Download - Saving for Retirement - Charles Schwab · Saving for retirement can be easier with a little help along the way. Step 1: Contribute to your workplace-sponsored retirement plan at least

Saving forRetirement

Looking ahead? Start planning today. It’s great that you’re thinking about

retirement now. A sound plan today can make all the difference in reaching

your future goals. Fortunately, it’s much easier to stay on track than you think.

Here are some guidelines to help turn saving and investing into habits you can

stick with whether retirement is 20, 30 or even 40 years ahead.

A step-by-step approach to saving .....................................................3

Start the saving habit ........................................................................4

Putting your money to work ................................................................8

Staying on track ..............................................................................10

Retirement resources at a glance ....................................................12

A practical guide

to getting

started today.

Saving for retirement can be easier with a little help along the way.

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What are the keys to successfully saving for retirement? Get started. Keep saving. And stick with it.

You’d be surprised how simple it can be once you get going. Saving now for something in the future such as retirement can help you feel more con� dent that you’re making life easier for yourself in the long run. And with these practical guidelines and workable solutions, you can get started right away.

This guide offers a variety of ideas and simple steps you can take today to lay the foundation for your future retirement. If you’d like to talk to us about your speci� c � nancial plans and how we can help you achieve them, just give us a call.

It’s your future. We’re here to help you make it everything you want it to be.

Saving for retirement can be easier with a little help along the way.

Step 1: Contribute to your workplace-sponsored retirement plan at least up to the maximum employer match. If your company matches all or part of your 401(k) or similar contribution, think of it as free money—it’s an easy way to boost your income and get a head start toward your goals.

Step 2: Pay off nondeductible, high-interest-rate debt, (e.g., credit cards, auto loans). For example, if you’re paying 13% in interest on credit card debt, it’s like saving yourself that much more money.

Step 3: Create an emergency fund equivalent to at least three months of essential living expenses. This way you won’t have to dip into savings or borrow at unattractive rates if you need cash in a hurry.

Step 4: The more you can set aside now for retirement, the more secure your � nancial future will be. To build on steps 1 through 3, you may also consider contributing to an Individual Retirement Account (IRA) or other tax-advantaged account, up to the maximum allowed by law. An IRA can offer you added investment options and � exibility. Remember to check deductibility rules before opening an IRA.

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READ ON FOR MORE IDEAS—AND FEEL FREE TO CALL A SCHWAB INVESTMENT PROFESSIONAL AT 1-800-435-4000.

With a little planning, it’s possible to save for retirement and still take care of your other

� nancial responsibilities. Here are some steps to help you get started.

A STEP-BY-STEP

APPROACH TO SAVING

Start the saving habit with a realistic commitment—one you can meet now and stick with over time.

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The sooner you start saving, the smaller the percentage of your salary you’ll need to set aside each year. If you start in your 20s, 10% per year is a good goal. If you start in your 30s, aim to save 12% to 15%. Wait until your 40s and you should be saving 30% to 35%.

Start the saving habit with a realistic commitment—one you can meet now and stick with over time.

5How much you save and spend are the main factors in achieving your retirement goals. And the

earlier you start saving, the better. But whatever age you begin, the important thing is to stay

the course. Even a small amount saved regularly can grow into a signi� cant sum over time.

Save as much as you can.

Can you save 10% to 15% of your salary before taxes each year? That’s a good starting point if you’re in your 20s or 30s. Even small changes in your saving and spending habits can make a big difference. Here are some ideas to help you.

Ways to save more:

• Try saving all or a portion of any annual salary increase.

• If you get an annual bonus, earmark part or all of it for retirement.

• Track your spending to fi nd ways of cutting back. Consider this: If you buy a Grande Coffee ($1.70) instead of a Grande Café Mocha ($3.50) � ve times a week, you could save almost $500 a year!

Source: Schwab Center for Financial Research

Put time on your side.

Time is your biggest ally when it comes to saving, thanks to the power of compounding. Compounding can have a positive snowball effect on your money because your original investments—plus the earnings on those investments—grow together over time. And because the earnings are reinvested back into your original investment, your money grows much faster than your original invest-ment alone.

The key is to get started right away and save as much as possible. As the chart demonstrates, the earlier you start saving, the greater the positive effect of compounding.

The value of investing early:How two people compare.

$250,000

$200,000

$150,000

$100,000

$50,000

$0Invests $400per month for

20 years

Invests $400per month for

10 years

$48,000

$96,000

Total earTotal earT nings

Total monthlyTotal monthlyTcontributions

Bob

Mary

$25,667

At age 25 Mary starts saving $400/month. Bob starts at 35. By 45 Mary will have accumulated three times more than Bob, while contributing only twice as much. Assumes a constant 8% annual return.

The value of investing early: How two people compare

Roth IRA

Traditional IRA

Contributions are not tax-deductible.

Contributions are tax-deductible (depending on income level).

There is no mandatory distribution age.

You can begin with-drawing, penalty-free, at age 59½. Withdrawals are mandatory after you reach age 70½.

All withdrawals of earnings and principal are tax-free (subject to certain limitations).

Withdrawals are taxed at ordinary income rates.

Available to single � lers and those married and � ling jointly who make less than the modi� ed adjusted gross income (MAGI) thresholds for that year. For contribution limits, visit schwab.com/ira.

Anyone can open one. There are no income restrictions.

Contributions can be withdrawn at any time without taxes or penalties. Earnings can be withdrawn without penalty if you are 59½ and your ac-count has been open for � ve years or more.

All funds withdrawn (including principal contributions) before 59½ are subject to a 10% penalty (subject to certain exceptions).

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FOR PERSONAL HELP WITH YOUR RETIREMENT NEEDS, SPEAK WITH A SCHWAB INVESTMENT PROFESSIONAL AT 1-800-435-4000.

Make use of tax-advantaged accounts.

Accounts such as a 401(k) or an IRA offer tremendous advantages because you don’t pay taxes on your earnings initially—they’re allowed to grow tax-deferred. If your employer has a 401(k), 403(b)(7) or similar retirement plan, start there and try to contribute up to the employer match. That match is essentially free money.

Contributions to a retirement plan are pre-tax, so contributing a slightly higher percentage may not signi� cantly reduce your paycheck. For example, if you’re in the 25% tax bracket and your paycheck is $1,000, increasing your contribution from 10% to 15% would only lessen your take-home pay by $37.50.

If you don’t have an employer-sponsored plan—or even if you do—consider opening an IRA. Both Traditional and Roth IRAs offer similar tax-deferred growth. But, as the chart shows, there are a few key differences that might make one more appropriate for you than the other.

Things to consider when choosing an IRA:

• A Roth IRA has no immediate tax breaks, but earnings grow tax-free and you pay no taxes on quali� ed withdrawals. This is a smart solution if you fall within eligible income limits today, but expect to be in a higher income tax bracket in the future.

• Contributions to a Traditional IRA may be tax-deductible depending on your situation. You pay no taxes on earnings, but you pay ordinary income taxes on withdrawals. This is a smart solution if you expect to be in a lower income tax bracket when you retire.

Roth IRA

Traditional IRA

Contributions are not tax-deductible.

Contributions are tax-deductible (depending on income level).

There is no mandatory distribution age.

You can begin with-drawing, penalty-free, at age 59½. Withdrawals are mandatory after you reach age 70½.

All withdrawals of earnings and principal are tax-free (subject to certain limitations).

Withdrawals are taxed at ordinary income rates.

Available to single � lers and those married and � ling jointly who make less than the modi� ed adjusted gross income (MAGI) thresholds for that year. For contribution limits, visit schwab.com/ira.

Anyone can open one. There are no income restrictions.

Contributions can be withdrawn at any time without taxes or penalties. Earnings can be withdrawn without penalty if you are 59½ and your ac-count has been open for � ve years or more.

All funds withdrawn (including principal contributions) before 59½ are subject to a 10% penalty (subject to certain exceptions).

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Schwab tools to help you get started.

• For a quick retirement assessment, go to schwab.com/retirementassessment.

• Find out if a Traditional IRA or a Roth IRA is the best choice for you, and how much you can contribute. Go to schwab.com/ira_analyzer.

• To open a Schwab IRA online in about 15 minutes, go to schwab.com/ira.

Changing jobs? Roll over your 401(k).

Rolling over your 401(k) instead of cashing out when you change jobs can save you money because of the penalties associated with withdrawing your retirement assets early. Plus, with a Rollover IRA you typically have more investment options and your money keeps growing tax-deferred.

What’s left after a $56,000 distribution from a 401(k)?

Withdrawal $56,000

10% early withdrawal penalty –5,600

28% federal income tax –15,680(20% withheld from distribution)

What’s left $34,720(less any state and local taxes and penalties you may owe)

If you let this money grow tax-deferred for 30 years at 8% instead of withdrawing it, you’d have $563,500!

Source: Schwab Center for Financial Research

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On average, people who have a savings and investing plan—and stick with it—tend to have two to three times more wealth than non-planners.

Decide how you’d like to invest.

How you invest across stocks, bonds and cash—your asset allocation—is one of the keys to long-term success. Why? Because these three basic asset classes respond to the market differently. When one is up, another can be down.

For instance, stocks are the most volatile due to market movements. Bonds, on the other hand, can provide a more stable return. By investing in both, you can give yourself the potential for growth no matter what the market is doing.

Choose how you want to allocate your assets.

How you allocate your assets should be based on three things: your goals, the number of years you have to invest and your feelings about risk. This will make it easier to stick to your plan long-term—even during years when there’s a loss.

Here are three model asset allocation plans to help you get started.

Source: Lusardi, Annamaria and Olivia S. Mitchell, “Financial Literacy and Planning: Implica-tions for Retirement Wellbeing,” October 2006, page 26.

You’ve started saving. Now it’s time to invest your money to make it work harder.

Stocks 20%

Bonds 50%

Cash 30%

Stocks 60%

Bonds 35%

Cash 5%

Stocks 95%

Cash 5%

ConservativePortfolio

ModeratePortfolio

AggressivePortfolio

Make sure you’re well diversi� ed.

Diversi� cation—holding a variety of invest-ments—is one of the best ways to weather market ups and downs and maintain the potential for growth. In fact, we believe how you diversify is even more important than the individual investments you choose.

You don’t want the growth of your savings to depend on the performance of a single invest-ment. For example, if you own only one stock and it falls 20%, the value of your investments is down 20%. By adding in even one more stock that rises when the other one falls, your savings would be in better shape.

A reasonable guideline—According to the Schwab Center for Financial Research, you should be concerned if a single stock accounts for 10% or more of your total stock investments.

Ways to diversify:

• Across asset classes—Invest in large well-established companies, smaller emerging companies and international stocks, as well as in bonds and cash.

• Within asset classes—Be sure to invest in multiple market sectors (e.g., technology or health care), companies and countries.

• With mutual funds—Mutual funds are an easy, low-cost way to have a mix of invest-ments. A mutual fund pools money from shareholders to invest in a variety of stocks or bonds.

Schwab tools and services to help you invest.

• Learn more about creating a diversifi ed portfolio at schwab.com/portfoliobasics.

• How much risk are you willing to take? To fi nd out, go to schwab.com/portfoliocheckup.

• Explore an automatic, all-in-one solution such as a Schwab Target Fund geared to when you want to retire. Go to schwab.com/target.

• For help with managing your investments, go to schwab.com/� nancialguidance.


Diversifi cation strategies do not ensure a profi t or protect against losses in a declining market.

Ready to invest? First, ask yourself this question: Are you comfortable taking more risk for

higher potential returns or do you prefer to play it safer? Understanding your feelings about risk

up front—and what levels of risk you can take—will help you choose a long-term investment

plan that suits you now and can grow with you in the future. Keep in mind that the more time

you have until retirement, the more aggressive your investment plan can be.

Portfolios go out of balance over time

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An extra $200 a month saved for 15 years at 8% could mean $70,000 or more toward your retirement goal. If you save that extra money for 30 years at 8%, it could mean $283,523 toward your goal.

To stay on track, make saving for retirementa top priority and always “pay yourself � rst.”

Put your savings on automatic.

One of the best ways to stay on track is to make saving and investing as painless and automatic as possible. For instance, when you contribute to your 401(k), 403(b) or other employer-spon-sored plan, the money comes directly out of your paycheck and is automatically invested in the mutual funds you chose in your plan.

If you don’t have a 401(k), you can easily set up automatic deposits directly into your IRA.

Other ways to automate your savings:

• To save—Use direct deposit to put a portion of your paycheck each month directly into your retirement account.

• To invest—You can set up automatic monthly payments to invest in a mutual fund.

Check your investments at least once a year.

As the market or your own circumstances change, you may need to make changes in your investments. For instance, your portfolio can be-come out of balance or you may decide you’re no longer comfortable with the way you’ve allocated your assets.

What to look for:

• Your asset allocation—Does it still match your tolerance for risk?

• Your investment concentration—Do you have too much invested in a particular sector, industry or company?

• Your individual investments—Have ratings on your stocks or mutual funds gone down?

These examples are hypothetical and provided for illustrative purposes only. They are not intended to represent a speci� c investment product.

> 4 Years >Later

■ 60% STOCKS ■ 68% STOCKS■ 40% BONDS ■ 32% BONDS

2004 Balanced Portfolio Moderate Risk

2008 Unbalanced Portfolio Increased Risk

When stock investments grow faster than bonds, your portfolio may have more risk than you desire.

Stay � exible.

Even the best-laid plans may have to change. A job change, marriage or divorce, or the birth of a child can have an impact on your � nances and your savings needs for better or worse.

Be willing to adjust—and protect—your retire-ment plan as your life changes. For example:

• If your salary goes up, increase the amount you save.

• If you change jobs, consider consolidat-ing your 401(k) savings in a Rollover IRA or another employer-sponsored plan for easier management.

• When additional expenses impact your ability to save for retirement, try to adjust your discretionary spending rather than cut into your savings.

Whatever you do, stay � exible and focused on your goal. While retirement may seem to be a long way off, the only way to ensure that you’ll be ready is to get on track now.

Schwab tools and services to help you keep going.

• Use Schwab MoneyLink® to set up regular deposits to your Schwab accounts from all other accounts. Go to schwab.com/moneylink.

• Schwab’s Automatic Investment Plan (AIP) can make mutual fund investing easy. Go to schwab.com/aip.

• A Schwab investment professional can review and discuss your portfolio with you. To schedule a complimentary consultation, call 1-800-548-5709.

• For a detailed quarterly portfolio report to help you take action, sign up for your free Schwab Quarterly Portfolio Pro� le™ at schwab.com/qpp.


Automatic monthly investments do not ensure a profi t or protect against losses in a declining market.

As your expenses go up and life gets more complex, it may be tempting to put saving for

retirement toward the bottom of your list. But the surest way to reach both your short- and

long-term goals is to keep saving and investing.

Take advantage of our full range of resources.

FOR GENERAL INFORMATION

• Glossary with defi nitions of commonly used investing terms Go to schwab.com/glossary.

• Information on Roth IRA contributions and the tax deductibility of traditional IRAs Go to schwab.com/ira.

TO GET STARTED SAVING FOR RETIREMENT

• Schwab Retirement Center with retirement savings calculator, IRA applications and more Go to schwab.com/retirement.

• Schwab Retirement Assessment Tool

Go to schwab.com/retirementassessment and log in.

• Schwab IRA Analyzer Go to schwab.com/ira_analyzer.

TO HELP YOU INVEST

• Schwab Complimentary Consultation To schedule a consultation, call 1-800-548-5709.

• Investing Education

Go to schwab.com/portfoliobasics and log in.

• Schwab Target Funds Go to schwab.com/target.

• Schwab Managed Portfolios™*Go to schwab.com/smp.

TO ROLL OVER YOUR 401(K)

• Schwab Rollover IRA Log in to schwab.com/rolloverIRA.

• Schwab Rollover IRA Consultants Call 1-877-412-6116 or go to schwab.com/rollover_consultants.

TO HELP YOU STAY ON TRACK

• Schwab Portfolio Checkup® Go to schwab.com/portfoliocheckup

and log in.

• Schwab Automatic Investment Plan (AIP) Log in to schwab.com/aip.

• Schwab Quarterly Portfolio Pro� le™ Log in to schwab.com/qpp.

TO HELP YOU MANAGE YOUR ASSETS

• Financial Guidance

To review the many ways Schwab can help you manage your portfolio, go to schwab.com/� nancialguidance.

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RETIREMENT RESOURCES AT A GLANCE

We’re here to make working toward retirement easier.

Whatever retirement means to you, we have the resources designed to help you maximize your

potential as you work toward achieving your goals. From a full range of investments to easy online

tools to investment professionals who can answer your questions and give you service, you can

turn to Schwab for the type of assistance that suits you best.

CALL US AT 1-800-435-4000 OR REFER TO THE LIST OF SERVICES BELOW.

* Please read Schwab’s Schedule H of Form ADV for important information, pricing and disclosures relating to Schwab Managed Portfolios.

Investors should consider carefully information contained in the prospectus, including investment objectives, risks, charges and expenses. You can request a prospectus by calling Schwab at 1-800-435-4000. Please read the prospectus carefully before investing.

Past performance is no guarantee of future results. Investment value will � uctuate, and shares, when redeemed, may be worth more or less than original cost.