Recently, Millie chatted with Carrie Schwab-Pomerantz, president of the Charles Schwab Foundation and managing director of Charles Schwab & Co., Inc. Long an advocate for financial literacy, Schwab-Pomerantz urges women to start saving for retirement—no matter their age, stage or income. Here are five tips.
1. Time is your friend, so start investing early—and often.
The math is simple: If a 25-year-old woman invests $200 a month for 40 years—until she’s 65—that money could grow to $850,000 if you assume a 6% rate of return (a standard yield). Plus, by investing regularly through good and bad times, you get the benefit of dollar-cost averaging, she says. That means when the stock market is down, you’ll get more shares of whatever you’re buying. Boom times will buy you less, but over the years, you’ll have bought at an “average” price—as long as you don’t sell in reaction to market dips (hello, 2022!).
2. Work your future self into your monthly budget.
“If you start saving and investing for your retirement in your 20s, you should save 10%,” Schwab-Pomerantz advises. “Save and invest 10% for the rest of your working career and you should have a relatively comfortable retirement. However, if you wait until your 30s, you’ll have to save about 20%. And if you wait until your 40s, you’ll have to save about 30%.” Schwab-Pomerantz calls this the “minus 10 rule,” and she likens it to paying yourself first. “After college, my kids made a budget and part of their budget was saving 10%,” she says. Maximizing time in the market is, again, her guiding principle: “It’s not how much money you have, it’s how much time you have to let your money grow,” she says.
3. Don’t leave money on the table.
If you’re lucky enough to have a 401(k), not using it means you’re ignoring three huge financial benefits. First, your contributions reduce your taxable income. For example, if you max out your contribution at $20,500 this year, you’ll owe taxes on your income minus that amount. Secondly, if your company matches at even a small percentage, that’s free money you’re walking away from. Thirdly, that money makes money—as long as you actually invest it.
“It’s a two-step process,” says Schwab-Pomerantz, who has seen people mistakenly assume that their money is invested for them. “You need to enroll in the plan to have it automatically deducted from your paycheck, then you need to pick some mutual funds or other investments to put the money toward. Otherwise, it sits in a cash account and you miss out on compound growth—the key to building wealth.”
4. It’s not about hot stocks.
Schwab-Pomerantz tells a story about what she did with the first $2,000 she saved when she was in her early 20s. “I called my dad and asked him for investing advice. And he said, ‘Carrie, just pick two equity funds.’” She recalls she was “disappointed”—her father, after all, is Charles Schwab, the corporation’s founder. But he convinced her that “it’s not about the hot stock,” she says. “It’s about participating in the market.” And now, that’s the same advice Schwab-Pomerantz gives to young people.
“It’s about saving and investing over the long term in a diversified portfolio. That’s how the biggest investors of the world do it. The pension funds, the universities—they use asset allocation and diversification as their key strategy. It’s not stock picking,” she says.
5. Own your own money.
Women, especially, need to plan for their financial futures. “We’re set up to be one step behind,” Schwab-Pomerantz says, citing factors such as the gender pay gap and taking time out of the workforce to raise children. “Women risk their independence by not engaging more with their finances,” she says. “That’s the bottom line. And it’s a call to action.”
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Diane di Costanzo is Millie’s editor in chief and the chief content officer at Foundry 360, the branded content division within Dotdash Meredith.