How to Save Enough to Retire

Saving for Retirement

How to Save Enough to Retire

Setting the right priorities helps. Hint: Put yourself first.

Carrie Schwab-Pomerantz Jack Huynh/Orange Photography

Carrie Schwab-Pomerantz (pictured at left) is president of the Charles Schwab Foundation and senior vice-president at Charles Schwab & Co. She is the author of The Charles Schwab Guide to Finances After Fifty. Here’s an edited transcript of our interview.

See Also: 10 Reasons You'll Never Retire

What question do you get most often from people about their finances? It’s “How much do I need to retire?” Our rule of thumb is that you need 25 times the amount you expect to withdraw from your savings each year. For instance, if you need $60,000 to live on and you get $20,000 from Social Security, you’ll need $1 million to generate $40,000 in income.

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Are most people on track? People aren’t saving enough. I know it’s daunting because the financial world has become so complex. Think of everything we have to choose from: the Roth IRA, traditional IRA, Roth 401(k), Simple IRA, and on and on, with different savings vehicles for college education. It creates analysis paralysis. Even financial professionals want to run for the hills.


Is it that people don’t understand that they need to save, or that they don’t have the money to save? It’s a combination. How many friends do you know who haven’t started saving for retirement, or didn’t save until their forties or fifties? Or live almost paycheck to paycheck? Or put their kids’ college first before their retirement? I’m not saying don’t help your kids, but don’t do it at the expense of your future.

How can people cut through the complexity? When people are trying to figure out where to put their money, we say to save first in a 401(k), enough to capture any matching funds from your employer. Two: Pay off your non­deductible, high-interest debt. If you’re paying 15% on a loan, that money can go back into savings once it’s paid off. Then create a cash emergency fund sufficient to pay three to six months of essential expenses. Save in any other retirement accounts after that. Only then should you think about saving for college or a home. You have to put yourself first.

What’s a good strategy for using your savings when you retire? When we talk about withdrawal strategies, we say cash in your maturing bonds or certificates of deposit first, and take required minimum distributions from retirement accounts, if you have to. Next, go to your taxable investment account, by selling the losers or the highly appreciated securities when you rebalance your port­folio. Then, your traditional IRA. It’s tax-wise to go as slow as you can with your Roth IRA.