Suze Orman

[rothlev]

I watched Suze Orman last night. On the how am i doing segment she advised a woman with a good income, but small retirement savings to only use a Roth and not a traditional IRA. The lady had under 100k saved but earned 7 or 8 k a month. I don't remember exactly. I cannot figure out why she would advise a Roth over a traditional in this circumstance. Did anyone watch? opinion? She had a small pension coming, but it would appear that her tax bracket is high now, and will be low later.

 

[pb4uski]

Didn't see but I agree with you if her tax rate today exceeds her tax rate later in retirement then a tIRA is better than a Roth all else being equal.

I have watched Suze a few times. Often good advice, but sometimes not so good.

 

[frayne]

I saw the show and she told the woman to work until she was 67, etc. I like it when Suze says to invest but not what to invest in.

 

[marc515]

The other consideration is does she work at a job with a guaranteed pension? If not, her only retirement money will be Social Security and her retirement savings. Even though she may be paying more taxes now, having tax free income in retirement from a ROTH may be a big advantage.

 

[sengsational]

The advice to by-pass a luke warm 401k for a Roth is common amoung those that offer these kinds of recommentations, and I tend to agree. The advice is typically to only put in enough to the 401k to get the match, but maybe even skip the 401k if the fees are too high, which is often the case with small employers. This equates pretty closely with the IRA/Roth choice. The reasoning used to be "always defer income", because your taxes were going to be lower when you pull the money out. But that consesus has been eroding in the last couple of decades. Because the promise of spending from a Roth will be sans income tax, even on the account growth, that's a big carrot for those that presume taxes have nowhere to go but up. So if your model assumes that you'll be paying about the same (or a higher) tax rate in retirement, the Roth is your best bet. I think, actually, demographics plays a big part in the reasoning, retiring baby boomers, and all...the ratio of retirees to workers. We only have confidence in one thing...that our elected officials won't cut back on much, and that money needs to come from somewhere.

 

[target2019]

If woman is single, and earning 7K per month, then she could be beyond the cutoff for a T-IRA.
Not that I'm a fan of Suze...

 

[rothlev]

A small pension was in the retired income list around 12k or so. She is 47, so we aren't talking about the possibility of 30 years of growth. social security, small pension and a small withdrawal from savings , does not equate with a large tax bill. Sometimes, those income amounts result in a 0 tax bill, because of the way social security is taxed.

On the other hand 6 or 7 k of income today results in tax at the 25% bracket.

I am not getting missing out the deferral of taxes .

 

[rothlev]

If woman is single, and earning 7K per month, then she could be beyond the cutoff for a T-IRA.
Not that I'm a fan of Suze

I am assuming that she qualifies for a 401k plan.

 

[target2019]

I am assuming that she qualifies for a 401k plan.

I assumed that.

But I was just addressing what was in the OP. I haven't watched the SO episode.

If there is a 401k involved, the woman needs to get the match, and then make additional decision about Roth, or going deeper into the 401k.

I suspect the woman has a significant uphill struggle, so working until full SS or 70 could actually be the only viable advice for the woman.

 

[rothlev]

I suspect the woman has a significant uphill struggle, so working until full SS or 70 could actually be the only viable advice for the woman

.

I agree, and that part of what Suze told her made sense. I did not understand her advise to max out on the Roth and do Roth conversions. Of course I cannot remember how much she spent, but she did not have a home and had large rent expense. Suze told her to buy and pay off a home. I can agree with that advise also.

 

[Andre1969]

That episode's on the DVR, and I just pulled it up. Here are some details:

She's 46 years old, has two kids 19 and 21, both in college. In the past 5 years she lost her job, went through a divorce, and sold a house at a $300K loss.

She lived off credit cards for a year, but is now self-employed, and has the debt paid off. Her goal is to retire at age 60, and Suze gave her an "F" on that one.

She has $70K in an emergency fund, $35K in retirement, and $12K in investments. Only outstanding debt is a $19,200 car loan. She rents, so no home to factor in.

Her monthly income is listed at $8350, which would be take-home. Expenses are $5763, and she puts $1416 into savings, and has an excess of $1176 per month.

As for the IRA thing, Suze told her to stop contributing to a traditional, and only do a Roth from here on out. And to, little by little, convert the traditional to a Roth.

Y'know if her take-home is $8350 per month, isn't it possible that her AGI might be enough to exclude her from a Roth IRA? I guess she could do the conversion still, but wouldn't she be precluded from putting new money in?

Also, this woman is mainly "investing" in cash, money markets, etc. Suze recommended she start investing.

 

[GrayHare]

Every worker with earned income in the USA can contribute to a tIRA and convert it to Roth. The person in question may not qualify for an tIRA deduction, which is all the more reason to immediately convert any contrib to Roth.

 

[rothlev]

She lived off credit cards for a year, but is now self-employed, and has the debt paid off.

Self employed people have several options for tax deferred retirement savings, and I believe can save around 25% of self employment income.

 

[target2019]

Self employed people have several options for tax deferred retirement savings, and I believe can save around 25% of self employment income.

20% of profit for a SEP, if it's sole proprietorship.

If SO did not recommend setting up a retirement plan, then she failed the listener, in my opinion.

 

[pb4uski]

20% of profit for a SEP, if it's sole proprietorship.

If SO did not recommend setting up a retirement plan, then she failed the listener, in my opinion.

+1 SO is a bit of a bonehead anyway.

 

[rothlev]

And to, little by little, convert the traditional to a Roth.

[/QBUOTE]
Why would Suze give this advise. ? Certainly after she retires she could do conversions to the top of the 15% bracket. But doing this now will cost her big bucks.

 

[Andre1969]

Well, Suze also told this woman to work until 67, and don't take SS until 70. I think Suze estimated that this lady would have about $6,000 per month in expenses by the time she got to 60, and at the rate she was going, she wouldn't be able to successfully retire.

Still, a lot can happen in the 14 years from now until this lady turns 60. So in my opinion, she should keep re-assessing her situation. Who knows? If the market really takes off, or some other windfall happens, she may still be able to go out early.

This lady has a bigger nest egg than I did 14 years ago. And, I could retire now, if I really wanted to, and was willing to live on a fairly bare-bones budget. This lady would have more expenses, sure, but she also has a much higher salary, and should be able to sock away a LOT more per month than I have in the past. Plus, she'll get more SS and a bigger pension that I will. So, I think retirement at 60 is possible. But don't take my opinion as the gospel!

 

[rothlev]

Andre , I agree with you. No: 1 she has two children that she is probably supporting. take them out of the picture and her income needs drop significantly. She has social security coming, she has a pension. If she socks some more away between now and 60, I think she will be in good shape. More realistic , I think she can shoot for 62,