Money Management

In your 60s? Here are some investments worth focusing on. 

Your 60s are an important decade from a financial perspective. At that point, you may be looking to wind down your career and boost your IRA or 401(k) balance in time for retirement. You may also be growing increasingly nervous about the idea of ending your career and having to live off of savings and Social Security.

The good news, though, is that if you make the right investment choices in your 60s, you can set yourself up for a strong retirement. Here are a few investments worth considering.

1. Bonds

If you invest in bonds, you might manage to score about an average yearly 5% return on them, according to Vanguard. That’s clearly well below the average annual 10% return the stock market has generated (before inflation) over the past 50 years, as measured by the performance of the S&P 500.

But one benefit bonds have over stocks is that they tend to be less volatile, and their value tends to remain fairly stable even as market conditions change. So what you lose in the form of higher returns, you gain in terms of stability. That’s an important thing when retirement is getting closer and you don’t necessarily have time to ride out a prolonged stock market downturn.

2. Shorter-term CDs

It’s important to have enough cash in the bank to pay for at least a year’s worth of living expenses when you’re close to retirement. But if you have money you want to keep in cash beyond that, then it pays to open a CD (certificate of deposit).

The upside of putting money into a CD is that your principal is protected, and you’re likely to generate a higher interest rate on your money than what a savings account will pay you. Also, with a CD, the rate you lock in is guaranteed during the entire term of your CD. With a savings account, you could start off earning 4% on your money and see that rate drop to 2% six months later.

That said, if you’re going to put money into a CD, stick to shorter terms, like six or 12 months. You don’t want to lock your money away for too long in case you end up needing cash.

3. Stocks

It’s a good idea to shift away from stocks when you’re in your 60s. But that doesn’t mean you shouldn’t own any stocks at all. You still, at that point, want your portfolio to keep growing, so keeping a portion of your assets in stocks is a smart bet.

However, it’s important to make sure you have money in a wide range of stocks — not just a few companies, and not just a single market sector. The more diversified your holdings are, the more protection you buy yourself in case the market falters.

The right investment choices in your 60s could help you approach retirement feeling far more confident. And they could also make it so you’re able to retire when you want to, and how you want to. It pays to consider bonds, CDs, and stocks during your 60s. This combination could really give you the best of all worlds — some aggressive growth, and some of the stability you’re apt to be craving at your age.

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Americans are not saving enough for retirement, and the shortfall will have expensive consequences. Here’s what the problem is and how it could be solved. 

A retirement crisis is looming in the United States.

According to The Pew Charitable Trusts, an estimated 56 million workers in the private sector do not have any kind of retirement savings plan at work. This has contributed to many people saving too little for their future.

It’s not just the workers without a big brokerage account balance who are in trouble. The fact that so many people have too little money to support themselves is going to cost the government when it has to step in to provide assistance and when it collects less tax revenue.

The Pew Charitable Trusts estimates the federal government is going to incur costs of about $964 billion between 2021 and 2040 due to insufficient retirement savings, while states will spend an estimated $334 billion.

Some quick math shows that’s $1.3 trillion in costs that governments — and thus taxpayers — will have to bear. The big question is, why is this such a problem and what can be done to solve it?

Here’s why there’s a looming retirement crisis

Pew’s research is clear: People simply are not going to have enough money to live on given their current level of savings.

In 2020, about 43% of households comprising people aged 65 and over have less than $75,000 in income (which is the amount of income Pew reports indicates financial vulnerability). There’s going to be a 43% increase in the number of those households by 2040, when 32.6 million people are going to have less than $75,000 coming in.

The gap between the resources retirees will have and the resources they need is substantial. In 2020, the average shortfall was $6,740.

Unfortunately, as the population ages, there will be fewer workers relative to the number of seniors facing these shortfalls, so a smaller number of people will need to cover these big costs. As a result, Pew reports that the additional taxpayer liability due to inadequate retirement savings will be about $13,600 per household.

Here’s how it can be fixed

The best way to fix this problem is obvious — people need to save more.

But, that is a lot easier said than done. Most people know they should be saving for retirement, but they simply can’t due to other pressing obligations. And some people may not even be aware of how big their income shortfalls will be if they are counting on Social Security to support them and don’t realize these benefits are only designed to replace about 40% of pre-retirement income.

Pew research suggests that if more states offer automated savings programs similar to IRA accounts, this could help to address the shortfall by encouraging people to save more. Eleven states have put these programs in place already, and although there is some variation, generally any worker without an employer plan is automatically enrolled unless they choose to opt out. More states are also implementing similar plans.

If these programs are successful at encouraging more saving, the retirement shortfall could be solved relatively easily, as Pew found that it would disappear if households saved only $1,685 per year extra. Automated enrollment in a savings account could make that happen for some, especially if the account comes with generous tax breaks. Many people tend to stick with the status quo, so while they might not sign up for retirement savings on their own, they’ll be more likely to stick with making contributions if the default is that they are signed up.

With the state and federal government — and the taxpayers — facing such large looming costs, hopefully more states will decide it’s at least worth a try. This way, those without access to a workplace plan will soon have a new solution to help prepare them for their future.

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Buying more house than you can afford will leave you with serious financial regrets. Here’s a few moves to make that can help. 

Buying more house than you can afford could be a huge financial disaster. In general, you should aim to try to keep your mortgage and other housing costs below 25% of your income. Otherwise, you could face a whole host of consequences including constant worries about foreclosure and an inability to devote money to other important goals like saving for retirement in a brokerage account.

If you live in an expensive market, you may feel like you have no choice but to spend more on a property. But, the reality is, you have other options besides stretching your budget and setting yourself up for a life of financial worries and a too-large mortgage payment.

Here are a few other key things you could do rather than overspending on a property and being left with regrets.

Consider a fixer-upper

If you can buy a home that needs a little bit of TLC, you could potentially save a lot of money. When homeowners fix up a property and make it more current, they end up being able to get a higher price for it.

Take, for example, a home with a dated kitchen. A kitchen remodel can substantially increase what home sellers get or a property. In fact, a homeowner who does a major kitchen remodel on a $500,000 home could end up seeing the price the home sells for increase by around $53,900, based on typical ROIs for kitchen upgrades.

If you can buy a house that doesn’t have a remodeled kitchen for $53,900 less, you can live in the home as-is for a while as you save up to pay for updates. You’ll enjoy lower mortgage payments for the life of the loan and will get to create the kitchen of your dreams rather than getting stuck with whatever the sellers put in.

Of course, you’ll need to know what the costs of fixing up the property are likely to be in order to make sure you’re paying a fair price for it. A builder can help you estimate that. And, you can decide what level of repairs you are comfortable with. For example, buying a house that just needs cosmetic upgrades could be a lot less hassle — and a lot more viable — than purchasing one with major foundation damage.

Expand your search radius

It’s a fact of life that the most desirable locations are the most expensive to live in. So, consider expanding your search radius a little bit if you find homes in your desired area to be out of your price range.

You could choose an area on the outskirts of the city, for example, or pick a place that’s not in the “hip” part of town. As long as you don’t end up with a miserable and expensive commute, you may be a lot better off in a slightly less perfect location that comes with a housing payment you can actually afford.

Buy a smaller house

The size of a house can affect both the upfront and ongoing costs of homeownership. A bigger house usually has a higher price tag, higher property taxes, and higher utilities, maintenance, and upkeep costs.

So, ask yourself if you really need that extra spare bedroom or that huge kitchen or if you could be happy with a house that’s not quite as large but that’s more comfortably within your budget.

Delay purchasing a property

Finally, if you don’t want to compromise on the location or size of the house, you could simply wait longer to buy and save up more money for a down payment (or delay until you get a raise and can afford higher monthly housing costs).

Waiting to buy a property can also give you a chance to work on taking other financial steps that could potentially make your purchase more affordable, such as paying down other debts or improving your credit score to get a better rate.

Any or all of these options can be much better than stretching to buy a house, so figure out which works for you before you jump into a real estate decision you regret.

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Think you know everything there is to know about 529 plans? Read on for some surprising features. 

If the idea of paying for college seems daunting, it’s because the cost of higher education has soared over the past number of years. For the 2022-2023 academic year, the average cost of college tuition and fees, according to U.S. News and World Report was:

$10,423 for in-state tuition$22,953 for out-of-state tuition$39,723 for private tuition

As such, if you’re worried about paying for college, it could make sense to open a 529 plan. These plans offer the benefit of tax-free investment gains, provided your money is used for qualifying educational expenses.

But while 529 plans have been around for a while, the rules surrounding them have changed through the years. Here are some things you may not know about 529 plans.

1. Some states give you a tax break on your contributions

There’s no federal tax break on the money you put into a 529 plan. Rather, if you contribute $5,000 one year, that’s still $5,000 of income the IRS will tax you on.

However, more than 30 states offer some type of state income tax deduction or tax credit for 529 plan contributions. Now in most cases, you’ll have to fund a 529 plan from your home state to get that tax benefit, but that’s not always the case. It pays to see what options are available to you based on where you live.

2. You can roll a 529 plan into a Roth IRA

The purpose of a 529 plan is to help parents avoid taxes on investment gains in the course of saving to pay for education. And the good thing about these plans is that you’re allowed to change beneficiaries to avoid being penalized for using your money for non-education purposes.

But come 2024, you’ll get even more flexibility with your 529. That’s because starting then, you’ll have the option to roll unused 529 funds into a Roth IRA without facing a penalty. You’ll just need to be aware that there’s a lifetime cap on this option per beneficiary — $35,000.

It’s worth noting that this is a very positive development, because changing beneficiaries on a 529 plan could still leave you with excess funds. And when that’s the case, non-educational withdrawals are subject to a 10% penalty on the gains portion of the account.

3. You can use them to pay for K-12 education

For many years, 529 plans could only be used to pay for higher education. But as part of the 2017 Tax Cuts and Jobs Act, 529 plans were expanded to cover K-12 tuition at private schools, too.

Now if you withdraw too much of your money to pay for K-12 education, you might run into a shortfall by the time your kids are ready to go to college. But it’s good to know that the option exists.

The more you know about 529s and how they work, the easier it will be to determine if one of these plans is right for you. So in honor of 529 Day, take the time to read up on these plans and educate yourself on their different rules and benefits.

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Your emergency fund could help you make it through a period of unemployment. Read on to see if you should raid your savings right away. 

As of April, the U.S. unemployment rate was 3.4%. That means many people who want to be working are gainfully employed.

But you might end up losing your job for a variety of reasons, whether it’s that your performance isn’t up to par or your employer is forced to cut corners to conserve funds. And once you’re out of work and you lose your paycheck, money might become tight. But should you plan to tap your emergency fund right away? The answer is, it depends on the situation.

You may not need your savings immediately

The whole purpose of having money in an emergency fund is to be able to cover your bills when you’re hit with an unexpected expense or your income goes away. If you’ve lost your job, tapping your savings account to cover your bills is certainly a reasonable thing to do. But you may not need to touch your emergency fund right away.

For one thing, some people who lose their jobs through no fault of their own are entitled to severance pay from their employers. So, let’s say you’ll be receiving the equivalent of one month’s pay. In that case, there should really be no need to touch your savings until that month is up. After all, you’re not out any income that month — you’re getting your paycheck without having to go to work.

What’s more, it’s often the case that if you lose your job through no fault of your own, you’re entitled to weekly unemployment benefits from your state. Those won’t replace your entire paycheck. Rather, they’ll replace a portion of it. But you might manage to get by on unemployment benefits if you’re able to cut your spending substantially. If that’s the case, you may be able to hold off on raiding your savings for a bit of time.

However, if you’re let go for cause, unemployment generally will not be an option. And if you’re not eligible for unemployment benefits or severance pay, then tapping your emergency fund may be necessary immediately so you can pay your bills without falling behind.

Make sure you can cover at least three months of expenses

Losing a job is far from ideal, but it can happen. And that’s why it’s so important to make sure you have enough cash in the bank to cover a minimum of three months of living expenses.

Comb through your bank and credit card statements from the past six months and see what your essential bills total. Then, multiply that by three to come up with your minimum emergency fund target.

It can take time to find a new job after losing one. This holds true even if you’re great at what you do. If you maintain a solid emergency fund, you’ll have money to tap when your paycheck goes away. And even if you don’t end up having to take an emergency fund withdrawal right away, you might have to take one eventually — so having that money available to you is a really important thing.

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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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