In her quest to promote financial literacy and make investing more accessible to all Americans, Carrie Schwab-Pomerantz authored The Charles Schwab Guide to Finances After Fifty, the recently released handbook to protecting and growing wealth in retirement. Schwab-Pomerantz is president of Charles Schwab Foundation and a senior vice president at Charles Schwab.

Schwab-Pomerantz joins Motley Fool analyst Brendan Byrnes to discuss saving for retirement in today's financial world. She points out some common mistakes, explains why she advocates working with a financial advisor, and shares her insights on whether parents should dip into retirement funds to help out with college expenses.

Brendan Byrnes: Hey, folks, I'm Brendan Byrnes and I'm joined today by Carrie Schwab-Pomerantz. She is the author of The Charles Schwab Guide to Finances After Fifty. Thanks so much for your time today.

Carrie Schwab-Pomerantz: Thank you for having me, Brendan.

Byrnes: My first question is just about retirement overall, in general. How has that changed over the past few generations? Maybe now today, especially in more of a technological world, what are some things that people need to be aware of today?

Schwab-Pomerantz: I think a lot has happened over the last 30 years. First of all, from a demographic point of view, we're living longer, we're having kids later, so we have competing priorities. We have our elderly parents, we have our 20-something-year-olds living at home -- including my own -- and trying to find jobs.

Also the fact that the pension has gone away, or it's slowly going away, and now today the primary source of saving for retirement is the 401(k) and the SEP IRA, which means that not only do we have to save and invest for ourselves, but we also have to know how to create that paycheck.

Then on top of that, the fact that there's no formal place to learn about personal finance -- we're all on our own!

Byrnes: Are most Americans today prepared for retirement?

Schwab-Pomerantz: Unfortunately, the numbers show that we're very ill-prepared for retirement. The savings rate is fairly low. Two-thirds of Americans use Social Security as their primary source of income, and for one-third, it's their only source of income.

My hope is to really change that trajectory.

Byrnes: How does someone know if they've saved enough for retirement? Is there an easy calculation they can do, or is it complicated for each person? Is there a general rule of thumb?

Schwab-Pomerantz:Yes, we use a rule of thumb called 25X. What it means is, you need 25 times the amount of money that you'll need to withdraw from your savings or your portfolio. This is money that would be in addition to Social Security, or other sources of income that you expect to have, like a pension

For instance, if you want to draw $40,000 from your savings to supplement your Social Security, you'll need 25 times 40, which is a million dollars. That's a rule of thumb that we use, and it assumes a 30-year retirement.

Byrnes: What are some big mistakes that people make when it comes to retirement? Are there any things that you say, just, "Do not do this. Absolutely do not do this," and how can they avoid those things?

Schwab-Pomerantz: Of course there are a lot of mistakes. There are some myths and misconceptions, even for people who really think they know what's happening. For instance, a lot of people think, "As soon as I'm eligible for Social Security, I need to take it out." In fact, three-quarters of people at 62 years old take out Social Security, and they're leaving a lot of money on the table.

Now, granted, for some people it might make sense -- if they can't make ends meet or they have a health issue. But if you wait until your full retirement age, which is 66 or 67, depending on when you were born, your Social Security would be reduced 25% from the amount that you would get there.

Now here's another number that will blow your mind. If you wait from 62 to 70 to take out your Social Security, your monthly benefit will be 76% higher.

Byrnes: Wow.

Schwab-Pomerantz: Yes. It's definitely something to consider before just automatically taking it out at 62.

Byrnes: How about taxes? How can someone minimize their taxes as they're preparing for retirement?

Schwab-Pomerantz: Well, obviously there are different ways to prepare for taxes, like using your tax-deferred accounts, your Roth IRAs, your 401(k)s, and so forth. But in retirement, there are tax strategies to lower your taxes.

For instance, when you start creating that paycheck, you want to start with your bonds or your CDs that are maturing. Then you have to take out your RMD (your required minimum distribution) if you're 70-1/2, and you do have to pay taxes on that, but you'll be penalized greatly if you don't.

Then you want to go to your taxed accounts, because you get the capital-gain rate, which is lower than personal income. Then, lastly, go into your IRA and Roth IRA. That way, you can let your money grow tax-free for a longer period of time.

Byrnes: What about someone who has a financial advisor? What do you think of this model, overall? Maybe they're paying 1-2%, which doesn't sound like a lot, but that can really add up. Is that something that you all advocate? How should someone look at the financial advisor model, overall?

Schwab-Pomerantz: I'll admit to you, I was a do-it-yourselfer for years, until my 40s, when I then became very intentional about my retirement. I always saved, but it was really important for me to make sure I was on track, so I hired a professional. I would say that professionals hire other professionals all the time, so I'm a big advocate.

But when you're thinking about a financial advisor, fees are really important, and I do think you should try to look for something that's 1% or less. I also think that a financial advisor is somebody -- kind of like a personal trainer -- that makes you show up, you learn from them, and you get better results, so I'm a big advocate.

But definitely you want somebody who charges a fair price, and also has no conflicts of interest, and provides the service that you're looking for.

Byrnes: More of a fiduciary.

Schwab-Pomerantz: Yes.

Byrnes: What do you think of someone that's doing it more themselves, or at least more cognizant of their overall portfolio? When they get near retirement the balance of growth, versus also trying to be a little bit more conservative to preserve their wealth, what are some ways that they can maybe accomplish both?

Schwab-Pomerantz: Definitely, I think, as you get closer to retirement, you want to consider maybe going into a little more of a conservative portfolio; maybe bonds. But let me also say that another myth people have is that, as soon as they retire, they need to sell all their stocks and go into cash.

That's far from the truth. When you're in retirement, you want at least 20% of your portfolio in a diversified portfolio of stock. That's because you want to outperform inflation.

Byrnes: Yes, if you live another 30 years that can really add up.

Schwab-Pomerantz: Of course! That's a generation and a half, so at least 20% in there. Keep in mind that purchasing power -- I don't think people think about it, but $100,000 today in cash, with inflation, in 20 years could be worth $55,000 of purchasing power, so it's almost more risk, really, to just go into bonds.

Byrnes: Let's talk about one of the bigger expenses for a lot of people coming up, which is children's college. How can someone pay for their kid's college without maybe killing their life savings?

Schwab-Pomerantz: We definitely -- unfortunately -- have to say "put yourself first," when it comes to retirement versus college education. But there are things you can do.

For instance, just like retirement, the sooner you start saving the easier it is, because you get the benefit of compound growth. When your child is born, open up that 529 account. Save into it. Get that tax-free benefit and let it grow for 18 years, and put away each month. Same with your retirement.

Now, if you hadn't done that, I think it's really important to think twice about raiding your retirement, because the last thing you want to do is be a drag on your kid. With retirement, as you know, you can't get a scholarship or a grant or a loan -- and kids can. They can work part-time, and they have a life full of earnings ahead of them.

But once something happens to you -- you've got health issues, or just you can't find work, or you're done -- you need some income to support you through those later years.

Byrnes: There's a lot of great advice in the book, The Charles Schwab Guide to Finances After Fifty. Carrie Schwab-Pomerantz, thank you so much for your time today.

Schwab-Pomerantz: Thank you, Brendan.

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