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18 ;e Costco Connection NOVEMBER 2015
By Suze Orman
Can you give me the scoop on life insurance? Our insurance company wants $400
a month for a $50,000 policy. We have our
funeral/cremation paid, but if one of us dies
we need some money to pay off our mortgage and car.
Which one is best to purchase, whole or
term? Or are they not worth the cost?
YOU HAVE A need for a very specific period of
time: until your mortgage and car are paid off. For
that reason, term insurance is the right choice. Ask
for a term that is at least as long as those payments
For example, if you have 10 years left on your
mortgage, you would want a 10-year level term
policy. The “level” means your annual premium
will not change while the policy is in force. And that
premium will be a lot less than the quote you got for
a whole life policy.
Annual premiums on term policies can typically be just 10 to 30 percent of the cost of a whole
life policy. That’s because the insurance company
only has to worry about you dying during the
term— 10 years in this example—while whole life
and other forms of permanent insurance stay in
force for your entire life and then pay a death benefit. When you’re looking to protect someone for a
specific period of time, term life insurance is the
way to go.
I am a single 52-year-old female hoping
to retire either fully or partially at 62. My
home is paid for. I have no credit card debt.
I have a car payment of $428 per month
at zero percent financing. My retirement
portfolio is approximately $300,000, all in
a target fund with a 0.69 percent expense
ratio and a three-year return rate of 9 percent. I currently contribute 20 percent of
my income to my retirement.
Two years ago I changed to 100 percent Roth 403(b). I did not convert any
of the traditional 403(b) to a Roth. Should
I keep contributing to the Roth 403(b) or
are there wiser places to contribute?
San Marcos, Texas
I LOVE THAT you are using the Roth version of
your 403(b). I think that’s a great move, as all your
withdrawals in retirement will be 100 percent tax-
free. Just keep it up. When you retire you can do a
rollover to a Roth IRA (no tax for a direct rollover)
and invest in less-expensive mutual funds or
As for converting your traditional 403(b)
assets, a trusted tax adviser will be of huge value.
Any amounts you convert count as taxable income
in the year of the conversion—that can throw your
tax bill for a loop. You might consider waiting until
after age 62, when you hope to be retired or only
working partially. Your income will likely be lower
then, so it may make sense to do some converting
in your early 60s.
As for your investments: If your plan offers
index funds that charge a lot less than 0.69 percent,
I’d consider switching to those. The 0.69 percent on
your target date fund isn’t horrible. But it isn’t great,
either. Many index funds charge 0.20 percent or less.
That might sound like a small difference, but, compounding over 30 or 40 years, it adds up.
Yes, I said 30 or 40 years. Which brings me to
my biggest concern: that you fully understand the
ramifications of stopping work so early. Half of
today’s 65-year-old women will still be alive in their
late 80s. And plenty of them will still be depending
on their retirement savings into their 90s. Are you
sure your savings could support you for 30 years?
I bet your 403(b) plan sponsor has an online
tool to help you understand how much you could
safely withdraw in retirement without running out
of money. If not, check out T. Rowe Price’s free
retirement income calculator (
com/ric/ricweb/public/ ric.do) As you note, continuing to work part time can be a great compromise.
What is the best way to ensure that the IRS
will accept an offer in compromise [OIC]?
Rehoboth Beach, Delaware
AS YOU CAN imagine, this is a pretty big ask: You
want the IRS to allow you to pay less than the actual
amount you owe. So you need to jump through
some fairly high hoops. Download the IRS Form
656 booklet Offer in Compromise (
pdf/f656b.pdf) for a detailed explanation of how the
IRS vets OIC requests.
There’s also an online IRS tool that will help
you determine whether you are a solid candidate for
an OIC. (Go to
To be considered for an OIC, you must be current
with all your tax filings and any estimated tax payments, and you can’t be in bankruptcy proceedings.
And if the IRS determines you could pay off your
full bill through its installment plan, chances are
you’re not going to get your OIC approved. C