Suze Orman: Boomers, seniors need to re-educate themselves about cashWritten by Nolan Baker Mark Clair | | email@example.com
Now that the stock market is up 100 percent from its all-time lows in March 2009, many people are experiencing investing nostalgia for the “good old days” on Wall Street. We hope the market does keep going up, but we must be aware that this emotional euphoria can cause some people to make poor investment decisions.
On March 7, The Retirement Guys interviewed Suze Orman about the American Dream of days past and what the reality of that dream is today. She covers this and many other timely topics in her new book, “The Money Class,” which was released March 8. Orman is a two-time Emmy Award-winning television host, a No. 1 New York Times bestselling author and a columnist. She was named by Forbes as one of the “World’s 100 Most Powerful Women” and as one of Time’s “100 Most Influential People.”
Orman, who is speaking in Columbus on March 16, shared urgent news for boomers, seniors and retirees during our 30-minute conversation.
Nolan Baker: We had an opportunity to read your new book, “Money Class.” With what has happened with the stock market, this is a timely book. We are at a point where people really need to take a look at exactly where they are. It’s probably one of the most crucial times in our history; people need to become financially self-reliant.
Suze Orman: I wanted to make sure that the book cut to the core of what people wanted to hear, needed to hear, didn’t want to hear.
Baker: For a lot of the boomers and retirees and seniors today, their No. 1 fear is running out of money.
Mark Clair: In the book, you talk about revising perspectives and revising the American dream.
Orman: Let me address 50-to-80-year-olds. Here is the problem: you turn 50 and as you may know you think, “In another five or 10 years, I’m retired.”
The truth of the matter is, most people have lost the equities in their homes. In Ohio, you’ve experienced it worse than most.
Most people have lost 50 or 60 percent or more of their retirement, even though the market has come back twofold in the past year or so. They have lost two or three valuable years of compounding growth that has set them back tremendously.
It is very, very important that people start understanding that they need to do some dramatic things in their 50s to play catch up.
They need to understand that they may not be retiring at the age of 59 and they need to set a different, more realistic goal which, in my opinion, should be the age of 67.
They should really make plans of that’s how it is and they should not look at this as a depressing thing.
They need to adjust that the new American Dream is the dream where you get to work long enough to make as much money as you need, so that when you do really have to retire, you do have enough money to get by.
Pension plans are no longer a norm as they were for your parents or grandparents. Even i f they are, it is very possible that the health insurance benefit of a pension could be cut. It is really, really important, especially for those retirees in their 50s, that they have a realistic game plan that isn’t just a dream game plan. They need to understand when they can access money in their retirement account.
Every single week on “The Suze Orman Show” I have someone calling in on the “How Am I Doing?” segment saying to me, “I want to retire when I’m 58 years of age.” When I ask them how are they going to do so, they say that they are going to live off of the money in their retirement account, not understanding that they can’t even touch the money from the retirement account in most cases until they are 59 and a half.
They have to learn the rules, they have to understand what to do. The most important thing is, if they currently own a home that they can call their own and if they are going to stay in their house for the rest of their life, their No. 1 move to make would be to pay off the mortgage on that home, because the largest expense they have is their mortgage. And there is no way that they are going to be able to save that kind of money to generate that kind of income to pay their mortgage.
For those in their 60s who did retire, they invested their money and they did invest in CDs at 5 percent and everything was going just great. But what happens is now those CDs are coming due and maybe they can re-invest them in an investment, such as a CD at 1 or 2 percent and they have just lost a significant part of their income and they don’t have a clue what to do.
People who are now living in retirement really need to have a whole new stance on how do you invest in retirement and what do you do in retirement. There are stocks that pay good dividend yields. Exchange-traded funds that pay good dividend yields are essential now as a fabric of a retiree’s portfolio, even more important than a certificate of deposit. Postponing retirement and Social Security to 67 or 70 or whatever your full retirement age happens to be is a must for the people born before the year of 1960. They should not even think about touching Social Security until the age of 67, 70 if at all possible. There are new ways to be in retirement today that enable you to fulfill your American Dream, but you have to alter the American Dream from what it used to be to what it should be today so that it’s a realistic one.
Clair: That’s really great stuff for those people in that age bracket, but how would you address that same situation for those people who are in their 30s and 40s?
Orman: There are 50,000 words in this book that are dedicated just toward retirement. It is the most complete retirement primer that’s ever been written and broken down and when you go on the website, you go into the classroom that extends what is in this book and it does make it the most complete retirement primer ever. For those in their 20s and 30s, they have to get involved with their money. They’ve got to be dollar-cost averaging into these markets whether they are up or they are down. They also need to know how to invest. It’s essential to know whether they do large caps; small caps are no longer the answer. It was a couple of years ago when I said index funds are going to be very dangerous, be very careful; managed index funds are the way to go. The only reason is that if you had invested 10 years ago in the Vanguard or any of the index funds you would not be a very happy camper today. One needs to be far more diversified than they have ever been before, need to be diversified not only here in the U.S. but overseas.
There are all kinds of things that people need to understand.
But the main thing is they need to get an education on why bond funds within retirement accounts are something that, unless there is a specific reason why that bond fund is there — and that’s not true in most 401(K) plans, if it was a TIPS fund it’s OK or a short-term bond fund — you need to be careful in what you are investing.
For someone in their 20s or 30s the game plan is just as the book says: your retirement is in your hands. These are the most important years and you’ve got to start today. The Roth IRA is the absolute No. 1 choice that I have for any type of retirement account. Even if you make more money that would qualify you for a Roth, you should be doing a traditional IRA making it nondeductible and then converting it. You should so, so be investing in these markets. We should be praying that the markets go down instead of up because if you are dollar-cost averaging, as you put money in every single month, your money will buy more shares. They more shares you buy now, in 40 years you will be very happy that you have them.
In 2012, my recommendation will be to come out of the market again because I think that we are going to get a big hit. We just don’t have the time anymore to watch these things go down. I’d rather come out and miss it and go back in it than stay in and watch it go down another 50 or 60 percent like it did before.
Baker: What are your recommended ways to pass on money?
Orman: One has to really know, when does it make sense to pass on the money and when does it make more of an impression on somebody to not pass the money on but to give it to a charity that could probably use it 10 times more than you or the children. These are very individual situations. When people sit there and figure out how to pass on their legacy or their money, the real problem is they are passing whatever they pass on in the most inefficient way possible. Ninety percent of the people out there, if they have a will they are lucky, but they do not have a living revocable trust. Not having a living revocable trust is the biggest mistake you can make, bar none. Do you boys have a living revocable trust?
Baker and Clair: Yes.
Orman: Good. If you ask your readers how many of them actually have a living revocable trust they would all say — nobody. “Nah, I have a will. I don’t even need a will.” What’s so sad is not so much how you leave a legacy to a family, but how are you efficiently leaving your money to those you love and how are you taking care of yourself if you don’t die and you have an incapacity. People don’t even think about that. I’ve watched tens of thousands of dollars go out the drain just because someone only has a will and not a trust. Then they become incapacitated and then they need to have conservatorship assigned to them. It goes on and on and then you know what happens. So the best, greatest thing that you can leave to someone else is an estate that is efficiently tied up to someone, set up correctly so money isn’t wasted on estate fees and legal fees.
Baker: Obviously there are certain steps you can take so if you pass away you can pass the money on to a loved one or a charity of your choice. The bigger issue is the out-of-control health care costs. It’s not about outliving your income but about protecting yourself from a health care crisis.
Orman: Long-term care insurance (LTC) is one of the most important insurances anybody can get, from the day you buy it to the day you use it. Average age of entry into a nursing home is 84. If you buy it at 60 and all of a sudden you are 75, you can’t afford it anymore. The insurance company took the correct bet that you’d drop it right around the time that it’s really important. My greatest advice to you would be that if you are going to buy LTC, you need to know that, without a shadow of a doubt, it is going to be an easy expense for you to meet every single year for the rest of your life.
Baker: The cost of LTC seems to deter people from taking action. People think that it is really expensive. The other part with younger people is immediate gratification. How can we do better to help people realize that they need to take action with this?
Orman: Do you believe in prayer?
Clair: Yes, I do.
Orman: For 30 years I’ve been preaching this, for 30 years I’ve been providing tools for people to do this, for 30 years I’ve been knocking my head up against the proverbial wall, saying “You have to do this, you have to do this” and still when I go and give a speech and there may be 5,000 people in the room and I ask how many people do not have a living revocable trust and advanced directive and durable power of attorney for heath care in place, 99 percent of the people in the room stand up.
And what’s sad about that is that it was the same group of people that came to see me the year before and the year before. I don’t know what it will take. But I don’t think that a human being can instill that in them. They are either going to make the tragic mistake of waiting until it’s too late or they are going to do what it takes to take care of themselves.
Baker: Any other thoughts?
Orman: You are starting retirement at a time where gasoline is going through the roof. The difference between oil increasing this time versus a couple of years ago is that I don’t think you are going to see it come down. The new norm of oil will be $85. That will be a base; it’s not going back down to $50 or $45. Inflation may not be rearing its head right now but that doesn’t mean that it’s not going to cost you a whole lot more. You are retiring in an era when interest rates are relatively low. Federal Reserve Chairman Ben Bernake said they could stay low for the next few years. But even though the short-term interest rates are still low, you are seeing rates start to increase long-term, just enough to entice all of you into a 30-year bond or so, which is where they want to lock you up so that you can stay at a low interest rate for the rest of your life. Then, when interest rates finally do increase you are going to be locked up forever unless you take a serious loss. Everything is falling in place for you to have difficult, difficult years unless you know exactly what you should do.
I’m going to be 60 in June. I’m right there with everybody. It is your choice now to learn what you need to know about your future and make the correct decisions and you should be just fine. But not if you make a decision to keep your head in the sand and think everything is going to be worked out for you, you don’t have to get involved with your money.
You will not be living the great American Dream but you could be living the greatest financial nightmare of your life. You can change all of that right here and right now by simply getting involved with your money and simply making choices that are grounded in the truth of what you have, what you are going to be able to have and what is realistic.
So Baby Boomers, if you don’t want to be Baby Bummers, you seriously just have to go to class to learn about your money all over again and you need to do it today.
“A Special Evening with Suze Orman” is being presented by Thurber House, downtown Columbus’ non-profit literary center and museum, it is set for Wednesday, March 16 at 7:00 p.m. at COSI, 333 W. Broad Street, Columbus, Ohio 43215. For information on tickets, visit www.thurberhouse.org.
For more information about The Retirement Guys, tune in every Saturday at 1 p.m. on 1370 WSPD or visit www.retirementguysradio.com. The office is at 1700 Woodlands Drive, Suite 100, Maumee, OH 43537. (419) 842-0550.
Securities and Investment Advisory Services are offered through NEXT Financial Group, Inc.
The Retirement Guys are not affiliated with NEXT Financial Group, Inc.
The opinions expressed by Suze Orman are not the opinions of NEXT Financial Group, Inc.
S&P 500 doubles off post crisis lows source is http://www.marketwatch.com/story/sp-500-doubles-off-post-crisis-lows-up-100-since-march-6-2009-2011-02-16