financial education

Fact checked by Vikki Velasquez

Trusts are a cornerstone of wealth management for the ultra-wealthy, providing asset protection, tax efficiency, and a structured way to pass down wealth. Let’s look at some potential missteps you can avoid to safeguard your legacy.

Key Takeaways

• Neglecting tax planning can cause unnecessary tax bills, and poor wording can lead to confusion.
• Update your trust often, though there might be some legal complexities here.
• You should educate your beneficiaries so they know what to expect and plan accordingly.

Failing to Clearly Define Trust Terms

One of the biggest mistakes in trust planning is vague or overly complex terms. Without clear language, beneficiaries and trustees may interpret provisions differently, leading to disputes and potential litigation. It can also lead to misappropriation of assets, potentially leading to estate taxes, gift taxes, income taxes, or generation-skipping taxes. Trust documents should leave no room for ambiguity—make it easy to understand exactly what you want to happen with specific assets.

This also allows you to be as complex as you want. According to C. Jay Rhoden of Legacy Legal Solutions, ”Another advantage a trust has over just having a will is the level of control they offer you when it comes to distributing assets to your heirs.”

Choosing the Wrong Trustee

Every family has complexities and differing personalities. A well-structured trust might fail if the wrong trustee is in charge.

Some families opt for a relative or close friend. Others appoint a corporate trustee. The best trustees balance professional knowledge with the ability to navigate complex family dynamics.

In short, even though it is a political topic, make sure you pick the right person.

Not Updating the Trust Over Time

Many families create trusts but fail to revisit them as laws, assets, and family situations change. Births, deaths, divorces, and new legislation happen all the time. It’s extra work to make updates each time a major life event happens, but you’ll want to make sure those changes happen (since those life events might have driven changes in your trust). Your trust may also be impacted by evolving tax rules that shift over time.

Keep in mind that updating your trust might involve some extra steps. For example, according to Suze Orman, “If you want to make changes to an irrevocable trust, it will generally require the consent of the beneficiaries of that trust, and you have to have court approval, one or the other or both.”

Not Preparing Your Beneficiaries

You have to make sure your beneficiaries are prepared for their roles. Without knowing what they’ll be tasked with or given, they might not plan their wealth appropriately. More specifically, be clear about how your beneficiaries could and should shield their distributions from tax based on how you planned your estate.

You could incorporate financial literacy programs, mentorship, and phased distributions into your trust planning to help beneficiaries develop responsible money management habits.

Failing to Consider Tax Implications

One of the biggest errors is failing to fund the trust properly. If assets aren’t correctly transferred to the trust, they may not benefit from the intended tax advantages. This can result in the estate or assets being subject to higher taxes, like estate or probate taxes. You can also trigger different tax rules based on the type of trust you set up.

Another mistake is not taking full advantage of tax deductions and exemptions. Trusts can be taxed at higher rates than individuals, so manage income distributions and deductions. Also, some trusts may qualify for charitable deductions if a portion of the assets is allocated to charity. All this means there are delicate rules to be careful of, or else you may encounter unwanted taxes.

The Bottom Line

Trusts are powerful tools for preserving wealth, but poor planning can leave you and your family at risk. You have to think through the impact on your beneficiaries, tax complications, and contract language as you work through setting up or revising your trust.

Reviewed by Gordon Scott

Once the richest man in India and, for a brief time in 2008, a contender for the title of the richest man in the world, Mukesh Ambani is the chair and managing director of Reliance Industries, an Indian conglomerate with interests in refining, oil and gas, petrochemicals, telecoms, retail, and media.

Ambani had a net worth of $85.6 billion as of March 4, 2025. Most of this comes from his stake in Reliance Industries, which is the largest oil refining complex in the world.

Key Takeaways

• Ambani is one of the wealthiest people in the world.
• Mukesh’s stake in Reliance Industries is the source of most of his wealth.
• Other major assets include a stake in Jio Financials Services, the Mumbai Indians cricket team, and a mansion in Mumbai.

Early Life and Education

Ambani was born in April 1957 in Yemen. His father, Dhirubhai, moved the family to Mumbai. Then, his father and his father’s cousin founded the Reliance Commercial Corporation. The company would eventually grow into Reliance Industries Limited.

Ambani remained in Mumbai for college, getting a bachelor’s degree in chemical engineering from the University of Mumbai, then moved to Palo Alto, California, to pursue a master of business administration (MBA) at Stanford University. He eventually dropped out to return home to assist his father in the construction of a polyester filament yarn plant.

Reliance Industries

Reliance received a license from the Indian government to produce polyester filament yarn when Ambani returned to India from America in 1981.

When the company began in 1958, it was as a provider of textiles. In the 1970s, the firm diversified into petrochemicals and refining.

When Ambani came on board and joined the family business, it became one of the largest petrochemical companies in the world. Working under his father and then later taking control alongside his younger brother Anil, Ambani was credited for helping to bring Reliance into new growth markets and turning it into the conglomerate it is today.

The secret to its growth was using the most advanced technologies and systems to implement a dynamic supply chain to achieve significant economies of scale. 

Important

Mukesh Ambani officially joined Reliance in 1981, dropping out of Stanford University’s MBA program to help his father run the family business.

Father’s Death

In 2002, Ambani’s father died of a stroke without leaving a will. This caused a feud between Ambani and his brother Anil.

Three years later, with the help of their mother, the two brothers agreed to split the business. Mukesh retained the flagship Reliance Industries, with interests in petrochemicals, oil and gas exploration, refining, and textiles, while Anil held on to telecoms, entertainment, power generation, and the asset management side of the business.

1957

The year Mukesh was born his father returned to India to create Reliance, which started out as a yarn trading business in Mumbai.

Reliance Under Ambani

Since 2005, Reliance’s revenues and profits have soared. Under Ambani’s direction, the company developed best-in-class manufacturing facilities, strengthened its petroleum operations, and branched out into new areas, such as retail, 4G wireless broadband, and media.

$119.9 billion

The gross revenue reported by Reliance Industries for the 2024 fiscal year.

Reliance’s expansion caused its valuation to balloon. However, sentiment dipped and the share price fell flat. This has partly been blamed on corporate governance issues and Reliance’s opaque corporate structure.

The company’s image has taken a hit, with accusations of crony capitalism and all the bad press associated with it. There have also been allegations that Reliance uses its political connections to rig the system and get favorable deals.

Ambani has also been criticized personally for building a 400,000-square-foot luxury home in Mumbai, a city where poverty is rife.

Why Is Mukesh Ambani One of the Richest People in the World?

With an estimated net worth of over $85 billion (as of March 4, 2025), Ambani is one of the wealthiest people in the world.

The majority of his wealth is attributed to his stake in Reliance Industries. The company’s market capitalization was $184.74 billion as of March 4, 2025.

Mukesh also owns the Mumbai Indians cricket team and a stake in Jio Financials Services, which used to be a subsidiary of Reliance but was then spun off into a separate entity. Other notable assets include Antilia, his Mumbai mansion valued at more than $2.2 billion in 2020. The 48,000-square-foot, 27-story skyscraper houses three helipads, a yoga studio, a temple, a movie theater, a ballroom, and parking for 168 vehicles.

What Makes Mukesh Ambani So Rich?

Most of Ambani’s net worth derives from the stake he holds in Reliance Industries, a Fortune 500 company valued at over $184 billion as of March 4, 2025.

Was Mukesh Ambani Born Rich?

No, he wasn’t born rich. His father initially worked as a gas station attendant. When the family moved to Mumbai shortly after his birth, they reportedly lived in a modest apartment in a large tenement building known locally as a chawl.

How Does Reliance Industries Make Money?

The bulk of Reliance’s revenues comes from oil and chemicals, followed by retail.

The Bottom Line

Mukesh Ambani became one of the richest people in the world by helping to turn his father’s company, Reliance Industries, into a huge conglomerate and market leader across several industries. The company is worth over $184 billion as of March 4, 2025.

How much you pay for Medicare supplement insurance depends on two main things: what the plan covers and which company you choose. These plans help fill the gaps in Original Medicare, but you can’t use them with Medicare Advantage plans. You can choose from 10 different standardized Medicare supplement plans. While the price for each lettered plan will differ, all plans with the same letter offer the same coverage and benefits. 

Key Takeaways

• A Medicare supplement plan fills the gaps by helping you pay for out-of-pocket costs Original Medicare doesn’t cover. 
• Medicare supplement plans cover Parts A (hospitalization) and B (medical services) but not C (Medicare Advantage) and D (drug coverage).
• You can choose from 10 Medicare supplement plans and choose the insurance company you want to use.

Understanding Medicare Supplement Plan Costs and Benefits

You can buy Medicare supplement plans, also known as Medigap, from private insurance companies. These plans pay for the costs Original Medicare doesn’t cover, like deductibles, copays, and coinsurance.

The 10 standard Medicare supplement plans are designated by the letters A–D, F, G, or K–N. All carriers offer the same coverage for the same letter plans, but the premiums can vary. Plans E, H, I, and J are unavailable for new beneficiaries. Plans C and F are only available if you were eligible for Medicare before Jan. 1, 2020.

Medicare Premium Costs

Most working people pay nothing for Medicare Part A (hospitalization). If you don’t qualify for premium-free Part A, you may be able to buy the coverage. Those who qualify for Medicare Part B (medical services) typically pay $185 per month. Higher-income earners pay more.

Medicare Parts C, D, and supplement premiums vary based on the plan you choose. 

Important

For Original Medicare, you need to enroll in Part A and Part B. You get extra coverage by adding a Medicare supplement plan and Part D drug coverage.

Potential Medicare Out-of-Pocket Costs

Your coinsurance costs, copays, deductibles, and premiums make up your total annual out-of-pocket costs. Your premium is the amount you pay for your Medicare coverage. The deductible is the amount you must pay before Medicare pays anything, and the coinsurance or copay is your share of costs after Medicare pays. 

Important

You have to pay a separate premium for Medicare supplement plan on top of your Original Medicare premium. 

The Part B deductible is $257 in 2025. After the deductible, you’ll pay 20% of the costs of your care. 

Important

Medigap plans won’t necessarily pay for all the medical services you need. Depending on your plan, you may have to pay for vision, dental, and long-term care. 

The Part A hospitalization deductible is $1,676 per inpatient hospital visit during the benefit period. The coinsurance costs aren’t as straightforward. The fees vary depending on how long you stay in the hospital.

Here’s what you can expect Medicare to pay:

• Days 1–60: Your Part A deductible of $1,676
• Days 61–90: $419 per day
• Days 91–150: $838 per day
• After day 150: $0 (you pay 100% of costs)

After the first 90 days, Medicare will pay for 60 additional days of inpatient hospital care during your lifetime. There is no maximum out-of-pocket cost if you stay in the hospital for more than 150 days.

Your Medicare supplement plan will pay for your costs beyond the figures listed above for plans A–D, F, G, M, and N without limits. Plans K and L have caps on how much you’ll pay for out-of-pocket expenses.

Medicare supplement plans sold after 2005 don’t pay for your prescription drug costs, but you may be able to cover them under Part D. 

Let’s look at an example of a hospital stay of 14 days with medical expenses of $4,000 and prescription drugs. 

Here’s what you’d have to pay in out-of-pocket costs:

• Your Part A deductible of $1,676 for your hospital stay
• Your Part B $257 deductible for your medical bills
• 20% of the remaining $3,743, which is $748.60
• Prescription drug costs

With this scenario, your total costs would be $2,681.60, plus your drug costs. A Medicare supplement plan would likely cover everything except your medications. Your prescription drugs may be covered under Part D, depending on your drug plan.

Lastly, your Medicare out-of-pocket costs can change yearly based on inflation, so it pays to research the best Medicare supplement insurance plans annually.

Medicare Supplement Cost Comparison

You have a variety of choices for Medicare supplement plans. Because each plan differs, the premium and out-of-pocket expenses can vary significantly depending on the coverage you pick and your health needs. 

All Medicare supplement plans cover some or all of the following expenses:

• Your Part B coinsurance fees (all or a portion of those fees)
• Up to three pints of blood (full or partial coverage)
• Part A hospice care coinsurance
• Part A coinsurance and hospital costs for an extra 365 days once you have exhausted Original Medicare benefits

Differences Between Standardized Letter Plans

The Medicare supplement plans that offer the most coverage will usually cost you more each month.

According to health policy research firm KFF, Medicare supplement Plan G—the most comprehensive plan for new beneficiaries—was the most popular plan type in 2023. Nearly 39% of policyholders chose Plan G. The average monthly premium among all Medicare supplement policyholders was $217.

In comparing the various plans, you’ll want to account for the cost of the Part A and B deductibles and the copay/coinsurance amount. You’ll also want to consider the plan benefits for the following coverages:

• Skilled nursing facility
• Part A deductible
• Part B deductible
• Part B excess charges
• Foreign travel emergency

Here are some important considerations when choosing a provider:

• Availability of discounts 
• Availability of a Medicare SELECT policy (requires you to use specific network providers)
• Availability of a high-deductible plan
• Medical underwriting

Some states offer Medicare SELECT, a cheaper Medigap option. It requires you to use network hospitals and doctors for full benefits.

If you don’t have guaranteed issue rights, which means insurance companies have to sell you a Medigap plan regardless of your health, you’ll have to go through medical underwriting and you might face higher premiums. You typically have guaranteed issue rights during Medigap open enrollment or if your health coverage changes in some way. 

So if you miss the open enrollment period, you might pay more or get denied coverage altogether. The Medigap open enrollment period starts on the first day of your birthday month and runs for six months.

Note

While you may get a discount on your Medigap plan for being married, Medigap plans only cover one individual. Each spouse must buy their own policy.

The price ranges for a 70-year-old male nonsmoker living in Texas in ZIP code 79936 are:

Medigap Plan Type	Medigap Cost Range (monthly)
Medicare Supplement Plan A	$118–$891
Medicare Supplement Plan B	$176–$445
Medicare Supplement Plan C	$187–$548
Medicare Supplement Plan D	$149–$354
Medicare Supplement Plan F	$142-606
Medicare Supplement High-Deductible Plan F	$44-81
Medicare Supplement Plan G	$118–$573
Medicare Supplement High-Deductible Plan G	$37–$84
Medicare Supplement Plan K	$73–$184
Medicare Supplement Plan L	$120–$271
Medicare Supplement Plan M	$85–$231
Medicare Supplement Plan N	$90–$507

While most plans don’t have an out-of-pocket limit, those with plan K won’t have to pay more than $7,220. The maximum out-of-pocket limit for plan L is $3,610. Once you reach those limits on plans K and L, you pay nothing more. 

Factors Affecting Your Medicare Supplement Costs

Your age, gender, residential area, and smoking status are the main factors that affect your Medicare supplement costs, in addition to the type of Medigap plan you choose.

The insurance company you choose also affects your Medicare supplement costs because each carrier determines its own rates.

In setting rates, providers use one of the following three structures:

• Community-rated: Everyone with the same plan pays the same premium regardless of gender or age. Premiums may increase because of inflation or other factors. 
• Issue-age-rated: If you buy a plan when you’re younger, you’ll pay less each month than someone who buys the same plan when they’re older. Your premium won’t go up as you age. 
• Attained-age-rated: Premiums are based on your current age and increase every year you get older. 

Here are some examples of Medigap price variations among companies for a 70-year-old male nonsmoker living in Texas in Zip code 79936.

	AARP/United Healthcare	BlueCross BlueShield of Texas	State Farm	Humana
Plan A	$169	$364	$193	$134
Plan B	$198	N/A	N/A	N/A
Plan C	$244	N/A	$274	N/A
Plan D	N/A	N/A	$183	N/A
Plan F	$233	$278	$276	$164
Plan F High-Deductible	N/A	$81	N/A	N/A
Plan G	$177	$201	$183	$135
Plan G High-Deductible	N/A	$75	N/A	$50
Plan K	$81	N/A	N/A	N/A
Plan L	$120	N/A	N/A	N/A
Plan M	N/A	N/A	N/A	N/A
Plan N	$128	$166	$134	$109

Tips for Saving on Medicare Supplement Insurance

There are several ways to save on Medicare supplement insurance: Avoid late enrollment penalties, pick the right plan and company for your needs, see if you qualify for discounts, and shop around every year to make sure you’re getting the best deal. 

Here are some actionable tips to help lower Medicare supplement insurance costs. 

1. Purchase during the open enrollment period: To avoid a penalty, you must enroll in a Medicare supplement plan the first month you are eligible for Part B and for the six months following your birthday month.
2. Choose a provider that uses issue-age-rating: Inquire about how the provider rates premiums and choose one that uses your age when the policy is issued. 
3. Ask about available discounts: Take advantage of one or more discounts for being married, being a non-smoker, or paying annually or by electronic funds transfer.
4. Choose a high-deductible plan (Plan G or F): Your premiums will be lower when you choose a high-deductible plan (but your out-of-pocket costs will be higher).
5. Choose Medicare SELECT if it’s available in your state: This plan will save you on your premiums, but be aware of the restrictions on the covered providers you can visit.
6. Shop for plans every year: Medigap plans renew automatically, but you may find a better deal by shopping around each year during the open enrollment period.

The Bottom Line

Medigap plans can help control the cost of your Medicare coverage by paying for deductibles and copays. You can choose from 10 standardized plans. All plans with the same letter offer the same benefits. Medicare supplement plans don’t cover Medicare Advantage or Part D drug plans, but some may include vision, dental care, or long-term care. Weigh your options carefully to get the best Medicare supplement coverage for your needs.

Current student loan interest rates and ranges for 2025

Fact checked by Michael Logan

The interest rate on a federal undergraduate student loan for the 2024–2025 academic year is 6.53%. If you’re looking to take out a new private student loan, you’ll find that interest rates vary by lender and whether the loan has a fixed or variable interest rate. For example, your rate for a fixed-interest loan from the lending marketplace Credible will range between 3.39% and 17.99%.

Key Takeaways

• Interest rates are 6.53% for new federal undergraduate loans, 8.08% for graduate loans, and 9.08% for parent PLUS loans.
• As of March 2025, Credible, a student loan marketplace, listed fixed rates starting at 3.39% and variable rates starting at 4.13%.
• As of Q4’24, total outstanding federal student loan debt has reached over $1.6 trillion.

Private Student Loan Interest Rates

Private lenders set a range for interest rates. Your actual rate will be based on the creditworthiness of you and your co-signer.

In the table below, you can see the current rates from the loan marketplace Credible. Annual percentage rates (APRs) on Credible start at 3.39% for a fixed-rate private student loan as of March 2025. These rates reflect the rates offered by a variety of lenders on the marketplace. Individual lenders will each have their own range, which may be a bit narrower.

Loan Type	Fixed APR	Variable APR
Undergraduate and Graduate	3.39% to 17.99%	4.13% to 17.99%
Refinance	3.85% to 11.69%	4.35% to 12.68%

Federal student loans don’t take into account credit scores and income. However, these factors play a big role in private lenders’ decisions. Students who don’t meet lenders’ credit requirements will need a co-signer. Over 90% of newly originated undergraduate private student loans were made with a co-signer in 2022–2023.

However, even if you don’t have a good credit score or a co-signer, there are lenders that offer student loans for bad credit and student loans without a co-signer.

Try to take out no more in student loans than what you expect to make in your first year out of school.

Federal Student Loan Interest Rates

Between July 1, 2024, and June 30, 2025, federal student loan rates for new undergraduate loans are 6.53%. New graduate loan rates are 8.08% and new parent PLUS loan interest rates are 9.08% during that same time period. These rates change annually.

There is an origination fee of 1.057% for federal direct subsidized loans and direct unsubsidized loans. The origination fee is higher at 4.228% for parent PLUS loans. This fee isn’t added to your repayment. Instead, it’s deducted from your initial loan disbursement.

College Enrollment Trends

In the fall of 2020, colleges and universities re-opened their classrooms and dorm rooms after going remote due to the pandemic. But within weeks, many schools had to once again postpone sports and other activities as widespread quarantines forced them to switch from in-person classes back to virtual ones.

As the pandemic dragged on, many thought that community colleges would see higher enrollment, but data showed that fall enrollment was up for some large public universities, while enrollment at community colleges was down as much as 30% at some institutions.

By the spring of 2022, enrollment continued to exhibit worsening trends, with total post-secondary enrollment falling to around 16.2 million, a one-year decline of 4.1%. This followed a 3.5% drop the year prior. The bulk of the drop was in undergraduate enrollment, down 4.7% from the previous year. The number of individuals enrolled in undergraduate programs was down 9.4% from before the pandemic.

Enrollment began to stabilize in fall 2022, but combined undergraduate and graduate enrollment was still 5.8% lower than in 2019. Enrollment rose by 2.5% in the spring of 2024, which marked the second consecutive semester of growth after the pandemic.

Student Debt Continues to Rise

Following the 2007–2008 Great Recession, state higher education funding fell a full 25%. The share of higher education revenues paid by students rose from 36% in 2008 to 47% in 2012. This has led to federal student loan debt that’s surpassed $1.6 trillion as of Q4’24.

While student debt is an ongoing issue, some borrowers may be able to get relief through student loan forgiveness programs.

Borrowers working toward forgiveness under the Public Service Loan Forgiveness (PSLF) program and on an income-driven repayment (IDR) plan may get their remaining balance forgiven after 120 qualifying payments are made.

Note

The Saving on a Valuable Education (SAVE) plan would set monthly payments for undergraduate student loan borrowers at 5% of discretionary income, unpaid interest would not be capitalized, and those with balances under $12,000 could receive loan forgiveness after 10 years of payments. However, on July 18, 2024, a federal appeals court blocked the SAVE plan until two court cases centered around the IDR plan can be resolved. The Department of Education has moved borrowers enrolled in the SAVE plan into an interest-free forbearance while the litigation is ongoing. It has also outlined options for borrowers who were nearing PSLF—borrowers can either “buy back” months of PSLF credit if they reach 120 months of payments while in forbearance or switch to a different IDR plan.

How Is Student Loan Interest Calculated?

The interest on student loans can be calculated as either compound or simple interest, depending on the lender. Federal student loans and most private student loans use a simple interest formula to calculate student loan interest. This formula consists of multiplying your outstanding principal balance by the interest rate factor and multiplying that result by the number of days since you made your last payment.

• Interest Amount = (Outstanding Principal Balance × Interest Rate Factor) × Number of Days Since Last Payment

The interest rate factor is used to calculate the amount of interest that accrues on your loan. It is determined by dividing your loan’s interest rate by the number of days in the year.

How Are Student Loan Interest Rates Calculated?

Federal student loan interest rates are determined by the 10-year Treasury note auction every May, plus a fixed increase with a cap.

• Direct unsubsidized loans for undergraduates: 10-year Treasury + 2.05%, capped at 8.25%
• Direct unsubsidized loans for graduates: 10-year Treasury + 3.60%, capped at 9.50%
• Direct PLUS loans: 10-year Treasury + 4.60%, capped at 10.50%

Private student loan interest rates are determined by each lender based on market factors and the borrower’s and co-signer’s creditworthiness. Most private lenders also offer a variable interest rate, which typically fluctuates monthly or quarterly with overnight lending rates, such as the Secured Overnight Financing Rate (SOFR).

What Are Current Student Loan Interest Rates?

Federal student loan rates for the year between July 1, 2024, to June 30, 2025, are:

• Direct subsidized and unsubsidized loans for undergraduates: 6.53%
• Direct unsubsidized loans for graduates or professional borrowers: 8.08%
• Direct PLUS loans for parents and graduate or professional students: 9.08%

The Bottom Line

Federal student loan rates are relatively low when compared to historic levels. If you need student loans to pay for a college education, learn what the interest rates are and how they work before applying. Always exhaust all your options for federal student loans first by using the Free Application for Federal Student Aid (FAFSA), then research the best private student loans to fill in any gaps. Whether you choose federal or private loans, only take out what you need and can afford to repay.

If you have student loans and need help paying them, you may want to consider a refinance—but know that this could cause you to lose any protections you receive from having federal loans. If refinancing is right for you, review all of the best student loan refinance companies, which offer competitive rates and can cater to unique debt situations.

Reviewed by Thomas Brock

In the Money vs. Out of the Money: An Overview

Traders define options as “in the money” (ITM) or “out of the money” (OTM) by the strike price’s position relative to the market value of the underlying stock, commonly called its moneyness.

An ITM option is one with a strike price that has already been surpassed by the current stock price. An OTM option has a strike price that the underlying security has yet to reach, meaning the option has no intrinsic value.

Key Takeaways

• In options trading, the difference between “in the money” (ITM) and “out of the money” (OTM) is a matter of the strike price’s position relative to the market value of the underlying stock, called its moneyness.
• ITM options have intrinsic value and are priced higher than OTM options in the same chain, and they can be immediately exercised.
• OTM are almost always less costly, making them more desirable to traders with smaller amounts of capital.
• OTM options are more commonly traded for strategies such as covered calls or protective puts.

In the Money

ITM options have their uses. For example, a trader may want to hedge or partially hedge their position. They may also want to buy an option that has some intrinsic value rather than just time value.

Because ITM options have intrinsic value and are priced higher than OTM options in the same chain, the price moves (%) are relatively smaller. It is possible for ITM options to have large price moves but, compared to OTM options, the percentage moves are smaller.

Important

Certain strategies call for ITM options, while others call for OTM options, and sometimes both. One is not better than another; it comes down to what works best for the strategy in question.

Calls

A call option gives the option buyer the right to buy shares at the strike price when and if it is beneficial to do so. An in the money call option, therefore, is one that has a strike price lower than the current stock price.

For example, a call option with a strike price of $132.50 would be considered ITM if the underlying stock is valued at $135 per share because the strike price has already been exceeded. A call option with a strike price above $135 would be considered OTM because the stock has not yet reached this level.

In this case, the option would have $2.50 worth of intrinsic value, but the option may cost $5 to buy. It costs $5 because there is $2.50 of intrinsic value and the rest of the option cost, called the premium, is composed of time value. You pay more for time value the further the option is from expiry because of the greater probability the underlying stock price will move before expiry, which provides an opportunity to the option buyer and risk to the option writer which they need to be compensated for.

Puts

Put options are purchased by traders who believe the stock price will go down.

ITM put options, therefore, are those that have strike prices above the current stock price. A put option with a strike price of $75 is considered in the money if the underlying stock is valued at $72 because the stock price has already moved below the strike. That same put option would be out of the money if the underlying stock is trading at $80.

Generally, the price of a put option increases the farther away from expiry it is, because of the time value.

Out of the Money

In the money or out of the money options each have their pros and cons. One is not better than the other. Rather, the various strike prices in an options chain accommodate all types of traders and option strategies.

When it comes to buying options that are ITM or OTM, the choice depends on your outlook for the underlying security, financial situation, and what you are trying to achieve. 

OTM options are less expensive than ITM options, which in turn makes them more desirable to traders with limited capital.

Some of the uses for OTM options include buying the options if you expect a big move in the stock. Since OTM options have no instrinsic value, they have a lower up-front cost than ITM options. If a stock currently trades at $100, you can buy an OTM call option with a strike of $102.50 if you think the stock can reasonably rise well above $102.50.

OTM options often experience larger percent gains/losses than ITM options. Since the OTM options have a lower price, a small change in their price can translate into large percent returns and volatility.

It is not uncommon to see the price of an OTM call option bounce from $0.10 to $0.15 during a single trading day, which is equivalent to a 50 percent price change.

What Is Options Trading?

Options are contracts that give their holders the right to buy or sell a number of shares of an asset if it reaches a predetermined price within a set time period. Options are derivatives. That is, the contract represents a number of shares of a stock, a bond, or even a currency but does not convey ownership of an asset.

What Is the Purpose of Options Trading?

Options trading is a bet on the future direction of an asset’s price. The options trader thinks that a stock or other asset will rise or fall in value in the near future. By arranging an options contract, the trader who guesses correctly has the right to buy (if it’s a call option) or sell (if it’s a put option) a number of shares of that asset as long as the contract is in effect.

Can Anyone Trade Options?

Theoretically, anyone can trade options. Most brokers require that prospective options traders fill out a form testifying that they have the financial resources and the basic knowledge required to trade options. There are higher levels of tests to pass before an investor can engage in the more esoteric varieties of options trading.

The Bottom Line

In the money options have an intrinsic value. That is, the strike price that is agreed upon has already been surpassed by the current market price of the asset.

An out of money option has a strike price that the underlying security has yet to reach. That makes this type of option cheaper to obtain but riskier as an investment.

Reviewed by Thomas J. Catalano

The financial services industry is one of the most important parts of the U.S. economy. The sector includes insurance, investment, and real estate firms, and, more importantly, banks. According to the Federal Reserve, there are 2,148 large commercial banks in the United States alone as of Dec. 31, 2024.

One of those is Wells Fargo, which ranks as the third-largest bank in the country as measured by total consolidated assets. This article outlines some of the key facts about Wells Fargo and its main competitors in the U.S.

Key Takeaways

• Wells Fargo is among the largest banks in the U.S. by total consolidated assets.
• JPMorgan Chase is the largest bank in the country and among the five largest banks in the world.
• Bank of America reached its size through a series of mergers and acquisitions including NationsBank and Fleet Boston Financial.
• Citigroup, which was once the largest company and bank worldwide, ranks as the fourth-largest bank in the country, after Wells Fargo.

Wells Fargo: An Overview

Wells Fargo (WFC) was founded in 1852 by Henry Wells and William G. Fargo. It holds the distinction of operating under the very first national bank charter granted in the U.S.

Headquartered in San Francisco, Wells Fargo offers a wide range of banking and financial services, operates in 22 countries, has 68 million customers, and more than 5,600 retail branches.

Wells Fargo reported a net income of $19.7 billion and revenue of $82.3 billion at the end of its 2024 fiscal year. The company’s return-on-asset (ROA) ratio was 1.03% and its return-on-equity (ROE) ratio was 11.4% for the same period.

The company has a market cap of $253.3 billion as of March 3, 2025, and domestic assets of $1.7 trillion as of Dec. 31, 2024.

The main competitors of Wells Fargo are three of the other four major U.S. banks—JPMorgan Chase, Bank of America, and Citigroup. These four banks serve the majority of personal and commercial accounts in the United States.

Note

The world’s largest bank is the Industrial and Commercial Bank of China.

JPMorgan Chase

• Market Capitalization (as of March 3, 2025): $728.7 billion
• Domestic Assets (as of Dec. 31, 2024): $2.7 trillion

JPMorgan Chase (JPM) as we know it today was formed through the merger of JP Morgan Bank and Chase Manhattan Bank in 2000. It is the largest bank in the United States by market capitalization and total assets held in the country and is among the top 5 banks in the world by total assets.

Headquartered in New York, the bank operates across the entire spectrum of banking and financial services in more than 100 countries.

Services include asset management, corporate and investment banking, consumer and community banking, and commercial banking. The bank has engaged in many mergers and acquisitions (M&A) including Bank One, the Bank of Chicago, and Bear Stearns.

The company reported net income of $58.5 billion and non-interest revenue of $85 billion for the 2024 fiscal year. Its ROA ratio was 1.43% and its ROE ratio was 18% for the same period.

Bank of America

• Market Capitalization (as of March 3, 2025): $346.5 billion
• Domestic Assets (as of Dec. 31, 2024): $2.4 trillion

Bank of America Corporation (BAC) is headquartered in Charlotte, North Carolina, but has a vast retail banking presence with more than 3,700 retail operations, serving 69 million consumer and business accounts.

It is the second-largest bank in the United States by total assets. It achieved its current size through a series of mergers and acquisitions, including NationsBank in 1998—the biggest bank merger at that time—and Fleet Boston Financial.

Bank of America’s 2008 acquisition of Merrill Lynch transformed it into one of the largest investment banking operations worldwide, boosting it to one of the largest wealth management companies in the world.

For 2024, Bank of America reported revenue of $101.9 billion and a net income of $27.1 billion. As of Dec. 31, 2024, Bank of America’s full-year ROA was 0.83%, while its ROE was 9.53%.

Citigroup

• Market Capitalization (as of March 3, 2025): $145.4 billion
• Domestic Assets (as of Dec. 31, 2024): $1.1 trillion

Like its peers, Citigroup (C) is a multinational banking and financial services company. Headquartered in New York, the bank was formed through one of the largest mergers in history, that of Citicorp and the financial services firm, Travelers Group.

Before the Great Recession, Citigroup was ranked as the largest company and the largest bank worldwide, but the company suffered massive losses during the financial crisis, dropping down to the last position among the big four.

For the 2024 fiscal year, Citigroup reported a net income of $12.7 billion on revenue of $81.1 billion. Citigroup’s ROA was 0.51% and its ROE was 6.1% for the full year of 2024.

What Are the Three Main Types of Banks in the U.S.?

In regard to the types of banks where customers can make deposits, there are three primary types of financial institutions. These include commercial banks, thrifts/savings and loans, and credit unions. Each of these has different specialties and is better suited for specific needs; however, the distinction between them has become blurred over time and many provide the same offerings.

Are Banks and Financial Institutions the Same?

Not exactly. Banks are financial institutions but not all financial institutions are banks. Financial institutions encompass any entity that provides financial services. These include traditional banks, investment funds, insurance companies, hedge funds, and private equity firms. So a bank is one kind of financial institution among many.

How Safe Is the U.S. Banking System?

The U.S. banking system is considered to be extremely safe given the stability of the U.S. economy, the strict regulation of the system, the oversight of the Federal Reserve, and the deposit insurance of $250,000 for each deposit account provided by the FDIC. While the banking system is generally stable, it is not without issues, as seen during the financial crisis and other bank collapses and liquidity crises.

The Bottom Line

Wells Fargo is one of the largest financial institutions in the U.S., playing a significant role in banking and other financial services. In terms of total assets, it ranks as the third-largest bank in the U.S., behind only JPMorgan and Bank of America.

Wells Fargo has a long history, a global presence, a large customer base, and a broad range of offerings keeping it competitive in the banking landscape.

How They Differ and Practical Uses in Finance and Investing

Standard Error of the Mean vs. Standard Deviation

Suppose you’re choosing between two jobs. You’re told both pay an average of $5,000 a month, but there’s a catch: Job A has a traditional salary that pays $5,000 every month according to a contract. Job B is gig work, where you might earn $7,500 one month and $2,000 the next. They have the same average but mean something very different when you are planning your rent or mortgage payments.

Situations like this are why statistical measures like standard deviation (often symbolized as σ) and standard error of the mean (SEM) are employed—they give you more depth than simple averages. Standard deviation tells you how wild those income swings might be. In our example, Job A’s steady salary would have a smaller standard deviation (in fact, none at all month to month), while Job B’s unpredictable gig income would have a large one.

SEM tackles a different question: how much can you trust the figure of $5,000 per month? If Job A’s average comes from tracking hundreds of employees over several years, but Job B’s is based on just a few gig workers’ experiences last month, that’s crucial information for your decision. Most succinctly put, standard deviation is about where the data are clustered in one sample data, while SEM is where the means would be clustered around many samples taken of a given set of things. We tackle both below.

Key Takeaways

• Standard deviation describes how much variability—or fluctuation—exists within a data set.
• The standard error of the mean (SEM) indicates how accurately a data set represents the true population by comparing the dataset’s average to the population’s average.
• The size of the data set—the sample size—doesn’t affect standard deviation, but the sample size is a key factor in calculating the SEM.
• A larger random sample will always provide a mean that is closer to the mean of the population.

How SEM and Standard Deviation Are Used

Both standard deviation and SEM are widely used in scientific research, business, and finance to measure the variability and estimate the reliability of data. They are usually reported together.

Using Standard Deviation

Standard deviation is employed in everything from sports analytics to finance and investing. In finance, standard deviation is key to helping businesses and investors quantify risk and, therefore, the return they would require from an investment to make it worthwhile.

In modern portfolio theory, standard deviation is used to determine the range of possible outcomes of future performance, both for individual assets and portfolios as a whole. Another way of putting it is that it measures volatility, which is a way of measuring risk. The higher the standard deviation of possible outcomes or volatility, the greater the risk.

Let’s return to our example of the jobs available. Say you’re looking at that gig work position where your monthly income bounces around. The company tells you the average (mean) monthly income is $5,000, and the standard deviation is $1,000. But what does that actually mean for your bank account?

The standard deviation of $1,000 tells you that about two-thirds of your monthly paychecks will fall within $4,000 to $6,000 ($5,000 ± $1,000). But some months will fall outside this range. You might have a great payday one month at $6,100, but you must also be prepared for those tougher months when you make $4,100.

This is practical knowledge: With a steady job, you might only need to keep one month’s expenses as a safety net. That’s because its standard deviation should be zero, set by contract. But with your gig work and its $1,000 standard deviation, you’d need a bigger emergency fund to handle those low-income months.

Using Standard Error of the Mean

SEM is commonly used in scientific studies, medical studies, and clinical trials, as well as political surveys and numerous other fields. In finance and investing, SEM is used to judge the consistency—or uncertainty—of estimates such as average returns, risk, and economic indicators by assessing the reliability of the sample data set.

For example, investors or fund managers often use historical data to calculate projected average returns of a stock or index. They use SEM to calculate how much those future returns are likely to fluctuate based on the data sample used, including different time frames, market conditions, etc.

While standard deviation reveals how much variation exists within a single sample, SEM shows how likely the mean of the sample is correct. The smaller the SEM, the closer your sample’s mean is to the actual average of the whole population (remembering that in statistics, “population” isn’t just people but might be all monthly salaries for a specific job).

Here’s the formula:

$SEM = frac{sigma}{sqrt{n}}$SEM=n​σ​

Where:

• σ represents the standard deviation of the population. In practice, we rarely know the true population standard deviation. We usually use the standard deviation of our sample as an estimate.
• n is the sample size—the number of data points in your sample.
• √n is the square root of the sample size.

While online calculators can take care of the above for you, the concept is straightforward: the smaller the sample size, the less chance you’re matching the real population.

Coming back to our job example, let’s say you’re not just considering one gig work opportunity, but you’re researching the income of all gig workers in your field. You can’t possibly survey everyone, so you take a sample. Let’s say you survey 100 gig workers and find their average (mean) monthly income is $5,000, with an SEM of $100.

The SEM of $100 is not about your individual salary but about how reliable that $5,000 average is for all gig workers. The SEM of $100 tells you that if you were to repeat your survey many times, taking different samples of 100 gig workers each time, the average of those sample means would cluster around the true population mean. Specifically, about 68% of those sample means would fall within $4,900 and $5,100 ($5,000 ± $100). About 95% of them would fall within two standard errors ($4,800 to $5,200, or $5,000 +/- $200.

This is practical knowledge when examining research. Imagine another researcher surveys only 25 gig workers and also reports an average income of $5,000. Because their sample size is smaller, their SEM will likely be larger (let’s say, $200). This means their $5,000 average is less reliable than yours. There’s a wider range of uncertainty around their estimate of the true population mean.

The SEM gives you a sense of how much confidence you can place in the reported average. A smaller SEM means more confidence, indicating that the sample mean is a good representation of the actual population mean. A larger SEM indicates greater uncertainty, meaning the true population mean could be very different from the sample’s average.

The Bottom Line

Both standard deviation and standard error of the mean are commonly used measures of variability in finance and investment as well as any field that requires statistical analysis. In investing, both are used to assess risk: standard deviation looks at how significant the fluctuations within a data set are, and SEM assesses how reliable the mean is compared with the actual population.

A step-by-step homebuying timeline

Fact checked by Timothy Li
Reviewed by Doretha Clemon

Most people’s biggest purchase is a home. Investing a significant amount of time in the homebuying process makes sense, but how long does it take?

Once you’re under contract, the typical timeline is about 40–50 days to close on a home. Let’s not forget the steps leading up to that point—house hunting, pre-approval, and application process. When all is said and done, purchasing a home can take several months or even up to a year.

Key Takeaways

• Researching what you’re looking for in a home and determining your budget can streamline the homebuying process.
• You can shop for a home anytime, but you’ll probably want to shop for a mortgage within two weeks to avoid damaging your credit score.
• Buying a home takes about 40–50 days once you’re under contract.
• The average time to close in January 2025 was 46 days, according to ICE Mortgage Technology.

The 6 Steps (and Time To Complete Them)

1. Find an Agent (1-2 weeks)

Word of mouth is one of the best ways to find an agent. Ask friends, family members, or colleagues who have recently bought a house for a referral. You should be able to contact a reputable agent in about a week.

You’re looking for someone you like and trust and who has a knowledgeable grasp of the available inventory in your desired community. A good agent should help you avoid a bad purchase and see you through the twists and turns of sealing the deal.

2. Get Pre-Approval (1-2 weeks)

Loan pre-approval is required and will let you know if you qualify for a mortgage. You’ll be required to provide documents including tax returns, pay stubs, debt, and credit information—and if you’re buying with a spouse or partner, both of you will need these things. You can also apply with several lenders to check for the best rates. During the pre-approval process, there’s a 45-day window in which credit bureaus count credit inquiries as only one since you’re buying a home.

Keep in mind that pre-approval letters are typically valid for a specific period of time, usually 30 or 60 days. If you don’t purchase a home before the pre-approval expires, you’ll have to complete the pre-approval process again.

3. House Hunting (4-5 months)

Depending on your timeline and urgency to secure a new home, you may spend anywhere from a few days to a few months. The timeline varies based on factors such as the time of year, your financing needs, the type of home you’re looking for, and the inventory of homes on the market.

Visit open houses to familiarize yourself with your market and narrow your list of wants in terms of home type, features, and location. Your real estate agent will also set private appointments for you to view the homes you want to see.

Depending on the local real estate market, a home offer may be accepted the same day, or you may need to sharpen your bidding skills to compete with others on your new home.

Important

Some important questions to ask are:

• How long has the property been on the market?

• What is the cost of comparable homes in the area? 

• Is the home in a flood zone? Or likely to be impacted by other natural disasters?

• Is there a homeowners association?

4. Make an Offer (1-7 Days)

You’ve found the house, and now all you need to do is put in an offer. Your agent will explain everything you need to know, but basically, you and the agent decide on the price you’re offering, and you’ll need the standard 1%-5% earnest money (yes, you get it back if you’re not accepted). Plus, in a tight seller’s market, you might want to bump that up to 3%–6% to show that you’re playing for keeps. You could also include a personalized letter to the owner telling them how much you love the home and why you’re interested in their house.

5. Get a Mortgage (21 Days)

Your offer is accepted! Now, the mortgage process starts. Though the lender you selected can lock in your interest rate, you’re about to jump through more hoops and gather more documents, like current bank statements and work stubs, for the final mortgage documents. Lenders will also require an appraisal and inspection, review the lengthy list of closing expenses, and revise your loan estimate.

This process can take up to a few weeks, during which you can hear from your lender via email or phone every few days with a new request. You’ll have to manage your inspection and appraisal reports, and if there are any problems with either, then you may need to renegotiate the price, arrange for repairs, or compromise with the seller on any work that needs to be done.

There will be a title search to make sure the home is free and clear of liens, and you’ll be expected to select homeowners insurance and provide the lender with all of the information. Your insurer may even need a pre-inspection before insuring you. There’s much to do in these weeks as your mortgage is prepared. One-third of the Insight Media study respondents found that the process took longer than expected.

6. Close on the House (40–50 Days)

You should have a final walk-through on the day of closing or the day before to make sure that repairs are complete and nothing has been damaged. Your lender has likely told you how you must pay closing costs—whether to bring a cashier’s check or how you’ll make a digital transfer of the money. You’ll also need a photo ID and a good pen for the pages and pages of documents that you’ll be signing. In the end, keys are put in your hand, and congratulations are in order. You’ve bought a home!

What Is the Longest Part of the Home Buying Process?

Actually closing on the home for which you’ve received a mortgage is typically the longest part of the homebuying process. Having a final walkthrough, paying closing costs, handling any inspection or repair issues, and negotiating and exchanging contracts can take up to four months.

What Should You Look for When House Hunting?

While every situation is different, a good location is one of the most important things people look for. You may want the property located conveniently for work or school, or perhaps you prefer a certain area. Other things that many people find helpful to note are curb appeal, the size and layout of the home, the number of beds and baths, and the placement of windows for natural light.

What Are Some Red Flags to Note When House Shopping?

Look for big cracks in the driveway, foundation, or walls. The home shouldn’t feel damp inside or have a musty odor. Check for cracked paint on window frames. Don’t be fooled by staging furniture or baking smells.

The Bottom Line

Buying a home can be complicated and stressful. The better prepared you are for each step, the better your odds are of landing a good home within your timeframe. Gather your documents, choose a real estate agent, find a lender, and shop for an insurance provider before you start searching. By assembling a homebuying team, you can streamline the purchase process.

Reviewed by Thomas J. Catalano

If you own your home and are at least 62 years of age, a reverse mortgage provides an opportunity to convert some of your home equity into cash. In the most basic terms, a reverse mortgage allows you to take out a loan against the equity in your home that you do not have to repay during your lifetime as long as you are living in the home and have not sold it.

If you want to increase the amount of money available to fund your retirement, but do not like the idea of making payments on a loan, a reverse mortgage is an option worth considering. However, there are also some risks, costs, and pitfalls to be aware of.

Key Takeaways

• A reverse mortgage allows older homeowners to convert their home equity value into cash.
• The home serves as collateral, and repayments are required only when the homeowner moves or upon death.
• Several types of reverse mortgages exist, optimized for different purposes or goals.
• There are also several different options for how to receive the money from the reverse mortgage.

How Reverse Mortgages Work 

With a reverse mortgage, a lender makes payments to the homeowner based on a percentage of the value in the home. When the homeowner dies or moves out of the property, one of three things can happen:

1. The homeowner or heirs can sell the home to pay off the loan.
2. The homeowner or heirs can refinance the existing loan to keep the home.
3. The lender can be authorized to sell the home to settle the loan balance.

While there are several types of reverse mortgages, including those offered by private lenders, they generally share the following features:

• Older homeowners are offered larger loan amounts than younger homeowners. More expensive homes qualify for larger loans.
• A reverse mortgage must be the primary debt against the house. Other lenders must be repaid or agree to subordinate their loans to the primary mortgage holder.
• Financing fees can be included in the cost of the loan.
• The lender can request repayment if the homeowner fails to maintain the property, fails to keep the property insured, fails to pay its property taxes, declares bankruptcy, abandons the property, or commits fraud. The lender may also request repayment if the home is condemned or if the homeowner adds a new owner to the property’s title, sublets all or part of the property, changes the property’s zoning classification, or takes out additional loans against the property.

Warning

Mortgage lending discrimination is illegal. If you think that you’ve been discriminated against based on race, religion, sex, marital status, use of public assistance, national origin, disability, or age, there are steps that you can take. One such step is to file a report with the Consumer Financial Protection Bureau (CFPB) or the U.S. Department of Housing and Urban Development (HUD). 

HECM Loans 

Reverse mortgages have been around since the 1960s, but the most common reverse mortgage is a federally insured home equity conversion mortgage (HECM). These mortgages were first offered in 1989 and are provided by the U.S. Department of Housing and Urban Development (HUD).

HECMs are the only reverse mortgages issued by the federal government, which limits the costs to borrowers and guarantees that lenders will meet the obligations. The primary drawback to HECMs is that the maximum loan amount is limited.

$1,149,825

The maximum claim amount for an HECM insured by the Federal Housing Administration (FHA) as of 2024.

Non-HECM Loans

Non-HECM reverse mortgages are available from a variety of lending institutions. The primary advantage of these reverse mortgages is that they offer loans in amounts that are higher than the HECM limit. One of the drawbacks of non-HECM loans is that they are not federally insured and can be significantly more expensive than HECM loans.

Total Annual Loan Cost on an HECM

Although the interest rate on an HECM is set by the government, and the origination cost of an HECM loan is limited to 2% of the value of the home, the total cost of the loan can still vary by lender. Furthermore, in looking for a lender, borrowers must consider third-party closing costs, mortgage insurance, and the servicing fee.

To assist borrowers in comparing mortgage costs, the federal Truth in Lending Act requires mortgage providers to present borrowers with a cost disclosure in the form of the total annual loan cost (TALC). Use this number when comparing loans from different vendors; just keep in mind that the actual costs of a reverse mortgage will depend largely on the income options selected.

HECMs Provide Several Income Options

HECM reverse mortgages provide the widest variety of income-generating options, including lump-sum payouts, credit lines, monthly cash advances, or a combination of these.

The credit line is perhaps the most interesting feature of an HECM loan, because the amount of money available to the borrower increases over time by the amount of interest. Non-HECM loans offer fewer income options.

Interest Rates on an HECM

The interest rate on HECMs is tied to the one-year U.S. Treasury security rate. Borrowers have the option to select an interest rate that can change every year or every month.

A yearly adjustable rate changes by the same rate as any increase or decrease in the one-year U.S. Treasury security rate. This annual adjustable rate is capped at 2% per year or 5% over the life of the loan. A monthly adjustable-rate mortgage (ARM) begins with a lower interest rate than the ARM and adjusts each month. It can move up or down 10% over the life of the loan.

Can Reverse Mortgages Help Seniors?

Research investigating the impact and utility of reverse mortgages for seniors has mixed conclusions.

In a Brookings Institution summary of this research, it found that several studies have indicated that reverse mortgages can markedly benefit consumers. The percentage of households that would benefit from a reverse mortgage, however, is a cause of debate: Some studies argue that just 9% of seniors would benefit, while others put this same number as high as 80%. Most studies indicate that reverse mortgages benefit lower-income households the most. This is not just because the money that these households receive from a reverse mortgage can be used to cover otherwise catastrophic healthcare costs, but also because there are psychological and health benefits associated with being able to continue living at home.

The same Brookings study also argues that the dangers of foreclosures for reverse mortgages are often overstated in the media. Though local authorities may initiate foreclosure proceedings against homeowners for nonpayment of taxes, few do. In the years running up to 2019, about 18% of reverse mortgages ended in foreclosure, but 75% of these are because the homeowners had left the home. The remaining 25% were because the homeowners had not paid the property taxes. Often, lenders have an incentive to work with homeowners to remedy nonpayment of taxes because foreclosures are costly.

A study by the Financial Planning Association has concluded that including a reverse mortgage as part of a retirement portfolio may reduce seniors’ exposure to deleterious market fluctuations. Contrary to expectations, this study found that retirement strategies that use a reverse mortgage as an alternative source of cash flow to a traditional investment portfolio hold the greatest benefit for mass affluent Americans—generally defined as those with $100,000 to $1.5 million in investible assets. Rather than using reverse mortgages as a last resort, this research suggests, even wealthy retirees could benefit from a reverse mortgage.

Overall, the current consensus among researchers seems to be that there is a gulf between the potential benefits of reverse mortgages and the low demand for them. In other words, many retirees who may regard a reverse mortgage as a semi-predatory, risky proposition could actually benefit from one.

Important

Seniors considering a reverse mortgage as a solution to credit card debt should evaluate whether the amount of home equity that they will lose in reverse mortgage fees and interest is worth it in terms of the amount of credit card interest that they will save. This is a complex calculation that is best performed by an accountant or financial planner. A reverse mortgage counselor may not be knowledgeable enough to answer this question.

What Are Good Alternatives to a Reverse Mortgage?

A home equity loan, a home equity line of credit (HELOC), or a cash-out refinance offers much lower fees and competitive rates for those who qualify for them. Selling a car that is no longer needed and taking advantage of local transportation programs for seniors can also be a great source of cash for seniors.

Can Borrowers Lose Their Home With a Reverse Mortgage?

Yes. Borrowers can lose their home to foreclosure with a reverse mortgage for several reasons. In the few years running up to 2019, about 18% of reverse mortgages ended in foreclosure, but 75% of these were because the homeowners no longer lived in the home and the remaining 25% were due to nonpayment of property taxes.

How Can I Protect Myself From Reverse Mortgage Scams?

The reverse mortgage process is relatively complex, with a lot of unfamiliar terms, which make this strategy ripe for scammers. The Federal Bureau of Investigation recommends protecting yourself from reverse mortgage scams by ignoring unsolicited advertisements, not signing anything you don’t fully understand, and seeking out your own reverse mortgage counselor directly.

The Bottom Line

Taking out a loan against your home is a big decision that will affect your current finances and the estate that you leave to your heirs. There are substantial costs involved, including loan origination, servicing, and interest.

You also need to remember that, with a reverse mortgage, your debt increases over time due to the interest on the loan. If you change your mind about the loan or need to move out of the property due to health reasons, proceeds from the sale of the property are used to pay off the reverse mortgage. Depending on the size of the loan and the value of the property, there may be little or no money remaining after the loan is repaid.

Before taking out a reverse mortgage, you should research the topic thoroughly, compare costs from a variety of lenders, and read all disclosure documents. While investing the proceeds from a reverse mortgage is generally not advisable because of the need to recoup the costs of the loan plus the interest, the income from a reverse mortgage may provide an opportunity to refocus other elements of your investment portfolio. Before assuming the mortgage, consider the cash flow that the reverse mortgage will provide and review the implications that this new source of income will have on your overall investment strategy.

Stay on track for retirement by knowing how much you need to save by what age

Fact checked by Vikki Velasquez

Retirement is a dream for many working people. Leaving the workforce gives you time to do some of the things you’ve always wanted, like traveling or taking up a new hobby. But, you’ll need a steady source of income to accomplish this, especially when you consider that Social Security probably won’t be enough to maintain your desired lifestyle.

Unless you’re incredibly wealthy, you’ll have to plan carefully and save for your retirement. How much you’ll need to set aside to retire comfortably depends entirely on several factors, such as when you want to retire, your desired lifestyle, and your health. We’ve laid out a few retirement savings strategies from some financial experts to help get you on track.

Key Takeaways

• Retirement savings is the money you’re saving and growing to fund your retirement through employer-sponsored plans, IRAs, annuities, pensions, and savings accounts.
• Some factors that can affect your retirement savings are the age at which you want to retire, your desired lifestyle, and your health.
• Ensure you save a percentage of your salary based on your age.
• Experts suggest saving early and consistently, automating your savings, and catching up if you fall behind.

Setting Retirement Savings Goals

Retirement savings is any money you invest and set aside to fund your retirement. You can accomplish this using accounts like:

• Employer-sponsored plans (ESPs), such as a 401(k) or 403(b)
• Individual retirement accounts (IRAs), including traditional and Roth IRAs
• Annuities
• Pension plans

Other accounts and investments, such as savings and money market accounts, mutual funds and exchange-traded funds (ETFs) held in brokerage accounts, and certificates of deposit (CDs), can complement your retirement savings. Consider using different accounts to take advantage of their benefits (like an employer match for your 401(k) and high yields on a savings account. Regardless of the account(s), your retirement savings goals should never waver. Knowing how you want to spend your retirement can help you set your goals.

“A good target is 10 to 12 times your final salary or enough to replace 70% to 80% of your pre-retirement income each year,” according to Taylor Kovar, the founder and chief executive officer (CEO) of 11 Financial in Lufkin, Texas. Kovar says how you want to live out your retirement will affect your savings strategy. “Someone planning to travel the world will need more than someone with a simple, low-cost retirement.”

Note

As much as 28% of working Americans did not have any retirement savings, according to a 2022 report from the Federal Reserve. Of those who did save for retirement, only 31% said they were on track to meet their retirement goals.

Factors Influencing Retirement Savings Needs

How much you need to save for retirement depends entirely on several factors, including when you want to retire, your health, and the lifestyle you intend to lead after leaving the workforce.

Age of Retirement

The age at which you retire is entirely up to you. The average retirement age varies by state, ranging from 61 in Alaska and West Virginia to 67 in the District of Columbia. But, the ideal retirement age for most Americans is 63, according to a survey from MassMutual. Some people leave the workforce entirely, while others continue working part-time after they retire.

The Social Security Administration (SSA) will begin paying your retirement benefits as early as 62, but it will be less than if you waited until later to claim them. For most people, the full retirement age (FRA) is 66 or 67, depending on your birth year. Remember that delaying your benefits beyond 70 can get you more than 100% of your retirement age benefits.

Desired Lifestyle in Retirement

Ask yourself how you plan to live and what you want to do when you reach that milestone. Your goals may include traveling and/or taking up a new hobby. You may also want to own a vacation home, be debt-free, and/or leave a legacy for your loved ones after your death. On the other hand, you may simply want to maintain the lifestyle you already lead. The goals you set can help you understand how much you need to save.

Your Health

Your health also plays an important role in how you save for retirement, according to Ryan Perry, certified financial planner (CFP) and accredited investment fiduciary (AIF) with Falcon Wealth in Ontario, California. That’s because it directly impacts your bottom line during retirement.

“If you are quite healthy with a family history of longevity, it is best to plan for a long retirement,” Perry told Investopedia in an email. Your healthcare spending will probably be significantly lower if you’re healthy, so you may be able to allocate more of your money elsewhere.

Other Considerations

While retirement age, lifestyle, and health may affect how you save, you should consider inflation and investment returns. You should also take Social Security expectations into account. The fund is expected to pay 100% of benefits up to 2033, after which its reserves will pay 79% of scheduled benefits.

But that’s not all, according to Kovar. “Where you live and whether you’re carrying debt into retirement also make a huge difference,” he said.

Age-Based Savings Milestones

Your age plays a big role in how much you save before you retire. The earlier you start, the better off you’ll be in the long run. The general rule, according to Kovar and Perry, is to set aside a certain percentage of your salary based on your age. The table below highlights the general benchmark for savings by age:

Age	Annual Salary
By 30	1x annual salary
By 40	3x annual salary
By 50	6x annual salary
By 60	8x annual salary
By 67	10x annual salary

“Keep in mind this does not factor in pensions and other savings vehicles,” Perry said. “That’s why it is best to consult with a professional to see where you are at rather than relying on a ‘rule of thumb’ guideline.”

Strategies to Achieve Retirement Savings Goals

Saving for retirement doesn’t have to be difficult, especially if you choose and stick to the right strategies. According to Perry, prioritize long-term goals over short-term wants and have a plan for every dollar you save. “What is it for? Think about what each dollar is trying to accomplish and stick to your plan,” he suggested.

Start early and save consistently. You have more time to save and recover from market volatility when you are younger. Another benefit to starting early is that your earnings will earn interest because of compounding. Put simply, the interest you earn will also earn interest, which grows your savings even more.

Max out your contributions and take advantage of employer matches if they’re available. For 2025, you can save as much as:

• $23,500 in a 401(k) with an additional $7,500 if you are 50 or older
• $7,000 in an IRA with an additional $1,000 if you are 50 or older

The types of investments you choose can also help you reach your goals. Aside from investments with employer matches, Kovar said he advises his clients to consider alternative assets like real estate, private equity, and business investments. Diversifying your investments can “provide solid returns while offering more flexibility than traditional stock-based retirement accounts,” he said.

Consider automating your savings through payroll deductions and automatic savings plans. Doing so can help you save before you even consider spending your money. Additionally, be sure to catch up if you fall behind. The best way to do that, Perry said, is to save more if you start later or need to catch up.

The Bottom Line

Knowing when you want to retire and how you want to spend your time after leaving the workforce can help determine how much you’ll have to save. You can reach your savings goals if you start early, save consistently, and don’t give up if you fall behind. If you aren’t sure of how or where to start, a financial professional can help you create a plan and stay on track.