'Everyday Millionaires' Author Chris Hogan joined Yahoo Finance Live to break down how the COVID-19 pandemic will lead to a retirement epidemic in the U.S.
ADAM SHAPIRO: And that spike we've got in initial claims for unemployment today highlights a problem. It's an ominous warning for something that we've lived with in the United States for years, that several of our countrymen are not prepared for retirement. Let's bring in Chris Hogan. He is the author of Everyday Millionaires, is also a financial expert with the best voice in all of the United States.
Chris, when we talk about retirement and especially in the pandemic because that's changed this picture for a lot of people, we're talking to two different kinds of people. First there's the 50% who might have access to a retirement system other than Social Security, like a 401(k) and then there are the folks who don't have access. So let's start with the 401(k) side, because 65% of workers say this is going to have an impact, the COVID pandemic and they're withdrawing, some people, from their 401k plans. That's dangerous.
CHRIS HOGAN: It really is dangerous. And according to Kiplinger, 6 out of 10 have said that they've pulled money out of their IRA or 401(k) to meet basic living expenses. And so this kind of drain, this kind of pull down from those resources is going to significantly impact the potential for growth later. And so as I've told people in my first book, Retire Inspired, retirement is not an age, it's a financial number. So we truly have to be working to get toward that number but when you start pulling money out of that, what you're doing is in effect erasing all the years that you contributed, all the years of growth, you've just essentially erased that off of the books. And so this is a serious problem. So we've got a pandemic but then we're going to have a retirement epidemic that comes from it.
SEANA SMITH: So, Chris, what do people do if people are faced with this very tough decision right now. They're trying to make ends meet. They're weighing whether or not they should dip in to their savings, what do you do?
CHRIS HOGAN: Well, you know what, that's a great question. And here's the thing, I talk to people on my show, The Chris Hogan Show, I'm talking to regular everyday people. And so when I hear this message of people struggling to make their rent payment or their mortgage payment, this doesn't fall on deaf ears on me. I know people are struggling trying to take care of those basic necessities. And so in reality what I've been telling them to do is to control the controllables.
And what I mean by that is your expenses. It's really time for us to take a hard look and really understand what's necessary and what's not. Some of these subscriptions that are hanging on at 50 or $75 a month, we've got to get rid of that. We've got to truly be able to take care of the things that are absolute necessity for ourselves and our family. And so it's requiring people to streamline some things.
But also, if people are out of work, I've been telling them. Don't sit and wait on the perfect job to come to you, you've got to go get a job. And what I mean by that is get some money coming in while you continue to look for a better job. It's always easier to find a job when you have one. So people are having to make real life changes and real life adjustments but these sacrifices are necessary so we can take care of those basic living expenses.
ADAM SHAPIRO: What do you say to the people who call into your show when they might ask a question about whether they should contribute to the 401(k) or not and those who choose not to are missing out on a match. How do you convince them that that is just shooting themselves in the foot?
CHRIS HOGAN: I essentially say the same thing. You're giving up free money. And so I'm advising people listen, you definitely want to definitely invest up to the match. It's imperative but before you do that I'm kind of guiding people because people are trying to do seven and eight things at the same time and it's going to make you ineffective in all of them. And so what we advise people is to get that starter emergency fund first. If you have debt, get $1,000 in place, then focus your energy on attacking and paying off the debt. Once you get out of debt, now you want to build up a fully funded emergency fund of three to six months of expenses. Then you can start to invest.
See what happens is, is too many people are utilizing their 401(k)s and IRAs as an emergency fund. And so what we have to do and this pandemic has shown us, we need to have money set aside for a rainy day because it's not if it's going to rain, it's when it's going to rain. And so having that emergency fund will allow us to protect our investments for the future.
SEANA SMITH: Hey, Chris, President-elect Joe Biden, he's giving a speech tonight. We're expecting to hear a little bit more details about his COVID relief package. From what you heard, from what you're looking at, what do you think needs to be included, are these stimulus checks, these direct payments to Americans, how helpful is that?
CHRIS HOGAN: Well, it's a drop in the bucket. I mean, when you start to look at this and you're talking about sending out $600 or $2,000, that's not going to change anyone's life or their financial situation. Will it help them buy some groceries, yes. Will it help them be able to take care of a few basic things, yes it will. But what about after that? And I think this is the thing that we need to see and really understand, that's a drop in the bucket. What we need is a long term solution. Whether we're looking at vaccinations or businesses being able to reopen so people can go back to work so they can take care of their families. And so this is a longer range situation that one check is not going to make a difference.
ADAM SHAPIRO: Chris Hogan is the author of Everyday Millionaires, and has his own program where he shares his financial expertise. Thanks for joining us here on Yahoo Finance Live.
CHRIS HOGAN: Thank you, all.