Summary of "The Clark Howard Podcast" Episode - February 19, 2025: "Your Savings Rate / Running Out Of Money In Retirement"

Host: Clark Howard
Release Date: February 19, 2025
Episode Title: Your Savings Rate / Running Out Of Money In Retirement

Introduction

In this episode of The Clark Howard Podcast, Clark delves into the critical topics of savings rates and the increasingly prevalent issue of running out of money in retirement. The discussion is enriched with real-life listener questions, offering practical advice on personal finance management. Clark emphasizes the importance of being proactive with savings, understanding financial products, and cultivating disciplined spending habits to achieve long-term financial security.

Key Topics Discussed

1. Savings Rates and Capital One's Controversy

Clark opens the episode by addressing a significant issue with Capital One, highlighting deceptive practices that have adversely affected customer savings rates.

• Capital One's Misconduct: Clark explains how Capital One introduced a second savings account with a nearly identical name—360 Performance Savings Account—to the popular 360 Savings Account, which previously offered substantial interest rates. This move led to existing account holders being unknowingly moved to accounts with significantly lower rates (from 4.25% to 0.40%) without adequate disclosure, prompting federal scrutiny.

  "Capital One did something that was really dirty dealing...they came up with a second 360 account called the 360 Performance Savings Account, keeping the name almost identical." (03:15)

• Impact of Inertia: Clark discusses how banking giants exploit customer inertia, leading to prolonged periods of low-interest earnings on savings, often below 0.5%, compared to more lucrative alternatives available elsewhere.

  "The lack of disclosure and the inertia in our lives that's getting us ripped off. So pay attention." (05:30)

• Advice for Consumers: He urges listeners to regularly review their savings accounts and consider moving their funds to higher-yielding options, such as discount brokers offering rates closer to 4.5% - 5%.

  "It's up to you and me to not allow these games." (05:50)

2. Listener Questions and Advice

Clark addresses several listener inquiries, providing tailored financial guidance based on individual circumstances.

a. Emergency Fund and HELOC Strategy (Michael, Florida)

Listener's Concern: Michael is contemplating moving his emergency fund from a high-interest savings account to a Home Equity Line of Credit (HELOC) to have funds readily available.

Clark's Response:

Clark cautions against mixing the emergency fund with investments or HELOCs, as it increases financial risk. Using a HELOC for emergencies ties home equity to unpredictable financial needs, potentially jeopardizing home ownership during unforeseen circumstances.

"If you take out against it, you are putting your home at risk." (07:04)

He recommends maintaining a separate, liquid emergency fund to ensure stability without exposing the home to additional risk.

b. Maximizing $50,000 in Savings (Lee, Wisconsin)

Listener's Concern: Lee, a debt-free 27-year-old, is unsure how to best utilize $50,000 in savings. Options considered include purchasing real estate, stocks, index funds, or leasing a billboard.

Clark's Response:

Clark praises Lee’s strong financial position and recommends diversifying investment strategies. While investing in billboards is creative, he suggests balancing between continued investments and maintaining a robust emergency fund, especially given current favorable rates in short-term treasury bills.

"Nothing wrong with having some of that [money] available for emergencies, rainy day." (08:51)

He advises keeping part of the savings in high-yield, low-risk options while exploring varied investment opportunities to optimize returns without sacrificing liquidity.

c. TSP Loan for Home Purchase (Derek, Ohio)

Listener's Concern: Derek, a federal employee with a maxed-out Thrift Savings Plan (TSP), considers taking a $50,000 loan from his TSP for a home down payment, questioning its impact on his retirement.

Clark's Response:

Clark reassures Derek that utilizing the TSP loan is not catastrophic, especially since Derek is maximizing his contributions and has no debt. He notes that the current loan terms (15 years at 4.3%) are favorable compared to potential mortgage rates, making it a viable option for home financing without significantly harming retirement prospects.

"It would not be catastrophic if you use this provision." (11:44)

Clark also downplays the significance of mortgage interest deductions for most individuals, emphasizing the advantage of self-repaying the loan at a reasonable rate.

d. Car Insurance for a Son (Bill, New York)

Listener's Concern: Bill is worried about potential insurance liabilities if his son and his friends rent and drive cars under Bill’s insurance policy.

Clark's Response:

Clark advises against using rental cars to mitigate liability risks, explaining that it offers no real protection compared to the risks associated with using Bill’s vehicles. He recommends transferring ownership of a vehicle to the son, thereby requiring the son to obtain his own insurance policy, which would contain liability risks independently.

"There is nothing special or different you need to do with the car rental." (25:04)

Clark stresses the importance of separating the son’s driving activities from Bill’s personal insurance to minimize potential legal and financial liabilities.

e. Mortgage vs. Investments (Cole, Ohio)

Listener's Concern: Cole, a 31-year-old with a $55,000 mortgage at a $700/month payment (plus an extra $500 towards the principal), seeks advice on whether to allocate additional funds towards paying off the mortgage or continue investing.

Clark's Response:

Clark advises prioritizing tax-advantaged retirement accounts over accelerating mortgage payments unless the mortgage interest rate is exceedingly high (e.g., 7% or above). He underscores the benefits of contributing to Roth IRAs for tax-free growth and long-term financial security.

"I would rather see that extra 500 a month going into... a Roth IRA." (28:26)

He encourages Cole to continue maximizing retirement contributions to leverage compound interest and secure a robust financial future.

f. Roth 457B and Roth IRA Contributions (Michael, Ohio)

Listener's Concern: Michael, a 36-year-old federal employee, inquires about contributing the maximum to both a Roth 457B plan and a personal Roth IRA, given his income level.

Clark's Response:

Clark confirms that Michael can indeed maximize contributions to both accounts, provided he remains within the income eligibility limits. He commends Michael for his disciplined saving and highlights the benefits of combined retirement contributions for long-term wealth accumulation.

"You can do the Max 7000 and that do the Max in the Roth 457B." (23:15)

Clark also acknowledges Michael’s service as a firefighter and projects a secure financial future thanks to his prudent financial habits.

3. Financial Habits and the "Live on Less Than You Make" Philosophy

Clark passionately discusses the prevalent issue of individuals, regardless of high incomes, living paycheck to paycheck due to unchecked spending. He introduces the "big barn theory", comparing high-earning professionals like doctors and athletes who, despite substantial incomes, often find themselves financially strained due to poor saving habits.

"One in seven people who retired say they're having to go back to work this year because they didn't realize that they didn't have enough money to live the retirement life they wanted to live." (17:21)

Key Points:

• Mindful Spending: Clark emphasizes the importance of controlling spending habits, especially when income increases, to avoid escalating consumption.

• Paying Yourself First: He advocates for prioritizing savings and investments before discretionary spending.

• Building Financial Blocks: Encourages establishing diverse financial safety nets, including emergency funds, retirement accounts, and education savings plans (e.g., 529 accounts).

• Long-Term Security: Reinforces that disciplined saving and investing are fundamental to achieving financial independence and security.

"It's never what you make, it's what you don't spend that counts." (24:12)

4. Notable Quotes with Timestamps

• On Capital One’s Practices:

  "Capital One did something that was really dirty dealing...they came up with a second 360 account called the 360 Performance Savings Account, keeping the name almost identical." (03:15)

• On Inertia and Savings:

  "The lack of disclosure and the inertia in our lives that's getting us ripped off. So pay attention." (05:30)

• On Emergency Funds and Risk:

  "If you take out against it, you are putting your home at risk." (07:04)

• On Smart Investments:

  "Nothing wrong with having some of that [money] available for emergencies, rainy day." (08:51)

• On Retirement Planning:

  "I would rather see that extra 500 a month going into... a Roth IRA." (28:26)

• On Financial Security:

  "It's never what you make, it's what you don't spend that counts." (24:12)

Conclusion

In this episode, Clark Howard provides invaluable insights into optimizing savings rates, avoiding financial pitfalls with banking institutions, and making informed decisions about investments and retirement planning. Through addressing diverse listener questions, he reinforces his core philosophy: living below one’s means, disciplined saving, and strategic investing are pivotal to attaining financial independence and ensuring a secure retirement. Clark’s practical advice serves as a guiding roadmap for listeners aiming to enhance their financial health and avoid common money-management mistakes.

For more personalized advice and resources, visit www.clark.com and explore ClarkDeals.com.