Investing

Heirs must adhere to deadlines and payoff rules

Fact checked by Amanda Jackson
Reviewed by Lea D. Uradu

A reverse mortgage uses home equity to provide cash for homeowners who are age 62 or older. This Home Equity Conversion Mortgage (HECM) allows homeowners to borrow money against the value of their home and receive funds as a lump sum, a fixed monthly payment, or a line of credit.

When the borrower dies, the loan balance becomes due. If the borrower’s heirs inherit a home with a reverse mortgage, they generally have 30 days to buy the home, sell it, or turn it over to the lender. However, the deadline can often be extended to six months to allow heirs time to buy the home or secure financing.

Key Takeaways

• Inheriting a property with a reverse mortgage depends on several factors, including when it originated. 
• A widow or widower could potentially lose the home upon their spouse’s death. 
• After the homeowner’s death, a reverse mortgage loan is due within 30 days but may qualify for an extension.
• For homeowners who plan to leave a home with a reverse mortgage to heirs, they can create an estate plan.

Spouse or Co-Borrower

Heirs can inherit a home with a reverse mortgage but will be responsible for settling the debt, either by paying it off, selling the home, or turning it over to the bank. The rules depend on several factors for those who inherit a home with a reverse mortgage from a spouse:

• Co-borrower: A co-borrower can remain in the home and receive reverse mortgage payments. Otherwise, the loan balance must be paid within 30 days, with a potential six-month extension.
• Timeline: Some individuals may still qualify as an eligible non-borrowing spouse under U.S. Department of Housing and Urban Development (HUD) rules. Qualifying can be difficult, but heirs can keep the home without paying off the debt. The process works best if the reverse mortgage was secured on or after Aug. 4, 2014.
• Married Spouse: If a spouse took out the reverse mortgage after Aug. 4, 2014, the remaining spouse will qualify as an eligible non-borrowing spouse and stay in the home without paying back the reverse mortgage loan.

If two spouses live together in a home and only one is the borrower, the other spouse risks losing the home if the borrower dies. Check with the reverse mortgage provider to include both names on the loan if that’s what was intended.

Inheritance Issues

A reverse mortgage can create problems for heirs. Though both spouses have to consent to reverse mortgage loans, both don’t have to be named as co-borrowers. If both spouses hold the title and are borrowers on the reverse mortgage, then the surviving spouse may continue the reverse mortgage and can continue living in the house.

However, if an heir is neither a co-borrower nor the spouse of the borrower, they must pay back the reverse mortgage to the lender by:

• Paying off the mortgage balance in full with estate or other funds.
• Paying off the balance of the reverse mortgage in full by obtaining a traditional mortgage on the property.
• Paying off the reverse mortgage with the proceeds from selling the property. 

Heirs who want to keep the home by paying off the debt must repay either the loan balance or 95% of the appraised value, whichever is less. Alternatively, they could sell the home to pay off the debt and generate cash, which is the most common option, according to the Consumer Financial Protection Bureau.

Important

Heirs who want to keep the home can face problems if it has a reverse mortgage they cannot repay. A traditional fixed-rate forward mortgage can offer these heirs a funding solution, but they may not always qualify. If they cannot repay the debt, the home must be sold to satisfy the reverse mortgage debt.

Deadlines

At 30 Days

Lenders issue a Due and Payable Notice to the estate within 30 days of receiving notice of the borrower’s death. At this time, heirs are given three options:

• Pay off the remaining loan balance of the Home Equity Conversion Mortgage
• Sell the property for at least 95% of the appraised value 
• Provide the lender with a deed-in-lieu of foreclosure 

Within 60 Days

Thirty days after the Due and Payable Notice is sent, heirs must secure an appraisal of the home. A surviving, non-borrowing spouse, may apply for a deferral if eligibility requirements are met.

At 6 Months

By the end of six months, if heirs have not sold the house or repaid the debt, a lender may start the foreclosure process to satisfy the loan.

12 Months After Death of Borrower

Heirs commonly have six months to satisfy the debt. HUD may approve heirs eligible to receive two three-month extensions to pay the HECM balance, giving them a year to pay off the loan after the borrower dies.

What Happens If the Home Sells for Less than the Reverse Mortgage Owed?

If the property sells for less than the amount of debt, the heir would receive no cash from the sale. A property may sell for less than the outstanding reverse mortgage if home values have declined, if it has physically deteriorated or been damaged, or if the borrower outlived the life expectancy. Heirs are not responsible for paying outstanding debt after the proceeds from the home sale are applied. Instead, Federal Housing Administration (FHA) insurance covers the lender’s shortfall.

Can a Family Member Take Over a Reverse Mortgage?

A family member cannot take over a reverse mortgage unless they are a co-borrower. Instead, they must pay off the mortgage with cash or a traditional mortgage. They can sell the property, and the resulting funds will be used to pay down the debt, with any remaining amount going to the heirs.

What Happens If a Homeowner With a Reverse Mortgage Goes Into a Nursing Home?

Reverse mortgages have residency requirements. If you go into a nursing home for an extended period, then the reverse mortgage loan will become due, the home may be sold, and any proceeds from the sale of the home may make you ineligible for government benefits.

The Bottom Line

Heirs may encounter several problems when inheriting a reverse mortgage. The process for inheriting a property with a reverse mortgage depends on whether the heir is a spouse or a co-borrower of the mortgage and when it originated.

You can have only one reverse mortgage, but there are other ways to access equity

Fact checked by Timothy Li
Reviewed by Doretha Clemon

Reverse mortgages are limited to primary residences, and since you can have only one primary residence, it is not possible to have two reverse mortgages at the same time.

Reverse mortgages can be suitable for snowbirds who also are seniors. Many snowbirds have second homes in the Sun Belt, Hawaii, or Florida, so they have built up equity in two distinct properties. Since a reverse mortgage is an option for only one of those properties, there are alternatives such as home equity loans or cash-out refinance plan.

Key Takeaways

• Many snowbirds have equity in two homes: their primary residence and their vacation home. 
• A reverse mortgage can be a good way to access this equity, but you can only have one at a time. 
• Reverse mortgages can be taken out only on your primary residence, meaning the place where you spend the majority of the year.
• There are other ways of accessing the equity in your properties. These include a cash-out refinance or a home equity loan.

What Is a Reverse Mortgage?

A reverse mortgage is a special type of loan that is available to people who are 62 and older who own their own homes and have a considerable amount of equity in their properties. It allows retirees a way to borrow money against the value of their homes. The loan is advanced in a lump sum, as a fixed monthly payment, or as a line of credit.

There are three types of reverse mortgages. The most common is the home equity conversion mortgage (HECM). Under this program, the mortgage amount that you may borrow will be the lesser of:

1. The appraised value
2. The Federal Housing Administration (FHA) HECM limit of $970,800, or
3. The sales price (only applicable to HECM for Purchase). If you need to borrow more, you can look into a jumbo reverse mortgage, also called a proprietary reverse mortgage.

Reverse mortgages come due when the homeowner dies, moves away permanently, or sells their home.

Reverse Mortgages for Snowbirds

Many snowbirds choose to buy a second home in their vacation spot of choice, whether in Florida, Hawaii, or somewhere else warm and sunny. They also may have significant equity built up in their primary residence. It’s possible to use a reverse mortgage to access some of this money, giving them regular monthly payments, a lump sum, or a line of credit, in exchange for giving away the equity in their home.

However, residency rules for reverse mortgages state that the property on which you have the reverse mortgage must be your principal residence. This means you can’t be away from a property for more than six months and have a reverse mortgage on it.

This effectively bars snowbirds from taking out a reverse mortgage on their second home if they already have a reverse mortgage on their primary residence. However, if you have a significant amount of equity invested in your second home and want to access it, there are alternative ways of doing that. 

Important

If you have a second home and spend a lot of time there, be careful with the residency rules of reverse mortgages. If you are away from your primary residence for more than six months at a time, then your reverse mortgage lender can assume that you are in breach of the lending terms and may even start foreclosure proceedings. Make sure that you keep records, and respond quickly to requests (generally annual) to confirm where you are living.

Accessing Equity for Snowbirds

A reverse mortgage is not the only way to access the equity that you have built up in a property. In fact, reverse mortgages only make sense for a small proportion of senior homeowners. That’s because the high costs associated with reverse mortgages make other forms of borrowing more cost-efficient in the long term.

And unlike reverse mortgages, it’s possible to use these alternative sources of borrowing on two properties at once or to use them just in association with your vacation home. The alternatives include a:

• Cash-out Refinance: This option can help you access considerable equity in your home at one time. Keep in mind that you must make monthly payments to the lender if you take this route.
• Home Equity Loan or Home Equity Line of Credit (HELOC): You can access a great deal of equity in your home by taking out a HELOC. This option also requires regular monthly payments. But, there may be fewer associated fees, making this a much less expensive alternative to a reverse mortgage or cash-out refinance. Another benefit is that you can secure a HELOC with your primary or second (vacation) home—or both if you choose to do so.

Whichever option you take, make sure that you stick within the residency rules for your first reverse mortgage and plan for the long term. While taking equity out of your properties might be attractive in the short term, you should plan carefully to make sure that it doesn’t leave you short of money in the long term.

Can You Have Two Reverse Mortgages?

No, borrowers can only have one existing reverse mortgage at a time. However, borrowers who have paid off a reverse mortgage can get another reverse mortgage. And borrowers with an existing reverse mortgage can refinance the reverse mortgage to another one.

Does a Reverse Mortgage Have to Be on Your Primary Residence?

Yes, the residency rules for reverse mortgages state that you must spend the majority of the year in the property on which you have the reverse mortgage. If you are away for more than six months, your lender might say that you’ve broken the lending terms and may even start foreclosure proceedings.

Can I Use a Reverse Mortgage to Buy a Second Home?

Yes, but be careful. The fees and interest associated with a reverse mortgage mean that you may end up with a lot less money than you invested in your first home. Other ways of accessing your equity, including a cash-out refinance or a home equity loan, might make more sense in the long term.

The Bottom Line

Many snowbirds have equity in two homes: their primary residence and their vacation home. A reverse mortgage can be a good way to access this equity, but you can only have one at a time. Reverse mortgages can be taken out only on your primary residence, meaning the place where you spend the majority of the year.

There are other ways of accessing the equity in your properties, though. These include a cash-out refinance or a home equity loan.

Reviewed by Amy Soricelli

Those entering the workforce armed with a degree in finance face a tough choice. Do they head to Wall Street and the lucrative, although risky, world of high finance? Or, do they head away from the path of the investment banker and develop the tools to become a future giant of corporate finance?

Of course, there are even more choices than that. Below we take a look at the options available to those entering the workforce and provide some tips on how to land a finance job.

Key Takeaways

• Finance majors usually study a robust curriculum of critical subjects from risk management to financial forecasting.
• Coursework may vary from school to school, but overall, finance courses cover multiple areas of the industry.
• Internships often play an essential role in getting hired after graduation.
• Accounting, Operations, Compliance, and FinTech are four popular areas of finance.

Working in Financial Services

Coursework for finance majors varies from school to school. Typically, the curriculum teaches students several key subjects, including business fund management, financial markets, security analysis and valuation, financial institutions, investments and securities, risk management, trading, financial forecasting, capital structure, venture capital, and security issuance.

Overall, finance courses are more quantitative than qualitative, meaning that students really need to develop some real-world experience through internships to build up the interpersonal skills that the workplace requires. This is one of the primary reasons so many schools have students work on projects in teams. So what does a job in finance actually look like? The answer is a broad one, but we’ve rounded up five popular careers in finance.

Accounting

The success of financial firms may ebb and flow and the fates of investment bankers may change at any moment, but there is one employee that firms can rarely get enough of—accountants. Accounting work on Wall Street involves reviewing and handling financial system data, maintaining financial schedules and journal entries, and keeping track of where a firm’s obligations are.

Taking this career path requires an eye for order and a stomach for complexity. Tracking the value of a security position may not seem difficult in a textbook, but keeping track of a dizzying array of derivatives requires a certain finesse that requires more than just standard knowledge of accounting principles.

Important

When you graduate with a degree in finance, there are many career paths open to you from accounting to investment banking.

Investment Banking

Essentially, investment banks are consulting firms that provide advice on initial public offerings (IPOs), mergers, stock repurchases, and corporate refinancing. These firms rely on smart personnel with inquisitive and detailed minds to help them examine the inner workings of their clients, which makes it easier to bring in sizable billings.

Business analysts work with clients to identify their needs and develop strategic plans that will move them toward meeting those needs. This all happens while setting requirements and tasks to improve the likelihood of sustained success among clients.

Going down this career track requires skill in identifying the big picture and the patience to work with clients who may not know what they want. This position often involves interfacing with many different clients, as well as working with members of the firm who are specialists in specific fields. Projects may be short and defined or long and vague.

Operations

The heart of a Wall Street firm is its operations. Work in this area involves project management, gathering requirements, and business process planning—tasks generally not considered when college graduates think of an investment bank.

Employees may track complex trades to ensure that all parties are settled and that the ownership of securities passes to the correct group. They may examine how deals are executed in order to improve the process, and they focus on accomplishing the firm’s goals efficiently and with the fewest resources required.

Operations staff, much like accountants, need an eye for the relationships between different parties and factors and should be comfortable with business process mapping and modeling.

FinTech

The world of finance changes rapidly—so much so that it barely resembles the days when computers were first used to evaluate transactions. Today, financial engineers create new financial instruments that would have been impossible to implement in the past. Complex derivatives, exotic options, and multi-party trades require employees who understand financial economics, mathematics, and software engineering. They also require imagination and diligence.

A financial engineer may be charged with developing software that can reduce the time it takes to execute a trade, allowing firms to profit from the smallest of fluctuations in a security’s price. Tasks might require modeling financial formulas and developing simple interfaces so that other employees can interpret data.

Compliance

When Wall Street draws the ire of Main Street, politicians and regulators often step in to fix an industry that may be considered broken. Since before the Great Depression, regulatory bodies such as the Securities and Exchange Commission (SEC) have provided rules and guidelines that firms must follow in order to protect consumers and other businesses. Breaking these regulations often comes with a hefty fine.

To avoid conflict with regulations, firms employ compliance officers to make sure that the strategies and processes they employ are legal. Compliance officers review and evaluate business processes and compare them to regulations, audit company activities in order to mitigate risk, and develop policies and procedures designed to make breaking the rules evident and preventable.

This position is often the “bad cop” of the company, as its function is to limit behavior that increases a firm’s risk, even if that behavior is highly profitable. Knowledge of process planning, financial forensics, and business law are all desirable assets for achieving success.

Do You Need A College Degree to Work in Finance?

Yes, most entry-level jobs in finance require applicants to have an associate’s degree or – preferably – a bachelor’s degree. Meanwhile, more advanced positions may require applicants to hold a master’s degree or specialized industry certification. While you can get a entry-level job without a degree, you’ll likely find it much harder to advance your career without one.

What Are Some Entry-Level Jobs in Finance?

Numerous entry-level positions exist in financial firms, from banks to insurance companies. Common positions include junior accountants, personal bankers, financial advisors, financial analysts, underwriters, and registered representatives.

What College Degrees Are Most Common for Finance Jobs?

A degree in finance is usually a good option if you want to land a job in finance. However, there are plenty of viable alternatives, especially if you want to work in a specialized career. Popular options include economics, actuarial science, statistics, and mathematics.

The Bottom Line

Working on Wall Street means long hours and backbreaking work, all thrown in with something commonly referred to as “paying your dues.” Entry-level work can often be thankless, and the rewards of the job may vary greatly from firm to firm and position to position.

Tough economic times and political influences also change what Wall Street jobs have to offer. Many factors can focus the public’s eye on a number of facets of Wall Street that might have typically gone unnoticed.

Ever-changing bonuses, salaries, regulations, and technology will adjust the benefits and restrictions of a career in finance. The days of the “fat cat” may not be over, but they certainly have changed.

Don’t leave until these signposts show you’ve covered all the bases

Reviewed by Ebony Howard
Fact checked by David Rubin

Are You Ready to Retire?

If you’re considering retiring early, you’ll forego not only the headaches of working but also the additional earnings that could have made your retirement even more comfortable. Make sure you’re truly ready before you leave.

Key Takeaways

• Start debt free, with a solid retirement account that will support your extra years not working.
• Make sure you can withdraw some money from your retirement accounts without penalty.
• Plan to pay for your own healthcare coverage until Medicare kicks in.

Here are six signs you may be able to retire early instead of continuing to work.

1. Your Debts Are Paid Off

If your mortgage is paid off and you don’t have any loans, credit lines, large credit card balances, or other debt, you won’t have to worry about making large payments during retirement. This leaves your savings and retirement income available to enjoy life and free to use in the event of an emergency.

2. You Have Ample Savings

You planned and set a goal for retirement savings. Now your investments meet or exceed the amount you were hoping to save. This is another good sign you could take early retirement.

If you didn’t plan for early retirement, you will need to recalculate how long your savings will last. Also, depending on your age, you may not yet be eligible for Social Security or Medicare. Your savings will need to cover your expenses until you reach the eligible age.

Important

Keep in mind that if you do leave work several years before you planned to, your savings must be enough to cover these additional retirement years.

“Think ‘Rule 25.’ Prepare to have 25 times the value of your annual expenses,” says Max Osbon, partner at Osbon Capital Management in Boston, Massachusetts.

The Rule of 25 is used by many participants in the Financial Independence, Retire Early (FIRE) movement, and it depends on a 4% maximum portfolio withdrawal rate (adjusted for inflation). Many experts, though, question the validity of the 4% guideline, especially for folks who plan to retire early. Since the 4% rule for retirement budgeting only allows for safe withdrawals for about 30 years, this means it may not provide sustainable income for individuals who retire early.

3. You Can Get at Your Savings

No one likes to pay unnecessary penalties.

If your 59th birthday was at least six months ago, you’re eligible to take penalty-free withdrawals from any of your 401(k) plans. These policies generally apply to other qualified retirement plans, but there are exceptions.

For instance, the 457 plan doesn’t have an early withdrawal penalty. But remember that you’ll still pay income tax on your withdrawals.

There’s also good news for wannabe early retirees with 401(k)s. If you continue working for your employer until the year that you turn 55 (or after), the Internal Revenue Service (IRS) allows you to withdraw from only that employer’s 401(k) without penalty when you retire or leave, as long as you leave it at that company and don’t roll it into an individual retirement account (IRA).

“There is a caution, however: If an employee retires before age 55 [except as noted above], the early retirement provision is lost and the 10% penalty will be incurred for withdrawals before age 59½,” says James B. Twining, CFP, founder and CEO of Financial Plan Inc. in Bellingham, Washington.

The third option for penalty-free retirement plan withdrawals is to set up a series of substantially equal withdrawals over at least five years, or until you turn 59½, whichever is longer. Like withdrawals from a 457 plan, you’ll still have to pay income taxes on your withdrawals.

If your retirement plans include any of the above penalty-free withdrawal options, it’s another point in favor of leaving work early.

4. Your Healthcare Is Covered

Healthcare can be incredibly costly, and early retirees should have a plan in place to cover the costs before becoming eligible for Medicare at age 65. If you have coverage through your spouse’s plan or if you can continue to get coverage through your former employer, this is another sign that early retirement could be a possibility for you.

Keep in mind that COBRA may extend your healthcare coverage for a period of time after leaving your job, although your costs with COBRA may be higher than other options.

Another option for early retirees is to purchase private health insurance. If you have a Health Savings Account (HSA), you can use tax-free distributions to pay for your out-of-pocket qualified medical expenses no matter what age you are.

5. You Can Live on Your Budget

Retirees living on fixed incomes, including pensions or retirement plan withdrawals, usually have lower monthly incomes than they did when they were working.

Try practicing sticking to your reduced retirement budget for at least a few months before you actually retire. You’ll get a sense of just how easy or difficult it would be to make that lower budget permanent.

“Humans do not like change, and it is hard to break old habits once we have become accustomed to them. By ‘road-testing’ your retirement budget, you are essentially teaching yourself to develop daily habits around what you can afford in retirement,” says Mark Hebner, founder and CEO of Index Fund Advisors Inc. in Irvine, California, and author of “Index Funds: The 12-Step Recovery Program for Active Investors.”

6. You Have a New Plan

Leaving work early to spend long days with nothing to do will lead to an unhappy early retirement. Having a defined plan—or even the outline of a daily routine—can help you prepare.

Perhaps you’ll replace sales meetings with a weekly golf outing or a volunteer gig, in addition to adding daily walks or trips to the gym. Plan a long-overdue trip or take classes to learn something new.

If you can easily think of realistic, non-work-related ways to enjoyably pass your days, early retirement could be for you. In the same way you test-drive your retirement budget, try taking a week or more off work to spend your days as you would in retirement. If you become bored with long walks, daytime TV, and hobbies within a week, you’ll certainly get antsy in retirement.

What Is Retirement?

Retirement, fundamentally, is when you leave the workforce behind. The traditional retirement age is 65 in the United States. The full retirement age (when you can collect full Social Security benefits) is 66 or 67, depending on your birth year. The early retirement age is 62 (the earliest age you can collect Social Security benefits).

What Is Retirement Planning?

Retirement planning is a strategy for long-term saving, investing, and finally withdrawing money you accumulate to achieve a financially comfortable retirement. Creating a retirement plan begins with determining your long-term financial goals and tolerance for risk, then starting to take action to reach those goals. The process of creating a retirement plan includes identifying your income sources, adding up your expenses, putting a savings plan into effect, and managing your assets.

How Much Do I Need to Save to Retire?

The answer varies by individual, and it depends largely on your current income and the lifestyle you want and can afford in retirement. Many retirement experts recommend strategies such as saving 10 times your pre-retirement salary and planning on living on 80% of your pre-retirement annual income.

The Bottom Line

These are questions nearly all young and middle-aged workers have asked themselves: Should I leave my job and retire early? What would I need? How do I know I’m ready?

When it comes to deciding if you should retire early, there are several signs to watch for. The signposts also point to a number of plans you can make now to increase the chances that you could fulfill this dream if you end up wanting (or needing) to do so.

Reviewed by David Kindness
Fact checked by David Rubin

While many Americans struggle to save for retirement, elected representatives and senators in the U.S. Congress receive substantial pension benefits for life. Though congressional retirement pay is not typically a big election-year issue, it might serve as evidence of a disconnect between lawmakers and the mainstream United States.

Key Takeaways

• Congressional representatives have access to a variety of retirement plans.
• A typical member of Congress has a net worth that far surpasses a typical American citizen’s net worth.
• The average American saves far less for retirement than a member of Congress does.

Overview

The median net worth for a member of Congress is over $1 million. The median wealth for an American household, in contrast, was $176,500 in 2022, the most recent data available. That means half of American households’ wealth is lower than that number, and half is higher. (This includes households that are in debt, with negative wealth.)

Congressional members are eligible for their own unique pension plans under the Federal Employees Retirement System (FERS), though there are other retirement options available, ranging from Social Security to the Civil Service Retirement System (CSRS). Members of Congress are eligible for a pension dependent on the member’s age at retirement, length of service, and salary. The pension value can be up to 80% of the member’s final salary, which is $174,000 per year. At an 80% rate, that’s a pension benefit of $139,200. (The Speaker of the House has a salary of $223,500. The Senate President makes $193,400, as do the majority and minority leaders in the House and Senate.) All benefits are taxpayer-funded.

Additionally, members of Congress enjoy the same Thrift Savings Plan (TSP) as all other federal employees, which is similar to a 401(k). Congressional contributions are matched up to 5% of salary per year, in addition to an extra 1% giveaway regardless of how much the congressperson contributes, if anything.

Few private employees have the option to contribute to an employer-sponsored defined benefit pension plan. Most have the option to contribute to a 401(k) or 403(b), while others may contribute to an employee stock ownership plan (ESOP) or some other retirement option. The median benefit for private pensions and annuities for those 65 and older was $11,040 per year in 2022, the most recent data available. For state and local government pensions, it was $24,980 per year. Of course, some people receive both Social Security and a private pension. The median Social Security benefit for those 65 and older was $18,520, so with a private pension, that’s an income of nearly $30,000 per year. As far as other retirement assets, the Federal Reserve found that the median retirement account balance in 2022 (the most recent data available) was $86,900 and the average balance was $334,000.

Social Security Fairness Act

The Social Security Fairness Act, concerning the Windfall Elimination Provision and Government Pension Offset, was signed into law on Jan. 5, 2025. It eliminates the reduction of Social Security benefits while entitled to public pensions from work not covered by Social Security. The Social Security Administration is finalizing its plan to implement the act.

How Benefits Have Changed Over Time

Participation in defined-benefit pension plans peaked in the private sector in the early 1980s. More than 80% of American employees who worked for large companies in the private sector contributed to a pension plan. By 2011, that rate for all private industry workers dropped to 18%. In 2001, 5% of the Fortune 1000 closed down or froze their defined-benefit retirement plans. By 2004, it was over double that (11%).

Defined contribution plans, like 401(k)s, have become more prominent. In 2023, 67% of private-sector workers had access to defined contribution plans. Only 15% could access defined-benefit plans. Of these, 49% and 11% of workers participated, respectively.

Increasingly, American workers are forced to rely on 401(k) plans, individual retirement accounts (IRAs), and Social Security for their retirement. Among these, only Social Security provides a guaranteed minimum payment in retirement, and even those benefits seem uncertain, considering the massive unfunded future liabilities faced by the U.S. government.

Previous Pensions

Congress did not always receive a gold-plated pension. Before 1942, members of Congress did not receive a taxpayer-funded retirement plan. This early system was quickly scrapped after public outcry, however. A pension was put into place after World War II and eventually replaced by FERS in the 1980s. The congressional pension system has not changed much since September 2003, after which all incoming representatives were no longer able to decline FERS.

During and After the Financial Crisis

Unfortunately, the once-promising 401(k) era failed to live up to its promise after unrealized gains were wiped out by the 2007–2009 recession, though some of the lost retirement wealth from 2009 recovered quickly. By 2011, the average retirement account balance increased by 7%.

Those gains were conspicuously concentrated among the wealthiest Americans. Approximately 45% of workers saw declines in the value of their retirement assets to the tune of thousands of dollars from 2009 to 2011, despite the fact that the S&P 500 grew approximately 54% over that period.

Note

Nine in 10 high-income families had retirement savings account balances in 2019. For low-income families, that ratio dropped to one in 10.

What Does a Member of Congress Make in Retirement?

Since 2009, congressional pay has been $174,000 per year, which, at an 80% rate, equates to a lifelong pension benefit of $139,200. (There are a few exceptions. The Speaker of the House has a salary of $223,500. The Senate President has the same salary as the majority and minority leaders in the House and Senate: $193,400.) Under the Federal Employees Retirement System (FERS), members of Congress are eligible to receive this full pension once they are at least 62 years old, as long as they’ve served for at least five years. Alternatively, if they’ve worked in the job for at least 20 years, their pension can kick in at age 50. If they’ve served for at least 25 years, there’s no minimum age to receive their pension. The Civil Service Retirement System (CSRS), which is only an option for representatives elected before 1984, is similar: A member of Congress may retire at age 60 with 10 years served, or at age 62 with five years of civilian federal service, which includes working in Congress.

Can Members of Congress Be Paid After They Retire?

While members of Congress don’t get paid their full salary after they retire, they do receive a pension that can be up to 80% of their $174,000 salary, depending on the amount of time served.

Do Members of Congress Receive Full-Pay Retirement Benefits After Serving One Term?

No, members of Congress do not receive their full pay as a retirement benefit after serving only one term. Their pension is based on the amount of time served. To be eligible for the Federal Employees Retirement System (FERS) pension, they must have served in Congress for a minimum of five years (and be at least 62 years old).

The Bottom Line

There are more retirement plan options for a member of the U.S. Congress than for the average citizen.

Every member of Congress has access to several retirement plans, and their defined benefits are not negatively impacted by stock market recessions.

Congress also has the unique position of determining its own benefits without having to worry about turning a profit—a private company may have to freeze its pension plan or perform a buyout if it experiences balance sheet problems, but the U.S. Congress must only appropriate tax dollars. Even state and local government pensions are often limited by balanced budget amendments or the tolerance of local taxpayers.

Correction—Feb. 11, 2025: This article has been corrected to state that the median wealth for an American household means half of American households’ wealth is lower than that number and half is higher.

Here’s how to protect your sensitive financial data before and after a breach

Reviewed by Pamela Rodriguez
Fact checked by Jiwon Ma

From Capital One to Target, the Home Depot to TJ Maxx, criminals have stolen customers’ credit card information—and there’s no indication that the thefts will stop. Fortunately, there are a number of ways to minimize the damage.

Even if you haven’t yet been hacked, many of the seven moves described below can make your information less easy to find and less usable if you are caught up in a breach. They range from monitoring your accounts regularly to freezing your credit.

Key Takeaways

• Data breaches that compromise your credit card information are becoming commonplace. 
• Well-known breaches that exposed customer data include the 2019 hacking of Capital One. 
• If you’re the victim of a breach, protect your credit record by immediately ordering a replacement card and freezing your credit report.
• There’s no need to sign up for high-priced fraud protection.
• Be on the lookout for phishing schemes.
• Use tough-to-crack passwords. 

1. Get a Replacement Card

If you’ve been told that you’re part of a data breach, tell the company that you need a new card immediately. You’re not likely to get any pushback from the already-embarrassed company. But if you do, don’t back down.

Important

Credit card fraud pays. On the black market, your card number and information can be worth anywhere from $5 to more than $100, according to credit reporting agency Experian. So if a hacker steals information on a million cards, that can be lucrative.

2. Check Your Account Online

After a breach, don’t wait for your statement to arrive before you check it—monitor your account regularly online. Keep checking daily for at least 30 days, even after you get a new card. If you find a suspicious charge, dispute it immediately.

3. Freeze Your Credit

If you are caught up in a data breach, call each of the three main credit bureaus (Equifax, Experian, and TransUnion) and request that your credit report be frozen. Freezing means that no one will be able to access your credit report without your approval. Creditors likely won’t approve an application without having access to your credit report.

Important

If you’re deeply worried about potential breaches, then you can also put a credit freeze on your accounts proactively—you don’t have to be a fraud victim. Just remember to unfreeze it any time you’re applying for a loan.

4. Place a Fraud Alert

An alternative—and less drastic—step to freezing your credit is to place a fraud alert on your credit profile with the credit bureaus. A fraud alert can protect your credit history from unauthorized access for one year, after which it can be renewed. A fraud alert won’t completely lock down your credit reports the way that a credit freeze does, but it does require creditors and lenders to take the extra step of verifying your identity before authorizing new lines of credit in your name.

Important

There’s no need to sign up for high-priced fraud protection. In the panic of the moment, you might be tempted to shell out hundreds of dollars per year for credit monitoring services. But that’s not necessary. You can monitor your own accounts by closely reviewing the information that you get free of charge.

5. Order Your Credit Reports

By law, you get one free credit report per year from each credit reporting company. Even if you haven’t yet been targeted, be proactive and take a look at your free reports. Ideally, you can order one every four months by staggering the requests across the three main credit reporting agencies, so you can be better covered across the entire year.

6. Watch for Phishing Scams

Just because thieves have your credit card number doesn’t mean they also have its expiration date and the three- or four-digit card verification value (CVV) number. Beware of phishing, a scam where the thief might send an email or call in an attempt to obtain the rest of the information.

Don’t give your information to anybody unless you call the company directly. If somebody leaves a message, go to the company’s website and find a contact number to make sure it matches what the person in the message provided. For even more security, call the company directly and make sure that the person who called you is legitimate.

7. Be Smart About Passwords

Simply employing all the password rules won’t prevent a breach, but since you don’t know exactly what information thieves are looking for, it can’t hurt. Use strong passwords, and change them frequently.

You may also want to take advantage of additional digital security measures such as two-factor authentication. Newer types of authentication, such as Face ID and Touch ID, are slowly replacing passwords as a legitimate means to grant a person access to sensitive financial information.

What Is Two-Factor Authentication?

Two-factor authentication delivers a one-time code to a trusted device, such as a mobile phone. This provides a secondary layer of protection that requires physical possession of your device before allowing an unknown sign-in to your accounts.

How Many Capital One Customers Were Affected in the 2019 Data Breach?

One of the largest data breaches involved Capital One, which reported that the personal information of 106 million of its customers had been compromised in July 2019.

How Many Target Customers Were Affected in the 2013 Data Breach?

Over 70 million customers’ personally identifiable information and credit card information were stolen from Target’s databases in 2013.

The Bottom Line

Even if you haven’t been a victim of a credit card breach, it’s important to act proactively to make yourself less vulnerable. If you have, don’t panic. It’s going to take time to clear up everything, but you won’t pay for any charges that weren’t yours. Call your credit card company, tell them about any incorrect charges, and be patient as they work to clear them from your account. In the meantime, continue monitoring your credit report and credit card bills for further signs of unauthorized activity.

Navigating the World of Cryptocurrency ETFs

As cryptocurrencies capture more and more attention from retail and institutional investors, cryptocurrency exchange-traded funds (ETFs) have emerged as an accessible way to gain exposure to these volatile assets.

“Crypto ETFs mark a monumental shift in the regulatory landscape,” said Christina Lynn, a behavioral finance researcher and certified financial planner at Mariner Wealth Advisors. “Their approval lends legitimacy to the asset class and provides [investors] with a more straightforward, regulated investment vehicle.” However, she suggested anyone interested “abandon get-rich-quick schemes and aim for an above-average return on investment.”

Whether you’re considering adding a crypto ETF to your portfolio or want to understand how these instruments compare to direct cryptocurrency investments, this guide gives you what you need to know.

Key Takeaways

• Crypto ETFs allow investors to gain exposure to digital assets through traditional brokerage accounts without the need to manage wallets or custody issues.
• Spot ETFs hold actual cryptocurrencies, while futures ETFs track price movements via derivatives.
• The major U.S.-listed crypto ETFs by issuers like iShares, Fidelity, and Grayscale have had significant growth despite major price changes among crypto assets.
• If you are interested in crypto ETFs, you’ll need to assess the effect of expense ratios, tracking errors, and evolving regulations on risks and returns.

Understanding Crypto ETFs

An ETF is a pooled investment vehicle that trades on stock exchanges like a regular stock, but holds a basket of securities such as stocks, bonds, or other assets, allowing investors to buy and sell shares throughout the trading day at market-determined prices. Crypto ETFs do the same thing, but track the performance of one or more of the major cryptocurrencies.

The most attractive aspect of crypto ETFs is their convenience. Instead of dealing with the technical challenges of setting up digital wallets, managing private keys, or storing cryptocurrencies securely, investors can simply buy ETF shares from their broker just like they would with any other stock or traditional ETF. This accessibility makes crypto exposure possible for both retail and institutional investors without requiring deep technical knowledge of the crypto ecosystem.

Lynn suggests that when choosing a crypto ETF, “opt for the product with the lowest fees, as this helps maximize returns by minimizing costs—a principle that applies equally to both traditional and crypto ETFs. Additionally, consider ETFs that offer high liquidity and providers with a strong and reliable track record in managing crypto assets.”

Types of Crypto ETFs & How they Work

There are four major types of crypto ETFs available, each designed to meet different investor needs and risk appetites:

• Spot ETFs: When investors buy shares of a spot crypto ETF, the fund manager uses those funds to buy an equivalent amount of the cryptocurrency (such as bitcoin or ether) and holds it in secure storage—often a cold wallet or through a trusted custodian. Each share of the ETF represents fractional ownership of the underlying crypto assets.
• Futures ETFs: Instead of holding crypto, futures-based crypto ETFs invest in cryptocurrency derivatives contracts. A futures contract is an agreement to buy or sell an asset at a preset price on a specific future date. By holding these contracts, the ETF track the expected future price movements of the cryptocurrency.

Important

Because futures contracts have expiration dates, futures-based ETFs must periodically “roll over” —selling contracts nearing expiration and purchasing new ones. This can sometimes lead to tracking errors, meaning the ETF’s performance might not perfectly mirror the spot market price of the cryptocurrency.

• Inverse and leveraged ETFs are designed to deliver multiples of the daily performance of a given cryptocurrency index or inverse exposure. Inverse ETFs profit from declines in the underlying asset’s price (and vice versa), while leveraged ETFs amplify gains (and losses). Both types carry considerably higher risks and are generally more suitable for short-term trading rather than long-term investing.
• Blockchain company ETFs: While not directly investing in cryptocurrencies, blockchain ETFs focus on companies involved in the blockchain space and related technology. This broader exposure lets investors benefit from the growth of the blockchain sector without the direct volatility of crypto prices.

Pros & Cons of Crypto ETFs

Pros of Crypto ETFs

• Diversification: Crypto ETFs offer a way to gain exposure to a basket of crypto assets or related companies, unlike investing in a single cryptocurrency. Investors can benefit from broader market trends without the concentration risk that comes with direct ownership.
• Simplicity and accessibility: Like traditional ETFs, crypto ETFs can be traded through standard brokerage accounts.
• More security: By investing in a regulated fund, investors cut the risk of direct crypto ownership, such as hacking or losing access to digital wallets.
• Professional management: Crypto ETFs are managed by professionals with the expertise and resources to navigate the volatile cryptocurrency market.

Cons of Crypto ETFs

• Potentially higher fees: ETFs have management fees and other expenses that can erode returns over time.
• Lack of direct ownership: When you invest in a crypto ETF, you do not own the underlying cryptocurrency.
• Limited trading hours: ETFs are traded during regular stock market hours, unlike the 24/7 nature of cryptocurrency exchanges. This can restrict your ability to react to market movements outside these hours.
• Regulatory and market risks: Shifts in regulations can lead to increased uncertainty and impact the performance or even the availability of these funds.
• Volatility: The significant swings in the cryptocurrency market are the biggest risks with these assets.

Pros

• Diversification potential

• Accessibility

• Security

• Professional Management

Cons

• Potentially higher costs

• Lack of direct ownership

• Not traded 24/7

• Potential for regulatory shifts

Regulatory Environment

The regulatory landscape for crypto ETFs has shifted dramatically in the mid-2020s. Under new U.S. Securities and Exchange Commission (SEC) leadership and a more crypto-friendly administration, the approval process for crypto ETFs has accelerated considerably.

Nevertheless, “there is still no comprehensive federal regulation of any type of digital assets or cryptocurrency,” said V. Gerard Comizio, associate director of business law programs at American University’s Washington College of Law and author of Virtual Currency Law: The Emerging Legal and Regulatory Framework.

The SEC approved the first spot Bitcoin ETFs in January 2024 and spot Ethereum ETFs in mid-2024, a major change from the previous years when only futures-based crypto ETFs were permitted in the U.S. markets. A key factor in shifts since their approval is the changing political attitudes toward digital assets, with President Donald Trump himself a purveyor of meme coins and members of his administration previously involved in various cryptocurrency offerings.

However, regulatory scrutiny remains selective. While bitcoin and ether ETFs have gained approval, other cryptocurrencies face varying levels of regulatory uncertainty. For example, analysts suggest that ETFs holding Litecoin may have an advantage in gaining approval since the SEC has never classified it as a security. In contrast, XRP faces a more challenging path because of ongoing legal questions about its status.

For investors, understanding these regulatory nuances is crucial. The approval status of different crypto ETFs can significantly impact their liquidity and trading volumes, that is, your ability to buy and sell your shares with relative ease.

Important

The first spot bitcoin ETFs were approved by the SEC in January 2024.

Crypto ETFs vs. Direct Crypto Investments

Direct Crypto Investments

Investing directly in cryptocurrencies involves purchasing tokens through online exchanges or from a private party. This offers complete ownership, enabling participation in activities like staking, lending, or voting in decentralized governance. However, direct investments also require secure storage, navigating complex exchange interfaces, and the potential for hacking or fraud.

Direct crypto ownership means maintaining a digital wallet to store assets and transact. You are also responsible for remembering and keeping your private keys secure, which lets you access your wallet. Without your private keys, your tokens are as good as lost.

Crypto ETFs

Crypto ETFs, on the other hand, provide exposure to cryptocurrency markets without requiring you to handle digital wallets or worry about cybersecurity at the individual level. Instead, ETF shares stay in your brokerage account alongside the rest of your portfolio holdings.

The tradeoff, however, is that investors pay fees and lose the benefits of direct token ownership.

Strategic Considerations

• Risk management: Investors with a lower risk tolerance may appreciate the structure and professional management of crypto ETFs to gain exposure to cryptocurrencies.
• Investment goals: Those looking for potential additional benefits like staking rewards might prefer owning cryptocurrencies directly, despite the added responsibilities and risks.
• Market timing: The 24/7 trading environment of cryptocurrency exchanges allows for rapid reactions to market shifts, while ETFs are constrained to market hours.

The Bottom Line

Crypto ETFs are for investors who want exposure to the burgeoning cryptocurrency market while avoiding some of the complexities and risks associated with direct ownership. For investors considering crypto ETFs, aligning your investment strategy with your risk profile and financial goals is key. Conducting thorough research and, if necessary, consulting a financial advisor can help determine whether these funds are the right fit for your portfolio.

A step-by-step guide to help you fill out a W-4

You’re about to begin that much-needed, new job and your employer hands you an IRS Form W-4 to fill out and submit to them immediately. Don’t wince. This required tax form controls how much tax will be withheld from your paychecks and affects your take-home pay. Form W-4 is your friend and it’s not difficult to fill out.

This doesn’t mean that you’ll owe less taxes at year’s end. You might owe more when you file your tax return depending on the information you’ve included on your W-4. This can happen if your withholding per your W-4 isn’t sufficient to meet your ultimate tax obligation for the year. The form determines whether you’ll pay your taxes paycheck-by-paycheck as the year goes on, in a lump sum at the end of the tax year, and if you’ll owe interest and penalties on an unpaid balance.

Key Takeaways

• IRS Form W-4 dictates how much money is withheld from your gross pay for taxes.
• Step 1 requires you to input personal details while Step 2 is required if you have more than one job or you are married filing jointly with a spouse who works.
• You must list your dependents in Step 3.
• Indicate on the form how much you want withheld from each paycheck in Step 4.
• Sign and date your form so your employer can fill out their portion before it is submitted to the IRS.

Purpose of Form W-4

Form W-4 is called the Employee’s Withholding Certificate. It dictates how much is deducted from your gross income for taxes. Your gross pay is the total amount you’ve earned for the pay period before any taxes or other deductions are withheld. The amount withheld depends on numerous personal factors. Form W-4 walks you through determining what they are so your employer gets the deductions just right.

The total tax withheld from your pay is largely based on your filing status. Your employer is legally obligated to identify you as single or married filing separately if you don’t complete and submit a Form W-4 with your correct information, even if you’re married or qualify as head of household. This can result in more taxes being withheld from your pay. You’ll get the money back in a tax refund at the end of the year but who wants to wait that long?

The 2025 tax year Form W-4 is just one page but it includes five steps that must be completed and three additional pages of helpful guidance and instructions.

Your Personal Details

Step 1 of the Form W-4 is devoted to your personal information. This is where you can declare your filing status. This can be critical if you’re a single parent because you may qualify as head of household. This filing status provides a good many tax breaks and is far superior to filing as a single taxpayer if you qualify. You must have a dependent, be “considered unmarried,” and pay more than half the cost of maintaining your home.

You can check a box at the bottom of the Step 1 section claiming this status or another one. Your employer will base your tax withholding on this information. Step 1 also asks for your name, address, Social Security number, and whether your name matches the name on your Social Security card.

Your Job(s)

Completing Step 2 of the Form W-4 is required if you hold more than one job and/or you’re married and filing jointly with a spouse who also works. Your tax withholding will depend on all your sources of income. Step 2 directs you to use one of three options to finetune how much should be withheld from your pay. Completing Step 3 and a portion of Step 4 depends on the result.

Your first option is perhaps the easiest. You can use the IRS’s online Tax Withholding Estimator. Your second option is to use the Multiple Jobs Worksheet that’s provided on page 3 of the W-4 form along with detailed instructions. There’s a box you can check as your third option indicating that you and your spouse, if applicable, have only two jobs total. The IRS recommends that you use the highest paying job in this case for the best accuracy.

Note

You and your employer can submit your W-4 electronically.

Your Dependents

Step 3 is devoted to your dependents. Keep in mind that they don’t have to be your children. An adult relative can qualify as can an unrelated adult who lives with you all year. Their gross income must be less than $5,050 as of 2025 and you must provide more than half their financial support.

It’s time to do a little math after you determine how many dependents you have. Step 3 of Form W-4 instructs you to multiply each qualifying child who’s younger than age 17 by $2,000 and enter the total. Multiply each adult dependent by $500 and enter the total then add the two totals together.

This information is necessary if you plan to claim tax breaks such as the Child Tax Credit or the Credit for Other Dependents on your return. Your income must be $200,000 or less if you’re single or $400,000 or less if you’re married and filing jointly to qualify as of tax year 2025.

Completing Step 3 of Form W-4 is voluntary. More taxes will be withheld from your pay if you have qualifying dependents and you don’t enter them here. This might help you at tax time if you have other sources of income from which taxes aren’t being withheld. This might be the case if you have investments or you’re a gig worker on the side and you want to make sure you don’t owe a mountain of taxes on that income when you file your tax return.

Step 4 of Form W-4 can help with this type of situation as well.

How Much Do You Want Withheld?

Completing Step 4 of Form W-4 is also optional. This is where you let your employer know that you want more withheld from your paychecks or less. You have three options here as well.

Your first choice is to enter the extra income you want to account for, such as from that gig work or other Form 1099 non-employment income. This section also directs you to a worksheet on page 3 that you can use to reduce your withholding because you expect to claim other deductions rather than just the standard deduction for your filing status. You can also elect to simply cite a simple dollar amount that you’d like withheld for your pay in addition to your regular withholding.

That’s it. You’re done. Just don’t forget to sign and date the form at the bottom. The very last spaces on the form aren’t your concern. Your employer will complete those.

What Changes Have Been Made to Form W-4 Over the Years?

Form W-4 was changed in December 2020 under the terms of the Tax Cuts and Jobs Act (TCJA) that went into effect at the end of 2017. The TCJA eliminated the personal exemptions that taxpayers used to be able to claim for themselves, their spouses, and their dependents.

What If I Want to Make Changes to My W-4?

Simply ask your employer for a new W-4 form to fill out or access the current year’s version online. You can update your W-4 at any time if you want to adjust your withholding or record a change such as getting married, having a child, gaining another dependent, or enjoying a new source of income.

What Happens to the Money That’s Withheld From My Paychecks?

Your employer forwards the money that’s withheld to the IRS on your behalf. The IRS records the receipt and applies it to your tax debt when you file your tax return. The totals are reported on Form W-2 which you’ll receive from your employer after the close of the tax year.

The Bottom Line

Form W-4 is a valuable tool to get your tax withholding just right or as close as possible barring unforeseen circumstances. You can submit a new one to your employer to accommodate any changes if unforeseen circumstances do occur. Preparing the form correctly can prevent you from being hit with a monstrous tax bill when you file your return and it can protect you from having to wait until you receive your tax refund for some much-needed cash if you overpay all year.

The IRS provides straightforward instructions with the form to help you get it right but always check with a tax professional if your tax situation is a little complicated and you’re unsure.

Reviewed by Charlene Rhinehart
Fact checked by Vikki Velasquez

Investors who own bonds or a bond fund watch to see if Treasury yields and interest rates will rise and to what extent. If rates are increasing, they may avoid bonds with longer-term maturities, shorten the average duration of their bond holdings, or plan to weather the ensuing price decline by holding their bonds to maturity to recoup par value and collect coupon payments.

Key Takeaways

• Any bond riskier than a Treasury bond with the same maturity must offer a higher yield.
• The Treasury yield curve shows the yields for Treasury securities of different maturities.
• The Treasury yield curve reflects the cost of U.S. government debt.
• Supply and demand-related factors shift the yield curve.

Treasury Yields

U.S. Treasury debt is the benchmark used to price other domestic debt and is a factor in setting consumer interest rates. Yields on corporate, mortgage, and municipal bonds rise and fall with those of the Treasuries, debt securities issued by the U.S. government.

To attract investors, any bond riskier than a Treasury bond with the same maturity must offer a higher yield. For example, the 30-year mortgage rate historically runs about one to two percentage points above the yield on 30-year Treasury bonds.

The Treasury yield curve (or term structure) shows the yields for Treasury securities of different maturities. It reflects market expectations of future interest rate fluctuations over varying periods.

Yield Curve Example

Below is an example of the Treasury yield curve. This yield curve is considered normal because it slopes upward with a concave slope as the borrowing period, or bond maturity, extends into the future.

The curve shows nominal interest rates. Inflation will erode the value of future coupon and principal repayments. The real interest rate is the return after deducting inflation. So, the curve reflects the market’s inflation expectations.

The Federal Reserve controls only the short-term interest rate at the extreme left of the curve. It sets a narrow range for the federal funds rate, the overnight rate at which banks lend each other reserves. Supply and demand in the auction process determine the curve.

Like all markets, bond markets match supply with demand; in the case of the market for Treasury debt, much of the demand comes from sophisticated institutional buyers. Because these buyers have informed opinions about the future path of inflation and interest rates, the yield curve offers a glimpse of those expectations in the aggregate.

Long Rates Follow Short Rates

The Treasury yield curve can change in various ways.

• It can move up or down (a parallel shift)
• Become flatter or steeper (a shift in slope)
• Become more or less humped in the middle (a change in curvature)

The following chart compares the 10-year Treasury note yield (red line) to the two-year Treasury note yield (purple line) from 1977 to 2016. The spread between the two rates, the 10-year minus the two-year (blue line), is a simple measure of steepness.

The two rates move up and down somewhat together (the correlation for the period above is about 88%). Parallel shifts are common. Although long rates directionally follow short rates, they tend to lag in the magnitude of the move.

When short rates rise, the spread between 10-year and two-year yields tends to narrow (the curve of the spread flattens), and when short rates fall, the spread widens (the curve becomes steeper). The increase in rates from 1977 to 1981 was accompanied by a flattening and inversion of the curve (negative spread); the drop in rates from 1990 to 1993 created a steeper curve in the spread, and the marked drop in rates from 2000 to the end of 2003 produced an equally steep curve by historical standards.

4.51%

The 10-year yield as of Feb. 11, 2025; up from 4.17% on Feb. 9, 2024.

Supply-Demand Phenomenon

What moves the yield curve up or down? Complex dynamics of capital flows interact to produce market interest rates, but the Treasury yield curve reflects the cost of U.S. government debt and is a supply-demand phenomenon.

Supply-Related Factors

Central Bank Purchases: The Federal Reserve has purchased Treasury debt to ease financial conditions during downturns in a policy known as large-scale asset purchases or quantitative easing (QE) and can sell government debt on its balance sheet during recovery in a quantitative tightening. Because large-scale asset purchases (and sales) of securities by a central bank can force other market participants to change their expectations, they can have a counterintuitive effect on bond yields.

Fiscal Policy: When the U.S. government runs a budget deficit, it borrows money by issuing Treasury debt. The more the government spends keeping revenue constant, the higher the supply of Treasury securities. At some point, as the borrowing increases, the U.S. government must increase the interest rate to induce further lending, all other things being equal.

Demand-Related Factors

Federal Funds Rate: If the Fed increases the federal funds rate, it is effectively increasing rates across the spectrum since it is effectively the lowest available lending rate. Because longer-term rates tend to move in the same direction as short-term ones, fed fund rate changes also influence the demand for longer-dated maturities and their market yields.

U.S. Trade Deficit: Large U.S. trade deficits lead to the accumulation of more than $1 trillion annually in the accounts of foreign exporters and foreign central banks. U.S. Treasuries are the largest and most liquid market in which such export proceeds can be invested with minimal credit risk.

Regulatory Policies: The adoption by bank regulators of higher capital adequacy ratios requiring increased holdings of high-quality liquid assets increased the attraction of Treasury notes for banks. Public and private pension plans and insurance company portfolios must also satisfy risk regulators while threading the needle between delivering the required returns and limiting the volatility of those returns. They are another source of demand for Treasuries.

Inflation: If buyers of U.S. debt expect a given real return, then an increase in expected inflation will increase the nominal interest rate (nominal yield = real yield + inflation). Inflation also explains why short-term rates move more rapidly than long-term rates: When the Fed raises short-term rates, long-term rates increase to reflect the expectation of higher future short-term rates. However, this increase is restrained by reduced inflation expectations because higher short-term rates also imply lower future inflation as they curb lending and growth:

Interest and Inflation Rate Changes

An increase in fed funds (short-term) tends to flatten the curve because the yield curve reflects nominal interest rates: higher nominal = higher real interest rate + lower inflation.

Fundamental Economics

A stronger U.S. economy tends to make corporate (private) debt more attractive than government debt, decreasing demand for U.S. debt and raising rates. A weaker economy, on the other hand, promotes a “flight to quality,” increasing the demand for Treasuries, which leads to lower yields.

It is sometimes assumed that a strong economy will automatically prompt the Fed to raise short-term rates, but not necessarily. The Fed is only likely to raise rates if growth spurs unwelcome inflation.

What Determines Treasury Yields?

Treasury yields are determined by interest rates, inflation, and economic growth, factors which also influence each other as well. When inflation exists, treasury yields become higher as fixed-income products are not as in demand. Strong economic growth also leads to higher treasury yields.

What Happens When Treasury Yields Go Up?

When yields rise, this signals a drop in the demand for Treasuries because investors are bullish about the economy and seek higher returns elsewhere. These investors believe there is a reduced need to invest in safer investments, such as Treasuries.

Why Do Treasury Yields Rise With Inflation?

Treasury yields rise with inflation to make up for the loss in purchasing power. Interest rates and bond yields increase, and prices decrease when inflation exists.

The Bottom Line

Longer-term Treasury bond yields move in the direction of short-term rates, but the spread between them tends to shrink as rates rise because longer-term bonds are more sensitive to expectations of a future slowing in growth and inflation brought about by the higher short-term rates. Bond investors can minimize the effect of rising rates by reducing the duration of their fixed-income investments.

Reviewed by Julius Mansa
Fact checked by Yarilet Perez

Companies earn their revenue by executing the core principles of their business model; they sell a product or service that they believe the wider public would be interested in buying. The company sets a price for this product, which is dictated by supply and demand.

If the product is successful and costs are managed well, a company will see profits. However, creating and selling a product is not the only way a business can add to its bottom line. They can also do this through the purchase and sale of marketable securities.

Key Takeaways

• Companies can increase their profits by investing in stocks, bonds, and other assets.
• These assets are listed as marketable securities on a company’s balance sheet and can quickly be converted to cash.
• The way these securities are classified and reported determines how long they’ll be held for.
• Marketable securities impact a company’s balance sheet, income statement, and cash flow statement, influencing financial reporting.

Marketable Securities

A marketable security is a financial asset that can be sold or converted to cash within a year. They are typically securities that can be bought or sold on an exchange. Common examples of marketable securities include stocks, bonds, certificates of deposit (CD), or commodities contracts.

Marketable securities are a component of current assets on a firm’s balance sheet. It is part of a figure that helps determine how liquid a company is, and its ability to pay expenses or pay down debt if it needs to liquidate assets into cash to do so.

Investing in marketable securities is much preferred to holding cash in hand because investments provide returns and therefore generate profits.

For example, Apple (AAPL), which has one of the largest cash reserves of any company, holds $30.3 billion in cash and cash equivalents and $24.5 billion in marketable securities, as of Q1 2025.

A company reports marketable securities in its financial statements and how they classify and record these investments depends on how long a company intends to hold them for. Marketable securities can be classified as:

• Held-for-trading securities
• Available-for-sale
• Held-to-maturity

The manner in which a company reports the changes in the market price of these securities varies, but it affects several parts of the financial statements.

Balance Sheet

The balance sheet is the starting point for marketable securities. This is the primary location where they are noted and they are listed as an asset. Usually, the securities are stated at fair market value as of the date of the financial statements. Held-to-maturity securities may be listed at cost, but this has become fairly uncommon.

Marketable securities are most often designated as current assets, that is because they are intended to be held for less than a year. Some companies will list marketable securities as noncurrent assets if they intend to hold them for a long period of time.

An example of this would be if a company is planning an acquisition of a target firm. In this case, it will purchase the shares of a company, hold on to them, and consider them noncurrent marketable securities.

Marketable securities are also denoted under shareholder’s equity on the balance sheet as unrealized proceeds. They are unrealized because they have not been sold as yet so their value can still change. They are listed at their current market value as they are under the assets section of the balance sheet.

Note

While cryptocurrencies can be bought and sold on exchanges and are relatively liquid, they are generally not considered marketable securities because of their extreme volatility and regulatory uncertainty.

Income Statement

Marketable securities, particularly trading securities, are recorded at the time they are sold. The gain or loss of the sale is recorded on the income statement under the operating income segment as a line item denoted as “Gain (Loss) on Trading Securities.” The gain or loss will impact the overall income statement and therefore the earnings of the company.

Cash Flow Statement

The cash flow statement would show the changes in the fair market value of the investments as a reconciling item in the operating section of the statement.

The investing section of the statement always shows the cash used to purchase securities or the cash received from the sale of securities. For example, when marketable securities are sold at a gain, the cash inflow from the sale would be denoted on the cash flow statement.

Disclosures

Disclosures to the financial statements describe how the marketable securities have been classified. They also provide further detail as to what kinds of securities are owned by the company and what transactions may have taken place during the fiscal year.

This section tends to be more qualitative than quantitative, shedding more light on the marketable securities that a company has on hand.

What Are Examples of Marketable Securities?

Marketable securities are liquid investments that can easily be bought and sold on public exchanges. Such investments include stocks, bonds, exchange-traded funds (ETFs), mutual funds, and Treasury bills. These assets can be quickly converted to cash, making them useful for companies that need short-term liquidity.

Is a 401(k) a Marketable Security?

No, a 401(k) is not a marketable security. In fact, a 401(k) is not a security at all because you can’t buy or sell it like you can marketable securities, which are investments such as stocks and bonds. A 401(k) is a retirement account with its own rules and is not intended to be converted to cash. While 401(k)s do make investments, primarily in mutual funds, individuals are not allowed to withdraw from them until they are 59 1/2 without facing a penalty.

Why Do Firms Hold Marketable Securities?

Firms hold marketable securities for one primary reason: to generate a return on excess cash while still keeping it accessible. Rather than letting excess cash sit idle, it is better to invest it and earn a return. That’s the purpose of marketable securities. Additionally, marketable securities are liquid, meaning they can be converted to cash easily, which makes them useful for companies when they need the cash, such as to cover unexpected expenses or use towards business opportunities.

The Bottom Line

Companies invest their money in stocks, bonds, and other assets to increase profitability. These investments can quickly be converted to cash, are listed as marketable securities on a company’s balance sheet, impact the income statement when sold, and appear on the cash flow statement when traded. The way they’re classified (held for trading, available for sale, held to maturity), determines how they’re reported.