Yes, you can put away money for the future
The e-mail that arrived in Mishpacha’s Inbox might have you nodding in vigorous agreement:
We have what in the “regular” world would be a very comfortable income, but in the frum world we are constantly struggling to pay our bills, living month to month and trying to pay off a moderate amount of debt (and keeping from getting in deeper).
We have almost no investments for retirement. We never felt we could afford it. Even if we could start saving now (which we cannot afford to do), the amount would be minimal and would not have time to accrue significant interest.
I am not looking for a luxurious retirement, but I do want the option of stopping work when I can no longer manage to do so.
The situation this letter writer was describing is something the majority of readers can surely relate to. While it’s easy to point an accusatory finger at our neighbor’s $100,000 wedding as the source of all our balance sheet woes, the truth is that there are many families in the frum community who are trying very hard to live responsibly within their means — and yet still just manage to make it to the end of the month. Putting aside savings for weddings or for retirement is often a laughable pipe dream. When asked what will be with the future, the response is a sigh, a shrug, and a “Hashem will help.”
Facing the Future
Tikva is in her early thirties, and works as a social worker. A mother of five, she lives in an out-of-town community where the standard of living is relatively modest. But the salaries are similarly modest, which makes it a struggle for her and her husband to get by.
“It was easier when my husband was in kollel,” she says. “Then, aside from his stipend, we were also getting help from our parents. And, of course, our family was smaller. We weren’t saving money, but at least we were making it. Once my husband started working, his starting salary was pretty much the same as his kollel stipend, but we weren’t getting help anymore, and suddenly we found ourselves sliding into debt.”
After that first year he found a better-paying job, but with their growing family paying the bills is still a challenge.
“We live in a simple community, but my kids still need clothing, camps, uniforms. I’m not extravagant, and I don’t really see a place to cut back, except maybe my cleaning help — and that will just be replaced by the cost of therapy.”
They’ve managed to pay off their credit card debt, but putting aside long-term savings is not something they can consider right now. However, though her oldest child is still a preteen, Tikva knows the years go by quickly.
“Our plan? My husband is currently starting his own business. What I’m counting on is that his business will take off, and our financial situation will improve.”
Miriam is a generation ahead of Tikva; the mother of a large family, she has already married off several children. She works as a bookkeeper and her husband has a good job as a computer programmer, where he makes a six-figure salary. She, too, describes herself as someone who is satisfied with minimal material standards, despite the pressure to spend big in her New York community.
“We aren’t the types to start competing with the Cohens. Our simchahs are low-key, our vacations are local. I’ve seen people in some circles who are always redecorating, who need high-fashion clothing — but we stick to the basics. Yet even with our simple lifestyle, we’ve never felt it was an option to save for the long term.”
When Miriam and her husband arranged weddings for their children, they had to borrow money. Afterward, any extra income went toward paying down the debt. With more children to marry off, Miriam worries about her impending retirement. She and her husband are both in their fifties.
“I don’t dream of a retirement where I can go travel the world, but I want to be able to pay my expenses. Yes, there’s Social Security, but from the research I’ve done, this only gives you maximum $25,000 a year. Are there couples who can actually live on this amount? What happens if your fridge breaks? How do you pay for that on a fixed income?”
Miriam doesn’t have good answers, and it frustrates her that, in a society where people have large families and hefty tuition bills, the trend is still moving in the direction of higher and higher expenses.
“I know the real answer to budget problems is to live one standard below what you can afford and save the rest, but it’s very hard to keep telling your kids no, when all their friends have something. Though we’re not materialistic, you do have to take into account the standards of your neighbors and community.”
The Mindset, Not the Money
Lack of retirement savings is certainly not just a frum problem; Americans in general have trouble saving. Recent data from Northwestern Mutual’s 2019 Planning and Progress Study show that 22% of Americans have less than $5,000 put aside for retirement and 15% have no retirement funds at all. Over half of those in the US workforce have no employer-provided retirement account, such as a 401K, IRA, or pension. And only 16% have $200,000 or more saved for their golden years. Experts recommend an ideal retirement nest egg of $1 million, an amount that seems hopelessly out of reach to many.
While the vast majority of Americans worry that they’ll run out of money before they die (only 10% feel confident that they’ll have enough money to retire), surveys also show that they don’t seem in a hurry to do anything about it.
And yet, all financial experts agree that burying your head in the sand is not a viable retirement strategy.
Social Security, that great social safety net, is tottering, and its coffers are predicted to dry up by 2034. While this doesn’t mean the entire demise of the system (wage earners will continue to contribute to the pot), experts say that, barring any corrective legislation, those of us set to retire after that date can expect to see a sharply reduced Social Security check.
How to compensate? Those of us with even a minimal financial education know the advice: Set up private 401Ks. Siphon off 15 percent of your income directly into a retirement vehicle before it hits your bank account. But while this common financial wisdom may be useful for your average American family, the frum head of household just throws up his hands. How can he think of setting aside 15 percent or even 5 percent when he is up to his ears in bills, bills, and more bills?
Saving money, says Rabbi Shmuli Margulies, chairman of Mesila, a worldwide organization that promotes financial stability, starts not in your wallet but in your mind.
“Saving is a mindset,” he says. “It requires doing a cheshbon, and disciplining yourself to put money aside.”
He says we need to shift our mentality to view savings as a need, not a luxury. “If you wait to have enough money to save, chances are, you never will. There are always many truly justified things to spend money on.” Instead, he advises treating savings like taxes by taking money off the top. “If we truly understood the necessity — if we saw savings as paying for tomorrow’s food — then we would make sure to put aside the money.”
Failure to save is a socioeconomically-blind monster that hits the rich and poor alike. In fact, Rabbi Margulies says there are so many well-to-do people coming to Mesila for financial advice that the organization is opening a branch specifically geared to their needs.
“When a person’s income rises, his expenses tend to increase as well,” he explains. The newly-monied family begins to enjoy a higher standard, and if they don’t pay attention to how much they’re spending, they can quickly become indebted.
“There’s an attitude of, ‘How can it be? I earn so much money!’ But it doesn’t matter. A person can be making a million dollars and be in debt, or he can be living on a kollel stipend and be debt-free. It’s not the money, it’s the mindset.”
This spending-without-a-plan attitude, at its heart, stems from immaturity, and it’s an attitude we all fall into, in one area of life or another. The thinking goes like this: If I pretend something doesn’t exist, then it doesn’t. If I don’t look at my bank account, then I won’t see that I don’t have enough money for what I want to buy. And if I don’t think about the future, then I can buy whatever makes me happy right now.
Ah, the intoxicating power of human self-delusion.
However, while a proper mindset is crucial to setting the stage for good financial habits, Rabbi Margulies emphasizes that there are many people who are doing everything right and still find themselves in debt. “People are not to blame. I can’t stress this enough. They are trying very hard; they have real needs — not luxuries — and managing it all financially is objectively very difficult in today’s complex environment. If you find yourself in this situation, please realize that there are solutions, that there is help out there for you to tap into, and Mesila is always available.”
The 11th-Hour Savings Plan
This is exactly where Miriam and her family find themselves. As someone who’s responsible about her finances, Miriam has made it her business to repay all of her wedding loans as quickly as possible. But with more weddings still to come, b’ezras Hashem, when is she supposed to save?
“Years ago, a colleague told me that she plans to start saving for retirement when she’s in her fifties,” says Miriam. “And I remember thinking, when I’m in my fifties, I’ll still be paying tuition and marrying off my children.”
And, of course, there’s the support of young marrieds that’s become expected practice in much of the frum world. When one family’s salary must stretch to cover not one but three or four families, even a high earner will feel hard-pressed to put aside money at the end of the month.
“Everyone’s saying, what am I doing wrong? Why am I the only one who’s struggling, when everyone else is doing fine?” says Eli Fried, an investment advisor and 401K specialist who writes a popular financial blog, GeltGuide. “In reality, many frum families are barely making it, and some are going into debt.”
However, says Fried, the situation is not totally bleak. “Generally speaking, the frum world is earning much more money than the average American. So we don’t have an earning problem — we have an expense problem. Our cost of living is sky-high. But the good news is that these expenses do eventually end.”
The ideal time to start saving for your retirement is when you’re young, and can take full advantage of that most valuable investment commodity — time. However, for those who couldn’t or didn’t save in their twenties and thirties, and are certainly not saving anything in their forties and low fifties when financial demands are at their peak, all is not lost.
First of all, for homeowners living in high-value locations, downsizing to a small condo at retirement can provide an immediate nest egg of hundreds of thousand dollars.
And then there are the 11th-hour savings, money put aside in the years immediately preceding retirement, which Fried says is more realistic than one might think. Picture the typical large frum family. The father makes a good income, the mother may be working part time as well, but they’re spending every last dollar on tuition, camps, clothing, and mortgage for a large house that matches their family size. And then — mazel tov! — their first child gets engaged. And their second, and their third. They still have a houseful of children at home, and are being stretched to their absolute financial limit. They’re depleting all their assets, and may be taking out loans as well.
However, this is only the case for the first few weddings.
“If you can make it through those difficult years,” Fried says, “then one day you’ll find yourself in your upper fifties and early sixties with the kids out of the house, and that same comfortable income. That’s when you start saving intensively.”
If a couple can put aside as much as 50 percent of their income in that last decade before retirement, then they’ll find themselves at a comfortable financial spot once the golden years hit. That’s a tall order, but there’s another weapon that can be added at that stage to the family financial arsenal: the wife as a power wage earner.
The woman of the house, who may have spent her child-rearing years as a stay-at-home-mom, or working part-time, or in a job that emphasized Mommy-friendly benefits over salary, suddenly has more time on her hands and an opportunity to maximize her full earning potential. It’s possible now for the couple to become more financially secure than they ever imagined.
Now, this is all very well, you may be thinking, when the childrearing expenses end at the chuppah. But what about supporting those young couples? Nowadays, in many circles, this has become an expectation — whether guaranteeing a dollar amount per month for a certain number of years, or, as in the Israeli chareidi community, buying the young couple an apartment.
“Supporting your children is a beautiful thing, and in many circles it is mandatory,” says Fried. But support obligations are capped. “The issue is that many people are working into their seventies, well past retirement age, because they’re assisting their long-ago married children on a discretionary basis. If they are doing this wholeheartedly and are financially capable then that’s great.”
However, he says, many people grapple with the question of where to draw the line. What if assisting their post-kollel married children is preventing them from saving for retirement or, worse, sending them into debt just as retirement looms?
“Where do you draw the line between worrying about your children and your own financial future? It’s a personal choice, with no one right answer, but financial planners like to use the airline safety rule: Put on your own oxygen mask first. If you don’t worry about yourself in your fifties and sixties then you’ll just end up being a financial burden for your children in your eighties and nineties.”
Catch Them Young
While Fried’s plan is certainly welcome news for those who are nearing that deadline without any savings to speak of, the optimal strategy, of course, is to start saving well before that. But is that practical?
“Go tell a 20-year-old to invest for his retirement,” says Miriam. “It’s hard to look so far into the future. Twenty years from now, he’ll be tempted to take out the money when he needs it — unless he puts it into a retirement vehicle.”
Putting money into a retirement vehicle like an IRA is the recommended way to save for retirement, for exactly this reason. However, many are scared of locking up their money, for the reason Miriam mentioned — what if they need it sooner?
Fried points out the fallacy of this thinking. “It’s cheaper to take out your money early and pay the penalty than it is to pay off credit card debt.”
He says the key here is educating the young couples about budgeting and discipline. “Everyone needs expense discipline — 99 out of 100 times, as your income grows, your expenses grow accordingly. Income growth alone doesn’t put you in a better financial position.”
The problem with financial education, however, is that people don’t want to hear about it until they actually feel the need. This is far from a frum problem; across America, there’s been a push to educate people in financial literacy, but it’s been largely unsuccessful.
And that’s a shame because investing while young can make all the difference.
“If people in their twenties and thirties knew what was coming down the pike, and would put aside $2,000 a year in mutual funds, that would make all the difference in being able to pay for weddings,” says Fried. “It’s very nice to go on a $10,000 honeymoon or lease a new car — but investing that money instead would make a huge impact down the line.”
Tikva agrees that financial education early on would have helped her. “If someone would have sat us down when we were first married and told us what to do with our wedding money, it would’ve made such a difference.” However, she admits that she might not have been ready to hear such advice at that point in her life. “I think I would have been resentful.”
This is why Rabbi Margulies advocates educating children about finances from an early age, so that by the time they reach young adulthood, they already understand such concepts as prioritizing, planning, and saving for a rainy day.
“You can teach even young children that when they get an allowance, or a few dollars from Zeide, they should immediately put aside half that money, to save up for something big that they want to buy,” he says. In a similar vein, some people offer their married children to match any money that they put aside to marry off their own children. This way, they’re given motivation to save, without pressuring them.
Miriam says that delayed gratification is a value she’s tried to impart to her children. “Part of our chinuch was raising our children to be responsible by earning their own money and paying for those extra expenses, like special clothing, or flying to visit a friend.”
But while she’s always taught her kids about budgeting and saving up for major purchases, the investing secret is something she wishes she would have known earlier.
“Because of compounded interest, investing even a small amount of money when young can give you a lot of money in the future. Imagine, then, if teens were taught to invest their summer job or babysitting earnings.”
Making It Happen
Can we really educate today’s young couples to put aside money in savings? With many of them starting off in kollel, is it even feasible?
The answer is absolutely yes, says Rabbi Margulies, as long as they are properly trained in advance to proactively manage their finances.
Shaindy is a case in point. A mother of three living in Lakewood, her husband has been learning in kollel for eight years while she supports her family on her occupational therapist salary. As the oldest of a large family whose father works in education, Shaindy knew from the start that she couldn’t count on familial support. And being raised in a family where frugality was a value did a lot toward shaping her own view of money management.
So, at the beginning of her marriage, while she was still in school, she met with a financial advisor to discuss investing money for the future.
“We set up mutual fund accounts for my children, to pay for their weddings, and I also opened a retirement account for myself,” she says. “Now, every month, I deposit $50 into each of my children’s accounts. For my 401K, I take full advantage of my employer’s matching benefits. I’ve arranged for all of this money to go directly into the mutual fund, so that I don’t even feel it.”
How does she manage to save so much each month? She agrees that it’s all about the mindset.
“I feel strongly about saving, so I make sure it happens. Neither my husband or I are big spenders, and it helps that we live in a simple community within Lakewood. I’m also very careful to track my expenses. I use credit cards so that I can track every purchase, and I enter it all into an Excel spreadsheet.”
She’s recently begun using a budget tracker app, Mint, which consolidates all her financial information and allows her to set her budget for every purchase category, like food or clothing. Mint then tracks her expenses during the month and gives her updates about her spending.
Shaindy admits that she’s a bit obsessed. “I probably check it too much,” she says, laughing. “Maybe I don’t have enough bitachon. My parents never kept such careful track of their spending and saving, and until today, they say, ‘We don’t know how we do it.’ But for me, this is what makes me feel calmer about the future.”
There was one point when Shaindy and her husband did go into debt, after she took an extended maternity leave. But, she says, she found owing money so stressful that as soon as she returned to her job, she worked extra hours so that she could pay off the debt as quickly as possible.
When I suggest that she should give workshops to young marrieds about finances, she laughs, but then acknowledges that most of her friends don’t share her attitude toward saving.
“Most of them are being supported by their parents, so they’re in a different boat.” Still, she says, it’s a mindset. “A lot of people say they have no money to put away, but then they’ll find money for other things that are important to them. I’m always seeing texts go out on my community groups saying things like, ‘My cleaning lady has five hours to give, who wants her?’ I know that for some people, cleaning ladies are indispensable, but, personally, I don’t have one, and it works for me.”
It’s true that some people are more naturally disciplined than others, and budgeting and saving comes easier to the Shaindys of the world. But everyone can train themselves to be fiscally prudent, says Rabbi Margulies. For those who need extra help, they can always turn to organizations like Mesila.
Saving for the future, he points out, is not just a common sense thing to do; it’s advocated by Chazal as well, in numerous places.
“Eizehu chacham? Haro’eh es hanolad,” he quotes. “The wise man perceives what will happen in the future, and does something about it now.”
(Originally featured in Mishpacha, Issue 787)
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