The author and retirement expert shares a punch list for near-retirees, how to play catch-up on retirement savings, and why she has changed her mind about long-term-care insurance.
Our guest on the podcast today is Emily Guy Birken. Emily’s the author of The Five Years Before You Retire. She also co-authored Stacked: Your Super-Serious Guide to Modern Money Management, with Joe Saul-Sehy. Other books include End Financial Stress Now, Making Social Security Work for You and Choose Your Retirement: Find The Right Path to Your New Adventure. Emily received her master’s degree in education from the Ohio State University and her undergraduate degree in English from Kenyon College.
00:00:00 Emily Guy Birken’s Path to Money and Retirement Writing
00:04:26 Why the Five Years Before Retirement Are Crucial and How Much Is “Enough” Savings
00:10:31 How Expectations Can Shape Happiness in Retirement
00:13:14 Key Moves for Preretirees to Cover Retirement Savings Shortfalls
00:15:58 Social Security: Benefits of Delaying and Advice for Young Workers
00:27:06 Budgets in Retirement and Irregular Expenses on a Fixed Income
00:33:14 Why Long‑Term‑Care Insurance Rarely Pays Off Today
00:36:10 Pre-Medicare Health Insurance Options
00:40:17 Early Mortgage Payoff vs. Investing in Retirement
00:42:26 How Writing About Retirement Changed Guy Birken’s Own Planning
5 Things to Do Today If You Want to Retire in 5 Years
Dan Haylett: ‘The Retirement You Didn’t See Coming’
The Best Strategies for Consistent Retirement Spending
If you have a comment or a guest idea, please email us at TheLongView@Morningstar.com.
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(Please stay tuned for important disclosure information at the conclusion of this episode.)
Christine Benz: Hi, and welcome to The Long View. I’m Christine Benz, director of personal finance and retirement planning for Morningstar.
Amy Arnott: And I’m Amy Arnott, portfolio strategist for Morningstar.
Benz: Our guest on the podcast today is Emily Guy Birken. Emily’s the author of The Five Years Before You Retire. She also co-authored Stacked: Your Super-Serious Guide to Modern Money Management, with Joe Saul-Sehy. Other books include End Financial Stress Now, Making Social Security Work for You and Choose Your Retirement: Find The Right Path to Your New Adventure. Emily received her master’s degree in education from the Ohio State University and her undergraduate degree in English from Kenyon College.
Emily Guy Birken: Thank you for having me.
Benz: Well, thank you so much for being here. We’ve wanted to talk to you for a while. I know your book The Five Years Before You Retire has been such a success. It seems to really tap into people’s desire to figure out this time in their lives. Wondering if you can talk about what got you interested in retirement planning in the first place.
Guy Birken: It’s funny. It’s not something I ever thought of as my career path. I like to tell people that I tripped and fell backwards into writing about money. I’m an English teacher by training. I ended up writing about money because I’m very bad at timing. My husband and I moved after my fourth year of teaching high school English when we were expecting our first child, who was due at the beginning of the next school year. We moved far enough away. We changed states. I wasn’t going to be able to find a teaching job because I would have had to go immediately onto maternity leave. I was taking an unplanned year off. I decided to look for some writing gigs just to keep a little money coming in. One of the first ones that I landed was for a financial website.
Now, that wasn’t completely out of left field because my father was a financial planner. I was a money nerd throughout my entire life. As a small child, when my father would talk about his work at the dinner table, my sister’s eyes would be glazing over, whereas I was fascinated. He would be talking about things. It never occurred to me that it was unusual that I was fascinated. Things like the movie Trading Places: I absolutely loved the final scene game where they accomplished that short sale. When I finally, as an 8-year-old, got it, because to be—all credit to the filmmakers, they don’t explain it to you—it took multiple rewatches as a small child to finally get what happened. When I finally got it, I felt like I was on top of the world. I was like, “Oh, I understand it. I understand how that worked.”
It was not a traditional path to getting interested in retirement. Writing The Five Years Before You Retire came to me in a very roundabout way. I had been writing about personal finance for three years. One of the things I love about writing about money is that every day is a little different. I’ll be writing about retirement one day, insurance the next, car maintenance the next day, the psychology of money the next. There’s so much that goes into it. The publisher of Five Years Before You Retire had come up with the idea for the book in-house and then went looking for a writer. My editor was familiar with my work online and thought I’d be a good fit. It was actually just perfect for me because what I really like doing, and this is partially my teaching background, I like making complex topics understandable and relatable to people who aren’t necessarily inherently interested. If I can get 10th graders to really like and enjoy Midsummer Night’s Dream, I can make retirement topics and Roth IRAs and Roth conversions and signing up for Medicare comprehensible to folks who haven’t always necessarily paid close attention to retirement.
Arnott: How did you settle on The Five Years Before You Retire as opposed to something shorter or longer?
Guy Birken: So, five years is an amount of time that feels real. It’s when you get within five years of retirement that the finish line is on the horizon. You know, that is like, “Oh, wow, this is really happening.” But there’s still enough time that you can really make a big difference. Whereas even 10 years out, who you’ll be in 10 years still feels like a stranger, whereas who you’ll be in five years, that’s still you. So focusing on that five-year time frame is kind of like the perfect time to kind of strike while the iron’s hot. So it gives you that time frame to make the changes that you need to make if you haven’t necessarily saved as much as you need to, if you don’t have the nest egg you need. And it also still gives you enough time to take advantage of, not necessarily compounding interest, but it does give you time to make some necessary changes so that you’re well positioned to have the retirement that you’d like to or at least close to it rather than, if you’re panicking the year before or even three years before.
Benz: A key part at this life stage is getting your arms around enough. So looking at that nest egg, trying to figure out whether it is sufficient for you to retire. It’s a tough question, but I’m wondering if you can share any guidance for preretirees to know if they’re in good shape to retire.
Guy Birken: This is such a sticky question because none of us have a crystal ball. There’s the joke--“Oh, it’s very easy to figure out if you have enough to retire: Figure out when you’re going to die and work backwards.” And so, of course, none of us can do that. But what I like to do is I like to tell people you want to start by dreaming big and then dream small. So in your dreaming big, figure out—and if you have a spouse, partnered up, like each do that and compare and figure out—what does your ideal day, week, month, and year in retirement look like, and get as granular as you want. You know, like talking about day, like go through an entire day. You wake up, and what happens—what do you have for breakfast? Who do you see that day, and go through all of the details, and go ahead and dream as big as possible, act as if money is no object.
OK, so do that for day, week, month, and year. And, what are the enormous travel destinations you want to go to? What are the things that you want to do on a weekly, monthly, annual basis? So you start with that. Then go on the other side and say, “What is the least I would need to feel content with my life?” And that would be your plan B retirement, and go day, week, month, and year. What would that look like if things did not work out well and you did not have all the money in the world? What would a day in retirement look like if you had just enough to feel content? And I tell this story of a woman who—she was an acquaintance of my best friend—who, she and her husband, went through, it was the housing collapse, and they lost everything. The woman had, by the time my friend knew her, was a widow, and she was living in a group home at that point. Nobody’s ideal retirement, but she was very, very contented because she had a roof over her head, three square meals a day, and access to the local library, because she was an avid reader. And she said, “This is all I actually really need to have a happy life.” And so that’s what got me the idea of what is it all that you really need to have a happy life?
Now this sounds very woo, woo, and not what a lot of financial planners—you don’t necessarily go in, and this is this is not necessarily the exercise that they tell you to do—but the reason why I have you go through these two exercises is because most retirements are going to be somewhere in between these two. Most people aren’t going to be in the situation that my friend’s acquaintance was. And so when you have those two on either side to be able to figure out if you have enough, what you can do is start building your dream retirement, building the retirement that you actually end up having, based on these two extremes and saying, “OK, I’m probably not going to be able to take a month in Italy once a year. So it’s probably not in the cards. But what is it that I want about that? What sounds amazing about that? And how can I build that? And what would it cost?” And start budgeting for the things that you want, and start making a budget, and then looking at what your nest egg is. And then that will allow you to be intentional about your retirement plans, and then you can compare what it is that you want with the money that you have. And that can be very helpful in giving you a sense of what you have, what you want, what the cost is, and whether what you have is going to be enough.
Benz: Want to follow up on something, Emily. The point about retirees who manage to be super happy despite not having a lot of financial wherewithal, it sounds like that is not an uncommon thing. We talked to Anne Tergesen from The Wall Street Journal last year, and that was an observation that she made in talking to actual retirees. She does these profiles of people who have retired and have various financial situations. She said that that has really struck her, that she has encountered older adults who manage to be quite happy despite having not great financial wherewithal. So I’m wondering, does it come down to disposition, sort of the mindset you bring to this? Is it happiness set point or something like that that is the big determinant of our happiness in retirement?
Guy Birken: That’s part of it. I think, I believe Audrey, the woman I mentioned, tended to be a generally cheerful person, but I think a lot of it has to do with expectations because the leading cause of unhappiness is when your expectations aren’t met. If you go into retirement with this expectation that it’s got to look a certain way, if it doesn’t look like that, you’re going to be unhappy, which is how people who have amazing retirements that don’t look exactly what they expected can be unhappy, even though their retirement is objectively amazing. And so I liken this to when my kids were small. I found that the days that were most disastrous were the ones where I had a very clear expectation of what I was going to get done that day because that did not work. Because I had little chaos gremlins. Whereas if I did not try to control or have expectations of what was going to happen that day and just kind of took things as they came, the days were so much more enjoyable, and I felt so much more confident about my abilities as a mother of young children.
And so it’s similar to that when it comes to finances and retirement. And if things don’t work out the way that you hope or expect, just kind of being open to the experiences you get rather than the ones that you want or expect, then you can find happiness even in less than ideal situations because there is something good even in not great situations.
Arnott: What if you find yourself in a situation where you’re approaching retirement and it looks like you really won’t have enough to retire when you would hope to, even if you scale down your lifestyle? What’s the most important step to consider in that case?
Guy Birken: If you’re approaching retirement and it really does not seem like you’ll have enough, there are only a few levers you can pull. One, as you mentioned, is scaling down what your retirement plans are so that you’d spend less in retirement. If that’s not going to move the needle enough, another is to work longer so that you don’t have to spend as much in retirement. And even a single year can make a big difference in how much longer your nest egg will last. So that’s a possibility.
Also, if you can put off accessing your Social Security so that you can have that be a portion of your retirement income that you are not counting on early in your retirement so that you know that it’ll be a larger amount because it is the only aspect of retirement income that is as close to a guarantee as is possible in this world, then that is something that is also possible. If you have scaled down as much as you can, there are also other ways like: What have you scaled down? Have you thought about other options for scaling down? I know of a couple of retirees who have moved abroad because the cost of living is so much cheaper in other parts of the world. If you’ve scaled things down, have you considered moving to a place that costs less?
So that’s where you start looking at what are the third rails in your head of things that you’re like, “Oh, I can’t do that,” that you might start to consider that you could do. Or if you don’t want to work longer in your current career, what are things that you could do that could continue bringing money in that could help you hold off on touching your nest egg or hold off on accessing Social Security so that you can allow that nest egg to continue to grow for a few more years before you need to access it?
Benz: You reference the benefits of delaying Social Security, that enlarged benefit that is also guaranteed if you wait a bit. Many people are disinclined to wait. I think there are concerns probably reasonable about the future of Social Security and whether there’ll be changes to the program. What would you say to people who are within five years of retirement whose plan is to take the money as soon as they are eligible, even at age 62? Why would you caution them against doing that? And how would you encourage them to approach the financial viability of Social Security? How worried about that should they be if they’re that close to retirement?
Guy Birken: So on the first part, the folks who are considering taking Social Security early, they may be thinking about the breakeven analysis. And the problem with the breakeven analysis, which is if you take it early and generally if you do the math at about age 72, you’ll have gotten as much money by taking it early as you would if you waited to age 70 because you get about 8% per year more by waiting, but the issue with the breakeven analysis is the only way to win is to die young. Is that really the gamble you want to take? Nobody wants to assume that.
And additionally, the tragedy in retirement is not necessarily dying young. Now, that is a tragedy. But the tragedy that you will experience—because the tragedy of dying young is what your family and your loved ones will experience—the tragedy you will experience is living to 120 and not having enough money. So that’s why, for the individual, I say it is better to wait to take Social Security if you can afford to.
Now, there are individuals who, they don’t have a choice. They can’t afford to. They need to take it just to keep the lights on. But if that is not you, then wait. Now, as for the solvency of the program, I am a bona fide Social Security fan girl. I get out the pom-poms and go, “Rah rah sis boom bah! Social Security!” And the reason for that is my third book was Making Social Security Work For You. And in researching the program, it became clear to me that, while Social Security has its problems and while it leaves people out and there are gaps that people fall through, because any program that affects so many millions of people will always do that, whenever you look at the law of Social Security, it is clear that everything written into it at every point was made with good intentions and the attempt to protect our most vulnerable citizens.
Now, as for its solvency, the United States is the only country in the world that does a 75-year projection for its social insurance program. Now, one country does a 100-year projection—that’s Japan. Every other country does fewer years. So, we have known that the Social Security will be facing a solvency crisis around 2033 for a long time. America also likes to run out the clock and do a Hail Mary. And so, if we are actually at the point where Social Security is not paying out benefits, promised benefits to current beneficiaries, it means we’ve got bigger problems than Social Security. And when I say that, it means like zombie apocalypse bigger problems, meteor about to hit the planet bigger problems, like serious bigger problems.
So, when I say that your Social Security benefits are about as guaranteed as you can get in this world, they are backed by the full faith and credit of the American government. And when there is a lack of faith in Social Security, that is actually something that I think is more insidious and more of a problem than the oncoming potential solvency issue in 2033. Because when people lack faith in it, they are less likely to pay attention when or if there are any politicians or nefarious actors who try to dismantle it. And no one really has at any point in its 80-year history. So, all of this to say, I can reassure people as an expert in Social Security, it will be there. There will be some bumps. We are going to have to wait for Congress to get off their keisters and fix the coming shortfall. And if history is any guide, they are going to wait until the final hour to fix the coming shortfall, but it will be fixed. It’s probably going to be painful and a mess. But not for current beneficiaries. It will be for, possibly, the people who will be retiring right around 2035, would be my guess. But that is a guess, not a fact. These are the things where there are always going to be bumps, growing pains, and issues, but Social Security is about as close to a guarantee as anyone can count on.
Arnott: What about younger people, say people in their 40s or early 50s who might be worried about government debt levels, declining birth rate? Should they plan or kind of model in a potential haircut to their Social Security benefits? Or do you think it’s still safe to assume a full benefit that will continue indefinitely?
Guy Birken: So as of right now, after the coming shortfall, when we hit that point, Social Security can afford to pay out 70% of promised benefits, thereabouts. It depends—each year there’s a new calculation—as of right now, it’s about 70% of promised benefits. There are a number of ways to fix that shortfall—one of them being raising the full retirement age for younger beneficiaries. So as of right now, anyone born after 1965 has a full retirement age of 67. And so the possibility of raising it for people who are in their 20s and 30s, the Gen Z, Gen Alpha, that sort of thing, who are far off in the future, that is one way. Raising the maximum amount of FICA taxes, if you earn more than that per year, you don’t pay taxes above that amount. So raising that would help fix the shortfall. So there are ways to fix that. And that is what needs to be done before the clock runs out in 2033.
For younger folks, folks in the 40s and 50s, first of all, I think that if you are in your 40s and 50s and you’re already looking ahead toward retirement, don’t plan on Social Security. Don’t include Social Security as part of your retirement plan in the first place. Now, they used to talk about the three-legged stool for retirement, your 401(k) or the retirement that you contribute to, and then like a pension or other defined-benefit plan, and then Social Security. If you take Social Security out of the equation when you’re making your plans, you’re going to be in a much better position because then Social Security is gravy on top of what you’ve planned rather than a central part of it. Even though I’m sitting here telling you you can plan on Social Security—you can—but because it is legislation and it is not something that you can necessarily expect, since it is legislation, it can change with the stroke of a pen.
And that happened in 2015 when I wrote Making Social Security Work for You. With the stroke of a pen, they changed a particular strategy that people were using, “file and suspend” is the strategy, with a six-month adoption of that change. So people who were eight months out from retiring, who had planned on using that strategy, were out of luck. That is why, if people are already planning their retirement strategies in their 40s and 50s, it behooves you to ignore Social Security until you’re in that five years beforehand, because that is something that you don’t have control over. And so focus on what you do have control over and allow the Social Security to be something that just is there in the background until it becomes something you do have control over because you will have control over when you take it.
Benz: So ignore it like assume you’ll get nothing because that seems like that would necessitate a pretty heroic savings rate for a lot of younger adults if their Social Security is going to go to nothing.
Guy Birken: No, not ignore it as in assume you’ll have nothing. Ignore it as in don’t make it the third leg of your stool. I encourage everyone to get a MySocialSecurity account, MySocialSecurity.gov, and get a sense of what you can expect your benefits to be. That is a good thing to do. It’s a good thing to have an idea of what that is. And in part because it also will help you get a sense of if there’s any inaccuracies or anything like that, although those are very rare. It’s more that, if you start counting on it, that can disincentivize folks in their 40s and 50s from setting money aside for retirement.
Benz: Got it. I wanted to talk about budgeting because that’s a huge thrust of your book is getting your arms around your budget. When you think about the line items in people’s budgets that are likely to see the biggest changes in retirement, what are they? If I’m reviewing my budget as retirement draws close, where should I expect to see the biggest changes?
Guy Birken: Some of the biggest changes have to do with the kinds of money that you spend that support the cost of working. Now some of that is like you have line items that will go down because you’re no longer working. So you’re going to probably spend less on convenience food, less on stress-reduction activities, less on things like commuting, that sort of thing. So that’s the benefit. That’s a good side. Probably also going to spend less on clothing. But then you are going to be spending more on leisure activities. A lot of young retirees, they want to travel more. If you’re not living in the same area of the country as your adult children or grandchildren, you’re going to be spending more money on that. And that—it can be very easy to lose sight of how much you’re spending.
Similarly, you might be spending less on convenience food, but you might be going out to dinner more often because you have more time. So like, “Hey, why not go out to that nice steakhouse on a Wednesday night? We don’t have to get up in the morning,” and spending more money on going to the theater or those sorts of things. That kind of entertainment is very easy to lose sight of how much you’re spending because you are enjoying yourself. And it was something that you were limited logistically before. So you won’t be thinking about the financial costs now.
The thing to be thinking about in retirement is you don’t want to budget yourself in a way where you feel stressed about how you’re spending your money. You don’t want to make it feel like you’re Ebenezer Scrooge sitting in this cold room and not allowed to have fun. But at the same time, you need to be cognizant of how the money that you spend is finite. And in your early retirement, when you have plenty of energy, when you’re relatively young, you don’t want to overspend and feel like kicking yourself when you’re in your 80s and you need money for health problems or things like that, that you no longer have because you overspent early on.
Arnott: You also advise people to try to forecast what kind of lumpy expenses they’ll need to cover in retirement, things like replacing a furnace or a car, things like that. Can you talk about why it’s valuable to go through that exercise?
Guy Birken: Yeah. A lot of the things we think of as emergency expenses are often not actually emergencies. They are instead irregular expenses that are so irregular that we just don’t see them coming. So, there’s the irregular expenses like your homeowners insurance that you pay once a year. That’s an irregular expense that happens regularly enough that you can kind of like, “Oh, yeah, I got to remember that’s coming.” But then, you’re replacing a roof, which happens what, every 25 years? That seems to come out of nowhere and all of a sudden you got to have like $15,000 for it. Or having to replace a water heater or a new mattress is the sort of thing where it’s like, “Oh, wow, that’s a lot of money that I didn’t have budgeted” because you just don’t think of it because it doesn’t happen that often. It’s once every 10 years or however often these sorts of things go out.
And so these can often be folded into your budget when you’re working. Painfully sometimes. But generally you can kind of put it on credit and get it paid off and it not be that problematic to your budget while you’re working and bringing in an income. But when you’re retired, if you happen to need to replace your water heater and the same year that you need to replace your car, that can cause a real serious problem for a retiree on a fixed income. So thinking ahead and like as of when you retire, doing an inventory of all of your like high-ticket durable goods and saying, “OK, how old are each of these? How much would a new one cost? OK, so about when am I probably going to need to replace my roof? About when am I going to need to replace the water heater, the mattress, my refrigerator, all of these things? And OK, so if I can forecast probably around 2030, I’m going to need to replace that about how much money might I need for that? And do I have a plan for where that money will come from?” That means you’re not going to be blindsided when it gives up the ghost and all of a sudden you have to have it replaced right away. So it’s not an emergency expense. It’s something that you’ve planned for.
Benz: The book goes into a lot of detail about forecasting healthcare spending, how that might change and affect your budget in retirement. Wanted to ask about long-term care, which you wrote in the book is something that you have changed your mind about. And I love to hear about people changing their minds about things. But maybe you can talk about your evolution on long-term-care insurance as a line item in people’s budgets. You tend to think people don’t need it, by and large.
Guy Birken: Yeah, the first iteration of the book, I knew a friend of my mother’s who had primo long-term-care insurance, and she had purchased it, I think, sometime in the ’80s. May we all have such fantastic insurance that just took care of everything. The insurance industry has changed a great deal and had changed a great deal in between 2013 when I wrote the book and then 2021 when I wrote the updated version. And in that time, long-term-care insurance has become prohibitively expensive for the majority of consumers. And there’s a study that has found that basically long-term-care insurance is going to be useful for a very small subset of people: those who have a nest egg between about $400,000 and I think it’s about $2 million.
Anyone with a nest egg larger than that are going to be better off by self-insuring. And those with a nest egg smaller than that are going to be better off drawing down the entire nest egg and then going on Medicaid. And that’s partially because there are not enough people buying long-term-care insurance to make it a marketplace, an insurance marketplace, where there’s enough competition to make it possible for people to get the kind of primo insurance that my mother’s friend had. And so just the cost makes it so high, and then what you get for what you pay for is almost not worthwhile. And that was why I kind of changed my mind on it over the eight years in between the first and second edition.
And the exclusions in long-term-care insurance have also kind of concerned me in between those two additions as well, where after having paid in all of those premiums, the amount of time that you have to wait before the long-term-care insurance kicks in and how much you’d have to pay out of pocket. It seems like there’s a lot of money going out without necessarily as much care coming in as one would want for how much you’ve paid.
Arnott: We also wanted to touch on the cost of healthcare more generally. And this can be a big issue especially for people who retire before the age of 65 especially now that the Affordable Care Act subsidies have expired. What are the best options for people who are trying to get healthcare insurance but aren’t eligible for Medicare yet?
Guy Birken: Unfortunately, it’s not a great landscape right now. So I want to say, you need to make sure that you get healthcare coverage. My next-door neighbor when I first moved into the house where I live in Milwaukee—he retired early. I think he was 62 or 63 and had decided to just white-knuckle it until he turned 65 and can get on Medicare. And unfortunately, he developed cancer and passed away because he didn’t have health insurance and didn’t go to the doctor. And I don’t want anyone to be that cautionary tale. So like don’t white-knuckle it until you get to Medicare. No matter how, even without the subsidies, you need to have some sort of medical insurance.
Now if you leave your workplace within 18 months of turning 65, look into Cobra, which is not cheap, but it is a potential option. You may be able to, depending on your workplace, you may be able to negotiate some sort of way of staying on your healthcare for your workplace—even as a former employee that can sometimes be some sort of benefit that you can negotiate. There are sharing ministries that can help you pay for healthcare as another potential option. I don’t think that they are ideal, but they can be better than nothing. One other thing that I do think can be helpful: If you have access to a health savings account because you had a high deductible health insurance program, putting money aside within that while you are working can be very helpful, since the money that you put in is pretax. It can grow tax-free, and you can take it out tax-free for any medically related expense. That’s one option during that time that can be helpful. I do not know off the top of my head if you can use HSA money to pay for your ACA premiums. I don’t know that off the top of my head but that would be something worth looking into.
Another option that I tell people who do not have access to an HSA is setting money aside in a Roth IRA can be very, very useful as well for when you are in retirement if you have health issues because that money—you can take it out tax-free. It goes in after tax, but you can take it out tax-free. So if you have any kind of large health problem, where, heaven forbid, you get cancer or you break a hip or something like that, it will not affect your taxes. So if you have a very carefully planned out tax strategy in retirement, your Roth IRA can be a way to get a large amount of cash, if necessary, for any kind of health problem or long-term care or anything like that without affecting your taxes, which could be a major problem/headache and could affect your entire tax and withdrawal strategy in retirement.
Benz: I looked it up really quickly, Emily, while you are talking: It doesn’t seem like, in most cases, you can use your HSA for those ACA premiums.
Guy Birken: I appreciate you looking that up. Thank you.
Benz: I was curious, too, because I know there are some very specific rules around that.
I wanted to switch gears a little bit and ask a perennial question for people who are getting close to retirement, which is, if they have got a mortgage but they also have additional retirement savings that they would like to make: How should they approach that decision about whether to pay down, pay off that mortgage, or invest more for retirement?
Guy Birken: It depends on what you’re paying, what your mortgage interest rate is. If you were lucky enough to purchase your home when interest rates were low, then I would recommend putting money aside for retirement because it is likely that you’re going to get a better interest rate on your money in the market. Historically, the market gets about 10% per year, thereabouts—I prefer to think of it as about 8% per year—and so, if your mortgage is 3% per year, your money is doing more for you by being invested. If your mortgage is, if you’re paying an interest rate of 10%, 9%, 8% on your mortgage, paying it off more quickly is going to do more for your money because you’ll be getting rid of that higher interest rate than by investing your money. So trying to pay that mortgage down more quickly so that you can free up money to invest is going to be better. It’s the same logic that you use of you want to pay down high-interest credit card debt before investing. Now I will say that, with the caveat of: If you are close to retirement, even if you are trying to pay off your mortgage, always try to find an extra hundred bucks or something to throw toward your retirement because whatever extra you can put toward retirement you’re going to be glad you did.
Arnott: For our last question, we wanted to ask how working on books about retirement planning, and specifically the updated version of this book, has affected how you think about your own retirement plan.
Guy Birken: Oh, that’s a good question. I’ve definitely gotten more aggressive about my own retirement savings. I had a little bit of a like the cobbler’s children go without shoes. Now my dad always tried to take care of me in terms of financial planning and get things set up for me, and I also am very much like an outward thinker with money. I was very focused on building my kids’ 529 accounts ahead of building my own 401(k) and Roth IRA, which, it took until after I’d written the first version of The Five Years Before You Retire, and that’s not to say I didn’t have a retirement account and I didn’t contribute to it, but I mentioned that to some colleagues who very gently peer-pressured me. And I was in my mid-30s, and they’re like, “Really?” And some of that has to do with just the way that I think about money and the way that I think about legacy and children and what I want to give to my kids. And then also the way that I think about work. I absolutely love what I do, and I can’t imagine retiring in the traditional sense. I want to eventually work less and only do work that I choose, to have fewer assignments that are less interesting to me—only have work and assignments that I’m like excited to jump out of bed and work on in the morning. So like that has something to do with it, too. But I have definitely become a much more aggressive contributor to my retirement, and I’ve gotten a little more aggressive in my asset allocation as well. And choosing my asset allocation rather than being passive in just allowing my money to go into whatever target-date funds my dad might have chosen for me originally.
Benz: Well, Emily this has been a great conversation. Congratulations on the book, and thank you so much for being here.
Guy Birken: Thank you so much for having me.
Arnott: Thanks, Emily.
Benz: Thank you for joining us on The Long View. If you could, please take a moment to subscribe to and rate the podcast on Apple, Spotify, or wherever you get your podcasts.
You can follow me on social media at Christine Benz on LinkedIn or @christine_benz on X.
Arnott: And at Amy Arnott on LinkedIn.
Benz: George Castady is our engineer for the podcast, and Jessica Bebel produces the show notes each week. And Jennifer Gierat copyedits our transcripts.
Finally, we’d love to get your feedback. If you have a comment or a guest idea, please email us at TheLongView@Morningstar.com. Until next time, thanks for joining us.
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