5 Questions With Financial Author Jean Chatzky
By: AARP.org | Source: AARP.org | October 2008
Financial author Jean Chatzky, who spoke about money and happiness at this year’s Life@50+ member event in Washington, D.C., took some time to answer several financial questions from AARP.org.
Here’s what she had to say:
AARP.org: There's a big emphasis on reasons to save money. What are good reasons to spend your money?
Jean Chatzky: Good reasons are things you need as opposed to things you want or things you spend money on simply because you're having an impulse. Research shows that two-thirds of all purchases are impulse purchases.
What are your needs? In general, they're probably shelter, food, the car that gets you back and forth to work, a solid education for your kids. But I also believe that one reason we work is to enjoy our money. That argues for planning what you'd like to spend your money on: a hobby, an addition to your home, a pet? All of the above and so many more items are defensible. The point is that you and I have to make choices where our spending is concerned. We need to do it thoughtfully. Otherwise, we might go overboard.
AARP.org: My employer offers a target retirement fund. What year should I select? If I plan to retire in 2030, do I pick the 2030 fund or do I invest in a 2050 fund, knowing I may not need to tap into that money immediately after I retire?
Jean Chatzky: Perhaps you can find a 2040 fund and split the difference. The idea is that you invest in a fund that will come due, or mature, when you need the money. Also, one criticism of target-date funds is that they're too conservative. Extending out your date can solve that problem.
AARP.org: When selecting a financial adviser, is it better to pay the person per hour or consultation, or have them paid via commission? Which makes more sense?
Jean Chatzky: I like the hourly approach over the commission approach, because I believe it leads to more objectivity in choosing among investment choices. With an hourly or per-session fee, there's no incentive for someone to put you into an investment that pays a higher commission than another one.
I am also a fan of paying an advisor a percentage of assets under management, because I believe it rewards performance. If your investments do well, there is more of an account to manage, and the adviser and customer reap the rewards. That said, I know that fee-only advisers in particular may be tough to come by—particularly if you are looking for someone local. That's why I believe the primary consideration needs to be finding an adviser who gives good advice (regardless of pay structure) and with whom you can have an open, honest dialogue about your wants and needs.
AARP.org: I know I should invest in my company's 401(k), but it only offers me company stock. I don't want all my money in company stock, so what should I do?
Jean Chatzky: If your employer is offering a match in company stock, that is still free (real) money that should not be discounted. Invest enough to capture the match. Then use your other assets to diversify, not just outside your company, but outside your industry.
AARP.org: What's the worst financial mistake you ever made and how did you survive it?
Jean Chatzky: I've made many and I've survived them all. The worst may have been withdrawing funds from a 401(k) (and yes, spending them) when I changed jobs, rather than rolling them into an IRA or into a new employer’s plan. Nearly half of job-hangers do this, some habitually. Fortunately, I did it only once early in my career. Would I like to have that money now? You bet. But I learned my lesson and have never repeated it. And for that reason, my retirement plans are on track.
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