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Money Management

Jun 13
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How Much Money Should You Be Saving Every Month at Age 30?

By Money Management No Comments

Looking to retire comfortably? Read on to see how much money you should be socking away on a monthly basis if you’re still fairly early in your career. 

Image source: Getty Images

A general rule of thumb for retirement planning is to aim to replace 70% to 80% of your pre-retirement income during your senior years via a combination of sources. Those might include earnings from a part-time job, Social Security, and retirement savings.

Of course, the amount of money you’ll need to retire comfortably will ultimately boil to your specific lifestyle choices and goals. If your aim is to travel extensively, you might need more money than someone who wants to spend retirement pursuing low-cost hobbies and volunteering locally.

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Forbes Advisor says the typical 30-year-old today earns about $53,000 a year. But the reality is that if you’re 30 years old, your salary has the potential to climb a lot between now and when your career wraps up. And so it’s not so easy to determine how much annual retirement income you’ll need.

Sure, you could assume you’ll need 70% to 80% of whatever it is you’re making today. But what if the $53,000 salary you’re earning at present rises to $80,000 by your 50s? You might get used to living on that higher income. Or maybe not. It’s hard to say.

You may, therefore, want to aim for a retirement income that’s comparable to what the average senior has today. That’s about $75,000, according to recent Motley Fool research.

Meanwhile, the average Social Security benefit today is around $1,800 a month. That could change in time, but since it’s hard to run a future estimate, we’ll go with that for now. Multiplying $1,800 by 12 gives us an annual average Social Security income of $21,600. To have $75,000 a year in retirement income, you’d therefore need to be able to withdraw $53,400 a year from your savings.

Assuming you want to withdraw from your IRA or 401(k) at an average rate of 4% per year, which experts have long recommended, you’d need a nest egg worth about $1,335,000.

That number may seem daunting, but here’s how you can get there.

Consistent savings could help you meet your goals

The average 30-year-old has about $33,000 saved for retirement, says Empower. So if that’s what your savings balance looks like, you’re clearly a ways off from $1,335,000. But that doesn’t mean you can’t get there.

If you make an effort to sock money away in your IRA or 401(k) plan every single month between now and retirement, you might manage to amass quite a large amount of savings.

And believe it or not, it doesn’t have to be a lot of money, either. In fact, you might hit your savings goal with a monthly contribution of just $125 between now and retirement, assuming you’re investing your savings in a savvy manner. Here’s how.

That larger nest egg could be yours

The stock market has, over the past 50 years, delivered an average annual return of 10% before inflation, as measured by the S&P 500’s performance. So, let’s say you have $33,000 in retirement savings already, and you’re able to save another $125 a month through age 65. Let’s also assume you invest your savings in S&P 500 index funds or ETFs that deliver that same average yearly 10% return.

In 35 years, you could be sitting on about $1,335,000. It’s really that simple and feasible.

Of course, these calculations make a lot of assumptions. They revolve around a specific target retirement income and assume a certain level of savings already. If you’re 30 years old with no money saved for retirement to date, you’ll need to sock away about $420 a month to end up with around $1,335,000 by age 65. And if you want a larger nest egg than that, you’ll clearly have to save even more.

The point, however, is that if you save consistently and invest in stocks (particularly the broad market), you have the potential to retire with quite a lot of money. So even if you haven’t started focusing on long-term savings by age 30, it’s definitely not too late to amass a lot of wealth for a comfortable retirement.

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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.Maurie Backman has positions in Target. The Motley Fool has positions in and recommends Target. The Motley Fool has a disclosure policy.

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Jun 13
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Should You Cut Back on Costco Shopping if a Recession Hits?

By Money Management No Comments

A recession could strike the U.S. economy this year. Read on to see if that should change your Costco habits. 

Image source: Getty Images

Recession warnings have been sounding since 2022, and at this point, a lot of people are pretty tired of hearing them. After all, many indicators point to a healthy economy. The unemployment rate is just 3.7%. Jobs are being added to the economy. All told, things just don’t seem that bad.

But economic conditions could worsen this year if the Fed’s persistent interest rate hikes fuel a notable pullback in consumer spending. The Fed has been raising interest rates in an effort to slow the pace of inflation. As such, it’s gotten more expensive to borrow money in just about any form, whether it’s a credit card balance, auto loan, or personal loan.

Consumers may decide they’re tired of sky-high interest rates and instead sock more money away in a savings account to earn a decent return on their cash. But that could actually lead to a recession, even if it’s just a mild one.

Now without a crystal ball, we can’t say with certainty whether a recession will strike this year or not. But let’s say that does happen. During periods of economic decline, it’s prudent to cut back on spending. But should that extend to Costco shopping?

You may want to make changes to what you’re buying at Costco

Costco is known as an affordable source of groceries and household essentials. Those are items you might have trouble cutting back on during a recession. After all, you still need to feed your family and clean your home.

But while you may not have to shop at Costco less frequently during a recession, you might make changes to the specific items you’re buying. It was noted on Costco’s most recent earnings call that shoppers are already starting to purchase less beef, which tends to be a more expensive protein, and are instead shifting over to cheaper alternatives like poultry and pork. And that’s an indication that Costco members may already be worried about a recession — or that they’re gearing up for one.

You may also want to consider trimming your Costco shopping list if a recession strikes. If you normally buy a variety of fruits there, maybe cut one type out to conserve funds. Similarly, if you tend to indulge in Costco’s bakery and snack aisles, you may want to cut back if economic conditions aren’t wonderful.

Hope for the best but prepare for a downturn

You may be frustrated with the persistent recession warnings we keep hearing, but there’s a reason for them. Experts want the public to be prepared in case the broad economic situation deteriorates.

You don’t have to spend your days fixating on a recession or fearing one. But it’s a good idea to boost your savings in case a recession hits. That way, if your job is impacted, you’ll have more cash reserves to fall back on. And it’s also important to be willing to make changes to your spending during a recession — even if it means having to skimp on some of the Costco products you love temporarily.

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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.Maurie Backman 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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Jun 13
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I Shop at Costco Every Week. Here Are 3 Mistakes I Still Make

By Money Management No Comments

Even seasoned Costco shoppers make mistakes. Read on for some of the blunders I commonly make. 

Image source: Getty Images.

I’ve been a Costco member for more than 15 years, and for much of that time, I’ve had an executive membership. The executive membership costs twice as much as a basic one — $120 versus $60 — but in exchange, I get to snag 2% cash back on my Costco purchases, so the higher fee is worth it to me.

Not only have I been a Costco member for a long time, but I tend to shop there on a weekly basis. Doing so helps me save money on everything from packaged food items to fresh produce to household cleaners and products.

But while it’s safe to say I’m a pretty seasoned Costco shopper, I still manage to make my share of mistakes in the course of shopping there. Here are some pitfalls I commonly fall victim to that you may want to avoid.

1. Not trying the samples

Because I have a busy schedule, often, when I shop at Costco, my goal is to get out as quickly as I can. As such, I’ll often forgo the free samples because I don’t want to waste time seeking them out or wait behind other shoppers to get my free cracker and cheese. But actually, there are times when I’ve missed out on trying some pretty great products by forgoing the free samples.

Recently, a friend told me she tried a delicious hard cheese at Costco and had scooped up a block of it on sale. Chances are, I could’ve tried that cheese, too. And had I liked it, I could’ve bought it that same week on sale. By the time I went to pick up a block based on my friend’s recommendation, that cheese was no longer available at a discount.

2. Giving in to impulse purchases

Shopping at Costco can open the door to lots of temptation. And no one knows that better than me.

Whether it’s a fun-looking snack item or a yummy baked good I’ve never seen before, I have a tendency to throw random Costco items into my cart without really stopping to think about whether I need them or ought to be buying them. As a result, I sometimes spend more money than necessary at Costco, which is ironic since the main purpose of shopping there is generally to save money.

3. Not checking prices elsewhere

Because Costco offers such competitive prices, I’ll often operate under the assumption that it’s apt to have the lowest price available. But that’s not always the case.

The problem is that because I’m often in such a rush when shopping at Costco, I won’t stop to spend three minutes using my phone to compare prices at other retailers. For example, if I need paper towels, I’ll just buy them at Costco even if they might be on sale at Target for a lower price.

Now to be fair, since I’m self-employed, not having to drive to another store not only saves me time, but helps me earn money by sparing me an errand and allowing me to work more. So often, it’s worth it for me to spend a few extra dollars here and there if it frees up working hours. But still, I’m really not good about comparison-shopping when it comes to Costco purchases, and that’s a habit I know I need to break.

Clearly, many of my Costco blunders boil down to rushing through the experience. So perhaps what I really need to do is to carve out more time in my schedule to do my Costco shopping. But either way, I’m sharing these blunders in the hopes of helping other people steer clear.

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

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Jun 13
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Martha Stewart Says the U.S. Might ‘Go Down the Drain’ if Remote Work Continues. Is She Right?

By Money Management No Comments

Martha Stewart clearly isn’t a fan of remote work. Read on to see if it’s as problematic as she says it is. 

Image source: Getty Images

Before the pandemic took hold, remote work was a privilege only select employees got to enjoy. But in 2020, countless workers were told to pack up their desks, head home, and prepare to work remotely for the foreseeable future.

The foreseeable future quickly morphed into three years and counting for a lot of people. These days, many employers are continuing to allow workers to do their jobs remotely. Some are mandating a return to an office, but only for part of the week.

For many people, remote work is a great thing. It allows them to save money on a host of expenses, from childcare costs to commuting. And it can also allow for a better work-life balance.

Plus, remote work setups can save employers money. That not only benefits them, but potentially allows them to pass some of that savings on to employees in the form of higher wages and better benefits.

Marth Stewart doesn’t think remote work is a good strategy

But not everyone is on board with the remote work setup. In fact, lifestyle expert Martha Stewart recently blasted remote work culture.

CNN reported that according to Stewart, people cannot “possibly get everything done working three days a week in the office and two days remotely.” Stewart was also quoted as saying, “Should America go down the drain because people don’t want to go back to work?”

But while remote work certainly has some disadvantages, the fact of the matter is that the benefits have the potential to outweigh the negatives. And so hopefully, Stewart’s sentiments won’t sway employers to take away that option.

A setup that can be conducive to productivity

There are certain jobs that are much better performed in person than remotely — namely, those that are very collaborative in nature. But Stewart’s anti-remote-work stance overlooks the fact that many people are perfectly capable of maintaining their productivity from the comfort of home, a coffee shop, or another location that isn’t an office building.

In fact, some people might do a better job of being productive without the distractions of office chatter. And some might end up being more available to their employers by virtue of remote work.

Imagine someone who no longer has to spend an hour driving home from the office at 5 p.m. That person might be more available to hop onto late-day meetings or respond to emails because they’re already home and don’t have to worry about leaving on time to grab their kids from a daycare center.

Also, when employees are given the flexibility to work remotely, they often reward their employers by being flexible in return. Someone who doesn’t have to drag themself into an office may be more amenable to putting in some time on a weekend if they can do so in their pajamas.

Remote work is probably here to stay

There will inevitably be some companies that opt to do away with remote work in the coming months and years. But as of May, almost 1 in 9 job postings offered remote work as an option, according to LinkedIn.

Of course, there’s a difference between remote work and fully remote work. The latter is something more businesses might opt to shy away from.

But allowing some degree of remote work is not only an important means of retaining employees, but also, attracting talent. And that’s something employers are likely to keep in mind despite criticism along the lines of Stewart’s recent tirade.

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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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Jun 13
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Here’s What Happens When You Make an Early CD Withdrawal

By Money Management No Comments

Certificates of deposit (CDs) offer high interest rates, but only if you leave your money locked up. Here’s what happens if you take your money out early. 

Image source: Getty Images

Certificates of deposit (CDs) are looking pretty good right now, with some of the best rates hovering near 5%. That could put quite a bit of interest in your pocket, but to earn it, you usually have to agree not to touch your money for an extended period of time, known as the CD term.

Taking your money out early carries consequences, but it could be worth it in some situations. Here’s what you need to know.

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What are CD early withdrawal penalties?

In order to earn the competitive rates the best CDs offer, you have to leave your money alone for the entire CD term. This could be anywhere from a few months to several years, depending on the CD you choose. Technically, you can take the money out sooner, but you’ll face an early withdrawal penalty.

Each bank sets its own penalty. It’s usually equal to several months of interest on the CD. For example, if you have a one-year CD with an early withdrawal penalty equal to three months of interest and you take your money out of the CD after three months, you’d lose all the interest you’d earned so far and walk away with just your principal. If you took your money out before three months, you could lose some of the money you put into the account as well.

Typically, CDs require you to withdraw all your funds at once, so you’re also missing out on the additional months of interest you could’ve had if you’d left the CD untouched. That’s why it’s usually best not to keep your emergency fund or cash you need ready access to in a CD.

Does an early CD withdrawal ever make sense?

It’s best to avoid early CD withdrawals whenever possible so you don’t miss out on all that interest. But there are a few scenarios where it might be the lesser of two evils, including:

When you don’t have an emergency fund: Building an emergency fund should be your top financial priority if you don’t have one already. But if you find yourself without one and you have money in a CD, tapping it early could be a better choice when you’re in a bind than taking on debt.When rates climb significantly: Your CD rate is typically locked in for the full term. This isn’t always ideal when rates are rising, because you could get stuck earning a lower rate. You can often avoid this by choosing the right CD term based on your finances and the current market conditions. But if you lock yourself into a long CD term that you later regret, the interest you earn by switching to a CD with a higher rate could negate what you lose from an early withdrawal.

How do you avoid early CD withdrawals?

There are a few ways you can avoid early CD withdrawals if you’re worried about them.

Choose the right term length from the start

The easiest way to avoid a penalty is to choose the appropriate CD term for you right away. Think about how soon you’ll need to access your funds and try to choose a CD term that is shorter than that so you can withdraw your cash freely when the time comes.

As discussed above, interest rates can also play a role in your decision. Generally, you don’t want to lock yourself into a long-term CD when rates are rising, but this can be a smart move when rates are falling.

Consider a no-penalty CD

No-penalty CDs are CDs that enable you to withdraw your money at any time without an early withdrawal penalty. These types of CDs are less common than standard CDs, and they may have lower interest rates. But if you’re worried about potentially incurring a penalty, this could be the way to go. You will still have to withdraw all your money from the CD at once, though.

Make a CD ladder

CD laddering is a technique that helps you maximize your earnings while still giving you regular access to your funds. It involves opening multiple CDs with different term lengths. For example, you might open a one-, two-, three-, four-, and five-year CD with equal amounts of money in each. When the one-year CD matures, you can either take your cash out or invest it in another five-year CD to take advantage of the higher rates long-term CDs usually offer.

This strategy often requires quite a bit of money, and you’re still locking up your money for a while. But you’ll have a little more flexibility than you would if you placed all your extra cash in a single long-term CD.

If the options above don’t appeal to you, then a CD may not be the right home for your money right now. Instead, consider opening a high-yield savings account that enables you to access your cash at any time.

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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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Jun 13
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How to Tell if You’re Investing Enough for Retirement

By Money Management No Comments

Investing for retirement is crucial, but how do you know if you’re putting enough money away? Read on for steps that will help you figure it out. 

Image source: Getty Images

During your working years, it’s important to plan ahead for when you leave the workforce. Social Security benefits only replace around 40% of pre-retirement income, so you’re going to need retirement savings in a 401(k) or other tax-advantaged account such as an IRA at a brokerage firm.

But how do you know if you’re saving enough to have a secure retirement or if you should be worried about having an empty bank account as a retiree? Here’s what you need to do to make sure you’re on track.

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Figure out how much you’ll need for retirement

The first step to making sure you’re on pace to have enough retirement savings is to figure out how much money you’ll actually need as a retiree. There are a few different ways to do that. One of the simplest is to assume you will need 10 times your final income. To use this approach:

Estimate how much your income will be before you retire. You can do this by taking your current income and assuming about a 2% annual raise. So if you’re making $50,000, assume you’d be making $51,000 next year and $52,020 the year after that, going on until the age when you expect to retire.Multiply that ending salary by 10. If your ending salary was $52,020, for example, you would need $520,200 saved for your senior years.

Estimate your likely future returns

Next, estimate how much you expect to earn from your investments. Figuring out this number depends heavily on what you’re invested in, and it can be hard to predict — but you can look at the past performance of your investments to get a good idea.

If you are invested in an S&P 500 index fund, this type of investment has historically produced around 10% average annual returns, so that would be a pretty decent estimate. But if you have individual stocks in your portfolio or are invested in a target-date fund or other type of mutual fund or index fund, you should be able to see the fund’s track record to roughly estimate the returns you could end up with. Keep in mind, though, that past performance is no guarantee of future results.

See if you’re investing enough each month

Once you know the amount you need and your likely returns, you can use one of many online calculators to see how much you need to invest to hit your retirement goals by your target date. For example, Investor.gov has a savings goal calculator that will tell you how much to invest each month to accomplish a particular financial goal.

You can input your savings goal — such as $520,200 — the amount you already have invested, the number of years until you plan to retire, and your projected rate of return to see what to invest each month. So, for example, if you had $0 saved, assumed a 10% average annual return and wanted to retire in 20 years with that amount, you would see you need to put aside $756.57 per month.

Doing this calculation is simple and easy, and completing each of these three steps takes just a few minutes but will give you clear insight into whether you’re on track for retirement. If you are, then just keep at it. If you’re not, you may need to look for budget cuts to increase your retirement savings so you can have the security you deserve 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 positions in and recommends Target. The Motley Fool has a disclosure policy.

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