Money Management

Talk about a large number. 

Life insurance is the sort of thing most people buy and hope they never have to actually use. But last year, life insurance policies no doubt bailed a lot of people out financially.

The American Council of Life Insurers reports that U.S. life insurance companies paid a record $100 billion in benefits in 2021. That’s an increase of almost 11% from 2020.

Why such a big jump? It’s hard to say exactly, but there’s reason to believe COVID-19 may have played a role there. The virus was the third-leading cause of death in the U.S. in 2021, according to the CDC.

If you have life insurance, you’ve already taken a big step toward protecting the people in your life who mean the most to you. But here are a few added steps you may need to take to ensure that you’re getting the most from your policy.

1. Make sure your beneficiaries are up to date

It may be that you’ve gotten married or divorced since putting life insurance into place. Or maybe you had a child, or a second child. These are all good reasons to update your life insurance policy. You’ll want to make sure all of the important people in your life are eligible to receive benefits if you were to pass away unexpectedly.

2. Make sure your policy has a high enough death benefit

Having some amount of life insurance is better than having none. But it’s really important to make sure that your policy has a large enough death benefit to truly cover your loved ones in the event of your passing.

Now that can mean different things. You’ll often hear that it’s a good idea to secure a life insurance payout that’s enough to cover 10 times your salary. This means that if you earn $60,000 but only have $300,000 worth of life insurance, you may not have enough.

3. Make sure your beneficiaries have the right information about your policy

Maybe your life insurance policy is set up with the right beneficiaries, and you have more than enough coverage. But do your loved ones actually know the details of your policy? If not, you should make that information available to them.

You should provide your beneficiaries with:

The name of your life insurance companyYour policy numberThe amount of coverage your policy providesThe type of policy you have (whole versus term)

If something were to happen to you, the last thing you’d want is for your loved ones to have to scramble to file a life insurance claim. Giving them the right information is an easy way to avoid that.

In an ideal world, you’ll get life insurance your loved ones don’t actually end up benefiting from. But given how many claims were paid out last year, it’s a good wake-up call to update your beneficiaries, make sure your coverage is sufficient, and give your loved ones all of the information they need to file a claim if the worst comes to be.

Our picks for best life insurance companies

Life insurance is essential if you have people depending on you. We’ve combed through the options and developed a best-in-class list for life insurance coverage. This guide will help you find the best life insurance companies and the right type of policy for your needs. Read our free review today.

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.

 Read More 

As tempting as it may be, borrowing from retirement rarely makes financial sense. 

One of the most surprising interviews I’ve ever conducted was with a mortgage broker in Northern California. Although it’s been years, I think of him any time housing prices spike. The broker was proud to talk about the number of people he had convinced to cash out their retirement plans to make a down payment on a home. This man was a fast talker, armed with skewed statistics, and unreasonably confident.

He was also dead wrong. It’s never, ever a good idea to use retirement savings to get into a home. Here’s why.

Early withdrawal fees can eat you alive

There are two ways to take money from your retirement savings before you retire. The first is early withdrawal. Let’s say you have a 401(k) account at work and are tempted to raid it. If you’re younger than 59 ½ years of age, the IRS considers funds taken from that account an early withdrawal, and early withdrawals are hit hard with fees and taxes. Here’s how.

Right away, you’ll be hit with a 10% early withdrawal penalty. So, if you withdraw $100,000 to make a 20% down payment on a $500,000 home, you can kiss $10,000 off the top of it goodbye.

Right now, any money you put into an employer-sponsored retirement plan is deducted from your paycheck before taxes. Let’s say you earn $125,000 a year and contribute $19,500 annually to your retirement fund. That means you’re paying taxes on $105,500 instead of $125,000.

However, as soon as you take money out of a 401(k), IRA, or other retirement account, it’s subject to federal and state income taxes. While a few states don’t have an income tax, most do. To pour salt into the wound, there’s a mandatory 20% federal tax charged on early 401(k) withdrawals. If you’re withdrawing $100,000, that’s another $20,000 off the top.

Hardship withdrawal leads to additional debt, and debt stinks

One other way to get money from a retirement account is through a hardship withdrawal. Hardship withdrawals are designed for folks facing real problems. For example, someone might borrow money from their retirement account to cover funeral expenses for a loved one or medical treatment. While many employers do not consider buying a home worthy of a hardship withdrawal, some do.

According to IRS limits, you can borrow up to $50,000 or half the amount in your retirement account, whichever is less. Your plan will stipulate how long you have to repay the loan, but it’s often up to 25 years when funds are used to purchase a home. Like money borrowed from a bank, you’ll have to pay interest.

I have an old friend who somehow got the idea that borrowing from her husband’s retirement account was the smartest way to borrow money. “After all,” she’d tell me, “We’re paying ourselves back with interest.”

I cannot tell you the number of times I’ve bitten my tongue. Yes, they’re paying themselves interest, but at what cost? Let’s say they’re paying their retirement account back at an interest rate of 5%, but if they’d left their managed account alone, it would have provided an average return of 10%. They’re out 5% on the money they borrowed.

And what if my friend’s husband loses his job? What if he has to leave for medical reasons or is laid off while there’s still a balance due? IRS rules give them until tax filing day of the following year to repay the loan in full. Normally, that falls around April 15.

You miss out on the ‘good stuff’

The magic sauce that allows your retirement investments to grow is compound interest. For example, let’s say you’re 37 years old and want to retire at age 67. If you began investing $1,000 each month into a retirement account with a long-term average return of 7%, in 30 years you’d have more than $1.1 million available. And that’s not counting any employer contributions.

Any money you withdraw loses steam. Sure, you can contribute more later, but once you’ve made a withdrawal you either stop or slow its growth.

Any time someone tells you it’s okay to take money from retirement to pay for a non-life-threatening situation, ask yourself one question: What’s in it for them? Because they’re certainly not looking out for you.

The Ascent’s best credit cards

We’ve vetted the most popular offers to land on the select picks that are worthy of a spot in your wallet. These best-in-class picks pack in rich perks, such as big sign-up bonuses, long 0% intro APR offers, and robust rewards. Get started today with The Ascent’s best credit cards.

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.

 Read More 

Tapping a retirement plan early is really bad news — even when the market is crashing. 

The past year has certainly been a tough one for investors. The stock market is down significantly since the start of 2022, and right now, many people are looking at year-to-date losses in their IRAs as well as their brokerage accounts.

But according to a recent report from Escalent, 60% of millennial investors say they’d cash out their IRAs or 401(k)s in the event of a large stock market downturn. And that’s a really bad idea for a couple of reasons.

The penalties could be huge

Tapping or cashing out an IRA or 401(k) plan prior to age 59 ½ will generally mean facing a 10% early withdrawal penalty on the sum you remove. So, let’s say you’re spooked by the fact that your IRA balance has dropped from $50,000 to $45,000 over the past year due to stock market turbulence. Well, guess what? If you cash out your IRA, you’ll effectively cause the same sort of damage.

In addition to being penalized for an early IRA or 401(k) withdrawal, if you cash out your retirement savings, you’ll pay taxes on that sum unless you have your money in a Roth IRA or 401(k). That could result in a major bill.

You need savings later in life

Let’s say you’re old enough to tap your IRA or 401(k) without penalty, but you’re not set to retire for another decade. In that case, cashing out your savings during a stock market downturn is still a poor choice. The reason? You’re going to need that money later in life, once you’re no longer working.

Social Security is only designed to replace about 40% of your paycheck if you’re an average wage earner, and most seniors need a lot more income than that to pay the bills. So if you cash out your savings now, you may be tempted to spend it, leaving yourself with inadequate funds down the line.

Plus, while the stock market may be down now, it could easily bounce back. And cashing out a retirement plan means losing out on the option to invest that money and grow it into a larger sum.

Think long term

It’s easy to see why a stock market decline might rattle investors to the point where they’d want to cash out their retirement savings, take the money, and run. But penalties aside, cashing out retirement savings during a downturn could mean locking in losses — losses you might easily recover from by sitting tight and waiting for a stock market recovery.

In fact, it’s actually upsetting to hear that millennials would be so quick to cash out retirement savings in a downturn, because people that age have many years ahead of them before wrapping up their careers. So if you’re tempted to get out of the stock market due to volatility, try to remember that you have many years where you can make money in the market and grow wealth. And that’s an opportunity you don’t want to pass up.

Our best stock brokers for 2022

We pored over the data and user reviews to find the select rare picks that landed a spot on our list of the best stock brokers. Some of these best-in-class picks pack in valuable perks, including $0 stock and ETF commissions. Get started and review our best stock brokers for 2022.

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.

 Read More 

Make sure you have a backup plan for your money. 

If your employer offers a retirement savings plan, whether it’s a 401(k) or a 403(b), it pays to contribute to it. And if you’re not familiar with a 403(b), it’s basically the same thing as a 401(k), only it’s a plan offered by certain types of companies — namely, nonprofits. Both a 401(k) and 403(b) allow you to save for retirement in a tax-advantaged manner, so these plans can be a very valuable workplace benefit.

But there may come a point when you start to worry about your company’s ability to stay afloat. Maybe sales have declined significantly over the past year. Maybe inflation has wiped out the bulk of your company’s profits. Or maybe your company was showing signs of a struggle well before the pandemic hit and inflation started to soar.

If you’re concerned that your company will fold and you’ll be out of a job, it’s important to make sure to find a home for your retirement savings. And here’s one good option to look at.

You can manage your retirement savings yourself

If you’re able to find a new job before your company goes under, and that new job offers its own 401(k) or 403(b), then you can simply roll your savings into that new plan. But you may want to find a home for your retirement savings before you get a new job. And in that case, you can open a retirement account you manage yourself — an IRA.

Now IRAs come in two main varieties — traditional and Roth. With the former, you get a tax break on the money you put in, but withdrawals are taxed during retirement. With the latter, there’s no immediate tax break, but your withdrawals will be tax-free.

Whether you decide to move forward with a traditional IRA or a Roth IRA, if you’re worried about your company’s staying power, open your own savings plan as soon as possible. Once you’ve done that, arrange for the money in your 401(k) or 403(b) to be rolled directly into your IRA.

Keep in mind that you may be presented with the option to get a check for your 401(k) or 403(b) funds and deposit that money into your IRA yourself. That’s not an optimal route to take, because if you don’t move that money into your new retirement plan within 60 days, it will be treated as a withdrawal and potentially taxed and penalized accordingly. (Retirement plan withdrawals taken before age 59 ½ are usually subject to a 10% early withdrawal penalty.)

A better bet is to have your 401(k) or 403(b) funds directly rolled into your new IRA — meaning, one institution transfers that money to another. That way, you won’t have to worry about making that deposit yourself.

Protect your money

You’ve probably worked hard to save money in your company’s 401(k) or 403(b), so it’s important to find a home for it if you’re worried your retirement plan will soon be off the table. Of course, in that situation, it’s also a good idea to dust off your resume and start networking so you’re able to find a new job in short order. But if you open an IRA and arrange for your savings to land in it, you’ll have one less thing to stress about as you go about the process of looking for work.

Our best stock brokers for 2022

We pored over the data and user reviews to find the select rare picks that landed a spot on our list of the best stock brokers. Some of these best-in-class picks pack in valuable perks, including $0 stock and ETF commissions. Get started and review our best stock brokers for 2022.

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.

 Read More 

Ready to try a new city on for size? Consider these. 

What a year it’s been for the housing market. At the start of 2022, we were quite firmly in a seller’s market, with home prices up, supply down, and competition among buyers fierce. The silver lining for aspiring buyers at that time was low mortgage rates. During the first week of January 2022, the average rate for a 30-year fixed mortgage was 3.22%, per Freddie Mac.

Since then, the balance has begun to shift. As of this writing, the average 30-year fixed mortgage sits at 6.33%, and with rates so much higher than they were at the beginning of 2022, buyers are less willing to participate in bidding wars over homes. Redfin reported that in October 2022, 45% of home offers written by its agents had competition, which was down from 67% of them a year prior.

That said, depending on where you’re trying to buy, you could end up in a bidding war situation anyway. Read on for information and average home values for 10 cities that have fewer bidding wars for homes, according to recent Redfin data.

1. Colorado Springs, Colorado

Average home value: $476,721

Colorado Springs is the second-largest city in the state, and it’s home to the United States Air Force Academy. Popular attractions in the city include Garden of the Gods (a park featuring natural rock formations) and the Cheyenne Mountain Zoo.

2. Nashville, Tennessee

Average home value: $455,157

Nashville is the capital of Tennessee, and is famous for its country music scene. In Nashville, you’ll also find numerous institutions of higher learning, including Tennessee State and Vanderbilt University.

3. Phoenix, Arizona

Average home value: $409,382

Phoenix is the capital of Arizona and its most populous city. If you love hot dry weather and a lot of sunshine, Phoenix could be a fit for you. It’s also home to multiple professional sports teams, including the Arizona Diamondbacks and the Phoenix Suns.

4. Orlando, Florida

Average home value: $388,557

Orlando is best known for being home to Disney World and its many attractions, but you’ll also find the Orlando Museum of Art. And the Orange County Convention Center is the second-largest facility of its type in the U.S.

5. Riverside, California

Average home value: $620,599

Riverside is about 50 miles southeast of downtown Los Angeles, and it sits next to the Santa Ana River (hence its name). Riverside is the birthplace of the California citrus industry, and it’s also the location of the Parent Washington Navel Orange Tree, the last of the two original navel orange trees in the state.

6. Charlotte, North Carolina

Average home value: $399,218

Charlotte is North Carolina’s most populous city, and is a major hub for the banking industry. Auto racing is huge in Charlotte, and the city is home to the NASCAR Hall of Fame. It also has numerous professional sports teams.

7. Tampa, Florida

Average home value: $419,454

Situated on Tampa Bay, on Florida’s Gulf Coast, Tampa is the birthplace of the Cuban sandwich. In Tampa, you’ll also find high-end restaurants, the Tampa Bay History Center, and the Florida Museum of Photographic Arts.

8. Raleigh, North Carolina

Average home value: $447,961

Raleigh is an early example of an American planned city. Along with nearby Durham and Chapel Hill, it forms part of the Research Triangle of science and technology institutions, including multiple universities.

9. Las Vegas, Nevada

Average home value: $425,019

Sin City is a booming place to call home, rather than just a vacation destination. The city has charming suburbs, warm sunny weather, and many state and national parks, including Red Rock Canyon National Conservation area.

10. Denver, Colorado

Average home value: $626,721

Denver is situated at the base of the Rocky Mountains and offers opportunities for outdoor recreation of all kinds. Denver also has a flourishing music and visual arts scene, and attracts many out-of-state transplants.

If you’re ready to buy a home and are struggling in your current city, consider giving one of these cities a look and see if it’ll be easier to get a mortgage there. Achieving the dream of homeownership could be worth changing your location.

The Ascent’s best credit cards

We’ve vetted the most popular offers to land on the select picks that are worthy of a spot in your wallet. These best-in-class picks pack in rich perks, such as big sign-up bonuses, long 0% intro APR offers, and robust rewards. Get started today with The Ascent’s best credit cards.

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.

 Read More