Invest Financial Planning

HerMoney Podcast Episode 199: Abby Johnson, Chairman and CEO of Fidelity Investments On Career Growth, Female Investors, Risk Tolerance And More

Kathryn Tuggle  |  February 5, 2020

Jean sits down with Abby Johnson, Chairman and CEO of Fidelity Investments, to chat career, work-life balance, women and investing, and so much more.

When you look ahead in your career, where do you think you’re headed? Managing Director? VP? CEO? Maybe all of the above. This week’s guest, Abby Johnson, is the Chairman and CEO of Fidelity Investments, and is the third generation of her family to run the company, which boasts an impressive $8 trillion in customer assets and 30 million individual investors… If you have a 401(k), a 403(b) or a health savings account, not to mention a 529 college savings plan, there’s a good chance you’re a customer! 

In this episode of the HerMoney Podcast, Abby talks about her career background, and the path that taught her a strong work ethic and led her into the family business. (Yes, even CEOs start out babysitting, working as a server in restaurants and selling T-shirts!) Abby also discusses her career progression within Fidelity, and what she learned as an analyst on the health care beat. “Being an analyst really shaped a lot of my thinking, even the thinking that persists in the way that I operate today,” she says. “It’s a role where curiosity and persistency is really rewarded, and you have to want to learn about anything and everything.” 

Abby also dishes on some of the biggest mistakes she’s seen leaders and corporations make over the years, and the importance of reinventing yourself when you see the world start to change. 

The pair also tackle the topic of investing, and how women can be more confident when it comes to making our money work for us. Many of us want to invest, and we know we need to invest, yet we feel like we’re in “foreign land.” Unfortunately, the lingo is part of the problem, Abby explains. “There’s just a lot of technical jargon, and when you really dig into it, the technical jargon isn’t as complicated as it sounds,” she says. “But if you walk right into a conversation, and people are talking about debt inequity and using lots of terms that are just frankly unfamiliar, it’s very off-putting. And people can understand way more about finance and investing than I think they think they can, because that mental obstacle of the language gets in the way.” 

Jean and Abby dive into how much people actually have to do with their money in order to succeed — Abby says that we might all be surprised how quickly we’ll come around to understanding the basic concepts of investing, especially when we have someone that we have confidence in to interact with. (Hint: It can be a professional, a trusted friend, an investing club, the list goes on!) 

Abby also discusses the topic of risk tolerance, and how we can get to know ourselves and what our risk tolerance is. While we don’t have a crystal ball to predict how the markets may fluctuate, we do have to consider how we’d feel about our portfolio performing differently, given varying market conditions. “You can’t ever say for sure how things are going to go,” she says. 

Jean and Abby also break down some of the efforts Fidelity has made over the years to make their company more female-friendly, and to ensure that both halves of a couple understand their finances and are ready for whatever the future might hold. Abby dives into the company’s use of artificial intelligence, including voice recognition software, which has helped rid the company of unconscious bias. 

The pair also dish on Abby’s role as a mom, and how she’s encouraging her daughter not to follow in her footsteps, but rather to find what makes her happy. They also dive into mental health, and how getting outside and getting exercise is one of the best means we have of combating stress. 

In Mailbag, Jean and Kathryn tackle questions around saving for retirement while also paying down student loans, balance transfer credit cards, and how to balance the desire for having a baby compared to the goal of saving for retirement. Lastly, in Thrive, Jean dishes on how changes to your life in 2019 (including a marriage, a divorce, a new baby, a side hustle or retirement) may impact your tax return, and what to consider before you file. 

This podcast is proudly supported by Fidelity Investments. You work too hard for what you earn to let it sit on the sidelines. Let Fidelity show you how to demand more from your money. Learn more at Fidelity.com/HerMoney. Fidelity Brokerage Services LLC Member NYSE, SIPC.

Editor’s note: We maintain a strict editorial policy and a judgment-free zone for our community, and we also strive to remain transparent in everything we do. Posts may contain references and links to products from our partners. Learn more about how we make money.

Transcript

Abby Johnson: (00:01)
We’ve done work that shows that women’s confidence in this space is just so irrationally low. It’s really painful to see those results because it doesn’t make sense at all and women need to know that they can be successful investors and many of them are so we just need more of them out there.

Jean Chatzky: (00:31)
HerMoney is supported by Fidelity Investments. We want you to demand more from your money. Start by knowing what you own and what you owe. We’ll help you take the next step at fidelity.com/demandmore for money comes to you for PRX.

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Jean Chatzky: (00:56)
Eight trillion in dollars in customer assets, 30 million individual investors, another 30 million brokerage accounts. That’s the size of the business at our sponsor Fidelity Investments. All of which means if you have a 401k or a 403b or a health savings account, not to mention a 529 college savings plan or a charitable account or an IRA rollover, there is a really good chance you’re a customer. Or you’ve thought about becoming one. Abby Johnson has been CEO of Fidelity since 2014, chairman since 2016, she is the third generation of her family to run this company and she is with me today. Hi Abby.

Abby Johnson: (01:40)
Jean.

Jean Chatzky: (01:40)
Getting you on this podcast was tough. I don’t know if you know this, but I have been asking for three years and you are notoriously private, notoriously not promotional. So again, just thank you.

Abby Johnson: (01:56)
Well, it’s great to be here and I love talking to people, but I get kind of tied up talking to people about running our business. So, that’s why sometimes it’s all challenge to schedule.

Jean Chatzky: (02:09)
I appreciate you making the time and I know all of the women and men, because we have some men who listen to the podcast, do as well. Take me back a little bit and tell me about your background. You worked summers at Fidelity, you joined full time after you graduated from Harvard Business School. Was it always assumed that you’d go into the family business?

Abby Johnson: (02:35)
No, I was encouraged to explore lots of different avenues growing up and to think that if I studied hard and worked hard, that I could do anything I wanted. And I certainly had exposure to the business because my father was completely obsessed with running the business during the time that I was growing up. And of course my grandfather was still involved in the business when I was growing up, although he was certainly not playing the active role that he had when I was very, very young. So I would hear conversations between the two of them and they both loved what they did and they loved to talk about it with me and my siblings and friends to the extent that we wanted to. So I probably did have an opportunity to get a little insight into investing in the world of running an investment business. And that was something that felt interesting to me. But other things were interesting too. And I probably wandered in and out of entertaining as many different options as anybody growing up ever did.

Jean Chatzky: (04:02)
What kind of options? Did you have a summer flipping burgers or babysitting?

Abby Johnson: (04:07)
I had sort of summer jobs doing babysitting, working in restaurants, selling t-shirts. The stuff that lots of people do. And so it was just good basic experience to learn how to have a job.

Jean Chatzky: (04:25)
Sometimes I think those waitress jobs or server jobs or restaurant jobs are the best lessons in customer service anywhere. What did you learn from them.

Abby Johnson: (04:35)
You know what matters is showing up and being consistent and working constructively and positively with anyone and everyone that you come across in your job, because you’re at your job to get something done and be productive and you just don’t know who else is going to be in the seat next to you. And you have to be prepared to make sure that you contribute to a good working environment and not think about the particulars of the person cause they’re your coworker and you need to make the best of everything.

Jean Chatzky: (05:19)
I remember my first interaction with you. I was a fact checker at Forbes Magazine. You were an analyst at Fidelity on the healthcare beat. What did you learn in that job from being an analyst and on your way up at Fidelity? That has sort of inspired the way you did the job today.

Abby Johnson: (05:38)
You must’ve learned a lot about consistency and persistency and working with all different kinds of people being a fact checker.

Jean Chatzky: (05:44)
Oh boy, oh boy.

Abby Johnson: (05:46)
I can only imagine.

Jean Chatzky: (05:47)
One day, I will tell you about the weekend that I spent talking to Mike Milken when he was in jail.

Abby Johnson: (05:52)
Oh.

Jean Chatzky: (05:53)
Fact-checking a story. We had very, very long and involved discussions about Chinese food.

Abby Johnson: (05:58)
Wow.

Jean Chatzky: (05:58)
Yes.

Abby Johnson: (06:00)
That sounds like quite an experience. Okay. So, being an analyst really shaped a lot of my thinking, even the thinking that persists in the way that I operate today And, you know, I’m very much stimulated by my father and my grandfather, it’s a role where curiosity and persistency is really rewarded and you have to want to learn about anything and everything. I was first assigned the industrial machinery group to follow. So it wasn’t something I particularly knew much about. I learned a little bit about process management and factory automation from my studies at HBS, but I hadn’t spent time in factories or a lot of time with industrial managers. So that was a whole new experience for me. And you know, fortunately the perspective that you’re bringing is ultimately a strategic and financial perspective, which was something that I had developed some capabilities in both from being a business school and from my prior experience at Fidelity. So it was exciting, but it was, you know, it was very different and I really had a great time. As I went through being an analyst, I felt that, I didn’t realize it at the time, but the lessons that I learned about what makes management teams successful, and I think more importantly, what are the common mistakes that corporate managers make, were incredibly valuable. And you know, even today, you can buy lots of great business books that talk about what successful leaders do, but there’s not so many books around that tell the stories about the real mistakes that people have made.

Jean Chatzky: (08:07)
What kind of mistakes?

Abby Johnson: (08:07)
Mistakes like following too much other companies. Mistakes like not really understanding the details of your business and talking too much to your own team internally are some of the things that come to mind. Losing track of how the world is changing. There are lots of stories that any investor can tell you around finding a company that’s onto something and is really successful and they just roll with it and they lose track of when whatever they’re doing is becoming mature and it’s time to reinvent themselves if they haven’t been reinventing themselves all along as they probably should have been. And they don’t understand when all of a sudden their business isn’t what it used to be because the world has changed.

Jean Chatzky: (09:16)
There are so many things that I want to unpack in what you just said, but let’s go back for a second to that feeling of being an analyst in the industrial sector and being a little out of your element. I think a lot of our listeners feel exactly that way. They want to invest, they know they need to invest and yet they feel like they’re in this foreign land. Picking stocks is daunting. So do you think it’s necessary to pick stocks in order to be an investor? And for those of our listeners who are looking for a little confidence, how do you get that?

Abby Johnson: (09:58)
So the first thing I would say, taking your questions not exactly in the order that you gave them to me, one of the things that really puts people off, that I think is really unfortunate, is the lingo. And this is true in other industries besides ours, but it seems particularly true in the area of investing and particularly when you get into investing in individual securities, whether they’re equities or bonds or some kind of derivative or other type of specific investment. There’s just a lot of technical jargon and when you really dig into it, the technical jargon isn’t as complicated as it sounds. It’s just conventional language that has built up in our industry over generations and people pick it up because it’s what’s always been used. But when you dig below the meaning of it, it’s not really that complicated. I mean, even if you just start with something basic like debt and equity, you can explain debt by it’s the money that you owe versus the wealth you’ve accumulated in equity. And most everybody can grasp that pretty quickly. But if you walk right into a conversation and people are talking about debt and equity and using lots of terms that are just frankly unfamiliar, it’s very off-putting and people can understand way more about finance and investing than I think they think they can, because that mental obstacle of the language gets in the way.

Jean Chatzky: (11:56)
Even if you get yourself comfortable with the language, there’s this perception that I don’t have time to do this. I need a lot of money to do this. I mean what I have often said to people is, this is not optional, right? You need your money to work for you because if you’re just sticking it in the bank, it’s losing purchasing power. And that’s not a way to live for the next 95 to a hundred years. So how much do people actually have to do to succeed?

Abby Johnson: (12:26)
Well, I mean, it’s a great question and that’s certainly one that our teams have really challenged themselves with and we’ve been trying lots of different things. We’ve tried different kind of interactive capabilities, modeling capabilities, videos, and there’s lots of books. You have to decide how much time you want to put into it and even easy things like listening to podcasts and radio shows just helps you familiarize yourself with that. And I think it’s more of a mental barrier where it doesn’t come to you super quickly, but if you just give yourself a little time and don’t have too high expectations, I think it’ll be surprising how quickly you can come around to understanding the basic concepts of investing and having somebody that you have confidence in to interact with, whether it’s a professional, whether it’s an investing club that you want to join. These are all different ways. It really is what suits your personality.

Jean Chatzky: (13:45)
You mentioned the world is changing around us and companies have to pay attention to how the world is changing around them. Individuals do to. The market just wrapped up this record year, the kind of a year that inspires nerves, I think, that things are going to turn around. As you look at the world economy and the political landscape, how do you suggest we as individual investors deal?

Abby Johnson: (14:14)
Well, first of all, you have to know yourself and know what your risk tolerance is because you never want to invest outside of your risk tolerance. And even if someone who is a friend or a family member is doing something and they say, you should do what I’m doing, you have to ask yourself, does that really make sense for me? And I think that understanding how much you’re prepared to see your portfolio go up or down, more importantly down, because everyone’s generally happy when it goes up, but you have to really ask yourself what you’re comfortable with. And, you know, that’s not an easy thing for people to see. And lots of people try to have crystal balls and predict how the political and economic environment is going to change and what impact that’s gonna have on investing. I think you have to consider that there’s a wide range of options and ask yourself, how would you feel about your portfolio performing in what different way based on the different environments. So what I’m really talking about is scenario planning and making sure that you’re comfortable with a variety of different scenarios because you can’t ever say for sure how things are going to go.

Jean Chatzky: (15:44)
Let’s switch gears and talk about women. This is a podcast for women by women to help women get a leg up as far as our finances are concerned. You’ve put a lot of women forward at Fidelity. You’re one of very few women in this country running a company of this size. What is it about investing in women that has clearly become so important to you?

Abby Johnson: (16:16)
First of all, it’s a huge unmet need and we’re in an industry that has been long dominated by men and lots of things that even I never really thought about reflect that. And so what happened is when we organized our team to really delve deep into this, we started uncovering a lot of things, some inadvertent things, and a lot of little things that cumulatively led to the impact of women being turned off by the business.

Jean Chatzky: (16:58)
Like what?

Abby Johnson: (16:58)
Just the way we set up our offices was one, the way we, like most companies have kind of a standard way of setting up our offices, which sort of spilled over into how we sat up our customer facing branch storefronts, where we actually meet clients and we discovered that just without thinking about it, kind of inadvertently, they reflected very male preferences and not female preferences. So that was one of the things that we fixed. And then there are other more subtle, harder to describe things, like the way our material is presented, which we’ve addressed, the way women often tend to process learning, where they have a higher propensity to want to have a more iterative process, where they get information, come back, get information, come back, and it’s less of a straight line to a decision that sometimes we’re more likely to see with men. So these are gross generalizations, but we did enough work to become comfortable that some of these trends we were seeing were real and we needed to do more to make sure that our reps were trained in accommodating and practicing that iterative kind of way of helping somebody come up a learning curve around something that they were new to. So we’ve tried a lot of different things in terms of getting people together, in terms of group sessions and sometimes doing women only events, which some women prefer. So those are some examples.

Jean Chatzky: (18:58)
And how is that working?

Abby Johnson: (19:00)
It’s been great. The response has been really positive and we’ve been doing much better in terms of the customer response, bringing customers around. There’s a challenging situation that often comes up where, this feels a little embarrassingly cliche, but where between a married couple, a man might have been taking most of the responsibility for the financial planning. And then later in life the woman finds herself widowed and is struggling to pick up the financial relationship that her late husband left behind. And that’s very difficult for everybody involved – most of all the woman who’s been widowed. So addressing that situation before it actually comes to pass is also a big strategic thing. And it may be that a woman wants to work with a different individual than her deceased husband did, or ex-husband did. And these are complicated kinds of processes and they’re very personal.

Jean Chatzky: (20:17)
Yea, and important for the business, right? I mean, I’ve seen the statistics that 90% of women leave their advisors when they lose a spouse. I mean, that’s not something, if you are running a business like this, that you want to see.

Abby Johnson: (20:30)
No, of course not the situation is heartbreaking and then you feel terrible that you couldn’t deliver. So making sure that we have the most flexible approach to being able to accommodate people and really encouraging, if it is that situation where the man is taking the lead in the relationship, encouraging her to come along. And if she wants to work with the same person or a different person, it doesn’t matter to us. We just want to make sure that everybody is understanding what’s going on and is prepared for whatever the future might hold.

Jean Chatzky: (21:18)
Diversity isn’t just about women. And I know you’re using artificial intelligence, you’re using technology to rid this company of unconscious bias. You told me a story once about using voice recognition software and how that’s helpful. Will you tell that again.

Abby Johnson: (21:40)
Yeah. So we are always trying to make it easier for customers to be able to, what we say, authenticate, which means prove who you are when you call us. Because we have to make sure that when you call us, when we talk to you about your account and you want to do something, that you are who you say you are on the phone. And in the world of cyber attacks and the need for the kind of cybersecurity that we have today, proving who you are over the phone has become more and more important. So we have some really good voice recognition technology, which we ask our customers if they would like to make use of. And almost everybody says yes because it makes life so much easier. But we started getting nervous about, how that was really gonna work with everybody and was it going to work as well with male voices and female voices and people of different kinds of backgrounds. And we had a test case with an associate in our Albuquerque office who was transitioning their gender and we tested the voice recognition software through that process and proved to ourselves that it worked perfectly through going from being female to male. So, that was a nice proof point to say that there wouldn’t be any bias built into that technology.

Jean Chatzky: (23:18)
You’re also using technology to help train your reps to be empathetic, which I think is hugely important when it comes to talking about money. It’s so hard for people to open up and have these conversations. So what are you doing?

Abby Johnson: (23:34)
So it was interesting. We have a group called the Fidelity Center for Applied Technology and it’s a bunch of people whose job it is to just know what’s going on in the cutting edge of technology and be aware and educated and potentially look for opportunities to use it in our core business. So a bunch of years ago they started working on virtual reality and I know the guy who runs the group pretty well. So I kind of said, hey George, virtual reality? I mean, this is what people are using in games and crazy kinds of out of world experiences. What does that have to do with the reality of the kind of business that we’re in? And he kind of laughed and said, Oh, you wait and see. So what he and his team developed was a virtual reality experience for our reps to practice having interactions with customers. And they built a system where, it’s incredible. I’ve done it and lots of our reps have done it. You sit down and you have a conversation with a woman, her name is Cora, and she tells you about her life and her plans and you tell her what you think she should be thinking about in terms of making her plan. And she reacts to what you’re saying and she tells you about her sense of job security and her outlook for her earnings and what’s going on in her life. And you give your feedback on how that might impact her financial planning and it’s really amazing to go through that experience, to get that real time feedback of everything, of what you’re saying, but how you’re saying it and how it impacts her.

Jean Chatzky: (25:40)
And what if you’re abrupt with Cora, what happens?

Abby Johnson: (25:43)
Oh, Cora gets bummed out. If you’re abrupt, if you’re not kind, if you’re not understanding when she’s obviously stressed, then the conversation doesn’t go well.

Jean Chatzky: (25:57)
What if you interrupt her as I just did with you?

Abby Johnson: (26:02)
I don’t think she likes being interrupted.

Jean Chatzky: (26:04)
Let’s talk about the other parts of your life. You are not just a CEO. You’re a mom. You’ve got daughters – one of whom works at the company. Are you encouraging her to come up in this business?

Abby Johnson: (26:19)
I’m encouraging her to learn and decide what she likes to do and I think for young people it’s also really important for them to understand what they don’t want to do. So I always encourage people to think about that. I mean, what is it that you don’t like in a job because avoiding what you don’t like is just as important as seeking out what you like. And very often, I talk to young people and they’re coming out of school and they just don’t know enough to know what they want. So sometimes it’s a little easier to think about it from the opposite perspective. So that’s what I’m doing.

Jean Chatzky: (27:06)
I think about, as my own son was looking at colleges, and I took him around. I said, well, you can go wherever you want honey. But I really wanted him to go to Penn, which he did not do. Do you really somewhere inside want her to someday succeed you?

Abby Johnson: (27:22)
I want her to be happy is what I want because we’ve all seen people who have not been happy in their careers and my parents always said to me, if you don’t pick something that you are passionate about, you’re not going to be successful. So that’s not a good outcome for us. And I believe that is absolutely right.

Jean Chatzky: (27:49)
Let’s wrap this up by talking about stress. It’s a health issue as much as a financial issue. I think you and I are a little bit similar in that we turn to physical fitness for our brains as much as for our bodies, and I know this because we trekked up Camelback a few months ago and you definitely kicked my butt.

Abby Johnson: (28:08)
Oh, I don’t know about that.

Jean Chatzky: (28:08)
I have plenty of witnesses. You’re a rock star. You were just jogging up that mountain, but how do you handle the stress of being a CEO? How do you handle the stress of a very, very complicated day to day life?

Abby Johnson: (28:26)
Yeah. Everybody has their own ways of trying to manage stress. It helps me to get outside, to get exercise, to make sure that while I’m working a lot, I’m not working really completely around the clock, which means trying to get enough rest every night, which is sort of an enduring battle. But pacing yourself, having confidence in other people, mainly your team around you to help you out when you need it. Making sure that you’re focusing on doing the things that you need to do, not the things that can be done by other people or should be done by other people helps. There’s no magic formula. Having some variety too is good. I try to make sure that I have time to read and reflect on the weekends cause I’m usually in meetings all week. So that balance is important too, in addition to the physical balance of getting some exertion to counterbalance the sitting time that I do during the week.

Jean Chatzky: (29:47)
This show exists in large part because of your support and the support of Fidelity and so I want to say thank you for that. I know our listeners want to say thank you for that. As we end one piece of advice that you have for all the women out there who are listening.

Abby Johnson: (30:05)
Yeah. Well first of all thank you for doing the show because I mean all of the things that you are asking me about, those are all headline things. I mean what it really comes down to is having an avenue for women to engage in some of these topics on the terms that they’re comfortable with. And you know, maybe I was lucky because my father and my grandfather were in the investing business and as the oldest grandchild I got the opportunity to hear what they were talking about and have them talk to me, and so maybe I just got over being intimidated at a young age and that was helpful. But it’s not that hard to understand finance if you just give it a little bit of time and have confidence in yourself. We’ve done work that shows that women’s confidence in this space is just so irrationally low. It doesn’t make sense at all. And it’s really painful to see those results because it doesn’t make sense at all. And women need to know that they can be successful investors and many of them are. So we just need more of them out there.

Jean Chatzky: (31:29)
Thank you so much.

Abby Johnson: (31:31)
Thank you, Jean.

Jean Chatzky: (31:46)
Before we move on to your mailbag, let me just remind everybody that HerMoney and conversations like these are proudly sponsored by Fidelity Investments. What if you could demand more from your money? What if you could make your savings work as hard as you do and what if that helped you reach your goals faster? It all starts with a financial checkup and an understanding of what you own and what you owe. From there, we’ll work with you to evaluate your investment options and ways to grow your savings. Get started today at fidelity.com/demandmore. HerMoney.com’s Kathryn Tuggle has joined me today here at Fidelity.

Kathryn Tuggle: (32:27)
So exciting!

Jean Chatzky: (32:28)
In a lovely conference room.

Kathryn Tuggle: (32:29)
It’s beautiful.

Jean Chatzky: (32:30)
It is.

Kathryn Tuggle: (32:30)
With a view of the river.

Jean Chatzky: (32:32)
Yeah, really, really nice. So Abby was fabulous.

Kathryn Tuggle: (32:36)
She’s amazing.

Jean Chatzky: (32:37)
She is incredibly real. I thought about telling this story while I was speaking to her, but I didn’t because I didn’t want to embarrass her in any way. But, when we went on that hike of Camelback, as I said, she kicked my butt. But beyond that, it was chilly in the morning and I didn’t bring a jacket and she didn’t bring tights, but I had an extra pair of tights and she had an extra jacket and we just swapped. And at the end I was like, oh my God, I’ve got to take this home and wash it because it’s truly, I mean I came down the mountain in good part on my rear end cause I was a little daunted by the steepness of it and it was filthy. And I was like, I’ll just take this, I’ll send to the laundry or I’ll wash it and I’ll send it back to you. And she’s like, please just give it to me. I’ll wash it. And she handed me my tights and it was totally fine. It was very much like I would have done with a friend.

Kathryn Tuggle: (33:37)
Right.

Jean Chatzky: (33:37)
And I think sometimes we don’t expect leaders of big corporations or companies or countries to be that real.

Kathryn Tuggle: (33:50)
Right, that approachable.

Jean Chatzky: (33:52)
Yeah. You know what I mean?

Kathryn Tuggle: (33:53)
Totally, and I think all the great CEOs, the great artists, the great chefs, they all know how to talk to anybody from the CEO down to the maintenance man, right?

Jean Chatzky: (34:06)
Yeah. Have you ever watched undercover boss?

Kathryn Tuggle: (34:09)
Yes, it’s amazing.

Jean Chatzky: (34:09)
It’s why undercover boss works, you know, because people do have the ability to just come into that situation. She’d be great on that.

Kathryn Tuggle: (34:18)
Totally.

Jean Chatzky: (34:18)
Yeah. They should get her. Let’s take some questions.

Kathryn Tuggle: (34:21)
Our first question comes to us from an anonymous listener. She writes, hi Jean. First I want to say, I love your show. You speak to us Gen Xers and how we can realistically meet our financial goals.

Jean Chatzky: (34:31)
Thank you.

Kathryn Tuggle: (34:31)
I’m a 42 year old woman who’s worked for the federal government for almost 20 years and I make about a $100,000. I contribute to my retirement fund at 8% and have around $500,000 saved. I’m getting my PhD and will be graduating in 2021 with about a $100,000 in student loan debt. I also have about $30,000 in other loans and credit card debt. I have a mortgage worth about $250,000. My goal was to quit the government job once I finished school and get work as a consultant or teaching at a university. However, I’ve started looking at jobs on LinkedIn and I already make more than what I could possibly make in the private sector. I’ll also be getting married this year. My fiancé contributes to his retirement, but I’m not sure how much and he’s not hopeful that he can save enough to ever retire. He has no credit card debt, but his credit score is lower than mine. He’s moved in with me, so we’ve merged our household finances. My question is, is my situation so bad that I may not be able to retire before 60? Should I focus on paying down debt or can I also put some money away in my index funds, mutual funds or a Roth IRA? What tips do you have to make paying my student loan debt easier and perhaps faster? Could you suggest some strategies that we can do as a couple to invest once we’re married and save for retirement and money in general.

Jean Chatzky: (35:44)
All right. First of all, two things. Congratulations, right? I mean this is very exciting. You are embarking on this great new chapter of your life.

Kathryn Tuggle: (35:54)
Yes.

Jean Chatzky: (35:54)
And secondly, what makes you think that your situation is bad? Your situation is really good. You’ve got a half million dollars put away and you are only 42 years old. You are young. And I say that as somebody at the entirely other end of the generation X spectrum. I’m the youngest boomer and the oldest Xer. I’m right on that bubble. But I get what you want to do. You want to retire a little bit early. You want your soon to be husband on the program. He absolutely should be contributing to retirement because retirement for two is more expensive than retirement for one. But you have a fantastic start. So here’s what I would do. I would sit down with him. I would talk to him about why he isn’t saving for retirement, what has gotten in his way, and maybe bring a financial advisor into the picture to help strategize so that he can contribute to retirement. If he doesn’t have the option to do it through his workplace, he should open a Roth IRA or a traditional IRA and just start trying to max that out every single year. As far as your student debt is concerned, I know it sounds like a huge amount of money. It’s a big amount of money, but it’s not that big compared to the amount of money that you’re earning. So once you get out of school, refinance that student loan debt so that it is at the lowest interest rate possible, which you should easily be able to do based on your salary and based on your credit score. Put that in a corner. Pay it off over 10 years and continue to put money away in your 401k or your pension plan at work. As far as doing other things, putting money into index funds, mutual funds, you can do all of that through your retirement account, max out that retirement account first, knowing that you want to retire early. If I was going to prioritize anything beyond getting rid of that student loan debt, I might think about paying off that mortgage before you retire. Interest rates, again, they’re really, really low. I don’t know what yours is, but if you refied your mortgage into a 15 year mortgage, you would get out of it before you retired at 60, you’d have no debt and that could be a very, very comfortable way to move forward. So those are the different things that I would look at. But good and congrats. Sounds so exciting.

Kathryn Tuggle: (38:37)
That’s great advice. And you’re right, $500,000 at her age is huge. I also think because she is the kind of person who’s been diligent about saving that $100,000 in student loans is looming large.

Jean Chatzky: (38:49)
Right. But keep in mind the rule of thumb that we tell everybody when they are taking on student debt and that is be sure that you’re not taking on debt that is above and beyond your first year salary. So consider the hundred thousand dollars that you make a year. Your first year salary, you’re not out of balance. You’re going to be fine.

Kathryn Tuggle: (39:12)
Yup. Great. Our next question comes to us from Megan. She writes, one of my goals for 2020 is to pay off my remaining credit card debt. I have $300 on a card at 8.9% APR that I plan to pay in full at the next billing cycle and almost $4,000 on a credit card at 16.49% APR. I’m considering a balance transfer and I have two options. I could transfer the $4,000 balance to the card with the 8.9 APR, which I could do with no balance transfer fee or I could open a new car to take advantage of a 0% APR offer for 18 months and I’d pay a 3% fee to do that. I’m unsure of the pros and cons to opening another card and having my credit take a hit. My score is currently 792 down from over 800 since I recently purchased a car and had to take out a car loan. My college loans are paid in full. I can pay about $500 a month total towards my debt, likely more if I try and remove some trivial things like lashes, pedicures, et cetera. Any feedback would be appreciated.

Jean Chatzky: (40:11)
I feel like our listeners today just need a little boost of confidence, right?

Kathryn Tuggle: (40:19)
They’re so on it and they don’t realize they’re on it.

Jean Chatzky: (40:20)
Yeah, Megan, you’re doing great. You’re going to be rid of this credit card debt before you know it and then I hope that you’ll take that money that you have been putting towards your credit card debt and put it towards your savings. That’s sort of the goal. When you get rid of a big payment, you just try really hard to pretend that you don’t have that money and do something that is future oriented with it. So running the numbers, there’s not a huge, huge difference between them. It’s about $130 difference. So here’s how it shakes out. If you transferred the $4,000 to the card with the 8.9% interest rate and you were able as planned to get out of that debt over eight months, you would pay about $270 in total interest. If you transferred it to a 0% card and paid the 3% fee, it would cost you about $120 so you know, we’re looking at a difference of roughly 130, 140 bucks, not such a big deal. The pros and cons of opening another card and having your credit take a hit when your credit score is where it is are really minimal. Your credit score is 790. I mean that’s excellent. That’s better than my credit score. And you might see it dip a few points, but it will very likely go right back up. I think the question is do you want another credit card in your wallet? Do you feel like having another credit card in your wallet would be tempting? Do you feel like there’s a benefit to having that additional credit card that you’d like to have for the long term? Is it a card that has miles or points or something else that you think would actually be additive in your life? If so, I’d say get the new card. I mean, there are a lot of bonus point offers out there. I’m not sure if they’ll mix with your aim of finding a great balance transfer card, but I’d say just look at the landscape, look at if having that additional card is gonna feel good or feel not so good and make your decision based on that, because really the money is not such a big deal.

Kathryn Tuggle: (42:36)
Thanks. Our last question comes to us from Ashley. She writes, I’ve been listening to the podcast for about six months and I’ve learned so much. My question is how to balance a desire for a child and saving for retirement. I’m married in 33 years old with a preschooler. I contribute 7% of my pay to my 401k with a 4% employer match and my husband contributes 10% with a 5% company match. Even though we live in a high cost of living area, we both make above the median income. We have a 30 year mortgage with a 3.85% interest rate and our property taxes and insurance equals 16% of our gross monthly income. About 27% of our monthly take home pay. We’ve paid off our student loans, we have no credit card debt. We have two cars, one that’s paid in full and one that we have a $12,000 loan on which costs $300 a month. We really would like a second child. We live in a state that will have paid parental leave starting next year and I have good parental leave benefits already, but our monthly childcare expenses are about 13% of our gross monthly income, 22% of our take home pay. Our first child is almost four years old and we’ve waited this long because we couldn’t afford two in childcare. So if we do have another, it’ll be when our first gets to public school in about a year and a half. But I worry though that it’s irresponsible to have another child when we aren’t maxing out our retirement funds and aren’t contributing regularly to a 529 for our daughter. I see so many of my peers having a second and third child without seeming to worry about their financial situation and I’m so jealous of them. Do you sometimes just have to take the chance even if you don’t feel financially ready? Is it irresponsible? It’s just so hard when I know we make good money for the area and still seem to be struggling,.

Jean Chatzky: (44:12)
So I want to tell you what my mother told me, which was that if she and my father had waited until they could afford it to have me and then have my brothers, none of us ever would have been born. You’re doing fine. Have a baby. If you want to have a baby, have a baby. When we talk about the benchmarks that we want people to hit as far as saving for retirement, we talk about 15% a year of what you make and that includes the employer match,. You and your husband, you’re almost there. You are so, so close. And if as you get down the road, you feel the need to save more on the backend, work one extra year. It is going to make up the difference. Work two extra years if you feel like you have to, but by all means have a family. If that’s what you really want, have a family. And as far as that 529 account is concerned, your retirement has to come before college for your kids. We say that all the time, but definitely open an account. Start putting a little bit of money into it. If you like the Upromise program, you can get rewards where the rewards go into a 529 account and it won’t cost you anything. And the big secret is to let everybody, grandparents, aunts, uncles, cousins, friends know that you have 529 accounts for your kids open and that they are welcome, encouraged to make contributions when it comes to birthdays and holidays and anything else where they might be thinking of you and your kids. So please go on, let us know when this baby is coming so that we can support you through this. But you are ,like our other listeners today, you are just killing it. So don’t give it a second thought.

Kathryn Tuggle: (46:14)
We’ve got to get some HerMoney onesies made up?

Jean Chatzky: (46:16)
Yes we do. And we’ll send you one. We will absolutely send you one.

Kathryn Tuggle: (46:21)
Emotionally, how do you move past those fears though, right? Because if you’re going to be bringing a child into the world, you really want to feel good about all aspects of it.

Jean Chatzky: (46:30)
I would say for this listener in particular, run the numbers. If you plot out how much money you think you’re going to need for retirement based on your savings rate now, my guess is that you’re going to be really, really close, a) because you are contributing so much, but b) because your money has so much time to grow.

Kathryn Tuggle: (46:50)
Great.

Jean Chatzky: (46:51)
Yeah, I find the numbers reassuring in cases like this.

Kathryn Tuggle: (46:55)
Good point.

Jean Chatzky: (46:55)
Thank you so much Kathryn.

Kathryn Tuggle: (46:56)
Thank you.

Jean Chatzky: (46:57)
Sure. And in today’s thrive, if 2019 brought any changes to your life like a marriage, a divorce, a new baby, a side hustle or retirement, many of these things are going to trickle on to your 2019 tax return. There are a few things to consider before you file on April 15th. If your relationship status changed, it may call for a change in your 2019 tax filing status. Like whether you file as single, head of household, married filing separately or jointly. Your filing status determines your income tax rate, the amount that you’re allowed to claim for the standard deduction, which credits you’re entitled to and more, and your relationship status on the last day of last year, that determines what filing status you can use. If you added or subtracted dependence, including having a baby or taking adult family members under your wing, this too can impact how you fill out your return. The tax reform bill passed in 2017 doubled the child tax credit to $2,000 per child and expanded income limits. Meanwhile, if 2019 marked the year some of your chicks left the nest, and you no longer claim them as dependents, be sure to update your W-4 filed with your employer so you don’t get a surprise when filing your taxes. Finally, if you started a side hustle or your own business, be prepared for some tax season changes. Staying in the IRS’s good graces means understanding how you’re compensated. Tax filing is less onerous if you’re a full time employee who filled out a W-2 because employers deduct federal and state taxes from your wages upfront. It’s more complicated if you took on side work or any gig for which you received a 1099, the tax form sent to you and the IRS to indicate how much you were paid for the job. As a 1099 worker, you’re responsible for paying both the employee share of taxes, social security and Medicare and the employer share, FICA. On the plus side, you can write off side hustle business expenses, whether you itemize or not. For more information and additional tax tips like these head to HerMoney.com we’ve got a great piece that lays it all out for you. Thanks so much for joining me today on HerMoney. Thank you to Abby Johnson for taking the time to sit down and sharing so much of herself and her wisdom with me and with all of our listeners. If you like what you hear, I hope you’ll subscribe to our show at Apple podcasts. Please leave us a review. We really love to hear what you think. Our show is typically recorded at CDM sound studios, but today we’re recording from Boston Fidelity headquarters. Our music is provided by Video Helper, and our show comes to you through PRX. Thanks so much for listening and we’ll talk soon.

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