Corresponding Survey Shows That Respondents Are on the Right Track but
Need Help Creating and Sticking to a Savings Plan
Charles Schwab today announced a new eight-step plan to help people
prioritize their savings objectives. Schwab’s
eight “Savings Fundamentals”
are designed to help individuals prioritize and manage their short and
long-term personal and financial goals.
“One of the few benefits to the current market
environment is that people are focusing more on saving money,”
said Catherine Miller, vice president, investor development, Charles
Schwab. “Most of us have finite resources and
are not able to save for all of our financial goals at once.
Prioritizing makes them feel less daunting and more attainable.”
Schwab recommends that people prioritize their savings goals by
completing the first four Savings Fundamentals in order. The final four
fundamentals should be completed according to an individual’s
personal priorities and situation.
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1.
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Contribute to your company's retirement plan up to the maximum
employer match.
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Even if money is tight, Schwab recommends that people contribute at
least enough to their 401(k) or similar plan in order to get the
full company match. "You are getting paid to save," asserts Miller.
"Don't leave money on the table." Most 401(k) contributions are
deducted from pre-tax income, so people keep more of their earnings
each paycheck and savings grow tax-deferred until retirement.
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2.
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Pay off nondeductible, high-interest-rate debt like credit
cards.
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Eliminating debt will make it much easier to reach your savings
goals. To maximize savings, create a budget and look for ways to cut
back on non-essential expenses. Use that extra money to make more
than the minimum monthly payment on high interest credit cards or
loans. You can also try negotiating with credit card companies for a
lower interest rate.
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Create an emergency fund to cover at least three months of
essential living expenses.
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Without an emergency fund, Americans are at risk of dipping into
retirement savings or taking on more debt if they need quick access
to cash. You should save enough to cover at least three months of
essential living expenses like rent or mortgage, utilities, food and
transportation. Keep your emergency fund in an account that's easy
to access like a checking or savings account.
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Contribute the maximum allowed to tax-advantaged retirement
accounts.
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Now more than ever, you are responsible for ensuring your own
financial security during retirement. The more money you set aside
early, the more comfortable your retirement may be. Try to
contribute up to the IRS maximum in your 401(k) plan at work (the
new maximum will be $16,500 in 2009, or $22,000 if you are age 50 or
older) and also contribute to a traditional or Roth Individual
Retirement Account (IRA), if available, to help supplement these
savings.
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5.
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Save for a child's education.
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As a general rule, Schwab recommends saving for retirement before
your children's college education. "Your child may be able to get a
loan for college, but you can't get one for retirement," added
Miller. A 529 college savings plan or a Coverdell Education Savings
Account can help you take advantage of tax-deferred growth on your
investment.
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6.
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Save for the down payment on a home.
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Start by estimating how much house you can afford. Typically, your
mortgage payment, including principal, interest, taxes and insurance
should not be more than 28 percent of your gross income. Make sure
you keep your risk tolerance and timing needs in mind when deciding
how to save for your down payment. Avoid using tax-deferred
retirement accounts to fund this purchase.
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Pay down tax-deductible, high-interest-rate debt like mortgages.
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Reducing high-interest-rate debt from a tax-deductible mortgage,
home equity or student loan can significantly enhance your ability
to save in other areas over time. After taking care of other savings
priorities, Schwab recommends you consider refinancing this kind of
debt if interest rates have dropped. You may lower monthly payments
in the near term and help save money over time, but make sure to
factor in any transaction or closing costs before making a decision.
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8.
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Keep investing.
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If you've accomplished your other savings priorities, investing for
the long term may be a good way to stay ahead of inflation and earn
more than traditional savings accounts pay. Start by creating a
realistic investing plan and put it into action to begin earning
right away. Stay diversified with an asset allocation that matches
your risk tolerance and keep long-term goals in mind to stay on
track.
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For more detailed information on the Savings Fundamentals and for links
for interactive calculators and educational content, please visit www.schwabsavingsfundamentals.com.
And for more information on how saving and investing can add up over
time, as well as what it takes to pay off debt, visit the calculators at www.schwabmoneywise.com/resources.
Surveyed Americans’ Saving Priorities
A recent survey of more than 1,000 individuals conducted by Koski
Research on behalf of Charles Schwab found that respondents rank paying
off credit card debt above all other savings priorities. Respondents’
second priority is to contribute to a household emergency fund. However,
nearly 60 percent of those surveyed have credit card debt, carrying an
average balance of more than $7,200. And nearly one-third of those
surveyed have less than one month’s expenses
put away for an emergency.
To complicate matters, those respondents with children rank saving for a
child’s education as their second priority,
above creating an emergency fund or contributing to a retirement fund.
Similarly, those respondents who do not own a home rank saving for a
home purchase as their second highest priority.
“Saving for a child’s
education or for a home are excellent goals,”
says Miller. “But we do counsel people that
having an emergency fund and contributing to tax-advantaged retirement
accounts should be at the top of the list if possible.”
Other findings from the survey include:
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Sixty-three percent of respondents say they sleep better at night
knowing they are saving money for their retirement, but one out of
four people saved $2,000 or less in the last year.
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Respondents tend to prioritize saving for a vacation or for a
household item over maximizing their contribution to a 401(k) plan.
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Seventy-nine percent of respondents are spending less money due to the
current economy; 44 percent are saving less.
About Schwab Corporate & Retirement Services
Schwab Corporate & Retirement Services provides a broad range of
investing services through the workplace, including employer-sponsored
retirement plans direct to corporations or through a nationwide network
of more than 300 retirement Third Party Administrators (TPAs). The
division also offers the Schwab Personal Choice Retirement Account®
and provides employee equity compensation plan services and corporate
brokerage services, in addition to a range of recordkeeping, custodial
and trustee services, which are available through Charles Schwab Trust
Company, a division of Charles Schwab Bank. Schwab Corporate &
Retirement Services also includes Charles Schwab Clearing Services
(CSCS), which provides mutual fund trading, settlement, and related
clearing services to a small number of banks, brokerage firms and trust
companies. As of September 30, 2008, assets held in Schwab Corporate &
Retirement Services stood at $210.5 billion.
About Charles Schwab
The Charles Schwab Corporation (Nasdaq:SCHW) is a leading provider of
financial services, with more than 300 offices and 7.3 million client
brokerage accounts, 1.3 million corporate retirement plan participants,
399,000 banking accounts, and $1.3 trillion in client assets. Through
its operating subsidiaries, the company provides a full range of
securities brokerage, banking, money management and financial advisory
services to individual investors and independent investment advisors.
Its broker-dealer subsidiary, Charles Schwab & Co., Inc. (member SIPC,
www.sipc.org),
and affiliates offer a complete range of investment services and
products including an extensive selection of mutual funds; financial
planning and investment advice; retirement plan and equity compensation
plan services; referrals to independent fee-based investment advisors;
and custodial, operational and trading support for independent,
fee-based investment advisors through its Schwab Institutional division.
The Charles Schwab Bank (member FDIC) provides banking and mortgage
services and products. More information is available at www.schwab.com.
(1108-8348)
Before making an investment decision in a 529 plan, carefully consider
its investment objectives, risks, tax, implications, and expenses, which
can be found in the Plan’s agreement. By
investing in a 529 plan outside of your state, you may lose tax benefits
offered by your own state's plan.
Diversification strategies do not assure a profit and do not protect
against losses in declining markets.
Koski Research is not affiliated with Charles Schwab.
Charles Schwab
Lindsay Tiles, 415-667-3997
lindsay.tiles@schwab.com
or
Intermarket
Communications
Clayton McGratty, 212-754-5425
cmcgratty@intermarket.com
