Why Do Suzie Orman and Dave Ramsey Trash WL So Much?

[scagnt83]

I don't remember the year, but it was less than 5 years ago. Ben Stein was speaking at a GAMA meeting and made a statement to the effect that people who live in trailer parks listen to Dave Ramsey, people who live or aspire to live on the 8th fairway in golf community list to their financial advisor.

Thats a great statement!


I had an encounter this week with a Suze Orman fan. It was a middle aged couple that had done fairly well for themselves so far in life (very diligent savers)

The husband was on board with most of my recommendations. But the wife definitely was not in agreement...
They both had sizable 401Ks for their age and they both just changed jobs.

When I recommended an annuity the first words out of her mouth where "I dont think so."
I ask why and she tells me that Suze says they are not a good thing to invest in...

I say "OK. Well, why dont we review all of our options for investments and then both of you can decide from there. I dont want you in an investment that you dont feel comfortable with.."

Of course she says alright..

I went through my presentation and explained the pros and cons of the different investment options for an IRA. The husbands first words where "I think its pretty clear that the annuity is going to do what we want.."

The wife still was not convinced and said "But Suze does not recommend them to people, she says they very rarely make sense..."

I said:
"Heres the thing. I dont really care which investment product you choose, I can provide you with any of them and I get paid no matter which one you choose..."
"Its my job to explain your choices and help you make the wisest decision possible, this is why I gave you non biased info on your choices"

"And the only thing I will say about Suze Orman is that there are three major differences between the advice that I give and the advice that she gives:

1. Her job is to give generalized adviced. Mine is to give specific advice about an individuals specific situation.

2. Her other job is to sell books and get t.v. ratings, I have no other job. My only job is to make my clients happy and financially secure.

3. At the begining and end of her shows and books, there is a disclaimer that says "the advice she gives is generalized and for entertainment purposes only, always consult your financial advisor to see if this advice is suitable for your situation" .... I have no disclaimer on my advice, I stand by it.
And just out of curiosity, if I had given you a written disclaimer like that when we sat down would we even still be speaking right now???

After a moment of reflection she said "wow, I had never thought of that.." "and NO! we wouldnt still be talking if you had given me that.."

Needless to say they acted on all of my recommendations..
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Ummm, yeah - that's why I have a mill in coverage - so my wife doesn't have to work at Walmart if I die. Doubtful she'll have to work at Walmart after I'm 70.

And I love my son too - which is why I'm gonna teach him to work his ass off instead of waiting for me to die so he can "be rich."

Unfortunately I've seen what inheritance has done in the case of three very close friends and one in-law. In all 4 cases it has destroyed the family.

OK. I can understand not wanting to leave a huge inheritance for your kids. But PI is not just about that. (and no, im not talking about the CV in this post..lol)

PI is one of the most effective tools to utilize in estate planning. And estate planning is not just about avoiding the estate tax and setting up trusts; its about minimizing the effect of taxes upon inheritance.

So you plan to spend down all of your assets. Great, I dont blame you, im sure they where hard earned.
But I assume you are speaking of your liquid assets and not all of your assets...

When you die you might have exhausted your liquid assets, but what about the rest of your estate? All of this will pass to your kids eventually and it will be taxed (possibly double if over estate tax limits). In your planned scenario, it will most likely be just a home, cars, maybe a boat or property somewhere, maybe a vacation home... who knows...

So you have just transferred an estate that has absolutely no liquid assets in it to your son who will have to pay taxes on it that year. What happens if he cant liquidate the illiquid assets of your estate in time to pay taxes???
He will then have to come out of pocket to pay the taxes, or he will have to liquidate at a discount and not receive full value.

If you die near the end of the year and logistically there just isnt enough time to liquidate; not only will he have to come out of pocket, but he might have already started the discounted liquidation process; thus receiving two adverse consequences from the illiquid estate.

Now for the 3rd adverse consequence and the worst:
The illiquid estate pushes him into a higher tax bracket for that year.
Not having the liquid funds available, it will be a direct hit to his income during a year that he might already be tapping savings to pay income tax on the inherited estate, and possibly selling illiquid assets at discounted rates....

And all of this is happening without even mentioning the estate tax... and who the hell knows where it will be by the time any of us die... lol

All of this can be avoided with PI. A good GUL or DB oriented traditional UL are two great estate planning products. Also SPUL/WL. Survivorship policies are extremely effective too.

Honestly it doesnt take millions to hedge that inheritance tax burden. Chances are if you get an increasing DB policy you could get by with $100K-$200K.
And im sure you have some convertible term, so this is often a good thing to utilize.

Just some food for thought....

 

[dgoldenz]

What kind of inheritance tax does your state have?

 

[scagnt83]

What kind of inheritance tax does your state have?

When I said inheritance tax I said it as more of a general term to refer to all of the expenses associated with the transfer. I probably should have phrased that better, but it was a late night post... lol

Inheritance tax varies from state to state, SC fortunately has none.
Our state estate tax follows the fed guidelines and is whatever the state credit on the fed return is.

So as long as estate taxes are of no concern then you are only looking at the costs of probate...
The national average for probate is around 5%-10% if I remember correctly (this is including all related costs, including professional fees)

So for a $500K estate in SC you would only need around $50K to cover it.
If your state has an inheritance tax then you would probably need double that amount.
So like I said. It wouldnt take much... of course you need to supplement that amount with whatever your other final expense needs might be such as burial and any leftover debt..

Most costs associated with probate have to be paid fairly quickly, especially professional fees which are often a percentage of assets. So having the cash available is a big asset to your heirs.

This is what all of the "termites" dont realize. Just because you plan to be debt free and have your funeral paid for already, does not mean that there wont be any other expenses. Especially if someone has been moderately successful in life.

 

[moonlightandmargaritas]

The national average for probate is around 5%-10% if I remember correctly (this is including all related costs, including professional fees)

So for a $500K estate in SC you would only need around $50K to cover it.

This expense can be avoided throught the use of an inter vivos trust.

 

[crons79]

Suze Orman is ok, but I like Dave better. His system is meant for the masses and does get you thinking better about investments and retirmement. His advice is very broad and he has many absolutes, but it is still probably the clearest and best system/program being offered today.

I have liked the posts on here too with good information and advice.

 

[wrek]

Whether you buy term or permanent insurance depends on a number of factors such as: your personal and financial objectives, income, future needs, etc.

If you are not interested in the possibility of earning cash, (cash is not always guaranteed), and need short term protection at a decent price, then term may be a good choice because term insurance is usually relatively inexpensive st first. (depending on your age and health condition). Some term policies do offer a refund of premium option.

What many people do not understand is that unless you die within the term of the insurance, ex. 20 years, it has to be converted to a permanent policy in order for you to remain protected. If you are young enough, you may be able to be underwritten for a new term policy, which will become more expensive according to your age and health.

If you are at the end of your term policy term, and become ill enough to be uninsurable, or diagnosed as terminal, you do have the option to continue to pay your term premiums and extend the term until you die. This is where you will see how term is not always as cost effective as it first appears.

Term premiums skyrocket upon expiration and can amount to many thousands more than a permanent policy would have cost you when you were younger and could possibly lock in those rates.

In the case of being diagnosed as terminal within two years, most policies, including term, have an accelerated death benefit rider that allows the insured to access up to 50% of their death benefit to help pay medical expenses, or special treatments or even just to make life a bit more comfortable until you pass. The balance of the death benefit is paid to the beneficiary. The good news here, is that if a miraculous cure is found and you live, you do not have to repay the accelerated death benefit!!!

The bad side of term is that if you live, for example, five or more years after expiration of your 10 or 20 year term and keep paying premiums, they may end up costing you hundreds of thousands of dollars, but at least you will still leave the benefit to your beneficiaries.

Group term is usually converted at standard smoker rates, so if you don't smoke, you may decide to decline the conversion and be underwritten for an individual policy.
Many people use permanent insurance as a means of earning retirement income, or to protect their families until the day they die, or to guarantee that a child will be insurable in the event the child develops an otherwise uninsurable disease or illness.

When it comes to Dave or Suzie: They trash because they can. There is nobody to stop them. Licensed financial advisors are not allowed to publicly trash other advisors or companies as per S.E.C. rules. We have to weigh both the pro's and cons based on fact, not opinion.

Dave is not licensed to sell insurance so his opinion is only that, an opinion. He is not a professional, legally licensed financial advisor.

Suzie is a smart woman, but changes her views from day to day. I actually like Suzie, but there is not a one fit solution to every situation.

Do your research, like you have been, get advice from a professional advisor, and make educated decisions based on facts.

 

[catowned]

It's good advice for young people to follow.

This is where I think Dave is "gifted." I wish I had heard him when I was 17. He says a lot of bs but his advice for those started out in the adult world like futhering their education by applying for scholarships instead of loans, drive a beater instead of a car payment, save up for house down payment and get a fixed rate, increase your income through a different line of work long term and a second job short-term, keep some cash around for emergencies, make some kind of budget is GREAT for young adults in the high school and 20s age range.I wish I had read his stuff at 17 when I reluctantly took out student loans. :( I'll never get rid of mine and even if they are forgiven in 25 years the IRS will have a lien on my social security for the tax on the forgiven amount.

His advice on not doing pre-paid college plans or final expense makes me cringe. He seems to have NO understanding of tax stuff either or he would not be so against whole life.

Some of his advice is very unrealistic for people to follow. I can tell he doesn't do it himself because he would never recommend it especially to already stressed people. Example with no eating out. If your eating a full meal (vs a bowl or cereal or a piece of fruit) it is not always cheaper to make it at home for just 1 or 2 people . Especially with his advice of "beans and rice" until the debts are paid off. Those foods take a long time to cook so you need to be home and realistically some skill is required for them to be palatable. Second with his clip coupons from the Sunday paper advice. I'm a hard core couponer - I have bought lots of stuff for very low out of pocket or get money back so I love coupons but it's sometimes inappropriate advice. Tell me who has time to work 2 jobs, spend 3 hours at home hours cooking and cleaning per day and learn to coupon and coupon at different stores so it's worth their time? I'm sorry but that is not realistic. Is someone that is working 2 jobs going to have time to run to 3 different CVS stores on their 1 day off in 2 weeks to find the free shampoo in stock? And then go back once more because they had a cashier that was clueless about coupons? (I am sure Dave has never used coupons enough to the point where it is worth the time to use them because he would never say to clip them like he does, those that save a lot of money usually file them by insert date for easy retrival.)

More realistic advice would be get take out instead of dining in (no tip, drinks, dessert), don't do it for lunch and dinner instead pick up a main dish type meal around 3 or 4pm, use use generics as much as possible and keep a cooler in your car with cold water and fruit to cut out the soda buying at the gas station or McDonalds.

 

[MWoodfield]

Buy term and invest the difference would work well for a younger client if you purchase a term that can be converted but for an older client over 50 perm ins should be considered for perm needs such as burial.

The answer is Dave and Suze have enough money that funeral expense is not a concern- I would assume for most of your clients it is...

Ask a simple question... If something were to happen to you within the next few years, is funeral expense going to be a top concern?

 

[catowned]

I think Suze is or was affiliated with Metlife-check Cali DOI. Also I'm sure Dave gets some pretty nice "kick-Backs" from his "recommended" Term provider.

BTW, I wonder if Mr. Ramsey is writing a new book for all of us in middle America? It sure seems he needs to restructure his 10-12% market return theory/system. What year was that book published?

He also uses that 10-12% rate to show you why it's a bad idea to do things like prepaid college, whole life, prepaid funeral.

 

[VolAgent]

He also uses that 10-12% rate to show you why it's a bad idea to do things like prepaid college, whole life, prepaid funeral.

And in his world it is great. If you can promise me a consistent 10-12% year after year after year, you can't beat that. Pre-paying for anything in that kind of world would be stupid. The problem is, inflation would also be at least 8% in that world.

More realisitically, the stock market cannot crank out returns like that consistently. It is all over the map, and sure the S&P's historic average is around 10%, but most year's returns are no where near that number. Most investors cannot stomach the drops that are part of that historic average. Also, the year you enter and the year you exit the market can have a huge impact on that return.

Dave lives in a dream world that he has invented so that he can sell books and airtime on his show. He has some good ideas that are helpful to a certain class of people, but when it comes to investing and financial planning, he doesn't have a clue.