Jean Chatzky sends strong message on 401(k)s, IRAs

Many Americans planning for retirement are often encouraged to start by contributing to both a company-sponsored 401(k) plan and an Individual Retirement Account (IRA) as major parts of their financial strategy.

Former NBC Today Show financial editor Jean Chatzky offers a key data point on U.S. household retirement savings progress and explains some important things to know about the 401(k) and IRA challenge facing Americans.

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Individuals should consider placing a high priority on contributing to an employer-sponsored 401(k) — especially when matching contributions from the company are available, the HerMoney founder explained. 

With automatic deductions taken directly from paychecks, Chatzky clarified, this approach requires minimal effort and decision-making, offering a streamlined and effective path to retirement savings.

In Chatzky’s July 22 HerMoney email newsletter, she explained why one important number regarding IRAs is 44%.

“That’s the percentage of U.S. households saving for retirement through IRAs – accounts that hold over $16.2 trillion and make up 38% of all U.S. retirement wealth,” Chatzky wrote, citing an Investment Company Institute report.

“No IRA, you say?” she asked. “For many women, these accounts are key to closing the retirement savings gap.”

Jean Chatzky explains how gap annuities enhance 401(k)s and IRAs

Jean Chatzky describes gap annuities as a financial tool crafted to bridge the income divide that can occur between leaving the workforce and the start of other retirement benefits, such as Social Security or a pension. 

Gap annuities can also help delay the time when a person would otherwise make withdrawals from their 401(k) plans and IRAs.

These short-term annuities — generally lasting between three and ten years — are typically funded through a lump sum or a series of payments. 

In return, they offer reliable income over a defined period. Chatzky likens them to a substitute paycheck, providing a steady cash flow for retirees — or anyone experiencing a temporary break in earnings.

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Who gap annuities are good for 

In the HerMoney newsletter, Chatzky describes the financial situations that make sense for when people should consider gap annuities.

• Early retirees who want to wait to start collecting Social Security in order to maximize their monthly benefit.
• People who are waiting on a pension or another delayed income source.
• Those who need income before their required minimum distributions (RMDs) begin at age 73 or 75, depending on your birth year.
• Retirees without pensions who want to turn part of their retirement nest egg into a steady income stream – basically creating their own DIY pension.

“Unlike lifetime annuities, gap annuities are time-limited, making them more flexible and often less expensive,” Chatzky wrote. 

“As with all financial products, make sure you read the fine print —  watch out for fees, surrender charges and whether or not the income keeps up with inflation,” she added.

Jean Chatzky describes her retirement investing strategy

Chatzky has explained her approach to investing in retirement savings accounts, even in times of volatility in the market.

“I’m always buying,” she said. “I think I’m very much the typical retirement investor. I put money into the markets in my 401(k) and other retirement accounts and brokerage accounts on a regular basis in a very methodical way.”

Chatzky has emphasized the fact that she typically avoids investing in individual stocks, preferring a more diversified approach through mutual funds.

While she views stock-picking as an occasional source of enjoyment, her main strategy involves staying the course with long-term investments. 

Chatzky also outlined another method she believes can support investors during market downturns, aimed at helping people maintain their financial footing when stock values dip.

Related: Jean Chatzky warns Americans on a slick Roth IRA retirement move

“You should always try to have enough in bonds and cash that you could prevent yourself from having to sell when stocks are really down,” Chatzky has said. 

“Other than that, I think we really can’t control these things.”