MONEY AND RETIREMENT IN THE NEW NORMAL
Jean Chatzky Interviews: Michelle Singletary
Jean Chatzky, educational fellow with the Alliance and founder/CEO of HerMoney, recently spoke with Michelle Singletary, personal finance columnist from the Washington Post, about the impact of race on personal finance, how to save for retirement and how to navigate the current state of the economy. This interview originally aired live on Facebook and has been edited for length.
In this conversation, you’ll learn:
- About racial disparities in people’s finances and the need for policy changes
- Steps that families and communities can take to support one another financially
- Why it is important to distinguish between the “markets” and the “economy”
- Why creating a retirement income plan is necessary at any age, and critical questions you should be asking
Watch the full interview on the Alliance for Lifetime Income’s Facebook page.
Hi, everybody. It's Jean Chatzky. Welcome to our Wednesday regular Facebook Live sponsored by the Alliance for Lifetime Income. I am sure that many of you watching recognize this wonderful woman that I'm with. Michelle Singletary is the longtime personal finance columnist for the Washington Post. She writes a column called the Color of Money, that she has been writing for many years. She is also somebody that you see all the time on television and hear on the radio on NPR. Michelle, thank you so much for being here. It's really nice to see you.
I'm a big admirer of yours, of course. It's good to be on your show.
Tell everybody a little bit about you, and what you're focusing on these days.
I always identify myself as a native Baltimorean. I've been writing a column for a long time, and I've been writing about personal finance for a very long time. I take it very personal, in the sense that I do a lot of work in my community. I also run a fairly large financial literacy program at my church. My husband and I volunteer in prisons to teach inmates how to handle their money when they're about to be released. That's just work from my heart. We love that work. I've been able to mesh my professional career with community work, and that's really my passion to just try to help people with their money, not just report on what's happening, but actually report in a way that people can use the information to better themselves. You can help somebody else.
You do a great job of it. We publish a newsletter at HerMoney every week where we pull things from the world of money. I am always citing you, because it's very, very user-friendly.
We're getting together at a time when we have seen protests in every state of the country, in many, many large cities, in the wake of the death of George Floyd and the calls for an end to, or changes in the system of policing in this country. Part of what is driving this are huge racial disparities financially. We talk a lot, you and I have over the years, about the differences between men and women. When you look at things like the wage gap, when you look at things like wealth accumulation, the gap between the average woman and black women, or white people and black people, is just enormous. How do we begin to address that in this country?
It's never too late to make the right decisions, whether you are 25 or 55
We have to address it by policy. We must hold companies accountable for the pay disparity. There's a lot of pushback from doing salary surveys, and looking at how we hire people, but we need to be doing that because we do find that there's such a disparity, even when the person has the same amount of experience. There are studies that continue to show where, if two job applicants go out for a job, and they have a similar resume, everything is pretty equal, and the white applicants will get a call back and the African American applicants, or minorities, do not. We have to be able to say, "That's just racism." We think we're post-racial, but everything that we're seeing now shows that in fact we are not. This is a huge battle to get pay equity, be able to even get in the door, and when you get in the door, be able to advance. Women hit a ceiling; minorities hit a ceiling. The policy has to be changed.
Right now, it feels like everybody's looking over everybody's shoulder. Do you think that what's happening right now will be sustainable without changes in policy?
I do not. I think the marches are fantastic for a couple of reasons. First of all, because they are sustained. They're not just one-off marches. They continue to show up. When you look at the crowd, it's multi-racial, multi-generational. That is just so wonderful because people who might normally be able to get the jobs and the pay are saying, "This is not fair." And here's why it's not fair, because when we are not all equal and at least trying to be in the same boat… that's a drag on our economy for everybody. It means that there is less money going into social security, for example. It means when we have something like a pandemic, you have to help so many more people than you would have to if people had a chance to have a job where they could, for example, find affordable housing.
I think the marches are great. We've got to move it past being in the street and be in the chambers of state legislatures and Congress. That's where real change happens. In those legislatures and in Congress. Keep marching, and keep pushing, but that means people have to vote in folks who are willing to make change.
I totally agree with you. One of the things that I think that has been such a welcome advancement, and I hope that we see more of it in the years to come, especially when we talk about the retirement landscape, are the work and save programs that are starting slowly to make their way across the country, that allow people who work in smaller companies to make a retirement contribution through a paycheck deduction. It doesn't mean employers necessarily even have to contribute. It just automates the mechanism. We've seen that that makes such a big difference. Until we get this systemic change though, we have to cop to the fact that individuals are being asked to take on more personal responsibility than we ever have before, for our own retirement. The pension system is largely gone. It doesn't look like it's coming back anytime soon. When it comes to making sure that we have a comfortable retirement, or at least something beyond social security, it's on us. How do you talk to your readers about the necessity to step up?
I just urge them, that whether you're 20-something or 50-something, that while we're waiting for policy change, there are things that you have to do. It's unfortunate that it's all on your back, but it is on your back. That means that you have to make better decisions. It's just a fact. I encourage people to trim their debt. I hate debt. I like to joke, if debt was a person, I'd slap it. I teach people to have a healthy sustained hatred for debt.
In the program that I teach at my church in the community, and in the prisons, we spend a lot of time about financial decision making. When you think about it, we don't really teach people how to make decisions. We just throw them out there. A lot of times the information they're getting to make the decision, are from the people who have a vested interest in whatever decision that they make. When I talk to people, for example, when they go buy a car, I say, "Who do you talk to?" And 95%, they only talk to the person selling them the car. The same thing with buying a home. "Who do you talk to?" The real estate person and the lender. I'm not saying that real estate agents and lenders are going to always take advantage of you, but that can't be the only people that you talk to.
You've got to have a decision tree ready so that when you go in and make those decisions, you make the best decision that you can possibly make. I try to tell young folks starting out, that this is a time they have got so much time on your hands, it almost doesn't even matter what they invest in. Time is going to be the equalizer. I teach it to my children, save and put your money away. I try to encourage them that when they finish college to come live at home and save their money for several years. Those are the things, and if you're getting close to retirement and you haven't done the right thing, I don't tell you to give up. I don't tell you, “Oh, well. You can't ever retire." You're just going to have a different retirement than maybe you had a planned for or wished for. It's never too late to make the right decisions, whether you are 25 or 55.
I totally agree with you. We can see that there are a lot of people who are with us today who love you, by the way. They are saying so in the chat. Also, agree that it really is a matter of priorities. I know priorities seems like one of those things you avoid, like budget. It feels like a very old-fashioned word. But it's the truth. We all have this limited pie when it comes to our money, we have to decide where that money is going to go in order to ensure that we actually have a future.
I want to dig a little deeper into something that you did just mention. I absolutely will get to the questions from the crowd. I'm just going to hog her for a few more minutes. You talked about kids living at home after they graduate from high school and start work, or after they graduate from college. You don't mean for a year; you're talking about longer than that.
I do not. I just go ballistic when I hear parents say, "They need to get out on their own and be responsible." How we denigrate young adults who are still living with their parents in their late 20s and 30s. Think about that. Housing is the biggest expense on people's budget. If you take a young adult, I'm talking even to their early thirties, and they are able to stay with their parents or grandparents, or aunties or uncles, for five to 10 years. I know people who say, "You have got to be kidding me." You don't charge them rent because you are handling your money well, and you don't need their rent money. I'm talking about in situations like that. Even if you do need some of it, not all of it, you don't charge them market rent, so they can save.
I know I'm way out here, but if they could save 80 to 90% of their salary, for even five years, they can not only in some areas, buy their house outright, but put such a significant down payment, that in about 10 years they could be mortgage free. That is a game changer. It would just change their life, because that would mean 30% of their salary, once they leave, is free to save or be there for emergencies.
Even if you don't want to be a homeowner, that's fine, too. I don't mind renting. You still are able to have so much saved, that you can devote more of your income to retirement planning, and maybe retire early and start some enterprise that you're interested in. I just think we need to stop sending the messages to young adults that somehow they are irresponsible by sharing space with their parents, or somebody else. As long as you do your due diligence, we've had adults come live with us, and we built a house so that we would have extra room. We've taken in people who just didn't make the right decisions or are in debt. Not long ago we had a relative come live with us for almost two years. Didn't charge her rent, food, anything. Just take all your money and get out of debt. She got out of debt, and now she's living in Hawaii.
I think that can be a game changer. Multi-generational housing, parents, grandchildren, grandparents, all together, helping each other out. I just think that's the way to do, because everybody can't have their own place. It's not sustainable. If your kid wants to be in social work, or maybe a teacher, or an artist, and they're spending so much of their energy trying to pay this rent or mortgage, it takes away from their life mission to do whatever it is that they want to do.
I totally agree. I also think it's a game changer, as far as things go like solving the childcare problem. You've got an older generation that is living with you, they can help. Childcare, for so many working parents, is the thing that holds people back.
Elena was commenting that she thinks her culture is very supportive of young people staying home, as well as being mortgage free, which I've always been a fan of making sure that you're out of your mortgage before you retire. I think that's just a recipe for disaster. Even at a younger age, it really, really helps.
We had a question from Cathy, who said, "Please explain what is means to ‘live below your means.’ What's your definition of that? How far below do you have to be, to be truly below?”
I love that question. We say it all the time, and people hear us say these expressions, and they nod their head. They don't really know what we mean. Living below your means, means you make a certain amount of money, and you're not spending every cent that comes in the door. Ideally, we're talking, if you can, now this isn't for everybody. Starting out it's going to be difficult. 20-30% is not spent on living expenses. Mortgage, transportation, utilities. That 30% is carved up with retirement savings, meet short term savings, like your car breaks down. I call it the lifelines fund. In the emergency fund, that is put off to the side, for times like this when there is a storm. If you're making $1000.00 a month, you want to be only spending about $700.00 of that. That is living below your means. That allows you to have a financial cushion. That cushion is so important.
If you say, “Wait a minute, I can't. How can I save that? I live in San Francisco.” That's where you have shared housing, or honestly, it may be that you can't live in San Francisco. You have to make a decision if you want to have a certain kind of job, and that does not allow you to be in a place where you're going to spend 50% of your income, then you have to move. And you have to be okay with that. You can't spend more than you make.
For example, I was telling my daughter, you can imagine living with me is a little crazy. My daughter spent the last year in Houston because she wanted to get away, see what it's like living somewhere else. I said, "You guys just live around us in the neighboring communities." "Oh no, we have to move away." I said, "It's not because I want to control you and keep you. Here is where your resources are. Here is where if you lose your job, you can easily come live with me. Here is where you got auntie. You get married and have a kid. If I can't pick up your kid, auntie can pick up your kid."
We try to say they need to go off and make it on their own, but there was a time and a period where communities and families lived together so that the community could help each other. You talk about grandparents, lots of parents pay before and after school care. If you had a grandma, or auntie, or uncle, who could pick them up, that's a significant savings. What do you do with that money? You put it in their college fund, so they can go to college debt free, and they can do that for their children.
In America, I just don't like the way we do things in America. You're on your own. It's okay if your kid goes halfway across the country, because they have to make it on their own. We live in a high cost country, where that's just not sustainable for a lot of people.
If [market volatility] is going to keep you up at night, then a lifetime stream is appropriate for you.
Plus, it's just not fun. In this pandemic, I was telling you before, my son is in LA. "Come home. Just come home. Please, come home."
One thing is that, if they do that as parents, and I am learning that we have to give these adults, young adults, some freedom. My husband and I are very old-fashioned parents.
I totally get it. We've got a couple of other questions coming in. Michelle asked, "What resources do you recommend for those of us who want to make sure that our personal finances are on track? That we're actually getting where we need to be?"
The Alliance has a really good tool on their website, which is ProtectedIncome.org. You can figure out if you are tracking to have some retirement income, protected retirement income. That's a place to start. Michelle's column is a wonderful, must read, all the time. What are your other favorite tools?
Well, interestingly enough, at WashingtonPost.com we just launched something called the Michelle Bot.
I saw this. I want to be a bot.
I love it. It's an automated me, and it's a retirement calculator. All along the way, you can click a link, and you hear my voice. "Go ahead, you can save. You don't need to be spending all that debt." On my show people say, "I wish I could just carry you around." It's a very simple retirement calculator. It doesn't take into account if you have a pension or Social Security, or an annuity, but it just gets you to look at what percentage of your pay should you be saving toward retirement in an ideal situation. It's 15%, a combination of your contributions, and if you have a company match.
Also, one of the things on the Michelle bot is a net worth calculation because most people have never done a personal net worth statement. They know how much they make; we measure ourselves by our income. That's not your wealth. I really wanted to have a calculator where people could look to see what they you worth. We look at your assets and your liabilities because it's those two together that determine if you're on track.
Honestly, there are so many great online tools. You mentioned the Alliance tool, but you just need a pencil and a paper. What's coming in, and what's going out. I love the online tools, but here's the thing: you are not broke because there's not a tool available to you. You're broke, or you can't reach your financial goals, because you don't sit down and make a financial plan for yourself.
I don't mean some complicated retirement plan. What do you want to do with your money? You work really hard for your money. At the end of the day, what do you want to do with that money? Do you want to send kids to college debt free? Do you want to help somebody else in your family? Right now, somebody in your family has lost a job. You could pull money from your savings to help them. That's what I'm talking about. I always think, when I close my eyes for the last time, I want to go, "Man, I did a lot with the resources that I had." We sent all three of our kids to college debt free, and graduate school, by the way. We helped two nieces go to college. We paid one and paid for books for all four years for the other. We take in people who are in financial trouble. That's the financial plan I'm talking about. You can contribute to yourself, and your community.
You have to dig deep and ask that question. I ask it all the time. What do you want your money to do for you? It's not just this amorphous stuff, it's a tool. You got to use it as if it's a tool to get you where you want to go.
We spend an awful lot of time talking about saving. Accumulating for retirement. Then, we get to retirement and we've got 30 years or more staring us in the face, and we've got to make that money last. What's your philosophy on how best to do that? Do you combine some guaranteed income with some growth? How do you make the numbers work?
You have to look at yourself, how skilled you are and how disciplined you are. I'm fortunate enough to have a pension, and so does my husband. Between his pension and my pension, and Social Security, and our savings, we're good. We don't need any other products. If you get to the point where you don't have a pension, or you still aren't disciplined, and that if you had a lump sum of money, it just would go. There's a lot a pressure from outside for you to spend. Then in those cases, a lifetime income stream works for you. We typically call them annuities. I don't have a problem with annuities, I just wish they were sold better, and appropriately. For many people, they do work, because people just are scared. If they had money come in, they wouldn't have to worry like we did in March when the market went down about 30%, and people were in a panic.
They sold, or they moved stuff around, and they didn't know what they were doing. In March people said, "I'm just going to sell, I'm just going to sell." Here we are, just a couple months later, and the market is right back up. It went down yesterday, and it's been going crazy. If it's going to keep you up at night, then a lifetime stream is appropriate for you.
I think people are really learning things about themselves during this period of time. It happened so quickly. The markets went down, and then so quickly they went back up. It's felt like a roller coaster to me. How do you keep your emotions in check?
I wish I had a picture of my husband. I'm being completely transparent. I was freaking out because I keep a close eye on my portfolio, because I do this for a living. I'm watching what's happening to it, because I write about it. You shouldn't do that. Don't do that. I'm watching it, and I'm freaking out. I don't come from money. Most of my family members don't have money. We are the ones who bail people out and help people out. Our money is not just for us, but it's for my extended family, which is often the case with minorities. My money, and any depreciation of any of my stock, impacts a lot of people in my world.
My daughter is a social worker, my niece is a therapist. She says to me, and I love what she says. "Feel what you feel." That fear is real. It's okay to be fearful, but don't act on that. Don't panic. I don't act on my fear. I run into my husband's office saying, "The market!" He's very calm, he's like Yoda. He says, "You write about this for a living, don't you? Listen, we got a really good plan. We're very smart with our money. We don't carry any debt. If it went down 50%, we're still going to be okay. We're paying off our mortgage before we retire. Let it ride. We've got our pensions. We got Social Security. We've got a good plan." He just talks to me very calmly. I walk out of his office and go tell everybody else to be calm.
I'm telling you, I was right in there with you. It messed with my emotions, too. The thing that finally got me rational again was thinking about how long-term the long-term really is. I'm 55, so I'm older than I think I am. I'm older than I feel. It's a long time.
It is. Even if, when you retire, you're looking at 20 to 30 years.
That's exactly how we did. I talked about my husband being my support, I think that's what you need. You need a partner, whether it's your spouse or a friend, or columnist, or the great Jean Chatzky, to be able to read and reassure you that it's going to be okay. Scream if you have to scream. Panic if you have to panic. Just don't act on it. That's a human reaction to this craziness that's going on. Right now, my portfolio is way back up. It's got back all that it lost. I'm still a little down. I'm thinking, 10s of millions of people are out of work. Why is my account going up? I feel bad about that. There's no rationale to it. It's not rational. You can't plan on it, short term.
I don't think we've ever seen more evidence that the market and the economy are not the same.
They are not. And you better recognize that. You have to operate in both those worlds. That's why savings, and living below your means, is the economy. The other part is the market, what you're doing in your portfolio. You do have to keep them separate. That's why when my husband says, "If we lost everything," and of course we wouldn't lose everything. "If we lost everything, we would still be okay because for the last 30 years we've lived below our means. We don't have any debt other than our mortgage." We would be okay. Many people, probably on this call, are better than the majority of the people that live in this country and the world. You've got to put that in perspective.
You’re absolutely right. This has just been so much fun talking to you. Where does everybody find the Michelle Bot and everything else that you're doing?
WashingtonPost.com. A lot of my material is not behind the paywall, but some of it is. I know people get freaked out about that, but I got two kids left to put through college. We do need to have some revenues.
Use the Michelle bot. I love the way we've laid it out. I talk to you along the way. I don't talk down to you. I talk to where you are. You're doing well, or if you've made some decisions that weren't smart. Not going to wag my finger at you, I'm going to try to encourage you to do better. Once you know better, you do better.
We love it. Thank you so much, Michelle Singletary. For anybody who's looking for more information, you can go to ProtectedIncome.org.