A decade is still enough time to reach a solid financial position

Reviewed by Marguerita Cheng
Fact checked by David Rubin

Many working people are unprepared for the financial challenge of saving for retirement. A 2024 GOBankingRates study found that 28% of workers surveyed had nothing saved for retirement and 39% weren’t contributing to a retirement fund. Some of the folks in that group may have a pension to rely on, but most are financially unprepared to exit the workforce.

Social Security is only designed to replace a portion of income in retirement, so those who find themselves roughly 10 years away from retiring, regardless of how much money they have saved, need to develop a plan for hitting the finish line successfully.

Key Takeaways

• It’s possible to increase your savings significantly if you still have 10 years until you retire.
• Take the time to assess where you are—how much you have saved and your sources of income, your retirement goals, your budget for retirement, and the age at which you want to stop working.
• If there’s a gap between your savings and what you need, take steps to save more—increase 401(k) and IRA contributions, set up automatic payroll deductions to savings accounts—and spend less.
• It may be useful to hire a financial planner to help you stay on track and suggest additional ways to grow your retirement savings.

Get Started on a 10-Year Plan

Ten years is still enough time to reach a solid financial position. “It’s never too late! During the next 10 years, you may be able to accumulate a small fortune with proper planning,” said Patrick Traverse, CFP, financial advisor at MoneyCoach in Mount Pleasant, South Carolina.

People who have not saved a lot of money need to make an honest assessment of where they are and what sacrifices they are willing to make. Taking a few necessary steps now can make a world of difference down the road.

1. Assess Your Current Situation

Nobody likes to admit they might be ill-prepared to retire, but an honest assessment of where you are now financially is vital in order to create a plan that can accurately address any shortfalls.

Begin by counting how much you have accumulated in accounts earmarked for retirement. This includes balances in individual retirement accounts (IRAs) and workplace retirement plans, such as a 401(k) or 403(b). Include taxable accounts if you’re going to use them specifically for retirement, but omit money saved up for emergencies or larger purchases, such as a new car.

2. Identify Sources of Income

Existing retirement savings should provide the lion’s share of monthly income in retirement, but it may not be the only source. Additional income can come from a number of places outside of savings, and you should also consider that money.

Most workers qualify for Social Security benefits depending on factors such as career earnings, length of work history, and the age at which benefits are taken. For workers with no current retirement savings, this may be their only retirement asset.

Tip

The government’s Social Security website provides a retirement benefit estimator to help determine what kind of monthly income you can expect in retirement.

If you’re fortunate enough to be covered by a pension plan, include that monthly income in your plan. You can also tally up income from a part-time job while in retirement.

3. Consider Your Retirement Goals

Retirement means different things to different people. Your retirement goals will depend not only on your assets but on your plans for the future. Someone intent on downsizing to a smaller property and living a quiet, modest lifestyle in retirement will have very different financial needs than a retiree who wants to travel extensively.

Develop a monthly budget to estimate regular expenditures in retirement, such as housing, food, dining out, and leisure activities. The costs for health and medical expenses—such as life insurance, long-term care insurance, prescription drugs, and doctor’s visits—can be substantial later in life, so be sure to factor them into a budget estimate.

$165,000

A typical 65-year-old can expect to spend $165,000 on health care costs in retirement, according to the 2024 Fidelity Retiree Health Care Cost Estimate.

4. Set a Target Retirement Age

Someone who is 10 years away from retirement could be as young as 45 if they are financially prepared and eager to exit the workforce, or as old as 65 or 70 if not. People with longer life expectancies should do their retirement planning estimates assuming they’ll need to fund a retirement that could potentially last for three decades or even more.

Planning for retirement means evaluating not only your expected spending habits in retirement but also how many years retirement may last. A retirement that lasts 30 to 40 years looks very different from one that may only last half that time. While early retirement may be a goal of many workers, a reasonable target retirement date achieves a balance between the size of the retirement portfolio and the length of retirement the nest egg can adequately support.

“The best way to determine a target date to retire is to consider when you will have enough to live through retirement without running out of money,” said Kirk Chisholm, wealth manager and principal at Innovative Advisory Group in Lexington, Massachusetts. “And it is always best to make conservative assumptions in case your estimates are a bit off.”

Important

Eliminating debt, especially high-interest debt such as credit cards, is crucial to getting your finances under control.

5. Confront Any Shortfall

All of the numbers compiled to this point should help answer the most important question of all: Do the accumulated retirement assets exceed the anticipated amount needed to fully fund your retirement? If the answer is yes, then it’s important to keep funding your retirement accounts in order to maintain the pace and stay on track. If the answer is no, then it’s time to figure out how to close the gap.

With 10 years to go until retirement, those who are behind schedule need to figure out ways to add to their savings accounts. To make meaningful changes, you will likely need to increase your savings rate while cutting back on unnecessary spending. It’s important to figure out how much more you need to save to close the shortfall and make appropriate changes to how much you contribute to IRAs and 401(k) accounts. Automatic savings options through payroll or bank account deductions are often ideal for keeping your savings on track.

You should also get cracking on eliminating your debt. Americans’ credit card debt reached $1.16 trillion in 2024, and the average balance on credit cards was $6,730, according to Experian data. Much of that debt comes with high interest rates, so getting rid of it can make a dramatic difference in your monthly budget.

“In reality, there are no financial magic tricks a financial advisor can do to make your situation better,” said Mark T. Hebner, founder and president of Index Fund Advisors, Inc. and author of “Index Funds: The 12-Step Recovery Program for Active Investors.” “It is going to take hard work and becoming accustomed to living on less in retirement. It doesn’t mean that it cannot be done, but having a transition plan and someone there for accountability and support is crucial.”

Important

High-risk investments make more sense earlier in life and are generally ill-advised during the years directly before retirement.

6. Assess Your Risk Tolerance

Risk tolerance is different at different ages. As workers begin approaching retirement age, portfolio allocations should gradually turn more conservative in order to preserve accumulated savings. A bear market with only a handful of years remaining until retirement could cripple your plans to exit the workforce on time. Retirement portfolios at this stage should focus primarily on high-quality, dividend-paying stocks and investment-grade bonds to produce both conservative growth and income.

One guideline suggests that investors should subtract their age from 110 to determine how much to invest in stocks. A 70-year-old, for example, would target an allocation of 40% stocks and 60% bonds.

If you’re behind on your savings, it may be tempting to ramp up your portfolio risk in order to try to produce above-average returns. While this strategy may be successful on occasion, it often delivers mixed results. Investors taking a high-risk strategy can sometimes find themselves making the situation worse by committing to riskier assets at the wrong time.

Some additional risk may be appropriate depending on your preferences and tolerance, but taking on too much risk can be dangerous. Increasing equity allocations by 10% may be appropriate in this scenario for the risk-tolerant.

7. Consult a Financial Advisor

Money management is an area of expertise for relatively few individuals. Consulting a financial advisor or planner may be a wise course of action for those who want a professional overseeing their personal situation. A good planner ensures that a retirement portfolio maintains a risk-appropriate asset allocation and, in some cases, can provide advice on broader estate planning issues as well.

Planners, on average, charge roughly 1% of total assets managed annually for their services. It’s generally advisable to choose a planner who gets paid based on the size of the portfolio managed rather than someone who earns commissions based on the products they sell.

How Much Money Do I Need To Retire?

Your retirement budget will vary based on your goals and requirements. However, you can estimate how much money you’ll need to retire by using a common rule of thumb. Many advisors recommend saving at least 10 times your income by age 67.

What If I Haven’t Saved Enough for Retirement?

It’s never too late to save for retirement or adjust your plan once you’ve left the workforce. If you find that you’re short of your retirement goal, reassess your spending and saving. Specifically, make an effort to maximize any tax-advantaged savings in 401(k) or IRA accounts. Also, consider alternate retirement plans like downsizing, moving to an area with a lower cost of living, or working part-time in retirement.

The Bottom Line

If you have little saved for retirement, you need to think of this as a wake-up call to get serious about turning things around.

“If you are 55 and ‘short on savings,’ you’d better take drastic action to catch up while you are still employed and generating earnings,” said John Frye, CFA, chief investment officer at Carnegie Investment Counsel in Los Angeles. “It’s said that people’s 50s (and early 60s) are their ‘earning years,’ when they have fewer expenses—the kids are gone, the house is either paid off or was bought at a low price years ago—and so they can put away more of their take-home pay. So get busy.”

Better to tighten your belt now than be forced to do it when you are in your 80s.

A little sweat equity can go a long way

Reviewed by Andrew Schmidt
Fact checked by Vikki Velasquez

Renovations often add value to your home but can incur significant costs. That said, there are ways to increase your home’s value without going into debt or ransacking your savings. Painting, re-grouting tile, and power washing the outside of your home won’t cost a lot of money, but these do-it-yourself home improvement ideas can add real value to your property.

With some sweat equity, a DIY attitude, and a few dollars, you can list your home for more money if you’re ready to sell. And if you’re not quite ready to put your home on the market, you can still enjoy the fruits of your labor.

Here are some low-cost, high-value home improvement projects to consider.

Key Takeaways

• Popular home improvement DIY jobs include painting, updating fixtures, and deep-cleaning the exterior.
• Though small, these updates can have a significant impact on the curb appeal of a home you’re trying to sell. They can also modestly increase a home’s value.
• New interior paint and cosmetic updates in the kitchen boast some of the highest returns on time or money investments.

13 Home Improvement Ideas You Can Do Yourself

From interiors to exteriors, bathrooms to kitchens, there are small upgrades that you can do yourself to improve your home and increase its value. Popular home improvement ideas include:

1. Paint the walls
2. Update simple fixtures
3. Install ceiling fans
4. Uncover and refinish hardwood floors
5. Install new bathroom tile
6. Update bathroom fixtures
7. Paint or replace the kitchen cabinets
8. Update knobs and pulls
9. Install a new front door
10. Clean the gutters
11. Power-wash walls and decks
12. Repaint the exterior
13. Tidy up the landscaping

Simple Interior Updates

1. Freshen Up the Walls

If your walls have scratches and dirty paint, an outdated color, or fading wallpaper, then a little elbow grease and a few cans of paint can make a dramatic difference. Fresh paint both inside and outside of a house can signal that the home is well-maintained and increase curb appeal for potential buyers.

2. Update Fixtures

Switch plates, outlet covers, curtain rods, light fixtures, and doorknobs are often boring or overlooked, but you can add significant pizzazz for just a few dollars. Attractive metal switch plates and outlet covers can cost as little as $5 apiece but look much more expensive. Light fixtures and decorative curtain rods can be a little pricier, but sometimes you can make an inexpensive one look elegant with a can of spray paint. If you plan to sell, be sure to choose items in colors and finishes that will appeal to a broad audience.

Tayler Moots, a Compass real estate salesperson, says that “changing the hardware can make [a] room feel fresh and welcoming” and can add curb appeal.

3. Install Ceiling Fans

Everyone likes to save money on electricity bills, which makes ceiling fans an appealing addition to any home. Ceiling fans cut down on air conditioning costs and can reduce heating costs by circulating warm air away from the ceiling. A primary fan costs about $100, and you can get a nice one for no more than a couple of hundred dollars.

If you don’t already have wiring for overhead fans, you may need to hire a professional, which can significantly escalate the cost of this project. Adding ceiling fans around your house may increase energy efficiency, which bodes well for boosting home resale value later.

Note

A national report from Freddie Mac found that more energy-efficient homes are sold for 3% to 5% more than less efficient homes.

4. Reveal and Restore Hardwood Floors

Older homes, in particular, are likely to have hardwood floors lurking beneath carpet. Squeaky floors are a sign that you may have wood floors. If you’re not sure, pull up your carpet in an unnoticeable corner and check.

If you do have wood floors, there’s a good chance you’ll have to refinish them to restore them to their original splendor, but it will be much less expensive than installing new flooring from scratch. The National Association of Realtors estimates that buyers will pay a premium, on average, of $5,000 to $6,500 for a home with hardwood floors.

Important

Some homeowners take out a home equity line of credit (HELOC) to pay for renovations, but it’s possible to spruce up a home without taking on debt.

Basic Bathroom Upgrades

Plus, leaving a bathroom with old, outdated floors, backsplashes, fixtures, and other details can actually be a deterrent for some buyers or can reduce the amount people are willing to pay for the house overall.

According to The Journal of Light Construction, homeowners will see about a 73% return on investment (ROI) for a bathroom renovation, making it one of the prime parts of a home to improve in order to add value.

1. Redo the Bathroom Floor

DIY installation can save you a lot of cash. If you don’t know how to install flooring, look for a class at your local home improvement store. Saving money on labor will allow you to choose more beautiful flooring than you could otherwise afford. Opt for a neutral-colored tile to add the most value.

2. Update Fixtures

Replacing generic, cheap, or outdated fixtures with newer, more customized versions can make your bathroom sparkle and look more high-end. For about $40 to $100, you can substitute a shabby bathroom vanity or ceiling light fixture with something elegant.

A similar cash outlay will get you a new sink faucet. A spa-style chrome shower head adds a touch of luxury for about $80. Towel bars are a cheap and easy fix at about $20 to $30. Sometimes, an upgrade can be more energy efficient, increasing not only the aesthetics of your home but “greening” it up as well.

Important

Considering renovations to personalize your home or boost property value? Check out our guide—Owning It: Investing In Your Home—to learn more about how to plan and pay for your project. 

Quick Fixes in the Kitchen

Kitchen renovations typically offer high ROI for home sellers. Moot says that “the highest value is added in kitchens” and adds that even “small changes” and “minor kitchen updates can have a return of up to 96%.”

1. Paint or Stain Kitchen Cabinets

You could buy all-new cabinets and save money by purchasing prefabricated (rather than custom) cabinets and installing them yourself, but that’s more work and money than painting or staining your existing cabinets. White cabinets will brighten a kitchen, don’t usually go out of style, and are easy for a future owner to repaint if they want something different.

You’ll need to remove all the hardware from your cabinets, including the doors, before painting or staining. You’ll also need to clean the cabinets first so dirt and greasy residues won’t ruin the finish. While you’re at it, consider sprucing up your bathroom cabinets as well.

2. Upgrade Cabinet Knobs and Drawer Handles

It’s surprising how a seemingly innocuous element such as a cabinet doorknob can make your kitchen look cheap or dated. Updating this hardware can give your kitchen a face-lift, whether you redo your cabinets or not.

Save When You Refresh the Exterior

It may be easy for you to ignore your home’s exterior when you spend most of your time inside, but it’s the first—and sometimes only—impression that others get of your house. Here are a few simple ways to make it look its best.

1. Install a New Front Door

Moots says that “a beautiful front door can also be a game changer” when it comes to curb appeal. Replacing a steel door will cost $2,355 on average, but the cost is well worth it if you want to recoup your investment, as a new front door can have an ROI of almost 188.1%. If you can’t afford a new door, a fresh coat of paint in an attractive color may be all you need.

2. Clean the Gutters

This task has more to do with maintaining your home’s value than increasing it, but it’s essential. Without properly functioning gutters, which are designed to carry water away from your home, rain may seep inside or pool around the foundation, causing problems such as mold and mildew.

Eventually, water damage can compromise the house’s structural integrity, leading to costly repair bills. Gutter repair, on the other hand, only costs $385 on average.

3. Power Wash the Exterior of Your Home

For less time and money, a good pressure washing can make your home’s exterior look almost as good as a fresh coat of paint. Power washing the exterior of your home may increase its value by up to $15,000.

4. Repaint the Exterior

If washing the exterior of your home didn’t brighten it up as much as you had hoped, consider a new paint job. With the ladders and heights involved, this may not be a DIY task for everyone, but even if you have to hire others to do this job, it’s still pretty inexpensive as far as home improvements go and can make your house look almost new from the outside.

Important

Ninety-two percent of Realtors recommend improving home curb appeal before listing a home for sale.

6. Upgrade Landscaping or Clean Up Existing Landscaping

Flowers and other plants are a great way to brighten your home’s exterior. Use greenery in front of your house and along walkways to draw attention to your home. To get the most for your dollars, choose perennial plants, which come back year after year, rather than annuals, which—as their name suggests—last a year or less.

Patch any bald spots in the yard with fresh sod (or plant grass seed if you have time), and trim existing trees and bushes to complete the yard’s new look. Landscaping may be among the larger projects on our list, but it also comes with a sizable potential ROI of 100%.

What Are the Best DIY Projects to Add Value to Your Home?

Some of the best DIY projects to boost home value are small, inexpensive fixes with high ROI. For example, painting your kitchen cabinets typically costs $50 to $100 per gallon, plus the value of your time and labor. However, a clean, updated kitchen could improve your home sale price by thousands of dollars. Look for repairs and improvements that are relatively simple and low-cost, such as painting, updating fixtures and outlet covers, and making small landscaping upgrades.

How Can I Increase the Value of My Home?

One of the best ways to increase the value of your home is to stay on top of home repairs. Attending to basic home maintenance will ensure that small issues don’t become big problems. It will also provide you with opportunities for simple upgrades that will update the look of your home, such as replacing dated fixtures with more modern ones.

How Can I Pay for Home Improvement Projects?

Ideally, you would pay for home improvement projects out of your savings. However, sometimes you may need to make upgrades before you have the funding. Consider 0% introductory annual percentage rate (APR) credit cards, personal loans, home remodeling loans, or HELOCs. Just keep in mind that low- or no-interest offers typically come with a time limit; e.g., six months or two years. Read the fine print on loan agreements and budget for upcoming payments.

The Bottom Line

Upgrading your home doesn’t have to be expensive or complicated, and it doesn’t have to involve contractors. A variety of projects for all price ranges and levels of skill and enthusiasm can improve your home’s value, whether for future buyers or, perhaps more important, for you.

Putting a few of these home improvement ideas into action will help you get the most value out of one of your most significant assets, whether you’re planning to stay or selling. And before a DIY project can even be considered, make sure that any new additions or changes will still fit the house’s overall aesthetic, which the best home design software can help you with.

Strategies to better prepare for rising medical costs

Fact checked by Vikki Velasquez

While most retirees assume Medicare will cover the majority of their medical expenses, out-of-pocket costs for premiums, copayments, prescriptions, and long-term care can quickly add up. In fact, healthcare expenses can be among the most costly expenditures retirees face. Failing to plan for them can eat away at hard-earned retirement savings over time. 

A proactive approach to understanding the impact of inflation and your current health, family medical history, and lifestyle choices on healthcare costs can help you make important decisions about buying supplemental or additional insurance and strategically using employer accounts to safeguard your retirement savings.

Key Takeaways

• Healthcare costs in retirement can have a significant financial impact, and proactive planning is essential to avoid unexpected expenses.
• To plan effectively, estimating healthcare expenses based on individual circumstances is crucial, considering factors such as your current health status and lifestyle choices.
• Saving and investing for healthcare expenses by utilizing tools like health savings accounts (HSAs) and long-term care insurance can help manage healthcare costs in retirement.
• Having a contingency plan and adequate insurance coverage are vital for mitigating the financial impact of unexpected medical events.
• Retirees should seek professional advice to help estimate and plan for healthcare costs.

The Importance of Healthcare Costs in Retirement

“Retirees often encounter a host of unexpected financial challenges that can disrupt even the most well-planned budgets,” says Martin A. Smith, CRPC, AIFA, founder and president of Wealthcare Financial Group Inc. “One major surprise is the rapid escalation in healthcare costs. Once retirees lose access to employer-sponsored or government-provided plans, they frequently must secure private insurance or state-based coverage. This transition can lead to much higher out-of-pocket expenses.”

While Medicare provides coverage for 98.2% of retirees over 65, it does not fully cover all medical expenses, leaving retirees responsible for premiums, deductibles, and copayments that can add up over time. A KFF study reveals that 22% of retirees have medical debt due partly to unexpected out-of-pocket expenses and rising medical costs. These expenses often include prescription medications, supplemental health plans, and long-term care services such as in-home care or nursing home stays.

Healthcare costs tend to rise faster than general inflation. These inflation rates, combined with increasing medical expenses due to technological advances and longer life expectancies, can significantly reduce retirement income for those who are unprepared.

Strategies for Preparing for Healthcare Costs During Retirement

While retirees don’t have much control over rising healthcare costs, they have plenty of options to help offset expenses before and after retirement.

Long-Term Care Insurance Policy

Non-medical long-term care is one of the most expensive healthcare costs that Medicare does not cover, yet 45% of adults over 65 incorrectly assume that Medicare covers its associated costs. According to the 2024 Cost of Care Survey conducted by Genworth and CareScout, an assisted living facility costs an average of $70,800 annually, and a semi-private room in a skilled nursing facility may cost as much as $111,325 annually. Someone turning 65 today has a 69% chance of needing long-term care in their lifetime. Without long-term care insurance, these vulnerable retirees must fund their long-term care expenses out of pocket.

Long-term care insurance policies help cover the costs of non-medical long-term care needs, which may include in-home care, assisted living facilities, and nursing facilities. Many advisors agree that the mid-50s is the sweet spot for obtaining long-term care coverage because policyholders will not pay for a product they’re decades from needing, and the average 50-year-old’s health is still good enough to get affordable rates.

Annual rate increases are 2-4% in your 50s but spike to 6-8% per year in your 60s. While there is no age cap for LTC applicants, the American Association for Long-Term Care Insurance reports that insurers denied coverage to 38.2% of applicants ages 65 to 69 and to 45% of applicants over 70.

Long-term care insurance, purchased before retirement, is one way to protect your retirement income and help your savings last your lifetime.

Tip

One strategy for LTC insurance is to purchase a rider when you buy life insurance, so, in effect, you get two benefits in one.

Health Savings Account (HSA)

Health savings accounts (HSAs) are tax-advantaged vehicles that help workers with high-deductible health plans (HDHPs) save for qualified medical expenses. Not only do HSAs provide short-term savings options, but they can also serve as powerful retirement savings tools with triple tax advantages. As Colin Overweg of Advize Wealth Management explains, “The HSA combines the best parts of a Roth and a traditional IRA. If eligible, contributions to an HSA are tax-deductible today, grow tax-deferred, and can even be withdrawn tax-free for qualified medical expenses, including Medicare premiums.”

Unlike other employer-sponsored savings accounts, there is no “use it or lose it rule,” and HSAs never expire. Your HSA is yours to take even if you leave your employer. HSAs are only available to employees with high-deductible health plans, but those who have HDHPs while working can use their HSAs to come out ahead in retirement.

In 2025, the annual HSA tax-deduction contribution limit (for employees and employers combined) is $4,300 for individual coverage and $8,550 for family coverage. If you are age 55 or older, you can contribute $1,000 annually, in addition to the maximum HSA limit for the year, as a catch-up contribution.

While opening an HSA earlier in your work life will give you more time to save, individuals closing in on retirement in their 50s should still consider opening an HSA and maxing out the contribution limits.

Medicare and Supplemental Insurance

Medicare is affordable, comprehensive medical coverage, but it does not cover everything—most notably, dental, vision, hearing, and routine physical exam costs. Without additional insurance, retirees must pay for these medical necessities out of pocket, which can quickly eat away at retirement savings.

Medicare supplemental insurance, or Medigap, is insurance sold by private insurance companies to cover the costs not covered by Medicare for copays, coinsurance, and deductibles. Alternatively, retirees looking for insurance that covers routine dental, vision, and hearing screenings in addition to original Medicare coverage may want to consider Medicare Advantage plans (Medicare Part C).

These are Medicare-approved plans from private companies that bundle original Medicare with prescription coverage and other benefits. While a Medigap or Medicare Advantage plan adds a recurring cost to your monthly budget, the advantage of not being surprised with out-of-pocket expenses for routine, necessary care may outweigh the expense.

Retiree Reimbursement Arrangement (RRA)

Retiree reimbursement arrangements (RRAs) are health reimbursement arrangements (HRAs) specifically for retirees. HRAs are employer-funded plans to reimburse employees for qualified medical expenses up to their annual limit. RRAs reimburse retirees instead of active employees.

RRA funds may pay Medicare premiums and other out-of-pocket medical expenses. Some employers may allow retirees to roll over unused funds. Because RRAs are completely employer-funded, they’re essentially “free” money for you to offset medical costs. If your employer offers one, take full advantage of its benefits.

Telehealth

Many retirees find telehealth, which provides healthcare services remotely, an affordable and convenient healthcare option, especially as traveling to and from appointments becomes harder. The convenience of telehealth encourages retirees to stay on top of chronic health conditions and prescription management, which reduces the incidence of hospital admissions.

Telehealth appointments are also particularly valuable when urgent but minor health concerns arise that might otherwise necessitate a visit to urgent care or an emergency room.

Because telehealth providers typically have lower overhead costs, their care also tends to be cheaper for the patients.

Warning

Starting April 1, 2025, you must be in an office or medical facility located in a rural area in the U.S. for most telehealth services, though there are certain exceptions. Also, Medicare Advantage plans and some providers may offer more telehealth benefits than original Medicare, so check with your plan or provider.

Preventive Care

Preventative healthcare, such as routine checkups, vaccinations, and health screening, reduces overall health costs in the long run by catching diseases early and helping to prevent chronic conditions.

Staying active and health conscious throughout your life and into retirement can help keep healthcare costs low as you age. Overweg has seen firsthand with his clients how “joining a gym for $50 per month might actually save thousands in the long term.” Studies show that retirees who stay active stave off cognitive decline longer, reducing the need for long-term care in their lifetimes.

Factors to Consider When Planning for Healthcare Costs

Planning for retirement healthcare expenses requires a personalized approach that considers your current health status, family medical history, and lifestyle choices.

Medicare cannot deny coverage based on preexisting conditions, unlike other medical plans. Guaranteed medical coverage is good news for more than 86% of Americans aged 55 to 64 with preexisting conditions. However, these preexisting conditions may mean more visits, prescriptions, and procedures, leading to higher out-of-pocket expenses. Medicare recipients should plan to pay more than average to either purchase supplemental insurance or pay for necessary expenses.

You also need to consider your family medical history when making your healthcare plans, as genetic predispositions to illness may increase medical expenses over time. Similarly, if you come from a long line of centenarians, your retirement savings may need to stretch longer than the average person’s.

Lifestyle choices also impact healthcare spending in retirement. Unhealthy lifestyle choices affect quality of life and may significantly raise your costs for medical care in retirement. To help keep healthcare costs low, you can focus on healthy habits and preventative care.

After considering your current health, predispositions, and lifestyle choices, you must account for healthcare inflation to predict future healthcare expenses accurately. Financial advisors tell clients to “budget for higher healthcare inflation,” Overweg says. “Normal inflation may be around 3% annually, but it could be wise to assume healthcare costs increase closer to 5% or 6% per year.”

Planning for the Unexpected

In his poem “To a Mouse,” Robert Burns famously wrote, “The best-laid plans of mice and men often go awry,” about a farmer accidentally destroying a mouse’s carefully built nest. Burns certainly did not intend this line as an allegory for retirement savings, but unexpected healthcare expenses can destroy your nest egg.

That’s why, when you are building your savings, you should consider contingency plans to protect them and help cover these costs.

Consider supplementing your Medicare coverage with a Medigap policy or signing up for Medicare Advantage to make monthly healthcare costs more predictable. Plan on purchasing a long-term care policy before retirement while you are in good health to offset the cost of long-term care.

While you focus on building your retirement accounts during your working years, ensure you also grow your emergency fund. It can be your final backstop against unexpected healthcare (and other) expenses when you’re on a fixed income.

Resources for Healthcare Cost Planning

Many resources are available today to help estimate and plan for future healthcare expenses.

Overweg recommends Fidelity’s free health cost estimator and, for comparing plans based on your coverage needs and medication costs, Medicare.gov Plan Finder.

Anyone planning for retirement should also visit the AARP Health Care Cost Calculator to estimate healthcare costs in retirement.

Finally, one of the best resources for retirement planning is consulting a financial advisor. “Nobody knows the future, so a good financial planner will build a personalized plan with multiple scenarios to project your retirement plan success and give you peace of mind,” Overweg says. “And, of course, this plan will continue to be updated as the world evolves.”

How Much Should I Budget for Healthcare Costs in Retirement?

You should plan for out-of-pocket costs like premiums, copays, and prescriptions as part of your Medicare coverage. Healthcare costs tend to rise faster than general inflation, so budgeting for a 5-6% annual increase is wise. Additionally, nearly 70% of retirees will require long-term care, which Medicare does not cover. According to Fidelity’s latest estimate, a 65-year-old retiring in 2024 may need up to $165,000 in savings—an increase of almost 5% over 2023—to cover healthcare expenses throughout retirement.

Does Medicare Cover Long-term Care Expenses?

No, Medicare does not cover non-medical long-term care expenses like nursing homes, assisted living, or home healthcare. Long-term care costs are high, and long-term care insurance policies can help offset these expenses.

What Are Some Ways to Save on Healthcare Costs in Retirement?

Signing up for a Medicare Advantage or Medigap plan (you can’t have both) may help reduce out-of-pocket costs. If you’re still working and have a high-deductible healthcare plan, consider using a health savings account (HSA) to stash away tax-advantaged money for qualified healthcare expenses. Now and into retirement, prioritize your health with preventive care like vaccinations and regular check-ups and screenings to catch problems early.

The Bottom Line

It’s impossible to know what kind of health care emergencies will occur during your retirement–your age, health history, lifestyle, and genetics will all play a role.

By researching financial tools that can help you save on health care costs, like savings accounts and long-term care insurance, and talking to a retirement financial professional, you can protect yourself against unexpected health care costs in retirement.

Consider ease of set-up, ability to modify, and tax shelter benefits

Reviewed by Anthony Battle
Fact checked by Michael Rosenston

Revocable Trust vs. Irrevocable Trust: An Overview

A revocable trust and living trust are separate terms that describe the same thing: a trust in which the terms can be changed at any time. An irrevocable trust describes a trust that cannot be modified after it is created without the beneficiaries’ consent or court approval, and possibly both.

A trust is a separate legal entity a person sets up to hold their assets. Trusts are set up during a person’s lifetime to assure that assets are used in a way that the person setting up the trust deems appropriate. Once assets are placed inside a trust, a third party, known as a trustee, manages them. The trustee determines how the assets are invested and distributes them when the trust owner dies. However, the trustee must manage the trust following the guidelines laid out when the trust was formed, including giving funds to the designated beneficiary or beneficiaries.

It’s not uncommon for an individual to use a trust instead of a will for estate planning and stipulating what happens to their assets upon their death. Trusts are also a way to reduce tax burdens and avoid assets going to probate.

Key Takeaways

• Revocable, or living, trusts can be modified after they are created.
• Revocable trusts are easier to set up than irrevocable trusts.
• Irrevocable trusts cannot be modified after they are created, or at least they are very difficult to modify.
• Irrevocable trusts offer estate tax benefits that revocable trusts do not.
• Irrevocable trusts may be good for individuals whose jobs may make them at higher risk of a lawsuit.

Revocable Trust (Living Trust)

The two basic types of trusts are a revocable trust, also known as a revocable living trust or simply a living trust, and an irrevocable trust. The owner of a revocable trust may change its terms at any time. They can remove beneficiaries, designate new ones, and modify stipulations on how assets within the trust are managed. Given the flexibility of revocable or living trusts in contrast with the rigidity of an irrevocable trust, it may seem that all trusts should be revocable.

However, there are a few key disadvantages to revocable trusts. Because the owner retains such a level of control over a revocable trust, the assets they put into it are not shielded from creditors the way they are in an irrevocable trust. If they are sued, the trust assets can be ordered liquidated to satisfy any judgment put forth. When the owner of a revocable trust dies, the assets held in trust are also subject to state and federal estate taxes.

If the beneficiaries of a revocable trust are young (not of legal age) and the minor’s real estate assets are held within a trust, it can replace the need to appoint a conservator, should the grantor die. In addition, if a grantor names beneficiaries who they deem unreliable with money, the trust can set aside a specific amount to be distributed at recurring intervals, or when they come of age (if they are minors).

Important

The benefactor, having transferred assets into an irrevocable trust, effectively removes all rights of ownership to the assets and, for the most part, all control.

Irrevocable Trust

The terms of an irrevocable trust, in contrast, are set in stone the minute the agreement is signed. Except under exceedingly rare circumstances, no changes may be made to an irrevocable trust. Any alterations would have to be done by 100% consent of its beneficiaries or by order of the court, and in some cases both court approval and beneficiary consent may be required. The exact rules can depend on state laws.

The main reason to select an irrevocable trust structure is taxes. Irrevocable trusts remove the benefactor’s taxable estate assets, meaning they are not subject to estate tax upon death. If the trust is a guarantor trust, the creator of the trust covers the income tax of trust assets, and the beneficiary will not owe income taxes on distributions. If the trust is not a guarantor trust, the trust pays income taxes on its assets while they are in the trust, and the beneficiary will owe income taxes on distributions. Irrevocable trusts can be difficult to set up and require the help of a qualified trust attorney.

If you work in a profession where you may be at risk for lawsuits, such as a medical professional or lawyer, an irrevocable trust could be helpful to protect your assets. When assets are transferred, whether they are cash or property, to the ownership of an irrevocable trust, it means the trust is protected from creditors, and even legal judgment. However, an irrevocable trust is a bit more complicated to set up than a revocable trust, namely because it cannot be altered.

Key Differences

There are some key differences between a revocable and an irrevocable trust beyond that a revocable trust can be altered but an irrevocable trust cannot be changed. It is more common for the guarantor to be a trustee or the trustee of a revocable trust. For an irrevocable trust, it is possible, but less common. Many attorneys advise against it as well.

Revocable Trust vs. Irrevocable Trust Example

Let us say an individual creates a revocable trust to benefit their family and protect their assets. In doing so, as the grantor of a revocable trust, they can also name themselves the trustee and the beneficiary of the trust. When they get older, they can go back into the trust and name a new beneficiary and add a trustee to step in if they become incapacitated in their more senior years.

The trust can be amended several times within the trustee’s lifetime, say if the trustee remarries or after the birth of a grandchild. When they pass, their trust is kept out of probate, and the stipulations in their trust can be carried out discreetly.

The disadvantages, however, are it can be costly to write one up and even more expensive if you make alterations numerous times. A trust must be funded, and assets must be moved into the trust, which can also have some costs.

Now, let’s say the same individual creates an irrevocable trust to benefit their family and protect their assets. Instead of naming themselves the trustee and beneficiary, the grantor would usually designate a separate trustee and feel secure giving up ownership and controlling assets, such as property. They will now have to carefully vet a trustee and a trust protector who acts as an oversight manager of the trust. Then, they must name beneficiaries. Once assets have been put into an irrevocable trust, unlike a revocable trust, the grantor now must let it rest, as they cannot alter the trust without significant difficulty.

Under certain circumstances, the inability to change the trust makes an irrevocable trust potentially a risky endeavor. It is difficult to change the named beneficiaries in an irrevocable trust. And the grantor may not be able to access their assets, even if a life event makes it necessary.

What Are the Main Parties Involved in an Irrevocable Trust?

There are typically four parties involved in an irrevocable trust. The grantor, the trustee of the trust, and the beneficiary or beneficiaries. Some individuals may choose a trust protector who oversees the trustee.

What Are the Main Downsides of Revocable and Irrevocable Trusts?

Both revocable and irrevocable trusts can be expensive to draw up, complex to undo, in the case of an irrevocable trust, and costly to rewrite, in the case of a revocable trust. It is very difficult to dissolve an irrevocable trust, and a revocable trust doesn’t necessarily protect your assets from creditors.

The Bottom Line

Trusts are legal entities that a person sets up to hold their assets. A revocable trust has the advantage of flexibility in that it can be altered at any time by the grantor who sets it up. However, it has disadvantages, too. A revocable trust doesn’t shield the grantor’s assets from creditors, which means if the grantor is sued, the trust assets can be ordered liquidated to satisfy a judgment. Also, when the owner of a revocable trust dies, the assets held in trust are subject to state and federal estate taxes. By contrast, an irrevocable trust cannot be changed except under extremely rare circumstances. It also shields assets from creditors in lawsuits, and assets are not subject to estate taxes. But irrevocable trusts are complicated to set up. If you’re thinking of establishing one, consult a qualified trust attorney.

Reviewed by Marguerita Cheng
Fact checked by Suzanne Kvilhaug

An investment bank, which includes the likes of Bank of America, JPMorgan Chase, and Goldman Sachs, finances or facilitates trades and investment on a large scale for institutional clients. But that is an overly simplistic view of how investment banks make money. There are, in fact, several facets to what they do.

Key Takeaways

• Investment banks provide a variety of financial services, including research, trading, underwriting, and advising on M&A deals.
• Proprietary trading is an effort to make profits by trading the firm’s own capital.
• Investment banks earn commissions and fees on underwriting new issues of securities via bond offerings or stock IPOs.
• Investment banks often serve as asset managers for their clients as well.

Brokerage and Underwriting Services

Like traditional intermediaries, large investment banks connect buyers and sellers in different markets. For this service, they charge a commission on trades. The trades range from simple stock trades for smaller investors to large trading blocks for big financial institutions.

Investment banks also perform underwriting services when companies need to raise capital. For example, a bank might buy stock in an initial public offering (IPO), and then market the shares to investors. There is a risk that the bank will be unable to sell the shares for a higher price, so the investment bank might lose money on the IPO. To combat this risk, some investment banks charge a flat fee for the underwriting process.

Mergers and Acquisitions

Investment banks charge fees to act as advisors for spinoffs and mergers and acquisitions (M&A). In a spinoff, the target company sells a piece of its operation to improve efficiency or to inject cash flow. On the other hand, acquisitions occur whenever one company buys another company. Mergers take place when two companies combine to form one entity. These are often complicated deals and require a lot of legal and financial help, especially for companies unfamiliar with the process.

In hostile takeovers, they may assist either the acquiring or target company in crafting strategies to defend or advance the deal. Investment banks leverage their financial expertise, industry knowledge, and relationships to guide clients through the process to both maximize value as well as minimize regulatory/reporting risks.

Creating Collateralized Products

Investment banks might take lots of smaller loans, such as mortgages, and then package those into one security. The concept is somewhat similar to a bond mutual fund, except the collateralized instrument is a collection of smaller debt obligations rather than corporate and government bonds. Investment banks must purchase the loans to package and sell them, so they try to profit by buying cheap and selling at higher prices on the market.

Proprietary Trading

With proprietary trading, the investment bank deploys its own capital into the financial markets. Traders that risk the firm’s capital are typically compensated based on performance, with successful ones earning large bonuses and unsuccessful traders losing their jobs. Proprietary trading has been much less prevalent since new regulations were imposed after the 2007-2008 financial crisis.

Note

Investment banks had a part to play in the Global Financial Crisis in 2008. It’s widely believed that poor credit risk assessment and accountability was a contributing factor in the crash.

Dark Pools

Suppose an institutional investor wants to sell millions of shares, a size that’s large enough to impact markets right away. Other investors in the market might see the big order and this opens the opportunity for an aggressive trader with high-speed technology to front-run the sale in an attempt to profit from the coming move. Investment banks established dark pools to attract institutional sellers to secretive and anonymous markets to prevent front-running. The bank charges a fee for the service.

Swaps

Investment bankers sometimes make money with swaps. Swaps create profit opportunities through a complicated form of arbitrage, where the investment bank brokers a deal between two parties that are trading their respective cash flows. The most common swaps occur whenever two parties realize they might mutually benefit from a change in a benchmark, such as interest rates or exchange rates.

Securities Lending

Investment banks often lend stocks or bonds to institutional investors, hedge funds, and traders for short selling or other investment strategies. In return, they charge fees or interest. For example, an investment bank may be holding securities on behalf of a client. Instead of having that security simply sit, they can lend that security to other parties. In exchange for returning that security at a specific time, the investment can get a fee and the original security holder will never notice “their share” was lent out.

Market Making

Investment banks often have market-making operations that are designed to generate revenue from providing liquidity in stocks or other markets. A market maker shows a quote (buy price and sale price) and earns a small difference between the two prices, also known as the bid-ask spread. They are the “middle man” to make a financial transaction happen as they can help match buyers and sellers.

Investment Research

Major investment banks can also sell direct research to financial specialists. Money managers often purchase research from large institutions, such as JPMorgan Chase and Goldman Sachs, to make better investment decisions. These investment banks can publish information on economic forecasts, industry analysis, or specific company research.

Asset Management

In other cases, investment banks directly serve as asset managers to large clients. The bank might have internal fund departments, including internal hedge funds, which often come with attractive fee structures. Asset management can be quite lucrative because the client portfolios are large.

Investment banks sometimes partner with or create venture capital or private equity funds to raise money and invest in private assets. The idea is to buy a promising target company, often with a lot of leverage, and then resell or take the company public after it becomes more valuable.

Wealth Management

Wealth management is similar to asset management but focuses on individual clients. Investment banks provide tailored financial planning, estate planning, and tax strategies for wealthy individuals. Relationship managers will meet with these high-net-worth individuals periodically to assess their financial goals and targets. Fees are charged based on AUM, commissions on investment products, or advisory fees.

How Do Investment Banks Make Money Through Underwriting?

Investment banks earn money through underwriting by facilitating the issuance of stocks or bonds for corporations and governments. They purchase these securities at a discounted rate and resell them to investors at a higher price, making a profit on the spread.

What Is the Role of Investment Banks in Mergers and Acquisitions?

Investment banks act as advisors in mergers and acquisitions, helping companies identify suitable targets, negotiate deals, and structure transactions. They provide valuation expertise, due diligence, and strategic insights to ensure successful mergers or acquisitions.

How Do Investment Banks Profit From Trading and Market Making?

Investment banks act as market makers by buying and selling financial securities to provide liquidity to markets. They profit from the bid-ask spread—the difference between the price they buy and sell securities for. Additionally, they may charge commissions or fees for executing trades on behalf of institutional and retail investors.

How Do Investment Banks Make Money From IPOs?

When a company goes public, investment banks manage the IPO process, determining the share price, marketing the stock to institutional investors, and facilitating the sale. They earn underwriting fees and a percentage of the total capital raised. Since IPOs can generate millions in fees, they can be a major source of income.

The Bottom Line

In a capitalist economy, investment bankers play a role in helping their clients raise capital to finance various activities and grow their businesses. They are financial advisory intermediaries who help price capital and allocate it to various uses.

While this activity helps smooth the wheels of capitalism, the role of investment bankers has come under scrutiny because there is some criticism that they are paid too much in relation to the services they provide.

Reviewed by JeFreda R. Brown
Fact checked by Kirsten Rohrs Schmitt

In order to reach an opinion and communicate the value and volatility of a covered security, analysts research public financial statements, listen in on conference calls, and talk to managers and the customers of a company, typically in an attempt to come up with findings for a research report.

Ultimately, through all this investigation into the company’s performance, the analyst decides whether the stock is a “buy,” “sell,” or “hold.”

Key Takeaways

• It is important to understand each rating group’s rating styles, as there is no universal ranking system.
• “Buy, hold, and sell” recommendation meanings are not as transparent as they first seem; a plethora of terms and variance in meanings exist behind the curtain.
• Ratings are meant to complement or be used as a tool for existing strategies, not as a base to build them on.
• Ratings are independent of companies, and there are legal ramifications for analysts who rate a stock they have an interest in.

The Scale of Ratings

However, the analyst rating scale is a tad trickier than the traditional classifications of “buy, hold, and sell.” The various nuances, detailed in the following chart, include multiple terms for each of the ratings (“sell” is also known as “strong sell,” “buy” can be labeled as “strong buy“), as well as a couple of new terms: underperform and outperform.

To top it off, not every firm adheres to the same ratings scheme: an “outperform” for one firm may be a “buy” for another and a “sell” for one may be a “market perform” for another. Thus, when using ratings, it is advisable to review the issuing firm’s rating scale, in order to fully understand the meaning behind each term.

Mapping the Basics

For now, let us dissect the traditional ratings of “sell,” “underperform,” “hold,” “outperform,” and “buy,” and assume that each firm, no matter how wacky the system, can map back to these.

• Buy: Also known as strong buy and “on the recommended list.” Needless to say, buy is a recommendation to purchase a specific security.
• Sell: Also known as strong sell, it’s a recommendation to sell a security or to liquidate an asset.
• Hold: In general terms, a company with a hold recommendation is expected to perform at the same pace as comparable companies or in line with the market.
• Underperform: A recommendation that means a stock is expected to do slightly worse than the overall stock market return. Underperform can also be expressed as “moderate sell,” “weak hold,” and “underweight.”
• Outperform: Also known as “moderate buy,” “accumulate,” and “overweight.” Outperform is an analyst recommendation meaning a stock is expected to do slightly better than the market return.

If you are investing like Warren Buffett, the report can assist in finding the company with a durable competitive advantage, and if Peter Lynch is your hero, you might find a low P/E ratio, share buyback, or future earnings growth candidate in the depths of the report.

Important

The research report and subsequent rating should be used to complement individual homework and strategy.

Examples of Analyst Ratings and Performance

In order to truly understand analyst ratings, it is imperative to gauge their accuracy. Below are three moments in the lives of three well-known companies and the analyst ratings before their impressive liftoff, or dismal implosion, to see if the analysts got it right.

Coca-Cola

Coca-Cola Co. (KO) is the world’s largest nonalcoholic beverage company.

The Crucial Moment
An earnings surprise sent Coke bubbling over in a frenzy in early 2025, sending the price from $61.50 on Jan. 6 to $71.35 on Feb. 17, a gain of over 15%.

The Analyst Recommendation

Analysts were broadly favorable about Coca-Cola’s prospects leading up to the fourth-quarter earnings call. Deutsche Bank, TD Cowen, and Jefferies all raised “hold” ratings to “buy.”

Conclusion: Score one for the analyst!

Starbucks

Starbucks (SBUX) keeps the world caffeinated through a global chain of more than 30,000 company-owned and licensed stores.

The Crucial Moment
In April 2024, Starbucks fell from $88 to $72—a drop of nearly 20%. This double shot of drop was attributed to weak quarterly earnings and reduced sales.

The Analyst Recommendation

In March 2024, the analysts’ consensus for Starbucks was a “Strong Buy.” Eighteen firms listed it as a “buy” and 27 rated it as “hold.” There were zero sell recommendations, according to Tipranks.

Conclusion: Missed the mark.

Apple

Apple Inc. (AAPL) designs consumer electronic devices, including personal computers (Mac), tablets (iPad), phones (iPhone), and portable music players (iPod).

The Crucial Moment

In Feb. 2020, as the COVID-19 pandemic ripped through Chinese factories, Apple was among the first companies to take the hit. Apple shares fell by 25%, largely due to the company’s reliance on Chinese assembly plants.

The Analyst Recommendation

Goldman Sachs downgraded Apple to “sell” and Daiwa Capital lowered its evaluation from “Buy” to “Outperform.” Canaccord Genuity maintained its buy rating but lowered its price target from $345 to $300.

Conclusion

Investors who followed Goldman’s “sell” recommendation soon came to regret it. By Aug. 2020, after a brief pandemic drop, Apple was trading at a new all-time high.

Who Issues Stock Recommendations: Buy-side or Sell-side Analysts?

Sell-side analysts work at investment banks and are the ones who will issue recommendations of “strong buy,” “outperform,” “neutral,” or “sell.” Buy-side analysts instead work for investment firms or funds and choose investments that coincide with the fund’s investment strategy.

Why Are Some Recommendations Made as “Outperform” and Others as “Buy”?

Among sell-side firms, there is no standardized recommendation system, with different investment banks using their own internal rating scale. Thus, one bank may issue a “buy” rating that is equivalent to another bank’s rating of “outperform.” In both cases, the analysts have determined that the stock in question should have returns in excess of the broader market.

Should I Sell a Stock I Own If It Receives an Analysts Rating of “Sell”?

Analysts’ ratings are arrived at based on fundamental and econometric analysis of a company and its future prospects. But, analysts can sometimes be wrong or make a mistake. As a result, you will want to consider the consensus of recommendations from several professional analysts. If they all (or mostly) recommend “sell,” you may want to consider reducing or closing out your position in that stock,

The Bottom Line

Stock analysts are professional researchers who forecast the likely price changes of a company’s stock price. To do that, they evaluate public filings and investigate conditions at stores to determine if the company is effectively utilizing its resources to meet client needs. Fund managers often rely on analyst ratings to make investment decisions, so accurate ratings could mean the difference between millions of dollars of company value.

Learn where to look for unlisted properties.

Fact checked by Rebecca McClay

Most homes for sale are listed on the Multiple Listing Services (MLS). However, you can find homes not listed on an MLS for sale, which are known as off-market homes. Potentially, these properties can provide a better deal, a more private deal, or the specific features you may want in a home.

Key Takeaways

• Off-market homes are not publicly advertised and listed for sale on MLSs, databases that real estate agents use.
• Access to off-market homes can give buyers an edge in a competitive market.
• Buyers may prefer a more private sale, and they may potentially pay less in real estate commissions.
• You can contact real estate agents, look online, and approach homeowners directly to find off-market homes for sale.
• A National Association of Realtors policy, MLS Statement 8.0, places some restrictions on off-market homes.

What Are Off-Market Homes?

Off-market homes are not advertised for sale on through MLS. As a result, off-market homes, also known as pocket listings, are more exclusive. Typically, a single real estate agent will handle an off-market home transaction.

Advantages for Buyers and Sellers

Both buyers and sellers can find upsides to opting for an off-market home transaction.

Buyers

• Less competition: Off-market homes are not widely advertised, which means there is a smaller pool of potential buyers. If you find an off-market home as a buyer, you have less risk of getting into a bidding war with other buyers.
• More flexible negotiation: With an off-market home, you potentially have more room for negotiation. Buyers and sellers can talk directly and come to an agreement that works for their specific needs without the pressure of a traditional sales timeline.
• Potential for a better deal: Off-market homes offer more room for negotiation, and fewer competitors could result in a better price for a buyer.

Sellers

• More privacy: When a home is publicly listed, sellers must contend with more interest and the possibility of hosting an open house. An off-market listing means a smaller pool of interested buyers and more privacy.
• More serious buyers: Off-market listings are not always easy to find. Buyers searching for them may be more motivated and prepared to make an offer.
• Potential savings: With just one agent involved in the transaction, sellers could save on the sales commission. Given the exclusivity of off-market listings, sellers could also attract higher offers.

How to Find Off-Market Listings

While off-market homes have their advantages, finding them can be a little tricky.

Contact Real Estate Agents

Real estate agents can be a good source to tap when you are looking for off-market listings. You can start in your personal network. Do you know any real estate agents who work in the areas you want to buy? Let them know you are interested in off-market homes.

You can also start your search in a specific area. Look up real estate agents who work in that area and reach out about the possibility of off-market listings that might be on their radar.

Go Online

While you won’t find off-market homes on traditional real estate sites, there are sites and tools available specifically for pocket listings, such as:

• Unlisted
• For Sale By Owner

Approach Homeowners

You can also approach homeowners directly if you’re interested in buying their home. You can also spread the word through your network. Someone may be able to introduce you to a homeowner interested in selling an off-market home.

Simply knocking on doors or asking people directly may be a hit-or-miss strategy. You can also send out mailers or post online in neighborhood forums to help you chase down leads.

The Buying Process

Buying an off-market home is similar to buying a listed property in many ways. You will need to get approved for a mortgage unless you plan to pay in cash. Once you find a home you want to buy, you will make an offer and schedule a home inspection. The deal will go through the underwriting process and then, ultimately, close.

But there are ways that the process of buying an off-market home is different from the traditional route. The deal will likely be a dual agency sale, which means a single real estate agent will represent both the buyer and seller.

Real estate agents who execute dual agency transactions are expected to represent each party equally. However, it is important to be aware of potential conflicts of interest, particularly if the agent has a personal relationship with one of the parties.

Challenge for Off-Market Listings

MLS Clear Cooperation Policy

The MLS Clear Cooperation Policy is a rule implemented by the National Association of Realtors. The MLS Statement 8.0 rule requires Realtors to add any property they are marketing to a MLS within one business day.

The Clear Cooperation Policy was implemented to reduce off-MLS listings, which the National Association of Realtors (NAR) says “… not only skew market data and reduce seller and buyer choice but also undermine Realtors’ commitment to provide equal opportunity to all.”

The Practical Impact

MLS Statement 8.0 does limit off-market listings. All real estate agents who are members of the National Realtors Association and all National Realtor Association MLSs are required to abide by this policy.

Off-Market Listings Remain

While MLS Statement 8.0 does limit off-market listings, buyers and sellers certainly still have opportunities.

Under MLS Statement 8.0, there are some options that allow for more privacy. For example, sellers can opt to keep their homes from being listed on an MLS IDX display. The listing will not be displayed on the internet. The policy also allows for “office-exclusive listings,” which allows agents to share listings one-on-one with buyers.

National Association of Realtors membership is voluntary. That means there are licensed real estate agents who do not work with the association and are not subject to its rules, including MLS Statement 8.0.

The Bottom Line

While MLS Statement 8.0 does place some restrictions on off-market listings, it is still possible to find them through real estate agents, online, and via word-of-mouth. Off-market homes can offer advantages for buyers and sellers. Consider those potential advantages, the legwork of finding an off-market home, and the ins and outs of the buying before deciding to pursue this option.

Know and understand the six key steps.

Fact checked by Rebecca McClay

When a borrower misses a certain number payments on their mortgage, the lender can begin the process of taking ownership of the property in order to sell it. This legal process, foreclosure, has six typical phases, but the exact procedure is subject to different laws in each state.

Key Takeaways

• Foreclosure is a legal proceeding that occurs when a borrower misses a certain number of payments.
• The lender moves forward with taking ownership of a home to recoup the money lent.
• Foreclosure has six typical phases: payment default, notice of default, notice of trustee’s sale, trustee’s sale, REO, and eviction.
• The exact foreclosure process is different depending on the state.

Phase 1: Payment Default

Mortgages often have a grace period of about 15 days. The exact length of that period is determined by the lender. If borrowers make a monthly payment during that grace period, after the payment due date, they will not be subject to a late fee.

A mortgage goes into default when the borrower is unable to make on-time payments or cannot uphold other terms of the loan.

Mortgage lenders typically begin foreclosure three to six months after the first monthly payment that you miss. You will likely receive a letter or phone call from your mortgage company after your first missed payment.

If you know you are going to miss a mortgage payment, reach out to your mortgage company proactively to discuss loss mitigation options. For example, you may be able to work out a forbearance plan with your mortgage company, which would allow you to temporarily pause making mortgage payments.

If you are worried about the possibility of foreclosure, you can contact a housing counselor. Housing counselors can help homeowners review their finances and evaluate their options to prevent the loss of their home.

Phase 2: Notice of Default

After the first 30 days of a missed mortgage payment, the loan is considered in default. You still have time to talk to your mortgage lender about potential options.

In the second phase of foreclosure, mortgage lenders will move forward with a notice of default. A notice of default is filed with a court and informs the borrower that they are in default. This notice usually includes information about the borrower and lender, as well as next steps the lender may take.

After your third missed payment, your lender can send a demand letter that states how much you owe. At this point, you have 30 days to bring your mortgage payments up-to-date.

Phase 3: Notice of Trustee’s Sale

As the foreclosure process moves forward, you will be contacted by your lender’s attorneys and begin to incur fees.

After your fourth missed payment, your lender’s attorneys may move forward with a foreclosure sale. You will receive a notice of the sale in accordance with state and local laws.

Phase 4: Trustee’s Sale

The amount of time between receiving the notice of trustee’s sale and actual sale will depend on state laws. That period may be as quick as two to three months.

The sale marks the official foreclosure of the property. Foreclosure may be conducted in a few different ways, depending on state law.

In a judicial foreclosure, the mortgage lender must file a suit in court. If the borrower cannot make their mortgage payments within 30 days, the property will be put up for auction by the local sheriff’s office or court.

During power of sale foreclosures, the lender is able to manage the auction process without the involvement of the local courts of sheriff’s office.

Strict foreclosures are allowed in some states when the amount you owe is more than the property value. In this case, the mortgage company files a suit against the homeowner and eventually takes ownership of the house.

You could potentially avoid the foreclosure process by opting for deed-in-lieu of foreclosure. In this scenario, you would relinquish ownership of your home to your lender. You might be able to avoid responsibility for the remainder of the mortgage and the consequences that come with foreclosure.

Phase 5: Real Estate Owned (REO)

Once the sale is conducted, the home will be purchased by the highest bidder at auction. Or it will become the lender’s property: real estate owned (REO).

Note

A property may become REO if the auction does not attract bids high enough to cover the amount of the mortgage. Lenders may then attempt to sell REO properties directly or with the help of a real estate agent.

Phase 6: Eviction

When a mortgage company successfully completes the foreclosure process, the occupants of the home are subject to eviction.

The length of time between the sale of a home and the move out date for the former homeowners varies depending on state law. In some states, you may have just a few days to move out. In others, the timeline for moving out after foreclosure could be months.

Keep in mind that you might have a redemption period after the sale. During this time, you have the possibility of reclaiming your home. You would need to make all outstanding mortgage payments and pay any fees that accrued during the foreclosure process.

The Bottom Line

Foreclosure is a legal process available to mortgage lenders when borrowers default on their loans. When you take out a mortgage, you are agreeing to a secured debt. Your home serves as collateral for the loan. If you cannot repay what you borrowed, your lender can begin the process to take possession of the home.

Understanding the different steps in foreclosure process and the options available to you can help you ultimately to avoid losing your home. If you are concerned about the possibility of a foreclosure, it is best to be proactive and communicate with your lender.

Learn how to help children develop healthy money habits and why it’s important

Fact checked by Vikki Velasquez

Educators all over the country are exploring ways to start teaching financial literacy earlier, including in elementary school.

“It’s one thing to know the skills, but it’s also highly beneficial to start learning how to apply them into your everyday life,” said Brittany Griffin, policy and communications deputy at the Utah Office of State Treasurer. “In an ideal world, parents would start talking with their children about money very early on.”

A lesson in investing is a key component in teaching financial literacy, which can also include lessons on earning, saving, reducing risk, spending, and borrowing, not only as fundamental concepts and how they work, but also as they relate to life skills, and how they fit into the other parts of a person’s life.

Context, prioritization, and syncing money with life are important ingredients in putting financial literacy to good use in a person’s life. Research has long shown that when it comes to teaching kids how to manage their money, it’s better to start young to build money knowledge and habits that will last a lifetime.

Key Takeaways

• Teaching financial literacy at a young age helps children develop healthy, lifelong financial habits.
• The main principles of financial literacy include earning, saving, investing, protecting, spending, and borrowing.
• Specific government policies and societal discrimination have fed into the creation of a racial wealth gap, which is important to note when it comes to financial literacy.
• Financial literacy can encourage habits that can help children avoid debt traps later in life.
• Children can form money habits starting as young as age 5.

U.S. Financial Literacy Gaps

Closing gaps in financial literacy could help close wealth gaps. You’ll often find disparities in financial literacy among different income, racial, and gender groups. For example, Americans quizzed on basic financial concepts by the Federal Reserve Bank of St. Louis generally did better when they had higher household incomes.

Research shows that Black and Latino/Latina people have lower levels of financial literacy than White people because of different socioeconomic statuses.

Note

Researchers typically use the Big Three or the Big Five quiz of three or five questions when they study financial literacy.

It’s important to note that anti-minority and anti-Black policies in the U.S. have systemically led to a racial wealth gap. In addition to income inequality and historic discrimination in U.S. housing policy, education disparities have historically impacted the creation of the wealth gap, too.

Educational inequalities usually begin early in life. In the U.S., the odds of attending a high-poverty or high-minority school depend largely upon a child’s racial or ethnic background and social class.

For example, Black and Hispanic students are more likely to go to high-poverty schools than White or Asian American students. Attending a high-poverty school lowers math and reading achievement for students in all racial or ethnic groups—an effect that is still relevant today.

According to research, women generally have lower levels of financial literacy than men and are less likely to answer financial literacy questions correctly.

Benefits of Teaching Financial Literacy

People tend to make better financial decisions when they’re armed with knowledge about how money works. That’s why a financial education can help close wealth gaps in the U.S.

Take what happened with middle schoolers Stockton Carlson and Calvin Lambert in 2021, who were participating in a statewide stock market simulation with their class at Vista Heights Middle School in Saratoga Springs, Utah.

The two students noticed chatter on social media about video game retailer GameStop (GME). The company’s shares spiked the day before, so Lambert and Carlson decided to jump in—just in time for GME to surge again in another meme-fueled frenzy. They eventually grew their simulated money from $100,000 to $171,526.61 over 10 weeks, scoring first place in the middle school category.

“We learned that social media, and Reddit in this case, can really have a big effect on things,” Lambert told the contest organizers.

These students learned a valuable lesson by taking part in the contest. However, diving in with a stock simulator and getting hands-on experience isn’t the only way to teach or improve financial literacy. Below, you’ll find some other key advantages of financial literacy.

Building Good Financial Habits

People who scored better on a test of financial literacy were more likely to spend less than their income, have an emergency fund, and have a retirement account, according to a report by the Financial Industry Regulatory Authority (FINRA) Investor Education Foundation.

Financial literacy is also associated with better retirement planning, a lower tendency to borrow against 401(k)s, and a greater likelihood of stock investing.

Avoiding Debt Traps

Financial literacy helps people avoid costly mistakes. People with more financial literacy education are more likely to avoid payday loans, which have high interest rates and hidden fees, a 2019 study by a University of Wisconsin-Madison researcher found.

People with greater financial literacy also were less likely to take pawnshop loans, make only the minimum payment on credit cards, or incur late fees on various financial products, the FINRA Investor Education Foundation found.

Another study by researchers at Montana State University found that college students who took mandatory financial education classes were more likely to fund their educations with low-interest federal loans and less likely to carry credit card balances. Those from less wealthy families were less likely to work while enrolled in school, while those from wealthier backgrounds were less likely to take out private loans. 

Better Financial Health

Students who went to high schools where personal finance education was required were less likely to default on their debts and had higher credit scores than their peers, a study by researchers at Montana State University showed.

Knowledge often sticks with students after graduation, giving them an edge on tests of personal finance knowledge, an audit of Utah’s financial literacy program showed. That knowledge then helps them develop better financial habits. Graduates were more likely to be able to cover a $1,000 emergency expense and to have invested in the stock market, and they were less likely to be late on monthly payments.

Reasons to Start Teaching Financial Literacy Early

Karsten Walker, a retired teacher and learning coordinator at the Alpine School District in Provo, Utah, said there may be other benefits to early financial education not yet captured by the research. He helped establish his district’s financial literacy program that rolled out in the early 2000s, and he said many of his former students have gone on to careers in the field.

“Not only do you help kids with their personal finances, but you’re going to see that kids gravitate to that as a career interest,” according to Walker, who said students would probably be even better served by starting to learn about money well before high school.

“While high school is great for financial education, you do need to start earlier,” he said.

Note

Research shows that people are getting credit at younger ages and that financial habits developed in young adulthood tend to stick throughout life. Children form persistent habits with money as young as age 5, a study by researchers at the University of Michigan found.

Parents are up against what Vince Shorb, chief executive officer (CEO) of the nonprofit National Financial Educators Council, called “psychological warfare” in the form of toy advertisements, peer pressure, and social media.

They are all bombarding children with messages encouraging excessive consumption and a spendthrift attitude. Shorb said high school financial literacy classes are a step in the right direction, but they may not be enough on their own.

“Try speaking a foreign language after one semester of anything,” he said. “Kids in school aren’t really getting anything about money. And parents aren’t training children to be good stewards of money and understand it and develop positive habits from a young age.”

Griffin said developing habits of good money management will likely take more than just one class.

“Money management is largely behavioral. It’s one thing to know the skills, but it’s also highly beneficial to start learning how to apply them to your everyday life,” she said. “It’s kind of like anything with mathematics or reading. You progress as the years go on.”

Tips for Getting Started

There are many ways to get children thinking about money. Shorb offered several tips to prime children for early financial literacy.

• Explain what you’re doing. Parents or guardians can help children understand how household finances work by engaging them in their own finances. Whether it’s a shopping trip or paying the bills, you can walk children through the decisions you’re making. You can also let kids listen in on your conversations with bankers, accountants, and other financial professionals. “Kids are sponges,” Shorb said. “They’re smarter than we think. They’re picking up things that we don’t even understand.”
• Have children earn money with chores. Rather than buying toys, parents can use a classic technique of having the kids earn money by doing chores. That way, they learn the connection between labor and income. Consider having kids put some of their chore money toward household bills as they get older. 
• Get kids into career conversations related to their interests. Earning income is a crucial part of having good finances, and kids model their career interests on jobs that they’ve been exposed to. This explains why so many children want to be teachers or YouTube influencers. Help kids expand their horizons by having them talk to people with other jobs, especially ones related to their interests. For example, if a child is interested in BMX biking, the parent can bring them to a competition and ask a vendor to explain what they do—most people are usually happy to talk to kids.
• Set aside time to teach the fundamentals. Consider sitting kids down and teaching them basic concepts. The lessons should be age-appropriate. For example, the topic of FICO Scores would probably be too advanced for a four-year-old, but they may understand the concept of borrowing and returning.

What Are the 5 Principles of Financial Literacy?

The five principles of financial literacy are: earn, save and invest, protect, spend, and borrow. Focus on understanding your pay and benefits, then develop a budget to save and invest your earnings. Ensure your financial health is protected by, for example, having an emergency fund. Finally, be sure that you are spending wisely and that you borrow responsibly. 

What Is the Best Way to Teach Financial Literacy?

The best method for teaching financial literacy is the method that engages the student the most successfully. Each student will have different needs and different ways of learning. Understand how a child absorbs information, then develop the best method for teaching financial literacy based on their responsiveness. Methods can include playing games like Monopoly, engaging in discussions, or providing allowances, among many others.

What Is the First Rule of Financial Literacy?

The first rule of financial literacy is to understand your pay or your earnings. Understanding your pay includes knowing what benefits are available to you and how you can take advantage of them.

The Bottom Line

Teaching financial literacy is important for instilling healthy habits in children so they can make the best decisions about money throughout their lives.

Start financial lessons at an early age to give them a head start in developing these critical skills, then continue to provide financial guidance on more advanced lessons as they are ready. The strategies you use to foster financial literacy in your child will depend on how your child learns and how you best interact with them.

Fact checked by Katrina Munichiello
Reviewed by JeFreda R. Brown

Though recessions can be tough on investment portfolios, it’s important to remember that they don’t last forever. Most asset prices tend to recover and continue their upward trajectory once the economy is back on track again.

Still, there are things you can do to prepare your portfolio for an economic shock. Here are four ways to help set your mind at rest and be covered for all scenarios.

Key Takeaways

• Defensive stocks are built to withstand a recession. Many offer decent dividends that can add up over time.
• Recessions serve as a reminder of the importance of owning various investments across different asset classes and regions of the world.
• Dollar-cost averaging can pay off during an economic downturn by reducing the average purchase price.
• If you have built a well-balanced portfolio, stick by it and don’t check it every day to see how much it is losing.

1. Invest in Quality, Cash-Rich Defensive Stocks

Some businesses tend to struggle during a recession, while others are better built to withstand them.

Stocks are generally placed in one of two categories: cyclical or defensive. Cyclical stocks are sensitive to the health of the economy, excelling when there is growth and struggling when everything slows down. Defensive stocks, on the other hand, offer stability through all phases of the business cycle.

How do they achieve that? By being well-run, possessing strong pricing power, and supplying products that consumers either cannot or do not want to live without, such as water, electricity, food, and essential household products like toilet paper.

Defensive companies, which are mainly associated with the consumer staples and utilities sectors, are good to own. Other than being less volatile and sensitive to economic downturns, they also tend to generate lots of cash and pay decent dividends.

Income investments, in general, are an important component of a well-rounded, balanced portfolio and add significant value over the years when dividend proceeds are reinvested. Dividends can also offer a nice cushion against stock price depreciation, provided the balance sheet doesn’t become too stretched and there’s enough money to continue to fund them.

During recessions, you want to own high-quality assets that keep making money, generate lots of cash, and have robust balance sheets. Avoid companies with lots of debt as a slowdown in revenues and changing credit conditions could spell trouble for them.

2. Diversify: Don’t Put All Your Eggs in One Basket

When the economy is booming, holding growth stocks can really pay off. But these types of companies are likely to perform poorly when growth in the economy slows or turns negative. When there’s a recession, investors can begin to appreciate diversification by owning investments across different asset classes.

To build a portfolio truly capable of weathering any type of situation, you ideally need to add some government and investment-grade corporate bonds, money market instruments, and maybe even gold. That’s especially the case when you’re nearing retirement or need the money you’ve invested soon.

Each asset class tends to behave differently. For example, historically, while stocks have done well when the economy is expanding, bonds often do well during recessions. This inverse relationship means the two can complement each other and essentially ensure that no matter the economic climate, at least part of your investment portfolio will grow in value—or not get completely clobbered.

International exposure is also important. While the economies of the world’s nations are increasingly interlinked, there can be exceptions and regions offering slightly better growth prospects at any given moment.

Important

If you don’t feel comfortable building a well-balanced, diversified portfolio, consider enlisting the help of a financial advisor or an asset manager.

3. Try Dollar-Cost Averaging

Recessions present a great opportunity to profit from dollar-cost averaging, which is the process of buying investments at regular intervals, such as when you get paid. Consider setting up a system that will do this for you automatically.

This strategy makes the purchase price less essential and reduces the importance of getting the timing right. It also means that you can profit from a recession by buying shares or assets at lower prices. Many investors make the mistake of buying high and selling low. With dollar-cost averaging, it’s all automatic and you get the chance to top up holdings when they are at their most undesirable and cheapest.

One common complaint is that regular buying restricts potential upside when markets are trending upwards. Others would say that’s a fair price to pay for the option of spreading out payments and limiting volatility.

4. Stick to the Plan and Don’t Panic

The above tips can help you build a portfolio to weather any storm. Beyond that, the best piece of advice on how to protect yourself against a recession is to not panic.

Many great investors say that when the market is in a downtown, don’t check your portfolio on a regular basis. This is because it can be tempting to cut your losses and exit your positions. Instead, they say, you should stay the course, especially if you built your portfolio for the long-term.

Long-term, buy-and-hold investors should stick to their guns and not let short-term market noise push them off course.

During a recession, it might all seem doom and gloom. But if you look at the performance of the S&P 500 over time, you’ll see that it moves up, and occasionally dips, and then moves up even higher than before.

Long-term investing is a marathon, not a sprint. Think carefully about how to build a well-balanced portfolio, get advice when needed, and then once you’ve settled on how you want to invest, sit back, be patient, and stand by your plan.

What Stocks Do Well During Recessions?

It’s very rare for individual share prices to rise during a huge market sell-off. However, there are companies that tend to shed less value and perform better than others. They generally have pricing power and limited competitive pressures. These include utilities and consumer staples companies that supply the population with goods and services that people can’t live without.

What Falls Most in a Recession?

Highly cyclical industries and companies with lots of debt suffer more than others during a recession. Sectors that can be hit more severely include real estate, restaurants, hotel chains, and airlines. When money is in short supply and people are scared to spend, demand for these types of non-essential goods and services tends to dry up.

What Should I Do During a Recession?

Outside of investing, it generally pays to be more prudent with spending and prepare yourself for the reality that you could lose your job. Put as much money aside as possible and try to avoid selling your long-term investments.

The Bottom Line

Unfortunately, recessions are an inevitable part of the business cycle. It’s importantly to be prepared for any scenario as things can quickly and unexpectedly go south, as we saw, for example, in 2020 (briefly) and in 2007-2009. You can minimize the damage by investing in quality defensive stocks, diversifying, using dollar-cost averaging, and not panicking.