New Schwab Principles Designed to Help Americans Get Ready to Live on Retirement Income

Thursday, November 17, 2011 5:30 am PST



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"Saving for retirement is something most Americans know they have to do, but many people are confused, scared, and literally frozen when it comes to flipping the switch from saving to withdrawing"

SAN FRANCISCO--(BUSINESS WIRE)--Charles Schwab today released nine key principles that provide investors with actionable guidelines meant to evoke thoughtful planning around how to fund their own income in retirement. As more than 76 million baby boomers – nearly 25 percent of all Americans -- approach retirement age in the next 20 years1 and make the transition from retirement saving to retirement spending, a new Schwab survey reveals that one-third of those who say they are just five years away from retirement have not even calculated how much income they will need in retirement and results suggest nearly half are flummoxed about how to invest their hard-earned money to help maximize retirement income.

Schwab’s new “Retirement Income Fundamentals” are centered on helping investors plan income generation strategies that fit their retirement goals, an often-overlooked and overwhelming area of retirement planning.

The survey of more than 1,000 Americans age 55-70 finds that while the vast majority of pre-retirees express feelings of optimism about their retirement readiness, they may in fact be wearing rose-colored glasses: one third (33 percent) say they have not yet determined what their essential living expenses in retirement will be and almost two thirds (64 percent) say they have less than one year of cash savings at any one time for retirement living expenses.

“Saving for retirement is something most Americans know they have to do, but many people are confused, scared, and literally frozen when it comes to flipping the switch from saving to withdrawing,“ said Carrie Schwab-Pomerantz, Charles Schwab senior vice president. “Our data shows that people even just a year or two away from retirement don’t know how to tap their savings effectively once they transition to retirement, so we designed our new Retirement Income Fundamentals to help give people clear and actionable guidance on how to make that transition happen successfully.”

Schwab’s Retirement Income Fundamentals

Schwab recommends following these nine fundamentals, available in full at, when planning for retirement income:

  1. Review your situation. Know how much money you’ve earmarked for retirement, where you keep it, and how much, if anything, you want to leave to heirs.
  2. Maintain a year of cash. Set aside an amount equivalent to what you’ll need from your portfolio for at least a year. This is the money you’ll use—along with your regular sources of income—to cover all expenses throughout the year.
  3. Consolidate income in a single account. When possible, you may want to deposit your regular sources of income into the account where you keep your year of cash. Or, you might choose a similar type of account where funds can be easily transferred.
  4. Match your investments to your goals and needs. As you begin to rely on your investments for income, you may feel most comfortable investing heavily in income-generating bonds and CDs. But to counteract the long-term effects of inflation, you may need to keep a portion of your savings in growth-oriented stocks as well.
  5. Cover essentials with predictable income. Divide your expenses into essential and discretionary categories and cover the essentials with predictable income sources.
  6. Don’t be afraid to tap into your principal. Chances are, you’ll need to supplement interest and dividend income with measured withdrawals from principal. And while it’s natural to be concerned about spending your savings too quickly, there are ways to help tap your portfolio with a high degree of confidence that your money can last.
  7. Follow a smart portfolio drawdown strategy. To supplement your predictable income sources such as dividend and interest income, Social Security, pension payments, and rental income, consider drawing money from your retirement portfolio in this order: Start by drawing principal from maturing bonds and CDs; Take your required minimum IRA distribution if you are 70 ½ or older; Sell overweighted assets in your taxable accounts; Sell from your tax-advantaged accounts starting with Traditional IRAs, then Roth IRAs2.
  8. Rebalance annually to stay aligned with your goals. Annual portfolio rebalancing is especially important when you’re retired. There’s less time to recover from the potential losses of lackluster returns caused by a portfolio that has strayed from your chosen asset allocation.
  9. Stay flexible and re-evaluate as needed. Things change. Situations change. Markets change. Priorities change. It’s important to periodically revisit your portfolio asset allocation to stay aligned with your broader investment goals.

Beth Chang, Charles Schwab director of retirement services, noted, “We’ve heard loud and clear that generating income in retirement is something investors are struggling to tackle and oftentimes don’t address until it is too late. Planning is key and as market volatility continues to impact retirement accounts, utilizing these fundamentals and creating a solid retirement income plan can help investors weather market swings and help reduce the risk of having to withdraw assets at a low point in the market.”

She continued, “We believe these nine fundamentals will act as a wake-up call, bring investors out of the unknown and become the catalyst for an honest examination of their overall financial situations. We’re hopeful that those approaching or in retirement find these principles simple and actionable.”

Survey Finds that Americans Need a Better Plan for Retirement Expenses and Spending

While Schwab’s survey found that 94 percent of Americans have thought about the basic expenses of living in retirement, there are several additional aspects of retirement planning that need careful attention. The following survey findings highlight some of these details that are often overlooked when developing an overall retirement plan.

  • More than half (51 percent) of respondents say they have four or more financial accounts, yet two-thirds are not planning to consolidate those into one account from which to withdraw their retirement income.
  • Nearly half (47 percent) have not anticipated what impact taxes will have on their retirement income, and a quarter have not thought about tax expenses at all.
  • Just over half (52 percent) have worked with a professional advisor to create a retirement income plan, and a quarter would like professional advice to determine how much money they will need to thrive in retirement.

More findings from this survey can be found on and Schwab’s corporate blog, Schwab Talk.

In addition to the Retirement Income Fundamentals, Schwab also has eight Savings Fundamentals which provide detail on how to save for your financial future by prioritizing your savings.

Schwab Real Life Retirement™ Services

Schwab Real Life Retirement Services provides a realistic approach to retirement, offering insights into actionable ways to save for and manage retirement savings, guidance on products and services, and access to stories and tips from real people. Schwab clients also have access to a complimentary personal retirement consultation with an investment professional covering an analysis of savings, income and expenses, personal retirement goals and milestones, and ways to generate income once in retirement.

For more information, visit

About Charles Schwab

The Charles Schwab Corporation (NYSE:SCHW) is a leading provider of financial services, with more than 300 offices and 8.5 million active brokerage accounts, 1.5 million corporate retirement plan participants, 774,000 banking accounts, and $1.68 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 Schwab Advisor Services. Its banking subsidiary, Charles Schwab Bank (member FDIC and an Equal Housing Lender), provides banking and mortgage services and products. More information is available at and (1111-7367)

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Read our Schwab Talk blog

About the Retirement Income Study by Charles Schwab

The Retirement Income Study by Charles Schwab was an online survey of U.S. investors conducted by Koski Research in August 2011. A total of 1,010 respondents completed interviews. Survey respondents work part or full-time, are five years or less from retirement, are 55-70 years old and have $100,000 or more in total investable assets. Survey respondents were not asked to indicate whether they had accounts with Charles Schwab. All data is self-reported by study participants and is not verified or validated. Investors participated in the study between August 25 and August 30, 2011. Detailed findings can be found at

© 2011 Charles Schwab & Co., Inc. All rights reserved. Member SIPC.


The information 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.

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

1 2008 U.S. Census Projection Data

2 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, Schwab recommends consultation with a qualified tax advisor, CPA, financial planner or investment manager

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Source: Retirement Income Study by Charles Schwab, (C) 2011 Charles Schwab and Co., Inc. All rights reserved. Member SIPC

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