Money Management

It’s not a good idea to tap your IRA at random. Read on to see why you likely want to avoid that move. [[{“value”:”

Once you reach the age of 59 1/2, you can take a withdrawal from an IRA without incurring a penalty. If you have a traditional IRA, you’ll owe some taxes on your withdrawal. If you have a Roth IRA, that withdrawal is yours to keep in full, as the IRS can’t tax you on it.

As of the third quarter of 2023, the average IRA balance across savers of all ages was $109,600, according to Fidelity. If you’re gearing up to withdraw from your IRA for the first time, ideally it’s because you’re officially retired. And hopefully, you have a larger balance than the typical American in Q3 of 2023.

But no matter what IRA balance you’re looking at, it’s important to think carefully before removing funds from that account. In fact, here’s an important step to take before you touch that money.

Establish a withdrawal rate that works for you

Let’s say you’re going on vacation for a week and have brought along $750 in cash to spend on food, entertainment, and souvenirs. At that point, it’s pretty easy to figure out how money you should be spending per day — roughly $100, give or take.

When it comes to managing your IRA, things get a whole lot trickier. That’s because you have no idea how long your money needs to last, since you can’t see into the future and determine how long you’ll live.

It may be that you’re retiring at age 65 with an IRA worth $800,000. That’s a lot of money. But does it need to last 10 years? 15 years? 20? More? You have absolutely no way to know.

And that’s why it’s so important to come up with a withdrawal rate before you start to tap your IRA. You want to make sure that money lasts throughout your retirement — however long that ends up being.

Now, there are a couple of factors to take into account when coming up with your IRA withdrawal rate:

Your life expectancyYour expenses

But wait — didn’t we just say you can’t predict your life expectancy? That’s still true. But a good rule of thumb is to anticipate needing money for 30 years. The exception may be if you have a known health condition that’s expected to shorten your lifespan, plus a family history that doesn’t exactly scream longevity. But even then, you could be an outlier — you never know. So 30 years is generally considered a safe bet.

Your expenses, meanwhile, should be an easier thing to get a handle on. Add up your monthly expenses, from housing costs to groceries, and see where you’re at.

From there, start with a reasonably conservative withdrawal rate and see if it does the job of covering your living expenses. For years, financial experts have said that a 4% annual withdrawal rate works well for the typical senior who wants their savings to last for 30 years.

So let’s say you’re sitting on an $800,000 IRA. At 4% a year, you get an annual income from savings of $32,000. And maybe you’re looking at another $23,000 a year from Social Security. That’s pretty much in line with the average annual benefit today. All told, you’re looking at $55,000 a year to live on.

If that works for your expenses, you have your withdrawal rate. If you need more money than that, consider a slightly higher rate. If you don’t need $55,000 a year, start with a lower rate. You can adjust that rate as you go, but the key is to have a plan.

Don’t just take money out of your savings at random

It can be tempting to tap your IRA to your heart’s delight if you’ve waited many years to be able to do so penalty-free. But remember, you worked hard to build your retirement savings. And you don’t want to see that money disappear on you in your lifetime. Come up with a withdrawal rate and stick to it, and that may be less likely to happen.

Alert: highest cash back card we’ve seen now has 0% intro APR until 2025

This credit card is not just good – it’s so exceptional that our experts use it personally. This card features a 0% intro APR for 15 months, a cash back rate of up to 5%, and all somehow for no annual fee!

Click here to read our full review for free and apply in just 2 minutes.

Read our free review

We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Maurie Backman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

“}]] Read More 

Worried stocks will go wild this year? Read on to see how to prepare for that. [[{“value”:”

The very start of 2024 was a rocky one for the stock market. And while things have since settled down, it’s hard to know what the rest of the year has in store for investors.

Recent data from Allianz Life Insurance Company finds that only 47% of Americans think the economy will improve in 2024. And 74% think the stock market will be very volatile in 2024. If you’re in the latter camp, you may be stressed over the idea of a wild market. But if you do these things, a volatile market shouldn’t really worry you.

1. Make sure you’re loaded up on emergency savings

You never know when your brokerage account might take a serious dive due to general market volatility. Now, imagine your car needs work the very same week stocks are down 10% from a recent high. If you’re forced to liquidate some of your stocks right then and there because you need cash to pay for your car repairs, you’re going to lock in losses in your portfolio.

That’s why it’s so important to have a fully loaded emergency fund if you’re anticipating a year of stock market volatility. In fact, it’s a good idea to have plenty of emergency savings even if you expect a calm year for stocks, because you just never know. If you have plenty of cash in the bank for unexpected bills, you won’t have to tap your portfolio at the wrong time and risk locking in losses.

RELATED: Emergency Fund Calculator

In the aforementioned scenario, let’s say your portfolio loses 10% of its value one week due to market volatility but you don’t sell off any assets. A few weeks later, it might recover that 10% in full. Give yourself the option to leave your investments alone by having emergency savings, so you can ride out the market’s rough patches.

2. Make sure the money you have invested is money you don’t plan to use for a long time

A volatile stock market can be unsettling, no matter your age or circumstances. But if you know you’re not planning to tap your stock portfolio anytime soon, that knowledge makes that volatility a lot more palatable.

If you’re worried that 2024 is going to be a wild year for stocks, think about what you’re planning to use your portfolio for. If it’s retirement, and you’re in your 30s, there’s really not much to worry about. In that case, you have plenty of time to ride out a stock market downturn, should that come to be.

But let’s say you’re 63 years old with a stock-heavy portfolio and are planning to retire at age 65. In that case, a volatile stock market should worry you, as it has the potential to mess with your near-term plans. And in that situation, you’d be wise to move some of your holdings out of stocks and into more stable investments, like bonds, before your portfolio loses value.

Stock market volatility is actually a pretty ordinary thing. And remember, volatility isn’t always bad. If the stock market loses 8% of its value one week but gains that 8% back and then some the following week, you’re not any worse off as long as you didn’t sell any assets during that dip.

But if you’re worried about how things will play out in 2024, do yourself a favor — load up your emergency fund with cash and make sure you’re investing for a long enough window to ride out any market-related hiccups.

Alert: highest cash back card we’ve seen now has 0% intro APR until 2025

This credit card is not just good – it’s so exceptional that our experts use it personally. This card features a 0% intro APR for 15 months, a cash back rate of up to 5%, and all somehow for no annual fee!

Click here to read our full review for free and apply in just 2 minutes.

Read our free review

We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

“}]] Read More 

Comprehensive auto insurance is not as cheap as minimum coverage, but it can save you a bundle if you’re in an accident. Here’s how. [[{“value”:”

When you hear the words “collision policy,” it’s easy to understand what it covers. After all, the word “collision” is right there in the name. As the name implies, a collision policy protects you from damage to your vehicle caused by an accident with another vehicle, no matter who’s at fault. It also protects you from single-car rollovers and accidents with stationary objects, like mailboxes and road signs. It does not protect you from other potentially-expensive incidents. That’s where a good comprehensive policy comes in.

The number of benefits associated with comprehensive auto insurance coverage may come as a surprise. They include the following.

Natural disasters

Imagine you live in a coastal area and hear a hurricane is headed your way. When the storm suddenly shifts to the north, you’re relieved. However, there are still strong storms in your area. In the middle of one of these storms, a huge branch breaks off a tree and crashes down on your vehicle, doing thousands of dollars in damage. If you only carry collision coverage, you’ll either need enough in your savings account to cover the cost of the repair or hope you can drive around in a car that now looks a lot like a deflated jump house.

Whether a car is blown away in a tornado, crushed by a rock slide, hit by lightning, or swallowed up in an earthquake, comprehensive coverage will pay to repair or replace your ride. After all, that’s what we all hope a great auto insurance policy will do.

Collision with animals

If you’ve never hit a deer while driving down a Michigan road, you are indeed fortunate. It is a scary event. However, it’s not something covered by collision or minimum coverage. Let’s say you’re out West, and a frightened buffalo rushes in front of your car, taking the front bumper with it. It’s comprehensive coverage that will pay to repair such an incident.

Thieves and vandals

No one is immune from loss due to car thieves or vandals. Whether you have an old hoopty that someone strips for parts or a brand-new car desired by thieves, the outcome is the same: You have to find a way to either pay for repairs or purchase a replacement.

It’s only comprehensive coverage that kicks in when either crime occurs. Without it, the expense is on you.

That truck ahead of you

It would be easy to believe that collision insurance would cover the expense of auto repairs after your car is hit by rocks flying off a semi’s wheels or out of the back of a truck. After all, you’re “colliding” with the rocks. That’s simply not the case, though. It’s only comprehensive coverage that pays to make repairs to your windshield. In fact, only comprehensive insurance covers both windshield and glass damage.

Peace of mind

As corny as it may sound, adding comprehensive coverage to a collision policy may provide you with peace of mind. That’s because you don’t have to cross your fingers and hope that any losses you suffer are covered by a less robust policy.

When it comes to coverage that protects your vehicle against non-collision events outside of your control, there’s nothing that compares to a comprehensive policy. And if you have an auto loan on your vehicle, there’s a very good chance your insurance company requires you to carry both a collision and a comprehensive policy. Yes, comprehensive coverage will cost a bit more to add on (the precise price varies by insurer), but the amount of money it can save you over the years more than makes up for it.

Our best car insurance companies for 2024

Ready to shop for car insurance? Whether you’re focused on price, claims handling, or customer service, we’ve researched insurers nationwide to provide our best-in-class picks for car insurance coverage. Read our free expert review today to get started.

We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

“}]] Read More 

Everyone else knows more about money management than you, right? Nah. Discover five skills that will make you better with money. [[{“value”:”

Most of us don’t get any childhood training in personal finance — then we grow up, and all of a sudden we’ve got to juggle bank accounts, loans, credit scores, and so much more. If you’re feeling a bit overwhelmed and clueless, you are far from alone. A recent report from Clever Real Estate found that 46% of Americans admit to feeling insecure about their financial knowledge. Thankfully, it’s never too late to learn some basics to make you better with money.

1. Earn a generous return on your saved cash

Right now is an excellent time to have money saved — but only if you’re earning interest on it. Specifically, a high-yield savings account can help you grow your money, thanks to a higher federal funds rate. The Federal Reserve doesn’t set consumer interest rates, but they trend in the same direction as the Fed rate — and right now, that’s up.

Just 31% of us have a savings account paying more than 4% APY, according to research from The Ascent about savings. If you’re not among us, you’ve got no time to lose! Rates are expected to fall in 2024. Have a look at our list of the best high-yield savings accounts, and pick out a winner.

2. Stay on top of your cash flow and debts

Do you know how much money is in your checking account? How about the figure you owe on credit cards, a car loan, or any other debt? The surest way to financial empowerment is facing those numbers head-on, and if they’re not where you want them to be, making a change for the better (such as by increasing your income or creating a debt payoff plan).

Log in to your checking account regularly so you’ll know if your bills have been debited out of your account and whether you’re at risk of overdraft. Do the same for your credit cards, as you’ll be able to make sure you can pay off the balances before interest comes due (more about credit card interest below). If you’ve got loans with fixed pay-off dates, keep track of them — if only so you know how far away you are from celebrating paying them off.

3. Know your credit score

Your credit score is an important cornerstone of your personal finances — do you know what yours is? While it’s not necessary to know that exact number (especially since you have multiple credit scores — there are multiple credit bureaus and scoring models), it’s a good idea to know your range, at least.

Your credit score has a major impact on the interest rate you’ll pay if you need to borrow money, and with a higher score, you’ll likely qualify for better credit cards, better terms on loans, and even cheaper car insurance.

Luckily, it’s pretty easy to keep track of your credit score. I recommend targeting your FICO® Score in particular; 90% of lenders use it. Some credit cards and banks offer free access to it — this is an underrated credit card perk for sure. See if your existing financial relationships offer FICO® Score access — one of the companies you work with might.

4. Use credit cards the right way

Credit cards are a useful financial tool, but they can also be dangerous if you’re not careful. It’s best to pay off your credit card balances in full every month to avoid mounting interest charges and the potential for credit score damage. The exception to this is if you’re using a card with a 0% APR intro offer to finance a large purchase over time — and if so, don’t count on the card’s minimum payments to pay off your balance before interest accrues. Run the math yourself to ensure you’re paying enough to be free and clear by then.

If you’ve got some credit card debt, it’s best to get clear of it ASAP — credit card interest rates are high (averaging more than 20%) and variable, which means they can climb over time. I recommend snowballing your debt payoff. And if you can increase your income via a side hustle, it’ll be much easier to get rid of debt.

5. Manage your tax situation

While no one really enjoys paying taxes, most of us will at least acknowledge that paying our fair share in taxes helps our fellow Americans. That said, there’s no reason to pay more than you have to. The good news is that there are a few ways to plan for taxes and get ahead of a big bill from the IRS. Contrary to popular belief, getting a tax refund is something you shouldn’t want — because it means you overpaid your taxes and gave the government an interest-free loan.

The best tax software can make it easier to manage your taxes, or you might want to work with a tax professional. And you can reduce your taxable income in myriad ways, including by saving money for medical care in a health savings account or investing via a tax-advantaged retirement account, like an IRA or 401(k).

It’s easy to assume that everyone else knows so much more about managing money than you do, but don’t worry — most of them are just really good at faking it. Thanks to having read this article, you now have a list of skills that you can acquire and improve over time — and get better with money, for real.

Alert: highest cash back card we’ve seen now has 0% intro APR until 2025

This credit card is not just good – it’s so exceptional that our experts use it personally. This card features a 0% intro APR for 15 months, a cash back rate of up to 5%, and all somehow for no annual fee!

Click here to read our full review for free and apply in just 2 minutes.

Read our free review

We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has positions in and recommends Target. The Motley Fool recommends Flow. The Motley Fool has a disclosure policy.

“}]] Read More 

Balance transfer cards are a popular way to get out of debt. Find out if it’s a good idea to open one this year. [[{“value”:”

Interest charges are one of the reasons why getting out of debt is so difficult. That’s especially true with credit card debt, since the average interest rate is a staggering 21.47%. If you have $5,000 in debt at that rate, interest will cost you about $90 per month.

Balance transfer credit cards are often considered the solution. These cards have a 0% intro APR. That means you can transfer over other debt, and then you won’t have to pay interest anymore during the intro period. Intro periods can last a long time, too — some cards offer a 0% intro APR for up to 21 months. You usually need good credit (a credit score of 670 or higher) to qualify for cards like these.

Many people think that opening a balance transfer card is always a great move. It can be, but there are some things you should know first.

Balance transfer cards work well for large amounts of debt

If you have a large amount of high-interest debt, a balance transfer card is usually a good idea. After all, the point is to get out of debt while saving as much money as possible. With the 0% intro rates that balance transfer cards offer, the math is in their favor.

Credit cards almost always have a balance transfer fee. The standard transfer fee amount is 3% to 5%. Because of that fee, a balance transfer wouldn’t make sense with debt you could pay off in a few months. But for debt that will take you six months or more to pay off, it’s almost always worth it.

Let’s say you have $5,000 of credit card debt at a 21% APR. You can pay $250 per month toward it. You’re deciding between paying it normally or moving it to a balance transfer card with a 21-month 0% intro APR and a 3% balance transfer fee. Here’s how those two options would work out:

Paying it normally: You’re out of debt in 25 months and pay $1,208 in interest.Balance transfer: You’re out of debt in 21 months and pay $150 in balance transfer fees.

In this situation, a balance transfer saves you $1,058 and gets you out of debt four months sooner.

On the other hand, if you’re paying $250 a month toward $1,000 in credit card debt, a balance transfer isn’t as useful. If you paid off your debt normally, it would cost you $46. You’d avoid that with a balance transfer card, but you’d pay a $30 transfer fee. Overall, you’d save $16. That’s not worth the trouble of opening a new credit card and going through the balance transfer process.

Pay off your debt — don’t just shuffle it around

There’s a common mistake some people make with balance transfer cards. Once they’ve got that 0% intro APR, they relax about paying off their debt. They may only pay the minimum, or start charging more and racking up additional debt. They figure that if they don’t pay off their balance within the 0% intro APR period, they’ll just find a new card and do another balance transfer.

Even with a 0% APR, it doesn’t benefit you to carry around credit card debt. You still need to make monthly payments on it, which ties up money you could be using elsewhere. There’s also no guarantee you’ll always be able to get a new balance transfer card. And let’s be honest, do you really want to play the balance transfer game for three or four years?

A balance transfer card is a tool that can help you pay off debt. It doesn’t do the work for you. To get the most out of a balance transfer card, pay as much as you can on it. Try to get all your debt paid off within the intro period. Getting up to 21 months with a 0% APR is a fantastic opportunity. If you take advantage, you could save money on interest, and most importantly, become debt-free more quickly.

Alert: highest cash back card we’ve seen now has 0% intro APR until 2025

This credit card is not just good – it’s so exceptional that our experts use it personally. This card features a 0% intro APR for 15 months, a cash back rate of up to 5%, and all somehow for no annual fee!

Click here to read our full review for free and apply in just 2 minutes.

Read our free review

We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

“}]] Read More 

Every driver needs car insurance, and it can be expensive. Discover one of the best ways to lower your car insurance rates. [[{“value”:”

There are many ways to save on auto insurance. You could ask your insurance company about discounts. Drivers who complete a defensive driving course get an average discount of about 10%, to give you one example. Many car insurance companies also offer discounts if you bundle your home and auto insurance.

But one of the biggest savings opportunities isn’t a discount offer. It’s not related to your coverage choices or your driving history, either — it’s your credit history. If you don’t have a high credit score right now, fixing that could save you over $2,000 on your car insurance costs.

How your credit score affects your auto insurance rates

In most of the United States, car insurance companies can check your credit and use that when setting your rates. The only states that don’t allow this are California, Hawaii, Massachusetts, and Michigan.

Drivers with an excellent credit history pay an average of $1,947 per year for car insurance. That’s based on research into how credit scores affect car insurance rates by The Motley Fool Ascent. Here’s how that compares to the overall average and the average for drivers with poor credit:

The overall average is $3,017. That’s $1,070 (55%) more than what drivers with excellent credit pay.The average for drivers with poor credit is $4,145. That’s $2,198 (112.9%) more than what drivers with excellent credit pay.

Improve your credit and save on car insurance

A high credit score is good to have, for many reasons. It can help you qualify for top credit cards with more benefits. If you want to buy a home, your credit score will determine your mortgage rate. And as covered above, it can significantly cut your car insurance rates.

So, how can you improve your credit? The first step is to get your credit score. There are plenty of free tools you can use online. I use Experian CreditWorks℠ Basic. In addition to providing your credit score, these tools also let you know how you’re doing in all the areas that affect your credit. This makes it easy to figure out where to improve.

The best ways to build your credit will depend on what’s currently affecting it. Here are the most common moves that can help:

Pay down balances on your credit cards. A large amount of credit card debt is bad for your credit, and it costs you money in interest. Paying down debt is one of the fastest and most effective ways to raise your credit score. Aim to get your cards paid off, and then continue paying them off in full every month to avoid interest charges.Always make payments by the due date. Your payment history is the biggest factor in your credit score. If you’re new to credit, or if you’ve had previous payment issues, then paying on time is how you’ll build an excellent credit history.Review your credit report at least once a year. Your credit report is a record of all your credit activity. You can get yours free of charge up to once a week at AnnualCreditReport.com. You don’t need to review it weekly, but you should do so at least once a year to check for errors. A Consumer Reports survey found that 34% of people reported errors on their credit report.Dispute errors on your credit history. If you find any mistakes on your credit report, dispute them with the credit bureau that issued the report. Each credit bureau (Equifax, Experian, and TransUnion) lets consumers file disputes online. A friend of mine successfully disputed items on her credit history, and her score went up by over 100 points.

There are only a few things you need to do to build and maintain excellent credit history. Always pay on time, pay down credit card debt (or better yet, pay it off entirely), and watch out for credit reporting errors. If you get into the habit of doing that, you’ll get all the benefits of a high credit score — including much cheaper car insurance.

Our best car insurance companies for 2024

Ready to shop for car insurance? Whether you’re focused on price, claims handling, or customer service, we’ve researched insurers nationwide to provide our best-in-class picks for car insurance coverage. Read our free expert review today to get started.

We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

“}]] Read More