2033: How to Build a Forever Paycheck in Retirement

We're taught our whole working lives to save. Nobody teaches us how to stop. That's the blind spot my guest today has spent the last several years staring down. Jean Chatzky has been one of the most trusted voices in personal finance for as long as I've been in this business, and she just published what she says is the best of her fourteen books, because it's solving a problem she's actually living through herself. Her new book is called The Forever Paycheck https://www.amazon.com/Forever-Paycheck-Retirement-Strategy-Spend/dp/B0G4ST45RC/ref=cm_cr_arp_d_product_top?ie=UTF8, and it's about the moment nobody plans for: the day the direct deposits stop and you're left staring at a lump sum that has to somehow last the rest of your life. Turns out most of us are terrible at this. Even people who did everything right, who saved diligently for forty years, freeze up when it's time to actually spend the money. Jean found that people with guaranteed income streams spend nearly twice as much as people sitting on identical savings, and that confidence to spend is tied to better health and longer life. We get into why our brains treat a shrinking balance like a loss even when it's working exactly as intended, what she's doing with her own money at 61, and the uncomfortable math behind long-term care that almost nobody wants to run. How's midlife going? Fill out Farnoosh's survey https://www.jotform.com/build/262556781257063 and help shape the podcast in 2027. Hosted on Acast. See acast.com/privacy https://acast.com/privacy for more information.

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• 1:34Speaker 04

  So Money Episode 2033, How to Build a Forever Paycheck in Retirement.

• 1:41Speaker 05

  You're listening to So Money with award-winning money guru Farnoosh Torabi. Each day, get a 30-minute dose of financial inspiration from the world's top business minds, authors, influencers, and from Farnoosh herself. Looking for ways to save on gas or double your double coupons? Sorry, you're in the wrong place. Seeking profound ways to live a richer, happier life? Welcome to So Money.

• 2:08Speaker 06

  My mom was 63 years old when my dad died, and she was nicely situated. She had a paid-off apartment. She had social security, his because it was greater than hers. She had a small pension that he had from his years as a teacher. She had a long-term care policy, which definitely hung out in the background and made her feel more comfortable. And she had a retirement account. And over the next 20 years, that was how long she lived, my brothers and I watched as she spent her social security, she spent the pension check, she spent the income that

• 2:52Speaker 06

  spilled off of those retirement balances, but she would not spend the principal, despite the fact that she had three kids, saying to her, "Mom, we do not need your money. You know, this is your money. We don't need it." She couldn't do it. And turns out, she's pretty typical.

• 3:13Speaker 04

  Welcome back to So Money, everybody. I'm Farnoosh Torabi. You know, we're taught our whole working lives to save. Save, save, save. Few people teach us how to stop saving, and almost no one's teaching us how to spend our money in retirement, right? That's the blind spot my guest today has spent the last several years staring down. Jean Chatzky has been one of the most trusted voices in personal finance for as long as I've been in this business, and she just published what she says is the best of her 14 books, because it's solving a problem she's actually living through herself. Her new book is called A Forever Paycheck, and it's about the moment nobody plans for, the day the direct deposits stop and you're left staring at a lump sum that has to somehow last the rest of your life. Turns out, most of us are terrible at this.

• 3:58Speaker 04

  Even people who did everything right, who saved diligently for 40 years, they freeze up when it's time to actually spend the money. Jean found that people with guaranteed income streams spend nearly twice as much as people sitting on identical savings, and that confidence to spend is tied to better health and longer life. In our conversation, we get into why our brains treat a shrinking balance like a loss, even when it's working exactly as intended. What Jean is doing with her own money at age 61, and the uncomfortable math behind long-term care that almost nobody wants to run. Here's Jean Chatzky.

• 4:36Speaker 04

  Jean Chatzky, welcome to So Money.

• 4:39Speaker 06

  Thank you so much. Great to see you.

• 4:42Speaker 04

  So, audience, I knew Jean when. I knew you when. And I think when was maybe your third book was coming out, maybe your fourth. And now you've written, I think it's 14, and you've said this is your favorite, so I gotta ask why.

• 5:01Speaker 06

  This one solves a problem that I am having right now. And I think it solves a problem, I know, nothing like a little MeSearch. I think it solves a problem that so many people are having right now. Xers and Boomers specifically, older millennials will come up to it pretty quickly. You and I have lived in the same sea of personal finance for such a long time, for decades. And personally, I feel like I have spent most of my years encouraging people to save for retirement, encouraging them to pay themselves first and max out their contributions if

• 5:43Speaker 06

  they have a 401K and grab all the matching dollars that are on the table and invest the money in a way that's risk-appropriate for them and just accumulate, accumulate, accumulate. And eventually, we get to this point where the earnings stops, either because you choose it to stop, or it stops for another reason. And then you have to take all this money and figure out, how are you going to make it last for the rest of your life? That is a really complicated question, it turns out. It's a complicated math question, and it's a complicated emotional question. And so, many people just don't have the tools.

• 6:24Speaker 06

  So I'm really excited about this one, because I feel like it's a problem solver.

• 6:31Speaker 04

  It's complicated, as you say, and the stakes are highest. You say this is a problem that we just cannot afford to ignore, mess up, fail at. I mean, we fail at a lot of things in our financial lives, and there's still room to kind of catch up, make up. But why is this so, so high stakes?

• 6:54Speaker 06

  Because you only have one balance in your 401K. You've worked 40 years for this, and once you're no longer earning money, the chance for a do-over pretty much evaporates. So you've got to figure out how to make the money last in a way that is going to tide you from now until the rest of your life. And if you get it wrong, the consequence is a smaller life. The consequence is, I mean, we talk a lot about this pervasive fear that people have about running out of money.

• 7:34Speaker 06

  I cite one survey in the book that points to the fact that we are more afraid of running out of money in retirement than we are of death. I mean, that's just insane. But, you know, it shows up again and again and again. And the reason that we're so fearful, I think, is because we understand that we don't get any do-overs.

• 7:56Speaker 04

  Did our parents have this problem?

• 7:59Speaker 06

  No. I mean, mine didn't. I'm not, your parents, I'm not sure, because I don't know how their finances were organized. But prior generations of parents really didn't have this problem, because they had pensions. And somewhere right around the time that I was starting to report on personal finance, so late 80s, early 90s, the world shifted. Companies decided they didn't want this responsibility anymore. They couldn't afford to carry this responsibility anymore. And so, they abandoned the pension system and started rolling out 401Ks, where we were

• 8:43Speaker 06

  encouraged to put in some money, maybe they would match it. But the responsibility for retirement rolled off those companies and onto individuals. Now, some people are still fortunate enough to have pensions, teachers have pensions, military have pensions. There are some people who have it, but it's a fraction of what it used to be. And we need a whole...

• 9:11Speaker 06

  New toolkit to essentially pensionize what we've built in these retirement accounts. Because interestingly, having an income provides a much better quality of life than just having a pool of assets, a chunk of money in a retirement account than you're with, than you're, that you're withdrawing from over time.

• 9:39Speaker 04

  Yeah, can you, I was gonna say, let's, let's sort of differentiate the two because so often we hear the 4% withdrawal rule, or 3% or 5%, however, versus this paycheck model. Tell us about how they function differently.

• 9:56Speaker 06

  So I love that you just said 4%, but maybe it's 3% or maybe it's 5%. And what that says to me is that there is no rule. There is no rule there that has shown to work. I mean, every year now, Morningstar rolls out a new figure for what the number is for this year. Like, that, that's just mind boggling. How are you gonna know what the number's gonna be when you actually get to retirement? And the, so the 4% rule, just to take a step back, basically says, if you withdraw 4% of your retirement account the first year of retirement, and then just adjust that number for inflation every year

• 10:36Speaker 06

  then thereafter, the money should last you 30 years. But it doesn't hold up always. It, it holds up sometimes, but if you hit a bear market in the 10 years around your retirement, before or after, the chances that that money will actually go the distance go way down, and, and down way too much for my comfort. What I'm suggesting with this paycheck model is that you take a chunk of your money, typically about a third, and you use it to either build yourself or buy yourself a paycheck that will last for the

• 11:19Speaker 06

  rest of your life, no matter how long that life turns out to be. You take the rest of your money, you invest it. And I would argue that you can actually invest it more aggressively because this paycheck, when combined with social security, should be enough that it covers those things that you need and those things that you really, really want, your, your things that you're not willing to compromise on at all. But the fact that you know it will continue to come enables you to spend. What we're seeing with retirees right now who have big balances in their retirement accounts is that they are not spending. And

• 12:04Speaker 06

  they're, they're not spending because they're afraid that the money is gonna run out. They're also not spending because emotionally, it turns out that after 40 years of watching the balance go up and up and up, seeing it goes down feels really uncomfortable. It's like, it's like losing money, and we hate losing money, so we're just not spending.

• 12:27Speaker 04

  Is part of the fear the healthcare costs predicted in the later stages of life? Like, a friend of mine, her mother, in her late 80s, early 90s, had to move into a care facility, and it was a lump sum of $300,000 that she needed to give them off the bat. And they were gonna use that to pay basically her, her monthly. But that is a large amount of money to have to have in your late 80s, 90s, especially for the average American who's not saving, let's say, what they quote unquote, need to save for retirement to retire comfortably. What is the fear from?

• 13:08Speaker 06

  I think the fear is, in part, longevity based, right? We don't know how long we're gonna live. We know that life expectancies are ticking up. And we do know that the longer we live, the more likely it is that those healthcare expenses hit us at the back. And this is particularly true for women, right? We live five years longer than our spouses on average. We're the ones typically who, who need care, and often it's memory care, which gets really expensive. So I, I think that that is part of it. But I don't think that that's the entire picture. In part, it's that we anchor, the world of behavioral

• 13:53Speaker 06

  finance, and as you know, it teaches us, we anchor to numbers, and we anchor to big numbers. And that balance that we have been aiming to accumulate in our retirement accounts for so many years is one of those numbers that we anchor to. We don't like to see it going down. I, I saw this with my mom. My mom was 63 years old when my dad died, and she was nicely situated. She had a paid off apartment. She had social security, his because it was greater than hers. She had a small pension that he had from his years as a teacher.

• 14:37Speaker 06

  She had a long-term care policy, which definitely hung out in the background and made her feel more comfortable. And she had a retirement account. And over the next 20 years, that was how long she lived, my brothers and I watched as she spent her social security, she spent the pension check, she spent the income that spilled off of those retirement balances, but she would not spend the principal, despite the fact that she had three kids saying to her, "Mom, we do not need your money. You know, this is your money. We don't need it." She couldn't do it. And turns out, she's pretty typical. Well, one study that

• 15:21Speaker 06

  I pulled for the book of people who had $5,000, $500,000 or more, looked at them 20 years into retirement, they had spent 12% of their money. And to me, that's just sad. It means that they're leaving an awful lot of this life, these bucket list items that they saved for on the table.

• 15:42Speaker 04

  Did you ever think that you would be encouraging people to spend?

• 15:46Speaker 06

  No!

• 15:47Speaker 04

  It's so incongruent with, like, personal finance. But here we are.

• 15:53Speaker 06

  Here we are. And look, I think when we look at it, when we look at money as a tool, and, and you and I both, we, we, we know, this is a tool, but it's not really a tool because it's so fraught with emotion. It's so, it's so tied up with all the different meanings that, that it carries, and all the different feelings that it, that it carries with it. It, it just, it, it gets in the way of being truly rational about how we're handling what we have. And when you've been working towards something like retirement

• 16:38Speaker 06

  for such a long time, thinking, these are the things that I'm gonna be able to do once I'm no longer working, and then something as ridiculous as not being able to spend the money in your retirement account is getting in your way of doing that? God, I, I think it's, it's frustrating and also unnecessary. And I looked at the number of people who have bucket list items, like, more than 90% of people have bucket lists. This is, this is a big deal.

• 17:09Speaker 04

  Yeah. How did the financial services world, fintech, not see this coming? You know, you talk, or you talked earlier about the, the infrastructure that we have pre-retirement that helps us get to retirement, things like automated contributions to the 401k. There are tax deductions that we like to benefit from with those contributions. There's the match. All of these tools and supports to get us to the finish line. And then it's like, good luck, everybody.

• 17:39Speaker 06

  Right.

• 17:39Speaker 04

  Why such a blind spot for, I'm talking now to the financial services industry, these, they should have known better.

• 17:46Speaker 06

  I think so. I mean, but I think partially it's demographics, right? We go, and that we have gone as the media, and the financial services industry has gone where both the population has gone and the money has gone. And the money has been with the baby boomers, right? And so in servicing That big, big, big swath of the audience, the message was, you know, grab all the money, get it in-house in these, in these accounts. That's why things like rollovers have been such, such a big deal. But now that portion of the population, I mean, we've got people turning 65

• 18:29Speaker 06

  in numbers that we've never seen before. We're at the peak of that generation. The retirees are, they're getting more attention. And I think the fact that they're struggling with this is starting to open our eyes to, oh, well, we need a solution for all those Xers and millennials to come.

• 18:52Speaker 04

  What are some existing financial instruments that you want people to consider or reconsider as they build this forever paycheck? It's multifaceted, like you described. There's social security involved. There's your own investment portfolio, maybe a pension, an annuity. Some people take on a reverse mortgage as part of this equation. Can you get a little bit more granular about the makeup of this?

• 19:23Speaker 06

  Sure. So social security and maximizing social security should be the base layer of every forever paycheck. And maximizing it is probably the most important financial decision you're ever going to make in your, in your whole life. And it's not just that you want to get the most when you start social security. It's that social security has an actual cost of living adjustment. It does keep pace with inflation. So social security is, is the first part. But then I'm suggesting people take, as I said, about a third of their nest egg,

• 20:02Speaker 06

  whatever it takes to cover the gap between what social security provides and what you really need slash want to spend on a monthly basis. And buy or build yourself a paycheck. Two ways to get a paycheck. You can buy one with insurance, i.e. annuities, or you can build one with investments. And when I talk about investments in this way, what I'm really talking about are income producing investments. So things like a ladder of TIPS, treasury inflation protected securities.

• 20:44Speaker 06

  Sometimes dividend paying stocks work for this purpose. There are some mutual funds and index funds that are specifically income producing. Which one is right for you is completely dependent on your personality. So I, I think of it as a trade off between risk and FOMO. If you are not comfortable with risk, then you want to lock in the fact that this paycheck is going to be there for you no matter what, for the rest of your life, no matter how long that is. That's going to lead you to an insurance solution

• 21:27Speaker 06

  because annuities can provide guarantees that investments can't. If you're a little more comfortable with risk and you are a FOMO person in that if the market goes gangbusters in a really good way, and you don't have more of your money in that market, you're going to be really, really sorry and regretful, then you should build your paycheck with investments. But you should understand investments can't provide the same sort of guarantees. And if we just look at a ladder of treasuries or a ladder of bonds,

• 22:08Speaker 06

  if interest rates go way down, and they did sit very, very low for a good decade, you're not going to be able to perhaps provide the same amount of income when you have to purchase the next bond because one rolls off your ladder. So both are viable solutions, definitely trade offs to consider. But the important thing is that no matter which way you choose to do it, there is a sum of money landing in your checking account, just like a paycheck, every single month. Because what we've seen in the research is that when you compare people

• 22:49Speaker 06

  who have the same amount of money, one group in assets like that retirement account and one group in paychecks, the people with the paycheck spend twice as much money.

• 23:02Speaker 04

  And they don't run out.

• 23:03Speaker 06

  And they don't run out, and they do it because they know there's another paycheck coming.

• 23:09Speaker 04

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• 27:02Speaker 04

  Again, the other irony is that we don't want to live paycheck to paycheck before retirement, but this is the unlock to a successful retirement. If someone's in their 40s, 50s, what is the work, the homework or the groundwork they can do now so that they're not doing kind of a more abrupt calculation for this in retirement? Looking back, are there things that, you know, these retirees could have done, should have done, or at least be thinking about to be more paycheck ready by 65?

• 27:39Speaker 06

  Keeping a really good handle on what life costs you is, is job number one. Because the, the interesting thing is that when we look at the data, the spending data, spending doesn't change all that much from pre-retirement into retirement. We think it Does, but it's just more flat than we would think. Goes down a little bit in our seventies dips up again in our eighties. But what you're spending before retirement is a really good indicator of what you'll spend in retirement. So figuring out what that life is going to cost you, making sure that you are actually saving enough to get there.

• 28:21Speaker 06

  And then starting to think of your money in terms of two pots. This is my income producing money and this is my investments for the big stuff and for legacy and for charitable giving and for all of those other things. Starting to wrap your brain around the fact that there's my income and there's my nest egg, I think is a really good first start for those people in their 40s and 50s.

• 28:49Speaker 04

  Is there any advice that maybe your forever paycheck, part of it should come from an actual job paycheck? Because that's also, you know, for better or worse, people are working longer in retirement. They're not quote unquote, ever really retiring. How much of that reality might go into this calculation?

• 29:09Speaker 06

  Unfortunately, about two thirds of people retire not willingly. They, they are retired because of illness, because of a job loss, because their industry has just changed or gone away. So as much as I plan on continuing to work as long as the work holds out. And I think that people should because working keeps us engaged. It keeps us healthy. It keeps us connected. I mean, there's so many incredible benefits to continuing to work besides the money. I don't want people to necessarily count on the fact that they'll be able to earn an income into their seventies

• 29:53Speaker 06

  because I've seen too many instances where they can't.

• 29:57Speaker 04

  Yeah. How has this research changed your life or your thinking about your future, Jean?

• 30:04Speaker 06

  I'm shopping for an annuity. I mean, I am actively, right? I'm 61 years old and I am actively shopping for an annuity because that's how I'm wired. Like I don't want, I, there are costs in my life that I want to know are covered forever. And I don't want to feel unable to spend on them because the markets have taken a tumble. So I'm gonna buy myself, not build myself, buy myself a forever paycheck and then continue to invest the rest of my money for the other things on my list that we, that we already talked about. And I never thought I would be doing that.

• 30:45Speaker 06

  I mean, I grew up like you grew up in, in personal finance magazines where, but we didn't go there. Like annuities were not, we were not, we were not recommending them. We were not talking about them, writing about them. It was not a thing. And I've been really, really surprised by my own reversal on this. But I think that they're the right solution for a lot of people. And I think the products have gotten better than they were when we were in those, in those hallowed halls.

• 31:17Speaker 04

  A product that hasn't seemingly gotten better though, is long-term care insurance. That industry has really cratered in some ways. So they're expensive, the rates can change, they're not there for you when you need them. What's your take on a long-term care insurance and how it fits into this model? Where maybe it's not a forever paycheck, but it's a, a security blanket in the event that maybe you do need some, a nursing care facility or something like that.

• 31:49Speaker 06

  This is, it's a huge concern for, for so many people. And you're right, the products are not what they used to be. The guarantees are not what they used to be. I do think that the hybrid products, if you buy a, a life insurance policy with a bucket of long-term care benefits, is still a, a good purchase if you can afford it, but they've gotten really, really expensive. And so many people can't. What I think we're going to see is that your home is your long-term care policy.

• 32:25Speaker 04

  Uh huh.

• 32:26Speaker 06

  That, that building home equity and paying off a mortgage is this ancillary pot of money that you're living in right now. If you need to go into a care facility, you are no longer going to be living there. And if your spouse needs to be living there, you can draw down that equity with, as you mentioned, a reverse mortgage, which is another product that has actually gotten a lot better. And we're, I, I think we'll see many more people using reverse mortgages for that purpose down the road. The other asset that a lot of people have that they aren't tapping into is paid off life insurance,

• 33:09Speaker 06

  not term, but, but permanent life insurance of some form that they actually no longer need because they don't have dependents. So if you've got a, a whole life or a variable or universal life policy that you've been holding on to and your kids have grown and flown, your spouse doesn't need that money. That's something that you can draw on to provide for your care if you need it.

• 33:40Speaker 04

  Well, you brought up kids and in preparing for this interview, I read something in Kiplinger's where you said that, quote, "If I die in my nineties, my kids will be in their sixties. I really hope they don't need my money by then." Which brings us to legacy planning and the forever paycheck as, uh, how do you balance that, you know? And a lot of the, the, the philosophy around inheritance and, you know, estate planning with regards to your kids has changed in, in recent years. This concept of die with zero, where do you fall on that spectrum?

• 34:21Speaker 06

  I hope to be able to help my kids when they actually need it. And I think that having a forever paycheck is going to free me to do that because I know that my needs and most important wants are taken care of. So the money that I've got invested actually could be used for whatever. And that includes helping my kids when they're buying homes. I hope that I can help put my grandkids through college. I mean, there's so many things that are so much more expensive for our kids than they were for us.

• 35:05Speaker 06

  And they were plenty expensive for us that feeling able to help our kids with that, help my kids with that. I mean, that's just a, an incredible pleasure. And I, I feel really grateful that I'm, I'm able to, to do that. But in structure, knowing that I am taken care of and I'm not going to have to ask my kids to take care of me, frees me to think about helping them. And, and I am planning to do it sooner rather than later. Like I said, like I, I, I don't really, the, the longevity

• 35:47Speaker 06

  has just done a number on inheritance and when people are getting the money. And I, we lost my mom a couple of years ago. My brothers and I, thank you, my brothers and I did inherit some money that she unfortunately did not spend. We didn't need it, you know? At that point in our lives, it wasn't, you know, it wasn't what it would have been at age 30 when we were trying to buy houses.

• 36:19Speaker 04

  Yeah. Which, you know, in, in hearing you talk about what the forever paycheck can afford you, it's not just your ability to spend more, but it affords you, it sounds like a healthier life, less stress. And your research pointed to this, that there are, the benefits of a forever paycheck, there are many of them and not just financial.

• 36:45Speaker 06

  There was a big study done, thousands of people, not in America. This study was done in Chile that pointed to folks who had paychecks, who had these annuities that were going to continue to roll for the rest of their lives. They lived longer, every single cohort lived longer, fewer instances of disability and less stress. And boy, I mean, if I wasn't already convinced that study came out after I put the book to bed, if I wasn't already convinced, that certainly would have done it for me.

• 37:23Speaker 04

  Jean Chatzky, thank you so much. And let's not let, I think it's been a, a long time since you've been on the So Money Podcast. I know you were one of my first guests. I'm sure we've had you on since then, but I so enjoy hanging out with you. Congratulations on your latest book, The Forever Paycheck. It's going to help so many people.

• 37:43Speaker 06

  Oh, thank you so much.

• 37:44Speaker 04

  It's already helping me. I'm like, I have a, a little bit of a checklist after this call, which will, it's a good checklist.

• 37:50Speaker 06

  Amazing. Thank you so much for having me. Always so great to see you.

• 37:57Speaker 04

  Thanks so much to Jean Chatzky for joining us. Her book is called The Forever Paycheck and it is out this week. Stick around because Friday we're answering your questions on Ask Farnoosh. You can still send them in, you can email me, [email protected]. You can also DM me on Instagram, at Farnoosh Torabi. Thanks for listening and I hope your day is so money.

• 38:29Speaker 00

  Hey, we're Nick and Jack, hosts of The Best One Yet. Behind every episode, there's research, emails, spreadsheets, and our shared Google Doc, the headline hammer. With Google Workspace with Gemini, Google's AI is built right into the premium versions of tools we already use, like Gmail, Docs, and Sheets. No new tools or extra logins, just personalized AI for the way we work. That means less time on the work around the work and more time finding the stories worth talking about. Get AI tools for work. Upgrade to Google Workspace with Gemini at goo.gle/workspacewithgemini. That's goo.gle/workspacewithgemini.

• 39:02Speaker 07

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