Money Management

This important decision affects how long your money will last. Here’s how to decide how much you should keep in savings in retirement. [[{“value”:”

You spend your working life funneling as much as you can into a retirement account, where it can save you money on taxes and grow through the power of investing. But eventually, that money needs to come back out again.

Taking it all out at once isn’t a good idea, because you could wind up with a massive tax bill and you’ll miss out on the opportunity to increase your wealth even more. It makes more sense to take out just what you need for the near term, but that looks different for everyone. Here’s what you need to know to decide how much you ought to keep in a savings account in retirement.

How much will you need for the next year or two?

Typically, you only want to keep one to two years’ worth of cash in your savings account in retirement. We’ve already touched upon why you don’t want to take out too much more, but it could also be dangerous to keep a lot less in retirement.

If you withdraw cash as needed on a monthly basis, you could find yourself in serious trouble during a recession or stock market correction. You may have no choice but to make withdrawals when your investments are down, and that could cost you a lot more compared to selling some of your investments when their share prices are higher.

Think of it this way: Say you want to withdraw $10,000. You have 100 shares of a stock worth $100 each. You can sell them all and get the cash you need. But if you waited a few months and those shares shot up to $200 each, now you could only sell half of them to get your $10,000 and leave the other half to grow.

You can’t predict exactly what the market’s going to do and trying to time its lows or highs generally isn’t a good idea. But if you have at least a year of savings in cash, you have a little more flexibility to make some judgment calls. If you know your portfolio’s value is down right now, you could wait a few weeks or a few months to see if it recovers before you try to take out more. You don’t have this option if your savings account is empty because you only kept a month or two of savings there.

As for what a year or two of retirement expenses looks like, that depends on who you ask. It could even vary for you from one year to the next. Think about how much you spend on your regular bills and any planned upcoming expenses. You’ll probably want to take some extra out for emergency costs as well.

Which savings account will you trust to hold your cash?

Any savings account can keep your money safe and accessible, but that’s a pretty low bar to clear. These days, a savings account can help you grow your wealth over time, albeit at a slower rate than a retirement account might be able to.

A high-yield savings account is your best bet if you hope to maximize your gains on your savings account funds. These accounts generally have no maintenance fees, so you won’t pay anything to own them. They also offer competitive interest rates.

Currently, some of the best high-yield savings accounts offer rates of 5%. If you have $40,000 in your savings account, that could make you $2,000 in one year.

It’s worth noting that high-yield savings account interest rates fluctuate over time and they’re not expected to stay this high forever. But even if they dip, you’ll probably still earn considerably more than you could with a brick-and-mortar savings account. These often have interest rates of just 0.01%.

If you don’t already have a high-yield savings account, it’s worth comparing a few options before deciding which bank you want to work with. Some offer ATM cards if you’d like the option to withdraw cash directly, but you can always transfer your cash to a checking account first, too. If you prefer banking all in one place, choose an institution that offers all the major account types you expect to use. Then, all you have to do is contact the bank, verify your identity, and make your initial deposit.

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If you limit your Costco shopping to stores only, you might miss out on a world of inventory. Here are some of the items you can only find at Costco.com. [[{“value”:”

Many people love going to Costco for their weekly grocery shopping. But even if you’re someone who’s used to visiting a warehouse club store, it pays to visit Costco.com on occasion and see what the site has in stock.

Some of the items you’ll see on Costco.com are only available online. Here are some items you won’t find in stores.

1. Sports memorabilia

You can find your fair share of sporting equipment at Costco warehouse club stores. But if you’re in the market for sports memorabilia and collectible items, you’ll generally need to visit Costco.com. You may also need to brace yourself for some numbers that might truly bust your budget.

For example, Costco is selling this Larry Bird autographed basketball for $1,599.99 (though if it’s any consolation, that price includes shipping). You can also find an autographed framed photograph of Tom Brady for $2,299.99.

The nice thing about buying sports memorabilia from Costco.com is that you’re purchasing it from a source that stands behind its products. If you run into issues with authenticity, you can contact customer service and work with them to make things right.

However, do proceed with caution if you’re buying sports memorabilia as an investment. It’s one thing to buy an autographed item because you’re a huge fan. But if your goal is to make money, opening a brokerage account or IRA, loading up on stocks, and holding them for many years may be a much better way to go.

2. Caskets

A casket is hardly a fun purchase — but unfortunately, it sometimes becomes a necessary one. Costco sells a variety of caskets with prices currently ranging from $1,149.99 to $1,399.99.

If you’re on a tighter budget than that, you may need to look outside of Costco. Otherwise, you can contact Prime Caskets at 800-294-8548 before placing your Costco.com order to confirm your delivery date. Costco says that based on your location, you may have your casket in under three business days.

3. Patio furniture

While Costco does carry a limited amount of furniture in its warehouse club stores, much of its furniture inventory can only be purchased online. But that makes sense, because unless you happen to drive a truck, how do you expect to lug large furniture items home from your local store along with your milk and muffins?

Costco’s online furniture offerings can also vary a bit by season. But right now, you’ll find various patio sets for a range of price points. This seven-piece SunVilla set, for example, costs $1,499.99. Or if you’re on a tighter budget, try this set that’s on sale for $989.99.

One thing you should know about buying patio furniture from Costco is that your price includes delivery only — not setup. If you’re not handy enough to assemble furniture, you may want to buy your items from a local store, where setup may be available.

4. Gourmet food

A lot of the food you’ll find at your local Costco warehouse is of the budget-friendly variety. But Costco sells its share of high-end food, too — albeit online.

Now as you might imagine, the cost of buying gourmet food from Costco.com is quite substantial because you’re not only looking at pricier items, but also, you’re often looking at large quantities. For example, a 10-pound case of gourmet Sockeye salmon costs $229.99. And while you’ll find plenty of low-cost cakes and desserts at your local Costco bakery, if you want a tiered special occasion cake, you can only buy it online — and it’ll cost you $299.99.

5. Hardwood flooring

Looking to update your home? If you’re interested in putting in hardwood flooring, you may be surprised to learn that Costco carries different varieties in stock.

However, do your research before buying hardwood flooring from Costco, because if you go through a home improvement store or contractor, you may end up with a comparable price that includes installation. With Costco.com, you get your wood delivered to your curb, but you’ll have to figure out installation yourself, which could be tricky work.

Although Costco.com’s prices are generally higher for items that are also sold in stores, in some cases, it could pay to buy an online-only item from Costco. But always read the fine print to see what your price entails. You don’t want to get caught off guard with extra shipping costs (which may apply to some purchases) or, in the case of furniture, having to do your own assembly.

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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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The yield from inflation-protected savings bonds just got lower. But keep reading to learn the rest of the story. [[{“value”:”

Every six months, the United States Treasury Department reveals the yield that will be paid on newly issued Series I Savings Bonds, or “I bonds.”

We recently learned the new rate that will be paid on new I bonds sold from May through October 2024, and it is a significant reduction from the previous rate. With savings accounts and CDs still paying elevated interest rates, are I bonds still a good place to put your cash to work?

I bond interest rates just fell

I won’t keep you in suspense. The U.S. Treasury announced that the new interest rate for I bonds will be 4.28% for new bonds issued from May 1 through the end of October 2024. This is a significant reduction from the 5.27% rate that has been in place from November 2023 through the end of April.

Technically speaking, there are two components of I bond interest rates — a fixed rate and an inflation adjustment. The fixed-rate component is loosely based on the current interest rate climate, while the inflation adjustment is based on CPI data. For new bonds issued from May through October, the fixed-rate component is 1.3%, with the rest coming from the inflation adjustment.

This is important to know because the fixed-rate component will stay the same for as long as you own the bond. For example, when your I bond interest rate resets in six months after purchase, you’ll have a 1.3% fixed rate plus whatever the inflation adjustment is.

This interest rate change will also affect current I bond holders, although it may not affect them right away. When you buy I bonds, the interest rate at the time of purchase stays the same for six months, then resets to the current rate set by the Treasury. So, if someone bought an I bond in April, they’d still get the 5.27% yield until six months from the date of purchase in October.

I bonds versus savings accounts and CDs

There are a few factors to keep in mind when deciding where to put your cash. Are I bonds the best choice for you, or are savings accounts and CDs the better choice? After all, you can get a higher yield right now from some of the top online savings accounts. It also isn’t difficult to find CD yields in excess of 5.00% for maturity terms of one year or less.

This isn’t meant to be an exhaustive list, but here’s what you need to consider:

·Keep in mind that I bond yields are (mostly) based on inflation, while savings and CD rates are based on the prevailing interest rate environment. It’s completely possible to have low interest rates and high inflation, and vice versa. I bonds are designed to protect you from inflation — savings accounts and CDs are not.There are some major drawbacks to putting your money in I bonds, specifically for your ability to cash out. While taking your money out of a CD early will result in a penalty, you cannot redeem I bonds within the first year, and you’ll be penalized for selling within the first five years.I bonds have a purchase limit of $10,000 per person, per year. If you have more savings to put to work, you’ll have to find another place to do it.

Are I bonds still a good place to put your money?

Sure, I bonds might not be quite as appealing as they were a couple of years ago, but they can still be a smart way to protect your purchasing power from inflation over time. However, like most financial products, there are pros and cons to keep in mind.

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First-time buyers (or those who haven’t owned in at least three years) qualify for FHA mortgages. Read on to learn why they aren’t always the best fit, though. [[{“value”:”

I’m currently in the process of buying a house. Even though I’ve done so in the past (spoiler alert: it didn’t end well), I still qualify as a “first-time home buyer” on this go-round, at least for mortgage purposes. Since it’s been more than three years since I had an ownership stake in a house, I qualified to buy with an FHA loan — and actually, that’s how I bought last time, too.

FHA loans are backed by the federal government (specifically, the Federal Housing Administration, hence their name), and administered by standard mortgage lenders. The requirements to use one are less stringent than for conventional home loans.

While a conventional mortgage often requires a credit score of 620 or better, many FHA lenders only require a score of 500. If your credit score is at least 580, you can get away with putting down just 3.5% on a home purchase. But if you can swing a 10% down payment, your credit score could be as low as 500.

Despite these perks, I opted against an FHA loan this time — I’m buying with a conventional loan instead. Here’s why.

I’m already paying more than I want to

Mortgage loans are far from cheap these days. As of this writing, the average rate on the classic 30-year fixed home loan sits at 6.88%, according to Freddie Mac. Compare that to rates at 3% in 2021! In real numbers, if you buy a $250,000 home with 10% down at a rate of 3%, your monthly payments for the loan and the interest will be just $1,094. Swap that 3% rate for one at the current average, and you’re signing on for monthly loan and interest payments of $1,624. Ouch. And even with a credit score over 800, I’m still not saving much on a mortgage rate.

Since I’m already paying more per month (and overall) to buy a house, I decided against going with an FHA loan, because it would cost me even more. I’m putting just 10% down on my home purchase, so I will have to pay for private mortgage insurance (PMI). This protects my lender in the event I stop making payments and it must repossess and resell my house. If you buy a home with a conventional loan and less than 20% down, you’ll pay for PMI.

FHA loans come with mortgage insurance, too — it’s called MIP, or a mortgage insurance premium. Like PMI, payments are collected monthly — but there’s also an upfront payment to cover at closing. But unlike PMI, if you make a 10% down payment on a home with an FHA loan, you’ll pay MIP for 11 years. If you make the standard 3.5% FHA loan down payment, however, you’re stuck with MIP unless you refinance to a conventional loan.

With my conventional loan, once I reach 20% equity in my house, I can have my PMI payments canceled by my mortgage lender. With an FHA loan, I’d be paying more for longer — or paying to refinance the loan as soon as I got to 20% equity.

I wanted to be a more competitive buyer

I’m very aware of how competitive the current market is for buyers. The supply of homes for sale (just 2.9 months’ worth in February, according to the National Association of Realtors) is too low to equalize the market between buyers and sellers, so I knew I’d have to beat out other buyers to get an offer accepted.

On the lead up to finding the right house, making an offer, and getting it accepted, I looked at several that specified “cash or conventional” in their listings. This means that sellers were only willing to consider buyers paying cash or using a conventional loan, rather than a government-backed mortgage. Unfortunately, some sellers are wary of FHA loans because of the stricter appraisal requirements.

All homes bought with a mortgage go through appraisal, but in the case of a conventional loan, that appraisal is to assess value, not condition (that’s what a home inspection is for). But FHA appraisals also serve as a safety inspection for the home, which must meet certain livability standards for the loan to be approved. I didn’t want a seller to be leery of me as a buyer because of this extra layer of scrutiny.

If you’re an aspiring homeowner, it’s a great idea to assess all your mortgage options. Depending on your credentials, income, or background, you might have access to programs that can save you money on the home-buying process. I might not be using an FHA loan this time, but I’m sure glad the option exists — anyone who wants (and has the means) to buy a house should be able to.

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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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