Job creation slowed in June, despite continued tight labor market conditions, which economists say is good news for the Federal Reserve. Data from the U.S. Bureau of Labor Statistics released on Friday shows that total nonfarm payroll rose by 206,000 jobs in June, compared to 272,000 jobs in May.
Job gains in June were most notable in industries like government (70,000), health care (49,000), social assistance (34,000) and construction (27,000), a positive for the housing industry.
When broken out, the residential construction sector added 3,100 jobs month over month, while the number of residential specialty trade contractors rose 2,400 from a month prior. Overall, for the past year, the construction sector has added an average of 20,000 jobs per month.
The real estate and rental and leasing services sector added 1,100 jobs from May with real estate posting a 500-job gain and the rental and leasing sector gaining 800 jobs.
Despite the continuing job growth, unemployment rose slightly from May to 4.1% in June, with 6.8 million people unemployed. A year ago, the unemployment rate was 3.6% with 6 million people unemployed.
While economists noted that the month’s job gains were higher than anticipated, they highlighted that most of the jobs were in the government sector.
“Similar to May, the headline gain in nonfarm payroll employment data in June does not tell the entire story,” Mike Fratantoni, the MBA’s senior vice president and chief economist, said in a statement. “While the headline gain showed an increase of 206,000 jobs, more than one-third of that was a gain in government employment, largely a function of increases in state and local jobs. Although June’s increase was above our expectations, both April and May figures were revised down by a combined 111,000 jobs, marking the three-month average down to a 177,000 increase.”
Fratantoni also highlighted the rise in unemployment as an indicator that the job market was slowing.
Although a cooling economy is what the Federal Reserve wants to see, economist believe this jobs report does not guarantee an interest rate cut.
“This not-too-cold/not-too-hot Goldilocks economy is what we want to see as the Federal Reserve will deliberate on the timing of interest rate cuts in the second half of 2024. In addition to today’s report, the Fed is watching a range of other economic indicators, most notably inflation,” Lisa Sturtevant, the chief economist at Bright MLS, said in a statement. “The first June inflation reading will be out next week. Lower inflation and a looser labor market means it is more likely for there to be two rate cuts instead of one in 2024.”
If the Fed does cut interest rates, Sturtevant believes housing market activity will pick up as many buyers have been waiting on the sidelines hoping for lower rates.
Mortgage rates are beginning to ease slightly, with the 30-year fixed mortgage rate hovering around 6.86%. Will Americans with mortgage payments reap the benefits?
Yahoo Finance Reporter Dani Romero joins Wealth! to explain why mortgage rates may be easing but monthly mortgage payments may be rising for thousands of homeowners.
For more expert insight and the latest market action, click here to watch this full episode of Wealth!
This post was written by Nicholas Jacobino
Video Transcript
Mortgage rates have come down recently still remaining near that 7% level but easing in the last few weeks, but for many homeowners, they could soon see their monthly payments rising.
Yahoo.
Finance reporter Danny Romero is here with why, why, why are you doing this to them?
Danny Brad.
A shockwave may be coming for many homeowners.
Data from Intercontinental Exchange shows that more than 100,000 loans will reset in the next 12 months.
Now these are homeowners that have an arm loan and adjustable rate mortgage loan which can offer temporary relief for homeowners who want to avoid paying higher mortgage rates.
But they also come with the risk.
Homeowners have a fixed period usually between 57 or 10 years.
Then the rate on an arm loan adjust based on market conditions.
Now, due to rates staying high, many arm loan holders are experiencing an unpleasant shock of higher monthly housing payments.
About 1.7 million homeowners have bought homes with an adjustable rate mortgage since 2019.
And that’s according to data from Intercontinental Exchange.
Now, remember an adjustable loan can make sense for home buyers comfortable taking risks of interest rate increases or those who plan to move and refinance before that fixed rate expires.
Now, it’s also very key to pay close attention to those details of your loans.
If you’re a first-time home buyer in Tennessee, you might be qualified for valuable assistance from your state, county, or city. That could include home buyer education, special mortgage programs, and even down payment assistance.
Ready to take your first step toward becoming a homeowner? Here’s what to do.
Verify your home buying eligibility in Tennessee. Start here
In this article (Skip to…)
Tennessee home buyer overview
The median sales price in Tennessee was $394,100 in May 2024. That rose 5.7% year-over-year, according to Redfin. With rising home prices, many first-time buyers are finding it increasingly difficult to enter the market as they try to save for a down payment.
But there is still hope. Many Tennessee first-time home buyers receive assistance from the state government and non-profit organizations through various programs and grants. These resources can help with money, education, and counseling, making buying a home easier and less expensive.
Verify your home buying eligibility in Tennessee. Start here
Tennessee home buyer stats
Average Home Sale Price in TN1
$394,100
Minimum Down Payment in TN (3%)
$11,823
20% Down Payment in TN
$78,820
Average Credit Score in TN2
702
Maximum TN Home Buyer Grant3
6% of sale price statewide (THDA repayable loan)
Down payment amounts are based on the state’s most recently available average home sale price. “Minimum” down payment assumes 3% down on a conventional mortgage with a minimum credit score of 620.
If you’re eligible for a VA loan (backed by the Department of Veterans Affairs) or a USDA loan (backed by the U.S. Department of Agriculture), you may not need any down payment at all.
First-time home buyer loans in Tennessee
If you’re a first-time home buyer in Tennessee with a 20% down payment, you can get a conventional loan with a low interest rate and no private mortgage insurance (PMI).
Find the best first-time home buyer loan for you. Start here
Of course, few first-time buyers have saved up enough money for a 20% down payment. But the good news is that you don’t need that much. Not by a long shot. Borrowers can often get into a new home with as little as 3% or even 0% down using one of these low-down-payment mortgage programs:
Conventional 97: From Freddie Mac or Fannie Mae. 3% down payment and 620 minimum FICO score. You can usually stop paying mortgage insurance after a few years once you reach 20% home equity
FHA loan: Backed by the Federal Housing Administration. 3.5% down and a 580 minimum credit score. But you’re on the hook for mortgage insurance premiums (MIP) until you refinance to a different loan type, move, or pay off your mortgage
VA loan: Only for veterans and active-duty service members. Zero down payment is required. Minimum credit score varies by lender but often 620. No ongoing mortgage insurance premiums after closing. These are arguably the best mortgages available, so apply if you’re eligible
USDA loan: For those on low–to–moderate incomes buying in designated rural areas. Zero down payment required. Credit score requirements vary by lender but often 640. Low mortgage insurance rates
Tennessee Housing Development Agency loans: May include access to competitive interest rates and down payment assistance. More information below
Note that government loan programs (including the FHA, VA, and USDA home loans) require you to buy a primary residence. That means you can’t use these loans for a vacation home or investment property.
Most loan programs even let you use gifted money or down payment assistance (DPA) to cover the down payment and closing costs. So if you’re eligible, you could potentially get into your new house with minimal cash out of pocket.
If you’re not sure which program to choose for your first mortgage loan, your lender or real estate agent can help you find the right match based on your finances and home-buying goals.
Tennessee first-time home buyer programs
First-time homebuyers in Tennessee can receive a variety of support from the Tennessee Housing Development Agency (THDA). That includes home buyer education, a range of mortgage loans, and down payment assistance.
Verify your home buying eligibility in Tennessee. Start here
THDA Great Choice Home Loan program
Tennessee’s Great Choice Home Loan program offers home buyers a 30-year fixed-rate loan option, mostly based on FHA or USDA loans.
The Great Choice home loan program is for people with low or moderate incomes who want to buy homes that are priced reasonably. To qualify, you’ll need to:
Pick your lender from a THDA-approved list
Have a credit score of 640 or higher
Undergo a home buyer education course ($99)
Meet household income and purchase price limits, which vary by county
THDA Homeownership for the Brave program
Homeownership for the Brave is a specialty loan program that can be used with a VA loan and requires zero down payment. Of course, these are only for veterans, qualifying reservists, active-duty service members, or their surviving spouses.
If you’re interested in one of these loan types, your next step is to download the THDA’s Handbook for Homebuyers.
Next, contact an approved lender from the THDA list (linked above). Tell the agent that you’re interested in a Great Choice home loan, and they should quickly establish whether or not you’re a qualified buyer. If you are, your lender will walk you through the entire process.
Tennessee first-time home buyer grants
There are several down payment assistance programs available to first-time home buyers in Tennessee. It’s worth noting that eligibility requirements and program availability can vary by location and may change over time.
It’s recommended to contact a local housing counseling agency or a lender to learn more about the programs that are available in your area.
Let us help find the right mortgage for you. Start here
THDA Great Choice Plus
THDA offers a down payment assistance program called Great Choice Plus. This second mortgage comes in two varieties: a deferred loan or an amortizing loan. These Great Choice Plus DPAs must be used with a Great Choice home loan.
Deferred DPA option: Offers loan amounts of up to $6,000 toward your down payment and/or closing costs. This loan requires no monthly payments and charges 0% interest. At the end of 30 years, your loan is forgiven in full. However, if you sell your home or refinance your mortgage before the 30 years are up, you’ll have to repay the whole amount
Amortizing DPA option: With this DPA loan, you can borrow up to 6% of the sales price. But you have to pay down the loan each month over 15 years. And you’ll pay the same interest rate that your first mortgage charges
The DPA you choose will likely depend on how much you need to borrow to cover your down payment and closing costs. It may also depend on how long you plan to remain in your next home.
Or you may choose neither. Before you decide, check out other down payment assistance programs that might cover your city or county. Pick the one that meets your needs best.
Other Tennessee first-time home buyer assistance programs
If you’re looking for a home in certain areas of Tennessee, consider other first-time homebuyer assistance programs in addition to one of the THDA programs.
For qualified buyers in Chattanooga, for example, the Chattanooga Neighborhood Enterprise provides up to $15,000 in down payment assistance. It is a second loan with an interest rate that is half a percentage point lower than your first mortgage.
Your real estate agent or Realtor can help you identify down payment and closing cost assistance programs in your area. We’ve also provided useful links to Tennessee home buying assistance below.
Buying a home in Tennessee’s major cities
Home prices in Tennessee’s biggest cities vary quite a bit. On average, market conditions in Memphis are slightly more friendly to first-time home buyers than those in Nashville and Knoxville.
Verify your home buying eligibility in Tennessee. Start here
Nashville first-time home buyers
The median list price of homes in Nashville was $589,000 in May 2024. That stayed flat year-over-year, according to Realtor.com.
If you want to buy a home at that median price, your down payment options might fall between:
$17,670 for 3% down payment
$117,800 for 20% down payment
The Metropolitan Development and Housing Agency in Nashville seems to help with down payments, but its website doesn’t say much about it. So contact the agency for more information.
Affordable Housing Resources (AHR) helps people in Nashville with their down payments by giving them up to $15,000. That’s part of the NeighborhoodLift nationwide program, and there are caps on the household income allowed. However, it says, “Income limits are higher for military service members, veterans, law enforcement officers, pre-K–12 teachers, firefighters, and emergency medical technicians.”
Unfortunately, it doesn’t specify whether the funds take the form of a second mortgage loan or grant. But you can call (615) 251-0025 to find out.
Memphis first-time home buyers
The median list price of homes in Memphis was $230,000 in May 2024. That jumped 21.1% year-over-year, according to Realtor.com.
If you want to buy a home at that median sales price, your down payment options might fall between:
$6,900 for 3% down payment
$46,000 for 20% down payment
The City of Memphis Division of Housing and Community Development (HCD) can provide down payment assistance of up to $10,000 to eligible borrowers. There are various conditions, including income limits and home price caps. There are no income caps for teachers or those working in the police or fire departments.
Unfortunately, the HCD doesn’t reveal whether the assistance takes the form of a grant or loan. So contact the department for clarification at [email protected] or call (901) 636-7474.
Let us help find the right mortgage for your first home in Memphis. Start here
Knoxville first-time home buyers
The median list price of homes in Knoxville was $439,900 in May 2024. That rose 3.5% year-over-year, according to Realtor.com.
If you want to buy a home at that median price, your down payment options might fall between:
$13,197 for 3% down payment
$87,980 for 20% down payment
The City of Knoxville does offer a down payment assistance program. However, at the time this was written, the City of Knoxville’s website said, “APPLICATIONS ARE CLOSED FOR THIS PROGRAM,” except for those wishing to purchase a home that’s developed by Home Source East Tennessee, Neighborhood Housing Inc., and East Tennessee Housing Development Corporation.
That may have changed by the time you read this, so it’s worth checking whether the program is up and running when you want to buy. If you wish to know more, call (865) 215-2865.
Where to find home buying help in Tennessee
All the organizations we’ve listed above should provide free advice to any first–time home buyer in the state of Tennessee or within their areas.
Verify your home buying eligibility in Tennessee. Start here
In addition to our selection, the U.S. Department of Housing and Urban Development (HUD) provides a few lists for statewide, regional, and local resources.
Statewide first-time home buyer resources in Tennessee
You can also find a list of resources by county and city on HUD’s website for Tennessee first-time home buyers, including:
What are today’s mortgage rates in Tennessee?
You can see today’s live mortgage rates in Tennessee here. Experiment with a mortgage affordability calculator to see how a down payment, interest rates, homeowners insurance, and property taxes will affect your monthly mortgage payment.
When you’re ready to start the home buying process, get personalized rate quotes from at least three mortgage lenders. Don’t just look at advertised rates online. Apply for preapproval and compare the interest rates and fees. That’s the only way to get the best deal possible on your new home loan.
Time to make a move? Let us find the right mortgage for you
1Source: Redfin Tennessee Housing Market report
2Source: Experian.com study of 2022 and 2021 data
3Based on a review of the state’s available DPA grants at the time this was written
For the past decade or so, it seems gold and brass have been the metals of the moment in the interior design world, closely aligned to the fashion cycle that’s placed them at the forefront. But the tides could be turning. With 2000s fashion having a full-circle moment, so are the cool steely tones of the early aughts and late ‘90s, paving the way for a prominent silver home decor trend.
“Silver and gold like to fight for the spotlight every year, and this year, silver has won,” says Bethany Struble, lead designer at Totum Home. She explains that this recent victory is a direct correlation to runway shows of recent seasons — think the silver brooch trends that dominated the Fall/Winter 2024 runways of Miu Miu, Chanel, and Tory Burch and the silver statement necklaces and earrings seen at Prabal Gurung and Carolina Herrera, respectively — that now has consumers embracing the shimmering silver tones.
Although silver may have once been associated with wealth and status, Struble says, this time around, it feels a bit more casual and approachable compared to gold (especially if you lean toward shiny finishes) and this modern take on the metal has more of a laidback edge to it.
“I think it connotes something futuristic,” says Alex Bass, an interior designer, art curator, and founder of Salon 21, a fine art and interior design studio, drawing comparison to the decor of the Space Race era of 1950s and 1960s, which had a silver-clad, futuristic look.
Embracing this trend is all about incorporating subtle accents that can elevate your space through their shimmering finish. From accent lighting to shelving, here’s how Bass and Struble say to embrace the classic metal.
How To Decorate With Silver Pieces
CB2
Small Touches
When trying new trends, it always helps to start small. Bass says one of the best ways to dip into silver aesthetics is to add small touches here and there, whether it be through barware, picture frames, planters, or even accent lighting. “I love adding a silver table lamp to a space — it creates a visual interest without being too much,” Bass notes.
Add Dimension Through Shelving
“Silver is also reflective, so it’s a fun way to add dimension to a space,” Bass explains. To up the ante on dimension while still keeping things subtle, she recommends adding silver etageres to your space or using similar-looking items like side tables or even serving trays as decor items.
Mirrors
Accent mirrors automatically have a silver touch to them, so they’re an easy way to add this cool metallic tone to your space. Bass says to take this a step further and choose mirrors with silver frames. “Having a silver border makes it more decorative,” she explains, noting that mirrors also help a space appear larger. You can also incorporate more metallic tones in your wall art through framing. (And, if you do go for a silver frame, be sure to include a silver picture light to elevate the finished piece.)
Cabinet Knobs & Drawer Pulls
Your cabinets and dresser drawers are another easy way to lean into a trend. To add more silver tones to your space, Struble recommends swapping out your cabinet knobs and drawer pulls for the cool-toned metallic.
Mixing Metals
Decorating with silver doesn’t mean you need to swap out all of your gold and brass accents. Instead, finding a balance between the various tones can be chic — just like it is with your jewelry.
“Mixing metals is easier than you might think,” says Struble. Since silver has a more neutral tone, it’s easy to pair with most other metal finishes, and you don’t have to think too hard to create a balance — not just in metallics but in your overall decor look. “Silver and gold together open up a lot of opportunity to style with warm and cool tones in the same space,” Struble explains.
When decorating with mixed metals, Bass recommends finding pieces that you love and that fit the same aesthetic to ensure they pair together seamlessly, even if they have different tones. And, if you want to embrace the current style without it feeling too trendy, she says to look for vintage brass and silver pieces at antique malls and thrift stores for a more timeless look that will never go out of style.
Federal Reserve Gov. Lisa Cook said in a speech last month that measuring housing costs in an economy where the majority of homes are owner-occupied presents a challenge, but said that the practice of including implied market rents in inflation metrics was “defensible.”
Bloomberg News
Housing costs appear to be the final hurdle between the Federal Reserve and its goal of bringing inflation back down to its 2% target, and the issues there are likely to get worse before they get better.
Because of how shelter costs are tracked by the nation’s leading price indexes, housing expenses are likely to drive up measured inflation over the coming year, according to a report from the Federal Reserve Bank of Boston, despite data showing that rent prices have largely stabilized.
The Boston Fed projects the core readings — those without volatile food and energy categories — of the consumer price index, or CPI, and the personal consumption expenditures, or PCE, will rise by 0.74% and 0.29%, respectively, during the next 12 months because of greater housing costs. Meanwhile, market rents, as tracked by the analytics firm CoreLogic, were up just 3% year-over-year in April, well below the COVID-19 era-high of more than 13% and on par with their pre-pandemic average.
Fed officials have acknowledged that the data lags related to housing costs have taken longer to play out than they had previously anticipated, noting it could be years before market trends and inflation readings sync up. But others say the issue could be a more fundamental one, related to how housing costs are measured in the U.S. — which differs in significant ways from other major world economies.
Both CPI and PCE measure the cost of housing — also referred to as shelter — through changes in rental prices. But, because more than 65% of homes in America are owner-occupied, these indexes attempt to incorporate owned homes through what is known as owners’ equivalent rent or imputed rent, which are estimates of what a homeowner would pay for their homes if they were renting.
For most homeowners, their housing costs — particularly their monthly mortgage payments — have not changed significantly in recent years. Most are locked in at or near historically low rates. Yet estimated rental growth from homeowners makes up a bigger share of housing price indexes than actual rents, and those owners’ equivalent rents have risen more quickly during the past two years.
Imputed rent accounted for roughly 76% of the overall housing category within the PCE index, which is tracked by the Bureau of Economic Analysis. Actual rents paid by tenants of non-farm housing makes up about 22%. From March 2022 through December 2023, owners’ equivalent rents rose roughly 15% while tenant rents rose 13.9%. Overall housing costs were up 14.7% during that period.
Other countries approach housing cost measurements differently. The European Central Bank does not include owner-occupied housing costs in its inflation tracker, the Harmonized Index of Consumer Prices. The CPI readings used by the Bank of England and the Bank of Canada both include ownership costs such as mortgage interest, insurance and renovations, rather than asking homeowners to estimate a rental value for their properties.
Louise Sheiner, an economic studies fellow at the Brookings Institution, said trying to measure housing costs in a uniform way is difficult, which is why different jurisdictions approach it differently.
CPI and PCE include owners’ equivalent rent to account for the consumptive costs homeowners face, Sheiner explained, though she noted that in the current environment, in which home values are continuing to rise, the measure does not accurately reflect the impact of inflation on those homeowners.
“It is conceptually fine how they do it, but it also might put a little bit less weight on inflation by homeowners who are perfectly indexed,” she said. “They own the home so both their income goes up and, at the same time, their implicit rent goes up too, so they’re not worse off at all.”
Fed Gov. Lisa Cook also highlighted difficulties in tracking housing costs during a speaking engagement with the Economic Club of New York in June, noting that incorporating costs in areas where homes are predominantly owned rather than rented was one of the “big measurement problems” related to inflation.
Yet, Cook noted that the National Academies of Science, Engineering and Medicine have endorsed factoring some version of owners’ equivalent rent into consumer pricing indexes.
“Including [owners’ equivalent rent] is a defensible thing to do,” she said.
Cook added that regardless of how other central banks measure housing costs, the Fed’s go-to reading has long included imputed rent, so it cannot change its measure now.
“Not every European central bank, in its calculation of inflation, includes housing in that measure, so there’s a lot of heterogeneity and ours is the PCE index that we pay attention to,” she said.
Still, regardless of how inflation is measured, some economists say there has been enough progress on other parts of the economy to warrant an interest rate cut. The latest CPI report shows inflation rose 3.3%, driven largely by shelter, which was up 5.4% over the previous year. Similarly, PCE, which gives housing less weight, was up 2.6% on the year, with housing accounting for an outsized portion of the growth.
While conventional wisdom suggests that an interest rate cut would spur demand for home purchases, thus driving up prices more, Nancy Vanden Houten, a senior economist at Oxford Economics, said lowering rates is essential to expanding the supply of both for sale and rental homes throughout the country.
“The more we see progress on these other components of inflation, the Fed might have the freedom to look at housing a little bit differently,” Vanden Houten said. “High rates further constrain supply in the housing market, which is one of the key things propping up prices. If you want more supply and some softening in home price growth, lower interest rates would help in that regard.”
Your 40s can be a pivotal decade in your life. It’s typically a time of peak earnings, growing family responsibilities, and an increased focus on long-term financial stability. You may have a house, kids, and a busy job. College expenses may be looming. Maybe you’re hatching a plan to start your own business or buy a beach house that’ll one day be your empty-nester home.
To navigate these years successfully, it’s essential to make strategic financial moves that can secure your future and make your plans and dreams a reality. Here are some critical financial planning tips to consider as you move through your 40s.
7 Financial Moves to Make During Your 40s
In your 40s, you’re old enough to know what you want and likely have enough earning years ahead to achieve your goals — if you manage your money right. The following strategies can help you build wealth in your 40s.
1. Maintain or Replenish Emergency Funds
Life is full of unexpected twists and turns. Not all of them are fun, such an expensive car or home repair, a medical emergency, or losing your job. An emergency fund offers financial stability during a stressful time. It also saves you from running up expensive debt that could derail your financial goals.
A general rule of thumb is to have six to 12 months’ worth of living expenses stashed away for the unexpected. If you already have an emergency fund but it has been partly or fully depleted, you’ll want to prioritize replenishing it to maintain financial security.
Consider setting up automatic transfers into savings to build your emergency fund consistently. Keep these funds in a liquid, easily accessible account, such as a high-yield savings account, to ensure you can access the money quickly when needed.
2. Manage Your Debt
Debt management is a crucial aspect of financial planning at any age, but it becomes even more critical in your 40s. Since high-interest debts, like credit card balances, can significantly hinder your ability to save and invest for the future, you’ll want to prioritize paying them off as quickly as possible.
One strategy that can help is the avalanche payoff method. Here, you list your debts in order of interest rate from highest to lowest, then put extra money toward the highest-interest debt, while continuing to pay the minimum on the others. Once that debt is paid off, you put your extra funds toward the debt with the next-highest rate, and so on.
Alternative approaches to paying down high-interest debt include getting a low- or no- interest balance transfer credit card or taking out a personal loan for debt consolidation with a lower rate than you are paying on your cards.
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3. Revisit Retirement Saving
In your 40s, you’re roughly at the midpoint between entering the workforce and traditional retirement age. How you invest and save for retirement at this point in your career can strongly impact your future assets and ability to one day retire comfortably.
If you’re not currently contributing to a retirement plan, such as a 401(k) or individual retirement account (IRA), now’s a good time to start. If you have been, it’s time to assess your progress. Consider how much of a nest egg you will need to retire and, using an online retirement calculator, whether your current plan will get you there.
If you’re behind on your savings, consider stepping up your contributions or, if you’re already contributing the max allowed, making “catch-up” contributions down the road. Starting at age 50, the IRS allows higher maximums designed to help people catch up on their retirement savings goals.
4. Plan for Childrens’ College Expenses
If you have kids, planning for their future education expenses may be top of mind. College costs continue to rise, and early planning can alleviate future financial stress. If you haven’t started saving for college expenses, you may want to explore opening a 529 college savings plan, which offers tax advantages and can be a flexible way to save for educational expenses.
An online college cost estimator can help you determine how much you need to stash away each month or year, based on the year your child will likely attend college and the type of school they might choose.
Just keep in mind that it’s important to balance college savings with other financial goals, like retirement. As kids get closer to leaving the nest, you may also want to encourage them to apply for scholarships and grants, and explore financial aid options.
5. Choose or Reevaluate Insurance Coverage
Insurance is an important component of financial planning in your 40s. You’ll want to evaluate your current insurance coverage and make sure it’s adequate to meet your family’s needs. This includes not only health and home insurance, but also life and disability insurance.
Life insurance provides financial security for your family should you die prematurely. If you don’t currently have a life insurance policy, consider purchasing one. If you do have one, you’ll want to make sure your policy’s coverage amount is sufficient to cover your family’s current living expenses, outstanding debts, and future financial needs, such as college tuition for your children.
It’s also a good idea to review your disability insurance, which protects your income if you’re unable to work due to illness or injury. Many companies provide a policy through work. However, you may want to consider supplementing employer-provided coverage or, if you’re self-employed, getting your own policy. This offers a different, but equally important, safety net for you and your family.
Recommended: Which Insurance Types Do You Really Need? Here Are 6 to Consider
6. Invest Outside of Retirement
While retirement accounts are crucial, investing outside of retirement can diversify your portfolio and help you achieve goals that may be five or 10 or more years away, such as a downpayment on a vacation home or a child’s wedding.
Though investing carries risk and can be volatile in the short term (which is why you generally don’t want to invest funds you’ll need in the next few years), an investment account has the potential to grow more than other types of accounts over the long term. Consider taxable investment accounts that align with your risk tolerance and financial objectives.
7. Meet with a Financial Professional
Getting expert advice on managing your finances can be invaluable at this stage of life. Whether you opt for regular meetings or simply go for a one-time consultation, a financial professional can provide valuable insights and help you navigate complex financial decisions.
An advisor will typically look at your whole financial picture and assist you with creating a comprehensive financial plan. This may include optimizing your investment strategy and ensuring you’re on track to meet your goals, including retirement, investments, and college savings.
The Takeaway
It’s never too late to take control of your finances. In your 40s, you are likely entering your prime earning years, so it’s a good time to focus on paying down debt, preparing for the next chapter of your children’s lives, and saving and investing for your future retirement. With some wise money moves, you’ll be set to make the most of this decade and beyond.
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FAQ
What financial goals should a 40-year-old have?
Ideally, a 40-year-old will want to focus on several financial goals. These include:
• Establish or maintain an emergency fund with three to six months’ worth of essential living expenses.
• Reduce financial burdens by paying off high-interest debt.
• Ensure you’re on track with retirement savings by maximizing contributions to retirement accounts.
• Start or continue saving for children’s college expenses through plans like 529s.
• Consider investing outside of retirement to diversify your portfolio and build wealth.
How much should a 40-year-old have saved?
By age 40, financial advisors often recommend having three times your annual salary saved for retirement. This benchmark ensures you’re on track to meet long-term financial goals and maintain your desired lifestyle in retirement.
In addition, you’ll want to maintain an emergency fund with three to six months’ worth of living expenses.
Savings outside of emergency and retirement, such as investments in taxable accounts, can further enhance financial security. The exact amount can vary based on individual circumstances, income, lifestyle, and future goals.
How can I build my wealth in my 40s?
To build wealth in your 40s, you’ll want to focus on several strategies:
• Maximize retirement account contributions, taking full advantage of employer matches.
• Pay off high-interest debts to free up resources for savings and investments.
• Establish or maintain an emergency fund to cover unexpected expenses without derailing financial goals.
• Consider additional income streams, such as side businesses or rental properties.
• Diversify investments across stocks, bonds, real estate, and other assets to balance risk and growth potential.
Photo credit: iStock/shapecharge
SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.
As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.
SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.
SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.
Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.
Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.
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Mortgage rates increased overall this week, with 30-year mortgage rates ticking up closer to 7%, according to Freddie Mac. But the latest economic data continues to suggest that rates should ease throughout the remainder of 2024.
“Both new home and pending home sales are down, causing active listings to rise,” Sam Khater, Freddie Mac’s chief economist, said in a press release. “We are still expecting rates to moderately decrease in the second half of the year and given additional inventory, price growth should temper, boding well for interested homebuyers.”
As the economy cools, the Federal Reserve is expected to start lowering the federal funds rate, removing some of the upward pressure off of mortgage rates and allowing them to trend down.
On Wednesday, softer-than-expected private payroll data from ADP suggested that the labor market is continuing to cool off. Recent inflation data has shown signs of slowing as well.
Right now, investors think it’s likely that the Fed will start cutting rates in September, and that we could get two rate cuts by the end of the year, according to the CME FedWatch Tool.
This means mortgage rates should go down in the coming months and years. If you’re thinking about postponing your home search until rates are lower, you might have better luck in 2025.
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Mortgage Calculator
Use our free mortgage calculator to see how today’s interest rates will affect your monthly payments:
Mortgage Calculator
$1,161 Your estimated monthly payment
Total paid$418,177
Principal paid$275,520
Interest paid$42,657
Paying a 25% higher down payment would save you $8,916.08 on interest charges
Lowering the interest rate by 1% would save you $51,562.03
Paying an additional $500 each month would reduce the loan length by 146 months
By clicking on “More details,” you’ll also see how much you’ll pay over the entire length of your mortgage, including how much goes toward the principal vs. interest.
Mortgage Rate Projection for 2024
Mortgage rates started ticking up from historic lows in the second half of 2021 and increased dramatically in 2022 and throughout most of 2023.
Many forecasts expect rates to fall this year now that inflation has been coming down. In the last 12 months, the Consumer Price Index rose by 3.3%. This is a significant slowdown compared when it peaked at 9.1% in 2022, but we’ll likely need to see more slowing before rates can drop substantially.
For homeowners looking to leverage their home’s value to cover a big purchase — such as a home renovation — a home equity line of credit (HELOC) may be a good option while we wait for mortgage rates to ease. Check out some of our best HELOC lenders to start your search for the right loan for you.
A HELOC is a line of credit that lets you borrow against the equity in your home. It works similarly to a credit card in that you borrow what you need rather than getting the full amount you’re borrowing in a lump sum. It also lets you tap into the money you have in your home without replacing your entire mortgage, like you’d do with a cash-out refinance.
Current HELOC rates are relatively low compared to other loan options, including credit cards and personal loans.
When Will House Prices Come Down?
We aren’t likely to see home prices drop this year. In fact, they’ll probably rise.
Fannie Mae researchers expect prices to increase 4.8% in 2024 and 1.5% in 2025, while the Mortgage Bankers Association expects a 4.5% increase in 2024 and a 3.3% increase in 2024.
Sky high mortgage rates have pushed many hopeful buyers out of the market, slowing homebuying demand and putting downward pressure on home prices. But rates have since eased, removing some of that pressure. The current supply of homes is also historically low, which will likely push prices up.
What Happens to House Prices in a Recession?
House prices usually drop during a recession, but not always. When it does happen, it’s generally because fewer people can afford to purchase homes, and the low demand forces sellers to lower their prices.
How Much Mortgage Can I Afford?
A mortgage calculator like the one above can help you determine how much house you can afford. Play around with different home prices and down payment amounts to see how much your monthly payment could be, and think about how that fits in with your overall budget.
Typically, experts recommend spending no more than 28% of your gross monthly income on housing expenses. This means your entire monthly mortgage payment, including taxes and insurance, shouldn’t exceed 28% of your pre-tax monthly income.
The lower your rate, the more you’ll be able to borrow, so shop around and get preapproved with multiple mortgage lenders to see who can offer you the best rate. But remember not to borrow more than what your budget can comfortably handle.
A federal court on Sunday lifted an injunction that blocked lower student loan bills for borrowers enrolled in the Saving on a Valuable Education (SAVE) repayment plan. Meanwhile, an injunction in a separate lawsuit still blocks SAVE loan forgiveness. The lawsuits impact up to 8 million borrowers enrolled in SAVE, accounting for roughly 1 in 5 Americans with outstanding federal student loans.
Lower student loan payments for SAVE borrowers with undergraduate loans can proceed starting in July.
Accelerated 10-year loan forgiveness for SAVE borrowers with $12,000 or less in principal loan debt is still on hold.
All other components of the SAVE plan remain in place, including protection against interest accrual.
Some borrowers entitled to lower payments will have no student loan bill in July, as student loan servicers recalculate lower monthly payments.
“As the Department of Justice continues to vigorously defend the SAVE Plan, President Biden, Vice President Harris, and I remain committed to our work to fix a broken student loan system and make college more affordable for more Americans,” said Secretary of Education Miguel Cardona in a statement on Monday.
Neither of these rulings are final decisions, so the situation could change.
“There’s still a lot of chaos, and borrowers have experienced a lot of whiplash over the last week,” says Persis Yu, the Student Borrower Protection Center’s deputy executive director and managing counsel.
The Education Department and servicers will share updates directly with borrowers. Log in to your servicer’s online portal to view the latest information about your monthly payment amount. For updates about the ongoing SAVE lawsuits, go to StudentAid.gov and subscribe to the Education Department’s email list.
What’s still happening: Lower SAVE payments, other benefits
As a result of the latest ruling, the Education Department has directed servicers to move forward with the July 1 SAVE plan changes.
Most significantly, borrowers with undergraduate loans will see their monthly SAVE payments cut by as much as half, from 10% to 5% of their discretionary income. So if you have a $400 SAVE bill, that could shrink to $200. Borrowers who enroll in SAVE for the first time can also get the new lower payment.
Other SAVE benefits can also proceed:
Borrowers enrolled in SAVE will receive automatic forgiveness credit for forbearances and deferments.
Borrowers enrolled in SAVE will be allowed to make additional “buyback” payments to get credit for most other periods of deferment or forbearance that don’t qualify for automatic credit.
Borrowers deemed at risk of default will be enrolled automatically in SAVE.
Payments made before consolidation will count toward forgiveness.
The latest ruling isn’t a final decision. There’s not yet a briefing schedule for this case, Yu says, so it’s not clear when future rulings could happen.
What’s on hold: Accelerated SAVE forgiveness
On June 24, a Missouri judge issued an injunction blocking the Education Department from forgiving small principal student loan balances ($12,000 or less) in 10 years under the SAVE plan. This is the most generous income-driven repayment (IDR) forgiveness timeline — other IDR plans forgive debt after 20 or 25 years of payments, regardless of the amount borrowed.
This injunction still stands as of July 2, though it’s not a final decision. Updates could come in August, when legal briefs in the case are due, Yu says.
The Education Department began rolling out the accelerated 10-year SAVE forgiveness in February. As of mid-May, the department had approved about $5.5 billion worth of student debt forgiveness for 414,000 SAVE borrowers with lower principal balances. SAVE forgiveness that borrowers have already received isn’t at risk, Yu says.
The injunction doesn’t impact the 20- or 25-year forgiveness timeline for SAVE borrowers who took out over $12,000.
What the lawsuits mean for borrowers
Reach out to your servicer if you have questions about your situation. While the lawsuits continue through federal courts, here’s how you could be impacted.
If you already have $0 payments
If you have a low enough income (about $32,800 as an individual or $67,500 as a family of four) to qualify for $0 SAVE payments, nothing has changed. You continue with $0 payments and keep earning credit toward IDR forgiveness and Public Service Loan Forgiveness (PSLF).
If you have a bill for July
If your servicer sent you a bill for July, make the payment as scheduled. This bill may reflect a new lower payment amount if you have undergraduate loans.
If your servicer emailed you in early or mid-June about a July forbearance
Before the rulings, servicers emailed some SAVE borrowers in June about a temporary administrative forbearance related to payment recalculations. The email’s subject line was, “Your Student Loans Have Been Placed into A Forbearance,” according to a copy of the email reviewed by NerdWallet.
If you got this email, you won’t owe a July payment. No interest will accumulate during July, and you’ll get credit toward forgiveness under IDR or PSLF. Your bills will resume in August, with a smaller amount if you have undergraduate loans.
If you were notified last week about a forbearance related to the lawsuits
Servicers put a small group of borrowers into forbearance last week as a result of the court rulings, the Education Department said. These borrowers don’t owe a July payment. Bills will resume in August.
If you want to sign up for SAVE
Borrowers can still sign up for SAVE and any other IDR plan.
However, the Education Department pulled down its online applications for IDR plans and loan consolidation on Friday, and began directing borrowers to submit PDF applications to their servicers.
The department changed course on Monday after the latest ruling allowing lower payments to proceed and said it would reinstate online applications by Monday afternoon. However, the applications on studentaid.gov/IDR and studentaid.gov/loan-consolidation/ remain inaccessible as of Tuesday evening.
Borrowers who want to consolidate and/or apply for an IDR plan immediately should continue mailing in PDF applications. Otherwise, consider waiting a day or two until the online application is restored.
High mortgage rates mean affordability is still “stretched” for many home buyers, according to the Nationwide.
The building society said that while earnings had been rising faster than house prices in recent years, this had not been enough to offset the impact of more expensive mortgages.
Its comments came as it said house price growth had been “broadly stable” in June, with prices up 0.2% from the previous month.
The average house price is now £266,064, the lender said.
Prices were up 1.5% from a year earlier, but Nationwide said activity in the housing market had been “broadly flat” over the past 12 months, with transactions down by about 15% compared with 2019.
The lender said the market was still being affected by the increase in mortgage rates, which started climbing after the Bank of England began to raise its key interest rate in late 2021.
Robert Gardner, Nationwide’s chief economist, said that mortgage rates are “still well above the record lows prevailing in 2021 in the wake of the pandemic”.
“For example, the interest rate on a five-year fixed rate mortgage for a borrower with a 25% deposit was 1.3% in late 2021, but in recent months this has been nearer to 4.7%.
“As a result, housing affordability is still stretched.”
Nationwide’s figures are based on the building society’s own mortgage lending, which does not include buyers who purchase homes with cash, or buy-to-let deals. Cash buyers account for about a third of housing sales.
The impact of higher borrowing costs can be seen in the fact that transactions involving a mortgage are down by nearly 25% over the past year, Nationwide said.
Meanwhile the number of cash transactions for properties is about 5% higher than pre-pandemic levels.
Across the UK, Northern Ireland saw the biggest price increases, up 4.1% from a year earlier.
Wales and Scotland both saw a 1.4% annual rise. Prices in England climbed by 0.6%, with northern regions seeing bigger increases in general than the south.
Despite some major lenders cutting their mortgage rates last week, home loan costs remain far higher than pre-pandemic levels.
According to financial information service Moneyfacts, the average rate on a two-year fixed mortgage deal stands at 5.95%, while for a five-year deal the average is 5.53%.
The focus is now on the Bank of England’s Monetary Policy Committee (MPC), which sets interest rates, to see if it decides to cut at its next meeting on 1 August.
June’s MPC meeting saw a change in tone from policymakers, with suggestions that the Bank could vote for a rate cut next month.
“Buyers may find their mojo again when we get a rate cut from the Bank of England,” said Sarah Coles, head of personal finance at Hargreaves Lansdown.
“This could come as early as August, although sticky services inflation and higher wages could mean we need to wait until the autumn.
“Either way, we’re not expecting massive overnight drops in mortgage rates, so the reaction is more likely to be a muted upturn in sentiment than an overwhelming wave of optimism.”
Last week, the Bank said that about three million households are set to see their mortgage payments rise in the next two years.
These are homeowners who arranged mortgage deals before the Bank started to lift rates in 2021.
These deals are now expiring, and the Bank said the majority will finish before the end of 2026.
For the typical household looking for a new deal, monthly mortgage repayments are forecast to increase by about £180, or about 28%, the Bank said.
However, for around 400,000 households, monthly payments could jump by 50% or more.
Bank of England figures released on Monday showed a small fall in the number of mortgages approved in May, down to 60,000 from 60,800 in April.
However, the data also showed the amount borrowed through mortgages dropped sharply to £1.2bn in May, from £2.2bn the month before, although this does not include those remortgaging with the same lender.
Ways to make your mortgage more affordable
Make overpayments. If you still have some time on a low fixed-rate deal, you might be able to pay more now to save later.
Move to an interest-only mortgage. It can keep your monthly payments affordable although you won’t be paying off the debt accrued when purchasing your house.
Extend the life of your mortgage. The typical mortgage term is 25 years, but 30 and even 40-year terms are now available.
Inside: The answer is so obvious! Stop the assumptions with the 3 percent or 4 percent rule of retirement. Learn how much money to save for retirement today.
We all know that saving money for retirement is something we should do.
Maybe you are contributing the minimum to your 401K through work to get the match. Possibly saving money in a Roth IRA.
But, are you truly saving enough for retirement?
More than likely not.
Don’t feel like you are alone. According to a new study, only half of households actually have money saved in retirement accounts. The good news for those who have saved is the dollar amount saved for retirement has been increasing in the past 10 years.
Here is the real reason you don’t save for retirement… you have absolutely no clue how much money you need to be saved to retire.
You have tried to use all of the online retirement calculators from all of the big companies. Your results are millions of dollars different. You have no clue where to start, or what to believe.
And then you just get unmotivated because you’re like there’s absolutely no way I can make that dollar amount work.
So, What is Our Retirement Number
Personally, I completely get it this is a conversation. My husband and I have had it for years.
What is our retirement number?
What amount do we need to retire with?
And honestly, even can I actually save that much before I am too old to work?
It is all a complete unknown, it is a best-guess scenario.
There is absolutely no way for you to truly understand how much you need because there are so many things that go into it, including inflation, your savings rate, your withdrawal rate, and your anticipated expenses. So there’s a lot of variables and that’s when the variables get too confusing you don’t know which way to start.
One Guaranteed Truth…
The financial advisors believe they are the know-all-be-all with their calculations while charging you an asset management fee that is putting a drag on your overall portfolio.
And then October 27, 2020, Bill Bengen announced that instead of using the 4% rule is outdated, and now you can use a 5% rule. (Bill Bengan is a financial advisor who made the 4% rule of thumb famous 25 years ago.) So, this latest information just throws a curveball into everything that has previously been used for the past 25 years, and now you’re left wondering…
Well, I have no idea what is the proper amount I need to save for retirement.
Do you know what the amount that you need to save for retirement is?
So, let’s dig in for a little bit and we’re gonna talk about the three different percentages that are talked about the most. It’s the 3% rule, the 4% rule, and the 5% rule is one better than another. We’ll debate that and shortly.
How does Withdrawal Rate work?
But first of all, you have to realize that not everything works the way you want, so let’s show some examples before we dig into the specifics of the different rules.
Basically, the whole concept is if you save $1 million and you start withdrawing either 3%, 4%, or 5%. That withdrawal amount is the amount of income that you would live on each and every year, while the rest of your portfolio is continuing to grow and increase in value.
The ultimate, perfect-scenario goal is that you would withdraw as much as you possibly could without depleting the portfolio.
Withdrawal Rate Example:
Here are the assumptions:
Plan to spend $50,000 a year
7% rate of return on your money
Age doesn’t matter and not accounting for taxes or inflation (we want to keep this simple)
The amount you would need to save based on each of the withdrawal rates:
3 percent rule, you would need: $1,666,667
4 percent rule, you would need: $1,250,000
5 percent rule, you would need: $1,000,000
This post may contain affiliate links, which helps us to continue providing relevant content and we receive a small commission at no cost to you. As an Amazon Associate, I earn from qualifying purchases. Please read the full disclosure here.
The Withdrawal Rate Confusion
In our example, we used simple calculations that don’t account for age, taxes, or inflation and the amount you need to save for retirement is $666,667 different.
The numbers are too much for the average person to understand and have faith in.
This is why the confusion on how much to save for retirement and what model and which retirement calculator is the best.
Shortly, we are going to give you the simple answer of how much to save for retirement. But, first, a little background on the various percent rules for retirement.
3 Percent Rule
The 3% rule has gotten very popular with the FIRE movement.
The FIRE movement is Financial Independence Retire Early.
Because most of these people aren’t looking at retiring in the normal typical retirement age of 60s, they’re looking to retire in their 30s or 40s. They feel like they need to be super conservative because they are trying to estimate how much they need each month to live off their money for possibly the next 50 years.
That’s a lot of variables that you have to take into account.
The good news is you can always learn and figure out ways to make money in retirement so it’s not a complete waste, you can always go back to work because you are younger, and have youth on your side. So, is 3% a safe withdrawal rate?
The golden advice is you want to plan for the worst but hope for the best. The goal is that 3% would cover all of your necessities and basic expenses.
4 Percent Rule
Is the 4 percent rule viable?
The 4 percent rule of retirement was made famous by Bill Bengen 25 years ago (and just recently he said that number is outdated.)
The assumptions were if you withdraw 4% of your investment account every year, you will still have enough to live on throughout retirement.
This was based on what has happened in the markets, accounted for inflation, and the age you want to retire. He conducted many possible case scenarios and concluded that by only withdrawing 4 percent will make sure your money lasts. That is why it has been what is called a golden rule for retirement.
How long will my money last using the 4% rule? If you do all the calculations, it should last for at least 30 years. Obviously, you are looking at many variables of the stock market doing well and your living expenses staying low. Once again, the other big factor is what inflation will do in the future.
So, is the 4% rule that much better?
5 Percent Rule
And then, October 2020 rolls in. The breaking news is that Bill Bengen announced the 4 percent rule for retirement is too conservative and now you can actually use 5%.
So, that leaves the average person going… Okay. My head is spinning. I’m not sure how much I need to save for retirement. What is a good number?
Can I safely withdraw 5% of my investment accounts and still have enough money? That means I need less money to retire.
This is where people quit investing and saving for retirement becomes too hard.
Real truth from real people
Can you Overcome Why Most People don’t save for Retirement?
There are too many variables, there are too many unknowns, and they don’t understand how it all works.
That is the real reason people don’t save for retirement.
I get it. I’m there with you. I feel it. I hear it from readers. But, we are going to break down some of the key items so that way you know how much you need for retirement.
And just remember, even if you messed up your numbers, the market went down, or you want to spend more in retirement than you are, then you could always go back to work. Even better, learn how to make money online for beginners, pick up a side hustle, make a little bit of extra money, and actually do something that you truly enjoy doing.
Learn how much money should I have saved by 30.
How Much do I need to Retire?
The simple answer… aim for $1,000,000 in investment accounts.
You may be able to aim lower depending on some variables which we cover shortly.
Investment accounts can include any of the following:
401K
Roth IRA
IRA
HSA (health saving account)
Brokerage Accounts
High-interest bank accounts
Real estate
You want accounts with liquidity. Things that can be bought and sold for cash. Those are the assets we are counting on how much to retire with.
Don’t use equity in your house because you need a place to live. If you want to use equity, that is fine, but your calculations just become slightly more difficult. We want simplicity.
Right now, your money goal is to reach $1,000,000 in investment accounts. Specifically in liquid net worth.
(Of course, this number may be lower if you live in a low cost of living area, plan to move with overall lower costs or another country, or have good options with lower health care costs. There have been plenty of people who retired with less and love life.)
Based on these variables, you may just need $500,000 to retire. Or somewhere in that range.
Realistic Retirement Savings for Motivation
We shared what a realistic retirement savings amount of $1 million dollars is. Is your first reaction – yikes, there is absolutely no way I can reach that amount.
However, you can!
Just break it down into smaller chunks.
For instance, make your next goal to save $100,000. You do that 10 times and you hit that realistic retirement savings amount.
If that seems like a stretch, then break it down even further. To stay motivated you can strive to save $50K or even $20K.
Break it into bite-sized manageable pieces to help you save for retirement and stay on track.
Learn what happens if you don’t save for retirement.
Best Ways to Save for Retirement
This is the basics to start saving for retirement.
You already know much should you really save for retirement. Now, you just to need to do it.
Here is the safest way to save for retirement. First, open up one or all of these accounts (pending where you are on your money journey). Then, look at investing in S&P 500 Index funds. The most highly recommended index fund for beginners is VTSAX.
1. Contribute to 401K
This is the simplest way to start saving.
Make sure you are contributing at least the minimum to your employer’s 401K.
Every year you can contribute up to a maximum amount. In 2023, an employee can contribute $22,500 to their 401k (the employer is eligible to contribute as well for a combined amount not to exceed $66,000 or 100% of your compensation, whichever is less). For the latest contribution limits, check out the IRS site.
Each year, increase your percentage by 1%. A simple way to reach maxing out your 401K.
Pro Tip: Check if your employer offers a ROTH IRA option. These are becoming more and more popular with companies. A Roth 401K will let your money grow tax-free because you pay taxes when you contribute money. If they don’t offer one, pester the human resources department.
2. Open Roth IRA
The next best option is the ROTH IRA. You want to contribute to a Roth IRA because you pay taxes upfront rather than at withdrawal like a traditional IRA.
Since ROTH IRAs have tax advantages, there are also contribution limits set by the IRS. The contribution amounts have remained the same for a couple of years now. The annual contribution limit is $6,000 per year, or $7,000 if you’re age 50 or older.
The downside to Roth IRAs… the amount you can contribute may be limited based on your income and filing status. However, for the average American, you should be able to max out the amount you can save each year.
Learn if can you have multiple Roth IRAs as it may be a smart financial move.
Pro Tip: Even if one spouse is a stay-at-home parent, you can still contribute to a Roth IRA for the non-working spouse.
3. Health Savings Account
Say what? Yes, a health savings account is on the list as a way to save for retirement. It is a great way to grow your money tax-free going in and on withdrawals.
You must have a High Deductible Health Insurance Plan to open a health savings account.
This is something you want to do and contribute the maximum amount each year. For 2023, you can contribute $3,850 for individuals and $7,750 for family coverage. Typically, the limits go up $50 each year, which helps you save more every year.
Pro Tip: This account will stay with you even when you leave your current employer and insurance. Plus you can use the HSA funds forever – even to pay Medicaid premiums. (Hopefully, nothing changes on these tax-advantaged accounts).
4. Traditional Brokerage Account
The last avenue has no tax benefits, but you are still saving money to be used later. That is what really matters.
Since there are no tax advantages to these basic brokerage amounts, there also are no limits on how much you can contribute.
This is where you would save the remaining money after you exhausted all the other methods listed above.
Side Note…
Yes, there are other ways to save for retirement. For this post and the average investor, the above-mentioned accounts are a great place to start. Once you become savvier and want to invest more money, then you can look at back door IRAs, 529s, or whole life insurance.
Saved $1 million for retirement, Now What?
Once you reach that 1 million dollars retirement mark, congratulations!!
That is a huge milestone that many people never reach. So, what is the next step?
Now, that you are closer to finally being able to live off your investments, you must start to look at the retirement calculators more seriously and factor in all of those variables (age, taxes, and inflation). It is much easier to predict the future once you have built a solid nest age and are closer to living off your investments.
Everyone started the financial independence journey at a different age and will reach their million-dollar mark at different times.
For the average person, you know learned how to save for retirement. You know what you need to do and where to start.
In this post, we took out all of the confusion on how much to save for retirement. Don’t worry about is the 4 percent rule is viable – or if it should be the 3 percent rule or the new 5% rule. The assumptions and variables will hold you back from starting. You know the dollar amount to start with, move on with that.
This simple advice for hitting your first milestone is the motivation to keep you going. Along the way, you will become savvier with finances and investing.
When it is time to move to the question of “can I retire” at such and such age, you have already taken out many of the variables, and the decision becomes more and more clear.
Take steps to reach that $1000000 mark today.
Get ahead now…
Know someone else that needs this, too? Then, please share!!
Did the post resonate with you?
More importantly, did I answer the questions you have about this topic? Let me know in the comments if I can help in some other way!
Your comments are not just welcomed; they’re an integral part of our community. Let’s continue the conversation and explore how these ideas align with your journey towards Money Bliss.