Money Management

It’s possible to build a lot of retirement savings on a modest income. Read on to see how. [[{“value”:”

Is $1.46 million the amount of retirement savings you should be aiming for? According to a recent Northwestern Mutual survey, that’s the magic number.

Of course, you don’t necessarily have to buy into a specific number just because a survey says so. A better bet, in fact, is to think about what you want your retirement to look like, and then establish a savings goal that meets your individual needs. You can do this alone or with the help of a financial advisor.

If you earn $60,000 a year, which is roughly in line with the median annual wage today, then you may be convinced that you’re not going to end up retiring with all that much money. But actually, you can do very well for yourself on a $60,000 income — if you adopt the right strategy.

Start early and stay the course

If you wait until your 50s to start funding an individual retirement account (IRA) or 401(k), then you might end up short on savings for retirement. But this holds true whether you earn $60,000 a year or $300,000.

Believe it or not, it doesn’t take a ton of money on a monthly basis to end up with a lot of retirement savings. If you start early and give your money time to grow, you can turn a series of pretty small IRA or 401(k) contributions into a very large sum over time.

To do that, though, you’ll need to be willing to invest your money in the stock market. That’s because you need strong returns to turn your modest contributions into the large number you’re no doubt hoping for.

So what’s actually realistic on a $60,000 salary? Well, let’s assume you can save 5% of your salary each year, which is $3,000. (For the record, experts generally say to save 15% of your salary or more, but on $60,000 a year, that may not be possible.)

In that case, you’re parting with $250 a month that you save and invest monthly for 41 years (say, between the ages of 24 and 65). If your investment generates a 10% yearly return during that time, which is in line with the stock market’s average, you could end up with a nest egg worth $1.46 million — the exact amount of savings Americans seem to think will make for a comfortable retirement.

Make the process automatic

The above numbers assume steady monthly retirement plan contributions of $250, and they also hinge on having a 41-year savings window. If you start later or contribute less money to your savings each month, you’re going to wind up with less in the end.

The point here, though, is that you can retire on a large sum of money even if you only earn a $60,000 annual wage throughout your career. So your best bet for making the most of that salary is to save consistently over a long period of time and to start as soon as you begin collecting a paycheck.

In fact, it pays to automate the process of saving for retirement so it’s something you don’t have to think about. If you have a 401(k) plan through work, signing up will mean having contributions to that account deducted from your paychecks automatically. But since many IRAs offer an automatic savings feature, you can do the same thing in one of those accounts, too.

Of course, you’re by no means doomed to a cash-strapped retirement if you kick off your post-working years with, say, $700,000 in savings. A $300,000 nest egg might also be enough for you, depending on your needs and goals. But now that you’ve seen that it’s possible to retire quite wealthy even with an average salary, you can do your part to work toward that goal if it’s something that’s important to you.

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A CD could be a good tool to use for retirement savings — but only under limited circumstances. Read on to learn more. [[{“value”:”

Many people are rushing to open CDs while rates are high. And you may be inclined to open a CD for a term of 12 months or less so you can snag some quick interest income and then take the money and run.

But for some people, CDs aren’t a short-term trend. And you may be considering using CDs to house your retirement savings. Whether that’s a good idea or not, though, depends on the stage of life you’re in.

When CDs make sense as a retirement savings tool

If you’re close to retirement age, then opening a CD could make sense. This especially applies today, given that CD rates are sitting at 5%.

When you’re within a few years of retirement, it’s a good idea to keep a portion of your savings in safer assets — meaning those that are less likely to lose money. Bonds fall into this category, and they’re a popular choice for near-retirees. But CDs fit the bill as well.

CDs can be a virtually risk-free option for near-retirees (and savers in general) because you’re guaranteed not to lose out on any principal if you open one at an FDIC-insured bank and you limit your deposit to $250,000 or less ($500,000 if you have a joint account). Bonds can lose money, even though their values don’t tend to fluctuate as often as stock values do. So if you’re looking to safeguard a portion of your nest egg when you’re near retirement, CDs could be a great bet.

When it pays to steer clear of CDs for retirement savings purposes

While CDs may be suitable for near-retirees, they’re not an optimal savings tool for people who are in the process of building up their nest eggs. And the reason boils down to the fact that your money may not grow as much as you want it to if you stick to CDs.

Right now, it’s easy to find a 5% CD. But today’s CD rates aren’t the norm. And even though CDs might be paying generously today, the stock market has generated an average annual 10% return over the past 50 years.

So let’s say you’re 30 years old and are about to start saving for retirement regularly. If you put $300 a month into CDs paying 5%, in 35 years, you’re looking at about $325,000. And yes, that’s a nice amount of money.

But if you were to put that same $300 a month into a brokerage account or IRA with a portfolio of stocks that gives you a 10% return, in 35 years, you could be sitting on about $976,000 — more than three times what CDs would give you. And remember, that $325,000 assumes you’ll get a 5% return on CDs for 35 years. That’s unlikely, since today’s rates are exceptionally high.

It’s not always a bad idea to turn to CDs in the course of saving for retirement. But it’s important to know when doing so makes sense and when it might leave you seriously short on long-term savings.

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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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People join Costco all the time to save money. Read on to see if getting a membership is worth it for you. [[{“value”:”

For me, a Costco membership is a no-brainer. I shop at the store every week and save a bundle on groceries compared to what I’d spend at my local supermarket.

But to be fair, I also have a Costco store within 15 minutes of my home. I also have three kids and a husband, so we go through a lot of groceries and cleaning supplies.

Your situation might be different. And if so, it’s not a given that a Costco membership will make financial sense for you.

Even though a basic Costco membership is only $60 per year, you don’t want to throw that money away. Rather, you want to make certain you’ll actually save money when you sign up. If you’re not sure that’ll be the case, ask yourself these questions.

1. How often will I use my membership?

If you have a Costco store near your home, then you’re more likely to visit than if your closest warehouse club is 45 minutes away. Think about how often you’ll shop at Costco, as that might help determine whether a membership makes sense.

Let’s say you figure on shopping at Costco every two weeks, or 26 times a year. If you’re able to save even $3 each visit, that’s $78. Subtract the $60 membership fee, and you’re ahead by $18.

Of course, you might save well more than $3 per Costco visit. And your total savings for the year may be much more significant. The point, though, is that the more frequently you expect to shop at Costco, the more money you have the potential to save.

2. Does bulk buying make sense for me?

Buying things like groceries and household essentials in bulk makes sense for me because of my household size. But if you live on your own, or it’s just you and a partner, then you may not get the same value out of a Costco membership. The same might hold if you’re a family of six but you live in an apartment with minimal storage space. That makes bulk buying just as challenging.

Buying in bulk isn’t the only way to save at Costco — but it’s a big part of the value a membership offers. If you’re not in a position to benefit from bulk purchases, you’ll need to ask yourself what exactly it is you want out of a membership, which leads to the next question.

3. What non-grocery and household items might I buy at Costco?

Costco sells way more than just groceries and paper towels. You can buy everything from clothes to home decor to electronics at Costco. You can also book a vacation through Costco, potentially saving yourself hundreds of dollars with just one purchase compared to the cost of buying a similar package elsewhere.

So for this reason, don’t write off a Costco membership automatically if bulk buying doesn’t make sense for you. Instead, read up on the perks of a Costco membership and see if any of those might be worth the $60 fee. If you can book a cruise for $3,200 and the next closest deal you find for a similar itinerary is $3,800, you’ve made back 10 times your membership fee.

It’s a low-risk proposition either way

It’s not always easy to predict whether a Costco membership will save you money. Sometimes, the only way to answer that question is trial and error — meaning, join and see how your first year goes.

However, you should know joining Costco is a pretty low-risk proposition. If you don’t end up getting good use out of your membership, just cancel before the year is up and Costco will refund your fee. Yes, really. So if you’re on the fence, the worst thing that’ll happen is that you’ll shell out the $60 for a membership upfront and wait to get that money back if things don’t work out.

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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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I love my Costco Executive membership. But here are three pitfalls you might encounter. [[{“value”:”

When I first became a Costco member, I decided to stick with a basic membership to save money on the fee. It wasn’t until I started shopping at the store more frequently that I decided to upgrade to an Executive membership.

An Executive membership at Costco currently costs you $120. That’s double the cost of a basic membership. Those prices have also been in place for quite some time now, so it wouldn’t be a shock to see them rise in the not-so-distant future — though Costco had no official plans to raise them as of its last earnings call in May.

The nice thing about the Executive membership is that you earn 2% cash back on your Costco purchases — and that extends to Costco.com orders as well. But there are a few surprising drawbacks to the Executive membership you should be aware of.

1. Not every purchase gives you cash back

If you spend more than $3,000 a year at Costco, the Executive membership upgrade makes sense. That’s because 2% of $3,000 is $60, which is exactly what the upgrade costs. So once you’ve spent even $1 more, you’re ahead financially.

That said, several Costco purchases aren’t eligible for 2% back with an Executive membership. And perhaps the most frustrating one — at least in my book — is gas.

I usually make a point to fill up my car at Costco because it has the cheapest gas prices in my area. But it’s annoying to not get the extra cash back at the pump. I make up for it, though, by using a credit card with great gas rewards, so you can do the same.

You’re also not eligible for cash back on an Executive membership when you spend money at the food court at Costco. And stamps, tobacco, and cigarettes aren’t eligible for cash back, either. Plus, if you buy a Costco Shop Card (the store’s version of a gift card), you won’t get cash back there, either.

2. You may be tempted to spend more

When I first upgraded my Costco membership, I was nervous about not spending enough to make up for the extra cost. You might find yourself spending extra to justify the cost of the Executive membership, or to snag more cash back.

But remember, you’re only getting $0.02 per $1 you spend. So the numbers are never going to work out in your favor if you buy extra things for the express purpose of getting more cash back out of your Executive membership.

You should also know that you don’t have to worry about making back your Executive membership upgrade fee. If you don’t snag at least $60 cash back after your first year, Costco will let you downgrade to a basic membership and reimburse you the difference.

So if your Executive membership only puts $45 back in your pocket after a year, you can downgrade and get the remaining $15 paid back to you.

3. You no longer get early access to Costco

When I first upgraded to an Executive membership at Costco, one of the perks was getting early access to the store. Costco did away with that benefit a long time ago. That’s a shame, because the one thing I dislike most about shopping at Costco is having to perpetually battle crowds. That early access helped minimize those crowds to some degree.

However, I find that Costco is usually less busy when it first opens and in the hour or so before it closes. So now, I do my shopping then to avoid having to wait in long lines or squeeze my way through the aisles.

Costco’s Executive membership makes sense for me based on the amount I spend at the store each year. And it may be a good investment for you, too. Just be aware of these downsides so you know exactly what you’re getting into.

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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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