Author: Maurie Backman

Like an island far away on the horizon, owning a home has never felt more out of reach. Year after year, home prices have climbed higher, leaving many buyers with a tailwind, wondering if they’ll ever catch a break.

In January, the S&P CoreLogic Case-Shiller index — a key measure of national home prices — jumped another 4.1% year-over-year. And February wasn’t any kinder, with the National Association of Realtors (NAR) reporting a 3.8% annual increase in the cost of existing homes.

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But could relief finally be on the way? Housing inventory appears to be on the rise, which could lead to lower home prices. Several major real estate organizations — including Fannie Mae, the Mortgage Bankers Association and the NAR — expect home price growth to slow in 2025.

This could benefit buyers, but it’s also something sellers should keep in mind.

Why homebuyers could see relief

One big reason home prices remain high is limited inventory. When supply is scarce, prices tend to rise.

In February, housing inventory climbed 5.1% from the previous month and 17% year over year, according to the NAR. This growing supply could help stabilize or even reduce home prices. Many homeowners have been reluctant to sell in recent years due to high mortgage rates.

During and shortly after the pandemic, many homeowners locked in historically low mortgage rates by either purchasing a home or refinancing. As a result, they have been hesitant to trade their affordable loans for costlier ones.

However, mortgage rates have fallen modestly in recent months. If this trend continues, more homeowners may decide to list their properties, further increasing supply and cooling the housing market.

Home prices could decline more noticeably in regions with abundant supply, such as Texas and Florida. In January’s Case-Shiller report, which tracks prices in 20 major U.S. cities, Tampa was the only market to show a year-over-year drop.

Meanwhile, as more companies implement return-to-office policies, large metropolitan areas like New York City may experience stronger home price growth due to increased demand. New York, Boston and Chicago saw the largest price gains in January’s Case-Shiller reading.

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How homeowners can prepare

While U.S. home prices are unlikely to plummet, inventory is gradually normalizing.

Some experts worry that factors such as tariff policies could fuel an economic recession, potentially dampening homebuyer demand and pushing home values downward. Some markets — particularly major job hubs — may be more insulated from these effects. However, all homeowners should be prepared.

As of the third quarter of 2024, the average U.S. homeowner had approximately $311,000 in home equity, according to CoreLogic.

If you’re a homeowner, you may want to capitalize on the equity you have now — and protect yourself against a potential recession — by applying for a home equity loan or line of credit (HELOC) sooner rather than later.

A HELOC could be a more flexible option than a home equity loan since it doesn’t require immediate installment payments. Instead, homeowners can access funds as needed.

Unfortunately, now is not a particularly good time to refinance a mortgage, as rates are still elevated. Many homeowners would be looking at higher rates than they currently have.

However, refinancing — particularly through a cash-out refinance — could still be worth looking at, as it allows homeowners to tap into their home equity.

Should you sell now?

The answer depends on your situation.

Selling before prices drop could allow you to lock in a higher sale price. However, if you plan to buy another home at the same time, you’ll likely pay more for your new property — potentially at a higher mortgage rate.

That said, now could be a good time to sell if you’re downsizing, especially if you won’t need to take out a mortgage on a smaller or less expensive home.

Ultimately, no one has a crystal ball to foresee when the right time to sell will be based on current market conditions. But another factor to consider is the possibility of a recession.

A recent Deutsche Bank survey puts the probability of a U.S. recession within the next 12 months at 43%. If you can afford your current home, it may be wise to sit tight rather than take on the financial burden of a more expensive home amid uncertain economic conditions.

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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

Soaring food prices have been hurting consumers for years. But things are coming to a head, especially as retailers and consumers grapple with tariff concerns.

According to Bloomberg, Walmart CEO Doug McMillon recently shared at the Economic Club of Chicago that food prices are still elevated — and that consumers are showing signs of "stress behaviors."

“We worry about that,” McMillon said. “You can see that the money runs out before the month is gone.”

McMillon says that shoppers are being more selective in what they buy and are prioritizing value purchases.

“There are lots of income levels in this country — if you’re at the lower end of that scale, you are feeling more frustration and pain because of higher food prices,” he said. “They’ve persisted for years now, and you’re just tired of it."

But what’s the ripple effect behind these price increases?

Food prices aren’t slowing down

According to the Consumer Price Index, food costs were up 2.6% broadly year over year in February, while grocery prices were up 1.9% annually.

All told, food prices have been up nearly 25% since 2020. A big reason for the spike is the supply chain issues caused by severe weather and global events. It hasn’t helped that several food staples have been in short supply.

For example, in early 2025, a bird flu outbreak caused an egg shortage and drove the price of eggs up to a record high that hasn’t been seen since 1980.

Meanwhile, a decline in U.S. cattle inventory has made beef more expensive. The country’s cattle supply recently fell to its lowest level in 64 years.

And down in the South, a citrus greening disease has reduced Florida’s citrus production by 75% since 2005. Extreme weather from hurricanes has also harmed supply, making citrus products more expensive.

Cocoa prices have also risen due to a global supply shortage since early 2024. This has been primarily caused by weather-related issues and diseases ruining crops in West Africa, where the majority of the world’s cocoa is produced.

The combination of these and other factors has made groceries more expensive overall. In late 2024, a survey by Swiftly found that 70% of American consumers are having difficulty affording groceries.

A broad immigration crackdown could also negatively affect food costs, as it could lead to labor shortages that impact supply. And with the potential for tariffs to drive prices up even more, things could get worse before they get better.

How to save money on groceries

Unfortunately, consumers may be in for another year of soaring grocery prices. But there are steps you can take to reduce the burden.

First, consider buying staple items in bulk. You don’t necessarily need a warehouse club membership to take advantage of bulk discounts. Many supermarkets and big-box stores carry select items in bulk. But be careful with bulk perishables, because wasted food can become wasted money.

It’s also a good idea to shop at discount grocers in your area — think dollar stores or supermarkets like Aldi that carry lesser-known brands. If there’s no discount grocery store where you live, load up on the store brand. But always check prices, because a sale on a national brand could make it the most cost-effective option.

Planning your meals based on what’s on sale at your local supermarket is also a good idea. Focus on meals that freeze easily — like casseroles and stews. This way, you can whip up a lot of food and save some for later.

Also, make sure you’re signed up for your supermarket’s loyalty program. You may qualify for extra discounts, promotions or digital coupons that save you even more.

Using the right credit card when you shop for groceries can make a big difference, too. Some offer bonus cash back on supermarket purchases. That won’t lower your costs, but it could at least put more cash back in your pocket.

Finally, seek out alternative sources of food. Farmers’ markets can sometimes result in savings, but not always. A smarter bet may be to go directly to local farms, if possible, to see if you can score produce at a discount. Joining a community garden or community supported agriculture program could also help you save on fresh items when needed.

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

Owning a home these days can be challenging, especially with elevated mortgage rates and sky-high home prices. In fact, more than half (53%) of Americans who don’t own a home don’t believe they will ever be able to afford one, according to Northwestern Mutual’s 2025 Planning & Progress Study.

But what if you’ve bought a home and come to regret it? What if you’re barely able to get by after home insurance, upkeep and maintenance costs, not to mention property taxes and any management fees?

Selling your property and saying goodbye to homeownership can have benefits, but there are also drawbacks to consider.

The financial implications

Selling your home could put a pile of cash in your pocket if you have equity. But you could also end up with a tax bill on your hands.

There’s a capital gains tax exclusion of $250,000 for single tax-filers and $500,000 for joint filers for people who sell their homes. You should qualify if the house was your primary residence and if you owned it for at least two years before selling it.

You also need to have lived in the home for at least two years in the five-year period before selling it, and you can’t have claimed another capital gains exclusion for the sale of a house in the two-year period before your sale.

But if you’re selling your home for a profit exceeding the capital gains tax exclusion you’re eligible for, you could have a tax bill.

For example, if you’re single and bought your home for $200,000, but it’s now being sold for $600,000, you have a $400,000 gain. However, only $250,000 is eligible for the exclusion, meaning you have to pay taxes on the remaining $150,000.

On the other hand, a near-term tax hit may be worth it if you can invest your sale proceeds and grow them into a more considerable sum.

The long-term impact

There’s nothing wrong with deciding that owning a home isn’t right for you. But it’s important to understand the long-term effects.

Homeowners who itemize their taxes may be able to deduct mortgage interest as well as property taxes as part of the SALT (state and local tax) deduction. If you never buy another home, you’ll lose that tax break.

As a renter instead of an owner, you also lose some of the stability of homeownership. For example, you may suddenly see your rent increase or be forced to move, and there’s little you can do about it.

If you have children, this can be even more unnerving if you want to stay in the same school district throughout your kids’ education, which could cause some upheaval.

Also, homes tend to gain value over time, and owning a home can be a means of forcing long-term savings. If you reach retirement age without much savings but have a home with a few hundred thousand dollars of equity, downsizing and collecting the proceeds could subsidize your IRA or 401(k) balance.

On the plus side, being a renter means enjoying fixed monthly costs for the life of each lease you sign. And you don’t have to deal with the hidden costs of ownership, such as surprise home repairs and insurance premiums. Despite less security, it can work out to be less expensive this way.

Of course, it’s recommended that you discuss the long-term implications of not owning a home with a financial adviser. They can explain the pros and cons and help you make the most of your sale proceeds should you decide to sell your house and set aside homeownership.

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

High interest rates have been battering consumers for years. And there’s been a lot of pressure on the Federal Reserve to lower its benchmark interest rate, since that should result in lower consumer borrowing costs across the board.

But in March, the Fed opted to keep its benchmark interest rate steady. The Fed hasn’t nudged interest rates downward since late 2024. Its last rate cut happened back in December.

That’s not sitting well with President Donald Trump, who has made it clear that he’s looking for the Fed to cut rates in short order.

“The Fed would be MUCH better off CUTTING RATES as U.S.Tariffs start to transition (ease!) their way into the economy,” Trump wrote in a post this past Wednesday on Truth Social.

“Do the right thing. April 2nd is Liberation Day in America!!!”

On April 2, Trump is expected to roll out a targeted tariff initiative that focuses on trade partners who are considered to have large imbalances with the U.S.

How interest rates and tariffs affect the economy

Both interest rates and tariffs can have a notable impact on the U.S. economy.

Interest rates dictate how much it costs consumers to borrow money. They also determine how much it costs companies to borrow money to finance operations.

When interest rates are higher, consumers tend to spend less. It’s for this reason that the Federal Reserve tends to raise interest rates during periods of higher-than-average inflation.

Inflation commonly comes as the result of a mismatch between supply and demand. When there’s not enough supply to meet demand, prices tend to rise.

By raising interest rates, the Fed can discourage consumers from spending. That, in turn, narrows the gap between supply and demand, causing prices to come down.

Tariffs, meanwhile, can lead to higher costs for imported goods. If it costs more for U.S. supermarkets and retailers to source the products they sell, those higher costs are generally going to be passed onto consumers, resulting in higher prices.

Of course, the hope is that U.S. companies will source more products domestically in light of tariffs. But that won’t necessarily result in lower prices.

Quite the contrary — domestic goods are commonly more expensive to produce, which could lead to higher prices. In fact, the whole reason the U.S. is so heavily dependent on foreign trade partners is that it’s historically been more economical to source certain products than produce them domestically.

In response to the expected impact of tariffs, the Fed raised its 2025 inflation forecast to 2.8% in mid-March.

The reason Trump is pressuring the Fed to lower its benchmark interest rate is to make borrowing less expensive for consumers. Lower borrowing rates could potentially offset some of the higher costs that may result from tariffs.

But lower borrowing rates could also fuel inflation by encouraging more spending. So, it’s easy to see why the Fed isn’t in a rush to go that route.

How to adjust your finances in today’s economy

It’s hard to know what actions the Fed will take in the coming months, and it’s hard to predict the exact impact of tariffs on the average consumer’s wallet. But, there are some steps you can take to protect your personal finances given current circumstances.

First, know that until interest rates come down, borrowing is going to be more expensive. So, 2025 may not be the best time to sign a new loan or refinance an existing one. You may instead want to focus on boosting your credit score so that if rates come down next year, you’ll be in a strong position to borrow.

On the other hand, you should know that while elevated interest rates are bad news for borrowers, they’re great news for savers. Now’s a good time to put extra money into a high-yield savings account. You can also open a certificate of deposit (CD) if you have cash on hand you don’t expect to need for a period of time, which guarantees you the same interest rate until its maturity date.

Given that there’s pressure on the Fed to cut rates, a CD could be a good bet. If interest rates fall, savings accounts are apt to start paying less. But if you lock in a CD at a given rate, your bank has to honor that rate.

You may also want to boost your emergency fund given that economic conditions could potentially fuel a recession or cause stock market volatility.

On March 13, the stock market entered correction territory for the first time in more than a year (meaning it fell at least 10% from a recent high, but less than 20%). Tariff policies, once implemented, could drive stock values down even more. So, now’s a good time to rebalance your portfolio as needed or potentially cash out some remaining gains if your emergency fund needs a boost.

A recent U.S. News & World Report survey found that 42% of Americans have no emergency fund. While J.P. Morgan’s chief economist puts the chance of a U.S. recession at 40% this year.

A recession could lead to widespread layoffs, which is why it’s important to have a solid emergency fund — one with at least three months of living expenses. A fully loaded emergency fund could make it easier to leave your stock portfolio alone in the event of market meltdown, sparing you from locking in losses due to needing cash.

Of course, no one has a crystal ball, so it’s hard to know how things will shake out economically in the coming months. But, it’s best to prepare as best as you can by stockpiling some cash and being careful about taking on new debt. You should also make sure your investment portfolio is well diversified, to withstand potential turbulence.

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

Many people spend years contributing to their retirement savings in the hopes of building a sizable nest egg for later in life. You may have worked hard to grow your retirement account balance, too.

If you’re planning to retire next year, now is a good time to review your portfolio and ensure your assets are appropriately allocated for your age. But what does that mean in practical terms?

Your portfolio likely includes a mix of stocks (equities) and bonds (fixed income), and you may be wondering what the right balance is. Here’s how to figure out the optimal mix.

The benefits of stocks vs. bonds in retirement

Having both stocks and bonds in your retirement portfolio offers distinct advantages. While stocks carry more risk, they also tend to deliver stronger returns.

Since 1926, U.S. stocks have averaged an annual return of around 10%, whereas bonds have typically returned 5% to 6%.

Maintaining stocks in your portfolio is important because you want your money to continue growing during retirement. However, bonds play a role in protecting a portion of your assets from stock market volatility.

Unlike stocks, bond values don’t fluctuate wildly, providing stability — a necessity when you’re living off your investments. Bonds also offer to generate fixed income since they’re contractually obligated to pay interest.

Stocks can provide income as well if you invest in dividend-paying companies. However, unlike bonds, companies’ stocks are not required to pay dividends, and even those with a solid history of doing so may opt to cut or eliminate those payments as they see fit.

How to build the right investment mix

How you allocate your assets before retirement may not be the same strategy you use during retirement — and for good reason.

While you’re working, you have time to ride out stock market downturns because you won’t need to withdraw that money for many years. Once you’re retired, however, you may need to tap into your portfolio regularly for income, requiring a more cautious investment approach.

For this reason, it’s a good idea to keep the bulk of your portfolio in stocks during your wealth accumulation years. But as you transition into retirement, shifting a greater percentage into bonds can help manage risk and provide stability.

Your specific allocation will depend on factors like life expectancy, risk tolerance and income needs. Some retirees prefer a 50/50 split between stocks and bonds, while others opt for a 40/60 split in either direction.

A common guideline is the rule of 110, which suggests subtracting your age from 110 to determine the percentage of your portfolio that should be in stocks.

• At age 40, this rule suggests keeping 70% of your assets in stocks.
• At age 65, a 45% stock allocation may be more appropriate.

Another popular strategy is the bucket strategy, which divides your portfolio based on different time horizons:

• Short-term bucket: Holds conservative investments like bonds for near-term expenses.
• Medium-term bucket: Includes a mix of stocks and bonds.
• Long-term bucket: Primarily stocks for long-term growth.

It’s also important to maintain a cash reserve. Rather than allocating a fixed percentage to cash, a good rule of thumb is to keep enough to cover one to two years of living expenses. This allows you to avoid selling investments during a market downturn.

Finally, your retirement portfolio doesn’t have to be limited to stocks and bonds. Depending on your income goals and risk tolerance, you might consider diversifying with real estate, such as a rental property.

Consulting a financial adviser can help you develop a strategy that balances risk and reward — ensuring your portfolio meets your retirement needs.

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

The benefit of hiring someone to manage your money is getting expert investment advice that protects your portfolio from market volatility while fueling its growth. But, what if you’re paying for advice you don’t agree with?

Say you’ve decided to use your father’s wealth manager to oversee your own money, only they decide to put your entire portfolio into a single investment. That may seem like a suboptimal choice. And it could be a risky bet.

So it’s important to keep tabs on your portfolio, even if you’re paying someone else to do the work. And it’s equally important to make sure your investments are diversified.

The problem with sticking to a single investment

Whether this one investment of yours poses a risk depends on whether it’s truly a single asset, like bitcoin or a particular stock, or is something like an index fund or mutual fund or exchange-traded fund (ETF), which are actually bundles of many individual assets. An S&P 500 ETF, like the Vanguard S&P 500 ETF (VOO), for example, would contain exposure to hundreds of blue-chip U.S. companies.

If a single fund matches your investing strategy, risk tolerance and time horizon, then that’s fine.

Investing in only a single stock, on the other hand, even one with a storied history, can carry significant risk or volatility.

The stock market has a long history of being volatile. Since 1929, it’s undergone 56 corrections where it lost at least 10% but less than 20% of its value. Plus, of those 56 corrections, 22 became bear markets where stocks lost 20% of their value or more.

When the market tanks on a whole, even a well-diversified portfolio can lose value. But if you’re not diversified and a specific sector of the market takes a hit, your personal losses could end up being significant.

Granted, you don’t officially lose money in the stock market until you actually go out and sell assets at a loss. But, you never know when you might need to tap your portfolio to address a need for cash.

An estimated 42% of Americans do not have an emergency fund they can access to cover unplanned expenses, according to U.S. News & World Report. So even if your preference is to leave your portfolio alone during a market downturn, if you lose your job and have no emergency savings, you might have to liquidate some assets immediately. With a more diversified portfolio, you may end up with some assets that haven’t lost value in a broad market crash, or haven’t lost as much value as others.

Furthermore, it’s possible for an individual stock to lose a lot of value even if the market on a whole is doing well. If you keep your entire portfolio in one stock, a significant loss in value could upend your financial plans.

Just look at Intel Corporation (INTC). The stock has lost about 48% of its value over the past year alone. Now, imagine you had a $100,000 portfolio a year ago that consisted only of Intel. At this point, your portfolio would be down to $52,000.

How to build a diversified portfolio

Your goal in investing should be to maintain a portfolio with different assets. That means dabbling in different asset classes, as well as different options within each asset class.

When we talk about asset classes, we’re referring to types of investments, such as stocks versus bonds versus real estate. It’s a good idea to have money in all of these, though the percentage should hinge on your risk tolerance and how close or far you are from retirement.

When you’re decades away from retirement, it’s a good idea to go heavy on stocks and put a smaller portion of your portfolio into bonds. When retirement gets closer, you may want to flip things around.

Real estate is something you can invest in at any time, provided you understand the risks and are willing to do the work. With physical real estate, you can make money by renting out a property or seeing its value rise over time. But, there’s also the risk of costly repairs and going months without a tenant. Plus, you have to be willing to do the work.

If you like the idea of investing in real estate for diversification, but you don’t like the idea of owning physical properties, you can look at real estate investment trusts (REITs) instead. Many trade publicly like stocks and offer generous dividends.

Meanwhile, within each asset class in your portfolio, it’s important to diversify. On the bonds side, you may want to put money into corporate bonds as well as municipal bonds for the tax benefits, such as federally tax-exempt interest payments.

On the stock side, it’s a good idea to own shares of companies across a range of market sectors. If you don’t like the idea of choosing stocks specifically, you could fill your portfolio with sector-specific ETFs, like, say, some health care ETFs, energy ETFs, tech ETFs and so forth.

You could even simplify things further by loading up on shares of a total stock market ETF like the Vanguard Total Stock Market Index Fund ETF (VTI). These types of ETFs give you exposure to the broad market, so this is the one situation where it may be okay to fill the stock portion of your portfolio with a single investment.

But remember, broad market ETFs will allow you to match the performance of the stock market at large — not beat it. If doing better is a goal of yours, then you’ll need to branch out into individual stocks. And loading up on a wide variety of them could be your ticket to long-term success.

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

Buying a home is a pricey prospect, even if prices are trending downward. According to the Canadian Real Estate Association, the national average home price sat at $668,097 in February 2025, a 3.3% decrease from the year prior.

If you’re 34 with $80,000 saved, you may be thinking of using that money to buy a home. That amount would allow you to put up to 20% down on a $400,000 home.

Now, it’s one thing to use all of your money to buy a home you’ll be living in. But if you’re thinking of buying an investment property, it can be risky — even if you’re confident you can charge enough rent to cover your mortgage costs. So, it’s important to weigh your options carefully.

The pros and cons of rental properties

There are a number of benefits to owning a home you rent out. First, the amount you charge can be put toward the home’s mortgage, all while you get to be the one who builds equity in the home.

Eventually, you might walk away with a large profit or end up with a home that is fully paid-off in time for retirement.

As the landlord, you’ll have the right to not renew tenant leases and occupy the home if you so choose. You may not need to live in the home you’re buying now because you have a cheap rental elsewhere, or you live with a romantic partner. But if your situation changes, your home is something you can fall back on.

Furthermore, if you’re renting out your home, you can deduct certain costs on your taxes — these include maintenance expenses and repairs.

On the other hand, buying a rental property potentially means taking a big risk — especially in the situation described above. If you use all of your savings to purchase a home, you risk landing in debt the next time an emergency or unplanned expense arises.

Speaking of expenses, there are numerous costs associated with owning a home, and there are many you can’t plan for. Property taxes can rise, your insurance costs might increase or an expensive repair might become necessary. Plus, the possibility of a non-property emergency still exists. So, it’s not a good idea to leave yourself without a financial cushion.

Another thing to consider is that when you own a rental property, you’re not guaranteed steady income. You could wind up with a tenant who doesn’t pay, or you could end up going months in between tenants if one leaves.

In addition, if you rent out your home, you’re obligated to address tenant concerns as they arise. That could mean interrupting your plans to address any issues. And while you could hire a property manager to do those things for you, that’s yet another cost you’d bear — one that will eat into your profits.

Being a successful property investor

While owning a rental property can be risky, there are steps you can take to set yourself up for success.

Be sure to leave yourself with a solid emergency fund when buying a home. Or, to put it another way, don’t empty your savings completely for a down payment. This can be a life-saver if things go sideways.

Research the market you’re buying in to see what homes typically rent for and what local vacancy rates are. Talk to a real estate agent if you can’t find the data you need yourself. The more information you have, the better you can price and market your rental units.

Look for certain neighborhood features, like good schools and access to amenities. If you buy a home in a desirable location, you may be more likely to have it continuously occupied.

Talk to people who own rental properties and find out what their experience is like. You might think that being a landlord is a role you can handle only to learn that it’s more than what you’ve bargained for. And if so, you’re better off knowing that from the start so you can factor the cost of a property manager into your budget.

Finally, if you want to take maximum advantage of the tax perks of owning a rental property, you may want to consult with a financial adviser or accountant to ensure you’re getting the most out of your investment.

Sources

1. Canadian Real Estate Association: National Price Map)

This article I’m 34 with $80,000 in savings and I want to buy a $400,000 house to rent out. But as a first-time investor, would it be too risky to carry a mortgage on a property I won’t occupy?originally appeared on Money.ca

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

At 60, if you have $1.2 million saved for retirement, you have more than double as much as most of your peers, according to Statistics Canada.

But even though that’s a lot of money, it’s important to manage your sizeable nest egg carefully. You could try to live off of dividend income from your portfolio, or draw down your total portfolio over time.

Living off of portfolio income alone

A 2024 CPP Investments survey found that 61% of Canadians are more worried about running out of money during retirement.

The nice thing about living on portfolio income in retirement is that you aren’t touching the principal, meaning it should, in theory, hold steady or grow rather than shrink.

But it takes a lot of principal to generate sufficient income to live on, especially when dividend yields are as low as they are today.

The average S&P 500 dividend yield is currently just 1.27%. Even if you assemble a portfolio of individual stocks with higher dividend yields, you may only be looking at 5%.

For a portfolio worth $1.2 million, that’s $60,000 in annual income, which may or may not be enough to maintain your lifestyle.

Of course, it’s not a good idea to keep your entire portfolio in stocks. A safer bet is to split your assets between stocks and bonds, which could produce a little under a 5% return. It is doable, but whether the income suffices depends on your income-related needs.

Keep in mind you’ll have CPP benefit, as well. With the average retired worker collecting about $808 per month or up to $1,433.00 if you delay receiving it, you could be looking at up to $17,200 in benefits annually.

When you combine these government pension earnings with your investment portfolio income that works out to just over $77,000 in retirement income, each year.

But there’s one big caveat: While living on your portfolio income allows you to preserve your principal investment portfolio, to a degree, neither growth of that portfolio nor income generated from the portfolio are guaranteed.

Market volatility means your stocks could fall in value, eroding your principal. Stock dividends aren’t guaranteed the way bond interest and principal are guaranteed, assuming you hold the bonds to maturity.

The other risk of an income-only approach is that you could lose purchasing power over time due to inflation, which drives living costs upward. Assuming the income you earn from your portfolio holds steady at $60,000 per year, this may be adequate when you start retirement, but find it doesn’t stretch far enough a decade or two into retirement.

The “total return” approach

Another option is to live on income and principal from your portfolio — the “total return” approach — as you whittle down your principal while enjoying dividends.

This is a more flexible approach. You can sell principal assets and take advantage of market gains. As your portfolio grows, a total return approach gives you access to more annual income, making it easier to keep up with inflation.

Here’s how this might work. Say you have $1.2 million and you decide to follow the 4% rule, drawing down 4% of your principal annually to ensure your savings last 30 years. In your first year of retirement, you’d receive $48,000 of annual income. If inflation then rises 2% the next year, you’d withdraw $48,000 plus another 2%, or $960, for a total of $48,960.

As your portfolio gains value, you can keep adjusting your withdrawals for inflation, making it easier to keep up with the cost of living.

The 4% rule is just a guideline. There are other factors to consider as you determine your withdrawal rate: market conditions, your investment mix, and your life expectancy.

For example, Morningstar found that a 3.3% withdrawal rate was optimal for retirement savings in 2021; 3.8% in 2022; and 3.7% in 2024.

This means that while the “total return” approach offers more flexibility, it requires an ability to constantly adjust to market conditions and your personal needs. It’s a good idea to enlist the help of a financial adviser who can help you adjust your withdrawals as needed.

In this approach, too, if your portfolio loses value, you may have to withdraw less temporarily until the market settles. It’s wise to have one to two years’ worth of living expenses in the bank so you can leave your portfolio alone for a period of time if need be.

It’s also important to have income-producing assets in your portfolio that help it gain value from year to year. Dividend and interest income could help offset market losses.

So all told, no matter which approach you take, the right investment mix is crucial.

Sources

1. Statistics Canada: Assets and debts held by economic family type, by age group, Canada, provinces and selected census metropolitan areas, Survey of Financial Security (Oct 29, 2024)

2. Y Charts: S&P 500 Dividend Yield

3. Government of Canada: CPP Retirement pension: How much you could receive

This article I’m 60, ready for retirement with $1.2M saved. I plan to live off dividend income — not sell assets. Is this really more risky than a ‘total return’ approach? originally appeared on Money.ca

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

It’s hardly a secret that home prices are soaring on a national scale. In February, the median existing-home sale price rose 3.8% to $398,400 on an annual basis, according to the National Association of REALTORS.

Despite mortgage rates being elevated, consumers are continuing to purchase homes. And a limited inventory on a national scale is helping to keep housing prices up.

For this reason, it’s important to make sure you’re not getting in over your head as far as a home purchase goes. And you may be inclined to follow the general guidance of keeping your housing costs to 30% of your gross income.

But that formula may have some flaws. And you may want to tweak it to avoid taking on too much house yourself.

Rethinking a general rule of thumb

Home buyers are commonly advised to keep their housing costs to 30% of their gross income or less. For renters, that means rent alone should not exceed 30% of gross pay. For homeowners, that 30% should include not just a mortgage, but also, property taxes, insurance, HOA fees, and any other fixed monthly expense related to being a property owner.

But there are two problems with the 30% rule. The first is that based on home prices today, the typical U.S. wage-earner either can’t afford a home, or can’t manage to keep their costs to 30% of their pay or less.

The Bureau of Labor Statistics puts median weekly earnings at $1,192 in the fourth quarter of 2024. That amounts to about $61,984 per year (assuming 52 weeks of work), or roughly $5,165 per month.

Meanwhile, the average 30-year mortgage rate today is 6.67%, reports Freddie Mac. If we take the median U.S. home price of $398,400 and apply a 20% down payment along with a 6.67% rate on a 30-year mortgage, we get a monthly mortgage payment of $2,050 for principal and interest.

But with a median monthly income of $5,165, that mortgage payment alone takes up almost 40%. And that doesn’t even include other homeowner expenses like property taxes. So it’s clear that the 30% rule doesn’t work based on median wages and home prices today.

The other issue is that calculating housing costs as a percentage of gross pay does home buyers a disservice. The reality is that everyone is responsible for paying taxes, which whittles down paychecks automatically.

Workers also need to carve out room in their paychecks for non-housing expenses, as well as long-term goals like retirement savings. So a more prudent approach to home buying may be to limit housing expenses to 30% of net pay, not gross pay.

How to budget for housing expenses

You can use the 30% rule — either gross or net pay — to budget for your housing expenses if that works for you. But it’s also important to consider your individual circumstances.

In some cases, it may be okay to exceed the 30% mark on housing if your remaining expenses are very low. For example, people who live in cities often don’t need a car and have very low transportation costs.

AAA puts the average cost of owning a vehicle at $1,024.71 per month. If you don’t have a vehicle and walk almost everywhere, you may be okay to spend more than 30% of your pay on housing.

On the other hand, let’s say you have young kids. Care.com puts the average cost of daycare at $343 per week for an infant and $315 per week for a toddler.

Even if you only have a single toddler needing full-time care while you work, that could be costing you $1,260 per month. And you could be spending much more if you have multiple children in daycare. So that would be a reason to keep your housing costs to well under 30% of your pay.

Another reason to keep your housing costs lower than 30% of your pay is if you have expensive debt you’re looking to shed. Experian reports that the average credit card balance among U.S. consumers hit $6,730 during the third quarter of 2024. If you have a balance that’s much higher, though, it’s likely monopolizing a lot of your income, leaving you with less money to spend on a home.

It’s also important to think about your financial priorities. If putting your kids through college is a big goal of yours, then you may want to spend less on housing so you’re able to contribute consistently to an education fund. And if you know your job won’t be providing a pension, there’s more pressure on you to contribute generously to your IRA or 401(k) plan.

Plus, there may be things you want to do with your time that cost money, like travel. The less you spend on housing, the more room you have for that.

For this reason, it’s important to establish a household budget that addresses your needs and priorities, and then see how housing fits in. If you use the 50/30/20 rule for budgeting, it means you’re allocating 50% of your income to needs, 30% to wants, and 20% for savings. But that means you may not have enough room to allocate 30% of your income to housing alone.

All told, the 30% rule for housing costs is a good starting point to work with. But think about how well it fits into your budget and plans before following it.

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.