Pour yourself a glass of wine and tune in to episode 4 of MAKERS Money, a weekly show about women, money, and power, hosted by Sallie Krawcheck. Guest Tanya Van Court of Goalsetter talks with Sallie about the things you don’t know about how bosses give raises, and Sallie talks about how much money we really need to retire — and how to get it.
MAKERS Money is co-produced by MAKERS, the network of changemakers that spotlights the trailblazing women of today and tomorrow, and business and financial news platform Yahoo Finance. The six-episode season airs at 6PM EST on Thursdays on Yahoo Finance, MAKERS, and here at Ellevest. We’ll be archiving the episodes at Ellevest, too.
MAKERS Money, Episode 4: Your Badass Future Starts Today
Hi everyone. Welcome to MAKERS Money. I'm Sallie Krawcheck, CEO of Ellevest, the investing platform for women. Are you ready for a shocking number? The U.S. has a record retirement savings shortfall of $13 trillion. Not million, not billion, trillion.
Newsflash, ladies. This is a women's crisis. That's because we live longer than men and we retire with less money than they do. The good news? We can fix this for ourselves and live the badass lives we were meant to live.
How much of the green stuff do you need to have when you retire? Your goal should be to save eight to 10 times your annual salary. I know. I can hear you. I can hear you hyperventilating out there, but that's what you need if you want to spend 90% of your pre-retirement levels annually.
It's a bit more than you hear at the majority of investing firms, but we want you to retire like a boss, more travel, more fun, and since we women live longer on average, it's better to have a bigger cushion. Yes, in this case, bigger is better. Most cases, but we'll put that aside for the time being.
How to get more money into your retirement account
How do you get there? There are two big steps you can take to increase the likelihood of having more money in retirement. The first is to invest intelligently. That means a diversified investment portfolio that you steadily add to over time.
"But Sallie, what if I prefer saving because it's safe and investing just seems so risky and complicated?" Okay, but here's the problem. If you're saving 10% of your income for retirement annually and keeping it in cash, your chances of retiring like a badass is zero. It's 0%. When it comes to planning for your financial future, playing it too safe is just about the most dangerous thing you can do.
The second step is one that few people talk about, which is to make sure you're getting paid what you're worth at work. Now this is huge! It's huge, ladies, since on average, we're paid 80% of what the guys make, 63% for women of color. I personally hated asking for a raise. After all, it's an awkward conversation. It always caused my neck to break out in these big blotches. What if I told you your gender pay gap is costing you hundreds of thousands of dollars over the course of your career? Fixing that, fixing that, is worth some neck splotching. Buy a turtleneck.
What you don’t know about raises
This week, I'm delighted to be joined by Tanya Van Court, founder and CEO of Goalsetter, an online saving and gifting platform to help kids save for their dreams. Welcome, Tanya. Cheers.
Tanya Van Court: Thank you. Cheers, Sallie.
Sallie: A little happy hour.
Tanya: Thank you for having me.
Sallie: Glad to have you here. We're talking about raises. You've worked at Nickelodeon. You've got your startup. You've asked for raises and you've given raises. What's your advice for all of us?
Tanya: The thing about raises is that there is a set pool that is put aside for raises to all employees. If you're an average employee, the likelihood is that you will get an average raise. If you want a big raise, a real raise on an annual basis, you have to be exemplary. You have to be indispensable.
Sallie: What I found, when I used to be in a position to give raises, is that the guys were always telling me how much they wanted to make and the women never would. Even though I would try my hardest not to let that impact how much I paid them, if you knew someone wanted to make this, it was really hard to pay them that.
Tanya: Women need to have those conversations, to your great point, about how much they want to make, but not only how much they want to make, what the clear expectations are that will get them to that point of being deemed successful.
Entrepreneur vs. auto-investor
Sallie: You left Nickelodeon. You started this amazing new business. How has that changed how you're saving for and investing for retirement?
Tanya: When you're working at a really big company, you typically have a 401(k), and so it's really easy to say, “I'm going to set aside this amount every paycheck toward my retirement fund, and my employer will match that or contribute something toward my retirement fund as well.” When you're working for yourself, you don't have the benefit of a retirement fund early on. What I think about now is that every extra dollar that I have needs to go to my retirement.
Why diversification is SO important
Sallie: Okay. Now I have a question to embarrass you a little bit and let you brag a little bit. What is the dumbest thing you've ever done with money and what's the smartest thing you ever did with your money?
Tanya: The dumbest thing that I've ever done with my money caused me to start this company, quite frankly. I had more than a million dollars in stock. In 2001, when the big Silicon Valley bubble burst, that more than a million dollars became not much more than a hundred dollars in a matter of a day. That was because I hadn't diversified my money. I didn't know what diversification was.
Sallie: It can be devastating.
Tanya: That's exactly right.
Sallie: What's the smartest thing you've done with your money?
Tanya: The smartest thing I've ever done with my money is changed financial advisors and found someone who I was really comfortable with. Money can be such a scary topic for people to talk about. We don't want to — particularly, I think, as women — ask stupid questions about our money. That's why I so love what you're doing at Ellevest, because you give all of the women out there that safe space to talk about money in a way that doesn't feel judgmental.
Sallie: I love to hear that. Thank you so much for being here with us.
Sallie: What a pleasure to have you.
Tanya: Thank you for having me.
“Should I pick my own stocks and bonds?”
Sallie: Now, I want to get to some great questions from all of you. The first one in this week: “Sallie, I'm at my first corporate job, and I'm wondering what I should do with my money. Should I be in the 401(k) plan that has a 25% match on the first 5% of my salary, or should I invest in stocks and bonds on my own?”
Okay. First of all, no on picking the stocks and bonds on your own. It is tough even for professionals to pick the right stocks and bonds. For you, as an individual trying to do it in your spare time, forget it. Just forget it. A 401(k) plan at work should typically provide you with the opportunity to invest in target date funds or mutual funds, which will manage the investments for you.
Second, you do not want to miss out on the opportunity on that 401(k) match. That's because a 401(k) match is free money. Free money! You don't have to work any harder to get it. You just need to contribute to your 401(k). Bottom line, if you can get a 25% company match, you want to do that every single time.
“What’s a Roth IRA?”
Second question: “What's a Roth IRA, and should I be investing in one?” An IRA stands for “individual retirement account.” Anyone who earns money can have one. You may hear about a traditional IRA or a Roth IRA. The Roth IRA contributions are made with money after you paid your income taxes. Then when you withdraw the money later, after it grows tax deferred, you don't owe any more taxes. Generally speaking, that's a good thing.
Are you losing $100 a day?
Here's the bottom line. The cost of waiting to invest is higher than you think. If you're making, let's say, $85,000 a year, putting 20% in the bank, and waiting to invest, and waiting and waiting, as so many women do, and you wait 10 years, do you know how much that costs you on average historically a day? About $100. $100 a day by not investing.* I like to say, "If that money was falling out of your pocketbook, you wouldn't wait many days to fix your pocketbook." Want to be equal with men? We're not getting there until we are financially equal with men. They're investing and we're not. Boom.
Thanks to Tanya for joining us. Ladies, We want to hear from you. Tweet to us at @MAKERSwomen and use the hashtag #makersmoney, or send in your questions at firstname.lastname@example.org. Until next time, remember: More money, more power.
*Source Ellevest. To arrive at “about $100 a day”, we compared the wealth outcomes for a woman who begins investing at age 30 with one who began investing at age 40 after having saved in a bank for 10 years. Both women begin with an $85,000 salary at age 30 and all salaries were projected using a women specific salary curve from Morningstar Investment Management LLC, a registered investment adviser and subsidiary of Morningstar, Inc., which includes the impact of inflation. We assume savings of 20% of salary each year. The bank savings account assumes an average annual yield of 1% and a 17% tax rate on the interest earned, with no account fees. The investment account assumes an investment with Ellevest using a low-cost diversified portfolio of ETFs beginning at 91% equity and gradually becoming more conservative during the last 20 years, settling at 56% equity by the end of the 40 year horizon. These results are determined using a Monte Carlo simulation—a forward looking, computer-based calculation in which we run portfolios and savings rates through hundreds of different economic scenarios to determine a range of possible outcomes. The results reflect a 70% likelihood of achieving the amounts shown or better, and include the impact of Ellevest fees, inflation, and taxes on interest, dividends, and realized capital gains. We divided the calculated cost of waiting 10 years to invest, $337,657, by 3,650 (the number of days in 10 years). The resulting cost per day is about $92.50.
© 2018 Ellevest, Inc. All Rights Reserved.
The information provided should not be relied upon as investment advice or recommendations, does not constitute a solicitation to buy or sell securities and should not be considered specific legal, investment or tax advice.
The information provided does not take into account the specific objectives, financial situation or particular needs of any specific person.
Diversification does not ensure a profit or protect against a loss in a declining market. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income.
Investing entails risk including the possible loss of principal and there is no assurance that the investment will provide positive performance over any period of time.