April 01, 2011
Is Advice from TV Financial Advisors Realistic?
I have listened to several financial advisors on TV programs over the years. In the past year they have been preaching the same mantra: Get at least “X” amount of months’ expenses in an emergency fund, you need to have “X” amount of money saved for retirement and do not depend on Social Security nor your spouse for retirement money.
I don’t subscribe to any one financial advisor. I listen to Suze Orman and David Bach and Jean Chatzky. I am going to co-lead Dave Ramsey’s Financial Peace University at our church in two weeks. I don’t take one person’s advice and call it gospel. In fact, I don’t believe in what I call “cookie cutter” financial advice. What I mean by that is I believe everyone’s financial situation is different and what may work for one person, does not work for another. I also don’t believe in a magic number for everyone (emergency fund or retirement money).
Instead I am in favor of looking at the individual and their circumstances and give advice tailored only to them. With this belief of mine, let’s look at what the financial advisors have said.
1. Emergency Fund – Each financial advisor gives a different number of months’ expenses to have saved. Some say 6 months, others 8 or 9 months. Today I heard someone on TV say that you need to have 1 year of expense money in the bank. I got a little angry when I heard this. My first thought was, okay you’re on TV and getting paid the big bucks so that’s easy for you to say. My second thought was you have given out a goal that in many cases is set too high and is unrealistic.
I do not dispute that you should have money in savings. Having money in savings for unexpected “emergencies” is a necessity. If I was approached by a couple and they asked me how much they should have in savings for an emergency fund, my question would be back to them “how much do you realistically think you can put in the bank each month for emergencies?” They would give me a number. Then I would challenge them to try and do a little more by giving up something. Perhaps they could cut back to eating out only once a week instead of three times a week and put that money in the bank.
When someone has decided to take financial management seriously and especially when they have never done that before, I would never say you have to have all of this money in savings before you can do anything else.
I am a big believer in baby steps. When you want to lose weight, you don’t immediately go on a very restrictive diet and begin running and weight lifting if you have never done any of the above before. You tackle one thing and then over time you work in fitness and other good habits. Too much change and deprivation at one time, is setting you up for failure. I feel the same with finances.
2. You need to have “X” amount saved for retirement. Many financial advisors on TV give out an outlandish amount for retirement. Every time I hear “you must have a minimum of $1,000,000 in a retirement account,” I wonder what on earth they think everyone does for a living. Yes, I know, we are all living longer than our parents and we will be living longer in our retirement years. But just what kind of lifestyle am I planning on living at retirement? Answer – the same that I am living now.
Yes, saving for retirement is important and we contribute to my husband’s retirement account. At retirement our mortgage will be paid off, we will either continue to live in our house or we will buy a two bedroom bungalow with the funds from the sale of our present home. We will go to being a one car family at that time and we will continue to take 1 or 2 vacation road trips each year.
3. I am a member of AARP. Social security, no matter what the hype, will be there for me and my husband at retirement. If my husband and I wait until 67 years of age to collect social security (15 more years for me and 14 more years for him) we will receive $3,700 in monthly benefits. We can live on that easily but the one thing that will cost us will be our supplemental health insurance. Otherwise, we will be able to maintain our current lifestyle on social security alone. We have crunched the numbers and have added in for inflation.
4. If I outlive my husband, I will get social security survivor’s monthly benefits, my social security monthly benefit, life insurance money and the balance of his retirement money.
Everyone has a different financial situation and everyone has to look hard at their finances and make plans and set goals. Just as God made us all different, so are our financial circumstances.
Setting high goals of 1 year of expenses in the bank for an emergency fund and needing a minimum $1,000,000 in the bank for retirement can be overwhelming to someone who is making $46,000 a year. ($46,000 is the median household income in our county.) Instead we should be looking at the individual and at what is reasonable for them to save for an emergency fund and for retirement.
So why am co-leading a David Ramsey seminar? Because I believe in David's basic premise and I also know that I have skills beyond the seminar to teach others how to save money. It's not enough to say that you need to cut back on your expenses. We need to also teach people specific ways that they can do exactly that.