401k Early Withdrawal: What to Know Before You Cash Out

When it comes to making a 401k early withdrawal, there are a number of reasons why it might be tempting. With millions still unemployed due to the pandemic, unexpected expenses are taking a particularly hard toll. One reason why early withdrawal isn’t uncommon in the U.S. might be because it’s easy to assume you’ll have time to rebuild your 401k nest egg.

However, is the benefit of withdrawing your retirement savings early truly worth the cost? For many people, their 401k is their primary method of investing in their financial future. Before making a decision about early withdrawal, it’s important to consider the penalties and fees that could impact you. Read on to learn exactly what happens when you decide to dip into your 401k so you won’t be surprised by the repercussions.

How Much Are You Penalized for a 401k Early Withdrawal?

On the surface, withdrawing funds from your 401k might not seem like a bad option under extenuating circumstances, but you could face penalties. Young adults are especially prone to early withdrawals because they figure they have plenty of time to replace lost funds.

 

401k early withdrawal penalties

 

If you’re not experiencing a significant hardship, 401k early withdrawal probably isn’t the right choice for you. Ultimately, you could lose a substantial portion of your retirement savings if you choose to withdraw your 401k early to use the money to make other risky financial moves. Below, let’s delve further into the penalties that usually apply when you withdraw early.

1) Your Taxes Are Withheld

When you prematurely withdraw from your retirement account, your first consideration should be that you’ll have to pay normal income taxes on that money first. This means you’re losing at least roughly 30 percent of your savings to federal and state taxes before additional penalties.

Even if you only have $10,000 you want to withdraw, consider that you’re automatically giving $3,000 of your cash to the government. In the best case scenario, you might receive some money back in the form of a tax refund if your withholding exceeds your actual tax liability.

2) You Are Penalized by the IRS

If you withdraw money from your 401k before you’re 59 ½ , the IRS penalizes you with an extra 10 percent on those funds when you file your tax return. If we use the example above, an additional $1,000 would be taken by the government from your $10,000 — leaving you with just $6,000. If you’re 55 or older, you could try to get this penalty lifted by the IRS through the Rule of 55, which is designed for people retiring early.

Also, there are exceptions under the CARES Act, which is designed to help people affected by the pandemic. There are provisions under the act that state individuals under the age of 59 ½ can take up to $100,000 in Coronavirus-related early distributions from their retirement plans without facing the 10 percent early withdrawal penalty under certain conditions.

3) You Lose Thousands in Potential Growth

Even if you’re not deterred by tax penalties, think twice before you sabotage your long-term retirement savings goals. When you withdraw money early, you’ll miss out on potential future savings growth because you won’t gain the perks of compound interest. Compounding is the snowball effect resulting from your savings generating more earnings — not only on your principal investment but also on your accrued interest.

Also, if you make a 401k early withdrawal while the market is down, you’re doing yourself a disservice because you’ll be leaving thousands on the table. It’s unlikely you’ll fully recover the lost years of compound interest you would have benefited from. You might need to get creative with a passive income stream to help support you later in life.

 

tips to minimize 401k withdrawal penalties

 

When Does a 401k Early Withdrawal Make Sense?

In certain cases, it actually might be strategic to move forward with 401k early withdrawal. For example, it could be smart to cash out some of your 401k to pay off a loan with a high-interest rate, like 18–20 percent. You might be better off using alternative methods to pay off debt such as acquiring a 401k loan rather than actually withdrawing the money.

Always weigh the cost of interest against tax penalties before making your decision. Some 401k plans do allow for penalty-free early withdrawals due to a layoff, major medical expenses, home-related costs, college tuition, and more. Regardless of your strategy to withdraw with the least penalties, your retirement savings are still taking a significant hit.

401k Early Withdrawal, Hardship, or Loan: What’s the Difference?

Knowing the differences between a 401k early withdrawal, a hardship withdrawal, and a 401k loan is crucial. Due to the many obstacles to make a 401k early withdrawal, you may find you want to keep it untouched. If you’re convinced you still need to use your 401k for financial assistance, consult with a trusted financial advisor to figure out the best option.

When Does This Apply?

Taxes and
Penalties

Early Withdrawal

Your funds are withdrawn to pay off large debts or finance large projects. Your 401k fund is typically subject to taxes and penalties.

Hardship Withdrawal

You’re only eligible for this type of withdrawal under circumstances such as a pandemic or natural disasters. Withdrawals can’t exceed the amount of the need and the funds are still subject to taxes and penalties.

401k Loan

The loan must be paid back to the borrower’s retirement account under the plan. The money isn’t taxed if the loan meets the rules and the repayment schedule is followed.

Additional Considerations

If you’ve left a job and don’t know what to do with your Roth IRA, a 401k transfer is a good option. Most likely, you will save money and have a wider range of investment options when you transfer your funds. 401k fees can be high, and rolling over your funds to a Roth IRA account could be wise in the long run. Also, be aware that the process is more complicated for indirect rollovers. 

In Summary:

  • If you’re one of the millions of Americans who rely on workplace retirement savings, early 401k withdrawal may jeopardize your future financial stability.
  • There are very few instances when cashing out a portion of your 401k is a smart move.
  • In most cases, any kind of early 401k withdrawal is detrimental to your retirement plans.
  • Stick to your budget and bulk up your emergency fund to stay one step ahead.

In short, 401k early withdrawals are usually counterproductive. Prevent compromising your hard-earned savings by using a free budgeting tool that will set you up for success. After all, being prepared and informed are two of the most important parts of maintaining financial health.

Source: SEC

The post 401k Early Withdrawal: What to Know Before You Cash Out appeared first on MintLife Blog.

Source: mint.intuit.com

Dear Penny: How Do I Save for Retirement on a Teacher’s Salary?

Dear Penny,

I’m 51 years old and don’t have a large nest egg. I’m a single parent with three kids. I’m a second career middle school teacher, so there is not a lot of money left over each month. 

How much money should I be saving to be able to retire in my 70s? Where should I invest that money?

-B.

Dear B.,

You still have 20 years to build your nest egg if all goes as planned. Sure, you’ve missed out on the extra years of compounding you’d have gotten had you accumulated substantial savings in your 20s and 30s. But that’s not uncommon. I’ve gotten plenty of letters from people in their 50s or 60s with nothing saved who are asking how they can retire next year.

I like that you’re already planning to work longer to make up for a late start. But here’s my nagging concern: What if you can’t work into your 70s?

The unfortunate reality is that a lot of workers are forced to retire early for a host of reasons. They lose their jobs, or they have to stop for health reasons or to care for a family member. So it’s essential to have a Plan B should you need to leave the workforce earlier than you’d hoped.

Retirement planning naturally comes with a ton of uncertainty. But since I don’t know what you earn, whether you have debt or how much you have saved, I’m going to have to respond to your question about how much to save with the vague and unsatisfying answer of: “As much as you can.”

Perhaps I can be more helpful if we work backward here. Instead of talking about how much you need to save, let’s talk about how much you need to retire. You can set savings goals from there.

The standard advice is that you need to replace about 70% to 80% of your pre-retirement income. Of course, if you can retire without a mortgage or any other debt, you could err on the lower side — perhaps even less.

For the average worker, Social Security benefits will replace about 40% of income. If you’re able to work for another two decades and get your maximum benefit at age 70, you can probably count on your benefit replacing substantially more. Your benefit will be up to 76% higher if you can delay until you’re 70 instead of claiming as early as possible at 62. That can make an enormous difference when you’re lacking in savings.

But since a Plan B is essential here, let’s only assume that your Social Security benefits will provide 40%. So you need at least enough savings to cover 30%.

If you have a retirement plan through your job with an employer match, getting that full contribution is your No. 1 goal. Once you’ve done that, try to max out your Roth IRA contribution. Since you’re over 50, you can contribute $7,000 in 2021, but for people younger than 50, the limit is $6,000.

If you maxed out your contributions under the current limits by investing $583 a month and earn 7% returns, you’d have $185,000 after 15 years. Do that for 20 years and you’d have a little more than $300,000. The benefit to saving in a Roth IRA is that the money will be tax-free when you retire.

The traditional rule of thumb is that you want to limit your retirement withdrawals to 4% each year to avoid outliving your savings. But that rule assumes you’ll be retired for 30 years. Of course, the longer you work and avoid tapping into your savings, the more you can withdraw later on.

Choosing what to invest in doesn’t need to be complicated. If you open an IRA through a major brokerage, they can use algorithms to automatically invest your money based on your age and when you want to retire.

By now you’re probably asking: How am I supposed to do all that as a single mom with a teacher’s salary? It pains me to say this, but yours may be a situation where even the most extreme budgeting isn’t enough to make your paycheck stretch as far as it needs to go. You may need to look at ways to earn additional income. Could you use the summertime or at least one weekend day each week to make extra money? Some teachers earn extra money by doing online tutoring or teaching English as a second language virtually, for example.

I hate even suggesting that. Anyone who teaches middle school truly deserves their time off. But unfortunately, I can’t change the fact that we underpay teachers. I want a solution for you that doesn’t involve working forever. That may mean you have to work more now.

Robin Hartill is a certified financial planner and a senior editor at The Penny Hoarder. Send your tricky money questions to AskPenny@thepennyhoarder.com.

This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.

Source: thepennyhoarder.com

Homie’s Las Vegas, Nevada Housing Market Update October 2020

As the Las Vegas fall season comes around, the Las Vegas market keeps on going up. Read below for Homie’s update.

In October, the real estate market saw growth on most fronts including the number of listings, number of units sold, and in terms of median listing price and sales price. However, units available and availability went down year-over-year. With that said, we’re still seeing the market continue to grow month-over-month which might indicate that buyers and sellers are becoming more comfortable in the existing real estate market.

Here’s the full breakdown:

Monthly Sales

According to the data from the GLVAR® from October 2020, Las Vegas real estate realized a 6.8% increase in the number of single-family units sold compared to 2019. 

 

List Price

Average new list prices stay strong year over year as October records a 9% increase in new listing prices for single-family units and 8.8% increase for condo/townhouse units. 

*Data from the GLVAR® from October 2020 and October 2019

 

Sale Price

Property prices continued to grow as this seller market keeps on strong. We saw an 8.8% increase in year-over-year median price for single family units, and also a 14.3% increase in year-over-year median price for condos and townhouses.

*Data from the GLVAR® from October 2020 and October 2019

 

Days on Market (DOM)

We saw the Average Cumulative Days on Market continue to decrease in October 2020, as demand for this market continues to go strong. Now averaging an insanely brief 33 days on market versus 81 Average Cumulative Days on Market in 2019. This is a strong indicator that the real estate market will continue to remain strong. 

*Data from the GLVAR® from October 2020 and October 2019

 

Want to Know How Much Your Home’s Value?

Want to know how much your home is worth? Click here to request your home value report [https://www.homie.com/home-value-report]

 

Turn to a Homie

Homie has local real estate agents in all of our service areas. These agents are pros in everything they do, including understanding the local real estate market. Click to start selling or buying and to get in touch with your dedicated agent.

Call us at (702) 550-1081

Message us on Facebook

Or create an account with Homie

 

Presented by Homie, NV Lic. # B.144145

The post Homie’s Las Vegas, Nevada Housing Market Update October 2020 appeared first on Homie Blog.

Source: homie.com

How To Retire At 50: 10 Easy Steps To Consider

Can you retire at 50? On average, people usually retire at 65. But what if you want to retire 15 years earlier than that like  at 50? Is it doable? Below are 10 easy steps to take to retire at 50.  Retiring early can be challenging. Therefore, SmartAsset’s free tool can match you with  a financial advisor who can help to work out and implement a retirement income strategy for you to maximize your money.

10 Easy & Simple Steps to Retire at 50:

1. How much you will need in retirement.

The first thing to consider is to determine how much you will need to retire at 50. This will vary depending on the lifestyle you want to have during retirement. If you desire a lavish one, you will certainly need a lot.

But according to a study by SmartAsset, 500k was found to be enough money to retire comfortably. But again that will depends on several factor.

For example, you will need to take into account where you want to live, the cost of living, how long you expect to live, etc.

Read: Can I Retire at 60 With 500k? Is It Enough?

A good way to know if 500k is possible to retire on is to consider the 4% rule. This rule is used to figure out how much a retiree should withdraw from his or her retirement account.

The 4% rule states that the money in your retirement savings account should last you through 30 years of retirement if you take out 4% of your retirement portfolio annually and then adjust each year thereafter for inflation.

So, if you plan on retiring at 50 with 500k for 30 years, using the 4% rule you will need to live on $20,000 a year. 

Again, this is just an estimation out there. You may need less or more depending on the factors mentioned above. For example, if you’re in good health and expect to live 40+ years after retiring at 50, $500,000 may not be enough to retire on. That’s why it’s crucial to work with a financial advisor.

Get Matched With 3 Fiduciary Financial Advisors
Managing your finances can be overwhelming. We recommend speaking with a financial advisor. The SmartAsset’s free matching tool will pair you with up to 3 financial advisors in your area.

Here’s how it works:

1. Answer these few easy questions about your current financial situation

2. In just under one minute, the tool will match you with up to three financial advisors based on your need.

3. Review the financial advisors profiles, interview them either by phone or in person, and choose the one that suits your’ needs.

Get Started Now>>>

2. Maximize your tax-advantaged retirement accounts.

Once you have an idea of how much you need in order to retire at 50, your next step is to save as much as possible at a faster rate. If you are employed and you have a 401k plan available to you, you should definitely participate in it. Nothing can grow your retirement savings account faster than a 401k account.

See: How to Become a 401k Millionaire.

That means, you will need to maximize your 401k contributions, for example. In 2020, and for people under 50, the 401k contribution limit is $19,500.  Also, take advantage of your company match if your employee offers a match.

In addition to the maximum contribution of $19,500, your employer also contributes. Sometimes, they match dollar for dollar or 50 cents for each dollar the worker pays in.

In addition to a 401k plan, open or maximize your Roth or traditional IRA. For an IRA, it is $6,000. So, by maximizing your retirement accounts every year, your money will grow faster.

3. Invest in mutual or index funds. Apart from your retirement accounts (401k, Roth or Traditional IRA, SEP IRA, etc), you should invest in individual stocks or preferably in mutual funds. 

4. Cut out unnecessary expenses.

Someone with the goal of retiring at 50 needs to keep an eye on their spending and keep them as low as possible. We all know the phrase, “the best way to save money is to spend less.”

Well, this is true when it comes to retiring 15 years early than the average.  So, if you don’t watch TV, cancel Netflix or cable TV. If your cell phone bill is high, change plans or switch to another carrier. Don’t go to lavish vacations.

5. Keep an eye on taxes.

Taxes can eat away your profit. The more you can save from taxes, the more money you will have. Retirement accounts are a good way to save on taxes. Besides your company 401k plan, open a Roth or Traditional IRA.

6. Make more money.

Spending less is a great way to save money. But increasing your income is even better. If you need to retire at 50, you’ll need to be more aggressive. And the more money you earn, the more you will be able to save. And the faster you can reach your early retirement goal.

7. Speak with a financial advisor

Consulting with a financial advisor can help you create a plan to. More specifically, a financial advisor specializing in retirement planning can help you achieve your goals of retiring at 50. They can help put in a place an investment strategy to put you in the right track to retire at 50. You can easily find one in your local area by using SmartAsset’s free tool. It matches users with financial advisors in just under 5 minutes.  

8. Decide how you will spend your time in retirement.

If you will spend a lot of time travelling during retirement, then make sure you do research. Some countries like the Dominican Republic, Mexico, Panama, the Philippines, and so many others are good places to travel to in retirement because the cost of living is relatively cheap.

While other countries in Europe can be very expensive to travel to, which can eat away your retirement money.  If you decide to downsize or sell your home, you can free up more money to spend.

9. Financing the first 10 years.

There is a penalty of 10% if you cash out your retirement accounts before you reach the age of 59 1/2. Therefore, if you retire at 50, you’ll need to use money in other accounts like traditional savings or brokerage accounts. 

10. Put your Bonus, Raise, & Tax Refunds towards your retirement savings. 

If retiring at 50 years old is really your goal, then you should put all extra money towards your retirement savings. That means, if you receive a raise at work, put some of it towards your savings account.

If you get a tax refund or a bonus, use some of that money towards your retirement savings account. They can add up quickly and make retiring at 50 more of a reality than a dream.

Retiring at 50: The Bottom Line: 

So can I retire at 50? Retiring at 50 is possible. However, it’s not easy. After all, you’re trying to grow more money in less time. So, it will be challenging and will involve years of sacrifices, years living below your means and making tough financial decisions. However, it will be worth it in the long run. 

Read More:

  • How Much Is Enough For Retirement
  • How to Grow Your 401k Account
  • People Who Retire Comfortably Avoid These Financial Advisor Mistakes
  • 5 Simple Warning Signs You’re Definitely Not Ready for Retirement

Speak with the Right Financial Advisor

You can talk to a financial advisor who can review your finances and help you reach your goals (whether it is making more money, paying off debt, investing, buying a house, planning to retire at 50, saving, etc). Find one who meets your needs with SmartAsset’s free financial advisor matching service. You answer a few questions and they match you with up to three financial advisors in your area. So, if you want help developing a plan to reach your financial goals, get started now.

The post How To Retire At 50: 10 Easy Steps To Consider appeared first on GrowthRapidly.

Source: growthrapidly.com

How to Save for Retirement in Your 20s, 30s, 40s, 50s and 60s

You probably don’t need us to tell you that the earlier you start saving for retirement, the better. But let’s face it: For a lot of people, the problem isn’t that they don’t understand how compounding works. They start saving late because their paychecks will only stretch so far.

Whether you’re in your 20s or your golden years are fast-approaching, saving and investing whatever you can will help make your retirement more comfortable. We’ll discuss how to save for retirement during each decade, along with the hurdles you may face at different stages of life.

How Much Should You Save for Retirement?

A good rule of thumb is to save between 10% and 20% of pre-tax income for retirement. But the truth is, the actual amount you need to save for retirement depends on a lot of factors, including:

  • Your age. If you get a late start, you’ll need to save more.
  • Whether your employer matches contributions. The 10% to 20% guideline includes your employer’s match. So if your employer matches your contributions dollar-for-dollar, you may be able to get away with less.
  • How aggressively you invest. Taking more risk usually leads to larger returns, but your losses will be steeper if the stock market tanks.
  • How long you plan to spend in retirement. It’s impossible to predict how long you’ll be able to work or how long you’ll live. But if you plan to retire early or people in your family often live into their mid-90s, you’ll want to save more.

How to Save for Retirement at Every Age

Now that you’re ready to start saving, here’s a decade-by-decade breakdown of savings strategies and how to make your retirement a priority.

Saving for Retirement in Your 20s

A dollar invested in your 20s is worth more than a dollar invested in your 30s or 40s. The problem: When you’re living on an entry-level salary, you just don’t have that many dollars to invest, particularly if you have student loan debt.

Prioritize Your 401(k) Match

If your company offers a 401(k) plan, a 403(b) plan or any retirement account with matching contributions, contribute enough to get the full match — unless of course you wouldn’t be able to pay bills as a result. The stock market delivers annual returns of about 8% on average. But if your employer gives you a 50% match, you’re getting a 50% return on your contribution before your money is even invested. That’s free money no investor would ever pass up.

Pay off High-Interest Debt

After getting that employer match, focus on tackling any high-interest debt. Those 8% average annual stock market returns pale in comparison to the average 16% interest rate for people who have credit card debt. In a typical year, you’d expect a  $100 investment could earn you $8. Put that $100 toward your balance? You’re guaranteed to save $16.

Take More Risks

Look, we’re not telling you to throw your money into risky investments like bitcoin or the penny stock your cousin won’t shut up about. But when you start investing, you’ll probably answer some questions to assess your risk tolerance. Take on as much risk as you can mentally handle, which means you’ll invest mostly in stocks with a small percentage in bonds. Don’t worry too much about a stock market crash. Missing out on growth is a bigger concern right now.

Build Your Emergency Fund

Building an emergency fund that could cover your expenses for three to six months is a great way to safeguard your retirement savings. That way you won’t need to tap your growing nest egg in a cash crunch. This isn’t money you should have invested, though. Keep it in a high-yield savings account, a money market account or a certificate of deposit (CD).

Tame Lifestyle Inflation

We want you to enjoy those much-deserved raises ahead of you — but keep lifestyle inflation in check. Don’t spend every dollar each time your paycheck gets higher. Commit to investing a certain percentage of each raise and then use the rest as you please.

Saving for Retirement in Your 30s

If you’re just starting to save in your 30s, the picture isn’t too dire. You still have about three decades left until retirement, but it’s essential not to delay any further. Saving may be a challenge now, though, if you’ve added kids and homeownership to the mix.

Invest in an IRA

Opening a Roth IRA is a great way to supplement your savings if you’ve only been investing in your 401(k) thus far. A Roth IRA is a solid bet because you’ll get tax-free money in retirement.

In both 2020 and 2021, you can contribute up to $6,000, or $7,000 if you’re over 50. The deadline to contribute isn’t until tax day for any given year, so you can still make 2020 contributions until April 15, 2021. If you earn too much to fund a Roth IRA, or you want the tax break now (even though it means paying taxes in retirement), you can contribute to a traditional IRA.

Your investment options with a 401(k) are limited. But with an IRA, you can invest in whatever stocks, bonds, mutual funds or exchange-traded funds (ETFs) you choose.

Pro Tip

If you or your spouse isn’t working but you can afford to save for retirement, consider a spousal IRA. It’s a regular IRA, but the working spouse funds it for the non-earning spouse. 

Avoid Mixing Retirement Money With Other Savings

You’re allowed to take a 401(k) loan for a home purchase. The Roth IRA rules give you the flexibility to use your investment money for a first-time home purchase or college tuition. You’re also allowed to withdraw your contributions whenever you want. Wait, though. That doesn’t mean you should.

The obvious drawback is that you’re taking money out of the market before it’s had time to compound. But there’s another downside. It’s hard to figure out if you’re on track for your retirement goals when your Roth IRA is doing double duty as a college savings account or down payment fund.

Start a 529 Plan While Your Kids Are Young

Saving for your own future takes higher priority than saving for your kids’ college. But if your retirement funds are in shipshape, opening a 529 plan to save for your children’s education is a smart move. Not only will you keep the money separate from your nest egg, but by planning for their education early, you’ll avoid having to tap your savings for their needs later on.

Keep Investing When the Stock Market Crashes

The stock market has a major meltdown like the March 2020 COVID-19 crash about once a decade. But when a crash happens in your 30s, it’s often the first time you have enough invested to see your net worth take a hit. Don’t let panic take over. No cashing out. Commit to dollar-cost averaging and keep investing as usual, even when you’re terrified.

Saving for Retirement in Your 40s

If you’re in your 40s and started saving early, you may have a healthy nest egg by now. But if you’re behind on your retirement goals, now is the time to ramp things up. You still have plenty of time to save, but you’ve missed out on those early years of compounding.

Continue Taking Enough Risk

You may feel like you can afford less investment risk in your 40s, but you still realistically have another two decades left until retirement. Your money still has — and needs — plenty of time to grow. Stay invested mostly in stocks, even if it’s more unnerving than ever when you see the stock market tank.

Put Your Retirement Above Your Kids’ College Fund

You can only afford to pay for your kids’ college if you’re on track for retirement. Talk to your kids early on about what you can afford, as well their options for avoiding massive student loan debt, including attending a cheaper school, getting financial aid, and working while going to school. Your options for funding your retirement are much more limited.

Keep Your Mortgage

Mortgage rates are historically low — well below 3% as of December 2020. Your potential returns are much higher for investing, so you’re better off putting extra money into your retirement accounts. If you haven’t already done so, consider refinancing your mortgage to get the lowest rate.

Invest Even More

Now is the time to invest even more if you can afford to. Keep getting that full employer 401(k) match. Beyond that, try to max out your IRA contributions. If you have extra money to invest on top of that, consider allocating more to your 401(k). Or you could invest in a taxable brokerage account if you want more flexibility on how to invest.

Meet With a Financial Adviser

You’re about halfway through your working years when you’re in your 40s. Now is a good time to meet with a financial adviser. If you can’t afford one, a financial counselor is typically less expensive. They’ll focus on fundamentals like budgeting and paying off debt, rather than giving investment advice.

A woman waves her hands in the air as she overlooks a mountainous view in Alaska.

Saving for Retirement in Your 50s

By your 50s, those retirement years that once seemed like they were an eternity away are getting closer. Maybe that’s an exciting prospect — or perhaps it fills you with dread. Whether you want to keep working forever or retirement can’t come soon enough, now is the perfect time to start setting goals for when you want to retire and what you want your retirement to look like.

Review Your Asset Allocation

In your 50s, you may want to start shifting more into safe assets, like bonds or CDs. Your money has less time to recover from a stock market crash. Be careful, though. You still want to be invested in stocks so you can earn returns that will keep your money growing. With interest rates likely to stay low through 2023, bonds and CDs probably won’t earn enough to keep pace with inflation.

Take Advantage of Catch-up Contributions

If you’re behind on retirement savings, give your funds a boost using catch-up contributions. In 2020 and 2021, you can contribute:

  • $1,000 extra to a Roth or traditional IRA (or split the money between the two) once you’re 50
  • $6,500 extra to your 401(k) once you’re 50
  • $1,000 extra to a health savings account (HSA) once you’re 55.

Work More if You’re Behind

Your window for catching up on retirement savings is getting smaller now. So if you’re behind, consider your options for earning extra money to put into your nest egg. You could take on a side hustle, take on freelance work or work overtime if that’s a possibility to bring in extra cash. Even if you intend to work for another decade or two, many people are forced to retire earlier than they planned. It’s essential that you earn as much as possible while you can.

Pay off Your Remaining Debt

Since your 50s is often when you start shifting away from high-growth mode and into safer investments, now is a good time to use extra money to pay off lower-interest debt, including your mortgage. Retirement will be much more relaxing if you can enjoy it debt-free.

FROM THE RETIREMENT FORUM
Re-locating
1/5/21 @ 2:53 PM
Trish Young
Military pension & SS
1/5/21 @ 2:55 PM
D
TSP and mortgage
12/23/20 @ 2:41 PM
J
See more in Retirement or ask a money question

Saving for Retirement in Your 60s

Hooray, you’ve made it! Hopefully your retirement goals are looking attainable by now after working for decades to get here. But you still have some big decisions to make. Someone in their 60s in 2021 could easily spend another two to three decades in retirement. Your challenge now is to make that hard-earned money last as long as possible.

Make a Retirement Budget

Start planning your retirement budget at least a couple years before you actually retire. Financial planners generally recommend replacing about 70% to 80% of your pre-retirement income. Common income sources for seniors include:

  • Social Security benefits. Monthly benefits replace about 40% of pre-retirement income for the average senior.
  • Retirement account withdrawals. Money you take out from your retirement accounts, like your 401(k) and IRA.
  • Defined-benefit pensions. These are increasingly rare in the private sector, but still somewhat common for those retiring from a career in public service.
  • Annuities. Though controversial in the personal finance world, an annuity could make sense if you’re worried about outliving your savings.
  • Other investment income. Some seniors supplement their retirement and Social Security income with earnings from real estate investments or dividend stocks, for example.
  • Part-time work. A part-time job can help you delay dipping into your retirement savings account, giving your money more time to grow.

You can plan on some expenses going away. You won’t be paying payroll taxes or making retirement contributions, for example, and maybe your mortgage will be paid off. But you generally don’t want to plan for any budget cuts that are too drastic.

Even though some of your expenses will decrease, health care costs eat up a large chunk of senior income, even once you’re eligible for Medicare coverage — and they usually increase much faster than inflation.

Develop Your Social Security Strategy

You can take your Social Security benefits as early as 62 or as late as age 70. But the earlier you take benefits, the lower your monthly benefits will be. If your retirement funds are lacking, delaying as long as you can is usually the best solution. Taking your benefit at 70 vs. 62 will result in monthly checks that are about 76% higher. However, if you have significant health problems, taking benefits earlier may pay off.

Pro Tip

Use Social Security’s Retirement Estimator to estimate what your monthly benefit will be.

Figure Out How Much You Can Afford to Withdraw

Once you’ve made your retirement budget and estimated how much Social Security you’ll receive, you can estimate how much you’ll be able to safely withdraw from your retirement accounts. A common retirement planning guideline is the 4% rule: You withdraw no more than 4% of your retirement savings in the first year, then adjust the amount for inflation.

If you have a Roth IRA, you can let that money grow as long as you want and then enjoy it tax-free. But you’ll have to take required minimum distributions, or RMDs, beginning at age 72 if you have a 401(k) or a traditional IRA. These are mandatory distributions based on your life expectancy. The penalties for not taking them are stiff: You’ll owe the IRS 50% of the amount you were supposed to withdraw.

Keep Investing While You’re Working

Avoid taking money out of your retirement accounts while you’re still working. Once you’re over age 59 ½, you won’t pay an early withdrawal penalty, but you want to avoid touching your retirement funds for as long as possible.

Instead, continue to invest in your retirement plans as long as you’re still earning money. But do so cautiously. Keep money out of the stock market if you’ll need it in the next five years or so, since your money doesn’t have much time to recover from a stock market crash in your 60s.

A Final Thought: Make Your Retirement About You

Whether you’re still working or you’re already enjoying your golden years, this part is essential: You need to prioritize you. That means your retirement savings goals need to come before bailing out family members, or paying for college for your children and grandchildren. After all, no one else is going to come to the rescue if you get to retirement with no savings.

If you’re like most people, you’ll work for decades to get to retirement. The earlier you start planning for it, the more stress-free it will be.

Robin Hartill is a certified financial planner and a senior editor at The Penny Hoarder. She writes the Dear Penny personal finance advice column. Send your tricky money questions to DearPenny@thepennyhoarder.com.

This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.

Source: thepennyhoarder.com

What Is New-House Smell? A Reality Check on the Risks, and How To Get Rid of It

new house smellMaría Garrido / EyeEm / Getty Images

While most of us are familiar with new-car smell—that distinct scent of a brand-new automobile—home buyers might have caught a whiff of another scent entirely during their home-shopping spree: new-house smell.

What exactly is new-house smell? Also known as new-construction smell, it’s essentially a combination of smells given off by the many materials that go into building a house—things like fresh paint, carpet, wood, and adhesives. If there’s any new furniture in the home, that could be contributing to the smell as well.

But is new-house smell unhealthy to breathe in, day after day? Here’s a closer look at what new-house smell is made of, and how to get rid of it, too.

What is new-house smell?

Before we dive deep into new-house smell, let’s take a step back—way back—and look at what causes anything to smell in the first place.

Bill Carroll Jr., an adjunct professor of chemistry at Indiana University, says all smells come from molecules in the air that your nose can detect. The molecules must evaporate to get into the air, and the more likely they are to evaporate, the more volatile they are and the easier they are to inhale and detect as odors.

“If you can smell it, it’s because of a molecule in the air,” Carroll says. “The fact that it’s in the air means that it is a volatile compound at least to some extent.”

As scary as “volatile” sounds, it doesn’t necessarily mean a substance is dangerous or explosive. Carroll says it simply means that something can easily evaporate into the atmosphere, thus releasing an odor. For example, he says metals aren’t very volatile, which is why you probably don’t smell much (hopefully) if you sniff your stainless-steel refrigerator. Other materials like paints, adhesives, and plastics, however, are more highly volatile.

Are VOCs dangerous?

While new-house smells aren’t necessarily dangerous, there is some concern about certain types of volatile organic compounds, or VOCs, that exist in some building materials (e.g., paint, carpet, and furniture). Some have been linked to health issues, including cancer and central nervous system damage in people (e.g., construction workers who don’t wear face masks) exposed to high quantities of such materials.

“When you talk about VOCs that raise health concerns, that goes more to a substance’s inherent toxicity or reactivity,” Carroll says. “It’s the difference between smelling a banana and smelling paint stripper, for example. They’re both volatile, but they have very different toxicities.”

“Regardless of odor, the ability of some of the VOCs emitted from any of [building] products and materials to cause health impacts or create other dangerous conditions varies greatly, depending on several factors,” according to the Environmental Protection Agency. “These factors may include the type and amount of VOCs emitted, the toxicity of the individual and combined VOCs, the ventilation rate in the space, the type and amount of other materials in the space, occupant level of exposure and length of time exposed, and the health of the exposed occupants.”

However, this is definitely not to say that a new-house smell will make you sick.

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Watch: Get Smoker’s Smell Out of Your House for Good—Here’s How

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The good news is that because of concerns raised over certain dangerous VOCs in the past 40 to 50 years, there’s a been a strong movement to reduce them. Carroll says that’s most apparent in regard to paint. While oil-based paints used to emit high levels of VOCs and the odor would linger for a long time, today’s paints contain virtually no VOCs and their odor dissipates more quickly.

In general, that means new houses today have much less of a pronounced smell than they did a years ago—and are less hazardous. For the overwhelming majority of the population, the odor is at worst a nuisance.

To reduce any potential indoor air–related health impacts from VOCs, the EPA recommends using low-emitting products and building materials and increasing ventilation. The agency also offers further information on VOCs and indoor air auality.

How to get rid of new-house smell

“If you like new-house smell, that’s OK,” Carroll says. “If you don’t, it’s important to remember that the solution is dilution.”

He says for an empty house, that means opening the windows to air things out, and usually in a matter of days that new-house smell will disappear. Another solution is to “bake” a new home. Since some VOCs evaporate more quickly at higher heats, this technique has a homeowner turn up the heat in the unoccupied house for a few days while running fans to push them out the windows. Running exhaust fans and using an air purifier may speed things up, too.

Carroll says what’s more concerning than new-house smell, however, is what you bring into your place on your own.

“The greatest source of VOCs is the stuff you bring into your house,” Carroll says. Items such as furniture, cleaners, waxes, and fragrances expose people to far more VOCs over the course of a lifetime.

Know this: If you’re moving into a new home and get a whiff of that telltale new-house smell, it will eventually wear off, even if you do nothing. Promise.

The post What Is New-House Smell? A Reality Check on the Risks, and How To Get Rid of It appeared first on Real Estate News & Insights | realtor.com®.

Source: realtor.com