female speaker: hi, everyone. thank you so muchfor joining us today. my name is[? masha ka, ?] and i'm a part of the globalbenefits team. today i have the pleasure ofintroducing to you ms. carrie
finance google , schwab-pomerantz cfp, who isone of the country's leading advocates for financialeducation and literacy. as president of charlesschwab foundation, a private nonprofitorganization,
carrie has continuedschwab's tradition of breaking down barriers byspearheading two nationally recognized financial educationprograms in collaboration with the boys and girlsclubs of america and the aarp foundation. she has opened new doors tothousands of low-income teens and seniors. as a result ofthis work, in 2010 carrie was appointedby president obama
to the president's advisorycouncil on financial capability and served as chair of thecouncil's partnership committee until early 2013. carrie speaks andwrites extensively about personal finance issues,offering guidance and advice through her weeklypersonal finance column, "ask carrie,"which appears on schwab.com and parade.com and is syndicatednationally through the creators news service.
she is also a frequentcontributor to national media and has appeared on"good morning america," "the today show," cnbc, and npr. now addressing the mostimportant financial challenges of today, carrie haswritten "the charles schwab guide to finances after fifty:answers to your most important money questions." in an increasinglycomplex financial world, this book provides an antidotetrue to schwab's heritage:
straight talk, cleardirection, and the inspiration to take control ofyour financial future. "the new yorktimes" described it as overwhelmingand appealing, also noting that this book treatsthe reader as a grown-up. there's little sugar codingand few wasted words. "ms. schwab-pomerantz andgives realistic advice throughout-- an excellentpersonal finance book. the book is wellworth your time,
whether you are over 50 or justseeing the big 5-0 looming." and to be quite honest, forall of us it's very relevant. and now please join mein welcoming ms. carrie schwab-pomerantz to google. [applause] carrie schwab-pomerantz:thank you, [? masha. ?] thank you all forcoming here today. i have to say, i've neverbeen to the google campus, and everybody has beenextremely hospitable.
i had a lovelylunch in your cafe, and i'm taking a lot of notes. we need some fennel water upat schwab as well, i think. and i understandthat all of you are googlers, which i love to hear. i see some thumbs up. so i'm a schwaby. and we have our own vernacular. so our cafe is a "schwafe," orour buses are the "schwuttles,"
and our intranetis the "schweb." and then if couples gettogether-- two schwabies-- they become a "schwouple." so we have all kinds. i'd love to hear all about howyou guys use your googler name. but anyway, thank you againfor having me here today. so i thought would start withsharing a moment of inspiration that i had recently,about six weeks ago. and you may have thoughtabout the same thing.
in the newspapers--it was across all the major newspapers--where we learned that the number oftoddlers with obesity has decreased 43% inthe last 10 years. and i thought tomyself, this is amazing. it seems like onlyjust a few years ago when this country cametogether and rallied around this social issue of obesity. and it made me thinkthat when a country comes
together and makes somethingof national attention, where the nonprofitscome together, employers come together,schools, families, individuals come together, wecan make change. now i share this withyou because so much of financial literacyhas such huge parallels with physical fitness. and i have been an advocatefor financial fitness and financial literacyfor most of my career.
and unfortunately thedial has not moved much. and this country--there's a lack of savings and a lack offinancial preparedness, which ultimately means a lackof financial security. and i would be lyingif i didn't share with you that during the greatrecession in the last five years, i was extremelydisappointed that as a country we did not make this issueof lack of financial literacy a national issue wherewe all came together.
and if you look backat what happened, there were a lot of componentsthat kind of brought down our country. but one significant areawas where individuals were taking out more loansthan they could afford. and certainly there were alot of unscrupulous business practices thathelped that along. but the benefit offinancial literacy is knowing when somethingis too good to be true.
and the great recession was anexample-- this whole subprime phenomenon was anexample of an individual making an ill-adviseddecision, not only affecting his or herself but her family,and ultimately bringing down a whole country. and i don't know ifyou have friends-- i know plenty of people wholive beyond their mean, live paycheck to paycheck. 45-year-olds haven't saved.
in fact, i was recently--about a month ago i was in washington,dc, and went to lunch with a friend and her friend. and this woman-- i thinkshe was in her late 50s. and we happened to walk by herbeautiful apartment-- newly built apartment, downtowndc, around the corner from the willard hotel. and at lunch when i wastelling her all about my book, i could just see hereyes glazing over.
and she admitted to me that sheonly had about $3,000 saved. and yet, she had thisbeautiful apartment, oversees a national nonprofit. and then said to me--admitted that she only had $3,000 saved--and then asked me should she buy this particularhot stock with that $3,000. now this is sort of an extreme. i see someone thumbs up. this is an extreme-- you mustbe part of that investing club.
that's an extremeexample, but i can go on and on aboutthese stories, from a friend of mine's businesspartner-- he's an attorney who makes $350,000 to$400,000 a year. and he lives a very,very lavish life. doesn't have anythingto show for it-- no house, noretirement, nothing. but he has fine wine everynight out in san francisco and he ubers everywhere.
and he says he can'tafford to save. but i think we all havestories about that. but the bottom lineis that i think with a shift in this country,with some adjustments in our behaviors, inour financial knowledge, i think we can reallymake a world of difference in this country. so i thought iwould share with you the definition offinancial literacy.
my husband keeps tellingme, not everybody understands whatexactly that means. and so what i want todo is share with you the definition fromthe financial literacy and educationcommission, which is a commission of 20 federalagencies in this country. it's like hud and the internalrevenue service, department of defense, allthose major agencies. and they care deeplyabout financial literacy.
so let me get youthe definition. they define it as the abilityto use knowledge and skills to manage financialresources effectively for a lifetime offinancial well being. so using your knowledgeand your skills. and so from my standpoint,what that means is living below your means. it means budgeting, tracking. budgeting your money.
tracking where you are spending. prioritizing expenses. saving and investingfor a lifetime. it means having anestate plan in place, whether you are 20 yearsold or 50 years old. and also havingproper insurance. it's creating that foundationfor your financial security. now as mentioned, i have beena part of two president's advisory councils underpresident bush and president
obama. and i've been extremelyproud of the work that we did on those councils. but i have to tell youthat it's not enough. and i think we really needto take this obesity campaign and learn from it and applyit to financial literacy and we need to get from thewhite house to the school house involved, similarto what michelle obama did with her platform with obesity,where you use your bully
pulpit around the issue. also creatingguidelines for what we as americans should followaround our financial literacy. there's no common definition. and to employers-- i understandgoogle is a wonderful example of an employer who seesthe benefit of teaching its employees around thebasics of financial education. also schools. do you know that only sevenstates in this country
require personal finance asa high school requirement? now i think all 50 states shouldrequire financial literacy. and then families andindividuals and nonprofits-- we all need to come together tocreate more financial literacy. now as mentioned,i've been involved with a lot of programsover the years-- financial education programsfor women investors, teens, young adults, the working poor. and what i can tell you is thatthe lack of financial literacy
in the country cutsacross americans from all walks of life. it is blind to socioeconomicstatus, to gender, and to age. it affects everyone andultimately affects our country. now also i can tell you throughthe financial literacy programs that i've been a part is thatfinancial education improves lives, and i'veseen it firsthand. as president of thecharles schwab foundation, we have had a nationalfinancial literacy
program with theboys and girls club. and we have had over 500,000kids go through the program. and what we see isthat these young people get very excited about theopportunities of saving and opening up a checkingaccount for free or a savings account. believe it or not, there'smillions of americans who are unbanked, andthis is the first step into the economic system.
and they start tosave, and they start to see their money accumulate. then college becomesin their purview. and i see this overand over again. this is a teenager, butit happens in every age. and i'll share with you alonzo. i've met a ton of these kids whohave gone through the program. alonzo was a teenager in anative american community outside of phoenix.
when he turned 18 he was goingbe entitled to $30,000 stipend as part of being partof this community. and so his plan before goingto the boys and girls club was to spend the$30,000 on a new car and then get menial job. and that's kind oflife on his community. but then with theboys and girls club learning about what ittakes to have a brighter future around education,being civicly minded,
and also taking themoney matters program, he learned the powerof compound growth. and he realized if he goes tocollege, takes that $30,000 and goes to college,and he starts saving his after school moneygoing forward, he'll have a couplemillion dollars saved. so his whole life was completelychanged, went to college, and now he's on theroad to being a more productive citizen.
and so i see thisover and over again. the last 14 yearsthere have been a lot of headwindsfor americans. where starting back in 2000,the technology bubble burst. were you all stillin technology? raise your hands if youwere in technology in 2000. so you know whati'm talking about. i know at schwab, we wentfrom-- it was 2000 or 2001 when the market tanked.
then you had 9/11 that happened. it all came at once. and then you had enron, whenenron and worldcom folded. and then, of course, thelast great recession. so, so much is getting in theway of us trying to stay ahead. and then you combine thefact that the landscape has changed tremendously overthe last 20, 30 years, where the pension plan is now slowlybut surely going away, going to be extinct.
and so it's sort ofalmost like a transition for this wave of baby boomerswhere no one really taught us. there's been noformal education, yet we have to-- andby the way, whether you are a baby boomeror younger you're going to have to bedisciplined to save and you're going to have to beknowledgeable on how to invest. and then when youdo retire, you're going to have to learnhow to create a pay
check with yoursavings to supplement social security and other means. so a lot on our plates,without any formal education. and then on top of that,the financial world has gotten moreand more complex. just being in financialservice for the last 30 years, the thousands andthousands of accounts that you have to choose from. roth versus traditional,ira versus 401(k) 403(b),
you name it. and then the 529 account,and custodian account. it goes on and on and on. and then the thousandsof mutual funds. so it's no wonder thatall of us either want to put our head in the sandor just hope for the best. but the bottomline is that we now live in a world ofdoing it ourselves. and if we don't takecharge of our own finances,
there's no one else. if we don't take charge,no one else will. and so i stronglybelieve and was hoping that we could createmore of a conversation in this countryaround our need to get engaged with our finances. i believe it's time thatwe have a wake-up call. but at the very least, wehave to start with ourselves, with getting engaged, andbringing those around us
along with the ride. during our life, i think weall run into different moments where it makes a shift in ourthinking, in our behaviors. so when i was in my early 40s--i had always been a saver. i'd been a saver sincei was whatever, a kid. but to be honestwith you, i wasn't as intentional around mysavings, my retirement, to be honest with you, becausethat seemed so far off. but in my 40s, igot intentional.
and so i hired afinancial expert to be my partner in managingmy money, which a lot of people think is interesting. financial experts get helpfrom other financial experts. it's common. he was a partnerfor me to make sure that i really was savingat the rate i needed to save to have theretirement that i want and create a plan for me.
now when i turned 50just a few years ago, it was another pivotalinflection point for me. it was lot of messages. is anybody-- welli shouldn't even. you don't have to tell me ifyou're over 50 or nearly 50. it's ok. i just remember first ofall getting the aarp card. that is brutal. those of you that havea little ways to go,
but you'll realize how joltingit is to get that card. but more so, it made methink just about my life and how i want tohave-- i'm only going to be here in thisworld for a finite period. and what more impact can i have? and it made me thinkthat perhaps this is not an uncommon feeling when wehave those different milestones in our life. but i think what might becommon at this age is thinking
not only-- that we wantmore control in our lives. and so having more controlmeans thinking differently about our life and our money. and so i createdthis book really as a way to make a contribution. right now the savings ratein this country is terrible. only 40% of americanssave for retirement. the average amountsaved is $35,000. $35,000 provides about$100 a month income
for your retirement. so only 40% ofpeople have saved. the average is $35,000. i think all americans, theaverage saved is about $3,500. and 2/3s of americans,social security is their primary source ofincome, and for one third it's their onlysource of income. so the average amount ofsocial security in this country is $15,000.
it's just under,which moves anybody who solely relies onthat into poverty. and in fact, the statisticsshow that probably about 50% of baby boomers in thenext wave-- 20 years-- are going to have a lifestylea lot less than what they're used to having because ofthe lack of preparedness. so i created this book totry to provide an accessible way for people to getengaged with their finances and to see that peoplecan make some small steps
and big steps forfinancial security. and so i organizedit in 50 questions, the most commonquestions that people have around their finances. and we bucket it intodifferent groupings. so anybody who isat least 10 years away-- so if you arein your 40s and over, but don't have retirementfor another 10 years, there is a whole sectionfor those people.
to those who are aboutfive years away, and then to those who are in retirement. and then we have a whole sectionon social security and estate planning and thepeople in our lives, because a lot of the decisionswe make around our money are not in a vacuum. so rather than dig deep in allthe details of the book, what i thought i would like todo is just share with you a few things.
i want to share with youthree common misperceptions that people have, 50 and over. and then i want to share withyou three to four points that i think everybody-- no matteryour age-- should know. so starting with thethree misconceptions. we just recentlyhad a schwab study that-- these are actuallythree among about 10 of them, but i tried to pick ones thatmight be of interest to you. but these people whohad the misconceptions
were actually the oneswho considered themselves the most savvyaround their money. so a lot of people don'tknow what they don't know. so let me share a few. the first one is, i'm50, and it's too late to save for retirement. now i'm going to assumeeverybody in here is probably well on theirway, but believe it or not, one third ofamericans 55 and older
has not started savingfor their retirement. so again, this is creatingthis potential social crisis coming up. but what i see-- we havea whole chapter on this, and we actually have achapter for people who are 60 and haven't saved, becauseit is a true reality. this book is forall income levels. there's a real realityof people who have means who haven't prepared.
so what i say to peopleis, 50, well, it's much easier to savesooner than later. it's not too late. and let me just give you acouple of financial examples. an individual at 50 yearsold has the opportunity to save in a 401(k)up to $23,000. that's the $17,500 thatyou can contribute plus the $5,500 catch-upcontribution. so if you saved $23,000for 15 years in a row
at a 6% rate ofreturn, that money will grow to over$500,000, about $570,000. now for the west coastor the east coast, that might not bea lot of money. but it is a lot morethan just $15,000 a year. and there's obviouslypeople living longer and working longerthan 65, but that does show you the powerof compound growth and still having 15 years laterthat you can make a difference.
for those who are youngerthan 50 or 40 years old, i share this wholeidea that if you start saving at 25 yearsold, $10,000 a year at 6% rate of return, the moneywill grow to about 1.7 million. however, if yousave $23,000 which for somebody youngerthan 50 you would have to save in anira or somewhere else, but at a 6% rate of return,$23,000 for 40 years until 65 would grow to about $3 million.
so it's that power of compoundthat is actually exciting and which i thinkif people could see more of thatwould drive them into making somebetter decisions. the second point iwanted to share with you, and while none of ushere are in retirement, it is this misconception thatwhen you do go into retirement, you sell all your stocksand you put everything into bonds and cash.
and i meet peopleday in and day out who are afraid ofthe stock market. but the bottom lineis, is a diversified-- we suggest to people whenyou're in retirement, you should have atleast 20% of your money in a diversifiedportfolio of equities. now i share another story,a friend of mine who i know is a diligent saver. she's 43 years old, and shejust recently came to me.
and she said, carrie, myfinancial planner just told me that i'm not on track. and i said, what do you mean? you're so good at saving. and she said, well,it's because i only have 30% in the stock market. and i said, eleanor, no way! you're kidding me! and i said, you areinvesting like an old lady.
and she said, well i thinkthat kind of explains who i am. but the point thati share this story is that this fear of themarket gets in the way for us to build the wealth and thesecurity that we need to have. and for young people, the20-something year olds, which i think a lot ofgooglers are-- 20 or 30. in your 401(k) or your ira, youprobably want maybe 80 to 100% invested in a diversifiedportfolio of equity. so it's really important.
people don't realizethe impact of inflation. an example that we haveis that $100,000 today at a 3% inflation rate in20 years, which is high now but it's actually lowcompared to other inflation rates we've hadover our history. but $100,000 todayin 20 years could have a purchasingpower of about $55,000. so again, equities is whatwe need to have the growth, to have the financialsecurity that we want.
now another misconceptionis about social security. and i'm also like you,far from retirement, but i do find this fascinatingthat the social security administration saysthat 3/4 of americans take social security assoon as they are eligible, which is 62 years old right now. and in fact, alot of people feel that that's what theyare supposed to do. now for some people, especiallywhat we just experienced over
the last few years withjob losses and so forth, people had to take it. that's the only way,their only means. or someone in ill health. but i can't imaginethat 3/4 of 62 year olds really need theirsocial security now. and i think this is somethingfor you to think about and also to tell yourparents for those of you who are on the younger side.
taking social securityout at 62 means that your monthly contributionwill be permanently reduced 25%. and let me giveyou another number. if you were to waituntil you were 70, your monthly benefitwould be 76% more than if you hadtaken it out at 62. so in other words,it goes up a little bit every year, like6 and 1/2 to 8% a year
that you wait between 62 and 70. and in this interest-rateenvironment, you can't get abetter rate of return. so a lot of people are leavinga lot of money on the table, so it's very worthwhile foryou to look at your options. and there are alsostrategies for couples on maximizing socialsecurity as well. social security also is notnecessarily just a benefit i'll call it for old people.
one of my best friends justlost her husband last year, totally unexpectedand out of the blue. she's 51, and she has asmall child still at home. she's entitled tosocial security. and what was interesting,it was about a year after her husband passed awaythat it dawned on me that she was entitled to social security. and so i texted her andsaid, did you're entitled? and she said no, what do i do?
and i realized, whoa. i know she has a financial--somebody managing her money. and i also know she had anestate-planning attorney. but no one knew that shehad access to this benefit. and not to say thatthis is something that was super importantto her at the time, but for a lot of people,it's an important benefit that they deserve. so social securityis complicated,
but it's alsoworth it for people approaching 60 to reallylook at their options. so those are the threei'll call misconceptions i was going to share with youaround the 50-plus year old. but let me also share withyou some points for you to think about for all ages. i'll get a sip of water. the first one is crunch thenumbers and face your reality. i mentioned i had saved--i've been always a saver,
but i wasn'tparticularly intentional. i think it's really importantto be intentional, especially as you start getting inyour 30s and your 40s around your finances. where is it that you want to be? look at it as sort ofreverse engineering. i know a lot ofyou are engineers. so if you are building abuilding, it's the same thing. you've got to make a plan.
you've got to createthe foundation, and then you have totake the steps to build each of the floors toget to that building. and so same thing withyour retirement money or any finances for thatmatter, is what is your goal, where are you now, and whatdo you need to get there? and i only share that withyou for a couple of reasons. one is that 60% of americansguess how much money they are going to needfor retirement.
yet it's one of themost expensive endeavors we'll ever confront. and secondly,there's been studies that show that thosepeople who actually crunch the numbers, who actually createa plan and follow the plan, on average will have about30% percent more saved than those that do not. so it's just that act ofpreparing and planning and saving that can make abig difference in your life.
now saving for alifetime-- that's the problem in this country. we live beyond our meanswhen in fact we really should be livingbelow our means. so i'll share with you, about10 years ago a woman who started a big networking group,one of the top wall street investment banking firms--i won't name names-- but it was like a-- i shouldn'tcall it an employee resource group.
it was a networking of womenfrom this wall street firm. they were alumni,and then they were women that still worked there. and we were talkingon the phone, and she started to hintto me that she wanted me to be a spokespersonfor this group. and i said to her, why do youwant carrie schwab from charles schwab coming to talk to youabout savings and budgeting and building wealth when you areall the titans of wall street?
and she said, carrie, whathappened is, a lot of us got out of college. we had salaries the size of alot of ceos in this country. and we squandered it away. and i hear this storyover and over again. we're young. we have the rest of ourlives in front of us. but guess what? you don't know what lifeis going to bring you.
and in this case, it wasback probably close to 2000, after the whole bubbleburst-- a lot of wall street lost their jobs. or there's the rat race,working in new york. and people wanting tochange their careers or be stay-at-home moms,or whatever it may be. the point is, isthat as young people, successful peoplesuch as you are all, it's so important to put asmuch money away as you can now
because you don't know whatlife is going to bring you. and so let me give you somerules of thumb around saving. i call it the minus 10 rule. if you are in your 20s, youwant to save at least 10% percent of your income. and i understandthat google actually has an automatic enrollmentat 10%, which is great. it's a best in class. but it's a minimum 10%.
now if you wait untilyour 30s to save, you're going to have toup it to at least 20%. and then your 40s,30% and 50s, beyond. so you can see thatit pays to start saving earlier thanwaiting later in your life. so that's savings. let me talk a littlebit about investing. the last five yearsor-- was it 2008, 2009-- was extremely scary.
and i remember iwas having dinner with a professor ata prominent school, and his wife was a lawyer. and when he gotwhiff of what i did, he felt compelled to bragthat he sold all his stock. and this, of course,he had sold it already at a loss, so i don't knowif he got to the bottom. the basic principleof investing is to invest for the long termin a diversified portfolio.
and what this last fiveyears showed us is those principles still apply. so this fellowlocked in his losses. meanwhile, the market in2007 was at a high up here. when i say themarket, i'm talking about the standard & poor's 500. when it went down, itwent down about 55%. but if you held on thestandard & poor's 500, you would be up about 20%from this high in 2007.
so those of us who savedor stuck with our plan are 20% ahead of the game. so again, it's all aboutlong-term investing. and this professor was not alonein getting scared and saving. the other point i want tomake is about diversification. i think it's got to bevery relevant to all of you as it is for myself andmy colleagues at schwab. and that is, is that you wantto be a diversified portfolio in international, small cap,large cap, us, and emerging
markets and so forth-- just abroad-based diversification. you also on a ruleof thumb don't want to be investedin more than 20% in any one stock or industry. does that ring true to you all? we have the same problemwhere you get over-- you have your company or yourinvestments in one stock. but think about enron. do you all remember enron?
right. 62% of their employees' 401(k)was in their company stock. so there was story after storywhere those employees lost everything in their 401(k)s. they lost their job. and i rememberthere was one story in "usa today" where afellow, he had to sell his car just to make his home payment. so he almost losthis home as well.
so while right nowit's a good days, again, you do not knowwhat life will bring you. so it's really important todiversify and save and invest for the long term. and if you are ina situation where you do have toomuch of one stock, there are ways tomitigate the risk. so that's really worthwhilefor you to think about that when you take a lookat your finances.
so i understand that googleis a very generous company. and i think one of the pinnaclesof having financial security is being able to shareyour wealth with others through philanthropy. and as president of thecharles schwab foundation, i have one of the bestjobs in the company because not only do i getto think about the strategy and create programs forothers who need it most, but i also get touse my business
skills around my philanthropy. and so i wanted toshare with you because i know a lot of you--i guess googlers get a match of $6,000 for yourphilanthropy, which i think is wonderful. so i'm going to share with youmy evolution of philanthropy. back in my 30s, ilived in atlanta, and i had small children. i was just focused on myjob, focused on the kids.
and a friend of minein the financial world invited me with about sixor seven other women-- we were all financial services. and she brought a woman thatruns the atlanta women's foundation whichis an organization for underserved women. and she brought us todinner and asked us if we would collectivelycome together and raise $50,000 a year for threeyears in a row for women,
for women's economic parity,because it was sort of aligned with our industryand our passion. so economic parity for women. and at the time,i had not really been involved with philanthropy,to be honest with you. i was focused onwhatever, my life. and to think about havingto raise $50,000 for three years in a row and make thatcommitment seemed huge to me. i had never raised money.
i think the most i had everdone is sell girl scout cookies to my grandmother, andthat was an easy sell. so i went home that night, andi remember tossing and turning, thinking about this wholenotion of helping women. i was tossing and turningbecause i was very nervous, but i was alsotossing and turning because my friend had somehowunturned this passion that i guess in a way sortof forgot i had. my friends later saidi was always sort
of this women's libberin college and so forth. i hadn't remembered. but i was so excited to be apart of this, so i signed on. and not everybody did. some people were a littlebit intimidated by the ask. and i ended up being thenumber one fundraiser, and then i ended up beingthe chair of the event. and then i ended up onthe board and the chair of the board of one ofits recipient nonprofit
organizations. and i only share thiswith you because i think when it comes tophilanthropy, or even anything that we all do, whether it'sour work or extracurricular, when you have passionnothing can stop you from being successful. and so that in a way sortof launched my career around financial literacyand economic parity. but it all reallystarted-- a lot
of advocacy started with women. and so i encourageeverybody to think about what grabs you, whatgets you excited, where can i make the imprint. and then the secondpoint is, it doesn't have to be just about money. it's about leveraging resources. at schwab, our colleagues go outand provide financial education to underserved populations.
that's where we can bringsomething to the table. i know all of youwith your technology-- you have so much to give back,so much knowledge to share. and recently i was in africalast summer with my daughter and went to this high school forgirls who otherwise would not have a high-school education. it's not free there. and so this young couple frommarin started this high school. and so i went there and taughtthem about financial literacy.
i actually taught themabout public speaking and also talked to themabout women and leadership. and again, sometimes we don'tthink about some of the skill sets we have and wecan bring to the table. then lastly, use thetools that are out there to make philanthropy easy. one of these best keptsecrets-- donor-advised funds. is anybody here familiarwith a donor-advised fund? no?
a donor-advised fund islike a mini 501(c)(3), and most financialinstitutions have them, where you can put appreciatedstock-- it looks like an ira, where it serves as tax deferred. but you put your appreciatedstock into the account so then more goes to charityrather than paying capital gains and then youget to write off that donation on yourincome taxes that year. then it goes into yourmutual fund of your choice.
you get a selectionmutual funds. you can let it grow, or youpoint and you click and give it online and have it sentto your favorite charity. and for me, i know i amgoing to give every year. and so i work withmy financial planner on what appreciated stockto put into the account, and then i point and click. and the great thingabout a program like this is that you have ahistory of where you gave.
so my children's school cometo me seems like four times a year. it's like, oh my gosh. didn't i just give to them? so i go onto mydonor-advised fund, i look at my history of mycharity, and i say, oh, ok. it was last november,so it's been a year. and i point and clickand send it off. so with charity, i thinkit's really important
to find what your passion isso you can be very focused and you can be successfulat whatever matters to you and bring your resources to thetable-- your other resources-- and also find a tax-efficient,strategic way to give money. so if i were to wrap thiswhole presentation up in a bow, i would just leaveyou with one message. and that is, get engaged. and if you're alreadyengaged, get more engaged. are you really savingenough in your 401(k)?
believe it or not,for most people you need to save morethan just your 401(k). retirement is expensive. i didn't mention that we usethe 25% or 25 times rule. you need 25 times theamount of money of income that you'll need at retirement. so let me give you an example. if you need $40,000 a yearat the time of retirement, you will need 40,000 times25, which is $1 million.
so that should lasta 30-year retirement. so that is just a ballpark. for some people it's more. for some people it's less. and this is from your savingsto supplemental social security and any other reliable sourcesof income that you may have. so bottom line is, get engaged. are you saving asmuch as you should be? think about are youmaxing out your 401(k)?
are you bringing others inyour life along the ride? your colleagues? are they doing whatthey need to do? i was thinking. you are some of thesmartest people. is there a way thatgoogle could figure out a way for more americans toparticipate in their finances? something for youall to think about. i hear you have the 20% ofyour time can go to innovation,
and i would challenge youall to think about that. now and i alsothink when it comes our finances we have tobe honest with ourselves. and i don't think thereis a lot of honesty when it comes to our finances. oh, i can't afford that. oh, i can't afford to save. oh, but my expenses--i can't do this. i can't do that.
i had a moment of myown honest conversation about being honest with myself. completely different--my sister has a figure that i would die for. she worked, but she worksout six days a week. works out reallyhard six days a week. she always avoids fat. she never picks atparties or buffets, and she has saladdressing on the side.
i don't do any of those. yet, well, i'm startingto do some of them. but the bottom line is, is i'mthinking in my mind why, why, why. but i had to behonest with myself. and while losing afew pounds is not as serious as getting yourfinancial security in place, it's something that we stillneed to be in charge of. and so when i talk aboutobesity, for instance,
it's really not aboutobesity for obesity's sake or losing five pounds. it's about having a better life. it's about having the life thatwe want to have for ourselves. and i think withsome adjustments, some more financial education,more national attention, and individuallywe take charge, i think we can have a better life. thank you very much.
audience: i'm 30,but i think i might be in the same situationas a lot of people here. i'm hoping to retire inabout 10 to 15 years. carrie schwab-pomerantz:young retiree. audience: how shouldmy asset allocation be compared to a 50 year old. because i look at thetarget retirement funds, and for those fundsthat are around the date that i'd like to retire, theyseem really conservative.
yet i'm young. i don't know. should i have the samestock bond percentage that someone whois 50 just starting trying to retire at 65? carrie schwab-pomerantz:the same asset allocation? audience: right. carrie schwab-pomerantz:that's hard to-- i mean that's a number.
so this whole questionof you're going to retire-- you'regoing to retire young. so typically, therule of thumb, as i mentioned the25-times rule, it's a rule that you can generate4% off your portfolio, and it will last for 30 years. so in your case, you'regoing to need more than using the 4% rule,because you'll be probably in retirement, if youwant to call it that,
where you won't be generatinga big paycheck anymore. so you're going to definitelyneed more than that. and also the fact thatyou do have more time. you definitely canbenefit from more stocks. given that you're young,you should probably have more stocks anyway. i don't see yougoing into bonds. but when you do start tohave to rely on that money-- i mean if it's trulythe only money you have,
you're definitely going toneed to go more conservative. and as i mentioned, somebody whois in retirement is 20% stock, i would definitely gomore than that with you. but you have tocrunch the numbers. what kind of income is yourportfolio generating for you? but you're going to need thegrowth, because again, you could live another 40years at 50 years old, so-- audience: so generallyhigher stocks? carrie schwab-pomerantz: yes--
audience: [inaudible] carrie schwab-pomerantz: yes. and when i say minimum 20% fora 65 year old, it's a minimum. audience: oh, right. carrie schwab-pomerantz: yeah. audience: so asidefrom savings rate, just the asset allocation. you definitely can go more. but you should checkin periodically
or when you get closer. you shouldn't bein the stock market if you need your moneywithin five years. audience: hi, carrie. so i have a couple questions. one is what are goodmilestones to have? say at 30 years old youshould have 100,000. 40 years old youshould have $500,000. 50 years old, youshould have a million.
what are good numbersso that i know that i'm kind of on track for-- audience: retirement. because i can never find that. people keep saying youshould be saving so much, but then-- i'm just curious. if i'm 40 years old,how much should i have saved and shouldthat saving also include the equity in your home?
or should that not includethe equity in your home. thank you. carrie schwab-pomerantz: ok. so let's just talkabout the home first. a lot of people obviously theirhome becomes their retirement plan. but my belief is thathome is your home. so a lot of people haveto rely on their home. i get that.
but if you can, don'tlook at your home as your retirement plan. it's an illiquidasset, and you don't know what it will be worth atthe time that you need to sell. like for instance, whathappened in the last five years? the west coast, where we alllive, the houses keep going up. but in the middle of thecountry or farmland areas, that's not happening. so i would look atyour home as a home.
there's no rule of thumbthat when you're 40 you should have a millionand at 50, $2 million. i think the betterway to look at is, is how much money am i goingto want to have when i retire. so $100,000-- if you're going towant $100,000 when you retire, you're going toneed $2.5 million. so i would look atwhat do you have now. let's just say it's $100,00. what do you havenow, and what more
do you have to do toget to $2.5 million. and of course i don'tknow the numbers offhand, but there's plentyof calculators with a certain rate ofreturn, what will it take to get tothat $2.5 million. so i think again youhave to say where do you want togo, where are you, and then how much you save. there's no ballparksabout how old you are.
it all depends on you. some people live offsocial security just fine. audience: a lot of myfriends like trying to suggest buying properties,become landlords, and use them as income sourcewhen you retire. is that a good strategy,or it's not recommended? carrie schwab-pomerantz: sopeople ask that all the time about real estate. i think real estateis fine as long
as you know what you're doing. real estate like reits shouldbe part of your asset allocation because it is sort ofa hedge to inflation, but what you're talking aboutis being a landlord or investing in commercial real estate. that's a wholeanother expertise. and you also don't want to putall your eggs in one basket. you just need toknow what you're doing because you're puttingeverything in one egg.
and also again, it'silliquid as well. another question people ask,should i pay off my loan, my mortgage, when i retire. and again, itdoesn't necessarily pay to take your liquid assetsand pay off your mortgage if you don't have enough liquidassets to generate the income that you need at retirementor whenever you need income from your portfolio. audience: as partof diversification
that could be partof the distribution of your savings to be like-- audience: oh, yeah. rental income candefinitely be part of that. and that would bepart of your equation in terms of how muchmoney do i need. so for instance-- goingback to the $100,000-- let's just say i need$100,000 to live off. $15,000 comes fromsocial security,
so that i need$85,000 for my income. but if i get $10,000 morefrom my rental income, then i need to generate$75,000 from my portfolio to supplement and to createthat $100,000 paycheck. audience: i'm prettyclose to retirement, and i've been workingwith a financial advisor. and the only place where wedon't quite see eye to eye is about fixed-incomeinvestment bonds. he has the kind of view iread in the newspaper advice
columns-- that you have so muchin equities, so much in bonds. carrie schwab-pomerantz:bonds, yeah. audience: and so much in cash. according to him, i'm reallyunderweighted in bonds. but my point of viewis in the current-- carrie schwab-pomerantz:interest-rate environment. audience: financial environment. with the federal reservedeliberately holding down interest rates,bonds are currently
paying almost nothing. and if the fed doeslet the rates go up, they're going to drop invalue, so i've been very leery putting practicallyanything in bonds, and i'm keeping it all inequities and cash basically. carrie schwab-pomerantz:bonds do provide a component to asset allocationand diversification. they play an important role. we all think interest rates,and interest rates will go up,
and bonds will go down. a couple things tothink about-- it does create stabilityin your account. for instance, when the marketcrashed, down 55% percent-- the s&p went down 55%-- thequestion is if you were all in stocks, couldyou stomach that, for your portfoliogoing down that low. that's what you haveto really ask yourself. a portfolio 40% bonds,which i would not
suggest for the 30 year oldsbut maybe 50-plus year olds, maybe 40% bonds. but it depends onyour risk aversion. audience: but you're talkingabout 2007, when bond interest rates were 4 and 5%, and not-- carrie schwab-pomerantz:not in 2000. audience: 1 and 2%. carrie schwab-pomerantz:right, but they create stability in a portfolio,and they create income.
they have theirplace, and so you're timing the marketwith just bonds. and there are waysto get into bonds and have a higherinterest rate if you go into bonds such as corporatebonds and less of treasury. but just keep in mind how itfelt, especially if you're right around from retirement, tohave your portfolio go down so low. but they do have a placein asset allocation.
audience: i wonder if youcould speak a bit about cognitive declinelate in retirement. a lot of what ihear sort of assumes that throughout theretirement, one's mental acuity will be fantastic. but the fact is, you couldhave been financially literate, and you may die young. but if you livea long time, odds are you're not goingto be in a position
to well manage your finances. so how should one planfor that possibility? carrie schwab-pomerantz: well,there's no real easy answer. there's no expertanswer to that. in fact, we mentioned that ioversee the national program with aarp, and isolationfor older people is a really big issue. and isolation leavesyou-- not only because that you saidcognitive-- you're
brain impact isnot quite the same. but also there's alot of isolation. and so older peopleare more likely to give their assets to the housecleaner, or all of the sudden their best friend that justhappens to come in their lives. so i do think it's goingto be a real problem. but i think havinga financial adviser that you trust bepart of your plan, making sure that your childrenare involved with your finances
as well, surrounding yourselfwith trustworthy people, having your estate plan inplace before you think-- when you've gotall your marbles. audience: as i understand,the 4% rule still has some failure rate, probably5% or something like that. carrie schwab-pomerantz:i'm sorry, that some people have what? audience: the 4% withdrawalrate rule still has some failure possibilityof around 5% or--
carrie schwab-pomerantz:it's not it's not perfect. the 4%-- it's aguideline, and it's gone through a lot ofanalysis, monte carlo analysis. it assumes that youhave at least 60% of your assets in equitiesat least so-- or actually 20 to 60% in equities. i think you have tolook at it year by year. there's also the rule of thumbthat you can increase your 4% by the inflation rate each year.
but we also when you'rein retirement-- so here's a couple things. for younger people whoaren't in retirement, you also want tohave cash worth three to six months of expenses. it's called your emergency fund. when you get closerto retirement, you're five yearsaway, you want to up it to probably one year,maybe even two years
like the gentleman that justmentioned one to two years in cash as well so thatyou're not in the situation to sell your portfolio whenthe market's not doing so well. so that's where it gets toughwhen the market tanks, and you want to think aboutmaybe taking less. audience: are thereresources where you can say, ok, this is thewithdrawal rate and here's the failure percent or failurechance, chance of failure. are their online resourceswhere you can run simulations
and say, oh, maybei'll only withdraw 1% and here's thechance of failure. carrie schwab-pomerantz:oh yeah, there's a lot ofsimulations-- schwab.com. do we have one inschwab moneywise? female speaker: we don'thave a retirement-- carrie schwab-pomerantz: oh. there's a lot of retirementcalculators that you can go in and put indifferent variables
and see what differentsaving rates will do and inflation rates andwithdrawal rates and so forth. but i do think you have tolook at it year by year, and again, it's a ballpark. audience: so one thing ihaven't heard in this discussion yet is the talk aboutexpense ratios for funds and how important that can be interms of hundreds of thousands of dollars overan entire savings. carrie schwab-pomerantz:i wasn't
trying to sell product or bethe financial consultant here. but i'll just tellyou my own point of view about the way i invest. i'm a big believer in passiveinvesting and investing in index funds and exchangetraded funds, which are based on broadbased indicessuch as the standard & poor's 500 or there's internationalversions and bond versions. but for my equity,my us equity, i like passive because they'revery low-cost investing.
and you're right. for example, 1%on your mortgage-- think how much 1% youpaying on a mortgage jacks up your monthly payment. so expenses arereally important. also the idea ofpassive investing-- the majority of activetraders or active mutual funds do not outperformthe broad indices. so there's something to that.
there's definitely some benefitto do some active management, but with indexing, youget low cost plus you lower your taxes,which in a sense creates a wholeother level of i'll call alpha in your returns,if you can reduce your taxes. and for people who don't havethe time to manage their money, you are participatingin the market and that's what you want to do. it's all aboutparticipating, not
about trying to outperformor do some little tricks. female speaker: wellthank you all so much
for joining this talk. we really appreciatecarrie schwab being here with us today. and we hope that you are goingto take action and get engaged.
