Suze Orman: ‘People Are So Scared Right Now’

Suze Orman receives thousands of emails from listeners to her podcast. Here’s the heart of those messages that she calls “tragic”:

“People are scared. I’ve never seen them so scared as they are right now, even in 2008 and 2009. Many ask, ‘Can we take money out of our 401(k) plans? Is it not safe there now?’”

If their financial straits reach that extreme, Orman warns in an interview with ThinkAdvisor, “You’ve started a cycle of poverty.”

To be sure, Fidelity and Vanguard have seen steady increases in the number of participants taking money from their 401(k)s as “hardship withdrawals,” which the Internal Revenue Service defines as money to be withdrawn only for “an immediate and heavy financial need.”

Orman’s chief advice to her podcast listeners: “Keep dollar-cost averaging. If you had continued to dollar-cost average, you’d be doing great today.”

As for the personal investing approach of the New York Times bestselling author, Emmy winner and star of the No. 1 PBS pledge show since 1998, Orman says that she has shifted her focus.

In January, she liquidated almost all of her portfolio of some 150 individual equities and is directing the funds received mainly toward Treasurys.

A health scare three years ago combined with hitting her 70s — she’ll be 72 on June 4 — are what triggered her change in strategy.

In the interview, Orman discusses specific asset classes in which she’s invested and names two companies that she thinks are “fabulous.”

The former wirehouse advisor helms Suze Orman Worldwide Enterprises and lives on a private island in the Bahamas.

From a small home studio, she focuses on disseminating finance expertise through her podcast, “Women & Money,” with features like “Suze School” and “Ask Suze (and KT) Anything.” KT is Kathy Travis, Orman’s wife and managing director of the firm.

Financial security is on Orman’s mind not only in a personal sense but in her capacity as co-founder of fintech startup SecureSave, an employer-sponsored platform on which employees can open a savings account designed to cover emergencies.

The automatic system was created by startup veterans Devin Miller and Bassam Saliba.

An increasing number of companies are signing with SecureSave, including large organizations with thousands of employees.

Orman is more than just the face of SecureSave. Indeed, before major moves, Miller and Saliba consult her because “I know … how people think, feel and act with money … I know what puts them off; I know what turns them on,” she says in the interview.

ThinkAdvisor chatted with Orman by phone on May 25. She was speaking from her home following a spectacular fishing outing.

On being financially secure, she advises that people need savings of eight to 12 months as backup.

But they also need a separate account of emergency savings.

A SecureSave survey found that 67% of Americans “don’t even have $400 to their name for an emergency,” Orman says.

Here are highlights of our conversation:

THINKADVISOR: On one of your recent podcasts, you talked about the debt ceiling, inflation and the possible recession. “I’m not nervous about it,” you said. Please explain.

SUZE ORMAN: I’m not, but I should be. People are so scared right now. They’re taking money out of their Series I bonds because of how afraid they are, and they’ll pay a penalty to do so.

The emails that I’m getting are tragic. I get thousands of emails [from listeners and consumers]. I’ve never seen them so scared as they are right now, even in 2008 and 2009.

What do you tell them?

I had Sheila Bair, former chairman of the [Federal Deposit Insurance Corp.], on a podcast. In essence, she promised them that, to the best of her ability, they wouldn’t lose their money in Treasurys.

I’ve been having [people] put money into Treasurys for a while.

It’s not because of inflation that people aren’t buying houses or cars; now they say it’s because interest rates are too high.

How are they doing on credit card payments?

All the pundits go, “People aren’t defaulting on their credit cards, so everything must be OK,” meaning they aren’t 120 days past due, or whatever [that amount] is.

But 30-day-late payments are starting to grow and grow. Eventually, we’ll be in credit card default.

All the stimulus and unemployment money are almost gone. So people are putting things on their credit cards.

What if we go into a serious recession, and there are more layoffs? Who knows what will happen if [the government] does default?

Do they want to raid their 401(k) plans?

Many people ask me, “Can we take money out of our 401(k) plan? Is it not safe there now? What should we do?”

I’m like, “Just keep dollar-cost averaging. If you’re in your 30s or 40s, hope that the market crashes. When it comes back, you’ll be so happy.”

What can people do to protect themselves?

There hasn’t been a more important time in history right here and now to have an emergency savings account.

You’re one of three founding partners of SecureSave, an employer-sponsored, employer-matching platform allowing employees to open an emergency savings account; deposits are automatically deducted from paychecks.

What makes SecureSave different from the competition?

It has me! Before we do anything major, I go over it. I know without a shadow of a doubt how people think, feel and act with money.

I know what their obstacles are, and I know how to solve them. I know what puts them off; I know what turns them on.

So when Devin was doing the app for SecureSave — each employee gets an app where they can see how much money they have in their account — I went through it with them.

I said, “Get rid of the charts. Get rid of ‘the goal.’” No goals here because if somebody meets a goal, they’ll stop doing it. If somebody doesn’t meet a goal, they’ll get depressed.

Everything needs to be about an emergency because this isn’t a [general] savings account. This money is for emergencies.

What else differentiates SecureSave?

The only thing the company does is emergency savings accounts. We aren’t asking people to sign up so that we can then try to get them to consolidate their student loans or sell them a credit card, [etc.].

What do employees need to do?

It’s all automatic. Emails go out to them. If you want to sign up, you click the little button and decide how much money per paycheck you want taken out.

The employer has already designated how much they’re going to match for every paycheck.

What percentage do they match?

Usually $3-$5 per paycheck, and they also usually give employees a $25 sign-up bonus.

Do many employees withdraw money?

A very low percentage. When they do, we remind them that the money is for an emergency. Some of them tell us the reason, but they don’t have to.

On another of your podcasts, you told listeners, “The market is crazy. Stick with the program: dollar-cost average.” Do you still recommend that?

Absolutely, because if you had continued to dollar-cost average, you’d be doing so great today.

For instance, in the Vanguard Total Stock Market Index ETF, which is what I’ve been telling people who need diversification to buy for years, the top holdings of all the index funds are Amazon, Apple, Google, Microsoft. And look what’s happened to all of them recently.

Just keep dollar-cost averaging month in and month out, and you’ll be fine [I tell listeners].

In an interview last August, you told me that you’re invested in at least 150 individual equities. Do you still have them?

I don’t have anywhere close to that now. In January of this year, I liquidated almost my entire portfolio of equities. I didn’t like what I was seeing.

We had some fabulous gains, and everybody was like, “If you sell these stocks, you’re going to owe a few million in taxes.” I said, “Okay, I get that. I’ll owe taxes.”

I’m very happy [I sold]. That money will now be geared more to our Treasurys. If interest rates start to come down somewhat, the money you can make on a 30-year Treasury bond will be absolutely incredible because as interest rates go down, the value of that bond will skyrocket.

You can make wonderful money in bonds if you’re on the right side of the direction of interest rates.

Do you still own preferred stocks?

Yes, I love them. When the banks went down, I had preferreds that went from $25 down to $20 because preferreds are issued at par at $25. But none of them defaulted on any of their dividends.

As interest rates start to go back down, which I think they probably will, [preferreds] will go up again, and they’ll be fine. So I’m not worried about them.

If I didn’t have as much money in preferred stocks, I would be buying them right now — I’ll tell you that much!

You told me you were shifting from growth to income investments, for the most part. So is that your strategy?

Yes, because I’m going to be 72 next month, and I’ve had an incredible scare with my [benign] tumor [surgery in 2020]. So I just wanted to know that I was safe.

My goal to make more money isn’t my goal anymore. My goal is: Can I just keep what I have safe and sound and generating income for me?

Presumably you know exactly how to meet that goal, right?

That’s what I’m doing. I have money in Treasurys, Treasury money market funds, preferred stocks. I have money in regular stocks that also pay a dividend.

Like, I think Pfizer is a fabulous company. It pays almost a 4-something-percent dividend and gives growth.

I still like the oil companies. Chevron is fabulous.

So there are companies that pay nice dividends, and I don’t care if they go up or down in value. [What I care about is] Is this dividend safe? Even if it’s an extremely high dividend, and they cut it, is it still a nice yield?

So I’m all right with everything I have.

Anywhere else that you’ve deployed assets?

I have money at Alliant Credit Union [sponsor of Orman’s “Women & Money” podcast] because, again, I do think that interest rates are going to go down.

You can get 5.15% for an 18-to-23-month certificate of deposit. That’s fabulous.

Do wealthy people need an emergency savings account?

Of course. Wealthy people have less disposable income than people who aren’t wealthy.

I learned this when I was seeing clients and doing retirement planning for Pacific Gas and Electric in Northern California [in the 1990s, as CEO of The Suze Orman Financial Group].

People would come to me with $1.3 million in their 401(k)s who were taking early retirement. These were executives, all of them in their mid-50s who were going to get a $13,000 pension, which led to $6,500 a month after taxes.

They might have had a few million in their 401(k) plans, but they couldn’t afford to retire because of their [lavish] lifestyle: They had two homes, two cars, a fifth wheel [camping trailer], a mortgage on their homes and high expenses.

You’d compare them to the gas workers — line workers — who got pensions of $2,200 a month: They had $200,000 in their 40l(k) plans, and all of them could afford to retire.

They would spend only $600 a year on clothes. The executives would spend $700 a month on a pair of shoes.

The workers had paid off their small homes. They were so happy, and they all took early retirement.

The executives were forced to take early retirement, but they all had to go find another job.

Let’s pick up on the benefits of an emergency savings account: Please talk about the difference between that and a savings account.

I would love to see people have eight to 12 months of savings in case they get sick, lose their job, we go into recession. That’s a backup plan.

But then there’s also an emergency savings account for, say, when your car or air conditioner breaks down or you have to pay a co-deductible on your medical, but you don’t have the money.

What do people usually do at that point?

You put it on your credit card, and so you now pay the minimum payment due because you don’t have the money to pay the whole thing.

Then something else happens, and this and that happens, and before you know it, you’ve maxed out your credit card.

So you go into your 401(k) or your IRA, and pay the penalty on it when you owe taxes, if you’re not of the age yet [to take distributions].

So now, just because one or two things broke down, you’ve started a cycle of poverty — believe it or not.

Compare that scenario with having an emergency savings account from which you can draw.

When you have $400 or $1,000 or so in an emergency savings account that you can get at any time, if you need a new tire, say, you have the money.

In this uncertain environment, it seems a good time to open an emergency savings account. Right?

There couldn’t be a better time than now because given what’s happened with inflation and the high interest-rate environment, banks are scared and don’t want to lend money.

Right now, [interest rates on] home equity lines of credit have gone from, like, 2% up to about 9% to 11%. Credit cards are in the 20%’s.

You’re going to have to start making student loan payments again. And when interest rates are up, the interest on them is going to be higher.

Last time we talked, you were still having a neurological issue with your arm after tumor surgery. Has that resolved?

It’s about 80% back. I’m starting to really feel more like myself now, after almost three years.

KT and I were out fishing today, and I pulled in a little one. We caught tuna, a huge snapper, mackerel, a barracuda.

We also catch wahoo, strawberry groupers, mahi-mahi, yelloweyes, yellowtail, muttons.

You name it, we catch it!

I’d say you really like to fish!

Fishing is one of the more complicated things I’ve ever done in my life.

The direction of the wind and of the current, moon phase, barometric pressure, tides — all of those will make a difference as to whether or not you catch a fish.

Do you take your boat out every day?

This is tuna season. We’re going out between 5 and 8 at night. They sleep on the bottom between 10 and 2. Today we caught three huge ones.

So we’re bottom fishing. We’re down anywhere from 500 to 1,200 feet with our hook.

We immediately know when they bite us.

(Pictured: Suze Orman)