How to Save for Retirement Without an Employer-Sponsored Plan

Liz: I always was a firm believer if you work hard and you're loyal, you always have a job, and that proved to be untrue in today's job market. This experience taught me that nothing is consistent, change is inevitable, and you have to be able to survive and pick yourself up.

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 talk about dealing with life when it happens. According to research from the Stanford University Center on longevity, individuals experience – on average – four stressful life events each year. They can be positive things, like buying a new home or having a baby, but they can also be negative ones. Liz was hit with two of the bad ones in short order: the loss of her job, which shattered her emergency cushion, and having to care for an aging parent. Caregivers, two thirds of whom are female, look a lot like Liz and a lot like many of us. The average caregiver is a 49-year-old woman who works outside the home and provides 20 hours per week of unpaid care. Liz is 47 years old. She lives and works in LA, and she currently earns $80,000 per year. Welcome, Liz.

Liz: Thank you so much for this opportunity.

Jean: Tell us all a little bit about you. Where are you from and how did you get into your current field?

Liz: I'm a first generation Mexican-American, I've lived all my life in California. I'm the first to graduate from college. I've always been a really hard worker. I graduated college in undergrad in accounting. I started my early career path in that profession. I was an auditor accountant. I ended up working for a hospital as an analyst, and I was there for 13 years until I was laid off, and now I am currently a loan coordinator at a small real estate firm.

Jean: So you were at this hospital for 13 years. What happened?

Liz: It went through a restructuring, and I was one of the ones affected.

Jean: Was it surprising? Was it anything that you were expecting?

Liz: No, I was not expecting it.

Jean: It must have been incredibly disappointing. During the time that you were laid off, what did you live on?

Liz: I had unemployment for 6 months, and then thank God I had 3 to 4 months of an emergency fund saved. So that's what I lived off of.

Jean: Did you have to take any more drastic measures than that?

Liz: I did ring up some debt during that period.

Jean: How did you get back on your feet, and how long did it take you?

Liz: Well, I've always been a fighter, so I just quickly said, "Okay, well, plan B." So I ended up going to school, to paralegal school, a 6-month program at UCLA. Once I completed the program in November, I found something in February of 2018.

Jean: So that's pretty quick because nobody hires around the holidays, right. So you can just not even count that month and a half.

Liz: Okay, thanks. (laughs)

Jean: I know the next job, the current job that you have, doesn't pay what the old one did.

Liz: No, it doesn't. I had a reduction of about $15,000, which is why I haven't been able to build up an emergency fund.

Jean: It's very important that you get that built back up again as quickly as possible. I know in your prior job you had a 403(b), which has a good amount of money in it, about $350,000. That's fabulous. And for anybody who's listening and doesn't know, a 403(b) is a retirement plan for employees of hospitals, schools and other tax exempt organizations – works a lot like a 401(k). You also have a pension. What can you tell us about that?

Liz: Well, I was very fortunate that at that time I was grandfathered in. As you know, many employers are no longer offering those.

Jean: That's fantastic. Do you know how much money it will provide when you're in retirement?

Liz: According to the last statement, it was estimated to be about $1,000 a month.

Jean: Fantastic. So you'll have that. You'll have social security, you'll have your retirement accounts, but are you still worried that you won't have enough to live on?

Liz: Yes, because in my current employment, we don't have a program, so that is one of my worries.

Jean: Okay. So you need to find another way to save.

Liz: Yes.

Jean: Tell us a little bit about your family. What's your day to day life like? What sort of responsibilities do you have on your plate?

Liz: Well, although I don't have my own family because I'm a single woman with no children, I do have a responsibility, I have aging parents. I have a father with cancer.

Jean: Oh, I'm sorry.

Liz: Thank you. I know everyone has, you know, things in life. I'm a first-generation American, a Mexican-American, so my parents are not necessarily fluent in English so I'm actually the advocate, I’m the lawyer, the accountant. I have to figure out all their financial matters.

Jean: Can you tell us a little bit more about that and what sort of responsibilities come along with it?

Liz: I help with his chemotherapy treatments. I help them on figuring out how they pay their copays. I'm pretty much there helping them through the whole medical process.

Jean: Do you pay any of those bills? Is that a financial responsibility that you're shouldering as well?

Liz: Well, I did on his first chemo. He didn't know about it, but my brother and I paid for it until he got into a program for seniors that pays their copay.

Jean: And do you expect that there will be more expenses like that coming down the line?

Liz: I don't know. I don't know. I feel a responsibility to help my parents in any way I can.

Jean: So it seems like that's something that we should look into as well. So the goals then are not just to get you situated for retirement but also to replenish that emergency cushion, to get rid of the credit card debt that you've accrued and to get you contributing again for retirement.

Liz: Yes.

Jean: We'll be making the introduction to your financial advisor in just the next couple of days. We'll let the two of you get to work and then we'll check back in.

Liz: Excellent. Thank you.

Jean: My team and I were thrilled to pair Liz with certified financial planner Kathi Grace. Kathi has more than 20 years of experience and she works as a managing director at United Capital in Boca Raton, Florida. She is also the author of the personal finance novel, Prince Not So Charming. Welcome, Kathi.

Kathi: Hi there.

Jean: I think you're the first personal finance novelist I've ever met.

Kathi: It was definitely a unique idea, but I think one that puts financial planning advice into a format that's a little bit more enjoyable to read.

Jean: I'm sure that that is absolutely true, and thank you so much for working with Liz. Tell us about the math first. What was Liz's retirement gap before, and what will it be if she follows the plan that you've set out for her?

Kathi: So she's actually done a great job, and she has amassed quite a nest egg already, however, there were some gaps in some risk management for the future. Things that could pop up and completely derail her plan.

Jean: So essentially it seems like she's doing okay when it comes to retirement, but her nearer-term needs are more pressing.

Kathi: Yes.

Jean: Well, I know from talking to Liz how very committed she is to her parents and to her parents' financial security. Is that getting in the way of her own financial security?

Kathi: It's a great point, and it could. Because we find today that caring for aging parents is something that many people don't consider in their retirement plan. My mom had cancer, breast cancer treatments, and some doctor visits up to a certain extent are not covered under Medicare. Liz helping her own parents could very quickly derail her retirement.

Jean: So as you laid out a step-by-step plan for her, what did you suggest to make sure that these bumps in the road would not come along and sabotage the retirement that she's doing so well planning for already?

Kathi: So she has a small surplus left over each month of her income, over the expenses, and she has a savings account where I suggested she shift that overage that would be used, of course to help fund her parents' expenses.

Jean: I know she also incurred some debt when she was laid off. Did you talk about what to do about that?

Kathi: Sure. She's very astute and has discovered these zero-percent interest credit cards and had been switching balances to these zero-percent credit cards until that timeframe ended, and then opened a new one.  But we did talk about the downside to doing that – your credit report will actually show open lines of credit, and it negatively impacts your credit score. So I did tell her those are things that she would want to consider because if she was ever in the market for a car loan, she would benefit from having a higher credit score and lowering the overall interest rate. We made a plan in a 2-year period that she would pay off all the debt.

Jean: Finally, I know she's got a decent amount of money for retirement, but do you feel that she should continue to try to put away money for her own retirement?

Kathi: So we recommended that Liz contribute at least $5,500 to an IRA for this tax year. I think she could also reduce the internal expenses, because she's got a lot of mutual funds which have typically about a 1% or more internal expense ratios. So we did recommend that she look into lower costs, maybe consolidating some of the accounts to eliminate trade fees.

Jean: And you also suggested shifting her mix of assets, correct?

Kathi: Correct. We talked about reducing the international exposure, which will also help reduce the volatility and also reduce the overall equity exposure in the portfolio.

Jean: As we wrap this up, can you tell me how you feel about Liz's potential success?

Kathi: I think she will be successful, in part because it was easier for her to see once we laid out specifically the steps she would need to take, and the timeline she would need to take those steps in order to reap the benefit financially. And once she saw, “Wow, I am going to be okay if I do these things,” on paper with real numbers, I think people can attach themselves to specific goals when they can see line by line, year by year, the actual physical results. But also her personality seems to be so calm and low-key and non-impulsive, and it made me feel as though she would be committed to something because her personality seemed to be much more of a "slow and steady," and therefore less likely to be impulsive in spending, and more likely to be conservative and really thoughtful before she spends.

Jean: It sounds fantastic. Thank you for doing this with us. You're terrific.

Kathi: My pleasure!

Jean: It's been a few weeks since Liz and Kathi put their heads together, and we are checking back in with Liz to see how she's doing on her new plan.

Jean: Hey Liz. How are you?

Liz: Great.

Jean: How was the experience for you, of working with a planner for the first time?

Liz: It was good. She gave me different feedback and had recommendations I had not even thought about. I learned that I had been doing a great job with my prior retirement contributions. I have also learned that I need to work on paying off my debt, and since I lost my job last year, my current job does not offer a 401(k) plan, so my planner recommended that it contributed the maximum IRA contribution, which this year is $5,500 and continue maximizing that until my job perhaps implements a 401(k) plan, or I obtain a new job.

Jean: Did she tell you what to do with the money once you put it into the IRA?

Liz: Well, once it's deposited, I'm going to invest in mutual funds and perhaps a target date fund.

Jean: A retirement fund that is lined up with when you plan to retire.

Liz: Correct.

Jean: Excellent. You're in the position, like so many, of helping your parents. Are there any other things that have changed in how you're handling your parents' situation?

Liz: Well, I'm going to continue saving in my emergency fund, factoring in a portion for my parents' medical bills.

Jean: Fantastic. When it comes to paying down debt, tell me a little bit about what she recommended for you there. What's the focus and how quickly does she expect that you'll be able to do that?

Liz: I have $15,000 in debt. I have about five credit cards and they range anywhere from a zero introductory rate to as high as 16%. She recommended to pay down the one with the highest rate first.

Jean: It sounds very doable.

Liz: Yes, it does.

Jean: One of the first things you said was that she told you you were doing a good job. Were you surprised to hear that?

Liz: Yes. I was surprised. I just thought I wasn't saving enough and having someone actually tell you that you're doing fairly well, it was very empowering for me.

Jean: Thank you so much for doing this with us again. I hope that it was helpful.

Liz: Thank you!

Jean: Let's just quickly recap the steps Liz is taking to close her gap. She'll be building her emergency fund and putting aside money for her parents, saving for retirement and paying down some of that debt that was incurred while she was laid off, preferably over the next 2 years. A big shout out to Liz and to Kathi for being on this show and for sharing this process with us. We're also grateful to all of you for joining us on this episode of Closing the Savings Gap. Our goal with this project – the reason we’re doing it – is to make it possible for you to not only survive retirement, but to really enjoy those years and to make the most of whatever money you've been able to pull together, so that you can live a positive financially independent life. 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.

Disclaimer: The information contained in this podcast is provided for educational information purposes only, and does not constitute a recommendation from any guest of the podcast to the listener. Neither any guests nor any of its affiliates makes any representation or warranty as to the accuracy or completeness of the statements or any information contained in this podcast, and any liability, therefore, including in respect of direct, indirect, or consequential loss or damage is expressly disclaimed. The guests of this podcast are not providing any financial economic, legal, accounting, or tax advice planning or recommendations in this podcast. In addition, the receipt of this podcast by any listener is not to be taken as constituting the giving of investment advice by such guests or their affiliates to that listener, nor to constitute such person a client of any guests or their affiliates.