Transcription of interview with Terry Savage on February 4, 2013.
Douglas Goldstein, CFPÆ, Financial Planner & Investment Advisor
Terry Savage is nationally known expert on personal finance.
She is a syndicated columnist for the Chicago Sun Times and her newest book is the Savage
Truth on Money.
Douglas Goldstein, financial planner & investment advisor, interviewed Savage on Arutz Sheva
Radio.
Douglas Goldstein: One of the focuses that you always seem to have is on retirement.
How do you explain to people the importance of planning now?
Terry Savage: Itís a great savage truth that time is money, and when youíre young, you
think you have no money but you have all the time in the world.
When youíre older, you realize that that time was more valuable than money because
time leverages money.
The few dollars a month that you can put away to grow in a diversified portfolio of stocks
can over the 40 years that youíre working as you keep contributing, build quite a fortune
without you having to be a genius and without you having to beat the markets.
All you have to do is join the markets, make the effort to have an automatic system, take
money out of that paycheck or out of your bank account, and invest on a regular basis.
Through all the ups and downs and over the long run, you will build your fortune.
Douglas Goldstein: Do you think itís important for people at a young age to actually do a
full-fledged financial plan, or just to give them a certain target like saving 10, 15,
or 20 percent?
Terry Savage: Itís easy to project.
I talk about the fact that if you put away $2000 a year, every year, for the next 30
years or so and it earns the average historical return with dividend reinvested of the S&P500,
youíll have nearly half a million dollars by the time youíre ready to retire.
If you do it for 50 years, so if you start it in your 20s and you do it until youíre
really old, like in your 70s, you would have $2.5 million.
The fact is that time really starts leveraging money out at the end and thatís why people
who are older think, ìIf only Iíd started when I was young.î So a little bit of math
can show the young people, just doing it automatically and not worrying about the ups and downs of
the market, and there will always be those, they always happen.
Remember those historic averages go back to the early 1920s, and that includes the Depression
and some really tough times in the U.S. in the 70s.
Of course, Iím talking about the U.S. stock market.
I think the first lesson is to spend less than you make, and to regularly invest.
You donít have to make a decision.
Just automatically put it into an index mutual fund.
Thatís the best kind of lesson you can give to kids, and if youíre working and have an
opportunity at work to do that on a tax-deferred basis or youíre a U.S. citizen, into an IRA.
If we could get our grandchildren started on that when they begin working, that would
be the best gift we could give them.
Douglas Goldstein: How do you explain the importance of getting out of debt?
Terry Savage: Debt destroys and buries you.
Itís like walking upstairs with a refrigerator on your back.
Thereís no way you can get ahead until you get even.
People say to me, ìDo I pay down my debt or do I invest in my retirement plan?î and
my answer is both.
Weíre not in a great economy now, but if you could get a second job on weekends instead
of going to the movies, if you can do something like that, you can take all that ìextraî
money that you make and use it to pay off your debts.
In the U.S. today, if you have good credit, youíre paying 13% on balances, and if you
have horrible credit, itís as high as 28%, especially if youíve gone over the limits.
Debt is a burden that really destroys people, and you may never get out from under it.
And thatís why weíre seeing so many bankruptcies.
Douglas Goldstein: From what age would you start teaching kids about the importance of
dealing with money?
Terry Savage: I think that starts very early.
Children pick up impressions of a lot of things.
I donít know if you have drive-through ATMs, but in the United States, you see the little
kids in the car seat in the back, and mom goes through the drive-through ATM, puts in
her plastic card, and out comes some money.
How about that?
So even at that very young age, itís not too wrong to say to your child, ìMommy works
hard.
Daddy works hard.
When we do our work, they pay us.î I always used to tell my son, ìHalf of what I make
goes to the government and taxes,î and now heís working very successfully and he realizes
that half of what he make goes to the government in taxes.
We have to spend the rest very carefully, and we have to save some.
The point is that these are lessons that you obviously
teach your children, I taught my son, who is
successful in the financial services business now, and now that I have twin granddaughters
who are 2 Ω, Iíve taught them some of those same lessons.
Weíve been ignorant.
Weíre the generation whose parents remember as young kids.
the lessons of the depression in the U.S. Whatís interesting now is the next generation.
Your kids and kids growing up today in the U.S. are going to remember and learn some
of the lessons just by being around of the anxiety of their parents as the U.S. has gone
through persistently high unemployment and a slowed economy.
Itís not as nearly as bad as the Depression, although it is for some people who canít
find jobs.
These lessons have caused the most and teach the most, and we have a young generation that
I hope will be much wiser about how they spend and invest their money.
Douglas Goldstein: Letís talk about a client who walks into my office and says, ìDoug,
I didnít listen to that interview decades ago, and my parents never taught me how to
be financially savvy.
Here I am.
Iím 45, and I havenít put any money aside for retirement.î How do you walk them through
the process at that point?
Terry Savage: Thatís a very tough situation and unfortunately, itís all too common.
Thereís only going to be two or three choices.
Number one: Work a lot longer.
I wrote a book a couple of years ago called the Savage Number: How Much Money Do You Really
Need to Retire.
The first edition of that book came out when people were telling me they were going to
retire at 55 or something, and I kept thinking, youíre going to live a lot longer than you
think.
You canít retire early now after five years of slow growth global economy.
More and more people are understanding that their retirement was a concept of 40 years
ago, when people retired at 65 and lived three or four more years.
Today, life expectancies are longer, and your working life is going to be longer, and you
must plan for it.
It doesnít mean that you have to do the same job, but you have to plan to keep some income
coming in well into your 70s.
The second thing is adjusting your lifestyle, which really may be necessary.
Itís tough to sell homes in the U.S. these days, but the market is coming back, and so
downsizing is going to be a fact of life for the retiring generation.
And then thereís continuing and starting to invest even at this age of 45-50, and understanding
that you need stock market growth to help leverage that retirement money.
In March of 2009, I said on TV, ìPlease keep putting in your money and donít change your
investment plan.
If youíre putting that $300 a month in your index fund, keep doing it.î Here we are,
in speeding distance of all-time highs in stock market.
People do the wrong thing at the wrong time, so even at market highs or at market lows,
you have to keep investing for growth.
Thatís the three things, but a reality check is necessary unless an even wealthier parent
is going to die and leave you money, but probably theyíre living longer and you may be supporting
them.
My father is 92 years old, and I had dinner with him last night.
I got him a reverse mortgage nearly a decade ago.
He took a lump sum, which is mostly used up, and I helped now, but I see the balances building
and building, and I said ìDad, live until youíre 100.
Youíre going to beat them out of a lot of money.î
Douglas Goldstein: It seems that a lot of the decisions that people make regarding their
investments are not based on the numbers.
At the end of the day, people always end up making an emotional decision.
How do you feel you can guide someone to say, ìItís all well and good, but you want to
have this, or you think this is so important, but youíre going to go broke and you have
to change your ways?î
Terry Savage: Itís a basic savage truth.
Self-discipline is the essence of all decision-making, because without self-discipline or someone
like you to hold their hand, people inevitably, as I mentioned, do the wrong thing at the
wrong time.
Iíll give you two great free websites that you can go to or you can take people to.
The first is people need to understand longevity, and thereís a great website called www.livingto100.com.
You take the quiz on how old your parents are or were when they passed on, your brothers,
your sisters, your habits and so forth.
Do you exercise every day, eat green vegetables, etc.?
When you click, it will give you your life expectancy.
I did that when I was writing the book, and I got like 106.
I just have to go back and be a little honest about the green vegetables and the exercise,
but the fact is that www.livingto100.com will give you a real right-in-front-of-you view
of the likelihood, and when I really did quick, I got 96, thatís a long time to plan for.
The second place you can go (and this is probably one of the best websites about financial planning,
and itís put up by the non-profit Employee Benefit Research Institute) is called www.choosetosave.org.
There is something on there called a ìballpark estimator.î Itís a calculator that you can
use on your own.
It doesnít take your personal information.
You put in how much youíve saved, how much youíre earning, what your age is, how long
you expect to live.
Thatís why you go to the life expectancy calculator first, and it will tell you how
much your standard of living will drop in retirement versus how much more you need to
be saving now, and you could fool around with expected investment returns and so forth.
Those two websites, www.livingto100.com and www.choosetosave.org give you a start picture
of whatís out in front of you.
We canít plan for the unexpected.
People say ìWhat if the world comes to an end and thereís a recession forever?î I
always say, ìWell then we have bigger problems than how much money you have on retirement.î
The fact is the world goes on, Americaís gone on, the markets have gone on, and if
you start now, itís never too late.
But you have to start to make a plan and find someone like you, Doug, or at least have the
self-discipline to stick to that plan when everyone else is panicking, and thatís the
secret of success.
Douglas Goldstein: How can people follow your work?
Terry Savage: You can read my columns and go online to www.terrysavage.com.
I have a little newsletter that I send out on occasion when my columns donít suffice
to express my outrage at some of the things going on in the government or financial markets,
but there are all kinds of calculators and links to my favorite websites.
If you want, you can order the book there in paperback.
Douglas Goldstein, CFPÆ, is the director of Profile Investment Services and the host
of the Goldstein on Gelt radio show (Monday nights at 7:00 PM on www.israelnationalradio.com.
He is a licensed financial professional both in the U.S. and Israel.
Securities offered through Portfolio Resources Group, Inc., Member FINRA, SIPC, MSRB, NFA,
SIFMA.
Accounts carried by National Financial Services LLC.
Member NYSE/SIPC, a Fidelity Investments company.
His book Building Wealth in Israel is available in bookstores, on the web, or can be ordered
at: www.profile-financial.com (02) 624-2788 or (03) 524-0942.
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