Podcast Episode - Suze School: It’s Never Too Late To Fix a Mistake

For this Suze School episode, Suze reads an email from a listener who wants to retire, but it may not be the right time.  Is it too late to change the plan?  Listen, as Suze explains the situation and what the potential best move may be.

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Podcast Transcript:

May 19th 2024. Welcome everybody to the Women and Money podcast as well as everybody smart enough to listen.

Now, as many of you may know KT and I and some of our family members are in South Africa as you are listening to this. But I just wanted you to have a new podcast. So, KT and I spent our time before we left prerecording a few of them. So I hope you enjoy them.

But I have to say today's podcast is also just a little bit different, like last week's was, but it is a Suze School, but it stems from an email that I recently received that I just want to read to you because I think it's really touching in many ways. This is from Ed.

I owe this to my wife.

I never realized how much pressure my wife endures in regards of me retiring. I am 62 and she is 54. I have chosen to retire this year, although she doesn't want me to, I've explained numerous times to her that I just can't do it any longer. I am writing to you for some much needed advice. My wife handles everything. She pays all the bills, does the accounting, the medical, everything. I trust her with all the finances. I never realize the effort and time that it requires.

She arranged a zoom call with my employer's financial consultant. She attempted to have all her questions ready but was disappointed because every question she attempted to clarify. The advisor basically told her, don't worry about this or that and we can fill out the paperwork for you.

She was not happy about this being that she is very detailed and organized and is very passionate about educating herself with these issues. Of course, I just brushed it off and told her not to stress it, but she was frantic explaining that once I sign or commit to anything, it cannot be changed and this is my money and we should know how it gets handled.

Suze, I am ashamed to say that she is right. I should know what's going on with my finances. So I am writing to you with the hopes that you can help me or give me the best advice on my next step. And also I want to show her that I care enough for us to write to you together. So here is my situation.

I will be 62 in August of 2024. I have about 200,000 in my annuity fund. I was told I had three choices. The first one would be take the monthly lifetime payments at $1211 a month with a 50% survival spouse.

The second option would be to choose a payout either within five years, 10 years, 15 20 25 or 30 all spread out. The third would be for me to roll over my annuity into an IRA.

Sure, I want total control over my money. My wife suggested I open up a traditional IRA and roll over the annuity into this. But to make sure to request a custodian to custodian transfer or if my employer doesn't do this, then ask them to make a check directly out to the financial institution to avoid that 20% penalty. Is this correct?

Well, before I even go on, of course, it's correct. Your wife listens to me seriously and has totally gotten it down. She is a little Suze student to the max. He goes on to say, can I open up a Roth IRA instead? The answer to that is no, but that's besides the point. And if I do, do I have to wait five years before I can take out any withdrawals, I will be needing this money monthly for income.

And my last question is my wife told me that the money that I will put into an IRA is not FDIC insured. Is this correct? How can I secure my money if it's not secured? Then I might have to take the first option, which is to take the lifetime payments. First of all, what makes you feel that secured that? Besides the point, any constructive advice would be appreciative.

I should have listened to my wife for all the times that she spoke about this. Maybe I would have been better prepared and not waiting at the edge. May my mistake be a lesson to other husbands who also choose to not worry about it. Thank you.

Well, that email totally got to me. Not in a bad way. I was so proud of Ed only because it's better to realizing something later on in life than not realizing it at all.

I want us to all go over this together to understand how I decipher the answer that I'm going to be giving to Ed and the things that I think about. So get out your Suze notebooks just because I'm in South Africa doesn't mean that you don't open up your Suze notebooks.

You absolutely do because I want you to see all the things that I went through to come up with the right solution for Ed because Ed's not the only one in this situation. So many people out there do retire. They do get offered a joint and Survivor benefit. They don't know which one to take and they get all confused about all the things that Ed talked about and to Ed's wife, he got it, girlfriend. Good for you. Truthfully, if I was just going to put an end to all of this, I would say Ed, you are not to retire, you are to stay there another eight years.

However you say you have to, you can't do it any longer. Ok. Let's just see where we go from this email. So, first of all, I look at the problems, what are the problems with a 50% joint and Survivor annuity?

All of you have to remember that actuarily speaking women live longer than men, especially in most cases when the man is eight years older to begin with, than his wife.

And as we get older, we usually depend on the income from our investments, possibly a pension like this as well as both of our social security checks.

Upon the death of Ed. I want you to think about this because it's most likely that is what is going to happen at that point in time when his wife may be needing more money than ever. Because as you get older, you tend to need more money, you tend to spend more money on prescriptions, you might need help. All of these things are possible.

All right. So at the time when Ed dies, when his wife may be needing every cent that they have upon Ed's death, his wife is going to lose one social security check because remember even if they are both getting a social security check, forget about the amounts upon death. One of those social security checks go away and the surviving spouse will take over the higher of the two Ed's wife will keep hers if hers would be higher than his. But if his is higher than hers, then she will take over his. That's very important. But she still lost that income when you take a 50% joint and survivor benefit you may get. And in Ed's case, this is true, you may get $14,532 a year, that's guaranteed to you.

But upon Ed's death, his wife will only get 50% of that, which is only $7266 in a year. Obviously, she gets that monthly. So she would go from like $1211 a month down to $605 a month. So what Ed have you just done?

Your wife now has lost one social security check, $600 a month of income from this pension.

And that may hurt her tremendously financially. Also, when you take a joint and Survivor benefit, normally, unless your place has where they have a cost of living increase where I don't think they do, but you are stuck at $1211 a month while you are alive for 20 years, maybe 30 years or maybe you live another 10 years or 20 years and then you die and Susan is stuck at $605 a month. It has not grown at all.

That is something you need to think about.

So, if I were you, first of all, no way would I be taking a 50% joint and Survivor benefit.

Also, let's talk about social security because this is also a problem because your wife is eight years younger than you.

First of all, you collecting social security at 62 is just off the table. So I'm not even going to go there with you, forget about it. But let's say you wait till you are 67 years of age.

But at 67 years of age, which is just in five years from now. Ed, your wife is still only 59. So what does that mean? She is too young. She's under 62. So she can't claim her social security and she can't even get half of your social security at all.

If she claimed it at 62 she would only get a portion of it. Not her full half of the social security.

She would have to wait till she was at least 67 years of age to claim 50% of your social security. If that happened to be higher than 100% of her social security.

I want you to think about that.

So it will be at least another eight years until your wife can collect social security at all until she is 62. Then when you look at that, she still has to wait another five more years. So she is 67 to collect 50% of what your benefit would have been at 67. If that was a plan that you happen to have, you two are just gonna have to decide when do you collect social security? What is her social security? And you have to work on it as a team.

My advice, given the age difference here and given when she is going to be old enough to collect social security and old enough to collect 50% of your social security is you should not be collecting social security until you are 70 years of age and you just figure it out from there. But do you understand how you retiring early with a spouse that is eight years younger than you?

Really? Your retirement has screwed up a fabulous possible financial plan, which is why your spouse was so stressed out that you were going to retire. You should have listened to her. But all right, you didn't. But here we are, let's continue on with this.

What should you be doing? What you should be doing if you ask me is you, even though you are retiring, you need to go back to work number one, just because you can't stand working at the job that you are working at does not mean that you cannot work somewhere else.

So, if I were you, I would go back and find another job, go somewhere, do whatever and you need to work until you are 70 years of age. Do you hear me, Ed? Because that would be optimum? Now, obviously, I don't know what other assets you have. I don't know, whatever. But your wife is really, really smart and there must have been a financial reason why she wanted you not to retire. And I am assuming, since she does all the money that she knows there isn't enough money for you to have retired right now.

That's my opinion if I'm wrong about that. Ok. But let's just assume I'm not.

So you are gonna go back to work hopefully for another eight years. Now, let's talk about the $200,000 that you have in an annuity where you work. First of all, you are not going to take the joint and survivor option. You are not going to take it out over 5, 1015 years or whatever.

What you are going to do is exactly what your spouse told you. You should do. You are going to roll it over to an IRA rollover and invest it and let it grow for eight years to answer two of your questions. No, you cannot put it into a Roth Ira because if you did, you would be converting it and in the year that you did that, which would be now, you've already worked a whole part of this year already. So, your income probably is up there.

You would owe probably $100,000 of income tax depending if you live in a state that has a high tax, state bracket or not to taxes. So, no, you cannot do that. Number one, number two, you should do it exactly as your spouse told you to do so, do a custodian to custodian transfer, which means with the aid of your wife, you are going to open up an IRA rollover at either fidelity at Schwab wherever you want to do it.

And then you're going to have your custodian where you work right now transfer it to your new custodian. It is not going to come to you as a check. If your employer will not do that, simply have them make the $200,000 check out to your new custodian. Not to you. Ed. Do you hear me?

Then you have 60 days from getting that check to putting it in to your new Ira rollover account.

So now you have $200,000 in that account.

Now you have this fear. It's not FDIC insured. Well, if you invested all of it in a certificate of deposit, then it would be FDIC insured because certificates of deposits are insured. If you put it all in treasury bills, bonds or notes, then it's guaranteed by the full faith of the United States government. If you decide, let's say to put it in Alliant Credit Union, then it's insured by NCUA and you're fine there.

It's insured up to $250,000. So you don't have to worry about it if you have a beneficiary on the IRA, which you should and it should absolutely be your spouse and maybe contingent beneficiaries being maybe one child or somebody else in case you and your spouse are killed in a car crash together, then you're insured up to $500,000.

So I would not be worrying about that on any level. And that sir would not be the reason is this kind of like a Suze slap down maybe a little bit. I don't mean it to be Ed but I need to be firm with everybody and with you on all of this because what I am telling all of you right now is so important. It's not even funny.

Right. But you sir should not be using the fact that it's not insured to have to choose the very first choice of the joint and Survivor annuity. And by the way, if you put it into a brokerage firm, it's gonna be insured under SIC there, you'll be fine. All right. So stop it and don't be ridiculous about this. Ok?

Now you have this $200,000 in an IRA rollover and you will decide what it is that you want to do with it. If you need to be 100% secure, then fine, put it all in different treasury maturities, short term, long term, whatever it is that makes you feel ok or do a laddered CD for one year, three years, five years, whatever it may be that makes you feel secure or if you wanna also be smart with the money, maybe you do some of that and maybe you buy some dividend paying stocks that are at six or 7% right now or whatever it may be.

But there are things that you can do with it so that nothing happens to this money, but probably eight years from now, even at 4% 5% you're going to have approximately $300,000 in there.

And even if you invested that at just a 4 4.5% rate, that would equate exactly to what you are going to get from the 50% joint and Survivor annuity. And if you die, your spouse will continue to get that as well.

So it is really, really important that you understand exactly how it works. Now, what's really important about this podcast is at this point in your life where you apologize to your wife, where you want to show her that you really care and you wanna show the other husbands out there or spouses that the mistake that you made should be a lesson to others and then live your life. So you don't have to worry about it. The two of you need to sit down and decide what you should do, but you need to listen to your wife. You really need to take her suggestions.

So with the utmost of respect to you, Ed, the mere fact of and I say this with love really, of the naivete, the bare fact that you ask certain questions, like, can I open up a Roth IRA? Can I do this? Can I do? That shows that innocently really your knowledge of money and how it works is nil is nil at this point in time, but the knowledge of your spouse is absolutely extraordinary. So your spouse needs to become the lead in what you do. She obviously has been listening to the Women and Money podcast for a long time or possibly reading my books or watching the Suze Orman show or has another person that she listens to. But whoever she's listening to, she has become sophisticated with money. She has become knowledgeable with what to do with money.

So therefore, don't try to exert your power. Now, in terms of what you wanna do with this, I do not like when you say you wanna control this money, this is not your money, this is the both of your money. And I'm telling you if she divorced you, you would lose, I'm sure half of it to her and she probably would make more out of the $100,000 that she got than you would make out of the $100,000 that you would be left with.

So when you say, and you said it, I think twice in your email that you want control over this money, you did not say I want us all to have control over the money. You said the word I, so you have to do this so that it is an equal thing because your wife is correct. This is both of your money, but more importantly than what you do with this money.

It's at this point in time when you show your wife the respect that she deserves. Number one, the lessons that you have learned. Number two and how really sorry you are for all the years that you have put her through this.

All right, everybody at this point in time, we are actually in Zimbabwe where by Victoria Falls, we're at a place called the River something Lodge. I can't remember even where we're going to be. But right now tonight, we're probably going down the river on a boat looking for animals. And then tomorrow is my sister in law Barbara's birthday and we will be outside of our little house there and we will be having a bonfire and we will be having hopefully drummers drumming to her and we each have written something for her and we have already gone. Now at this point in time to see the elephants and to go to elephant school because she loves elephants. And we all will have dressed up as an elephant for her and we will be eating around a big bonfire and we will be telling her how much we love her, adore her and have incredible gratitude that she is in our lives and wishing her, of course the most happiest birthday of all.

So until the next podcast, there's only one thing that I want you to remember when it comes to your money and it is this people first ed. You remember that, that means your wife, people first, then money, then things now you stay safe and stay unstoppable.