Money Management

How much buying power will a $100,000 nest egg give you? Read on to find out. 

It’s important to fund an IRA or 401(k) throughout your career so you can retire with a nice chunk of money. But according to Northwestern Mutual, the average retirement savings plan balance across workers of all ages is $89,300. And among people in their 60s who are likely on the cusp of retirement, the average balance is $112,500.

As such, if you’re heading into retirement with a nest egg worth $100,000, your savings may be roughly in line with what the average near-retiree has socked away. But that doesn’t mean that a $100,000 balance will get you very far.

Why $100,000 isn’t so great

A $100,000 savings balance could do a lot for you in the context of your emergency fund. But in the context of a retirement nest egg, it’s unfortunately just not a lot of money.

For many years, financial experts thought that tapping retirement savings to the tune of 4% a year was a good bet. Due to increased life expectancies and other factors, many experts are now saying that a lower withdrawal rate, like 3%, may be more appropriate.

But even if we stick with 4%, for a $100,000 nest egg, that results in $4,000 of annual income a year. Meanwhile, the average Social Security benefit as of earlier this year was $1,827 a month. So if that’s the benefit you’re in line for and you’re only able to get $4,000 a year out of your nest egg, you’re looking at an annual income of about $26,000. It’s hard to live comfortably on that even if your home is paid off and you’re used to being frugal.

Set yourself up for a much larger nest egg

A big reason some people wind up with limited retirement nest eggs is that they don’t start saving and investing early on in their careers, but rather, wait until their 40s or 50s to begin growing long-term wealth. But if you’re able to start young, you may find that you’re able to easily retire with far more than $100,000, even if your monthly contributions to your IRA or 401(k) plan are quite modest.

Let’s say you start funding your retirement savings at age 27 and retire at age 65. Let’s also assume you’re only able to set aside $200 a month during that time.

The stock market has, over the past 50 years, delivered an average annual 10% return, as measured by the S&P 500’s performance. So if you’re able to snag that same return, you’ll end up with almost $874,000. That gives you an annual income of about $35,000 from your savings alone if you follow the 4% withdrawal rule. Add in another $22,000 or so from Social Security, and you could be in pretty decent shape.

Coming into retirement with $100,000 in savings is far better than not having any savings at all. But the reality is that $100,000 just isn’t a ton of money for what could easily be 20 years of retirement or more. So if you want to avoid feeling cash-strapped later in life, start funding your IRA or 401(k) as early as you can.

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Paying bills late can harm your credit score, no matter what. But read on to see what might happen if you’re late with a bill when your credit isn’t in the best shape. 

When you sign a loan, you’re committing to making your monthly payments on schedule. And when you borrow via a balance on your credit card, you must make your minimum payments on time every month.

When you’re late with a loan payment or credit card bill, generally, not much will happen from a credit score perspective until you’re 30 days late. Lenders and credit card companies generally won’t report delinquencies after five or seven days because sometimes, things happen.

But if you’re 30 days late or more, you can expect the credit bureaus to be notified of your delinquency. From there, your credit score might take a dive. But believe it or not, the hit may not be so severe if you have poor credit to begin with.

When a late payment really isn’t so out of character

Although this isn’t always the case, it’s often the case that people with poor credit are in that boat because they have a history of paying bills late. Your payment history carries more weight than any other factor when calculating your credit score. So it stands to reason that a series of late payments would result in a score that’s not so outstanding.

But if late payments are a recurring problem for you, then another one may not impact your credit score so much. And the reason is that that behavior is sort of what’s expected of you already.

As an example, FICO says that someone with a credit score of 607 might see that number drop to 570 for a 30-day late payment and 560 for a 90-day late payment. So we’d be talking about a drop of 37 points in the first scenario and 47 in the second. That’s not great, but it’s also not so drastic.

By contrast, someone with an excellent credit score of 793 might see that number drop to 710 for a 30-day late payment and 660 for a 90-day late payment. That would mean a drop of 83 points in the first situation and 133 points in the second. Clearly, those hits are more substantial.

It’s still best not to be late

Even though a late payment may not impact your credit score too much when it’s already poor, it’s still best to avoid delinquencies. If your credit is poor, you’re already in a position where it’s likely to be tough to get approved for a loan or line of credit. You don’t want to make your chances of approval even more slim.

In fact, if your credit is poor, it pays to take steps to bring your score up. And one good way to do that is to pay all of your bills on time. Whittling down an existing credit card balance could also have a big impact, if that’s something you’re able to do.

Meanwhile, it’s a smart idea to make a list of your various credit card and loan payment due dates so you can more easily keep track of those payments and avoid being late. Boosting your savings account balance by even a few hundred dollars could also make it so you’re less likely to be late with a bill due to a lack of money.

A side job could be your ticket to paying down existing credit card debt and boosting your savings — both of which could directly or indirectly help your credit score improve. It pays to explore the gig economy if you’re currently living paycheck to paycheck and know there’s no way to squeeze more money out of your existing salary.

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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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Small business owners who fall victim could face significant penalties. Read on for what you need to know. 

At the height of the COVID-19 pandemic, with unemployment rates rising, Congress introduced a tax break to help businesses keep their doors open and their employees working. Now, over three years later, that same program is being used by scammers to defraud small business owners. Read on to learn more about the Employee Retention Tax Credit and how you can steer clear of scams using its name.

What is the Employee Retention Credit?

The Employee Retention Credit, or ERC, is a refundable tax credit available to certain businesses that operated during the COVID-19 emergency. Those businesses that retained employees amid the economic uncertainty of the pandemic may be eligible to claim a tax credit on a per-employee basis.

Eligibility for the credit is generally contingent upon a business being directly affected by the pandemic. Businesses that were shut down by government order during the early stages of the outbreak are eligible for the credit. Alternatively, businesses that experienced a high degree of revenue loss during that period may also qualify. Additionally, certain start-up businesses with employees may qualify for the credit.

Which businesses qualify and how much they qualify for has been revised in four pieces of legislation, from the CARES Act in March 2020 to the late 2021 infrastructure spending bill. Businesses generally must have met eligibility requirements during the height of the pandemic, between mid-March 2020 and September 2021. The credit is generally calculated as a percentage of wages paid, with a total benefit of up to $5,000 per employee for wages paid during 2020, and up to $7,000 per employee for wages paid during the first three quarters of 2021.

ERC scams

The complexity of the Employee Retention Credit, and conflicting instructions over the years, have resulted in a wide range of scams relating to the credit. Fraudulent claims have become so prolific that the IRS added ERC scams to its list of infamous scams called the “Dirty Dozen.”

ERC scams have run rampant in recent years largely due to unclear guidance on the credit. The Employee Retention Credit has changed dramatically since it was introduced originally in the March 2020 CARES Act — it was modified three different times in 2021 alone. Each revision of the credit substantially changed eligibility requirements and benefit amounts.

ERC scams are aggressively advertised to business owners as an easy way to retroactively cash in on government assistance during the pandemic. Often, a scammer will charge a fee to help a business owner file an ineligible claim for the credit, and be long gone before the IRS rejects the claim. The idea that there is “nothing to lose” by filing a false claim is incorrect — claims that are denied must be repaid, often with interest and penalties.

How to protect yourself

The IRS warns taxpayers to view unsolicited tax credit advertisements with skepticism. Those that offer easy applications and high upfront fees are especially suspect. If you believe you have been approached by a fraudster, the IRS requests that you report them to the Criminal Investigations department.

Successfully qualifying for the Employee Retention Credit is not as easy as scammers make it out to be, and mistakenly claiming the credit can land you in hot water with the IRS. There is a lot of nuance regarding which businesses are eligible and for how much of a credit. When in doubt, consult a trusted tax expert and only apply for the benefit if you believe you are legitimately eligible.

The Employee Retention Credit offers a financial benefit for businesses that paid employees during the pandemic. Scams naming this tax credit are on the rise and can cost businesses thousands of dollars in fraudulent fees and IRS penalties. When in doubt, turn to a trusted professional for tax advice, and always exercise a critical eye.

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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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