Money Management

A 401(k) loan might seem like a good option when you need to borrow money. Read on to see why it isn’t. 

There may come a point when you need to borrow money, whether to repair your car, fix something in your home, pay a medical bill, or cope with a brief period of unemployment. Applying for a loan can be a hassle, and so if you have money in a 401(k) plan already, you may be inclined to borrow against it. After all, that money is yours, and many 401(k) plans do allow savers to take out loans against their balances. (Note that IRAs do not offer the same option.)

But taking out a 401(k) loan is a very risky move. And it’s one you may be better off avoiding under most circumstances.

Not repaying a 401(k) loan is a big deal

If you take out a short-term 401(k) loan and pay all of that money back, then it may not hurt you too much in the long run. It’s when you don’t repay a 401(k) loan that big problems can arise.

For one thing, if you don’t repay a 401(k) loan, it will be treated as a distribution from your retirement plan. If you’re not yet 59 ½ at the time of that distribution, you’ll be subject to a 10% early withdrawal penalty on the sum you remove.

But that’s not even the worst part about failing to repay a 401(k) loan. Not only will you lose money to an early withdrawal penalty, depending on your age, but you’ll deny yourself years of gains in your 401(k).

Let’s say you invest your 401(k) plan primarily in stocks. Over the past 50 years, the stock market has generated an average yearly return of 10% before inflation, as measured by the S&P 500 index.

Meanwhile, let’s say you take out a 401(k) loan in the amount of $15,000 and don’t repay it, at which point it becomes a distribution at age 40. If you don’t retire until age 65, it means you’re losing out on 25 years of gains on that $15,000. And if your 401(k) delivers an average yearly return of 10%, that $15,000 early withdrawal could end up costing you a whopping $162,500 in retirement income. Not to mention, there’s still the loss you would have taken from the early withdrawal penalty — 10% of $15,000 is $1,500, and that’s no small loss either.

Find a different way to borrow

It can be fairly easy to qualify for a 401(k) loan because the money is there, and it’s yours. But a better bet may be to apply for an outside loan when you have to borrow money so you don’t risk ending up short on retirement income.

One option you can look at is a personal loan, and you might snag a nice, competitive interest rate on one if your credit score is in great shape. Another option is to take out a home equity loan. This, too, might result in a fairly reasonable interest rate on the sum you borrow, since your lender is protected by the fact that your home itself serves as collateral for that loan.

Some people take out 401(k) loans and repay them in a timely manner and it all works out just fine. But do you really want to take that chance? If you’d rather not run the risk, find an alternative means of borrowing money so you don’t wind up many thousands of dollars shy by the time retirement rolls around.

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Your monthly savings goal at age 50 depends on your goals for retirement and how much you already have saved. Find out how to calculate your target. 

Many people retire sometime in their mid or later 60s. This means if you are currently in your 50s, you’re getting to the point where you should have a good amount of money in your brokerage account so you can support yourself once you stop earning a regular paycheck.

But, how much exactly should you be saving each month at 50? Here’s what you need to know.

This is how much you should have saved by 50

To determine how much you should be saving each month, you’ll need to know if you’re on track to accomplishing your retirement goals or if you’re at risk of ending up with an empty checking account in your later years.

By the time you are 50 years old, you should have about six times your annual salary saved for your retirement. This is a good goal if you’re planning to leave the workforce at age 67. That’s the age at which anyone born in 1960 or later will hit their full retirement age for Social Security and be able to claim their standard benefit without early filing penalties applying.

This means if your salary is around the annual median wage of $61,900, you’d need a nest egg of about $371,400 by the time you’re 50. You’ll still want to keep saving, though, as the ultimate goal will be to end up with about 10 times your final salary by the time you leave the workforce for good.

This is how much you should save each month at age 50

The only way to determine how much you need to save each month at age 50 is to take into account the amount of money you currently have invested, the point at which you plan to leave the workforce, and your likely return on your investments. That’s because all of these individual factors affect your savings rate.

For example:

If you have $100,000 saved (the median amount of retirement savings for Americans between the ages of 45 and 50), you plan to retire in 15 years, and hope to have around $600,000 (about 10 times the median salary of people ages 55 to 64), and you expect 10% average annual returns before inflation (which is what the S&P 500 has historically produced), you’d need to invest about $478.07 per month.If you have $350,000 saved, you plan to retire in 15 years, and you hope to have $1 million saved, you don’t actually need to contribute anything more as compound interest would allow your investment to grow to $1.4 million. Of course, you’d still want to keep saving if you can, because it’s better to have too much money as a retiree than too little.If you have $0 saved, you plan to retire in 15 years, and you hope to have $600,000, you’d need to save about $1,573.68 per month.

Obviously, there’s a big difference between these situations. And that’s why it doesn’t always make sense to follow blanket rules of thumb (like when experts advise you to save 10% or 15% of your income). Your goal needs to be personalized to you based on where you’re starting from and where you hope to end up.

Calculate your own savings and investment goal

To figure out how much you specifically need to invest, estimate your future salary by assuming you’ll get a 2% raise annually from now through retirement. Assume you’ll need 10 times that amount to retire comfortably.

Then, use the calculator at Investor.gov to input your current savings amount, your desired nest egg balance, and your projected returns to get an estimate of the necessary monthly contributions. This will give you a personalized answer to how much you should be saving every month by age 50.

Once you know your number, try to arrange to have that amount contributed automatically to a tax-advantaged retirement plan, so you can enjoy your later years with the funds you need to live it up.

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Costco has some great products, but not everything purchased there is going to delight you. Check out some products that could end up being duds. 

Costco has many great products that are checking-account-friendly and that have devoted fans. But, not every product at the big box store is worth getting out your credit card for. In fact, there are some things sold at Costco that could be huge disappointments.

Here are a few products that have tons of detractors that you may wish to avoid buying.

1. Sonoma Gourmet Kale Pesto With White Cheddar sauce

Although it is not a Kirkland brand item, this sauce is sold at Costco stores — but many buyers come to wish it wasn’t. In fact, this sauce seems to have few fans and tons of negative reviews both on Reddit and Instagram.

“Flavorless,” “watery,” “so bad,” and “straight in the trash,” are just some of the comments shared about this unbeloved sauce with some users indicating they had to toss or donate the second jar as the sauce is sold in a two-pack. One Reddit user even said they returned it, despite never returning food, because the product was so bad it was “personal.”

The other Sonoma Gourmet sauces don’t fare much better either, with the alfredo especially having a lot of haters.

2. Kirkland UltraClean Free & Clear Premium Laundry Detergent

Kirkland’s UltraClean Free & Clear Premium Laundry Detergent seems like it should be a great option for people with sensitive skin, since it claims to be hypoallergenic and it comes at a good price. The problem is, many people have reported having a reaction to the detergent, indicating it caused them to break out in a rash.

Kirkland brand laundry detergents in general don’t have as many fans as other house-brand products, with many Reddit users objecting to the smell of Costco’s detergents.

3. Kirkland batteries

Kirkland batteries are manufactured by Duracell, but that doesn’t mean you can count on them to work well for you. A huge number of people complain about issues with the batteries, including the fact that they regularly leak and are of generally poor quality. The last thing you need is your battery-powered items to be ruined as a result of this common flaw.

4. Costco milk jugs

Costco’s milk jugs are another item without many fans. In this case, it’s not the milk but the container that is an issue, as the jugs are difficult to hold and pour so they routinely end up spilling everywhere. The problem has become such a big issue that Costco is looking into a redesign to fix it.

What should you do if you end up with a dud from Costco?

The good news is, if you find yourself with these or any other products from Costco that you really dislike, you have options.

Costco has a very generous return policy, so you can usually get your money back rather than being out the cash for something you can’t use. In fact, with limited exceptions, Costco’s 100% satisfaction guarantee means you can return almost anything at any time.

So, while you should still read reviews and be a smart buyer, you don’t have to be afraid to try a new food or household product. This is one of the big benefits of Costco membership, and you should take advantage of it if you buy something that turns out to be bad.

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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 positions in and recommends Costco Wholesale. The Motley Fool has a disclosure policy.

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Consumers were spared an interest rate hike in June. But read on to see why more rate hikes could be in the cards. 

When the Federal Reserve met in mid-June, many consumers were worried that that gathering would result in yet another interest rate hike. The Fed has raised interest rates 10 times in a row since March of 2022, and those rate hikes have driven up the cost of consumer borrowing, to the point where personal loans have become prohibitively expensive to sign.

But at its most recent meeting, the Fed made the decision to pause its interest rates hikes in light of cooling inflation. And that no doubt helped many consumers breathe a sigh of relief.

However just because the Fed opted not to raise interest rates at its last meeting doesn’t mean it will uphold that decision at future meetings. The central bank still has a ways to go in the battle to slow inflation. And one Fed official is pretty adamant about the fact that more rate hikes are in the cards.

Rates could rise again

Although the central bank gave consumers a reprieve from interest rate hikes in June, future hikes are something Americans ought to gear up for. CNN reported that just days after the Fed’s last meeting, Fed Governor Christopher Waller and Richmond Fed President Thomas Barkin both said that additional rate increases are needed to bring inflation down to 2%.

In May, annual inflation was measured at 4%, as per that month’s Consumer Price Index. But the Fed has long maintained that 2% inflation is a more ideal target, and one that lends to economic stability. As such, it’s conceivable that the Fed might raise rates again this year, driving the cost of borrowing up even more.

You may not want to wait on that loan

Since more near-term interest rate hikes are still a distinct possibility, you may want to move quickly if you’re in the market for a loan you know you can’t delay for a year or more. If rates go up again this year, that could make a near-term loan more expensive, so it pays to start shopping around now, whether you’re seeking out a home equity loan or an auto loan.

Of course, if you are able to put off borrowing for a period of time, that’s even better. We might see inflation creep back down to 2% by the end of 2023 or early 2024, at which point the Fed is likely to pause rate hikes or even look at cutting rates. But until we get there, the cost of borrowing is apt to be high.

To be clear, the Fed puts a lot of thought into interest rate hikes because the central bank is well aware that too aggressive a stance could lead to a major pullback in consumer spending. And that, in turn, could easily fuel a broad economic recession, which the central bank certainly does not want.

But just because consumers got a break from interest rate hikes in June doesn’t mean more aren’t coming. That’s something to be aware of as you make financial decisions — especially those that relate to borrowing money.

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Financial guru Dave Ramsey endorsed a company engaged in deception. Read on to learn if we can still trust his recommendations. 

Dave Ramsey has established a reputation for offering no-nonsense personal finance advice and helping millions of families get out of debt and build long-term wealth. People trust him, which is how Ramsey built a network of personal endorsements, otherwise known as “RamseyTrusted.”

Between 2015 and 2021, one of these trusted providers was Timeshare Exit Team, a timeshare exit company that promised to help Ramsey’s followers get out of timeshare agreements, or else get a full refund from the company.

If that sounds too good to be true, that’s because it was partially false: Timeshare Exit Team only helped about half of the requested exits, while also raking in millions of dollars from clients whose timeshare agreements it did not lawfully end. The company went out of business in 2021, after settling a deceptive business practice lawsuit in Washington, and Ramsey now faces a $150 million lawsuit from former fans who claim they were defrauded from his endorsement.

The tactics this timeshare company used to “free” clients of timeshares — from creating fake property deeds to advising them to “stop paying” their timeshare company, even if it led to foreclosures — are pretty shocking. But as someone who has taken financial advice from Ramsey in the past, I’d like to pause and ask — can we still trust Ramsey’s word?

Be vigilant about his endorsements

You might trust Ramsey’s financial advice. But when it comes to his endorsements, I would approach them cautiously.

It’s important to note that Ramsey is making money off his endorsements and has a financial interest in whatever he recommends. Even when he sounds as if he’s giving you selfless financial advice — whether it’s about hiring a tax professional or making a will — he’s selling you a service. And, as the Timeshare Exit Team fraud demonstrated, these services may not be best for you.

Now, Ramsey does claim he endorses companies only after he and his team have vetted them. In fact, on the RamseyTrusted website, it states:

“We won’t sugarcoat it: We put our pros through the freaking wringer before they ever start their first day of work with us. It’s not just one interview or phone call. Like the old canary in a coal mine, our leaders and coaches put their finely tuned radars to the test, and if things don’t check out — it’s a no. So when pros make it, you know they’ve got chops. And you know they want to serve you.”

And yet when a company like Timeshare Exit Team makes it through that vetting process, one has to wonder why the canary was mute.

Decide independently

Instead of relying on Ramsey’s selection process, do the vetting yourself. Read the fine print on contracts, look up the company’s profile on the Better Business Bureau, and read customer reviews on third-party sites. Compare its services and prices to similar companies in its industry and don’t be afraid to break away from his advice if you find something that better suits you.

To be sure, his services might be a good fit, especially if you want to work with someone who more or less agrees with Ramsey’s philosophy. But come to that conclusion on your own. At the end of the day, do your own thinking and always pause for thought when someone purports to have done the thinking for you.

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Not comfortable picking stocks for your retirement plan? Read on for an option that might take the pressure off. 

The money you have in your IRA shouldn’t just sit in cash. Rather, it’s important to invest your IRA funds so they grow into a larger sum in time for your retirement. And you’ll usually hear that loading up on stocks is a good bet due to their history of delivering strong returns.

But what if you’re not comfortable with the idea of investing your IRA in different stocks? It may be that you’re not sure what financial data to look at. Or maybe you do have a sense of what information is important, but you really don’t want to put in the time to research stocks one by one.

The good news is that there’s an easy way to invest your IRA if you’re overwhelmed by the idea of hand-picking stocks, or it’s something you simply have no desire to do. And you can still reap the benefit of solid returns in your retirement plan.

You can always fall back on ETFs

ETFs, or exchange-traded funds, are a good way to diversify your portfolio without having to do a lot of work. When you buy shares of an ETF, you’re buying a collection of stocks rather than buying stocks individually.

Now ETFs come in different forms. You could buy bond ETFs if that’s a route you want to take, and you can also buy sector-specific ETFs (for example, healthcare ETFs, energy ETFs, and so forth). But if you want to really make your life easy, you may want to focus on S&P 500 ETFs.

The S&P 500 is an index that’s comprised of the 500 largest publicly traded companies. The S&P 500 is commonly used as a benchmark for how the stock market is doing on a whole. When you hear on the news that the stock market fell or rallied, what that often means is that the S&P 500 index lost or gained value.

So what can an S&P 500 ETF do for your IRA? Well, over the past 50 years, that index has generated an average annual return of 10% before inflation.

Let’s say you invest your IRA in S&P 500 ETFs only, and you put $250 a month into that account over a 40-year time period. Assuming that same 10% return, you’ll end up with more than $1.3 million at the end of your investing window. That’s a pretty nice pile of money to bring with you into retirement.

Investing doesn’t have to be stressful or complicated

The one drawback of investing your IRA in S&P 500 ETFs is that doing so won’t allow you to beat the broad market. On the other hand, if you pick stocks for your IRA, you might end up with a much higher return if those companies perform particularly well.

But if you’re not confident in your ability to choose the right stocks, or you just don’t want all that pressure, then there’s absolutely nothing wrong with turning to ETFs. Doing so might make your life easier and help you avoid a world of stress.

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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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