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AARP Audio Series: Closing the Savings Gap

Financial ambassador and podcast host Jean Chatzky helps real women overcome retirement obstacles

headshot of Jean Chatzky smiling

Ari Michelson, courtesy of Jean Chatzky

 

Closing the Savings Gap is an audio series hosted by AARP Financial Ambassador Jean Chatzky. In these seven episodes, originally produced as a podcast series in 2019, Chatzky talks to real women as they work to close the financial gap that may be holding them back in saving for retirement. They discuss how to face and conquer common financial roadblocks like debt, overspending or competing priorities. Each woman is matched with a financial planner who helps them make the changes they need to retire with confidence, so that you can do the same.

 

Meet Your Host

Jean Chatzky, financial editor of NBC TODAY and AARP Financial Ambassador, is host of the weekly podcast HerMoney with Jean Chatzky. Chatzky is an award-winning personal finance journalist and best-selling author who believes that knowing how to manage money is one of the most important life skills for people at every age. 


Episode 1: Becoming Debt-Free and Savings-Rich

Shaun, 42, hears how budgeting, planning for emergencies and dealing wisely with debt now can set her up for retirement success later 

Episode 1 – Becoming Debt-Free and Savings-Rich (3/27/19) 
 

Shaun: So I was raised by a single mom with a big heart who had me in her first year of college and she did her best, but she didn't really know much about finances, short of just paying her bills. And so learning about finances, meaning investing and saving and budgeting and things like that — that's not really information that I grew up with.

 

Jean: Hi everyone. I'm Jean Chatzky, and you're listening to AARP’s Closing the Savings Gap. You might have seen me on the Today Show or listened to the HerMoney podcast. I'm also proud to be AARP's Financial Ambassador. On the next seven episodes, we'll be talking to real women as they work to close the financial gap holding us back in retirement. This is the gap between the income we're on track to draw from our savings and social security, and the amount we're going to have to spend on essentials like groceries, healthcare, and housing. It can be a big gap, especially for women who earn just eighty cents on the dollar compared to men. By age 60, we've earned a whopping $1,000,000 less than our male counterparts on average, and then, because we live a half decade longer, we have to figure out a way to make that money last. Closing the gap may sound daunting, but it is not impossible. Over the course of this series, you'll meet women who have a retirement gap because of a common financial roadblock. It could be debt, overspending, undersaving, lack of confidence when it comes to investing. Don't be surprised if some of these stories sound familiar. My team has matched each of these women up with a financial planner who's taking them by the hand and helping them make the changes they need to retire with confidence, and so that you can do the same.

 

Jean: On this episode, we're going to be looking at a common problem. Just 39 percent of Americans would be able to cover a $1,000 emergency if something unexpected happened. That is a huge number of people, and here's why it's problematic. When we aren't prepared, we're more likely to pull out the plastic to cover emergencies, digging ourselves into an even bigger hole. What's the solution? Budgeting. Less than half of Americans do it, but planning your spending — which is what budgeting really is — to allow room for saving is absolutely essential when it comes to having enough for your eventual retirement. Budgeting, planning for emergencies and dealing wisely with debt — they’re not skills that Shaun was raised with, but she's on board to do what she has to do to close her retirement gap. Shaun is 42, she works as a junior art director and she lives in New York. Welcome Shaun. We're happy to have you.

 

Shaun: Thank you.

 

Jean: So tell us a little bit about you. You've got a very interesting life packed into your 42 years.

 

Shaun: I came to New York when I was 19 to study theater and acting, and prior to that I lived in a small town in the Midwest. I was raised by a single mom. I think the best piece of advice my mom gave me is if you owe someone money, never make them come to find you to get it. If you can't pay when you said you were going to pay, then make sure you contact them first.

 

Jean: You know, that's wonderful advice, whether you're talking about a person or a company, because even if you've got student loan debt that you're struggling to pay or a mortgage or a credit card bill, if you call the company and you give them a heads up about what's going on in your life, they are going to be much more willing to work with you.

 

Shaun: Exactly. I'm very well acquainted with this struggle. Recently I had fibroid tumors, so I was laid out for about six weeks. There were a lot of medical bills to pay. My insurance didn't cover everything.

 

Jean: Oh my goodness.

 

Shaun: And then there was a lot of follow-up, and things like that and then about a year later I was laid off, and I got sick again and ended up in and out of the emergency room, and I was unemployed and couldn't really look for work between all the doctor visits, and so I drained my savings. I emptied out my IRA. All of my safety net was burned up in this time.

 

Jean: So you're starting over.

 

Shaun: I am starting over from zero. At 42.

 

Jean: I know that this is tough, but a fresh start can be a good thing. So tell us about your financial life right now. I know it's on the upswing. You've got a job.

 

Shaun: I've got a job, I got a new job, which is almost double the salary that I was making before. I'm working on trying to pay off some of the debt that I've incurred over the past few years – medical bills, student loans, you know that had to take a back seat for a while.

 

Jean: Lay out the numbers for me. What's your salary right now?

 

Shaun: My salary before taxes is $80,000 a year.

 

Jean: What does it look like in debt?

 

Shaun: About $40,000 in debt. That's including student loans, medical bills, taxes and credit cards and everything else.

 

Jean: Savings?

 

Shaun: No savings. I actually still have an IRA. I haven't been putting anything into it and I did have to take the money out, but it's still a live account so I could start putting money into it at some point, which I do hope to do in the next few weeks, or when I talk to the financial planner.

 

Jean: What other sorts of expenses are on your agenda?

 

Shaun: I think outside of the main ones, being rent and utilities and things like that, I think these are the main ones. I would love to see myself debt-free in the next 10 years. If I can whittle that number down and be debt-free sooner, that would be great. But I'm just looking to get myself out of the hole.

 

Jean: So debt-free and rebuilding savings.

 

Shaun: Yes.

 

Jean: Is your new job going to provide health insurance?

 

Shaun: This is a brand new job and I'm ending the probation period I guess you would say, at the end of this week, so that ball should be rolling.

 

Jean: All right. That's a big worry, especially with your health issues. We don't want you to not have health insurance. So when you sit down with the financial advisor, aside from dealing with a plan to pay off that debt, what else are you looking for?

 

Shaun: You know, I've been thinking a lot about how I handle money over the past few weeks, because I knew I was going to talk to you. And I realized that how I spend money is deeply connected to my own sense of self-care and not necessarily in a good way. I think because I spent so many periods with my mom when I was younger, where we really were in dire straits financially, when I am low on money, that panic, I start to get this panic like I'm not going to be taken care of. Then I want to spend more money, so I am trying to find some parameters so that I can exist on low amounts of money and not panic about it. Because I'm assuming that if I'm paying off debt and putting money into retirement, I'm not going to have a lot of "fun" money and not having that does create a little bit of a panic. Does that make sense?

 

Jean: It makes complete and total sense. I think far too few people are as tuned into the fact that their money story, their upbringing and the way that money was treated when they were children, deeply impacts their finances to this day. And the financial advisors, the ones that we've chosen, they are very well used to operating not just as managers of dollars and cents and investments, but they often function as therapists. So we will make sure you get a helping hand there, too. But I got to say, I give you a lot of credit for being that tuned in with who you are and why you act the way that you do, because a lot of people just put their heads in the sand.

 

Shaun: Well, thank you.

 

Jean: Alright, fantastic. Well Shaun, thank you so much for sharing your story and we will get this process rolling.

 

Jean: My team and I were very excited to be able to pair Shaun with certified financial planner, Kimberly Foss, who is the founder of Empyrion Wealth Management and author of Wealthy By Design: A Five-Step Plan For Financial Security. She founded her company in 1989 and lives in Sacramento, California. Hi Kimberly.

 

Kimberly: Hi Jean. How are you doing today?

 

Jean: Doing just fine. So tell us about the math before we dive into the story. What sort of retirement gap was Shaun looking at, and what will it be if she goes through with the plan that you designed for her?

 

Kimberly: The math is that she really needed $1.9 million, and she basically had zero saved.

 

Jean: Wow.

 

Kimberly: When I did give her the number, she was a little bit shocked. There was some silence. And then I said BUT, if we run the plan the way that I have mapped it out for you, you will be able to retire and you'll actually have some money left over.

 

Jean: That sounds like a lot of money, but you're going to break down for us how it really just equates to about $5,000 a month or $60,000 a year.

 

Kimberly: Sure. So she's going to take the recommended payment amount for her credit cards, and pay the credit cards off. So in 2019 we're going to get rid of about $25,255. The only thing that she'll have leftover will be about $38,000 student loans, and the monthly payments on that will total about $2,284 a month.

 

Jean: That's significant. But she's ready to do it.

 

Kimberly: She is. She is. She's absolutely committed. She's going to then contribute to an emergency fund, from 2021, of $100 a month. She's going to then maximize also a Roth IRA on a monthly basis every year, and then she'll also contribute to a non-qualified tax-deferred, no-load variable annuity every month. That will give her the dollar amount so that she can retire at age 65 and then be able to then annuitize that annuity, give her a monthly income of $1,300 a month there. Her social security would be $3,400 a month, so she'll roughly get about $5,000 a month for the rest of her life and retire at age 65.

 

Jean: I love the idea that you're buying her a retirement paycheck, essentially. That's something that a lot of people should be looking at because one of the big fears is that we're not going to be able to make our money last, even if we amass a great deal of it. How did you solve that problem for Shaun?

 

Kimberly: I first came up with the retirement expenses that I felt that she was going to need, right? So we were able to solve for that. I backed into that, and I thought that this is one of the things that a lot of folks don't understand about investing, and they do have that fear. So what could be something that could sort of offset that risk? That would be an annuity, because what you're doing is you're shifting that risk of a guaranteed income to an insurance company.

 

Jean: How was she feeling when you finished this process with her?

 

Kimberly: She was completely relieved. Like she couldn't even believe it.

 

Jean: That she had the ability to not only get out of debt so quickly, but also save for her future? Well it's life-changing what you did for her, so thank you.

 

Kimberly: She's a really neat lady. I think she's going to do very well and she'll do this. I know she will.

 

Jean: Well thank you so, so much.

 

Jean: It has been a few weeks since Shaun and Kimberly started working together and we wanted to check back in with Shaun and see how she's doing with her new financial plan. So Shaun, bring us up to date. How much have you learned, and how do you feel since we last spoke?

 

Shaun: I realized just how I little a grasp I had on my finances. Like, she asked me for specific numbers and I'd send them, and she says, "No, no, I need the interest rates, too." And I'm like, "God. I don't even know what those are." In terms of trying to do my own budget in the past, or trying to get out of debt in the past, I never even put that kind of thing into account. So that was a little bit of a learning experience. And when I gave her the numbers and she came back with a plan, it's 38 pages long. This woman is no joke!

 

Jean: No, none of our planners are a joke.

 

Shaun: Oh my gosh! And I was so overwhelmed by it. I just had to close it and not look at it for a day. When I gathered my courage and looked at it the following day, I was like, "Oh, this makes sense. This is an aggressive plan to get out of debt in a year." I just never would have thought of this on my own or been able to come up with this on my own.

 

Jean: I mean, the idea of being out of debt in a year is a big goal, but it's such a great one. Do you feel like you'll be able to stick with it?

 

Shaun: I'm 100 percent willing to try. I should clarify, the student loan is going to take quite a few years to pay off, but the credit card debt, those should be gone in a year.

 

Jean: I hear what you're saying. And by the way, that idea of paying off student loans over time, that's perfectly valid and reasonable and exactly what I would recommend. Usually the interest rates on student loans are more reasonable than they are on high interest rate credit cards, and so that's why we prioritize getting rid of those credit cards first. Now that you've seen the plan, what does your day-to-day spending and budgeting look like?

 

Shaun: So I downloaded Mint and linked up all my bank accounts, because I really don't know what I spend in a month in terms of food and clothing and transportation and things like that. The first thing it showed me was that I spent $250 on food.

 

Jean: Was that surprising?

 

Shaun: Oh my God! I had no idea. You know, I'll grab something here or grab something there if I'm rushing, or I'll buy lunch at work, and I just don't pay attention to it at all. So linking that up to my accounts was really eye-opening and helpful.

 

Jean: When we talk about it being eye-opening, sometimes we have the ability to save money, to spend less money, but we just don't realize it. When we talked, you got open and honest with us about your emotional spending. After you saw the plan, you made an appointment with your psychiatrist. Why?

 

Shaun: Because I don't want to mess it up. And if there's some anxiety issues that caused me to do that type of thing, like if there was a deep-seated fear that I'm not going to be taken care of or I'm gonna worry that I don't have enough, and I don't want to do that again. Especially since I'm getting this help, which is pretty tremendous. So if I talk to this therapist, she might prescribe something or she might give me a different way to look at anxiety, or something. Just I'm just trying to get as much resources as possible.

 

Jean: You know what, I give you so much credit for doing that, because you're right. Change is hard, and understanding yourself to such a degree that you know what is likely to stand in your way, and taking steps proactively to deal with them, that's amazing. So as you look at this plan and as you look out in your life long-term, what do you hope this allows you to accomplish?

 

Shaun: Well, it'll be a bit of a clean slate. For the past few years, I've had a lot of creditors calling me, and so in very simple terms, I look forward to being able to breathe easy and to answer my phone whenever it rings. And that may sound like such a small thing.

 

Jean: No, it's not a small thing and I think what comes after that, once the debt is gone, knowing that you're putting some money away for not just emergencies but for the future, that's something that you'll want to hold onto as well.

 

Shaun: Yeah. Knowing that I'm taking care of myself in a way that's healthy and can also allow me to help others, I look forward to that as well.

 

Jean: Well, thank you so much for going on this journey with us and for sharing your story. We really appreciate it.

 

Shaun: Thank you, too. I really appreciate this. You have no idea.

 

Jean: Many of you listening out there may be taking notes, but I just want to very quickly recap the steps that Shaun is taking to close her gap. She's getting on a monthly budget as we heard with the help of budgeting apps and software. She's going to pay off her credit card debt by the end of 2019. She's working to build an emergency fund so that she can weather the next storm when it comes, and she's going to ramp up her retirement savings by trying to put some money in an IRA which she'll eventually use to purchase an annuity that will provide a paycheck in retirement. All good steps. We are so grateful to Shaun and Kimberly for sharing their thoughts and their experiences and their wisdom with us today, and we are thankful to all of you too for joining us on this episode of Closing the Savings Gap. Our goal with this entire series is to help you think about the challenges that lie ahead in retirement way before the time that you actually get there, so that you can close your own retirement gap and choose your own path. And for those of you who have enjoyed this program, I'd love to suggest that you check out my weekly podcast, HerMoney with Jean Chatzky.  It is our continuing conversation on money and life — and life and money — for women of all ages. For now, please tune in to the next episode of Closing the Savings Gap, and join us at AARP.org/closingthegap to find episodes, stories, and more great content. Hope to see you there and we’ll talk soon.

 

Disclaimer: The information contained in this podcast is provided for educational information purposes only, and does not constitute a recommendation from any guest of the podcast to the listener. Neither any guests nor any of its affiliates makes any representation or warranty as to the accuracy or completeness of the statements or any information contained in this podcast, and any liability, therefore, including in respect of direct, indirect, or consequential loss or damage is expressly disclaimed. The guests of this podcast are not providing any financial economic, legal, accounting, or tax advice planning or recommendations in this podcast. In addition, the receipt of this podcast by any listener is not to be taken as constituting the giving of investment advice by such guests or their affiliates to that listener, nor to constitute such person a client of any guests or their affiliates.


Episode 2: Managing Money After Losing a Spouse

Michelle, a 51-year-old widow, explores how to manage her finances after the death of her husband, which can also apply to divorce situations

Episode 2 – Making Money Decisions When WE Becomes I (4/3/19) 

 

Michelle: Greg, my husband, died almost two years ago. Something that happens with grief – if people haven't experienced that kind of death or loss – is it's hard to make decisions. You don't even have the same level of cognitive ability. You're overwhelmed, you're confused. It's hard to do things. In the last year, it's become easier to push through some of the decisions and financial tasks, and wrap up different things from the will and shut down expenses that I didn't need anymore, and stuff like that. But it honestly took me until about a few weeks ago to come home from a trip and realize, okay, I'm finally ready to deal with this. 

 

Jean: Hi everyone. I'm Jean Chatzky, and you're listening to AARP’s Closing the Savings Gap. You might have seen me on the Today Show or listened to the HerMoney podcast. I'm also proud to be AARP's Financial Ambassador.  On the next seven episodes, we'll be talking to real women as they work to close the financial gap holding us back in retirement. This is the gap between the income we're on track to draw from our savings and social security, and the amount we're going to have to spend on essentials like groceries, healthcare, and housing. It can be a big gap, especially for women who earn just eighty cents on the dollar compared to men. By age 60, we've earned a whopping $1,000,000 less than our male counterparts on average, and then, because we live a half decade longer, we have to figure out a way to make that money last. Closing the gap may sound daunting, but it is not impossible. Over the course of this series, you'll meet women who have a retirement gap because of a common financial roadblock. It could be debt, overspending, undersaving, lack of confidence when it comes to investing. Don't be surprised if some of these stories sound familiar. My team has matched each of these women up with a financial planner who's taking them by the hand and helping them make the changes they need to retire with confidence, and so that you can do the same. 

 

Jean: On this episode, we look at what happens when "we" becomes "I." We'll meet Michelle, whose husband sadly passed away, but many other women find themselves alone because of divorce, and that seismic shift raises a number of questions. Among them, "What do I do with the house?" Over the past decade, the number of older homeowners holding mortgages has gone up. That becomes tougher to handle if you're living on one income, when you planned on two, so, how do you decide if and when to let go? Another issue we're going to explore is the reluctance many women have to invest. On average, women invest 40 percent less money than men do, according to a survey by digital investing platform Wealthsimple, but there's no reason why this has to be the case. Michelle, a 51 year old writing instructor from Portland, Oregon has been reluctant to invest the money she received when her husband passed away. Welcome, Michelle. 

 

Michelle: Thanks for having me on your show. 

 

Jean: I really appreciate you being here. Mostly because I know how difficult life has been for you recently and I'm so sorry to hear that you lost your husband to cancer. 

 

Michelle: Thank you for saying that. Thanks. 

 

Jean: Tell us a little bit about what the last year or so has been like for you and how this has impacted your finances. 

 

Michelle: One thing that keeps me awake at night and is a bit of an albatross, is I'm in a house that's too big for me. It's overwhelming to hire people to do things, which seems like a waste of money and I feel like I'm spending money I don't need to be spending and I feel like I'm ready to rent out half my house, or sell it and move somewhere smaller, whether it's a rental or you know, a different house that I buy. So that's something that's been going on in the last little while. 

 

Jean: Yeah, it's a huge decision and when we talk about closing the retirement gap, sometimes it is these big things, these big expenses that stand in the way of securing our future for tomorrow. 

 

Michelle: Right. And I've definitely been cognizant of that. I didn't have to move immediately, you know, I wasn't like immediately destitute or I wasn't immediately in danger of losing my home. So I had a little bit of savings to play with, where I could keep paying my too-big-for-my-salary mortgage and my too-big-for-my-taste house, but I am aware of the fact that if I keep going in this direction I'm going to, you know, waste away my savings and potential investment money, and there's just no reason for it anymore. I've kind of gotten to the point where I think it will be less hard to give up my husband's home now than it was a couple of years ago. I couldn't even conceive of doing that a couple of years ago. 

 

Jean: Well, and we should tell everybody, you're young, and I say that as somebody who's 54, so you're 51, you are a baby! So you're a writing instructor, and you've got an income, but it's not a huge income. And so as you think about making these changes, I'm sure both your relative youth and your salary are playing into the picture. 

 

Michelle: Yes, I do work full time. Although admittedly in the last three years I haven't made as much income as I would normally make. I didn't work very much last year just to give myself a chance to like grieve and try and heal faster. And then the previous year I was helping my husband while he had cancer, so I didn't work as much, and I wanted to spend time with him, But I do have income. It's not like a great income and I'm self-employed so there's no benefits than anyone's giving me. 

 

Jean: Are you thinking about going back and getting a full-time job? 

 

Michelle: I have thought about that and that was one thing I considered right away, like do I even change careers in the name of, you know, making a lot more money and being super comfortable in the house? And I thought, but then I'll be unhappy. So I want to keep the career I have. But you know, there are jobs that allow you to work remotely and flexibly. I have COBRA insurance for one more year. Through my husband's employer, they gave me three years of COBRA insurance and so I'm paying for that now, and it's great insurance. Maybe I'm going to look for something that's more of a staff job, even if it's not in the office, it's remote, just to help me with that expense because I've been self-insured before and it doesn't cover a lot and like I said, I'm 51. By nature of my being in my early fifties, I AM a preexisting condition. 

 

Jean: I've never heard anybody put it that way before, but I think you're absolutely right. You know we're going to match you up with a financial advisor to help you close your retirement gap. What questions do you think you'll have for her? 

 

Michelle: Maybe we could crunch the numbers and you know, see which way is financially a better deal? I have some work to do to my house to make the downstairs renter-ready. Another big thing that I wish was already taken care of is the savings I have. I'd like to invest it, but I don't really know what to invest in, picking funds and stocks. Some of my inherited IRA, which is my husband's IRA that rolled into my own IRA is sitting in, you know, pretty much a cash position. That's how the financial institution rolled it over. They rolled it into cash. 

 

Jean: We will absolutely focus her on that and help you come out with a plan for all of these things, and I just have to say from a personal perspective, when my dad passed away, one of the things that I did was help my mom find a financial advisor, because even though she always managed the money in their relationship, she felt like she lost her sounding board and just having somebody else to talk to about these things was really helpful and so I'm hopeful that this experience will provide some of that for you. 

 

Michelle: Yeah, I definitely feel like I need some guidance. 

 

Jean: Well, we will aim to answer all of those questions and we'll check back in with you after you meet with her, all right? 

 

Michelle: Thank you so much. 

 

Jean: My team and I were thrilled to pair Michelle with certified financial planner. Manisha Thakor. Manisha has 25 years of experience in the financial services industry. She is vice president of financial education at the firm Brighton Jones and she's joining us today from her home in Portland, Oregon. Lucky woman. Welcome, Manisha! 

 

Manisha: Jean, it's great to be here. I'm talking to you with the most amazing cup of coffee with me, because that's what life in Portland is like. 

 

Jean: You've got us all jealous. We really, really appreciate you taking part in this project and helping Michelle, who has been through a difficult couple of years. 

 

Manisha: Yeah, she really has, you know, they say the average age of widowhood is 50 and I used to think that can’t be true. But as I'm reading Michelle's story, I'm like, well, there we go. This is a classic example. Widowed two years ago at 49. 

 

Jean: I know. It's so sad and it's just something we hear about time and time again. And so I'm glad we can provide some solutions, not just for Michelle, but for so many of the other women who are listening. Before we dig into her situation, let's do the math. What was Michelle's retirement gap looking like before, and what's it going to be if she continues down the road with the changes that you suggest? 

 

Manisha: So Michelle has this unique situation in that she has almost a million dollars in cash and investments, and she's frugal and she has no debt and is up for the challenge of spending less. So, oddly, I rarely meet women like this. Michelle does not have a retirement gap right now due to the silver lining of a horrific situation which was becoming widowed and now inheriting the assets from her husband, but it's a fine line and if she does not stay on it, she will have a retirement gap and it could be quite significant. So, short answer is she is on track right now, but if she steps off the balance beam, ouch. It could be anywhere up to a $30,000 a year gap. 

 

Jean: That's big, and I know that she wants to take the necessary steps to make sure she doesn't end up in that situation. But like many women who've lost a spouse or a partner, she's finding it really, really difficult to move forward. Is that typical? 

 

Manisha: Oh my gosh. Yes. I mean, dealing with money at any point is not exactly at the top of people's lists. We're not taught about it formally. We're not encouraged to talk about it socially. We feel embarrassed that we're great at other parts of our lives, but we don't understand this money stuff and then you throw in grief and UGH, it is just a stew of unpleasant things. And so I often times find that people who have been divorced or widowed don't want to make change, stay in homes, don't want to think about it, and that this can have actually really detrimental longer term consequences. So to help them move forward early on in the process can be vital. 

 

Jean: Let's talk about it step-by-step. That house: $600,000, 22 years left on the mortgage at an income of $35,000 a year doesn't sound affordable. 

 

Manisha: So Michelle has three options. She can keep the home and take on a renter. She actually has enough in cash that she could pay off the mortgage, or she could sell the home and downsize into something that she could pay for in cash because even though that house is expensive, she experienced an unbelievable amount of home appreciation when she and her husband were living in the home. They originally purchased it for $360,000. So much of that is appreciation. The mortgage is $270,000. Interestingly, that third option of downsizing to a smaller home, paying for it in cash, results in her having an extra $25,000 a year to spend in retirement. And right now she is spending – she thinks – $50,000 a year after tax and thinks she'll be on track to get $12,000 in social security payments. So you can see just on the basis of those activities, the downsizing and social security, we are now starting to close the gap with her $50,000 spending need in retirement. And we haven't factored in what could come out of those investments that she has. 

 

Jean: It sounded to me in talking to her as well, that she was ready to let go of the house, that she's feeling like it's just too much for her to handle in an emotional and physical way. Also, this whole notion of downsizing before you have to gives you so much more financial freedom that I think will work really, really well for Michelle.  Let me ask you about a couple of the other line items that I was thinking about for her. Her health insurance seems to be a bit of a worry. 

 

Manisha: Yes. She is currently at the very tail end of being able to utilize her former husband's COBRA through his employer. She's paying $520 a month for that. There's a lot of negative feelings about the exchanges and of course they're run on a state basis, so there's wide variability, but in Michelle's case, as we dug into it, what I saw was that health insurance doesn't necessarily have to be an issue if she's willing to do the hard work and go through the fine print of the exchanges to find the option that meets her specific needs. 

 

Jean: There is so much good information there for so many people. The last item on her list is the idea that she is just sitting with a lot of cash right now, and that if she wants that cash to work for her in retirement and to help her close the retirement gap, she's going to need to invest it. Did you give her some suggestions about how to go about that? 

 

Manisha: Yes, so Michelle has - like many, many, many people - a variety of accounts and she has five different accounts for different retirement accounts, and one taxable individual account. And specifically what I wanted to see for Michelle were three buckets. One that I'm going to call capital preservation, which is making sure that any cash that she knows she's going to need in order to sustain her lifestyle over the next 10 years, is kept in exceptionally conservative investments. That enables us to take more risk with the remainder of the portfolio because we've now immunized her standard of living for the next decade. So matter what happens in the market, she will not have to sell stocks or bonds in a dip. And when people tell me that 2007-2009 ruined their retirement, I know that most likely what happened was either they didn't have that capital preservation bucket, so they had to sell at the bottom to fund their life, or they got scared and they sold in a panic. So the two steps for Michelle are really parsing out what part needs to stay in cash to ensure that she has the emotional fortitude to not shift from her stock bond allocation when the inevitable market correction comes. 

 

Jean: You know, I always tell people that it's so important to get professional help at times of transition. And I'm so happy that Michelle was able to have access to you and all this amazing advice. If I were just to ask you to – in a nutshell – give me the three steps that you want her to take, what would they be? 

 

Manisha: The first thing I want her to know is that while it sounds like she has a lot of money, you know, a million dollars, and this home, she really is only a handful of missteps away from falling into that retirement gap. So the number one most important thing for her to get a grasp on right now is her spending, really being clear on what that number is accurately. Then the second thing we need her to do is make sure those investments are allocated in a diverse, low-cost index-like portfolio so that they are working hard for her. And then the third thing that we need her to do is to think long and hard about whether she wants to continue on the journey that she has been for the last 27 years as a freelancer, or whether she wants to consider moving into the corporate world, or a combination. Because this plan only works if she continues to work for the next 19 years until she's 70. 

 

Jean: It sounds like she is heading out the door with a terrific plan. Thank you so much for working with Michelle and for helping us close her gap. 

 

Manisha: Jean, it's a pleasure. And there's one last thing I'll just say that I think can help every woman out there when it comes to investing, that a lot of people don't focus on. Many people think the key to investing is finding the next hot stock, when in reality a huge part of investment success is keeping your fees low. So the stat that I want to leave every woman with is that each incremental 1% in additional fees you pay eat up 20% of the ending value of your portfolio over a 30 year investible lifetime. So the difference between working with a financial advisor who charges 1% and uses index funds so your all-in fee is well below 1½%, and working with an advisor who charges 1% and uses often high-cost active fees, could result in fees of 2½ or 3%. And so simply shifting to the right type of advisor and investment style could add 20 to 40% to your ending portfolio value. So I just want to share that because that's a universal principle for all women trying to close the gap. 

 

Jean: Fantastic. Thank you so much. 

 

Jean: So it's been a few weeks since we introduced Michelle and Manisha. We wanted to check back in with Michelle and see how she is doing with her new financial plan. Hey Michelle, welcome back. 

 

Michelle: Hi. Thanks for having me back. 

 

Jean: How's it going? 

 

Michelle: It's going well. It was good to see all the numbers on a piece of paper. A little eye-opening. 

 

Jean: Eye-opening in what way? 

 

Michelle: Well, it was a little bit of a wake-up call of things I suspected, but also it was empowering. Like I could finally get a little bit of control, and had some better data to help me make decisions. 

 

Jean: Tell me about the process of working with an advisor. I know this was the first time you did that. What did that feel like for you? 

 

Michelle: It just gave me a lot of clarity because I'm a writer. I used to be good at math in high school, and that was probably the last time. And I’m certainly not a financial wizard. It helps crystallize things and it gave me some clarity and it kind of gave me a little bit of a feeling of control. 

 

Jean: I think I'm hearing it in your voice. You just sound more positive. 

 

Michelle: Yeah, I do feel a little bit more positive. It's true. 

 

Jean: There were a couple of things on your plate where you could go a couple of different ways – the health insurance and the house. Talk to me a little bit about where you think you're going to go. 

 

Michelle: Well, when my COBRA runs out, I definitely am planning to have health insurance. First, I'm going to see if there is remote work out there – full time remote work that might be a match for me. I definitely have a number of friends who do writing and editing work that have jobs where they work virtually and they work for someone else that's, you know, hundreds or even a couple thousand miles away. So, that might be an option to get onto a staff, and then I would get insurance that way. But also there are professional associations like the Freelancers Union, and some of them have health insurance that is better, potentially, even than the health insurance you would get yourself through an exchange. Then as far as the house, I know a change has to happen. I've finally gotten to a place where moving seems something I'm comfortable with and something I can embrace wholeheartedly and be excited about. It's just a little daunting. But I think having, you know, numbers behind it kind of helped me get a little bit more excited and it seems less overwhelming and more like, "Okay, this is the next stage in my life. Where am I going and where am I moving to?" And so I guess I have a lot of research and work ahead of me. 

 

It sounds like it's possibly a whole new chapter for you, which after we go through a period of loss and sadness, I mean it's nice to hear you looking forward. 

 

Michelle: Yeah, it definitely feels like a new chapter. I mean it's felt like a new chapter for a long time, but more in a daunting like, "this was forced on me" kind of way. Now it feels like the beginning of whatever's next. 

 

Jean: Thank you so much for being part of this. 

 

Michelle: Thank you, too. 

 

Jean: Let's quickly recap the steps that Michelle is taking to close her gap. She's looking into selling her home and downsizing in order to save a considerable amount of money every month. She's going to invest her retirement accounts that have been stagnating for a while. She's going to also look at investing her cash, and she's going to make sure that she pays attention to her health insurance policy so that she gets on a new policy before her COBRA runs out. A big thank you to Michelle and Manisha for going down this road with us. We're also grateful to all of you for joining us for this episode of Closing the Savings Gap. Our goal with this series is to make sure that we all not only have enough to survive in retirement, but that we’re able to thrive and actually enjoy it. And for those of you who have enjoyed this program, I'd love to suggest that you check out my weekly podcast, HerMoney with Jean Chatzky.  It is our continuing conversation on money and life — and life and money — for women of all ages. For now, please tune in to the next episode of Closing the Savings Gap, and join us at AARP.org/closingthegap to find episodes, stories, and more great content. Hope to see you there and we’ll talk soon. 

 

Disclaimer: The information contained in this podcast is provided for educational information purposes only, and does not constitute a recommendation from any guest of the podcast to the listener. Neither any guests nor any of its affiliates makes any representation or warranty as to the accuracy or completeness of the statements or any information contained in this podcast, and any liability, therefore, including in respect of direct, indirect, or consequential loss or damage is expressly disclaimed. The guests of this podcast are not providing any financial economic, legal, accounting, or tax advice planning or recommendations in this podcast. In addition, the receipt of this podcast by any listener is not to be taken as constituting the giving of investment advice by such guests or their affiliates to that listener, nor to constitute such person a client of any guests or their affiliates. 


Episode 3: Balancing Investing in Your Business and Saving for Retirement

Small business owner and mom Kem, 44, needs help achieving her retirement savings goals

Episode 3 – Balancing Between Your Business and Savings Goals (4/10/19) 

 

Kem: The goal is to have a successful business. I just want a business plan and a business budget that doesn't start to somehow bleed past what's allocated, and now I'm just churning my personal money into it. You know, I just don't want to find myself bailing water out of a leaky boat. 

 

Jean: Hi everyone. I'm Jean Chatzky, and you're listening to AARP’s Closing the Savings Gap. You might have seen me on the Today Show or listened to the HerMoney podcast. I'm also proud to be AARP's Financial Ambassador.  On the next seven episodes, we'll be talking to real women as they work to close the financial gap holding us back in retirement. This is the gap between the income we're on track to draw from our savings and social security, and the amount we're going to have to spend on essentials like groceries, healthcare, and housing. It can be a big gap, especially for women who earn just eighty cents on the dollar compared to men. By age 60, we've earned a whopping $1,000,000 less than our male counterparts on average, and then, because we live a half decade longer, we have to figure out a way to make that money last. Closing the gap may sound daunting, but it is not impossible. Over the course of this series, you'll meet women who have a retirement gap because of a common financial roadblock. It could be debt, overspending, undersaving, lack of confidence when it comes to investing. Don't be surprised if some of these stories sound familiar. My team has matched each of these women up with a financial planner who's taking them by the hand and helping them make the changes they need to retire with confidence, and so that you can do the same. 

 

Jean: On this episode, we're going to be looking at a common problem. How many of you have access to 401(k)s through your jobs? Well, more than a third of private sector workers – thirty five percent – do not. Entrepreneurs and people who work at smaller companies are even less likely to have a plan, and of course, retirement is never the only responsibility on our plates. While Kem, a 44 year old married mother of a 16 year old son who is just launching her own firm is trying to make sure she has enough for retirement, she's also dealing with the upcoming cost of college for her son. And still paying off some of her own student loan debt. That sounds surprising, but she's not the only one. Welcome, Kem. 

 

Kem: Thank you for having me, Jean. 

 

Jean: So you are coming to us from down south in Birmingham, Alabama. 

 

Kem: Yes. 

 

Jean: Lovely town. I have not been there myself, but my husband has been there a couple of times and he just loves it. Tell us a little bit about you. I know that you recently made a big change in your career. 

 

Kem: Yes, for several years I worked as an attorney all the way up from the associate level to the partner level, which is part ownership in the firm, and then, like many attorneys do, I made the jump from outside counsel to inside counsel, representing one of what had been my bigger clients at the law firm. And so I had a five year contract that they opted to buy out in three years, and that left me with a good severance and a nest egg to rebuild and start in a different direction. 

 

Jean: And you decided at that point that you're going to do your own thing, you're gonna start your own firm? 

 

Kem: I did. I figured that that was the one way to, going forward, calling my own shots and creating my own opportunities and not to be at the mercy of the system. But at the same time, that was the first time being left without ongoing income security under the corporate umbrella. But I just wanted to test myself and get out there and just see if I could secure my own future. 

 

Jean: It's a challenge, but I think it's a really exciting one, having done something similar to that myself. Tell us a little bit about how you're set up for retirement, but also how you're planning for college. How much have you saved and how much do you think you'll need? 

 

Kem: Quite frankly, I haven't done much calculating in terms of what I will need. Right now, in terms of retirement, I have about $150,000, and then, you know, I'm still of working age and have several decades left of work. And so absent this new direction, I would have been plugged into a corporate system, and I could have increased my deposits into retirement over the course of the next 30 years. And so that's the thing that, again, makes me apprehensive about retirement. Because I've started something and I feel like I have a good start, and I'd like to continue, but I'm continuing with far less certainty. 

 

Jean: You've also got a significant chunk of money saved for college, about $175,000, which is a tremendous head start, but at the same time you've got a bunch of debt – mortgage debt and student loan debt of your own. 

 

Kem: Before, I felt completely comfortable managing those things with the level of income that I had, but now that's been completely thrust into a zone of uncertainty that makes me anxious, because I don't have the security of just having a job or a contract to where that money is going in automatically, paid for by someone else and I just show up to work and it's there. 

 

Jean: I feel ya. Boy, oh boy, do I feel ya. And this is the perfect time for you to sit down with a financial planner and actually make some decisions about how to allocate your resources, because you're right, you do have great earning potential, but at the same time you're entering a phase of life and a phase of business where it's on you to provide money for the retirement plan and on you to provide your own salary. So you need to take a conservative look at that and see how it's gonna shake out. 

 

Kem: Well, I certainly appreciate any assistance that I can get. I mean, the issues and challenges really have the potential to keep you up at night. 

 

Jean: Are you losing sleep? 

 

Kem: Not losing sleep in a way that is troublesome but losing sleep in a way that my mind is churning on ways to make the business venture successful, and ways to generate revenue and ways to keep everything on track. And so it's a good loss of sleep. It's the same type of thing if I were involved in a big case, but nonetheless, you know, there's just anxiety involved with it. 

 

Jean: The other challenge that comes along with being your own boss and running your own business is income that may fluctuate. When you get a paycheck that comes twice a month by direct deposit, that's something that you can count on. And when you're paying yourself, it may ebb and flow a little bit. Have you worked out a budget? 

 

Kem: I've certainly taken steps to scale back and be cost-conscious, but in terms of, you know, a spreadsheet with an actual budget I just haven't gotten that far, which is why this is so timely. 

 

Jean: Yeah, absolutely. Well, I think that we are going to be able to get you a lot of answers and a lot of direction, and I'm looking forward to introducing you to your financial planner. 

 

Kem: Well, thanks again so much for allowing me to participate, and I look forward to meeting someone and getting some answers and getting some help and easing my mind. 

 

Jean: My team and I were so excited to pair Kem with certified financial planner, Cary Carbonaro. Cary has more than 25 years of experience in financial services, an MBA in finance, and I'm most excited about this — she is author of the book The Money Queens Guide for Women Who Want to Build Wealth and Banish Fear. She is a passionate female advocate and champion of financial literacy and is a managing director and partner at United Capital in Orlando. Cary, welcome. 

 

Cary: Thank you for having me! 

 

Jean: Well, thank you for doing this with us. Tell us from the very beginning what the math looked like for Kem. What kind of a retirement gap was she looking at? 

 

Cary: In order for her to be able to fund her current lifestyle, she needed $2.5 million by 65, which is 20 years, so in order for her to do that, she needs to take social security at 70, and no sooner because she needs the extra time. Second, she needs to save $2,500 a month starting now and invest it in a 70/30 portfolio. So she's got 20 years of saving $2,500 a month to catch up. 

 

Jean: So let's break down these steps because each of those in and of themselves is fairly difficult. So the first thing that you said she had to do with saving $2,500 a month and putting that away and putting it to work. So let's break that down. Where's that money gonna come from? She sounds to me like somebody who has been spending up to her level of income. 

 

Cary: Well it will come from her income, I hope, from her new clients, from going out on her own. But she does still have that big nest egg that she got from her pay out of her old job, and so she can take it from there if she wants, save it from that pool of money. 

 

Jean: You also said she needs to delay social security until age 70. This is a recommendation that a lot of people receive. What's the benefit of it, and why does it work for her? 

 

Cary: If she waits till 70, she gets that eight percent increase every year, which she needs to close her gap. The best way to look at it is from full retirement on, every year you wait is an eight percent increase. 

Jean: So that's a guaranteed return that's tough to beat in any other way. Now that Kem is on her own, is working for herself, where will she be putting this retirement money? 

 

Cary: Okay. So she actually has a ton of options as a solo entrepreneur. She's got a simple IRA, a regular IRA, a Roth IRA, a solo 401(k) or a SEP. My favorite of all of these is the solo 401(k) if it's just her working, because she can put up to $61,000 in there once she's over 50. 

 

Jean: That's incredible. 

 

Cary: That's a lot of money. 

 

Jean: So the key there is not putting it into the college account for her son, but putting it into the retirement account for herself? 

 

Cary: Yes, yes. 

 

Jean: And you mentioned a 70/30 portfolio, 70 percent in stocks, 30 percent in bonds. Why that split? 

 

Cary: I just want her to be in the safety zone, or in the "okay zone" so to speak. So if she went to an 80/20, it might not be worth the risk for her. 

 

Jean: So basically we are playing the odds – and playing is a terrible word to use here – but we're sort of tiptoeing around the odds to make sure that our money lasts as long as we do. 

 

Cary: Exactly. Well, you remember, especially for a woman, we live so long. And you know, if she retires at 65, she could be living to 100. She could be retired longer than she actually worked. And so we need our money to grow. We need to outpace inflation, and we need it to be invested in the market, because that's the only way we're going to get that kind of growth. 

 

Jean: Absolutely. Cary, tell me a little bit about the plan you put Kem onto repay her student loans. 

 

Cary: So I told her to pay them off as soon as possible, potentially using some of the money that she got for her settlement. I want them paid off immediately, if not sooner. 

 

Jean: Do you have a rough general dollar amount that she'll be paying each month? 

 

Cary: I would like Kem to pay $1,000 a month towards her student loans, but of course that depends on her income and cash flow, because we don't know yet what she'll have coming in monthly from her new business. If she could put more than $1,000 towards the loans without compromising the $2,500 I suggested for her retirement savings, that would be perfect. 

 

Jean: Are you hopeful that she will succeed on this plan? 

 

Cary: Yes. I am so hopeful because you know what? She's smart and she's motivated, and it was very eye-opening I think for her, and I'm hoping that I close her gap for sure, and she's going to do everything I tell her to do. 

 

Jean: We've heard that again and again in this series that it's just been eye-opening that people who haven't paid attention are finally looking at what the actual situation is and there's so much surprise.  

 

Cary: I think for women to have an objective third party looking at their information and giving them objective advice is super important, because who else are they going to turn to? How are they going to evaluate how they're doing?  How do they know what they're doing is the right thing? You know, everybody needs professional advice when it comes to their money, and the sooner the better as far as I'm concerned. If you think about it, to me, I think you know, if you fail to plan, you plan to fail. So it's a simple saying, but if it's something in writing in front of you that you can see and it's tangible and you can touch it and feel it, I think it makes it so much more real. 

 

Jean: That is so true, Cary. Everybody needs this sort of guidance and having it in front of you on paper, that makes all the difference. Cary Carbonaro, thank you so much. 

 

Cary: You're welcome! 

 

Jean: So it's been a few weeks since Kem and Cary met, and now we're checking back in with Kem to see how she's doing with her new financial plan. Kem, bring us up to date with what you've learned and how you're doing since we last spoke. 

 

Kem: Jean, I'm so glad to be here and I have such a positive outlook. I have such renewed insight as to where I have been, and such a better outlook of where I'm going financially. And so Cary and I have met, I've read her book. She had me fill out a lot of different paperwork about my finances and my budgeting, and the process of having gone through that has really helped me in terms of accountability on one hand – just seeing your actual practices and thoughts on paper. And then also the accountability aspect of the time sensitivity of getting things back to her makes me have to focus in areas where otherwise I might have let things linger on without really having a plan. 

 

Jean: You mentioned that just writing things down was a big change. I often, when I take people through the process of trying to budget for the first time just to have them go through and write where the money is going, it's completely eye-opening. 

 

Kem: It absolutely is. 

 

Jean: One of the things that she focused on was your own retirement. You've had more saved or you have more saved for college for your lovely son than you do for retirement. How did that resonate with you? 

Kem: I knew that I was putting money away for him. Had I mentally affirmatively taken stock of the fact that I was prioritizing his college over my retirement? I just hadn't thought it out in that way, although I knew exactly what I was doing. What I learned is that I do have more of a 'put others first' financial mentality, and so that's been new. 

 

Jean: That's called being a mother. (Laughs) 

 

Kem: Yes. 

 

Jean: Of the changes that Cary suggested to you, are there any that you think you're going to find difficult? 

 

Kem: Yes, there are a couple. One was to stop investing in the college plan. I felt like, okay, well there's a potential that I might run short, and I just need to use this time up until the last minute to invest in it, and so she said to stop investing in the 529 and divert some of that to my retirement. And it's a relief hearing that from a financial professional, because then that just eases my mind that I'm okay, and it's okay to do that. 

 

Jean: Tell me about your student loans. I know that Cary suggested that you prioritize re-paying those loans. How much student loan debt are you looking at? 

 

Kem: About $55,000.  It may be slightly more, give or take. 

 

Jean: That's a significant amount. 

 

Kem: It is. 

 

Jean: What's your strategy now for getting out of those quickly? 

 

Kem: Well, the strategy is to pay more than what's required. The easiest way to get ahead of it is to pay more than what's required, and so at every opportunity I intend to pay more. 

 

Jean: Because the goal is to get you to retirement where you don't have debt yourself. 

 

Kem: That's exactly the goal. 

 

Jean: How was the whole experience of working with an advisor? This was your first time, right? 

 

Kem: It was. I really liked the accountability of it all, and I liked the comfort of knowing that I wasn't making decisions in a vacuum, because again, you know, everyone has their cabinet of advisors: my husband, my parents, even my son Copeland. But just the idea that someone professional with a financial background who is an expert in their field is guiding some of these saying either, yay or nay. Yes, you're headed in the right direction here, but what were you thinking with the other thing? And so that level of accountability has been helpful to me. 

 

Jean: As you look forward long term, do you think this plan sets you up to be in a better position for retirement, and to actually close that retirement gap that you were looking at? 

 

Kem: I think it absolutely does. I feel, like I said, the relief to prioritize my own retirement. The other side of it though is that I don't feel that it will stop here. I intend to remain engaged with financial professionals based on how helpful that it's been. 

 

Jean: How do you feel overall? I mean, coming into this, I know you a little nervous and a little unsure. How do you feel coming out the other side? 

 

Kem: I feel like I could do cartwheels quite honestly, because with Cary in particular, she's been through a lot of what I'm going through and so her advice was keenly on point and it also made me aware of some of the pitfalls, where, if you're prepared for them you can better plan. And so you know, you always plan to be profitable, but you need to spend is if you're not going to be. 

 

Jean: So she gave you some business budgeting tips? 

 

Kem: She did! And that that's helpful. For example, to rent out the portion of my building that I'm not going to use for my own personal office space. And the rest of the building, section it off, rent it out and share space in order to have a separate pool of resources that are not going to waste. And again, budgeting every penny to make sure that you do well. 

 

Jean: Well thank you so much for going on this journey with us and for sharing your story. We really appreciate it. 

 

Jean: Let's quickly go over the steps that Kem will be taking to close her gap. First, when it comes to her budgeting, she is writing everything down. That's an eyeopener. She's prioritizing her own retirement savings over her son's college savings. She'll be paying down student loan debt, and she'll also focus on saving for retirement now that she no longer has an employer plan. We are so grateful to Kem and Cary for sharing this journey with us today. And we're thankful to all of you for joining us for this episode of Closing the Savings Gap. Our goal in all of this is to make sure you close your personal retirement gap so that you have enough not just to survive in retirement but to actually enjoy it. And for those of you who have enjoyed this program, I'd love to suggest that you check out my weekly podcast, HerMoney with Jean Chatzky.  It is our continuing conversation on money and life — and life and money — for women of all ages. For now, please tune in to the next episode of Closing the Savings Gap, and join us at AARP.org/closingthegap to find episodes, stories, and more great content. Hope to see you there and we'll talk soon. 

 

Disclaimer: The information contained in this podcast is provided for educational information purposes only, and does not constitute a recommendation from any guest of the podcast to the listener. Neither any guests nor any of its affiliates makes any representation or warranty as to the accuracy or completeness of the statements or any information contained in this podcast, and any liability, therefore, including in respect of direct, indirect, or consequential loss or damage is expressly disclaimed. The guests of this podcast are not providing any financial economic, legal, accounting, or tax advice planning or recommendations in this podcast. In addition, the receipt of this podcast by any listener is not to be taken as constituting the giving of investment advice by such guests or their affiliates to that listener, nor to constitute such person a client of any guests or their affiliates. 


Episode 4: Savings Strategies for Retirement, College Expenses and More

Hilda, a 46-year-old business owner, learns how careful budgeting can make a big difference when it comes to saving and planning for retirement

Episode 4 – Small Savings Steps Go a Long Way (4/17/19) 

 

Hilda: What I'm really looking to gain from this process is a way to approach the big goal of saving for retirement by identifying some of these baby steps that I need to get there. I'm finding that I'm thinking about the big picture and that's really preventing me from figuring out, well, what are some of the smaller steps that I can take now that will get me to that end goal.

 

Jean: Hi everyone. I'm Jean Chatzky, and you're listening to AARP’s Closing the Savings Gap. You might have seen me on the Today Show or listened to the HerMoney podcast. I'm also proud to be AARP's Financial Ambassador.  On the next seven episodes, we'll be talking to real women as they work to close the financial gap holding us back in retirement. This is the gap between the income we're on track to draw from our savings and social security, and the amount we're going to have to spend on essentials like groceries, healthcare, and housing. It can be a big gap, especially for women who earn just eighty cents on the dollar compared to men. By age 60, we've earned a whopping $1,000,000 less than our male counterparts on average, and then, because we live a half decade longer, we have to figure out a way to make that money last. Closing the gap may sound daunting, but it is not impossible. Over the course of this series, you'll meet women who have a retirement gap because of a common financial roadblock. It could be debt, overspending, undersaving, lack of confidence when it comes to investing. Don't be surprised if some of these stories sound familiar. My team has matched each of these women up with a financial planner who's taking them by the hand and helping them make the changes they need to retire with confidence, and so that you can do the same.

 

Jean: On this episode, we're going to be exploring the problems that arise when you forget to pay yourself first, or put off saving for retirement because you simply have other things on your plate. On this show, we'll hear from Hilda about taking baby steps into saving for her retirement while simultaneously pursuing her dream of starting her own business. Hilda is 46 and she's joining us from her home in St Petersburg, Florida. Hilda, welcome.

 

Hilda: Thank you. I'm excited to be here.

 

Jean: You own a Kiddie Academy franchise. What is that exactly?

 

Hilda: So a Kiddie Academy is educational-based child care. We provide a setting where the children are learning through play. Each classroom for each of their ages is appropriate to where they are, both at their age and development cycle. And we offer that care for infants as young as six weeks old through school age.

 

Jean: Wow. Did you always want to be an entrepreneur?

 

Hilda: No. It's funny. I'm a little bit on the conservative side, so I think I fantasized about the idea of one day owning my own business, but probably wouldn't have taken the leap without the encouragement of my husband who is much more of a risk-taker, so that balance between the two of us I think works right, and helped us make the decision at a time that was right in our relationship.

 

Jean: And you're parents as well. Tell us a little bit about your family.

 

Hilda: Yes. So we have three kids. Our oldest is 13, and our middle child is 10, and the youngest brother is 7. So funny thing is, our 7 year old was actually our first enrollment at our kiddie academy because I became pregnant while we were in the process of opening our academy.

 

Jean: I am guessing he got a nice break on tuition.

 

Hilda: Yeah, a good discount. (laughs)

 

Jean: Yeah, absolutely. The family plan.

 

Hilda: Right.

 

Jean: Tell us about your financial life. How has opening this franchise lined up with your goals for retirement, for college and for the future?

 

Hilda: Well, in many ways we felt that by opening the Kiddie Academy would give us a lot of financial freedom, but I don't think we approached it with a good plan around retirement. We felt that we were investing in our retirement by opening our business, and down the road when we were approaching the retirement age, we would sell the business and that would be kind of our nest egg.

 

Jean: Is that still what you're thinking?

 

Hilda: It is what we're thinking, but it's, it's difficult for me, being the conservative one to gauge. Are we better off with that approach than a traditional retirement process, like a 401(k), IRAs or other tools like that?

 

Jean: Did you and your husband both put all of your retirement money into the business?

 

Hilda: My husband did. He rolled over all of his 401(k) from his prior employer. Then I stayed in my corporate job up until 2 years ago, and during that time continued to contribute to 401(k) plan that my employer sponsored. So it really wasn't until 2016 when I left my corporate job to focus on opening a second Kiddie Academy that I stopped contributing to my 401(k) plan. And I really haven't contributed anything since to any type of retirement account.

 

Jean: So how are you doing as far as your retirement savings are concerned? How much money do you have in that account?

 

Hilda: So I have roughly $420,000 in my retirement account. It's about the same amount that it was two years ago, because I went ahead and left it with my prior employer and I haven't been doing anything really proactively to manage the funds that are in there.

 

Jean: And what about college? Have you thought about opening college accounts for your kids? Is paying for college for your children a goal?

 

Hilda: It is definitely a goal. It's not something that we've made big strides towards. I would say maybe a few thousand dollars per child in a traditional savings account that's running pennies.

 

Jean: As you think toward the future and not just college, but retirement, and maybe exiting these businesses somewhere down the line, what are your concerns?

 

Hilda: Not really having a sense of the value of our businesses. What that will be in maybe 20 years when we're ready to retire. And being able to always do what we just did, and have enough to cover our expenses, when you own your own business.  Things are good right now. The economy is strong.  All of those people that are working today need childcare. But if the economy were to shift and the unemployment rate goes up, then obviously that would have an impact on our business and our ability to continue to pay ourselves the way that we have. So the idea that have everything invested in our business and not anything outside of it for college or retirement, it feels like to me that's our biggest risk.

 

Jean: Have you or you and your husband ever met with a financial advisor?

 

Hilda: We have not. It's something we probably talk about annually. Usually beginning of the year when everyone's making their list of all the things that we're going to do better. So we have it at the top of our list along with exercising more and eating better, you know?

 

Jean: What holds you back?

 

Hilda: I don't know. I think it's not knowing anyone really, within our circle, anyone that consults with a financial planner. It's a little scary to us. But I'm excited about it and really just the opportunity to get past these fears.

 

Jean: It's always good when you can get a little bit of additional confidence. Thank you so much for doing this with us.

 

Jean: My team and I were so excited to be able to pair Hilda with certified financial planner, Michelle Mckinnon. She is the senior financial advisor at Payne Capital Management in New York, and also the co-host of the Smart Women Invest podcast – you all should give that a listen – dedicated to helping women close the gender pay gap. She's been in the industry for 8 years. Michelle, welcome.

 

Michelle: Thank you for having me.

 

Jean: Let's talk numbers first and then we'll get into the process. What was Hilda's gap looking like before when it came to retirement and what's she on track to do now?

 

Michelle: Well, I ran the numbers, put in all of the expenses for Hilda, along with their projected savings, which at this point they pretty much were not saving anything because they've got three young kids, and they have a business. And so even though they did have assets coming into the new business, they weren't making it, so I think Hilda already knew that, and so therefore we immediately jumped to the fact that she is going to be saving next year, which I thought was a great move on her part.

 

Jean: She didn't realize she had access a 401(k) retirement account. You've figured that out for her. Where was the missing link?

 

Michelle: So her husband uses the 401(k) as collateral basically, to start his business. And so they should also be able to use that as a 401(k), at least as a profit sharing. So I think she knew it all along, but she did not put two and two together and also since she's going to be making a salary next year, she should be thinking about a profit sharing or 401(k) for herself. So it's just those little steps, Jean, that really go a long way. And she's going to save an additional $1,000 per month.

 

Jean: And where is that money going to go?

 

Michelle: So two thirds of it, about $700 is going to go to her kids’ college, and then the $300 is going to go to retirement.  And the reason why we prioritized that is because she already has a decent amount of retirement assets from her old 401(k), so she's already a few steps ahead, but normally I would never have my clients prioritize education over retirement. But she was a little different because she already had retirement assets. And then once the kids are out of school, she's going to have that full $1,000 go toward her retirement.

 

Jean: And make up the difference at that point.

 

Michelle: Exactly. Honestly, Jean, that's what I see a lot of my clients do. When the kids are out of school, if they are young parents, they could have another 10 years to save for retirement. So that's oftentimes when I see clients really bank the most amount of their savings.

 

Jean: And I also think that you're dealing in reality, because as a parent, I know that if somebody told me to prioritize my retirement to the exclusion of my kid's college, I just wouldn't listen. You know as a parent, you're going to put money away for college for your kids, so you've got to find a way to feel like you're doing at least some of both, successfully. Often when you talk to entrepreneurs, people who are starting a business, they have this perception that the business IS the retirement plan. Did you find that with her, and how do you talk people out of that?

 

Michelle: Yeah, so I have a bunch of clients that have their own businesses, and when I run my projection, I do not include the business in terms of a large payout during retirement. Like they think they're going to sell the business, what have you. So I never include that in the numbers. So that's just a surprise in the positive, because we have no idea what the next 10 years are going to look like, what the next 20 years are going to look like.

 

Jean: Where do you worry that she's going to fall through the cracks?

 

Michelle: So we talked about how she needs to focus on either working longer, past 65. I walked through her expenses with her and they've got 3 kids, so there’s no way that they're going to be able to save more, because they've got enough expenses. So you know the other item that you can do if you're wanting to make your money last longer is to either make more money so you can save more money, or to work longer. And so she decided she wanted to do a combination of the two.

 

Jean: When it comes to this new money that Hilda will be putting into her 529s, and into her 401(k), how do you want to see her invest that?

 

Michelle: Aggressively. And I already told her that with the 529, you want to be aggressive because she's got at least 10 years until her first child goes to college. And so one of the worst things – and I see it all the time – is parents and grandparents want to keep their money super conservative, but that is probably one of the worst things that you can possibly do because, again, you need growth on that money.

 

Jean: And at what point do you pull back on being aggressive? How close to the kids have to be to college before you start getting a little more conservative?

 

Michelle: I always recommend the age-based funds through the 529s, so as the child ages, the fund itself becomes more conservative. So if the child is like a year away from school, it's going to be pretty conservative, so that way you can set it and forget it and you don't have to worry about changing it every year.

 

Jean: Sounds like a plan to me. Michelle McKinnon, we should give one more shout out to your podcast, it's called Smart Women Invest. Thank you so much for working with Hilda and thanks for being a part of this show.

 

Michelle: Hey, my pleasure.

 

Jean: So it's been a few weeks since Hilda and Michelle met. We are checking back in with Hilda to see how she's doing with her new financial plan. Hi, Hilda!

 

Hilda: Hi there, Jean.

 

Jean: So you got some very exciting news through this process. Bring us up to date with what you've learned and how you're doing.

 

Hilda: We did. We found that the numbers looked much better than we expected, and although the money that we've saved towards retirement in our past would not get us through our entire lives – assuming we both live long lives into our nineties – we're closer to that age range than we had anticipated. We really both were at a loss to even know where we stood, and being able to have that conversation with our financial planner, to put a stake in the ground and say, "Okay, this is kind of where your prior savings has gotten you, and here's where the gap is that we need to talk about now."

 

Jean: So many people don't want to look at the numbers because they're afraid the numbers are going to look terrible, and yet what you found was that the numbers actually look pretty good. And the second big reveal is you have a 401(k) that you didn't remember you had.

 

Hilda: Correct.

 

Jean: So that is amazing. What are you going to do as far as that account is concerned? How much money are you going to start contributing to it from now on?

 

Hilda: So in the short term, what we're going to do is contribute Ted's income – the goal was 10% initially to that 401(k) plan. Then, I will start paying myself a salary in 2019 when we open our second location. 

 

Jean: Hilda, we know you left a retirement account behind at your previous job. Were you able to find it and what'd you decide to do with it?

 

Hilda: So I did find the account and decided in the short term it can stay where it is, and I just need to continue to monitor it and make sure it's invested in a longer term strategy fund.

 

Jean: She also talked to you about paying off your credit card debt. How long have you been sitting with this debt and what is that gonna feel like to get out from underneath?

 

Hilda: We've had credit card debt for about the past 5 years and, again, it's an area where I really hadn't thought much about it. Partly because it's a credit card with our credit union, so in my mind thought we have a relatively low interest rate on it, and it's not something that I needed to prioritize. But talking to Michelle really reminded me that there was no reason why I should pay interest on a debt if I can do something to eliminate that debt. And so we're in a position where we're able to, either through our own company, pay ourselves a bonus, or do other things to be able to eliminate that debt relatively quick.

 

Jean: So I know from a human perspective, change is hard. How do you think you're going to be able to navigate making these changes in your life? And, you mentioned your husband Ted. Is he on board with all of this?

 

Hilda: He is. My husband's very supportive of the plan, but I think was also feeling at a loss as to where to start. And so having a plan like the one that Michelle prepared for us and reviewed with me is a helpful starting point. It doesn't seem as overwhelming to us because we have a map to use. And so I think of it almost like if you sent me in the woods to go hiking without any trail markers, I don't know if I'd make it anywhere. But having this map makes it less intimidating. So the two of us are very, very excited to start taking steps towards implementing it.

 

Jean: I know the last thing that she talked to you about was working beyond the age of 65. Is that daunting?

 

Hilda: It does not seem as daunting as it once did in my life, somehow. I don't know. I think about, you know, just trying to stay healthy, still save towards retirement, and if I get to 65 and I'm enjoying what I'm doing, then I'll continue to work. But I know that I have the nest egg available to me once I'm ready to hang up the, you know, the keys as they say.

 

Jean: It sounds like you know exactly where you're going.

 

Hilda: I'm feeling very optimistic.

 

Jean: Excellent. Thank you so much Hilda.

 

Hilda: Thank you, Jean. It was great speaking to you again.

 

Jean: As we wrap up this episode, let's just recap the steps Hilda will be taking to close her gap. In 2019, she's going to have an extra $1,000 dollars a month to save. – $700 will go into 529 accounts for her kids, $300 toward her own retirement. And once the kids are out of school, the full $1,000 to retirement. She's going to start using her company's 401(k) plan to save in a tax-advantaged way, starting with 10% of her compensation. She's going to get rid of that credit card debt. And she's going to focus on working a little longer than 65, and making more money if she can. A big thank you to Hilda and to Michelle for sharing their thoughts with us today and their experiences. I also want to say a big thank you to all of you for coming along with us on this episode of Closing the Savings Gap.  Our goal with this series is to help you think about the challenges that lie in retirement, way before the time you actually get there, so that you can close your own retirement gap. And for those of you who have enjoyed this program, I'd love to suggest you check out my weekly podcast, HerMoney with Jean Chatzky.  It is our continuing conversation on money and life — and life and money — for women of all ages. For now, please tune in to the next episode of Closing the Savings Gap, and join us at AARP.org/closingthegap to find episodes, stories, and more great content. Hope to see you there and we'll talk soon.

 

Disclaimer: The information contained in this podcast is provided for educational information purposes only, and does not constitute a recommendation from any guest of the podcast to the listener. Neither any guests nor any of its affiliates makes any representation or warranty as to the accuracy or completeness of the statements or any information contained in this podcast, and any liability, therefore, including in respect of direct, indirect, or consequential loss or damage is expressly disclaimed. The guests of this podcast are not providing any financial economic, legal, accounting, or tax advice planning or recommendations in this podcast. In addition, the receipt of this podcast by any listener is not to be taken as constituting the giving of investment advice by such guests or their affiliates to that listener, nor to constitute such person a client of any guests or their affiliates.

 


Episode 5: Protecting Your Finances With Life and Disability Insurance

With plans to work into her seventies, Narda, 48, reviews life and disability insurance options as a strategy to secure her financial future

Episode 5 – Insure Your Dreams to Protect Your Financial Life (4/24/19) 

 

Narda: I'm a first-generation American, and my parents were very conservative. It's the way I was raised. My parents never used credit cards. I use credit cards, but I pay them off every month. My parents just never believed in doing anything risky. The stock market was a foreign concept for them, so it was “Save your money and you live within your means”. So I never did anything too risky and never invested.

 

Jean: Hi everyone. I'm Jean Chatzky, and you're listening to AARP’s Closing the Savings Gap. You might have seen me on the Today Show or listened to the HerMoney podcast. I'm also proud to be AARP's Financial Ambassador.  On the next seven episodes, we'll be talking to real women as they work to close the financial gap holding us back in retirement. This is the gap between the income we're on track to draw from our savings and social security, and the amount we're going to have to spend on essentials like groceries, healthcare, and housing. It can be a big gap, especially for women who earn just eighty cents on the dollar compared to men. By age 60, we've earned a whopping $1,000,000 less than our male counterparts on average, and then, because we live a half decade longer, we have to figure out a way to make that money last. Closing the gap may sound daunting, but it is not impossible. Over the course of this series, you'll meet women who have a retirement gap because of a common financial roadblock. It could be debt, overspending, undersaving, lack of confidence when it comes to investing. Don't be surprised if some of these stories sound familiar. My team has matched each of these women up with a financial planner who's taking them by the hand and helping them make the changes they need to retire with confidence, and so that you can do the same.

 

Jean: On today's episode, you'll meet a woman who tells us she is planning to work well into her seventies, and we wish her so much luck with that! The problem is nearly half of all retirees – 48% – left the workplace sooner than they planned due to health problems, job loss, or other circumstances beyond their control. Narda is in the studio with me in New York. Welcome, Narda.

 

Narda: Thank you. So glad to be here.

 

Jean: It's nice to have you. So I know a little bit about you. I know that you are 48 years old. I know you are a married mom with a five-year-old and that you work as a chief compliance officer, which is an incredible title, at a healthcare company in Manhattan, earning about $150,000 a year.

 

Narda: Yes.

 

Jean: So those are your statistics. Tell us about you.

Narda: I'm a serial volunteer. Love to volunteer at God's Love We Deliver, and I volunteer at my daughter's school, on the parent's association, and anywhere people need help. I just love to help people. 

 

Jean: Tell us about your retirement planning. How are you doing when it comes to thinking about it, saving for it, and dealing with the other financial obstacles that get in your way when you live in a city as expensive as New York?

 

Narda: I think I do the minimum required in terms of retirement, so I participate in my company’s 401(k) plan, but I don't think I'm as aggressive as I need to be, and having a five-year-old daughter, I figure I'll be working at least for the next 26 years, to put her through school. So I'm hoping to remain healthy, and not have to worry about anything in terms of finances.

 

Jean: Your five-year-old daughter is in private school?

 

Narda: Yes.

 

Jean: And that's expensive?

 

Narda: It is. It is.

 

Jean: How much of your paycheck does that eat up?

 

Narda: I would say about 15%.

 

Jean: What's the overall tuition?

 

Narda: $51,000 a year.

 

Jean: That's a lot more than 15%.

 

Narda: I'm not great at math. (Laughs) 

 

Jean: It's about a third of your paycheck that is going to that. Are you the only breadwinner in your family?

 

Narda: My husband works, and so between our two salaries we are able to pay for her tuition, and one of the things that gives us an advantage is that I purchased my co-op years ago, and as a single woman I was able to pay it off. The conundrum is that we're in a walk-up and my husband has bad knees, so it's going to be very difficult to leave, because it's paid for and trying to find another two-bedroom apartment in New York City is really very, very expensive as you know. So we've made a commitment to pay for tuition, and so we don't want to skimp on her education, because the public schools in our neighborhood are okay, but they're not great and she's thriving where she is.

 

Jean: When you say you're doing the minimum in your company for retirement, can you be a little bit more specific? How much are you putting away?

 

Narda: I put 7% in my 401k, but I'm in not very aggressive funds because I'm a little nervous about the market. I'm just really conservative when it comes to investing.

And how about your husband? Does he have a retirement plan that he participates in? 

Yes, he does. Um, and he is actually probably more of a risk taker, but I don't know the details of what he's invested in and not.

 

Jean: As you know, we're going to match you up with a financial advisor who is going to take a look at this and help you figure out what the right things are to do. What sort of questions do you have for your financial advisor, and what are the things that worry you most?

 

Narda: What worries me most is, in terms of life insurance, I just want to be able to find some type of policy – outside of my company's policy that pays the bare minimum, essentially – that will again, leave something comfortable. My daughter will still have to work, still have to go to school and do well for herself, but something that will help her in the event my husband and I are no longer here.

 

Jean: Are you healthy?

 

Narda: I am. I am. I'm a retired New York City marathoner. I've run two New York City marathons. I haven't exercised and run as religiously as I used to since my daughter was born, but I do things. I do an 8-minute workout every morning now.

 

Jean: I do a 7-minute so you're one minute more than me! 

 

Narda: I'm trying to get back into shape. I eat well.

 

Jean: That's good. 

 

Narda: I don't smoke. I drink occasionally, but with a 5-year-old you have to drink.

 

Jean: These are all the sorts of questions that a life insurance agent is going to ask you when it comes to finding a life insurance policy and they're all good answers, so I expect that you won't have trouble getting a policy that works for you. One of the things that worries me about your plan is the planning to work until you're into your seventies. Are you serious about that?

 

Narda: I am. You know, Ruth Ginsburg for example, is my idol. Like if she could work as long as she's working, I can do the same thing too.

 

Jean: What other questions are you going to ask the advisor?

 

Narda: I'd like to ask what types of funds should I be investing in, and really help push me into something that is not as conservative as what I'm investing in now because really, the returns are so low that sometimes I think to myself, "Okay, I may as well just keep this under my mattress because the returns are not really there."

 

Jean: Have you thought about college for your daughter?

 

Narda: Oh, absolutely. Yes, and so my husband has looked into a 529, but I also want to ask questions about that because is it smart to put that money away? Does that count towards income for her in the future? I mean, there are questions that I have. I just want to make sure that we're doing the best things for her.

 

Jean: And the best things for you when it comes to checking those retirement boxes, because there is no financial aid for retirement.

 

Narda: That's right.

 

Jean: But there is a lot of financial aid for college. Narda, thank you so much for sitting down and telling us the beginning of your story. We're going to set you off on this journey and we will check back in with you in a few weeks to see what's shaping up as your plan, and how much of this gap you're going to be able to close.

 

Narda: Terrific. I'm looking forward to it.

 

Jean: Thanks so much.

 

Narda: Thank you.

 

Jean: My team and I were so happy to be able to pair Narda up with certified financial planner, Lynn Ballou. Lynn is the regional director for EP Wealth Advisors in California's bay area. She's got more than 30 years of experience helping women deal with the financial complexities of retirement and other transitional moments in life. Hi, Lynn.

 

Lynn: Hi. Thank you so much for inviting me onto your podcast.

 

Jean: Oh, well thank you so much for doing this, for helping Narda and for helping everyone who's listening. It's so important.

 

Lynn: It is. You're right. We can't have these conversations enough.

 

Jean: Tell us a little bit about the math in Narda's case. What did her retirement look like before she went through this process? What does it look like now?

 

Lynn: So first of all, can I just give Narda the biggest thumbs up and shout out? Narda is an example of a woman who totally understands the importance of the basic tenants of financial planning: Live below your means, try to live debt free, aspire to things that can be attained, and keep yourself in a position that if something goes amuck or awry, you're still going to be fine. In fact, if we could have her on the ballot for the next election or put her on boards of directors, I'm telling you things would be great.

 

Jean: We love her too, but she was pretty honest about the fact that this was daunting for her.

 

Lynn:  She did have some really good questions. She wanted to know, for example, were they doing a good job of protecting the assets that they had? They are under-insured for life insurance. They don't know if they have disability coverage through work, if they've elected it or not. It's easy for people to think, oh, I need life insurance, but it's hard for people to think, you know what? It's really statistically unlikely I'll ever cash in a life insurance policy, thank God, but it's really statistically likely that I'm going to experience some sort of disability short or long-term during my life, and that protecting the income that I'm bringing home while I'm still alive and I'm using resources at home, is maybe a more important focus, even than life insurance. And that's tough sometimes to talk about, but it's nonetheless the statistical truth.

 

Jean: Disability insurance can be very expensive. Did you suggest that Narda look into what's available from her employer?

 

Lynn: I always suggest going to the employer, sometimes almost impossible to actually buy disability insurance outside of our employers. So you want to look at all the group plans, all the extra liability, and disability insurance you can buy on your own. And you also want to look at what's available through your state, if you have state disability insurance.

 

Jean: Those are some fabulous suggestions. Narda told us she's contributing 7% to her retirement at work. Is that enough? Or do you want to see her increase those numbers?

 

Lynn: Great question. Before I answer the question about the 401(k), let's take a little side trip, because these are all sort of tied together, because there's really only so many resources that afamily has. So if they were to buy an apartment, it would be a little less than twice the value of what she lives in right now. And so if she could get a 30-year, low interest rate fixed mortgage, they would be increasing their cost of living, you know, by a substantial amount, a few thousand dollars a month between the mortgage and the extra property taxes, the upkeep and all of those things. And so then we have to come back to which goal is more important? Does that matter more, or does putting more money into retirement accounts matter more? So in a perfect world, I'd have them do both. I would have her max-fund the $18,500 per year that she can into her 401(k). and I think that goes up to $19,000 next year, if I'm right. And then also by the way, Ken is not doing the full amount that he can fund. He's doing $18,500 and because he's over age 50, he could be doing another $6,000 a year. If they both funded everything they could, that would put them about $400,000 to $500,000 ahead over their whole life expectancy in terms of net worth. Does that make sense?

 

Jean: It makes total sense because it's all about tradeoffs, right? It’s all about tradeoffs. And I know they've got a daughter as well. They want to make a contribution to college for her. So as you laid out all of these things, what was your hierarchy for her?

 

Lynn: So in my perfect hierarchy, the first thing they do is they get their insurance house in order, and that might be involving, you know, a few thousand dollars a year of extra expense for disability or life insurance. Then the second thing I think we would do is try to have Narda and Ken prioritize the house.  But in a perfect world they would partially or fully fund their 529 plans. So in New York on the plans that you have there, she and Ken can put in up to $520,000 into 529 plans. So where is a bigger house, compared to pre-paying for college, compared to maybe retiring a little bit younger, compared to having a higher net worth?

 

Jean: This is what financial planning is all about. You look at it from the perspective of helping Narda and helping the women who are listening accomplish their goals. So I just want to say a huge thank you for working with her and for helping her feel so comfortable with her finances moving forward.

 

Lynn: Oh totally my pleasure. Thank you for this opportunity and a shout out to all the women do ask for directions. I am going to stay in touch with Narda. I think she and I bonded on a very personal level, as well as a professional, and she is truly an amazing woman.

 

Jean: It has been a few weeks now since Narda and Lynn met, and we are checking back in with Narda to see how she's doing with her new financial plan. Hey, Narda.

 

Narda: Hi. How are you?

 

Jean: I'm good. I'm good. So I understand the getting going with this was tougher than you expected?

 

Narda: Yes. Just because it's intuitive. I mean, Lynn and I connected very well. Part of getting organized when it comes to finance is organization and really just taking and making a really good assessment of everything that you have. And so bringing everything together was probably the most difficult part, but once you have it together it's like, oh, okay. Why haven't I been doing this sooner?

 

Jean: I totally get that. I have this file system on my desk, and I just shove papers into a file and eventually it gets to the point where it looks like it's going to explode, and I actually file them in the appropriate place in the filing cabinet, but as everything is building up, it just gets daunting and you have to tackle it and get through it until you realize that you can control it. So now that you are organized and you've got your plan, tell me how it's going, and tell me what steps Lynn is putting you through? 

 

Narda: It's actually going well. One of the Aha! moments was: Think of yourself first. I come from a family where my parents put the children first all the time, and they were selfless, and I find myself doing the same thing. So one of the things Lynn asked me was, "Why aren't you maxing out your 401(k)?" But in the back of my mind I said, oh, well I have all these other obligations that I have to set in place to make sure my daughter has everything she needs. And she said, "Well, I think you'll be okay. You know you are not going to miss this money if you just put it away, pretax."

 

Jean: Another big item that she had you look at was your need for insurance. Disability – which I don't even think was on your list when we originally spoke – and life insurance. How is that process going? What's the plan there?

 

Narda: My focus was so much on life insurance. She said, no, this is actually the area you should be looking at first, because God forbid something happens to you. And I said, Oh my goodness, it's just one of these areas when you're healthy you don't even think about it. So, at open enrollment I'm signing up for long-term disability as well.

 

Jean: We can't all be Ruth Bader Ginsburg, but are you still planning to work into your seventies?

 

Narda: I wouldn't mind, because I truly love what I do. Most of the time I'm reading and writing and so it's not labor intensive. I mean, I may have to curtail my hours if the New York City transit continues to operate the way it does, but really I love what I do. So I could see myself working well into my seventies.

 

Jean: But it's nice to know that you don't have to.

 

Narda: Exactly.

 

Jean: Tell us a little bit about the experience of working with a financial planner. How did that feel, and how did it make you feel about your future?

 

Narda: One of the things about Lynn is that she was an excellent listener and there is no judgment. She truly wanted to know: tell me about your life. And I mean we ended up talking for hours and, and really not that I'm replacing you, Jean, but I've found another BFF. I mean she was phenomenal, and she was a great listener and just had really great suggestions.

 

Jean: You know that's interesting. When I get asked, "How do you know if it's a good planner?" My answer always includes a recommendation that the planner listens more than they talk because that's the only way they're gonna know what's going on in your life.

 

Narda: Exactly.

 

Jean: Well, thank you so much, Narda, for sharing this journey with us and going on this ride with us. We so appreciate it.

 

Narda: Thank you for making this happen. It's one of these things that has been in the back of my mind forever and I'm so glad I was finally able to dedicate some time to it and put it together.

 

Jean: Let me just recap the steps. Narda will take to close her retirement gap. She and her husband are going to look at life insurance and disability insurance options to see what's right for them. They need to protect this financial life they're building. She's going to increase her contributions to her 401(k) plan to 15%, open a 529 plan for her daughter's education, and make a thoughtful decision about whether moving to a more spacious place in New York City – maybe with an elevator – is in the cards. A big thank you to Narda and Lynn for sharing their thoughts and their experiences with us today. And a big thank you to all of you for joining us on this episode of Closing the Savings Gap. Our hope is that you’re not able to just survive your retirement, but that you can actually enjoy it. And for those of you who have enjoyed this program, I'd love to suggest you check out my weekly podcast, HerMoney with Jean Chatzky.  It is our continuing conversation on money and life — and life and money — for women of all ages. For now, please tune in to the next episode of Closing the Savings Gap, and join us at AARP.org/closingthegap to find episodes, stories, and more great content. Hope to see you there and we'll talk soon.

 

Disclaimer: The information contained in this podcast is provided for educational information purposes only, and does not constitute a recommendation from any guest of the podcast to the listener. Neither any guests nor any of its affiliates makes any representation or warranty as to the accuracy or completeness of the statements or any information contained in this podcast, and any liability, therefore, including in respect of direct, indirect, or consequential loss or damage is expressly disclaimed. The guests of this podcast are not providing any financial economic, legal, accounting, or tax advice planning or recommendations in this podcast. In addition, the receipt of this podcast by any listener is not to be taken as constituting the giving of investment advice by such guests or their affiliates to that listener, nor to constitute such person a client of any guests or their affiliates.


Episode 6: Repairing Your Finances After a Divorce

Karen, a 57-year-old divorcee, looks to replenish her retirement savings after filing for bankruptcy and borrowing from her 401(k)

Episode 6 – Starting Over Financially After a Divorce (5/1/19) 

 

Karen: It’s been about 10 years since the divorce and so I’ve been through a bankruptcy, and have bought a house on my own and I'm helping my son through college. I'm on top of my bills and keeping things going with the house, but it's little bit of a struggle with just kind of living paycheck to paycheck and making sure ends meet. I'm at the age where I'm thinking more about retirement, and so I have a few concerns about my future.

 

Jean: Hi everyone. I'm Jean Chatzky, and you're listening to AARP’s Closing the Savings Gap. You might have seen me on the Today Show or listened to the HerMoney podcast. I'm also proud to be AARP's Financial Ambassador.  On the next seven episodes, we'll be talking to real women as they work to close the financial gap holding us back in retirement. This is the gap between the income we're on track to draw from our savings and social security, and the amount we're going to have to spend on essentials like groceries, healthcare, and housing. It can be a big gap, especially for women who earn just eighty cents on the dollar compared to men. By age 60, we've earned a whopping $1,000,000 less than our male counterparts on average, and then, because we live a half decade longer, we have to figure out a way to make that money last. Closing the gap may sound daunting, but it is not impossible. Over the course of this series, you'll meet women who have a retirement gap because of a common financial roadblock. It could be debt, overspending, undersaving, lack of confidence when it comes to investing. Don't be surprised if some of these stories sound familiar. My team has matched each of these women up with a financial planner who's taking them by the hand and helping them make the changes they need to retire with confidence, and so that you can do the same.

 

Jean: On this episode, we're going to be looking at some common financial problems that millions of women face. How many of you have a solid emergency fund that you could rely on in the event of an accident or a job loss? Many people don't. 52% of families earning $50,000 or more, have less than three months' worth of living expenses tucked away, which means an unforeseen expense is more likely to go straight onto the credit card. And while not having an emergency fund can be a source of worry, it's saving for retirement that comes in as the number one source of financial stress for all Americans. Today we're going to be speaking with Karen, who is dealing with some of those concerns right now. Karen's 57 and she's joining us today from Sacramento, California. She works as an executive assistant earning $75,000 per year and she has three kids. Welcome Karen. Thanks so much for being with us.

 

Karen: Oh, you bet. I feel like such a celebrity.

 

Jean: Oh my goodness. Well, it is our honor to have you. I know that the last couple of years have been a little bit tough, but you've emerged and you are starting over after a divorce. So tell us what was going on. What was the cause of the debt, and how did you get out of it?

 

Karen: Well my husband had a business on his own, so there was some debt incurred with that. So the bankruptcy was mainly to disassociate myself with that debt that wasn’t mine, and then kind of start fresh on my own and keep track of the bills and pay things on time. I think there's been a real turnaround with the way I deal with money now versus how I did in the past. When we were first married, we were married really young. We were 20 and 21. We were, you know, instant gratification, and when you got the money, you spent it. When we got some extra cash well, you know, it sounds nice for us to just purchase this or purchase that, or take a trip. So I was thinking about bills as a last minute thing - Oh yeah, we better take care of this bill. I would spend most of my time going into the telephone company or going to the electrical company and paying the bill on the very last day before they were turned it off, you know? And that wasn't any fun at all. So fast forward to today. I pay bills first. If there's anything left over at the end of the month. Then that's when that I think about, you know, getting a treat or buying something that I've been looking at. 

 

Jean: As you look at what led you down the road to divorce, was money at the heart of it?

 

Karen: It may have been. I think probably because we didn't talk about it, we just lived that lifestyle and didn't communicate about and say, "I don't like doing it this way, let's try something else." So with that festering, that may have added to the fact that we just didn't get along anymore.

 

Jean: Alright, well fresh start time.

 

Karen: Exactly.

 

Jean: Tell us what you do day to day.

 

Karen: As far as money goes, I keep track of everything daily on a big spreadsheet, and I make sure I can forecast through the end of the month, to see what I'm expecting to spend on things, and what bills are coming in, and what income I have coming in.

 

Jean: And you've got three kids, not just the one who's in college. Where are the other two?

 

Karen: My oldest is in the Santa Cruz, California area. He and his wife live there. They're both musicians and they've just had my beautiful little granddaughter. She's eight months old now.

 

Jean: Oh, congratulations.

 

Karen: Oh, thank you. It's very fun being a grandparent, and then my other child daughter, she's here in Sacramento and she works as a hat designer.

 

Jean: So just the one on the family payroll still?

 

Karen: Yes. Probably will be graduating in the next year or two. He's possibly adding on some time to get into cybersecurity.

 

Jean: That sounds great. You mentioned retirement as being a big concern and that is what this podcast is all about. Where are you as far as your retirement is concerned?

 

Karen: Well, I have a 401(k) that's through my company, and they're great. They match at 4%, so I'm currently maxing it out. I have about $60,000 right now in that account. I have pulled out a couple 401(k) loans, so that's of concern to me because I'm paying that back. Even though I pay it back with interest, the interest goes back to me, so it does help build my fund back up, but it's not able to be in the market and increase like it should be at this time. I think if I were to be able to put more toward it, I would probably would be better off in my retirement, but right now it's difficult with my living paycheck to paycheck. We did recently get a report here at work about our 401(k) and what it looks like today, and then forecasting it toward retirement age. And the way mine looks right now, they estimate that I can survive comfortably for 10 years once I retire, so looking at that gives me concern. Wondering, okay, what do I do after that 10 years?

 

Jean: Are there other contributing factors to living paycheck to paycheck? Are you dealing with any other credit card debt, or other things that are weighing you down?

 

Karen: Yes, I do have that $10,000 in credit card debt and I'm helping my son buy a car. And I also have another car payment, so those things are probably the most contributing to the living paycheck to paycheck. The rest of my bills are fairly small, as far as just you know, the mortgage payment and utilities and that kind of thing. I don't really do much other spending as far as, you know, going out a lot, or shopping.

 

Jean: Do you have emergency savings or other money set aside that can prevent you from going further into credit card debt if anything else hits you unexpectedly?

 

Karen: That's something that I would really love to have. I haven't been able to get to that point and I still live on my credit cards quite a bit. So if I could learn how to build that emergency fund, that would be great.

 

Jean: Tell us a little bit about your income and your earning power. Like I said, I know you work as an executive assistant.

 

Karen: I've been with this company for 13 years, and it's very stable. It's something that I love. And the job is good work, and I'm happy to be here.

 

Jean: That's good. We don't hear that often enough.

 

Karen: Right. I get an annual increase of about 4%, so that does help toward that retirement as well. I have looked at the possibility of doing something in addition to this work, maybe some virtual assisting or something I can do on the weekends. I just haven't been able to find that right fit.

 

Jean: Okay. But that's something that you would be open to?

 

Karen: Sure.

 

Jean: And how about your home? You own it, correct?

 

Karen: Yes, I bought it back in 2016. It's a newer home and it doesn't have any issues or anything, knock on wood, and the mortgage payment is about $2,000 a month.

 

Jean: Oh, that's terrific. And is it a 30-year mortgage?

 

Karen: Yes, my interest rate is only 4.25%.

 

Jean: Excellent. Even less after the tax deduction.

 

Karen: Exactly.

 

Jean: So it sounds like our marching orders are really to look at all of your resources and just figure out how to best use them to get rid of that credit card debt to beef up the emergency savings and to make some real headway in your retirement accounts.

 

Karen: Sounds great.

 

Jean: Okay. So we are going to introduce you to your financial advisor, and we'll get you moving on a plan.

 

Karen: Thank you so much, Jean! I'm so excited.

 

Jean: Thank you. Me too!

 

You're listening to AARP’s Closing the Savings Gap podcast series, brought to you by Fidelity Investments. Figuring out what’s next for your retirement starts with knowing where you stand today. So take the first step by getting your Fidelity retirement score. Find out more by visiting Fidelity.com/score.

 

Jean: My team and I were so excited that we could pair Karen with certified financial planner, Marci Bair. Marci has over 25 years of experience, she is president of the company she founded, Bair Financial Planning. She specializes in working with female executives, LGBT couples and business owners to get them to and through retirement and she is joining us from San Diego, California. Hey Marci, welcome.

 

Marci: Hey there, thank you.

 

Jean: Tell us about the experience of working with Karen and what did you end up recommending for her?

 

Marci: Yeah, it was wonderful working with Karen. She's a very nice lady and definitely in need of financial planning advice, and in particular paying down debt. Not unlike a lot of people. In her particular case, she's got three children. Most of them grown, one of them still just on the edge of getting out of college, and then he'll be on his way soon. So she spent a lot of time raising the family, and now is a time that she needs to put some focus on her and her future, and so we were able to really wrap our arms around everything that she owns and owes. So she could at least start with a clear picture. I think that's the first place you have to really understand is, what kind of assets do you have, and what kind of liabilities?

 

Jean: I think a lot of people don't know that very basic information about themselves, and also when you go through a divorce – and I say this as somebody who has gone through a divorce – your entire picture essentially changes in the flash of a second. And even if you knew what it was before, you may not know what it is now, or you may not be realistic about what it looks like now. What did the gap look like for Karen as you went into this process with her? What does it look like now?

 

Marci: So, in her case, while the emergency account was really thin, we did want her to put more of an emphasis on paying down her credit cards. And so we gave her two different techniques, the avalanche version or the snowball, and at her current pace it would be about 5 years before she would be debt free. And utilizing a concentrated effort, we could cut that significantly down. And at the same time, we want to try and get some money into her savings account so that in an emergency she doesn't have to go back to credit for that purchase.

 

Jean: So essentially you're asking her to do both at the same time. And the regular listeners to this podcast know that the avalanche is where you pay down debts, starting with the highest interest rate first, and the snowball is where you pay them off smallest to largest. Which one do you think she's going to pick?

 

Marci: Well, I think she might lean a little more towards the snowball. You get some wins at least, early on. So maybe start with that. See a couple of things get paid off and you know, get a smile on your face, seeing that you've accomplished something. And then maybe go to the avalanche. The other thing is what we really stressed with her is to bring in some part time income, an additional income source. She does have a full time job, but she's kind of an empty nester. Now's the time. Plug into work and get some extra income going. The type of skills that she has will be totally transferable for some sort of virtual assistant kind of position.

 

Jean: You basically suggested a side gig?

 

Marci: Definitely a side gig for her, because she's just so tight at the end of the month, and we didn't really see in her budget that she was extravagant in any area at all. So it wasn't like she could cut back and cut back. Everybody could cut back a little bit, but she wasn't so far-fetched and in restaurants and dining – which is a big category that we see – or you know, taking a lot of travel and trips and vacations. We didn't see that in her budget.

 

Jean: Retirement savings is often on the list. Does she need to bolster her retirement savings as well, to close the gap?

 

Marci: Yeah. A lot of people in her situation we say, "Don't take social security until the very end. Let it grow." So even though she could take it at 67, let's say, it will actually increase until age 70. So if she could wait until 70 to collect at the same time she retires, that would be ideal.

 

Jean: So many wonderful options. Are you feeling positive and hopeful for her?

 

Marci: I am. I am. I think she needed a clear path, to really understand what her situation is right now. And then what are some steps she can just take this month, next year, the next year and next year. And keep going.

 

Jean: It sounds fantastic, Marci. Thank you so much.

 

Marci: You're welcome. This was a pleasure.

  

Jean: So it's been a few weeks now since Karen and Marci first met. We wanted to check back in with Karen and see how she's doing on this new road to financial success. Karen, bring us up to date. What are you doing since we last spoke? 

 

Karen: Well, Marci and I have been working together very closely. She has gathered all my information, and she's building kind of a dashboard for me so that I can see everything all in one place: my net worth, my liabilities, the assets that I have. It's a great tool and I'm really excited to keep working with it. We're paying down my debt and adding to my retirement and getting an emergency fund set up, so I'm really excited about the progress that we're making.

 

Jean: You know what's so interesting about that dashboard? I've done some research in the past, and I've read other research that points to the fact that feeling good about your finances is so much more about the control you have over your money than it is about the amount. Now that you can see it all in one place, do you feel like that?

 

Karen: Oh, definitely. I think that it's so much easier to be able to just kind of look at an at a glance view of everything and see that it's not so overwhelming, that, "Oh my gosh, I can't possibly deal with that right now." If you have it in one place, you can see that, okay, well if I just make this little tweak here, that affects this over here, and then it's looking so much better. So yeah, it's really exciting, and I think that really to make anything stick, you have to make it a little difficult.

 

Jean: Why do you think that is? That's such an interesting philosophy.

 

Karen: Well, I think if you work hard at something, it's going to mean much more to you than if it's really easy. And so I think by making these changes and maybe making it hurt a little bit, it's gonna mean something when I consider using those cards again and racking up some more credit card debt.

 

Jean: I think you're right. What sort of impact is making these changes going to have on your life? I know you're in a new phase of life as a woman on your own. This is a scenario that a lot of us find ourselves in, having to take the reins and manage it.

 

Karen: I think it does give you a feeling of, "I'm in control, and my life is what I make of it," and so it gives you a kind of a sense of accomplishment that, okay, I can do this and I can go forward and be a woman on my own, and do the things that I want to do and not feel like, "Oh, woe is me. I'm a victim."

 

Jean: It's exciting and empowering, and some people would even say it's sexy.

 

Karen: Yeah, I like that!

 

Jean: One of the other things on your list is some instruction to get you to ramp up your saving. Again, both for an emergency fund and for your retirement. Do you think you'll be able to succeed there?

 

Karen: I think definitely. Marci is very committed and very responsive, and I really believe that we'll be able to work together and make it happen.

 

Jean: What's interesting about the way that you talk about Marci is that even though you no longer have your spouse, she's become a partner in this. An advisor can take the role of that "other person" in the relationship, and provide the accountability and support that you're lacking after you go through a divorce, or lose a spouse, or even if you're single and just don't have anybody else along for the ride.

 

Karen: That's a really interesting way of looking at it. I really hadn't thought of it that way, but you're right on. I think that's definitely what she's becoming for me – just kind of a sounding board and someone that I can talk to that cares about me, cares about my success in this and gives me that feeling that I'm not alone here, just grasping at the straws of the knowledge that I have. I can tap into this other person's knowledge base, a person that has been through this with others before and has experience and success driving her forward. So that's very exciting.

 

Jean: Overall, are you feeling positive and hopeful?

 

Karen: Absolutely. I'm very excited.

 

Jean: Thank you, Karen, so much, not only for going on this journey, but also for sharing it with us.

 

Karen: Oh, well thank you so much. I feel so much more confident when I know that there are people cheering me on. It feels great.

 

Jean: We're all cheering you on.

 

Karen: Thank you!

 

Jean: Some of you may have been taking notes, but let me just recap the steps that Karen is going to take to close her retirement gap. She's going to work on the income side of her equation by getting a side gig and maybe taking in renters in her home to use that as an income-producing solution. She's going to focus on paying down her credit card debt, building an emergency fund, first 3 months, then 6 months, ramping up her retirement savings and looking out to her future, being strategic about when she takes social security, whether it's at age 67 or at age 70. A big shout out to Karen and to Marci for embracing this quest with us. We thank you both so much.  We're also thankful to all of you who are listening for joining us for this episode of Closing the Savings Gap. We’re doing this because we want to make sure you close your personal savings gap so that you have enough not just to get through retirement, but to actually enjoy it. And for those of you who have enjoyed this program, I'd love to suggest that you check out my weekly podcast, HerMoney with Jean Chatzky.  It is our continuing conversation on money and life — and life and money — for women of all ages. For now, please tune in to the next episode of Closing the Savings Gap, and join us at AARP.org/closingthegap to find episodes, stories, and more great content. Hope to see you there and we'll talk soon.

 

Disclaimer: The information contained in this podcast is provided for educational information purposes only, and does not constitute a recommendation from any guest of the podcast to the listener. Neither any guests nor any of its affiliates makes any representation or warranty as to the accuracy or completeness of the statements or any information contained in this podcast, and any liability, therefore, including in respect of direct, indirect, or consequential loss or damage is expressly disclaimed. The guests of this podcast are not providing any financial economic, legal, accounting, or tax advice planning or recommendations in this podcast. In addition, the receipt of this podcast by any listener is not to be taken as constituting the giving of investment advice by such guests or their affiliates to that listener, nor to constitute such person a client of any guests or their affiliates.


Episode 7: Retirement Planning Without an Employer-Sponsored Plan

Family caregiver Liz, 47, lost her job and must tackle saving for retirement and rebuilding her emergency fund

Episode 7 – Stress Times Two: Losing a Job and Caring for Aging Parents (5/8/19) 

 

Liz: I always was a firm believer if you work hard and you're loyal, you always have a job, and that proved to be untrue in today's job market. This experience taught me that nothing is consistent, change is inevitable, and you have to be able to survive and pick yourself up.

 

Jean: Hi everyone. I'm Jean Chatzky, and you're listening to AARP’s Closing the Savings Gap. You might have seen me on the Today Show or listened to the HerMoney podcast. I'm also proud to be AARP's Financial Ambassador.  On the next seven episodes, we'll be talking to real women as they work to close the financial gap holding us back in retirement. This is the gap between the income we're on track to draw from our savings and social security, and the amount we're going to have to spend on essentials like groceries, healthcare, and housing. It can be a big gap, especially for women who earn just eighty cents on the dollar compared to men. By age 60, we've earned a whopping $1,000,000 less than our male counterparts on average, and then, because we live a half decade longer, we have to figure out a way to make that money last. Closing the gap may sound daunting, but it is not impossible. Over the course of this series, you'll meet women who have a retirement gap because of a common financial roadblock. It could be debt, overspending, undersaving, lack of confidence when it comes to investing. Don't be surprised if some of these stories sound familiar. My team has matched each of these women up with a financial planner who's taking them by the hand and helping them make the changes they need to retire with confidence, and so that you can do the same.

 

Jean: On this episode, we're going to talk about dealing with life when it happens. According to research from the Stanford University Center on longevity, individuals experience – on average – four stressful life events each year. They can be positive things, like buying a new home or having a baby, but they can also be negative ones. Liz was hit with two of the bad ones in short order: the loss of her job, which shattered her emergency cushion, and having to care for an aging parent. Caregivers, two thirds of whom are female, look a lot like Liz and a lot like many of us. The average caregiver is a 49-year-old woman who works outside the home and provides 20 hours per week of unpaid care. Liz is 47 years old. She lives and works in LA, and she currently earns $80,000 per year. Welcome, Liz.

 

Liz: Thank you so much for this opportunity.

 

Jean: Tell us all a little bit about you. Where are you from and how did you get into your current field?

 

Liz: I'm a first generation Mexican-American, I've lived all my life in California. I'm the first to graduate from college. I've always been a really hard worker. I graduated college in undergrad in accounting. I started my early career path in that profession. I was an auditor accountant. I ended up working for a hospital as an analyst, and I was there for 13 years until I was laid off, and now I am currently a loan coordinator at a small real estate firm.

 

Jean: So you were at this hospital for 13 years. What happened?

 

Liz: It went through a restructuring, and I was one of the ones affected.

 

Jean: Was it surprising? Was it anything that you were expecting?

 

Liz: No, I was not expecting it.

 

Jean: It must have been incredibly disappointing. During the time that you were laid off, what did you live on?

 

Liz: I had unemployment for 6 months, and then thank God I had 3 to 4 months of an emergency fund saved. So that's what I lived off of.

 

Jean: Did you have to take any more drastic measures than that?

 

Liz: I did ring up some debt during that period.

 

Jean: How did you get back on your feet, and how long did it take you?

 

Liz: Well, I've always been a fighter, so I just quickly said, "Okay, well, plan B." So I ended up going to school, to paralegal school, a 6-month program at UCLA. Once I completed the program in November, I found something in February of 2018.

 

Jean: So that's pretty quick because nobody hires around the holidays, right. So you can just not even count that month and a half.

 

Liz: Okay, thanks. (laughs)

 

Jean: I know the next job, the current job that you have, doesn't pay what the old one did.

 

Liz: No, it doesn't. I had a reduction of about $15,000, which is why I haven't been able to build up an emergency fund.

 

Jean: It's very important that you get that built back up again as quickly as possible. I know in your prior job you had a 403(b), which has a good amount of money in it, about $350,000. That's fabulous. And for anybody who's listening and doesn't know, a 403(b) is a retirement plan for employees of hospitals, schools and other tax exempt organizations – works a lot like a 401(k). You also have a pension. What can you tell us about that?

 

Liz: Well, I was very fortunate that at that time I was grandfathered in. As you know, many employers are no longer offering those. 

 

Jean: That's fantastic. Do you know how much money it will provide when you're in retirement?

 

Liz: According to the last statement, it was estimated to be about $1,000 a month.

 

Jean: Fantastic. So you'll have that. You'll have social security, you'll have your retirement accounts, but are you still worried that you won't have enough to live on?

 

Liz: Yes, because in my current employment, we don't have a program, so that is one of my worries.

 

Jean: Okay. So you need to find another way to save.

 

Liz: Yes.

 

Jean: Tell us a little bit about your family. What's your day to day life like? What sort of responsibilities do you have on your plate?

 

Liz: Well, although I don't have my own family because I'm a single woman with no children, I do have a responsibility, I have aging parents. I have a father with cancer.

 

Jean: Oh, I'm sorry.

 

Liz: Thank you. I know everyone has, you know, things in life. I'm a first-generation American, a Mexican-American, so my parents are not necessarily fluent in English so I'm actually the advocate, I’m the lawyer, the accountant. I have to figure out all their financial matters.

 

Jean: Can you tell us a little bit more about that and what sort of responsibilities come along with it?

 

Liz: I help with his chemotherapy treatments. I help them on figuring out how they pay their copays. I'm pretty much there helping them through the whole medical process.

 

Jean: Do you pay any of those bills? Is that a financial responsibility that you're shouldering as well?

 

Liz: Well, I did on his first chemo. He didn't know about it, but my brother and I paid for it until he got into a program for seniors that pays their copay.

 

Jean: And do you expect that there will be more expenses like that coming down the line?

 

Liz: I don't know. I don't know. I feel a responsibility to help my parents in any way I can.

 

Jean: So it seems like that's something that we should look into as well. So the goals then are not just to get you situated for retirement but also to replenish that emergency cushion, to get rid of the credit card debt that you've accrued and to get you contributing again for retirement.

 

Liz: Yes.

 

Jean: We'll be making the introduction to your financial advisor in just the next couple of days. We'll let the two of you get to work and then we'll check back in.

 

Liz: Excellent. Thank you.

 

Jean: My team and I were thrilled to pair Liz with certified financial planner Kathi Grace. Kathi has more than 20 years of experience and she works as a managing director at United Capital in Boca Raton, Florida. She is also the author of the personal finance novel, Prince Not So Charming. Welcome, Kathi.

 

Kathi: Hi there.

 

Jean: I think you're the first personal finance novelist I've ever met.

 

Kathi: It was definitely a unique idea, but I think one that puts financial planning advice into a format that's a little bit more enjoyable to read.

 

Jean: I'm sure that that is absolutely true, and thank you so much for working with Liz. Tell us about the math first. What was Liz's retirement gap before, and what will it be if she follows the plan that you've set out for her?

 

Kathi: So she's actually done a great job, and she has amassed quite a nest egg already, however, there were some gaps in some risk management for the future. Things that could pop up and completely derail her plan.

 

Jean: So essentially it seems like she's doing okay when it comes to retirement, but her nearer-term needs are more pressing.

 

Kathi: Yes.

 

Jean: Well, I know from talking to Liz how very committed she is to her parents and to her parents' financial security. Is that getting in the way of her own financial security?

 

Kathi: It's a great point, and it could. Because we find today that caring for aging parents is something that many people don't consider in their retirement plan. My mom had cancer, breast cancer treatments, and some doctor visits up to a certain extent are not covered under Medicare. Liz helping her own parents could very quickly derail her retirement.

 

Jean: So as you laid out a step-by-step plan for her, what did you suggest to make sure that these bumps in the road would not come along and sabotage the retirement that she's doing so well planning for already?

 

Kathi: So she has a small surplus left over each month of her income, over the expenses, and she has a savings account where I suggested she shift that overage that would be used, of course to help fund her parents' expenses.

 

Jean: I know she also incurred some debt when she was laid off. Did you talk about what to do about that?

 

Kathi: Sure. She's very astute and has discovered these zero-percent interest credit cards and had been switching balances to these zero-percent credit cards until that timeframe ended, and then opened a new one.  But we did talk about the downside to doing that – your credit report will actually show open lines of credit, and it negatively impacts your credit score. So I did tell her those are things that she would want to consider because if she was ever in the market for a car loan, she would benefit from having a higher credit score and lowering the overall interest rate. We made a plan in a 2-year period that she would pay off all the debt.

 

Jean: Finally, I know she's got a decent amount of money for retirement, but do you feel that she should continue to try to put away money for her own retirement?

 

Kathi: So we recommended that Liz contribute at least $5,500 to an IRA for this tax year. I think she could also reduce the internal expenses, because she's got a lot of mutual funds which have typically about a 1% or more internal expense ratios. So we did recommend that she look into lower costs, maybe consolidating some of the accounts to eliminate trade fees.

 

Jean: And you also suggested shifting her mix of assets, correct?

 

Kathi: Correct. We talked about reducing the international exposure, which will also help reduce the volatility and also reduce the overall equity exposure in the portfolio.

 

Jean: As we wrap this up, can you tell me how you feel about Liz's potential success?

 

Kathi: I think she will be successful, in part because it was easier for her to see once we laid out specifically the steps she would need to take, and the timeline she would need to take those steps in order to reap the benefit financially. And once she saw, “Wow, I am going to be okay if I do these things,” on paper with real numbers, I think people can attach themselves to specific goals when they can see line by line, year by year, the actual physical results. But also her personality seems to be so calm and low-key and non-impulsive, and it made me feel as though she would be committed to something because her personality seemed to be much more of a "slow and steady," and therefore less likely to be impulsive in spending, and more likely to be conservative and really thoughtful before she spends.

 

Jean: It sounds fantastic. Thank you for doing this with us. You're terrific.

 

Kathi: My pleasure!

 

Jean: It's been a few weeks since Liz and Kathi put their heads together, and we are checking back in with Liz to see how she's doing on her new plan.

 

Jean: Hey Liz. How are you?

 

Liz: Great.

 

Jean: How was the experience for you, of working with a planner for the first time?

 

Liz: It was good. She gave me different feedback and had recommendations I had not even thought about. I learned that I had been doing a great job with my prior retirement contributions. I have also learned that I need to work on paying off my debt, and since I lost my job last year, my current job does not offer a 401(k) plan, so my planner recommended that it contributed the maximum IRA contribution, which this year is $5,500 and continue maximizing that until my job perhaps implements a 401(k) plan, or I obtain a new job.

 

Jean: Did she tell you what to do with the money once you put it into the IRA?

 

Liz: Well, once it's deposited, I'm going to invest in mutual funds and perhaps a target date fund.

 

Jean: A retirement fund that is lined up with when you plan to retire.

 

Liz: Correct.

 

Jean: Excellent. You're in the position, like so many, of helping your parents. Are there any other things that have changed in how you're handling your parents' situation?

 

Liz: Well, I'm going to continue saving in my emergency fund, factoring in a portion for my parents' medical bills.

 

Jean: Fantastic. When it comes to paying down debt, tell me a little bit about what she recommended for you there. What's the focus and how quickly does she expect that you'll be able to do that?

 

Liz: I have $15,000 in debt. I have about five credit cards and they range anywhere from a zero introductory rate to as high as 16%. She recommended to pay down the one with the highest rate first.

 

Jean: It sounds very doable.

 

Liz: Yes, it does.

 

Jean: One of the first things you said was that she told you you were doing a good job. Were you surprised to hear that?

 

Liz: Yes. I was surprised. I just thought I wasn't saving enough and having someone actually tell you that you're doing fairly well, it was very empowering for me.

 

Jean: Thank you so much for doing this with us again. I hope that it was helpful.

 

Liz: Thank you!

 

Jean: Let's just quickly recap the steps Liz is taking to close her gap. She'll be building her emergency fund and putting aside money for her parents, saving for retirement and paying down some of that debt that was incurred while she was laid off, preferably over the next 2 years. A big shout out to Liz and to Kathi for being on this show and for sharing this process with us. We're also grateful to all of you for joining us on this episode of Closing the Savings Gap. Our goal with this project – the reason we’re doing it – is to make it possible for you to not only survive retirement, but to really enjoy those years and to make the most of whatever money you've been able to pull together, so that you can live a positive financially independent life. And for those of you who have enjoyed this program, I'd love to suggest that you check out my weekly podcast, HerMoney with Jean Chatzky.  It is our continuing conversation on money and life — and life and money — for women of all ages. For now, please tune in to the next episode of Closing the Savings Gap, and join us at AARP.org/closingthegap to find episodes, stories, and more great content. Hope to see you there and we'll talk soon.

 

Disclaimer: The information contained in this podcast is provided for educational information purposes only, and does not constitute a recommendation from any guest of the podcast to the listener. Neither any guests nor any of its affiliates makes any representation or warranty as to the accuracy or completeness of the statements or any information contained in this podcast, and any liability, therefore, including in respect of direct, indirect, or consequential loss or damage is expressly disclaimed. The guests of this podcast are not providing any financial economic, legal, accounting, or tax advice planning or recommendations in this podcast. In addition, the receipt of this podcast by any listener is not to be taken as constituting the giving of investment advice by such guests or their affiliates to that listener, nor to constitute such person a client of any guests or their affiliates.



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