money

Fact checked by Vikki Velasquez

Many Americans aspire to achieve wealth and financial independence. Yet, the path toward getting there can often seem unclear or daunting.

While only 12% of Americans consider themselves wealthy, 58% believe they need to make at least $100,000 just to cover daily living expenses. But many people misunderstand financial independence, thinking it’s about earning a high income or saving large sums of money. However, true wealth and financial independence aren’t defined by what’s in your bank account—they are about freedom, choices, and living a life free from financial stress.

Key Takeaways

• Building strong habits such as investing and saving regularly can help you establish a solid financial foundation.
• True financial independence is about having the freedom to make choices based on your values, not financial limitations.
• Even with a high income, poor financial decisions and bad habits can lead to living paycheck to paycheck and prevent wealth building.

What It Means to be Financially Independent

At its core, financial independence means living your life the way you want, free from financial worry. With this comes the ability to make decisions based on your desires and values rather than financial constraints.

“Money doesn’t buy you happiness, but it buys you choices,” Danielle Darling, LPL Financial Advisor at Resource One Advisors. “The ability to say yes to opportunities without stress is what financial independence is all about. True financial independence isn’t just about wealth; it’s about designing a lifestyle that feels fulfilling.”

Key Habits for Achieving Financial Independence

When it comes to achieving financial independence, it’s not just about working hard or earning a high income. It’s about having the right mindset and habits, like saving and investing, to set you up for long-term success.

Invest

By starting to invest as soon as possible, you allow your money to work for you, grow it over time, and build the financial cushion needed to eventually become independent. You can diversify your portfolio and maximize your returns with various options, from stocks and cryptocurrency to real estate and mutual funds.

“Even small contributions can go a long way over time, especially when you have the power of compound interest on your side,” Darling said.

Save

Save your money consistently to build a strong financial foundation. Whether it’s a high-yield savings account, a certificate of deposit (CD), or a retirement account, ensure you’re setting something aside. Those who consider themselves independent prioritize saving a portion of their monthly income, regardless of how small, to ensure long-term financial stability.

“They pay themselves first by automating their savings and investments, making their financial future a top priority,” Darling said.

Saving and investing can be difficult without discipline. This doesn’t just require you to pay yourself first or invest wisely. It often means delaying gratification in favor of securing your financial future. It might be tempting to indulge in fleeting moments of pleasure, but if you overdo it, it could cost you your long-term financial stability and freedom.

“Discipline and sacrifice are essential. Financial independence requires living below your means and prioritizing long-term goals over short-term desires,” Darling told Investopedia.

Common Misconceptions About Financial Independence

A major roadblock to achieving financial independence is the misconception that certain factors automatically guarantee wealth and financial freedom. People often misunderstand the relationship among income, lifestyle choices, and wealth accumulation.

For example, many people believe that high salaries automatically lead to wealth, but this isn’t necessarily true. You can make a salary that should allow you to live comfortably, but without careful financial planning, you could have little cash to save and invest.

“Achieving financial independence requires managing your money with discipline and living below your means, regardless of your income level,” Darling said.

A Bank of America study showed that nearly 50% of Americans reported living paycheck to paycheck. This isn’t solely a problem of income level; it’s often poor financial habits and decisions and a lack of budgeting. Even high-income individuals can find themselves in this cycle if they consistently spend beyond their means.

“It’s not about what you make; it’s about how much you keep. You can be earning a six- and seven-figure salary, but if you’re living paycheck to paycheck, spending excessively, or not saving and investing wisely, you’ll never build wealth,” Darling said.

Higher-income households living paycheck to paycheck spend about 95% of their earnings on necessities, but this is partially the result of the decision to purchase larger, more expensive homes that come with higher mortgages, insurance, utility bills, and property taxes. This is just one example of how certain choices can limit an individual’s ability to save and invest, ultimately hindering long-term financial goals.

The Bottom Line

Financial independence goes beyond large savings and high income; it’s about designing a life that reflects your values and goals. It means making decisions without financial stress, knowing you have a safety net.

With the right mindset and habits, anyone can take steps toward financial freedom, but focusing on how you manage and grow your money is the key to getting there.

Fact checked by Suzanne Kvilhaug

Many Americans ask the question, “Will your 401(k) investment be enough to last you through your retirement?” To answer that question, you’ll first need to estimate the length of your retirement, know all your retirement savings resources, and determine a smart drawdown plan.

Here’s what you need to know.

Key Takeaways

• The top factors determining the longevity of a 401(k) are the amount saved and the amount withdrawn each month.
• Saving 10 times your salary by the time you turn 67 is a good savings guideline.
• Withdrawing 4% of your 401(k) retirement savings yearly will help your investments last.
• Keep a diverse set of investments in your 401(k), including bonds, which are safer investments than stocks.

Review Your 401(k) Balance

Begin by checking your 401(k) balance and adding in any other retirement savings, such as Social Security, IRAs, pensions, and other income sources. Inputting your current savings balance into online calculators will help you see where you stand with your retirement savings.

As for what that balance should be, Fidelity suggests having retirement savings of at least three times your salary by age 40, six times your salary by age 50, eight times your salary by age 60, and 10 times your salary by age 67. To achieve those high savings amounts, Fidelity recommends setting aside at least 15% of your pretax salary each year.

Having enough in your 401(k) for retirement is not just about the balance that you’ve worked so hard to build up. There are other factors to consider.

“Calculating how long a 401(k), or any investment account for that matter, will last in retirement is dependent on many factors—current balance, current monthly spending, current inflation rates and assumptions for future rates, current market conditions and assumptions for future returns, etc.,” says Easton Price, a certified financial planner at Apella Wealth.

Calculate 401(k) Withdrawals

An important factor in how long your 401(k) will last in retirement is how much you withdraw out of it each month. Spend a lot and you may go through your savings fast.

“How much money do you need on a monthly basis from your 401(k) to supplement your lifestyle?” Price says. “Then remember, you’ll likely need to increase that distribution amount to account for taxes, as all traditional 401(k) distributions are taxed as ordinary income.”

How much should you take out of a 401(k) for retirement spending? A 4% withdrawal of your balance each year is a good guideline.

“A generic rule of thumb is the 4% withdrawal rule. The theory states that you can reasonably withdraw 4% from your investment portfolio every year without running out of money,” Price says. “So, if you have a 401(k) balance of $250,000, you can distribute up to $10,000 per year and then recalculate 4% based on next year’s balance and so on. Keeping in mind, whatever you distribute will increase your taxable income and liability come April 15.”

Only withdraw what you need to meet your living expenses in retirement. Occasional larger withdrawals may occur as well.

“The reality is that most people don’t spend in a straight line,” says Justin Pritchard, a certified financial planner at Approach Financial. “It’s more likely that you’ll have occasional expenses throughout the years that come in chunks. You might buy new vehicles periodically, fix a roof, or have a medical issue, for example. Plus, you might start retirement by withdrawing at a high rate, but your withdrawals shrink once Social Security kicks in.”

Be aware of the markets and how your 401(k) investments are performing. If your investments are down, you may want to tighten your 401(k) withdrawals.

“You can also use a guardrails approach, where you adjust your income based on how your portfolio is doing. If things are going well, you get a raise. You might as well enjoy that money, and you can’t take it with you when you go. But when markets fall, you figure out a reduction, which you’ll hopefully reverse in future years,” Pritchard says.

Be Smart About Asset Allocation

To make your investments last, you’ll want to have a good balance of safer assets in your 401(k). Bonds are a good strategy when you are in or near retirement.

“It is important to keep five years of basic expenses kept in safer assets like bonds and cash to help (during) volatile periods in the market,” says Dean Tsantes, a certified financial planner at VLP Financial Advisors. “This avoids having to sell stocks while they may be down and avoids depleting the portfolio. The remainder stays diversified across various sectors to support potential long-term growth.”

The Bottom Line

How much you have saved and how much you withdraw each month are important factors as to how long your 401(k) investments will last in retirement. Saving eight times your salary by age 60 and 10 times your salary by age 67 are good saving guidelines. Withdrawing 4% of your 401(k) balance each year is a good guideline for spending.

You will also want to be smart about your asset allocation in your 401(k) during retirement. Investing in bonds is a good way to guard against stock market volatility, which could shrink the portion of your 401(k) that you have in stock funds.

Reviewed by Amy Drury
Fact checked by Vikki Velasquez

Operating Income vs. Net Income: An Overview

Operating income and net income both show the income earned by a company, but the two represent distinctly different ways of expressing a company’s earnings.

Both metrics have their merits but also have different deductions and credits involved in their calculations. It’s in the analysis of the two numbers that investors can determine where in the process a company began earning a profit or suffering a loss.

Key Takeaways

• Operating income is revenue less any operating expenses, while net income is operating income less any other nonoperating expenses, such as interest and taxes.
• Operating expenses include selling, general, and administrative expenses (SG&A), and depreciation and amortization.
• Net income (also called the bottom line) can include additional income like interest income or the sale of assets.

Operating Income

Operating income is a company’s profit after deducting operating expenses, which are the costs of running day-to-day operations. Operating income, which is synonymous with operating profit, allows analysts and investors to drill down to see a company’s operating performance by stripping out interest and taxes.

Operating expenses include selling, general, and administrative expenses (SG&A), depreciation and amortization, and other operating expenses. Operating income excludes items such as investments in other firms (nonoperating income), taxes, and interest expenses.

Also, nonrecurring items such as cash paid for a lawsuit settlement are not included. Operating income is also calculated by subtracting operating expenses from gross profit. Gross profit is total revenue minus cost of goods sold (COGS). 

Net Income

Net income is a company’s profits or earnings. Net income is referred to as the bottom line since it sits at the bottom of the income statement and is the income remaining after factoring in all expenses, debts, additional income streams, and operating costs. The bottom line is also referred to as net income on the income statement.

Net income is calculated by netting out items from operating income that include depreciation, interest, taxes, and other expenses. Sometimes, additional income streams add to earnings like interest on investments or proceeds from the sale of assets.

In short, net income is the profit after all expenses have been deducted from revenues. Expenses can include interest on loans, general and administrative (G&A) costs, income taxes, and operating expenses such as rent, utilities, and payroll.

Important

When comparing companies as an investment, it’s important to look at these metrics in regard to the specific industry in which they operate. An operating income that may be considered “bad” in one industry might be acceptable in another.

Operating Income vs. Net Income: Example

Below is the 2024 income statement for Macy’s as reported in its 2024 annual report.

• Total revenue was $23.0 billion. It includes net sales and other revenue.
• Operating income was $909 million and included all the expenses associated with operating for the year, including cost of sales; selling, general, and administrative expenses (SG&A); and impairment, restructuring, and other costs.
• Net income was $582 million, which takes into consideration settlement charges, interest expense, and taxes.

You’ll notice that Macy’s earned $909 million in operating income while earning $23.0 billion in total revenue. The company’s high cost of sales ($13.7 billion) and SG&A ($8.3 billion) took a big chunk out of revenue. After deducting settlement charges, interest expenses, and taxes, the company was able to end the year with a net income of $582 million.

Operating income and net income show income for companies; however, it’s important to analyze all areas of a company’s financial statements to determine where a company is making money or losing money.

How Do You Calculate Operating Income?

Operating income is calculated as total revenues minus operating expenses. Operating expenses can vary for a company but generally include cost of goods sold (COGS); selling, general, and administrative expenses (SG&A); payroll; and utilities.

Is Operating Income the Same as EBIT?

Operating income is often used interchangeably with earnings before interest and taxes (EBIT). Though they are similar, there are notable differences. The main difference is that operating income does not include nonoperating expenses or income, such as interest income. The differences will depend on the specific company.

Is Net Income Also Gross Profit?

No, net income is not gross profit. Net income is the amount of money left from revenues after all expenses have been deducted, including cost of goods sold (COGS), interest, and taxes. Gross profit is revenue minus operating expenses, such as cost of goods sold (COGS); selling, general, and administrative expenses (SG&A); and no other expenses.

What Else Can Operating Income Be Compared With?

Operating income can also be compared with revenue, gross profit, and earnings before interest, taxes, depreciation, and amortization (EBITDA).

What Else Can Net Income Be Compared With?

Net income can also be compared with profit, gross profit, operating profit, operating cash flow (OCF), and adjusted gross income (AGI).

The Bottom Line

Operating income and net income both provide insight into the profitability of a company at different stages of the business. Operating income is a company’s income after operating expenses have been deducted from revenue, which shows how well a company is doing from its core business. Net income is a company’s operating income after other expenses, such as taxes and interest expenses, are deducted.

Reviewed by Lea D. Uradu

Being able to assess a company’s operating cash flow (OCF)—and how that is impacted by taxes—is an important skill in evaluating a company’s overall health.

The operating cash flow is vital when considering whether the company can generate enough positive funds to maintain and grow its operations. If not, the company may require external financing.

Shorter turnover rates in inventory and shorter times for receiving funds increase a business’s operational cash flow. Items such as depreciation and taxes are included to adjust the net income, rendering a more accurate financial picture. Higher taxes and lower depreciation methods adversely impact the operational cash flow.

Key Takeaways

• Operating cash flow reveals the cash that a company generates through its business operations.
• This is an important indicator for gauging how well a company can continue its operations and grow.
• Calculating taxes in operating cash flow involves reverse-engineering the following equation: Operating Cash Flow = EBIT + Depreciation – Taxes where EBIT refers to earnings before interest and taxes.

Understanding Operating Cash Flow

Operating cash flow is a metric used in financial analysis representing the cash generated or used by a company’s core business operations. It provides insights into a company’s ability to generate cash from its day-to-day activities, excluding financing and investing activities. By focusing solely on cash generated from operations, OCF offers a clearer picture of a company’s liquidity, financial health, and ability to sustain its operations over the long term.

Investors, lenders, and analysts use OCF as it tells part of the story of a company’s health. A positive OCF indicates that the company is generating sufficient cash from its core operations to cover operating expenses. Conversely, a negative OCF suggests that the company may be experiencing cash flow issues. By understanding and monitoring OCF, stakeholders can better informed decisions based on cash implications of a company.

Components of Operating Cash Flow

Before we look more specifically at taxes, let’s take some time to look at operating cash flow at a high level. The calculation of OCF starts with net income, which is the profit a company earns after all expenses, taxes, and interest have been deducted from total revenue. Unlike net income, which is calculated on an accrual basis, OCF adjusts for non-cash items and changes in working capital to provide a clearer picture of cash availability.

One key component of OCF is adjustments for non-cash items. These are expenses or revenues reported on the income statement that do not involve actual cash transactions. Common examples include depreciation and amortization which account for the wear and tear of tangible and intangible assets, respectively. Although these expenses reduce net income, they do not impact cash flow since no cash is spent. By adding back depreciation and amortization to net income, OCF adjusts to remove the effect of these non-cash charges.

Changes in working capital are another essential component in calculating OCF. Working capital refers to the difference between current assets and current liabilities, representing the short-term financial health of a company. Adjustments to OCF include changes in accounts receivable, inventory, and accounts payable. For example, an increase in accounts receivable indicates that more sales were made on credit, reducing cash flow. Conversely, an increase in accounts payable suggests that the company is delaying payments to suppliers, which temporarily boosts cash flow.

How to Calculate Taxes in Operating Cash Flow

The operating cash flow indicates the cash a company brings in from ongoing, regular business activities. It can be found on a company’s annual or quarterly cash flow statement. Simply, it is Total Revenue – Operating Expenses = Operating Cash Flow.

Taxes are included in the calculations for the operating cash flow. Cash flow from operating activities is calculated by adding depreciation to the earnings before income and taxes and then subtracting the taxes.

A company’s EBIT—also known as its earnings before interest and taxes—consists of its net income before income tax and interest expenses are deducted. Once a company’s EBIT is known, multiply that by the tax rate to calculate the total tax paid. Finally, to calculate operating cash flow, use the following equation: EBIT – tax paid + depreciation.

In terms of how to calculate OCF with the tax rate already known, the equation above can be simply reverse-engineered, solving for the unknown variables.

Impact of Taxes on Cash Flow

Proper tax planning is important since it can impact a company’s cash position. Companies can assess their overall tax situation, considering income tax, indirect tax, and tax benefits. 

Tax policies can also impact how businesses depreciate capital assets. In this way, faster depreciation can theoretically reduce the user cost of capital and increase the cash flows of companies.

OCF and Deferred Tax Assets

Deferred tax assets represent potential tax benefits that can reduce future tax liabilities and increase cash flow. For example, if a company has net operating losses or unused tax credits, it may be able to offset future taxable income, resulting in lower tax payments and higher cash flow. On the flip side, deferred tax liabilities represent future tax obligations that will require cash outflows, reducing cash flow in the future.

Deferred tax assets and liabilities are recorded on the balance sheet and adjusted periodically to reflect changes in tax laws, rates, and expectations about future profitability. When calculating OCF, adjustments are made to account for changes in deferred tax assets and liabilities. For example, Increases in deferred tax assets are added back to net income, as they represent future tax benefits that will enhance cash flow. Meanwhile, increases in deferred tax liabilities are deducted from net income, as they represent future tax obligations that will reduce cash flow.

Importance of OCF After Taxes

Investors find it important to look at the cash flow after taxes (CFAT), which indicates a corporation’s ability to pay dividends. The higher the cash flow, the better the company is financially, and the better positioned it is to make distributions. Income the company has from outside of its operations is not included in the operating cash flow. Any dividends paid and infrequent long-term expenses are often excluded from this calculation as well.

One-time asset sales are also noted, as they inflate the cash flow numbers during the relevant time period. Investors look at the balance and income statements to gain a better knowledge of the overall health of a company.

OCF and Tax Planning

Companies may leverage OCF to better plan for tax implications in an attempt to reduce what it may owe in the future. One key strategy is to defer taxable income and accelerate deductible expenses whenever possible. By delaying the recognition of income until future periods and accelerating expenses into the current period, businesses can potentially reduce current tax liabilities.

Another strategy is that businesses may choose to defer the receipt of income or delay the sale of assets until tax rates are lower, thereby reducing their tax obligations and preserving cash flow. Such strategies like this may only be possible if a company best understands not only its current operating cash flow but it’s future or forecasted operating cash flow. This ensures that the company does not risk operations in favor of potential tax savings.

Does Operating Cash Flow Include Taxes?

Yes, operating cash flow includes taxes along with interest, given that they are part of a business’s operating activities.

Is Operating Cash Flow the Same As EBIT?

Operating cash flow is different from earnings before interest and tax (EBIT), but both are metrics used to assess a company’s financial health. Operating cash flow is the cash generated from a company’s core business activities. By contrast, EBIT shows a company’s profitability by looking at its net income before expenses, interest, and tax have been deducted. EBIT is also used to analyze the performance of a company’s core business.

What Is the Formula for Calculating Taxes in Operating Cash Flow?

Calculating taxes in operating cash flow requires reverse-engineering the following formula: Operating Cash Flow = EBIT – tax paid + depreciation. You would then solve for unknown variables, assuming the tax rate is known.

The Bottom Line

A company’s operating cash flow can be significantly impacted by higher taxes and lower depreciation methods. In this way, it can be important to calculate the taxes in operating cash flow to get a clearer picture of how they impact a company’s overall financial situation and its ability to pay dividends.

Tips and ideas to lower the cost of your wedding

Fact checked by Suzanne Kvilhaug

The average wedding cost in 2025 is expected to reach $36,000, according to Zola, a wedding registry that surveyed close to 6,000 couples planning weddings. Bigger guest lists, pricey destination weddings, and splurging on professional planners and entertainers are a few of the many reasons for the rising price tag.

Given the climbing price, some people may wonder if getting married is worth the cost.

Key Takeaways

• There’s no need to spend so much on a wedding and there are several ways to trim costs, including keeping the guest list small, choosing brunch over a full dinner, and skipping fancy invitations and floral arrangements.
• Talk over wedding priorities with your partner and stick to a budget.
• Don’t let social media influence you into spending more on a wedding than you can afford.

“Marriage itself? Absolutely. A lifelong commitment to a partner is priceless. But a wedding doesn’t have to cost a fortune to be beautiful, memorable, or meaningful,” says Jessica Bishop, founder of The Budget Savvy Bride.

“The idea that a wedding has to cost tens of thousands of dollars is largely fueled by industry marketing and societal expectations. The reality? You can have an amazing wedding on any budget. I’ve helped couples plan stunning celebrations for $10,000, $5,000, and even $1,500! The key is prioritizing what truly matters and getting creative with spending.”

How Much Should You Spend on a Wedding?

How much should a couple spend on their wedding day? Is it worth it to splurge on a big amount? It depends on your specific situation.

“Weddings are deeply personal, and whether it’s “worth it” to spend $36,000 or any amount depends on a couple’s priorities, financial situation, and long-term goals,” Bishop said. She went on to say that the most important input in your decision should be making the day meaningful to you, not spending a specific dollar figure.

“Some couples feel that a lavish wedding is worth the expense, while others would rather invest in a home, travel, or savings,” said Bishop.

Important

“A wedding should be a celebration of love, not a financial burden,” said Jessica Bishop, founder of The Budget Savvy Bride.

How to Control Wedding Costs

If you are looking for ways to lower the cost of your wedding day, consider these tips.

Trim the Guest List

It might be hard, but holding a small wedding and reducing the guests to your closest friends and family members will greatly impact the final cost. Keep in mind that the more guests, the more food expenses, chair rentals, and the higher the cost of the venue. It may be better to keep things small.

Use a Nontraditional Venue

There’s no rule that your special day needs to be held in a lavish setting or sizable event space. “Consider parks, backyards, or nontraditional venues that don’t require a hefty rental fee,” Bishop says. “Some restaurants even offer free event spaces if you meet a food and beverage minimum.”

Consider the “Off Season”

Consider getting married in January, February, July, or November. These are generally not considered popular wedding months, and thus, you might get a good deal. Also, skip the Saturday ceremony.

“Venues and vendors charge a premium for Saturdays in peak months. A Friday or Sunday wedding or even a brunch reception can save thousands!” Bishop says.

Rent or Buy Pre-owned Items

Everything you wear or use during the ceremony doesn’t have to be brand new. In fact, the traditional saying about what to wear includes the word “borrowed.” Wedding dresses, tuxedos, and even your decor, can be rented or bought secondhand, and often for a fraction of the price.

And don’t get swayed by social media trends. It’s not up to Instagram, Pinterest, or Facebook to dictate your wedding expenses.

“I have personal experience with many young couples getting inspired from Insta reels and going to any cost to replicate them,” Carissa Kruse of Carissa Kruse Weddings. “It’s good to take inspiration, but don’t let social media pressure you to overspend and regret later.”

Limit the Open Bar and Full Dinner

An open bar is going to be pricey. By skipping a full bar option, you’ll save some serious cash. “Opt for beer, wine, and a signature cocktail instead of a full bar to keep things budget-friendly,” Bishop said.

Then consider hosting a brunch or cocktail-style reception instead of a formal rubber chicken dinner, which can drive up the costs.

“A more casual, interactive meal experience can save money while still feeling special,” Bishop says.

Ask for Help

Your friends and loved ones would probably love to get involved. Bishop recommends tapping talented people in your life to help with specific tasks such as photography, DJ duties, baking desserts, or even decorating help.

Go the Simple Route

It’s always a wise choice to keep things simple and skip the extras, when you’re looking to save money. Bishop points out that fancy invitations, elaborate favors or floral arrangements aren’t must-haves. What’s more important is to focus on making the day and experience of getting married meaningful to you.

Start Planning Early

You should start making plans well before your wedding date. This can impact the final cost.

“Discuss your budget and priorities with your partner early in the planning process,” says Kruse. “Do not let the pressure of a perfect wedding day push you into overspending.”

Use as many cost-saving strategies as you can to make the wedding you want more affordable and in line with your budget.

“At the end of the day, a wedding should reflect your love story and financial reality. You don’t have to go into debt for a dream wedding, because the real dream is the life you’re building together after the big day!” Bishop says.

The Bottom Line

You don’t have to spend a tremendous amount of money on your wedding day. There are plenty of ways to keep costs down, and still have a meaningful wedding celebration.

Take the time to plan your wedding well in advance. Stick to a small guest list. Get married in the offseason. Have friends and family volunteer their services. Have a limited bar. Go nontraditional with your venue, and avoid a big rental fee. Having your wedding in a park or backyard will save you money. Don’t let social media convince you to spend more on your wedding than you can afford.

Learn what you need to speed up the approval process

Mortgage lenders offer pre-approval letters to buyers they believe can repay their loans. However, unlike mortgage pre-qualification, the pre-approval process is a more detailed look into your finances, including running a hard check on your credit. Your pre-approval letter may include everything from your maximum loan amount to your estimated interest rate. The letter will also have an expiration date for when the terms of the pre-approval letter are valid.

However, while the terms pre-qualification and pre-approval may be used interchangeably, they don’t necessarily mean the same thing. Let’s break them down.

Key Takeaways

• Mortgage pre-approval is a more thorough evaluation of your finances than pre-qualification.
• During the mortgage pre-approval process, a lender will likely conduct a hard credit inquiry and look at documentation such as proof of employment, income tax returns, and assets. 
• A mortgage pre-approval is usually valid for around 90 days, but it can also be valid for 30 or 60 days.
• The lender will relay the maximum loan amount the borrower can take out in the mortgage pre-approval letter.

Pre-Qualification vs. Pre-Approval

A pre-qualification letter includes a preliminary estimate of how much of a loan you may be eligible for based on self-reported financial data. If you’re looking for a mortgage, you may have visited the lender’s website and entered details such as your income and desired loan amount. In this case, the lender may have sent you a letter outlining an estimated loan amount you’re eligible for and, at the most, ran a soft inquiry into your credit.

The pre-qualification process is usually quicker than the pre-approval process and typically doesn’t require tax information from you.

On the other hand, a pre-approval letter indicates that the company has taken more time to look into your financial profile as a mortgage candidate. It likely has run a hard credit check, which involves requesting a copy of your credit report from one of the three major credit bureaus. A single hard inquiry can shave a few points from your credit score. 

In the pre-approval process, the lender will likely ask for pay stubs, W-2 statements, and signed tax documents from previous years. This may take a week or longer, depending on the lender. However, having a pre-approval letter at hand often shows you’re more serious in your home-buying journey and may offer a competitive edge over other home buyers. You generally need to provide sellers with a pre-approval letter before they accept an offer. 

Note

A pre-approval letter is not a guarantee that you’ll get a mortgage. If there are changes, for instance, in your financial profile after receiving this letter, you may not get a loan.

Requirements for Pre-Approval

Mortgage pre-approval requires a buyer to fill out a mortgage application; provide proof of income, employment, and assets; and demonstrate good credit through a hard credit pull.

Proof of Income

Your lender may require proof of income through W-2 statements from the last couple of years. 

Proof of Assets

Another document lenders may need for a pre-approval letter is proof of assets, which can be your bank or investment account statements. These statements need to show evidence that you have enough cash to pay for expenses such as, but not limited to, the required down payment and associated closing costs. If you do not have the expected down payment requirement (usually around 20%), your lender may require you to purchase private mortgage insurance (PMI). 

Good Credit

Usually, conventional mortgages require you to have a credit score of 620 or higher. However, mortgages insured by the Federal Housing Administration (FHA) and other agencies may allow you to get a loan at a lower credit range. For instance, borrowers with a credit score as low as 500 may be able to take out a mortgage backed by the FHA. Lenders get a sense of your credit score by requesting a copy of your credit report, otherwise known as a “hard credit inquiry,” from one of three major credit bureaus. 

Employment Verification

To verify your employment during the pre-approval process, a mortgage lender may look at your W-2 forms and seek an official employment verification letter. They may also call your employer to verify your job title, income, and employment status. 

Other Documentation

During the pre-qualification process, you may also be required to provide your driver’s license, Social Security number, and consent for the lender to conduct a credit inquiry. If you are self-employed, you may need to provide additional income documentation.

Important

Upfront fees on Fannie Mae and Freddie Mac home loans changed in May 2023. Fees were increased for homebuyers with higher credit scores, such as 740 or higher, while they were decreased for homebuyers with lower credit scores, such as those below 640. Another change: Your down payment will influence what your fee is. The higher your down payment, the lower your fees, though it will still depend on your credit score. Fannie Mae provides the Loan-Level Price Adjustments on its website.

Pre-Approval vs. Approval

A mortgage pre-approval is one of the early steps in buying a home. It is a conditional (but not permanent) commitment from your lender to offer you a loan of a select balance, interest rate, and other criteria. You are not guaranteed that you will get the mortgage.

Final approval is one of the last steps before closing your mortgage. By this time, mortgage underwriters have reviewed your application and financial documents. They may accept your application with or without certain conditions or deny it altogether.

The property you wish to buy has likely also been financially appraised. This is to ensure that the property value aligns with the loan amount. 

What If You Don’t Get Pre-Approved?

If you don’t get pre-approved, you should note the reason. If, for instance, it shows your debt-to-income (DTI) ratio is too high, making you a risky candidate for the lender, you may choose to work on paying off your debt. For instance, the maximum DTI is around 36% for Fannie Mae-backed loans. Depending on the loan type you’re considering taking out, you may want to see where your debt profile lies. 

Consider asking your lender how to improve your application for your next attempt at pre-approval. 

The Bottom Line

The mortgage approval process is more in-depth than a simple pre-qualification. Lenders take the time to look at your proof of income, assets, credit score, and evidence of employment, among other documents. It’s a more serious signal to sellers that you want to buy their home. 

Fact checked by Suzanne Kvilhaug

Income Tax vs. Capital Gains Tax: An Overview

Income taxes and capital gains taxes are both ways the government collects revenue, but they apply to very different types of income. In general, income taxes are levied on the money you earn through employment or self-employment, while capital gains taxes apply to profits made from selling a capital asset like your home, stocks, and bonds.

While both affect your take-home earnings, the rules, rates, and strategies for minimizing them can vary significantly, and knowing the difference will help you better manage your finances—and potentially lower your tax bill.

Key Takeaways

• Income tax applies to wages, salaries, and other earned income and is taxed at ordinary income rates based on tax brackets.
• The U.S. income tax system is progressive, with rates from 10% to 37%, meaning higher-income earners are taxed at higher rates than lower-income earners.
• A capital gains tax applies to profits from the sale of assets like stocks or property; long-term assets, which are held for more than one year, are generally taxed at a lower rate than short-term assets.

Income Tax

Income tax is applied to most forms of earned income. This includes wages, salaries, tips, commissions, and income from freelance or contract work. It also covers unearned income such as interest and rental income, depending on your situation.

The United States operates on a progressive income tax system, so your income is taxed at increasing rates as it reaches higher brackets. For example, in 2025, the federal income tax brackets range from 10% to 37%, depending on your filing status and total taxable income. Most states also have their own income tax systems, which can be either flat or progressive.

Employers typically withhold income tax from paychecks, and self-employed individuals make estimated tax payments quarterly. Further, taxpayers can reduce their income tax burden through deductions, tax credits, and some types of retirement contributions.

2025 Federal Tax Brackets and Rates
2025 Tax Rate	Single	Married Filing Jointly	Head of Household	Married Filing Separately
10%	$0 to $11,925	$0 to $23,850	$0 to $17,000	$0 to $11,925
12%	$11,926 to $48,475	$23,851 to $96,950	$17,001 to $64,850	$11,926 to $48,475
22%	$48,476 to $103,350	$96,951 to $206,700	$64,851 to $103,350	$48,476 to $103,350
24%	$103,351 to $197,300	$206,701 to $394,600	$103,351 to $197,300	$103,351 to $197,300
32%	$197,301 to $250,525	$394,601 to $501,050	$197,301 to $250,500	$197,301 to $250,525
35%	$250,526 to $626,350	$501,051 to $751,600	$250,501 to $626,350	$250,526 to $375,800
37%	$626,351 or more	$751,601 or more	$626,351 or more	$375,801 or more

Capital Gains Tax

Capital gains tax is triggered when you sell an investment or asset for more than you paid for it. Common examples include stocks, bonds, mutual funds, real estate, and even household furnishings and collectibles. The tax applies only to the gain—the difference between the selling price and the original purchase price.

Capital gains are considered either short-term or long-term. If you hold the asset for one year or less before selling, it’s considered a short-term capital gain and taxed at ordinary income tax rates. If you hold the asset for more than a year, it’s considered a long-term capital gain and generally taxed at lower rates—0%, 15%, or 20%, depending on your taxable income. Some types of asset sales may trigger a capital gains tax rate that is greater than 20%—for example, net capital gains from selling collectibles are taxed at a maximum 28% rate.

There are also surtaxes, like the 3.8% net investment income tax, that may apply to high earners. And while capital gains taxes are mostly a federal concern, some states tax them as well and sometimes treat them the same as regular income. The following table shows the capital gains tax brackets.

Capital Gains Tax Rates and Taxable Income Amounts for 2025
Filing Status	0% Tax Rate	15% Tax Rate	20% Tax Rate
Single	$0 to $48,350	$48,351 to $533,400	$533,401 or more
Married Filing Jointly	$0 to $96,700	$96,701 to $600,050	$600,051 or more
Married Filing Separately	$0 to $48,350	$48,351 to $300,000	$300,001 or more
Head of Household	$0 to $64,750	$64,751 to $566,700	$566,701 or more

Key Differences

The main difference between income tax and capital gains tax lies in the type of income being taxed and the rates applied. Income tax covers earned income and is subject to a progressive tax structure. Capital gains tax applies to investment profits and can offer lower rates, especially for long-term holdings. It’s also important to note that long-term capital gains do not impact your ordinary income, so you don’t need to worry about this type of sale pushing you into a higher tax bracket.

From a planning standpoint, capital gains taxes often offer you more flexibility. For example, you might choose when to sell an asset to time the gain with a year when you’re in a lower tax bracket. You can also be mindful about holding assets for at least one year before selling for a gain. That kind of timing isn’t available for income taxes, which are based on when the income is earned.

How to Calculate Capital Gains

To calculate a capital gain, you should subtract your cost basis from the selling price of the asset. The cost basis includes what you originally paid for the asset, plus any fees or commissions related to the purchase.

Capital Gain = Sale Price – Cost Basis

If the result is positive, you’re dealing with a capital gain. If it’s negative, you’ve incurred a capital loss, which can be used to offset other gains or even reduce your taxable income (up to $3,000 per year, as allowed by the Internal Revenue Service).

For assets held longer than one year, you’ll need to apply the long-term capital gains. And remember: If you sell within one year, your gain is taxed at your ordinary income tax rate, which can be substantially higher.

Income Tax vs. Capital Gains Tax Example

Let’s say you earn $80,000 in salary in a given year. That income is subject to federal income tax, possibly in the 22% bracket depending on your filing status. You’ll pay income tax through paycheck withholding, and possibly owe more or get a refund when you file your tax return.

Now, imagine you also sold stock for a $10,000 profit. If you held the stock for more than a year, the gain qualifies for long-term capital gains treatment. At your income level, you’d likely pay 15% in federal taxes on that gain, or $1,500 (assuming you’re filing single). If, instead, you sold the stock after holding it for just six months, the gain would be taxed as ordinary income—so, potentially at the same 22% rate as your salary.

The Bottom Line

Income taxes and capital gains taxes both affect your personal finances, but they apply to different activities and warrant different tax considerations. While income tax is largely unavoidable and based on what you earn, capital gains tax can often be managed more proactively; for example, by holding an asset for more than a year, you’ll likely pay far less in taxes than if you sold for a gain within a month.

By understanding how each works—and how they interact—you can make more informed decisions about your income, investments, and tax planning. When in doubt, working with a tax advisor can help you chart the most effective path forward.

Yes, for rings more expensive than what standard homeowners insurance covers

Reviewed by Chip Stapleton

Should you insure your wedding rings? It certainly doesn’t sound as fun as planning the honeymoon. But when it comes to engagement rings, wedding bands, and other wedding jewelry, securing sufficient protection can prove as essential as any other wedding-related task.

The national average spent on engagement rings varies. For example, The Knot’s 2024 Jewelry and Engagement Study notes the averages around $5,200. However, that figure can certainly be higher depending on where you live, the type of metal, and the type and quality of the gemstone used.

If you’re looking at an expensive engagement ring, consider a plan to insure it. Add in the cost of wedding bands for both spouses, and it’s clear that the average $1,500 of jewelry coverage offered by standard renters and homeowners insurance won’t cut it for your carats.

Key Takeaways

• Consider insurance If you plan to buy an expensive engagement and/or wedding ring.
• Couples may spend thousands of dollars on engagement and wedding rings, but the limited coverage of renters or homeowners insurance often offers just a fraction of an item’s worth.
• Options to insure expensive wedding jewelry include adding a rider to a current homeowners policy that itemizes the pieces or buying a separate insurance policy.
• The general rule to insure engagement and wedding rings is $1 to $2 for every $100 of value, paid annually.
• Those who elect to acquire added coverage should know the finer points of the new policy, including what’s covered, how they’ll be reimbursed, and the way the ring will be valued.

Are Wedding Rings Covered by Homeowners Insurance?

The short answer is yes, jewelry is included in renters and homeowners insurance policies that cover the value of items in your home. However, coverage for jewelry only goes up to a certain dollar limit, and there may be group limits on it, such as a limit for the collective value of all items. Circumstances such as loss or damage may not be included. And, in most cases, coverage is subject to a deductible before you receive any reimbursement.

Engagement and wedding rings can be covered more comprehensively with the purchase of a rider or floater, or by an extension to your current policy. This is also called scheduling property. Scheduled personal property goes over and above the typical renters or homeowners policy so the full value of the designated, high-priced item is covered in the event of a claim. Generally, you do not pay a deductible on a scheduled item.

The simplest step would be to add a floater itemizing your jewelry to your existing insurance policy. However, if you don’t have a renters or homeowners policy or if the coverage offered through your existing provider doesn’t meet your needs, then you can purchase a separate policy specifically for your rings. Your jeweler might recommend a certain insurer.

Important

Shop around to find an insurance company that suit your needs. You might consider looking for a specialist in jewelry coverage.

Wedding Ring Insurance: What to Look For

As with any other type of financial contract, the fine print of an insurance policy always matters when it comes to choosing a provider and policy for your ring(s). Here’s what to consider.

Coverage

You cover all your bases when it comes to your home and vehicle. So why not do the exact same thing with your wedding jewelry? After all, you’ve invested a lot of money (and time) into purchasing it, so you should ensure you get the right coverage.

A good policy should cover all contingencies when it comes to your engagement and wedding rings. This includes loss, theft, and even damage as a result of an accidental drop down the garbage disposal. Make special note of any circumstance that isn’t covered.

Replacement

There are certain questions you should ask and get the answers to before you sign up for coverage. For instance;

• How will the insurance company replace your rings?
• Will it try to find a replacement for you?
• Would you have to obtain it at a certain jeweler?
• Can you just opt to receive a check as compensation?
• Will repairs or partial losses be covered?

Make sure you evaluate the replacement policy against your financial and sentimental concerns.

Assessment of Value

This is key. How will the insurance provider assess the value of your ring for reimbursement? Will it use the current appraisal value or will it only consider the original purchase price?

Documentation requirements

Note all of the required paperwork for your policy so that everything is readily available if you need to file a claim. These documents typically include receipts, photos, and up-to-date appraisals.

Get an Appraisal

If you’re a homeowner or ever considered purchasing one, you may already be familiar with the appraisal process. Getting one done will tell you the value of the property. The same principle applies to your wedding ring(s).

An appraisal of a ring is often required when purchasing supplemental insurance coverage. The store that sold it might provide one, but if a lot of time has gone by since the purchase, then you’ll need to get an independent appraisal, which some insurers prefer anyway.

A professional jewelry appraisal can help verify facts about the ring while assessing its value for insurance purposes. You can ask the jeweler for recommendations. The American Gem Society also has a directory of qualified professionals that can be searched by ZIP code. Appraisal rates generally range from $50 to $150 an hour.

Consider Coverage Options

It’s important to compare not only the cost of one insurance provider to another but also the relative cost to the relative coverage, as both vary greatly from provider to provider and even from policy to policy.

The general rule for insuring wedding and engagement rings is $1 to $2 for every $100 of value, paid annually. A $5,855 ring, for example, would cost around $59 to $118 per year to insure. If you live in a city where the risk of theft is higher, then you can expect to pay a bit more for your coverage. But insurance companies may lower premiums for those willing to install a home security system, purchase a safe, or rent a safe deposit box in which to store rings when they aren’t being worn.

Some policies have deductibles while others don’t. Those without deductibles tend to have higher premiums, but they will reimburse more fully and with less fuss. In the case of a policy with a deductible, look to see which types of repairs can affect your coverage costs.

After you’ve combed through the policy fine print, assessed the value of your rings, and compared relative costs, you should have enough information to choose an insurance policy that meets your needs. Don’t wait too long to secure coverage, though. You’ll want to make sure you’re protected if anything happens in the days after your purchase or receipt of the ring.

3 Months

Industry guidance is to acquire a ring that equals a certain number of months’ salary. For example, some note the ring should cost three months salary.

Once You’re Insured

Keep all insurance-related documents in a safe, secure, and dry place. By this point, you should be familiar enough with the details of your policy to know exactly what documentation you need to keep on file: a written appraisal, ring receipts, photos, gem certificates, etc. Also, make sure that any policy details you’ve discussed with your insurance agent are included in the paperwork. All promises need written documentation.

Values of precious metals and fine jewels change frequently. Consider having an appraisal done every two to three years—even if your insurance policy doesn’t require regular appraisals—to ensure your insurance coverage is still adequate. Keeping an evaluation up to date is particularly important for vintage, antique, and/or collectible rings. Bring a copy of your original or most recent appraisal so your appraiser can work from that rather than start from scratch, helping to save you time and costs.

How Much Does It Cost to Insure a Wedding Ring?

The cost to insure a wedding ring depends on a number of factors, including the type of ring, the metal used, stone set. and where you live. But you can generally expect to spend $1 to $2 for every $100 of value. For a $2,000 ring, you can expect to pay $20 to $40 per year.

Does Homeowners Insurance Cover the Loss of a Wedding Ring?

Your homeowners insurance policy may cover the loss of a wedding ring. But keep in mind that they may be limited as to how much they’ll pay you compared to the actual value of the ring. Some companies allow you to purchase a rider that can give you additional coverage that’s specific to your ring. If this doesn’t work, you can shop around for a separate policy.

Where Can I Get Wedding Ring Insurance?

Your homeowners insurance policy may cover the loss or damage to a wedding ring. But these policies may be limited to how much they’ll pay. You may be able to purchase an additional rider that will cover your ring. There are also specific policies that cover jewelry, especially engagement and wedding rings.

The Bottom Line

Given the high average cost of wedding rings, acquiring insurance is a prudent move. If your jewelry is adequately covered under the modest personal property allowance of your current renters or homeowners insurance, that’s fine. But if not, then how and where you decide to insure your wedding rings will depend largely on your specific needs and assessments of value. By doing your due diligence in combing through the fine print of potential policies and comparing true costs and coverage, you can ensure that you’ve properly protected jewelry that has both monetary and emotional value.

Reviewed by Margaret James
Fact checked by Suzanne Kvilhaug

Walt Disney (DIS) is one of the most successful companies in one of the most powerful sectors of any economy: entertainment. Before it became the empire it is today, Disney was more closely associated with the vision of the man after whom it was named. It was this vision that laid the groundwork for the company to become the media giant it is today.

In this article, we’ll look at the rise of Walt Disney – both the man and the company – and why Disney was so successful. No doubt, his life can teach entrepreneurs lessons even today.

Key Takeaways

• Walt Disney – the man and the company – is one of the most successful and powerful entertainment companies in the world, with a market cap of $187 billion.
• Only by constantly innovating and pushing the boundaries of both animation and business, was the company able to go from a moderately successful animation studio to a complete entertainment experience – with theme parks, merchandising, cruise ships, and more.
• After its acquisition of 21st Century Fox in March 2019, Disney became the largest media powerhouse on the planet.

Setting Forth, Again and Again

Like many creative talents, Walt Disney started his career working for others. In 1919, Walt was back from driving for the American Ambulance Corps in World War I and looking for work as an artist. He found it at Pesmen-Rubin Commercial Art Studio, where he met and befriended Ubbe Iwwerks. Iwwerks proved to be one of the most talented animators in the world and a key to Walt’s later success.

At the start of 1920, Walt and Iwwerks were both out of a job, so they tried to open up their own studio. This first business promptly failed and the pair left for paying work, doing animation at Film Ad Co., where they worked on the advertising shorts that were shown before the features. Before too long, they were working together on side projects that grew into Laugh-O-Grams, a series of comedic shorts. Walt and Iwwerks set forth together again and turned Laugh-O-Grams into a business. However, once again, the venture ended belly-up in 1923, after which time Walt left for Hollywood.

The Disney Brothers

Perhaps Walt’s least appreciated skill was convincing others to buy into his vision. In Hollywood without Iwwerks, Walt convinced his brother Roy to help him start Disney Brothers Studio, later renamed Walt Disney Studio. Sure enough, Walt soon had Iwwerks, who was no spelling his name Iwerks, convinced to come back to work with him, as well.

Walt Disney Studio was no more profitable than the previous incarnations, but it was staying afloat. The company was doing work for Universal Pictures, creating a character called Oswald the Lucky Rabbit. In 1928, Walt and Roy had the unpleasant surprise of finding out that all of their animators, with the exception of Iwerks and a few others, had been hired away by one of the people he was dealing with at Universal. To add salt to the wound, the rights to Oswald belonged to Universal.

The experience embittered Walt and made him swear to only work for himself. Walt began looking to deliver his films directly to distributors, but he needed a new character.

The Mouse

There is some controversy over where Mickey Mouse came from; theories range from a wastepaper basket in Kansas to Iwerks flipping through animal photos and sketching. However he originated, Mickey Mouse represents the start of Disney as we now know it.

Walt assembled a new team to work with Iwerks on this new character. The first two films were not hits, but the third, “Steamboat Willie,” was a huge success. It was also the finest early example of a film that synchronized sound and animation.

Being on the cutting edge of technology became par for the course, as the company pushed the boundaries of animation. The next decades, including the Great Depression, saw Disney create the first color cartoons, as well as the first animated feature-length film, “Snow White and The Seven Dwarfs.”

Disney’s IPO

The costs of these groundbreaking films were so high, and the margins so low, that a poor box office could still sink the studio. Walt and Roy started 1940 with great films, but a lot of debt. From 1923 to 1938, the Disney Brothers partnership was actually split into four companies that were successful in varying degrees, before being absorbed into one in 1938.

The company name that lived on was Walt Disney Productions and, on April 2, 1940, Walt Disney Studios issued 155,000 shares of 6% convertible preferred stock. This issue was in the over-the-counter market and raised around $3.875 million for the company.

The brothers soon found themselves back in debt, however, as the box offices continued to be slack for films that we now consider masterpieces, namely “Bambi,” “Fantasia,” and “Cinderella.” This isn’t to say they weren’t successful, they were just very expensive to make.

Instead of slowing down, Walt looked to do more. The brothers set up their own distribution company, Buena Vista, and began producing high-margin nature documentaries. Walt also began to have visions of the ultimate amusement park, but it was a gamble his company couldn’t afford. Still, little by little, Walt diversified the history of Disney adding business units to its core animation studio.

Disneyland

In order to create the “happiest place on earth,” a lot of financial maneuvering needed to take place, and Walt made it happen. Even after funding a private company, using a loan from his own life insurance, Walt needed much more capital. He had himself to offer, but he was clever about it. Walt set up another private company that owned the merchandising rights to his name. Incidentally, Walt Disney Productions paid $46.2 million in shares to buy the company back, in 1981.

He then offered to create a TV series for a TV network that would invest in Disneyland; ABC jumped at the chance. Walt had his funding and ABC had a show that turned into a cultural phenomenon, watched by millions. Originally named “Disneyland,” but wearing different titles over the years, the show ran for 29 years.

In 1955, Disneyland finally opened and became a huge success. Over the next five years, Walt Disney Productions purchased Disneyland by buying Walt’s private company. Over these same five years, the gross income at Walt Disney Productions, which had been at $6 million in 1950, grew from $27 million to $70 million.

Merchandising, branding, and expansion were all coming together for Walt Disney Productions. Sadly, though, it was destined to go on without one of its founders, as Walt died in 1966. One of his last features, “Mary Poppins,” was the top-earning film in 1964. His brother Roy took over.

Beyond Walt and Roy

After the death of Walt and his brother Roy, Disney struggled. The company was listed in 1957, and despite its past successes and several profitable theme parks, the rise in its stock price was nominal.

In the 1980s, the company was thought to be so undervalued in terms of brand assets, which included the film catalog and the theme parks, that hostile takeover artists began circling. The company fended off the takeovers and began to focus on profiting from its vast brand equity.

From the 1980s to the 1990s, the stock grew in leaps and bounds, making Disney the largest entertainment empire in the world. The company has continued to prosper and grew to be a favored dividend-paying investment. This growth was helped in no small part by the foundation that Walt and Roy laid for the company.

Modern Day Disney

Over the years, The Walt Disney Company has navigated a rapidly changing media landscape, adapting its business strategy to shifting consumer habits and industry challenges. As streaming became the dominant force in entertainment, Disney positioned itself at the forefront through Disney+, ESPN+, and Hulu.

Beyond streaming, Disney has strengthened its position through its theme parks, experiences, and consumer products. Disney has continued investing in expansion, immersive storytelling, and new attractions at its theme parks around the world. The cruise line business also saw growth as Disney introduced new ships (now up to 7 cruise ships).

Disney’s leadership has also undergone notable changes, with a renewed focus on efficiency and strategic decision-making. The return of CEO Bob Iger marked a pivotal moment, as he spearheaded initiatives to streamline operations, reduce costs, and refocus the company’s creative efforts.

Iger has publicly stated the company’s strategic initiatives and financial outlook. He’s discussed priorities such as achieving sustained profitability in streaming, evolving ESPN into a leading digital sports platform, enhancing film studio output, and expanding the Experiences sector. He also expressed confidence in the streaming business reaching and maintaining profitability, with the integration of Hulu content into Disney+ expected to boost engagement and reduce subscriber churn.

How Many Theme Parks Does Disney Have?

Disney operates 12 theme parks across six resorts worldwide: Disneyland Resort (California), Walt Disney World Resort (Florida), Disneyland Paris, Tokyo Disney Resort, Hong Kong Disneyland, and Shanghai Disney Resort.

Who Founded Disney?

The company was founded in 1923 by brothers Walt and Roy O. Disney as the Disney Brothers Studio, which later became The Walt Disney Company.

What Streaming Services Does Disney Own?

Disney owns Disney+, ESPN+, and a majority stake in Hulu.

What Is The Disney Vault?

The Disney Vault was a marketing strategy where Disney would periodically release animated classics on home video for a limited time before discontinuing them. With Disney+, most of these films are now always available for streaming.

The Bottom Line

Financial history is full of outsized personalities and towering figures. Many of the richest people in history got there by building empires of fur, oil, steel, rails, and, yes, software. All of these are tangible products with a simple formula: keep the costs down and sell more. Disney, the man and the company, were birds of a different feather.

Only by constantly innovating and pushing the boundaries of not just animation but also what Disney became as a business was the company able to go from a moderately successful animation studio to a complete entertainment experience – with theme parks, merchandising, cruise ships, and so forth.

In a quote often attributed to Walt Disney, a Disney Imagineer once said, “If you can dream it, you can do it.” The story of Walt’s life and the creation of his company reminds us that once you dream it, you must continually re-dream and re-imagine it to succeed.

They can provide income for life, though often at a high price

Reviewed by Charlene Rhinehart
Fact checked by Amanda Jackson

Insurance agents and financial advisors have been investing their clients’ retirement money in annuities for decades. This practice has its detractors, with the criticism usually focusing on the high commissions paid to annuity salespeople and stiff fees charged to annuity owners year after year. In fact, when comparing the costs of an annuity versus a mutual fund, there can be a big difference, with a mutual fund being less expensive. It pays to know the details about annuities before you invest.

Here’s a rundown of the pros and cons of annuities, compared with other ways to invest for retirement.

Key Takeaways

• Annuities can provide a reliable income stream in retirement, but if you die too soon, you may not get your money’s worth.
• Annuities often have high fees compared to mutual funds and other investments.
• You can customize an annuity to fit your needs, but you might need to pay more or accept a lower monthly income.

How Annuities Work

An annuity is a contract between an individual and an insurance company. The investor contributes a sum of money—either all up-front or in payments over time—and the insurer promises to pay them a regular stream of income in return.

With an immediate annuity, that income begins almost right away. With a deferred annuity, it starts at some point in the future, typically during retirement. The dollar amount of the income payments are determined by such factors as the balance in the account and the age of the investor.

Annuities can be structured to pay income for a set number of years, such as 10 or 20, or for the life of the annuity owner. When the owner dies, any money remaining in the account typically belongs to the insurance company; however, if they live happily to, say, 120 years old, the insurance company still has to keep those regular payments coming.

Annuities can also be fixed or variable. In a fixed annuity, the insurance company pays a specified rate of return on the investor’s money. In a variable annuity, the insurer invests the money in a portfolio of mutual funds, or “subaccounts,” chosen by the investor, and the return will fluctuate based on their performance.

Pros

• Guaranteed income

• Customizable features

• Money-management assistance

Cons

• High commissions

• High fees

• Surrender charges

The Pros of Annuities

Despite the criticisms, annuities do offer some advantages for investors who are looking toward retirement.

Guaranteed Income

The insurance company is responsible for paying the income it has promised, wether for a finite period or the rest of the person’s life, however, that promise is only as good as the insurance company behind it. This is one reason investors should only do business with insurers that receive high ratings for financial strength from the major independent ratings agencies.

Customizable Features

Annuity contracts can often be adapted to match the buyer’s needs. For example, a death benefit provision can ensure that the annuity owner’s heirs will receive at least something when the owner dies.

A guaranteed minimum income benefit rider promises a certain payout regardless of how well the mutual funds in a variable annuity perform. A joint and survivor annuity can provide continued income for a surviving spouse. All of these features come at an additional price, however.

Money-Management Assistance

Variable annuities may offer a number of professional money-management features, such as periodic portfolio rebalancing, for investors who’d rather leave that work to someone else.

The Cons of Annuities

High Commissions

When it comes to the commissions made for selling annuities versus mutual funds, the former is almost always higher than the latter. Say an investor rolls a $500,000 balance in a 401(k) into an individual retirement account (IRA). If the money is invested in mutual funds, the financial advisor might make a commission of about 2%. If it is invested in an annuity that holds the same or similar mutual funds, the advisor could make a commission of 6% to 8% or even higher.

Therefore, a $500,000 rollover into mutual funds would pay the advisor a $10,000 commission at most, while the same rollover into an annuity could easily pay the advisor $25,000 to $35,000 in commission. Not surprisingly, many advisors will direct their clients into the annuity.

High Fees

Most annuities do not assess sales charges upfront. That may make them look like no-load investments, but it doesn’t mean they don’t have plenty of fees and expenses.

Annuity contracts impose annual maintenance and operational charges that often cost considerably more than the expenses associated with comparable mutual funds. This has been changing somewhat in recent years, and some insurers are now offering annuities with comparatively low annual expense ratios. Still, as always, investors should scrutinize the fine print before they sign.

Surrender Charges

If an annuity owner needs to get money out of the annuity before a certain period of time has elapsed (typically six to eight years, but sometimes longer), they may be subject to hefty surrender fees charged by the insurer.

No Added Tax Benefits for IRAs

Annuities are tax-sheltered. The investment earnings grow tax-free until the owner begins to draw income. If the annuity is a qualified annuity, the owner is also eligible for a tax deduction for the money they contribute to it each year.

A traditional IRA or 401(k) has the same tax benefits—and if it’s invested in conventional mutual funds, it’s typically at a much lower cost. Placing an annuity in a 401(k), as investors may be urged to do by some salespeople, is redundant and needlessly expensive.

Important

If you’re planning to buy an annuity, make sure you’re dealing with a financially solid insurance company that’s likely to be around—and able to make good on its promises—when you start drawing income.

A Compromise Solution

One practical option for investors is to stick with mutual funds until retirement and then move some of their money into an annuity, especially one with a downside protection rider. That keeps the fees to a minimum during the investor’s working years but guarantees a steady income in retirement.

Can You Lose Money With Annuities?

You can’t lose money with annuities in the traditional sense that you can with other investments tied to the market. You can, however, lose money on annuities if the insurance company that issued the annuity goes out of business and defaults on its obligation. There is a degree of regulatory protection for investors in case this happens.

Why Are Annuities a Poor Investment Choice?

Annuities are considered poor investments for many reasons. Depending on the annuity, these include a variety of high fees, with little to no interest earned, an inability to keep up with inflation, and limited liquidity.

What Is Better Than an Annuity for Retirement?

There are a variety of options that are better than an annuity for retirement, depending on your financial situation and goals. These include deferred compensation plans, such as a 401(k), IRAs, dividend-paying stocks, variable life insurance, and retirement income funds.

The Bottom Line

Though annuities are one of the most established retirement savings options, they aren’t necessarily for everyone. Annuities work for people who are looking for simple, fixed payments—and who don’t mind the disadvantages, such as high fees.

When considering an annuity, make sure to pay attention to all of the details in the contract. Evaluate all of the pros and the cons.