Should I do Roth conversions?

It makes sense to convert pre-tax assets to Roth when you can do so at a lower tax rate than you would be at when required to take distributions from those pre-tax accounts. If you don’t have a significant amount of money in pre-tax accounts, or if your income tax rate in retirement will be at an all-time low, then it may not make sense to convert assets to Roth.

For those who do have a significant amount in pre-tax accounts or have windows of opportunity before distributions start (periods of being in a lower income tax bracket than in retirement), Roth conversions can be a great way to pay less in taxes and can save you tens or even hundreds of thousands of dollars.

How do you know whether or not you should do Roth conversions? First, estimate your taxable income in retirement and your highest marginal tax rate. If you project yourself to be in the 10% or 12% bracket in retirement, there isn’t really any room to convert assets to Roth since there aren’t any lower tax brackets. If you project yourself to be in the 22% bracket, 24% bracket, or higher, are there any years you will be taxed at a lower rate when you have little or no taxable income? If so, those could be great years to convert assets to Roth.

There are a few periods in life where you may have a greater chance to do Roth conversions. Before you begin RMDs or start taking Social Security is one. Your taxable income is lower during this period so it could naturally be an opportunity to convert assets to Roth. If you are able to live on taxable accounts for a period of time, this could be another great opportunity to convert pre-tax assets to Roth. Your taxable income could be $0 if you are retired and living on money from a taxable brokerage account, which has already been taxed. This gives you the chance to convert a substantial amount of assets to Roth at a 10% or 12% federal income tax rate.

You may have an opportunity to turn lemons into lemonade if you were to lose your job. This obviously decreases your income depending on how long you are out of work, but could be a chance to convert pre-tax assets to Roth at a lower tax rate. It is not unusual for the stock market to be down at the same time many Americans are losing their jobs, and converting when the market is down is a great way to get a “discount” on your Roth conversion.

How to do Roth conversions

There are no income limits on Roth conversions (which is what enables the backdoor Roth strategy) and no limits to the amount you can convert each year. In fact, you could convert your entire 401(k) to Roth in a single year even if it was millions of dollars (the IRS would probably prefer it this way since you would pay substantially more in taxes). Converting pre-tax assets to Roth is only a good strategy when you do it the correct, optimal way. Recklessly converting to Roth could end up causing more harm than good.

So what is the “correct” or optimal way? It generally means filling up your lower tax rate buckets with conversions, like your 10% and 12% bucket, but it may not be beneficial to convert at rates of 22%, 24%, or higher, depending on your expected tax rates in retirement. Remember, converting is only worth considering when you can pay a lower tax rate now than you would in retirement.

How you pay the taxes on your Roth conversion can have a big positive or negative impact on your strategy. Whenever possible, you should pay the conversion taxes with outside money, not the money that came out of your pre-tax account. Paying taxes from the funds you are converting means less money going into your Roth account, which means less tax-free growth over time. It could still make sense to do Roth conversions if you don’t have any extra money to pay the taxes, but whenever possible, you should always pay the conversion taxes with outside funds.

There are a couple major mistakes people make when doing Roth conversions. The first is violating the five-year rule and subjecting themselves to unnecessary penalties or taxes. The rules are a bit different depending on your age. If you are younger than 59.5, you must hold the converted principal for five or more years or be subject to a 10% penalty. Any earnings are automatically subject to a 10% penalty and taxes if you withdraw before 59.5, so make sure not to touch those.

If you are older than 59.5, you can take principal or earnings out at any time with no penalty. However, you must wait five years from when you made your first Roth IRA contribution or conversion to withdraw earnings or those will be taxed.

The other big mistake often made when doing Roth conversions is not reconsidering asset allocation. The type of assets you invest in inside of a pre-tax account are substantially different from the optimal investments inside of a Roth account. Since Roth accounts grow tax-free and qualified distributions are entirely tax-free, you want assets that have the most potential for growth inside of your Roth accounts. This doesn’t mean you should change your overall allocation to be riskier, but you should consider shifting risk around to take more in your Roth account and less in other parts of your portfolio.

Converting pre-tax assets to Roth accounts can potentially save you six figures in taxes, but it is only beneficial if you do it the right way. If done incorrectly, Roth conversions could end up causing you to pay more in taxes. Make sure you are always converting at a lower tax rate than you expect to be at in retirement. Whenever possible, pay the conversion taxes with outside money so the full conversion amount goes in your Roth. Know the ins and outs of the five-year rule so you don’t pay any unnecessary penalties or taxes. Reassess your asset allocation after converting and make changes as necessary. If you can do all of that, you can save money on taxes and take larger distributions from tax-free accounts in retirement.

An estimated 22 million Americans were receiving the enhanced subsidies. An analysis found that those who purchase health insurance on the marketplace and receive financial assistance would see costs rise by 114% on average, with monthly premiums going from $888 to $1,904. Even if you never received any subsidies you are still likely to see your health insurance premiums rise. The median proposed premium increase for 2026 is 18% nationally.

Health insurance premiums may make up a significant portion of your budget. How can you find more affordable health insurance? Is it ever worth going without health insurance? Here’s how to handle this ever-growing expense.

Do you need health insurance?

Let’s get this question out of the way first: yes, you need health insurance. Even if you are young and healthy, it’s impossible to predict when you could experience large, unexpected medical expenses. 36% of all households in the US have medical debt. Think about that for a minute: if you have a neighbor on your left, and a neighbor on your right, chances are one of you has medical debt. Health insurance doesn’t make you immune from medical debt, but it significantly increases your odds of being able to pay your medical bills.

What type of insurance to choose

Health insurance isn’t always easy to understand and the options available may confuse you. While the available insurance options differ for everyone, there are two basic categories of plans to choose from: high-deductible health plans or traditional health plans. 

What is a deductible? This is the amount of money the policyholder pays before the insurance company starts paying benefits. The lower your deductible, the less amount of money you must pay before insurance kicks in. High-deductible plans have higher deductibles when you need care, but your monthly premium is generally lower. 

For 2026, a high-deductible health plan is any health insurance plan where the annual deductible is $1,700 or greater for single coverage or $3,400 or greater for family coverage. Additionally, annual out-of-pocket expenses must not exceed $8,500 for single coverage or $17,000 for family coverage.

High-deductible health plans (HDHP) come with the added benefit of HSA eligibility, which is one of our favorite retirement savings vehicles. If you are healthy and not expecting any medical expenses outside of a few visits to the doctor, an HDHP may be worth considering. Even though you will pay more if you experience a major medical emergency, an HDHP is infinitely better than not having any health insurance. Plus, choosing a higher deductible plan may save you money each month on premiums and give you the option to invest in the extremely powerful HSA.

Major medical needs can’t always be predicted, but some, like having a baby or opting for an elective surgery, can be. If you are generally healthy but will experience one of these events in a given year, it may be worth opting for a traditional insurance plan with better coverage, at least temporarily. The additional monthly cost may be worth the savings you get if you were to reach your deductible or out-of-pocket maximum. If you have medical conditions that require a great deal of care or are at an age where your medical expenses have increased significantly, a traditional health insurance plan may be the right choice for you.

How to save money on health insurance

Choosing the right type of health insurance plan for you and your family can help you save money by minimizing premiums, or if you have more medical expenses, maximizing the amount that insurance will cover. But insurance may still seem very expensive even after picking the right plan for you. Is there anything you can do about it?

Unfortunately we can’t fix the health insurance industry in the US, but you may have some options to make your plan more affordable. If you have health insurance through your employer and it isn’t working out for you or your family, try talking with your employer or HR to see if there is any possibility they may add additional health insurance options in the future. 

It may be worth looking at options outside of your employer and shopping around to see what else is available. Be wary of certain health share plans that aren’t actually insurance and aren’t subject to the same regulations. These plans can be less expensive, but aren’t legally required to pay claims and have other drawbacks such as limited or no coverage for preexisting conditions.

Make sure you know the ins and outs of what your plan covers so you know the best, and financially optimal, ways to seek the medical care you need. It may be cheaper to use a service like GoodRX to fill prescriptions instead of billing them through your insurance.

Nobody enjoys paying for medical insurance. Chances are you are paying for significantly more than you are receiving, but if you are one of the “lucky” ones who receives more benefits than they pay for, you are likely experiencing a major medical event and it’s pretty hard to be grateful for insurance coverage under those circumstances. 

No matter how much you dislike health insurance, you can’t go without it. Over 60% of personal bankruptcies are partially or totally caused by medical debt. Choosing the right health insurance plan for you and your family has the potential to save you money and give you access to super-powered tools like HSAs, but can also help put your mind at ease knowing an unexpected medical emergency won’t destroy your finances.

Up to $5,000 per year can be contributed for each eligible child. Additionally, children born between January 1, 2025 and December 31, 2028 may be eligible to receive a $1,000 contribution from the government. The CEO of Dell has agreed to contribute $250 per child for up to 25 million children born between 2014 and 2024 who live in zip codes where the median household income is less than $150,000.

These accounts are not quite IRAs and come with fewer tax benefits, restrictions on using the funds, and limits on what you can invest in. Here’s what you need to know about Trump accounts and whether or not you should consider investing in one for your children.

How Trump accounts work

How Trump accounts are taxed

Contributions made to Trump accounts by individuals are with after-tax dollars, while contributions from other sources (such as the government, if your child qualifies for the free $1,000) are with pre-tax dollars. Contributions to the accounts do grow tax-deferred, but investment earnings are taxed at ordinary income tax rates upon withdrawal. This is a major drawback to Trump accounts.

Contributions to Roth IRAs are also made with after-tax dollars, and accounts not only grow tax-free, but qualified withdrawals are entirely tax-free. However, custodial Roth IRAs require earned income from the child in order to contribute, a major restriction which Trump accounts do not have.

A better comparison may be custodial brokerage accounts. Contributions to both of these types of accounts are made with after-tax dollars. Trump accounts grow tax-deferred while custodial brokerage accounts do not. Trump accounts are taxed at ordinary income rates while brokerage accounts are taxed at more favorable capital gains rates.

Investments available in Trump accounts

We don’t know exactly what investment options will be offered in Trump accounts. Robinhood Markets agreed to provide technology to power the accounts, and in a screenshot on the official government website for Trump accounts (shown below), the UI looks very similar to Robinhood. The example account is invested in Nvidia, Caterpillar, Home Depot, and Tesla.

The FAQ section on the website states that “funds will be invested in a diversified portfolio of low-cost index funds designed to maximize long-term growth while minimizing risk.” According to Fidelity, mutual funds or ETFs in Trump accounts must be at least 90% invested in US companies, so no international funds will be available. Funds may not have an expense ratio of greater than 0.10%, but, according to the IRS, broker sales commissions can be charged and are not subject to the 0.10% expense ratio limit.

Restrictions on Trump accounts

Since these accounts are designed for children, there are naturally restrictions on how they can be used and when funds can be accessed. Money may not be withdrawn from Trump accounts until January 1st of the year the child turns 18. The rules regarding withdrawals are the same as traditional IRAs, which means money may not be taken out before 59.5 without penalty unless for eligible education expenses, first-time home purchase (up to $10,000), birth or adoption costs (up to $5,000), qualifying medical expenses, disability, or terminal illness.

Trump accounts essentially become traditional IRAs when the child turns 18, and in fact the account may be rolled into a traditional IRA at 18 or kept as a separate account. The money would be treated and taxed the same whether or not it is rolled into a separate account.

Should I open a Trump account?

Trump accounts become available starting July 5th, 2026, and you can open an account by filing Form 4547 with your taxes this year or by using the online portal slated to become available sometime this summer. 

For most families, it may not make sense to open a Trump account for your children. The tax treatment of the accounts makes them inferior to just about every other type of investment account you would consider opening for your child (custodial Roth, custodial brokerage, and 529). Contributions are taxed, and investment earnings are taxed at ordinary income rates upon withdrawal. A custodial brokerage account works similarly, but contributions are taxed at more favorable capital gains rates and there are no restrictions on contributions, investment options, or withdrawals.

If you have or are planning to have a child born between January 1, 2025, and December 31, 2028, though, you should absolutely open a Trump account to take advantage of the free $1,000 contribution from the government. You may also consider opening an account if your child is eligible for the $250 private contribution (they were born between 2014 and 2024 and live in a zip code where the median household income is less than $150,000). Don’t turn down free money even if the account structure isn’t ideal.

Trump accounts are a creative new invention designed to give kids a head-start when it comes to saving for retirement. Unfortunately, the tax treatment of the accounts, limits on investment options, and restrictions on withdrawals limits the use case outside of opening an account to get the free money from the government.

1. Plan your expenses in advance

The beginning of the year is the perfect time to plan for any major expenses you expect in 2026. Maybe you will need a new roof or porch, your HVAC unit might be in its final year, or it could be time for a new vehicle. Whatever large expenses you anticipate in 2026 (or next year), start saving in advance to avoid depleting your emergency fund or using credit card debt. Popular budgeting apps such as YNAB make it really easy to plan for these large, irregular expenses.

2. Make a plan to pay off high-interest debt

If you have any high-interest debt, there’s no better time than now to make a plan to eliminate it. Mathematically, it’s always better to start with your highest-interest debt and work your way down. If you can pay off all of your high-interest debt this year, that’s great, but don’t get discouraged if it will take you longer to eliminate your debt. Check your balances so you know exactly how much debt you have (it’s not uncommon for those with debt to not know exactly how bad the problem is) and budget as much as you can towards paying off your debt.

In the Financial Order of Operations, the only steps before paying off high-interest debt are covering your highest insurance deductible and getting your employer match in your retirement account. After that, everything should be put towards paying off your debt until it is gone.

3. Consolidate forgotten retirement accounts

Remember that 401(k) you had with your first job 15 years ago? Whatever happened to it? There are about 32 million forgotten or left-behind retirement accounts in the US, and many of those accounts are probably not invested appropriately or have high expenses and fees.

If you think you may have a lonesome retirement account out there somewhere, it’s worth taking some time this year to consolidate your accounts. Chances are rolling them into your current employer retirement account or IRA could give you access to better investments and lower fees and expenses. Check out our free download for help deciding what to do with your old retirement account. Even if those forgotten accounts are better off on their own, it would be wise to take a look at their investment allocation and adjust as necessary.

4. Check on your student loans

If you have any federal student loan debt, make sure your loans are current and you are enrolled in an appropriate repayment plan. Some repayment plans have been eliminated and eligibility for loan forgiveness has been further restricted. In January, the Trump administration plans to start garnishing wages for those who are behind on their student loans. It is estimated that around 5 million Americans with student loans will have their wages garnished starting this month, and millions more will be at risk in the coming months. If you have any federal student loan debt, it is imperative that you make sure your loans are current or you risk having your wages garnished.

5. Live below your means

Spending less than you make is a basic financial goal, but one well worth mentioning. 26% of Americans say they spend more than they make, and 56% of the country has at least some difficulty paying all of their bills. If you are one of the millions of Americans struggling to live below your means, it is not easy to spend less or make more, which you already know. Check out this article I recently wrote for some tips on how to get ahead financially and break the paycheck-to-paycheck cycle: “How To Build Wealth With an Average Income.”

6. Don’t forget to enjoy yourself

It’s not financially sustainable to live like a miser on ramen noodles and only spend money on the essentials. Set aside some money to spend on yourself this year. It could be as small as budgeting for a daily coffee or as big as planning your once-in-a-lifetime dream vacation. If you are saving what you know you need to be saving for retirement and are on-track elsewhere in your financial life, you owe it to yourself to splurge a bit on what you enjoy.

The beginning of the new year is a great time to make positive changes in your life, financial or otherwise, but it should come as no surprise that most New Year’s resolutions fail. To give yourself a greater chance at making changes in your own life, it’s important to set specific, realistic, and achievable goals. Ease yourself into your resolutions instead of going from 0 to 100 once the clock strikes midnight. And if you aren’t as successful as you wanted in January, there’s no need to wait until next year to try again.

The housing affordability problem

The National Association of Realtors, which certainly has no reason to be pessimistic about the housing market, recently described the current market as “starved for affordable inventory.” First-time homebuyers now make up only 21% of all buyers, a record low, and the average age of first-time buyers is now 40. Those who would normally be buying homes now aren’t because they can’t afford to. This is a basic fact that just about everyone agrees on, but there is little agreement about how to solve the problem. 

Proposing the 50-year mortgage is one of the Trump administration’s potential solutions to make houses more affordable. There is no disputing that a 50-year mortgage would do just that: assuming interest rates are the same, monthly payments on a 50-year mortgage would be about 12% less than with a 30-year mortgage. But that 12% savings does not come without some enormous costs.

The problems with a 50-year mortgage

50-year loans are riskier for banks and they would need to charge a higher interest rate in order to compensate for that extra risk. At best, a 50-year mortgage would have monthly payments of about 12% less than a 30-year mortgage. In reality, that difference will be significantly reduced due to a higher interest rate on a 50-year loan. We don’t know exactly what type of rates banks would offer on 50-year mortgages, but we can speculate based on the difference between 15-year and 30-year mortgages.

According to Mortgage News Daily, the average 30-year mortgage rate is 6.22% and the average 15-year rate is 5.78% as of December, 2025. If the average 50-year mortgage rate is 0.44% higher, like the 30-year rate compared to the 15-year rate, it would currently be 6.66%. At those rates, a 50-year mortgage payment would be just 6% less per month than a 30-year mortgage.

It is misleading to focus on the monthly payment as the total costs of a 50-year mortgage would be much higher than a 30-year. If someone finances $350,000 over 30-years at current interest rates, they would pay $773,348 over the life of their loan. If someone were to instead finance $350,000 over 50 years, at a rate 0.44% higher, they would pay $1,209,180 over the life of their loan. While they would pay 6% less per month, they would end up paying 56% more over the life of their loan, which in this example would be $435,832.

There’s another problem with 50-year mortgages: it’s likely most borrowers would die before their loan is paid off. The average age of first-time homebuyers is now 40, which would mean if they chose a 50-year mortgage they would be 90 years of age when their mortgage is paid off, assuming they never refinance. The average life expectancy in the US is 78.4 years. 

One of the big benefits of home ownership, as opposed to renting, is that one day your mortgage is paid off and you no longer make monthly payments to the bank. For most borrowers, 50-year mortgages would be more like long-term renting at a fixed price than home ownership.

So are 50-year mortgages a good idea?

If 50-year mortgages were the only option consumers have, they would be a pretty good deal for those looking for long-term housing. Your rent would not increase every year, you would build equity in your home, and there’s a small chance that one day you may even pay off your mortgage. In a world where 30-year mortgages exist, though, there’s not really a need for 50-year mortgages. The monthly cost would only be about 6% lower, assuming slightly higher interest rates over the longer term, and the total cost would be much higher (about 56% more over the life of the loan).

If that 6% monthly savings would make the difference in you being able to afford a home, there are much better options to save 6% with a traditional 30-year mortgage. Putting more money down is one way to do it. Housing prices have been stagnant over the last few years and are even down a bit from 2022, so waiting a few more years to save a larger downpayment may not hurt you as much as it has in prior years when housing prices rose significantly. If you’d rather not wait, you can always buy 6% less house. Needless to say, a house 6% cheaper won’t be significantly different. Maybe you’ll have 0.5 less bathrooms, live a little closer to a highway, or have a kitchen that’s a little outdated.

Unfortunately for many Americans, houses may not be affordable right now. We love to see politicians propose solutions to help Americans achieve their dream of owning a home, but 50-year mortgages may do more harm than good. If you are in the market for a home, check out our homebuying calculator to see how much home you can afford based on your income, down payment, and interest rate.

Changes to retirement accounts

The Consumer Price Index, the preferred measure of inflation in the US, has risen by 2.9% over the last 12 months (compared to 2.4% this time last year). This means retirement account limits are increasing modestly, and in some cases a bit more than they increased last year.

IRA limits didn’t change at all last year, so a $500 increase is welcome. For those of you contributing to your Roth IRA every month, you will need to invest an even $625 every month to maximize your account. If your New Year’s resolution is to max out your 401(k), you’ll need to contribute a little over $2,000 every month to do so.

One Money Guy metric I like to keep an eye on is the gross income someone needs in order to complete Step 6 of the FOO without contributing more than 25% of their income. Assuming you can’t make catch-up contributions and have a Roth IRA, individual HSA, and a 401(k), in 2026 you would need an income of $145,600 to complete Step 6 of the Financial Order of Operations. This essentially means if you make under that amount, contributing to a 401(k), Roth IRA, and HSA will meet the 25% investing goal. If you make over that amount, you may need to utilize a mega backdoor Roth strategy and/or contribute to a taxable brokerage account.

The income phaseouts for retirement plans are also adjusted each year for inflation. If you are expecting your income to stay the same or decrease next year, you could potentially now qualify for Roth IRA contributions without using the backdoor Roth strategy. If you think your income may be higher than these phaseout limits, it is worth planning ahead and utilizing a backdoor Roth if necessary.

Standard deductions and marginal tax rates

This is a weird year for the standard deduction. Legislation passed in July modestly increased the standard deductions for 2025 (by 5% across the board), so when you file taxes in a few months you can expect to get a little extra back than you would have otherwise. About 91% of taxpayers take the standard deduction instead of itemizing.

Marginal tax rates remain unchanged, but income thresholds are also subject to annual inflation increases. Again, if you are expecting your income to decrease or remain the same next year, this means you will be paying a bit less in taxes, all else being equal.

If you are an accountant or tax enthusiast, you can review the full IRS release of changes next year and their separate release detailing changes to retirement accounts. Make sure to download our 2025 Tax Guide as you prepare your taxes next year, and be on the lookout for our 2026 Tax Guide with all of the changes mentioned here and more.

Index Funds vs. Active Funds

Actively managed investments can make sense in certain market sectors, but broad market indexes largely outperform actively managed funds. In addition to the difficulty of picking stocks that consistently beat the market, active managers must overcome higher expenses and fees and generating more taxable income from trading. Most active fund managers cannot accomplish these feats consistently over longer periods of time. The headwind to beat the market while charging higher fees is too much to overcome.

Index funds are typically more tax-efficient than active funds because they don’t tend to change very much. The goal of an index fund is to mirror a broad market index, such as the S&P 500, and it doesn’t require much trading or turnover to do that. Active investments, on the other hand, aim to beat market indexes. Attempting to beat the market often involves more trading and investment turnover, which in turn can generate more taxes.

Index funds are also cheaper than actively managed funds, which makes sense. Active managers need to spend more time and energy managing their investments because they are trying to beat the market indexes. Index fund managers need to only mirror their index, which keeps costs down. 

The Investment Company Institute studies trends in mutual fund and ETF expenses, and their most recent annual report, released in March, found that index funds still have much lower expense ratios than their actively managed counterparts. The average expense ratio for index equity mutual funds (such as S&P 500 indexes) is 0.05%, and active equity mutual funds sit at 0.64%. That makes actively managed equity funds over 10x more expensive, on average, which is significant over a lifetime of investing. It is worth noting that while actively managed funds are still much more expensive, average active fund fees have dropped significantly over the past 20+ years.

Not only are actively managed funds more expensive and less tax-efficient, but they tend to underperform market indexes. Data from SPIVA finds, time and time again, that passive investments outperform active investments the majority of the time. 

In their most recent report, market indexes outperformed over 80% of active funds over the past 15 years in every single category of domestic funds that SPIVA tracks, from small-cap to large-cap to real estate. In some categories, over 90% of actively managed funds were outperformed by their respective benchmarks.

Is it possible that this trend could reverse and more active funds could outperform index funds? Sure, anything is possible. But there are no signs to indicate a reversal in this trend is imminent.

To beat the market, one would have to overcome the tax efficiency and low cost of index funds, in addition to picking an active fund that can consistently outperform its respective benchmark. While beating the market may be difficult, we know there are about 10% to 20% of active funds, depending on the market segment, that outperform their benchmarks. Can you simply invest in active funds that have a history of beating the market and expect continued success?

High-Flying Active Funds

There are certain actively managed funds that have outperformed indexes over long periods of time. Fidelity Contrafund is one such fund. This fund has managed to beat the S&P 500 by about 2% on average, annually, over the past 10 years. This alone is impressive, but even more impressive is the fact Contrafund has returned 13.15% average annually since inception in 1967, besting the S&P 500’s average return of 12.25% over the same period of time. If you invest in an active fund that has a long history of beating the market, can you expect that success to continue?

An analysis conducted a few years ago by a professor of finance at Yale, James Choi, sought to answer this question. Proponents of active funds often believe that past performance of a mutual fund can be indicative of, but does not guarantee, future success. This belief is based in part on a 1997 study that found past performance of actively managed funds does correlate with future success. When Choi extended this analysis to the present day, though, he found that to no longer be the case.

They found that from 1994 to 2018, a fund’s past performance was “completely unpredictive” of future returns. Choi went on to state that, “if anything, over the past two decades, you seem to do a little bit worse if you chase past returns on mutual funds.”

We like to make decisions based on data, and all of the data points towards index funds largely being better investments than active funds. They are less expensive to invest in, have less turnover if you are investing in a taxable account, and beat active funds around 80% to 90% of the time. Even if you do invest in the 10% to 20% of active funds that beat the market, the data tells us that those funds have no better chance of beating the market in the future than any other fund.

It is clear that index investing is one of the best ways to invest for retirement. It also happens to be one of the easiest ways to invest. You can invest in one fund, a target date index fund, and never have to worry about shifting your allocation over time or investing in other funds. Index funds aren’t flashy, but they have a long track record of helping Americans invest for their more beautiful tomorrow.

Reduce large, unexpected expenses

Before we discuss how and where to invest for retirement, the first, and biggest, problem is creating enough margin in your budget to save something. Those with average incomes and little room in the budget often cut what others consider necessities to make ends meet. This means not spending money on preventative healthcare, regular car maintenance, vet visits, home maintenance, and more. Cutting in these categories will save you money in the short-term, but if you have an average income, they can cost you big-time in the long-term.

Potentially preventing some huge unexpected expenses can really help you get ahead with an average income. There’s only so much you can control, but spending a little more today can drastically reduce your future expected expenses.

Get good health insurance

Healthcare is very expensive, and if you have an average income, it can be tempting to delay going to the doctor or seeking needed healthcare until you can no longer ignore the problem. Make preventative healthcare a priority in your budget. Go to the doctor at least once a year for an annual exam and take care of other problems as soon as they pop up. Not only will your body thank you, your budget will as well.

Quality, subsidized health insurance is an invaluable perk from potential employers. All else being equal, look for employers that offer great benefits to their employees. A good company knows it needs to take care of its employees by offering access to high-quality medical care at affordable prices.

Get pet insurance

If you have pets, make room in your budget to pay for pet insurance if you could struggle to cover unexpected vet bills. Nobody wants to decide between paying rent next month or paying for a life-saving treatment for their pet, but most will choose their pet (78% of Americans would go into debt to pay for their pet’s care). Pet insurance can help you avoid this issue entirely as long as you can make room in your budget for your loved one’s insurance. Pet insurance is much cheaper than human insurance, and for our cats, it is about $20 per month each.

We have been very unlucky with the health of our cats. Just this year, we’ve had hospitalizations for a blood clot, a mystery illness where our cat was refusing to eat, and a rare complication of coronavirus (I didn’t know cats could get a coronavirus, either). We’ve received over $10,000 in reimbursements from our pet insurance this year. Hopefully you never have issues with your pets, but if you would rather have coverage for unexpected medical expenses than paying out-of-pocket, pet insurance is the way to go.

Drive a reliable and affordable car

Vehicles can be really cheap to drive or extremely expensive to drive, depending on what type of vehicle you have and how well you maintain it. Consumer Reports ranks the reliability of the major manufacturers each year, so consider using their list or a similar study to help you choose which brand to purchase. We made a couple car purchases recently and chose Mazdas, which are higher on the reliability list but not as expensive as comparable Toyotas or Hondas.

No matter what type of car you drive, complete all maintenance as scheduled to avoid problems later down the road. Much car maintenance can be done at home for cheaper if you don’t mind getting your hands dirty. Change your oil as the manufacturer suggests, rotate your tires and regularly check your air pressure and wear, and don’t ignore any flashing lights on your dashboard.

Maintain your home

Home repairs can be very expensive, but regular maintenance can help you stay ahead of any potential problems. We have our HVAC system serviced regularly, pest control that visits once a quarter, and have other issues addressed when they pop up. If you are new to the area, talk to your neighbors to see what service providers they use and trust. It’s unfortunately not uncommon for unreputable companies to exaggerate issues with your home and get you to spend large sums of money that may not be necessary. For example, there’s a local HVAC company in town that will almost always say you need a new unit, no matter what your actual problem is.

Whenever service providers visit, take time to ask questions and learn more so you may be able to potentially self-diagnose and fix minor problems yourself in the future. I don’t consider myself an A/C expert by any definition, but I do know how to fix our unit when it freezes over and how to keep that from happening.

If you are deciding between renting or buying, renting is a great way to save money on repairs and maintenance. I love our house, but I miss having someone fix all of our problems at no extra charge when we lived in an apartment. There are many other considerations when it comes to renting vs. buying, which you can read more about here if you’re interested.

Cut other big expenses where you can

Ordinary, everyday expenses have a huge impact on your budget when you have an average income. What you spend on groceries, childcare, dining out, entertainment, and vacations determines how much you are able to invest for retirement. We do believe in paying yourself first and investing for retirement before tackling the rest of your budget, but the reality is that groceries and childcare comes before saving for retirement.

Groceries, dining out, and toiletries normally make up a significant portion of your budget when you have an average income. There is only so much money you can save here, and we would obviously never suggest skipping meals to save more for retirement. But there are ways you can save money on food and toiletries. Shop at a warehouse club like Costco for the staples, which can be especially beneficial if you have a larger family to feed. Buy in bulk if you have the space and if you can consume the items before they expire (I am often guilty of buying larger quantities than I can handle at Costco). Some grocery stores like Aldi, Lidl, and Kroger are cheaper than more “premium” grocers like Whole Foods, Publix, and Harris Teeter.

There are ways to save money on dining out aside from the obvious and unethical (yes, you could go out to eat less or not tip your server). If you typically order drinks when you dine out, try drinking water at dinner and having drinks at home later. When we order drinks with dinner, they tend to add $30 or more to our ticket, including tip. Many restaurants often have deals on slower days, so try going during the week instead of on the weekend if they have any specials. Our favorite local Mexican place has $1.99 Taco Tuesdays, which really can’t be beat.

Families in the US spend drastically different amounts on childcare, ranging from nothing to tens of thousands of dollars (or more) per year. If you are a single parent or if you and your spouse both work, you are going to need some sort of childcare. Grandparents that love children can be a great source of free childcare. Daycare programs range in price, and while it is probably not advisable to enroll your child in the cheapest program available, you can lessen the blow. Some employers offer free childcare for their employees, which is a huge benefit for parents. If you can figure out a way to do daycare 3 days per week instead of 5, you can cut your bill significantly.

Increase your income if possible

Increasing your income can be easier than reducing your expenses in some cases. If you are struggling to cut your expenses and still need to save more for retirement, you may need to make more money (simple, right?). The good news is it has never been easier to make extra income outside of your day job. If you are struggling to think of ways to increase your income, check out this article I wrote last year.

If you are in a role at work where you have room to grow, it’s worth putting in the extra effort and time to get that promotion or raise. If you feel like your career opportunities are limited, it might be time to explore going back to school or getting a certification in a new field. The trades (electrician, plumber, mechanic, construction, and more) are in high-demand in many areas with really good starting pay.

Obviously increasing your income is easier said than done. You can’t snap your fingers and double your income, but if you are willing to spend more of your time working, whether that’s at a side hustle, your day job, or opening the door to new career opportunities, you can increase your income.

Know where to save

Creating more room in your budget to invest for retirement is all for nought if you don’t know where to save. Check out this article I wrote last year for a step-by-step guide of where you should be investing for retirement. The short version is get your employer match first, maximize your Roth IRA and HSA, if possible, then contribute more to your employer-sponsored account, if you have one. If you still have more money to invest after all of that, you can contribute to a taxable brokerage account.

The more money you make, the easier it is to build wealth; there’s no way around it. If you are building wealth with an average income, you have to do your best to avoid large, unexpected expenses, cut other large budget items where you can, and increase your income, if possible. It is still very possible to become wealthy with an average income, and through the power of exponential growth, your savings can compound many times over. By living below your means and saving a little bit today, you can build your great big beautiful tomorrow.

It’s impossible to watch any sports in the US without being inundated with gambling ads. The promises seem too good to be true: bet just $5 and get $300 in bonus bets, or get up to $1,500 in bonus bets if your first bet doesn’t win (both real offers currently available from major platforms). How can you go wrong gambling on sports with offers like that? Most platforms promise cheap entry and little risk, but the truth about betting on sports isn’t as it seems.

The house always wins

The amount of gross revenue sportsbooks make, as a percentage of wagers placed, has been increasing every single year since 2018, from 6.7% to 10% so far in 2025 (this percentage is called hold). They aren’t getting better at making odds, of course, but are getting better at steering users towards losing bets. For example, sportsbooks love parlays: hold is 18.2% on average for parlays, while they only make 4.9% on straight line bets. Data from New Jersey in September of last year showed that parlays accounted for nearly a third of total bets with a whopping hold of 24.2%.

Even if you avoid parlays entirely and stick to what you know, the odds are still stacked against you. A couple of the only ways to reliably make money on sports gambling are to take advantage of differences in odds across sportsbooks (known as arbitrage betting) or to bet on error lines. It is entirely legal for sportsbooks to limit your account for this behavior, which can effectively ban you from placing bets. It is very difficult to gain any sort of edge over the house, but if they discover you have, they can limit your ability to place bets or ban you entirely.

The stats on sports betting are grim and many bettors have a problem. A survey conducted earlier this year found that 50% of sports bettors have used a gambling addiction tool in a sportsbook app. That means half of all sports bettors surveyed either know they have a gambling problem or think they may have a problem. The same survey found that 37% have bet more money than they felt comfortable losing and nearly one-in-four, 23%, have had someone express concern about their gambling habit. It is worth emphasizing this wasn’t a survey of problem gamblers, but a survey of sports bettors in general.

Can you gamble responsibly?

I signed up for one of the major sportsbooks shortly after sports gambling was legalized in my state and placed a modest bet, I believe around $50, on UGA football to cover the spread in their bowl game (it was a New Year’s Day bowl game in 2021 against Cincinnati). I graduated from UGA and I am a fan of their football team, so it seemed like a natural bet to place. I placed the bet after the start of the game and my odds were UGA -2.5 points. That means if UGA won by 2 points or less, or if Cincinnati won, I would lose my bet. If UGA won the game by 3 points or more, I would win my bet.

The game was insane. UGA trailed Cincinnati by 2 points, 21-19, and kicked a field goal with just 0:03 seconds left in the game to go up by 1 point, 22-21. I was happy UGA took the lead, but disappointed I would lose my bet. Then on the final play of the game, the Cincinnati quarterback was sacked in the end zone for a safety, which is 2 points, so UGA won 24-21 and I won my bet.

That was the last time I ever bet on sports (or anything, for that matter). The game was exciting enough on its own, and I realized just how random gambling outcomes can be. I won my bet on a fluke safety on the last play of the game. I placed a bet on a team I had an emotional connection to, which is never a smart thing to do.

But the main reason why I decided to never gamble again after that win was because of the rush I got on that final play of the game. Not on the field goal for UGA to go up by 1 point, but on the meaningless safety to end the game. It was unlike anything I’ve experienced watching sports before and I realized just how addicting that feeling could be. I felt that if I continued to gamble on sports after that win, I would always be chasing the high from that day and would be at risk of becoming addicted.

The house always wins, and if you somehow gain a consistent edge over the house, well, they’ll kick you out. The share of Americans that see sports gambling as bad for society has been steadily increasing and is now at 43% (50% say it is neither good nor bad and only 7% say legalized sports betting is a good thing). Men under 30, the demographic group that places the most bets on sports, has seen attitudes shift even more dramatically. In 2022, just 22% of men under 30 said sports betting was bad for society. Now, 47% of young men agree that it is harmful. 

I decided that sports betting wasn’t worth the risk for me and that casual gambling could potentially evolve into a more problematic habit. That may not be the case for you, but if you do bet on sports (or anything else), make sure you set rules for yourself. Never bet more than you can afford to lose. Don’t expect to make any money gambling and assume you will lose money over time. And make sure you are investing at least 25% for retirement before you consider spending any money gambling on sports.

You only get one chance at a successful retirement. Besides the basics like saving more money, what can you do to ensure a successful retirement? What insights can we gain from those who are already retired to better plan our own retirements?

1. Retirement is better than working

The majority of retirees, 67%, are happier on a typical day in retirement than they were on a typical day while working. Of the 33% who are not happier in retirement, about half say they are lonely. It’s no secret that loneliness is a leading cause of unhappiness and depression in older Americans, and having a network of family and friends that you regularly see can help ward off loneliness in retirement. Consider living in a community where many of your neighbors are also retired. You don’t necessarily need to move to The Villages, but having close friends and neighbors who are also retired can prevent loneliness.

2. Take care of your health

Being in good health can make or break your retirement. Of retirees that reported being happier in retirement than they were while working, 49% of them said they planned ahead by prioritizing their health before retirement. 44% of retirees are concerned about their finances in retirement, while 34% say health issues are their biggest concern. Saving for retirement and taking care of your health must go hand-in-hand. If you don’t take care of your health, it doesn’t matter how much you have saved for retirement. Just like it is never too early to start saving, it is never too early to prioritize your health.

3. If there’s something you want to do in retirement, don’t wait to do it

There’s a big gap in what we imagine doing in retirement, before we retire, and what we actually end up doing in retirement. The top activities pre-retirees imagine for retirement are traveling (79%) and exercising (71%). That makes a lot of sense. Traveling extensively can be difficult to do while employed, and it’s a common dream to “travel the world” once you retire. And exercising to stay in good health is another great goal. However, the top activity for current retirees isn’t traveling or exercising but watching TV.

Don’t take anything for granted in retirement. If there’s something big you want to do or accomplish, make concrete plans now instead of potentially waiting until it’s too late.

4. You might worry less about money

Interestingly, many retirees report worrying less about money than those who aren’t yet retired. 34% of pre-retirees are worried they will outlive their money, while only 22% of retirees fear the same. 46% of retirees say they have fewer financial problems than they anticipated before retirement. This may sound strange, but it’s how it should be: worrying about money, and adequately planning, before retirement can make it much less of an issue in retirement. 78% of retirees say they have more than enough or just enough money to last them through retirement, while 19% say they have less than they need.

It should be encouraging that a large majority of retirees believe they have enough money to last them through retirement, and many worry about money less than they did before retirement. This doesn’t happen without planning ahead and saving what you know you need to save for retirement.

5. When you retire matters

The period of higher inflation we’ve experienced since 2020 will likely go down in history as not the best time to retire. In 2020, before inflation had really started impacting retirees, 17% said their spending was a little higher or much higher than they could afford. Last year, 31% of retirees said their spending was a little higher or much higher than they could afford. Periods of higher inflation often hits retirees the hardest since many are on fixed incomes, with pensions that may not adjust for inflation and Social Security, and the last few years have been no exception.

When planning for your own retirement, it’s a good practice to hope for the best but be prepared for the worst. What happens if inflation skyrockets when you retire? Or what happens if you retire at the beginning of a prolonged stock market decline? Make sure your retirement plan is ready for the worst-case scenario.

Retirement is an exciting period of life if you’ve prepared well. Listen to those who are retired now and prioritize your health, make plans to accomplish your goals, whether that’s traveling, spending more time with friends and family, or something else, and be prepared to worry less about money and be happier than you were while working.