Should I Pay Down the Mortgage?

Updated : Sep 14, 2019 in Articles

Should I Pay Down the Mortgage?


it’s the weekend and you have financial
questions that need answering that can only mean one thing
it’s time for Jill on money the show that takes the mystery out of your
finances here’s your host Jill Schlesinger welcome welcome it is still
the dog days of August and we hope that you are enjoying maybe a little time off
that would be great we are broadcasting live from the Capital One studios and we
are very delighted to have you with us so here we are in August and a lot of
you looking at schools maybe you’re looking at starting your high school kid
maybe it’s your new middle school or even starting out the first day of
school is so much going on right and this is a perfect time for you to be
thinking about how to talk to your kids about money and I would like to once
again give a shout out to the folks at the Consumer Financial Protection Bureau
who a long time ago I think maybe three or four years ago where they were very
interested in creating a dialogue with families about money and there is a part
of the website that’s called money as you grow so if you just type in money as
you grow CFPB you will find this it’s also somewhere buried at that
consumerfinance.gov website but money as you grow is a way that breaks down how
to talk to your kids about money at different ages it is really the
brainchild of Beth kobliner she’s been a guest on this program really fantastic
and you know she was the one who said to me so many of your money habits get
formed really early and so these conversations that you have with your
children don’t think that it’s a one-and-done thing you got to keep
having them and you’ve got to keep bringing up other aspects that are
relevant to them that that will really move them and stick with them so check
that out all right okay now I happen to know because I have
a little preview mark told me that our first caller of the program is
interested in buying a home and I was going back and looking at some info and
there was like a pretty rotten existing home sales report for June but it was
there was one bright spot and that was the increase in first-time homebuyers
share of the market it’s now up to 35% so all those Millennials who they
thought would never buy homes they’re buying homes it’s just that they’re
buying them later whether they’re saddled with their student loans or that
they’re hooking up with their honey’s a little bit later there they’ve been a
little bit slower but it is picking up so let’s start this show with a call
from Mariana from the Bay Area we’re gonna talk about buying a home thank you
thank you for taking my call of course so my question is I would like to buy a
house sharing the East Bay but of course the prices are skyrocketing yeah and I
have $25,000 set aside but I wanna utilize for my for my goal how far ahead
do we think that this house purchase is going to take place are we talking about
like in the next year two years five years what are you thinking about um a
mean between two to three years but I would like it to be before five years
okay got it and how much money have you already set aside is this all the money
you have to do this purchase yes so it’s very complicated tell me about how much
money you make are you married to you single more about your real life so I’m
single but I’m currently evening with my partner and he’s the father of my child
I’m 30 years old she is just the same age and we both make about 100k a year
and he would be buying this with you like you’re both in this together yes
okay and so far is this the first twenty five thousand bucks that you’ve set
aside to make this home purchase yeah and is this a joint account that you
guys have or is this yours and he’s got something else
this is mine and he has something else okay
he also have about the same amount or does he have more I think he has a
little bit less oh I don’t like that you’re supposed to get someone richer
than you are don’t you know that by now come on how did you do how did you let
your love your heart really get in the way of all of this okay tell me about
your retirement plans do you do you have a 401 K at work I do and I recently
joined it I wasn’t really thinking about that until my my coworkers started
talking to me about it so I decided to put to open it because given the
opportunity for my employer and I’m currently putting about 20% great that’s
great fantastic all right and is he also doing retirement he yes so here is the
this is a very strange time horizon because if you said oh my god I’m gonna
do it in a year then I would say you got to keep it in cash how much would you
guess would be the cost of a home that you would want to purchase well I seen
prices and they range between half a million to 600 to 700 all right so let’s
say 600 that’s in the middle right so 5 to 700 so we say 600 so ideally I
presume that you guys would like to get at least 10% down right yes okay so
you’re pretty close I mean if you’ve got if you’ve got 25 and let’s say he’s got
15 or something and you got 40 already that may be your two year time horizon
is right on track so look if it’s two years then what I would say is this I
don’t think you should invest it because I think it would be a terrible shame if
the moment you invested that even if you like you say oh wow let’s say that you
guys had 40 grand together and then all the sudden it’s 50 grand and then the
stock market slides and you invest it and all the sudden what do you have you
say oh my my 50 or 60 guess what it’s back to 40 and a house comes up and then
you can’t buy it and then you’re gonna be mad although you have potential for
greater growth by investing it unless you really have 5-10 years I don’t think
you want to take the risk of investing because you know you want to buy this
house now that doesn’t mean you should let it sit in a you know earning a
quarter of a percentage point you should look around you should see if you can
get better interest at online banks you know there’s there’s you can go to
deposit accounts dot-com you can find where there’s better higher earning in
accounts but I think that if you really want to take a swing at a two to three
year time horizon I just I feel nervous that if the worst case scenario came to
pass and you go from up to sixty and you’ve got your down payment and then
all the sudden the stock market slides and then you got to start build rebuild
I think you’re gonna be really upset so I think you’re gonna have to play it
safe and forego the upside how does that feel when I say for going the upside you
okay with that I’m totally okay with it alright then be boring and get on the
boring train beyond the boring train for me I will be your I will be your
conductor on the boring chain and let all the people people are gonna say to
you no no no you should invest but just remember every investment decision has
risk and reward and if you’re only investing for the reward and not looking
at the risk you can have a very nasty surprise so I say keep doing what you’re
doing save that money go buy the house tell
him to kick it into gear you’re not putting more down on the house than he
is so let’s go all right I demand it for you okay all right thank you good luck
take care okay we will return with more of your questions in just a second
during the break go to the website Jill on money.com and
there you can buy my book the dumb things smart people do with their money
thirteen ways to write your financial wrongs yes I do have a chapter about
buying versus renting 401ks IRAs refinancing she covers it all
back to Jill on money with Jill Schlesinger you are back it’s Jill on
money maybe it has something to do with the time of year but we got a few
different real estate questions and we just finished up with our first question
of the program about buying a home with Mariana in the Bay Area we’re going to
talk a little bit about the idea of whether or not it makes sense to make
extra payments on a mortgage now what’s fascinating is mortgage rates are going
back down and have gone back down and I think this is starting to get people a
little bit unnerved in some respects like hey should I refinance again should
I pay down my mortgage do I pay it off that is really dependent on what’s going
on in your life but don’t forget when you think about a mortgage there’s two
aspects of it is you know one is yes it feels good to be relieved of your debt
but there’s another aspect of it which is you have the ability to hang on to
your money right once you pay down that mortgage you don’t have the money
anymore so we often will field this question that’s why I wanted Nick from
the Bay Area to bring us to date to see whether or not my previous advice still
tends to hold so here’s our next caller hi Jill how you doing today great what’s
up so I wanted to see and just got a small raise and was curious whether it’d
be better off putting a little extra towards the principal payment on my
mortgage or putting it towards retirement okay I love I love paying
down debt but figured I’d ask the question all right any other debt that’s
out there any student loans any car or any credit card anything else thankfully
no all right that’s great tell me about yourself how old are you 37 okay
are you married single partnered okay married and right now the house is
worth approximately how much we’ll call it eight hundred fifty thousand okay now
tell me the mortgage amount that is outstanding is how much three
ninety-eight what is the interest rate on that mortgage three point six to five
so cheap man oh my god um do both of you work as one of you Doolittle home stuff
what’s going on both work okay how much is your combined income about 215 and
what will the increase in your salary be take you to is that with the increase or
before the increase it was about three bucks an hour at this point do you have
kids or no kids no kids okay and plan to have kids anything else like sort of on
the horizon that I should know about before we make this decision no nothing
crazy we’ve definitely talked about kids but it’s not something immediate future
Nick I want to explain something to you you can’t just talk about it you have to
do something else too if you want to have kids of course all right make sure
you understand that so are you both using retirement plans so I currently
made a job change a year ago and I don’t have an employer 401k to participate in
but my wife has ever since she’s been employed and then I honestly
participated in the one in my previous jobs so I’m so yes she’s she’s
participating and I’m kind of accounting for it out of my paycheck every week
okay and are you using another retirement plan are you using a an IRA
perhaps yes I’ve got money going into an IRA I’m gonna max that out this year but
then I’ve also got money going into like a general brokerage account bolster that
how much do you put into that general investment account so if you’re gonna
the IRA fifty five hundred the general investment account how much are you
putting it I do it about two hundred a week okay so about eight hundred a month
and with this raise what could you bump that to what we could is it it does this
end up being a couple hundred bucks a month I don’t know how many hours yeah
yeah yeah it’d be about you know between 100 and 200 bucks I could probably do
something with and is your wife maxing out her retirement plan she is we you
know since I started listening to the program it kind of gave us a good kick
in the butt on things to ask ourselves so fantastic she’s currently doing that
okay great so here’s the issue a hundred or two
hundred bucks a month should I pay off a three point six two five percent
mortgage or should I add it to my general investment account
and potentially make more than that so you’ve already self disclosed that
you’re a wimp and I love that that you like to pay down debt right that’s a
good thing let’s presume let’s say that you’re
after tax that this mortgage costs you about three percent on an annualized
basis okay and let’s also presume that the general investment account what
would you say would be a great like if you could be if you could go to sleep at
night and say I’m gonna try to earn this much on this account over the next 10 or
20 years because how much longer is left on this mortgage it would mature in 2046
2046 okay so let’s say 30 years how much do you think you’d like to try to earn
over 30 years in the general investment account oh that’s a great question hey
thanks you know I think any anywhere north of five five to five and nine
percent would be great right so let’s even say six percent let’s say that you
got six percent in your general investment account and let’s even knock
it down to after-tax because you’re gonna have to pay some capital gains but
let’s say that we said okay four and a half percent after-tax right so then I’m
comparing a chance to make four and a half maybe five or six percent I’m gonna
call it four to six percent after-tax because who knows let’s call it four to
five you can make four to five percent after-tax for thirty years or you can
guarantee that you’re gonna earn three percent over the next twenty five thirty
years so the math is better putting money into your general investment
account so but that does not actually account
for like the delicious feeling that you have of paying down debt so I know that
how much money is in the general investment account right now roughly two
hundred cash okay and how much is in your old retirement account your current
IRA and your wife’s retirement account so retirement assets total or how much
so in the general investments I’ve got we’ll call it a hundred K in the
rollover IRA I’ve also got 38 K and a Roth IRA and the general brokerage is
about 68 okay all right and then the wife the wife has close to 80 K and her
401 here’s what I would say you know that great feeling you have about paying
off the house I want you to become more enticed by the great feeling that having
a pile of money can provide you and yeah right okay so here’s the way to maybe
rationalize it because if you’re if you’re a smart guy and you sound like a
smart guy you might say okay wait a minute four and a half percent versus
three percent you know it might add up to a bunch of money over the next thirty
years but I take risk to get the four and a half percent and there’s no risk
to get the three percent so that’s that is one argument but then I will put back
to you the risk you have is that you are now paying down alone and you’ve lost
the liquidity you don’t have the money so if you were to have stopped talking
about kids and finally do something about it
you might like to have a hundred two hundred thousand dollars sitting in
liquid assets not a paid down mortgage because it’s a lot harder to figure out
how to extract money from your house later once you’ve paid that down so I
think you’re young you guys probably have lots of different twists and turns
and your careers and your lives I think that the access to liquidity should be
more important to you than the good vibe of paying down your mortgage and that
and yes and I do think it will happen to be a better it should be at least a
better long-term vehicle in terms of how – you know compare assets over time
right so like that to me is the best way to think about it if you desperate and
you really really have to pay down a three point six two five percent
mortgage you say to yourself but wait once I do that I lose the money and if I
put it in this general in brokerage account
I’ll have that money and if you choose you don’t have to pay this till the year
2046 maybe you have kids and the kids are great and you don’t need the money
and maybe in 15 years you say oh now I just want to pay this down okay that’s
fine but you don’t have enough liquidity at this moment to be in a position to
choose that okay we’ll get back to more of your questions in just a minute
during the break here’s something you can do why don’t you subscribe to our
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back do I invest here should I put my money
there Jill Schlesinger can help you back to Jill on money your back it’s Jill on
money if you’ve got a financial question we love to hear from you so all you have
to do is email us ask Jill at Jill on money.com or if you go to our website
Jill on money.com you can click the beautiful contact us button marc has
done a phenomenal job of the website Marc we must post a picture with me
holding your child I demand that I think I even want them on the website I’m not
sure but I’m pretty sure I do okay let’s get through some emails I know you
guys have been very patient in waiting for these responses so I appreciate that
we’ve been a little bit crunched in the second quarter they built up so we’re
trying to get through them dad Jerry writes about an article that I had
written for Tribune about financial plan for kids were graduating college so
Jerry Rice says look I think when leaving school the bottom line is
colleges very rarely help kids get a job I have three kids all professionals not
one college ass we go state Drexel Queens College help that kids get a job
my youngest is a registered dietitian he’s home not working not only did he
get a BS from Queens in order to sit for the certification test you have to
complete an internship internships can cost 10 to 18 grand and that’s if you’re
lucky enough to get one my son did not get one in the first year so it worked
on graduate classes but during the internship by the way you’re not allowed
to work anyway so he’s hoping that anyway it would be nice if the interest
on student loans was lower but since my son does not have a job as a certified
registered dietitian I’m paying the loans how do you have so many loans if
you went to Queens College mark how much does Queens College cost if you live in
New York I don’t know I’m just wondering anyway other two kids are working in
their fields CPA and advertising took a few years to get going here all the time
about the market doing well I see nothing but
empty stores and kids looking for work so again planning is great but you don’t
have to have money coming you need to have money coming in schools should do a
better job helping kids when they graduate okay I got you
message received and the kids themselves got a hustle right I mean you cannot
possibly expect that anyone is gonna work harder for you then you will work
for yourself so I think that’s another piece of this
right okay Lisa writes I’m a fan of the show and I’ve learned so much from you I
love hearing you take calls from listeners and asking all the pertinent
questions and coming up with a plan I wish to be one of those lucky listeners
I’m 60 years old I’ve been divorced for seven years man she got divorced when
she was 53 hmm anyway she was financially illiterate regarding
investing in retirement until a couple of years ago when I realized I needed to
wake up learn and take control of my financial future whoo-hoo I have a
decision that I wasn’t expecting to have to make for another few years I’d love
your thoughts on it as part of my divorce I received a
Quadro split from my husband’s pension a Quadro everyone else listening is a
qualified domestic relations order it happens when you get divorced it’s how
they split up assets retirement assets okay I didn’t work while raising my
three kids so I only had a tiny pension from a former employer I’ve now been
working for about ten years I have another small pension that I will get
from my current employer I hope to continue into my position until 68 or 70
if at all possible because my ex-husband was laid off from his employer last year
he decided to commence his pension early in 2019 his plan requires that the
alternative payee that’s me commence at the same time now
I must decide whether to take a lump sum or the monthly annuity retro actively to
22 to February 2019 I have reviewed this with a fee-only
financial advisor he ran the numbers for me the outcome is better with a lump sum
assuming a four to five percent return over my portfolio over the years but as
he said some people just prefer the certainty of an annuity I’ve gone back
and forth in my head for weeks now I’m leaning towards the lump sum because it
does look better on paper but I’m generally insecure so I haven’t been
able to reach a decision yet luckily I have a couple of months still to decide
I need I know you Knight might need more information than this I’d be happy to
gather and provide it to you I’d appreciate your thoughts thank you for
the wonderful podcast Lisa ok the outcome is better with a lump sum
assuming a 4 to 5 percent return uh how much better that that’s what I would go
I would go back to the fee only financial planner and say well you know
am i comparing this like well if I had if I got 4% or and and Mace you know 5%
would be a stretch let’s just say I got 4 or 5% what would I be getting what’s
the the the return that I would be getting by taking the annuity payment I
don’t mind the certainty of the annuity payment myself I’m just wondering what
the differential is cuz if the differential is not too big I would take
the certainty for someone like you because it’s nice to have cash flow and
you never know what’s gonna happen in the future so you’re 60 and you want to
work for 8 you know 10 more years that’s great but maybe you would want to have
the the ability to have a consistent income I need a little more information
so ask the guy to provide you with that information okay uh time ok got dick
writes I’ve got a I’ve got I’m a retired firefighter I’ve got a great pension hmm
no Bev you deserve it at age 79 I’ve got a small portfolio 22 grand I want to
find someone knowledgeable to tell me I’m doing a good job or what were you
thinking I realize it’ll cost something I don’t
need someone to manage my portfolio just to let me know if I’m going in the right
direction where do I find someone who will help me you don’t need someone to
help you send us your send us your portfolio Richard how about that give me
a screenshot of the portfolio and we’ll let you know and the price is much
better free ok quite quick question from glen i’ve
heard you suggest a couple times recently to turn on auto rebalancing how
do I do that is it a feature of Vanguard fidelity Schwab yeah it usually is
they’ll allow you to automatically if you put a pearl Etsy you put in an
allocation 50 stock 50 bond you can say four times a year automatically make
sure I’m 50/50 you know you might get out of whack because the stock market
goes crazy or the stock market tanks so you can turn those features on and they
are usually very very much available at the big places okay not at Vanguard so
at Vanguard mark says you have to do it yourself
and mostly they’re actually I should say that they are mostly available with
retirement plans but you know if you don’t want to do if you want to do auto
rebalancing the other thing you can do is use a Robo advisor they’ll auto
rebalance for you I want to try that out okay you’re listening to Jill on money
now when you go to the break why don’t you go to the website Jill on money comm
and you can bookmark it you read all the articles that we write and you can check
out our resource section which we’re always trying to beef up so if you’ve
found a great resource for your financial life send it to us we’ll edit
our resource section okay Jill on money we’ll be right back 401ks IRAs refinancing she covers it all
back to Jill on money with Jill Schlesinger your back it’s Jill on money
if you’ve got a financial question we’d love to hear from you the email address
is ask Jill at Jill on money.com this is from Linda
she’s turning 72 and she says she’s been financially independent since her 20s
she’s got no debt paid off the mortgage some money in an IRA and thrift savings
income from Social Security and a pension I consider myself neither rich
nor poor but I am concerned about where my money is invested and how to make it
last through my remaining years with enough to spend on small pleasures I
always depended on an advice from the quote financial guy who represented the
company that my employer chose to handle my IRA or TSA now I need but better or
maybe more customized advice then you’re doing fine so question how do I find a
good financial planner for my situation is there some particular reading
material you would recommend for someone like me I enjoy your presentations on
CBS television your honesty and matter-of-fact style
what’s a giant matter-of-fact okay Linda first thing you can do is go to our
resource section at Jalan money.com and click on the the the questions you need
to ask before you engage a financial adviser now the next thing you could do
is from there we have a link to the naphtha web site naphtha is the National
Association of personal financial advisor this is a financial advisors and
the reason why I really like this particular organization is that it does
allow you to essentially find someone who is a fee-only advisor and so when
you go through again it’s the Jill on money comm click on the resource tab and
at the the article title is need an advisor
here’s 13 questions to ask so you can go down and look at this and we have lots
of different things and there it is the National Association of personal
financial advisors you can click on that link so check it out and that way I
think you’ll be able to hopefully find someone who can help you out okay next
Ron is two years from retirement anything I can do to reduce the
financial planners fees can I manage the funds myself yes you can
he’s getting charged one and a half percent it’d be nice if I didn’t have to
pay those fees and would and and add the one and a half percent to my bottom line
yeah Ron you can self-manage in fact just talking about that article I I just
cited on our website one of the things that I asked in the question is do I
need to hire someone to help me out with my money you know what you can do this
you absolutely can do it or maybe you want to use a robo or an online platform
instead of doing it just yourself check it out again this is a I think it’s a
great if you got to have the right discipline to do this but boy it is a
great way to save some money for yourself okay Suzanne right I read your
column today as usual but my question wasn’t covered I’m sorry I have small
savings in a 401k it’s worth $32,000 it seems to be losing money every day I
wondered if I should take all of it out and put it into my credit union where it
will earn interest Suzanne I send me what this portfolio is and I wonder if
it’s all in stocks or I wonder if it’s now come back since this isn’t an old
email and I wonder if you have a different question now that the markets
roared back Jeannette writes she’s almost 80 I worry about my savings being
invested in the stock market might only be a few years till they need to move to
assisted living my allocation is 350 grand in the stock market dish and 150
grand in an IRA 200 grand in an individual account two hundred thousand
dollars in cash and Oh which I own outright estimated
value 240 grand income net per month 4 grand I have a long-term care policy no
debt I’m single with no dependents well let me tell you this the 150 that’s in
the IRA you can certainly move that around the stock market you know because
I don’t want you to have any big huge tax losses our gains now the the 200,000
in an individual account I would be very interested to learn see if you move the
hundred and fifty grand into just you know bonds or income producing stuff
then you’d have 150 in fixed income 200 in cash 200 in stocks so essentially 350
safe 200 at risk I’d have to look at what’s in that individual account to
give you better advice about that but I don’t think that if you’re going to need
start needing some of this money you probably are gonna want to pull back the
allocation a little bit less risk but it does sound like you’re in pretty darn
good shape so let’s get that going here’s another question about a choosing
a financial advisor this is a guy who got burned and he says here are the
rules that I tell others to ask must be an SCC registered investment advisor not
FINRA FINRA means nothing so I don’t know I don’t even know if SCC registered
investment advisor means anything but you should do it independent of a
financial institution fee only not fee based fee based means that they’re going
to take 12 B 1 sales commissions I will not accept any MA any well all right so
it doesn’t it if you’re gonna use a fee I think you can use a fee based it just
means that like you have to know what they’re taking if it’s fee based they
shouldn’t be taking Commission’s fee based should mean that they are
essentially not taking that commission I’m gonna get more questions about this
because I see that that article generated a lot of excitement
this is Jill on money it’s the program that takes the mystery out of your
financial life I’m trying to help you out gang we want you to get some control
over your financial life one of the ways you can do that is
to our website Jalan money.com and go ahead and watch some of my past
performances on CBS network try that tell me what you think of my hair just
kidding don’t tell me that I have a mother Jilla and money we’ll be right
back it’s Jill on money we are broadcasting
live from the Capital One studios and before we finish up the hour let’s do an
email or two Michael 63 does not have a 401k he’s got a savings account with
$125,000 in it he plans to retire in three years at age
66 he will receive a pension of $2,800 a month house is paid for no credit cards
what can I put some money into to get some interest for a few years I’m
married my wife is undisciplined dollars in it thanks Mike Mike I don’t know if
you really want a lot of risk with this you just don’t have a ton of money if
anything maybe the her 401k I would be use that as more of your longer term
investing for the hundred twenty-five maybe I would just go to deposit
accounts com see if you can get into some higher yielding money market or
perhaps a seed CD something like that I would try that out okay uh okay Carol is
64 years old she watches me on CBS 3 in Philadelphia loves the good advice
anyway she wants to know someone in the Philadelphia area for financial planning
hmm I don’t think about that mark do we know anyone in Philadelphia I’ll find
somebody let me find someone for you we’ll let you know okay
John has a required minimum distribution question age 72 I’m still employed and
contributing to my 401k that’s great he recently retired has to take his
first required minimum distribution this year does a withdrawal now qualify as an
RM d or must I wait until June yeah you have to wait till you’re fully
retired for it to count as an RM D and I would wait I would wait as long as I
could write till the end of the calendar year so I wouldn’t rush that there’s no
reason you should you want to kind of delay delay delay mark I’m plowing
through how am i doing not bad almost done with this big thing
here okay anyway we will be back with a whole second hour during the break you
can go to jail on money.com or maybe you’re sending your kids off to college
or you’re thinking about high school kids who are looking at colleges
checkout money – mentor.com money – mentor.com this is
a great resource for people who are applying for college and helps them get
financial aid so check it out all right Jill add money we’ll be right back it’s the weekend and that can only mean
one thing you’re listening to Jill on money the
show that takes the mystery out of your finances here’s your host Jill
Schlesinger welcome welcome it is our number two here in the dog days of
summer in August Phil on money we are broadcasting live from the policy genius
studios policy genius is the easy way to compare and buy insurance go to policy
genius comm last couple of weeks we’ve been using the second hour the program
to catch up on emails so hopefully you will indulge me and I will read with
great inflection to keep you interested in the program mark this is what you
should be reading these yeah remember when are you gonna stew some work yeah
we’re gonna get marks son to get let’s get him the let’s send him to a sort of
crawl walk talk we’ll see I’d like that get his voice on here okay Maryana
writes enjoyed your article on the benefits of Roth 401k contributions for
future planning people tend to address immediate tax needs and not focus on the
future and then she says you know keep talking she wants to talk about the
backdoor Roth which we do so thank you for that and we will continue to do that
here’s a question from Darcy I’m divorced got two kids age 18 and 19 I’m
about to turn 50 I went through I used an allocation tool from TD Ameritrade
z– website I should mention TD Ameritrade more often also they’re good
to rebalance my IRA and I’ve been too heavy on stock funds one reason I don’t
really understand bond funds I don’t know if I should have one and check the
box on a bond fund I need a mix of bond funds look you’re
50 years old Darcy and if you want to learn something about
bond funds I’m happy to talk to you about that and explains you how bonds
work but the general idea about using bonds bonds are IOUs you lend money to a
company you can lend money to the government you can lend money to a
municipality and the deal is you lend the money to the company and they pay
you interest at a certain stated interest rate and bond yields are fixed
that coupon that they pay that is fixed but the value of the bond can go up and
down based on the general direction of the bond market so I can’t go into an
entire bond explainer hey mark was it did we have the bond guy I remember him
Jason Justin something the bond king we could send her let’s send her a link to
that episode so she can learn a little bit about bonds I think she’d like that
that’d be good okay William or known as Bill just read my book the smart the
dumb thing smart people do with their money and I am struggling with some
retirement issues married I turned 65 this summer my wife is turning 65 next
year I’ve got three annuity or lump sum distribution options from prior
employers and he’s got different opportunities one is so one is it lump
sum and then the other is do I take a joint and survivor benefit meaning that
you take a certain amount of money which I and then you die then a hundred
percent that exact same benefit goes to your wife here is the thing I don’t know
anything else about your retirement picture I would need more information so
what I will say to you is this if you’d like to talk to us I would love to be
able to help you out but I can’t do this without a lot more information so bill
please please please follow up and we can chat if not you should seek the
advice of a fee-only planner who can help you make these choices because they
are not easy to make again without running through a lot of
other financial information okay Suzanne wants to know health insurance
savings account tax benefit okay so I don’t know if you mean what you can put
in there’s all sorts of rules on the HSAs hold on
do I have my HS I have it oh thank God for my hard copies here okay I’m 2019
let’s just see if Suzanne I don’t know if you’re married or let’s say that
you’re single for the heck of it so remember health savings accounts
here’s what you have to do you have to be enrolled in a high deductible health
plan to contribute you cannot have other health insurance that’s not a high
deductible health plan you cannot be enrolled in Medicare or TRICARE you
cannot have received care from the Veterans Administration within the last
three months you cannot be eligible to be claimed as a dependent on someone
else’s tax returns okay now if you are your your minimum deductible in 2019 it
would be $1,350 your HSA contribution limit for yourself if you’re under the
age of 55 3500 if you’re over the age of 55 4500 and these numbers do get
increased by about usually about 50 bucks or a hundred bucks per year just
depending on the rate of inflation so and if you if I miss that if I’m missing
something in what you’re asking follow up with me I would love to have it down
in HSA segments and guests maybe we should have that I said I’m interested
Stan writes love your show and love your book I’m a fan I’m wondering what is
your take on the money market mutual fund money market all my holdings are
basically with various products infidelity I can see them from one place
so that’s good I like that I like ease $90,000 emergency fund is in
a traditional savings account but I’ve been debating whether or not to move it
into fidelity thing is fidelity it’s a money more
a mutual fund the rate is competitive with my savings I’m not sure I should be
trusted trusting with the money as I am with the traditional savings Stan I
think it’s fine let me just say one thing if you are going to have to
maintain a savings account of some sort what I would suggest is you just keep
enough in that account to get all the free benefits a lot of people still need
savings accounts because maybe they’ve got their retirement checks go in there
or Social Security checks so I don’t see any downside it’s you know there’s money
market accounts were at risk a little bit when we were in the financial crisis
I don’t think that’s gonna happen so I feel fine Clara is say the subject
is disparities for the most part my husband and I were brought up the same
way but the few disparities that we operate on we are on the opposite ends
of the totem pole as a wife what can I do and combat my husband’s in capable
combat my husband’s inability to handle money the right way don’t let him touch
it I don’t know that’s such a hard one and is he willing to be coached is he
willing to go to a third party as an impartial third party that might be good
I would be interested in that could you get him to sit down with a financial
planner could you get him to sit down with an accountant or an attorney that
might be helpful I would try that out and maybe if you have a problem maybe we
should do a conference call with him or get him on the air let’s try that I’m
going crazy here I mean mark I’ve almost knocked all these out so you should be
very happy with me okay you’re listening to Jill on money and we are digging out
of our heaps and heaps of emails it’s not because we don’t love you we do and
we are so grateful that you send us these questions
it’s just that schedules and travel and booking guests always gets a little bit
nutty okay now if you’d like to get in touch with us ask Jill at Jill on
money.com when we return more of your questions
we’ll be right back follow Jill on Twitter and Instagram for
more personal finance content just use the handle at Jill on money now back to
the show you are back it’s Jill on money if you’ve got a financial question we’d
love to hear from you ask Jill at Jill on money calm don’t forget throughout
the week always use Jill on money.com or website
that will allow you to find great stuff you can read columns that I’ve written a
lot of the emails that I’m answering right now are from columns that I write
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if your gonna get something for free you know I’m gonna make you pay for
something else that would be the book you can buy our book the dumb things
smart people do with their money thirteen ways to write your financial
wrongs okay Linda writes that she doesn’t have a
will because is an online will sufficient I’ve never been married I’ve
got no children I know who I want to receive whatever I’ve left upon my
demise I got one quote two grand that’s a lot of money I’m 64 I own a small
small condo in Florida probably worth somewhere around thirty thousand dollars
and thank you for any advice I mean yes of course you could do that in if you
have any accounts and you know where they want to go you can maybe put you
know there’s sometimes you can put a transfer on death assignment on an
account generally speaking people know I’m very much interested in you going to
see an estate attorney but you’re right if it’s very uncomplicated it’s probably
not the worst thing in the world I will say this you you also have to make a
determination about who would you name who is going to take care of any health
care decisions on your behalf and a durable power of attorney so just
make sure you know who you want to name as an executor and all these other
pieces so hopefully that helps Linda okay Lou writes I’ve got an
employee stock purchase plan I can purchase quarterly amounts of my company
stock at a 15% discount from current from the current stock market price I’m
allowed to sell it later there’s usually a holding period he thinks it’s three to
six months should I do this am I taxed on the gain yes you’re taxed
on the gain I believe yes you are I mean I don’t know I’m not a huge fan of this
because I want to know first I want to know everything else that is going on in
your life if this is just fun money no problem
but if this is you’re doing this in lieu of doing something else that’s important
in your financial life I’m less inclined to be a big fan of it so I need to know
a little bit more information okay Jim listens to the show on wben in Buffalo
which is awesome okay sadly my mother passed away in May she has assets that
are to be split 50-50 between me and my sister I’m 68 years old I work full-time
at SUNY Buffalo I plan to retire at age 70
I have $120,000 in a traditional IRA $100,000 in a Roth $10,000 in a money
market another 280 let’s say 380 let’s say another 420 thousand dollars in
retirement assets everything’s invested in mutual funds
they performs well and I plan to max up my contribution to my Roth IRA I own my
home free and clear gets his Social Security’s will be twenty five hundred
bucks a month when he retires okay my sister and I own mom’s house she had a
life estate we’ve now planned to sell the house we each have 50% ownership I
expect the sale to be about a hundred sixty thousand which means I would have
$80,000 coming in this year it’s not taxable right yes that no it’s not
taxable it should not be unless wait a second you owned your mother’s house
yeah I don’t know if you have you might have a tax due on the sale if
you and your sister owned the house and mom had a life estate so you want to
check that mom also had a couple hundred thousand dollars in a fidelity account
and some cash she’s owed some money in taxes my question and she oh and mom has
a non-qualified annuity worth 150 grand wants to know should I take a lump sum
payment now or on the fifth anniversary of mom’s death take distributions at any
time or roll into a new annuity I would say 5 annual distributions that’s what I
would do for that annuity and it’s not that big a deal I like a 5 year I I
think the five year distribution could be good and on the other question is
about retirement accounts and rollover accounts I think that I think they tell
you what I think you might want to get some advice on all of these things
because I mean mostly if you have retirement accounts from your mother you
can treat it as a inherited IRA and there may be some there’s some different
rules about that right but and if in in most cases I think it’s good to be
looking at those and keeping them as tax deferred as long as you can but you will
pay tax on them when the money comes out at your tax bracket at the time you take
them out III guess that the other thing is that
when you retire and you start taking your own minimum required distributions
I wonder what your tax brackets gonna be I think you need a financial planner I
do I’m not this is not for everybody but I do think that I think you may want to
get some help on this there’s a lot of balls in the air and there there’s
probably some tax planning to do so I think that’s what I would suggest
you can go to naphtha NAPFA org or go to let’s make a plan org here is Murray who
says you state that annuities have large fees deferred annuities do not have fees
but have surrender charges which go away after a period of time well I believe
fees are attached to variable annuities the distinction should be made if I’m
incorrect let me know well you are incorrect because a deferred annuity can
have fees also and a surrender period some not all have them so their deferred
annuities that are their deferred variable annuities and even deferred
income annuities if you have an immediate annuity chances are you don’t
necessarily have the fees but they’re always fees built into all of these
things so that’s what I would say oh this is a good question let’s see how
much time do I have two minutes okay I’ve got a two minute question for you
mark you ready for this Victor writes I have $5,000 in cash I’m
27 I have no debt I want to find ways to invest that money thanks for taking the
time Victor do you have you have no debt you have an emergency reserve fund in
other words do you have at least six months of your living expenses in a safe
place is that if that’s the case if you do have an emergency reserve fund you’ve
got five grand and you’re 27 I would love it if you
could maybe put some of that money into a Roth IRA and you could invest it in
you know a target date fund a cheap index fund maybe two index funds take
you know four thousand and put it in a stock index fund a thousand and a bond
index fund that might be about it I wouldn’t go much crazier than that but
if you don’t have an emergency reserve fund something that’s safe and boring
you really shouldn’t be investing this is part of my big three as I like to
call them pay down debt established emergency reserve
and maximize retirement it’s boring but it works and it’ll keep you out of
trouble more to the point so that’s also a side benefit of that okay mark from
that big pile of emails you sent me guess how many I’ve left I have just one
so you have to send me a couple more for the next segment all right you’re
listening to the Jill on Money program and it is you know it’s that time of
year taking those kids back to college going on some college tours go check out
money – mentor.com you’ll get a trained college student for
your high school or college student who will help make the process of applying
for college and getting financial aid a lot easier so check it out money –
mentor com this is Jill on money and we will be right back do I invest here
should I put my money there Jill Schlesinger can help you back – Jill on
money you are back it’s Jill on money and I got a great bunch of emails for
this segment let’s start with Bill who I really think is in good shape
he’s worried he says I’m worried about retiring I’m not sure if I’m okay so
without reading you all of the numbers I did some math for you during the break
cuz that’s kind of gal I am know what I mean okay so here’s what he’s got he’s
got 1.3 million dollars in non retirement assets and 300,000 in
retirement assets so let’s just so 1.3 is what I want you guys to remember he’s
got a bunch of houses he’s got some income okay
and he said at 60 he so it’s funny he said I’m nervous about not working I do
enjoy it but I need to slow down so at age 67 he got $2,400 a month could
get more at age 70 and his wife gets some money for Social Security I wanted
to look at what would happen if he would retire at age 67 just to prove a point
here and when I add up all his income oh by the way he makes 175 grand a year
right now the one thing he doesn’t say is how much money he needs but I’m gonna
just give it a guess you know if he makes 175 maybe he needs a hundred or a
hundred hundred and twenty let’s say 120 thousand a year ten thousand dollars a
month and when I add up all his income even if you were retired 67 his full
retirement age he gets eighty five hundred dollars a month you know it’s
taxable I get it he needs ten thousand dollars a month so
he needs let’s just say he needs about $2,000 a month to bridge the gap at age
67 well did you hear me say about the 1.3 million dollars that’s in the
portfolio even I’m just gonna even leave the I’m leaving the retirement account
out of it just the the money that’s in the non retirement account 1.3 million
dollars let’s just say he took 2% of that out a year he’s done he covers his
needs all right so what the cool thing is is that Bill you shouldn’t be worried
about retiring at age 67 maybe slowing down a little bit you got plenty of
money the one thing that I would say is you you you mentioned that you’ve got a
bunch of money in cash you got an IRA with Vanguard and then you say you got a
small you got some money in stock bonds about I have more than a half a million
dollars with a big investment firm that’s not advising you so I’d get that
out of that firm and put it all together with Vanguard because there’s no reason
that you should pay for this if you are not actually getting anything of value
um I don’t want you to worry you seem like you’re in great shape if I’ve
misread your situation I let me know but I think
you’re okay all right it’s not exciting it’s a good one okay more questions oh
this is someone I met at the world domination summit the beginning of the
summer and this is someone who said I need some advice Kelly need some advice
about life insurance I’ve spoken to two financial advisors
they’re both trying to sell me different life insurance plans the kicker is they
both are saying oh I don’t trust that other one markets herself as a financial
girlfriend super friendly the other gets top marks for being organized creating a
detailed plan any recommendations about what you could do and recommend an
advisor for me I’m looking for someone who I can meet virtually and understand
the goals of soon being a digital nomad hey Kelly I would love to know more
about you and I want to know what the different plans are that they are
suggesting of course I can get you an advisor that’s easy for me to do but I’d
love to know more about you and what your needs are and so if you could
follow up this email with a little bit more information and tell me the
difference between the two plans that are being recommended okay
Scott writes my wife and I are hoping to retire in the next couple of years and
we want to know do we have enough money saved they own their house new car it’s
gonna be paid off you know within six months alright here’s what they have
retirement accounts looked like one two three three hundred fifty grand money
markets and cash forty six grand he’s gets a pension and maxing out the
retirement account ah guess what’s missing here mark how much
you need Scott how much money do you need what do you spend every year so
darn it I need to know also he’s retired military’s got a pension sixty
and a year and a VA pension of 14 grand a year so that’s good that’s cash flow
right there baby seventy five seventy four thousand dollars a year if that can
cover your needs if you if your pension and your va payout that’s seventy four
thousand dollars a year can cover your basic needs then yeah you’re fine
everything else is gravy but if you need a lot more than that we might have some
work to do oh this is the worst email mark how could I end the segment with
this you are such a bad person he’s making me ended on it all right Tim Tim
subject is best for my son my son has been incarcerated for five
years he’s got a 30-year sentence he’s 27
he has four thousand dollars in the bank what is the best way to invest the money
so we will have some money built up when he is released I mean I guess that we’re
investing for 27 years is there any reason he would need the money before
them can you get I mean don’t you have a certain amount of money that can go into
like an account if you’re in prison I think you can I guess that I would do is
I would try to invest the money for the long term so you could you know maybe
just put the money in a you know Vanguard of fidelity or one of those
accounts TD Ameritrade any of those places and put it in a portfolio that is
balanced / tilted towards growth that’s a first mark as opposed to the strange
letters I get from inmates which come to CBS news all right
you’re listening to Jill on money if you’ve got a financial question hop onto
our website Jill on money.com try to find the answer there or just send us an e
mail ask Jill at Jill on money.com we’ll be right back back to Jill on money
where Jill Schlesinger helps you take the mystery out of your finances your
back it’s Jill on money and this is the program that takes the mystery out of
your financial idea here’s what happened the first few months of the year we got
busy and we attacked all of the emails and we just it was so great and then by
the end of the second quarter I was traveling a lot to do the book
stuff and Mark had to have a baby and we got behind so if you’ve sent us an email
and we haven’t gotten back to you yet I apologize we’re gonna use some of the
next I don’t know couple months we’ll catch up the best we can
so please be patient if you send us an email with your question ask Jill at
Jill on money.com we will we’ll rock and roll we’re really gonna try to get
through these by the way if you do want to buy the book you can just go to our
website Jill on money.com and the book is called the dumb thing smart people do
with their money thirteen ways to write your financial wrongs okay let us get to
you here’s a note from Dell who is 60 it says we both are 60 saved money and our
IRA 401k just under a million and a half bucks we hope to retire in a couple of
years our plan is to upgrade our RV and truck sell our home and travel for as
long as our health allows current RV way too old we plan to take a six-month
trial trip six-month trial trip oh my god to make sure we like it if we do
will sell our house if not we’ll sell the RV okay we’re hoping to get health
insurance through the marketplace until Medicare kicks in we’ll have $100,000 in
cash safe now we can use $100,000 to buy the RV and truck or finance them and use
cash to live on until six until age 65 if we finance to start as soon as we
sell our house we’d pay the RV loan if we pay cash will have to
take enough out of the retirement funds are we wrong to take out an RV and truck
loan no you got to definitely take out a loan
absolutely take out a loan because otherwise you are you’re gonna be in
trouble because you need that money okay so take out a loan get your bill do it
build in a little flexibility and go from there okay Carl writes about four
years ago my wife and I opened a small account with Vanguard in an energy
sector fund the idea was to provide our grandkids with a little inheritance upon
our demise we’re in our early 80s we figure we have 10 15 years 10 15 years
man you are that is an optimistic dude I’m sort of thinking 85s a good target
for me anyway in the years that we’ve held the fun
it’s been stagnant at best at this writing it’s losing a few thousand
dollars my question should I switch to an aggressive growth fund with this
company I do the same with a different company or a more appropriate a vehicle
listen if you’re investing for your grandkids I would say that the best idea
is you’re at Vanguard take your loss and if you’ve got other gains somewhere else
in your life then for sure use those gains Carl and then you know just wash
it out but just put the money in an sp500 fund that’s it you’re at Vanguard
or you they have an extended index on whatever index fund is open to you
that’s what I would do okay all right here is a note from Andy who says I
respectfully disagree with okay this is because I I did a housing segment on CBS
this morning and I said listen if you don’t get a
bite after three to four weeks you should drop the price so he says I
respectfully disagree with your advice to drop prices after three to four weeks
without any action the buyer has changed buyers who came here from other
countries knew the game better than we did they will wait you out until you
drop it they’re much more patient let’s say this has worked well for me and a
few friends who’ve sold in the last couple years we stood by our price for
several months it paid off I think Realtors need to rethink the listing
pricing game I’m just my thoughts all right
not my thought I don’t believe that I believe that if you want to first of all
many people can’t afford to hold the property for that long but more
importantly there’s a cost of holding that and what you could be doing with
the money otherwise that’s opportunity costs so hmm
anyway mark did you see this one about the the specific type of financial
planner this person wants all right so this is someone from Rochester who does
not want to work with anyone local would like to know of a specific type of
financial planner in New York and okay Wendy no problem so you know what this
is a crazy situation Wow complicated mark send her send her a couple of names
of people in New York City who we know the one that you know and the other one
on the Upper West Side yeah so send both of those names all right
so let’s do that this is a very very it is just very complicated situation so
when you have a complicated situation you you send her to people who really
understand those things all right um one minute hope is 60 years old she
wants to take Social Security early at 62 her husband will take his Social
Security at 70 he’s 68 her Social Security 800 a month his will be 25
hundred a month we’ve held off taking his to gain that in that increase we
have five years remaining on our mortgage I’ve heard other other options
for us and taking up taking our Social Security regarding taking half of mine
are there other options for us to consider yeah hope there’s many other
options that you should consider first of all I don’t see why I I guess that
the question is are you gonna take yours at 62 and then when he files take half
of his I think that’s what you’re planning on doing I’m going to go play
with these numbers on the Social Security website see what the you know
because they actually have improved this so I would check that
out but there are a few other permutations to consider ssa.gov go look
at it see what the different options are for you that might help okay it’s jill
on money hey during the break why don’t you go
subscribe to our sister podcast it’s called jill on money get it on Apple
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we’ll be right back you’re back it’s Jill on money and we are
broadcasting live from the policy genius studios policy genius is the easy way to
compare and buy insurance all you have to do is go to policy genius calm okay
he this is a question from Linda who says that my husband submitted his
pension paperwork in October of 2018 he retired in December of 2018 as of the
beginning of June he’s still getting the runaround from his pension company how
long is one expected to wait for the pension we’ve got to use our savings to
live on theirs is there anything we should do tells me where the pension is
through which I won’t name I would do a couple of things one is I would
definitely try to be the squeaky wheel number two I would you know see you call
a pension company but I would also call your employer for your husband’s former
employer and if your husband is part of a union and that’s why he was entitled
to this pension I’d get the Union involved immediately that that is what
union reps do I think that that truly is like one of the best things they can do
is like advocate for you especially throughout a bureaucratic process so
give that a try and hopefully that will work goofin I don’t know I mean I don’t
know if there’s some reason they’re gonna maybe they’re saying you you
didn’t submit certain paperwork but find out and and get nasty a little bit a
little bit okay Gregg 57 years old and he’s got three hundred ten grand for in
an old 401 okay he works full time with another
company’s got a mortgage balance of $179,000 should I take the money out of
my 401k to pay off my mortgage balance no his fear is the markets gonna tank
down the road okay if it does then you know what that’s not a reason that you
want your you don’t want your money tied up and paying down the mortgage what I
think you’re saying is you probably want to make the more the allocation of this
retirement account less risky okay so how about that what about you just
changing the risk in your retirement account and you should probably if the
new plan is a good one I would just roll that for that three hundred ten thousand
dollars over do not use that money to pay off the mortgage you will want the
liquidity I promise okay thank you so much for listening been a great show by
the way don’t forget any old time just go to jail on money.com you can sign up
for the free weekly newsletter and you can buy my book the dumb thing smart
people do with their money thirteen ways to write your financial wrongs I’ll talk
to you next week thanks for listening

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