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Waiting to Save for Retirement Could Cost You

When it comes to saving for retirement, the clock is ticking. To illustrate the value of time, let's consider three Roth IRA investors.

Kate, Derek and Jane all decide to open Roth IRAs to supplement their other retirement accounts. Each investor hopes to build this account to $500,000 at the time of retirement, though they are starting to save for retirement at different ages. All plan to retire at age 65, and the investors maximize their contributions each year.

*Includes $1,000 "catch-up" contribution allowed for people age 50 and older

By age 65, here's how their savings could add up

Assumes annual contribution of $6,000 until age 50, and $7,000 from age 50 to age 65; also assumes 6% average annual portfolio growth.

How you can best prepare for the future

Here's a retirement savings rule of thumb.

If you start saving in your 20s, contributing 10-15% of your paycheck including a savings match, if any, from an employer, will likely allow you to meet your retirement savings goal. With every decade you delay, however, you’ll need to save a greater percentage of your paycheck.

Find additional ways to save

Here are some options for getting on the right track:

  • Maximize your workplace retirement plan. For 2020, the max 401(k) contribution for employees under age 50 is $19,500. Employees age 50 or over, can make an additional catch-up contribution of $6,500. Be sure to take advantage of any match your company offers. 

  • Devote funds from a windfall, such as a bonus or inheritance, to an investment account geared toward your retirement.
  • Set up a taxable brokerage account to supplement your retirement savings.
  • Give your saving s boost. As your income increases, up your savings rate by 1-3% each year.  Before you know it, you’ll be savings a lot more than you thought you could. 
  • Start a Health Savings Account (if you’re able) to help cover medical expenses, both now and later in life. If you don't use the money, you won't lose it. An HSA stays with you.

What You Can Do Next

  • Invest in your future sooner rather than later, but don’t get discouraged if you’re starting later in life—there are other options that could help you reach your financial goals.

  • A robo-advisor, like Schwab Intelligent Portfolios® offers a range of portfolios tailored for your needs . Complete a brief questionnaire to build a low-cost portfolio of exchange-traded funds (ETFs) with your goals, time horizon and risk tolerance in mind.

  • If you prefer more personalized guidance, consider Schwab Intelligent Portfolios Premium™. A CERTIFIED FINANCIAL PLANNERTM professional can help you establish a sound plan for the future.

    Call us at 800-355-2162 or visit your local branch to discuss all your options.

Important Disclosures:

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.

Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.

These examples are hypothetical and provided for illustrative purposes only and are not representative of any specific investment or strategy.

Investing involves risks including possible loss of principal.

This information is not intended to be a substitute for specific individualized tax, legal, or investment planning advice. Where specific advice is necessary or appropriate, Charles Schwab & Co., Inc. (“Schwab”) recommends consultation with a qualified tax advisor, CPA, financial planner or investment manager.

Please read the Schwab Intelligent Portfolios Solutions™ disclosure brochures for important information, pricing, and disclosures related to the Schwab Intelligent Portfolios and Schwab Intelligent Portfolios Premium programs.  

Schwab Intelligent Portfolios® and Schwab Intelligent Portfolios Premium™ are made available through Charles Schwab & Co. Inc. (“Schwab”), a dually registered investment advisor and broker dealer. 

Portfolio management services are provided by Charles Schwab Investment Advisory, Inc. ("CSIA"). Schwab and CSIA are subsidiaries of The Charles Schwab Corporation.

Diversification and rebalancing strategies do not ensure a profit and do not protect against losses in declining markets.


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