What should I do with $300 a month?
April 30, 2022 11:57 AM Subscribe
I no longer have this regular monthly bill, and I would like to direct the same funds to some smart investment. What should I do?
I have no credit card debt and I own my car. The only loan I have is the last five years of a 3.5% mortgage. I am widowed, have no kids, am in decent health and in my 50s.
I am lucky in a lot of ways, I know that, but I have always had a bit of anxiety about being old and alone and not having enough money, so this feels like a good opportunity to address that. Compared to others my age, I’m probably not sitting particularly strong in terms of savings for retirement (though I am now finally contributing 15% toward my employer IRA, so yay for that).
What would be the smartest thing to do with $300 a month?
I have no credit card debt and I own my car. The only loan I have is the last five years of a 3.5% mortgage. I am widowed, have no kids, am in decent health and in my 50s.
I am lucky in a lot of ways, I know that, but I have always had a bit of anxiety about being old and alone and not having enough money, so this feels like a good opportunity to address that. Compared to others my age, I’m probably not sitting particularly strong in terms of savings for retirement (though I am now finally contributing 15% toward my employer IRA, so yay for that).
What would be the smartest thing to do with $300 a month?
Have you looked into long term care insurance? I know for some people, this has been a real boon.
posted by amanda at 12:02 PM on April 30, 2022 [1 favorite]
posted by amanda at 12:02 PM on April 30, 2022 [1 favorite]
I would recommend putting 2/3rds of it towards accelerating your mortgage payments. Reducing your debt frees up money for other things.
And, to echo redlines, consider a Roth IRA for the remainder.
posted by SPrintF at 12:11 PM on April 30, 2022 [2 favorites]
And, to echo redlines, consider a Roth IRA for the remainder.
posted by SPrintF at 12:11 PM on April 30, 2022 [2 favorites]
I'm guessing your employer IRA is a SIMPLE IRA so you can contribute up to $17,000 ($14K limit + a $3K "catch up" contribution that you can make because you're over 50).
If you're already contributing $17K to your SIMPLE, you can ALSO open your own Traditional IRA - Fidelity, Vanguard, and Schwab are popular and non-scammy options. You can contribute up to $7K a year to an IRA.
Also note that the money you contribute to these accounts is tax-advantaged, so it will also save you money on your tax bill - depending on your tax bracket you might be able to contribute more like $350 or $400 a month without any noticeable change in your finances.
You won't see the tax savings right away with a Roth IRA but you will when you start making withdrawals. Honestly for most people the Roth vs. Traditional question is pretty much a wash.
Whether paying off your mortgage early makes sense really depends on the interest rate - if it's below ~4% I wouldn't bother, unless it would feel really really good.
These are very unsexy suggestions, obviously, but they're solid, I promise!
posted by mskyle at 12:16 PM on April 30, 2022
If you're already contributing $17K to your SIMPLE, you can ALSO open your own Traditional IRA - Fidelity, Vanguard, and Schwab are popular and non-scammy options. You can contribute up to $7K a year to an IRA.
Also note that the money you contribute to these accounts is tax-advantaged, so it will also save you money on your tax bill - depending on your tax bracket you might be able to contribute more like $350 or $400 a month without any noticeable change in your finances.
You won't see the tax savings right away with a Roth IRA but you will when you start making withdrawals. Honestly for most people the Roth vs. Traditional question is pretty much a wash.
Whether paying off your mortgage early makes sense really depends on the interest rate - if it's below ~4% I wouldn't bother, unless it would feel really really good.
These are very unsexy suggestions, obviously, but they're solid, I promise!
posted by mskyle at 12:16 PM on April 30, 2022
Response by poster: Piping in to say that yes I am maxing out IRA and HSA (and taking full advantage of employer contributions to both). I’ve wondered a little bit about long-term care insurance, but I also wonder if there’s a savvier way to invest that kind of money.
posted by AnOrigamiLife at 12:21 PM on April 30, 2022
posted by AnOrigamiLife at 12:21 PM on April 30, 2022
Stopping in to say that if you go with a long term care policy, be very careful and clear about what it will and won’t cover. My mom has been paying on a policy for over 15 years, is now in assisted living with Alzheimer’s, and according to her policy does NOT qualify for benefits.
posted by bookmammal at 12:34 PM on April 30, 2022 [6 favorites]
posted by bookmammal at 12:34 PM on April 30, 2022 [6 favorites]
Long-term care insurance is very risky. It's not working out like the insurers thought it would in terms of their profits, and they're making changes to policies in all kinds of shifty ways. COVID has made it even more complicated. It is not an investment. It's a gamble. You might win, but you might lose big time. If you are considering it, do a lot of research. NerdWallet has an article on alternatives.
posted by FencingGal at 12:36 PM on April 30, 2022 [13 favorites]
posted by FencingGal at 12:36 PM on April 30, 2022 [13 favorites]
Right now ibonds are paying pretty much the highest return you are going to get with no risk (currently 7.12%). If you've maxed out your tax-advantaged accounts (IRA, Roth, HSA, etc), this might be a good option for you. You can put in a max of $10,000 per year. (Edited to add that this assumes you are in the US.)
posted by mcduff at 12:46 PM on April 30, 2022 [6 favorites]
posted by mcduff at 12:46 PM on April 30, 2022 [6 favorites]
Be careful with ibonds. Their interest rate is tightly tied to inflation, which means they’re a great deal right now but will turn into a disappointing investment once inflation returns to its normal level.
posted by Tell Me No Lies at 3:19 PM on April 30, 2022
posted by Tell Me No Lies at 3:19 PM on April 30, 2022
I am a big fan of some amount of money monthly into a no-load index fund.
posted by Windopaene at 5:10 PM on April 30, 2022
posted by Windopaene at 5:10 PM on April 30, 2022
Be careful with ibonds. Their interest rate is tightly tied to inflation, which means they’re a great deal right now but will turn into a disappointing investment once inflation returns to its normal level.
But you can cash out at that point. If you want a risk-free place to hold some money and then make other choices with it later, they aren't a bad option right now. But...I also like the options folks have mentioned above about paying down your mortgage or other investment vehicles. Thanks to those who commented about long term care insurance! It's something I've been thinking about as we approach our 50s...and as we care for our elderly parents who don't have it. I've anecdotally heard good things about it but that's been over the past 15 years and may not reflect what is happening today.
posted by amanda at 5:21 PM on April 30, 2022 [3 favorites]
But you can cash out at that point. If you want a risk-free place to hold some money and then make other choices with it later, they aren't a bad option right now. But...I also like the options folks have mentioned above about paying down your mortgage or other investment vehicles. Thanks to those who commented about long term care insurance! It's something I've been thinking about as we approach our 50s...and as we care for our elderly parents who don't have it. I've anecdotally heard good things about it but that's been over the past 15 years and may not reflect what is happening today.
posted by amanda at 5:21 PM on April 30, 2022 [3 favorites]
Allocate it to a target retirement fund.
Be careful with this. These funds are intended to be held in accounts like IRAs or 401(k)s, and you can run into unpleasant surprises holding them in regular accounts.
posted by Blue Jello Elf at 9:11 PM on April 30, 2022
Be careful with this. These funds are intended to be held in accounts like IRAs or 401(k)s, and you can run into unpleasant surprises holding them in regular accounts.
posted by Blue Jello Elf at 9:11 PM on April 30, 2022
People are living longer than their parents/grandparents did. Have you thought of how you will live in 30 or 40 years? You have no children to help you; this means paid help and that is expensive. So is living in a care or retirement community. While you are still relatively young and healthy consider long term care insurance of some kind. Do you know that Medicare does not pay if the patient is not expected to recover? And consider making friends with neighbor children, nieces and nephews.
posted by Cranberry at 2:04 AM on May 1, 2022
posted by Cranberry at 2:04 AM on May 1, 2022
I am a big fan of some amount of money monthly into a no-load index fund.
This is my go-to as well.
posted by Tell Me No Lies at 8:20 AM on May 1, 2022
This is my go-to as well.
posted by Tell Me No Lies at 8:20 AM on May 1, 2022
This thread is closed to new comments.
posted by redlines at 12:00 PM on April 30, 2022 [10 favorites]