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Post: : To retire, start early, have a plan and try a ‘cash diet’

When Carrie Schwab-Pomerantz, president of the Charles Schwab Foundation, opened her first Individual Retirement Account, she called her father for an investing tip. He told her to “pick two equities funds and be done with it.”

At the time, she said she was deflated because she hoped for a keen investing tip from her dad and U.S. investment icon Charles Schwab. But in reality, great advice and insight is what he gave her, since equities, over time, outperform the market, she said. 

“I have experienced a lot of down markets,” Schwab-Pomerantz said. “The best solution is a weatherproof portfolio of stocks, bonds and cash.”

Speaking at MarketWatch’s Best New Ideas in Money Festival in New York, Schwab-Pomerantz urged investors to start saving for retirement early and cautioned against investing any money you think you will need in the next five to seven years.

“It’s not how much money you have, it’s about how much time you have for your money to grow,” she said. “Retirement is going to be the most expensive thing you’ll do in your entire life.”

Her comments come as Americans are grappling with inflation, a turbulent stock market and rising interest rates. The Federal Reserve on Wednesday hiked interest rates 0.75 percentage points in an effort to curb further inflation.

See: Fed approves third large interest rate hike and signals more before year-end

With her own children, Schwab-Pomerantz required that they get jobs as teenagers, create a budget and open Roth IRA accounts when they turned 16.

Schwab-Pomerantz, an advocate for financial literacy, said parents often do a disservice to their daughters by talking to them only about household budgets and savings, while sons tend to get advice about investing and debt-management.

“We have to teach our daughters about investing. We need to create equity for our daughters,” she said. “It’s very subconscious. We’re boxing in our daughters.”

For young workers, she urged them to have a budget, live within their means and pay themselves first by putting at least 10% of their income away for retirement. Not participating in a company’s 401(k) matching program is “walking away from free money,” Schwab-Pomerantz said.

For everyone, she suggested trying a “cash diet” for a month to watch where their money goes. 

“We spend mindlessly, whether it’s shoes or coffee,” she said. “By tracking your spending, you can see the non-essential items and areas where you might want to cut back.”

For middle-aged people who are balancing saving for retirement with saving for their children’s college education, as well as mortgages and caretaking for older parents, perhaps, Schwab-Pomerantz urged having a financial plan.

“Don’t underestimate the power of a plan. Imagine not having a GPS. You have to know where you’re going and where the pitfalls may be,” Schwab-Pomerantz said. 

“Retirement has to be priority No. 1,” she said, adding that children have other options to help finance college than relying on their parents to fund it. Next comes paying off high-interest, non-deductible debt like credit cards, and amassing three-to-six months of savings for emergencies to cover household expenses in times of crisis. 

If you’re close to retirement, have up to two years of expenses in cash so you don’t risk having to sell any investments in a down stock market environment, she said.

“Many, many Americans are under-saved. You’re not alone,” Schwab-Pomerantz said.

Get insights on investing and managing your finances. Speakers include investors Josh Brown and Vivek Ramaswamy; plus, topics such as ESG investing, EVs, space and fintech. The Best New Ideas in Money Festival continues Thursday. Register to attend in person or virtually.

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