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Money Management

Aug 15
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Here’s What Happens When You Retire With No Savings

By Money Management No Comments

Retiring without savings is bad news. Keep reading to see what you can do to plan ahead for a more comfortable retirement. 

Image source: Getty Images

Saving for retirement is not easy. After all, how are you supposed to carve out money for retirement savings when you have pressing bills, like a car and mortgage payment, to make?

But if you don’t manage to bring any savings into retirement, you may need to live on Social Security alone. And that could easily result in a cash-strapped existence.

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You’ll likely need more income than what your benefits provide

It’s a big myth that Social Security will fully replace the paycheck you were collecting before retirement. If you’re an average earner, Social Security will only replace about 40% of your former income. So if you retire without any savings, you might end up effectively taking a 60% pay cut.

At the start of 2023, the average Social Security benefit was $1,827 a month. That’s an annual income of a little less than $22,000.

Now, think about your expected bills in retirement. Even if you own your home in full and you’re able to shed other expenses related to holding down a job, you’ll still need to maintain your home, pay for utilities, fuel up your car, and eat. And a monthly income of $1,827 may not cover your basic expenses in full.

Of course, your monthly Social Security benefit might be higher than $1,827. The point, however, is that if you retire without savings, you might struggle a lot. And you might land in a situation where you’re forced to cut back on pretty much every single luxury because you can’t afford any extras.

Don’t put yourself in a tough spot

Retiring without savings could make you miserable at a time in your life when you deserve to enjoy yourself. So rather than run that risk, prioritize your retirement savings, even if you have to start slowly.

One smart bet is to automate the process of saving for retirement so you know your nest egg is getting funded every month. If you have a 401(k) plan through work, you can sign up to have contributions deducted from your paychecks automatically. Otherwise, you can find an IRA with an automatic savings option and do something similar — arrange for a portion of each paycheck to land in that account off the bat.

And remember, too, that you don’t need to part with tons of money to build up a nice amount of savings over time. Let’s say you’re 25 and want to end your career at 65. Over the past 50 years, the stock market has delivered an average annual return of 10%, as measured by the S&P 500. So if you go heavy on stocks in your retirement account, you might enjoy a similar return.

In that case, if you sock away $100 a month over 40 years, you’ll contribute a total of $48,000 and will end up with about $531,000. That could easily spell the difference between living comfortably and struggling.

Retiring with no savings could make your senior years downright miserable. Do what you can to avoid that fate, because your older self deserves better.

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Aug 15
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Recession Warnings Keep Coming. How Worried Should We Be?

By Money Management No Comments

Some experts have said that a near-term recession is likely. Read on to see what economic data points to. 

Image source: Getty Images

For months, financial experts have been warning consumers to prepare for a recession in 2023 or 2024. And those warnings can be frightening.

After all, recessions have the potential to lead to an uptick in unemployment. And the thought of losing your job might be enough to make you lose sleep. But while recession warnings might persist, the reality is that economic data doesn’t seem to indicate that a broad decline is right around the corner.

The economic numbers look good

Higher levels of unemployment are often an indication that a recession is imminent. But in July, the U.S. unemployment rate was just 3.5%, and 187,000 new jobs were added to the economy. That’s encouraging news.

Meanwhile, in July, the Consumer Price Index (CPI) rose 3.2% on an annual basis. That marks an uptick from June, when annual inflation was measured at just 3% based on that month’s CPI. But all told, 3.2% inflation isn’t so extreme. While it might lead to another interest rate hike from the Federal Reserve this year, that hike shouldn’t be drastic.

A big reason experts have been warning of a recession is that the persistent rate hikes by the Fed have the potential to lead to a decline in consumer spending. And if spending is curbed to a notable degree, the broad economy could suffer. But while it’s gotten more expensive to borrow money, whether in the form of a loan or credit card balance, consumers don’t seem to be cutting back.

Consumer sentiment that the University of Michigan tracks rose 11% in July compared to the prior month, reaching its highest level since October 2021. And consumer spending rose 1.6% during the second quarter of the year, despite higher borrowing costs.

In other words, consumers do not seem to be pulling back on spending, and they seem confident in the economy. That’s hardly the sort of data you’d expect right before a recession.

It pays to prepare for a recession

While economic data does not seem to point to a near-term recession, the reality is that it’s a good idea to be ready for one at all times. And one of the best ways to do that is to have a fully loaded emergency fund.

Having enough cash in your savings account to cover three months’ worth of bills or more could put you in a strong position to get through a period of job loss. It could also be your ticket to avoiding debt at a time when it’s gotten expensive to borrow.

And speaking of debt, now’s a good time to whittle yours down. If economic conditions do sour, the last thing you’ll want is the stress of expensive monthly payments hanging over your head.

At this point, the idea of a 2023 recession is seeming less likely. But that doesn’t mean we’re out of the woods. And even if a recession doesn’t hit in 2023, there’s no guarantee we won’t experience one next year. So it’s best to prepare for that possibility, and doing so could actually make the next recession warning you hear a lot less scary.

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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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Aug 15
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Will Inflation Be Gone by 2024?

By Money Management No Comments

Inflation levels have been high since mid-2021. Read on to see what may be in store for 2024. 

Image source: Getty Images

Inflation is the sort of thing most people don’t really focus on until it begins to soar. And that’s precisely what started to happen around mid-2021.

Earlier that year, lawmakers approved a round of stimulus checks that put $1,400 checks into Americans’ bank accounts. That put consumers in a position where they had extra money to spend at a time when supply chains were getting battered. That led to a disconnect between supply and demand, and rampant inflation ensued.

In May 2021, the Consumer Price Index (CPI), which measures changes in the cost of consumer goods and services, rose 5% on an annual basis. Inflation levels then continued to climb, eventually peaking in June of 2022, at which point the CPI was up 9.1% on an annual basis.

But inflation has been cooling pretty steadily since the start of 2023. Granted, July’s annual CPI reading was slightly higher than June’s, coming in at 3.2% (compared to 3% a month prior). But despite that blip, it’s clear that inflation today isn’t close to where it was about a year ago, and that’s good news for consumers.

But will inflation be gone by 2024? Not exactly. Inflation is the sort of thing that never really goes away. Ideally, it just sits at a level that’s not particularly bothersome.

A persistent thing

Inflation is sort of a natural phenomenon that tends to persist over time. And usually, it’s not so problematic. Often, wage growth keeps pace with inflation to a reasonable degree so that consumers don’t lose a ton of buying power from one year to the next. It’s when inflation surges like it did in 2021 into 2022 and beyond that it causes problems.

The Federal Reserve, which oversees monetary policy for the U.S., acknowledges that inflation is something that generally can’t be helped. And the Fed itself is satisfied with an annual inflation rate of 2% in the long term. The central bank feels that this level is conducive to economic growth and stability.

As such, consumers should not necessarily expect 2024 to be an inflation-free year. But could annual inflation get down to 2% in 2024? That’s certainly possible.

Protecting yourself against inflation

One situation where inflation tends to become problematic is retirement. The money you sock away for your senior years now has the potential to be worth less in three or four decades. So it’s important to invest your money in a manner that’s likely to outpace inflation. And in that regard, the stock market may be your best bet.

Over the past 50 years, the stock market, as measured by the S&P 500, has delivered an average yearly return of 10%. So if you’re 30 years away from retirement and your portfolio delivers a similar return, you’re likely to end up in really good shape, even if annual inflation persists at 2% during that time.

The past couple of years have led consumers to believe that inflation is something to worry about. Usually, it’s not — at least not regularly. But it’s also important to be aware that inflation isn’t a short-term trend. Rather, it’s something you should expect to be grappling with to some degree for the rest of your life.

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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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Aug 15
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This Is How Much Money You Can Make with $20K in a High-Yield Savings Account

By Money Management No Comments

Want to make more from interest? Stash your cash in a high-yield savings account. Find out how much interest you can earn with $20,000 in the bank. 

Image source: Getty Images

It is valuable to have savings. If you have extra cash in an emergency fund, it’ll be easier to pay for unanticipated expenses that come your way. The recommended amount to save varies from person to person, as everyone’s financial situation differs.

But for many people, $20,000 is a sizable emergency fund goal that will go far. If you have a large chunk of savings set aside, make sure you keep it in a bank account that earns interest.

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Curious how much interest you can make off $20,000? Below, I’ll explain how much you can earn with this sum by keeping your cash in a high-yield savings account.

Maximize your earnings with a high-yield savings account

Before opening a savings account, check the annual percentage yield (APY). Banks use this to describe the returns an account holder can expect by keeping their cash in a savings account for one year. Many brick-and-mortar banks offer low APYs, so it’s common to see rates as low as 0.01% APY. At that meager rate, you won’t earn much at all.

But if you open a high-yield savings account, you’ll likely be offered a much higher APY. Many online banks offer 4.00% APY or higher for these accounts. How much interest will you earn by keeping $20,000 in a high-yield savings account? It could be more than you think.

$20,000 in savings accumulates this much in interest

To determine how much interest you’ll earn, multiply your initial deposit ($20,000) by the APY your bank account offers. Doing this will show you how much you’d make if you kept your cash in the bank for one year.

For the following calculations, I went with a 0.01% APY for a standard savings account and a 4.50% APY for a high-yield savings account. The bank accounts on our list of the best high-yield savings accounts have APYs ranging from 4.15% to 5.05% — I settled somewhere in between.

These calculations assume a $20,000 deposit with no additional deposits made to your account:

Bank account type Interest earned after one year Savings Account, 0.01% APY $2.00 High-Yield Savings Account, 4.50% APY $900
Source: Author’s calculations

As you can see, there is a significant difference in earnings. Keeping a large sum of cash like this in a high-yield savings account would be worthwhile if you hope to maximize the interest you earn.

Compound interest is on your side when it comes to savings

The calculations above show how much interest you can earn by keeping $20,000 in the bank for a year. But you can make more money thanks to compound interest, which is interest that you earn on interest. The longer you keep your money in your savings account, the more you earn.

To give you an idea how you can benefit from compound interest when you have a savings account, here’s how much money you’ll make if you keep $20,000 in a high-yield savings account for anywhere from one to five years. Again, the following calculations assume you make no additional contributions beyond the initial deposit.

Here’s a breakdown:

Year Starting balance Interest earned Ending balance 1 $20,000 $900 $20,900 2 $20,900 $940.50 $21,840.50 3 $21,840.50 $982.82 $22,823.32 4 $22,823.32 $1,027.05 $23,850.37 5 $23,850.37 $1,073.27 $24,923.64
Source: Author’s calculations

That’s $4,923.64 — nearly an additional $5,000 earned in five years, assuming the APY doesn’t change. However, APYs can and do change, so your APY likely won’t stay at the same rate for five years.

Earn more interest with no extra work

Considering the rates offered, now is an excellent time to open a high-yield savings account. By stashing your cash in a bank account with a higher APY, you can earn more interest without doing any work. Most bank accounts take only a few minutes to open, so it’s worth the effort. You can improve your personal finances by boosting your bank account balance with earned interest.

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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.Natasha Gabrielle 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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Aug 15
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My Friend Used a Credit Card for a Surprise Expense Instead of Her Emergency Fund. Here’s Why That Was a Mistake

By Money Management No Comments

Some people are hesitant to tap their emergency savings. But read on to see why using a credit card is far less ideal when you already have money in the bank. 

Image source: Getty Images

When your job is to write about financial matters, your friends sometimes come to you for money-related advice. And not so long ago, a friend of mine ran into a jam and wanted my input.

Her car had some sort of issue that was going to result in a $4,000 repair. It’s an older car, and she didn’t want to put the work into it. But seeing as how vehicle prices are soaring and the average monthly car payment hit a record high of $730 earlier this year, according to Edmunds, she figured it was better to make the repair and hang onto her car for another year or two rather than deal with taking on an expensive new auto loan.

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The good news is that my friend had the $4,000 in her savings account at the time. The bad news is that she was really scared to take that withdrawal. So despite me urging her to do so, she wound up putting her expense on a credit card instead. And that was a mistake.

Tapping emergency savings is generally the best bet

The reason my friend opted to use a credit card for her car repair rather than raid her emergency fund is simple. She was worried about her savings balance getting too low, and removing $4,000 from her bank account would’ve left her with less than half that much after the fact.

Now, it’s worth mentioning that the typical emergency fund should ideally contain enough money to cover three full months of living expenses at a minimum. My friend’s savings balance wasn’t close, as she could barely cover a month of bills with what she had. But still, I told her that using her credit card was a mistake for one big reason — it would cost her money in interest.

My friend had a good plan. She was going to charge the repair on her go-to credit card and then apply for a 0% interest credit card and transfer the balance over. But when I pointed out that 0% interest rates generally only last for about a year or a year and change, and that the rates on those cards can be exorbitant once those introductory periods run out, she realized the flaw in her plan.

She decided to carry the balance on her go-to credit card for the time being and see how well she’d fare at chipping away at it. Only after a couple of months, she realized that she wasn’t really making much progress, and that she really stood to accrue a lot of interest on that balance.

As such, she took my advice a few months after the fact and used her emergency savings to pay her car repair off in full. She’s now working on replenishing her emergency fund — and building up a higher balance than what she started out with.

Don’t be afraid to tap your cash reserves

Many people, like my friend, are scared to raid their emergency savings because they don’t want to see their balances dwindle. And that’s understandable.

But the whole purpose of having an emergency fund is to get bailed out of a jam like the one my friend was in without having to resort to accruing interest on a credit card balance. So I’m really glad my friend changed her mind shortly after racking up that balance, because she was able to minimize the amount of interest she was charged.

If you have an emergency fund, it’s generally best to tap it before resorting to credit card debt. Otherwise, you might end up losing a lot of money when you have the cash sitting there in the bank.

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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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Aug 15
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20 Jobs That Are Safest From Artificial Intelligence

By Money Management No Comments

 Curious to know which jobs AI can’t steal? Unlock the surprising list of AI-resistant careers. Pixel-Shot / Shutterstock.com

As the power of artificial intelligence grows, many workers have begun to fret that the technology could spell the end of their careers. Experts generally agree that AI will change many aspects of our lives, including how we work. However, some jobs may be well-situated to survive the AI revolution. Recently, the Pew Research Center used its own judgment to divide jobs into exposure-level…

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