Whether you’re saving for retirement or for your children’s college education, reaching your monetary goals typically requires putting together a financial plan to help you get there. If that feels overwhelming, you may be wondering if you should consult a financial advisor.
More experienced investors may also reach a point when talking to a financial advisor might come in handy, such as when they’re contemplating making a major move with their money.
So how do you know if — and when — working with a financial advisor is right for you? Taking a “do I need a financial advisor?” quiz, like the one below, can help.
What Is a Financial Advisor?
A financial advisor helps individuals manage their money and create a financial plan for the future. A financial advisor can help you create a budget, plan for retirement, and pay off debt among other things.
An advisor can help you reach your financial goals. That kind of assistance can be useful if you’re not quite sure how to reach those milestones yourself.
Of course, working with a financial advisor means paying a fee for their services, which is typically around 1% of the assets they manage. So before you hire an advisor, consider whether the expense is worth it for you.
Financial Planning Quiz
If you’re still not sure whether you need financial planning help, taking the quiz below can help you decide if reaching out to a financial advisor makes sense for your situation.
You Need a Financial Advisor
If the quiz says you could benefit from some professional financial help, a financial advisor could help you plan for your future.
For instance, they can help you create a budget to keep on track with spending. By controlling what you spend, you may be able to begin saving for your financial goals.
If you’re going through or facing a life change, such as a new baby or a job loss, a financial advisor could help you navigate through and manage it financially. They can help you set up an emergency fund to help deal with unexpected expenses that come up.
For those dealing with debt, such as student loans or credit card debt, a financial advisor can also help come up with a strategy for paying down the debt owed so that it doesn’t keep piling up.
Finally, a financial advisor can help you save and invest for retirement as well as other important milestones, such as your kids’ college or a new home. These are all things to keep in mind when choosing a financial advisor.
💡 Quick Tip: Did you know that a traditional Individual Retirement Account, or IRA, is a tax-deferred account? That means you don’t pay taxes on the money you put in it (up to an annual limit) or the gains you earn, until you retire and start making withdrawals.
Get up to $1,000 in stock when you fund a new Active Invest account.*
Access stock trading, options, auto investing, IRAs, and more. Get started in just a few minutes.
*Customer must fund their Active Invest account with at least $10 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.
You Don’t Need a Financial Advisor Right Now
Your quiz answers indicate that you’re doing a good job of saving and investing for your future and that you have a solid plan in place. Congratulations!
That means you likely have an emergency fund with enough in it to cover at least six months of expenses if needed, and you’re probably saving the standard recommended amount of 10% to 20% of your take-home pay.
In addition, you likely have a 401(k) to which you’re contributing the maximum amount and also getting your company match (if applicable), and you possibly have other retirement accounts as well, such as an IRA.
Your answers also indicate that you feel pretty comfortable with investing, and you have a good handle on how much risk you can tolerate. At some point, if you decide to diversify your portfolio and branch out into investments you’re not familiar with, such as real estate, you may want to consult a financial advisor at that time. In the meantime, keep up the good work!
The Takeaway
A “Financial Advisor Quiz” can help you determine if you could benefit from some extra help with your financial strategy. It can also help you see what kind of shape you’re in financially and what you might need to do to help secure your future, including ways to save and invest.
Whether you need a financial advisor or not, having a plan in place to reach your financial goals is a very important step to take.
Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).
Invest with as little as $5 with a SoFi Active Investing account.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
SoFi Invest® INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below:
Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.
Claw Promotion: Customer must fund their Active Invest account with at least $10 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
What happens to your bank account when you die will depend on what type of bank account it is, how you set up the account, and whether you have a will.
When the owner of a bank account dies, the transfer process is fairly straightforward if the account has a joint owner or named beneficiary. Otherwise, the account becomes part of the deceased owner’s estate and is settled during probate.
Understanding what happens to your money after you die can help you manage a bank account after losing a loved one, and also prompt you to set up your accounts in a way that minimizes complications for your survivors down the line.
Read on for key things to know about what happens to a bank account when someone dies.
How Do Banks Discover When Someone Died?
There are two main ways a bank discovers when an account holder has died:
• Family member or beneficiary Commonly, a family member will let the bank know when one of their bank account holders has died. To inform a bank about the death of a loved one, you’ll need to present a copy of the death certificate, the deceased person’s Social Security number, and proof that you can act on behalf of the estate (such as ID showing you are the account’s joint owner or beneficiary or Letter of Testamentary to show your executor status).
• Social Security Administration Funeral directors usually report the death of a person to the Social Security Administration to ensure no more Social Security checks are issued to that individual. If any checks were sent after the person’s death, Social Security will contact the bank to get the payment returned. This is another way a bank may learn about the death of an account holder.
Get up to $300 when you bank with SoFi.
Open a SoFi Checking and Savings Account with direct deposit and get up to a $300 cash bonus. Plus, get up to 4.60% APY on your cash!
Sole Owner Bank Account Rules on Death
What happens to a deceased person’s bank account if they were the sole owner of the account will depend on whether or not the account has a payable on death (POD) beneficiary.
If there is a beneficiary named, the money in the account goes to the beneficiary after the sole account owner dies. Regardless of whether there’s a will and what’s in the will, the beneficiary automatically inherits the designated account’s funds upon the account owner’s death.
A beneficiary can claim bank account funds by contacting the bank and providing valid ID and a death certificate. The bank will typically then release the funds to that person and close the account. If the beneficiary is a minor when the account owner dies, someone must be appointed to manage the money on the minor’s behalf.
What happens if no beneficiary is named on a bank account? If the sole owner of a bank account dies and no beneficiary was named, the account becomes part of the deceased person’s estate (which is the sum total of the assets the person left behind). The money is then settled during probate.
Probate is the legal process for distributing a dead person’s assets, often as outlined in their will, as well as settling their remaining debts.
Joint Bank Account Rules on Death
In most cases, the surviving joint owner of a joint bank account will have automatic rights of survivorship, which grants them ownership of the entire account balance. That person can typically continue to use the checking or savings account without any interruptions.
However, the surviving account holder will still need to contact the bank and provide a death certificate or other documentation to confirm the death and update account records. Banks generally have a process you need to follow upon an account owner’s death. The surviving joint account holder may be able to remove the deceased from the account or open a new individual account.
Recommended: 11 Financial Planning Steps to Take After a Spouse’s Death
What Happens if No Beneficiary Is Named on a Bank Account?
If the deceased person is the sole owner of the bank account and did not name a beneficiary, the executor of the deceased’s will is typically responsible for handling any assets in their estate (including money in bank accounts).
The executor will typically transfer funds contained in the bank account into an account in the name of the decedent’s estate, and they may be able to access those funds to satisfy the decedent’s debts and pay probate costs. They will then distribute any remaining funds to those named in the will.
If there is no will to name an executor, the state appoints one based on local law. After paying off any debts, the named executor will distribute the money according to local inheritance laws.
Recommended: Why Everyone Needs an Estate Plan
Tips to Avoiding Complications Upon Death
There are some simple steps you can take now to make it easier for your loved ones to sort out your affairs and access your bank accounts after you die. Here are some to consider.
• Add a joint owner. Naming a spouse or other family member as a joint account holder is a simple way to ensure someone has access to the money when you die. In most cases, the joint account holder can simply take over the funds.
• Set up beneficiary designations. Most financial institutions make it easy to name a POD beneficiary on your bank accounts. Taking a few minutes to name one can mean less headaches for your loved ones down the road. Unlike a joint owner, a beneficiary cannot access the account while you’re alive.
• Write a will. Having a will still means your assets will need to go through the probate process before they can be distributed to your loved ones. But at least it ensures that the money will go to the intended person.
• Set up a living trust. A well-set-up trust can mean that your assets don’t have to go through probate. Instead, the money can go to your heirs in a more timely manner. However, trusts can be costly to set up and maintain, and may not be worth it if you have a simple estate with few assets and potential heirs.
• Consolidate bank accounts. To make it easier for your loved ones to sort through your finances, consider streamlining your accounts. Too many checking and savings accounts, especially if the accounts are held at different banks, can make settling your affairs complicated and time consuming. Consolidating your accounts also helps ensure that no account gets forgotten.
The Takeaway
The easiest way to pass the money in your bank account to your loved ones is to name them as joint account holders or POD beneficiaries. Setting up a will is also an essential step in estate planning, but it may not guarantee that your loved ones will be able to access your bank accounts quickly.
Regardless of your choice, it’s a good idea to make some smart money moves now to make life easier for your loved ones while they are grieving.
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.
Better banking is here with up to 4.60% APY on SoFi Checking and Savings.
FAQ
Can you withdraw money from a deceased person’s account?
You can withdraw money from a deceased person’s account if you’re a joint owner of the account. Otherwise, you need to present documents to the bank to show you have a legal right to access the money in the account. For example, if you’re named as a beneficiary on the bank account, you will be required to show government-issued ID and a death certificate. If you’re the executor of the deceased’s will, you will need to present a Letter of Testamentary and a death certificate, among other documents.
How do I get money from my deceased parents’ bank account?
If you are named as the account’s beneficiary, you’ll be able to get the money from your deceased parent’s bank account by presenting certain documents to the bank, such as a government-issued ID and a death certificate. If no beneficiary is named on the account, you’ll likely need to wait until your parent’s estate is settled during probate. This is a legal process during which assets are distributed according to the deceased’s will or special laws in the absence of a will.
What happens to the bank account of a dead person?
It depends on how the account was set up. If there is a joint owner, the surviving owner will typically become the sole owner of the account.
If there are no surviving owners and a named beneficiary on the account, the funds will go to the beneficiary. If no beneficiary is listed, the account will become part of the deceased owner’s estate and settled during probate. This is a legal process during which a deceased person’s assets are distributed according to their will or special laws in the absence of a will.
Photo credit: iStock/nortonrsx
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 deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government 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, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.
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.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Northwestern Mutual’s All-Time-High Dividend, Revenue and Surplus Underscore Company’s Exceptional Business Results and Financial Strength in 2023 Company reports historic growth in its field force of financial advisors, its highest-ever dividend, strong investment performance, exceptional financial strength, and rapid expansion of its wealth business – all positioning Northwestern Mutual for continued long-term success MILWAUKEE, Feb. … [Read more…]
Selling your house is often one of the largest financial transactions you’ll make in your life. It can be complex and emotionally challenging, especially if it’s your first time dealing with a home sale or if the house is full of family memories.
Despite these challenges, millions of people successfully sell their homes each year. The process is well-trodden, but each sale has its unique circumstances and can come with many curveballs.
Whether you’re downsizing, upgrading, relocating, or just ready for a change, selling your house is a big step. The task might seem daunting, but remember, you’re not alone. Many resources can guide you through this process, providing advice and support along the way.
This guide aims to simplify the process and provide you with step-by-step instructions to help sell your house.
From setting your objectives to finally handing over the keys, we’ll walk you through each stage. We will address common challenges and offer expert insights to ensure you’re well-prepared for the journey ahead. Our goal is to help you sell your house at the best possible price within your desired timeline, while minimizing stress and maximizing satisfaction.
Understand Your Selling Objectives
The first step in any successful real estate transaction is understanding your motivations and objectives for selling. Be clear about your goals and timeline to create a selling strategy that will get you the price you want for your home within the timeframe desired.
Why are you selling?
Your motivations for selling might be tied to lifestyle changes, financial circumstances, or relocation for work. Perhaps you’ve outgrown your current house, or maybe it’s become too big after the kids have moved out. You might need to relocate for a new job or prefer a change in scenery as you approach retirement. By identifying your reasons for selling, you’ll have a clearer idea of what you want to achieve with the sale.
What’s your timeline?
Your timeline can significantly influence your selling strategy. If you’re in a rush due to reasons like a job relocation or closing on another home, you may have to price your property more competitively to attract a faster sale. However, if you have the luxury of time, you can afford to be patient and wait for an offer that matches your ideal price.
Evaluate Your Financial Position
Understanding your financial situation is essential in the home-selling process. A realistic view of your finances will help you make informed decisions, particularly in setting a reasonable asking price.
Understand Your Home Equity
Equity refers to the portion of your property that you truly “own” – it’s the difference between the current market value of your home and the remaining balance on your mortgage. Knowing your equity can give you an idea of your potential profits from the sale.
Consider Your Outstanding Mortgage
The amount left on your mortgage is another critical factor. If your outstanding balance is more than your home’s sale price, you may need to consider a short sale, which requires your lender’s approval and can affect your credit score.
Estimate Closing Costs
Closing costs are the fees and expenses you pay to finalize your home’s sale, excluding the commission for the real estate agent. They may include title insurance, appraisal fees, and attorney fees, among other costs. These are usually about 2-5% of the purchase price. Understanding these costs is crucial as they directly impact your net proceeds from the sale.
Taking the time to clarify your selling objectives and understanding your financial position will pave the way for a more streamlined and successful home-selling experience. These factors are not just critical for setting a realistic asking price but also for aligning your home sale with your larger financial or life goals.
Prepare Your House for Sale
Once you’ve identified your selling objectives, the next step is to prepare your house for the market. A well-prepared home can catch the attention of more prospective buyers and even command a higher sale price.
Home Improvements and Necessary Repairs
Before you list your home, assess its overall condition. Some minor upgrades and necessary repairs can significantly enhance your home’s appeal, often leading to a faster sale or higher selling price.
Deep Cleaning and Carpet Cleaning
Begin with a deep clean to ensure your home looks its best. Pay attention to often-overlooked areas, such as baseboards, window sills, and ceiling fans. If you have carpets, consider hiring a professional carpet cleaning service to remove any stains or odors. Cleanliness can significantly influence a buyer’s first impression.
Minor Upgrades and Fixes
Next, tackle minor upgrades and repairs that could deter potential buyers. This could include painting walls with a fresh, neutral color, fixing any plumbing or electrical issues, and ensuring all appliances are in working order. Although these tasks may seem small, they can make a big difference to potential buyers.
Stage Your House
Staging your house involves preparing it for viewing by potential buyers. It can significantly impact how quickly your home sells and the price.
Hire a Professional Stager
A professional stager, although an extra cost, can be a worthwhile investment. For a few hundred dollars, they can transform your space and make it appealing to as many potential buyers as possible. They use strategies like optimal furniture placement, accentuating natural light, and choosing neutral decor to make your home attractive and inviting.
Depersonalize Your Home
Part of effective staging involves depersonalizing your home. This means removing personal items like family photos, collections, and mementos. The aim is to create a neutral space where potential buyers can easily envision themselves and their own belongings. It’s all about helping buyers picture your house as their future home.
In the competitive real estate market, first impressions count. By investing time, money and effort in staging your house for sale, you can stand out from the competition and make a great impression on prospective buyers. These preparations could translate into a quicker sale and potentially a higher price.
Set the Right Price
One of the most critical decisions in the home-selling process is determining the right asking price. Setting a competitive price can help attract more prospective buyers, shorten the time your home spends on the market, and potentially yield a higher sale price.
Understand the Importance of Pricing
Choosing the right price is not just about the amount you’d like to receive. It’s also about understanding buyer psychology and local market trends. Pricing your home correctly can result in more interest, more showings, and ultimately, more offers.
Get a Comparative Market Analysis
A key tool for setting the right price is a Comparative Market Analysis (CMA). A CMA provides information about recent home sales in your area, adjusted for differences in features and conditions, giving you a good idea of what buyers might be willing to pay for your home.
Hire a Great Real Estate Agent
A great real estate agent can provide an accurate and comprehensive CMA. They have the experience and local market knowledge to understand which homes are truly comparable to yours and how various features and upgrades impact pricing.
Consider Comparable Sales
Comparable sales, or “comps,” are recent home sales in your area that are similar to your property in size, condition, and features. Your real estate agent will look at these comps, adjust for differences, and use the information to guide you towards a fair and attractive list price.
Adjust for Features and Conditions
Every home is unique, and its features and condition will impact its value. Your real estate agent will consider these factors when setting your home’s list price. For example, if your home has a new roof or a remodeled kitchen, it might command a higher price compared to a similar home without these upgrades.
Setting the right price is both an art and a science. It requires an understanding of the local real estate market, an evaluation of comparable sales, and an assessment of your home’s unique features. By enlisting the help of a great real estate agent and leveraging their expertise, you can set a competitive price that will attract serious buyers and maximize your profits.
Market Your House
Once your house is ready for sale and priced right, the next step is to get the word out to prospective buyers. Effective marketing can attract more interest and lead to quicker, more competitive offers.
Use High-Quality Professional Photos
Professional photography plays a crucial role in marketing your house. High-quality photos can showcase your home’s best features and give potential buyers a good first impression. Homes listed with professional photos tend to receive more views online, which can lead to faster sales and often at higher prices.
Craft a Compelling Listing Description
A well-written listing description can spark interest and invite potential buyers to learn more. Highlight your home’s unique features, recent upgrades, and what makes it special. Remember, you’re not just selling a property, you’re selling a lifestyle. Allow your real estate agent to offer feedback and help you create an enticing, optimized listing that will also show up in search results when people are looking for a home like yours.
Host Open Houses and Private Showings
Open houses and private showings are opportunities for potential buyers to experience your home in person. Be flexible with your schedule and make your house available for viewing as often as you can. The more people who walk through your door, the better your chances of receiving an offer.
The Role of a Good Real Estate Agent in Marketing
Marketing a house involves a significant time commitment and a specific set of skills. This is where a good real estate agent comes into play.
Leverage the Multiple Listing Service (MLS)
A good real estate agent can list your property on the Multiple Listing Service (MLS), a database of homes for sale that’s used by real estate professionals. An MLS listing can increase your home’s visibility, attracting other real estate agents and their clients.
Find a Realtor with A Proven Track Record
Choose a real estate agent with a proven track record of sales in your area. Their experience and local market knowledge can be invaluable in promoting your home effectively and attracting serious buyers.
In a crowded real estate market, standing out is key. By leveraging professional photography, crafting a compelling listing description, and utilizing the expertise of a good real estate agent, you can market your home effectively, attracting more potential buyers and increasing your chances of a successful sale.
Evaluate Offers and Negotiate
Once your marketing efforts start paying off and offers begin to come in, it’s time to shift focus to negotiation. The goal here is to achieve the best possible terms that align with your selling objectives.
How to Evaluate Offers
When you receive an offer, it’s essential to look beyond the offered price. While the highest offer might seem the most appealing, it’s not always the best choice.
Consider the Buyer’s Lender
Understanding where the buyer’s financing comes from is important. Offers from buyers who are pre-approved by a well-known lender may carry less risk than those from buyers who are not pre-approved or who are using a less established lender.
Assess the Down Payment
The size of the buyer’s down payment can indicate their financial stability. A larger down payment may suggest that the buyer has solid finances and is serious about purchasing your home.
Understand the Buyer’s Timeline
A buyer’s timeline can be just as important as their offered price. A qualified buyer who can close quickly might be more attractive than a higher offer that’s contingent on selling a current house.
How to Manage Multiple Offers
Receiving multiple offers can be exciting, but it can also be overwhelming. Your real estate agent can help you with this process.
Consult with Your Real Estate Agent
Your real estate agent’s experience can be invaluable in this situation. They can guide you through your options, help you compare offers side by side, and give advice based on their understanding of the current real estate market and the specifics of each offer.
Make the Best Decision Based on Your Needs
When reviewing multiple offers, it’s important to consider your own needs and priorities. For example, if you need to sell quickly, you might prioritize a buyer who can close sooner, even if their offer is not the highest.
Negotiating and accepting offers can be a complex part of the selling process. It’s not just about accepting the highest offer, but understanding the nuances of each proposal and making the best decision for your circumstances. With the right real estate agent by your side, you can handle this process confidently and successfully.
Close the Sale
After you’ve accepted an offer, the next step is to finalize the transaction. The closing process involves several stages, including a home inspection, title search, potential repair negotiations, and final paperwork signing. Here’s what to expect:
The Due Diligence Period
The due diligence period allows the buyer to further investigate the property after their offer has been accepted. During this time, the buyer’s agent will arrange for a home inspection.
Home Inspection and Report
A professional home inspector will thoroughly examine your property and generate an inspection report. This document details the condition of the house and outlines any potential issues, from minor maintenance concerns to significant structural problems.
Negotiating Repairs
If the inspection report reveals necessary repairs, there may be further negotiations. Buyers might ask you to handle the repairs, reduce the sale price, or offer a credit at closing to cover the repair costs.
The Title Search and Insurance
As part of the home buying process, the buyer’s lender will work with a title company to conduct a title search. This ensures the house is free from liens or claims and that you have a clear title to transfer to the new owners.
Understanding Title Insurance
Buyers might also negotiate for you to pay for title insurance as part of the closing costs. Title insurance protects the buyer and their lender from future property ownership claims, unexpected liens, or undisclosed property heirs.
Sign the Final Paperwork
The last step in the home sale process is the closing meeting. Here, you’ll sign the final paperwork, which includes key documents such as:
The Bill of Sale
This document transfers the ownership of personal property (like appliances or furniture) included in the home sale.
The Deed
This legal document transfers ownership of the property from you, the seller, to the buyer.
Documents Prepared by a Real Estate Attorney or Real Estate Brokerage
The closing process involves many legal documents. These might be prepared by a real estate attorney or real estate brokerage to ensure everything is in order.
Closing the sale of your house can be a complex process. However, understanding each step can help you proceed with confidence and reach a successful conclusion to your home sale journey.
Post Sale Considerations
Even after the final paperwork has been signed, and the new owners have the keys, there are a few additional factors to consider. The sale of your house doesn’t just end at the closing table. Let’s delve into these post-sale considerations.
Understand the Tax Implications
Selling your house can have significant tax implications. The application of taxes largely depends on the profit you make from the sale and how long you’ve lived in the house.
Capital Gains Tax Exemption
If the house was your primary residence for at least two of the last five years before selling, you might qualify for a capital gains tax exemption. This can significantly reduce your tax liability.
Consult with a Tax Professional
However, tax laws can be complex, and every situation is unique. Consult with a tax professional or a certified public accountant to fully understand the potential tax impacts. They can provide guidance tailored to your specific circumstances.
The Move to Your New Home
Moving to your new home involves logistical and financial considerations. Plan ahead for moving costs, including professional movers, moving supplies, and potential temporary housing.
Keep Records of Your Home Sale Expenses
It’s wise to keep a comprehensive record of all home sale-related expenses. This includes real estate agent commissions, home improvements made before the sale, and any fees or costs associated with closing. These records can be crucial for your future tax returns or financial planning.
Some of your moving costs may be tax-deductible if you or a member of your household is in the military, and you are moving due to a military order. Previously, moving costs were tax-deductible for many people who were relocating due to a job. After 2025, these deductions may return.
Conclusion
Selling your house is a significant event, and educating consumers about the process can reduce stress and result in a better outcome. By preparing your home, pricing it right, and working with a competent real estate agent, you can complete the transaction smoothly and efficiently.
The selling process might seem overwhelming, but with thorough preparation and the right team on your side, it can be an exciting time. Remember, every house can sell, it just requires the right strategy, a competitive price, and a bit of patience.
Frequently Asked Questions
What should I do if my house isn’t selling?
If your house isn’t attracting buyers, various factors could be at play. The asking price may be too high, marketing efforts might be insufficient, or the house’s condition could be deterring potential buyers. Consult with your real estate agent to pinpoint potential problems and devise solutions. You may need to reduce the price, enhance your marketing strategy, or invest in necessary home improvements.
Can I sell my house myself instead of using a real estate agent?
Yes, selling your house yourself is an option. This is known as “For Sale By Owner” (FSBO). However, selling a house involves complex tasks like pricing, marketing, negotiating, and handling legal paperwork. Real estate agents possess the expertise and experience to deal with these challenges. If you opt for FSBO, be prepared for a significant time commitment and be ready to handle these tasks yourself.
How long does it usually take to sell a house?
The timeline for selling a house can vary greatly and depends on numerous factors, such as local market conditions, the home’s condition and price, and even the time of year. On average, it can take anywhere from a few days to a few months. Your real estate agent can give you a better estimate based on local trends and your specific situation.
What is a seller’s market, and how can it impact my home sale?
A seller’s market occurs when the demand for homes exceeds the current supply. This often results in homes selling more quickly and at higher prices. If you’re selling your house in a seller’s market, it can be an advantage as you may get multiple offers and a higher sale price.
Should I make repairs before selling my house?
Whether to make repairs before selling your house often depends on the type and extent of the repairs and the overall condition of your house. Small repairs and improvements, like painting or fixing leaky faucets, can make a good impression on buyers. If your home has more more substantial issues, discuss the repairs with your real estate agent to weigh the cost against the potential return on investment.
Understanding how interest works is crucial for managing your personal finances effectively. In this article, we will dive into the two main types of interest—simple and compound interest—and explore their differences, advantages, and disadvantages. We will also provide real-life examples and tips for maximizing your interest earnings.
What is simple interest?
Simple Interest Definition and Formula
Simple interest is calculated using only the initial principal balance. The formula for calculating simple interest is:
Simple Interest = Principal x Interest Rate x Time
Principal: The initial amount of money borrowed or invested.
Interest rate: The annual percentage rate (APR) applied to the principal.
Time: The duration for which the interest is calculated, typically measured in years.
Real-life Examples of Simple Interest
Car Loan
Let’s assume you take out a car loan for $10,000 at an annual interest rate of 5% for a 3-year term. Using the simple interest formula, you can calculate the total interest payable over the loan term:
Simple Interest = Principal x Interest Rate x Time
Simple Interest = $10,000 x 0.05 x 3
Simple Interest = $1,500
In this case, the total interest you’ll pay over the 3-year term is $1,500, making the total amount payable (principal + interest) $11,500.
Certificates of Deposit (CDs)
CDs are time-bound savings products offered by banks. They typically use simple interest, with the interest payments made at regular intervals or at maturity. For example, if you invest $5,000 in a 1-year CD with an annual interest rate of 3%, you would earn:
Simple Interest = Principal x Interest Rate x Time
Simple Interest = $5,000 x 0.03 x 1
Simple Interest = $150
At the end of the 1-year term, your investment would be worth $5,150, including the initial principal and earned interest.
Advantages and Disadvantages of Simple Interest
Advantages
Easier to calculate: The simple interest formula is relatively straightforward, making it easy to understand and apply in various financial situations.
Predictable payments: For borrowers, loans with simple interest usually result in predictable and consistent payments, making it easier to budget and manage finances.
Lower interest expense for short-term borrowing: For short-term loans, the total interest paid with simple interest is typically lower than with compound interest.
Disadvantages
Less growth potential: Compared to compound interest, simple interest doesn’t account for accumulated interest, resulting in lower overall returns for long-term investments.
Limited applicability: Simple interest is less commonly used in modern financial products, making it less relevant for most individuals’ financial planning and decision-making.
What is compound interest?
Compound Interest Definition and Formula
Compound interest is calculated on both the principal balance and the interest accrued from previous periods. The compound interest formula is:
Compound Interest = Principal x (1 + Interest Rate / Number of Compounding Periods) ^ (Number of Compounding Periods x Time)
Principal: The initial amount of money borrowed or invested.
Interest rate: The annual interest rate applied to the principal.
Time: The duration for which the interest is calculated, typically measured in years.
Number of compounding periods: The frequency at which interest is compounded, such as annually, quarterly, or monthly.
Real-life Examples of Compound Interest
Savings Account
Suppose you deposit $5,000 in a high-yield savings account with an annual interest rate of 2%, compounded monthly. To calculate the future value of your savings after 5 years, you can use the compound interest formula:
Step
Calculation
Result
1
Principal x (1 + Interest Rate / Compounding Periods)
1.0016667
2
(Result from Step 1) ^ (Compounding Periods x Time)
1.0016667 ^ 60
3
Principal x (Result from Step 2)
$5,000 × 1.1047
4
Final Compound Interest
≈ $5,520.53
In this example, after 5 years, your initial $5,000 deposit would grow to approximately $5,520.53, thanks to the power of compound interest.
Retirement Account
Consider a retirement account, like a 401(k) or IRA, with an initial investment of $10,000 and an average annual return of 7%, compounded annually. After 30 years, using the following formula, your investment would be worth:
Step
Calculation
Result
1
Principal x (1 + Interest Rate)
1.07
2
(Result from Step 1) ^ Time
1.07 ^ 30
3
Principal x (Result from Step 2)
$10,000 × 7.6123
4
Final Compound Interest
≈ $76,123.29
In this case, the power of compound interest has turned your initial $10,000 investment into $76,123.29 over 30 years.
Advantages and Disadvantages of Compound Interest
Advantages
Exponential growth potential: Compound interest allows your investment or savings to grow exponentially, as interest is continually added to the principal balance and earns interest itself.
Rewards long-term investing and saving: Compound interest takes the time value of money into account, encouraging long-term investing and saving strategies.
Disadvantages
Higher interest expense for borrowers: When borrowing money, compound interest can result in higher interest expenses compared to simple interest, especially for long-term loans.
More complex calculations: Compound interest calculations can be more complex than simple interest calculations, particularly when involving varying compounding frequencies or irregular payment schedules.
Comparing Simple and Compound Interest
Visualizing the Difference
One of the most effective ways to understand the difference between simple and compound interest is to visualize their growth over time. You can create graphs or charts to compare the accumulation of interest for both types in different scenarios, such as varying principal amounts, interest rates, and time horizons.
Factors to Consider When Choosing Between Simple and Compound Interest
When deciding between simple and compound interest, consider the following factors:
Time horizon: The duration of your investment or loan term will impact which type of interest is more suitable. Generally, compounded interest is more advantageous for long-term investments, while simple interest is preferable for short-term loans or investments.
Risk tolerance: Your risk tolerance should play a role in your choice. While compound interest offers greater growth potential, it may involve more risk, depending on the underlying investment.
Financial goals: Align your choice with your specific financial goals, such as saving for retirement, buying a home, or building an emergency fund.
Tips for Maximizing Interest Earnings
Choosing the Right Financial Products
To make the most of your interest earnings, consider the following financial products:
High-yield Savings Accounts
High-yield savings accounts offer competitive interest rates and use compound interest, making them an excellent choice for growing your savings over time.
Money Market Accounts
Money market accounts typically offer higher interest rates than traditional savings accounts and also use compound interest. However, they may have higher minimum balance requirements.
CDs
CDs can be a useful option for earning a higher fixed interest rate over a specified term. They often use simple interest, making them suitable for short-term investments with predictable returns.
Bonds
Investing in bonds can provide a steady stream of interest income, with some bonds offering either simple or compound interest, depending on their terms.
Diversification
Diversifying your investment portfolio helps to balance risk and return. Consider a mix of assets, such as stocks, bonds, and real estate, to optimize your interest earnings and capitalize on the power of compound interest.
Regular Contributions
Making regular contributions to your investment or savings accounts can help you maximize your interest earnings. By consistently adding to your principal balance, you can benefit from the exponential growth of compound interest.
Reinvesting Interest
Reinvesting the interest earned from your investments can significantly boost your overall returns. By allowing the interest to compound, you can accelerate the growth of your investments.
Simple Interest vs. Compound Interest: Common Misconceptions
Misconception 1: Simple Interest is Always Cheaper for Borrowers
While simple interest can lead to lower interest expenses for short-term loans, it’s essential to evaluate each loan on a case-by-case basis. Factors such as fees, loan terms, and additional charges can influence the overall cost of borrowing.
Misconception 2: Compound Interest Always Provides Higher Returns for Investors
Although compound interest can offer exponential growth potential, the underlying investment’s performance and risk factors must be considered. It’s also crucial to consider the historical performance, fees, and management of the investment before making a decision.
Impact of Different Compounding Frequencies
The frequency at which interest is compounded can have a significant impact on your investment’s growth or your loan’s interest expense. Generally, the more frequently interest is compounded, the higher the overall returns or costs.
Daily compounding: Interest is calculated and added to the principal balance every day.
Monthly compounding: Interest is calculated and added to the principal balance every month.
Quarterly compounding: Interest is calculated and added to the principal balance every three months.
Annual compounding: Interest is calculated and added to the principal balance once a year.
Historical Perspective
Simple and compound interest have played a vital role in the development of modern financial systems. The concept of interest dates back thousands of years, with civilizations such as the Babylonians, Greeks, and Romans using different forms of interest to facilitate trade and commerce.
The idea of compound interest gained prominence during the Renaissance, with mathematicians like Leonardo Fibonacci developing formulas to calculate compound interest. Over time, compound interest became a cornerstone of modern finance, shaping the way investments and loans are structured today.
Interest Rates and Economic Conditions
Interest rates are influenced by various economic factors, including inflation, unemployment, and central bank policies. Understanding the relationship between interest rates, economic conditions, and the performance of financial products that rely on simple or compound interest is crucial for making informed financial decisions.
Debt Management Strategies
Understanding the difference between simple and compound interest can help borrowers create effective debt management strategies, such as:
Pay off high-interest debts first: Focus on repaying loans with the highest interest rates, as they can quickly accumulate interest and increase your overall debt burden.
Refinancing loans: Consider refinancing high-interest loans to secure lower interest rates or more favorable terms, potentially saving you money in the long run.
Debt consolidation: Combining multiple high-interest debts into a single loan with a lower interest rate can simplify repayments and reduce overall interest expenses.
By understanding the differences between simple and compound interest, you can make more informed financial decisions and work towards achieving your financial goals.
Tips for Borrowers
When borrowing money, it’s essential to understand the implications of simple vs. compound interest on your loan. Here are some tips for borrowers:
Shop around: Compare loans with different interest structures and rates before committing to one. Don’t just look at the interest rate; consider the overall cost of borrowing, including fees, repayment terms, and penalties.
Negotiate: In some cases, you may be able to negotiate your loan’s interest rate, particularly if you have a strong credit score and a good relationship with your lender. Lower interest rates can save you money over the life of the loan.
Extra payments: Making additional or larger payments can help reduce your loan’s principal balance, lowering the total interest you’ll pay over time. However, be sure to check if your loan has any prepayment penalties.
Monitor interest rates: Keep an eye on interest rates in the broader market, as they can impact the cost of borrowing. If rates drop significantly, you may want to consider refinancing your loan to secure a lower interest rate.
Understand loan terms: Read and understand your loan agreement’s terms and conditions, including any interest rate adjustments, payment schedules, and fees. This will help you better manage your loan and avoid surprises down the line.
Conclusion
Simple and compound interest are fundamental concepts in personal finance, influencing everything from saving and investing to borrowing money. By understanding the differences between the two, you can make smarter financial decisions and work towards achieving your financial goals.
In summary:
Simple interest is calculated on the initial principal balance only, while compound interest is calculated on both the principal balance and any accumulated interest from previous periods.
Simple interest is generally easier to calculate and results in predictable payments for borrowers, while compound interest offers exponential growth potential for investors.
Choosing between simple and compound interest depends on various factors, such as your time horizon, risk tolerance, and financial goals.
To maximize your interest earnings, consider high-yield savings accounts, money market accounts, CDs, and bonds, along with regular contributions and reinvesting interest.
Understanding the impact of different compounding frequencies and the relationship between interest rates and economic conditions can help you make more informed financial decisions.
For borrowers, managing debt effectively involves comparing loan options, negotiating interest rates, making extra payments, and understanding loan terms.
By keeping these principles in mind, you’ll be well-equipped to manage your finances and make the most of your financial journey.
Investing has become much easier over the years thanks to the popularity of robo-advisors. Rather than working with a human financial advisor, a robo-investing uses algorithms to make a wealth management plan for each investor.
There are many advantages to using these services. Robo-advisors are typically less expensive than hiring a financial advisor. They allow you to start investing in the stock market even if you don’t have much money to start with.
So if you’re looking for an easy, inexpensive way to get started with investing, a robo-advisor could be a great option for you.
10 Best Robo-Advisors: Uncovering the Standout Performers
Here is an overview of our top picks for the best robo-advisors, as well as a brief explanation about what we like about each one:
1. Personal Capital
Key Features:
Hybrid robo-advisor with access to human financial advisors
Advanced investment strategies including tax optimization
Comprehensive financial planning tools
Retirement and savings goal tracking
High minimum balance requirement
Who it’s best for:
Personal Capital is ideal for more advanced investors with higher account balances, as well as those who seek a combination of automated investing with human financial advisor support.
Its comprehensive planning and retirement tracking features make it a powerful platform for long-term wealth management.
2. Wealthfront
Key Features:
Diversified portfolios with 11 different asset classes
Tax-loss harvesting for all investment accounts
High-interest cash account
Automatic rebalancing and portfolio optimization
College savings plan (529) support
Who it’s best for:
Wealthfront is a strong option for investors seeking a fully automated robo-advisor with a focus on tax efficiency and diversified investments.
Its high-interest cash account and college savings plan support make it an attractive choice for those looking to cover various financial goals.
3. Betterment
Key Features:
Goal-based investing tailored to personal milestones
Automatic rebalancing and tax-efficient strategies
Socially responsible investing options
Access to human financial advisors (with premium plan)
No minimum account balance
Who it’s best for:
Betterment is a great choice for beginners and experienced investors alike, who want a goal-oriented approach to investing.
With its socially responsible investing options and access to a licensed advisor (with the premium plan), it provides a well-rounded platform for a variety of investors.
4. Ally Invest
Key Features:
Low account minimum and no trading commissions
User-friendly online platform
Various research-based tools
No advisory fees for managed portfolios
Integration with Ally Bank for seamless banking and investing
Who it’s best for:
Ally Invest is an excellent option for new investors looking for a low-cost, user-friendly platform with no trading commissions.
Its integration with Ally Bank makes it a convenient choice for those who want to manage their banking and investing under one roof.
5. Vanguard
Key Features:
Hybrid robo-advisor with access to Vanguard personal advisor services
Low-cost, diversified investment options
Retirement and college savings plans
Strong reputation and established history
Higher minimum investment compared to other robo-advisors
Who it’s best for:
Vanguard Digital Advisor is ideal for investors seeking a trusted, established provider with a focus on low-cost, diversified investments.
Its hybrid model offers the benefits of automated investing along with access to a human advisor, making it a strong option for those with larger account balances.
6. M1
Key Features:
Fractional share investing
Customizable portfolios or pre-built expert portfolios
No management fees or commissions
M1 Borrow feature allows borrowing against your portfolio
M1 Spend feature integrates banking and investing
Who it’s best for:
M1 Finance is well-suited for investors who want a high level of customization with their portfolios, allowing them to create their own investment “pies” or choose from pre-built expert portfolios.
As a cost-effective solution, it appeals to budget-minded investors who appreciate the opportunity to leverage their portfolio through borrowing or take advantage of integrated banking services.
7. Ellevest
Key Features:
Focus on socially responsible investing
Gender-specific investment advice
Goal-based investing approach
Access to career coaching and financial planners
Low fees
Who it’s best for:
Ellevest is an excellent choice for investors who prioritize socially responsible investing and seek a platform tailored to the unique financial challenges faced by women.
Its goal-driven approach, coupled with access to career coaching and financial planners, makes it a comprehensive platform for value-oriented investors.
8. Facet
Key Features:
Comprehensive financial planning services
Access to dedicated Certified Financial Planner (CFP)
Flat-fee pricing model
No account minimums
Not fully automated
Who it’s best for:
Facet Wealth is ideal for individuals who want personalized investment management services but can’t afford the fees associated with traditional financial advisors.
Its flat-fee pricing model and access to a dedicated CFP provide a high level of personalization and support, making it a valuable option for those seeking a more hands-on approach to wealth management.
9. SoFi Automated Investing
Key Features:
No management fees
Low minimum balance requirement
Automatic rebalancing
Access to certified financial planners
Robust customer service
Who it’s best for:
SoFi Automated Investing is an excellent option for investors seeking a low-cost, accessible platform with strong customer support.
With no account fees and a low balance requirement, it’s a great choice for those just starting their investment journey or those who want access to financial planning resources without paying high fees.
10. Blooom
Key Features:
Focus on retirement savings (401(k)s and IRAs)
No minimum account balance requirement
Flat yearly management fee
401(k) analysis and optimization
Auto rebalancing and investment recommendations
Who it’s best for:
Blooom is a standout option for investors looking to optimize their retirement savings, specifically in 401(k)s and IRAs.
With its flat yearly management fee and no minimum account balance requirement, it’s an accessible platform for those who want to improve their retirement investment approach and maximize their long-term returns.
A Side-By-Side Comparison of the Best Robo-Advisors
Listed below is a side-by-side overview of what each robo-advisor has to offer.
BROKER
FEES
PROMOTION
ACCOUNT MINIMUM
Ally Invest
0.0%
No promotions offered
$100
Personal Capital
0.49%-0.89%
No promotions offered
$100,000
Wealthfront
0.25%
$5,000 in assets managed for free
$500
Betterment
0.25%
A year of free management
$0
FutureAdvisor
0.50%
Three months of free management
$10,000
Vanguard
0.30%
No promotions offered
$50,000
Bloom
$10 per month
$10 off first year
$0
M1 Finance
0.0%
No promotions offered
$0
Ellevest
0.25%
Possible $750 cash bonus
$0
Facet Wealth
$480 per year or more
No promotions offered
$0
SoFi Automated Investing
0.0%
Free career counseling and loan discounts
$100
Wealthsimple
0.40%-0.50%
$10,000 in assets managed for free
$0
How do robo-advisors work?
A robo-advisor is a specialized software that provides automated investment portfolios based on your goals and risk tolerance. Your risk tolerance is based on your answers to the questions provided.
Robo-advisors use algorithms to choose the right asset allocation based on your risk tolerance, investment goals, and time horizon, providing a customized and efficient approach to portfolio management. Some services give you access to human advisors as well.
Robo-advisors are a viable option for anyone who wants to start investing but can’t afford a portfolio management firm. Or if you just want a hands-off approach to investing, robo-investing is a great choice for diversifying your investments. These services typically have low management fees and require low account minimum balances.
So if you don’t have tens of thousands of dollars at your disposal but still want to start building an investment portfolio, using a robo-advisor has a much lower barrier to entry. There are many online services available on the market, but the ones listed above stand out from the pack.
How to Choose the Right Robo-Advisor for Your Needs
Selecting the right robo-advisor requires considering your investment goals, risk tolerance, and personal preferences. Here are some factors to help guide your decision-making process:
1. Determine your investment goals
Before choosing a robo-advisor, it’s essential to outline your financial goals. Are you saving for retirement, building an emergency fund, or working towards another specific milestone? Understanding your objectives will help you find a robo-advisor that aligns with your needs and offers relevant services.
2. Assess your risk tolerance
Risk tolerance refers to your comfort level with the potential fluctuations in the value of your investments. Some investors prefer a conservative approach, while others may be willing to take on more risk for potentially higher returns. Choose a robo-advisor that offers investment options aligned with your risk tolerance and provides suitable recommendations based on your preferences.
3. Compare fees and account minimums
Fees and account minimums are crucial factors to consider when selecting a robo-advisor. Some platforms charge a percentage of your assets under management, while others may have a flat fee.
Additionally, account minimums can vary widely, ranging from no minimum to tens of thousands of dollars. Choose a robo-advisor with a fee structure and minimum investment requirement that suits your financial situation.
4. Review available investment options
Different robo-advisors offer varying investment options, including individual stocks, bonds, ETFs, and mutual funds. Some platforms may also provide access to socially responsible investments or other specialized options. Ensure the robo-advisor you choose offers options that align with your goals and values.
5. Consider additional features and services
Many robo-advisors offer added features and services, such as automatic rebalancing, tax-loss harvesting, and access to human advisors. Some platforms may also provide banking services or wealth management tools. Assess which additional features are important to you and select a robo-advisor that meets your requirements.
6. Evaluate the user experience
The user experience, including the platform’s ease of use, customer support, and educational resources, is an essential aspect of choosing a robo-advisor. Look for platforms with intuitive interfaces, responsive customer service, and helpful resources to guide you through the investment process.
7. Read reviews and testimonials
Researching reviews and testimonials from current users can provide valuable insight into a robo-advisor’s performance, customer satisfaction, and any potential issues you may encounter. Look for reviews from reputable sources and users with similar objectives and investment preferences to ensure the robo-advisor is the right fit for your needs.
What should you look for in a robo-advisor?
When researching robo-advisors, it’s crucial to know what features and qualities are essential for a successful investment experience. Here are five things you should keep in mind when you’re considering different services.
Management fees: Most robo-advisors will charge an annual fee. This is usually calculated as a percentage of your total assets. You should make sure you understand the management fee structure because this will cut into your earnings.
Types of accounts offered: You should make sure you have a general understanding of the different accounts offered. For instance, retirement accounts like Roth IRAs and 401(k)s will have limits on how much you can contribute each year. Make sure you understand the difference between a taxable investment account and tax-deferred or tax-free accounts offered and how they benefit your financial goals.
Investments: It’s a good idea to familiarize yourself with the types of investments offered. For instance, many robo-advisors offer low-cost index funds, mutual funds, and ETFs. You should make sure that you like the accounts being offered and that they are fairly low cost.
Rebalancing: Since your investment portfolio will fluctuate, over time, it’s easy for it to become out-of-sync with your overall investing goals. You should look for a company that offers automatic portfolio rebalancing.
Access to financial advisors: And finally, one of the benefits of using a robo-advisor is that it’s a hands-off approach to investing. But some robo-advisors offer access to financial planners, and this offers many benefits. Having a financial planner involved brings a human element to your portfolio and makes it more personalized.
An Explanation of the Different Investment Options Available through Robo-Advisors
Robo-advisors provide investors with a variety of investment options to create a well-diversified portfolio tailored to their risk tolerance and financial objectives. Understanding the different options available can help you make informed decisions about your portfolio. Here are some of the most common options offered by robo-advisors:
1. Exchange-Traded Funds (ETFs)
ETFs are a popular investment option among robo-advisors due to their low costs and broad diversification. An ETF is a collection of securities, such as stocks, bonds, or commodities, that tracks a specific index or sector. ETFs trade on stock exchanges, just like individual stocks, and offer investors exposure to a wide range of asset classes, industries, and regions.
2. Index Funds
Index funds are mutual funds that track the performance of a specific market index, such as the S&P 500 or Nasdaq Composite. Like ETFs, they provide broad diversification and have low management fees. By investing in an index fund, you’re essentially buying a small piece of every company within that index, reducing the overall risk in your portfolio.
3. Mutual Funds
Mutual funds pool the investments of multiple investors to purchase a diversified portfolio of stocks, bonds, or other securities. They are less common in robo-advisor portfolios due to their higher fees compared to ETFs and index funds, some robo-advisors still include them as an investment option, particularly for specific sectors or strategies.
4. Bonds
Bonds are debt securities issued by governments, corporations, or other entities to raise capital. When you invest in a bond, you’re essentially lending money to the issuer in exchange for periodic interest payments and the return of the principal amount at the bond’s maturity. Bonds are typically considered less risky than stocks and can provide a steady income stream, making them a popular choice for conservative investors or those nearing retirement.
5. Real Estate Investment Trusts (REITs)
REITs are companies that own, operate, or finance income-producing real estate properties. They allow investors to gain exposure to real estate investments without the need to buy or manage properties directly. REITs can provide diversification and income potential to a portfolio, as they typically pay regular dividends from the rental income generated by their properties.
6. Socially Responsible Investing (SRI) and Environmental, Social, and Governance (ESG) Funds
SRI and ESG funds focus on investments in companies that meet specific ethical, environmental, social, or governance criteria. These funds allow investors to align their investment portfolios with their values and support businesses that have a positive impact on society and the environment. Some robo-advisors offer SRI and ESG options to cater to the growing demand for responsible investing.
7. Target-Date Funds
Target-date funds are designed to simplify long-term investing, particularly for retirement planning. These funds automatically adjust their asset allocation over time, gradually shifting from higher-risk investments like stocks to more conservative investments like bonds as the target retirement date approaches. This helps investors maintain an age-appropriate risk level in their portfolios without needing to make manual adjustments.
Tips for Monitoring and Adjusting Your Investment Strategy with a Robo-Advisor
While robo-advisors are designed to automate much of the investment process, it’s essential to periodically review your investment plan and make adjustments as needed. Here are some tips for monitoring and adjusting your strategy when using a robo-advisor:
1. Regularly review your risk tolerance and investment goals
Your risk tolerance and investment goals may change over time due to personal circumstances or market conditions. Ensure you update your robo-advisor profile to reflect any changes, as this will help the platform adjust your portfolio to align with your current objectives and risk appetite.
2. Monitor your portfolio performance
Keep an eye on your portfolio’s performance and compare it to relevant benchmarks or other investment options. This will give you an idea of whether your robo-advisor is effectively managing your investments and meeting your expectations. If your portfolio consistently underperforms, it may be time to consider other investment strategies or try a different robo-advisor.
3. Rebalance your portfolio as needed
While many robo-advisors automatically rebalance your portfolio, it’s still a good idea to review your investments periodically. If you notice significant deviations from your target allocation or if your investment goals change, you may need to adjust your portfolio accordingly.
4. Stay informed about market trends and developments
Even though robo-advisors handle most of the investment decisions for you, it’s essential to stay informed about market trends and developments. This will help you better understand your portfolio’s performance and make more informed decisions about any adjustments you may need to make.
5. Evaluate the robo-advisor’s features and offerings
Periodically review the features and offerings of your robo-advisor to ensure they still align with your needs and preferences. Some robo-advisors may introduce new investment options, tools, or services that could benefit your investment strategy. If you find a different robo-advisor that better suits your needs, don’t hesitate to switch.
6. Consider seeking professional advice
If you have concerns about your investment approach or need help understanding complex financial situations, consider consulting a certified financial planner or other financial professional. While a robo-advisor can be an excellent option for many investors, there may be times when personalized advice from a human advisor is necessary.
Bottom Line
Robo-advisors are an excellent solution for investors seeking a low-cost, user-friendly approach to growing their wealth. They provide the advantages of professional portfolio management and access to diverse investment options without the hefty fees typically associated with traditional financial advisors.
As you embark on your investment journey, remember to consider your long-term goals, risk tolerance, and personal values when selecting a robo-advisor. Make sure to evaluate management fees, account types, and available investment options to ensure your chosen platform aligns with your investment strategy.
Keep an eye on your portfolio and leverage the tools and features offered by your robo-advisor to maximize returns, optimize asset allocation, and stay on track to achieve your financial goals.
By understanding the full potential of robo-advisors and making informed decisions about your investments, you can confidently take charge of your financial future and reap the rewards of a well-managed, diversified portfolio.
The investing information provided on this page is for educational purposes only. NerdWallet, Inc. does not offer advisory or brokerage services, nor does it recommend or advise investors to buy or sell particular stocks, securities or other investments.
A tax refund can be an opportunity to advance financial goals, whether you need a shovel to dig your way out of debt or a launching pad to generate more income.
The average tax refund in the 2023 tax season was $2,753, according to filing season statistics reported by the IRS. It’s a potentially robust amount that can make a difference if it’s prioritized in a way that makes sense for your situation. And you can set aside a sliver for fun or self care, as some experts suggest.
“Take a little bit of it — no more than 10% — and do something for yourself like treat yourself to a nice dinner, maybe a new outfit or something like that,” says Jessica Allen, an accredited financial counselor based in Tennessee.
Taking a small portion to spend however you want can encourage discipline and focus over decades to keep on track with your financial plan, according to Yusuf Abugideiri, chief investment officer at Yeske Buie, a Virginia-based financial planning firm. As for that 90% or more, allow your goals to dictate where it goes.
Here are some ways to use your tax refund to get ahead financially.
1. Build credit
If you need to build credit or get a second chance at it, consider using the tax refund to put down a deposit on a secured credit card. It’s not uncommon for some of these cards to require an upfront deposit of several hundred dollars.
When you’re researching secured credit cards, look for ones that have no annual fee; that offer a potential upgrade path to a traditional unsecured credit card; and that will report your payments to all three major credit bureaus (Equifax, Experian and TransUnion). With a good payment history, you can eventually get the deposit back after closing the card or graduating to a better card with the same issuer.
2. Pay off debt
If you’re carrying a high-interest balance on a credit card, a tax refund can help you ditch that debt more quickly. In addition, if you’re able to lower your credit card’s interest rate, you can make an even larger dent.
If you have multiple debts, consider one of two approaches: Tackle the one with the highest interest rate, through the debt avalanche method, or attack the smallest balance first, with the snowball method. Whichever debt you prioritize, remember that it’s still important to keep up with payments on all other debts.
Allen is a fan of the snowball method because it incentivizes people and builds confidence as they make more progress toward their goal.
“I don’t know about you, but when I accomplish a whole bunch of small goals I feel super-good and it makes me get to that bigger goal,” she says.
3. Save for an emergency
You could also put your tax refund toward an emergency fund — with a goal of getting that fund to at least $1,000 — to prevent you from accruing debt when the unexpected happens. Make the most of a tax refund by putting it in a high-yield savings account at an online bank, ideally one that offers an annual percentage yield of 4% or more.
If you’re debt-free, work toward saving the recommended three to six months’ worth of living expenses.
4. Invest in your ability to generate more income
If you’re looking to advance professionally, build a business or bring in additional income, a tax refund can propel those goals forward. Make yourself more marketable in a profession by earning certifications or training that will allow for more job opportunities or a salary increase. Or use a tax refund toward buying the training or equipment needed to start a business or side hustle.
5. Invest for retirement
When debt isn’t the focus, you can think about putting a tax refund to work in retirement accounts. If your company offers one, snag the match on a 401(k) by increasing your contributions, or fund a traditional or Roth IRA. In 2024, you can save up to $7,000 in an IRA ($8,000 if you’re 50 or older), and up to $23,000 in a 401(k) ($30,500 if you’re 50 or older). If you’re already on track with these goals, consider investing elsewhere.
“If IRAs and 401(k)s are already being addressed in a savings plan, you can look at just putting it in a brokerage account,” Abugideiri says.
A brokerage account is an investment account through which you can purchase stocks, bonds and mutual funds.
6. Save for your child’s education
With your financial ducks in a row, you can explore whether investing your refund in a tax-advantaged account like a 529 plan makes financial sense to save up for your child’s college education. However, don’t prioritize this option over other financial goals like retirement, and think carefully about the potential drawbacks.
For instance, your child may decide not to go to college, and penalties could apply if earnings are withdrawn for nonqualified expenses. Providing financial security for children may be a top priority, but a good way to do that is by taking care of yourself financially — to help them avoid having to do that for you down the line, Abugideiri says.
“You can take out a loan for college, but you can’t take a loan out to cover [all] your retirement expenses,” he says.
When it comes to buying a home, the significance of securing a mortgage with a competitive rate cannot be overstated. Imagine finding your dream home, only to realize the financial burden of a less-than-ideal mortgage rate.
This is where the expertise of a mortgage broker becomes invaluable. With their in-depth understanding of the mortgage landscape and access to a broad network of lenders, mortgage brokers play a crucial role in ensuring you don’t just find a loan, but the best possible loan for your situation.
Consider the impact: A difference of even 0.5% in your mortgage rate could mean saving or spending thousands over the life of your mortgage loan. In today’s market, where every little saving counts, the right mortgage rate can significantly affect your monthly budget and long-term financial planning.
Mortgage brokers offer a streamlined path through the complex process of loan comparison and application, saving you time, stress, and most importantly, money. Whether you’re in the process of home buying for the first time or looking to add to your portfolio, understanding the value a mortgage broker brings to the table is the first step towards securing your financial future.
What a Mortgage Broker Does
A mortgage broker serves as your ally in the journey toward homeownership, offering more than just a bridge to potential lenders. They dive into the vast sea of mortgage options, evaluating lenders and loan programs with an expert eye to pinpoint the ones that align with your unique financial landscape. But how exactly do they accomplish this? Let’s break it down.
Tailoring the Search to Your Financial Profile
Every homebuyer’s financial situation is distinct, with varying income levels, credit histories, and long-term goals. Mortgage brokers start by understanding these intricacies.
They assess your financial health, scrutinize your income, credit score, and debt-to-income ratio, and then use this information to filter through loan options. This personalized approach ensures that the recommendations they provide are not just any loans, but loans tailored to your specific needs.
Evaluating Lenders and Loan Programs
Mortgage brokers don’t just randomly select lenders. They perform a comprehensive analysis, comparing interest rates, loan terms, and qualification criteria across a wide spectrum of lenders.
This includes major banks, credit unions, and niche financing companies, some of which you might not have access to on your own. Their goal is to find you a loan that not only has competitive rates but also favorable terms that match your financial situation.
Overcoming Financial Challenges
Consider a scenario where a borrower has a solid income but a less-than-stellar credit score. A mortgage broker can identify lenders who are more lenient or specialized in handling similar profiles. Or, for self-employed individuals, brokers are aware of which lenders are more receptive to non-traditional income documentation, making what might seem like a daunting process simpler in finding suitable options.
Check Out Our Top Picks for 2024:
Best Mortgage Lenders
How a Mortgage Broker Can Help You
Engaging with a mortgage broker can significantly elevate your home buying journey, offering bespoke assistance that aligns with your unique financial and personal circumstances. Here’s a deeper dive into the ways a mortgage broker can be indispensable to prospective homeowners.
Streamlining the Loan Comparison Process
Mortgage brokers excel in their ability to filter through the vast array of loan options, identifying those that best fit your financial situation and home buying goals. This service is invaluable, saving you considerable time and effort that would otherwise be spent navigating through complex loan terms and conditions on your own.
Expert Negotiations on Your Behalf
With their extensive knowledge of the mortgage industry and relationships with multiple lenders, brokers are adept at negotiating terms that may not be directly accessible to you. This can include lower interest rates, reduced fees, or more favorable loan terms, directly impacting your financial well-being over the life of your mortgage.
Handling Paperwork and Coordination
The home loan process involves a significant amount of paperwork, from application forms to financial disclosures. A mortgage broker helps you compile the necessary documentation and ensures that all paperwork is completed accurately and submitted promptly, minimizing delays or issues.
Providing Tailored Financial Solutions
Brokers are particularly valuable for buyers with unique financial backgrounds — such as self-employed individuals, those with variable incomes, or buyers with a complex credit history. They have the expertise to find lenders who are more flexible with their lending criteria, providing solutions that might not be available through traditional channels.
Ongoing Support and Guidance
From the initial consultation to closing, a mortgage broker offers continuous support and guidance. They can clarify complex terms, answer questions, and provide updates throughout the process, ensuring you’re well-informed and confident in your decisions.
The Pros and Cons of Using A Mortgage Broker
Utilizing a mortgage broker comes with a host of advantages, but it’s important to consider the full picture. Let’s explore the nuanced benefits and potential drawbacks, enriched with real-life examples, for a more comprehensive understanding.
Pros
Access to Expertise and Options
One significant advantage is the broker’s role as an expert guide through the complex mortgage landscape. Their access to a broad array of lenders means they can offer various loan options tailored to your specific needs.
Case Study: Overcoming High Debt Ratios
For instance, a family with a high debt-to-income ratio was able to secure a favorable mortgage through a broker who knew which lenders offered more lenient qualification criteria, turning a challenging situation into a home-buying success story.
Cons
While brokers can offer invaluable assistance, there are considerations to keep in mind. Awareness of these aspects can help you make informed decisions.
Variability in Rates and Terms
It’s crucial to remember that not all deals brokered are set in stone. Interest rates and terms can fluctuate, which means the initial estimates might change. Engaging in open discussions about these possibilities can prepare you for any adjustments.
Direct Deals Might Be More Beneficial
In some cases, directly engaging with loan officers at your financial institution might offer more competitive mortgage options. It’s worth speaking to a loan officer at your bank or credit union to see what they have to offer before making a decision. This direct approach can sometimes yield benefits, especially if you have a strong relationship or history with the financial institution.
Mitigating the Drawbacks
Understanding how to leverage the benefits while minimizing the downsides involves clear communication with your broker about all potential options and staying informed about your own financial institution’s offerings.
The Cost of Hiring a Mortgage Broker
When considering the services of a mortgage broker, it’s important to understand how they are compensated for their expertise. Most often, mortgage broker fees are paid by the lenders, though there are situations where the borrower might cover these costs. This flexibility in the payment structure means that, in many instances, engaging a broker may not result in direct out-of-pocket expenses for you.
Brokers typically earn their income through commissions, which are usually between 1% and 2% of the loan’s total amount at closing. These costs can often be incorporated into your mortgage, becoming part of the loan’s overall financial setup. Despite the potential fees, the financial benefits that brokers can provide often far outweigh these costs.
In addition to their commission, brokers might also receive compensation through loan origination fees, administrative charges, upfront fees, or a yield-spread premium. Having a transparent conversation about the broker’s fee structure early on is crucial to avoid any surprises later in the process.
Although the idea of paying additional fees for a broker might seem significant, it is a strategic investment. The savings on your mortgage interest over time can substantially surpass the cost of the broker’s fee, making their services a valuable asset in your home buying or refinancing journey.
Finding the Right Mortgage Broker for You
With the abundance of mortgage brokers available, selecting the right one can seem daunting. Here are strategic steps to ensure you partner with a broker who best suits your needs:
Seek referrals from people you trust, like family, friends, or your real estate agent.
Confirm their professional credentials through the National Mortgage Licensing System.
Look for membership in recognized industry associations, such as the National Association of Mortgage Brokers, as a sign of professionalism and integrity.
Research online reviews to gauge their reputation and client satisfaction.
Discuss their fee structure upfront to understand how they are compensated.
Consult the Better Business Bureau to check for any complaints or issues.
Bottom Line: The Value of a Mortgage Broker
While searching for the ideal home loan can seem overwhelming, the right mortgage broker can significantly reduce your stress and workload. Their expertise and services not only simplify the loan comparison and application process but can also lead to significant savings on interest, making their cost a worthwhile investment in your financial future.
By carefully selecting a broker who aligns with your needs and financial goals, you position yourself to secure a mortgage that benefits you in the long term, both financially and personally.
Frequently Asked Questions
Do I need to use a mortgage broker to get a mortgage?
No, you are not required to use a mortgage broker to get a mortgage. You can also apply for a mortgage with a direct lender, such as a bank or credit union.
How do mortgage brokers make money?
Mortgage brokers typically earn a commission from the lender for successfully arranging a mortgage. This commission is typically a percentage of the loan amount. They may also charge you a fee as part of your closing costs.
How do I choose a mortgage broker?
If you decide to work with a local broker, make sure they are experienced, reputable, and have a proven track record. You can ask for recommendations from friends and family, or research mortgage brokers online to find one that meets your needs.
Can a mortgage broker help me if I have bad credit?
A mortgage broker may be able to help you secure a mortgage even if you have less than perfect credit. However, you may have to pay a higher interest rate or provide a bigger down payment to compensate for the increased risk to the lender.
Can a mortgage broker help me with refinancing my mortgage?
Yes, a broker can help you with refinancing your mortgage. They can work with you to find a lender that offers the best terms for your specific needs and help you navigate the refinancing process.
Whether it’s a 5% increase or a 20% bump, a pay raise at work is an opportunity to take charge of your financial priorities. A small raise might not seem like much when it’s broken down into a biweekly paycheck, but over time, that difference in income could provide a boost to your lifestyle or be put toward other financial goals.
Whether you decide to pay off debt, pad your safety net, invest, give back, improve your quality of life or treat yourself, a raise is a good time to think about the direction of your financial life.
Keep an eye on lifestyle creep
Many personal finance experts warn against “lifestyle creep,” which is when you begin to spend more as you earn more. Lifestyle creep can take the form of buying more conveniences — like ordering food in more often — or buying more expensive or higher-quality items, like sturdier hiking boots or a better brand of skin care products.
“If you get a raise and use it to buy a new car or a new home or go out every weekend, your rate of spending might surpass your new income,” says Mabel Nuñez, founder of the investing education site Girls on the Money.
Nuñez says that it’s good to reward yourself, but she advises clients to avoid buying more expensive things.
“Think about an expense that’s going to be a one-time purchase or something that’s going to make you better, like traveling somewhere new or taking a cooking class,” Nuñez says. “Don’t spend just for the sake of spending.”
Once you’ve looked at your financial situation, you might find that it’s not in your best interest to increase your spending on nonessentials. But if you’re feeling good about the status of your consumer debt and savings, then you might choose to spend more money on things that will make life more enjoyable.
For example, maybe you’ve been washing dishes by hand because you don’t have a dishwasher or yours is broken. You could put part of your raise toward a new appliance that’s going to save you a lot of time and energy. Or maybe you’ve been driving the same car for the past 20 years or living in a too-small house with your growing family. If you’ve planned for the increased costs, an upgrade that brings you increased functionality and comfort is a raise well-spent.
Focus on high-priority financial goals
Liz Carroll, a financial life and wellness coach at Mindful Money Coaches, says that paying off consumer debt with an 8% annual percentage rate or higher should be a top priority, especially if you have more income that you can put toward it.
Beyond debt payoff, Carroll suggests people have a financial safety net of at least a month’s worth of expenses, with the goal of working toward three to six months’ worth. This could be done through regular recurring transfers from your paycheck to your savings account.
“Give your future self a share,” Carroll says. “I tell my clients to be mindful and pause before the quick reaction of, ‘I got a raise, now I can spend money.’ Instead, you should think, ‘What’s in alignment with my values?’”
Investing for retirement is another priority to consider, such as contributing to your 401(k) to earn any matching funds offered by your employer or putting your money in a Roth IRA. You could also consider an index fund, which allows you to invest in a wide range of stocks all at once.
“You want money in savings for an emergency, but anything above that that you don’t need in the next few years could be invested in a conservative way, like an index fund,” Nuñez says. “Learn how to invest it in a smart way, and it’ll get you to the next level of financial life.”
Treat yourself and give back
Beyond debt, savings and other future financial planning, Carroll says you should feel comfortable celebrating your accomplishments. Just keep in mind that you may want to put up some guardrails around the way you reward yourself so that you can maximize the financial benefits of a raise. Carroll says something that equals 5% of the total raise is a good amount to aim for if you want to treat yourself but are also paying off debt. If you don’t have debt, she says, 10% of the total raise is a good benchmark.
Another thing you may choose to do with your raise is to give back to your community. Whether you donate money to your favorite charity or surprise a loved one with a random act of kindness, it can make you feel good to share your good fortune.
More income means having more resources to achieve your goals. By creating a plan for important financial milestones — as well as for fun splurges — you’ll get the most out of your money.
This article was written by NerdWallet and was originally published by The Associated Press.
The Secure 2.0 Act aims to help Americans save for retirement through new policy changes and government incentives, but one provision taking effect next year is working toward something more: narrowing the racial wealth gap.
Section 101 of Secure 2.0 requires companies to automatically enroll eligible employees into 401(k) or 403(b) plans, starting after Dec. 31, 2024, citing auto-enrollment’s effectiveness at boosting the participation rate in workplace retirement plans for Black, Latino, and lower-wage employees.
Participating in a retirement plan through work may be one of the easiest ways to prepare for the future, but historically, participation has varied. A 2023 study by T. Rowe Price found that participation in an employer-sponsored retirement plan was highest for white people at 57.7% but lowest for Black people at 40.5% and Hispanic people at 31.9%.
That auto-enrollment provision is well-intentioned, says Yemi Rose, but it needs to be part of a bigger solution.
“I don’t think anybody’s surprised to say if we automatically enroll people that we’re getting more enrollment,” says Rose, the Maplewood, New Jersey-based founder of OfColor, a startup that supports employees of color in building financial awareness. However, he says that getting enrolled and participating in a retirement plan in and of itself doesn’t solve the hard, more pressing money issues.
Advertisement
Fees
$0
per trade
Fees
$0
per trade
Fees
$0
per trade
Account minimum
$0
Account minimum
$0
Account minimum
$0
Promotion
None
no promotion available at this time
Promotion
None
no promotion available at this time
Promotion
Get up to 75 free fractional shares (valued up to $3,000)
when you open and fund an account with Webull.
A glimpse into the retirement gap
One driver of retirement inequality could be income inequality. According to the Federal Reserve 2022 Survey of Consumer Finances, white families had an average pre-tax income of $164,550 compared with $70,950 for Black families and $71,550 for Hispanic families.
With less money to begin with, challenges such as inflation, higher interest rates and student loan repayments can put a lot of demand on the dollars coming in, says Greg Ward, a certified financial planner with Financial Finesse based in Charlotte, North Carolina.
He says common financial priorities for communities of color also include providing for family at home or overseas, and saving for their children’s education.
When there’s pressure to meet current financial obligations, skipping retirement savings or dipping into them might seem to offer relief, Ward says.
A 2023 report by the Sloan School of Management at MIT found that Black employees were twice as likely as white workers to take an early withdrawal of at least $1,000 from their retirement savings. Hispanic workers were 21% more likely.
Another Secure 2.0 provision, effective this year, removes tax penalties for some hardship withdrawals, but that’s sticky, too, said Hui-chin Chen, a certified financial planner and managing partner at Pavlov Financial Planning in Arlington, Virginia, in an email interview.
“Flexibility to withdraw may be an incentive to contribute to retirement accounts,” she said. “However, having that flexibility doesn’t mean you should exercise it when you don’t need to. Investing for the long-term in retirement accounts is still recommended.”
Beyond competing financial priorities, a lack of trust in institutions may also cause some to hesitate before participating in a retirement plan.
Chen said that immigrants who have arrived in the U.S. as adults have less time to save for retirement, and they might be more hesitant to take advantage of a retirement system they do not understand.
Rose also says lack of institutional trust can play a role in 401(k) participation rates. A worker might start a job expecting to see a certain amount in their paycheck, and when it’s less than they thought because of 401(k) deductions, they might get upset, he says.
“It’s a confirmation bias like, ‘Oh, my goodness, they’re taking more money from me.’”
Advertisement
Fees
$0
per trade
Fees
$0
per trade
Fees
$0
per trade
Account minimum
$0
Account minimum
$0
Account minimum
$0
Promotion
None
no promotion available at this time
Promotion
None
no promotion available at this time
Promotion
Get up to 75 free fractional shares (valued up to $3,000)
when you open and fund an account with Webull.
Secure 2.0: part of a bigger solution
Despite reservations about auto-enrollment, Rose says he still went to Capitol Hill to push for Secure 2.0 to be passed.
“In one sense, yes, we have more people enrolled,” he says. “But at the same time, you might also start to see more distributions in the form of a hardship or a loan. So you really have to kind of solve it from both ends.”
Part of that solution is raising financial awareness and literacy in communities of color, especially when it comes to preparing for retirement, he says.
Jamia Erickson, a senior financial advisor at Thrivent, based in Rochester, Minnesota, suggested small steps for those who find it hard to save for retirement by taking advantage of compound interest.
“I know it sounds cliche, but it works,” she said in an email interview. “Even if it’s $25 a month, start contributing to a retirement account.”
And while Erickson said that people shouldn’t rely on legislation when it comes to their future, she does tell people to ask questions of financial advisors and to do their research.
“Retirement planning is highly complex, so you shouldn’t feel like you have to know it all,” she said. “And because it’s such a major part of your life, asking questions will allow you to make more informed money decisions that ultimately help you achieve what you want in life.”