Suzy Orman's advice

[crispus]

I was watching the Suzy Orman show over the weekend, and I was disturbed about her advice to a couple that wanted to retire early. As I remember it the couple was 59 and 53 years of age and they wanted to take retirement in about a year. They had a $4000 per month pension no COLA, a paid off property that they planed on selling worth $360k, around 500k in IRA and 401k, $40K in cash, and a home worth about $535k with a mortgage of $200k. They planned to sell the property and pay off their house which would leave them with net expenses per month of 3k. Suzy told them that with around $5300 per month before taxes ($4000 pension and his safe withdrawal from his ira) they did not have enough because with taxes taken out it would bring them to around $3300 per month net and that was too close.

It seems to me that Suzy figured their tax rate way too high and she seems to have a political bent that people should not retire early. The later statement is what I personally infer from her shows, but she does not come out and say this directly. The disturbing part is that if I take her advice to this couple and direct it at my own situation, I would not be able to retire for many more years, and my gut tells me that she has got to be wrong.

I don't take much of her advice to heart except for her hatred of annuities and whole life insurance.

 

[W2R]

I think you have a good point and that many in the media are not suggesting early retirement. Maybe they are concerned due to the economy, the possibility of another, more severe market crash, and the near-impossibility for some ER's to ever find another decent job if they need one.

I have the impression that when the market crashed in 2008-2009, she felt pretty bad about her previous advice and that the result is greater caution in segments like this.

I watched that show, although I was multi-tasking and don't remember all the details. I think (?) that was the one where she pointed out that with a non-COLA'd pension, you needed to spend less (or have more income) than with a COLA'd pension. Also, I thought (but again I very likely might be wrong) that for some reason they could not access the retirement money without doing a 72t and also that they hadn't thought through the problem of making up for SS during the years until SS showed up. Anyway, for some reason or other it felt a little borderline to me, too.

To me, the whole point of her show is to stimulate thinking on the topics of personal finance and handling money. I think it is great in those respects and this is why I watch it. On the other hand, I don't always agree with her advice. Often on the "Can I Afford It" segments, I think she is too lenient with what she tells people they can afford.

 

[Nords]

On the other hand, I don't always agree with her advice. Often on the "Can I Afford It" segments, I think she is too lenient with what she tells people they can afford.

That segment has been the sprinboard for many interesting financial conversations with our teen. She's figured out "the rules" and can tell from the initial financial rundown whether the caller has a prayer. She's also catching on to what people mean by "consumerism".

The phrase "You are so denied" has also worked its way into our household vocabulary.

 

[FIREd]

A few weeks ago, she denied a couple who wanted to retire early. I thought they were in a pretty good shape financially but she denied them because most of their money was in 401Ks and IRAs which "couldn't be accessed until 59.5 without paying penalties". That's not quite the truth of course. So she told them to keep working until they reach 60 years of age. It was like, "Oh stop whining, you can handle working 10 more years can't you? It's not gonna kill you"... Maybe it won't Ms. Orman but maybe it will...

 

[Bikerdude]

It seems to me that Suzy figured their tax rate way too high and she seems to have a political bent that people should not retire early. The later statement is what I personally infer from her shows, but she does not come out and say this directly. The disturbing part is that if I take her advice to this couple and direct it at my own situation, I would not be able to retire for many more years, and my gut tells me that she has got to be wrong.

I don't take much of her advice to heart except for her hatred of annuities and whole life insurance.

Without any other info, an income of 63,600 would not trigger anywhere near 24K in taxes for a MFJ tax return.

 

[Dawg52]

She probably would have told me not to either, but I had no intention to ask.

 

[FinanceDude]

Anyone who takes Suzy Orman's advice on retirement is nuts............She hasn't been in front of a real client for 20+ years...........

 

[crispus]

Suzy is entertaining, but like Dave Ramsey she sticks to one program for all people. I think she means well, but is out of touch with the common man.

Has anyone watched Till Debt Do us Part? A financial nanny tries to change young couples who have huge debt into frugal budgeters.

 

[KB]

I've been watching Till Dept do us part. Those people are amazing how they overspend and don't realize it'. Lots of head in the sand initially in the programs.

 

[Gone4Good]

Suzie smokes crack.

Giving zero value for the second property (other than zeroing out the mortgage on the first), assuming 3% inflation, and 3% nominal returns (zero real returns) which can be achieved in risk-free CDs, they wouldn't run out of money until the youngest reached the age of 101. If they invested in TIPs, yielding positive real returns, they might be able to retire indefinitely, which would be helpful if one of them is a vampire.

 

[ksr]

She probably would have told me not to either, but I had no intention to ask.

Ditto! In fact, I sometimes think if I posted my financial info here, a whole bunch of members would chime in with "DENIED". But, combined with a little pt w*rk income, I've been just fine and I'm approaching the 3-year anniversary.

 

[Nords]

She seems to be extremely conservative-- no drawdown of principal, no 72(t), expenses have to be less than the income from annuities, interest, & dividends. Wait for age 59.5, wait for 62 (or 67 or 70), wait until you've put the kids through college.

Easy for her to say.

 

[Purron]

IMHO, Suze does pretty good when lecturing people about simple matters like spending less, reducing debt and saving more. Situations like this? Not so much.

 

[LOL!]

Orman lives in California, so the taxes are quite high there even if you are retired. To counter her "taxes too high" statement, one can just run your numbers through TurboTax and see what happens. No need to guess on any of this.

 

[dgoldenz]

IMHO, Suze does pretty good when lecturing people about simple matters like spending less, reducing debt and saving more.

I wish someone would pay me millions of dollars to give common sense advice. Reminds me of a Redskins halftime show:

George: Well Sonny, what are your thoughts on the second half? The Redskins are down 17-7 and just look dead out there.

Sonny: George, I'm going to be honest. If the Redskins can get some stops on defense, score a few touchdowns, and outscore the other team by more than 10 points in this second half, they WILL win this game.

George: And there you have it ladies and gentlemen, the great Sonny Jurgenson! Back to you in the studio.

 

[Purron]

Ah, George and Sonny. Miss those guys.

 

[GoodSense]

It makes sense she would rather err on the side of being conservative. If the people she advised to retire ran out of money, she would be partially to blame. If they die with a million dollars, no one will be complaining. What's she got to lose?

 

[dgoldenz]

It makes sense she would rather err on the side of being conservative. If the people she advised to retire ran out of money, she would be partially to blame. If they die with a million dollars, no one will be complaining. What's she got to lose?

Wouldn't her and Dave Ramsey also be to blame when their buy-term-invest-the-difference strategy doesn't work out too? Just asking.

 

[snodog]

Yeah I watched the show and Suzy is crazy. Lately she's been telling people to save 3-4 times what they need as a buffer.

That may be a good idea if you love your job and make millions like Suzy but my reality is different.

After the show I was upset enough to tweet her about it and may have accused her of being paid off by the financial Companies. She didn't respond but it made me feel better.

And Dave Ramsey will have you withdrawing 8%. And these are the "experts"!

 

[ziggy29]

I wish someone would pay me millions of dollars to give common sense advice. Reminds me of a Redskins halftime show:

George: Well Sonny, what are your thoughts on the second half? The Redskins are down 17-7 and just look dead out there.

Sonny: George, I'm going to be honest. If the Redskins can get some stops on defense, score a few touchdowns, and outscore the other team by more than 10 points in this second half, they WILL win this game.

George: And there you have it ladies and gentlemen, the great Sonny Jurgenson! Back to you in the studio.

That reminds of what I wish football coaches would say to insipid questions from sideline reporters.

"So, Coach, what will it take for you to win this ball game today?"

"I reckon it'll take us scoring more points than the other team."

 

[FUEGO]

Maybe Suze is planning on them paying 1% in advisory fees or mutual fund expenses? $4000 pension per month plus $1300 month portfolio withdrawal is the $5300 gross income she's talking about. That $1300/month is only 2.9% of the portfolio value. Seems pretty low, particularly given that you have a bond-like pension to lean on.

My advice would be to draw the pension, pay the $7000 or so actual tax you will owe (assuming high state tax and typical fed tax on the $48000 a year pension income), and pay your $3000 a month in expenses from that. Save what you don't spend and don't touch your investments for about 5 years. At 5 years, the pension will yield around $3000 in today's dollars after tax. Start tapping the 401k's and IRA's and/or cash. 3-5 years is also the time when SS will be an option for the elder spouse.

It seems like they are golden. The 59 year old spouse can tap the 401k's/IRA's immediately without penalty or tap the cash. Otherwise the after tax pension payments should more than cover their inflation adjusted expenses for 5 years at least.

If you are paying $24000 a year in taxes on a $48000 pension income and married filing jointly, do yourself a favor. See a tax professional ASAP.

 

[ERD50]

$4000 pension per month plus $1300 month portfolio withdrawal is the $5300 gross income she's talking about. That $1300/month is only 2.9% of the portfolio value. Seems pretty low, particularly given that you have a bond-like pension to lean on.

I didn't run the numbers, but that pension is NON-COLA. I'm not so certain that 2.9% initial would be so low after taking that into account.


-ERD50

 

[FinanceDude]

Remember, Suze used to be an FA that consulted her "crystals" whenever she had a question.......hey at least some of us have upgraded to a Magic 8 ball...........

 

[FUEGO]

I didn't run the numbers, but that pension is NON-COLA. I'm not so certain that 2.9% initial would be so low after taking that into account.

My bigger point is that taxes will not be $24000 a year. Closer to $7000 or maybe 1/2 that if you are in a no/low tax state.

Not directed to your quoted comment: After tax spending solely from the pension will not decrease below $3000 in today's dollars for roughly 5 years. Probably more like 7-8 if you save the extra money from the pension that you aren't spending the first 4 years. 7-8 years from now, one partner will be well into SS eligibility and the other will be a year away (assuming they have paid into SS some over the years). They may not need to tap their 401k/IRA for decades (if ever).

 

[Gone4Good]

I didn't run the numbers, but that pension is NON-COLA. I'm not so certain that 2.9% initial would be so low after taking that into account.


-ERD50

That's right, because the growth in the initial withdrawal is essentially leveraged (it will be much higher than the rate of inflation).