Color of Money Live: Working towards the 401k millionaire club

Nov 08, 2018

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So glad you could join me today. 

Let's get started.

Hi Michelle - For two years in a row (2016, 2017) I missed the presence of an annual recurring charge from LegalZoom on a credit card. My bad for not keeping a closer eye on monthly statements - but LZ was helpful when I saw the charge and pointed out it was never my intent to have this as an ongoing relationship. Yay for them, they removed the 2018 charge. Then I remembered that in the meantime about a year or two ago, I lost that credit card and had it replaced with a new card with a new number. When I asked Capital One about it, they said "sometimes" Visa will allow recurring charges to find their way to a new card number. :-o That was a new one for me and wanted to share with your readers. Lesson learned, and it was thanks to your chats that I got better about looking at statements.

Good for you for asking to have the charge removed. And I had never heard that about reoccurring  charges so thanks for the tip. 

Going to go double check my charges after the chat!

Since October and November are typically stewardship months for churches, how do you feel about a church that forces parishioners to bring their next year's pledge statements to the altar in front of everyone? This "parade" becomes a way of bullying people into making a pledge for next year, when many of us have no idea if we will have a job next year. It makes those of us "have nots" into not wanting to go to such a church that glorify the "haves."

I tithe so I understand the need for churches to encourage giving. But I agree with you about this marching business according to your giving. I've always hated that. At a former church the people who tithed were asked to march to the altar before "regular" givers. Didn't like that either.

But you know what? I won't be bullied so didn't bother me in the end. Besides the Good Book says be a cheerful giver. And making people feel otherwise is not what should happen. 

I am 55 yrs old and 28,000 a yr. How can i save ? I will probably drop dead at work since i work 2 jobs.

Oh please don't feel like it's hopeless. Whatever you can save even $5 is something and if that something is your best that's good enough for me.

Now, I would suggest you think about a lot of things that could help 

-- What's your living situation? Could you reduce cost of housing by having one or two roommates? Or moving in with relatives? 

-- Is it time to think about moving to a lower-cost area?

-- Can you do some things to improve your job skills? Perhaps taking community college classes or training in different field?

-- Are you taking advantage of any and all programs to cut your household expenses or make them manageable. For example my husband and I do budget billing for our utilities.This means the utility company averages our spending for the year and sends us a bill for the same amount every month.  We are trying to reduce our usage so year over year that monthly amount goes down. 

And as for dropping dead at work. From the people I talk to a lot of folks will be working well into their 60s and 70s -- if they can. And if you can, it's what you have to do to make it. 

So I have been starting to tune into your chats because I am hoping to get my financial life in order a bit. My husband and I are totally overwhelmed (extremely busy jobs, big family, small children) and we spend more than we make. Have credit cards etc. and wealthy parents who help us out, frequently, which is why we are always OK in the end. I know long term we will be OK because of family wealth. But obviously do not want to be bleeding money as we are. I am not entirely sure I can change because I wasn’t taught good habits as a child, overspending is in my blood. Husband isn't good with managing finances at all so I do everything. No idea how to turn it around! I do save in 401Ks, pay bills on time etc., and I track money and know where I overspend. Beyond my main question which is how do I start to get out of this mess, also do you have a recommended spreadsheet/app/other to track daily and monthly spending?

I love that you see the problem and want to take charge to change. Because if I were advising the wealthy parents I would say stop bailing you out. And I don't say that to be mean but that they are enabling you to live above your means. And, as you have so wonderfully pointed out, that's not good for you or your children.

I'm not sure how "wealthy" the wealthy parents are but who knows what the future holds for them and their health for example. One long-term care issue and that wealth may erode. I also need to point out not to you necessarily but to others that counting on inherited family wealth is not a good plan especially when folks are living a LONG time now. 

So again, good for you for trying to pull things back.

But no app is going to solve the issue. (By the way, I like Mint.com)

I suggest you find a community personal finance class, program etc. that can get at the root of your overspending. Check to see if a local nonprofit consumer credit counseling agency has some budgeting classes (go to debtadvice.org). 

I also want you and your husband to try the 21 Day Financial Fast I've created. You can google details. But essentially you stop spending on anything that is not a necessary for 21 days -- three weeks. It's a way to shut down your spending so that you can focus on what really matters. So no eating out. No movies. No extra trips even to the supermarket when you have plenty of food in the house. During this time see how much you can save. 

Next, after the class and during the fast list your financial priorities. What do you want to do with the money you earn? Are you really saving enough for retirement? What about the children's college funds? (Although maybe the wealthy grandparents have taken care of that). Still you never know.

Perhaps you might want to save more to pay off your home so you and your husband can retire early and do the things you can't with all your obligations.

Once you dig deep to figure our why you are overspending then the budge app will truly work. 

Hi Michelle! I’m 44, wife is 40, we are (just barely) 401k millionaires (if you combine our accounts, I don’t know if this counts). We got there by starting to save the max we could at every job we’ve had since we were 18. And we had a huge boost at the starting line - my wife’s dad told her he would give her $1 for every one she saved, which made putting away $3000 in an IRA when she was earning $18,000 basically painless. We basically consider it like we started on second base when our peers were still at home. My wife is really controlling about retirement savings - she won’t even let us go out for a nice dinner if we aren’t on track to max our savings every year. Our emergency fund leaves a lot to be desired (3 months’ income) but at least we know we will be okay when we stop working

 

Read Michelle's column: You, too, can join the 401(k) millionaire’s club

Wow. What a wife! Woman after my own heart. 

And what a wonderful thing her dad did. 

By the way having 3 months of emergency fund is great! Many  Americans don't even have enough savings to cover a $400 emergency. 

Just add a life happens fund so that when life happens such as a major car repair you don't have to dip into the emergency money. 

I was really surprised from today's article that there are so few "TSP millionaires." I am a career fed, having been at my agency since grad school. While I am not in the top category, I'm in the $500K+ group. I maxed out my contributions (and match) on day one, and I haven't looked back. With 20 years until retirement, I'm feeling pretty good. I'm amazed how many folks still leave money on the table in terms of the employer 401(k)/TSP match. Has there been any movement recently to automatically enroll folks when they are hired (requiring them to take action to opt out)? Also, in your article, you mention that the average TSP account has roughly $107K. Do you know what the average tenure is for accounts? I assume most folks have been at it a while.

I'm not surprised there are more millionaires because life happens. People have kids, a house, relatives to bail out, poor money management skills, an illness, disabled child, etc.

The point this money stuff and saving is hard. Many aren't on track because they overspend but I find it's more that people haven't really been shown the benefits of saving long term. 

So that's what I do in my spare time. Show folks. Fuss at folks. Get them to see that retirement savings is critical. 

And yes many employers are not automatically signing people up. But the opt in level is low and the funds they put them in too conservative. It's vital that people see that as a starting point and do what you did, which is to put in as much as they can. 

As for the  TSP accounts, the average is  11 years of contributions. For the millionaires its 29 years. 

A lot of discussion I've heard about these surveys is that they're not really that useful -- for example, my partner and I don't meet the criteria, but we have over $1M between us in our 401(k)s, another $250K between us in our Roth IRAs, another $750K in inherited IRAs, and $500K in home equity (paid off, baby!), for a net worth of about $2.5M...even though we technically didn't make the cut! I'm fine with that, although I do hope we'll each have about $1M by the time we retire, in large part thanks to your advice! And if I could give advice to people starting out, I'd say start as young as possible, even if it's a few bucks, and don't forget that for every $1,000 you put in a 401(k), you're only losing about $750 in income because you're saving yourself the $250 in taxes you'd otherwise be paying. I was surprised that maxing out our contributions meant a lot less of a hit to our income than I had thought.

I find the surveys very useful if nothing else as an inspiration. 

What they say and what I hope I'm saying and showing is the possible. 

The average workplace millionaire is a regular working who contributed over a 20 to 30-year career. Some at the annual maximum but some not. They did however put in between 10 and 15 percent of their income. And of course some really good bull markets helped. 

People like a target. So I write about the millionaires to give them one. It's especially helpful to younger workers because it says the best thing you got going for your is TIME!

Also watch for once a year charges for memberships or computer programs you no longer use.

Good point. Have caught such things myself.

We save a lot on food with two strategies: We almost never eat out or get takeout food. And we stopped eating meat/fish/seafood.

Thanks for sharing. 

But we taught both kids good money habits. Contribute to 401K. Live below you take home pay. Pay all bills in full on time. We have helped on occasion but get paid back. You'd better believe they both think long and hard before each purchase! They enjoy life but don't fritter then money away.

Good parenting means not enabling bad financial practices. 

Most powerful word in the English language: No. 

By the way, never lend money. If you need it back don't give it. If they pay it back, well okay but make sure they know they don't have to. 

Michelle, I am a 48 year old woman, who is entering new territory. The good news, I have just over a million dollars in an IRA. I also have $200K invested in annuity to provide guaranteed income in retirement. I also own a condo worth 700K and I owe 400K on it, with a low interest rate. I drive a paid off car. The bad news ... I was unemployed for most of this year and ran through my entire emergency fund. So I need to build it back up. I secured employment a few weeks ago, but it is substantially less than I used to earn. Even though I watch the rest of my spending I am finding it hard to find much money at the end of the month. I have been putting 5% of my income in a Roth 401 (k) to get my employer match. I am up nights worried about potential emergencies. I have a 17 year old daughter in high school too. Should I cut back on my retirement savings or something else?

I'm so glad you found new employment.

Now step back. Look at what you have. You my dear have $1 MILLION in retirement savings. That is a great amount of money. Plus the annuity PLUS a paid for home.

So, yes if you need to build up your emergency money you can afford to scale back on retirement just a bit.

You might also consider putting money in a non ROTH 401 (k) to help with your taxes. You have more pre-tax money working for you and you may not see that big a difference in your take home pay.

I also hope you have some savings for your daughter for college. Wouldn't want her to take on a lot of loans.  

To the OP with the recurring Visa Charge, I had a United Visa from Chase that I cancelled due to fraud and Chase still allowed recurring charges to come through on the old card after I cancelled it for fraud. I called and was told they allowed recurring charges for 90 days...which makes no sense if a card is cancelled for fraud.

No sense!

Hi Michelle, I was laid off mid-summer and have been actively looking for employment. Thanks to a a layoff package and a 6-month cash reserve, we are making it just fine right now. Our cash will run out April 1. My question is when do I know to call it a day and sell my house? My partner and I are in our early 60s so have several years until full retirement. Because of her health, I am the sole provider; however, our retirement money is fully funded. We have 8 years left on the mortgage. I am reluctant to start going into retirement money because that will leave a lot less in the future. Thanks!

If the house is affordable and you had planned to live there I wouldn't call it a day and sell. The retirement money is available and saved for days like this. Besides you only have 8 years to go. Can you move and live somewhere much, much cheaper than where you are now? 

If you can't find work you may have to rethink how you look at retirement as in you're now retired. 

If you have to tap the money look at ways to cut your other expenses. Or maybe instead of waiting for a full-time job you take a part-time or contract job. 

 

Good morning. Submitting early - stupid work conference call at noon :-) - interesting read about FICO and Experian teaming up to improve consumer credit scores. For those of us "average" folks, is it worth signing up? My credit score hovers around the 789 mark (+/- 25 points) but I have $200k saved, not including retirement plans. Should I let them tap into that knowledge to boost my score? 

Read Michelle's columns on the topic:
How I got a perfect 850 credit score

How I lost my perfect 850 credit score -- and how I got it back

I have mixed feelings about allowing them to tap into my bank accounts to see how I manage my money. That's just more info out there. Plus your score is stellar and would enable you to get the best deals. Given that, why put more of your info out there?

Not me. 

We have approx $175k left on our mortgage which is at 3.25% for another 17 years. We have enough of that in Cash which we are investing in CD's at approx 2.5%. We also have some money in the market that is returning on avg ~4-5% (~80k). So basically we are getting ~$450 mo from interest against the $1.1k mo P&I. (Insurance and Taxes would still have to be paid). We are nervous about draining our bank account but having payments once a year would be nice. We would still have about a $40k emergency fund and IRAs and such (from our work). What else do we need to consider? If we wanted to remodel or add a room to the house, would it be better to use the cash or pay off the house and get a home improvement loan?

So right now you have enough in cash -- not retirement money or emergency money -- but CASH to be debt free? 

And not be a slave to this debt for another 17 years?

Chat over in just a bit. Get thee to the bank and get that monkey off your back. It's what I would do.

And since you don't have a pressing home improvement take the money you were putting toward the mortgage and save it for future improvements so that you don't have to borrow. 

In case I haven't been clear. 

If debt were a person, I would slap it. 

So me, I would pay off the home.

Same here with M&T Bank! Had my card hacked for $800 worth of sunglasses purchases. Went through not one but two new cards and every time I thought it was over, M&T put through the charge again. Completely closed that account and found a new bank.

That will teach them!

When my wife and I realized a few years ago just how much we were leaving on the table in potential gains and tax savings, we went from 10-15% contributions to maxing out both our 401(k) accounts. It didn't hurt nearly as much as we thought it would. The peace of mind from knowing we'll be secure is well worth a three-year-old smartphone or eating out no more than once a week. And we're on track to join the two-comma-club in invested assets shortly before our house is paid off. It can be done!

Love that -- "two comma club." So stealing that. 

I don't plan to retire early, but in early/mid-50s, I would like to downshift out of a high-stress, high income job into one that isn't so stressful, less hours (to actually enjoy life), but less take home pay. While my partner and I are figuring out what our "annual life expenses" are, and we plan cover that with our lower paying jobs, we would not be savings as much into our retirement accounts. But we wouldn't be touching our retirement saving either, until actual retirement age. Any downside you would flag for to plan? (we are in the million dollar TSP category, been maxing out for about 20 years) We've been discussing it "in theory" but I'm not sure how to thinking about doing it.

I think you have a great plan especially figuring out your retirement budget.

You don't write much about health care, but for most of us medical expenses can be a major worry, and I suspect you and many of your readers have examples of how messed-up our health care system is. Here's a tiny one: I have worn a knee brace for several years to forestall surgery. It was prescribed by an orthopedist, custom measured and fitted, and cost my insurance company over $1500. Recently one simple plastic buckle attached by one rivet broke, and I called the manufacturer, three distributors and the doctor's office to get it fixed. Everyone told me that no replacement parts were available and repairs were impossible. They wanted to sell me a new brace for another $1500+ plus the doc's large fees. I took the brace to a luggage shop and they repaired it perfectly and promptly for 28 bucks. I've been fortunate to need little major medical care. I don't know anything about the big ticket stuff. But if this is the kind of needless waste that pervades the system, it's no wonder that Americans pay the most for the least in comparison to every other industrial country.

Vote for people who will truly help fix the system. 

I ordered new glasses on Monday. Special progressives set up to use at computer and reading distance. If they work out well, I might get back ups from one of the cheap places, but I wanted the first pair to be from the optometrists office since they will work with you to tweak the prescription until it is perfect. They were, unsurprisingly, very expensive. But I just pulled out my credit card, paid and then paid the bill as soon as the charge showed up. I will get reimbursed from my flexible spending account as soon as the processing goes through, but I would have been OK (unhappy, but OK) if that money wasn't going to be replaced. Life is expensive, and there are some things that are going to cost you. I can't imagine how miserable I would feel if that expense was about to become a drag on my finances for the next 12 months or more.

I also have progressive glasses that I replace every two years or so. 

Also got reimbursed from Flexible spending account. And also grateful that I had the savings to put the money out first. 

I recently cancelled an annual recurring charge for a service I no longer use. About a week before it was due, I received an email from the company saying something like "We will charge you XX next week. If you would like to cancel, here's how..." That seems like the ethical, honorable way to do it. Why shouldn't companies be required to notify you before each charge? (I also have my credit cards set up to alert me about every charge, but of course that is after the fact.)

They don't because they know a lot of people will forget or not take the time to cancel. It's easy money. 

Michelle, thank you for everything. You encouraged me on a previous chat a few years back when I was rebuilding, and I've since been able to grow my income significantly, rebuilt my emergency/life happens quite quickly with a good savings rate and now trying to determine what's next? I'm contributing to my pension and topping up a Roth and taxable account on the side, beyond that I've got several nebulous short/mid-term big-ticket goals: car, house, wedding? I know that means I should keep the extra in more secure savings but since the timelines on these aren't definite I'm feeling a bit anxious about missed returns. As I'm writing this down I guess I'm talking myself a bit into my own answer! But any additional advice/insight would be appreciated, thank you!

I'm so glad I could help.

And don't worry about returns if you will need the money in 5 years of less. That's why you have different money pots for different financial priorities. 

I don't miss the returns I don't get in my emergency pot or life happens pot because that money has a purpose that's different from my retirement money or the kid's college funds.

So don't fret. You are doing it right.

Very soon my husband and I will pay off the equity line of credit we used to pay for our children's college education. We each contribute the maximum amount to our respective 401k-type accounts and contribute the maximum catch up contribution. When we have the extra cash, what is the best use for it? Pay off the mortgage on our primary home? Pay off the mortgage on our second home? other investment? One of us is about 10 years from retirement and the other is 15.

I almost always err on the side of becoming debt free. Two homes and two mortgages? 

That's what I would focus on especially heading into retirement if I were on track for retirement savings. 

Thank you so much for joining me today. Great comments, tips and questions. 

See you next week.

In This Chat
Michelle Singletary
Michelle Singletary writes the nationally syndicated personal finance column, "The Color of Money," which appears in The Post on Wednesday and Sunday and is carried in more than 120 newspapers.

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