In our Money Mic series, we hand over the podium to people with controversial views about money. These are their views, not ours, but we welcome your responses.
Today, Jenine Holmes, an ad writer and single mom, shares how she started getting serious about retirement late in the game.
With age comes wisdom about a host of things, including, hopefully, money.
In my twenties I was more focused on winning advertising awards than achieving financial stability. My life in New York City, a month-to-month rented affair, created a short-term focus. Therefore I contributed huge amounts of money to paying my rent, but modest amounts to my retirement account.
When I started work, fresh out of art school, like most recent grads I was trying to get into the working game, not sock money away for my future old self. Making my way in pricey New York City, my income fueled practical needs. I acquired a taste for vodka martinis simply because they mandated I sip and savor, stretching my entertainment budget further.
Retirement, on the other hand, was something my stay-at-home grandmother and 9-to-5 grandfather did at the end of their working road. As an artist, I would continue working until my body was slipped into a grave, an end I had hoped not to meet for a very, very, very long time. Meanwhile, I had work to do.
How My Family Saw Money
In the Holmes family, our sense of worth is derided from a personal, passionate connection to work. My dad owned a record shop on the east side of Detroit, an anachronistic business today, but a giddy entrepreneurial delight in 1970s Detroit, a city still basking in the glow of Motown and a thriving auto industry.
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My mom, a teacher by trade, made achievement her mantra by earning a BA, then a master's, one class and one semester at a time, while caring for a family of five.
My parents taught my brothers and I to respect money, to respect the act of making money. To receive my weekly allowance, my dad required us to count out the funds, in front of him—five dollars in our childhood, ten dollars in our teen years—one single dollar bill at a time. I hated the act.
As I angrily counted the bills, he’d ask, “How do you know I haven’t cheated you?”
“Because you’re my dad,” I’d answer, annoyed at his insistence.
It wasn’t until I reached my thirties that I realized my Dad had given me my first consciousness-raising lesson about money. I had to be willing to see it, examine it and understand it to manage it well.
$5,000 and My Dignity: My (First) Layoff
At the end of my twenties, I found myself switching careers—from being an illustrator to an advertising writer. The pay was better and steadier, and the lure of using my brain in different ways, coupled with my love of culture and words, made marketing a surprisingly good fit. However, in the early 1990s, my two-year honeymoon period was cut short by my first layoff.
“Heard you got laid off,” a fellow writer with tufts of gray hair in his beard said, standing over my desk, as I stuffed boxes with books and ad samples.
“Congratulations, Jenine, now you’re in advertising.”
Sid Meltzer’s words served as an epiphany: In the long run, I realized, advertising would not be there for me, so I’d better start looking out for myself.
And, in my exit interview, I discovered that squirreling away the minimum amount to receive a matching company contribution into my retirement account, 5%, meant I’d leave the agency with more than my dignity: If memory serves, after two years on staff, the check amounted to around $5,000.
Thanks to the largesse of my parents, and sound advice from the HR rep that day, I did not cash out that retirement account check as many of my other fellow axed coworkers did. I understood the tax liability of that move. Instead, I rolled it into a fresh 401(k) account.
My Thirties: A Retirement Wake-Up Call
After that layoff, I freelanced for three years. With periods of work, followed by periods of drought, rather than invest in a closet full of Jimmy Choos, as a few of my girlfriends did, I kept to my cowboy boots, and I saved my money. After a few years my savings reached $20,000. In the mid-to-late 1990s, the country was still living a glamorous life. Meanwhile, I lived a freelancer’s reality, and, in my first year, I began to see retirement with new eyes too.
“If you sock some of your savings into a SEP IRA account,” my accountant advised, "you’d reduce your tax liability.” With that I learned to make saving for retirement into a hedge against a higher tax bill, while creating a foundation for my future. My deposits ranged from $5,000 to $10,000 each year for three years. Sure, it hurt. But as Wendy my accountant asserted, “It hurts less to pay yourself, right?”
Real Estate as a Retirement Hedge
With the purchase of my first home, I started thinking about money on a whole different level. I was lucky enough to purchase an apartment in the late 1990s in New York City, while an average down payment was still 10%, making my mortgage payment a little more than my previous monthly rent. Yet, it took my dentist to point out the value of homeownership in relation to retirement.
“The money isn’t gone, Miss Holmes," Dr. Koffler said. “Now you’re living in your bank account.” I still had my savings, just in a different financial vehicle.
In 1999 I left the midsize ad agency for a global company, again committing to my 401(k). The worldwide firm had a better mix of funds. I continued my contributions for another four years. At 38 years old, saving for retirement seemed more real and necessary.
After four years, I changed firms once more, this time for a smaller, cooler boutique agency. In fact, for the first two years of employment, the company was so cool it didn’t offer a 401(k). That changed when the employees banded together and solicited the owner. After losing two years of savings and having no company match, once the 401(k) came available, I upped my annual contribution to 10% and kept it up, for six years, until, you guessed it, I was hit by another layoff.
By this point, my SEP accounts, combined with the three 401(k) accounts, came to somewhere around $100,000.
The Change That Over 40 Can Bring
I suppose when you decide to seek motherhood in your forties you kind of look at everything differently. I knew with the arrival of my daughter through adoption, my life would shift from my basic needs to caring for my child and plans for her college education, while funding my retirement account.
I considered myself good with money, but it wouldn’t take Alan Greenspan to figure out that this would mean trying to fund a retirement account and my child’s college fund at the same time.
In 2004 I sat across from my new financial adviser high above Madison Square Park, wearing a face of contentment and pride as he examined my financial statements. I had just sold my apartment, taken the profits, and used them as a down payment to purchase a larger place. While I gave my adviser the real estate breakdown, he had another focus. “Based on these numbers,” he said, “you don’t have enough in retirement savings.”
“Oh, I have that figured out,” I said brightly. “I can always sell my apartment, pay off the existing mortgage, and add the profits to my retirement account. That’ll improve my bottom line.”
“If that’s your retirement strategy, for your sake, I hope the real estate market holds," he said.
An expression of shock slid over my face. The idea that the New York City real estate market could not move any direction but up was a new consideration for me, which I guess meant I shouldn't be hinging retirement on it.
The calculator’s recommendation was that I have $3.1 million saved for retirement. Sure, it’s reasonable for Ivana Trump. But me?
Taking a Hard Look at the Hard Numbers
At the age of 48 my adoption was approved, putting me in the rarefied position of caring for a child and my financial future. Child care and school would stretch my income to new lengths.
In time I learned to live by that well-known financial adage: “There are no loans to fund your retirement, but there are many loans your child can take out to fund his/her education,” letting myself off that hook.
Yet, it took a surprising amount of courage to even use an online retirement calculator to determine if I was on target with my retirement saving.
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After plugging in five short answers to five questions, in short order, I discovered in a down market I’d have around $360,000 if I kept to my current savings plan, and $625,000 if the funds and contributions were made during an upmarket period. The fact that left me in slack-jawed silence was the calculator’s recommendation that I have $3.1 million saved for retirement by age 70. Sure, it’s reasonable for Ivana Trump. But me?
Now insatiably curious, I picked up the phone to call my brokerage. An adviser plugged in all the numbers for my various accounts, now totaling to a little over $171,000—including the $43,000 retirement account from my current company. The algorithm brought up the recommended, and by now familiar, “3 mill.”
“The calculator has default numbers that wouldn’t necessary apply to you,” he said. “Looks like, if you can add your real estate holdings to your account, you’d be on track for a recommended amount of $1.5 million.”
“Wow, compared to $3 million that seems doable,” I said relieved. Together we worked out a plan to increase my odds of success by taking advantage of the retirement catch-up feature that allows those over 50 to increase their contributions.
Legally, I could max out at $23,000 per year, although that wasn't currently possible. My goal is to follow his advice and commit larger amounts to my account around the age of 55. Getting my daughter into a good gifted program at a public school will free up some funds ... and lessen the nail biting.
“You can really bolster the numbers by increasing your contributions. And 16 years of work can make a big difference,” my adviser told me, “along with compound interest and company matching.”
As I hung up the phone, I felt a sense of accomplishment. After more than 25 years of work, I had more than my instincts to shape my retirement. Like my dad had advised long ago, taking a good, long look at my money could only benefit me in the short—and the long—run.