Getting out early
Email your personal-
By Suze Orman
finance questions to:
“Suze Orman Q&A”
in the subject line; or fax to
(425) 313-6718; or mail to
Q&A with Suze Orman
The Costco Connection
P.O. Box 34088
Seattle, WA 98124-1088.
I have the opportunity to retire at 59. I could
get a lump sum of $315,000 or get $1,950
per month. We owe $160,000 on our house.
Its value is $290,000 and is appreciating.
Our credit card debt is $85,000. My husband makes $30,000 per year. I make around
$100,000 at present. If I go part time with
a lesser salary I will probably make around
$35,000 to $40,000 per year.
your financial needs and help you make an informed
decision that not only works for you today, but also
provides security throughout your life.
Suze will answer
selected questions in
this bimonthly column.
She regrets that
cannot be answered
YOU ARE TALKING about retiring at 59 when you
have $85,000 in credit card debt and the house isn’t
paid off? I don’t think so. There is to be no discussion of retirement until you address that debt.
Whether you retire now or not, I want you to
understand your pension options. If you take the
lump sum, your best move is to roll it over into an
IRA. That way you avoid an immediate tax on the
A good rule of thumb is to plan that in retirement you limit your withdrawals in the first year to
just 4 percent of your total savings. If you withdraw
more than that you run the risk of running out of
money if you in fact have a long life. (You then
adjust your withdrawal rate for inflation each year.)
So in your case, while $315,000 sounds like a lot, it
in fact computes to just $12,000 or so of income a
year. That $1,000 a month is a lot less than the
But based on what you are telling me, that
$1,950 payout is only if you choose that the payments be made during your lifetime. I have to tell
you that in most instances my advice is for couples
to opt for what is called a “joint and survivor”
With this arrangement, your husband would
continue to get the payout if you were to die first.
The payouts will be lower if you opt for joint and
survivor because your employer is agreeing to
make the payments for a longer period. But the
lower payment today, paid over both your lives,
provides incredible peace of mind.
Ask your employer to show you the payout
estimates for joint and survivor. Typically you will
be able to choose between a payout that would
give your husband 100, 75 or 50 percent of your
payout. The higher the percent, the lower the
monthly payout. But please be smart and choose
the option that makes sense for your situation.
If you are worried about his security if he were
to survive you, the 100 percent option may be wisest. This is where a trusted financial adviser is so
important. You really want someone to consider all
f p u l b e p e e l . u lower payment today, paid over both your lives, ov l u w o a to survive you, the 100 percent option may be wis-
My credit was shot. It is slowly creeping back
up. I applied for a credit card and was approved. My plan is to use the card with a low
limit to pay off monthly recurring expenses,
such as cell phone, storage, etc.
My question is, should I pay off the entire
balance every month or should I leave a small
balance remaining to pay off the next month?
Will paying off the entire balance help me
establish credit more rapidly or more slowly?
Chula Vista, California
Suze Orman’s TV
show airs Saturday
nights on CNBC. Suze
can be contacted at
BRIAN BOWEN SMI TH
YOU NEVER, EVER want to pay a finance charge.
Using the card to pay for your necessities and paying
it off in full each month is the best way to keep
rebuilding your credit.
Different variables are part of the calculation for
your FICO credit score. Length of credit (longer is
better) accounts for 15 percent of the score. New
credit (if you’ve opened new credit card accounts,
taken out new loans) accounts for 10 percent. Types
of credit (it’s seen as a good thing if you have a mix
of credit: credit cards, mortgage, car loan, etc.)
accounts for 10 percent.
Your track record for paying your bills on time
accounts for 35 percent of your score. The big issue
is whether you pay on time. So your first priority
should always be to pay your bills on time, even if
you can’t pay the entire bill.
But another part of your FICO score is also very
important, where paying it off in full will indeed
help you. FICO calculates your debt-to-credit ratio,
and it accounts for another 30 percent of your credit
score. This is the amount of your unpaid credit card
balances divided by the total amount of available
credit on all credit cards.
So let’s say someone has $1,000 in unpaid balances and total credit limits of $3,000. That puts this
person’s debt-to-credit ratio at 30 percent. There is
no magic percentage that FICO looks for. The rule
is that lower is always better. If you can pay off your
balance each month, that will help keep your ratio
very low. And that, in turn, is a key component of
building a high credit score. C
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