Interest rate

5 Biggest Ways Millennials Risk Their Retirements

If you’re stressing out about whether or not you’re saving enough for retirement, you’re not alone. Millennials are among those struggling the most with this dilemma. According to a 2016 study, 64 percent of working millennials believe they’ll never save a $1 million nest egg.

Why are millennials so worried? Sadly, this age group is prone to making less-than-ideal money moves that could hurt them later in life. Let’s review the five biggest ways in which millennials are risking their retirement. (See also: 4 Things Millennials Should Do Today to Prepare for Retirement)

1. Delaying the start of retirement savings

Nearly four in 10 millennials haven’t started saving for retirement. The same 2016 survey found that 61 percent of females and 50 percent of males belonging to the millennial generation have their finances stretched “too thin” to save for retirement. Even worse, 54 percent of women and 43 percent of men of this generation are living paycheck to paycheck.

However, delaying retirement contributions has a serious impact. If a worker were to deposit just $50 per month into a 401(k) with an 8 percent annual rate of return for 10 years, they would end up with around $9,200 at the end of the 10-year period. The IRS sets a cap on how much you can contribute to a retirement account per year, which for 2017, is $18,000 to a 401(k) and $5,500 to an IRA. If you keep delaying your contributions to your retirement accounts, you’ll never be able to fully make up that gap.

2. Taking out high student loans

Student Loan Hero estimated the average student loan balance for a member of the Class of 2016 at $37,172, up 6 percent from the year before. With so many Americans still believing in the importance of postsecondary education, it’s easy to see how the average student loan continues to climb. Studies have shown that higher education still leads to better earnings potential, after all.

Still, loans are rising too fast. Back in 1993, only 45 percent of college graduates had a student loan and their average balance was $15,000 in inflation-adjusted dollars. By having to pay down a high student loan, millennials are foregoing sizable contributions to their retirement accounts.

Assuming a $30,000 balance on a federal direct…

A Home Owner’s Guide to Refinancing Your Mortgage

mortgage loan refinancing

Low mortgage rates unleashed a massive wave of refinancing that was a windfall for millions of consumers, but what will happen once those unusually low mortgage rates are gone? Will refinancing mortgage loans effectively be sidelined as a financial resource for home owners?

While the opportunity to lower your interest rate may be the most compelling reason to refinance, it is just one of several. Refinancing can accomplish different things for different people, and the more you are aware of what refinancing can do, the more likely you are to be able to use it to your advantage.

5 compelling reasons to refinance your mortgage

Here are five good reasons to refinance:

1. Reduce interest rates

A drop in market rates can create a compelling opportunity to refinance. However, even if interest rates generally are not lower than those on your current mortgage, you still may be able to lower your rate by refinancing. Rates on shorter mortgages and on adjustable rate mortgages are generally much lower than those on 30-year mortgages.

So, if you can afford the higher payments that come with a shorter mortgage, you might be able to lower your interest rate by refinancing from a 30-year to a 15-year loan. As for adjustable rate mortgages, the drawback with them is that the rate is subject to vary, so you won’t necessarily be lowering your interest rate for the life of the loan.

However, if you only anticipate being in your current home for a few years more, you might be able to benefit from an adjustable rate mortgage without the long-term risk of rate fluctuations.

2. Lower long-term interest expenses

Shorter mortgages don’t just carry lower rates. They also mean paying interest for fewer years. Even if conditions are such that you can’t lower your mortgage rate, you might find you could achieve significant long-term savings by switching to a shorter mortgage.

3. Eliminate mortgage insurance premiums

Mortgages like loans from the U.S. Federal Housing Administration that allow low down payments also typically require that…

How to Get Out of Debt

On the way home from work the other night, I heard a radio commercial touting a debt reduction system that (supposedly) works like no other. As I drove along, I couldn’t help but chuckle. After all, they made it sound like there’s some sort of silver bullet out there that will magically make your debt disappear — for a fee, of course.

Guess what? There isn’t. That’s the bad news. The good news is that, with a bit of hard work and focus, you can do it on your own. What follows are some tips for making it happen.


Recognize the problem

It may sound trite, but the first step in tackling your debt is to admit that you have a problem. Unless you’re willing to own up to your situation and commit to changing it, you’re going to be in debt for a long, long time. If you’re married, now’s the time to sit down and have a heartfelt talk about money.

Stop taking on new debt

This is a hard one, especially if you’ve become reliant on credit cards for making ends meet. If you want to climb out of the hole, you have to stop digging. If you don’t have the money to pay for something, don’t buy it. Period. If you have to cut up your credit cards in order to make this happen, DO IT.

Here, it’s important to understand why you are going into more debt. For some, it’s the unexpected emergency (see building up a cushion below). For others, it’s just steady overspending. One solution is to create and follow the dreaded budget.

It’s really not that bad, and there are several different ways to budget. Pick one that works for you. It may take some trial and error, but stay the course and you’ll…

How One Mediocre Investor Prospered After the Market Crash

The mediocre financial advice I’ve offered in my last few posts boils down to this: Use low-cost funds, establish an appropriate asset allocation, and rebalance it annually.

It’s not new advice. My own portfolio was strongly influenced by it back in the early 1980s. By the 1990s, it was pretty much the standard advice you would get anywhere. Many studies at the time showed that a very simple portfolio — just an S&P 500 index fund, plus a long-term bond fund — tended to outperform managed funds, especially after the costs of the managed funds were taken into account.

I haven’t seen as many studies in the years since the financial crisis, so I thought I’d take a quick look at how this sort of basic asset allocation held up in the aftermath.

Most people date the financial crisis from 2008, but I tend to date it from June of 2007, because that’s when I found out that I’d be losing my job. For that reason, the graphs below run from then through the latest data available as of March 29, 2017.

As it turns out, a mediocre portfolio held up pretty well.

Criteria for success

To decide whether a particular style of investing is a success, it helps to know what your goals are. Most people would include “maximum return” as at least part of their goal, but instead, I suggest that your portfolio provide an investment return that supports your specific life needs.

A portfolio that comfortably beats inflation is part of that. It’s also a plus if the portfolio doesn’t swing wildly in value — in case your circumstances require you to cash out a significant amount on an emergency basis. It’s nice, too, if the portfolio provides a mix of income and growth, so that if changes in what’s in fashion among investors push one category of stocks up or down, the overall value of your portfolio doesn’t take too big of a hit. (Personally I’ve always had a sneaking preference for income, even though tax policy has often favored growth.)

With those criteria in mind, let’s look at how some of the pieces of a mediocre portfolio have done.

Pieces of a mediocre portfolio

The most basic mediocre portfolio is just an S&P 500 index fund and a long-term bond fund, with the ratio between those two gradually shifting from mostly stocks (for a young person) toward mostly bonds (for someone who has already retired).

Stock market investments

The value of an S&P 500 index fund dropped dramatically during the crisis itself, but it hit bottom well before the end of the recession, recovered all of its losses by 2013, and is now about 50 percent above where it started — meaning that on stock…

4 Questions to Ask Before Getting a Credit Increase

Feeling penned in by the low credit limits on your credit card? You might be able to boost your credit limit to a higher amount. Often, all it takes is a single call to your card provider. The bigger question, though, is whether you’re financially prepared for a higher limit.

Your credit card providers will always set a credit limit on your cards, the maximum amount you can borrow. If you have a short credit history or a low FICO credit score, your credit limits might be low ones, sometimes under $1,000. If you have a long credit history and high scores, your limit might be $10,000, $20,000, or more.

How do know if you’re ready for the financial responsibility of a higher credit limit? Here are some questions to ask yourself.

Do You Pay Your Credit Card Bill Late?

Do you pay your credit card bills by their due dates every single month? Or have you missed payments in the past? If it’s the latter, you might want to hold off on requesting a higher credit limit.

Paying your credit cards 30 days or more late will cause your FICO score to drop by 100 points or more. Your credit card provider will also charge you a penalty, and your card’s interest rate might soar. If you have a higher credit limit and a high balance, an interest rate spike could cost you quite a bit in extra interest payments.

Having a history of late payments will also give your credit card provider pause; the financial institution might not want to boost your limit if you don’t always pay your bill on time.

Do You Carry a Balance on Your Card?

The smart way to use a credit card is to pay off your balance in full each month. This way, you boost your credit score by making on-time payments, and you won’t get hit by the high interest that is often…