John Rothmann – I’m John Rothmann…

Mitch Tuchman – I’m Mitch Tuchman…

John Rothmann – …and this is the Retire With More Program. After all, what do we want to do? Retire with more. Now, Mitch in this segment and the next one we have a very special guest. I’ve read her for years. Please introduce Donna.

Mitch Tuchman – This is going to be a great segment. We have Donna Rosato. Donna is a writer at Money magazine and she’s been doing that for about 12 years. She’s a dyed-in-the-wool personal finance journalist. And just so everybody knows, Money magazine still remains the largest personal finance magazine in the United States. It’s got 2 million subscribers still, and Donna is regularly on CNN, MSNBC, I’ve seen her on the Today show, CBS This Morning, CNBC — she’s very charming, a very attractive woman and they put her on the air a lot to talk about personal finance. So, unfortunately, we can’t see her, but we’re definitely going to get to hear from her, so hello Donna, welcome to the show.

Donna Rosato – Thank you both for that very kind introduction. I do enjoy talking about personal finance and there is a big appetite for this information, both from younger folks and older folks. In addition to the magazine, we are the largest personal finance magazine, but we also have our website, Money.com, and you can get a lot of information there, too. But, it’s a really great topic. I love writing about it, interviewing people myself about it, and then I have to follow all my own advice, too.

John Rothmann – That sounds perfect! I want Mitch to lead off because he’s been telling me about some surveys that you were citing to him, and I’m just fascinated. So Mitch, take it away.

Mitch Tuchman – So, John where this came from is Donna and I were preparing for the show, and I began asking her some questions and she kept saying oh, well, there was a survey about that and this very surprising result happened in the survey, and then she would explain what that was. After she mentioned that five or six times, I said wait, Donna, these are really interesting surveys. Let’s talk about some of the interesting facts that companies, organizations all over the world are bringing forth to you to pitch you to write stories about. So, as the person that gets all of this information, what do you find very interesting? So the first one, Donna, that I thought was really cool is the one you’re writing about now, and I guess it’s coming up in a forthcoming Money magazine, about the 401(k) millionaire survey from Fidelity?

Donna Rosato – That’s right. This is fresh data from Fidelity, which is one of the largest providers of 401(k) plans for companies, so they may be the company that manages your 401(k). They have come out with their latest survey and the number of people who are in their 401(k) plans who have $1 million or more has doubled in the past two years. What we’re seeing for the first time is, the 401(k) is turning 35 next year, so we’re seeing for the first time how people who have had a 401(k) basically offered to them throughout their career are kind of managing with it. Certainly, the bull market of the past couple of years has helped people accumulate more, but these 401(k) millionaires are particularly interesting.

They’re not just people who make a lot of money, super big bucks, but a lot of the people in Fidelity’s survey who are 401(k) millionaires earn less than $150,000 a year. So we were fascinated by that, about how you could be a 401(k) millionaire without being super, super wealthy and they practice a lot of things that are really interesting. Some of the habits include, of course, saving early, but I think, Mitch you and I were talking about this earlier, there’s a lot of panic about retirement and having enough. You always see the headlines that nobody is going to have enough and everyone is going to run out of money, but we ran some numbers looking at what it takes to have $1 million dollars. If you start when you’re 25 and you put away 10% of your salary and you do that throughout your career, you’ll easily get to $1.5 million by the time you’re 65. So you don’t have to save a lot. You just have to start doing it early enough and you can put yourself really in much better shape.

Mitch Tuchman – So, wait a minute. Let’s say, if I start putting away $5,000, $3,000 and then I get up to the limits of maybe, whatever they are, $15,000, $17,000 depending upon my age — just doing some simple math — let’s say the average is $10,000 a year for 25 years, you mean that can actually become $1 million?

Donna Rosato –  It can. The way to think about it, and of course not everybody needs $1 million and for some people $1 million isn’t enough, but a way to think about it is taking a percentage of your salary. So if you make, say, $75,000 a year and you’re 30 years old and you put 10% of that away, so that’s $7,500 a year away, and you do that for 35 years, you’re going to have $1.1 million. Now, that doesn’t even include an employer match. Ninety-six percent of companies offer a matching contribution for your 401(k). Put that in and you’re going to be well over $1 million. I’m not saying that people shouldn’t be worried about having enough money for retirement, but I am saying that if you have a 401(k) or some kind of savings plan and you earn money and you’re not in debt, you can save. You can save and you can be more in control of your finances.

Mitch Tuchman – And back to this concept of being stressed about not having enough but actually finding that people are living okay and not being miserable by living on less, talk to us a little bit about that.

Donna Rosato – That’s really true. Now of course there’s panic, how much do I need to save? There’s this rule of thumb in the industry, when you retire you should replace 80% of your pre-retirement income. Well, that’s kind of a lot of money and what I have found over the years, interviewing people about how they’re living in retirement, I find a lot of people are living very happily on less than that. The reason I think is because people’s expenses do go down perhaps more than they think when they retire, but also people find when they get to retirement there are also things that they can do besides have a big pile of money.

For example, I interviewed this couple. They were terrific. The husband was diagnosed with sort of a chronic condition and they said you know what, we don’t want to work until we are 65. They were 62, They really wanted to start retirement. They didn’t have quite enough money, so they said you know what, we can live on less. They sold their house in Chicago. They moved to Tennessee and they were able to buy a house in cash, and they were just so happy. They were living on less, but they were thrilled because they had so much freedom in their life.

Mitch Tuchman – I keep hearing that too with a lot of people I speak with all over the country. Where you live has so much to do with how much you need for retirement, cost of living.

John Rothmann – And it reduces stress, doesn’t it? A lot of people when I talk to them about retiring really worry about what they’re going to be able to do. So what do you tell somebody about to retire who’s beginning to stress. To scale down? Is that what you recommend?

Donna Rosato – Well, not even scaling down necessarily. I think the No. 1 thing you want to do before you retire is figure out how much money you need. And part of that is your fixed costs. Are you going to retire with a mortgage? Are you helping your kids out with their college loans? You have to look at your fixed costs and you want to make sure you have enough steady income to cover that. And then after that it’s discretionary spending. Do you want to take a big trip when you retire? Do you want to buy a vacation home? So, if you can figure out what you’re spending is going to be, and it’s easier to do as you get close to retirement, then you can figure out, well, gee, I do need to downsize because my house is taking up so much of my income, I’m not going to be able to do the things I want to do.

Mitch Tuchman – Well Donna that reminds me of this Morningstar study we were talking about, but on this 401(k) topic, we run this math for people all the time at Rebalance. If people want to call one of our financial consultants at Rebalance, we can run all kinds of scenarios about how much money you’ll have in your 401(k) at a modest rate of return if you keep putting money in. Doing that math is usually fascinating for people because it’s hard to grasp mentally how money does compound and money makes more money. Anyway, we can always run that for people. On this Morningstar topic, the second study we were talking about, you mentioned how the trajectory of spending really goes down in retirement and people were very surprised with that.

Donna Rosato – That’s true. I think people think, oh, I have a certain amount of money, my expenses will be the same every year, but really your spending in retirement is very dynamic. You may actually spend a little more in your initial years of retirement than you do in your last years of working because now you have time to spend money and take up expensive hobbies or travel. You do see sort of a spike up, but what is surprising is some research by David Blanchett, who is a retirement researcher at Morningstar. He looked at what actually happens to your spending in retirement. Actually, there may be a little spike in the beginning, but then steadily it goes down.

People do spend some more at the beginning. You always hear people say, oh my gosh I’m going to spend less and less and then I’m going to have this big cost at the end for healthcare. That’s not what happens. You see this steady downturn and even though your healthcare costs do tend to rise at the end, there’s a trade-off. You’re actually maybe spending more on healthcare, but you’re spending less on other things. But it kind of ties into what we were talking about earlier, which is retirement and happiness and what makes you happy. What has been surprising to me is that people can live on less than they expect very happily and that the things that make them happy in retirement don’t really cost a lot of money.

John Rothmann – Donna, we have to take a break. It’s very thoughtful of you and you’re going stay with us for another segment and we really appreciate that. Our guest is Donna Rosato. She is a writer for Money magazine. She has been there 12 years. She’s amazing. And when we come back, we have more to talk about, right here on the Retire With More Program. I’m John Rothmann and we’ll be right back.