■ Mortgage or invest?
■ Retirement strategies
I.O.U. on IRA?
Email your personal-
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.
By Suze Orman
Is there any way I can use money that is
in my traditional IRA to purchase a second
home and not get a big tax hit? Can I borrow money from the IRA and pay it back at
an acceptable rate?
Palm Desert, California
Suze will answer
selected questions in
this bimonthly column.
She regrets that
cannot be answered
YOU CAN’T BORROW from an IRA. And while
there is a special tax break for IRA withdrawals used
for home down payments, you don’t qualify. The
IRS allows first-time home buyers to withdraw as
much as $10,000 from a traditional IRA for a down
payment without having to pay the typical 10 percent penalty on withdrawals made before age 59½.
(Income tax is still owed on an early withdrawal
from a traditional IRA.) The one catch is that the
home being purchased must be a primary residence,
not a vacation home. So you’re out of luck.
And honestly, why are you thinking of raiding
your retirement savings to buy a vacation home?
Unless you have plenty of retirement savings to cover
your expenses, vacation homes are a want. Retirement
income is a need. Don’t raid one for the other.
In the January 2012 issue of The Costco
Connection you write, “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.” My
husband and I are both 75 and still working. Since we are 10 years beyond the 65
retirement age, what is a safe withdrawal
rate for us if this year is our first year of
retirement? Also, we would love to know a
formula for retiring even later than 75.
Suze Orman’s TV
show airs Saturday
nights on CNBC. Suze
can be contacted at
We are 63 years old and do not have children. We have a new 30-year mortgage at
a 4 percent interest rate. We have no credit
card debt. Our pensions and Social Security
checks give us enough to live comfortably.
We have $750,000 in investments and savings. We will be coming into $275,000. My
question is: Should we put this money into
paying down our mortgage, or should we
BRIAN BOWEN SMI TH
NORMALLY I TELL people to aim to have their
mortgage paid off before they retire, in large part
because I don’t want retirees to be overburdened
by the mortgage payment once they stop earning
an income. Yet that doesn’t seem to be an issue
here. So the answer doesn’t really depend on what
is best financially. My question for you is how the
mortgage makes you feel. If you would feel more
secure without the mortgage, then by all means
you should look into paying it down.
But I would also suggest that you could do
both. Use some of the $275,000 to pay down the
mortgage and then invest a portion as well. If your
pensions and Social Security are indeed plenty to
support your lifestyle, you can earmark the interest
earnings on the invested money for extra mortgage payments.
THE 4 PERCENT rule of thumb is not a sacrosanct
formula. There really isn’t a one-size-fits-all for-
mula. What you can afford to withdraw is a function
of so many personal issues: your age, your expected
life span, what you expect your living expenses to be
in retirement (100 percent of your pre-retirement
expenses? 80 percent?) and how your money is
invested. The more you have in bonds and the less
in stocks, the more conservative you will need to be,
given that your investment returns will likely be
lower than a more aggressive portfolio.
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