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Yahoo
3 days ago
- Business
- Yahoo
A 4-step guide to investing success for recent college grads
Start investing early to leverage compounding for long-term financial success. Financial planners recommend budgeting, building a buffer, and opening investment accounts. Consider a diversified portfolio with stocks and bonds, adjusting for risk tolerance. So you've just graduated from college. Congratulations! It's an exciting time in your life as you get ready to enter the workforce. One of the great things about being at the start of your career journey is that you have ample time to figure out the path you want to take in life and where your passions lie. Time is also your greatest asset when it comes to setting yourself up for a life of investing success. Thanks to the power of compounding, which Albert Einstein famously called the eighth wonder of the world, the earlier you start investing, the better. According to insurance firm Mass Mutual, a 22-year-old who invests $500 a month will have $2,255,844 by age 65, assuming the stock market delivers an average annual return of 8%. That number falls to $972,542 if one starts investing at 32. But investing isn't always easy, especially early on in your career when your earnings are lower. The process may also feel daunting and complicated if you haven't done it before. To put those fears to rest, we've come up with a step-by-step guide on how to best get your financial house in order so you'll thank yourself down the road. There's no one-size-fits-all approach for budgeting, so it's important to come up with a plan that works for you, said Melissa Cox, the Dallas-based owner of Future-Focused Wealth. Trying to keep up with someone who may have a different budget than you do is one of the most common mistakes she sees young people make. "So many people come out of school and they just go crazy spending money," Cox said. "Social media and everyone sees what everyone else is doing — don't fall into that." A good rule of thumb is to set aside 20% of your pre-tax income, according to Bryan Kuderna, the founder of New Jersey-based Kuderna Financial Team. So, if your salary is $100,000, you should be trying to save $20,000 a year. But again, the practical savings rate will vary from person to person. Many recent grads have student loans to tackle, so it's good to understand what your repayment options are, Cox said. Maybe forgiveness is possible, or lower monthly payments based on your income. Perhaps refinancing your loans will allow for more manageable payments. Finally, it's important to keep yourself a priority, Cox said. For example, perhaps you really value traveling or shopping — it's good to set some money aside for those things as well. When you start working, it's smart to set up a retirement account like a 401(k) or Roth IRA and start contributing right away. But we'll get to that in the next section. When it comes to your money outside those accounts, the first thing you want to do — assuming you don't have credit-card debt — is build up a buffer of six months of living expenses, Kuderna said. This is because people in their 20s often have big life events that they need the money for, he said. Having it in risky assets like stocks makes it vulnerable to downside in the near term. "I always say liquidity is huge for a young professional," Kuderna said. "I might move out, I might have to get a new car, I might be getting engaged, married, a kid — all these things that can happen in your 20s." While you might not want your money invested in stocks right away, you also don't want to have it just sitting in a checking account. Instead, plug it into a high-yield savings account or a money market fund to collect a better yield while short-term interest rates are still high. OK, now for the investment accounts. First, make sure you have a Roth IRA or 401(k) set up with your employer and are collecting their monthly minimum match. As of 2025, you can contribute up to $23,500 to a 401(k) and $7,000 to a Roth IRA. 401(k) contributions are made with pre-tax money; the money is then taxed upon withdrawal. Roth IRA contributions are made with post-tax income, and eventual withdrawals are not taxed. Setting these accounts up is important because the money comes straight out of your paychecks — it's like it never existed, and there's less of a temptation to spend it since withdrawals before you're 59-and-a-half years old are penalized at 10%. Plus, you can take advantage of the tax benefits. "I'm huge on Roth options, especially for young people," Kuderna said. "If we can get tax-free growth for another four or five decades, that's worth its weight in gold." Once those are set up, open up a brokerage account to invest your excess savings. Considering your cash savings, Kuderna said this is taking a three-pronged approach: having cash for the short-term, a brokerage account with stock investments for the medium-term (maybe a down payment for a house in five, 10, or 20 years), and retirement accounts for the long-term. Having a brokerage account for medium-term investments will allow you to capture potential market upside while not being subject to the 10% penalty of withdrawing money from a 401(k) or Roth IRA early. "You don't want to neglect the mid-term," he said. "When you're 40 or you're 50 and you need money, you don't want to hit your retirement accounts, and you don't want to have it all just sitting in cash." Now that you have your accounts set up, it's time to decide where to invest. The classic portfolio structure is 60% stocks and 40% bonds. Stocks, while riskier, offer greater upside potential. Meanwhile, bonds are supposed to act as a buffer to stock market volatility by protecting your capital, producing a steady yield, and appreciating during times of economic distress. But since you're in your 20s, you might consider allocating even more of your money to stocks since you can likely withstand more volatility, according to Chris Chen, the founder of Insight Financial Strategists. He said an 80/20 portfolio may be more appropriate. How you allocate money in your medium-term and long-term investment accounts may look different, however. For your 401(k) or Roth IRA, one simple way to invest for the long term is by buying a target-date fund. For example, you might choose the Vanguard Target Retirement 2065 Fund (VLXVX) or the State Street Target Retirement 2070 Fund (SSGQX). These funds automatically adjust your allocations to stocks and bonds as you age. As you start to approach retirement, the percentage of your money in bonds starts to increase to preserve your capital. Right now, the Vanguard 2065 fund has 53.1% of its assets in the Vanguard Total Stock Market Index Fund, which is made up of US stocks; 37.5% of the fund is in the Vanguard Total International Stock Index Fund; 6.5% is in US bonds; and 2.9% is in international bonds. Expense ratios, or the fees that certain funds charge, are also something to keep in mind. The Vanguard Target Retirement funds, for example, have a fairly cheap expense ratio of 0.08% a year. The cheapest S&P 500 index fund is the Fidelity 500 Index Fund (FXAIX) at 0.015%. For your medium-term investments, you should assess your risk-tolerance and timeline. Stock valuations are high at the moment, which suggests average 10-year returns may not be great. So if you need the money in five-to-10 years, being fully in stocks might be the wrong approach. But if you feel you can have a longer timeline than that, Kuderna said investing in bluechip stock indexes like the S&P 500 is a good approach. If you want to be especially aggressive, you might consider investing heavily in tech stocks, he said. The sector is often riskier than other areas of the market, but has seen explosive growth over the last 15 years. Some funds that offer exposure to tech stocks include the Technology Select Sector SPDR Fund (XLK), the iShares US Technology ETF (IYW), and the Invesco NASDAQ 100 ETF (QQQM). "If you look at the greatest returns over a long period of time, it's in equities, it's people who have a higher risk appetite," Kuderna said. "If you've done those beginning steps of building a rainy day fund, setting money aside, not carrying any bad debt — if you're good there and we can afford ourselves a long-term time horizon, then we should try to almost encourage ourselves to be a little more aggressive." 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Business Insider
3 days ago
- Business
- Business Insider
A 4-step guide to investing success for recent college grads
So you've just graduated from college. Congratulations! It's an exciting time in your life as you get ready to enter the workforce. One of the great things about being at the start of your career journey is that you have ample time to figure out the path you want to take in life and where your passions lie. Time is also your greatest asset when it comes to setting yourself up for a life of investing success. Thanks to the power of compounding, which Albert Einstein famously called the eighth wonder of the world, the earlier you start investing, the better. According to insurance firm Mass Mutual, a 22-year-old who invests $500 a month will have $2,255,844 by age 65, assuming the stock market delivers an average annual return of 8%. That number falls to $972,542 if one starts investing at 32. But investing isn't always easy, especially early on in your career when your earnings are lower. The process may also feel daunting and complicated if you haven't done it before. To put those fears to rest, we've come up with a step-by-step guide on how to best get your financial house in order so you'll thank yourself down the road. Come up with a budget There's no one-size-fits-all approach for budgeting, so it's important to come up with a plan that works for you, said Melissa Cox, the Dallas-based owner of Future-Focused Wealth. Trying to keep up with someone who may have a different budget than you do is one of the most common mistakes she sees young people make. "So many people come out of school and they just go crazy spending money," Cox said. "Social media and everyone sees what everyone else is doing — don't fall into that." A good rule of thumb is to set aside 20% of your pre-tax income, according to Bryan Kuderna, the founder of New Jersey-based Kuderna Financial Team. So, if your salary is $100,000, you should be trying to save $20,000 a year. But again, the practical savings rate will vary from person to person. Many recent grads have student loans to tackle, so it's good to understand what your repayment options are, Cox said. Maybe forgiveness is possible, or lower monthly payments based on your income. Perhaps refinancing your loans will allow for more manageable payments. Finally, it's important to keep yourself a priority, Cox said. For example, perhaps you really value traveling or shopping — it's good to set some money aside for those things as well. Build a buffer When you start working, it's smart to set up a retirement account like a 401(k) or Roth IRA and start contributing right away. But we'll get to that in the next section. When it comes to your money outside those accounts, the first thing you want to do — assuming you don't have credit-card debt — is build up a buffer of six months of living expenses, Kuderna said. This is because people in their 20s often have big life events that they need the money for, he said. Having it in risky assets like stocks makes it vulnerable to downside in the near term. "I always say liquidity is huge for a young professional," Kuderna said. "I might move out, I might have to get a new car, I might be getting engaged, married, a kid — all these things that can happen in your 20s." While you might not want your money invested in stocks right away, you also don't want to have it just sitting in a checking account. Instead, plug it into a high-yield savings account or a money market fund to collect a better yield while short-term interest rates are still high. Open multiple investment accounts OK, now for the investment accounts. First, make sure you have a Roth IRA or 401(k) set up with your employer and are collecting their monthly minimum match. As of 2025, you can contribute up to $23,500 to a 401(k) and $7,000 to a Roth IRA. 401(k) contributions are made with pre-tax money; the money is then taxed upon withdrawal. Roth IRA contributions are made with post-tax income, and eventual withdrawals are not taxed. Setting these accounts up is important because the money comes straight out of your paychecks — it's like it never existed, and there's less of a temptation to spend it since withdrawals before you're 59-and-a-half years old are penalized at 10%. Plus, you can take advantage of the tax benefits. "I'm huge on Roth options, especially for young people," Kuderna said. "If we can get tax-free growth for another four or five decades, that's worth its weight in gold." Once those are set up, open up a brokerage account to invest your excess savings. Considering your cash savings, Kuderna said this is taking a three-pronged approach: having cash for the short-term, a brokerage account with stock investments for the medium-term (maybe a down payment for a house in five, 10, or 20 years), and retirement accounts for the long-term. Having a brokerage account for medium-term investments will allow you to capture potential market upside while not being subject to the 10% penalty of withdrawing money from a 401(k) or Roth IRA early. "You don't want to neglect the mid-term," he said. "When you're 40 or you're 50 and you need money, you don't want to hit your retirement accounts, and you don't want to have it all just sitting in cash." Decide where to invest Now that you have your accounts set up, it's time to decide where to invest. The classic portfolio structure is 60% stocks and 40% bonds. Stocks, while riskier, offer greater upside potential. Meanwhile, bonds are supposed to act as a buffer to stock market volatility by protecting your capital, producing a steady yield, and appreciating during times of economic distress. But since you're in your 20s, you might consider allocating even more of your money to stocks since you can likely withstand more volatility, according to Chris Chen, the founder of Insight Financial Strategists. He said an 80/20 portfolio may be more appropriate. How you allocate money in your medium-term and long-term investment accounts may look different, however. For your 401(k) or Roth IRA, one simple way to invest for the long term is by buying a target-date fund. For example, you might choose the Vanguard Target Retirement 2065 Fund (VLXVX) or the State Street Target Retirement 2070 Fund (SSGQX). These funds automatically adjust your allocations to stocks and bonds as you age. As you start to approach retirement, the percentage of your money in bonds starts to increase to preserve your capital. Right now, the Vanguard 2065 fund has 53.1% of its assets in the Vanguard Total Stock Market Index Fund, which is made up of US stocks; 37.5% of the fund is in the Vanguard Total International Stock Index Fund; 6.5% is in US bonds; and 2.9% is in international bonds. Expense ratios, or the fees that certain funds charge, are also something to keep in mind. The Vanguard Target Retirement funds, for example, have a fairly cheap expense ratio of 0.08% a year. The cheapest S&P 500 index fund is the Fidelity 500 Index Fund (FXAIX) at 0.015%. For your medium-term investments, you should assess your risk-tolerance and timeline. Stock valuations are high at the moment, which suggests average 10-year returns may not be great. So if you need the money in five-to-10 years, being fully in stocks might be the wrong approach. But if you feel you can have a longer timeline than that, Kuderna said investing in bluechip stock indexes like the S&P 500 is a good approach. If you want to be especially aggressive, you might consider investing heavily in tech stocks, he said. The sector is often riskier than other areas of the market, but has seen explosive growth over the last 15 years. Some funds that offer exposure to tech stocks include the Technology Select Sector SPDR Fund (XLK), the iShares US Technology ETF (IYW), and the Invesco NASDAQ 100 ETF (QQQM). "If you look at the greatest returns over a long period of time, it's in equities, it's people who have a higher risk appetite," Kuderna said. "If you've done those beginning steps of building a rainy day fund, setting money aside, not carrying any bad debt — if you're good there and we can afford ourselves a long-term time horizon, then we should try to almost encourage ourselves to be a little more aggressive."
Yahoo
03-05-2025
- Business
- Yahoo
12 Reasons Retirement Advice From Dave Ramsey and Suze Orman May Not Work for You
Preparing for retirement can be complicated. You must figure out how to maintain adequate insurance coverage, elect to receive Social Security payments and have enough cash to last for the rest of your life. Be Aware: Find Out: It's natural to seek expert guidance to feel confident you're on the right track. Financial gurus Dave Ramsey and Suze Orman have much to say about retirement, and you might find some of their advice helpful. However, some of their beliefs could be a total mismatch for your situation. Several certified financial planners (CFPs) weighed in on why retirement advice from Ramsey and Orman may not work for you. Both of these experts offer some great advice, but that doesn't mean it applies well to everyone. Learn More: Ramsey and Orman often speak in absolutes, advising that you should take a certain action regardless of your circumstances. Their blanket approach might be fine for some, but could be flat-out wrong for you. Melissa Cox, owner of Future-Focused Wealth, championed Ramsey's and Orman's personal finance tenets for years, but her view of their policies changed. 'I started noticing that some of their advice just didn't hold up in real life. Not because it was wrong, but because it was too rigid for the real world,' she said. 'We're not all running the same financial race, and we're definitely not running at the same pace. The beauty of financial planning is that every single client has a unique financial situation and doesn't package easily into a box,' Cox explained. Both popular personal finance advice givers typically advocate for delayed gratification: Live frugally now so you can retire comfortably later. While doing so may be financially prudent, it saps the present of its joy. Lawrence Sprung, founder of Mitlin Financial, is adamant that your financial plan should factor in pleasure and fun. His mom passed away relatively young, never getting to experience retirement. 'Dave says, 'Live like no one else now, so you can live like no one else later'. Why can't we do both and plan for it?' Sprung said. 'Joy should be something we are experiencing every day, not just putting off to a later date that we are hopeful to make [it to]. Many of us are not that lucky.' Apart from the overall problems discussed above, the CFPs pointed out some potential issues with some of Ramsey's specific guidance. Being anti-debt is the cornerstone of Ramsey's financial platform. However, his view can be extremely limiting. '[Ramsey] does not delineate between 'good or bad debt.' In his eyes, it is all bad,' said Sprung. Sprung believes you should be OK if you avoid taking on bad debt — often considered as credit card or other high-interest debt — and make your payments on time. He said, 'Make sure you budget for it and your plan stays on track, but you do not need to be debt-free before you experience joy in your life.' Benjamin Simerly, founder of and wealth advisor at Lakehouse Family Wealth, added that avoiding debt can actually be problematic in some cases. 'When some of my clients ask if they should avoid a low-interest car loan and pull funds from investments to pay for the car instead, we have a disconnect,' he said. Ramsey advocates for paying off your mortgage early — though it should be noted that he does acknowledge there are drawbacks. Homeownership is part of the American Dream, and making that final mortgage payment is an exciting and happy milestone. However, prioritizing paying off your house over other financial goals could backfire. 'You can reach a point where you're paying enough extra that you're actually hurting your financial plan. At some point, the interest is mostly paid off on a mortgage, since mortgages front-load the interest. So, additional payments are essentially reducing what can be invested,' said Simerly. Investing 15% of your income is one of those generic rules of thumb that have been circulating for quite a while. However, that amount doesn't factor in your age, goals and other financial obligations. 'Telling everyone to invest 15% of [their] gross income is a helpful starting point, but not a plan. For someone starting late, 15% might be too little. For someone retiring early, it's definitely not enough,' said Nick Davis, founder of Brindle & Bay Wealth Management. 'Meanwhile, if you're in your 20s with limited income and student debt, it may not be realistic. Retirement saving needs to be personalized,' Davis added. Just like your retirement savings amount, your investment strategy must be tailored to your situation. Generally, any investment can be good or bad depending on your risk tolerance, goals and other preferences. 'Ramsey often states he doesn't like that ETFs (exchange-traded funds) are often used for day trading and other short-term goals. And he is correct,' said Simerly. 'At the end of the day, it's about picking the best fit for you, and often, high-quality funds can be found in similar versions in both ETFs and mutual funds for that very reason.' You may have heard that it's safe to withdraw 4% of your portfolio each year in retirement. Doing so can help ensure that you don't outlive your money. Ramsey said that, due to historical stock market performance, you can actually withdraw 8% each year and live a richer life without sacrificing security. He suggested that you stay 100% invested in stocks so that your cash continues to grow enough to keep pace with your spending. Michelle Petrowski, founder of Being In Abundance, said there are two big issues with this strategy. 'First, most folks probably don't fully understand the level of risk they're taking with a 100% stock portfolio. 'Second, there's the concept of sequence risk — something that doesn't get talked about enough. That's the risk that your nest egg may not grow as expected — or worse, could shrink — if you experience negative market returns late in your working years or early in retirement,' she explained. 'Selling off investments in a down market (at a loss) to cover living expenses can slow the growth of your nest egg — or worse, cause it to shrink far too fast,' said Petrowski. You'll get the largest possible Social Security payment each month if you delay claiming benefits until you reach full retirement age — 66 or 67, depending on your birth year. You can claim benefits as early as age 62, but that can reduce your monthly payment amount by up to 30% for life. 'For retirees with longer life expectancies, delaying until full retirement age can be one of the best 'investments' they make. Ramsey assumes people can cover the gap with their nest egg, but who wants to leave that guaranteed income on the table?' said Davis. Long-term care (LTC) insurance can help you cover expensive care during your golden years, including nursing home stays. Ramsey suggests buying the coverage a few years before retirement, at age 60. Davis said, 'This isn't exactly bad advice, but it's definitely not universal. LTC insurance can be incredibly expensive and is not always the best solution. Some clients are better off self-insuring, while others may benefit more from hybrid policies. Like many of Ramsey's rules, this is overly rigid for such a nuanced issue.' The experts also pointed out some reasons Orman's advice might not work for everyone. Your avocado toast purchases or Starbucks runs can add up to a tidy sum. Orman believes you should skip them and invest the cash instead. 'Suze Orman speaks often about buying a $5 cup of coffee and the fact that if you gave that up and directed those funds to a Roth IRA or retirement account, you could be giving your retirement account a boost,' Sprung said. 'Although this is true, many people derive joy from that cup of coffee, and if they have budgeted for it and they can afford it, I believe they should [have it].' Orman's stance on a safe withdrawal rate in retirement is the complete opposite of Ramsey's. She encourages you to spend even less than the standard 4% rule. Melissa Murphy Pavone, founder of Mindful Financial Partners, said the strategy 'may be prudent for some, but overly conservative for others who have a solid income stream or want to spend more in their early retirement years, while they're active and healthy.' Orman also takes the opposite view to Ramsey regarding ETFs vs. mutual funds, favoring the former. '[She] notes that ETFs often have lower fees than mutual funds and can provide some tax benefits over mutual funds, as well. And she is correct, given that the ETF in question is the right fit for your portfolio,' said Simerly. However, 'both ETFs and mutual funds can be a great fit for your portfolio,' he explained. 'The best place to start is [asking] which format has the best of breed in the fund you want? More often than not, doing your research on the best fund of a particular type will answer the question for you on ETF vs. mutual fund.' So, should you abandon Ramsey and Orman's teachings entirely? Maybe not. 'Ramsey and Orman gave us a solid start. But at some point, we all have to stop following rules made for the 'average person' and start creating a plan that actually works for who we are and what matters most to us on a deeper level,' said Cox. Pavone added, 'Work with a fiduciary — ideally a CFP — who can assess your full financial picture and help you make decisions that support your long-term goals, not just someone else's rules of thumb. Because at the end of the day, retirement isn't just about numbers. It's about the kind of life you want to live.' More From GOBankingRates 6 Used Luxury SUVs That Are a Good Investment for Retirees How Far $750K Plus Social Security Goes in Retirement in Every US Region 7 Overpriced Grocery Items Frugal People Should Quit Buying in 2025 12 SUVs With the Most Reliable Engines Sources Melissa Cox, Future-Focused Wealth Lawrence Sprung, Mitlin Financial Benjamin Simerly, Lakehouse Family Wealth Nick Davis, Brindle & Bay Wealth Management Michelle Petrowski, Being In Abundance Melissa Murphy Pavone, Mindful Financial Partners This article originally appeared on 12 Reasons Retirement Advice From Dave Ramsey and Suze Orman May Not Work for You
Yahoo
03-05-2025
- Business
- Yahoo
12 Reasons Retirement Advice From Dave Ramsey and Suze Orman May Not Work for You
Preparing for retirement can be complicated. You must figure out how to maintain adequate insurance coverage, elect to receive Social Security payments and have enough cash to last for the rest of your life. Be Aware: Find Out: It's natural to seek expert guidance to feel confident you're on the right track. Financial gurus Dave Ramsey and Suze Orman have much to say about retirement, and you might find some of their advice helpful. However, some of their beliefs could be a total mismatch for your situation. Several certified financial planners (CFPs) weighed in on why retirement advice from Ramsey and Orman may not work for you. Both of these experts offer some great advice, but that doesn't mean it applies well to everyone. Learn More: Ramsey and Orman often speak in absolutes, advising that you should take a certain action regardless of your circumstances. Their blanket approach might be fine for some, but could be flat-out wrong for you. Melissa Cox, owner of Future-Focused Wealth, championed Ramsey's and Orman's personal finance tenets for years, but her view of their policies changed. 'I started noticing that some of their advice just didn't hold up in real life. Not because it was wrong, but because it was too rigid for the real world,' she said. 'We're not all running the same financial race, and we're definitely not running at the same pace. The beauty of financial planning is that every single client has a unique financial situation and doesn't package easily into a box,' Cox explained. Both popular personal finance advice givers typically advocate for delayed gratification: Live frugally now so you can retire comfortably later. While doing so may be financially prudent, it saps the present of its joy. Lawrence Sprung, founder of Mitlin Financial, is adamant that your financial plan should factor in pleasure and fun. His mom passed away relatively young, never getting to experience retirement. 'Dave says, 'Live like no one else now, so you can live like no one else later'. Why can't we do both and plan for it?' Sprung said. 'Joy should be something we are experiencing every day, not just putting off to a later date that we are hopeful to make [it to]. Many of us are not that lucky.' Apart from the overall problems discussed above, the CFPs pointed out some potential issues with some of Ramsey's specific guidance. Being anti-debt is the cornerstone of Ramsey's financial platform. However, his view can be extremely limiting. '[Ramsey] does not delineate between 'good or bad debt.' In his eyes, it is all bad,' said Sprung. Sprung believes you should be OK if you avoid taking on bad debt — often considered as credit card or other high-interest debt — and make your payments on time. He said, 'Make sure you budget for it and your plan stays on track, but you do not need to be debt-free before you experience joy in your life.' Benjamin Simerly, founder of and wealth advisor at Lakehouse Family Wealth, added that avoiding debt can actually be problematic in some cases. 'When some of my clients ask if they should avoid a low-interest car loan and pull funds from investments to pay for the car instead, we have a disconnect,' he said. Ramsey advocates for paying off your mortgage early — though it should be noted that he does acknowledge there are drawbacks. Homeownership is part of the American Dream, and making that final mortgage payment is an exciting and happy milestone. However, prioritizing paying off your house over other financial goals could backfire. 'You can reach a point where you're paying enough extra that you're actually hurting your financial plan. At some point, the interest is mostly paid off on a mortgage, since mortgages front-load the interest. So, additional payments are essentially reducing what can be invested,' said Simerly. Investing 15% of your income is one of those generic rules of thumb that have been circulating for quite a while. However, that amount doesn't factor in your age, goals and other financial obligations. 'Telling everyone to invest 15% of [their] gross income is a helpful starting point, but not a plan. For someone starting late, 15% might be too little. For someone retiring early, it's definitely not enough,' said Nick Davis, founder of Brindle & Bay Wealth Management. 'Meanwhile, if you're in your 20s with limited income and student debt, it may not be realistic. Retirement saving needs to be personalized,' Davis added. Just like your retirement savings amount, your investment strategy must be tailored to your situation. Generally, any investment can be good or bad depending on your risk tolerance, goals and other preferences. 'Ramsey often states he doesn't like that ETFs (exchange-traded funds) are often used for day trading and other short-term goals. And he is correct,' said Simerly. 'At the end of the day, it's about picking the best fit for you, and often, high-quality funds can be found in similar versions in both ETFs and mutual funds for that very reason.' You may have heard that it's safe to withdraw 4% of your portfolio each year in retirement. Doing so can help ensure that you don't outlive your money. Ramsey said that, due to historical stock market performance, you can actually withdraw 8% each year and live a richer life without sacrificing security. He suggested that you stay 100% invested in stocks so that your cash continues to grow enough to keep pace with your spending. Michelle Petrowski, founder of Being In Abundance, said there are two big issues with this strategy. 'First, most folks probably don't fully understand the level of risk they're taking with a 100% stock portfolio. 'Second, there's the concept of sequence risk — something that doesn't get talked about enough. That's the risk that your nest egg may not grow as expected — or worse, could shrink — if you experience negative market returns late in your working years or early in retirement,' she explained. 'Selling off investments in a down market (at a loss) to cover living expenses can slow the growth of your nest egg — or worse, cause it to shrink far too fast,' said Petrowski. You'll get the largest possible Social Security payment each month if you delay claiming benefits until you reach full retirement age — 66 or 67, depending on your birth year. You can claim benefits as early as age 62, but that can reduce your monthly payment amount by up to 30% for life. 'For retirees with longer life expectancies, delaying until full retirement age can be one of the best 'investments' they make. Ramsey assumes people can cover the gap with their nest egg, but who wants to leave that guaranteed income on the table?' said Davis. Long-term care (LTC) insurance can help you cover expensive care during your golden years, including nursing home stays. Ramsey suggests buying the coverage a few years before retirement, at age 60. Davis said, 'This isn't exactly bad advice, but it's definitely not universal. LTC insurance can be incredibly expensive and is not always the best solution. Some clients are better off self-insuring, while others may benefit more from hybrid policies. Like many of Ramsey's rules, this is overly rigid for such a nuanced issue.' The experts also pointed out some reasons Orman's advice might not work for everyone. Your avocado toast purchases or Starbucks runs can add up to a tidy sum. Orman believes you should skip them and invest the cash instead. 'Suze Orman speaks often about buying a $5 cup of coffee and the fact that if you gave that up and directed those funds to a Roth IRA or retirement account, you could be giving your retirement account a boost,' Sprung said. 'Although this is true, many people derive joy from that cup of coffee, and if they have budgeted for it and they can afford it, I believe they should [have it].' Orman's stance on a safe withdrawal rate in retirement is the complete opposite of Ramsey's. She encourages you to spend even less than the standard 4% rule. Melissa Murphy Pavone, founder of Mindful Financial Partners, said the strategy 'may be prudent for some, but overly conservative for others who have a solid income stream or want to spend more in their early retirement years, while they're active and healthy.' Orman also takes the opposite view to Ramsey regarding ETFs vs. mutual funds, favoring the former. '[She] notes that ETFs often have lower fees than mutual funds and can provide some tax benefits over mutual funds, as well. And she is correct, given that the ETF in question is the right fit for your portfolio,' said Simerly. However, 'both ETFs and mutual funds can be a great fit for your portfolio,' he explained. 'The best place to start is [asking] which format has the best of breed in the fund you want? More often than not, doing your research on the best fund of a particular type will answer the question for you on ETF vs. mutual fund.' So, should you abandon Ramsey and Orman's teachings entirely? Maybe not. 'Ramsey and Orman gave us a solid start. But at some point, we all have to stop following rules made for the 'average person' and start creating a plan that actually works for who we are and what matters most to us on a deeper level,' said Cox. Pavone added, 'Work with a fiduciary — ideally a CFP — who can assess your full financial picture and help you make decisions that support your long-term goals, not just someone else's rules of thumb. Because at the end of the day, retirement isn't just about numbers. It's about the kind of life you want to live.' More From GOBankingRates 6 Used Luxury SUVs That Are a Good Investment for Retirees How Far $750K Plus Social Security Goes in Retirement in Every US Region 7 Overpriced Grocery Items Frugal People Should Quit Buying in 2025 12 SUVs With the Most Reliable Engines Sources Melissa Cox, Future-Focused Wealth Lawrence Sprung, Mitlin Financial Benjamin Simerly, Lakehouse Family Wealth Nick Davis, Brindle & Bay Wealth Management Michelle Petrowski, Being In Abundance Melissa Murphy Pavone, Mindful Financial Partners This article originally appeared on 12 Reasons Retirement Advice From Dave Ramsey and Suze Orman May Not Work for You Sign in to access your portfolio
Yahoo
14-04-2025
- Business
- Yahoo
Can You Retire Early? Here's the Minimum Savings Needed in 2025
Retiring early is a dream for many Americans, but can you really make it happen? And how much would you need to retire early? Find Out: Read Next: The truth is, it's hard to offer a generic dollar amount, as circumstances are unique to every person and depend on many factors ranging from how many years of saving and planning you put in to your health and more. However, financial experts offered some considerations for how to retire as early as possible. Nobody can truly predict the future. While you can't know your exact circumstances at retirement, particularly if you have a long way yet to go, you can spend as much time as possible planning for it, according to Gina Stoddard, chief of staff at Broad Financial. 'Preparing for retirement involves a lot of forethought and considering a myriad of factors. If you have the goal to retire early, you'll need to plan for your savings to last for likely a few decades,' she advised. You also need to to evaluate the ideal lifestyle you wish to lead, any remaining debt, taxes due and if you'll receive any other sources of income, Stoddard said. Be Aware: The first thing Melissa Fox, CFP and owner of Future-Focused Wealth, tells people who ask about early retirement is this: 'There's no such thing as average anymore. Especially not when it comes to savings, not when it comes to lifestyle, and definitely not when it comes to retirement.' Since every single person takes a different path and a different pace to retirement, no single retirement calculator formula will work to customize the specific amount you need. Better to work with a financial planner to look at your specific goals. If you want to dial in a number, you can refer to a common rule for determining how much you will need in retirement, known as 'the 4% rule,' which refers to the amount of money you can withdraw from your portfolio annually without running out of money. According to Michael Rodriguez, CFP and owner of Equanimity Wealth, if you have a $1,000,000 portfolio, for example, you should be able to withdraw $40,000 annually and have your money last 30 years. Rodriguez advised aiming for a slightly smaller withdrawal rate, around 3% to 3.5%, to allow for a bigger cushion. A common mistake people make when planning for retirement is not understanding their expenses, Rodriguez said. 'If you are unaware of what you are spending on a monthly basis, begin tracking your current expenses for six to 12 months and add a 20% to 30% buffer on top of your expenses to create a cushion.' For example, if you are spending $40,000 annually, it would be a good idea to plan for expenses in retirement to be around $50,000 to $60,000 annually. If you plan on retiring before you are eligible for Medicare (age 65), it is important to factor in healthcare costs as well, he said. If you are, or will be eligible for Social Security, make sure you are maximizing the amount you receive, which usually involves waiting until age 70, Rodriguez urged. Waiting until age 70 allows you to receive 124% of your full retirement benefit, which can be significant over the course of your retirement. If you do not have enough money saved to retire early, consider finding a way to partially retire, either by continuing to work part time or taking on new part-time work or side hustle, Rodriguez said. 'If you are able to find work that you find fulfilling that also allows you to work at a level that is comfortable to you in retirement, this can help you significantly extend your portfolio in retirement.' You also need to account for inflation in your planning, Stoddard said. Inflation generally affects expenses that retirees still pay, such as housing and insurance, which, she explained, 'statistically ascend in alignment with the inflation rate. Sometimes, even at a faster pace.' While inflation tends to have a relatively stable rate of increase, unexpected changes, as seen during the COVID-19 pandemic, can cause unusually high rates of inflation. Stunning dips in the stock market this month reveal that it's important to have assets that are not invested in the stock market. Stoddard suggested alternative investments 'like precious metals,' which tend to hold some sort of value as they're a tangible asset, 'and their value tends to work inversely to the stock market.' Likewise, owning real estate is typically viewed as owning an inflation-protected asset. Some retirement accounts that allow for alternative investments include self-directed Roth IRAs, self-directed traditional IRAs and solo 401(k) plans or Roth solo 401(k) plans, Stoddard said. Again, since retirement is unique to each individual, Cox urged people to consider why you really want to retire early. 'Is it to finally rest after a long career? To travel? To care for aging parents or enjoy more time with your kids? Or maybe just to escape the burnout of a job that no longer fits? The 'why' gives us the direction. The dollars? That's just the fuel to get there,' she said. In the end, an early retirement may have less to do with how much money you have and more to do with your goals. Cox said that retirement planning requires not 'obsessing over the number' and 'talking about tradeoffs.' The right plan doesn't always mean retiring early. Sometimes it means retiring smarter with more purpose, more clarity and more alignment with what matters most to you. More From GOBankingRates 6 Used Luxury SUVs That Are a Good Investment for RetireesHow Far $750K Plus Social Security Goes in Retirement in Every US Region7 Overpriced Grocery Items Frugal People Should Quit Buying in 202525 Places To Buy a Home If You Want It To Gain Value This article originally appeared on Can You Retire Early? Here's the Minimum Savings Needed in 2025 Sign in to access your portfolio
