Retirement Income: Moving From Saving to Spending

Wes Moss [00:00:03]: One of the, my most favorite interviews I’ve had in many years. It’s with Jean Chatzky. I caught up with her at FinCon, which is a financial blogger, YouTuber, writer conference in California. We were in kind of a loud, crowded room, which was, which was fun, but we were able to do a podcast together talking about her new book, The Forever Paycheck. And she talks about income investing in a way that I’ve never really discussed before. And it’s the psychological impact of having income, not just from an investment standpoint, but the, oh, I feel like I’m okay to spend it standpoint. And she contends that there’s a bunch of underspending in the United States and her forever paycheck idea, the psychology behind it, I think is really important for us to learn. I have my friend Jean Chatzky here, which is a, which is a very big deal.

Wes Moss [00:01:02]: When Jean Chatzky walks into a room of 1,000 people, everyone’s heads turn. Wait, is that Jean Chatzky? But Jean has a new book called The Forever Paycheck, which I have devoured. Thanks. And I love it because it addresses a problem that it really is kind of a unique problem that people have not talked about all that much. As we talked a little bit before the show, David Bach has talked a little bit about this, the author of Automatic Millionaire, that there is a— I don’t know if you would call it a problem, but I think it’s a problem that needs solving. Americans don’t necessarily spend as much as they could spend, and there’s this fear around it. And the forever paycheck is a very, very interesting treatment on how to address that problem and fix it. And where our research overlaps a lot is this great fear of running out.

Wes Moss [00:01:55]: And it really It is meant to help the fear of running out and being able to actually spend.

Jean Chatzky [00:02:00]: Right. And I think it is a problem. I think it’s a problem because we spent 30, 40 years saving for something. I don’t think we knew what it was, this big thing called retirement. But that was the goal, that we could have a good quality of life in retirement, that we could enjoy ourselves without worrying. About running out of money, among other things. And the fact that retirees are not spending what they saved, I think it’s really sad, actually. I think it— I think they are robbing themselves of so much joy, so many items left unchecked on those bucket lists that so many people have.

Wes Moss [00:02:52]: There again, a lot of the things I— reading your book, it reminded me of, of some of the thoughts and the direction in the book that I just finished. But one statistic that we share, I don’t know if it’s the exact statistic, but is that the fear of running out of money is greater for 2/3 of Americans than, than death itself.

Jean Chatzky [00:03:14]: Right. Which is sort of mind-boggling, right? To wrap your— you’re more afraid of running out of money than you are of dying. of dying. I mean, I guess life without resources to enjoy yourself, you know, some— I don’t even want to go down that rabbit hole. The other statistic that I really glommed onto was this fear that 84% of Gen Xers have about how terrifying life is going to be when the paychecks stop, right? It’s this point where the earnings Okay,

Wes Moss [00:03:48]: so this is— you did— I don’t know if this one was with Wade, uh, how do we pronounce his last name? Fowle. Wade Fowle, or it was another— there was a study that you showed that I’ve never seen this before, and I thought it was fascinating about the underspending and then the potential if someone had, let’s call it, more regular income. You say in the book that people are fine spending income and they’re really nervous about spending assets. Correct. What’s it like? How much more on average could people be spending? Take us through those stats.

Jean Chatzky [00:04:23]: On average, people could be spending double. Double. The wealthier you are, the more you’re able to increase your spending by converting some of it to income, which makes sense. But

Wes Moss [00:04:37]: even so, the wealthier you— I think it was like 40 to 50% of what you could be spending.

Jean Chatzky [00:04:41]: But even Even people who are middle class could be spending about 8 to 10% more.

Wes Moss [00:04:48]: Yeah, it’s a big number.

Jean Chatzky [00:04:49]: By converting assets to income. And I, I think about this in terms of my mother.

Wes Moss [00:04:57]: Yeah. Tell me about your mother.

Jean Chatzky [00:04:58]: My mother was, was just a fascinating case study because she was set up really, really well for retirement.

Wes Moss [00:05:05]: Tell us how much she had.

Jean Chatzky [00:05:06]: She had $1.6 million. $6 million in a retirement account.

Wes Moss [00:05:12]: And she was in Philly at the time? Like, your parents moved to Rittenhouse?

Jean Chatzky [00:05:16]: My parents moved to Rittenhouse, right about— which is where my parents grew up. So my mother had a paid-off apartment on Rittenhouse Square where if she looked out the window, she could wave to her sister across the square. She had a pension from my father. Yeah, not a huge one, but nice. She had Social Security, his, not hers, because hers was greater. She had a nice long-term care policy, which I know helped her sleep at night, even though she never used it. And she had this retirement account. And over 20 years of retirement after my dad died, I watched her spend the pension, spend the Social Security, spend some of the earnings that spilled off of that retirement account.

Wes Moss [00:06:07]: So maybe just the interest and dividends. Exactly.

Jean Chatzky [00:06:10]: Not the principal. Never, never.

Wes Moss [00:06:13]: Don’t mess with the principal.

Jean Chatzky [00:06:15]: And she, she just held tight to that number that was left when my dad died. A behavioral economist explained to me she anchored to that number and she didn’t want to see it go down. And when she died, She had more than she started with. She started with— and she’s pretty typical. One, one study that looked at retirees with more than $500,000 found that 20 years into retirement, they’d spent an average of 12%.

Wes Moss [00:06:44]: And I remember reading that statistic that was adjusted for the growth of the market, or just—

Jean Chatzky [00:06:51]: Yes.

Wes Moss [00:06:52]: So part of it is that there’s market growth.

Jean Chatzky [00:06:53]: Markets have helped. Yeah, right. There’s There’s absolutely no question that the markets have helped. But I wonder about people like my mother who—

Wes Moss [00:07:04]: You feel like she underspent?

Jean Chatzky [00:07:05]: I do. Yeah. I mean, not to a huge degree, but I, I know that she worried because once a year she would have me sit down with her and look at her budget and make sure that she wasn’t overspending, which She never was. I mean, this woman balanced her checkbook, which I haven’t done since college. And she would hold herself back in ways that I think might have made her feel good if she would’ve allowed herself to do a little bit more of it. She had a lovely life.

Wes Moss [00:07:41]: She was a happy retiree. Oh yeah. She had fun.

Jean Chatzky [00:07:43]: She was very happy. She had fun. She traveled.

Wes Moss [00:07:47]: So she saw you, and do you have any— how many siblings do you have?

Jean Chatzky [00:07:49]: I have 2 siblings.

Wes Moss [00:07:50]: Okay, so she got to see, and then grandkids. How many grandkids does your mom have?

Jean Chatzky [00:07:55]: So my mom has 6.

Wes Moss [00:07:57]: That’s a lot of fun.

Jean Chatzky [00:07:59]: Yeah.

Wes Moss [00:08:00]: That’s a lot of fun. All right, so you think about mom did well, but she probably underspent, like to your whole point in this book is that Americans are underspending by As little as 8% up to 50%.

Jean Chatzky [00:08:17]: Yep.

Wes Moss [00:08:18]: Which is a very interesting problem to think about because we go through life and there is this great fear. Now, one of your solutions, and particularly for you as a financial journalist— and by the way, I didn’t realize you worked at— you did start at Dean Witter.

Jean Chatzky [00:08:37]: Well, I—

Wes Moss [00:08:37]: So you have a little bit of Wall Street in you.

Jean Chatzky [00:08:39]: I couldn’t I started at Working Woman magazine. I couldn’t get a job at a real business magazine when I was ready to leave Working Woman because they all thought it was a joke. So I went to Dean Witter.

Wes Moss [00:08:52]: What do you mean? Who thought it was a joke?

Jean Chatzky [00:08:55]: The editors at Money and Businessweek and Forbes. They just thought I didn’t have the chops to be a business journalist because I had been writing about business for working women.

Wes Moss [00:09:08]: Really?

Jean Chatzky [00:09:09]: So, and one of the guys, this editor at Forbes, told me that I needed to go get an MBA, and I didn’t want to go back to school. So instead, I thought about what— I thought about the fact that research analysts are pretty much journalists that make more money.

Wes Moss [00:09:25]: Yeah, so true.

Jean Chatzky [00:09:27]: And, uh,

Wes Moss [00:09:27]: good writers really do well on Wall Street.

Jean Chatzky [00:09:30]: Yes. And got a job at Dean Witter writing reports and learning how to analyze financial services.

Wes Moss [00:09:34]: So you were in the mix, mix. You were an analyst, and that’s a tough job.

Jean Chatzky [00:09:38]: Yeah, I was a junior analyst, but it was a tough job, but I learned, I learned a ton. All

Wes Moss [00:09:43]: right, so you’re on Wall Street, and then you become— you get to the full-time journalist role. And most journalists— and I spent a lot of time too as a financial journalist, writer, creator— by and large, that community has not loved the insurance and annuity side of the world.

Jean Chatzky [00:10:05]: I think you’re being generous.

Wes Moss [00:10:06]: Okay, I was being very— I was trying to be super diplomatic about that. I mean, Clark Howard, this is where I learned it, they just rail against annuities. Yes. And I mean, I’ve even— I did a semi-rail against an annuity once on radio, and some dude made a video about it specifically specifically and went through the points of why I was wrong and blah. And you’re the same way.

Jean Chatzky [00:10:32]: Oh, 100%.

Wes Moss [00:10:33]: However, over the last, let’s say you’ve evolved to say, wait a minute, maybe. And here’s the other problem with annuities is that that’s a broad term.

Jean Chatzky [00:10:42]: Yes.

Wes Moss [00:10:42]: It’s like walking into Baskin-Robbins and say, hey, give me some ice cream. Like, which one do you want? Well, there’s single premium annuities. There’s deferred annuities. There’s indexed annuities. There’s variable annuities. There are, there’s so many flavors that Part of the blanket is negative, but not every flavor is awful.

Jean Chatzky [00:11:00]: Correct. And I would argue that the blanket—

Wes Moss [00:11:03]: Again, trying to be diplomatic.

Jean Chatzky [00:11:04]: Right. And look, I mean, I— one of the things that I write about in the book and that I kick myself for is that years ago, a financial advisor recommended an annuity for my mother, and I told the guy to pound sand. I mean, I would not even—

Wes Moss [00:11:23]: Are you kidding me?

Jean Chatzky [00:11:24]: I would not listen. I— he was buying it for himself. He was buying it for his mother. Years after that, Moshe Malevsky, who was a very well-regarded economist, wrote a column about this particular annuity, including the line, if a financial advisor recommended this for my mother, I would be very impressed and very happy. And I thought, all right, well, certainly I didn’t know what I was talking about.

Wes Moss [00:11:51]: So, that nudged you to say, wait a minute.

Jean Chatzky [00:11:53]: It didn’t really nudge me. I came along because I started to do some work with an organization that was trying to get the story out about lifetime income in all forms. And I started reading the real research from people like Wade Pfau and Michael Finke and David Blanchett, who studied the fact that retirees spend income and assets differently.

Wes Moss [00:12:29]: Differently.

Jean Chatzky [00:12:31]: And I gave these products another look. It took me a while. I mean, I really, Boy, I did a deep dive to understand them. And what I have come around to believe is that like everything else that is being sold, they’re tools and they are tools that have a place in the toolbox.

Wes Moss [00:12:56]: They could have a place.

Jean Chatzky [00:12:57]: That you, you know, you need to understand what is— I don’t think every ETF these days is right for people. I, you know, there are so many different strategies and solutions. Let’s focus on the outcome that we want to achieve and then figure out what, what we can use to get there.

Wes Moss [00:13:16]: All right. So, you’ve come around to thinking, wait a minute, annuities are evil products, to, hey, maybe some of them, because there’s so many different forms, some of them could be Useful.

Jean Chatzky [00:13:31]: Correct.

Wes Moss [00:13:32]: And useful not just from an investment standpoint, but psychologically. And that’s the intersection. That’s what we have to do. That’s the— our industry is the intersection of product vehicle and emotion and psychology. That’s what we’re all trying to help people with.

Jean Chatzky [00:13:49]: The psychology of that big balance that you have worked so hard to create in your IRA or your 401 is, I think, really fascinating. There’s a researcher at Cornell University, a woman named Suzanne Shu, who decided she was going to take a look at how consumers behave with things that we believe are precious. So she took a look at bottles of wine that you were given as

Wes Moss [00:14:23]: Chocolates.

Jean Chatzky [00:14:24]: Chocolates that were really, really, you know, they came from Switzerland, like on an airplane, and gift certificates to spas and restaurants that somebody gave you. And what she found out was that the fear of using these items too soon is greater than the fear of never using them at all. So those bottles of wine sit in the cabinet and turn to vinegar. The gift cards never get spent. The chocolates never get eaten. You end up just tossing them.

Wes Moss [00:15:00]: Unless they’re left on the counter for my dog Cody.

Jean Chatzky [00:15:03]: Oh God,

Wes Moss [00:15:03]: he has a nose and that box will be gone, Jean. That box will be gone.

Jean Chatzky [00:15:07]: Dogs are not supposed to eat chocolate.

Wes Moss [00:15:09]: Yeah, supposedly.

Jean Chatzky [00:15:11]: Yeah.

Wes Moss [00:15:12]: Jean, we’re coming straight back. For more Money Matters with Jean Chatzky. You know, retirement is a lot like football. The best teams don’t just show up on game day. They’ve got great coaches and a smart game plan. Without one, things go off the rails quickly. At Capital Investment Advisors, we would act as your retirement coach, building both the big picture strategy and the detailed plays that aim to help you score the retirement you want. Don’t go into retirement with a bad playbook.

Wes Moss [00:15:43]: Visit us at yourwealth.com. That’s yourwealth.com. I want to talk about the spending rule, 4%. I call it the 4%+ rule. You rightly say that it got a lot of momentum and became well understood and well remembered maybe well-practiced because it’s so simple. Yet the rule itself is not that simple. There’s a lot that underlies— it has a good branding, the 4% rule. Oh, okay, I can spend 4%, which is just the beginning of it.

Wes Moss [00:16:18]: The problem that I’ve found over the years is the, the great disagreement around it, where your buddy Wade

Jean Chatzky [00:16:28]: Pfau— Pfau.

Wes Moss [00:16:28]: Pfau. I remember Wall Street Journal publishes this article where he says, you know, the 4% rule should be changed to like the 2.3% rule. And I was like, what the hell is this guy doing? Like, now everyone’s scared to take any money out of anything because you end up with Morningstar says you can only take 3.1, and Wade says 2.3. And however, Bengen, the aeronautical engineer— an astronomer, right? He’s cousins with Plato, comes with, hey, I’ve done the research and I think 4 is fine. And then he ups it to 4.5. So, Jean, why— like, which one is it?

Jean Chatzky [00:17:09]: Well, that’s— isn’t that the problem? The problem is we don’t know which one it is. And even Bengen doesn’t know which one it is. I talked to him for this book and his new way of pulling money out of his retirement accounts, ‘Cause he’s retired, quote unquote, although he’s still kind of working.

Wes Moss [00:17:28]: Was he wearing a pocket protector when you talked to him?

Jean Chatzky [00:17:30]: I was on the phone, so I’m not sure. But he, it’s so, he’s got scientists and people running different calculations at all times. And it’s different for him every year, which to me just says that’s not a rule. And if it’s not a rule, then we can’t, follow it. And the Morningstar thing too. I love the folks at Morningstar, but every year they issue a different— they issue a different number. 3.3, 3.6, 4 point— I don’t understand how individuals who are trying to just

Wes Moss [00:18:11]: navigate

Jean Chatzky [00:18:12]: are supposed to do this.

Wes Moss [00:18:14]: Well, no wonder they’re so confused. And no wonder people spend less, because confusion is fear. Fear leads to do nothing. I’m not— not only am I going to not drink that bottle of wine, I’m not going to spend my 4%. All right. So that is an issue. And this is where you and I agree, I think very, very much so, is that the fact that it’s branded as a rule is the problem. It’s like it’s like etched in stone.

Wes Moss [00:18:40]: And that’s the problem with the rule, because it’s really not a rule. It is, at best, a rule of thumb and just this guideline. And I think nobody remembers a kind of guideline.

Jean Chatzky [00:18:52]: And financial advisors have sort of, some have hedged and said, okay, use it if you want, but let’s use it with guardrails. And guardrails are confusing too. So my, thinking is let’s cover your expenses, the things you need for sure, and the things you really, really want with a combo of Social Security and a forever paycheck that is literally going to come for as long as you live. Then you can invest the rest.

Wes Moss [00:19:28]: Yeah. And, and, and from that, you’re cool with 4% rule of thumb?

Jean Chatzky [00:19:34]: I’m cool with 4% rule of thumb. I’m also cool with, hey, I’m gonna do more this year and less next year, or hey, my grandchild is going off to college and I want to make a contribution to that. That money, because you’ve covered your needs and most important wants, becomes more discretionary.

Wes Moss [00:19:57]: For our audience, the Retire Sooner audience, We are folks that are thinking about stopping their primary job as soon as humanly possible. Maybe it’s a year early, maybe it’s 10 years early. I just had lunch, coffee with a Retire Sooner family in the lobby that are 55 and they’re done.

Jean Chatzky [00:20:15]: Amazing.

Wes Moss [00:20:16]: But at the same time, they’re always trying to think about how they’re going to be able to use their resources, not run out. You talk about home equity and Tell our folks a little bit how you would think about— which is a huge chunk of money, net worth for people. But it’s, again, it’s an asset and it’s not an income stream, so it doesn’t get used.

Jean Chatzky [00:20:37]: Right. And paid-up life insurance policies kind of fall, I think, into the same boat. If you’ve gone through the process of paying down a mortgage, you have this chunk of cash, right? And you can live in it. Or you can use it for other things. I mean, I don’t know about you, but the question that I get asked more often than pretty much any other is the long-term care question.

Wes Moss [00:21:04]: Yeah.

Jean Chatzky [00:21:05]: And I think home equity is a solution for long-term care, right?

Wes Moss [00:21:10]: Hey, use your home equity in order to fund your

Jean Chatzky [00:21:13]: long-term care. You can use it to buy your way into an assisted living facility. I think we’re gonna see more people as the years go on accessing reverse mortgages, which, like annuities, have been really beaten up on. Yeah. And have gotten better.

Wes Moss [00:21:31]: So much so, they had to get Tom Selleck to do one of their commercials, right? That’s really the answer. You get Selleck, and now everybody doesn’t hate reverse mortgages. You get Jean Chatzky, not everybody hates annuities. I don’t think—

Jean Chatzky [00:21:44]: I don’t know about that.

Wes Moss [00:21:44]: I know you’re doing it just for the love of the world. Let me— we don’t have a lot of time. I’m going to ask you a couple quick questions.

Jean Chatzky [00:21:50]: Okay.

Wes Moss [00:21:51]: Dividends versus interest. Do you count dividends as income and a paycheck or not necessarily?

Jean Chatzky [00:22:00]: Yeah, I count them as dividend— as, as I think there’s— economists don’t love dividend-paying stocks because on the X dividend date, your stock falls, right? But I think if you’ve got a diversified portfolio, dividend-paying stocks can provide a nice income.

Wes Moss [00:22:19]: Yeah, I guess I hadn’t thought of it in the context that you thought of it. And you now wrote a best-selling book with this passive thought that I’ve had forever, which is trying to solve the same problem and seeing that there is something very powerful about an income portfolio. And that’s been how I’ve invested for our families for the longest time, which is multi-asset class income investing, because there’s something very powerful about getting paid and people feel better about spending it. So, okay, you like dividends. We talked about home equity. I wanted to ask you about the fishing guide thing.

Jean Chatzky [00:22:57]: Yes.

Wes Moss [00:22:58]: Do you really think the financial world is throwing back the fish because they want the repeat customer? I think so. Explain to my audience what I mean by that.

Jean Chatzky [00:23:09]: Yes. So this is a comment on the world of financial advisors who make money by being paid on assets under management, and that there are some financial advisors who—

Wes Moss [00:23:25]: Which, by the way, you don’t hate. You don’t mind that model?

Jean Chatzky [00:23:28]: My financial advisor gets paid by assets under management. My financial advisor won’t sell me an annuity. I asked him. I said, I want to buy one of these. I am going to buy one of them. What did they say? We won’t do that. We don’t do— no, not we won’t do that. We don’t do that.

Jean Chatzky [00:23:47]: We think we can get you just as good of a return in other ways. And I said, I don’t want that. I want this. Will you find me one? No. So, I’m gonna take—

Wes Moss [00:23:59]: But you didn’t fire the financial advisor.

Jean Chatzky [00:24:00]: No, because I— look, I think diversification among advisors is also—

Wes Moss [00:24:06]: Not the worst thing in the world.

Jean Chatzky [00:24:07]: Not the worst thing in the world. I have the skills, especially after writing this book, to go out and find my own. But I will do that. And I think I think he should have sold it to me.

Wes Moss [00:24:22]: Yeah.

Jean Chatzky [00:24:23]: Um, but the comment is that if you take a chunk of your money and you use it to buy an income stream in the form of an annuity, rather than getting paid on that chunk for in perpetuity—

Wes Moss [00:24:40]: Yeah, yeah.

Jean Chatzky [00:24:41]: The advisor who sells it to you will get paid a commission.

Wes Moss [00:24:44]: Yeah.

Jean Chatzky [00:24:44]: And it’ll be a time commission.

Wes Moss [00:24:46]: Yeah.

Jean Chatzky [00:24:46]: And it won’t be as much.

Wes Moss [00:24:48]: And therein lies the little bit of the— I think for the fee-only community, commission has always been a bad word. And the thought of getting paid to do a product for so many advisors is almost fundamentally like against their religion.

Jean Chatzky [00:25:05]: Yeah, that’s— yes, exactly.

Wes Moss [00:25:07]: They don’t want— and they see a transaction as a is there something wrong with it? You know, it’s like that I can’t be good if I’m getting paid to do it. But it’s not necessarily the worst thing in the world. And I, and I might come at this because I started my career more on in a Wall Street type firm.

Jean Chatzky [00:25:25]: Yes.

Wes Moss [00:25:25]: I was at a— I was where, you know, there were fees, but there were also commissions, and they weren’t always— it wasn’t always misaligned, uh, even though I am, I’m a huge advocate for the fee-only world, and I am a fiduciary, and I have been now for going on 20 years, I see your point that there may be a place for this as a solution or a tool for potentially a part.

Jean Chatzky [00:25:51]: Yeah, and I’m not saying— we’ve got 1 minute— I am not saying that you should take all of your money and turn it into a paycheck. Yeah, not at all.

Wes Moss [00:26:01]: You’re not saying that at all.

Jean Chatzky [00:26:01]: No, I’m saying, you know, probably 25-ish 30%.

Wes Moss [00:26:06]: Yeah, 20 to 30 is at least maybe consider it. Yes. If, if you’re also in that personality where you’re nervous about markets and a lot of people are. You know how I know artificial intelligence will not take over the financial industry and the financial advisor? Jean Chatzky has a financial advisor. That’s why. That’s why I know.

Jean Chatzky [00:26:30]: I have had a financial advisor for a very long time. I love— I would not be without one.

Wes Moss [00:26:36]: Me too. Same way. That’s how I know that Anthropic can’t take over the industry completely. Thank you for being— by the way, I love the book.

Jean Chatzky [00:26:45]: Thanks.

Wes Moss [00:26:45]: The Forever Paycheck by Jean Chatzky. It’s an orange book. It is orange, which is a great orange. It’s in hardback. It is a New York Times— it says you’re a New York Times bestselling author, but the book itself is a New York Times bestseller.

Jean Chatzky [00:27:00]: Yes, as of like 3 minutes ago.

Wes Moss [00:27:02]: Right, which is good. That means you’ll always remember this interview the minute you found out. And it is the new retirement strategy to spend more, which is the key here, and worry less, which is kind of nice, and hopefully never run out of money, because none of us want to do that at all. Jean Chatzky, thank you.

Jean Chatzky [00:27:22]: Thank you.

Wes Moss [00:27:23]: You can find me, easy to do so, at Your Wealth. That’s Y-O-U-R, Your Wealth Have a wonderful rest of your day.