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Savings Strategies for Retirement, College Expenses and More

Budgeting your finances can make a big difference when it comes to saving and planning for retirement

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Join us for this episode as we explore the challenges that arise when you forget to pay yourself first, or put off saving for retirement simply because you have other things on your plate. We’re going to meet Hilda, a 46-year-old married mom of three who lives in St. Petersburg, Florida, who’s facing the challenge of needing to save for her retirement while simultaneously pursuing her dream of starting her own business.

Hilda has questions about how much she should be saving for retirement — she hasn’t put anything aside in the last two years, and she knows that has to change. She also feels a responsibility to help save for her kids’ college education, but is unsure how much to allocate. To get those answers, we paired Hilda with certified financial planner, Michelle McKinnon, senior financial advisor at Payne capital management in New York. Listen in as Michelle guides Hilda on all the steps she needs to take in order to get her personal finances back on track, and close her retirement savings gap    

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Hilda: What I'm really looking to gain from this process is a way to approach the big goal of saving for retirement by identifying some of these baby steps that I need to get there. I'm finding that I'm thinking about the big picture and that's really preventing me from figuring out, well, what are some of the smaller steps that I can take now that will get me to that end goal.

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 exploring the problems that arise when you forget to pay yourself first, or put off saving for retirement because you simply have other things on your plate. On this show, we'll hear from Hilda about taking baby steps into saving for her retirement while simultaneously pursuing her dream of starting her own business. Hilda is 46 and she's joining us from her home in St Petersburg, Florida. Hilda, welcome.

Hilda: Thank you. I'm excited to be here.

Jean: You own a Kiddie Academy franchise. What is that exactly?

Hilda: So a Kiddie Academy is educational-based child care. We provide a setting where the children are learning through play. Each classroom for each of their ages is appropriate to where they are, both at their age and development cycle. And we offer that care for infants as young as six weeks old through school age.

Jean: Wow. Did you always want to be an entrepreneur?

Hilda: No. It's funny. I'm a little bit on the conservative side, so I think I fantasized about the idea of one day owning my own business, but probably wouldn't have taken the leap without the encouragement of my husband who is much more of a risk-taker, so that balance between the two of us I think works right, and helped us make the decision at a time that was right in our relationship.

Jean: And you're parents as well. Tell us a little bit about your family.

Hilda: Yes. So we have three kids. Our oldest is 13, and our middle child is 10, and the youngest brother is 7. So funny thing is, our 7 year old was actually our first enrollment at our kiddie academy because I became pregnant while we were in the process of opening our academy.

Jean: I am guessing he got a nice break on tuition.

Hilda: Yeah, a good discount. (laughs)

Jean: Yeah, absolutely. The family plan.

Hilda: Right.

Jean: Tell us about your financial life. How has opening this franchise lined up with your goals for retirement, for college and for the future?

Hilda: Well, in many ways we felt that by opening the Kiddie Academy would give us a lot of financial freedom, but I don't think we approached it with a good plan around retirement. We felt that we were investing in our retirement by opening our business, and down the road when we were approaching the retirement age, we would sell the business and that would be kind of our nest egg.

Jean: Is that still what you're thinking?

Hilda: It is what we're thinking, but it's, it's difficult for me, being the conservative one to gauge. Are we better off with that approach than a traditional retirement process, like a 401(k), IRAs or other tools like that?

Jean: Did you and your husband both put all of your retirement money into the business?

Hilda: My husband did. He rolled over all of his 401(k) from his prior employer. Then I stayed in my corporate job up until 2 years ago, and during that time continued to contribute to 401(k) plan that my employer sponsored. So it really wasn't until 2016 when I left my corporate job to focus on opening a second Kiddie Academy that I stopped contributing to my 401(k) plan. And I really haven't contributed anything since to any type of retirement account.

Jean: So how are you doing as far as your retirement savings are concerned? How much money do you have in that account?

Hilda: So I have roughly $420,000 in my retirement account. It's about the same amount that it was two years ago, because I went ahead and left it with my prior employer and I haven't been doing anything really proactively to manage the funds that are in there.

Jean: And what about college? Have you thought about opening college accounts for your kids? Is paying for college for your children a goal?

Hilda: It is definitely a goal. It's not something that we've made big strides towards. I would say maybe a few thousand dollars per child in a traditional savings account that's running pennies.

Jean: As you think toward the future and not just college, but retirement, and maybe exiting these businesses somewhere down the line, what are your concerns?

Hilda: Not really having a sense of the value of our businesses. What that will be in maybe 20 years when we're ready to retire. And being able to always do what we just did, and have enough to cover our expenses, when you own your own business.  Things are good right now. The economy is strong.  All of those people that are working today need childcare. But if the economy were to shift and the unemployment rate goes up, then obviously that would have an impact on our business and our ability to continue to pay ourselves the way that we have. So the idea that have everything invested in our business and not anything outside of it for college or retirement, it feels like to me that's our biggest risk.

Jean: Have you or you and your husband ever met with a financial advisor?

Hilda: We have not. It's something we probably talk about annually. Usually beginning of the year when everyone's making their list of all the things that we're going to do better. So we have it at the top of our list along with exercising more and eating better, you know?

Jean: What holds you back?

Hilda: I don't know. I think it's not knowing anyone really, within our circle, anyone that consults with a financial planner. It's a little scary to us. But I'm excited about it and really just the opportunity to get past these fears.

Jean: It's always good when you can get a little bit of additional confidence. Thank you so much for doing this with us.

Jean: My team and I were so excited to be able to pair Hilda with certified financial planner, Michelle Mckinnon. She is the senior financial advisor at Payne Capital Management in New York, and also the co-host of the Smart Women Invest podcast – you all should give that a listen – dedicated to helping women close the gender pay gap. She's been in the industry for 8 years. Michelle, welcome.

Michelle: Thank you for having me.

Jean: Let's talk numbers first and then we'll get into the process. What was Hilda's gap looking like before when it came to retirement and what's she on track to do now?

Michelle: Well, I ran the numbers, put in all of the expenses for Hilda, along with their projected savings, which at this point they pretty much were not saving anything because they've got three young kids, and they have a business. And so even though they did have assets coming into the new business, they weren't making it, so I think Hilda already knew that, and so therefore we immediately jumped to the fact that she is going to be saving next year, which I thought was a great move on her part.

Jean: She didn't realize she had access a 401(k) retirement account. You've figured that out for her. Where was the missing link?

Michelle: So her husband uses the 401(k) as collateral basically, to start his business. And so they should also be able to use that as a 401(k), at least as a profit sharing. So I think she knew it all along, but she did not put two and two together and also since she's going to be making a salary next year, she should be thinking about a profit sharing or 401(k) for herself. So it's just those little steps, Jean, that really go a long way. And she's going to save an additional $1,000 per month.

Jean: And where is that money going to go?

Michelle: So two thirds of it, about $700 is going to go to her kids’ college, and then the $300 is going to go to retirement.  And the reason why we prioritized that is because she already has a decent amount of retirement assets from her old 401(k), so she's already a few steps ahead, but normally I would never have my clients prioritize education over retirement. But she was a little different because she already had retirement assets. And then once the kids are out of school, she's going to have that full $1,000 go toward her retirement.

Jean: And make up the difference at that point.

Michelle: Exactly. Honestly, Jean, that's what I see a lot of my clients do. When the kids are out of school, if they are young parents, they could have another 10 years to save for retirement. So that's oftentimes when I see clients really bank the most amount of their savings.

Jean: And I also think that you're dealing in reality, because as a parent, I know that if somebody told me to prioritize my retirement to the exclusion of my kid's college, I just wouldn't listen. You know as a parent, you're going to put money away for college for your kids, so you've got to find a way to feel like you're doing at least some of both, successfully. Often when you talk to entrepreneurs, people who are starting a business, they have this perception that the business IS the retirement plan. Did you find that with her, and how do you talk people out of that?

Michelle: Yeah, so I have a bunch of clients that have their own businesses, and when I run my projection, I do not include the business in terms of a large payout during retirement. Like they think they're going to sell the business, what have you. So I never include that in the numbers. So that's just a surprise in the positive, because we have no idea what the next 10 years are going to look like, what the next 20 years are going to look like.

Jean: Where do you worry that she's going to fall through the cracks?

Michelle: So we talked about how she needs to focus on either working longer, past 65. I walked through her expenses with her and they've got 3 kids, so there’s no way that they're going to be able to save more, because they've got enough expenses. So you know the other item that you can do if you're wanting to make your money last longer is to either make more money so you can save more money, or to work longer. And so she decided she wanted to do a combination of the two.

Jean: When it comes to this new money that Hilda will be putting into her 529s, and into her 401(k), how do you want to see her invest that?

Michelle: Aggressively. And I already told her that with the 529, you want to be aggressive because she's got at least 10 years until her first child goes to college. And so one of the worst things – and I see it all the time – is parents and grandparents want to keep their money super conservative, but that is probably one of the worst things that you can possibly do because, again, you need growth on that money.

Jean: And at what point do you pull back on being aggressive? How close to the kids have to be to college before you start getting a little more conservative?

Michelle: I always recommend the age-based funds through the 529s, so as the child ages, the fund itself becomes more conservative. So if the child is like a year away from school, it's going to be pretty conservative, so that way you can set it and forget it and you don't have to worry about changing it every year.

Jean: Sounds like a plan to me. Michelle McKinnon, we should give one more shout out to your podcast, it's called Smart Women Invest. Thank you so much for working with Hilda and thanks for being a part of this show.

Michelle: Hey, my pleasure.

Jean: So it's been a few weeks since Hilda and Michelle met. We are checking back in with Hilda to see how she's doing with her new financial plan. Hi, Hilda!

Hilda: Hi there, Jean.

Jean: So you got some very exciting news through this process. Bring us up to date with what you've learned and how you're doing.

Hilda: We did. We found that the numbers looked much better than we expected, and although the money that we've saved towards retirement in our past would not get us through our entire lives – assuming we both live long lives into our nineties – we're closer to that age range than we had anticipated. We really both were at a loss to even know where we stood, and being able to have that conversation with our financial planner, to put a stake in the ground and say, "Okay, this is kind of where your prior savings has gotten you, and here's where the gap is that we need to talk about now."

Jean: So many people don't want to look at the numbers because they're afraid the numbers are going to look terrible, and yet what you found was that the numbers actually look pretty good. And the second big reveal is you have a 401(k) that you didn't remember you had.

Hilda: Correct.

Jean: So that is amazing. What are you going to do as far as that account is concerned? How much money are you going to start contributing to it from now on?

Hilda: So in the short term, what we're going to do is contribute Ted's income – the goal was 10% initially to that 401(k) plan. Then, I will start paying myself a salary in 2019 when we open our second location.

Jean: Hilda, we know you left a retirement account behind at your previous job. Were you able to find it and what'd you decide to do with it?

Hilda: So I did find the account and decided in the short term it can stay where it is, and I just need to continue to monitor it and make sure it's invested in a longer term strategy fund.

Jean: She also talked to you about paying off your credit card debt. How long have you been sitting with this debt and what is that gonna feel like to get out from underneath?

Hilda: We've had credit card debt for about the past 5 years and, again, it's an area where I really hadn't thought much about it. Partly because it's a credit card with our credit union, so in my mind thought we have a relatively low interest rate on it, and it's not something that I needed to prioritize. But talking to Michelle really reminded me that there was no reason why I should pay interest on a debt if I can do something to eliminate that debt. And so we're in a position where we're able to, either through our own company, pay ourselves a bonus, or do other things to be able to eliminate that debt relatively quick.

Jean: So I know from a human perspective, change is hard. How do you think you're going to be able to navigate making these changes in your life? And, you mentioned your husband Ted. Is he on board with all of this?

Hilda: He is. My husband's very supportive of the plan, but I think was also feeling at a loss as to where to start. And so having a plan like the one that Michelle prepared for us and reviewed with me is a helpful starting point. It doesn't seem as overwhelming to us because we have a map to use. And so I think of it almost like if you sent me in the woods to go hiking without any trail markers, I don't know if I'd make it anywhere. But having this map makes it less intimidating. So the two of us are very, very excited to start taking steps towards implementing it.

Jean: I know the last thing that she talked to you about was working beyond the age of 65. Is that daunting?

Hilda: It does not seem as daunting as it once did in my life, somehow. I don't know. I think about, you know, just trying to stay healthy, still save towards retirement, and if I get to 65 and I'm enjoying what I'm doing, then I'll continue to work. But I know that I have the nest egg available to me once I'm ready to hang up the, you know, the keys as they say.

Jean: It sounds like you know exactly where you're going.

Hilda: I'm feeling very optimistic.

Jean: Excellent. Thank you so much Hilda.

Hilda: Thank you, Jean. It was great speaking to you again.

Jean: As we wrap up this episode, let's just recap the steps Hilda will be taking to close her gap. In 2019, she's going to have an extra $1,000 dollars a month to save. – $700 will go into 529 accounts for her kids, $300 toward her own retirement. And once the kids are out of school, the full $1,000 to retirement. She's going to start using her company's 401(k) plan to save in a tax-advantaged way, starting with 10% of her compensation. She's going to get rid of that credit card debt. And she's going to focus on working a little longer than 65, and making more money if she can. A big thank you to Hilda and to Michelle for sharing their thoughts with us today and their experiences. I also want to say a big thank you to all of you for coming along with us on this episode of Closing the Savings Gap.  Our goal with this series is to help you think about the challenges that lie in retirement, way before the time you actually get there, so that you can close your own retirement gap. And for those of you who have enjoyed this program, I'd love to suggest 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 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.

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