboat, instead of working to age 70 to maximize social security annual payouts. My wife was hesitant on stopping early, of course, but now if she had a "do-over" we would have stopped at age 47...not 48! My 103 y/o living MILaw thinks I should still be working! R48 You are not the average Joe investor, and you were lucky retiring in 1993. If you retired at the end of 2000, it would be different. We don't need to exaggerate, it's not age 39 vs 70. It's about having at least a portfolio of 20 times your annual expense, not including SS. The younger you are, the more you need. The biggest question for young retiree is how to handle health care? It's the toughest question from here and on.I retired just after 27 years immigrating to the US with only $5K + wife and kids. I only started investing 4 years later, that means I retired after 23 years of investing. I didn't have to guess if I will make it, I retired with a portfolio of 25+ times our annual expense, not including SS. We can make it with 0% stocks, or 100% stocks. We travelled to many countries while working and continue to do so. Every step was carefully planned and executed without depending on any outside source. I will say it again, the typical FIRE system( link) is not a good one. Saving too much too long = you live a brutal life. Then, you retire too early and can't have a proper health care. You also don't have enough in retirement. You also don't have enough SS because you didn't work enough years. As usual, there are exceptions of high earners, and Gov/State/School employees who get pensions + lower premiums healthcare. |
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Post by retiredat48 on Dec 21, 2022 3:24:35 GMT
OK, I'll drive you folks crazy with the following, but I believe this is the wave of the future:
Borrow early to fund your retirement, then spend working years paying off the loan(s).
As background we all are familiar with the young person and a home mortgage. If one waits until enough cash is accumulated to buy a home outright, one may be in early fifties in age to buy first home, and family is gone already.
In steps a mortgage. The young person can borrow, buy or build a home, spend 30 years paying it off, and his family will have a home to live in. This is a highly leveraged, risky thing, but we couch it in a term called a "mortgage" and all of a sudden it is OK.
Now consider retirement. The bane of many is not having savings, to enable investing, and especially enabling "time" to grow investments, for retirement. Solution...same as a mortgage. Young ones should borrow as much and as soon as possible (like a HELOC if already have a home)...in your age twenties preferred, but no later than age 33. Buy and hold forever an assortment of stock funds/ETFs (some in IRAs...some in 401.Ks). Goal is 10% of income to be saved/invested.
You can retire at age 55 to 60...period...using this approach.
An alternative for a young person is to buy one rental property each decade...mortgage each and use rents to pay back same. By age 60 you will have accumulated four rental properties. The income from four such rentals is enough to give a "comfortable retirement." And you never have to touch the stock market!
Ponder. Not for most...but those who have an "ah ha" moment can do the above alternatives. It is what I would do if starting over.
Disclosure...I own outright a small 2br rental property in Florida that is now paying me $2500/month!
R48
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Post by saratoga on Dec 21, 2022 4:15:12 GMT
R48, this book may have a roughly similar idea. I only skimmed through it years ago. The question is whether it is really safe. Nalebuff is a professor at Yale Business School.
Lifecycle Investing: A New, Safe, and Audacious Way to Improve the Performance of Your Retirement Portfolio
by Ian Ayres and Barry Nalebuff | May 4, 2010
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Post by FD1000 on Dec 22, 2022 4:38:47 GMT
OK, I'll drive you folks crazy with the following, but I believe this is the wave of the future: Borrow early to fund your retirement, then spend working years paying off the loan(s).
As background we all are familiar with the young person and a home mortgage. If one waits until enough cash is accumulated to buy a home outright, one may be in early fifties in age to buy first home, and family is gone already. In steps a mortgage. The young person can borrow, buy or build a home, spend 30 years paying it off, and his family will have a home to live in. This is a highly leveraged, risky thing, but we couch it in a term called a "mortgage" and all of a sudden it is OK. Now consider retirement. The bane of many is not having savings, to enable investing, and especially enabling "time" to grow investments, for retirement. Solution...same as a mortgage. Young ones should borrow as much and as soon as possible (like a HELOC if already have a home)...in your age twenties preferred, but no later than age 33. Buy and hold forever an assortment of stock funds/ETFs (some in IRAs...some in 401.Ks). Goal is 10% of income to be saved/invested. You can retire at age 55 to 60...period...using this approach. An alternative for a young person is to buy one rental property each decade...mortgage each and use rents to pay back same. By age 60 you will have accumulated four rental properties. The income from four such rentals is enough to give a "comfortable retirement." And you never have to touch the stock market! Ponder. Not for most...but those who have an "ah ha" moment can do the above alternatives. It is what I would do if starting over. Disclosure...I own outright a small 2br rental property in Florida that is now paying me $2500/month! R48 Several things I have seen over the decades. I know many millionaires, all made it by investing in stocks, adding monthly and holding for decades, and mostly never touched this money until retirement. They also paid in full all their bills on time. This is the easiest way to become a millionaire in the US. Either you are a successful entrepreneur, or invest in the best companies that were invented by great entrepreneurs. There is a good reason why they called compounding “the most powerful force in the universe.” Albert Einstein( link). On the other side, you can do well in RE(real Estate) if you are lucky, did many things right, took more risk, and worked a lot harder. Just to be sure, I became a RE appraiser almost 20 years ago, I read many books, and came to a conclusion that stocks are much easier and safer to reach our goals, hence, why I never bought RE. I also know many who did, it was part of my learning. All you need is one bad tenant, to understand why not. But, investing in stocks doesn't stop you from RE. First, you need a house to live in. A house is for many their biggest asset. Go ahead and make it a great investment: buy it at the right time + price, and put a small down payment. We bought our first house with just 5% down payment, and later refinance several times because rates were going down and we got rid of PMI. Years later, when our portfolio grew very nicely, I took a 5 year loan at 1.99% with no closing costs. This loan was used for about 50% to close our kids university tuitions (much higher rate) + investing the other 50% in the market, because I was sure I can make more + our portfolio was several times larger than the loan, in case, I need to close it. The third and very important goal was to finish all debt(our mortgage + kid tuitions) one year prior to my retirement. No, I wouldn't buy several houses on top of our house using mortgages, that's a house of cards with extra unnecessary risk. I selected 401K, not Roth 401K, because if you use good managing skills, you will likely pay lower taxes in retirement than your working life. I also know a lot more people who got into trouble using leverage than the ones who kept it simple and got a nice portfolio the KISS way. My funds never had a bad leak, bad tenants, I never needed an attorney or sigh contracts, or getting calls about anything else. I can hold them for 20 years or switch them in 10 second, any time. RE need a lot more care. BTW, investor Joe doesn't need to know anything special, he can just buy the SP500 (or maybe 2 funds SP500+international) for the next 30 years. This index will reflect the best opportunities over the years by using a simple market capitalization. As you can see, a lot of thought went into safer avenues, how to accomplish our goals, with very reasonable risk. |
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Post by retiredat48 on Dec 22, 2022 16:39:50 GMT
Very good, FD...I have no qualms with your post. I have posted similarly. And yes, do not use ROTH 401.K...take the tax break of regular 401.K to give you more money while young.
Except about 50% of Americans cannot and do not save...especially in younger years. That's the problematic part...the behavior aspect.
And some Americans will simply not invest in the markets, period. Perhaps real estate is best for them. That also includes the younger "handyman" type person who can deal with rental properties.
Good day/good XMAS, FD
R48
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Post by mozart522 on Dec 22, 2022 21:30:11 GMT
FIRE means FINANCIAL INDEPENDENCE retire early. Early is vague. I retired at 60. Like 48 have a lot more now 16 years later. But I knew I had enough. That is what financial independence means to me.
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Post by Mustang on Dec 23, 2022 0:31:09 GMT
An alternative for a young person is to buy one rental property each decade...mortgage each and use rents to pay back same. By age 60 you will have accumulated four rental properties. The income from four such rentals is enough to give a "comfortable retirement." And you never have to touch the stock market! I have an old high school friend who bought his first house at 17. He used the rents to buy more rental property, managing and maintaining them himself with a small crew. I don't know if he will ever retire because he has too much energy but he now owns 22 houses.
He is proof that you can get a comfortable retirement and never touch the stock market.
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Post by Deleted on Dec 23, 2022 1:48:05 GMT
Suze Orman's main audience used to be women who weren't adept at financial planning. She gives plain no nonsense advice. It is amazing how many don't know to contribute enough to a 401k to get the company match. I take her advice in that context and always find it a useful reminder of basic financial advice, particularly for those who are not financially savvy.
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Post by bb2 on Dec 23, 2022 19:15:01 GMT
I was out at 45 and sometimes wonder if that was too early; I agree with Suzie on this one. Had caregiving to do, father with alzheimer's and my dog lost the use of his hind legs, (dog version of MS), all of which seemed more important than working. Loved that dog and I was tired of people anyway. Thought it was just for a year or two but never went back. Markets have been good and I just lucky. Paid off the house not because it was financially sound but because I hate paying bills. Keep the chores and life as simple as possible. As far as healthcare: ACA if you keep your income below the cliff. Some years were expensive, others free almost. Depends on realized gains for the year. I tried to ignore the side effects of selling but it got the better of me from time to time. Most of my money is in taxable.
More power to the FIRE folk but listen to Suzie; I've seen bits and pieces of her on TV and she's good. Surprised me, actually.
Kind of fascinated with real estate but never got into it. Wasn't on my radar back then but wish it had been. Big victorian I lived in in San Fran went for a song after the quake and I didn't even think about buying it.
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