The countless decisions we make every day about good financial habits, where to invest, and how to balance saving and paying down debt aren’t easy to lift.
I regularly hear from readers asking for advice about their situations and challenges.
Below is an edited sample of reader questions and my answers.
I am 79 years old. How should I invest?
Retirees should typically reserve at least five years, if not 10 years, of living expenses in a mix of cash and high-quality bonds. This will provide protection against the need to dip into your stock investments if things go south. Yields on bonds and cash may not be anything to celebrate at the moment, but they are still respectable. In fact, many certificates of deposit and high-yield savings accounts pay about 4.75%.
In general, you should aim for a more conservative mix of investments as you get older so you don’t feel nauseous when the stock market declines. To roughly determine what percentage of your portfolio should be in stocks, subtract your age from 110. So, as a 79-year-old, you should have just under a third of your investments in stocks and the rest in bonds and cash.
I have two kids (twins) who are both 29 and neither of them are smart when it comes to money management. My daughter is a good saver but my son, who is a doctor, can’t save a dime. They both admit to their lack of financial understanding. I was wondering if there were any courses or books you would recommend.
You have reached a point of pain felt by many Americans, not just your children. American adults lag woefully behind When it comes to financial literacy.
Most of us were never exposed to financial education growing up.
Although it may be too late for your adult children to have this foundation, this oversight is shifting in a positive direction for today’s students — 35 states now require high school students to take a personal finance course to graduate, up from 23 states in 2022 According to Council for Economic Education.
Another book I praise is Jonathan Clements’How we think about money.” “We want to take control of our finances, so we can have more control over our lives,” he writes. He points out that the goal is not to become rich. “The goal is to have enough money to live the life we want.”
And finally, Benjamin Graham’s classic, ““smart investor” It remains “the best book on investing” according to Warren Buffett. The third edition is now out.
Podcasts are also entertaining and educational. Here on Yahoo Finance, there“Financial Free Style” With Ross Mack. Other things to check out: “Jordan Grumet”Earn and investAnd “Morningstar.”The long view.“
I am 73 years old, single, retired from public service last year, and receiving a pension. I’ve been collecting Social Security since age 70, and I started taking required minimum distributions from my 457(b) and traditional IRA accounts this year. But I still work part-time for a different employer (no pension, no retirement plan), and I get a W-2.
Am I still eligible to put $8,000 of pre-tax money into an IRA for 2024? (My total income from my part-time job is over $8,000.) Is there an income limit for traditional IRA deductions in my situation?
Congratulations on waiting until age 70 to run your Social Security checks. This means that you will have the largest possible amount going forward compared to starting it again at full retirement age.
By putting off taking your benefits from your IRA until age 70, you’ve earned delayed retirement credits. This resulted in an approximately 8% annual increase in your benefits for each year until you reach 70 when the credits stop accruing.
Now, as for those contributions, you can certainly contribute. There are no age restrictions on making regular contributions to traditional or Roth IRAs.
A tax-free traditional IRA, if you’re not covered by a retirement plan at work, has no income limitations. If you expect to be in a lower tax bracket in the next few years, an immediate tax deduction and deferring your tax bill makes sense. Even though you already take RMDs, the new contributions could reduce your taxable income.
But if you’re already in a lower tax bracket, I would consider a Roth IRA.
Contributions to a Roth IRA are not deductible. It’s made with after-tax dollars, so you don’t report the contributions on your tax return, but you can take the money and any earnings tax-free if you hold the account for at least five years.
The amount you can allocate depends on your total income. For tax year 2024, the adjusted gross income limit for single filers is $146,000 with a reduced amount of up to $161,000. For 2025, the income limit for contributions is between $150,000 and $165,000.
Since RMDs are never required in Roth IRAs, this is a great way to continue saving.
For tax year 2024, the maximum contribution is $7,000, or $8,000 for those 50 or older who take advantage of the $1,000 catch-up contribution. This is you. You can contribute to an IRA for 2024 until the April 15, 2025 tax filing deadline.
I need to buy a car at the end of April 2025. I’m saving for a down payment between now and then so I can get a lower loan amount. I also pay off my debts so my credit score increases, which helps me get a better interest rate on my loan. I don’t seem to be making much progress on either. Which do you recommend focusing on more?
If you can hold off on buying a car for a little longer, do so. I recommend focusing on reducing your debt. I’m not sure what type of debt you’re reducing, but if your interest rate is too high, you need to get it under control first.
Raising your credit score takes time, and adding new debt isn’t your best option if you can put off that big purchase.
To get the best car loan, you’ll likely need to save a significant amount for a down payment, which can be as much as 20% for a new car. (Getty Creative) ·Mascot via Getty Images
If you’re paying off revolving credit card debt that keeps revolving from month to month, this is daunting. the Average credit card The interest rate is more than 20%. It’s very difficult to get out underneath without some real grease. You need to pay much more than the minimum monthly amount to make an impact.
Your debt level is a big factor in calculating your credit score. The higher your credit score, the lower the annual percentage rate (APR) on your auto loan. The average interest rate on auto loans for new cars in the third quarter of 2024 was 6.6%, while the average interest rate on used car loans was 11.7%, according to Experian’s State of the Auto Finance Market report.
People with excellent scores — 800 and above — can find interest rates as low as 5.25% for new car loans, but that can be as high as three times that for borrowers with poor credit scores, according to Experian research.
There are a few schools of thought on how to pay off your existing debt. Using the so-called avalanche method, you pay off the debt with the highest interest rate first. Other people choose the snowball method, which involves focusing on smaller debts first. I’m in the avalanche school, but what’s best for you is important.
Other steps to raise your score: If you know you’re going to buy a new car, for example, don’t open new credit card accounts, or close accounts. You have to prove that you know how to manage credit by paying balances on time. Never miss a payment or due date. All it takes is one late payment to crash your score and make lenders wary.
In addition to your credit score, other factors contribute to your interest rate, such as your lender and the term of your loan, which brings us back to saving for a larger down payment.
I feel your frustration. To get the best car loan, you’ll probably need to save a significant amount for a down payment, which can be as low as 20% for a new car and closer to 10% for a used car. So saving is crucial, but in my experience, getting your debt under control and cleaning up your credit score should come first.
Thank you to readers who felt comfortable submitting your questions. Keep them coming.
