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Being Healthy Can Cost You — But It Doesn’t Have To

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

With the price of gym memberships, specialty foods and medical care, a healthy lifestyle can seem unachievable when you’re on a budget.

However, making the investment in your health can pay off in ways that go beyond feeling well. Studies show that healthy people earn significantly higher wages and accumulate more wealth than unhealthy people. And the good news is that being healthy doesn’t have to strain your finances.

In this article, we break down the costs of being healthy and how you can save money on food, fitness and medical expenses.

The cost of healthy living

Costs can be a barrier to managing our health. American families consistently point to the cost of healthcare as one of their biggest financial problems in polls conducted by Gallup.

“I hear from patients all the time that they feel pressure to go broke trying to stay healthy,” said Libby Pellegrini, a certified physician assistant and medical expert for RxSaver, a site that helps people find ways to save money on prescription drugs.

Here’s what you should know about the price of health-related expenses, like maintaining a nutritious diet, getting in shape and obtaining medical services.

Food

A diet rich in nutritious foods, like vegetables, fruits, lean meats and nuts, can reduce your risk of heart disease and other conditions — potentially saving money on health care costs in the long run.

However, stocking your pantry with good-for-you ingredients can be pricey. A 2013 meta-analysis published in the journal BMJ Open found that the healthiest diet costs around $1.50 per day more than the least nutritious diet. That means making the switch to a healthy diet could cost nearly $550 per year more for just one person, and push into the thousands for an entire family.

A 2012 study from the U.S. Department of Agriculture, which analyzed 4,439 foods, also found that healthy food can be more expensive on a per-calorie basis than “moderation foods,” such as those with added sugar and high quantities of saturated fat. Vegetables and fruits in particular cost a lot per calorie. While study authors acknowledge that healthy food can actually be cheaper than junk food by other measurements, like average portion price, the cost per calorie may play a role in some people’s dietary choices.

Fitness

Exercising regularly not only reduces your risk of serious health conditions, it can also help you avoid costly medical expenses. The American Heart Association reported in 2016 that people who exercised regularly spent around $2,500 less per year on health care costs than inactive people. But what does it cost to get in shape?

Gym memberships cost an average of $58 per month across the country. In some cities, the monthly expense of joining a health club can top $100. Expenses on fitness can add up even higher when you consider other costs of staying in shape. A survey of 1,350 Americans between the ages of 18 and 65 found that people spend a monthly average of $55.95 on supplements, $34.34 on gym apparel and accessories, and $13.83 on personal training services and workout plans.

While exercise can eat up a substantial portion of your budget, it doesn’t have to. In the section below, we’ll offer some tips on how you can get in shape for free.

Medical

Health care costs are a hot-button issue for people in the U.S., and for good reason — the country spends around double on health per person than other wealthy countries. Spending on health care across the nation climbed to $11,172 per person in 2018, an increase of 4.6% from the previous year.

While a portion of those costs may be covered by third parties, like private health insurance and Medicare, Americans often need to cover the rest out of pocket. On average, 8.1% of an American household’s monthly expenses went to health care in 2018, totaling $4,968 per year. Medical bills can take a financial toll on families and even drive some people to bankruptcy.

9 ways to stay healthy on a budget

If cost feels like an insurmountable barrier to getting and staying healthy, take a second look.

“You will spend far less money making small investments in your health today than you will spend mitigating the undesired outcomes of poor health tomorrow, but being health conscious doesn’t have to break the bank,” Pellegrini said.

Plus, there are some ways to reduce and even eliminate some of the upfront costs of staying healthy. Here are some tips.

Food

Buy canned or frozen produce, unless it’s in season
The cost of some fresh fruits and vegetables can vary significantly throughout the year. Strawberries, for example, generally cost the least from May through August, when there’s a large supply of them on the market, and the prices increase sharply later in the year. You might be able to save money on healthy groceries by avoiding fresh produce when it’s not in season, said Jessi Holden, a registered dietitian nutritionist at Mary Free Bed Rehabilitation Hospital in Grand Rapids, Mich.

“Canned and frozen produce is an excellent way to maintain a healthy diet and a healthy budget,” Holden said.

Embrace generic brands
Before you toss brand-name products into your shopping cart, scan the shelves to see if there’s a generic equivalent, Holden said. Stocking your pantry with less expensive alternatives to popular health foods may help you save money.

“Most of the time, [generic brands are] cheaper, and when you compare nutrition labels, they’re almost identical,” Holden said. “If you compare what you’d spend on name brands to what you could spend on generic, you’ll find your budget for food expands and your ability to purchase more things like produce increases.”

Try meal planning
When you don’t have a plan for dinner, it’s all too easy to rely on take-out. You may end up blowing both your budget and your intent to eat healthy.

“Meal planning helps us utilize the food we have on hand and the food that we’ve purchased for the week or month,” Holden said. “I always encourage people who want to meal plan to start by checking their pantry, fridge and freezer and plan at least one meal using ingredients they have on hand.”

Fitness

Walk as much as possible
Walking regularly can help ease you into fitness — and it costs nothing.

“Park a few blocks farther from the office to add a natural brisk walk into your morning and evening routine. Take a phone call while you walk around the hallway,” Pellegrini said.

You can also check out this 12-week walking schedule from the National Heart, Lung and Blood Institute.

Work out with free online videos
YouTube is filled with workout videos that can help you work up a sweat without the expense of a gym or a personal trainer.

“Want to do a 20-minute yoga video on the beach in Nicaragua? There’s a free YouTube video that has you covered,” Pellegrini said. “Want someone to yell at you while you do squats, pushups and burpees in your living room? Same.”

Strength train at home
No barbells? No problem. Heavy items around your home can double as weights, allowing you to strength train at no cost. Consider using bottles filled with sand or water and canned goods during your home workout.

Medical

Switch to generic prescription drugs
If you’re paying a lot for a brand-name medication, ask your doctor if there’s a generic version that could work for your needs.

“Sometimes there may be a slightly different formulation that will be at a radically different price point,” Pellegrini said. “There may also be a way to combine two medications to achieve the same desired effect.”

Open an FSA or HSA
Flexible spending accounts (FSAs) and health savings accounts (HSAs) give you the ability to cover certain medical costs with pretax money. Like a checking account, FSAs and HSAs often include a debit card that you can use for eligible expenses, such as doctor’s co-pays, eyeglasses and acupuncture.

“Before you hit the store to load up on necessities, take a quick look around an FSA store website [such as FSAStore.com] to see if any items on your list are reimbursement eligible,” Pellegrini said. “You may be surprised by how much is covered, from contact lens cleaning solution to sunscreen.”

Make preventative care appointments
Seeing your doctor for a preventative care appointment could help you catch potential health issues before they turn into something worse, Pellegrini said.

“A prime example of this that we see all the time is the corporate executive with a high-profile job who comes in for routine preventative blood work and discovers that she has prediabetes,” she said. “With a few modifications, we can easily reverse her prediabetes, virtually eliminating the possibility that she will ever become a diabetic. This will help save on future health expenses in a huge way.”

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

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Where Should You Put Your Emergency Fund?

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone and is not intended to be a source of investment advice. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

There are three key factors to consider when deciding where to keep your emergency fund: yield, liquidity and cost. Choosing a deposit account to hold your emergency fund that strikes a balance between these elements can help you maximize your savings and provide easy access to the money when an emergency strikes.

Emergency fund basics

An emergency fund is a cushion that protects you against major financial shocks. It’s not for paying regular expenses or even small, unplanned costs. As the name suggests, it’s for emergencies — things like unemployment or major, unexpected medical costs.

Your emergency fund exists to prevent you from having to take on expensive debt when faced with large, unexpected expenses. Whatever type of deposit account you choose for you emergency fund, it needs to provide easy access, a decent return on your money and zero extra costs:

  • Yield: Choose an account with a high interest rate that provides you with a decent rate of return on your money. Keep in mind that your emergency fund isn’t an investment — it’s an insurance policy.
  • Liquidity: You should keep the money in a relatively liquid account so that you can draw from it in an emergency. Highly liquid accounts give you immediate access at no cost, whereas less liquid ones take time to free up funds.
  • Cost: Any extra costs eat into your fund and diminish your returns. Choose an account with zero maintenance fees to help preserve your funds.

How much do you need in your emergency fund? A good rule of thumb is to put away the equivalent of three to six months of living expenses.

Keep your emergency fund in a high-yield savings account

A high-yield online savings account is a great option for your emergency fund. Online banks lack branch locations, which helps lower their overhead costs. This helps them offer higher APYs and lower fees than traditional financial institutions.

Online savings accounts offer varying levels of access to your money. Some offer debit cards and even checks, which let you make payments without delay. Others limit your ability to deposit and withdraw funds to ACH transfers. You can deposit money in many online savings accounts via mobile check deposits, ACH transfers or wire transfers from other accounts. Read the fine print when evaluating an online savings account to ensure you know what your deposit and withdrawal options are.

In addition, savings accounts also limit certain types of telephone and electronic withdrawals, including transfers from savings accounts up to 6 per statement cycle under Federal Reserve’s Regulation D (Reg D). You may be subject to a fee or having your savings account closed or converted into a checking account if you make excessive withdrawals.

Savings account advantages for your emergency fund

  • High APYs: High-yield online savings accounts offer competitive interest rates, which can boost your emergency fund. It’s not uncommon to earn at least 1.70% APY on your balance.
  • No fees: Don’t want monthly maintenance fees or excessive transaction fees to chip away at your fund? There are many high-yield online savings accounts that come with no fees.
  • Low to no minimum balance requirements: Many online savings accounts don’t require their customers to keep a minimum balance, which could be a benefit to people who are just getting their emergency fund started.

Keep your emergency fund in a money market account

A money market account could be a good option for your emergency fund, especially if you’ve already built a sizable balance. You can sometimes find higher APYs on money market accounts than other deposit accounts at conventional banks. However, you may need to maintain a substantial minimum balance to earn interest.

Money market accounts come with a debit card and checks more often than not. This extra degree of access makes it easier to withdraw money and cover emergency expenses on the fly.

Keep in mind that like savings accounts, money market accounts are also subject to Reg D, which limits certain types of telephone and electronic withdrawals, including transfers from savings accounts up to 6 per statement cycle. Factor in any potential monthly maintenance fees and excessive withdrawal fees as you evaluate whether a money market account is the best place for your emergency fund.

Money market account advantages for your emergency fund

  • Easy access to money: The checks and debit cards that come with most money market accounts provide convenient access to your emergency fund.
  • High APYs: Like high-yield online savings accounts, money market funds offer high interest rates.

Keep your emergency fund in a cash management account

Cash management accounts combine some of the best features of both checking and savings accounts, and could be a great choice for your emergency fund. Cash management accounts typically offer competitive interest rates and accessibility that rivals regular checking accounts.

Fintech firms like Wealthfront, SoFi and Betterment offer cash management accounts. Some combine the functionality of savings and checking accounts, while others offer separate savings- and checking-like accounts. Some function more like high-yield checking accounts, with fewer requirements than conventional deposit accounts.

If you’re thinking about keeping your emergency fund in a cash management account, you need to pay close attention to the available features, which can vary widely. Some cash management accounts don’t offer the ability for customers to spend their money with a check or debit card, which could make it tricky to access your emergency fund on a moment’s notice. You may need to transfer the money to a third-party account before you can use it.

Cash management account advantages for your emergency fund

  • Easy access: Many cash management accounts offer debit cards with few to no withdrawal limits. However, some do not — so you need to do your homework before choosing.
  • High interest rates: Many cash management accounts offer APYs that rival the rates of high-yield savings accounts and the best money market accounts.
  • No fees: Few cash management accounts charge monthly maintenance fees that would eat into your emergency fund.

Keep your emergency fund in a no-penalty CD

Certificates of deposit (CDs) pay competitive rates, but in exchange, you agree to leave your money untouched in an account for a set term, such as 12 months. If you withdraw the balance before the end of the term, you are charged an early withdrawal fee equal to some or all of your earned interest. This limitation prevents CDs from being the best place to keep your emergency fund.

Even if you use a CD ladder — a series of CDs that expire at predictable intervals, giving you great rates and slightly better liquidity than single CDs — you still might be facing early withdrawal fees when an emergency hits and you need access to your money.

There is a special kind of certificate of deposit, called a no-penalty CD, that is a potential option for an emergency fund. No-penalty CDs offer good interest rates and don’t charge the early withdrawal penalties that characterize standard CDs.

These accounts usually come with other rules, though. If you need to dip into the account, you may be required to withdraw the full amount — even if you only need a portion of the money. Some no-penalty CDs allow for a fixed number of partial withdrawals and may charge you a fee if you exceed the limit. You generally can’t touch the money at all until seven days after you fund the CD. Most (if not all) no-penalty CDs come with minimum balance requirements.

Advantages of no-penalty CDs for an emergency fund

  • Good, not great, APYs: Some no-penalty CDs offer competitive APYs, but the highest rates are typically reserved for accounts with longer terms and/or higher balances.
  • No early withdrawal fees: Unlike conventional CDs, no-penalty CDs don’t punish you with a fee if you need to take out the money before the term is up.
  • Wide availability: Whether you’re an online banking devotee or you prefer the in-person experience at a branch, you can find no-penalty CDs at financial institutions nationwide.

Keep your emergency fund in a Roth IRA

When thinking about where to store your emergency fund, a Roth IRA might not be the first thing that comes to mind. It’s a retirement investment account, after all. However, Roth IRAs come with some special advantages that make them a potential place you can pull money from in an emergency.

Roth IRAs are funded with after-tax dollars, and you can withdraw the contributions you’ve made at any time you want, without paying a penalty. The earnings, on the other hand, are subject to a 10% withdrawal penalty if you take them out before age 59 1/2 or before the account is five years old.

There are some exceptions to these rules, which can be helpful to know if you’re using a Roth IRA for your emergency fund. You can make early withdrawals without penalty if you lose your job, you need to cover health insurance or medical expenses, you become disabled or you’re buying your first home. You will need to pay tax on the earnings, though.

If you do need to use retirement funds to cover a major emergency, the money in your Roth IRA may come with fewer tax implications than the funds in other types of retirement accounts, like a traditional IRA.

Keep in mind that using retirement funds for something other than their intended purpose could set you back on your long-term savings goals. Try to have another dedicated emergency fund that you can access for unexpected expenses.

Advantages of a Roth IRA for your emergency fund

  • Potential for high returns: Contributions to a Roth IRA can be invested in a wide variety of different asset classes. Pick favorable investments, and your returns could be much greater than would be possible in any deposit account. Of course, poor investment decisions or market downturns could also lead to negative returns.
  • Penalty-free withdrawals: The money you contribute to a Roth IRA can be withdrawn without taxes or penalties under certain conditions.
  • Tax-free earnings: You can spend the earnings from your Roth IRA after age 59 1/2 without paying taxes, as long as the account is at least five years old.

Do not keep your emergency fund in stocks, ETFs or mutual funds

It might be tempting to try to grow your emergency fund by investing in the market via a brokerage account or a robo-advisor. But you might want to think twice about the downsides and potential risks involved in that strategy.

The biggest risk of investing your emergency fund is that its value could decline. Remember, your emergency fund is not an investment — it’s an insurance policy against rare but devastating emergencies. It’s a sum of money you need to be able to count on to provide peace of mind. After you’ve topped up an emergency fund, start investing other funds in a brokerage account.

You can’t predict when you’ll need the money saved in an emergency fund. In a true emergency, you would need to sell your stocks, ETFs or mutual funds — possibly at an unfavorable time, possibly for a loss. It all depends on how the market is performing.

Even if you do sell an investment for a favorable return, you will need to pay capital gains taxes on the earnings. While more favorable than typical income tax rates, the capital gains tax rate could still chip away at the overall amount you have at your disposal for an emergency. Worse yet, you may be subject to a higher tax rate if you don’t hang onto the assets for more than a year.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

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Investing

Retirement Planning: Key Steps and Common Questions

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone and is not intended to be a source of investment advice. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

Whether you’re just starting out in your career or are starting to think seriously about planning for your future, our guide to retirement planning covers some of the most common questions that prospective savers face: How much do you need to save? What’s the best way to grow your savings to support yourself once you stop working? Where should you be investing your retirement funds?

We cover these questions and more in our guide to retirement planning below.

What is retirement planning?

Retirement planning is the process by which you prioritize your income and assets to support your ideal lifestyle once you stop working. Retirement planning involves devoting a portion of your paycheck to one or more retirement accounts, such as a 401(k) plan or an individual retirement account (IRA), which can be a traditional or a Roth IRA, among other forms.

Investing early helps you reap the benefits of compounding interest over time. You also need to take into account your risks at various stages of life as you decide how and where to save for retirement.

“Be familiar with all the saving tools and strategies available to you,” said Kevin Gaines, chief investment officer at American Financial Management Group. “Using the ‘best tool’ for a specific need may sound right, but you need to have some flexibility in case things change.”

Retirement planning is an ongoing process, and what works for you now may change over time. Plan to reevaluate your cash flow needs every year and make adjustments to your retirement planning strategy.

How to approach retirement planning

The right strategy for retirement planning will look different for every person or family, but all retirement planning begins with assessing your resources and setting goals.

You begin the retirement planning process by quantifying your resources, said Charles L. Failla, a certified financial planner at Sovereign Financial Group, Inc. How much is your salary? Do you have valuable assets, such as a house? How much money do you have in savings? Getting a full picture of your net worth is the first step.

The next step to approaching retirement planning is to think about what you want your retirement to look like, and how your savings can make those dreams a reality.

“Retirement is not a goal — what you will do during retirement is the goal,” said Gaines. “Your goals create a savings target while you’re working, and then, as you enter retirement, an income target.”

To live comfortably during retirement, you’ll need to save enough to cover at least your basic needs, including housing, transportation, food, medical care, insurance and clothing. Retirement planning can also address what you’d need to do to achieve your ideal retirement lifestyle, whether that includes travel, hobbies or entertainment.

“Beyond goals, other conversations such as long-term care funding and estate planning need to be part of a retirement plan,” said Gaines. “It is very important to understand what could go wrong and how the plan will adjust.”

Online tools, like this retirement income worksheet and this retirement expenses worksheet, can help you estimate your finances during retirement. Understanding this information can help you develop a strategy to withdraw the money you need from your assets while “minimizing the risk of outliving your savings,” added Gaines.

How much should you save for retirement?

Retirement planning gives you a road map to determine how you’ll save enough for your non-working years. However, figuring out the “magic number” can be tricky. Here are two common principles that can help you estimate the amount you’ll need for retirement:

  • 4% withdrawal rule: This rule states that retirees can comfortably withdraw 4% of their assets during the first year they stop working. They can then increase the withdrawal amounts to match inflation as the years go on, which should allow their savings to cover them for at least 30 years. Put into action, this rule would allow someone with a $1 million nest egg to withdraw $40,000 in their first year of retirement, with small increases based on inflation in subsequent years.
  • 75% of income rule: Another guideline for figuring out your retirement planning goal is planning to spend no more than 75% to 85% of your current income during each year of your retirement. For example, let’s say someone born in 1980 currently earns $100,000 a year and wants to retire at age 67. Under the 75% of income rule, they’d need to have saved nearly $1.6 million by their anticipated retirement age to cover the expenses of their remaining life expectancy of about 21 more years. “Longevity is something else that must be considered — especially if it runs in the family,” added Failla.

What’s the best age to retire?

A 2018 Gallup poll found that the average American expects to retire at age 66. The earliest people can start collecting Social Security is age 62, with full benefits kicking in between age 65 and 67, depending on what year you were born.

While these statistics can serve as a helpful guideline, calculating the right retirement age for you will depend on your individual financial situation. The longer you delay retirement and continue working, the more time you have to build your savings and the higher your Social Security benefits will be (until age 70). Early in your retirement planning, you can assume you’ll retire around age 65 and set your monthly savings goals accordingly. Once you’re in your 50s, reevaluate any potential gaps in your income and set a more specific retirement date to work toward.

Stages of retirement planning

How you approach retirement planning may change throughout your life. Here are some retirement planning tips to consider at different stages.

Young adulthood

This is the time to start building good habits: “If you get into the habit of saving now, it will be easier to stick with it in the future,” said Gaines.

Financial advisors encourage young adults to maximize their contributions to retirement accounts to take advantage of compounding interest over the decades ahead. This compound interest calculator will show you how early investing can help your money grow over time.

If your employer offers a match to your 401(k) contributions, make sure you contribute enough to hit the maximum so you’re not leaving money on the table. While young adults who do this will have more time to earn compounding interest on the matching contribution, it’s a smart retirement planning strategy at every stage of life.

If you’re enrolled in a high-deductible health insurance plan, it may be a good idea to open a health savings account (HSA), said Gaines. An HSA can offer tax savings on your contributions, earnings and withdrawals if used for eligible medical expenses. Plus, after age 65, you can spend the money in your HSA on anything you want without paying taxes or incurring any penalties.

Mid-career

Throughout your 30s and 40s, continue to increase the rate at which you save for retirement, Gaines advised. This can be challenging if you’re juggling other major expenses, such as a mortgage, consumer debt and the costs of a growing family.

“Budgeting is critical,” Gaines said. “Hopefully your younger self created a savings discipline that you’re now using [when you have] so many other demands on your money.”

If you find that you’re maxing out your 401(k) or IRA contributions, you may need to start exploring other savings vehicles. A certificate of deposit (CD), brokerage account or automated micro-investing app are all potential places to squirrel away extra money for retirement.

Nearing retirement

The countdown to retirement is on and, as such, you need to manage the risks of your investments. When you have less than 10 years until your anticipated retirement date, adjust your portfolio to no more than 40% to 50% in stocks, the riskier asset class, said Failla. Allocate no more than 20% of your portfolio to stocks when you’ve got five or fewer years to retirement, eventually bringing it down to a majority of low-risk investments (such as CDs and money market accounts) when you’re in your final year of work, he advised.

You can also start making more precise estimates on your financial goals and retirement expenses during this stage of your life. Eliminate your debt (if you didn’t already do so earlier in your career) and take advantage of catch-up provisions, which allow people to contribute an extra $1,000 to their IRA or an extra $6,500 to their 401(k) each year starting from age 50.

Retirement accounts you should consider

When it comes to retirement planning, you have a few different options. This article explains the different retirement plans, including 401(k) plans, traditional IRAs, Roth IRAs, SEP IRAs, HSAs and Roth 401(k) plans, along with tips on choosing the right option for you.

While some people may manage their portfolios manually, many others choose to work with a financial advisor who can analyze their individual circumstances and offer advice on where to invest their money for retirement.

You can also open a retirement account managed by a robo-advisor, which uses sophisticated algorithms to invest your retirement savings in diversified portfolios that meet your needs. This could be a more cost-effective option than working with a traditional financial advisor.

Regardless of which option you choose, what’s crucial is to consider what works best for your personal financial situation and to start saving sooner rather than later.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.