Money Management

A cash-only IRA could leave you short on retirement funds later on. Read on to see why. 

Saving for retirement in an IRA is one of the best things you can do for your future. It’s important to have money to fall back on once your career comes to an end. And the higher your IRA balance by the time you retire, the more financial freedom you’re apt to have later in life.

But one thing you don’t want to do with your IRA is keep all of your money in cash. If you do, you might end up with a major shortfall on your hands.

The problem with keeping your IRA in cash

If you’re going to keep your retirement savings in cash, it makes more sense to do so in an IRA than a regular savings account. That’s because you’ll get a tax break on your IRA contributions, whereas there’s no tax break on money you put into a savings account.

That said, the issue with keeping your IRA in cash is that you want your money to grow at a fast enough rate to outpace inflation. Inflation is a natural part of the economic cycle that causes the value of money to erode over time. But you want your retirement savings to grow at a faster rate than inflation so you get more buying power when you’re older. And leaving your IRA in cash may not allow for that.

Investing in stocks could make a huge difference

Right now, many high-yield savings accounts are paying around 4%, which is a really high interest rate. Over time, you’re more likely to earn about a 3% return.

But even if we want to be optimistic and assume a 4% average annual return on cash, if you fund your IRA with $200 a month over 45 years and keep it in cash, that leaves you with an ending balance of around $290,000. For context, a recent survey by Northwestern Mutual found that workers today think it will take an average of $1.27 million in savings to be able to retire comfortably.

Meanwhile, over the past 50 years, the stock market has delivered an average annual 10% return (before inflation), as measured by the S&P 500’s performance. If you were to invest your monthly $200 contributions over 45 years in stocks instead of sticking to cash, you’d end up with a total balance of $1.725 million. That puts you beyond where workers today think you need to be for a comfortable retirement.

Of course, that $1.27 million figure should be taken with a grain of salt. The amount of money you need for a comfortable retirement should hinge on factors like your desired lifestyle and goals.

But either way, it’s pretty clear that keeping your IRA in cash alone is not a great formula for growing long-term wealth. So if you want to retire with a nice sum of money, be willing to invest your retirement savings in stocks.

There is some risk involved, and there’s no getting around that. But remember, the stock market’s average annual 10% return over the past 50 years accounts for both good years and bad. Over time, the market has shown that it’s likely to reward investors who take a long-term approach to buying and holding stocks. And if you’re willing to do the same, there’s a good chance you’ll be rewarded, too.

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Most states have required seller disclosures, and sellers also must disclose material defects. Find out what buyers need to know. 

When sellers list a property for sale, they have certain obligations to buyers. These obligations can vary slightly by state, as different jurisdictions have different rules for seller disclosures.

The main thing, though, is that in most places, the law does want to protect people who are buying a home. And since sellers are in the best position to know the details about the property, they are required to offer certain kinds of information before buyers get a mortgage and move forward with the purchase.

Here are some of the main issues that sellers must disclose, so buyers can have the insight they need before a house changes hands.

1. Structural problems

Structural issues are not always visible to the naked eye. That’s why many states mandate that sellers provide information about structural issues when completing their seller disclosures. While sellers do not have to investigate to try to find these issues, they are expected to be honest and forthcoming about any structural defects they are aware of or reasonably should know about.

Some common examples of structural defects that sellers would need to notify buyers about include problems like a major crack in the foundation or issues with load-bearing walls. Essentially, if the core integrity of the home is compromised by a problem, a seller needs to tell potential buyers about the issue.

2. Hazardous substances

Many substances in a home could potentially be dangerous — and buyers might not know about them. This includes asbestos, lead paint, and mold.

There are both federal and state disclosure laws for certain kinds of hazardous substances that could be found at the property. Sellers who are aware of the presence of these substances need to make sure they tell buyers about them.

3. Any other material defects that can’t easily be observed

Beyond these specific types of disclosures, sellers are also required to tell potential buyers about any material defects that can’t be readily observed. This means if a buyer can’t immediately see a problem and it will have a major impact on the value of the home or the ability to use the home as intended, sellers have to share the issue.

There are many issues that could potentially be considered material defects. Some examples include problems with a septic system or well, a leaky roof, or water rot. A home might have sewage problems, electrical issues, HVAC issues, appliances that do not work, or plumbing problems.

It is generally best for sellers to err on the side of caution and be honest about any problems with the home they’re listing. Buyers are likely going to find out about most of the problems that exist when they bring in a home inspector, so trying to hide them is likely to be a failed effort. And even if a seller does successfully manage to pull the wool over a buyer’s eyes during the inspection, they could be sued if it turns out they didn’t disclose something material.

Rather than wasting the buyer’s time or taking a chance on a big legal mess, sellers should just tell buyers what they need to know to make an informed choice about whether the home purchase makes sense for them.

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A financial advisor can benefit you in many ways. Read on for signs you should hire one ASAP. 

Chances are, you have different financial goals — some near-term and some long-term. You may be eager to buy a home at some point in the not-so-distant future, and you may want to eventually be able to retire in a comfortable manner. And if you have kids, you may have goals that pertain to them, too — like being able to pay for college and a wedding when they’re older.

A financial advisor can help you meet goals like these, which is just one good reason to hire one. But if these signs apply to you, your need for a financial advisor may be even more urgent.

1. Your money isn’t invested at all because you don’t know how to get started

Investing is a great way to grow your money into a larger sum, and that could be your ticket to meeting different goals. But if you’ve yet to start investing because you don’t know how to begin and aren’t sure which assets to buy, you should enlist the help of an advisor who can help you assemble a portfolio based on your objectives and tolerance for risk.

You may even be intimidated by the idea of having to choose one brokerage account over another. A financial advisor may be able to introduce you to different platforms you can experiment with to see what’s best.

2. You’ve been working for years and you don’t have a dime socked away for retirement

It’s one thing to be in your early or even mid-20s without having any money in an IRA or 401(k) plan. But it’s another thing to be a good 10 years or more into your career without having started on your nest egg at all.

A financial advisor can help you map out a budget that frees up cash for retirement savings purposes. They can also help you pick the right place to park your long-term savings, since different retirement plans offer different benefits, and invest that money in an age-appropriate manner.

3. You’re not sure what insurance you need

You may have auto insurance for your car and homeowners insurance for your house because you basically have no choice. But is life insurance worth it for you? A financial advisor can help you make that important decision. They can also advise you on things like whether you need disability insurance, which can protect you in the event you can’t work for a period due to an injury or illness.

Don’t be afraid to seek help

Recent data from Northwestern Mutual found that 66% of Americans feel their financial planning needs improvement. If you feel similarly, then it’s probably the right time to start looking for a financial advisor. And one good way to get started is to ask for recommendations.

If you know people who have had a positive experience working with a given advisor, then that’s a favorable starting point. From there, you can interview different people to get a sense of what they charge and how they work with the goal of finding the ideal fit for you.

Remember, when it comes to things like managing your money, it’s more than okay to ask for help. And it can be useful to have someone who isn’t emotionally invested in your financial success like you are to help you navigate certain decisions. So no matter where you are in life, it’s a good idea to enlist the support of someone whose career revolves around helping others get to a solid place financially.

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Many people wonder if they can borrow money while unemployed. The good news is that even though it may seem difficult, it is possible. Find out how. 

Life is unpredictable, and sometimes you may find yourself in a financial tough spot, with no regular source of income. Your first thought might be to get a personal loan, but can you borrow money without a job? Contrary to popular belief, the answer is “yes!” You can secure a personal loan even when you don’t have a steady income. This article will take you through everything you need to know about getting a personal loan without a job.

Consider a secured personal loan

If you have assets such as a car, property, or valuables that you can use as collateral, you may be able to get a secured personal loan. A secured personal loan allows you to use your assets as security for the loan, and if you fail to make the payments, the lender can take possession of your collateral.

While it may seem risky to put your assets on the line, this option may be more appealing to lenders as they have reassurance that they will not lose money if you default on the loan. Secured loans also typically have lower interest rates.

Make sure to read the terms and conditions carefully and ensure that you can make the payments before making any commitments.

Partner with a cosigner

Having a cosigner who has a steady income or assets to guarantee the loan can help you secure a personal loan. By having a second person take on the responsibility of repaying the loan, the lender can be more confident that it will not face financial loss.

However, keep in mind that if you do choose to involve a cosigner, they will be held responsible for the loan if you fail to make payments. This option can be a viable choice if you have a friend or family member who trusts you and is willing to help you out.

Show alternative sources of income

Many lenders will consider alternative sources of income such as rental property income, investments, or money made from a side hustle. Keep in mind that lenders will want to see proof of consistent income and may require more documentation than if you had a traditional job.

In addition, if you’re currently receiving benefits like unemployment, retirement, disability, alimony, or child support, these can be factored into your income. You may also have assets such as a savings account, trust fund, or investments that can be used to demonstrate your ability to repay the loan.

Be prepared to explain your alternative sources of income or assets and provide documentation such as tax returns, bank statements, and invoices.

Build up your credit score

Having a strong credit score is one of the most important factors that lenders consider when determining whether or not to approve a loan. If you do not have a job, building up your credit score may be the key to securing a personal loan.

Start by checking your credit report, address any credit issues, and make sure to handle any outstanding debts. Once you have worked on improving your credit score, you may find that you become more eligible for loans with a lower interest rate.

Look into alternative lenders

If you are unable to secure a loan from traditional lenders such as banks or credit unions, there are other alternative lenders that may be willing to offer you a loan without a job. You can look into peer-to-peer lending programs or online lending services that specialize in providing loans to those who are unemployed.

These lenders may offer higher interest rates and shorter repayment periods, but they may be willing to work with you if you can show them you have a steady source of income or a viable business plan. Make sure to do your research before committing to a lender to ensure that it is reputable and won’t take advantage of your financial situation.

Getting a personal loan without a job can seem daunting, but it’s definitely not impossible. It’s important to research all of your options and understand the terms and conditions before committing to any loan. Remember that while a personal loan can help in times of need, you need to prioritize repayment and avoid defaulting on your loan. By choosing the right loan option and making sure you are financially stable, you can use this as an opportunity to get back on track toward your financial goals.

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It’s best to start saving for retirement before reaching your 40s. Take a look at why that sets you up for a better financial future. 

Your 40s are a good age to buckle down on the retirement savings front. At that point, you’re midway through your career, and, ideally, you’re earning a high enough wage to support steady IRA or 401(k) plan contributions.

But to be clear, your 40s are by no means an optimal time to first start saving for retirement. It’s much better to start in your 20s or 30s to give your money more time to grow. So if you’ve missed that boat and are first kicking off retirement savings efforts in your 40s, be prepared to part with a decent chunk of money month after month.

The problem with waiting till your 40s to save for retirement

The money that goes into your IRA or 401(k) shouldn’t just sit in cash. Rather, you should be investing that money so it grows into a larger sum over time. And when it comes to investing, the more time you have, the better.

The stock market’s average annual return over the past 50 years has been 10% before inflation, as measured by the S&P 500’s performance. So investing $300 a month in an IRA or 401(k) at an average annual 10% return from age 25 through age 65 would result in a nest egg worth almost $1.6 million. That’s a nice amount of money to retire with.

But watch what happens when you cut that window by 15 years. Let’s say you start saving and investing $300 a month for retirement at age 40 with the goal of wrapping up your career at age 65. Assuming that same 10% return, you’re looking at a nest egg with a value of just over $350,000. And while that’s certainly not a negligible amount of money, it may not be enough to sustain you in retirement.

Remember, you need to limit your retirement plan withdrawals as a senior so your money lasts as long as you need it to. For years, experts recommended a 4% annual withdrawal rate, though some people will now tell you that 4% is too aggressive. But even if we go with it, a nest egg worth around $350,000 will give you $14,000 a year of income if you live until age 90. Even when factoring in Social Security, it’s not just a ton of money.

You may need to ramp up your monthly contributions

If you’re 40 or older and have yet to start saving for retirement, then you may need to prepare to part with more than $300 a month to amass a nice amount of wealth. Right now, IRAs max out at $6,500 a year for savers under the age of 50, and $7,500 for those 50 and over.

Let’s assume these limits don’t change over time, even though they’re likely to. If you max out your IRA between the ages of 40 and 65 and score an average annual 10% return in your IRA, you’ll end up with a nest egg worth $670,000. Withdraw from that sum at 4% a year, and it gives you almost $27,000 in annual income for 25 years.

But either way, amassing a nest egg of $1 million or more is, frankly, going to be difficult if you don’t start saving for retirement until you reach your 40s. This isn’t to say that it can’t be done, but it may require you to part with a lot of money on a monthly basis. So if you’re not yet 40 and you’re reading this, consider it your wake-up call to start funding your IRA or 401(k) as soon as you reasonably can.

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Retirees need to have enough cash savings to cover daily expenses for a while, in case of a market downturn. Learn more in this guide. 

When you are retired, you need to be smart about how you manage your finances so you can make your money last for the rest of your life. This means making informed choices about the amount of money to keep in your savings account.

So, how much should you have in savings? This guide will help you decide what amount of cash you should have set aside in this type of account.

Money to cover daily expenses for several years

When you leave the workforce, Social Security will replace about 40% of pre-retirement income. That’s not enough to live on, so you’ll need money to supplement your retirement benefits. Most often, this money will come from your brokerage account or 401(k) plan. But you may not necessarily want to take money out during a market downturn, as this could lead to locking in losses.

You don’t want to be forced to sell stocks at a bad time just because you need the money to cover daily living expenses. To avoid this fate, it’s a good idea to keep enough money in savings to cover your basic expenses for a while as you wait out a downturn and delay withdrawals until the market recovers.

Generally, having enough money in savings to cover two or three years of living expenses should put you in a pretty good position to avoid having to sell investments at a bad time.

Funds for big purchases

When you are a retiree, your need to make big purchases doesn’t come to an end. You will likely still need to buy things like cars and home appliances. But borrowing for these items can eat into your fixed income due to interest costs. And you probably don’t want to take a huge amount of money out of your retirement investment accounts all at once every time you need to buy something large.

To make sure you have the money to fund bigger purchases, create a savings account where you set aside money for these planned expenses. For example, if you know you want to buy a car in a few years, you may want to save $250 or $500 a month toward its purchase based on your buying timeline and desired vehicle price.

Money for emergencies

Finally, the need for an emergency fund doesn’t disappear when you’re a retiree. While you’re less likely to suffer an interruption in income from something like a job loss, you may actually be more likely to suffer a costly health emergency due to your advancing age.

To make sure you can cover surprise expenses without having to go into debt or pull a huge amount of money out of your retirement investment accounts, it’s a good idea to have an emergency fund. This can be earmarked for surprise expenses that come your way, and you should leave the money in there until you really need it.

RELATED: Emergency Fund Calculator

By making sure you have the money for these three things in savings, you can protect your financial security as a retiree.

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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.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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