Money Management

Want to live on $50,000 per year in retirement? Keep reading to learn how to calculate your investment target to make it happen. 

Retirement can be an expensive time of life, especially if you want to enjoy traveling around the world or if you have costly healthcare expenses to pay as a senior and don’t want to end up in credit card debt. It’s important to make sure you have enough money to do all the things that you want to do during your later years.

For some people, this means aiming to produce around $50,000 in retirement income from their savings. And if this is your goal, you’ll need to consider exactly how to achieve it. Here’s what you need to know about the amount you’d need invested in a 401(k) or retirement accounts at a brokerage firm to give you your $50,000 in retirement income.

How much savings do you need to produce a $50,000 retirement income?

When you’re deciding how much retirement savings you need to provide a desired income, the most important thing to think about is your withdrawal rate. You don’t want to take too much money out of your retirement account too fast. If you do, you won’t leave enough invested. You need that money sitting there in your accounts, invested and earning returns.

There are a lot of theories on how much, exactly, you can safely take out of your accounts. One of the most common approaches is the 4% rule. If you follow it, you can take out 4% of your account balance in the first year of retirement. Then, each year, you just adjust upward to account for inflation.

There are some problems with this rule, including the fact it doesn’t respond to market performance and may not be perfectly suited to every person’s situation. But it’s still a helpful rule of thumb because it gives you an easy way to estimate how big your nest egg needs to be to produce a desired income — especially since you can’t really predict what the stock market is going to do in the future. You also may not have a clue about your actual retirement spending needs if you’re decades away.

So, if you decide to use the 4% rule, there’s a really easy way to figure out how to determine how much money you need invested to produce $50,000 (or whatever your desired income amount is in retirement). Just multiply the amount you need by 25.

So, in order for your retirement investment account to safely produce $50,000, you would need $1.25 million in investments. If you wanted less — say $20,000 — you would only need $500,000 invested. If you wanted more, like $100,000, you’d require savings of $2.5 million.

How much do you need to save each month to hit your target?

Knowing your big number that you need invested to produce your desired retirement income is an important step in planning for retirement, but it is just the first step. You’ll want to break your big goal down into smaller ones and figure out how much you must invest each month to hit your retirement savings target.

This calculation is going to depend on your timeline until you retire and the returns you earn. If you have more years until retirement or earn a higher return on your investments (ROI), you won’t need to save quite as much money to meet your goal.

You can use the calculator on Investor.gov to determine your personalized number based on how big your nest egg needs to be, the returns you expect, and the number of years until you’ll need your retirement funds. Just input this specific information, as well as your current savings balance and your desired end goal.

Once you have figured out exactly how much to invest each month, try to automate the process. Have the desired amount of money taken out of your paycheck and put into a 401(k) or withdrawn automatically on payday and deposited into your IRA account with your broker. This is what I did, and I haven’t missed a retirement account contribution in the years since. If you can take this step, you will be on track to have your $50,000 in retirement income or whatever amount you desire.

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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.Christy Bieber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Target. The Motley Fool has a disclosure policy.

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IRAs and 401(k)s are tax advantaged, so it’s smart to invest for your golden years using one. Learn why retiring early could throw a wrench into this plan. 

One of the best money moves you can make for your future self is saving and investing for retirement. Depending on your salary and financial situation, this can be a difficult prospect, but if you can manage to carve out money to save, using a tax-advantaged retirement account will also help you in the here and now.

Traditional IRAs and 401(k)s lower your taxable income because they’re funded with pre-tax dollars. So if you earn $60,000 per year and contribute $5,000 to a 401(k) plan through your employer, that’s $5,000 worth of income the IRS won’t tax you on now — instead, you’ll pay taxes on it when you withdraw money in retirement. These plans are great, but they come with one pitfall if you’ve got your eye on retiring before age 59 1/2.

Early withdrawal penalties

In exchange for saving you on taxes during your working years, the money you put in a traditional IRA or 401(k) generally can’t be accessed without a 10% penalty if you’re under age 59 1/2. The exceptions to this include suffering a total and permanent disability, covering health insurance premiums while you’re unemployed, or taking out up to $10,000 to use toward the purchase of your first home.

But if you’re hoping to retire before you reach the age where you can take distributions without penalty, you’re out of luck.

How can you pay for early retirement?

It would be quite disappointing to be financially ready to retire and find yourself unable to access the money you’ve saved and invested. If you think early retirement might be in the cards for you, check out these other types of accounts that will give you access to your money at any age.

Taxable brokerage accounts: A regular brokerage account doesn’t restrict your access to your money (although, if you’re hoping to avoid costlier capital gains taxes, it’s prudent to hold investments for at least a year and a day before cashing them out). Speak with your tax professional to minimize your tax obligation during your retirement years. The best brokerage accounts come with low or no fees, robust mobile apps, and access to educational resources.Roth IRAs: These accounts are funded with after-tax dollars, and you’re allowed to withdraw your contributions without taxes or penalties. If you want to withdraw gains from your Roth IRA without penalties and taxes, however, you’ll need to wait until age 59 1/2 unless you qualify for an exception (many of which are the same as for a traditional IRA). And note that Roth IRAs have income limits, so if you earn too much, these accounts aren’t an option for you.CDs: Certificates of deposit, or CDs, offer you the chance to earn interest on your savings in exchange for locking it up for a period of time (a few months to several years). When your CD term is up, you can withdraw the money from it with no penalties no matter what age you are. CDs are a far safer investment than stocks, but consequently, they don’t pay as well over the long term — so you’re likely to be disappointed in your gains if you keep all your retirement savings in them.

Early retirement is a dream for a lot of people, and if you’re one of the lucky ones who can pull it off, be sure you’ll have access to some of your funds before you reach traditional “retirement age.”

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It’s important to know how quickly your savings can multiply so you can plan future financial decisions accordingly. Learn how you can figure it out. 

Putting money into a high-yield savings account is a smart thing to do. High-yield accounts provide competitive rates for savings, present no risk of loss if they are FDIC insured, and enable you to access your money whenever you need it.

While you won’t get the same returns you could get by opening a brokerage account and buying stocks, it is still important to understand how much your savings actually can earn for you. Fortunately, there’s an easy way to figure that out. Here’s how to do it.

The Rule of 72 will help you determine your doubling time

There’s a really fast and simple way to get an estimate of how long it is going to take for your money to double. It’s called the Rule of 72, and here’s how it works:

Determine your expected rate of return. You can find this out from your savings account provider. For example, a high-yield savings account might have a rate of 4.00%, while a more traditional savings account might have a yield of 0.5%.Divide the number 72 by your expected rate of return.

For example, if your account paid 4% interest, you could estimate the time it would take for money invested in it to double by dividing 72 by 4. In this case, it would take about 18 years to double your money.

So how long will it take your account to double?

The interest rate you earn is going to play a major role in determining how long your doubling time is. For example, the table below shows approximately how long it would take to grow an investment into double its original size.

Obviously, you do not want to wait 144 years for your money to double, so you should aim to find a savings account with the highest rate possible. To do this:

Check out savings accounts offered by online banks, which tend to provide a higher rate than most traditional savings accounts at brick-and-mortar banks do.Compare savings account rates from multiple lenders to see which is the most competitive.Understand the rules, such as whether a bank will pay the same rate for all deposits regardless of the size or your account balance.Consider changing bank account providers over time as rates fluctuate.

By taking these steps, you can get the best rate possible for your savings. You can also look into a certificate of deposit if you’ll need the money in the short-term but not immediately. CDs are also FDIC insured and provide a guaranteed rate of return, which is often a little higher than the rate a savings account would offer. You must agree to keep your money invested for a specific period of time, though, such as six months or a year, so consider whether that makes sense for your situation.

It’s also important to remember that even a savings account that pays a pretty competitive rate won’t allow you to double your money very quickly. This is why these accounts are meant for money you don’t want to risk in the stock market.

If you have time to wait out any potential downturns because you won’t need the money for around five years or so, you’re better off putting your funds into a brokerage account where they can double much faster.

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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.

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Camping doesn’t have to cost you a fortune. Check out these Dollar Tree items that will help you prepare for your next trip. 

Camping should be an inexpensive way to see the world, but by the time you buy all the gear you need, you may feel as if you’ve emptied your checking account.

The good news is, you can score some great bargains for your camping needs — whether you use a tent or an RV — if you shop at Dollar Tree. Here are three awesome items to check out that you’ll want to pick up at a bargain price before you hit the road for your next adventure.

1. Storage containers

Whether you’re staying in a camper or a tent, chances are good that you’ll have a lot of stuff to keep organized. You could spend a fortune on fancy storage containers from Target or Walmart, like these 10.5 by 10.5 inch Hyacinth Storage Baskets that would run you about $13 per basket. Or, you could spend $1.25 for a colorful plastic basket of a similar size from Dollar Tree.

Since you’ll be “roughing it” on your trip, there’s no need for those pricey alternatives. Instead, choose from Dollar Tree’s vast selection of storage boxes, bins, and containers including boxes both with and without lids.

We use many of the Dollar Tree containers in our camper and they’ve allowed us to make the most of our space by organizing everything from dog gear to toddler clothing to spare plates and glasses. In fact, just about every cabinet in our RV has at least one Dollar Tree container. While some hold up better than others, they all made it through the 15 trips we took this first year of having the camper.

2. Rain ponchos

Rain doesn’t need to ruin your vacation if you come prepared with a rain poncho. And the Dollar Tree has clear plastic ones for $1.25 so you can buy one for everyone in the family. A 10-pack of the same ponchos is $15.98 from Amazon, so you’re better off saving yourself the $0.35 per poncho.

These ponchos do a surprisingly great job keeping you dry, and they’ve enabled us to keep the fun going on several camping trips and Disney vacations too. I bought about 20 of them and we keep them in our camper, the stroller we take camping, our diaper bag, and our go-bag when we head out for the day, so we’re prepared for any unexpected storms.

3. Moisture eliminators

Campers can get a musty smell, especially if you aren’t living in them regularly. No one wants to deal with that. The good news is Dollar Tree offers moisture eliminators with charcoal. These little items can be tucked away in a closet, cabinet, or under a table and they absorb bad odors and prevent mildew, plus they’re spill-proof.

We use these in our camper to keep it smelling fresh and we picked up ours from Dollar Tree for $1.25 each instead of breaking out the credit cards to pay $33.30 (or $5.55 each) for a six-pack from Walmart. Since buying them, I’ve noticed a difference in musty odors, especially when we go two or three weeks in between trips. Three of the four have held up great all season (with one casualty caused by a toddler with a pair of scissors, so note that they aren’t indestructible).

Each of these items is a great buy, and it just goes to show you may be surprised at what you can find at a dollar store.

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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.John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Christy Bieber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon.com, Target, and Walmart. The Motley Fool has a disclosure policy.

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If you want to improve your financial situation, cut or lower a fixed expense and commit to shopping from a list. Find out more. 

It’s often difficult to know where to start when making financial changes in your life. You probably know that you want to sock away more in savings, make progress on paying off debt, or put more money into a brokerage account — and that you need to spend less to do it. But, figuring out how to act on your desire to improve your money situation is another matter.

The good news is, doing two simple things could make a bigger difference in your personal finances than you might imagine. Here’s what they are.

1. Cut or eliminate one fixed expense

It can be hard to cut out a lot of little expenses because that involves making too many lifestyle changes that are unsustainable. But, it’s not that hard to cut one fixed expense because you do it once and you’re done. After you’ve reduced or eliminated that fixed expense, you’ll keep benefitting from the savings and can invest the difference.

Say, for example, that you drive an expensive new car. If you could switch to a cheaper used car when it’s time to buy your next vehicle, you could save a fortune. In fact, the average monthly payment on a new car was $717 per month in the last quarter of 2022, while the average monthly payment on a used car was $563. If you could free up an extra $154 per month to invest, you could end up with $105,850.93 after 20 years of steadily investing and earning a 10% average annual return.

Other ways to cut or eliminate a fixed expense include:

Switching to a cheaper cellphone plan Eliminating one or two video or music streaming servicesDropping your gym membership and exercising at home

2. Curb your impulse spending

Impulse spending is a major reason why so many people spend more than they should. In 2022, the average person spent a shocking $314 per month on impulse purchases, according to a Slickdeals study.

If you could eliminate that, or even cut it in half, it could change your financial life. Consider what would happen if you invested $314 per month, or even $157 per month. If you earned a reasonable 10% average annual return and kept it up for two decades, you would have $215,812.20 or $107,906.10 if you only managed to cut impulse buys in half.

There are a few great techniques you can implement to curb your impulse spending, including:

Shopping only from a list. This works really well for me to keep unnecessary purchases off my credit cards. I make lists whenever I go to the store and stick to them. I also have a master list of things I want or need in the upcoming month. If it’s not on the list, I don’t buy it. Unsubscribing from marketing emails. I have taken myself off of email lists and opted out of getting catalogs in the mail. There’s no reason to be tempted by marketing materials. If I need something, I’ll know about it and don’t need to see a catalog. If I don’t need something, I don’t need a promotional email to convince me I do. Setting a 24-hour rule. If you do happen to see something that’s not on your list, you can impose a 24-hour rule. If you still want it in 24 hours, you can go back and buy it. This has also worked well for me because often I don’t want the item after thinking about it. And if I do, I know it’s really worth buying.

As you can see, implementing these two techniques alone can make you a lot richer, so give them a try as soon as you can.

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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.
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Opening up a brokerage account is an important life milestone. Here are a couple key signs that suggest you’re ready to jump in. 

At some point in your life, you should probably open a brokerage account. This is an account that allows you to get your money into the stock market. Investing in the stock market can open up the door to better returns than you would get if you kept all your cash in a high-yield savings account.

It can sometimes be hard to figure out whether you’ve reached that point in your life or not. To determine if you are ready to move forward with opening an investment account, be on the lookout for these key signs.

1. You have money you will not need for a few years

The point of opening a brokerage account is to invest in the stock market. Investing in the market always carries at least some risk of loss, unlike when you put your money into a high-yield savings account that is insured by the FDIC for up to $250,000.

If you make wise investments, you will be able to manage this risk and likely turn a profit over the long haul. But the market has ups and downs and even great investments can sometimes perform poorly for a few years. So, you should only put money into the stock market if you won’t need it for around three to five years or longer.

If you have a longer timeline like this, then you have the opportunity to wait out downturns. Even if you have terrible timing and the market crashes the day after you invest, you can wait for an inevitable recovery. But, if you can’t wait, you could be forced to sell for less than you paid. This is called locking in your losses — you sell before you have the opportunity to earn them back.

If you don’t have any money that isn’t going toward more immediate goals, such as paying off high-interest debt, then you’re not yet ready to open a brokerage account. But as soon as you have even a little bit of spare cash, you should get started investing. This could be as little as $5 or $10.

While it may seem silly to put so little into the market, it really isn’t. Many brokerage firms today have no minimum balance requirements and many allow you to buy fractional shares, or partial shares of stocks or ETFs. This means if you have only $5 to invest, you can still buy investments. You just may not own a whole share of it, but you’ll earn the same percentage returns as someone who owns thousands of shares.

As soon as you’ve started investing, you can begin taking advantage of the power of compound growth. That’s when your returns are reinvested, and the combination of time and compound growth can help you build wealth. In fact, investing just $10 a month over 40 years could leave you with over $53,000 if you earned 10% average annual returns.

2. You have a plan for how to invest

Finally, the second sign you’re ready to open a brokerage account is that you have a plan for how to invest.

See, once you put your money into the account, you have to buy assets with it. And you’ll want to know how you’ll approach this process to reduce your risk of loss.

You can buy stock shares to get an ownership stake in a wide range of companies. This is a riskier approach since your investment performance hinges on how one particular business does, but it can work if you do your research and understand how to pick good stocks.

For many people, the better option is to buy exchange-traded funds (ETFs) that track a financial index. These trade like stocks, but your money is pooled with others and used to buy shares in dozens or even hundreds of companies that make up a financial index. If you put your money into an S&P 500 ETF, you are essentially buying a small ownership stake in around 500 of the largest U.S. companies. You aren’t betting on one business to do well — you’re betting on around 500 of them. So you’re taking on more limited risk.

ETFs are the strategy Warren Buffett, one of the greatest investors of all time, recommends for most people. It’s also my approach, as almost my entire portfolio is in ETFs. Fortunately, buying them is simple as you can just use the ETF screener your brokerage account offers to find one tracking the S&P 500, the market as a whole, or a host of other financial indexes.

You can decide if your strategy will be to buy stocks, ETFs, or a mix of them. The important thing, though, is to make a plan you’re confident in so you can make informed investment choices.

Once you’ve done that, as long as you have even a few spare dollars, you’re ready to go. Check out the list of best brokerage accounts and open your account online today.

Our best stock brokers

We pored over the data and user reviews to find the select rare picks that landed a spot on our list of the best stock brokers. Some of these best-in-class picks pack in valuable perks, including $0 stock and ETF commissions. Get started and review our best stock brokers.

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.Christy Bieber 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.

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