Jean Chatzky is the CEO of HerMoney.com and host of the podcast HerMoney With Jean Chatzky. Here, she speaks with Kiplinger about her new book, The Forever Paycheck, and what retirees struggle with in the transition to spending.
Kiplinger: You’ve referred to your new book, The Forever Paycheck, as the most important work you’ve done in your 40-year career. Why is this book such a passion project for you?
Chatzky: The book is about how to spend down your savings once you retire — or decumulate, as experts call it — and it is not something you can afford to get wrong. If you overdo withdrawals, you’ll run short of resources late in life. If you underdo them, you’re essentially underliving — not getting the most out of this phase of your life that you saved so long for. I think that’s incredibly sad. For me, this issue feels both urgent and important.
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Why do many retirees struggle with the transition from saving to spending?
It’s emotionally really hard, because spending from savings feels like a loss. When you put so much time into accumulating something, it feels precious. You want to hold on tight.
Tactically, we’ve also had a lot of help accumulating, with automatic enrollment and escalation in retirement-savings plans and target-date funds. It has become super easy to do the right thing without doing anything. Those automatic hacks don’t exist yet for managing withdrawals from savings.
You think the solution lies in creating what you call a forever paycheck. How can this help retirees?
A forever paycheck is a stream of income that will last for the rest of your life, and that enables you to live comfortably without the fear you’ll run out of money. The income stream ideally should be enough to cover your needs and some of your wants — the ones you really don’t want to give an inch on.
It is not a solution for all of your money. Everybody still needs to have some money invested in the market to grow. But researchers have found that having a regular income stream enables you to feel much more comfortable about spending.
(Image credit: Jean Chatzky)
How do you fund a forever paycheck?
If you can afford to, waiting as long as possible to claim Social Security so you maximize benefits is typically the right move for most people. That’s the base of almost everyone’s forever paycheck, plus any pensions you may get.
Then look at your expenses, those necessities and wants, to figure out how much money you’ll need on an ongoing basis. Deduct the income you’ll get from Social Security and pensions, and what is left is your gap. You can fill that gap with guaranteed income from annuities or withdrawals from your investments.
Personally, I’m going the guaranteed route. About a third of my retirement income will come from Social Security, another third from the rest of my forever paycheck, and a third from money invested in the market for growth.
How can retirees prevent an unpredictable event such as inflation or a big drop in stock prices from derailing their plans?
The whole point of building a forever paycheck is so these events will not derail you. If you’ve got a paycheck that covers your needs and key wants, and the market takes a tumble, you don’t have to sell. You can give the market time to come back. And maximizing Social Security is your best friend when it comes to fighting inflation because it has a cost-of-living increase that’s recalculated each year.
What else do retirees get wrong when it comes to spending?
Besides underspending and not living as well as they could be because of fear, many retirees think that spending across retirement will be consistent. It’s not. People spend more in the early years, when they take their bucket-list trips and do home-improvement projects. Once we get into our mid-seventies, things slow down, and we don’t spend as much. That fact should give people license to spend a bit more early on.
We should also think about ways to pass money along, whether it’s to children or charities, while we’re living. If I die in my nineties, my kids will be in their sixties. I really hope they don’t need my money by then.
Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.
