Average mortgage rates fell just a little last Friday. But last Thursday’s massive jump means they finished that week — and last month — higher than when they started them.
First thing, it was looking as if mortgage rates today might again barely budge. But that could change as the hours pass.
Markets will be closed tomorrow for the Independence Day holiday. And we’ll be back on Wednesday morning. Enjoy your celebrations!
Current mortgage and refinance rates
Program
Mortgage Rate
APR*
Change
Conventional 30-year fixed
7.129%
7.158%
Unchanged
Conventional 15-year fixed
6.638%
6.651%
Unchanged
Conventional 20-year fixed
7.506%
7.558%
Unchanged
Conventional 10-year fixed
6.997%
7.115%
Unchanged
30-year fixed FHA
6.672%
7.303%
Unchanged
15-year fixed FHA
6.763%
7.237%
Unchanged
30-year fixed VA
6.729%
6.937%
Unchanged
15-year fixed VA
6.625%
6.965%
Unchanged
5/1 ARM Conventional
6.75%
7.266%
Unchanged
5/1 ARM FHA
6.75%
7.532%
+0.11
5/1 ARM VA
6.75%
7.532%
+0.11
Rates are provided by our partner network, and may not reflect the market. Your rate might be different. Click here for a personalized rate quote. See our rate assumptions See our rate assumptions here.
Should you lock a mortgage rate today?
Recent reporting in the financial media makes me think mortgage rates are unlikely to see any significant and sustained falls until at least the fourth (Oct.-Dec.) quarter of 2023 and probably not until 2024.
And that’s why my personal rate lock recommendations remain:
LOCK if closing in 7 days
LOCK if closing in 15 days
LOCK if closing in 30 days
LOCK if closing in 45 days
LOCK if closing in 60days
However, with so much uncertainty at the moment, your instincts could easily turn out to be as good as mine — or better. So let your gut and your own tolerance for risk help guide you.
>Related: 7 Tips to get the best refinance rate
Market data affecting today’s mortgage rates
Here’s a snapshot of the state of play this morning at about 9:50 a.m. (ET). The data, compared with roughly the same time last Friday, were:
The yield on 10-year Treasury notes edged down to 3.82% from 3.85%. (Good for mortgage rates.) More than any other market, mortgage rates typically tend to follow these particular Treasury bond yields
Major stock indexes were mostly lower. (Good for mortgage rates.) When investors buy shares, they’re often selling bonds, which pushes those prices down and increases yields and mortgage rates. The opposite may happen when indexes are lower. But this is an imperfect relationship
Oil prices inched up to $70.61 from $70.25 a barrel. (Neutral for mortgage rates*.) Energy prices play a prominent role in creating inflation and also point to future economic activity
Goldprices rose to $1,930 from $1,919 an ounce. (Neutral for mortgage rates*.) It is generally better for rates when gold prices rise and worse when they fall. Gold tends to rise when investors worry about the economy.
CNN Business Fear & Greed index — climbed to 84 from 80 out of 100. (Bad for mortgage rates.) “Greedy” investors push bond prices down (and interest rates up) as they leave the bond market and move into stocks, while “fearful” investors do the opposite. So lower readings are often better than higher ones
*A movement of less than $20 on gold prices or 40 cents on oil ones is a change of 1% or less. So we only count meaningful differences as good or bad for mortgage rates.
Caveats about markets and rates
Before the pandemic and the Federal Reserve’s interventions in the mortgage market, you could look at the above figures and make a pretty good guess about what would happen to mortgage rates that day. But that’s no longer the case. We still make daily calls. And are usually right. But our record for accuracy won’t achieve its former high levels until things settle down.
So, use markets only as a rough guide. Because they have to be exceptionally strong or weak to rely on them. But, with that caveat, mortgage rates today might again hold steady or close to steady. However, be aware that “intraday swings” (when rates change speed or direction during the day) are a common feature right now.
Important notes on today’s mortgage rates
Here are some things you need to know:
Typically, mortgage rates go up when the economy’s doing well and down when it’s in trouble. But there are exceptions. Read ‘How mortgage rates are determined and why you should care’
Only “top-tier” borrowers (with stellar credit scores, big down payments, and very healthy finances) get the ultralow mortgage rates you’ll see advertised
Lenders vary. Yours may or may not follow the crowd when it comes to daily rate movements — though they all usually follow the broader trend over time
When daily rate changes are small, some lenders will adjust closing costs and leave their rate cards the same
Refinance rates are typically close to those for purchases.
A lot is going on at the moment. And nobody can claim to know with certainty what will happen to mortgage rates in the coming hours, days, weeks or months.
What’s driving mortgage rates today?
Currently
To see sustained lower mortgage rates we need to see the inflation rate halving, the economy weakening, and the Federal Reserve stopping hiking general interest rates. And none of those looks likely anytime soon.
Some progress is being made on inflation. But not enough.
And the economy is showing extraordinary resilience. Last week’s gross domestic product (GDP) headline figure was 50% higher than many expected.
Meanwhile, the Fed seems highly likely to hike general interest rates by 25 basis points (0.25%) on Jul. 26. And there may well be at least one more increase after that in 2023.
Recession
As I’ve written before, our best hope for lower mortgage rates is a recession. That should weaken the economy, reduce inflation and perhaps cause the Fed to at least hold general rates steady.
Economists have been predicting an imminent recession for ages. And, not so long ago, I bought that line and was expecting one at any moment.
But, now, many big hitters aren’t expecting a recession until 2024. Yesterday, CNN Business listed a few of those making that prediction:
Bank of America CEO Brian Moynihan
Vanguard economists
JPMorgan Chase economists
Of course, others disagree, as economists always do. Some think a recession will still land later this year. And others believe there will be no recession at all.
This week
There are a few reports this week that could send mortgage rates up or down a bit. But Friday’s jobs report is the one most likely to have a decisive impact.
The consensus among economists is that the report will show 240,000 new jobs created in June compared with 339,000 in May. Anything lower than 240,000 might see mortgage rates tumble, which would be great.
However, we’ve witnessed economists making similar predictions for employment several times over recent months. And, nearly every time, their forecasts have greatly underestimated the resilience of the American labor market and therefore the American economy.
Of course, they might be right this time. Let’s hope so. But I shouldn’t hold my breath if I were you.
Please read the weekend edition of this daily report for more background on what’s happening to mortgage rates.
Recent trends
According to Freddie Mac’s archives, the weekly all-time low for mortgage rates was set on Jan. 7, 2021, when it stood at 2.65% for conventional, 30-year, fixed-rate mortgages.
Freddie’s Jun. 29 report put that same weekly average at 6.71%, up from the previous week’s 6.67%. But Freddie is almost always out of date by the time it announces its weekly figures.
In November, Freddie stopped including discount points in its forecasts. It has also delayed until later in the day the time at which it publishes its Thursday reports. Andwe now update this section on Fridays.
Expert mortgage rate forecasts
Looking further ahead, Fannie Mae and the Mortgage Bankers Association (MBA) each has a team of economists dedicated to monitoring and forecasting what will happen to the economy, the housing sector and mortgage rates.
And here are their rate forecasts for the current quarter (Q2/23) and the following three quarters (Q3/23, Q4/23 and Q1/24).
The numbers in the table below are for 30-year, fixed-rate mortgages. Fannie’s were published on May 23 and the MBA’s on Jun. 21.
In the past, we included Freddie Mac’s forecasts. But it seems to have given up on publishing those.
Forecaster
Q2/23
Q3/23
Q4/23
Q1/24
Fannie Mae
6.4%
6.2%
6.0%
5.8%
MBA
6.5%
6.2%
5.8%
5.6%
Of course, given so many unknowables, the whole current crop of forecasts might be even more speculative than usual. And their past record for accuracy hasn’t been wildly impressive.
Find your lowest rate today
You should comparison shop widely, no matter what sort of mortgage you want. Federal regulator the Consumer Financial Protection Bureau found in May 2023:
“Mortgage borrowers are paying around $100 a month more depending on which lender they choose, for the same type of loan and the same consumer characteristics (such as credit score and down payment).”
In other words, over the lifetime of a 30-year loan, homebuyers who don’t bother to get quotes from multiple lenders risk losing an average of $36,000. What could you do with that sort of money?
Mortgage rate methodology
The Mortgage Reports receives rates based on selected criteria from multiple lending partners each day. We arrive at an average rate and APR for each loan type to display in our chart. Because we average an array of rates, it gives you a better idea of what you might find in the marketplace. Furthermore, we average rates for the same loan types. For example, FHA fixed with FHA fixed. The end result is a good snapshot of daily rates and how they change over time.
How your mortgage interest rate is determined
Mortgage and refinance rates vary a lot depending on each borrower’s unique situation.
Factors that determine your mortgage interest rate include:
Overall strength of the economy — A strong economy usually means higher rates, while a weaker one can push current mortgage rates down to promote borrowing
Lender capacity — When a lender is very busy, it will increase rates to deter new business and give its loan officers some breathing room
Property type (condo, single-family, town house, etc.) — A primary residence, meaning a home you plan to live in full time, will have a lower interest rate. Investment properties, second homes, and vacation homes have higher mortgage rates
Loan-to-value ratio (determined by your down payment) — Your loan-to-value ratio (LTV) compares your loan amount to the value of the home. A lower LTV, meaning a bigger down payment, gets you a lower mortgage rate
Debt-To-Income ratio — This number compares your total monthly debts to your pretax income. The more debt you currently have, the less room you’ll have in your budget for a mortgage payment
Loan term — Loans with a shorter term (like a 15-year mortgage) typically have lower rates than a 30-year loan term
Borrower’s credit score — Typically the higher your credit score is, the lower your mortgage rate, and vice versa
Mortgage discount points — Borrowers have the option to buy discount points or ‘mortgage points’ at closing. These let you pay money upfront to lower your interest rate
Remember, every mortgage lender weighs these factors a little differently.
To find the best rate for your situation, you’ll want to get personalized estimates from a few different lenders.
Are refinance rates the same as mortgage rates?
Rates for a home purchase and mortgage refinance are often similar.
However, some lenders will charge more for a refinance under certain circumstances.
Typically when rates fall, homeowners rush to refinance. They see an opportunity to lock in a lower rate and payment for the rest of their loan.
This creates a tidal wave of new work for mortgage lenders.
Unfortunately, some lenders don’t have the capacity or crew to process a large number of refinance loan applications.
In this case, a lender might raise its rates to deter new business and give loan officers time to process loans currently in the pipeline.
Also, cashing out equity can result in a higher rate when refinancing.
Cash-out refinances pose a greater risk for mortgage lenders, so they’re often priced higher than new home purchases and rate-term refinances.
How to get the lowest mortgage or refinance rate
Since rates can vary, always shop around when buying a house or refinancing a mortgage.
Comparison shopping can potentially save thousands, even tens of thousands of dollars over the life of your loan.
Here are a few tips to keep in mind:
1. Get multiple quotes
Many borrowers make the mistake of accepting the first mortgage or refinance offer they receive.
Some simply go with the bank they use for checking and savings since that can seem easiest.
However, your bank might not offer the best mortgage deal for you. And if you’re refinancing, your financial situation may have changed enough that your current lender is no longer your best bet.
So get multiple quotes from at least three different lenders to find the right one for you.
2. Compare Loan Estimates
When shopping for a mortgage or refinance, lenders will provide a Loan Estimate that breaks down important costs associated with the loan.
You’ll want to read these Loan Estimates carefully and compare costs and fees line-by-line, including:
Interest rate
Annual percentage rate (APR)
Monthly mortgage payment
Loan origination fees
Rate lock fees
Closing costs
Remember, the lowest interest rate isn’t always the best deal.
Annual percentage rate (APR) can help you compare the ‘real’ cost of two loans. It estimates your total yearly cost including interest and fees.
Also pay close attention to your closing costs.
Some lenders may bring their rates down by charging more upfront via discount points. These can add thousands to your out-of-pocket costs.
3. Negotiate your mortgage rate
You can also negotiate your mortgage rate to get a better deal.
Let’s say you get loan estimates from two lenders. Lender A offers the better rate, but you prefer your loan terms from Lender B. Talk to Lender B and see if they can beat the former’s pricing.
You might be surprised to find that a lender is willing to give you a lower interest rate in order to keep your business.
And if they’re not, keep shopping — there’s a good chance someone will.
Fixed-rate mortgage vs. adjustable-rate mortgage: Which is right for you?
Mortgage borrowers can choose between a fixed-rate mortgage and an adjustable-rate mortgage (ARM).
Fixed-rate mortgages (FRMs) have interest rates that never change, unless you decide to refinance. This results in predictable monthly payments and stability over the life of your loan.
Adjustable-rate loans have a low interest rate that’s fixed for a set number of years (typically five or seven). After the initial fixed-rate period, the interest rate adjusts every year based on market conditions.
With each rate adjustment, a borrower’s mortgage rate can either increase, decrease, or stay the same. These loans are unpredictable since monthly payments can change each year.
Adjustable-rate mortgages are fitting for borrowers who expect to move before their first rate adjustment, or who can afford a higher future payment.
In most other cases, a fixed-rate mortgage is typically the safer and better choice.
Remember, if rates drop sharply, you are free to refinance and lock in a lower rate and payment later on.
How your credit score affects your mortgage rate
You don’t need a high credit score to qualify for a home purchase or refinance, but your credit score will affect your rate.
This is because credit history determines risk level.
Historically speaking, borrowers with higher credit scores are less likely to default on their mortgages, so they qualify for lower rates.
For the best rate, aim for a credit score of 720 or higher.
Mortgage programs that don’t require a high score include:
Conventional home loans — minimum 620 credit score
FHA loans — minimum 500 credit score (with a 10% down payment) or 580 (with a 3.5% down payment)
VA loans — no minimum credit score, but 620 is common
USDA loans — minimum 640 credit score
Ideally, you want to check your credit report and score at least 6 months before applying for a mortgage. This gives you time to sort out any errors and make sure your score is as high as possible.
If you’re ready to apply now, it’s still worth checking so you have a good idea of what loan programs you might qualify for and how your score will affect your rate.
You can get your credit report from AnnualCreditReport.com and your score from MyFico.com.
How big of a down payment do I need?
Nowadays, mortgage programs don’t require the conventional 20 percent down.
In fact, first-time home buyers put only 6 percent down on average.
Down payment minimums vary depending on the loan program. For example:
Conventional home loans require a down payment between 3% and 5%
FHA loans require 3.5% down
VA and USDA loans allow zero down payment
Jumbo loans typically require at least 5% to 10% down
Keep in mind, a higher down payment reduces your risk as a borrower and helps you negotiate a better mortgage rate.
If you are able to make a 20 percent down payment, you can avoid paying for mortgage insurance.
This is an added cost paid by the borrower, which protects their lender in case of default or foreclosure.
But a big down payment is not required.
For many people, it makes sense to make a smaller down payment in order to buy a house sooner and start building home equity.
Choosing the right type of home loan
No two mortgage loans are alike, so it’s important to know your options and choose the right type of mortgage.
The five main types of mortgages include:
Fixed-rate mortgage (FRM)
Your interest rate remains the same over the life of the loan. This is a good option for borrowers who expect to live in their homes long-term.
The most popular loan option is the 30-year mortgage, but 15- and 20-year terms are also commonly available.
Adjustable-rate mortgage (ARM)
Adjustable-rate loans have a fixed interest rate for the first few years. Then, your mortgage rate resets every year.
Your rate and payment can rise or fall annually depending on how the broader interest rate trends.
ARMs are ideal for borrowers who expect to move prior to their first rate adjustment (usually in 5 or 7 years).
For those who plan to stay in their home long-term, a fixed-rate mortgage is typically recommended.
Jumbo mortgage
A jumbo loan is a mortgage that exceeds the conforming loan limit set by Fannie Mae and Freddie Mac.
In 2023, the conforming loan limit is $726,200 in most areas.
Jumbo loans are perfect for borrowers who need a larger loan to purchase a high-priced property, especially in big cities with high real estate values.
FHA mortgage
A government loan backed by the Federal Housing Administration for low- to moderate-income borrowers. FHA loans feature low credit score and down payment requirements.
VA mortgage
A government loan backed by the Department of Veterans Affairs. To be eligible, you must be active-duty military, a veteran, a Reservist or National Guard service member, or an eligible spouse.
VA loans allow no down payment and have exceptionally low mortgage rates.
USDA mortgage
USDA loans are a government program backed by the U.S. Department of Agriculture. They offer a no-down-payment solution for borrowers who purchase real estate in an eligible rural area. To qualify, your income must be at or below the local median.
Bank statement loan
Borrowers can qualify for a mortgage without tax returns, using their personal or business bank account. This is an option for self-employed or seasonally-employed borrowers.
Portfolio/Non-QM loan
These are mortgages that lenders don’t sell on the secondary mortgage market. This gives lenders the flexibility to set their own guidelines.
Non-QM loans may have lower credit score requirements, or offer low-down-payment options without mortgage insurance.
Choosing the right mortgage lender
The lender or loan program that’s right for one person might not be right for another.
Explore your options and then pick a loan based on your credit score, down payment, and financial goals, as well as local home prices.
Whether you’re getting a mortgage for a home purchase or a refinance, always shop around and compare rates and terms.
Typically, it only takes a few hours to get quotes from multiple lenders — and it could save you thousands in the long run.
Current mortgage rates methodology
We receive current mortgage rates each day from a network of mortgage lenders that offer home purchase and refinance loans. Mortgage rates shown here are based on sample borrower profiles that vary by loan type. See our full loan assumptions here.
Open a BMO Harris Premier™ Account online and get a $500 cash bonus when you have a total of at least $7,500 in qualifying direct deposits within the first 90 days of account opening. Expires 9/15. Conditions Apply.
Even the most aggressive stock market investors keep some cash on the sidelines. That balance helps offset market volatility and cover end-of-year tax payments on capital gains. It’s there when you’re ready to put more money in the market too.
Many brokerages hold cash in basic, boring accounts that pay little or no interest and have no real features of their own. Others, like Fidelity, offer more appealing cash management accounts with much higher yields and checking-like features.
There’s no contest. True cash management accounts are better. And the Fidelity Cash Management account is among the best of the bunch. Even if you’re not a current Fidelity brokerage customer, it’s worth checking out. Just make sure you understand how it works — and its limitations — before you apply.
What Is the Fidelity Cash Management Account?
The Fidelity Cash Management account is an FDIC-insured cash management account with no maintenance fees and competitive interest rates on eligible balances.
You can open a Fidelity cash management account without an existing Fidelity brokerage account. Once open, you can keep the entire balance in cash or use a portion of it to purchase stocks, ETFs, or mutual funds. You don’t need to apply for a separate brokerage account.
Fidelity cash management account balances up to $5 million earn 2.60% APY. Interest is variable above that threshold. Other notable features include a secure debit card compatible with major digital wallets, global ATM fee reimbursement, mobile check deposit, and online bill payments.
Unlike a traditional bank account, funds deposited into the Fidelity cash management account may be distributed among a network of partner banks rather than held with Fidelity. This enables much higher FDIC insurance coverage because more than one FDIC-insured bank is involved. It also offers the possibility (though not the guarantee) of higher yields because each bank sets their own interest rates.
What Sets the Fidelity Cash Management Account Apart?
The Fidelity cash management account stands out for several reasons:
Comes with a Visa debit card that works worldwide. This account comes with a Visa debit card accepted by millions of merchants worldwide. As a payment method, it’s as good as any other Visa debit card or credit card.
No limits or geographical restrictions on ATM reimbursements. Fidelity reimburses ATM fees worldwide. There’s no monetary limit to this privilege either.
FDIC insurance many times the standard limit. Although the exact limit is subject to change based on how Fidelity allocates the funds in your cash management account, Fidelity advertises up to $5 million in FDIC coverage. That’s 20 times the standard limit of $250,000.
Impressive mobile features. This account holds its own against any mobile-friendly checking account. It has a full lineup of mobile features in an easy-to-use app.
Key Features of the Fidelity Cash Management Account
Before you open a Fidelity cash management account, take some time to understand its core features and capabilities.
Account Yield & Requirements
This account yields 2.60% APY on the first $5 million. Fidelity allocates this portion of your balance among its FDIC-insured partner banks, but for all practical purposes, it’s held with Fidelity.
Any portion of your balance above $5 million goes into a Fidelity money market fund, which holds a mix of government securities. The interest rate on this portion is variable but generally lower than the rate on the partner bank portion. Importantly, there’s no FDIC coverage on balances held in money market funds.
Account Fees & Minimums
This account has no monthly or annual maintenance fee. There’s no minimum or ongoing balance requirement either.
Secure Debit Card
This account comes with a secure Visa debit card accepted by millions of merchants worldwide. The card itself has no additional maintenance fee, though fees may apply for foreign transactions or overdrafts.
ATM Access
This account’s debit card works at tens of thousands of machines worldwide: any with the Visa, Plus, or Star logos. Fidelity charges no ATM fees of its own and reimburses any fees charged by third parties, like other banks or ATM owners.
Mobile Features
This account has a user-friendly mobile app and a responsive web interface that works well on small screens. It has a full feature lineup:
Mobile check deposit
Digital bill payments
Digital wallet integration
Real-time spending view
Fast internal and external funds transfers
Deposit Insurance
This account has FDIC insurance on balances up to $5 million. Balances above that amount are held in a money market fund that has no FDIC coverage and can lose value due to market volatility.
Access to Stocks & Other Asset Classes
True to its name, the Fidelity cash management account is first and foremost a cash account. You can use it as you would any other checking account.
But because it’s associated with a major investment company, it’s also easy to use some or all of the balance to fund your investing activities. You can buy stocks, ETFs, and mutual funds directly out of your cash management account balance. If you want to trade in riskier asset types, such as options contracts, you need to apply for those privileges separately.
Pros & Cons
The Fidelity cash management account has plenty of upsides and a few notable downsides too.
Visa debit card accepted worldwide
No limits on ATM fee reimbursements
Lots of checking-like features
Very high FDIC insurance limits
Brokerage account link could be too much temptation
Yield isn’t competitive with the best savings accounts
Some traditional checking features missing
Pros
The Fidelity cash management account is a well-rounded cash account with enough firepower for higher-asset users.
Visa debit card accepted worldwide. This account comes with a Visa debit card that’s accepted by millions of merchants worldwide. Functionally, it’s as good as any checking account debit card.
No limit on ATM fee reimbursements. Fidelity is unusually generous when it comes to ATM fee reimbursements. No matter how many withdrawals you make, Fidelity covers the associated fees.
Lots of checking-like features. This account isn’t quite as good as a checking account, but it’s pretty close, and you might not need a checking account if your financial life is otherwise simple.
Very high FDIC insurance limit. Your Fidelity cash management account balance has FDIC insurance up to $5 million, many times the standard limit and high enough not to be an issue for the vast majority of users.
Integrates seamlessly with Fidelity brokerage account. Your Fidelity cash management account integrates seamlessly with your Fidelity brokerage account. That is, if you want it to. It functions perfectly fine as a standalone cash-only account too.
Cons
The Fidelity cash management account is stingier than some other cash management accounts and could tempt less sophisticated users with potentially risky investments.
Yield can’t match top cash management or savings accounts. Though variable, the Fidelity cash management account’s yield tends lower than the leading high-yield savings accounts and interest checking accounts. If your top priority is to maximize your return on cash balances, this isn’t the best account for you.
Direct access to stocks and ETFs could threaten users’ emergency savings. Traditional checking and savings accounts aren’t linked to online brokerage accounts, which means they don’t carry the temptation to invest FDIC-insured emergency savings (or any other cash balances) in stocks and ETFs that can lose value.
Some missing checking features. This account has important checking features like online billpay and mobile check deposit, but it’s not quite a full-service checking account.
How the Fidelity Cash Management Account Stacks Up
The Fidelity cash management account shares the spotlight with several other high-yield accounts tied to brokerage platforms. One of its top competitors is the Wealthfront Cash Account. Before applying for either, compare them head to head.
Fidelity Cash Management
Wealthfront Cash
Maintenance Fee
$0
$0
Yield
2.60% APY
4.55% APY
ATM Reimbursements
Yes, unlimited
No
FDIC Insurance
Up to $5 million
Up to $5 million
The Fidelity cash management account is clearly better for folks planning to use it more like a checking account, thanks in particular to unlimited ATM fee reimbursements. But Wealthfront has a significantly higher yield, which is a key consideration for many investors.
Final Word
The Fidelity Cash Management account is a checking-like deposit account with a much higher yield than most checking accounts and direct access to a low-cost digital brokerage. It has sky-high FDIC insurance limits and unlimited ATM fee reimbursements too, making it appropriate for high rollers.
It’s not perfect though. Its yield is lower than many competing cash management accounts, not to mention high-yield savings accounts, and it’s not quite a full-service checking account. Before you apply, make sure it’s the best choice for your cash management needs.
Editorial Note:
The editorial content on this page is not provided by any bank, credit card issuer, airline, or hotel chain, and has not been reviewed, approved, or otherwise endorsed by any of these entities. Opinions expressed here are the author’s alone, not those of the bank, credit card issuer, airline, or hotel chain, and have not been reviewed, approved, or otherwise endorsed by any of these entities.
The Verdict
Our rating
Fidelity Cash Management Account
With a strong-but-not-industry-leading yield and very high FDIC insurance coverage, the Fidelity Cash Management account is an ideal place to park money you don’t need right away. It also has enough checking-like features to potentially replace your existing bank account. But it’s not the best option if all you care about is earning the most interest possible.
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Brian Martucci writes about credit cards, banking, insurance, travel, and more. When he’s not investigating time- and money-saving strategies for Money Crashers readers, you can find him exploring his favorite trails or sampling a new cuisine. Reach him on Twitter @Brian_Martucci.
Americans believe they will need $1.27 million to retire comfortably, according to the latest set of findings from Northwestern Mutual’s 2023 Planning & Progress Study. That number continues to increase, up from $1.25 million reported last year. High-net-worth individuals – those with more than $1 million in investable assets – believe they’ll need $3 million to retire comfortably.
Consider working with a financial advisor as you plan your retirement.
Most workers have got a ways to go with their savings, the report finds. On average, Americans have set aside $89,300 of the $1.27 million they think they’ll need. That average ranges from slightly less than $36,000 in retirement savings for those in their 20s, to nearly $114,000 for people in their 70s – leaving them far off from their required savings goals.
A Positive Development
However, even in the face of a 20% loss in stocks during 2022 and soaring inflation, workers still managed to increase the average retirement savings balance by 3% from the 2022 average of $86,869.
“The good news is that they are saving and investing more for tomorrow, even in this time of high inflation and market volatility,” said Aditi Javeri Gokhale, chief strategy officer, president of retail investments and head of institutional investments at Northwestern Mutual. “That is a step in the right direction and a reverse of what we saw last year when the gap widened rather than narrowed. The challenging news is that there continues to be a big disparity between what they think they’ll need to retire and what they’ve saved to date.”
The study found that people in their 20s had saved an average of $35,800 for retirement. To hit the $1.27 million goal, someone 25 years old with that starting balance would need to invest about $306 per month for the next 40 years at an annual return of 7%. Someone 35, with the average current balance of $67,400 would need to save about $668 a month for the 30 years until they near retirement.
A 45-year-old with the average $77,400 in savings, with just 20 years to save, requires monthly savings of $1,973 per month. At 55, with a current retirement asset balance of $110,900 and 10 years until they near retirement, a worker would need to sock away the unlikely total of $6,344 per month.
Expectations as Retirement Nears
On average, the study found that 52% of people say they expect to be financially prepared for retirement when the time comes, with Gen Z coming in the most optimistic, at 65%. Gen Xers are the least optimistic, with just 45% saying they expect to be ready. Millennials are right in the middle at 54%, while 52% of Baby Boomers who have yet to retire think they’ll be financially set to retire.
The study also found that, on average, Americans expect to work a bit longer before they can call it quits than they did in previous surveys. Currently, they expect to work until age 65, up from 64 last year and 62.6 in 2021. The full retirement age for Social Security benefits is 67 years old for anyone born in or after 1960.
When it comes to feeling ready for retirement, the study found that creating a well thought-out financial plan brought a real boost of confidence. Survey respondents who described themselves as disciplined financial planners knocked two years off their retirement age, expecting to quit at 63, while people who described their planning as informal or having no plan figured they’d be retiring at age 67.
Bottom Line
Finding the answer to the question, “What’s your number?” is an essential piece of financial planning, so that investors can understand the amount of appropriate risk necessary to meet their investment and retirement goals. Typically, experts recommend saving 10% or 15% of salary for the bulk of your working years. Workers also can consult their own Social Security estimate to get a full picture of their potential retirement income.
Tips on Retirement
While many investors obsess about trying to “beat the market,” smart investors understand that they simply need to meet their own periodic goals to “make their number” – their desired total retirement assets before they leave work. One way to get help figuring out your number is to work with a financial advisor who can help you answer all your questions about retirement options. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have free introductory calls with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Fidelity recommends that you have 10 times your annual income saved for retirement by age 67. To find out if you’re on track, try SmartAsset’s retirement calculator. This free tool will estimate how much you’ll have when the time comes to retire.
Even investors who understand that the stock market is volatile did not feel good about the losses stocks posted during 2022. The Standard & Poor’s 500 Index dropped by nearly 20% and the average workplace retirement plan balance fell from $144,280 at the start of that year to $111,210 by year’s end. Here’s a breakdown of how much money retirement savers lost from these defined contribution plans.
A financial advisor can help you create a financial plan to protect your retirement nest egg.
Alight’s 2023 Universe Benchmarks Report looked at data from almost three million eligible participants spread across 100 retirement plans. The median plan balance fell to $23,818 — the lowest in a decade. The median annual return was -14.7% during 2022.
Other findings from the study were similarly downbeat: The average participation rate in workplace savings plans dropped slightly, from 84% in 2021 to 83% in 2022, while the average contribution rate slipped from 8.6% to 8.3%.
When considering former employees, the rate of those who kept their money invested in the workplace plan dropped from 61% in 2021 to 55% in 2022. Such withdrawals may indicate workers rolled money from their previous employer’s plan to that of a new employer, or into an individual retirement account; it also can include workers cashing out their accounts to keep money on the sidelines, or used it to meet financial obligations.
Despite Challenges, Workers Focused on Long-Term Savings
Still, most workers saving in 401(k)s and other employer-sponsored plans stayed the course, despite being hit by increased living expenses that resulted from high inflation.
“Most people did not make drastic, knee-jerk reactions to their investments,” Rob Austin, head of research at Alight Solutions, said in a statement. “Only 3% of people stopped contributing, and the number of people who increased contribution rates was more than twice the number who decreased their savings.”
And, the percentage of workers eligible for workplace plans with fewer than two years of service increased by 30% during 2022 – an indication that automatic enrollment plans seem to be getting more workers to save for retirement
So far for 2023, markets have been more encouraging, with the broad S&P 500 index up more than 14% by the end of June. Similarly, balances for defined contribution plans, such as 401(k)s, are up for the year, according to the Investment Company Institute, which reported that plan assets were $9.8 trillion at the end of the first quarter, up 5% percent from the end of 2022.
Bottom Line
A tough year for the stock market was difficult for participants in workplace retirement accounts such as 401(k)s, where they contribute money toward retirement. Because of the long time horizon most workers have before retirement, plan participants tend to invest much or all of their contributions in stocks to achieve long-term growth after inflation. But that means they also have to weather the inevitable downturns in the market.
Retirement Planning Tips
A financial advisor can help protect your retirement savings. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Knowing how much you will need to pay for retirement is crucial to make your plan sustainable. Our retirement calculator can help you get an estimate for how much you will be able to save over time.
Mortgage rates are moving up a little this morning as we march toward the big market moving event of the week: the monthly jobs report on Friday.
Long-term rates are still expected to increase so our recommendation remains for borrowers to lock on a purchase or refinance right now. Read on for more details.
Where are mortgage rates going?
Rates rise after moving lower yesterday
Mortgage rates are moving a little higher today. Yesterday, we saw the yield on the 10-year Treasury note, which is the best market indicator of where mortgage rates are going, move down to its lowest level since late January.
Mortgage rates typically move in the same direction as the 10-year yield so rates improved slightly to start the week. Today, we’ve seen a bit of a reversal in the market with investors moving back into stocks, pushing Treasury yields and mortgage rates higher.
Rate/Float Recommendation
Lock now while rates are lower
Mortgage rates are on track to stay relatively flat this week. This is good news for anyone looking to buy a home or refinance their current mortgage. Rates are on track to move higher as the year unfolds so most borrowers will be better off locking in a rate soon.
Learn what you can do to get the best interest rate possible.
Today’s economic data:
Fedspeak
Minneapolis Fed President Neel Kashkari at 9:30am
Notable events this week:
Monday:
PMI Manufacturing Index
ISM Manufacturing Index
Construction Spending
Fedspeak
Tuesday:
Wednesday:
ADP Employment Report
Fedspeak
PMI Services Index
Factory Orders
FOMC Minutes
ISM Non-Mfg Index
EIA Petroleum Status Report
Thursday:
Jobless Claims
International Trade
Fedspeak
Friday:
Monthly Jobs Report
*Terms and conditions apply.
Carter Wessman
Carter Wessman is originally from the charming town of Norfolk, Massachusetts. When he isn’t busy writing about mortgage related topics, you can find him playing table tennis, or jamming on his bass guitar.
Filed Under: general, homeowner-tips, how-to-2, real-estate
A Roth IRA might not be the flashiest way to spend your summer job money, but saving even a small portion of your paycheck could net you huge returns in the future.
The teen employment rate is expected to be 33.6% for summer 2023, based on Rice University’s recent jobs report
. Even more promising — the median wage for workers in the 16-24 age group was up 11.9% year over year in May, according to the Federal Reserve Bank of Atlanta.
As you make plans for that summer job money, here’s why you might consider adding a Roth IRA to the list.
Why open a Roth IRA?
Having a full-time job isn’t required in order to save for retirement. As long as you’re earning money, you can open a Roth IRA at any age.
And, particularly as a first-gen investor, it’s a great chance to start making your money work for you.
“The younger you are, the more time you have to save,” says Luis Rosa, a certified financial planner and founder of Build a Better Financial Future, a financial planning and investment advisory firm. “If you have the opportunity to start saving now, especially in a Roth IRA, and take advantage of not having to pay taxes on it at a future date, then it’s just a great combination.”
That benefit of a Roth IRA can also be its drawback: Because money is contributed after-tax, you don’t get any tax deductions now by saving for retirement. Instead, you get to take the money — and any gains — out tax-free after age 59½ as long as you’ve held the account for five years.
But those tax-free withdrawals are why Yanely Espinal, author of “Mind Your Money” and educational director at the nonprofit Next Gen Personal Finance, is a huge fan of the Roth IRA.
“I call it the G.O.A.T. (greatest of all time) when it comes to investment accounts,” Espinal says, referring to the Roth IRA. “And specifically for first-gen investors, you’re the first generation in your family to get access to the opportunity to build wealth.”
But what about 529 Plans?
If you’re working to save for college tuition and expenses, you might be considering a 529 savings plan instead of a retirement account. When it comes to a 529 plan versus a Roth IRA, which one wins out?
It depends on your situation and needs, and whether you’re planning to apply for financial aid. Money in a 529 savings plan, owned by either you or a parent, is counted as assets when applying for financial aid, but money in a retirement account isn’t.
“When you are a low-income or first-generation student, taking a … hit on your financial aid eligibility is a big deal,” Espinal says. “That could be your textbooks for your first semester or a laptop you need all four years.”
And although a Roth IRA is intended for retirement, it’s possible to access your money before age 59½ without paying a 10% penalty.
College costs fall under the category of “qualified distributions,” but there are catches to be aware of. You’ll owe taxes on any investment earnings withdrawn, and the withdrawals will count as income, which could reduce your financial aid eligibility in following years.
What to look out for in a Roth IRA
If you decide to open a Roth IRA, there are some things to consider, say Rosa and Espinal.
“The No. 1 thing you need to understand,” says Espinal, “is how much is it going to cost me to open an investment account? If it’s not free to open, automatic no.”
From there, both recommend a few more factors to think about:
Is there a minimum balance required to keep the account open?
Do the investments you want to buy have minimums, and how high are they?
Are there fees to keep the account active?
What are the fees, if any, for buying and selling investments?
Espinal also advises paying specific attention to the expense ratio, a term for the fees paid to cover a fund’s expenses, such as management and marketing.
“The expense ratio is an annual cost expressed as a percentage,” she says.
“You want it to be as close to zero as possible. Compare the costs and fees on a per-year basis across different platforms or firms, and go with the one that is going to allow you to keep the most of your money.”
Rosa also cautions young investors about transaction fees.
“If there are fees for trading,” he says, “you might actually churn your account, or trade to the point where the fees are more than any investment return you earned.”
How to invest your Roth IRA
After picking where to open your Roth IRA, the next step is deciding how to invest your money. Rosa is a fan of automating the process where possible.
Set it and forget it
“If you wait until the money hits your bank account to then decide to invest it, there is a chance that something’s going to come up,” Rosa says. “So if you can automate it to, say, on the 15th and 30th of every month, just make it as if it were a bill. A lot of us are already used to paying for video games and other subscriptions, and do the same for yourself and just automate your investment.”
Consider index funds
When it comes to picking what to invest in, Espinal prefers exchange-traded funds, also known as ETFs, and index funds, over individual stocks.
“This gives you automatic diversification,” she says.
Index funds and ETFs are baskets of assets, such as stocks or bonds, that seek to match the performance of a stock market index, such as the Dow Jones Industrial Average.
Rosa says he also recommends funds.
“Find a low-cost index fund that you don’t have to manage yourself and you don’t have to decide what stock to buy and sell,” he says.
Look into fractional shares
If you are interested in individual stocks, Rosa suggests exploring whether a brokerage offers fractional shares.
“You might be able to buy big company stocks without having to buy a whole share of them,” he says.
Digging further into what a brokerage offers is a good way to decide which one will offer you the most return for your money, and what’s feasible based on your circumstances.
The bottom line
For any new investor, and particularly when you’re first-generation, investing can seem complicated, especially if you don’t have anyone around you for guidance. But you can start small with a Roth IRA.
“You’re going to talk to an adult about money,” says Espinal. “That’s something most teenagers don’t do. And you’re learning to invest, even if it’s just starting with the basics, like buying an index fund for $200 inside your Roth IRA. It’s great for exposure.”
And even though retirement can seem like ages away, being strategic with your money now can pay off in the future. For young adults still on the fence about saving for retirement, Rosa’s opinion is: “If they can take some of that summer job money and put it in there, it’s best because they don’t feel the impact of it anytime soon,” he says. “But ultimately, their older self is going to thank them for having put their money in the world and be happy for that tax-free income.”
We made it to Friday once again. The good news for borrowers is that mortgage rates are improving right now. This makes right now a great time for anyone looking to purchase or refinance to lock in a rate. So give us a call or fill out our simple online form to get started. Read on for more details.
Where are mortgage rates going?
Rates fall after a disappointing jobs report
Well, we persevered through the week and arrived at Friday once more. The big news today in the market is the Employment Situation for March (a.k.a. the monthly jobs report).
This report is almost always once of the most influential reports every month, and this time around was no different. The headline reading in today’s report showed that 103,000 jobs were added to the U.S. economy in March.
That’s a big miss from the 175,000 that analysts had expected. It’s even below the low end range of 112,000. It’s not all bad, though, as average hourly earnings did hit the expected mark with a 0.3% monthly rise.
Most economists aren’t too troubled by the headline reading either, despite it being the lowest in six months. They see it as a one-off dip that isn’t reflective of the long-term trend.
Nevertheless, that isn’t stopping money from going out of stocks and into bonds, pushing down Treasury yields. The yield on the 10-year Treasury note is down about three basis points to 2.80% today.
Mortgage rates typically move in the same direction as the 10-year yield and are similarly a little lower as we head into the weekend. As we saw in the Freddie Mac Primary Mortgage Market Survey (PMMS) yesterday, rates improved for the second straight week this week.
Here are the numbers:
The average rate on a 30-year fixed rate mortgage fell four basis points to 4.40% (0.5 points)
The average rate on a 15-year fixed rate mortgage fell three basis points to 3.87% (0.4 points)
The average rate on a 5-year adjustable rate mortgage fell four basis points to 3.62% (0.4 points)
Here is what the Freddie Mac’s Economic and Housing Research Group had to say about rates this week:
“After dropping earlier this week on trade-related anxiety in financial markets, the benchmark 10-year Treasury stabilized on Wednesday, but at a level slightly lower than from the start of last week. Mortgage rates followed and fell for the second consecutive week; the U.S. weekly average 30-year fixed mortgage was 4.4 percent in our survey this week. Though rates on the 30-year fixed mortgage are up 0.3 percentage points from the same week a year ago, a robust labor marking is helping home purchase demand weather modestly higher rates. The Mortgage Bankers Association reported in their latest Weekly Mortgage Applications Survey that the Purchase Index was up 5 percent from a year ago indicating that this spring is on track for a modest expansion in purchase mortgage activity.”
Rate/Float Recommendation
Lock now before rates increase significantly
With mortgage rates moving lower to end the week right now is a great time to lock in a rate on a purchase or refinance.
Long-term, rates are still expected to rise so borrowers who act now are likely going to get the better deal.
It only takes a few minutes with our online mortgage builder or a quick phone call to one of our loan experts to get started.
Learn what you can do to get the best interest rate possible.
Today’s economic data:
Monthly Jobs Report
See above for details.
Notable events this week:
Monday:
PMI Manufacturing Index
ISM Manufacturing Index
Construction Spending
Fedspeak
Tuesday:
Wednesday:
ADP Employment Report
Fedspeak
PMI Services Index
Factory Orders
FOMC Minutes
ISM Non-Mfg Index
EIA Petroleum Status Report
Thursday:
Jobless Claims
International Trade
Fedspeak
Friday:
Monthly Jobs Report
*Terms and conditions apply.
Carter Wessman
Carter Wessman is originally from the charming town of Norfolk, Massachusetts. When he isn’t busy writing about mortgage related topics, you can find him playing table tennis, or jamming on his bass guitar.
Fears over the coronavirus have struck fear into investors and rattled financial markets across the world. And with 103 confirmed cases in the U.S. as of Tuesday, there are worries that the near-pandemic will likely impact housing markets too.
So far, coronavirus fears have already resulted in mortgage rates falling, as investors are pulling money from stocks and putting it into safer U.S. Treasury bonds. And when bonds perform well, mortgage rates traditionally fall, realtor.com noted.
National
Association of Realtors Chief Economist Lawrence Yun told realtor.com
that while the coronavirus might affect sales in some markets, the
low mortgage rates are likely to entice more buyers and sellers.
“Mortgage
rates likely will fall to an all-time low, and buyers will want to
lock in, even with growing economic concerns,” Yun said. “But
expect far fewer international buyers because of travel concerns.”
However,
others said the situation with the stock market is a concern.
“People
don’t make big decisions in a vacuum, and buying a home is a big
one,” said Danielle Hale, realtor.com’s chief economist. “If
the stock market is flashing a sign that an economic slowdown is on
the way, that’s when Main Street will feel it. And it could lead to
a slowdown in home sales.”
The
most vulnerable segment of the market could be the luxury home
sector, as wealthier buyers tend to have more money invested in
stocks. And if they’re feeling less wealthy, that makes them less
likely to splurge on a new home, Hale said.
Still,
the shortfall of wealthy and foreign buyers could be made up by those
who’re enticed by the lower mortgage rates. Last week, the NAR
reported that contract signings in January were up 5.2% compared to
the month before, and up 5.7% from a year ago. The 30-year fixed-rate
mortgage fell to 3.45% last Thursday, Freddie Mac reported.
“Buyers
right now are trying to juggle whether or not they should jump in
when mortgage rates are this low,” said Ali Wolf, director of
economic research at Meyers Research. “What looks like a home
that’s out of reach may actually be very affordable on a monthly
payment schedule.”
Low
mortgage rates could cause a boost in home sales in the short term,
Hale said, but it depends on how much the virus continues to spread
in the U.S.
“At
the very least, the coronavirus could cause some people to put home
sales on hold,” Hale said.
Mike Wheatley is the senior editor at Realty Biz News. Got a real estate related news article you wish to share, contact Mike at [email protected]
Today is the last day of Financial Literacy Month. To tie everything together, I thought it would be fun to share an interview my real millionaire next door, a man we’ll call John. He used the basic tenets of money management to build wealth and to retire early. Here’s how I described John when I first wrote about him last year:
John is a 71-year-old retired shop teacher who lives in a modest ranch house on half an acre, the same house he’s had for over forty years. He has an old barn filled with salvaged lumber, outdated appliances, and who knows what else. When he’s around, he drives a junkie 25-year-old station wagon. But most of the time, he’s not around.
He spends his winters in New Zealand helping friends on a dairy farm. His summers are spent fishing in Alaska. For a couple of months each year, he’s home, puttering in the yard. Year-round, he rents his house to boarders. He leads a very active retirement.
John’s story was popular with Get Rich Slowly readers, and many of you asked me to interview him. I had to wait for him to return from New Zealand, but earlier this month, the opportunity finally presented itself. John agreed to sit down for a chat.
“I want to take you to lunch at the Chinese place up the street,” I told him.
“What the hell for?” he asked.
“Just to be nice,” I said. “To thank you for taking the time to speak with me.”
“I don’t need that,” he said. “Save your money. Let’s just sit at your dinner table.” And so we did.
In the Beginning
Before John left for New Zealand just after Christmas, I mentioned the idea of an interview. He liked the notion, so on his flight home at the end of March, he made some notes about his financial philosophy. “These are my secrets to financial freedom,” he told me, showing me what he had jotted on the back of an envelope. “This is what I did to get where I am today.”
“I’m ready,” I said. I had a yellow legal pad and a Bic pen. I motioned for him to continue.
“It was interesting to do this,” John said. “It’s really the story of your web site. The real secret is to spend less than you earn. I don’t care how much you earn, you spend less than you earn.”
I laughed. “My readers aren’t going to like that,” I said. “There’s a vocal group that complains that personal finance writers are always preaching ‘spend less than you earn’.”
“It’s not funny,” John said. “Because that’s the secret. They don’t have to like it, they just have to do it.”
“Right,” I said. “There are no magic bullets. There are no special shortcuts. Now, before we get started, can you tell us a little bit about your background?”
“Well, I’m retired,” John said. “I’m 72 years old. I spent twenty years as a shop teacher at a junior high school. I retired at 58. Before that, I did other things. I worked as a carpenter for eight years, and I spent six or seven years working in the juvenile court system.”
“Did you have good financial habits growing up?” I asked.
“Yeah, I really did. My family had a lot of money. We owned a big hardware store. But I saw money wasn’t the key to happiness. There were other families that were happier that had far less. But I’m grateful for having grown up with a solid financial background.”
On Frugality
“What advice do you have for people who want to spend less?” I asked.
“Well, I made this list,” John said, pointing to his old envelope. “I listed all of the things I do. First of all, people should learn what a kilowatt hour is. A kilowatt hour is a thousand watts burned for an hour. All of these appliances left on standby draw power. And don’t leave your lights on.” John gave me a look.
I was sheepish. The lights were on in the bathroom and the kitchen, but we were sitting in the dining room. I got up to turn them off while he continued speaking.
“Learn to figure your own power bill and know why it is what it is. People should learn about electrical use. That’s a drain on your monthly budget. Every penny saved on electricity is a penny you can use for something else.”
“No smoking or alcohol consumption,” he continued. “This has nothing to do with morals and health — okay, maybe health — it’s all about the money. I see people with a cigarette in their mouth, and I think, ‘That’s 25 cents!’” I laughed.
“Don’t have a credit card without autopay. And if you have a credit card, you should benefit from it. I use a credit card for everything I can, but I get things back from that.”
“Like air miles?” I asked.
“Exactly,” John said. “Air miles or a cash rebate. And I have my bank automatically pay the bill every month.”
“Next is food,” he said. “I think people’s eating habits are hell-bent on spending money.”
“Yeah,” I said. “I offered to take you to lunch while we talked.”
“I know, but I don’t need that gesture. I appreciate it, but that’s money that could be spent on other things. Like your new car!“
“You don’t have to spend a lot on food,” John continued. “When I go to the grocery store — which is rarely — I don’t know how anyone could afford to feed a family on that stuff. It seems outrageously expensive. People need to learn to cook from raw ingredients.“
“But where do you get the raw ingredients?” I asked.
“From the farmers market! Or Costco! You don’t need the little individual servings. That’s crazy. You have to be creative. Part of the problem is that you need to buy a freezer. Or look,” he said, waving his hand at Kris’ seedlings. “Over there are your tomato starts. Those cost you what? 50 cents? You’ll get 50 dollars of fruit from those! Plus I buy what I can in bulk.”
“Eating in-season food is important. It’s less expensive and it’s better quality. I also like this eating close to home thing. That’s neat.”
“Kris makes her own granola,” I offered.
“Yeah,” he said. “Exactly. But nobody advertises that. Nobody advertises ‘make your own granola’. Again, it makes sense to own a freezer. The electrical use of a freezer is pretty tiny. That’d be an interesting article for you, J.D. How much electricity does a freezer use versus how much you save by buying in bulk? People don’t understand about electrical use. They have a foggy notion about it.”
“Yeah, I have this device called a Kill-a-Watt,” I said. “It measures electricity use. But I’ve never checked our freezer.”
“Here’s another thing,” John said. “It’s okay to buy used. There’s nobody advertising to be thrifty. There’s nobody advertising to go to Goodwill. That’s not where the profit is. People have to get permission to buy used from somewhere else, because they’re not going to get it from advertising. I buy all sorts of stuff used, but especially cars. I bought my minivan off Craigslist.”
“How did that work?” I asked.
“It worked great,” John said.
“I bought my Mini Cooper used,” I said, “but I didn’t do it as well as I could have. I didn’t take it to a mechanic, for example.”
“I took my car to two mechanics. I wanted to be sure.”
He rattled off a few more tips. “Do your own home repairs. Use the library more — movies and books, and it’s totally free. I think that’s great. Remember: A dollar spent will never produce dividends. Money spent is gone and will never earn you anything.”
On Investing
“That’s a good transition,” I said. “Let’s talk about your approach to investing.”
“I advise people to look for good investments. Take some time to do research. And think outside the box. I just re-opened my account with Reliable Credit. They offer 4%, which keeps up with inflation.” Reliable Credit is a nearby consumer finance company. But it’s not a bank. They take deposits from people like John and they loan them to high-risk clients. They do a lot of used car loans.
“The thing that worries me about Reliable Credit is that they’re not insured. There’s no FDIC insurance,” I said.
“Doesn’t bother me,” John said. “I’m not putting a whole lot in there. It’s just part of my money.”
“What would happen if you lost it all?”
“Not a big deal. I own my home. I have a guaranteed pension. I have no debt. That’s the key. Because I’ve done these other things, I can afford to take some risk. A lot of people can’t.”
“What about your other investments?” I asked.
“If you’re going to do stocks, diversify your stock holdings,” John said. “But for me, no-load mutual funds are the only way to go. To give anybody 3-4% of your money off the top is insane. It used to be I wasn’t aware how much I was paying. Once I figured it out, I thought, ‘Shit, I can make these mistakes myself. Why should I pay anybody to do it for me?’”
“I invested in small-cap funds at Columbia here in Portland. What a great move that was. Those did very well. I tracked their growth in the newspaper. Every week I drew a graph. I plotted the weekly high and the low and where it closed. I had to keep making new pages for my records because it was growing so much. I didn’t mind,” he said, laughing. “Back in the olden days, if I wasn’t getting 20% a year, I looked someplace else. But I can’t hold that up as an example — although it may happen again if things get turned around, once this economy corrects itself.”
“Does this economy worry you?” I asked.
“No. I don’t have to worry about it. I don’t need the income. I’m debt-free. If I was retired and had a mortgage or other debt, or if I had health problems, it would worry me. To my mind, even if you invest and it goes to hell, it’s still better than nothing. The odds of that are pretty slim, though, especially if you diversify.”
“What are your financial goals?” I asked.
“I used to say that when I reached $100,000 I would have arrived. But I got there so fast, I just kept going. Some people plan for retirement, but I didn’t plan. I did go to investment workshops — free workshops — that were put on for the teachers, and I learned from them. You’d be surprised at how few people showed up to them. Nobody cared.”
“When did you start to save?” I asked.
“It must have been 30 or 35 years ago,” John said. “And I’m glad I did. I think there are people who still don’t take advantage of tax-advantaged savings and investments accounts. I did this as soon as I could. I was amazed at how many teachers didn’t take advantage of this. That’s crazy.”
On Choosing a Lifestyle
John looked back down at his list. “Here’s another thing,” he said. “Volunteer to help others. I really think that’s an important personal lifestyle choice. It feels good to me. I used to do scouting. I had a Boy Scout troop for fifteen years.”
“You know, scouting was important for me when I was a boy,” I said. “I think it can be a great experience.”
“Sure it can,” John said. “When I was growing up, a lot of people shared things with me. It feels good to be in a place to be able to share myself now.”
“What kind of things do you share?”
“Well you know I rent the house, but it’s basically at cost. I don’t charge much at all. I host guests on my boat [in Alaska] at no charge. I do my work in New Zealand. Earlier today I picked up some sheet metal. I went and bought some scrap sheet metal and I took it in to Franklin High School. I took it to their metal shop. They can really make use of that.”
“What do you splurge on?” I asked. I’ve seen the things John owns. They’re very functional. He doesn’t have a lot that I would consider “fun”.
“Some people would say that buying a boat is a splurge,” he said. “But I bought that boat right. I bought it for less than market value. I’ve taken care of it. I’ll get a lot more use out of it.”
“I guess I could eliminate a couple thousand dollars airfare getting to New Zealand and back, but I spend very little money when I get there. If I spend a couple hundred dollars in New Zealand, I’d be surprised.”
“How do you keep your costs so low there?”
“I work on farms. I’m part of Willing Workers on Organic Farms. You travel to someplace and do work on their farms for them. They provide room and board. Sometimes they take you to do local stuff. This year I got to see sheepdog trials. That was fun. Anyhow, I do carpentry work. I build stuff and fix things. There are four farms I go to, about three weeks at a time, and I do what needs done.”
He paused for a moment and smiled. “But Alaska is just for fun.”
“How long have you been doing this now?”
“I’ve been doing this for about fifteen years, ever since I was retired. Back when I was 58.”
Reader Questions
We’d come to the end of John’s list, but we weren’t finished yet. “I told some of my readers that I was going to interview you,” I said. “They sent in some questions. Would you be willing to answer them?”
“Sure. Of course.”
“Annie Blue wants to know how money affects your daily happiness.”
“Well,” he said. “I can buy whatever I want. Not need, but want. I just don’t want very much. I always have $100 in my pocket, but I don’t piss it away. I don’t stop for coffee. I seldom eat out.”
“I understand why people buy things,” he said, “I like to buy things, too. There’s a certain satisfaction in looking at the things you’ve accumulated. It’s like an affirmation that you’re doing things right. So you surround yourself with things that make you think you’re doing well — but they’re not necessary. That’s one of the advantages of being older. People just leave you alone to do what you want.”
“Next,” I said, “Suburban Dollar wants to know what advice you’d give to a 30-year-old.”
“Spend less than you earn. This is true whether you’re on welfare or a millionaire. And remember: wealth is created by investing money, not by working longer and harder.”
“Here’s another thing,” he said. “Remember that when you’re raising kids and stuff, that’s really hard. The demands on your money are so great. But you’ve got to be willing to say no. So much money is pissed away to keep kids happy.” (John has grown children. He’s speaking from experience.)
“Here’s a final question from Bill in Detroit,” I said. “He wants to know if outer wealth causes inner wealth. Or is it the other way around? Or are they completely disconnected?”
“There’s a lot of personal power from personal spending,” John said. “If I’m feeling down in the dumps, going out and buying something gives me a lift. But I’m aware of that. I’m aware of how it makes me feel and it helps me to not do it.”
“I think it all has to do with how you feel about yourself,” John said. “I learned long ago that it was okay to spend less than I earned. It wasn’t going to kill me. And I learned that by doing so, I felt really good about myself. I still do. I’m happy. I feel really comfortable.”
I thanked John for answering my questions, and we walked out to look at the vegetable garden. He admired our onions and peas and asparagus. We discussed whether it was time to rototill. At last, we shook hands and said our farewells. I was headed to California in the morning, and he was off to Alaska. He’ll be there until about the time his grapes are ready to harvest in September. I’ll miss him while he’s gone. But if I’m lucky, I just might get to spend a week with him on his boat this summer, catching a glimpse of what early retirement is like.
Supplemental Security Income (SSI) is a government program that provides monthly income to people with limited resources and low incomes and who are blind, have a qualifying disability or are 65 or older. The maximum monthly SSI benefit is $914 per person ($1,372 for a couple) in 2023
.
The Social Security Administration (SSA) sets the maximum SSI benefit each year. The amount increases in step with Social Security’s cost-of-living adjustment formula.
2023 SSI benefit amounts
Monthly SSI benefit
Annual SSI benefit
Individuals living alone
Individuals living in another household
Couples living alone
Couples living in another household
SSI overview
Congress created SSI in 1974. The Social Security Administration administers SSI. In May 2023, SSI paid benefits to about 7.5 million people.
Forty-four states have programs that provide additional amounts, called supplements, to SSI recipients (Arizona, Arkansas, Mississippi, North Dakota, Tennessee and West Virginia don’t; nor do the Northern Mariana Islands)
. In some states, the SSA administers these additional payments. Qualifications and details for those programs vary by state.
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How to qualify for SSI
To qualify for SSI, you must have limited income and limited resources, and you must meet residency requirements. You must also be 65 or older, blind or disabled
. Each of these qualification hurdles has specific rules.
Limited income
To qualify for SSI, your monthly qualifying income can’t exceed $914 (the largest monthly SSI benefit amount this year). The Social Security Administration may reduce your SSI benefit if you have income from other sources.
Here are some things to know about how the Social Security Administration looks at income:
Earned income — from a job or self-employment, for example — is considered income.
Some earned income doesn’t trigger a benefit reduction, though. For example, the first $65 of earned income doesn’t count against the $914 SSI income limit, and only half of income above the first $65 counts against the $914 income limit
. For example, if you earn $500 a month, the Social Security Administration might reduce your monthly SSI benefit by $217.50.
Unearned income, such as Social Security retirement payments, pension income and dividends from investments, are also considered income. Unearned income typically reduces the SSI benefit dollar for dollar. For example, $500 in monthly pension income could reduce your SSI benefit by $500.
Unearned income also has exemptions. Supplemental Nutrition Assistance Program (SNAP) benefits, tax refunds, home energy financial assistance, state assistance, college financial aid, loans, disaster aid and tribal payments typically don’t count against the income limit.
Things or services you get for free or at a discount, including free or below-market rent, are considered income, even if you got them from family or friends. This kind of support, called in-kind support, can reduce SSI by a maximum of $324.66 per month. In-kind support doesn’t always reduce SSI payments dollar for dollar; the amount depends on a variety of factors, including the type of support you receive and its estimated value.
If a spouse, parent or other essential person with whom you live receives income but doesn’t receive SSI, it can reduce your SSI payments. The reduction isn’t dollar for dollar. Instead, a complex formula determines the reduction amount.
Limited resources
To qualify for SSI, the value of any cash, stocks and personal property you own can’t exceed $2,000 ($3,000 for couples)
.
Like income, there are exemptions. Common examples include a house you own (as long as you’re living in it), one vehicle and household goods.
Residency
To qualify for SSI, you must:
Be a U.S. citizen or national. There are some exceptions, including for some refugees.
Live in a U.S. state, Washington, D.C., or the Northern Mariana Islands.
Not leave the U.S. for more than a month or 30 consecutive days.
Blindness
You may qualify for SSI if you meet the preceding financial and residency criteria and you have20/200 vision or less in your better eye or a narrow field of vision (in technical terms, the Social Security Administration defines this as the widest diameter of your visual field subtending an angle of 20 degrees or less).
Disability
You may qualify for SSI if you meet the preceding financial and residency requirements and you have a disability. The Social Security Administration defines a disability as a physical, mental, emotional or learning impairment that is likely to last for at least one year or can be expected to lead to death.
If you are younger than 18, the disability must severely limit your ability to function.
If you are 18 or older, the disability must prevent you from finding “substantial gainful activity,” which is often, but not exclusively, employment or running a business. If you work and earn more than $1,470 per month, the Social Security Administration likely won’t consider you to have a qualifying disability.
The Social Security Administration doesn’t decide whether you have a qualifying disability; state agencies called Disability Determination Services (DDS) do. The local DDS reviews your application and decides your medical eligibility. In some circumstances, DDS may contact your doctors, teachers, therapists and relatives to learn more about your condition. The agency may also pay for a medical test to determine whether you have an eligible disability.