Millions of women go through a divorce each year. The question is how do you recover, get back on track and still close your retirement gap? We’ll be speaking with 57-year-old Karen, an executive assistant in Sacramento, Calif., who is facing this challenge. After filing for bankruptcy after her divorce and taking out loans from her 401(k), she’s struggling to get back on track for a secure retirement. Karen is considering taking on a side gig to increase the flow of money coming in, but she needs advice on where to start.
We paired Karen with certified financial planner Marci Bair, who has over 25 years of experience and is president of the company she founded — Bair Financial Planning. Listen in as Marci walks Karen through the ins and outs of replenishing her emergency cushion, paying down her credit card debt and rebuilding her financial life anew as a single woman.
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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, brought to you by Fidelity Investments. 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.
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?
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.
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.
15:54 – (unique music with) Women With Money book.
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.
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