The Psychology Of Retirement: Why We Hoard Our Savings (And How To Stop)

0:00We're all saving for retirement, or at least we should be. But does anyone know anything about actually spending money in retirement? Our next guest wrote a playbook for how to do just that. Welcome to Forbes Talks. I'm Maggie McGrath, your host, and today I sat down with Jean Chatzky, a personal finance journalist, founder, and author of The Forever Paycheck, her new book about how to responsibly spend savings in retirement. Jean and I talked about what inspired her to write this book. why spending in retirement is as much an emotional problem as it is a math problem, and also why financial hoarding hurts all of us.

0:38Let's dive in.

0:44Jean Chesky, thank you so much for sitting down with me. Always great to see you. Always a pleasure. Should we disclose that you were my first employer? We can do that. Yeah. And you are an amazing success story. I am so, So I'm just so, I mean, I sound weirdly parental, but incredibly proud of everything that you've accomplished. I turn on my television. I see you. It's fantastic. I love when you come out with books because it reminds me of how people should write about personal finance. I learned so much working for you about how to talk about money, how to talk to regular people about money, how to break it down.

1:19And you have the ability to take really complex topics or what can be really intimidating to people and put it in layman's terms. Thank you. Always a really good reality check, which is why I'm so thrilled for the Forever Paycheck, your new book. And I want to start with a passage that you have in your intro. It resonated with me because I know this from my own financial life. You have the 401k. You have the Roth IRA or the IRA. You think you're all set. But you note, once you're 59 and a half, you can start taking penalty-free distributions. But how much? How often? And how should you invest the money in between?

1:52There's no playbook. It's Blindsidedness, the equivalent of a toy manufacturer putting 999 pieces into a 1 ,000-piece puzzle box. And you wrote that, and I thought, oh, that's right. I've never really thought about what happens after I'm 60 or 65. So where did the idea for the Forever Paycheck come from? I'm 61 and have started looking at these issues in my own life and thinking about, I've been shoving money into my retirement accounts now for 30 plus, almost 40 years. I have to figure out how to make that money last for another 30-ish, maybe years. And I didn't really know how I was going to do that.

2:41I started to see the headlines about the 4 % rule failing us. And Morningstar started coming out with a new number for the 4 % rule every single year. And eventually, I just threw up my hands and said, all right, I got to figure this out. I'm going to figure it out for me. But along the way, let's figure it out for everybody else. And there turned out to be a whole body of research around how we do and don't spend in retirement that's totally fascinating. You do a lot of listening circles with women across the country through Her Money, Your Company. You also tell a really interesting anecdote about your mother who inherited money from your father.

3:24And by the time that your mother passed, she didn't have the money that your father left her. She had more. So how common is it that people are just literally leaving money on the table? They're hoarding. It's incredibly common. I think it's the rule for people who have enough money to do this. Look, if you're truly, truly strapped to put groceries on the table, you're spending what you need to put groceries on the table and buy health care. But if you've got assets, if you're among that class of mass affluent people, a lot of people are hoarding. One study looked at people 20 years into retirement and found that they had only spent 12 % of their money.

4:07And to me, that's really, really sad because it means they're leaving a lot of joy on the table. They're leaving experiences on the table. And that's kind of what I saw with my mom. So my mom was 63 years old when my father died, more than 20 years before she died. And when he died, she had a paid off apartment, which was lovely. She had his pension, modest pension, social security, a balance in a retirement account that spilled off some interest and a decent long term care policy, which turned out to be helpful. She spent the income, but she wouldn't spend the assets. She wouldn't touch the principal, even though she had me and my brothers, three grown kids saying, Mom, we don't need your money.

5:02I mean, I watched her. She always looked for the sales. She would buy her orchids at Trader Joe's because they were cheaper. And she would argue that, yes, but they last much longer. And I would say, yes, but they're$10. dollars. Every year she wanted to go over her budget with me just to be reassured that she had enough. And I would tell her she had more than enough. She should spend what she wanted to spend and she couldn't bring herself to do it. After she passed away a couple of years ago now, I just thought, wow, were there things that she really wanted to do that she held herself back from.

5:42And if so, I'm so sorry about that. I was talking with one of our producers before you came in about how common this feels among boomers and the greatest generation. You ask one of my older relatives, what do you want for Christmas? And her answer is, well, I need new bathroom towels. And it's like, okay, I love fluffy towels too, but can we get something that's a little more of a treat? And this gets into the psychology of spending a little bit, but how How common do you think that mentality is among people north of 65? I think it's very common, not just among people north of 65. I think it's very common among people.

6:20I sit on the sort of boomer Gen X line. I think Gen Xers feel this way to a great degree. I think we're seeing some sort of conservatism creep in among millennials. What we have learned is that there are two things going on. This is both a math problem and an emotional problem. It's a math problem because of all the unknowns. When you retire and you stop earning, you don't know how long you're going to live. You don't know what the markets are going to do. You don't know what interest rates or inflation are going to be. And that makes it really hard to modulate. Plus, you've got a maze of differently taxed accounts.

7:03You've got your Roths and your traditional accounts and maybe a regular brokerage account. And you have to figure out how to pull the money from that maze of accounts while not boosting yourself into a higher tax bracket and avoiding Medicare penalties. Really, really tough to do, especially since nobody's ever taught us how to do it. Emotionally, it's really uncomfortable after 40 years of seeing the balance in your 401k go up to see the balance go down. It feels like a loss. And if you're a student of behavioral finance, as I know that you are, you know that we go to great lengths to avoid losing money or to avoid the feeling of losing money.

7:53And so many people are just not spending. I know that feeling well. I read your introduction twice because I'm picturing my own account balances and I get so much comfort in watching them grow. And I know I'm going to have a hard time when I get to my 60s or 70s. I feel like I'm going to be one of the ones that gets pushed into required minimum distributions because I just haven't done it. And you give a really good analogy for folks who are listening to this and might think like, oh, no, I'm ready to spend my money. And you talk about you get a special box of chocolate or a bottle of wine and you just save and save and save.

8:26And then the quality goes down. And you talk about how as the perceived degree of specialness rises, the consumption delay gets longer and the fear of regret goes up, which is a fascinating psychological piece of the puzzle. You're not a psychologist. You are a financial expert. So how does someone take a first step towards the forever paycheck beyond reading this book? Just to come back to those chocolates and the bottles of wine, that was the research of Suzanne Hsu, who's at Cornell University. And her conclusion basically was that retirement account balances are the ultimate precious cargo.

9:03They are those boxes of chocolate. They are those bottles of wine. And the degree to which we believe that we will regret using them too soon, much more than we believe we will regret not using them at all. Yes, that tracks. Which is really, really powerful. So I got into this trying to figure out, okay, what is the solution? And I think that the solution is actually a paycheck, a regular paycheck. One, another study that I pulled for the book said 84 % of Gen Xers and just about as many boomers and millennials are concerned or terrified of not having paychecks in retirement. And that tracks too because I got my first paycheck at 15 years old, my first actual paycheck.

9:59I've been getting paychecks ever since. when the paychecks stop, that's a really, it feels like a really precarious position. And so what I'm suggesting is that you take a chunk of your money and you actually use it to build or buy yourself a paycheck that will show up for the rest of your life. Now, you always say personal finance is more personal than finance. So there's probably not a one size fits all for building this personal paycheck. And I know this book has ways to investigate legacy goals, take a personal risk assessment, basically understand your own personal profile. So without giving it all away, what are the basic steps someone should take towards thinking about what does that personal paycheck in retirement look like?

10:42So step one is figuring out how much of a paycheck you need. I think you want to cover your needs and your most important wants, the things that you really don't want to do without in retirement. Like my gym membership, definitely not a need, but I want to cover that. It's something that I don't want to feel is on the line. Same with the first vacation. Maybe not the second vacation, but the first vacation. So you ballpark a number. You figure out how much of that social security is likely to cover. And then you look at the gap. What's left? That's what you need to cover with a paycheck. And you're right about the personality factors.

11:26People who are more comfortable with risk, specifically market risk, are going to be more comfortable doing this with investments. People who are a little more risk averse, like me, who want to know that this income is going to be guaranteed for the rest of my life, I'm going to do it with insurance. I'm going to buy an annuity to cover that slice of income that I need. and then take the rest of my money and invest it. Actually, once you've got that stuff covered, you can invest more aggressively because you know that the things that you need and the things that you really, really want are taken care of.

12:07What's your recommendation for people who are risk averse, but they know intellectually that they can take more risk? Well, that's also me. And by the time you get to retirement, I think you know what kind of investor you are. There are in-between moves, right? There are types of annuities that allow you to take some risk in the market. There are types of bonds and other fixed income solutions that allow you to take a little less risk. So the book is full of specific paths based on your personality, based on your degree of risk tolerance and also your degree of FOMO, which I think is really interesting.

12:52If you are one of those people that when the market goes crazy in a good way, if you've got money that is sitting on the sidelines or sitting in fixed income or in an annuity, if that is going to kill you, then that's something that you need to understand about yourself. It's interesting having this conversation with you because I remember one of the first things you said to me years ago was that you never imagined retiring. Like you will just always work. And I've come to realize that about myself. The idea of never working makes me a little twitchy, which I think is also why the idea of spending money in retirement makes me twitchy.

13:26But you also, just to kind of pull back, talk about how this spending gap, it's not just people with millions of dollars. It happens. There are huge gaps on the mass affluent side, rather. But even middle income consumers, you say, are spending about 8 % less than they could afford to spend. So do you know if this is they're not spending on things they need? Or is this just they're spending less on things that might make their lives a little bit happier, easier? I expect that it's the latter. We tend to spend on the things that we really need. We tend to put groceries on the table and we tend to pay our Medicare premiums.

14:03But when it comes to the other things, the things that might make life a little bit happier, a little more joyful, a little easier in so many different ways, that's where we hold ourselves back. And 8 % is a lot of money. Like if you think about it, 8 % is what we spend on a car payment. 8 % is a nice budget for a trip or entertainment. It really could improve the quality of your life. So you're out to make people happier with this book. I'd love to make people happier with this book. I want to transition away from the book and towards your company because we are sitting down for C-Suite Unscripted.

14:41When did you found her money? I always get the founding date a little wrong. I get it wrong too. I founded her money in 2016. What has been the biggest learning as you've been building this company? Because I love that you have these conversation circles with women. I was listening to a podcast that you did with a few people closer to my age and long-term care insurance was something that came up. And I was like, oh, I should bookmark this and come back to that after I finished reading The Forever Paycheck. But you've learned so much from this community. Is there anything that comes to mind right now?

15:08I think we continue to make things harder for ourselves than they need to be. There's so much information out there. There's more than there ever has been before. And sifting through it to pick the right answers for us continues to be a problem and continues to be where people get stuck. We have a Facebook group for her money, a private Facebook group, 20 ,000 women. And they're in there helping each other with the different questions that they have. And I see the same things coming up over and over again about who to trust, who can you trust for financial information. And if you're getting a divorce, how do you protect yourself?

15:56Long-term care insurance is a biggie because women continue to worry about the fact that we're going to outlive the others in our lives and our support networks. The wage gap. I mean, boy, oh boy, I hated that news last week that came out and it went back again. So lots and lots of different things. how to raise kids these days when we want to raise them in a way that gives them all the possible opportunity but doesn't give them too much of an easy path. They're new questions, but they also seem evergreen a little bit. What hasn't changed about personal finance? The basics. I mean, I think we might have been working together when I went for that run and came back and said, this is all five things.

16:44This is five things. And if you do them over and over again, you'll be fine, right? And those five things that you have to make a decent living, you have to spend less than you make, which is the hardest of them all. You have to invest what you're not spending so that it can grow. You have to protect your financial world and you have to figure out some way to give back because that actually does make people happy. Those five things, if you can do them consistently, that's enough. It's really enough. I think that was the birth of money rules. Yeah, I think so. which I did work on. But speaking of your career trajectory, we always like to ask executives how they got from the beginning of their career to where they sit now.

17:23And normally I have a printout of someone's resume, but I somewhat know yours. I love your story because it does start here at Forbes, but it takes a detour to Wall Street. What was your first job out of college? My first job was at Working Woman magazine. I was the assistant. Actually, that's a lie. My first job was not working woman. My first job was in the management training program of G Fox, which is a department store. And I left it off my resume because it was just a terribly mortifying incident. When I was graduating from college, I, like you, graduated from the University of Pennsylvania, which is a bit of a pre-professional institution.

18:05They did a lot of on-campus interviewing. All of my friends were interviewing for these big Wall Street jobs. Journalism doesn't have those kind of interviews. So I went through some interviewing and I got a job in a management training program for a department store in Hartford, Connecticut. Paid$24 ,000 a year. The magazine job that I got offered, not at Working Woman, but at New Woman, paid$12 ,000 a year. And I took the department store job and realized in my second week there that this was just a disaster. And what did I do? I had just spent three years doing every journalism internship on the planet.

18:46Was I like nuts? Took me three months to extricate myself, get rid of the car that I had purchased, Like all of these terrible things. Find a new roommate for the roommate I had. And eventually I got back to New York and got a job at Working Woman that didn't pay$12 ,000 a year, paid$11 ,000. Taught me a lesson. I never took another job for the money again. I really learned that if you are doing something that you're good at and that you enjoy, I'm a believer that the money will eventually follow. So worked at Working Woman for about a year and a half, tried to go to a big business magazine because I was the assistant to the business editor.

19:33And I'd done some stories where I got to interview CEOs, really enjoyed it. And I had a colleague who had come out of the fact-checking program at Forbes, a woman named Wally Conrad. And she just, oh my gosh, she spoke in such glowing terms about being a Forbes fact checker, how you would work until two in the morning. And it was amazing. So that was all I wanted to do. I wanted to be a Forbes fact checker. And John Hayes, who was the chief of reporters at the time, would not hire me. I came in. I got an interview. Don't know how. But he said, he sat me down at a table very much like this. And he said, I got a stack of resumes this high.

20:15And you're here. And I was pretty flabbergasted. I said, you know, what do I have to do to get a job here? And he told me to go get an MBA. I didn't want$40 ,000 in debt at the time. And so instead of going to get an MBA, I got a job at Dean Witter on the 63rd floor of the World Trade Center as a research analyst, a junior research analyst, and learned what I believe he wanted me to learn. I learned how to read a balance sheet. I learned how to analyze financial statements. I learned the right questions to ask of companies. And I reapplied to Forbes a couple of years later, and I had a job from John Hayes in two weeks.

20:56Are you ever shopping online and suddenly a discount that helps you save pops up? It makes your day, sometimes even your week. Want that feeling month after month? Well, new customers who save by switching their home and auto insurance to Progressive save hundreds. Cue your happy dance. Get your quote today at Progressive.com. Progressive Casualty Insurance Company affiliates and other insurers not available in all states. I love that story because I think go to school, get a degree is common advice that a lot of people get when they're shifting careers. But you found a way to not just avoid debt, but to keep earning a paycheck.

21:34Do you get a lot of questions from young people today about doing that? And do you think it's still possible to kind of bypass the MBA to get the experience that you need for a more business-focused career? I think it's more possible today. I think everybody these days is talking about transferable skills. And that's what it was. I mean, he didn't really care if I had the piece of paper, which I sort of understood. He cared that when he sent me out to interview a senior leader at a company, I was going to come back understanding the information. And I was going to be able to parse the documents.

22:09And I had done enough business stories at Working Woman to realize that the people that you interview when you do these stories are, in fact, Wall Street research analysts. So I kind of understood that it was the same job on the other side of the table. Ironically, that job on Wall Street paid$45 ,000. When I came to Forbes, I went back to$24 ,000. But I was very, very happy to do it. I actually enjoyed being a research analyst. I enjoyed what I was learning, but I was pretty single-minded that I wanted to eventually get back to journalism. My first job here was to be a reporter and a fact checker.

22:49And when I was promoted out of the fact checking pool, I literally said to my boss, are you sure? Yeah. I really like doing this. It is a very good first step at Forbes for a lot of journalists. But from Forbes, you eventually go on to, I always get the order wrong, but Smart Money. You've worked for the creme de la creme of personal finance publications, and you eventually build a persona that allows you to become the Today Show financial editor. Yeah, I did that at Smart Money. I went from Forbes to Smart Money. Smart Money was a startup launched by Dow Jones and Hearst, two pretty wealthy corporate parents.

23:29And there was a PR effort for this new magazine. That was my way out of fact checking and into being a staff writer. And very early in the magazine's run, the PR guy secured a spot on the early morning version of the Today Show on Channel 4, 5.30 in the morning. And it was supposed to be for our boss, Steve Swartz, who's now the CEO of Hearst. He did it once. And he came back and said, no, no, no, I'm not doing that. They didn't have coffee. 5.30, like, no, I am not doing that. And so it rotated. for a while. And whoever had a story would go on and they would talk about their story. I grew up in a television station.

24:21My father ran local market television stations. I did a lot of community theater. I was pretty comfortable on a set. And when I got the opportunity to do it, the producer came running after me and said, this every other week different person thing is not working for us. Can you just come back? So I did that for three years, got picked up on the Today Show and did that for 25. What do you like about personal finance advice given in a visual audio medium versus a book? Do you find, obviously a book you can write a lot more than you would say, but do you find that the way that you articulate ideas is different verbally versus in print?

25:05Verbally, especially if you only have a few minutes on camera and you know this, you've got to really strip it down to the essentials. I developed this process for myself in doing those Today Show segments that now I sort of do naturally, but in the beginning, it was multi-steps. I would take these eight-page magazine articles and first summarize, then write out what I thought would be the questions, because you never know what are the questions actually going to be, answer those questions longhand, and then talk it through to myself multiple times before I would go in. And only in that way could I boil eight pages into three to four minutes of information.

25:54But you do it that way and you realize, oh, this isn't really needed or I'm repeating over here. It gives you the opportunity to hear yourself. I'm sure we had the conversation when you were starting to write for me that you should always read it out loud because it's only once you actually hear it that you get the sense of how much sense it actually makes. And to this day, when I write, I hear it in my head. I do too. I also, I write out my notes when I do morning television. I then record myself. And then as I'm doing my hair and makeup, I listen to the recording back. So very similar. And the reason I'm asking this is a lot of executives watch our C-suite unscripted and they don't have to be in journalism to appreciate this advice.

26:44I think it's generally good public speaking advice, whether you're on a panel or an investor meeting or just a meeting with your team. No one wants an hour-long meeting. Right. Well, and I was watching you this morning on Morning Joe, and the very first question that Mika asked you, you didn't answer. You said, no, and I was so excited because this is exactly the right thing to do. You said, I'll get to that in a second, but before we do that, I want to unpack this. And you went off and you explained what you wanted to explain. And that's really important because you know the top three or four pieces of information that you want to get across.

27:24And you need to get them across no matter what you're asked. It's taken a long time to be able to do that. And in fact, the first draft of my answer to what I thought would be the first question was, well, you know, our process is this. And then I actually wanted to zoom out to give that context. Yeah. Thank you for watching. You found Her Money in 2016. It is a booming personal finance media business. You have this book. I don't want to ask what's next because I think the book tour is probably what's next. But what are your aspirations for her money? I've always just wanted to help as many women as possible to continue to grow the platform and grow our coaching business.

28:06We've rolled out, we've had for the past several years, a coaching program called Finance Fix and a coaching program called Investing Fix. We've rolled out a pre-retirement version of Finance Fix that's for people who are about 10 years away from retirement to make sure that they're on track and that they know eventually how to decumulate. And Investing Fix has been super interesting. It's a live investment club. Every other Monday night on Zoom, we have hundreds of women. And we've built a portfolio by crowdsourcing. It's a model portfolio, but every month, four different investments are teed up.

28:49The women in the club vote on what is added to this portfolio. It has consistently beaten the market during the years, during years when the markets have gone gangbusters. And my favorite thing is that recently a number of our members have started to present investments. And they are the ones who got us in early to Micron. They're the ones who got us, who put Caterpillar on the radar. So I love that we're getting this perspective from, it's not even just all over the country, it's all with women in Europe, all over the world, bringing us different views and helping other women learn to invest.

29:33And it's been a real confidence booster for the women who've done it. I got this letter from one member who said, I'm going to run for school board in my town. And this gave me the confidence to do it. And I know those are kind of hard dots to connect. But once you realize that you have the skill to manage your own money, it helps you manage your own life. It helps you think outside the box and understand that you really are a lot more competent than you might have thought. Kind of goes back to the five pillars, right? I got my financial life in order and I recently joined the Young Patron Circle for an arts organization that I have long loved.

30:14And I haven't ever done that before. But it's something that I care about. And it's something that I finally felt confident enough that I have the financial ability to do that. And like if tapped to do more than just give, I feel capable of giving insight to this nonprofit. Yeah. And it's all part of a whole. Well, Jean, we could talk forever, but I know you have another interview to get to. Thank you so much for coming in. Thank you for having me. Absolutely.