Whitney Hansen, the host of the Money Nerds podcast, tells Jason Thomas, CFP®, how the financial needs, wants and goals of Gen Y and Gen Z are different than – well, ours. And, everything you know about investing for retirement is wrong and dangerous. At least, that’s what some newsletters would have you believe. Plus, Joe and Big Al discuss 5 reasons to pay off your mortgage – and five more reasons not to pay off your mortgage.
- (00:51) New Rules of Retirement Pamphlet from Bob Carlson’s Retirement Watch
- (17:31) Money Nerds Podcast Host, Whitney Hansen, on the Millennial Outlook on Money
- (27:35) Whitney Hansen: The Values of Gen Y and Gen Z and the Influence of Social Media
- (48:02) Big Al’s List: Should You Pay off Your Mortgage Before Retirement?
- (39:20) Money Nerds Podcast Host Whitney Hansen: Her Services and Goals
Boomers especially, they would work a job for 40-50 years, and they will die at that company, whereas especially millennials if we don’t like a job, we value our lifestyle freedom, and the effect that has on us from a personal level, very much more than financial peace. – Whitney Hansen, TheMoneyNerds.com
That’s The Money Nerd, Whitney Hansen, host of the Money Nerds Podcast. Today on Your Money Your Wealth, she tells Jason Thomas, CFP®, how the financial needs, wants and goals of Gen Y and Gen Z are different than – well, ours. And, everything you know about investing for retirement is wrong and dangerous. At least, that’s what some newsletters would have you believe. Plus, Joe and Big Al discuss 5 reasons to pay off your mortgage – and five more reasons not to pay off your mortgage. Here they are now, Joe Anderson CFP®, and Big Al Clopine, CPA.
:51 – New Rules of Retirement Pamphlet from Bob Carlson’s Retirement Watch
JA: Hey, happy holidays. Got a show lined up. I’m not sure how great it’s going to be or how awful, but it’s going to be information that, potentially you could use.
AC: Well, let’s be honest here. So we’re near the holidays, and we’re busy with year-end planning. So how much time do we have to prepare for this today? Not so much. But anyway, we’ll make it work.
JA: Yeah I’m so sick of taxes, I got to tell you. The past month, we’ve been “well, new tax – wait a minute, changed.”
AC: “New tax bill, forget what we said last week because now it’s different.”
JA: Delete that.
AC: And I actually have stuff on the new bill. But we’re going to wait till it actually happens.
JA: Well, I got this pamphlet in the mail.
AC: It looks like about, what, 12 pages?
JA: It’s 22 pages. 22 pages of pure fluff.
AC: (laughs) What is the topic?
JA: (laughs) It’s The New Rules of Retirement.
AC: The new rules? Did they change? When did they change? We’ll find out. (laughS)
JA: You have to read this. (laughs) “I don’t care if you’re 40 or 80. Forget about everything you heard about retirement, it’s all changed.” Everything has changed. And this gentleman is going to show us how to stay on top of the changes, and how we can use them to create retirement we desire.
AC: How much did that little 22-page booklet cost?
JA: It didn’t cost me a thing. He wants me to sign up for newsletters.
AC: Oh is he trying to sell you this so we can send it out to our clients like we wrote it?
JA: No no no. It’s for the end consumer.
AC: Got it. You’re an end consumer. You’re close to retirement. (laughs)
JA: Very, after this show. (laughs) There will be forced retirement. But I kinda looked at this, and here’s the problem with media.
JA: Very much so. And this is what drives me nuts about these stupid articles. We got six threats. Only six. (laughs)
AC: OK. Are these the Six Deadly Threats? Are they new?
JA: Well I don’t know. “Retirement Risk #1: the foundations are crumbling.” Read that and you’re like, “oh boy.” “For decades Social Security, Medicare, provide a secure financial freedom, but not today.”
AC: OK so we’re losing – remember the three-legged stool?
JA: Yeah. You had Social Security, pensions, and your savings. So now we got two and a half.
AC: The pensions are gone. Social Security is crumbling. Foundation’s gone. One leg left.
JA: I think for most people that are listening to this program, there’s going to be some form of Social Security that they can rely on, in my personal opinion. But most people that are listening to the show are not relying 100% on their Social Security.
AC: Or hopefully they’re not.
JA: But people that listen to the podcast or the radio show.
AC: Yes. And typically they’ve done a fair amount of saving. And by the way, Social Security is really probably designed only to cover maybe 30% of your income, if that. Depends on how much money you make. But for the average wage earner, expect about 30%. So the other 70% you’ve got to make up yourself.
JA: So by what, what’s the date now? 2033? The Social Security trust fund runs out. And then there are still people putting them into the system, and then with that, it can still provide about 80% of the promised benefits.
AC: Yeah. Give or take.
JA: 78% or something like that.
AC: Yeah, and they keep changing the number. But yeah, so that means if you’re going to get a couple of thousand dollars per month, if you get 80% of that, that’s $1,600. So it’s not like you’re not getting anything. And that’s what it says if the trust fund runs out and there are not enough receipts coming in to pay the benefits. And of course, we know that between now and 2033, they can do some fixes, like they could increase the percentage of pay, they can increase the cap…
JA: They’re going to increase the retirement age, they’re going to increase payroll taxes.
AC: And that’s what they’ve done before, and it’s like, I hate it when people get so sensational about Social Security, because it’s been fixed before, it will be fixed again. It’s not fixed currently because no one wants to touch it. They’re going to wait till this gets closer, and then they’ll fix it. That’s our opinion. So you can you can disagree with us if you want. (laughs)
JA: But that’s what happens all the time with everything. Congress waits until the very last minute it seems like, and then it’s like OK, then they act.
AC: And then it’s fixed, and then we move onto the next thing. The problem is, when you fix something like that, there’s pain. Because now you have to pay more into the system. And no one wants to do that. So that’s why it’s, what do call it, a political hot potato That’s what I call it. (laughs)
JA: Here’s another one for you. You’re on your own for medical care.
AC: I’m on my own? Medicare, gone?
JA: You’re totally on your own. Here are the stats that they’re throwing out: “only 28% of employers with more than 200 employees provide retiree medical coverage, compared to 66% in 1968.”
AC: OK. So I should have been born 50 years ago.
JA: You should get another job that provides medical insurance when you retire.
AC: One of the 24%.
JA: But most people now are still working at least until, let’s say 62, 65, so they will be on their own for a few years if they retire prior to 65. And then there’s Medicare. But I’m reading this, it’s like, “oh my god, I’m on my own.” And then another thing that we talk about too is, a retired married couple, aged 65 today, is estimated average to need more than $270,000. So then what does the average individual think? “I need $270,000 in the bank just to cover my medical expenses.”
AC: “I got $140,000, I’m short. So I guess I can’t even eat.”
JA: Right! “I got $150,000 (laughs) in my 401(k) and you’re telling me, dammit! I need $270,000 to cover my medical expenses?! What am I going to do? Do I eat or not get medical care? I don’t eat I’m just going to die, so I don’t need medical care so maybe it doesn’t matter.”
AC: So what they don’t tell you is that you don’t have to pay this all at once, you pay it slowly over time. And they never say that though, do they?
JA: Right. It’s an average. Some people might spend about $5,000 a year. So it’s a few hundred dollars a month. Some people might spend $10,000 a year.
AC: Some people, $1,500, whatever. It’s not like, “well, 65, Mr. Jones, where is your $270,000?”
JA: Yes, “we are the medical police.” (laughs)
AC: If you can’t write a check for $270,000 You’re on your own.”
JA: What do you think the number one retirement planning mistake is? Number one retirement planning mistake is:
AC: Number one retirement planning mistake. Let’s see: not having enough saved.
JA: That’s what I would think too. Nope, not according to this. Number one planning mistake is that you spent more than anticipated.
AC: Oh really? So that implies someone they had budgets, so they had some anticipation of what they would spend, and then they spent more than that.
JA: Yeah. “We didn’t realize how much everything was going to cost, Bob. That’s the mistake we made.” “These are the words of a woman who shared with her husband a large lakefront house, with an indoor swimming pool, and a secured golf course community in central Virginia, who also owned a condo in Florida near their grandchildren in the winter. They weren’t hurting for money, but after five years of retirement the couple was concerned that they underestimated the cost of retiring.” (laughs)
AC: We’ve talked to couples like that, and they always say the same thing. “We’re not lavish. We don’t know where the money goes. We can’t cut anything. We’ve got to pay the homeowners and afford a condo, and we gotta keep up the boat.” (laughs)
JA: (laughs) Yes the slip fee! I can’t tow it, it’s 56 foot!”
AC: “We have to go to the Florida condo and make sure it’s OK, and we’re going to fly, of course, first class.”
JA: To put some validity. I think people underestimate, sure, how much that they’re spending. So that’s the first step, is to get your arms around it.
AC: Is that the number one mistake?
JA: No, it’s not saving. You have to save, and then if you save, you spend less. So a couple more, then we’ll get the heck out of this stupid thing. I got this 22-page special report from Bob Carlson’s Retirement Watch. I don’t know Bob Carlson, but he’s smart savvy advice. And some of this stuff is really good, some of it is not so good. The only thing I don’t really care for with stuff like this is that…
AC: It’s kind of oversold.
JA: A little bit. It’s just the whole selling on fear. If you just joined us, we’re talking about he’s got some retirement risks, and the one retirement risk is that the investment advice that you’re getting is just flat wrong and dangerous. (laughs)
AC: So it’s investing mistakes?
JA: (laughs) Yes. “Most retirement investment advice is wrong and dangerous! Retirees and those close to retirement get the worst investment advice, and it’s gotten worse over the years. That’s not surprising, financial advisors and brokers concentrate on investors who are going to increase their investments each year. That’s a growth business.” So he’s saying, advisors and brokers. I agree. I think a lot of the training and a lot of advisors and brokers, they specialize in wealth accumulation in a sense of let’s kind of build your overall portfolio structure in such a way that we can maximize your overall return. How we look at it at Pure Financial Advisors is a little bit different, in a sense of we want to preserve the overall capital as much as you possibly can, but still get a conservative rate of return to create the cash flow or income that you need from the portfolio on an ongoing basis. So it’s not all about show me the money, because real easily, if you want to have the highest expected rate of return portfolio, it’s pretty easy to do. You just put 100% of your assets into emerging market small value companies.
AC: Well that’s true. It’s going to be quite a rollercoaster.
JA: It will definitely be a roller coaster.
AC: But if you can ride it out for 20-30 years, you’ll be pretty happy.
JA: But it’s extremely risky, and it’s extremely volatile.
AC: Yes, and when you’re close to retirement, you might actually need that money. So you don’t want to necessarily do that.
JA: So I think his point is that you have to switch your strategies when you get into retirement or close to retirement, and you have to look at what is the demand of the overall portfolio, and what does it really need to do? If I don’t need to touch the money for 15 years then you’re going to have a different type of portfolio than someone that needs cash flow in the next 15 days. However, where I think another mistake happens, is that once you get closer to that let’s say retirement date or age, where you need to start drawing income or dollars from your portfolio, I think people tend to get too conservative. It’s like, “oh, well what happens if you lose 50% of your portfolio like 2008?” Well first of all, if you have a 100% stock portfolio, and you need money from it, yes that could happen to you. But I think most people are – well, maybe I’m naive, but I would say if I’m thinking I’m retiring here in five years, am I going to have 100% stock portfolio?
AC: I don’t think so. And we’ve got some experience with this. We see I would say over a thousand new people a year.
JA: More than that. For compliance and conservative, I would agree with that.
AC: It’s probably, it could be 2,000. I’m thinking more like 1,300, 1,400, but it’s over a thousand. Put it that way. And I would say, we get some people, I suppose, that have no clue how to do this, but the vast majority of people have at least some basic knowledge that, “oh, as I get close to retirement, I probably should be a little bit safer,” because you can’t necessarily count on the market to be when you’re trying to pull money out. And that’s true. And so, as a general rule, as you’re getting close to retirement, you want to make sure that you have potentially more safety than you might have had while you were accumulating. Of course, there’s a bunch of exceptions, depending upon your own goals and desires, but if you’re trying to create income and a cash flow stream from your portfolio, you want to have a fair amount of safety, because you can’t count on the market to be up at all times, and it simply is not up at all times.
JA: Sure. I think the bigger mistakes that people make, and maybe some of the advice that people are getting, it might be over-concentrated in one area of the market. They’re not diversified enough, or they have half their money in cash and half their money in stocks, where it’s like, “well, I want to be conservative here. But I also need to take on risk.” So then you’ve got your foot in the oven and your feet in the freezer type of thing? You’re trying to stay warm. But that will kill you. So, you want to make sure that when you start looking at building it an overall portfolio, you have to look at two, three, four things prior to even thinking about constructing the portfolio. What are your fixed income sources? How much demand do you really need from the portfolio? Do you have Social Security? Do you have pensions? Then you’re looking at your expenses, how much you’re spending. We talked about that. Then you have to look at your tax implications of the income that you’re currently receiving, versus the tax implications of the distributions from your investments. Then from there, then you know this is how the portfolio should be constructed because I need a target 5.5% rate of return. You should take the least amount of risk possible to maximize the return for your specific goals.
AC: Yeah. You invest towards your goals. And we I guess we’ve coined, we’ve called that a family index. In other words, you do financial planning first, cash flow planning. You kind of look at what sort of a rate return that you need over time, to be able to achieve your goals. And then you devise a portfolio that has the highest probability of earning that rate of return. So in other words, if you need 5.5%, Joe, as you just said, well then why shoot for an 11% rate of return? Because by doing so, you’re going to be taking a lot more risk in the portfolio, and you’ll have a much more volatile ride.
JA: So it doesn’t have to be as complex, but when you dive into the weeds then, you want to make sure that what you’re doing too. There’s going to be a market correction, we just don’t know when.
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17:31 – Money Nerds Podcast Host, Whitney Hansen, on the Millennial Outlook on Money
JA: Hey, we got Jason Thomas, he’s on the street interviewing people. He’s going to talk to Money Nerds podcast host Whitney Hansen, and this is something now Jason’s been with our firm now, he’s our financial educator. So I’m going to turn it over to Jason.
JT: Hello everyone. This is Jason Thomas with Your Money, Your Wealth. I have with us today Whitney Hansen, The Money Nerd, from WhitneyHansen.com and TheMoneyNerds.com, those are her two sites that you should definitely check out. Hello Whitney, how’s it going today?
WH: Jason, I’m doing so great. Thank you for having me.
JT: Yeah, we’re really glad to have you here to learn about your blog and your kind experience of how your kind of shaping people’s financial decisions as well. Why don’t you tell us a little bit about what got you interested in starting your blog and podcast, what the significance of the title is, and just a little bit about yourself?
WH: Yeah, happy to. So what really got me interested in personal finance was my own personal experience. So I was a first-generation college student, so I went off to college and did what I thought was totally normal, and I took out as much student loans I could, and wasn’t really paying attention until 2010, which is the year I graduated with my bachelor’s in accounting, and I was sitting there and I was supposed to be so excited, it’s such an important day for me, but I had a bill that said I owed $30,000. And I remember holding that bill thinking, “oh man, what did I do? Why didn’t I work a little bit harder in undergrad?” Or “I wish I had done things differently.” And that was the situation I was faced with. So what I did, was I put together a plan, and my plan consisted of working two different jobs. So, all through undergrad, I worked as a nail tech, and I was doing manicures and pedicures. That was my job to get me through college. And once I did that, I got a job right out of college as a staff accountant, and I decided that I was going to keep living like a college student and put all of that income from my accounting job towards my student loans. And so that’s where I got some really great progress. And I was able to pay off the entire 30 grand in just 10 months. And so that’s where I started to get really excited about money and personal finance and saw that there was a lot of possibilities if you just buckle down and do the hard work. And so that’s where my business developed, and that’s where kind of The Money Nerd podcast came from as well. Just talking to people, really cool money stories, and thinking, “wow, we need to share it with other people, because that would have been very inspirational when I was paying off my debt.” So that’s where that whole brand actually started was from all that student loan debt.
JT: You see a lot of that, where people’s personal experience leads them into this kind of field or this industry, either from a career standpoint, or from blogging, or otherwise getting involved in a discussion of financial issues. And you had an accounting degree. Some of these concepts were not abstractions. I guess maybe they were a little more abstraction than they eventually became. But I think that the point being, your personal experience in this is going to make a point that having all of the coursework in the world can not.
WH: No I think you’re spot on, it’s a really good point too. I was very into the concept of budgeting for people that have a ton of money. Corporations and small businesses. And the thing that was always disconnected and frustrating is that coursework didn’t necessarily translate directly to individuals. And it was kind of a bummer. So that was always something that, when I started to make that connection of, “oh, you should run your personal financial life just like you would run the business financials,” it started to click a little bit more. So it’s a really good thing that you brought up too.
JT: One of the things that I also see that you focus on, is that you mentioned on your site dealing with millennials. And I think this is an important kind of point in the conversation to maybe say what exactly that means to you, and why millennials would have a different financial outlook that maybe someone from Gen X or a previous generation might. What’s changed in the world that would make them have a different outlook towards the money?
WH: It’s a great question, Jason. What I see what most millennials: Millennials are typical, at this stage in the game, about 25 to 35 years old. So I can go plus or minus a few years on either end of the spectrum. But what’s so interesting about millennials are, they are the most educated generation we’ve ever seen. They’re highly educated, but they are the most underemployed generation as well. That’s fascinating, because of all of that education, as we know, it comes at a cost. And for our nation, it’s significant. I think we’re looking at $1.4 trillion in student loan debt. And so that trickles down to the direct individual, the direct millennial perfectly, because the average millennials in 2016 is graduating with $37,000 in student loan debt, and a lot of the people that I’m coaching and I’m working with, it’s not uncommon. I used to think this was a one-off thing, but a lot of these people have no joke, $1,000 a month student loan payments. And they’re only making $2,500. It’s craziness, but it’s very unique to millennials is this student loan debt.
JT: Well that’s a very big needle mover in younger people’s situation, and not necessarily confined to millennials, but certainly even exacerbated among that group, as you mentioned, because the education is becoming more prevalent. People are attending college graduate school at a higher rate than they ever have, and the cost is not going down. Let’s just be frank about that. So you’re seeing tons of people with your exact situation, coming out with a five or maybe even a six-figure debt, before they’ve even really got started in your career. Can you maybe share some of the experiences people have mentioned to you on how that might affect their outlook of life?
WH: Yeah. It’s so great. So, I’ll give you one example of a very normal coaching client: came to me making about 70 to $80,000 a year with bonuses, and pretty good income, not bad for the area she was living in, but she had a car payment of about $500. And as we’re going through the credit cards debt and all the different debt, I finally asked her, “So what is your student loan debt?” and her response was, “Oh, it’s a lot of money, but I’m not really worried about it, because it’s a low-interest rate.” And I’m like, “OK, well what’s a lot of money?” $150,000. (laughs) It’s so fascinating because for these generations who were trained to see that credit card debt and car debt may not be optimal, but for student loans it’s so normal that a lot of people are not even realizing that it’s a bigger issue than it actually is. So it’s quite fascinating to see that that goes down to that mentality behind it. It’s really interesting.
JT: Well you brushed over something a moment ago, which I think might kind of tie into that. You mentioned not just the personal impact of what this might have on somebody, but then you also said “the impact on society.” So I’ll just give an example that maybe you can roll with. If we’re starting off with $150,000 of debt at 22, I’m probably less likely, as someone at that position, to maybe buy a house, or have children, or settle down, or certainly to be an entrepreneur. My overall life outlook might be shaped by that. And your people have mentioned the pieces of the pie fitting together, and how that would affect the other decisions that they make and how that might affect us all?
WH: So 100%. So a lot of millennials too, it’s kind of a generational thing, millennials and then Gen Z, this is interesting as well, are very entrepreneurial. They do want to start their own business, but because they have so much debt, they feel like they can’t. They can’t make that sacrifice, so they can’t take a job that pays a little bit less while they bootstrap their business. Not an option for them because they have that high burden of debt. So it’s really interesting from that standpoint. And then the other standpoint, and I actually have a lot of parents of 20 something-year-olds emailing me, about how frustrated they are that their child will not move out of their house yet. And what can I do to help? And it’s so interesting to see the dynamics are just changing. Millennials aren’t buying houses as fast as they used to. They’re not getting married. They are delaying starting families, and they’re also not starting that business too. So it’s a big burden on our overall society, for sure.
JT: Now, do you relate primarily to student loan debt, or do you find in your discussions with other people that that’s one of a many-tiered stool that’s kind of leading to that overall environment?
WH: Yeah it’s definitely one of many things, but the student debt piece is actually one of the largest pieces for them.
JT: Yeah, when you’re talking about an amount that is that substantial, and previously a bachelor’s degree would have been seen as something unique. Whereas now it might not be a “nice to have” but a “need to have” for certain fields.If you’ve got this idea of kind of credential creep in some things.
WH: Yeah this is really a good point to bring up.
JT: Yes so the idea that this might have been kind of your ticket to the middle class. Well, it might be your prerequisite to the middle-class today in some way, but not necessarily a guarantee. So you’ve got this debt, and then you have to arrange the rest of your life kind of around it.
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27:35 – Whitney Hansen: The Values of Gen Y and Gen Z and the Influence of Social Media
Welcome back, the show’s called Your Money, Your Wealth. We’re listening to Jason Thomas’s interview with Money Nerds podcast host, Whitney Hansen.
JT: What are some of the other issues in general that people typically bring up that you’re talking with?
WH: Yes. So from a from a debt perspective, credit card debt is still very prevalent, and very common. And one of the interesting things that a lot of people are bringing up too is this idea of – so recently I started teaching personal finance at my university. So I worked with a lot of students, I’d say probably about 200 students per year. And a lot of it is just, they don’t know where to go to find a good education, either. So their parents are talking about money. They have no idea where to go. So it’s just this lack of knowledge, and then they see what they think is normal, which is just, take out the credit card, buy the car, finance that car because you have to get around, and take out as much student loans as you can, because you’re going to have this better life later. So it’s definitely hitting them from multiple areas, for sure.
JT: The parents are an interesting situation because we can agree conceptually that this thing over here is good, this thing over here is bad, I’m going to do the first, I’m going to avoid the second. But what we often do in our lives, in general, is just we do what we know, and what we’ve seen. And can you kind of talk about maybe some of these conversations with the parents of children, either together or with you, and how some of the differences in approaches might have been?
WH: Yeah. I think for a lot of millennials especially, they go through what we call the comparison syndrome. So they’re looking at their parent’s lives, when their parents are in their 20s, versus where they are today, and they feel like, “I should have this nicer house, I should have a better job, things should be different.” And so a lot of times, the child is comparing to where their parents are. And that’s not a safe place to be. Everybody’s life is so different. We all know nobody has the exact same path, and so that’s where it starts. But when they do try to talk with their parents about money, it’s a taboo topic. So even parents aren’t quite comfortable sharing, how do you approach credit card debt? What do you do? How much money do you actually truly need in your savings account for emergencies? So just even that basic concepts and basic conversation aren’t happening. So millennials are doing what they see their parents do too. “OK, my parents have a credit card. I will get one too and start to build my credit,” but they’re not talking about how insurance works, or how that minimum payment works, or what does that look like if you charge more than a certain percentage on your card, how does that impact your credit score? And so those conversations are kind of left out that piece, and it is pretty sad to see the detriment of what it can cause.
JT: Yeah that’s a very interesting point because we tend to view things relatively – to maybe what our neighbors are doing, or the people that we know.It’s very easy to say something like, “Well I have it better than 90% of the people in the world, but I’m in the bottom 10% of people on my block.” So that’s the way that people experience things. I want to just ask a question as devil’s advocate here for a moment, because we framed this conversation as, these millennials – and by the way I’m a GenXer so I want to just prove to you, can with the college lifestyle even later, so… (laughs) Try to make that happen indefinitely if possible – just barely, I think I’m two years off of the cut off. So there’s this one viewpoint you hear in the media is “doggone it, these millennials would really like the traditional economic viewpoint of the 2.5 children household, the two cars in the garage, the traditional job.” What we would perceive as a traditional economic development into adulthood. And then there’s the viewpoint that many millennials are saying, whether that’s possible or not, that may not be of value that I have. Maybe I don’t value homeownership, I value flexibility, or free time, or fewer commitments, or doing things that I value that don’t necessarily have as much of an economic payoff. How many of your people, it’s a matter of a desire versus a necessity?
WH: Almost all of them desire more of that lifestyle flexibility. They don’t want to be tied down to a job. So, whereas Boomers especially, they would work a job for 40-50 years, and they will die at that company, whereas especially millennials if we don’t like a job, we value our lifestyle freedom, and the effect that has on us from a personal level, very much more than financial peace. And so that’s why a lot of people will say that “this isn’t worth my time because this is hurting my soul. I’m going to leave that job, or I’m going to go for a job that gives me remote work that pays a little bit less.” So it’s really different. Much more of a focus on the lifestyle flexibility, for sure.
JT: Exactly. It’s just a totally stereotyped thing. (laughs) I’ll bring up the other question: when people mention millennials, the number one thing that usually comes up might be technology or social media. And how do you see those things affecting the monetary viewpoints?
WH: Oh, I love that, because it’s a bad thing for society in general. So what we’re doing is, when we’re on social media, we’re training ourselves to get instant gratification and to also immediately see something and compare our lives to somebody else. Like, “oh Jason just took this really cool trip to Europe. What’s wrong with me? I can’t go to Europe yet.” So we start to compare ourselves to other people, and it’s so subliminal that we don’t even realize it. But for millennials, it’s like everything is so fast-paced. We’re multitasking all the time. We’re constantly – Facebook for five minutes, and then hop over to Instagram and see what’s going on over there. And during that time too, we don’t realize it but we’re getting bombarded with advertising all the time. And so we’re seeing all these really cool new products, new Kickstarter, the vacation that Jason took. I’m totally picking on you, Jason. You must take a lot of vacations. (laughs)
JT: Not nearly as many as I’d like, but then to your point, I’m not really that active on social media, so maybe if I were, I would have more inclination to do that. I see the one that you took, your hiking adventure, which I actually see right now. But, it’s funny you went that direction, because I was I was expecting perhaps an answer about how those tools affect the way that people manage their money, but the way that you took it was, the way that it influences their desires, and the things that they want to spend their money on. Do you think that the millennials, with the ability to connect with them from an advertising standpoint, that that’s affected their attitude towards consumerism?
WH: I do actually, I do. So we’re seeing a lot with Gen Z, the younger generation coming up, and their BS filter is so high. So as a marketer, it’s extremely tough to reach Gen Z, because are so ingrained with marketing and advertising and constantly being sold to. And so millennials, we get it too, but yeah, Gen Z is an entirely different story. It’s going to be very interesting to see how that pans out.
JT: it’s funny, once you have a certain amount of anything, your marketed to all the time, or anything happens all the time, maybe you’re in an environment that has a lot of wealth, or a lot of rain, or a lot of violence, or whatever it is that your environment has, you have a potential to get desensitized to whatever that thing is. But, do you see those people reacting? The what they say, my attitude towards this particular strategy that’s being employed might be one way, but is my behavior a different way, or is my behavior kind of aligned with it? Am I buying things that I don’t need, being influenced, or is that skepticism leading to a different strategy with my own money? What do you see from that standpoint?
WH: Oh completely. It directly impacts us. So when I see all the time and even talking with my coaching clients, it’s hilarious, it maybe not be directly social media as the start. Maybe you were first on Amazon, and you’re looking at a couple things for Christmas gifts, and then all of a sudden you hop over to Facebook and you see that exact same product following you on Facebook as well. So it’s a reminder of, “hey, you didn’t purchase this, you might want to go back and do that.” And I cannot even tell you how many of my clients always fall victim to that, myself included. And I know this stuff, I’m a marketer as well. But when I see this, it’s like, “oh my gosh, it totally works,” because they can follow you around on the Internet. So it’s constantly reminding you of the products you were looking at that you may be really wanted but couldn’t afford at that time or whatever the decision was. It’ll follow you. And it’s awful. But that’s kind of the way the online world is going.
JT: Yeah it’s a very different experience from, we all watched 60 Minutes or whatever TV program happens to be on, we all see the same commercials, whether they are aimed to me or not. I might be a 13-year-old girl, obviously, a Cadillac commercial is irrelevant to me. You could make that example with any type of person, but you had the ability to target very specifically, and I think there’s been a lot of reports on, even our last election cycle, specific targeting to even individual people, not just kind of subsets of groups. And I think that’s a very interesting marketing aspect. I’m kind of intrigued to hear that’s been brought up. You mentioned coaching clients.Why don’t you just tell us how that entire process works? Someone comes to you says, “hey, I need some coaching?” What does that look like?
WH: Yeah. So I have them fill out an application to get some basic information, so I can understand where they’re at in their financial life, and then where they’re at psychologically – are they actually ready for change? That’s an important piece too. So once I get their application, I go through that with them. We hop on the phone. We talk it out. I get a little bit more information about what their goals are, where they’re trying to go. And more importantly, if they could actually, truly afford coaching. this is where it gets really sadder and I feel bad a lot of times. But there is a lot of people that I do have to turn away because they don’t have the funds to pay for coaching at all. And it’s a hard time, but if someone can afford it, that’s where we definitely began. And when I say, “can they afford it,” I also help them identify where their money leaks are on that initial call. So most people are eating their money. They literally are eating out, $400 to $500 a month. And so if that’s the case, then I know that they do have it in their budget to make some serious changes. So that’s where I can help identify ways to either be able to afford it, or if they still can’t, then I point them to other free resources around our nation, and even on my website.
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39:20 – Money Nerds Podcast Host Whitney Hansen: Her Services and Goals
JA: Welcome back to the show. Show’s called Your Money, Your Wealth. Joe Anderson here, Certified Financial Planner. You’re listening to Jason Thomas, he’s interviewing Whitney Hansen from The Money Nerds podcast.
JT: So the budgeting and debt management aspect sounds, would it be fair to say that that’s kind of the spoke, or the wheel rather, of the conversation among which the other spokes kind of jut out from?
JT: Okay great. So based on the stage of life that the people were in that you’re dealing with, that just usually is their number one topic at the moment. And what state do you see people coming to you at? Like, do you see them coming to you because maybe they’re intrinsically intrigued with this subject to begin with, which might mean they already have some of their ducks in a row, or the opposite, that hey, I have no idea what I need to be doing, I need help? What range are you seeing there?
WH: It’s mostly beginners. So I do attract some people that are kind of, they know what they should be doing, but they just need the accountability or handholding to make sure it happens. One of the interesting findings from my business recently was most of the clients I work with, they tend to be female. I don’t only work with females so that’s just who is naturally attracted towards my brand. And when I was talking with them, one of the big realizations was, it’s females that are either single or acting as single in a relationship. So, people that don’t necessarily, if they’re in a relationship, they can’t talk to their significant other about money, because it causes fights, and they have no one to turn to. And so that was really fascinating for me because that directly changes the way I help them start to have those conversations too. So that’s who I tend to focus on and help.
JT: So what would be some of the financial issues that you think might be more prominent to, perhaps a woman, or even a millennial woman, to be more specific, that might not be as big of a focal point, if an issue at all, for someone of a different gender or different life stage?
WH: So one of the things that millennial females especially struggle with, is for some reason, we’ve got this ingrained in our society, we can blame it on Disney movies, whatever it is, but a lot of female millennials are waiting for a spouse to come and kind of help save the day. And unfortunately, that doesn’t happen. So a lot of times, it’s getting them to take action and take control of their financial lives, and realize that whether you get married or not, or whether you’re in a relationship or not, you still have to be responsible for this. No one’s going to come save the day for you, but you. And so a lot of times its conversations around that, and almost always the conversations around being comfortable with negotiating your salary. So women tend to not want to have those conversations. So it’s a lot of encouraging, and saying, “you can apply for that job that you don’t think you qualify for. It’s better for your financial life too. And here are some ways it can also help negotiate a salary that’s higher.” So the ownership piece. empowering them to take control, and then encouraging them to take control of their income as well.
JT: And I think you mentioned three things in a row that basically just involve asking: ask for the job, ask for the rate that you think that you need, ask for the cooperation from the partner, or interaction if that’s relevant. A lot of people are uncomfortable asking for what it is that they want. They think someone else is just going to potentially know that, or do it on their behalf. That’s obviously not always going to be the case.
WH: No no. I think asking is an important weapon for everybody. To be comfortable asking for what you want, what you need, and then ask for help too. I think that’s another big one. I don’t touch on the retirement piece. That’s just not my wheelhouse at all. Not qualified to do that. So for me, it’s sometimes asking them to reach out to financial advisors or planners in their area that can help them with that piece of their life as well. But you have to be able to ask for help when you need it.
JT: So do you see an interaction with somebody that’s one of your people as an ongoing indefinite situation? Or hey there’s at this particular point we’re trying to get to get you to that, we’re sitting this ship off to sail and you’ll be ready to go to the next step on your own? How does the relationship usually look over time?
WH: Yeah, that’s a great question. So my goal is not to work with people forever. Financially that’d be great, sure, but it’s kind of a disservice to people. So my goal is to get them to the point where they’re comfortable managing the day to day on their own. They feel like, “I’m confident, I’m comfortable I can do this.” And once they get to that point, it usually takes between three months and one year. Then ideally they’re on their own. They’re going in, they’re talking to CPAs at that point, they’re talking to financial planners or advisors. So then they’re starting to progress in their financial life. So no, I would love to work with people forever. But that’s not what my goal is. It’s to make them self-sufficient.
JT: That makes sense. And just as we come to a conclusion here, why don’t you tell us what you see for yourself going forward with your business and the podcast, and where you would like to take things?
WH: So my big goal for this year is to reach 150,000 women directly. So I want to work with 150,000 people, to help them pay off debt, live on a budget, and start to get more comfortable and confident with their financial lives. Within five years I’m expecting that my business will somewhat turn into a membership, where people can go hang out for a little bit, pay a lower monthly fee to get access to some really great information. And then for the podcast, I’m just having a heck of a time with it. It’s fun to interview people and talk about cool money stories, interesting careers. So the podcast is just growing, so I just hope it keeps growing, and I still have the ability to interview people and hear cool stories.
JT: That sounds great. Who do you go to, or what sources do you look at when you’re trying to find financial information or things to talk about? What do you think is interesting around the world right now?
WH: Most of the time, the interesting things that I see, are actually just questions that my audience asks. So that’s what I base all my content around. What does my audience currently need to listen to? But as far as I fun, interesting content, I’m a big fan of Stacking Benjamins podcast – I know Joe has been a guest on your show before as well. So I listen to some of my other financial friends and get a little bit of inspiration to see what’s interesting, what’s quirky, what’s weird topics too. In general, I don’t talk politics on my podcast either. That’s an easy one for me. (laughs)
JT: (laughs) Well, half of knowing what you want is knowing what you don’t want, and that’s definitely a minefield that goes in so many different directions, (laughs) I would want to avoid that topic. To the extent that you can – occasionally it affects the money situation, but I can certainly understand that. (laughs) I definitely appreciate you coming on today. One thing I would like to do since we’re just coming up at the end of our time is to recommend that everyone go to your personal site, WhiteneyHansen.com, and then also go to TheMoneyNerds.com. And also check out the podcast there. I also see that you have a fairly robust merch section. So please patronize Whitney’s merch section and get a Money Nerd T-shirt as well. Is there anything else you’d like to recommend that we could check out?
WH: No, I think that’s perfect thank you so much.
JT: Well thanks again for coming on.
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Time now for Big Al’s List: Every week, Big Al Clopine scours the media to find the best tips, do’s and don’ts, mistakes, myths and advice to improve your overall financial picture – in handy bullet-point format. This week, 5 Reasons to Pay off the Mortgage, and 5 Reasons to Keep The Mortgage
48:02 – Big Al’s List: Should You Pay off Your Mortgage Before Retirement?
My list today is all about whether or not you should pay off your mortgage. And this is an article that just came out in U.S. News, by Tom Sightings. I thought it was pretty good. And I’ll just kind of read the preface. “Owning a home can lead to a comfortable retirement. In theory, you buy a house when you’re 30, faithfully make mortgage payments for 30 years, at age 60, you own your house free and clear. Now you’ve got a solid nest egg, you can sail into worry-free retirement.”
JA: Oh god, that’s fantasy land.
AC: (laughs) “But more often. Here’s how it works.”
JA: Oh, OK. (laughs)
AC: That was the fantasy land.
JA: Oh, I see.
AC: “You move from a starter home to a bigger house, a bigger mortgage, you refinance, get a lower rate, take out some money in the process, and at age 60, you’re still paying a mortgage.” So that’s me. I’m age 60 and I still have a mortgage. (laughs)
JA: Yep, still grinding away. that way.
AC: So but then the question is, should you pay it off? And some people, sure. And some people, absolutely not. And this list is going to be five reasons you should keep your mortgage. In other words, do not pay it off, and then five reasons that maybe you should pay it off.
JA: Okay good, because I’m contemplating – I have a home equity line. And I’m contemplating, do I keep it, or do I just pay it off. So maybe after this Big Al’s List…
AC: Maybe you’ll get educated from our buddy Tom. OK. So when to keep your mortgage. The first reason you would want to keep your mortgage is, obviously, if you don’t have enough money to pay it off. That’s a pretty obvious one, right? (laughs) m
JA: Wow. Earth shattering. (laughs)
AC: But it goes a little deeper than that, if paying off the mortgage will make you cash poor and unable to cover your bills, then don’t do it. As far as that goes, a mortgage is about the best loan you can have.
JA: Would you like to eat? (laughs)
AC: And honestly, we do see that, don’t we? We see people take $300,000 out of their IRA to pay off their mortgage. They got no money outside, and then the tax bill comes, and they owe a hundred grand, or whatever the number is.
JA: And then they’re gotta pull it out of another IRA.
AC: They gotta pull that outta the mortgage, and next thing you know, it’s like man, I didn’t really think this through. So yeah, if you don’t have the money, or if you’re going to struggle for your monthly bills, then keep the mortgage. In fact, a lot of times, when we have a client come in that has a mortgage that’s thinking about paying it off, and we can show them there’s no way that makes sense because they can’t afford food, medicine, utilities, transportation, whatever.
JA: Another, to piggyback off that, we see this often is I’m putting an extra $2,000- $3,000 a month, and maybe this is what you’re saying, towards the mortgage. But they have nothing in 401(k) plans.
AC: That’s exactly what I’m saying. Yeah.
JA: It’s like what are you doing? Well, I want to be debt free. Then I’ll focus on building my retirement plans. Well no, there’s something that’s called the time value of money.
AC: Right. And then they pay off their mortgage, and they retire, in six months they retire broke, and then they gotta sell the house. (laughs) Here’s another reason you should keep your mortgage, is if your money is tied up in other investments, even if you have the financial resources to pay off your mortgage, it doesn’t make sense if the money’s already invested in solid assets that generate income and appreciate over time. Of course, it didn’t really say what those are. But I suppose that’s true.
JA: You gotta look at rates though. If your mortgage is at 8% and you have the assets, then you’re going to have to kind of do some math there.
AC: Right, because, just throw out a few numbers. The stock market over the last hundred years has earned just under 10%. I can say that because it’s true. That’s a true number. That’s not to say you’ve got to earn that. That’s just what the last hundred years the average has been. And we when we look at a globally diversified portfolio, we might look at a 5% rate of return, 6%. You might do better, but we think that’s a reasonably conservative number. That certainly does not guarantee anything. It just means that’s a reasonable number. But if your mortgage is 8%, and we’re saying, maybe you ought to think that your portfolio might earn 5%, well maybe that’s not a good bet. So maybe you’ve got to go ahead and pay it off.
JA: Yeah but you still can’t go cash poor, you have to look at both. Because you’re still going to need those assets to live off of at some point in your life.
AC: That’s right. Here’s number three why you would keep your mortgage is if you still have other loans because the mortgage generally carries a lower interest rate. It’s, in most cases, it’s tax deductible. If you’re carrying credit card debt or auto loans – auto loans are sometimes low interest, credit card debt is certainly not. So that would be better to pay that off before the mortgage. Here’s one, let’s see if you agree with this. A reason not to pay off your mortgage is if you think inflation is coming back. (laughs)
JA: OK. I know what they’re saying, is because it’s a fixed payment. So my mortgage payment is $3,000 a month. 20 from now it’s still going to be $3,000 a month. And then when inflation is sky high and a loaf of bread is going to cost me $4,500, my $3,000 mortgage is cheap. (laughs)
AC: It just seems like nothing. (laughs)
JA: Right. So yeah I suppose.
AC: It’s a true statement, and I think you could – and again, this is personal preference. But if you happen to live in a state or city where the price of real estate tends to appreciate, such as a lot of California real estate appreciates more than let’s say Minnesota, Nebraska – as a general rule. Here’s another reason why you might not want to pay if your mortgage is if you’re still working. Because those who are still on the job might be better off building an emergency fund and contributing the maximum to the IRA and 401(k). Which we absolutely believe. In fact, and I would say it this way, Joe is if you have a choice on saving, you should have an emergency fund. But by all means, make sure that you’re getting money into the 401(k) at least up to the match, and try to max out that 401(k) – that’s $18,000. $18,500 in 2018. Another $6,000 if you’re 50 and over. You want to make sure that you do that, then you want to actually save extra money outside of retirement so that you build up some tax diversification. If you still feel like you have some extra money, and you want to throw some extra money at the mortgage, then go for it. But a lot of people get that backward. They want to pay off that mortgage. They neglect their retirement accounts. They neglect their emergency fund. In some cases, they neglect paying off other types of debt, because they want to be mortgage free when they retire. So anyway, those are the five reasons that you would keep your mortgage. Here are five reasons to pay off your mortgage is, if you have a lot of cash. Have your money sitting in a money market fund, earning .3%, and your mortgage is 4%. Well, that’s kind of a no-brainer. As long as you don’t need that cash, and that’s where it sort of comes in.
JA: That’s the root of everything. If you have all that cash, what is that cash for? What’s the purpose?
AC: If it’s to live over the next 20 years, that’s different. But if you got all that covered, and you still got a lump of cash that’s earning nothing, and you have your emergency fund, you’ve got your income plan through your retirement, then sure, that could be a reason. A second reason related to that is, if you’re looking for peace of mind. And that’s actually probably one of the most common reasons that people do this. Even though they know that if a globally diversified portfolio can earn 5 or 6% or more, and my mortgage is 3.5%, wouldn’t I do better just having the mortgage? But it doesn’t feel good at night. You’re thinkin’ when you’re falling asleep, “wouldn’t it be nice if I didn’t have a mortgage,” and there’s something to that answer for sure. A third reason is if you can access a home equity loan. And what he’s saying here is that maybe then you don’t need a lot of extra cash on hand for your emergency fund, because you can get the home equity loan, but be careful on that one.
JA: Because they can take it away from you.
AC: And they did take it away during the Great Recession. They took it away from me, and they took it away from a lot of people.
JA: They took it away from Big Al?! (laughs)
AC: They took it away from Big Al. They apparently didn’t know I was a finance guru. (laughs) Some administrative person back in Connecticut said, “Clopine, that’s enough. No more draws, we want you to pay off what you got.” Let’s see why else would you want to pay for your mortgage. You cannot take advantage of tax savings. Maybe you got a mortgage where you can’t itemize. That could be another reason. Number five is, you want to set up a comfortable nest egg, which is kind of an interesting comment. But what he’s getting at is, it’s kind of a fallback asset. Your house is paid off, you can always sell it, you can downsize, you can get a reverse mortgage. It’s a source of funds for you later if you need it, as long as you’ve got other resources for sort of plan A for your retirement. And then Joe, I think a lot of people want to pay off their home because they want to live off their liquid assets, but they want their home to go to their kids, and then that’s what the kids get.
JA: Well, the question for you then. If I’m 65 I want to retire at 65, 66, then the analysis should look at, do I pay this mortgage off? Do I keep my current loan, or do I refinance? And I think that’s the planning that people need to do around their home mortgages when it comes to retirement. if it’s a hundred thousand bucks, and you got plenty of cash, just pay the thing off whenever.
All right. Wishing everyone a happy holiday season for began and Joe Anderson and Big Jay Thomas. We’ll be back again next week with more exciting financial news for you to use shows called Your Money Your Wealth. We’ll be back again next week.
So, to recap today’s show: Whether or not you pay off the mortgage depends entirely on your individual personal financial situation, there is no blanket yes or no answer. The new rules of retirement say that everything you know about retirement investing is wrong and dangerous, but that might just be sensationalism. Your best bet is to run it by a professional before you make any money moves – we have a few of those at Pure Financial, and you can reach ‘em at 888-994-6257.
Special thanks to our guest, the Money Nerd Whitney Hansen. Gen Y and Gen Z have very different needs and goals when it comes to financing, and for them, “back in my day” doesn’t apply. For a no BS place to learn about money, visit WhitneyHansen.com, and check out her podcast at TheMoneyNerds.com
Subscribe to this podcast at YourMoneyYourWealth.com, through your favorite podcatcher or on iTunes, where you can also check out our ratings and reviews. And remember, if you have a burning money question for Joe and Big Al to answer on Your Money, Your Wealth, just email email@example.com, or call 888-994-6257! Listen next week for more Your Money, Your Wealth, presented by Pure Financial Advisors. For your free financial assessment, visit PureFinancial.com
Pure Financial Advisors is a registered investment advisor. This show does not intend to provide personalized investment advice through this broadcast and does not represent that the securities or services discussed are suitable for any investor. Investors are advised not to rely on any information contained in the broadcast in the process of making a full and informed investment decision.