Money Management

Retirement is a huge concern for many Americans. If you’re saving for the day you can retire, here’s how far $300,000 will take you. [[{“value”:”

It’s no secret how challenging it can be to put money away for retirement. If you’ve built up a retirement fund of $300,000, congratulations! You’re definitely doing something right. Now that you’ve built the kitty, it’s time to figure out how far it can take you in retirement.

The rule of thumb

A common rule of thumb is that you can safely withdraw 4% from your retirement account your first year of retirement, and then adjust it for inflation each year. The theory goes that if you’ve invested about 50% in stocks and 50% in fixed-income assets like bonds, withdrawing this amount of money means you don’t risk running out of funds during a 30-year retirement.

The reason we mention the importance of how your money is invested is because some of what you withdraw will be interest on those investments. Depending on how well the market is doing at the time, most of the money you withdraw in your early years of retirement may be interest earned on your investments.

As you prepare for retirement, you’ll find that not everyone agrees with the 4% rule. Some experts think the percentage is too high, and some believe it’s too low. For the sake of simplicity, though, that’s the percentage we’ll use in this scenario.

This rule indicates that you can withdraw $12,000 annually or $1,000 per month ($300,000 x .04 = $12,000).

A scenario

In addition to the money you’ve saved, you may have other retirement income to count on. According to the Social Security Administration (SSA), the average Social Security benefit for January 2024 was $1,907.

Let’s assume that you’ll receive an average Social Security payment and plan to live solely on it and 4% of your retirement savings. Before taxes, that leaves you with $2,907 to add to your checking account.

If you live in any of these nine states, good news! You won’t be charged state taxes on retirement benefits:

AlaskaFloridaNew HampshireNevadaSouth DakotaTennesseeTexasWashingtonWyoming

If you’re fortunate enough to live in one of these four states, you can rest assured that your state doesn’t charge taxes on retirement benefits, either. This includes 401(k) accounts, IRAs, and pensions. The bottom line is that it gives you more money to spend or tuck away in savings.

IllinoisIowaMississippiPennsylvania

In addition, these states tax a portion of Social Security payments:

ColoradoConnecticutKansasMinnesotaMontanaNew MexicoRhode IslandUtahVermont

Factors you may be able to control

It can be helpful to have latitude as to when you’ll retire, particularly if you’re concerned about falling short in retirement. According to the Social Security Administration, the maximum benefit you can collect in Social Security depends on a couple of factors: How much you earned during your working years and when you retire.

For example, if you retire at full retirement age (around 67 for most of us), your maximum benefit in 2024 could be as much as $3,822. If you hold out until age 70, that maximum jumps to $4,873. If you decide that 62 is the right age for your retirement, your maximum benefit would be just $2,710.

Your mileage will vary

If your dreams of retirement center around fishing, visiting your grandchildren, or volunteering in your community, you’re not going to need as much income as someone who has dreams of sailing the world or taking up an expensive hobby.

The best way to get a sense of where you stand with a retirement savings of $300,000 is to create a post-retirement budget. It won’t be exact, but you should be able to get close. Add up all the expenses you expect to have in retirement, including housing, transportation, and health care. Once you’ve designed a complete budget, compare it against your anticipated income.

Let’s say your anticipated retirement income is $2,907. Is there a gap between that amount and how much you expect your bills to be? Is it too close for comfort? If so, you have a few options:

Commit to saving more money before retirement arrives.Delay Social Security until age 70.Continue to work part-time after your official retirement. Getting out to earn more money is a win-win in some ways. It can keep your social and mental skills sharp and make retirement a little more comfortable.

Don’t be hard on yourself if the idea of retirement makes you nervous. It’s natural to feel a little anxious about something you’ve never experienced before. The goal is to do everything you can while you’re still employed to make the entire process easier.

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Recessions are a normal part of the economy. Read on to find out how to prepare your emergency fund for one. [[{“value”:”

Just a couple of years ago, many economists predicted a recession was imminent. We can all breathe a sigh of relief that this hasn’t materialized yet.

However, it’s important to remember that a recession isn’t out of the question for America’s future. Recessions typically occur every 6.5 years, a sobering reminder of why keeping cash on hand is a crucial part of financial planning.

But how much is the right amount?

Experts recommend having three to six months of living expenses in a savings account, regardless of the economic climate. Here’s why and how to boost your savings.

What happens to jobs during a recession?

Unemployment has slowly ticked higher lately, reaching 4% last month. But that’s nothing compared to unemployment levels during a recession.

During the Great Recession, which lasted from 2007 to 2009, unemployment spiked to 10% at its height. And during the short-lived COVID-19-induced recession in 2020, unemployment briefly reached 13%.

While these are extreme examples, they show just how much of a significant economic slowdown affects the labor market.

Why cash is necessary in a downturn

This is where having three to six months of expenses saved comes into play. If you or someone in your household loses their job, you’ll need cash to cover your housing costs, food, insurance, car payments, and other major expenses.

If you’re retired, most experts recommend having one or two years’ worth of expenses in retirement.

But you don’t just need this amount of cash. You also need easy access to it. That’s why experts recommend keeping your cash liquid, like in a high-yield savings account. With a savings account, you won’t be penalized for taking your cash out when you need it like you would if you put it into a certificate of deposit (CD).

A money market account is also a good option, as you’ll have one-step access to your money via debit card or checks. Some pay APYs of 5.00% or higher right now, allowing you to withdraw money quickly without penalty.

How to boost your emergency fund

If you need some help increasing the amount in your emergency fund, here are a few tips.

1. Automate your savings

One of the easiest ways to contribute more to your savings account is to automate your deposits. You won’t forget to move money into your emergency fund, and you’ll be more likely to continue contributing because you don’t have to decide to do it each month.

Automating a $100 deposit into your savings account each month will give you $1,200 in just one year — a great first step toward building your emergency fund.

2. Cut expenses

I’m always surprised to find a subscription I’m still paying for whenever I go through my monthly budget. I add and drop subscriptions frequently, but sometimes, one or two stick around that I forgot about.

Use a budgeting app (I like Rocket Money, personally) to look through your expenses and see if there’s at least one expense you can cut out and divert that cash to your emergency fund.

3. Try increasing your income

I know this is easier said than done, but increasing your income temporarily could do wonders for your emergency fund.

I recently took on an extra freelancing project for a few weeks to boost my pay and pay off my credit card debt. I was busier than usual, but the additional workload was worth it to achieve a financial goal. And because it was a short-term project, it was easier to keep the pace going, knowing there was an end in sight.

Whether you’re planning for a recession or not, evaluating your emergency fund and seeing if you have enough is a good idea. No one knows when they could potentially lose their job or what other unexpected expenses could pop up, which makes it all the more important to work toward having three to six months of savings stashed away.

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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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