transcript

Speaker 1:
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Speaker 2:
[00:10] Never fly during a Scorpio full moon.

Speaker 1:
[00:13] Just tell the manager you'll sue.

Speaker 3:
[00:16] Instant room upgrade.

Speaker 1:
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Speaker 2:
[00:23] Bad advice?

Speaker 3:
[00:24] You talking to me?

Speaker 1:
[00:25] Kayak, got that right.

Speaker 2:
[00:32] Hey everyone, it's Jean Chatzky. So today we're doing something a little different. We're bringing you not one, but two AMA conversations in a single episode. And I've got to say, these two conversations belong together. Because even though Nancy and Melissa are asking very different questions on the surface, they're really both grappling with the same deeper question. How do I make sure I don't run out of money in retirement and still actually enjoy my life at the same time? The tension is so real. And it's one of the things I've been thinking a lot about lately as I gear up to release my new book on spending in retirement. Because most of us are so focused on saving that we never quite give ourselves permission to spend. So today, you're going to hear from two women who are asking exactly the right questions at exactly the right time. And my hope is that if you're in your own run up to retirement, you'll hear something in these conversations that speaks to you. Let's get into it. Today, I'm talking with Nancy. She's 68, newly retired after an incredible 46-year career in nursing. Wow. And she is in the process of figuring out her next financial move. Nancy, welcome. It's so nice to see you.

Speaker 3:
[01:59] Hi, Jean. Nice to see you too.

Speaker 2:
[02:00] Tell me about what's going on in your life.

Speaker 3:
[02:03] Well, I'm not quite retired yet. I will be retired in June, but I'd like to do a couple of home improvements. I recently got an estimate for my bathrooms. And if I do the one that I want to do, it'll probably cost me 38,000 to 40,000. I may do a second one, which will be a little under 20. And my question is, is I currently only have about $79,000 left on my home mortgage at a 3% rate. And my home value is probably about 1.1 to 1.2. So I have a lot of equity. And I got approved for a home equity line of credit many years ago. I did it after I got divorced. It's like I wanted to know that I could have this there on my own if I needed it. And I have access to 62,500. So what I'm trying to decide to do, I mean, other interest rates aren't that great, as it was when I got the HELOC back then. The rate on that would be 7.875 percent if I were to use the home equity line. But if I were to refinance to get about $38,000 in my pocket, I'm looking at a 4.75 percent rate at best. One lender gave me 5 point something. So I'm thinking, do I get rid of this really nice low interest rate? I think if I did the HELOC, I talked to someone at the bank, they said it probably be about 3, oh gosh, about 3.15 a month for interest in principle, which I think I could swing. So I'm just thinking really long and hard about letting go of that low interest rate. So I don't know. Then also what's going to come out of my pocket every month. Even with retirement, I think my income between my Social Security, which I'm going to go ahead and take, I'll be 68.5 and then I have a pension. And I still have other retirement funds that I haven't touched.

Speaker 2:
[03:55] So let me ask you this. The home charges, the 38,000, the 20,000, are there other big expenses that are coming up? As you look at heading into retirement, is there anything else with the home? Is there anything else in terms of big goals that you've been wanting to check off your bucket list? And I ask this because you're kind of typical. I've been doing some research for this new book that I'm working on about spending in retirement. And spending sort of kicks up right before and right after. And the reason that it does is because we do these improvements to our homes, because we think we're gonna be spending more time there. And then also because maybe we wanna take a big trip or two.

Speaker 3:
[04:46] As far as home improvements, these are really, it's really the last thing I wanted to do. I actually wanted to do it several years ago. I mean, I think it was 2017. I was getting some estimates, which were, one of them was even higher than what I got now. But then I had my refrigerator broke and leaked, and I had some water damage. So then I had bought a new fridge and I got a really nice new dishwasher, and I had to get part of my floor and replaced. I mean, so I went through that trauma, the dryer is in here for a week, so then I just let it go. But my bathrooms, I mean, this townhome is 32, 33 years old. I've done paint and recessed lighting, but it's like the original linoleum and everything. It's in good shape, I take care of things, but it's like, I'd really be nice to redo this and have a nice looking bathroom. So that's really what's left. I've already replaced the heating and air conditioning. I replaced some windows. I've done my garage door, so I really, this is the last big thing that I would do, so.

Speaker 2:
[05:48] As you look at your cost of living after retirement versus the amount of money that you're going to have coming in from Social Security, from your pension, and from pulling money out of your retirement accounts, have you run those numbers? Have you done a budget to see how it's going to shake out?

Speaker 3:
[06:12] Not super tight. I am going to go to a different tax preparer this year. I feel like the people I've been going to, I can't really talk to that much. But I think one thing that I'll have to look at is that, first of all, I don't have a lot of deductions. I mean, my mortgage is not that big. I don't have a lot of debt. I have a car payment that's 355 a month. I think I owe like 10,000. I can almost just pay it off. I don't know. But then I hang on to a little pile in the savings for a trip. I save every month for taxes and property taxes. But I think my income will probably be about the same. I mean, the way I work now in a school district, I think I may be seeing about the same amount of cash coming in without touching anything in retirement yet.

Speaker 2:
[07:01] How much is in your retirement?

Speaker 3:
[07:03] In my other retirement between Annuity and Roth IRA, I've got about 850K.

Speaker 2:
[07:11] Oh my gosh, Nancy, you are so fine. Before I tell you how I think you should look at it, what are you saving that 850 for? When do you think you're going to tap it? Or is this something that you are trying to just grow to leave to other family members or for other things down the road?

Speaker 3:
[07:31] I've always said in my mind, not till 70. I mean, I know you have to at 73. But I feel like if my monthly income, I can manage everything. I mean, I have dealt with my HOA dues went up, all those other things that have gone up just in general because of expenses. But I was thinking 70, then of course you have to at 73. But I mean, as a mom, I think it would be nice to leave my kids something right. But I also feel like, well, I've worked really hard. I do want to spend some and have some fun, travel a little bit more when it's time.

Speaker 2:
[08:07] Yeah, absolutely. So based on just a rough 4%, you could pull out somewhere around 36, $37,000 from that nest egg every single year, and it'll last you 30 years. Now, the 4% rule is not perfect. Some of your money is in annuities, and so you'll have to look at whether and when you want to make the income from that. But you could take the money from there and pay for the bathroom, if that was something that you wanted to do and not borrow at all.

Speaker 3:
[08:49] Okay. Yeah.

Speaker 2:
[08:51] I don't know that that's what you want to do because I hear you that you want to sit on that money and you want to see how it goes into retirement. And so I think you should run a direct calculation on the cost of the refi, which is going to have a cost to that transaction, right? Plus at the higher interest rate to see what that will do to your monthly payment versus your current mortgage plus the home equity loan. My guess is it's going to shake out to be about the same because there's going to be no upfront cost to that home equity loan. And so I'd probably do the HELOC knowing that you could, if you decide at any point, pull the money out of retirement and just pay for it. And you didn't ask me this question, but if you are thinking of doing two bathrooms, I wouldn't do them piecemeal. I wouldn't do one and then a few years later do the other. Because having contractors in your house, going and picking out tile, doing all the things, like if you want to do them, I'd just do them and knock them off your list. You've got the money.

Speaker 3:
[10:14] I think that, yeah, the more I've been thinking about it, it's like even just looking at the loan documents and I look at some of those fees, it's like, gosh, why do I have to do that? Sort of like, why do I need to do that? And the other thing too, Jean, I mean, my mom is 92. I mean, she's got health problems. I know when she passes at some point, I will come into some money there. It's not going to be millions, but it's going to be significant enough that I think it will make a difference. So I haven't even put that into the equation.

Speaker 2:
[10:47] That's very hard money to wrap your hands around emotionally, right? I mean, I just went through this. It feels sad. It's like sad money. But as you think about helping your kids, as you think about the other goals that you have, it's okay to factor that in at some point. I mean, she may need to spend that money based on her own health or some of that money based on her own health. So I think you're smart not to count on a certain amount. But eventually, you can sort of figure out what you're looking at and what it will likely grow into. How are you fixed for your own long-term care needs?

Speaker 3:
[11:33] Oh, I have long-term care insurance that I got when I was 50. And it's a good plan. I mean, it's got a daily payout rate of like $300. And if I happen to not ever use it or die, it's like the premiums are paid back. I'm doing my will and trust now for my sons to try and have everything in order. Try to be a grown up. But I figured they could use that for burial or whatever, because it'll be a decent amount of money. But also it's a great, $300 a day is good. It means it'll help. Yeah, I mean, it's crazy how much assisted living is in that sort of thing, cost and home care. And if anything happened to me and I needed help, like recovering even from an accident or whatever, I could tap into that as long as I continue to pay my premiums.

Speaker 2:
[12:21] So yeah, yeah. And having a policy that returns the premiums, if you don't use it, that's spectacular. You mentioned that you are going to see a different tax advisor. Have you ever seen a financial planner?

Speaker 3:
[12:34] I do have one. I was almost going to call him, but I was listening to your podcast. I should just email Jean Chatzky. So that's what I did instead.

Speaker 2:
[12:45] I'm glad you're working with somebody because to bring the whole picture together, it matters. Seeing a tax advisor who understands how things need to work in and around retirement is really important because you mentioned waiting till 73 to take your required minimum distributions. Sometimes that's the right move, but sometimes it's not, depending on how your money is allocated between taxable accounts and Roth accounts and other buckets of money. You've got the 401k money, you've got the annuity money, you've got the Roth money. Sometimes if we wait too long to take our RMDs, we're looking at a higher tax bill in those years, and if we're not careful, the amount of income that we earn in those years may even lead to Medicare penalties, an IRMA adjustment, because if you earn more than Medicare likes to see you earning, then it could lead to higher premiums, and those premiums escalate pretty fast. So you definitely want a tax advisor who can look at all of those levers and make sure that you're taking the right amount of money out of your retirement accounts at the right time. So leading to this renovation of your bathroom, I'd actually have a conversation with that person now to make sure that you should be waiting to take the money out of retirement. It may make sense to take a little bit out now to just buy down the amount that you have to borrow from the home equity loan to do the bathrooms.

Speaker 3:
[14:34] Got it. Okay.

Speaker 2:
[14:36] All right. Well, you got me. Any other questions?

Speaker 3:
[14:39] No. Thank you so much. One of the things on my to do list, once I am retired, I'd like to look into joining your investment group. Yeah. I've never paid enough attention to that. I think I was always just working, working, working, and still saving, but I thought I'd like to learn more about that. It just makes me feel a little more independent. That's something that I could definitely gain more knowledge on, and so yeah, hope to see more of you.

Speaker 2:
[15:09] We would love to have you, and whether or not you decide you want to pick stocks, buy individual stocks, doesn't matter. We're all just learning together and we're having a good time.

Speaker 3:
[15:20] Sounds great. Thank you, Jean.

Speaker 2:
[15:23] Thanks, Nancy. Good luck.

Speaker 3:
[15:24] Thank you. Thank you so much. Have a great day.

Speaker 2:
[15:27] You too.

Speaker 1:
[15:27] Bye. Bye.

Speaker 2:
[15:28] That was Nancy. And I love that conversation because she's genuinely in good shape for retirement. She just needed someone to help her see it. Now we're going to hear from Melissa, who is a little bit further out on the clock, about 10 years and asking a question I get a lot. Am I taking on too much risk? She and her husband are both in tech. They've been serious savers and they're doing many things right. But like a lot of people, when she looks at her portfolio, she sees the numbers and wonders, is this safe enough? That's after the break. If you've ever felt like you're doing everything right, eating better, moving more, and the scale still won't budge, I hear you. That frustration is real and it's exactly why I want to tell you about weight loss by Hers. Hers now offers access to an affordable range of FDA approved GLP-1 medications, including the Wegovi Pill and the Wegovi Pen. It's weight loss designed to actually work with your life. Ready to reach your goals? Visit forhers.com/hermoney to get personalized affordable care that gets you. That's forhers.com/hermoney, forhers.com/hermoney. Weight loss by Hers is not available in all 50 states. Wegovi is the registered trademark of Novo Nordisk AS. To get started and learn more, including important safety information, visit forhers.com/hermoney. You know what's funny about tax season? It's one of the only times a year most of us actually sit down and look at our full financial picture. What came in, what went out, and where on earth the rest went. Every year, a lot of us think, I wish I had been paying closer attention to this all along. That is exactly why I love Monarch. Simplify your finances with Monarch. It's the all-in-one personal finance tool designed to make your life easier, bringing your entire financial life together in one dashboard. Feel aware and in control of your finances this tax season and get 50 percent off your Monarch subscription with code HERMONEY. Achieve your financial goals for good with Monarch, the all-in-one tool that makes money management simple. Use code HERMONEY at monarch.com for half off your first year. That's 50 percent off at monarch.com code HERMONEY. Melissa, welcome.

Speaker 4:
[18:08] So nice to talk with you today, Jean.

Speaker 2:
[18:10] Nice to talk to you too. Tell me about you. Tell me about where you are in your run up to retirement, and what makes you ask this question.

Speaker 4:
[18:22] My husband and I live in the Kansas City area, and I'm 53, my husband's 57, and we both work in the tech field, and we're hoping to retire in about 10 years. So my main question is how to manage risk in this last stretch leading up to retirement. We have 856,000 in our tax deferred accounts, and about 300,000 in our Roth accounts. And then I also consider our taxable brokerage account and our treasury bonds part of our retirement. So there's 51,000 in the brokerage account and 86,000 in treasuries. But then we also have another 210,000 in non-retirement funds for things like vacations and emergencies and home improvements, things like that. And those are in CDs and high-yield savings accounts. So when I look at the retirement money, I'm at 72 percent stocks, which feels a little risky based on our ages. But then when I look at the overall financial picture with the non-retirement funds and then thinking of like my house and things like that, the stocks are actually at about 61 percent when I look at the whole picture. So that feels like that's more in line with where we should be, but I'm just not sure am I taking on too much risk and how do I balance all of that?

Speaker 2:
[19:38] When you are thinking about how you'll access your money for retirement, how do you plan on living? Are you going to pull money out of the accounts, like a certain percentage each month? Are you planning on more of a bucket approach where you have some money in cash, that I'll tide you over for a couple of years? Are you thinking that you'll take some money and maybe use it to buy an annuity to provide you with a guaranteed income that can be used to supplement Social Security? How are you thinking about that process?

Speaker 4:
[20:18] I'm thinking about either the bucket approach or the annuities, depending what they look like by the time we get there, what the interest rates are and all of that, if we could get a good deal on an annuity. But otherwise, the bucket approach where we have about a couple of years available to us and then the rest is in, maybe like a medium-term bucket and then a long-term bucket, which is maybe more in stocks.

Speaker 2:
[20:41] Right now, because you've got a 10-year time horizon to get you to retirement, I get where the 72 percent feels risky. I look at my asset allocation across my different accounts. I look at what I've got in retirement, but I also look at what I have in just my basic brokerage account. I've got some other investments in taxable accounts. And I mush it all together to come up with an asset allocation because, like you, as I head toward retirement, I think I'm going to be most comfortable if I have enough coming in in guaranteed income that I know it's going to cover at least my fixed expenses, the things that I know I'm definitely going to need, as well as some of the things I'm definitely going to want. I think fixed expenses is a, for me, it's a bigger bucket than just those bare bones needs. And I don't want to have to worry about the fact that the money is or is not going to be there for those things. So as I move toward retirement, and I'm a few years older than you and your husband, I think I'll start to tweak the picture so that I have more in guaranteed income, but also more in cash to weather the ups and downs. And you may want to sit down with a financial advisor and talk about how to get you from where you are today to where you want to be. Like, when is the right time to start nudging those assets into place? When is the right time to look at purchasing that guaranteed income so that when you're ready to make the big decisions about things like, when are we going to take Social Security? And when are we going to actually stop earning? Or are we going to sort of transition into retirement with part-time work? You'll have clearer answers to those questions. Part of doing that involves looking at the cost of living in retirement, the expense side of things. Have you thought about what that will look like for you when the house will be paid off, when big expenses are going to start to fall into the background?

Speaker 4:
[23:25] We moved last year to a new house to be closer to family, and so we have about 14 years left on a 15-year mortgage. It's at 6% interest. I send $3,000 extra toward principal every month because I want to get it paid off sooner rather than later. So if we are able to retire in about 10 years, I don't want to take the full 15 years to pay it off. So trying to get that paid off in about 10 years. So I'm also looking at things like long-term care insurance. So we're going to look into that this year. And so if I need to divert some of that money that I'm sending to principal right now to pay the long-term care premium, then I can do that. I have some flexibility there. But yeah, everything that you just said, trying to think of all of those issues.

Speaker 2:
[24:09] Yeah. No, that makes sense. Do you work with a financial advisor?

Speaker 4:
[24:14] So we did a couple of years ago, sometime during the pandemic, we had one run our plans and they gave us kind of a really rosy picture. I just wasn't sure. I'm like, I'm not sure if I should go with that or not. But yeah, it would be timed for me to find somebody else that I can work with on a routine basis going forward.

Speaker 2:
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Speaker 4:
[26:55] I don't know. It just, it seemed, they said just keep doing everything that we're doing. I just don't think that they took into account other things like what if one of us loses a job and, you know, it takes a couple of years to get another one based on the economy. Or if one of us needs to retire early for health reasons or something like that. They just took into account our existing picture. And if you keep doing all of this for another 10, 15 years, then you'll be fine. But I didn't feel like they took into account all of these other possibilities.

Speaker 2:
[27:25] Do you guys have kids?

Speaker 4:
[27:27] No.

Speaker 2:
[27:28] Well, let's take a look at this from a different angle. When we look at retirement and whether or not we're on track for retirement, I often fall back to the benchmarks that Fidelity developed, which basically say that by the time year 30, you should have one times your annual income for the site for retirement, at 43 times, at 56 times, at 68 times, and by the time you actually retire, 10 times. So how much do you guys earn?

Speaker 4:
[28:01] So right now it's around 400,000 combined, but that's only been true for about three years. So during the great resignation, we both got recruited to other jobs that had a big pay bump. So we're at about 400,000 now, but that wasn't true previously. So I feel like we might be behind, based on the benchmarks, based on our current income.

Speaker 2:
[28:25] Are you spending your current income or did you hold your standard of living down to your previous income?

Speaker 4:
[28:32] Essentially, we're able to live on my husband's income and then my income goes to cover all the savings. We max out our 401Ks every year with the catch up contributions and then put some money in the brokerage account. And then that's where that extra money that we're sending to principal right now comes from. So we're using my income for all of that and essentially living on his.

Speaker 2:
[28:55] When you forecast how much you'll have at retirement, if you've done those forecasts, what do those numbers look like?

Speaker 4:
[29:04] Somewhere around two and a half million.

Speaker 2:
[29:07] Okay. So if you are basing that on his salary alone, that probably shakes out to be about the 10 times.

Speaker 4:
[29:16] Yeah.

Speaker 2:
[29:17] I would sit down with a planner because the sorts of calculations that you need to run are if we spend this much money each year, right? If we need to, let's say we get rid of the mortgage, we can take that line item off, we still have to pay interest, we still have to pay taxes. This is about how much we think we'll continue to spend on a monthly basis post-retirement. How long into the future is that pot of money going to take us? With what guarantee of certainty? The nice thing about, I think, converting a chunk of money into a paycheck that will last for life, is that it allows you to take what's left and invest it more aggressively, because you've already checked the box for the money that you need. So if the markets go like this, you don't have to pull out of those other accounts for living expenses, certainly, but even for discretionary expenses, you can allow those investments a little bit of additional time to come back.

Speaker 4:
[30:28] Yeah, that makes sense to me.

Speaker 2:
[30:31] How is the long-term care process going for you? Have you started looking at policies?

Speaker 4:
[30:38] It was on our to-do list for this year, so we're going to, and the good thing is, we do have a relative who is in that business. She lives in a different state, so she can't sell us a policy, but she can at least help us to identify. Once we've got a couple of options to look at, help us look at those policies and see what's what.

Speaker 2:
[30:56] I think that sounds like a good idea. I mean, if you basically fall into that sector of people for whom long-term care insurance probably makes sense, we typically don't look at it for people who have much less than a million dollars in assets because paying the premiums over time is going to start to feel difficult if not impossible. People who have a lot more in assets, well over 5 million, sometimes they don't need it either because they can pay for their own care out of the money that they have unless they want to make sure that that money is left as a legacy for kids or for causes. But you're kind of in the sweet spot where it makes sense. One thing I would suggest is that you talk to her about hybrid policies, not just traditional long-term care. There are policies now, New York Life actually sells a number of them, that couple an annuity with long-term care insurance. So it's not if you need care, typically the benefit that you're getting from the annuity gets bumped up a little bit so that it helps pay for that care. The other hybrids are life insurance policies, but I'm not sure that's appropriate for the two of you because there are no kids, right?

Speaker 4:
[32:23] No kids, yeah. We do have life insurance, kind of a minimal amount, just in case. But yes, I will look into that, the New York life. Okay.

Speaker 2:
[32:32] Yeah. That's good. And as far as your original question, too much risk? I don't think so at this point when you look at the entire picture. But again, this is something that an advisor will be able to look at more closely and also just evaluate whether you're overweighted in certain sectors, whether the portfolio is too heavy in technology or not heavy enough in international, they'll be able to look at those things as well.

Speaker 4:
[33:02] That's helpful. Thank you so much. Sure.

Speaker 2:
[33:05] Other questions while you've got me?

Speaker 4:
[33:07] No, you did answer a question that I had written in with a couple of years ago on the air. And so that was very exciting for me. So no, I really just appreciate everything you do, Jean. That really helps me, though. Thank you so much.

Speaker 2:
[33:21] You are very welcome. Thanks so much for being part of our community.

Speaker 4:
[33:24] Yes, I love it. It's great.

Speaker 2:
[33:28] And if you're ready to grow your investing skills and make smarter decisions with your money, come join Investing Fix, our twice monthly women-only investing club. Expert stock pickers bring ideas to the table and together, we help build a portfolio. Since launching four years ago, we've built a strong track record, and more importantly, a community of women who are learning and winning together. Tap the link in the show notes to check out Investing Fix today. Your first two classes are always free. Her Money is produced by Haley Pascolides, and our music is provided by Video Helper. Thanks for listening, and we'll talk soon.