HerMoney Podcast Bonus Mailbag #16: Retirement and Investing

Trying to make the most of hermoney podcast bonus mailbag? You are in the right place. Below we break it down in plain English, with practical tips you can actually use.

Key Takeaways

• We're tackling a special batch of listener questions on saving for retirement and investing in this Mailbag-only episode.  In honor of...
• Our listeners submit THE BEST questions all year long (to mailbag@hermoney.com), and we wanted to get as many as possible answered before 20...
• In this episode, Jean and Kathryn dive into your questions around saving for retirement and investing for the long-haul. Listen in as J...

We're tackling a special batch of listener questions on saving for retirement and investing in this Mailbag-only episode. 

In honor of a very happy holiday season, we’re celebrating with our HerMoney family with five special Mailbag-focused episodes! Our listeners submit THE BEST questions all year long (to mailbag@hermoney.com), and we wanted to get as numerous as possible answered before 2020 rolls around.

In this episode, Jean and Kathryn dive into your questions around saving for retirement and investing for the long-haul. Listen in as Jean advises a woman on how much she really needs to save for retirement… Is $1.7 million per person the right amount, or perhaps 25 times your annual expenses? Jean also shares her thoughts with a woman who’s debating where to put an extra $4,000 she has annually to invest for retirement.

Jean guides a mother of twins who is saving for retirement in a 401(k) and also considering investing in real estate and putting money into an HSA, in an effort to maximize her money for herself and her girls. Lastly, we tackle the question of investing worries that are rooted in a fear of losing money, and a question about selling stock in order to pay off the mortgage early.

From everyone on the HerMoney team, thank you so much for listening to us in 2019. We can’t wait to spend more quality time together in the New Year!

Transcript

Jean Chatzky: (00:07) HerMoney is brought to you by Felity Investments. You’ve worked too hard to let your money just sit in savings. Learn how to make your money work as hard as you do at fidelity.com/demandmore. Hey everybody, it’s Jean Chatzky. Welcome to HerMoney. Thanks so much for joining me and Kathryn Tuggle today for a special mailbag only episode. We are going through our inbox, we are tackling your questions and we are doing this as a holiday gift to all of our listeners. So today we are going to dive into some of the questions you’ve submitted around retirement and saving enough for your future. Kathryn, I’m sure there were a lot of those.

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Kathryn Tuggle: (00:52) A lot we get retirement questions more commonly than anything else.

Jean Chatzky: (00:55) Well, that’s good because retirement is up there on the list of financial things that we really should be thinking about sooner rather than later. So let’s just go.

Kathryn Tuggle: (01:04) Let’s dive on in. Our first question comes to us from our private HerMoney Facebook group.

Jean Chatzky: (01:10) And just a reminder for people who are not in our private, HerMoney Facebook group. Just let us know that you’d like to be part of this group. Go to it on Facebook. Say that you want to join. We let you write in.

Kathryn Tuggle: (01:22) Request to join, answer three questions, and it’s a private group, which means that members in the group can see what you write and post, but your Facebook friends cannot see what you write and post. So if you want to ask a question that is not going to be seen by your mother-in-law or your spouse or your best friend, the HerMoney Facebook group is a safe zone unless they also happen to be members.

Jean Chatzky: (01:44) Well don’t tell them about it.

Kathryn Tuggle: (01:45) Don’t tell them about them.

Jean Chatzky: (01:46) Yeah, exactly. Okay.

Kathryn Tuggle: (01:48) She writes, I just read an article that said most Americans feel $1.7 million is what you need to retire according to a Charles Schwab survey. But is that per person or per couple saving? $3.4 million for my husband and me to retire seems astronomical.

Jean Chatzky: (02:03) So I love numbers and I hate numbers. Let me just answer the question. It is a per person statistic. It’s, Charles Schwab surveyed, their 401(k) participants, and this was the average that 401(k) participants felt like they had to have in order to retire or felt like they wanted to have. Some of them were probably thinking that it wouldn’t just be for them that it would probably be for their families, but bottom line is it’s still much, much, much more money than people have. On average. Right now, the average 401(k) participant has something closer to a number between a $100,000 and $200,000 which is nowhere near $1.7 million. The much more key question to be asking is not what does the average person need in order to retire, but what do you need in order to retire and there are different ways to get there. Fidelity has benchmarks that you’ve heard me refer to in the past that track your way to retirement. Basically saying you should have about one times your earnings put away by the time you’re 30 and three times at 40 and six times at 50, eight times at 60 and ten times by the time you retire. That’s the Fidelity benchmark map. The FIRE math says, and FIRE stands for financial independence, retire early. It’s a community of people who are working really, really hard to save immense portions of their income, 30%, 50%, 70% so that they can get to retirement faster. The FIRE math says that you need to save 25 times your yearly expenses. They are doing the math in that way because they figure once you’ve got 25 times your expenses, you can invest that pool of money, pull out about 4% a year and it’ll cover one of those 25 times each year. It depends how you’re going to live is the real answer, which is why, although benchmarks are wonderful, benchmarks on an individual level can sometimes be way out of whack, so think about how you are going to do retirement. Are you going to be one of those people who works in retirement? Are you going to be one of those people who is a little bit of a home body? Are you going to travel extensively? Are you going to start a business? Are you going to have another wage earner in the family who continues to help you? Will your mortgage be paid off? I mean, I could just sit here and I could ask questions for the next 20 minutes, but these are the things that you have to answer in order to get to your number and sitting down and just doing some math, whether or not you’re doing it with the help of a financial advisor on a legal pad, on a computer goes a really, really long way to at least starting to wrap your brain around what this might look like for you.

Kathryn Tuggle: (05:11) I definitely hear you on making a list, but how do you factor in the unknowns, the big question marks around moving or how much you’re going to travel and all that?

Jean Chatzky: (05:20) Or healthcare, right? Healthcare is the really big unknown because so numerous Americans have chronic diseases. You have one big health event and it can just really sabotage whatever it is you’re saving, and again, we can fall back on some benchmarks. Fidelity’s latest survey shows that a 65 year old couple will probably need about $280,000 just for unreimbursed healthcare expenses in retirement and that doesn’t include longterm care. That’s $5,000 to $6,000 a year per person for your Medicare premiums and your other ongoing healthcare expenses, which doesn’t sound like as much when you break it down, but as a lump sum, that’s a big amount of money. We can try to insure against some of those things. You can make sure that you have good Medigap insurance, a good supplement to Medicare. You can try to make sure that if you can afford longterm care insurance that you have purchased something along the way or that you’ve at least done the calculation to figure out that you don’t have enough in terms of resources so that you’ll spend through your money pretty quickly and qualify for Medicaid. But these are the sorts of things that again, belong on the list. We have to ask the questions. We have to deal with the unknowns. We have to prepare our adult kids. If we think our adult kids are going to need to step in and help us, or if we are the adult kids, we have to talk to our older parents about what’s coming our way so that we can prepare. It’s an ongoing exercise. I wish there was a pat answer. I don’t think $1.7 million is it, but we should all be running a lot more numbers than we do on a regular basis.

Kathryn Tuggle: (07:15) Right. Our next question comes to us from Lauren. She writes, I contribute the max to my employer 401(k) every year, but due to plan rules, I’m forced to take back approximately $6,000 of it every year because not enough low wage earners contribute to the plan. I use some of this to finish maxing out my HSA, but that typically leaves me with $4,000 I’d like to invest for retirement. I make too much to qualify for a Roth IRA or deductible IRA contribution. How should I invest the leftover $4,000 for my retirement each year?

Jean Chatzky: (07:47) So let me just take a step back for anybody who was confused by this question. There are fairness rules around how retirement plans, work-based retirement plans are set up and they are established so that people who make a lot of money in the company are not allowed to contribute a disproportionately large percentage of their salary to the 401(k) when lower paid workers are not doing the same, they’re called safe harbor provisions and you need actuaries to figure them out. It’s complicated, but what she’s saying happens. In particular it frequently happens in small companies where there’s a discrepancy between what the owners and senior people earn and what the people who are just starting with the company earn. The answer to your question though, Lauren, is put it in a nondeductible IRA. Just put it away. When we have the ability to save more for retirement, we should do it because there may be years when life comes along and you don’t have the ability to stash away more money and I am absolutely with you. We want to maximize every opportunity we have to save on taxes. And we do that by maxing out our 401(k) contributions, our HSA contributions, our deductible IRA contributions. If you live in a state where you get a state tax deduction for putting money into a 529 college savings account for your kids, that should potentially go on the list ahead of a traditional nondeductible IRA. But lacking that, putting the money in a traditional non-deductible IRA still allows the money to grow tax deferred and that is still a big benefit. So I would say just go ahead do it. And if you get to the point where you’ve already made all of your IRA contributions and you still have money to invest, put it in a brokerage account, invest it and pay your taxes. Before we go onto another question, Kathryn, let’s just remind everybody that HerMoney is proudly sponsored by Fidelity Investments. We’re here to remind you that you work too hard to let your money just sit in savings. Whether you are new to the workforce or approaching retirement, Fidelity can help advise you throughout your career and beyond. So that your money is working just as hard as you do. It all starts with a yearly financial checkup and an understanding of what you own and what you owe. From there, the folks that Fidelity can work with you to evaluate your investment options, determine ways to grow your savings and keep you on track to reach your life’s goals. Start demanding more from your money today at fidelity.com/demandmore. Kathryn Tuggle and I are back with your mailbag special. We are tackling your questions around saving and planning for retirement, a topic that numerous of us find confusing to say the least. Kathryn, what’s up next?

Kathryn Tuggle: (10:57) Our next question comes to us from Mellie. She writes, Dear Jean, you have been my girl crush since way back on Oprah.

Jean Chatzky: (11:03) Oh my goodness. Well that is nice. Thank you Mellie.

Kathryn Tuggle: (11:06) I absolutely love the podcast and especially the mailbag because I’m super nosy. I listen every week. I’m a 45 year old divorced, single mom of two twin girls located in

Final Thoughts

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Originally published at savingswitch.com.