The Best Financial Advice at Every Age

CORRECTS: Fixes IRA contribution in Graf 19

Money doesn’t really age: It’s never too late to make smart financial decisions.

But there are certain times in your life that are prime for specific money moves, times when making the right choice will set your future self up for success.

Below, the best financial moves to make by decade.

In your 20s: Lay a foundation

You’ll probably enter and exit these years at two completely different life stages: Many people come into their 20s in college and cross the bridge to 30 with a decent, if short, career history.

The good news: You have time to recover from bad decisions. The bad news: Any unwise habits you form now could stick with you.

“This is the best time to make saving money a priority and the best time to avoid some pitfalls like getting into a lot of credit card debt,” says Ted Schumann II, managing partner of independent registered investment advisory firm The DBS Companies.

There’s one way to do both, and it’s creating a reasonable budget that aligns with your priorities and includes at least some allocation toward savings, even if it it’s a small one. That money should go toward building a small emergency cushion and into an employer retirement plan that matches your contributions — like a 401(k) — if you have one. If not, open an individual retirement account. (We have a full guide to IRAs here.)

In your 30s: Hit your savings goals

These might be your best investing years, so it pays — quite literally — to use them wisely.

While previously you may have been scraping bits together, now it’s time to get focused. The goal: saving 15% of your income for retirement.

The first two decades of “adulthood” are so important because time is the single biggest asset you have when it comes to growing your money (aside, of course, from money itself). Investing early gives your money time to grow through compound interest.

This is also when you might find yourself juggling other goals. That budgeting habit you formed in your 20s will pay off: A budget based on your values will help you prioritize when financial goals and responsibilities start to pile up.

“Early on, you’re taking time to think through what is more or less important,” says Stuart Ritter, a senior financial planner with brokerage firm T. Rowe Price. “Maybe you’re saving for a big house but you’ll drive an older car, or you want to take vacations but you’re OK living in a smaller house.”

In your 40s: Take stock of where you stand

If you’ve been consistently saving for the better part of two decades, you probably have a nice pile of money. If you haven’t yet figured out how far that money will get you in retirement, now’s the time to do so.

retirement calculator will give you a good idea of your savings progress, and tell you whether you need to ramp things up, keep cruising along or even — in some rare cases — dial back.

If you’ve been consistently stashing away 15% of your income, you might find you’re in a good spot to shift extra dollars to other goals, for example, college savings if you have kids.

You might also have various retirement accounts. It may be worth bringing old 401(k)s together under one roof, says Ritter. “If you’ve changed jobs a couple times, you don’t want to leave a pot of money somewhere that you’ve forgotten about.”

You can do that by transferring old balances directly into a rollover IRA.

In your 50s: Catch up while you can

The IRS knows that many people are behind in saving for retirement, and so it throws out a bone for people this age: The contribution limits for tax-advantaged retirement accounts like 401(k)s and IRAs increase for those over 50.

These catch-up contributions allow you to put an extra $6,000 into a 401(k) and an extra $1,000 into an IRA every year. That brings the contribution limits for these accounts to $25,000 for a 401(k) and $7,000 for an IRA in 2019.

“If someone is fully funding retirement accounts and they have the income to do so, using the catch-up contribution at age 50 is a great way to supercharge savings into the homestretch of their career,” says Schumann.

In your 60s: Shift your focus

Many people retire in their 60s. According to analytics firm Gallup, nonretired Americans expect to retire at age 66.

That means it’s time to make some concrete plans. What was once a very vague goal starts to come into focus. When will you stop working? Do you plan to quit altogether or shift to part-time? Many retirement experts say your mental and financial well-being will benefit from the latter, if your health allows it.

You’ll also want to make an income plan for retirement, figuring out how much money you’ll receive from Social Security and how much you’ll need to draw out of retirement accounts. Keep in mind that your Social Security checks will be higher for each year you delay taking benefits after you reach retirement age — increasing by as much as 8% annually — until you turn 70.

Finally, many people falsely assume that they should shift their investments into cash or fixed-income on their retirement date. While you might want to move a small portion of your portfolio to safer, more liquid havens, you need your money to grow through retirement. Some financial planners recommend keeping half of your money in equity investments through retirement.

An earlier version of this article misstated the IRA contribution limit for those 50 and older. The 2019 limit, including catchup contributions, is $7,000.

This article was written by NerdWallet and was originally published by Forbes.

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The article The Best Financial Advice at Every Age originally appeared on NerdWallet.

The Biggest Financial Mistake Women Make

Financially and otherwise, the deck tends to be stacked against women.

The wage gap, which stood at 20% in 2017, is the most blatant example of that. If current trends continue, that gap is unlikely to close in the U.S. for another 40 years, according to an analysis by the Institute for Women’s Policy Research.

While they wait, women might aim to close a gap over which they have more direct control: the investing gap. When compared with men, women are much less likely to invest their savings — and we miss out on significant wealth as a result. In a recent survey from Fidelity Investments, only 29% of women said they see themselves as investors. That needs to change.

Not investing deepens the disadvantage

Due to the wage gap, even if women save a greater percentage of our income than men — and research repeatedly shows we do — we accumulate less money. We’re also more likely to spend time out of work, caring for children and other family members.

As a result, a study from the National Institute on Retirement Security found that women are 80% more likely to be impoverished in retirement.

Any advice to save more falls flat; many women are undoubtedly saving as much as they can. But if you’re not also investing that savings in the stock market, you’re only widening the gap.

Women are natural investors; many just don’t realize it

Women tend to lack confidence when it comes to investing.

Annamaria Lusardi, a financial literacy expert and economist at the George Washington School of Business, says this frequently shows up in her research.

“When I ask people to self-assess their economic knowledge on a scale of one to seven, women are less likely than men to pick high numbers, in particular the highest,” Lusardi says.

In her research, women are not only more likely to answer financial literacy questions incorrectly, but they also disproportionately answer those questions with “I do not know.”

But perhaps there’s money to be made by knowing what you don’t know: Women are actually good at investing; better, arguably, than men. A separate Fidelity Investments analysis of client accounts published in 2017 found that on average, women outperformed men by 0.4%. In the U.K., a behavioral economist at the Warwick Business School found an even larger advantage, with women outperforming men by 1.8%.

Research shows one reason for men’s underperformance is actually overconfidence — they tend to trade investments more frequently and make riskier decisions. Women, on the other hand, tend to seek out financial advice and invest for the long term, trading less frequently as a result.

Getting comfortable with risk

The downside to women’s lack of confidence is that we tend to be more risk-averse.

There’s no doubt that investing is risky — but in many ways, not investing is even riskier. There’s a cost to holding cash, and over time, it can add up to six or even seven figures in lost returns.

Stacy Francis, a certified financial planner and president of Francis Financial in New York City, says she walks overly conservative clients through models to prove this out.

“We actually show them year by year how their nest egg will be valued over the next 35 years, based on their current spending: ‘This is how much you have invested, and this is the portfolio you feel comfortable with. By 81, you will have nothing left and you’ll be moving in with your children,’” Francis says.

It’s hard to imagine that doesn’t drive the point home, but she also shows them another scenario with a more balanced portfolio that easily gets them to age 95 or beyond without sleeping on their offspring’s couch. You can loosely mimic this process on your own with a retirement calculator, playing with different expected returns to see how long your money will last.

Investing doesn’t have to be complicated

There are plenty of complex investing strategies, and women are just as capable of mastering them as men. But the truth is, we don’t have to — and doing so could actually waste time and money.

If you have a 401(k), you’re already an investor — likely in mutual or index funds, which are baskets of investments designed to make getting into the market very easy. You can put your entire account balance into a target-date mutual fund — a common 401(k) investment — and it will automatically adjust for risk as you approach your planned retirement age.

For money in other investment accounts, such as an IRA, you can opt for the same type of fund. Or, if you want some investment guidance on the cheap, you can open your account at a roboadvisor, which is an automated portfolio management service.

Finally, you might find it motivating to align your investments with your values, by choosing socially responsible investments. SRI index funds will either exclude certain industries — tobacco, for example — or include companies that meet specific criteria.

One idea? Invest in other women, Francis says: “There are great mutual funds that will invest in companies that support women, or that put women in the CEO room.”

And yes: Men can benefit from these investing strategies, too.

This article was written by NerdWallet and was originally published by Forbes.

The article The Biggest Financial Mistake Women Make originally appeared on NerdWallet.

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How Today’s Low Taxes Can Nurture Your Nest Egg

Like death, taxes remain uncertain. But they’re now on sale.

Under the new tax laws, individual tax rates are broadly lower and the standard deduction — which directly reduces your taxable income — is nearly double what it was. A taxpayer who previously fell into the 15% tax bracket is now taxed at a 12% rate.

Retirement investors can and should take advantage. Here’s how.

Reconsider a Roth IRA

Roth IRA is a retirement account that you fund with after-tax dollars. Those dollars and the investment growth you earn on them can be pulled out in retirement tax-free.

A Roth has always been an attractive option for those who think their tax rate is lower now than it will be in retirement — you’re essentially locking in that lower rate by paying taxes now and skirting them later. Under the new tax law, more people are likely to fall into this category.

You can put $5,500 into a Roth IRA in 2018, or $6,500 if you’re 50 or older.

“Not a year should go by when you’re not maxing out Roth IRAs if you’re eligible to do it,” says David McKnight, author of “The Power of Zero: How to Get to the 0% Tax Bracket and Transform Your Retirement.”

Look into Roth conversions

You might have noticed McKnight said “eligible.” A Roth IRA has income limitations: In 2018, if you earn $135,000 or more as a single filer or $199,000 or more as a joint filer, you can’t contribute.

There are two solutions to that: One is a Roth 401(k), if you’re offered that at work. A Roth 401(k) is a mashup of a Roth IRA and a 401(k) — you get a higher contribution limit, the potential for employer matching dollars and the Roth tax treatment on your contributions.

The other is a Roth IRA conversion, which is a way of getting money into a Roth IRA if you’re not otherwise eligible, by converting money in a traditional IRA. (A traditional IRA is the opposite of a Roth when it comes to taxes: Contributions are tax-deductible but distributions in retirement are taxed.)

When you convert money from a traditional IRA to a Roth IRA, you’ll pay taxes on all or part of the converted amount, which is why it often makes sense to convert when tax rates are low.

Diversify among accounts

Praises for the Roth IRA aside, you don’t want to be monogamous with your retirement money. It’s wise to spread your savings among several accounts, says Jim Davis, a certified financial planner and partner at Partnership Financial in Columbus, Ohio. Doing so earns you tax diversification in retirement.

“There’s a huge difference in the retiree’s tax bill if he has a $2 million portfolio that’s all in pretax accounts — 401(k)s, IRAs — vs. a retiree that has a $2 million portfolio that is apportioned across pretax, after-tax and Roth accounts,” Davis says. “The latter will have a much lower tax bill in retirement and his or her heirs will inherit assets with a much more friendly tax status.”

Dividing your money among accounts with different tax treatments means you’ll be prepared no matter which direction taxes go in the future.


The article How Today’s Low Taxes Can Nurture Your Nest Egg originally appeared on NerdWallet.

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Don’t Believe the Hype About Millennials and Money

Millennials are killing fast food. They’re wiping out golf. Thanks to them, mayonnaise is as good as dead.

If you believe the latest survey — no need to specify which survey here, they’re all virtually the same — there’s very little millennials can’t do. Except, of course, save for retirement, control their spending and keep their grubby young hands off luxuries like coffee and avocados.

So what’s true and what’s false? Much of the above falls into the latter category. Millennial stereotypes make good headlines, but they’re often just that.

Here are some myths about the way millennials handle money, followed by the facts.

Myth 1: Millennials don’t save for retirement

Let’s be clear: As a whole, no generation is saving or has saved as much as it should. Millennials — generally considered to be between ages 22 and 37 — are no different. But it’s not for lack of trying, and they’re not doing significantly worse than their parents or grandparents did.

According to the most recent Survey of Consumer Finances, households headed by someone under age 35 have a median $12,300 in retirement savings. That’s not enough. But neither is $120,000, which is the median for ages 55 to 64 — and those people are actually on the brink of retirement age.

One thing holding millennials in particular back: lack of access to employer-sponsored retirement plans. According to research from the Pew Charitable Trusts, more than two-thirds of millennials don’t have one. The National Institute on Retirement Security says that of millennials who are eligible to participate in employer plans, more than 9 in 10 do.

And they do it at rates that meet or exceed other generations: According to a Transamerica Center for Retirement Studies analysis, millennial participants in 401(k)s or similar plans contribute a median 10% of salary, the same rate as baby boomers, and more than Generation X, which contributes 8%. The report classifies 39% of millennials as “super savers,” which means they’re contributing 10% or more. That’s more than any other generation in the study.

Myth 2: Millennials blow their money on frivolous things

This is a survey favorite, particularly when framed as a reason millennials aren’t saving. Somehow, you can be responsible for killing everything most people spend money on — dining out, department stores, vacations — and still be shamed as a careless spender.

The reality: According to a NerdWallet analysis of last year’s Consumer Expenditure Survey, millennials actually spend less than other generations in several categories that could be considered frivolous, including clothing, entertainment and alcohol.

Myth 3: Millennials are job hoppers

The truth: They’re right in line with Generation X when it comes to changing jobs. According to a Pew Research Center analysis of government data, 22% had worked for their current employer for five years or more in 2016, compared with 21.8% of Generation X workers in 2000 (when they were the same age). The analysis found that college-educated millennials actually have longer track records with their employers than Generation X workers did in 2000.

Incidentally, there’s nothing particularly wrong with moving on to a new and better opportunity — in fact, it could very well be financially savvy, assuming that opportunity comes with a pay increase. Which brings us to …

Myth 4: Millennials are unambitious

Millennials have one habit that could greatly increase their net worth, and that’s advocating for themselves at work.

According to research from Bank of America, millennials are more likely to ask for a raise. The data found that 46% of millennials have asked for one in the past two years, compared with 36% of Generation X and 39% of baby boomers. Even better, they have a good batting average: Of those who asked, 80% received.

This is key to financial security because raises are an opportunity to build retirement savings. If you increase your savings rate each time you get a raise, you’ll easily and painlessly work your way up to saving 10% to 15% of your income for retirement, which is the general goal. (To get a more personalized retirement savings goal, use a retirement calculator.)

Myth 5: Millennials don’t want to buy houses

Alternate phrasing: They’re killing homeownership. Reasons range from an unwillingness to put down roots to financial instability.

Either way, it’s not entirely true: While many millennials struggle to afford their own home, they’re working toward it. NerdWallet’s own research from this year found that 82% of millennials say buying a home is a priority. In fact, they were the generation most likely to say they’d like to buy a home to rent out for extra income. (What was that about a lack of ambition?)

This article was written by NerdWallet and was originally published by Forbes.

The article Don’t Believe the Hype About Millennials and Money originally appeared on NerdWallet.

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New Grads: Here Are the Top 5 Places to Invest

Your first adult job sprouts a new round of firsts: first couch that isn’t a futon, first bed that isn’t a futon, first kitchen table that isn’t a futon. And then, of course, there’s your first adult paycheck.

Ideally, that paycheck will sprout your first investment account. Because while investing may not be top of mind right out of college, it should be: Even small amounts add up big over time.

The trouble — aside from actually finding money in your budget to save and invest — is figuring out where to put it. Here are five options, in very particular order.

1. A 401(k) with matching dollars

Contributions to a traditional 401(k) come out of your paycheck pretax, which means you don’t pay taxes on that money … now. You’ll be taxed instead when you take distributions from the account in retirement.

Tax perks like this are common in retirement plans, but there are two unique factors that land the 401(k) in the top spot: a high annual contribution limit of $18,500, and employer matching dollars.

You’re unlikely to hit that limit when you’re just starting out, so let’s focus on the matching dollars here, which are just what they sound like: Many — though not all — companies that offer a 401(k) plan also offer to match participant contributions. That means when you contribute to your 401(k), your employer may contribute as well, up to a cap.

The details of matching programs vary — your company might throw in 50 cents for every dollar you do, or a full dollar on every dollar, or some other arrangement — but the facts don’t: This is free money. Contribute at least enough to your 401(k) to earn your full match.

2. An emergency fund

This is cheating: An emergency fund isn’t technically an investment. But let’s call it an investment in yourself — it’s pretty key to financial stability, which makes it worth a mention here.

You might or might not have heard this rule: Keep three to six months’ worth of expenses stashed in a savings account. That’s great, if you can swing it. But many new grads can’t, and if they can, it will be at the expense of other financial goals. So, new rule: $500 or $1,000 will float you through most emergencies. You can add more once you’re steadily investing elsewhere.

3. A Roth IRA

Roughly a third of workers — and 41% of millennials — aren’t offered a retirement plan like a 401(k).

If you’re in that group, your next best option is probably a Roth IRA.

You can contribute up to $5,500 per year, and contributions are made after-tax, so distributions in retirement are tax-free. That kind of arrangement is ideal for someone just out of college, because you’re locking in your current tax rate. Not only is that rate likely to be low — thank you, entry-level salary — but income taxes in general are low right now.

Tip: There is a Roth version of the 401(k) that is less mainstream than the standard 401(k), but gaining popularity — it’s also worth a look if your employer offers it.

4. A traditional IRA

One downside of the Roth IRA: To make the full annual contribution, your modified adjusted gross income as a single tax filer must be less than $120,000.

Needless to say, the salary of most new workers falls well below that boundary. If yours doesn’t? Drinks on you! And also, you should consider a traditional IRA instead.

The traditional IRA follows the standard 401(k) format — tax deduction now, taxes on distributions later — and shares a contribution limit with the Roth IRA. There is one important caveat: If you have a 401(k), you may not be able to deduct your traditional IRA contributions. You can read more about traditional IRAs and the deduction limits here.

5. A taxable brokerage account

This is an investment account without the tax perks — or the distribution rules — of a retirement account. Essentially, it’s a savings account you can use to trade stocks or buy mutual funds. It’s where you can continue investing once you’ve maxed out retirement accounts, or if you’d like to — gasp! — invest for nonretirement goals like a house, a wedding or avocado toast.

You can open this account at an online brokerage, if you want to get your hands dirty picking and choosing investments, or at a robo-advisor, which is what it sounds like: a computer-based investment advisor. (Here’s more about robo-advisors and what they do.) It’s your father’s gray-haired financial advisor, reimagined for millennials and anyone else who wants investment advice on the cheap.

This article was written by NerdWallet and was originally published by Forbes.

The article New Grads: Here Are the Top 5 Places to Invest originally appeared on NerdWallet.

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