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Celebrity Q&A
Women and money
Women have a dysfunctional relationship with money because they put everyone else's needs before their own.
Celebrity interview

Control your own destiny
 

A specific example of this is a woman who used to work for me as one of my secretaries. She's now retired and lives with her husband. And when I talked with her the other day, she said to me, "Suze, I'm so afraid about my money." And I asked, "What's the matter?" And she then told me, "I'm down $20,000 -- and that's all I have, Suze. That's all we've got."

I went and looked at her portfolio and I'm like, "What are you talking about?" Yes, she was down $20,000 from being up almost 20 percent over the past year. She was still up considerably on the year, but she's just down $20,000 from her high, and she's now emotionally freaked. Emotionally, now she doesn't want to stay in the market anymore. So guess what? She needs to come out.

She needs to come out because she is now afraid, she doesn't feel good, she's thinking about it. So, I said, "Fine, you've made a lot of money, you just want to keep it safe and sound, so let's take it out and put it into individual bonds and let's see what happens." And that made her happy. She can live her life.

Now, she's in a situation where she has enough money. She owns her home outright along with everything, so she's fine. And there's the key. Women feel secure when they own their homes outright.

Men like to have money invested to generate income to pay the mortgage. Women would rather have the mortgage paid off totally. And I am on the side of the women here. They are far better off in retirement owning their own homes outright rather than having money in a retirement account generating the income to pay a mortgage.

But owning a home outright is just part of the total financial equation.

Yes. If women follow the "save yourself" plan that's in my "Women and Money" book, part of my strategy is that women, absolutely, have a savings account and a checking account they can call their own. They need an emergency account, they need money in a retirement account, they need a will, they need a trust and they need the right types of insurance. And in their retirement accounts, or wherever it is that they may be investing, they should be doing so on a dollar-cost-averaging basis as long as they have ten years or longer until they'll need that money.

But once they know that they're in a home that they'll stay in for the rest of their lives -- and they're 40 to 45 years of age and they've just now started saving for retirement -- I would rather see them put less in a retirement account, like a Roth IRA or a 401(k), and more toward paying off their mortgage so that it's fully paid off by the time they retire.

That runs counter to conventional wisdom. Why would you have them pay off the mortgage before maxing out their retirement plan options?

You want me to give you the numbers on why? OK, say you have a $200,000 mortgage. At today's interest rates, that's a payment of $1,200 a month for a 30-year fixed-rate mortgage. After 20 years of paying $1,200 a month, you will still owe approximately $100,000 on that mortgage. Say you're now 65 to 75 years of age and you still have to pay out $1,200 a month for the next 10 years. How much do you need in a retirement account to generate, after taxes, $14,400 a year? You will need approximately $400,000 in a retirement account, let's say your 401(k), earning 5 percent.

Next: "The problem is for a woman, well you're going to ... end up alone."
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Compare Rates
NATIONAL OVERNIGHT AVERAGES
IRA MMA 0.43%
1 yr IRA CD 0.71%
5 yr IRA CD 1.81%
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