Updated : Sep 11, 2019 in Articles

Carrie Schwab-Pomerantz: “The Charles Schwab Guide to Finance after Fifty” | Talks at Google


FEMALE SPEAKER: Hi, everyone. Thank you so much
for joining us today. My name is
[? Masha Ka, ?] and I’m a part of the global
benefits team. Today I have the pleasure of
introducing to you Ms. Carrie Schwab-Pomerantz CFP, who is
one of the country’s leading advocates for financial
education and literacy. As president of Charles
Schwab Foundation, a private nonprofit
organization, Carrie has continued
Schwab’s tradition of breaking down barriers by
spearheading two nationally recognized financial education
programs in collaboration with the Boys and Girls
Clubs of America and the AARP Foundation. She has opened new doors to
thousands of low-income teens and seniors. As a result of
this work, in 2010 Carrie was appointed
by President Obama to The President’s Advisory
Council on Financial Capability and served as chair of the
council’s partnership committee until early 2013. Carrie speaks and
writes extensively about personal finance issues,
offering guidance and advice through her weekly
personal finance column, “Ask Carrie,”
which appears on schwab.com and parade.com and is syndicated
nationally through the Creators News Service. She is also a frequent
contributor to national media and has appeared on
“Good Morning America,” “The Today Show,” CNBC, and NPR. Now addressing the most
important financial challenges of today, Carrie has
written “The Charles Schwab Guide to Finances After Fifty:
Answers to Your Most Important Money Questions.” In an increasingly
complex financial world, this book provides an antidote
true to Schwab’s heritage: straight talk, clear
direction, and the inspiration to take control of
your financial future. “The New York
Times” described it as overwhelming
and appealing, also noting that this book treats
the reader as a grown-up. There’s little sugar coding
and few wasted words. “Ms. Schwab-Pomerantz and
gives realistic advice throughout– an excellent
personal finance book. The book is well
worth your time, whether you are over 50 or just
seeing the big 5-0 looming.” And to be quite honest, for
all of us it’s very relevant. And now please join me
in welcoming Ms. Carrie Schwab-Pomerantz to Google. [APPLAUSE] CARRIE SCHWAB-POMERANTZ:
Thank you, [? Masha. ?] Thank you all for
coming here today. I have to say, I’ve never
been to the Google campus, and everybody has been
extremely hospitable. I had a lovely
lunch in your cafe, and I’m taking a lot of notes. We need some fennel water up
at Schwab as well, I think. And I understand
that 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,” or
our buses are the “schwuttles,” and our intranet
is the “schweb.” And then if couples get
together– two Schwabies– they become a “schwouple.” So we have all kinds. I’d love to hear all about how
you guys use your Googler name. But anyway, thank you again
for having me here today. So I thought would start with
sharing a moment of inspiration that I had recently,
about six weeks ago. And you may have thought
about the same thing. In the newspapers–
it was across all the major newspapers–
where we learned that the number of
toddlers with obesity has decreased 43% in
the last 10 years. And I thought to
myself, this is amazing. It seems like only
just a few years ago when this country came
together and rallied around this social issue of obesity. And it made me think
that when a country comes together and makes something
of national attention, where the nonprofits
come together, employers come together,
schools, families, individuals come together, we
can make change. Now I share this with
you because so much of financial literacy
has such huge parallels with physical fitness. And I have been an advocate
for financial fitness and financial literacy
for most of my career. And unfortunately the
dial has not moved much. And this country–
there’s a lack of savings and a lack of
financial preparedness, which ultimately means a lack
of financial security. And I would be lying
if I didn’t share with you that during the Great
Recession in the last five years, I was extremely
disappointed that as a country we did not make this issue
of lack of financial literacy a national issue where
we all came together. And if you look back
at what happened, there were a lot of components
that kind of brought down our country. But one significant area
was where individuals were taking out more loans
than they could afford. And certainly there were a
lot of unscrupulous business practices that
helped that along. But the benefit of
financial literacy is knowing when something
is too good to be true. And the great recession was an
example– this whole subprime phenomenon was an
example of an individual making an ill-advised
decision, not only affecting his or herself but her family,
and ultimately bringing down a whole country. And I don’t know if
you have friends– I know plenty of people who
live 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 think
she was in her late 50s. And we happened to walk by her
beautiful apartment– newly built apartment, downtown
DC, around the corner from the Willard Hotel. And at lunch when I was
telling her all about my book, I could just see her
eyes glazing over. And she admitted to me that she
only had about $3,000 saved. And yet, she had this
beautiful 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 particular
hot stock with that $3,000. Now this is sort of an extreme. I see someone thumbs up. This is an extreme– you must
be part of that investing club. That’s an extreme
example, but I can go on and on about
these stories, from a friend of mine’s business
partner– he’s an attorney who makes $350,000 to
$400,000 a year. And he lives a very,
very lavish life. Doesn’t have anything
to show for it– no house, no
retirement, nothing. But he has fine wine every
night out in San Francisco and he Ubers everywhere. And he says he can’t
afford to save. But I think we all have
stories about that. But the bottom line
is that I think with a shift in this country,
with some adjustments in our behaviors, in
our financial knowledge, I think we can really
make a world of difference in this country. So I thought I
would share with you the definition of
financial literacy. My husband keeps telling
me, not everybody understands what
exactly that means. And so what I want to
do is share with you the definition from
the Financial Literacy and Education
Commission, which is a commission of 20 federal
agencies in this country. It’s like HUD and the Internal
Revenue Service, Department of Defense, all
those major agencies. And they care deeply
about financial literacy. So let me get you
the definition. They define it as the ability
to use knowledge and skills to manage financial
resources effectively for a lifetime of
financial well being. So using your knowledge
and 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 investing
for a lifetime. It means having an
estate plan in place, whether you are 20 years
old or 50 years old. And also having
proper insurance. It’s creating that foundation
for your financial security. Now as mentioned, I have been
a part of two President’s Advisory Councils under
President Bush and President Obama. And I’ve been extremely
proud of the work that we did on those councils. But I have to tell you
that it’s not enough. And I think we really need
to take this obesity campaign and learn from it and apply
it to financial literacy in this country. And we need to get from the
White House to the school house involved, similar
to what Michelle Obama did with her platform with obesity,
where you use your bully pulpit around the issue. Also creating
guidelines for what we as Americans should follow
around our financial literacy. There’s no common definition. And to employers– I understand
Google is a wonderful example of an employer who sees
the benefit of teaching its employees around the
basics of financial education. Also schools. Do you know that only seven
states in this country require personal finance as
a high school requirement? Now I think all 50 states should
require financial literacy. And then families and
individuals and nonprofits– we all need to come together to
create more financial literacy. Now as mentioned,
I’ve been involved with a lot of programs
over the years– financial education programs
for women investors, teens, young adults, the working poor. And what I can tell you is that
the lack of financial literacy in the country cuts
across Americans from all walks of life. It is blind to socioeconomic
status, to gender, and to age. It affects everyone and
ultimately affects our country. Now also I can tell you through
the financial literacy programs that I’ve been a part is that
financial education improves lives, and I’ve
seen it firsthand. As president of the
Charles Schwab Foundation, we have had a national
financial literacy program with the
Boys and Girls Club. And we have had over 500,000
kids go through the program. And what we see is
that these young people get very excited about the
opportunities of saving and opening up a checking
account for free or a savings account. Believe it or not, there’s
millions of Americans who are unbanked, and
this is the first step into the economic system. And they start to
save, and they start to see their money accumulate. Then college becomes
in their purview. And I see this over
and over again. This is a teenager, but
it happens in every age. And I’ll share with you Alonzo. I’ve met a ton of these kids who
have gone through the program. Alonzo was a teenager in a
Native American community outside of Phoenix. When he turned 18 he was going
be entitled to $30,000 stipend as part of being part
of this community. And so his plan before going
to the Boys and Girls Club was to spend the
$30,000 on a new car and then get menial job. And that’s kind of
life on his community. But then with the
Boys and Girls Club learning about what it
takes to have a brighter future around education,
being civicly minded, and also taking the
Money Matters program, he learned the power
of compound growth. And he realized if he goes to
college, takes that $30,000 and goes to college,
and he starts saving his after school money
going forward, he’ll have a couple
million dollars saved. So his whole life was completely
changed, went to college, and now he’s on the
road to being a more productive citizen. And so I see this
over and over again. The last 14 years
there have been a lot of headwinds
for Americans. Where starting back in 2000,
the technology bubble burst. Were you all still
in technology? Raise your hands if you
were in technology in 2000. So you know what
I’m talking about. I know at Schwab, we went
from– 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, when
Enron and WorldCom folded. And then, of course, the
last great recession. So, so much is getting in the
way of us trying to stay ahead. And then you combine the
fact that the landscape has changed tremendously over
the last 20, 30 years, where the pension plan is now slowly
but surely going away, going to be extinct. And so it’s sort of
almost like a transition for this wave of baby boomers
where no one really taught us. There’s been no
formal education, yet we have to– and
by the way, whether you are a baby boomer
or younger you’re going to have to be
disciplined to save and you’re going to have to be
knowledgeable on how to invest. And then when you
do retire, you’re going to have to learn
how to create a pay check with your
savings 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 more
and more complex. Just being in financial
service for the last 30 years, the thousands and
thousands 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 thousands
of mutual funds. So it’s no wonder that
all of us either want to put our head in the sand
or just hope for the best. But the bottom
line is that we now live in a world of
doing it ourselves. And if we don’t take
charge of our own finances, there’s no one else. If we don’t take charge,
no one else will. And so I strongly
believe and was hoping that we could create
more of a conversation in this country
around our need to get engaged with our finances. I believe it’s time that
we have a wake-up call. But at the very least, we
have to start with ourselves, with getting engaged, and
bringing those around us along with the ride. During our life, I think we
all run into different moments where it makes a shift in our
thinking, in our behaviors. So when I was in my early 40s–
I had always been a saver. I’d been a saver since
I was whatever, a kid. But to be honest
with you, I wasn’t as intentional around my
savings, my retirement, to be honest with you, because
that seemed so far off. But in my 40s, I
got intentional. And so I hired a
financial expert to be my partner in managing
my money, which a lot of people think is interesting. Financial experts get help
from other financial experts. It’s common. He was a partner
for me to make sure that I really was saving
at the rate I needed to save to have the
retirement that I want and create a plan for me. Now when I turned 50
just a few years ago, it was another pivotal
inflection point for me. It was lot of messages. Is anybody– well
I shouldn’t even. You don’t have to tell me if
you’re over 50 or nearly 50. It’s OK. I just remember first of
all getting the AARP card. That is brutal. Those of you that have
a little ways to go, but you’ll realize how jolting
it is to get that card. But more so, it made me
think just about my life and how I want to
have– I’m only going to be here in this
world for a finite period. And what more impact can I have? And it made me think
that perhaps this is not an uncommon feeling when we
have those different milestones in our life. But I think what might be
common at this age is thinking not only– that we want
more control in our lives. And so having more control
means thinking differently about our life and our money. And so I created
this book really as a way to make a contribution. Right now the savings rate
in this country is terrible. Only 40% of Americans
save for retirement. The average amount
saved is $35,000. $35,000 provides about
$100 a month income for your retirement. So only 40% of
people have saved. The average is $35,000. I think all Americans, the
average saved is about $3,500. And 2/3s of Americans,
Social Security is their primary source of
income, and for one third it’s their only
source of income. So the average amount of
Social Security in this country is $15,000. It’s just under,
which moves anybody who solely relies on
that into poverty. And in fact, the statistics
show that probably about 50% of baby boomers in the
next wave– 20 years– are going to have a lifestyle
a lot less than what they’re used to having because of
the lack of preparedness. So I created this book to
try to provide an accessible way for people to get
engaged with their finances and to see that people
can make some small steps and big steps for
financial security. And so I organized
it in 50 questions, the most common
questions that people have around their finances. And we bucket it into
different groupings. So anybody who is
at least 10 years away– so if you are
in your 40s and over, but don’t have retirement
for another 10 years, there is a whole section
for those people. To those who are about
five years away, and then to those who are in retirement. And then we have a whole section
on Social Security and estate planning and the
people in our lives, because a lot of the decisions
we make around our money are not in a vacuum. So rather than dig deep in all
the details of the book, what I thought I would like to
do is just share with you a few things. I want to share with you
three common misperceptions that people have, 50 and over. And then I want to share with
you three to four points that I think everybody– no matter
your age– should know. So starting with the
three misconceptions. We just recently
had a Schwab study that– these are actually
three among about 10 of them, but I tried to pick ones that
might be of interest to you. But these people who
had the misconceptions were actually the ones
who considered themselves the most savvy
around their money. So a lot of people don’t
know what they don’t know. So let me share a few. The first one is, I’m
50, and it’s too late to save for retirement. Now I’m going to assume
everybody in here is probably well on their
way, but believe it or not, one third of
Americans 55 and older has not started saving
for their retirement. So again, this is creating
this potential social crisis coming up. But what I see– we have
a whole chapter on this, and we actually have a
chapter for people who are 60 and haven’t saved, because
it is a true reality. This book is for
all income levels. There’s a real reality
of people who have means who haven’t prepared. So what I say to people
is, 50, well, it’s much easier to save
sooner than later. It’s not too late. And let me just give you a
couple of financial examples. An individual at 50 years
old has the opportunity to save in a 401(k)
up to $23,000. That’s the $17,500 that
you can contribute plus the $5,500 catch-up
contribution. So if you saved $23,000
for 15 years in a row at a 6% rate of
return, that money will grow to over
$500,000, about $570,000. Now for the west coast
or the east coast, that might not be
a lot of money. But it is a lot more
than just $15,000 a year. And there’s obviously
people living longer and working longer
than 65, but that does show you the power
of compound growth and still having 15 years later
that you can make a difference. For those who are younger
than 50 or 40 years old, I share this whole
idea that if you start saving at 25 years
old, $10,000 a year at 6% rate of return, the money
will grow to about 1.7 million. However, if you
save $23,000 which for somebody younger
than 50 you would have to save in an
IRA 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 compound
that is actually exciting and which I think
if people could see more of that
would drive them into making some
better decisions. The second point I
wanted to share with you, and while none of us
here are in retirement, it is this misconception that
when you do go into retirement, you sell all your stocks
and you put everything into bonds and cash. And I meet people
day in and day out who are afraid of
the stock market. But the bottom line
is, is a diversified– we suggest to people when
you’re in retirement, you should have at
least 20% of your money in a diversified
portfolio of equities. Now I share another story,
a friend of mine who I know is a diligent saver. She’s 43 years old, and she
just recently came to me. And she said, Carrie, my
financial 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 are
investing like an old lady. And she said, well I think
that kind of explains who I am. But the point that
I share this story is that this fear of the
market gets in the way for us to build the wealth and the
security that we need to have. And for young people, the
20-something year olds, which I think a lot of
Googlers are– 20 or 30. In your 401(k) or your IRA, you
probably want maybe 80 to 100% invested in a diversified
portfolio of equity. So it’s really important. People don’t realize
the impact of inflation. An example that we have
is that $100,000 today at a 3% inflation rate in
20 years, which is high now but it’s actually low
compared to other inflation rates we’ve had
over our history. But $100,000 today
in 20 years could have a purchasing
power of about $55,000. So again, equities is what
we need to have the growth, to have the financial
security that we want. Now another misconception
is about Social Security. And I’m also like you,
far from retirement, but I do find this fascinating
that the Social Security Administration says
that 3/4 of Americans take Social Security as
soon as they are eligible, which is 62 years old right now. And in fact, a
lot of people feel that that’s what they
are supposed to do. Now for some people, especially
what we just experienced over the last few years with
job 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 imagine
that 3/4 of 62 year olds really need their
Social Security now. And I think this is something
for you to think about and also to tell your
parents for those of you who are on the younger side. Taking Social Security
out at 62 means that your monthly contribution
will be permanently reduced 25%. And let me give
you another number. If you were to wait
until you were 70, your monthly benefit
would be 76% more than if you had
taken it out at 62. So in other words,
it goes up a little bit every year, like
6 and 1/2 to 8% a year that you wait between 62 and 70. And in this interest-rate
environment, you can’t get a
better rate of return. So a lot of people are leaving
a lot of money on the table, so it’s very worthwhile for
you to look at your options. And there are also
strategies for couples on maximizing Social
Security as well. Social Security also is not
necessarily just a benefit I’ll call it for old people. One of my best friends just
lost her husband last year, totally unexpected
and out of the blue. She’s 51, and she has a
small child still at home. She’s entitled to
Social Security. And what was interesting,
it was about a year after her husband passed away
that it dawned on me that she was entitled to Social Security. And so I texted her and
said, 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 an
estate-planning attorney. But no one knew that she
had access to this benefit. And not to say that
this is something that was super important
to her at the time, but for a lot of people,
it’s an important benefit that they deserve. So Social Security
is complicated, but it’s also
worth it for people approaching 60 to really
look at their options. So those are the three
I’ll call misconceptions I was going to share with you
around the 50-plus year old. But let me also share with
you some points for you to think about for all ages. I’ll get a sip of water. The first one is crunch the
numbers and face your reality. I mentioned I had saved–
I’ve been always a saver, but I wasn’t
particularly intentional. I think it’s really important
to be intentional, especially as you start getting in
your 30s and your 40s around your finances. Where is it that you want to be? Look at it as sort of
reverse engineering. I know a lot of
you are engineers. So if you are building a
building, it’s the same thing. You’ve got to make a plan. You’ve got to create
the foundation, and then you have to
take the steps to build each of the floors to
get to that building. And so same thing with
your retirement money or any finances for that
matter, is what is your goal, where are you now, and what
do you need to get there? And I only share that with
you for a couple of reasons. One is that 60% of Americans
guess how much money they are going to need
for retirement. Yet it’s one of the
most expensive endeavors we’ll ever confront. And secondly,
there’s been studies that show that those
people who actually crunch the numbers, who actually create
a plan and follow the plan, on average will have about
30% percent more saved than those that do not. So it’s just that act of
preparing and planning and saving that can make a
big difference in your life. Now saving for a
lifetime– that’s the problem in this country. We live beyond our means
when in fact we really should be living
below our means. So I’ll share with you, about
10 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’t
call it an employee resource group. It was a networking of women
from this Wall Street firm. They were alumni,
and then they were women that still worked there. And we were talking
on the phone, and she started to hint
to me that she wanted me to be a spokesperson
for this group. And I said to her, why do you
want Carrie Schwab from Charles Schwab coming to talk to you
about savings and budgeting and building wealth when you are
all the titans of Wall Street? And she said, Carrie, what
happened is, a lot of us got out of college. We had salaries the size of a
lot of CEOs in this country. And we squandered it away. And I hear this story
over and over again. We’re young. We have the rest of our
lives in front of us. But guess what? You don’t know what life
is going to bring you. And in this case, it was
back probably close to 2000, after the whole bubble
burst– a lot of Wall Street lost their jobs. Or there’s the rat race,
working in New York. And people wanting to
change their careers or be stay-at-home moms,
or whatever it may be. The point is, is
that as young people, successful people
such as you are all, it’s so important to put as
much money away as you can now because you don’t know what
life is going to bring you. And so let me give you some
rules of thumb around saving. I call it the minus 10 rule. If you are in your 20s, you
want to save at least 10% percent of your income. And I understand
that Google actually has an automatic enrollment
at 10%, which is great. It’s a best in class. But it’s a minimum 10%. Now if you wait until
your 30s to save, you’re going to have to
up it to at least 20%. And then your 40s,
30% and 50s, beyond. So you can see that
it pays to start saving earlier than
waiting later in your life. So that’s savings. Let me talk a little
bit about investing. The last five years
or– was it 2008, 2009– was extremely scary. And I remember I
was having dinner with a professor at
a prominent school, and his wife was a lawyer. And when he got
whiff of what I did, he felt compelled to brag
that he sold all his stock. And this, of course,
he had sold it already at a loss, so I don’t know
if he got to the bottom. The basic principle
of investing is to invest for the long term
in a diversified portfolio. And what this last five
years showed us is those principles still apply. So this fellow
locked in his losses. Meanwhile, the market in
2007 was at a high up here. When I say the
market, I’m talking about the Standard & Poor’s 500. When it went down, it
went down about 55%. But if you held on the
Standard & Poor’s 500, you would be up about 20%
from this high in 2007. So those of us who saved
or stuck with our plan are 20% ahead of the game. So again, it’s all about
long-term investing. And this professor was not alone
in getting scared and saving. The other point I want to
make is about diversification. I think it’s got to be
very relevant to all of you as it is for myself and
my colleagues at Schwab. And that is, is that you want
to be a diversified portfolio in international, small cap,
large cap, US, and emerging markets and so forth– just a
broad-based diversification. You also on a rule
of thumb don’t want to be invested
in more than 20% in any one stock or industry. Does that ring true to you all? We have the same problem
where you get over– you have your company or your
investments 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 story
where those employees lost everything in their 401(k)s. They lost their job. And I remember
there was one story in “USA Today” where a
fellow, he had to sell his car just to make his home payment. So he almost lost
his home as well. So while right now
it’s a good days, again, you do not know
what life will bring you. So it’s really important to
diversify and save and invest for the long term. And if you are in
a situation where you do have too
much of one stock, there are ways to
mitigate the risk. So that’s really worthwhile
for you to think about that when you take a look
at your finances. So I understand that Google
is a very generous company. And I think one of the pinnacles
of having financial security is being able to share
your wealth with others through philanthropy. And as president of the
Charles Schwab Foundation, I have one of the best
jobs in the company because not only do I get
to think about the strategy and create programs for
others who need it most, but I also get to
use my business skills around my philanthropy. And so I wanted to
share with you because I know a lot of you–
I guess Googlers get a match of $6,000 for your
philanthropy, which I think is wonderful. So I’m going to share with you
my evolution of philanthropy. Back in my 30s, I
lived in Atlanta, and I had small children. I was just focused on my
job, focused on the kids. And a friend of mine
in the financial world invited me with about six
or seven other women– we were all financial services. And she brought a woman that
runs the Atlanta Women’s Foundation which
is an organization for underserved women. And she brought us to
dinner and asked us if we would collectively
come together and raise $50,000 a year for three
years in a row for women, for women’s economic parity,
because it was sort of aligned with our industry
and 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 on
whatever, my life. And to think about having
to raise $50,000 for three years in a row and make that
commitment seemed huge to me. I had never raised money. I think the most I had ever
done is sell Girl Scout cookies to my grandmother, and
that was an easy sell. So I went home that night, and
I remember tossing and turning, thinking about this whole
notion of helping women. I was tossing and turning
because I was very nervous, but I was also
tossing and turning because my friend had somehow
unturned this passion that I guess in a way sort
of forgot I had. My friends later said
I was always sort of this women’s libber
in college and so forth. I hadn’t remembered. But I was so excited to be a
part of this, so I signed on. And not everybody did. Some people were a little
bit intimidated by the ask. And I ended up being the
number one fundraiser, and then I ended up being
the chair of the event. And then I ended up on
the board and the chair of the board of one of
its recipient nonprofit organizations. And I only share this
with you because I think when it comes to
philanthropy, or even anything that we all do, whether it’s
our work or extracurricular, when you have passion
nothing can stop you from being successful. And so that in a way sort
of launched my career around financial literacy
and economic parity. But it all really
started– a lot of advocacy started with women. And so I encourage
everybody to think about what grabs you, what
gets you excited, where can I make the imprint. And then the second
point is, it doesn’t have to be just about money. It’s about leveraging resources. At Schwab, our colleagues go out
and provide financial education to underserved populations. That’s where we can bring
something to the table. I know all of you
with your technology– you have so much to give back,
so much knowledge to share. And recently I was in Africa
last summer with my daughter and went to this high school for
girls who otherwise would not have a high-school education. It’s not free there. And so this young couple from
Marin started this high school. And so I went there and taught
them about financial literacy. I actually taught them
about public speaking and also talked to them
about women and leadership. And again, sometimes we don’t
think about some of the skill sets we have and we
can bring to the table. Then lastly, use the
tools that are out there to make philanthropy easy. One of these best kept
secrets– donor-advised funds. Is anybody here familiar
with a donor-advised fund? No? A donor-advised fund is
like a mini 501(c)(3), and most financial
institutions have them, where you can put appreciated
stock– it looks like an IRA, where it serves as tax deferred. But you put your appreciated
stock into the account so then more goes to charity
rather than paying capital gains and then you
get to write off that donation on your
income taxes that year. Then it goes into your
mutual fund of your choice. You get a selection
mutual funds. You can let it grow, or you
point and you click and give it online and have it sent
to your favorite charity. And for me, I know I am
going to give every year. And so I work with
my financial planner on what appreciated stock
to put into the account, and then I point and click. And the great thing
about a program like this is that you have a
history of where you gave. So my children’s school come
to me seems like four times a year. It’s like, oh my gosh. Didn’t I just give to them? So I go onto my
donor-advised fund, I look at my history of my
charity, and I say, oh, OK. It was last November,
so it’s been a year. And I point and click
and send it off. So with charity, I think
it’s really important to find what your passion is
so you can be very focused and you can be successful
at whatever matters to you and bring your resources to the
table– your other resources– and also find a tax-efficient,
strategic way to give money. So if I were to wrap this
whole presentation up in a bow, I would just leave
you with one message. And that is, get engaged. And if you’re already
engaged, get more engaged. Are you really saving
enough in your 401(k)? Believe it or not,
for most people you need to save more
than just your 401(k). Retirement is expensive. I didn’t mention that we use
the 25% or 25 times rule. You need 25 times the
amount of money of income that you’ll need at retirement. So let me give you an example. If you need $40,000 a year
at the time of retirement, you will need 40,000 times
25, which is $1 million. So that should last
a 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 savings
to supplemental Social Security and any other reliable sources
of income that you may have. So bottom line is, get engaged. Are you saving as
much as you should be? Think about are you
maxing out your 401(k)? Are you bringing others in
your life along the ride? Your colleagues? Are they doing what
they need to do? I was thinking. You are some of the
smartest people. Is there a way that
Google could figure out a way for more Americans to
participate in their finances? Something for you
all to think about. I hear you have the 20% of
your time can go to innovation, and I would challenge you
all to think about that. Now and I also
think when it comes our finances we have to
be honest with ourselves. And I don’t think there
is 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 my
own honest conversation about being honest with myself. Completely different–
my sister has a figure that I would die for. She worked, but she works
out six days a week. Works out really
hard six days a week. She always avoids fat. She never picks at
parties or buffets, and she has salad
dressing on the side. I don’t do any of those. Yet, well, I’m starting
to do some of them. But the bottom line is, is I’m
thinking in my mind why, why, why. But I had to be
honest with myself. And while losing a
few pounds is not as serious as getting your
financial security in place, it’s something that we still
need to be in charge of. And so when I talk about
obesity, for instance, it’s really not about
obesity for obesity’s sake or losing five pounds. It’s about having a better life. It’s about having the life that
we want to have for ourselves. And I think with
some adjustments, some more financial education,
more national attention, and individually
we 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 situation
as a lot of people here. I’m hoping to retire in
about 10 to 15 years. CARRIE SCHWAB-POMERANTZ:
Young retiree. AUDIENCE: How should
my asset allocation be compared to a 50 year old. Because I look at the
target retirement funds, and for those funds
that are around the date that I’d like to retire, they
seem really conservative. Yet I’m young. I don’t know. Should I have the same
stock bond percentage that someone who
is 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 question
of you’re going to retire– you’re
going to retire young. So typically, the
rule of thumb, as I mentioned the
25-times rule, It’s a rule that you can generate
4% off your portfolio, and it will last for 30 years. So in your case, you’re
going to need more than using the 4% rule,
because you’ll be probably in retirement, if you
want to call it that, where you won’t be generating
a big paycheck anymore. So you’re going to definitely
need more than that. And also the fact that
you do have more time. You definitely can
benefit from more stocks. Given that you’re young,
you should probably have more stocks anyway. I don’t see you
going into bonds. But when you do start to
have to rely on that money– I mean if it’s truly
the only money you have, you’re definitely going to
need to go more conservative. And as I mentioned, somebody who
is in retirement is 20% stock, I would definitely go
more than that with you. But you have to
crunch the numbers. What kind of income is your
portfolio generating for you? But you’re going to need the
growth, because again, you could live another 40
years at 50 years old, so– AUDIENCE: So generally
higher stocks? CARRIE SCHWAB-POMERANTZ: Yes– AUDIENCE: [INAUDIBLE] CARRIE SCHWAB-POMERANTZ: Yes. And when I say minimum 20% for
a 65 year old, it’s a minimum. AUDIENCE: Oh, right. CARRIE SCHWAB-POMERANTZ: Yeah. AUDIENCE: So aside
from savings rate, just the asset allocation. CARRIE SCHWAB-POMERANTZ: Yeah. You definitely can go more. But you should check
in periodically or when you get closer. You shouldn’t be
in the stock market if you need your money
within five years. AUDIENCE: Hi, Carrie. Thank you very much. So I have a couple questions. One is what are good
milestones to have? Say at 30 years old you
should have 100,000. 40 years old you
should have $500,000. 50 years old, you
should have a million. What are good numbers
so that I know that I’m kind of on track for– CARRIE SCHWAB-POMERANTZ: Yeah. AUDIENCE: Retirement. Because I can never find that. People keep saying you
should be saving so much, but then– I’m just curious. If I’m 40 years old,
how much should I have saved and should
that saving also include the equity in your home? Or should that not include
the equity in your home. Thank you. CARRIE SCHWAB-POMERANTZ: OK. So let’s just talk
about the home first. A lot of people obviously their
home becomes their retirement plan. But my belief is that
home is your home. So a lot of people have
to rely on their home. I get that. But if you can, don’t
look at your home as your retirement plan. It’s an illiquid
asset, and you don’t know what it will be worth at
the time that you need to sell. Like for instance, what
happened in the last five years? The west coast, where we all
live, the houses keep going up. But in the middle of the
country or farmland areas, that’s not happening. So I would look at
your home as a home. There’s no rule of thumb
that when you’re 40 you should have a million
and at 50, $2 million. I think the better
way to look at is, is how much money am I going
to want to have when I retire. So $100,000– if you’re going to
want $100,000 when you retire, you’re going to
need $2.5 million. So I would look at
what do you have now. Let’s just say it’s $100,00. What do you have
now, and what more do you have to do to
get to $2.5 million. And of course I don’t
know the numbers offhand, but there’s plenty
of calculators with a certain rate of
return, what will it take to get to
that $2.5 million. So I think again you
have to say where do you want to
go, where are you, and then how much you save. There’s no ballparks
about how old you are. It all depends on you. Some people live off
Social Security just fine. AUDIENCE: A lot of my
friends like trying to suggest buying properties,
become landlords, and use them as income source
when you retire. Is that a good strategy,
or it’s not recommended? CARRIE SCHWAB-POMERANTZ: So
people ask that all the time about real estate. I think real estate
is fine as long as you know what you’re doing. Real estate like REITs should
be part of your asset allocation because it is sort of
a hedge to inflation, but what you’re talking about
is being a landlord or investing in commercial real estate. That’s a whole
another expertise. And you also don’t want to put
all your eggs in one basket. You just need to
know what you’re doing because you’re putting
everything in one egg. And also again, it’s
illiquid as well. Another question people ask,
should I pay off my loan, my mortgage, when I retire. And again, it
doesn’t necessarily pay to take your liquid assets
and pay off your mortgage if you don’t have enough liquid
assets to generate the income that you need at retirement
or whenever you need income from your portfolio. AUDIENCE: As part
of diversification that could be part
of the distribution of your savings to be like– AUDIENCE: Oh, yeah. Rental income can
definitely be part of that. And that would be
part of your equation in terms of how much
money do I need. So for instance– going
back to the $100,000– let’s just say I need
$100,000 to live off. $15,000 comes from
Social Security, so that I need
$85,000 for my income. But if I get $10,000 more
from my rental income, then I need to generate
$75,000 from my portfolio to supplement and to create
that $100,000 paycheck. AUDIENCE: I’m pretty
close to retirement, and I’ve been working
with a financial advisor. And the only place where we
don’t quite see eye to eye is about fixed-income
investment bonds. He has the kind of view I
read in the newspaper advice columns– that you have so much
in equities, so much in bonds. CARRIE SCHWAB-POMERANTZ:
Bonds, yeah. AUDIENCE: And so much in cash. According to him, I’m really
underweighted in bonds. But my point of view
is in the current– CARRIE SCHWAB-POMERANTZ:
Interest-rate environment. AUDIENCE: Financial environment. With the Federal Reserve
deliberately holding down interest rates,
bonds are currently paying almost nothing. And if the Fed does
let the rates go up, they’re going to drop in
value, so I’ve been very leery putting practically
anything in bonds, and I’m keeping it all in
equities and cash basically. CARRIE SCHWAB-POMERANTZ:
Bonds do provide a component to asset allocation
and 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 to
think about– it does create stability
in your account. For instance, when the market
crashed, down 55% percent– the S&P went down 55%– the
question is if you were all in stocks, could
you stomach that, for your portfolio
going down that low. That’s what you have
to really ask yourself. A portfolio 40% bonds,
which I would not suggest for the 30 year olds
but maybe 50-plus year olds, maybe 40% bonds. But it depends on
your risk aversion. AUDIENCE: But you’re talking
about 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 their
place, and so you’re timing the market
with just bonds. And there are ways
to get into bonds and have a higher
interest rate if you go into bonds such as corporate
bonds and less of Treasury. But just keep in mind how it
felt, especially if you’re right around from retirement, to
have your portfolio go down so low. But they do have a place
in asset allocation. AUDIENCE: I wonder if you
could speak a bit about cognitive decline
late in retirement. A lot of what I
hear sort of assumes that throughout the
retirement, one’s mental acuity will be fantastic. But the fact is, you could
have been financially literate, and you may die young. But if you live
a long time, odds are you’re not going
to be in a position to well manage your finances. So how should one plan
for that possibility? CARRIE SCHWAB-POMERANTZ: Well,
there’s no real easy answer. There’s no expert
answer to that. In fact, we mentioned that I
oversee the national program with AARP, and isolation
for older people is a really big issue. And isolation leaves
you– not only because that you said
cognitive– you’re brain impact is
not quite the same. But also there’s a
lot of isolation. And so older people
are more likely to give their assets to the house
cleaner, or all of the sudden their best friend that just
happens to come in their lives. So I do think it’s going
to be a real problem. But I think having
a financial adviser that you trust be
part of your plan, making sure that your children
are involved with your finances as well, surrounding yourself
with trustworthy people, having your estate plan in
place before you think– when you’ve got
all your marbles. AUDIENCE: As I understand,
the 4% rule still has some failure rate, probably
5% or something like that. CARRIE SCHWAB-POMERANTZ:
I’m sorry, that some people have what? AUDIENCE: The 4% withdrawal
rate rule still has some failure possibility
of around 5% or– CARRIE SCHWAB-POMERANTZ:
It’s not it’s not perfect. The 4%– it’s a
guideline, and it’s gone through a lot of
analysis, Monte Carlo analysis. It assumes that you
have at least 60% of your assets in equities
at least so– or actually 20 to 60% in equities. I think you have to
look at it year by year. There’s also the rule of thumb
that you can increase your 4% by the inflation rate each year. But we also when you’re
in retirement– so here’s a couple things. For younger people who
aren’t in retirement, you also want to
have cash worth three to six months of expenses. It’s called your emergency fund. When you get closer
to retirement, you’re five years
away, you want to up it to probably one year,
maybe even two years like the gentleman that just
mentioned one to two years in cash as well so that
you’re not in the situation to sell your portfolio when
the market’s not doing so well. So that’s where it gets tough
when the market tanks, and you want to think about
maybe taking less. AUDIENCE: Are there
resources where you can say, OK, this is the
withdrawal rate and here’s the failure percent or failure
chance, chance of failure. Are their online resources
where you can run simulations and say, oh, maybe
I’ll only withdraw 1% and here’s the
chance of failure. CARRIE SCHWAB-POMERANTZ:
Oh yeah, there’s a lot of
simulations– schwab.com. Do we have one in
Schwab MoneyWise? FEMALE SPEAKER: We don’t
have a retirement– CARRIE SCHWAB-POMERANTZ: Oh. There’s a lot of retirement
calculators that you can go in and put in
different variables and see what different
saving rates will do and inflation rates and
withdrawal rates and so forth. But I do think you have to
look at it year by year, and again, it’s a ballpark. AUDIENCE: So one thing I
haven’t heard in this discussion yet is the talk about
expense ratios for funds and how important that can be in
terms of hundreds of thousands of dollars over
an entire savings. CARRIE SCHWAB-POMERANTZ:
I wasn’t trying to sell product or be
the financial consultant here. But I’ll just tell
you my own point of view about the way I invest. I’m a big believer in passive
investing and investing in index funds and exchange
traded funds, which are based on broadbased indices
such as the Standard & Poor’s 500 or there’s international
versions and bond versions. But for my equity,
my US equity, I like passive because they’re
very low-cost investing. And you’re right. For example, 1%
on your mortgage– think how much 1% you
paying on a mortgage jacks up your monthly payment. So expenses are
really important. Also the idea of
passive investing– the majority of active
traders or active mutual funds do not outperform
the broad indices. So there’s something to that. There’s definitely some benefit
to do some active management, but with indexing, you
get low cost plus you lower your taxes,
which in a sense creates a whole
other level of I’ll call alpha in your returns,
if you can reduce your taxes. And for people who don’t have
the time to manage their money, you are participating
in the market and that’s what you want to do. It’s all about
participating, not about trying to outperform
or do some little tricks. FEMALE SPEAKER: Well
thank you all so much for joining this talk. We really appreciate
Carrie Schwab being here with us today. And we hope that you are going
to take action and get engaged. Thank you.

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