Too late, not enough, impossibly behind.
For many, socking away enough money for a comfortable retirement seems like an unreachable goal. Surveys repeatedly tell us that Americans aren’t saving enough to get them through a long-lived retirement.
But whether you’re a baby boomer inching ever-closer to retirement or a young 20-something just starting out in the working world, it’s not too late to get set financially for retirement.
That was the message brought to Sacramento last week by personal finance adviser Chris Hogan, a former college football player and banker who has dispensed money-management advice to everyone from young NFL rookies to everyday consumers. As part of a nationwide tour, he was here with Dave Ramsey, well-known personal finance evangelist on TV, radio and in numerous best-selling books. Both preach a faith-based, get-out-of debt message.
Ahead of their Sacramento talk, Hogan talked with The Bee by phone from his Nashville, Tenn., office. Here’s an excerpt:
Q: What’s the biggest mistake people make when contemplating retirement?
A: One of the biggest things is they fail to plan. When people think about saving for retirement, they think five to 10 years ... but people are living in retirement for 30 years. (People) fail to plan for that long term. Retirement is not an end; it’s a new beginning, another life for 20 years.
Q: Is it too late for baby boomers to start saving?
A: It’s never too late. The first step is truly understanding how much it takes to run your family ... and live on. That’s called budgeting. Some people don’t like that word; call it a “cash-flow plan.” With budgeting, it’s a core skill you’ll need from here on into retirement. ... A lot of people overthink the process. ...With baby boomers, they’re in a unique position. They have their kids they’re trying to launch and they’re helping parents who are older. It’s really important to understand where they are financially. And what they want in retirement: Do they want to travel, start a business, or just sit at the lake house?
We all know what we earn right now, so we know what it takes to live on each month. For your retirement, calculate how much you need, then calculate how much you currently have saved ... how much you need to be investing each month to get there. We have online tools ... that allow people to plug in and see where their money is going and when. It helps people understand how much they’re bringing in every month ... how much they’re spending on groceries, etc. It allows them to cut back on the impulse spending.
Q: How about young millennials?
A: With 20- and 30-somethings, they need to understand truly how money works. Interest is a two-sided beast: On one side it’s your friend (earning interest on investment or bank accounts); on the other side it’s an enemy (the interest you have to pay on credit cards, car loans, etc.). I want (millennials) to get interest working for them from investing. Start putting money away early in their careers ... leave it alone to keep growing ...
I think with this younger generation, it’s important they understand this information as quickly as possible. We’ve become numb to debt ... look at student loans, credit cards and (auto loan) debt. If they do have that, they have to get passionate and intense about getting out of debt. They can be intentional about spending, instead of going more into debt.
Q: How should couples deal with money?
A: If you’re married, sit down for 30 minutes once a week with your spouse. My wife and I do this on Sunday nights. At 8:45 we’re sitting at the kitchen table. We’re looking at a budget, what needs to be paid, what’s coming and what’s going out. Upcoming things ... spring break, what we need to buy for school, constantly talking through where money’s going and what needs to be done.
We have three boys (ages 10, 9 and 8) who are busy with school, sports, birthday parties. We talk with them about spending. ... They might get five invitations to a birthday party; if you’re spending $20 on a gift, you’re spending $100 just on birthday gifts. As a family, you have to communicate about certain things you can do and certain things you can’t.
Money fights are the No. 1 cause of divorce in North America. ... Having that 30-minute conversation once a week helps you stay on top of things ... and exercises your communication skills. When there’s a crisis, you need to be together on the money stuff, just like on the good stuff.
Q: And if they’re single?
A: If they’re single, have an accountability partner. Someone you can talk with about your (financial) goals; someone to give you some positive reinforcement and the courage to stick to a plan. Start with someone in your church, a close friend or someone you work with that you trust. Find someone who wants you to succeed ... to cheer you on and stay in touch with what you want to accomplish (financially).
Q: How do you curb spending?
A: It’s about self-control, just being aware of what you’re spending. I’ve got a friend with a shoe issue. Every time he goes to look at shoes, he comes home with two pair. Could be golf, a spa treatment. He’s single, he can afford to buy shoes, but he says he often never wears them. My suggestion: Why don’t you buy one pair a month with cash? Why don’t you give yourself $20 a week so you can buy something? That way you’re not spending $400 to $500 a month on shoes you’re not going to wear. It was a challenge for him to break that pattern; he bumped it up to $50 a week.
It really comes back to budgeting. It’s so important that everyone has some “blow money.” If you’re married, it has to be equal. Whether they want to spend it on nice coffee, nails or magazines ... it gives people freedom to do stuff so they don’t feel they’re handcuffed. That’s how people fall off the wagon ... going to the mall and spending on something big. Do something small that’s empowering.
Q: How does your advice differ when working with multimillionaire NFL players?
A: Their margin for error is a lot bigger ... their (income) amounts are astronomically different. But they’re the same habits. I speak to the teams and the rookies ... it all boils down to having a (financial) plan that actually works.
I did an event in June with team rookies of the Cleveland Browns ... it was just talking about the same things: the importance of budgeting, debt, an emergency fund, working with your spouse if you’re married. (They have) a short-lived career: NFL stands for Not For Long. My message is that for this three years ... make the most of their opportunities, don’t just fritter it all away. Do some things that matter for yourself and your family.
Q: Are they listening?
A: It can definitely make a difference. Most of these guys are rookies, 18 to 21 years old. For many of them, it’s the first time they’ve ever heard (money-management lessons). ... There was a guy who’d just gotten a credit card and he cut it up. Another gentleman had an appointment the next day with a banker, to get a $60,000 loan for a truck. He came up to me later and said he’d changed his mind. He already had a working truck ... he was not going to buy a new truck. He was going to cancel it. For me, that was great affirmation. That was encouraging. He got it ... he looked at the big picture, the idea of starting to invest that money in his future.
Q: If you’re mired in debt, it’s hard to contemplate saving for retirement. How do you start attacking debt?
A: Getting out of debt is not about math: it’s about establishing momentum. Attack the smallest debt first. I don’t care about the interest rate, I care about the size. It’s psychological: “I paid off one of the eight debts I have.” You draw a red line through it and it’s motivating.
Seven “baby steps” to being debt-free
Saving for retirement begins with getting on top of debts. Here are seven steps – in order – recommended by longtime personal finance expert Dave Ramsey, author of “The Total Money Makeover” and four other books.
1. Establish $1,000 emergency fund. It’s a financial cushion to get you past unexpected life events – car repairs, a pregnancy, a job loss, etc. – without having to borrow more money.
2. Pay down debts. Start with the smallest debt first, creating a “debt snowball” that gains momentum. If you have similar debts, say two credit cards with the same amount owed, pay off the highest-interest-rate one first.
3. Build up three to six months’ expenses. Before starting to invest, set aside at least three to six months of living expenses, the amount you’d need to live on in case of income loss. Stash the savings in a money-market fund.
4. Invest in Roth IRA. Put no more than 15 percent of monthly income into a tax-deferred retirement account, like a Roth IRA. Feed your retirement first, before saving for your kids’ college.
5. Start college savings. Ideally, use one of the 529 plans. Not recommended: insurance, savings bonds or pre-paid college tuition.
6. Pay down mortgage. Once everything else is accomplished, pay down “chunks” of your mortgage so you can live mortgage-free in retirement.
7. Build wealth, then give. Once savings are stable, create an inheritance for future generations and gift others now. It’s possible to do all three.