FINANCIALCONNECTION
SUZE ORMAN
Suze Orman is an Emmy
Award–winning TV host,
New York Times best-selling
author and motivational
speaker. She can be contacted
at suzeorman.com.
Orman will answer selected
questions in this column.
She regrets that unpublished
questions cannot be
answered individually.
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Retirement talk
Should we pay off mortgage early?
balance each month, the balance due on each statement is reported to the credit bureaus monthly.)
Let’s say you have three cards with credit limits
of $5,000, $10,000 and $16,000. Your total available
credit is $31,000. Now let’s say that this month you
had $3,000 in charges. That works out to a credit
utilization ratio of 9. 7 percent. But what if you
instead asked that your credit limits be cut? If your
new combined credit limit is now $12,000 and you
spend the same $3,000, your utilization rate jumps
to 25 percent. If you have some extra expenses one
month and your spending hits $4,500, your utilization rate would be 37. 5 percent.
While there is no hard-and-fast rule about what
is a good or bad utilization rate, lower is always better.
A 10 percent rate is better than 20 percent, which is
better than 30 percent, etc. So for that reason, I
wouldn’t recommend reducing your credit limits.
Q Is there an easy calculation that indicates
whether my wife and I should start taking Social
Security at age 66 or 70? We are both approaching
66. Fortunately, my wife and I have worked our
entire lives and at reasonably high income levels.
If we both wait until either 66 or 70 to begin receiving Social Security, is there a family (marriage)
limit on combined Social Security we can receive?
As an example, if at age 70 I am to receive $3,000
per month and my wife is to receive $2,600, can we
expect to receive $5,600 in total each month?
—D.G., San Diego, California
A There is no marriage limit. Social Security retirement benefits are based on your earnings record. If
both you and your wife have paid into Social
Security, you can each claim a benefit based on your
own earnings record.
I encourage you both to visit the Social Security
Administration’s website and use its Retirement
Estimator ( ssa.gov/retire/estimator.html). This tool
pulls your actual earnings history to give you a customized estimate of your benefit at your full retirement age ( 66 for you) and your benefit if you wait
until age 70. If you are both in good health, I would
recommend considering that at least one of you—
the higher earner—wait until age 70 to start receiving a retirement benefit. By having the
higher earner wait to claim the highest possible payout (you get no
extra payments for delaying past
age 70), you will ensure that the
surviving spouse can claim the
largest possible benefit.
Remember, once a spouse
dies, the survivor is allowed to take
only one of the two benefits. Making sure
that the higher earner waited to take the
maximum payout will leave the surviving
spouse with the biggest benefit. C
Q My husband and I want to retire in December
2017. He will be 68 and I will be 65. The balance
on our 15-year mortgage will be $40,420. Should
we pull from our retirement savings and pay
it off, or keep paying until the maturity date of
September 2020?
—U.S., Arlington, Texas
A In your particular case I don’t think you should
accelerate the payments. If you just keep up with the
regular monthly payments you will have the mortgage paid off less than three years into retirement.
That’s fast enough.
The reason I don’t think it’s worth paying off
your mortgage faster is because you would need to
take money out of your retirement savings. I am
assuming your retirement savings are in traditional
401(k)s or IRAs. Any money withdrawn from traditional retirement accounts is taxed as ordinary
income in the year it is withdrawn. That means to
net $40,420 you would need to withdraw a lot more.
For example, you might need to withdraw
$55,000 or so in order to be left with the $40,420 you
need after paying tax. And taking a big lump sum
might bump you into a higher tax bracket as well.
Q I have several credit cards and I usually pay
my statement in full when I get my bill. The cards’
credit limits are from $5,000 to as high as $16,000.
Will it help my credit score if I ask to lower my
cards’ credit limit? My credit score is in the low
700s, and I am shooting for a 750 or higher since
I plan to refinance or modify my home loan. Is
it better not to cancel any of my credit cards as
long as I either don’t use them or pay them in
full monthly?
—R.M., Riverside, California
A As crazy as it may seem, for someone who han-
dles their credit cards as responsibly as you, it does
not make sense to lower your credit limits. If you
reduce your credit limits it will likely cause your
credit score to fall, not rise. Here’s why: One of the
biggest factors in determining your FICO score—
accounting for 30 percent of your score—is your
credit utilization ratio. That’s a fancy name for a
simple concept: how much of your available
credit you have tapped in a given
month. (Even if you pay off your
o
