Charles Schwab Unveils Eight-Step Plan to Help Prioritize Americans' Savings Goals

Corresponding Survey Shows That Respondents Are on the Right Track but Need Help Creating and Sticking to a Savings Plan

Wednesday, November 12, 2008 7:00 am PST



Public Company Information:

"Your child may be able to get a loan for college, but you can't get one for retirement"

SAN FRANCISCO--(BUSINESS WIRE)--Charles Schwab today announced a new eight-step plan to help people prioritize their savings objectives. Schwabs 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 individuals personal priorities and situation.


Contribute to your company's retirement plan up to the maximum employer match.

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.


Pay off nondeductible, high-interest-rate debt like credit cards.

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.


Create an emergency fund to cover at least three months of essential living expenses.

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.


Contribute the maximum allowed to tax-advantaged retirement accounts.

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.


Save for a child's education.

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.


Save for the down payment on a home.

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.


Pay down tax-deductible, high-interest-rate debt like mortgages.

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.


Keep investing.

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.

For more detailed information on the Savings Fundamentals and for links for interactive calculators and educational content, please visit 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

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 months expenses put away for an emergency.

To complicate matters, those respondents with children rank saving for a childs 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 childs 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:

  • 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.
  • Respondents tend to prioritize saving for a vacation or for a household item over maximizing their contribution to a 401(k) plan.
  • 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,, 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 (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 Plans 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
Intermarket Communications
Clayton McGratty, 212-754-5425

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Catherine Miller, Charles Schwab vice president, 401(k) advice and education (Photo: Business Wire)

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