Interview: Jennifer Openshaw

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Personal finance author and radio host Jennifer Openshaw has come a long way since working as a motel maid at age 14. The “Rags to Riches” AOL columnist lived her own rags-to-riches story by working her way to top positions at Bank of America, Bank One, Wilshire Associates and eventually founding two financial services companies and writing two books about building wealth, including her latest, “The Millionaire Zone: 7 Winning Steps to a Seven-Figure Fortune.”

At a glance
Name: Jennifer Openshaw
Hometown: San Juan Capistrano, Calif.
Education: University of California, Los Angeles, M.B.A and B.A.
Career highlights:
  • Host of “Winning Advice with Jennifer Openshaw,” heard by over 100 million listeners on ABC Radio.
  • Former director for Investment Services at Wilshire Associates, where she brought the well-known Wilshire 5000 Index into the mainstream.
  • Senior vice president, Bank One/JP Morgan Chase.
  • Family financial editor, AOL and regular columnist for AOL “Rags to Riches,” MarketWatch,
  • National TV appearances on “Oprah,” “Dr. Phil,” CNN and CNBC.
  • Author of “The Millionaire Zone.”
  • Founder of the Web site.

Sharing her retirement planning tips, Openshaw explains how to save smarter, invest more wisely and avoid common mistakes people make while planning for their golden years.

In your new book, you say that “even if you did save through your 401(k) during your career, chances are you wouldn’t be close to having what you need for retirement.” Would you elaborate?

Millionaires or otherwise financially successful people don’t count on their 401(k)s because they realize it’s just not going to get them to real financial freedom.

Let’s take a 50-year-old person earning $50,000 a year. He or she would need about a $700,000 nest egg to retire at that same standard of living produced by $50,000 a year received from age 65 to 90. And, that “nest egg” doesn’t include your primary residence since it doesn’t produce retirement income while you’re living in it. To get to that hefty number, then, you’d have to be contributing in the neighborhood of $8,000 a year over 30 years. Unfortunately, most people haven’t done that and can’t because of their salary levels and rules around 401(k) contributions.

Take a 30-year-old earning $30,000. He or she would only have $216,000 in their 401(k) at the age of 67, assuming they were saving 3 percent of their salary, the company was providing a 1.5 percent match and their investments were returning 7 percent per year, according to Vanguard.

So, the sad truth is that nine out of 10 American baby boomers have less than $250,000 saved for retirement, according to a 2005 survey commissioned by Merrill Lynch. As we’ve seen, that isn’t enough. And if you’re hoping for a pension, well, good luck, because half of working Americans don’t have a pension plan and even if you do, you can’t count on it being there later because corporate America has been shifting away from pension promises. As Americans, we’ve got to take personal responsibility for our financial future and that of our families.

Besides putting money into a 401(k), what else can people do to build a bigger nest egg?

I love real estate because it’s tangible and, as an investor, you can enjoy both the appreciation and the income generated as rents rise in the future. Plus, you get the power of leverage with your money — something you don’t get with many other investments — meaning you might put only 20 percent down but you enjoy appreciation on the entire value of the home. Your real estate income can supplement your Social Security and other income received in later years. Despite the market slowdown, there are fantastic opportunities in markets like Raleigh, N.C., and Atlanta where the rental markets and population growth are exceedingly strong. In “The Millionaire Zone,” I talk about how Americans who think they don’t have enough to invest in real estate or don’t have the time can address these issues by tapping into their “LifeNet” — the people, places and resources right at their fingertips. For instance, find a friend, colleague or even a family member who might want to co-invest with you or bring project management skills to a real estate project. There are opportunities all around.

My research found that there are 9.3 millionaire households as of 2006, a whopping 50 percent increase from 2003, when there were just 6.2 million millionaire households. That’s fast enough to make your head spin! And more importantly, it means it’s truly possible for any working American to accomplish the same. The good news is that a large percentage of these wealthy Americans are achieving success by starting their own businesses. I talk to so many Americans who are hitting the millionaire zone right out of their homes with as little as a couple thousand dollars by taking an idea and turning it into a business. The beauty of the Internet is that you can start a business without hiring employees or spending thousands on brochures. The world is truly a level playing field now and anyone can get in: You can find inexpensive resources across the globe. You can start marketing online to others or through eBay — the possibilities are endless and people are doing it at every age and stage of life. So many people ask me, “Jen, what’s the best way to get started?” Well, I believe you should start with your passions. In my book, I offer a 30-Day Getting Started Program that helps you identify those profitable passions and start making it happen.

Finally, if you’re putting money in the stock market, don’t let it sit in a money market or other cash account earning maybe 5 percent. That’s one of the biggest mistakes Americans make. You’ve got to put it to work. And one smart strategy is to again pay attention to your “LifeNet” and find those investment opportunities right in front of you. For example, when you find out that because of a local strike at your grocery store, everyone is shopping at the local Whole Foods. Pay attention. The trend for organic foods continues to explode — a friend of mine doubled her money by just paying attention to that. Or, you’re in the parking lot of Big Lots and notice how full it is. We as buyers have a lot of information that can be used to make smart investment decisions and grow our money faster and with far less in fees than mutual funds.

What are some other common misconceptions people have about saving enough money for retirement? What kinds of expenses should they factor in to their retirement needs?

We think we’ll be able to get a job in our later years when studies show that that is often not the case —  either because we’ll face an illness or other issue preventing us from working or companies just won’t be hiring us.

Also, we expect health care benefits to be there when, sadly, corporate America is pushing more of those costs onto workers. As for Social Security, well, those checks will keep you in the poverty house at best. Perhaps most importantly, we think of retirement as the end of our working life rather than a new beginning. Let’s think of what we will be retiring to, not retiring from. The opportunities and the way we live our life are endless — maybe it’s time to do something you’re truly passionate about or which has a social purpose that motivates you like never before.

Either way, we’ve got to plan for our expenses during retirement. Among the most important are housing, health care (both insurance and out-of-pocket), food and transportation, followed by the fun stuff like travel. Typically, you should assume you need 70 percent of what you’re spending each month today. It could be less if you’re willing to lower your housing costs, or more if you plan on living it up.

Most people are afraid to even think about what they need during retirement because they know the picture is pretty bleak. You’ve got to turn that thinking around.

You’ve got to do it for your own financial security and that of your family. And the best way is to think about it in a positive way: How can I make the most of my money? That’s what “The Millionaire Zone” thinking and way of life is all about: Building your wealth by tapping into the things with which you’re already familiar. Oprah is a wonderful example of the philosophy that it’s better to use what you know than “go it alone.” She tapped her best friend Gayle King to run her publishing empire. Not only is she critical to Oprah’s success but she also provides emotional support through their late-night phone calls.

You’ve written about the importance of planning for private health insurance after retiring. Would you explain why it’s essential and share tips on how to stay insured?

We just can’t expect that corporate America or Uncle Sam will take care of our health costs into old age. In my book I talk about a man, Carlos, who was afraid to leave his job because of his health benefits. What Carlos didn’t realize is that he was paying more than he thought for he and his wife’s medical needs even with his company benefits. In fact, his insurance and prescription costs ran him $1,200 a month! Carlos’s thinking about his so-called great health benefits prevented him from making changes — like starting his own business — that could have put him in greater control of his financial life.

What Americans don’t realize is that today we are paying about 22 percent of our health insurance premiums versus just 14 percent in 1992. That’s just the premiums. And it’s going to get much worse.

To make sure you stay insured, first, never leave a job without having insurance in place. If you are thinking of leaving, work with an independent broker who can look into group insurance plans. Group insurance plans can lower your costs, especially if you have pre-existing conditions, since the risk is spread out over a group. Also, many states have special programs for people who cannot get insurance otherwise due to pre-existing conditions. Check your state’s insurance department.

What else can consumers do now to potentially save health care costs in retirement?

Here are some specific tips I discuss in “The Millionaire Zone.” First, look for a group plan through a professional organization. There are a wide variety of member associations offering group health insurance to their constituents. If you’re not a member of a professional organization, it may be worth it to join for those benefits. Plus, you ramp up your LifeNet with additional contacts that way!

Second, check your spouse’s health insurance. Often, a spouse can start his or her own venture thanks to the health insurance the other spouse enjoys through an employer.

Also, don’t forget COBRA. Federal laws require most employers to offer their employees access to COBRA for 18 months after leaving the job. The caution here is that COBRA only grants you access to the group policies — you are still required to pay the full premiums. Those COBRA premiums may be more than what you’d pay on the individual market.

Finally, health savings accounts, or HSAs, are a new tax-friendly vehicle aimed at encouraging people to save for their own health-care costs. You invest pretax money in a health savings account and all the money you take out of that account — including your untaxed contributions and any gains you earn on those savings — comes out tax-free as long as you spend the money on health-care costs. You can find out about these through banks or companies offering insurance.

What are the biggest mistakes consumers make while preparing for retirement?

Many Americans have been trapped into thinking they’re wealthy because of all the equity in their homes. Well, chances are you’re not even close to being rich because that money won’t do you a bit of good if you’re living in the house. You’re actually what I call an “Accidental Millionaire.” My goal is to create “Purposeful Millionaires”: People who have the wealth and income they need to support them throughout their retirement years. To do that, though, you need to take a very active role in real estate, stock market investing and/or business ownership. Generally, you’ll be more successful if you create a support system rather than feeling as if you have to “go it alone.”

My research of over 3,000 Americans found that millionaires followed two key principles to building their wealth. First, they had fears to overcome in their pursuit of financial success but were able to do so by using the familiar people, places and resources around them. Secondly, they built their wealth through multiple paths. They were CEO of their own company while they invested in real estate. Or, they were working for a company while actively investing in the stock market. The key is that they were building wealth through multiple paths and not just plunking their income into a checking or savings account. No, they made their money work hard for them. If everyone else can follow these same simple principles, they’ll be happier and in greater control over their financial lives.

You’ve written about parents having trouble prioritizing between saving for their children’s college education and their own retirement needs. Why should retirement savings come first?

So many parents make the mistake of putting their kids’ college costs ahead of their own retirement needs. Who wants to end up having to turn to your kids for financial support when you’re 60 or 80? I’ll never forget the e-mail I got from a woman who watched her husband grow increasingly ill as she simultaneously watched her best friend across the street barely avoid homelessness because she was widowed with no retirement savings. The poor woman writing me feared for her financial life, quite literally. She told me her husband “hadn’t saved” and now she worried she was going to end up like her friend. I don’t want to see anyone in that situation.

Also, as parents, we don’t teach our kids enough about the importance of financial responsibility at an early age, nor do we encourage them to get work experience that is so vital to being a success right out of college. I’m not saying you can’t support your kids, but I am saying there are smarter ways to do it so that you take care of yourself, too. For instance, the grandparents may be the key to college. Grandparents can contribute thousands to a college fund without getting hit with gift taxes using the popular 529 plan. And the money grows tax free. For example, a $2,000 yearly gift over 18 years will grow to $80,000 with an 8 percent annual return. That covers most of the projected cost of four years at a public university. And even if each set of grandparents only kicks in $500 a year, that covers half the cost. They get the joy of giving to their grandkids now — and you can tuck more away for your retirement. Another option is to strike a deal with your kids: You’ll match their contributions for college dollar for dollar, which lowers your costs and allows you to keep more for retirement. And yet another idea is to view your investment in them as just that: an investment. Have them agree to be there during your retirement years should you have the need or agree to pay you back once they reach a certain income level.

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