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The Tom Joyner Show
Money Mondays

December 9, 2019

Top 5 Pieces of Financial Advice
Mellody Hobson on the Tom Joyner Morning Show - Money Mondays
Mellody reviews five empowering tips for financial wellness.
This is it, Mellody! The final Money Monday! What are we covering today?

Our last Money Monday segment will be a little bit different. I want to leave our listeners with the top 5 pieces of financial advice!

Fantastic! What is the first piece of advice?

Start. Don’t stop. There are big advantages to starting to save and sticking with it, Tom. The primary one is compound interest. Warren Buffett once called compound interest the eighth wonder of the world. Every day you put off saving, you are missing out on the power of compound interest, and the foregone returns can be eyepopping, Tom. Consider this: if you invested $250 a month when you were 25, then, assuming a 7% annual return, by the time you reach 70 you would have contributed $135,000, but due to the power of compound interest for those 45 years, you would have $658,788 in your account. Wait just 10 years to start saving the same amount (and assuming the same 7% annual return), and you end up contributing $105,000 but your balance when you are 70 would be $345,072. That’s a difference of $313,716! So start now. And don’t stop.

Did you hear that, listeners? Start now and don’t stop. What’s second, Mellody?

Don’t cheat. Taking money from your retirement account comes with several downsides. One of the great benefits of a 401(k) account is the tax benefit, but these benefits only apply if you play by the rules and keep your money in the account. If you withdraw money before you have reached 59 and a half, those withdrawals are subject to income tax and an additional 10% early distribution penalty. Taking loans from your retirement are not much better. Many people who do take out loans end up stopping or lowering their contributions to their retirement account while they pay back their loans. Not only does this mean you are saving less money, you are missing out on the potential earnings on those dollars. Finally, the interest you pay on any 401(k) loan is double taxed. Since loan payments are made on an after-tax basis, interest on each payroll loan payment is taxed first then and again when you take distributions in retirement. So the best thing you can do is resist the temptation and do not touch your retirement savings.

Don’t treat your retirement like an ATM! What’s next?

Longer is better. (Staying in the work force.) Many Americans are financially unprepared for retirement, and will face a serious income shortfall. And the problem will only grow with longer life expectancy and rising healthcare costs. But staying in the workforce a few years longer can reap big rewards. Not only will you benefit from the additional earnings, it reduces the period of retirement without wages, reducing the savings you will need to maintain your standard of living. Finally, it boosts your Social Security payments. People who delay Social Security benefits from age 62 to age 70 could see a 76 percent increase in their lifetime payments! Taken together, the benefits of staying in the workforce longer can really add up in retirement.

Are you hinting at something Mellody?! What’s number four?

If the oxygen mask drops, help yourself first, then the person next to you. A survey by Bank of America Merrill Lynch found that nearly 3 in 4 of parents put their kids needs ahead of their own retirement. The same survey found nearly 80% of parents give some financial support to their adult children – those in college or beyond. What is more, the sum of that assistance comes to a whopping $500 billion annually, double the amount that parents contribute to retirement accounts every year! And that is just parents and their kids. It doesn’t include other family members or friends! Remember that you are the only one that can prioritize your financial well-being, so remember the airplane safety videos!

Excellent advice. And now the final tip from Mellody Hobson. What do you have for us?

Will it. (Write one now!) Between one-half and two-thirds of American adults don't have a will, and that can mean a world of hurt if something happens to them. If you don’t make any formal estate plans, then decisions about your property, your medical care and your final arrangements will be made by others. Property will be divided and distributed at your death according to the process specified by state law. Any medical decisions will fall to individuals specified by law as well. And the decisions made may not reflect your values or your priorities. So, to protect your family and loved ones, you need to have a will that specifies a number of things. First, determine what property and assets you wish to leave to family, friends, or charities, and how they will be distributed. You have to be specific here. If you want to pass along your grandmother’s earrings to your daughter, spell it out. Second, if you have children, specify who you wish to act as guardian for them. Third, determine who will be your executor, the person who will manage your estate at death, pay debts and taxes, and distribute remaining property as you specify. Fourth, specify how outstanding debts and taxes should be paid, and whether you want to cancel any debts still owed to you. Finally, make sure that your will is accompanied by documentation of important financial information, such as bank accounts and insurance policies, and that copies are held by a known responsible party, which could be a lawyer, accountant or the executor of your estate.

Thank you so much Mellody! Some empowering tips to help us take charge of your financial future! Thank you so much for being a part of our show over the years!

No, thank you both. It was truly an honor to be a small part of the Tom Joyner Show!

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