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5bef943024171843809e4726ba1f2ef8 | https://www.investopedia.com/articles/personal-finance/022516/will-baby-boomers-bankrupt-social-security.asp | Will Baby Boomers Bankrupt Social Security? | Will Baby Boomers Bankrupt Social Security?
Baby boomers make up that huge demographic that came of age in the 1960s and 1970s. Born between 1946 and 1964, this vast cohort began to reach age 62 in 2008. By 2031, the youngest boomers will have passed the Social Security full retirement age of 67 (for people born in 1960 or later), at which point there will be 75 million people over the age of 65—nearly twice the 39 million who were 65 in 2008.
There’s a lot of talk about whether the baby boomer generation will bankrupt Social Security. It's not just the size of this generation that's a concern; it's their life expectancy. In 1935, when Social Security started, people who reached 65 could expect to live an additional 12.5 years. Now, women who turn 65 can expect to live another 21.5 years, while for men, life expectancy at 65 is 19 more years.
Let’s look at the facts to see where Social Security stands going forward.
Key Takeaways Baby Boomers were born between 1946 and 1964, and are now retiring and starting to receive Social Security benefits.Currently, there are 2.8 workers for every Social Security beneficiary, but by 2035, the balance will shift, with only 2.3 workers for each beneficiary.Although the Social Security trust fund that supports Social Security retiree benefits could be depleted by 2034 if no changes are made, the system won't go bankrupt thanks to all the workers paying taxes.Some combination of raising payroll taxes and cutting benefits—by raising the full retirement age, for example—could be used to shore up the system.
The Facts
Currently, there is a large Social Security surplus—at the beginning of 2020, there was almost $2.9 trillion in the trust funds that cover retirees and those with disabilities (there are two funds, together known as OASDI). But according to the 2020 Annual Report of the Board of Trustees, which oversees the Federal Old-Age and Survivors Insurance (OASI) and Federal Disability Insurance (DI) trust funds, the OASI, which covers retiree benefits, is projected to run out of money in 2034.
The problem is demographics: The ratio of Social Security beneficiaries to workers who pay into the system is shifting—in 2019, there were 2.8 workers for each beneficiary, but in 2035 the number of workers per beneficiary is expected to drop to 2.2. About three-quarters of the funding for retirees and disabled workers comes from Social Security taxes that current workers pay, so it's easy to see how this change is straining the system. The remaining one-quarter of the system's funding comes from the trust funds.
Does the depletion of the trust fund mean Social Security is bankrupt? In a word, no. As long as workers are paying their taxes, there will be money to pay benefits. But once the reserves are gone in 2034, only an estimated 76% of expected Social Security benefits will continue to be paid from the government’s tax revenues.
The Potential Solutions
Clearly, there's cause for concern. A reduction in benefits is not ideal, and 2034 is only 14 years away. But this is not a "surprise" issue. Since Feb. 1, 2016, there have been 45 proposals reported by the Social Security Administration currently in various stages of review by the U.S. government. Here are three ideas that have been proposed:
Raise the full retirement age for Social Security benefits. Full retirement age is already scheduled to rise during the coming years to age 67 for those born in 1960 and later. Some are arguing that it should be 69 or 70, given how lifespans have expanded since Social Security was initiated.Increase the payroll tax rate to 15.08%. This would involve raising the combined tax rate of 12.4% by 2.68%. Employers and employees would each pay 7.54% instead of the current 6.2%. However, even this increase may not cover the full amount needed.Raise or eliminate the payroll tax cap. The ceiling on which Social Security taxes must be paid is $137,700 in 2020 and is adjusted for inflation every year. Completely eliminating the payroll tax cap could cut the projected 75-year deficit in half.
The 2020 analysis of the Social Security trust funds' financial health doesn't reflect the potential effects of the COVID-19 pandemic.
The Bottom Line
While the aging of the baby boom generation is changing the math for the future of Social Security, it won't lead to the demise of the system. Even if the trust funds run out of money, benefits will be covered by workers who pay Social Security taxes.
Changes could be made that prevent the depletion of the trust funds. Social Security was rescued in 1983 when taxes were increased and benefits curtailed—a bipartisan solution between the House and Senate and President Reagan. Given that Social Security is one of the most prized social programs in the U.S., there is reason to be hopeful that its funding problems will be addressed again.
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767307362763ca5ce4dc8a4c89d93699 | https://www.investopedia.com/articles/personal-finance/022817/why-advisors-say-debt-isnt-always-bad-thing.asp | Why Advisors Say Debt Isn’t Always a Bad Thing | Why Advisors Say Debt Isn’t Always a Bad Thing
Many financial planning clients rank paying off debt as one of their highest financial priorities. After all, owing no money allows them to stretch their income much further and save more. But recent statistics indicate that a growing number of Americans are further away from this goal than ever. The Federal Reserve Bank recently published a report indicating that in 2016 the total debt carried by all American households rose more than it has in a decade, and is likely to set another record this year. But is debt always a bad thing?
Taking Advantage of Debt
Thomas Anderson, a former investment banker and CEO of Supernova Companies, offers a contrarian philosophy to financial advisors when it comes to talking about debt. He feels that it is debt, not equity, that can make a positive difference for clients. “The biggest determining factor in whether or not you’re going to succeed long term is the decisions you make with respect to debt," he says.
Anderson's new book, The Value of Debt in Building Wealth, postulates that consumers should not look at debt as a burden but should rather embrace and accept it as a means of buying assets and reducing their tax bills. Anderson argues that using debt to finance investments can produce higher final balances than investments that are funded entirely with cash. He considers debt that carries a low rate of interest to be "enriching debt" as having this debt can allow the consumer to invest other money in assets that produce a higher return on capital over time due to the power of compounding.
In his book he cautions advisors that those who ignore the debt factor in their recommendations may be short-changing their clients. He backs up his assertion by comparing three households: the first household uses all of its discretionary income to pay off debt, the second makes the normal payments on its debt and saves some money, and the third only makes the minimum payments on its debt and invests the rest.
The third household ends up the winner after 30 years because its investments grew the most in relation to its debt. “That’s why the decision with debt matters more than the decision with asset allocation. It’s driving the amount of money compounding over a long period of time. You can finance assets. Instead of tying up money in a house you can put it in your portfolio. Thirty-five years of compounding at a lower rate is more powerful than 10 years of compounding at a higher rate,” he explains. (For more, see: The Big Difference Between Good Debt and Bad Debt.)
How Advisors Can Help
Financial advisors can help individuals manage their debt through the use of debt consolidation loans and repayment plans. Those with high student loan debt may want to consider refinancing with one of the new, innovative student loan companies such as SoFi, which offers a variety of deferment programs as well as assistance with getting a job and starting a business.
They can also help prospective homebuyers to get the best possible deal on their mortgage and show them what they need to do to improve their credit scores. Clients who are more sophisticated investors may also want to consider trading on margin in order to leverage their investment gains (although there is an additional risk in doing this).
The Bottom Line
Although debt is viewed as primarily bad by most people, there are times when its use can be warranted in order to achieve a higher rate of return on investments over time. Advisors can help individuals learn when to use debt and when to use other means in order to achieve financial goals. (For more, see: This Is How Financial Advisors Can Help with Debt.)
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535f7128d3492091e862e53cafffe8c2 | https://www.investopedia.com/articles/personal-finance/030116/what-do-marrying-student-debt.asp | What to Do Before Marrying: Student Debt | What to Do Before Marrying: Student Debt
Student loan debt may be the biggest financial issue facing young adults today. Nearly 70% of recent college graduates have student debt, and as tuition and other costs continue to rise, having to borrow money to earn a degree is often unavoidable.
Although taking out student loans for undergraduate or graduate school typically involves just the person earning the degree and possibly their parents, figuring out how to pay off those loans once you're married is another story.
Here's advice to help engaged couples plan ahead for managing their student debt.
Key Takeaways Assess what you each owe and how you plan to handle your finances.Develop a debt-management strategy.Before you consolidate student loans, compare the implications of doing this while still single vs. after marriage.Consider a prenup or postnup to clarify responsibility for debts incurred once you are married.
Figure Out Where You (Both) Stand
Many grads with student debt don’t know exactly how much they owe, what their loans' interest rates are, or which repayment plans are available to them. So the first step for the two of you is to size up your debt. Make a list of what you owe and to whom you owe it, and familiarize yourself with the interest rates and repayment terms of each loan.
Talk About Your Plan
While some couples simply merge their finances when they marry, others may decide to keep some parts separate. Either approach can have a variety of consequences. If you file a joint federal tax return listing your combined income, for example, your monthly payment in an income-based repayment plan for a federal loan could increase. However, filing your taxes jointly has other financial benefits that might still make it your best option.
Spouses generally aren't responsible for any student debt the other spouse incurred before their marriage.
No matter how you and your spouse intend to manage your finances, it's important that both of you are on the same page with regard to your overall saving, spending, and debt-management strategies. Owing or earning more or less than your partner; planning to take time off, go back to school, or switch careers; and/or providing for children can complicate matters further. So talk through these issues and try to arrive at a plan you're both comfortable with.
If you’re struggling to sort things out, consider consulting a certified financial planner (CFP) for some dispassionate advice. Your bank may also offer free financial planning assistance, although it might try to steer you toward its own financial products. And, of course, lots of advice is available for free on Investopedia and other reputable websites.
Strategies for Paying Off Student Debt
Whether it's student loans or other kinds of debt, such as credit cards, the following moves can help you prioritize and pay them down efficiently.
Pay off the highest interest loans first. No matter who owes what, targeting your efforts to the loans with the highest interest rates will reduce your overall payments as a family.Make regular payments, no matter how small. These regular payments, even if they’re just the minimum amount due, will keep you in good standing with your loan company and may give you leverage if you want to negotiate your payments. While the amount you pay matters, showing that you are a consistent and reliable customer matters, too.If you can’t afford the payments, pick up the phone. There are often many repayment options available beyond the traditional 10-year payment plan. Again, communicating with your lender will get you much further than dropping off the map. You will not be the first couple to struggle with debt, nor will you be the last. Note that there are special options for federal student loan repayment or even having a loan forgiven.
Taking on Student Debt After Marriage
Neither you nor your spouse is liable for any student loan debt the other one accrued before you got married, unless you happened to co-sign for it. If one of you takes out a new loan, however, you could be.
Consolidating loans could make spouses liable for each other’s debts, even if the original loans were taken out before marriage.
For that reason it's important to know all the terms in any loan agreement either of you might consider in the future. While the law varies from state to state, there is a chance that you may be liable for your spouse’s student loan debt. This could happen if the loans were granted during the marriage (and depending on whether any of the money was used for living expenses) and you divorce or your spouse dies. In a common law state, you may not be liable for a loan if only your spouse's name is on it; in a community property state, you may be.
Generally speaking, federal loans are not passed onto a spouse in case of death, but private loan debt often is if it was incurred during the marriage and/or if the surviving spouse served as a co-signer on the loan. If you’re considering refinancing student loans with a private lender to get a lower interest rate, make sure you understand any federal protections that you or your spouse may lose as a result.
What's more, even if you aren't responsible for your partner's debt, it can come into play any time you apply for credit together, such as a shared credit card or a home mortgage in both your names.
Couples planning to marry may want to consider a prenuptial agreement that stipulates which person is responsible for which debts incurred during the marriage, should you later divorce. While a prenup may not be considered romantic, it is a legal tool that can help protect you and your spouse from unexpected financial fallout. Already married? Postnuptial agreements exist, too, and can be just as legally binding. Just be sure to get a local family law attorney who can help negotiate an agreement that holds up in court.
The Bottom Line
Just as no two marriages are the same, there is no one-size-fits-all marital debt strategy. When dealing with student debt, as with other important financial decisions, it's essential that you and your future spouse communicate honestly and try to agree on a course of action. This could also be a good preview for how you'll tackle other financial challenges together once you've made this important transition in your lives.
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7a2ad1ee9df1fffc82d906811dd651ee | https://www.investopedia.com/articles/personal-finance/030216/5-countries-where-its-easy-gain-citizenship-retire.asp | 5 Countries With Easy Citizenship for Retirement | 5 Countries With Easy Citizenship for Retirement
For any number of reasons, many people consider retiring to another country. A foreign country may offer a lower cost of living, which can be important to retired adults with limited retirement savings. Some countries may have particularly appealing climates, or people may simply have fallen in love with a country they once visited and vowed to themselves they would one day retire there.
For a person planning to settle down permanently in a foreign country, it is typically necessary to become a citizen of that country because it simplifies matters such as opening bank accounts and owning property. Some may choose dual citizenship, obtaining a second passport, while others may prefer to drop their U.S. citizenship altogether and become citizens of their new home country.
Key Takeaways Retiring to another country typically requires obtaining citizenship in the chosen country so that the resident can own property and a bank account. Dual citizenship is an option for U.S. citizens retiring to some countries. Potential ex-pats should check whether their desired passport status allows visa-free travel, financial freedom, and how it would affect their taxes.
Citizenship
Some countries allow dual citizenship, and some do not. Many wealthy Americans, perturbed by what they consider oppressive U.S. taxation, have chosen to renounce their U.S. citizenship in favor of becoming citizens of nations such as Singapore or Chile.
Factors to consider in terms of new citizenship and a second passport are whether your new passport allows visa-free travel, taxes and other potential obligations, and financial freedom such as the ability to open a bank account or establish a business. There is also the question of whether a retirement destination is welcoming to ex-pats who wish to become citizens. It is relatively easy to obtain citizenship in the following five countries.
Dominican Republic
Retirees can obtain citizenship in a reasonably short period in the Dominican Republic. The basic requirement is that a retiree document a stable retirement income of at least $1,500 per month from a source outside the Dominican Republic, plus $250 per each dependent. Non-retirees have to show a minimum monthly income of $2,000 per month plus $250 per dependent. The term dependent refers to a spouse or children under the age of 18.
Provided this basic requirement is met, an individual can apply directly for permanent residency. After holding the permanent residency for two years, an individual can then apply for citizenship. The whole process takes about three years.
The citizenship process also requires an interview conducted in Spanish (questions and answers can be reviewed in advance) and a medical exam. Dual citizenship is permitted in the Dominican Republic.
Ireland
A person can qualify to become a naturalized citizen of Ireland by living there for one year, plus four years cumulative residency over the eight years preceding the one year.
The Irish government may even be willing to waive part of the residency time requirement if you can sufficiently document Irish ancestry or other associations with Ireland. If you happen to have a provable Irish grandparent, you may be able to become an Irish national by virtue of your ancestry. Ireland does permit dual citizenship. Keep in mind that obtaining citizenship does not automatically shield you from obligations of citizenship in another country (for example, paying taxes in both homelands).
Peru
Getting a residence permit for Peru is not too difficult for individuals who are willing to attend school, start a business in Peru, or prove that they earn more than $1,000 per month in investment or pension income. Those who meet one of these criteria can have Peruvian citizenship in approximately two years. There is a language and history test in Spanish that passport applicants must take unless they marry a Peruvian.
It is advisable to go through an agent who can guide you through the process of applying for residency at a Peruvian embassy. Applicants may also need to change their name to the Spanish style of having surnames from both their mother and father. Unlike some countries that require you to renounce your previous citizenship to become a citizen, Peru allows dual citizenship.
Singapore
Singapore offers a simple route to citizenship. Anyone who establishes a business in Singapore obtains employment there, or marries a citizen of Singapore can obtain permanent residency. After two years of residency, individuals can apply to become a naturalized citizen. Opening a business, however, can be a costly enterprise: check carefully for the latest financial requirements; it's not just simply depositing a certain sum in a Singapore bank.
Singapore requires National Service from its male citizens. If you are of retirement age, you are likely safely outside the age window that obligates you for national service. A male permanent resident can apply for citizenship after completing National Service. Singapore does not allow dual citizenship. Applicants must renounce their prior citizenship to become a citizen of Singapore.
Canada
Canada also offers a simple path to citizenship. Unless you have a job in Canada, you need proof of other income to obtain residency. To meet the residency requirement, you must be physically present in Canada for at least 730 days (two years) in every five-year period, according to Settlement.org. An individual needs $12,960 (CAD), as proof of funds to immigrate as a skilled immigrant.
After becoming a permanent resident, you can apply for naturalization as a Canadian citizen after four years. There are interactive questionnaires you can take to deliberate if relocating to Canada is right for you.
The Canadian immigration authorities are very strict about enforcing the requirement that you physically reside in the country before applying to be a citizen. You must have been physically present in Canada as a permanent resident for at least 1,095 days during the five years immediately before the date of your application, according to Settlement.org. You also must have filed your taxes for at least three years during the last five years, and any income tax you owe must be paid.
Other requirements include: If you're 14 to 65, you must send documents proving that you can speak and listen in English or French, and you will need to pass a citizenship test. If you wait until you are older, these requirements will not apply. Canada does permit dual citizenship.
The Bottom Line
Try vacationing or staying on a short stay visa before applying for a residency visa. It is important to get a feel for a country and its ex-pat community before committing to a big move.
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3e7a47bd2ef9157c30de21bee2fed699 | https://www.investopedia.com/articles/personal-finance/030216/social-security-selfemployed-how-it-works.asp | How Social Security Works for the Self-Employed | How Social Security Works for the Self-Employed
When you work for someone else, that company or organization takes Social Security taxes out of your paycheck and sends the money to the Internal Revenue Service (IRS). But things work a little differently for people who are self-employed. If you fall into this category, keep reading. This article will help you understand how to calculate the Social Security taxes you owe.
Key Takeaways Self-employed workers must pay both the employee and employer portions of Social Security taxes. Reducing your income by taking every available deduction will reduce your taxes, but it will also reduce the size of your Social Security benefit payment in retirement. The amount of your Social Security benefit payment is calculated based on your 35 highest-earning years.
Understanding Social Security Taxes
If you work for someone else, Social Security taxes are deducted from your paycheck. The Social Security tax rate for 2021 is 6.2%, plus 1.45% for the Medicare tax. So, if your annual salary is $50,000, the amount that will go to Social Security over the course of the year is $3,100, plus $725, for a total of $3,825.
Your employer will match an additional $3,825 over the course of the year, and it will also report your Social Security wages to the government. When you retire or if you become disabled, the government uses your history of Social Security wages and tax credits to calculate the benefit payments you’ll receive.
What Happens When You’re Self-Employed?
When you're self-employed, you’re considered both the employee and the employer. This means it’s your responsibility to withhold Social Security from your earnings, contributing the employer’s matching portion of Social Security, as well as the individual’s portion. Instead of withholding Social Security taxes from each paycheck—many self-employed people don’t get regular paychecks, after all—you pay all the Social Security taxes on your earnings when you file your annual federal income tax return. This amounts to both your personal contribution and your business’ contribution.
IRS Schedule SE: Self-Employment Tax is where you report your business’ net profit or loss as calculated on Schedule C. The federal government uses this information to calculate the Social Security benefits you’ll be entitled to later on down the road. Self-employment tax consists of both the employee and employer portion of Social Security (6.2% + 6.2% = 12.4%) and the employee and employer portion of Medicare (1.45% + 1.45% = 2.9%), which makes the total self-employment tax rate 15.3%.
It may seem like you’re getting the short end of the stick because you have to pay both the employee and the employer portion of the tax, but that isn't necessarily true.
If you are self-employed and earned $400 or less, you won’t owe Social Security taxes.
Self-Employed Tax Deductions
If you are self-employed, how much you pay in Social Security taxes is based on your net income. On Schedule SE, you multiply your business’ net profit or loss as calculated on Schedule C by 92.35% before calculating how much self-employment tax you owe.
If your Schedule C profit was $100,000, you’d only pay the 12.4% combined employee and employer portion of Social Security tax on $92,350. Instead of paying $12,400, you’d pay $11,451.40. This tax deduction would save you $948.60. Half of $11,451.40 is $5,725.70, which represents the employer’s matching portion of the Social Security tax. It’s considered a business expense and reduces your tax liability.
You report it on line 14 of Schedule 1: Additional Income and Adjustments to Income, and you subtract it from line 6 of page 2 of Form 1040, marked total income. This business expense would reduce your taxable earnings to $94,274.30, which you enter on line 7 or adjusted gross income.
Your total amount of self-employment tax, $11,451.40, is reported on line 4 of Schedule 2: Additional Taxes. You then report any other taxes—there are eight categories—on the same form, total them all, and list that total on line 10. In our example, there are no other taxes, so that amount is still $11,451.40. This is then entered on line 15 of page 2 of Form 1040, marked “Other taxes, including self-employment tax, from Schedule 2, line 10.” Of course, you also have to pay regular income tax on your profit.
The CARES (Coronavirus Aid, Relief, and Economic Security) Act allows employers to defer employee Social Security taxes through Dec. 31, 2020—50% of the deferred amount will be due Dec. 31, 2021, and the other half by Dec. 31, 2022. This applies to the self-employed too.
How Minimizing Taxes Minimizes Benefits
There are many business expenses that can reduce your tax liability besides the Social Security tax deductions you can take when you’re self-employed.
“Business expenses reduce your overall tax, which ultimately lowers your Social Security taxes. Business tax deductions are a way of minimizing self-employment tax and Social Security taxes,” says Carlos Dias Jr., founder and managing partner of Dias Wealth LLC in Lake Mary, Fla.
But keep in mind that this can work against you when it comes to Social Security benefit calculations, which are based in part on your taxable earnings. Here's why. The more deductions you have, the lower your Schedule C income. Lowering your Schedule C income is a good way to reduce how much federal, state, and local income tax you owe. However, this lower amount becomes part of your Social Security earnings history and means you may receive lower benefits in retirement than if you didn’t take those deductions.
Minimize Taxes Now or Maximize Benefits Later?
Should you skip some or all of the business tax deductions you’re entitled to in order to increase your future Social Security benefit? Maybe. The answer is complicated because lower-earning business people stand to gain more in the future than their higher-earning counterparts due to the way Social Security retirement benefits are calculated.
Another important factor is where your Schedule C earnings fall compared to your previous years’ earnings. If you have a full 35-year career behind you and you’re not earning nearly as much in your current self-employed pursuits, it makes sense to take all the deductions you can, as your Social Security benefits will be calculated based on your 35 highest-earning years. In this case, you want to minimize your Social Security taxes.
But if you’re currently in the high-earning part of your career, a higher Schedule C income can help you get higher Social Security benefits later. Unless you enjoy complex math or have a top-notch accountant, it’s probably not worth the headache to figure out whether you’ll earn more in future Social Security benefits than you’d save by claiming all the deductions you can today.
Of course, if you’re on the cusp of not having enough Schedule C income to give you the work credits you need to qualify for Social Security, it may be worth foregoing some deductions to make sure you’re entitled to any benefits at all.
How Much Control Do You Want?
As we don’t know what Social Security benefit payments will look like in the future—many people expect them to be lower because of how the system is funded—you may want to go with the sure thing and take the lower tax liability today. After all, one way to lower your tax liability is to take money out of your business and put it in one of the available retirement plans for the self-employed. That’s money you’ll have a lot more control over than Social Security benefits.
"The great thing about Social Security is you cannot access it until retirement age," says Kevin Michels, CFP, EA, financial planner and president of Medicus Wealth Planning.
"You can’t make early withdrawals, [but] you can’t skip payments, and you are guaranteed a benefit," Michels adds. "However, you have only a small say in the future legislation of Social Security and how it will be affected by the mismanagement of government funds."
Michels continues to say the following:
If you have trouble saving for retirement already, then paying [as much as allowed] into Social Security may be the better option. If you are confident you can stick to a savings plan, invest wisely, and not touch your savings until retirement, it may be a better idea to minimize what you pay into Social Security and take more responsibility for your retirement.
If You Fail to File
If you don’t file a tax return reporting your self-employment income, you have a limited time to file a return and still get credit with the Social Security Administration (SSA) for your work time and income. You must file the return within three years, three months, and 15 days after the tax year for which you earned the income for which you want credit.
That means if you didn’t file a return reporting your 2019 self-employment income, you’d have until April 15, 2023, to correct it. However, this grace period doesn’t exempt you from any penalties and back taxes you may owe as a result of filing late.
On February 22, 2021, the Internal Revenue Service (IRS) announced that victims of the 2021 winter storms in Texas will have until June 15, 2021, to file various individual and business tax returns and make tax payments. As a result, affected individuals and businesses will have until June 15, 2021, to file returns and pay any taxes that were originally due during this period. This includes 2020 individual and business returns normally due on April 15, as well as various 2020 business returns due on March 15.
When You Don’t Have to Pay Social Security Taxes
You don’t owe Social Security taxes on the portion of your wages that exceed a certain earnings threshold. The wage base for 2021 is $142,800 (up from $137,700 in 2020), and you don’t owe Social Security taxes on the portion of your earnings that exceed that amount.
Let’s say your annual earnings were $145,000. The percentage of taxes you owe would be applied up to the first $142,800 but not on the $2,200 above that. This annual cap on Social Security taxes also applies to employees who work for someone else.
6% The percent of American taxpayers who exceeded the tax cap since 1983.
Qualifying for Social Security Benefits
Anyone born in 1929 or later needs 40 Social Security work credits, the equivalent of 10 years of work, to qualify for Social Security benefits. For every quarter that you earn at least $1,470 in 2021 (which was $1,410 in 2020), you earn one credit. The number changes annually.
Even if your business isn’t particularly successful, or you only work part-time or occasionally, it’s not difficult to earn the Social Security credits you need. In fact, even if your earnings fall below this threshold or if your business has a loss, there are some alternative ways to earn Social Security credits. These optional methods may increase the amount of self-employment tax you owe, but they’ll help you get the work credits you need.
Your eventual benefit payments do take your earnings into account. If you never earned much money from a lifetime of self-employment, don’t count on getting a large Social Security check in retirement. If you started claiming benefits this year, for example, and your average monthly earnings worked out to just $800, your monthly Social Security retirement benefit would be $720—assuming you’re at full retirement age. That’s not much, but if you managed to get by on an average of $800 a month during your working years, you could probably work with a monthly benefit payment of $720 in retirement.
Certain categories of earnings don’t count toward Social Security for most people, such as stock dividends, loan interest, and real estate income. This means you don’t pay Social Security taxes on this income and it also isn’t used to calculate your future benefits. The exception is if your business operates in one of these areas that don’t count—self-employed stockbrokers, for example, do count stock dividends toward their Social Security earnings.
The Bottom Line
Social Security really isn’t much different whether you’re self-employed or work for someone else. Self-employed individuals earn Social Security work credits the same way employees do and qualify for benefits based on their work credits and earnings.
Business tax deductions create the biggest difference. If you work for someone else, you pay Social Security taxes on all of your earnings, up to the $142,800 cap in 2021. But if you work for yourself, deductions you claim on Schedule C can make your taxable income substantially lower. That can decrease your Social Security taxes today, but also potentially decreases your Social Security benefits later.
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77f61abb1bce4deddc07d46732cd9218 | https://www.investopedia.com/articles/personal-finance/030315/choosing-rent-or-buy-new-york-city.asp | Choosing to Rent or Buy in New York City | Choosing to Rent or Buy in New York City
So you finally got that big job in New York City—perhaps it feels like the pinnacle of your career. Now, how do you actually afford to live there?
In most cities, buying can have more financial rewards in the long run than renting. But the option that is right for you depends on a variety of factors, both financial and personal.
Key Takeaways Usually, the only region in the U.S. that has higher rental and housing costs than New York City is the San Francisco region. While Manhattan gets the spotlight, rentals in outer boroughs can be had for far less money and might better fit into your budget. While you will likely enter into a lease, renting provides you with more flexibility if your job or income change. Being a homeowner means getting a tax break. Despite some ups and downs, overall home prices in New York have increased substantially in the past four decades.
5 Reasons You Might Decide to Rent in New York City
New York Prices Are Higher Than Other Markets
According to the real estate listing site Zumper, the median rent for one-bedroom apartments in New York City in August 2020 was $2,840. Nationally, the median home listing price in the U.S. is about $226,800, according to Zillow.
While it depends on how finely you slice the data—are you considering just Manhattan? All five boroughs of New York City? The broader New York metropolitan area?—it’s clear that prices are at or near the top. Usually, the only region in the U.S. that has higher rental and housing costs than New York City is the San Francisco region.
New York State Has One of the Tightest Markets
According to Jed Kolko, chief economist for the real estate data firm Trulia, Inc., buying is 38% cheaper than renting nationwide—“and buying is cheaper than renting in all of the 100 largest metros,” he wrote. But the picture is more complicated in states like California and New York. Right now, unusually low mortgage interest rates make buying the better option. If rates go up over 7%, then renting becomes cheaper than buying.
New York Has a Widely Varied Rental Market
While Manhattan gets the spotlight, rentals in outer boroughs can be had for far less money and might better fit into your budget, especially if you are just starting out and don’t have money for a down payment. From borough to borough, and within each borough, there is great variability in prices—and many quality rentals in up-and-coming neighborhoods.
No Maintenance, Real Estate Tax, and Upkeep Costs
Buying property can entail lots of additional, and sometimes unexpected, costs. Between repairs, regular upkeep, and renovations you may want to make, the price of homeownership goes way beyond the monthly mortgage. If the idea of calling the super to fix things that break is more appealing than fixing them yourself, renting might be your best option.
You Have Flexibility
While you will likely enter into a lease, renting provides you with more flexibility if your job or income change. Renters usually can decide to move with a notice of a month or two, while homeowners likely face a more drawn-out transition of listing and selling their property. The cost of buying and selling adds up, so if you don’t see yourself staying in the property for a while, it probably does not make sense to buy.
5 Reasons You Might Decide to Buy in New York City
Median Sales Price May Be Experiencing a Downward Trend
Even amidst the global pandemic caused by the COVID-19 virus—and the ongoing economic impacts of the business shutdowns—there has been an increase in activity in the New York City housing market. Pricing trends in the city were positive at the beginning of the economic crisis, and it appeared like the city's median sale price would remain high. However, that trend began reversing in June, and, according to Property Shark, in July 2020, the median sales price experienced a sharp decrease in all four boroughs.
From a sales activity perspective, there were 633 sales in July, specifically in the borough of Manhattan. This was the strongest month since the beginning of the crisis, although this figure represented a 36% year-over-year drop in sales (the least-drastic decrease since March 2020).
New York City Isn't Just Manhattan
In the New York City area, it's all about location, and once you get out of the New York City that is usually seen in the media, housing in the outer boroughs is far cheaper. Jonathan Miller, president and chief executive officer of Miller Samuel Inc., real estate appraisers and consultants in New York, says only the borough of Brooklyn has actually exceeded the price records set before the beginning of the financial crisis.
There Are Tax Benefits to Owning
Being a homeowner means getting a tax break. Mortgage-interest costs and property taxes are deductible, which can add up to big savings over time. Also, as you build equity in your home, you are also creating value that you can borrow against. If you buy one of the brownstone rowhouses that Brooklyn is famous for, your house may come with one or more rental units, allowing you to depreciate that portion of the house.
You Build Long-Term Investment Value in the Form of Equity in Your Home
If you don’t have the discipline to regularly stash money away, having to pay your mortgage monthly is like a forced savings plan. And real estate can be a good investment. Home prices generally rise faster than rent. Despite some ups and downs, overall home prices in New York have increased substantially in the past four decades. When you sell, the increase in value is taxed at the capital gains rate, which is lower than your income tax rate.
Mortgage lending discrimination is illegal. If you think you've been discriminated against based on race, religion, sex, marital status, use of public assistance, national origin, disability, or age, there are steps you can take. One such step is to file a report to the Consumer Financial Protection Bureau or with the U.S. Department of Housing and Urban Development (HUD).
The Pay-off of Buying May Coincide With Retirement
Buying means you’ll eventually pay the mortgage off (usually after 30 or so years). Then, as long as you remain in your home, when you retire you may no longer have monthly housing payments—giving you more money for other needs in your later years.
"Rent or Buy" Calculators
There are multiple rent-or-buy calculators; some are very simple and others are very sophisticated. Most generally start with the assumption you know how much you could spend—either buying or renting—and then allow you to factor in mortgage rates, your tax rate, property taxes, and upkeep expenses.
The Bottom Line
New York City housing prices are among the highest in the country, but values have appreciated over time. So, if you plan to keep a property for a few years, buying can be a good investment— as long as you have enough cash for a down payment and to cover ongoing maintenance costs.
Tight credit is making it difficult for some first-time buyers to get financing, notes Miller of Miller Samuel Inc. This “logjam” has made the rental market more expensive than the purchase market as a general rule, he says. The ultimate decision to buy or rent may not be about which market is more affordable, but whether you can qualify for a loan.
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13aeb2b0c6223bbb3fe28c0434307dcf | https://www.investopedia.com/articles/personal-finance/030515/business-administration-vs-finance-degree.asp | Business Administration vs. Finance Degree: Comparing the Differences | Business Administration vs. Finance Degree: Comparing the Differences
Business Administration vs. Finance Degree: An Overview
A degree in business administration or finance can lead to opportunities in both large and small organizations in the public and private sectors. Both degrees also provide a solid foundation and are good preparation for entrepreneurs who want to start their own businesses.
There is often considerable overlap among the courses that business administration and finance students must take, particularly during their freshman and sophomore years. Both degrees involve taking a significant amount of basic math as well as accounting, statistics, economics, and business law courses.
Either degree would be beneficial in landing a future job. According to the U.S. Bureau of Labor Statistics (BLS), business and finance jobs are expected to grow 5 percent by 2029, with 476,200 new jobs predicted on the horizon.
Key Takeaways A finance degree places a greater emphasis on math to prepare students for a job that entails financial analysis. A business administration degree will emphasize managerial skills and human resource skills, such as interpersonal relations and customer service. Both degrees involve taking a significant amount of basic math, as well as accounting, statistics, economics, and business law courses. A business administration or a finance undergraduate degree is considered sufficient preparation for many entry-level jobs like those in the commercial banking, money management, real estate, and investment banking sectors.
Business Administration Degree
A business administration degree, such as a Bachelor of Business Administration (BBA) or a Bachelor of Science in Business Administration (BSBA), generally offers a broad grounding in the world of commerce. In addition to analytical skills, a business administration program may focus on interpersonal or “soft” skills to a greater extent than a finance program.
For example, a program may expect its business administration graduates to demonstrate an in-depth knowledge of human resources and be able to work effectively in a team-based environment. Group projects are more common in business classes, as they help students prepare for working in teams. On the other hand, even a limited working knowledge of algebra should be more than enough to meet mathematics requirements. Depending on the program, a business administration student is likely to move on to courses in leadership and organizational behavior. On the whole, business administration majors are generalists who know something about the specialties of all the people that they manage.
The broad-based nature of the business administration degree also gives it long-term advantages in shifting job markets. Particular lines of business, such as railroads, manufacturing, and computers, rise and fall with technology. However, the experience that people gain in running businesses can be transferred from one industry to another. Students who earn business administration degrees are less likely to mistakenly invest their human capital in yesterday's vision of tomorrow.
Finance Degree
A bachelor’s degree in finance tends to be more specialized. The degree places a greater emphasis on investments and the workings of financial institutions. In addition, finance students may drill deeper into topics such as corporate and global finance, and a finance degree program may address "hard" skills such as financial analysis and accounting.
In particular, finance majors need to have a more substantial background in mathematics. A solid grasp of algebra is increasingly important as students progress in finance. Furthermore, a basic knowledge of calculus can make seemingly complex topics easier to understand. However, students can often get by without calculus in many undergraduate programs.
Graduates can typically find work in fields like banking, real estate, money management, or investment banking. A finance undergraduate degree, as well as a degree in business administration, is considered sufficient preparation for many entry-level jobs. However, some students go on to receive other certifications or advanced degrees such as a Master of Business Administration (MBA) or a Master of Science in Finance.
Getting a degree in finance also gives students a chance to learn more about investing. No one believes that ordinary people are likely to become great athletes or generals in their spare time. Yet, many people try to beat the market without proper training. By majoring in finance, students can spend years studying the workings of financial markets. That not only gives finance majors the ability to earn more in the job market, but also the potential to earn more on their investments.
Degrees in both business administration and finance—especially advanced degrees—will usually open doors to lucrative positions in the finance and business sectors.
Special Considerations
According to the Bureau of Labor Statistics' latest estimates, the types of jobs for which graduates with either degree qualify for pay well, and the demand is strong. Below are some examples of average salaries in 2019 earnings (most recent figures), and projected job growth from 2019 to 2029:
Financial analysts Earnings: $81,590; Projected job growth: 5 percent Financial managers Earnings: $129,890; Projected job growth: 15 percent Management analysts Earnings: $85,260; Projected job growth: 11 percent Personal financial advisers Earnings: $87,850; Projected job growth: 4 percent Securities, commodities, and financial services sales agents Earnings: $62,270; Projected job growth: 4 percent
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77ecada86ce0b739408bb4c06b20e887 | https://www.investopedia.com/articles/personal-finance/030613/why-4-rule-no-longer-works-retirees.asp | Why the 4% Rule No Longer Works for Retirees | Why the 4% Rule No Longer Works for Retirees
When it comes to retirement planning, the 4% rule has stood as a tried-and-true method of drawing retirement income from an investment portfolio without depleting the principal of the portfolio prematurely. This rule states that a retiree can usually withdraw about 4% of the value of their portfolio each year, provided that the portfolio is allocated at least 40% in equities.
However, this traditional strategy has recently come under fire from retirement experts who claim that this rate of withdrawal is no longer realistic in the current economic environment.
Key Takeaways The 4% rule states that a retiree can usually withdraw about 4% of the value of their portfolio each year, provided that the portfolio is allocated at least 40% in equities.This rate of withdrawal is no longer realistic in the current economic environment.The annual returns earned in a portfolio during the first few years will have a much larger impact on the total return received by the investor than the returns that are earned in later years.Therefore, if a retirement portfolio that is invested heavily in bonds in today’s market remains invested for the next 30 years, then it will likely earn less than half of the average historical rate for the first few years.
Discouraging News
A panel of retirement planning experts with Morningstar, a company that provides independent research on both individual securities and the financial markets, recently released a paper that indicates that it is becoming less likely for retirees to be able to withdraw 4% of their portfolios each year and expect them to last for 30 years.
The authors back this assertion with data showing the stark difference between current and historical interest rates. They show that the Ibbotson Intermediate-Term Government Bond Index posted an average annual total return of approximately 5.5% per year up to 2011. However, current interest rates are closer to 2%, and the authors feel that this is not likely to change any time in the near future.
This change has caused a substantial divergence between financial reality and the historical assumptions that are built into the simulated computer-based models used by many financial planners. The Morningstar experts maintain that these assumptions can no longer provide an accurate projection because we have been in a period of extended diversion from historical averages, and mathematical assumptions that are based on the historical average will thus be substantially inaccurate, at least during the initial years of the projection.
1:48 Why The 4% Rule No Longer Works For Retirees
What’s the Problem?
They point out that the annual returns earned in a portfolio during the first few years will have a much larger impact on the total return received by the investor than the returns that are earned in later years. Therefore, if a retirement portfolio that is invested heavily in bonds in today’s market remains invested for the next 30 years, then it will likely earn less than half of the average historical rate for the first few years.
If the portfolio only grows by an average of 2% during that period and the investor withdraws 4%, then the principal in the portfolio will be materially reduced for the remainder of the withdrawal period, thus substantially increasing the possibility that the portfolio will become prematurely depleted. The experts recommend that retirees adjust their withdrawal rate to 2.8% per year for the foreseeable future in order to avoid this dilemma.
Possible Alternatives
Of course, many retirees will not be able to live comfortably on a withdrawal rate of less than 3% per year. Those who are faced with this dilemma have three basic alternatives to choose from:
They can continue to work for a few more years and continue adding to their retirement savings.They can invest their savings more aggressively in hopes that it will grow enough to make up for the shortfall.They can learn to live on less income per year.
Of course, the first alternative will pose the lowest amount of risk in most cases, but this option can also be the most distasteful in many cases.
Reallocating the portfolio may be a more workable alternative, as long as care is taken to limit the amount of risk being taken. Those who are seeking current income can look at vehicles that only offer moderate risk, such as preferred stock and mutual funds or ETFs that invest in bonds or other income-producing securities.
In some cases, retirees may be able to live on a lower amount of income, at least for a few years, especially if their homes will be paid off soon.
The Bottom Line
Some combination of these alternatives may be the best choice for many. A part-time job, some judicious changes in the portfolio, and few cost-cutting measures can go a long way toward preserving that nest egg. For more information on retirement planning and how you can maximize your savings, consult your company retirement plan representative or financial advisor.
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56d60487c3ba8b72696e876f48b7c07a | https://www.investopedia.com/articles/personal-finance/030816/immigrants-over-65-and-social-security-benefits.asp | Immigrants Over 65 and Social Security Benefits | Immigrants Over 65 and Social Security Benefits
In certain cases, individuals who immigrate to the United States when they're 65 or older may be entitled to draw Social Security benefits, just like any natural-born American citizen. In other cases, immigrants may only draw on their home country’s retirement programs. And some immigrants qualify for benefits from both countries. Here’s an overview of how the rules work.
Key Takeaways People who immigrate to the United States at age 65 or older may be entitled to Social Security benefits.They must either have 40 U.S. work credits (about 10 years' worth) or come from a country that has a totalization agreement with the U.S.Totalization agreements allow immigrants to combine their work credits from both the U.S. and their home country.The U.S. has totalization agreements with more than 25 other nations.
Do Immigrants Over 65 Qualify for Social Security?
Most people who immigrate to the United States after reaching retirement age have not accumulated the requisite 40 work credits to qualify for U.S. Social Security unless they worked in the country for a cumulative 10 years when they were younger.
However, those who are able to legally work in the U.S. for a year and a half after arriving, and who earn at least $1,470 per quarter (as of 2021), may qualify to receive prorated U.S. Social Security benefits, under a totalization agreement with their countries of origin.
A totalization agreement is an arrangement between two countries with similar social security programs that ensures workers and their employers don’t pay social security taxes on the same earnings in both countries. It also prevents individuals from double-dipping when they claim benefits. The U.S. has such agreements with the following countries:
AustraliaAustriaBelgiumBrazilCanadaChileCzech RepublicDenmarkFinlandFranceGermanyGreeceHungaryIrelandItalyJapanLuxembourgThe NetherlandsNorwayPolandPortugalSlovak RepublicSloveniaSouth KoreaSpainSwedenSwitzerlandThe United KingdomUruguay
“An immigrant who comes to the U.S. from Italy, for example, and has some work history in both countries, but not enough to fully qualify for Social Security benefits in either country, can combine his or her foreign and domestic work history in order to qualify for Social Security benefits,” explains investment advisor Mark Hebner.
How Totalization Agreements Work
Consider the following scenario, illustrating how a totalization agreement can benefit a late-arriving U.S. immigrant.
Penelope recently moved to the United States. She lived in Spain for most of her life, but when she was younger, she spent nine years working for an American company in the U.S. During that time, she earned 36 Social Security credits, which unfortunately falls short of the 40 credits she needs to qualify for Social Security benefits here.
Penelope also worked for 12 years in Spain. Under that country's rules, she would need 15 total years of contributions to qualify for retirement benefits.
Thanks to the totalization agreement, she can combine her work credits from both Spain and the U.S. in order to receive Social Security benefits. Without that agreement, she wouldn’t qualify for benefits in either country, despite having paid into the two national systems for a combined 21 years.
The U.S. Social Security Administration checks with its foreign counterparts in determining whether an immigrant applicant is eligible for benefits.
Collecting U.S. Social Security From Abroad
In some cases, immigrants who earned at least 40 work credits in the U.S. and consequently qualify for U.S. Social Security, may decide to return to their home country, and still receive their U.S. benefits. This currently applies the following nations:
AustriaBelgiumBrazilCanadaChileCzech RepublicFinlandFranceGermanyGreeceHungaryIcelandIrelandIsraelItalyJapanLuxembourgThe NetherlandsNorwayPolandPortugalSlovak RepublicSloveniaSouth KoreaSpainSwedenSwitzerlandThe United KingdomUruguay
The Bottom Line
Some immigrants age 65 and older are eligible to draw Social Security benefits in the U.S. or to collect those benefits while living abroad. However, many are not. In fact, a Social Security Administration report found that 37% of all individuals who fail to qualify for Social Security benefits are immigrants who arrived in the United States at age 50 or older and have insufficient earnings histories.
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1150dee35871e5143b43b362ea1aaaac | https://www.investopedia.com/articles/personal-finance/031115/salary-vs-hourly-how-benefits-laws-differ.asp | Salary vs. Hourly Pay: What's the Difference? | Salary vs. Hourly Pay: What's the Difference?
Most jobs in the United States are governed by the Fair Labor Standards Act (FLSA) and are categorized as either exempt or nonexempt. If you are nonexempt, you are owed overtime wages, which are 50% greater than your regular pay rate, for any hours beyond 40 worked during a single week. Exempt employees do not receive overtime pay.
Salary vs. Hourly Pay: An Overview
What makes you exempt? In general, an employee has to make at least $455 per week ($23,660 per year), be paid on a salary basis, and perform exempt duties that require discretion and independent judgment at least 50% of the time. If you take on managerial duties, for example, you’re probably exempt. This means you can be paid a salary, so no matter how many hours you work, your employer doesn’t have to pay you overtime wages.
Because of the FLSA, you can't negotiate whether a job is exempt or nonexempt. Regardless of job title, it's the duties you perform that determine your job category.
1:35 The Benefits of Salary Vs. Hourly Wages
Salary
Each time your paycheck arrives, it’s the same. An annual wage is a term of your employment, and that’s how much you will receive for as long as you hold the same job or until the terms are renegotiated. It is a type of implicit cost.
A salary comes with an inherent sense of security. Employers can cut nonexempt hours easily, but renegotiating a salary is more complicated.
There can be a downside, though. While salaried employees receive a fixed rate of pay, they also have specific responsibilities and tasks that must be met or completed—even if that means longer hours and occasional weekends. In some circumstances, this can make it more difficult to separate work and personal time.
Hourly Pay
As an hourly employee, you are paid for all of the hours you work. If an employer wants more of your time, they have to pay you more. Legal overtime is time and a half; some employers may pay double time for holidays, but that isn't mandatory unless it's part of a contract that covers your job. If you're in a well-compensated field with lots of overtime, you could bring home more than if you earned the same official pay on a salaried basis.
There's also a lifestyle aspect. In general, hourly employees will find it easier to separate home and work. Once work is over for the day, they can concentrate on family, hobbies, or a second job.
Key Takeaways Salaried employees received a fixed wage, but they must keep up with their responsibilities and complete necessary tasks—even if that means working extra hours.Hourly employees must be paid time and a half for any hours beyond 40 worked during a week.In the U.S., the Fair Labor Standards Act determines whether or not employees can be paid a salary or must be paid hourly.
Unfortunately, being paid hourly also makes you more vulnerable. When laws change or the company goes through tough times, hourly employees often feel the impact first. It’s easier for an employer to knock off some of your hours until business improves than to eliminate an entire salaried position.
There also are possible effects on eligibility for health care coverage. Businesses with 50 or more employees are required to provide health care to people working 30 or more hours, so some businesses keep hourly employees to fewer than 30 hours to avoid the mandate.
The Bottom Line
There are pros and cons to being hourly versus a salaried employee but for the most part, the latter enjoy more benefits, such as paid leave and other employer-sponsored benefits. Hourly workers do not usually receive compensation in the form of paid leave by the companies who hire them and are responsible for their own healthcare. Hourly employees enjoy more autonomy and may be able to set their own hours.
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9f8f411eaad9f94fd162da54c2e6fb96 | https://www.investopedia.com/articles/personal-finance/031215/why-saving-money-important.asp | Why Saving Money is Important | Why Saving Money is Important
If you don’t earn much and you can barely pay your bills, the idea of saving money might seem laughable. When you only have $5 left at the end of the month, why even bother to try saving? Because everyone has to start somewhere, and if you work at it, your financial situation is likely to improve over time. Saving money is worth the effort. It gives you peace of mind, it gives you options, and the more you save, the easier it becomes to accumulate additional savings.
Peace of Mind
Who hasn’t lain awake at 3:00 a.m. wondering how they were going to afford something they needed? If money is really tight, you might be wondering how you’re going to pay the rent next week. If you’re a little further up the financial ladder, you might be worried about how many months you could pay the bills if you lost your job. Later in life, the money thoughts that keep you up at night might center around paying for your kids to go to college or having enough money to retire.
As you accumulate savings, your financial worries should diminish, as long as you’re living within your means. If you already have next month’s rent taken care of by the first week of the current month, if you know you can get by without work for three to six months, if you have savings accounts for your children’s education and your own retirement that you’re regularly funding, you’ll sleep better at night. The reduced stress from having money in the bank frees up your energy for more enjoyable thoughts and activities. Finding the best savings account is key to making sure that the money that you do put away earns you the highest interest.
Expanded Options
The more money you have saved, the more you control your own destiny. If your job has you on the verge of a nervous breakdown, you can quit, even if you don’t have a new job lined up yet, and take time off to restore your sanity before you look for new employment. If you’re tired of living in an unsafe neighborhood, you can move to a safer area because you’ll have enough for a deposit on a better apartment or a down payment on a nicer home.
If you get sick and need expensive healthcare that your insurance doesn’t cover, you’ll have a way to pay for it even though you can’t work while you’re getting treatment. And knowing that you have options because of the money you’ve socked away can give you even more peace of mind.
No, money doesn’t solve every problem. If you are laid off, it might take as long as two years to find a new job. Some illnesses won’t go away no matter how many procedures you can afford, and random crime can happen even in a supposedly secure gated community. But with more money in the bank to deal with issues like these, you give yourself better odds of coming out on top.
Money Working for You
Most of us put in hundreds of hours of work each year to earn most of our money. But when you have savings and stash your funds in the right places, your money starts to work for you. Over time, you’ll need to work less and less as your money works more and more, and eventually, you might be able to stop working altogether.
What does it mean to have your money working for you? When you’re first starting to save, you’ll want to put your money somewhere safe, where you can access it right away for unforeseen expenses. That means an online savings account, where you might earn 1% interest annually and not even keep up with inflation, which tends to run around 1% to 2% per year. You’ll even have to pay taxes on your meager 1% earnings. Anything is better than earning 0%, though, or not having savings and going into credit card debt, which will cost you 10% to 30% in interest per year.
Once you’ve saved three to six months’ worth of expenses in your emergency fund, you can start saving money in a tax-advantaged retirement account. That’s where the magic starts to happen. These accounts, such as a Roth IRA or 401(k), allow you to invest in the stock market. You won’t pay any taxes on those investment gains along the way, which will help your money grow even faster. With a Roth IRA, you contribute after-tax dollars, and everything that’s in the account after that is yours to keep. With a 401(k), you get to contribute before-tax dollars, giving you more money to invest up front; you’ll pay taxes when you withdraw the money in retirement. (If you’re not sure whether it’s better to pay taxes now or later, you can hedge your bets and contribute to both your employer-sponsored retirement plan and a Roth IRA.) The third choice, a traditional IRA, allows you to contribute before-tax dollars as you do with a 401(k).
If you have a high income and low expenses, you might accumulate enough to retire in 10 years. For most people, it takes closer to 40 years. But at some point, if you save and invest regularly, you should be able to live off the income generated by your investments—the saved money that’s working for you. The earlier you start, the more time a small amount of money has to grow large through the miracle of compounding.
The Bottom Line
Saving money is incredibly important. It gives you peace of mind, expands your options for decisions that have a major effect on your quality of life, and eventually gives you the option to retire. Most people who are wealthy got there through a combination of their own hard work and smart savings and investment decisions. You can become one of those people, too.
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f90ff211885db1b8891b9415d81a1daf | https://www.investopedia.com/articles/personal-finance/031716/social-security-benefits-children-how-they-work.asp | Social Security Benefits for Children: How They Work | Social Security Benefits for Children: How They Work
Social Security is usually associated with monthly payments to retirees. But there is another important facet to Social Security benefits—providing financial assistance to children. In 2017, for example, approximately 4.2 million children received $2.6 billion in aid each month, according to the Social Security Administration.
Key Takeaways Children may be eligible for Social Security payments based on a parent's work record.For a child to qualify, the parent must be retired, disabled, or deceased.Children who are disabled may be eligible for Supplemental Security Income (SSI), a separate program that's also run by the Social Security Administration.
Types of Social Security Benefits for Children
Depending on their situation, children may be eligible for Social Security benefits, Social Security survivors benefits, or Supplemental Security Income (SSI), a program also administered by the Social Security Administration. Here's the lowdown on who qualifies.
Can Children Qualify for Social Security?
Biological or adopted children or stepchildren can be eligible for Social Security benefits if they meet the following criteria:
Have a parent who is disabled or retired and eligible for Social Security benefits.Are unmarried.Are younger than 18 years old or up to age 19 if they are full-time high school students.Are 18 years or older and disabled (as long as the disability began before they turned age 22).
The requirements for Social Security survivors benefits are similar, except that the parent must be deceased for the child to qualify.
Supplemental Security Income is a separate program for Americans with limited incomes and other resources. Recipients must generally be 65 or older, blind, or disabled. But SSI is also available to children under age 18 in certain cases. To qualify:
The child must have a physical or mental impairment (or impairments) that results in marked and severe functional limitations.The impairment or impairments must have lasted or be expected to last for a continuous period of at least 12 months or be expected to result in death.
In the case of blindness, that duration requirement doesn't apply.
Social Security rules limit how much money a family may receive in total benefits.
How Much Do Children Receive in Social Security Benefits?
A child may receive a Social Security benefit equal to 50% of the parent’s full retirement benefit or disability benefit. If the parent is deceased, the child is eligible to receive up to 75% of the parent’s full retirement benefit. (SSI benefits are determined by a different calculation, and the maximum benefit changes each year.)
There is a limit to the total amount that a family can receive from Social Security based on one worker's earnings record, though. The maximum family benefit typically ranges from 150% to 180% of the parent's full benefit amount. That's the formula for maximum family benefits based on a retired parent's work record; if the parent is disabled, a different formula applies.
If the amount due the entire family surpasses the maximum, some individual payments will be proportionately reduced. As an example, consider a retiree named June, who has a dependent child, Ruth, who is also eligible for benefits. June's full retirement amount is $1,500, and her family maximum is $2,300. June would receive her full $1,500 per month, while her spouse, John, and daughter Ruth would split the remaining $800 payment, each receiving $400.
How to Receive Benefits
You must apply in person. The family must present the child's birth certificate, the parents' Social Security numbers, and the child's Social Security number. There may be additional documents required, as well. In relevant cases, the applicant must provide a parent's death certificate and/or evidence of disability from a doctor.
If your child is disabled, the Social Security Administration offers a Disability Starter Kit that can help you navigate the process of applying for benefits.
If you are taking care of a child and are receiving Social Security benefits for that reason, their benefits may stop at a different time from your own. For example, if your child is not disabled, your benefits will end when the child turns 16 years old. If the child is disabled and you have responsibility for them, your benefits may continue. For these types of specific circumstances, it’s best to contact the Social Security Administration for guidance.
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294efd64c0ee37ffd2c9643abd9c3fea | https://www.investopedia.com/articles/personal-finance/031915/should-i-go-grad-school-after-college.asp | Should I Go To Grad School After College? | Should I Go To Grad School After College?
If you're thinking about graduate school, you may be wondering when you should attend. Is it best to go straight from college or wait and gain work experience first? Both have their advantages and disadvantages. What you choose depends on your personal interests and your own circumstances, so it's not necessarily a one-size-fits-all approach. No one can dispute the value of higher education, but if you're up for the challenge, it's really up to you to figure out the best time to pursue a master's degree. If you believe that a graduate degree is in your future but are not sure whether now is the time, here are some factors to consider.
Key Takeaways Getting an advanced degree may boost your earnings prospects and career advancement. You can defer your student loan payments and you won't sacrifice your lifestyle by going directly into grad school after you receive your undergraduate degree.You may change your mind about your chosen field if you wait and you may be able to get employer-funded tuition if your company includes that in your compensation package.
The Financial Benefits
If you're still stuck on whether to go to grad school, consider the financial benefits once you've completed your program. According to the Bureau of Labor Statistics (BLS) data, each step up in education means a higher salary and greater job security. For instance, high school graduates in 2019 had median weekly earnings of $746 and an unemployment rate of 3.7%. Workers with a bachelor's degree earned a median of $1,248 and had an unemployment rate of 2.2%. Those with a master’s degree had median earnings of $1,497, with an unemployment rate of 2%.
This can be a powerful argument for attending graduate school. But it does not necessarily mean that doing so immediately after receiving a bachelor’s degree is the right course. While a handful of fields require a graduate or professional degree as the price of admission, in many others, a bachelor's degree is sufficient for an entry-level job.
There's no right or wrong time to go to grad school—when you choose to attend depends on your personal circumstances and your goals.
Why You Should Attend Sooner
It may be easier to make the transition to grad school without taking a break. Consider the fact that you're accustomed to studying and test-taking, and living the far from lavish life of a typical college student. A couple of years in a comfortable job, on the other hand, is likely to dull your study habits and accustom you to the finer things in life.
If you take a break from education, your life may change in unforeseen ways. You might get married, have children, buy a home, or take on new responsibilities that will make attending and paying for graduate school even more challenging.
If you racked up a lot of federal student loan debt as an undergrad, one way to postpone repaying in some cases is to continue your education and obtain a student loan deferment. Of course, the downside is that you’ll probably take on more debt for grad school and you'll have to start paying it back sooner or later.
When It's Better to Wait
You probably deserve some time off from midterms, all-nighters, and cold pizza after you complete a rigorous undergraduate program. And let's face it, graduate school isn't cheap. Tuition and fees alone average approximately $35,000. This figure, of course, doesn't include the cost of living, books, and other materials you may need. A couple of years of work can help you pay for your next degree without taking on unnecessary debt.
Once you have spent some time in the workplace, your interests and ambitions may evolve. It might be better to discover your true vocation before you invest in a graduate degree in the wrong field. You might still end up in grad school, but studying something completely different.
With a little added maturity, you will bring more to graduate school and most likely get more out of it. Some work experience on your resume could also be a plus, both when you apply to grad school and when you finish your degree and are job hunting once again.
Many companies will subsidize or completely pay for graduate work, particularly if your training is in their interest. According to the Society for Human Resource Management, 54% of employers offer tuition assistance. Also, under Internal Revenue Service (IRS) rules, you can exclude up to $5,250 in employer-provided education assistance from your income if your employer’s program qualifies. You’ll owe some income tax above that amount, though it’s still a better deal than paying for grad school all by yourself.
The Bottom Line
Whether you decide to pursue a graduate degree immediately after school or wait a while before going all depends on your finances, your area of interest, and your instincts. Don't rush to go if you don't feel ready. On the other hand, if you are offered a tempting fellowship, it might be worth going straight to grad school, particularly if you are targeting a field that requires a Ph.D.
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bb2be3e66295889778fb04801b72e2a2 | https://www.investopedia.com/articles/personal-finance/032014/six-ways-your-tax-preparer-knows-youre-lying.asp | Six Ways Your Tax Preparer Knows You're Lying | Six Ways Your Tax Preparer Knows You're Lying
Rising taxes, a slow economy and the costs of Obamacare have tempted some taxpayers to try to cut corners with Uncle Sam.
As a professional tax preparer for a major national service, one of my jobs is to recognize when a filer may be giving me fraudulent information. Although it’s not possible to catch all the bogus information, there is a list of common dodges that dishonest filers attempt to pull to reduce or avoid their tax bill.
Key Takeaways Whether you prepare your own taxes or send them out to be completed by an accountant, it is up to you, the filer, to provide accurate and truthful information.An experienced tax preparer will easily identify red flags in the information you provide that could indicate a lie or fudging the numbers.These red flags may include comingling business and personal income and expenses, claiming unqualified dependents, or trying to hide assets overseas.Lying on your tax returns can result in fines and penalties from the IRS, and can even result in jail time - so be honest and forthcoming!
False Deductions
One of the most obvious ways that some filers attempt to deceive the IRS is when they try to claim additional deductions. When they see their tax bill or refund amount after we have finished the initial interview, they will have me put their return on hold because they suddenly remembered some "additional expenses" that they forgot to include before. Then they return with a list of these items (without any receipts or supporting documentation) and ask me to enter them into the return.
Knowingly filing a false tax return on someone else’s behalf will cause the IRS to discipline both the customer and the tax filer.
Claiming Dependents Who Don't Qualify
A sure-fire way to lower any tax bill is to claim a dependent or two since it can give the filer “Head of Household” status, which gives a larger standard deduction and adds dependency exemptions and tax credits for dependents under age 17. This can be a major point of contention for divorced couples, especially those who share custody of one or more children.
For many in this situation, it becomes a race each year to see who can file first and “win” by claiming the kids. Of course, when one spouse claims one or more dependents unjustly, the other spouse can notify the IRS of the violation and have the undeserved refund disallowed. However, this process can take months and can be a headache for the ex-spouse that should have claimed the children.
The IRS has tightened up the rules for filers who claim kids for the earned income credit by requiring them to provide additional documentation each year starting in 2014 that shows that each dependent claimed met the proper support and residency tests.
Another dodge is to claim parents who do not live with the taxpayer by showing false statements of financial support.
2:05 Six Ways Your Tax Preparer Knows You’re Lying
Divorce-Related Fraud
Claiming dependents unjustly isn't the only way that divorcees can fudge their numbers.
Although child support is nondeductible for payers, some filers will still try to claim this expense by stating that it is spousal support or alimony in hopes that the IRS won’t notice the discrepancy and will allow the deduction. If they cannot produce a divorce decree that shows that the payment is alimony, then they shouldn't be deducting it on any return.
Income Fraud
Filers who fail to report income can not only lower their tax bill but also collect unemployment benefits. Those who report abnormally low income for the year will trigger a red flag, especially if they are claiming dependents. In some cases, they are receiving child support or state and/or federal assistance that is nontaxable, but many of these filers also worked jobs for which they were paid in cash. This type of income is especially tempting to omit because of the additional payroll tax.
Personal Vs. Business Expenses
Breaking down business versus personal use for things such as vehicles and office equipment can be a very gray area for some customers. Customers who increase these amounts or percentages towards business use several times tend to arouse my suspicion unless they can cite specific additional instances of use.
More creative cheaters might create a dummy business entity to which false expenses are attributed.
Overseas Investors
Some clients think that investment or other income that they earn in other countries can be left off their tax return. This is not the case if they are U.S. citizens.
Any customer that gives me information about what they did during their time away, if they resided in another country for any material period, but have no income from there, that information should be closely questioned and thoroughly documented.
If the IRS Catches You
Of course, the rules clearly state that if a tax filer knowingly enters fraudulent information on a tax return that they prepare for a client and submit it, then both the client and the filer will be subject to disciplinary action or even criminal penalties (if the IRS discovers it). The client will also be subject to interest and penalties on the amount of tax that should have been paid.
Customers should be informed that adding substantial deductions to the return may increase the chance that they will be selected for an audit. If an audit happens, then the IRS will disallow any deduction or other incentives for which there is no proof, even if it was a legitimate expenditure that was actually paid.
The IRS may then decide to audit other years of the client’s returns to see if they cheated on those, too. And if you plan on filing fraudulent returns, you should know that whistleblowers can report tax cheats to the IRS, which will pay a reward of up to 30 percent of the additional tax, penalties and other amounts that it collects.
The Bottom Line
Taxpayers who try to cheat on their taxes are asking for trouble. If caught, the consequences they face usually far outweigh what they’re attempting to gain.
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4f3b7add0b4b9e2eef2dd92d537b8dc6 | https://www.investopedia.com/articles/personal-finance/032015/strategies-increase-home-appraisal-value.asp | Strategies to Increase Home Appraisal Value | Strategies to Increase Home Appraisal Value
When you're selling or refinancing your home, it probably will be appraised to determine its current market value. The appraiser will look at factors such as square footage, materials, amenities, and condition, and evaluate these factors against comparable properties, or “comps,” that have recently sold in the area.
Key Takeaways Clean and uncluttered rooms convey the message that a home is well-maintained.Minor cosmetic improvements can make a big difference.Avoid big expensive improvements. They don't pay off.
The appraisal process is meant to be objective, but appraisers are human. Good curb appeal and clean, uncluttered rooms send a message of a well-maintained home. And they can be achieved without a great deal of time or expense.
Spruce It up
Make sure your home looks its best when the appraiser arrives. You can take your cues from professional home stagers who prepare properties to show to buyers.
De-clutter, make minor repairs, and touch up the paint if necessary, suggests Marie Graham, who runs a staging business called The Refreshed Home in Westchester County, N.Y.
You’ll need to do these tasks anyway if you’re putting your home on the market, so you might as well get started. Even if you’re refinancing, you won't want your dirty dishes or messy desk immortalized in the appraiser’s photo archives.
Tidy Up the Yard
The appraiser is probably taking notes before even knocking on your door. Unless your yard is a total disaster, investing in elaborate landscaping is usually a waste of money. But a minor clean-up is worth a weekend or two.
M. Lance Coyle, a Dallas-based appraiser and former president of the Appraisal Institute, suggests removing any dead trees or bushes that detract from your home’s appearance.
Graham says she often advises staging clients to make simple cosmetic fixes such as repairing walkways, sealing driveways, and putting numbers on mailboxes.
Point out Major Improvements
If you recently replaced the roof or installed a new patio, mention it to the appraiser, Coyle says.
But don’t make major improvements now in hopes of increasing your home’s appraisal or resale value. Few such projects ever recoup 100% of their cost.
For example, a major kitchen renovation costs close to $68,000 on average but returns only about 59% of that, or roughly $40,000, according to Remodeling Magazine’s "2020 Cost vs. Value Report."
How to Interact with the Appraiser
Offer to answer any questions the appraiser may have, but resist the urge to trail him or her from room to room.
If you know of similar homes in the neighborhood that have recently sold, don’t hesitate to call them to the appraiser’s attention, Coyle says. The appraiser may not be as familiar with the area as you are and could miss a comp that would work to your benefit.
Look for credentials such as MAI or SRA, both of which are conferred based on an appraiser’s education and experience. If the appraisal comes in lower than you hoped, you can gauge whether it was due to your unrealistic expectations or possible appraiser inexperience or incompetence.
Know Your Rights
If you hire the appraiser to determine your home’s value, the appraisal belongs to you. If you’re refinancing your mortgage and the lender hires the appraiser, the lender is required to provide you with a copy–possibly for a reasonable fee–of the appraisal and any other home value estimates.
Review the written appraisal for errors. Check whether the comps the appraiser chose are reasonably similar to your home.
If necessary, you can appeal the appraisal with your lender or ask it to order a second appraisal.
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39f2d8105071f86cd050a878d9afe05f | https://www.investopedia.com/articles/personal-finance/032015/when-right-time-buy-house.asp | When is the Right Time to Buy a House? | When is the Right Time to Buy a House?
When Is the Right Time to Buy a House?
When investing in a property, many potential homebuyers attempt to predict if home values are rising or falling while also paying attention to mortgage rates. These are important metrics to follow to determine if the time is right to buy a house. However, the best time is when you can afford to.
Key Takeaways: While monitoring if home values are rising or falling are important metrics, the best time to buy a house is when you can afford it.Borrowers should explore their loan options and take advantage of low-interest loans if they have a good credit score and little debt.Attempting to time the market is not a good idea. However, interest rates are currently at historic lows, so now is a good time to buy.
How Buying a House Works?
The type of loan that a home buyer chooses affects the cost of the home over the long term. There are different options for mortgage loans, but a 30-year fixed mortgage rate is the most stable option for homebuyers. The interest rate will be higher than a 15-year loan (popular for refinancing), but the 30-year fixed presents no risk of future rate change shocks. Other types of mortgage loans include a prime rate mortgage, a subprime mortgage, and an “Alt-A” mortgage.
To qualify for a prime residential mortgage, a borrower must have a high credit score, typically 740 or higher, and be mostly free of debt, according to the Federal Reserve. This type of mortgage also requires a considerable down payment, 10 to 20%. Because borrowers with good credit scores and little debt are considered relatively low risk, this type of loan usually has a correspondently low interest rate, which can save a borrower thousands of dollars over the life of the loan.
Subprime mortgages, on the other hand, are offered to borrowers with lower credit ratings and FICO credit scores below 640 depending on the lender. Because of the increased risk to lenders, the interest rates on these loans can be as high as 8% to 10%. Adjustable-rate mortgages (ARMs) fall into this category. ARMs often have an initial fixed-rate “teaser rate” at first, and then switch to a floating rate, plus margin, for the remainder of the loan. These loans often start with a low interest rate, but the mortgage payments can increase dramatically once the loan switches to the higher variable rate.
Even if you are offered a loan, if your credit score is good, you might still qualify for a prime-rate mortgage with a different lender.
Alt-A mortgages are typically low-doc or no-doc loans, which means that minimal documentation is required by the lender for the borrower to prove their ability to pay the loan. Alt-A borrowers typically have credit scores of at least 700. The loans tend to allow low down payments. These loans are useful for those who earn sufficient income but are unable to provide documentation because they earn it sporadically. Some self-employed people may fall into this category. Interest rates tend to be around 5.5% to 8%, depending on the lender and the borrower’s situation.
Buyers should know that if you are offered an Alt-A or subprime rate does not mean that you cannot qualify for a prime-rate mortgage with a different lender.
Affordability
The United States is currently experiencing an affordability crisis. According to Robert Dietz, chief economist of the National Association of Home Builders, the problem is exacerbated by a lack of available housing, construction labor shortage, and high land prices.
According to the NAHB/Wells Fargo Housing Opportunity Index, housing was most affordable in 2012 when 78% of new and existing home sales were affordable for a typical family based on their incomes and current interest rates. By the end of 2019, that score was 63.2%, meaning only 63% of home sales were affordable because home prices and mortgage rates are rising quicker than incomes.
According to Frank Nothaft, chief economist for CoreLogic, a data analytics company, monthly mortgage payments have increased by approximately 18% over the past year, but few families have seen their incomes rise by that amount.
Buy a Home When You Can Afford It
The best approach to deciding when to buy a home is to do so when you can afford it. Don’t attempt to time mortgage rates and home values. They are almost impossible to predict. If you find the home you want and you can afford to, buy it.
When you do buy that home, consider the following money-saving tips:
If you plan to resell in the future, do not buy the biggest and/or most expensive home on the block. These homes usually appreciate the least and present the biggest challenge when attempting to find a seller. The smallest and/or least expensive home on the block often appreciates the most.Inquire about property taxes, utility costs, and home-owners association fees.Hire an inspector prior to purchasing a home. This will cost you hundreds and might save you thousands.Don’t make any large purchases (car, boat, etc.) or open a new credit card in the six months leading up to your home purchase. This might be seen as an increased risk to your lender.When you bid for the home you want, base it on comps on a price-per-square-foot basis. Use a specific number that will indicate to the seller that you did your homework in determining the value of the home.
Special Considerations When Purchasing a Home
There’s a saying on Wall Street: “Don’t try to time the market.” This also applies to real estate. The number one factor is your ability to afford a home without getting in over your head. That said, if you’re looking for an edge, interest rates are near historic lows, so now is a better time than most to purchase a home.
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8e95748c5f984ae727a9c606bb2e52ad | https://www.investopedia.com/articles/personal-finance/032116/how-select-and-build-benchmark-measure-portfolio-performance.asp | How to Select and Build a Benchmark to Measure Portfolio Performance | How to Select and Build a Benchmark to Measure Portfolio Performance
When investing, benchmarks are often used as a tool to assess the allocation, risk and return of a portfolio. Benchmarks are usually constructed using unmanaged indices, exchange-traded Funds (ETF) or mutual fund categories to represent each asset class. Comparisons can be made for almost any period.
Key Takeaways Any investor needs to establish a valid benchmark against which to measure their investment outcomes.Not all benchmarks are appropriate for every investor, and the one for you will depend on your risk tolerance, investment goals, time horizon, and asset allocation.Once you have your benchmark, you should refer it to it in order to determine if your strategy is working or if you need to go back to the drawing board.
Risk Profile
The first step in selecting a benchmark model is determining your risk profile. Many factors go into determining a risk profile, including age, how long the funds will be invested, and other financial resources, such as a cash reserve. There are many tools available to help assess your risk profile that usually rank you on a scale. For instance, you could have a risk profile that is a 7 out of 10.
Asset Allocation
Next, you need to decide on an overall asset allocation model that mirrors your risk profile. Since most people have diversified portfolios, the allocation should include multiple asset classes, for example, bonds, U.S and non-U.S. equities, commodities, and cash. You need to determine what asset classes to include, as well as what percent of your portfolio should be in each asset class.
(For related reading, see: Concentrated Vs. Diversified Portfolios: Comparing the Pros and Cons.)
Allocations can be relatively simple, using broad indices, such as the Russell 3000, MSCI EAFE and Barclays U.S. Aggregate Bond, or more complex by breaking a broad index, such as the S&P 500 into smaller sectors, such as U.S. large-cap value, blend and growth.
Within your overall asset allocation model, you may also need to use different benchmarks depending on how long the funds will be invested. The appropriate allocation of an investment with a 3-5 year time horizon is entirely different from a long-term investment of 10 or more years. So your long-term investments could be allocated 70% to equities, and 30% bonds, while your 3-5 year investments would be the opposite.
Ongoing Risk Assessment
One way to get a sense of how to allocate the asset classes in a benchmark is by looking at the composition of the many asset allocation and target mutual funds offered by investment companies. The funds are allocated by percent, such as 60% equity, or by a target date similar to your investment horizon.
The allocation and risk vary widely among investment companies; so it makes sense to look at several mutual funds. Among the top-rated funds, it’s also important to examine the investment strategy since any excess return may have come from taking more risk.
Risk includes both volatility and variability. Volatility measures the and holdings potential for change, up or down, in portfolio value; while variability measures the frequency of the change in value. For example, U.S. government or high-quality investment grade corporate bonds, which have less variability and volatility, are considered safer investments than commodities, which can have frequent and large moves up and down in value (as we have recently seen with energy prices).
One way to evaluate if the return came from taking more risk is by looking at the Sharpe Ratio. The Sharpe ratio measures the average return earned in excess of a risk-free investment, such as a Treasury Bill. A higher Sharpe ratio indicates a superior overall risk-adjusted return.
Building the Benchmark
Building a custom benchmark requires using some kind of software. There are many companies that sell subscriptions to software that allows you to managed portfolios and build benchmarks. You can build multiple portfolios and benchmarks as well as generate a variety of statistical measures, such as the Sharpe ratio, standard deviation and alpha.
However, you can also build a benchmark and glean quite a bit of information using the free. software tools offered by some of the ETF companies. Also, if you have an investment account, many of the larger brokerage companies let you select from different indices and mutual funds that can be used to compare the performance of your portfolio.
The Bottom Line
Once you decide on a benchmark, you can use it to evaluate your portfolio. You may discover you are taking too much or too little risk. Also, the benchmark provides a guideline for periodically re-balancing your portfolio allocation to help manage risk.
(For related reading, see: Rebalance Your Portfolio to Stay on Track.)
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30a92635baa1f58df104a5f49a18bba7 | https://www.investopedia.com/articles/personal-finance/032116/top-6-strategies-protect-your-income-taxes.asp | 6 Strategies to Protect Income From Taxes | 6 Strategies to Protect Income From Taxes
Income is taxed at the federal, state and local levels, and earned income is subject to additional levies to fund Social Security and Medicare, to name a few. Taxes are difficult to avoid, but there are many strategies to help ward them off. Here are six ways to protect your income from taxes.
Key Takeaways Contributing to qualified retirement and employee benefit accounts with pretax dollars can exempt some income from taxation and defer income taxes on other earnings. Tax rates on long-term capital gains are low; capital loss deductions can reduce taxes further. Interest income from eligible municipal bonds is not subject to federal tax.
1. Invest in Municipal Bonds
Buying a municipal bond essentially means lending money to a state or local governmental entity for a set number of interest payments over a predetermined period. Once the bond reaches its maturity date, the full amount of the original investment is repaid to the buyer.
Interest on municipal bonds is exempt from federal taxes, and may be tax exempt at the state and local level as well, depending on where you live. Tax-free interest payments make municipal bonds attractive to investors.
Municipal bonds historically have lower default rates than their corporate bond counterparts. A study of municipal bonds from 1970 to 2019 found that the default rate was 0.1% for investment grade municipal bonds versus 2.28% for global corporate issuers. However, municipals typically pay lower interest rates. Because of the tax benefits, municipal bonds’ tax equivalent yield makes them attractive to some investors. The higher your tax bracket, the higher your tax equivalent yield.
2. Shoot for Long-Term Capital Gains
Investing can be an important tool in growing wealth. An additional benefit from investing in stocks, mutual funds, bonds, and real estate is the favorable tax treatment for long-term capital gains.
An investor holding a capital asset for longer than one year enjoys a preferential tax rate of 0%, 15%, or 20% on the capital gain, depending on the investor’s income level. If the asset is held for less than a year before selling, the capital gain is taxed at ordinary income rates. Understanding long-term versus short-term capital gains rates is important for growing wealth. For 2020, a married couple filing jointly would pay 0% on their long-term capital gains if their taxable income falls below $80,000 and, in the case of a single individual, below $40,000.
For 2021, the zero rate bracket for long-term capital gains applies to taxable income up to $80,800 for married couples and $40,400 for single individuals. A tax planner and investment advisor can help determine when and how to sell appreciated or depreciated securities to minimize gains and maximize losses. Tax-loss harvesting can also offset a capital gains tax liability by selling securities at a loss. If capital losses exceed capital gains, the lesser of $3000 of the excess losses or the net capital loss can be deducted from other income. Capital losses in excess of $3000 can be carried forward to later tax years.
3. Start a Business
In addition to creating additional income, a side business offers many tax advantages.
When used in the course of daily business, many expenses can be deducted from income, reducing the total tax obligation. Especially important tax deductions for self-employed individuals are health insurance premiums which are available if special requirements are met.
Also, by strictly following Internal Revenue Service guidelines, a business owner may deduct part of their home expenses with the home office deduction. The portion of utilities and Internet used in the business may also be deducted from income. In order to claim these deductions, the taxpayer conduct on the business to make a profit. The IRS evaluates a number of factors, outlined in Publication 535. Taxpayers who realize a profit in 3 of the last 5 years are presumed to be engaged in a business for profit.
The Setting Every Community Up for Retirement Enhancement (SECURE) Act was enacted in 2019. The SECURE Act offers tax incentives to employers who join multiple-employer plans and offer retirement options to their employees.
4. Max Out Retirement Accounts and Employee Benefits
In both 2020 and 2021, taxable income can be reduced for contributions up to $19,500 to a 401(k) or 403(b) plan. Those 50 or older can add $6,500 to the basic workplace retirement plan contribution. For example, an employee earning $100,000 in 2020 or 2021 who contributes $19,500 to a 401(k) reduces taxable income to only $80,500.
Those who don’t have a retirement plan at work can get a tax break by contributing up to $6,000 ($7,000 for those 50 and older) to a traditional individual retirement account (IRA) in 2020 and 2021. Taxpayers who do have workplace retirement plans (or whose spouses do) may be able to deduct some or all of their traditional IRA contribution from taxable income, depending on their income. The deduction is phased out for adjusted gross incomes at different levels, higher in 2021 than in 2020, depending on whether claimed by on a single taxpayer’s return, joint return, married individual filing separately as well as taking into account any participation by a taxpayer in another plan. The IRS has detailed rules about whether—and how much—you can deduct.
Before the SECURE Act, 401(k) or IRA account holders had to withdraw required minimum distributions (RMD) in the year they turned age 70½. The SECURE Act increases that age to 72, which may have tax implications, depending on the tax bracket the account holder belongs to in the year they withdraw. The bill also eliminates the maximum age for traditional IRA contributions, which was previously capped at 70½ years old.
In addition to retirement plan contributions, many employers offer a variety of fringe plans that afford employees to exclude from their income contributions made or benefits received under these plans. Benefits under these programs generally are reflected as non-taxed amounts on employees’ W-2 statements. These benefits include, flexible spending accounts, educational assistance programs, adoption expense reimbursements, transportation cost reimbursements, group-term life insurance up to $50,000, and generally for senior managers and executives, deferred compensation arrangements.
5. Use a Health Savings Account (HSA)
Employees with a high-deductible health insurance plan can use an HSA to reduce taxes. As with a 401(k), money is contributed to an HSA before taxes. For 2020, the maximum contribution is $3,550 for an individual and $7,100 for a family. For 2021, the maximum deductible contribution level is $3,600 for an individual and $7,200 for a family. These funds can then grow without the requirement to pay tax on the earnings. An extra tax benefit of an HSA is that when used to pay for qualified medical expenses, withdrawals aren’t taxed, either.
6. Claim Tax Credits
There are many IRS tax credits that reduce taxes, such as the Earned Income Tax Credit. For 2020, a low-income taxpayer may claim credits up to $6,660 with three or more qualifying children. $5,920 with two. $3,584 with one and $538 if none. For 2021, the maximum earned income credits are $6,728 with three or more qualifying children, $5,980 with two, $3,618 with one child, and $543 if none.
The American Opportunity Tax Credit offers a maximum of $2,500 per year for eligible students for the first four years of higher education and the Lifetime Learning Credit allows a maximum 20% credit for up to $10,000 of qualified expenses, or $2000 per return.
There is also the Saver’s Credit for moderate and lower-income individuals looking to save for retirement; individuals can receive a credit of up to half their contributions to a plan, an IRA, or an ABLE account.
The Child and Dependent Care Credit can, depending on income, help offset qualified expenses for the care for children and mentally or physically incapacitated dependents with credits up to $3000 for one dependent and $6,000 for two or more for eligible expenses.
The Bottom Line
Although it is important to pay all that is legally owed to tax authorities, nobody has to pay extra. A few hours at IRS.gov and scouring reputable financial information sites may yield hundreds, even thousands, of dollars in tax savings.
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fa6680a808128f95ade8f11e50e56ead | https://www.investopedia.com/articles/personal-finance/032216/are-we-baby-boomer-retirement-crisis.asp | Are We in a Baby Boomer Retirement Crisis? | Are We in a Baby Boomer Retirement Crisis?
Baby Boomers—the generation born between 1946 and 1964—are heading into retirement in droves. Along with the aging of this iconic cohort comes a lot of data concerning their lack of preparation for their later years. Insufficient financial resources paint a gloomy picture for many retirees.
The following is a summary of some studies that shed light on how financially prepared the Baby Boomer generation is for retirement.
Key Takeaways Baby Boomers are retiring in large numbers. Many do not have enough saved for their retirement. Beyond a lack of planning, a key reason Baby Boomers lack retirement savings is due to the 2008 financial crisis, as well as the chronic low interest rates since. The stock market losses of the COVID-19 pandemic are adding to the shortfall.
How Much Have Baby Boomers Saved for Retirement?
Baby Boomers have an average of $152,000 saved for retirement, according to the 19th Annual Retirement Survey of Workers conducted by the TransAmerica Center for Retirement Studies. This is not nearly enough to last through retirement. Based on information from the Bureau of Labor Statistics, adults between ages 65 and 74 spend, on average, $48,885 a year.
The study also found that 76% of workers overall believe that their generation will have a much harder time achieving financial security in retirement compared with their parents’ generation. This sentiment is shared by Millennials (79%), Generation X (81%), and Baby Boomers (69%).
Research by the Insured Retirement Institute (IRI) also suggests trouble for many retiring Boomers. IRI found that 45% have no retirement savings. Out of the 55% who do, 28% have less than $100,000. This suggests that approximately half of retirees are, or will be, living off of their Social Security benefits.
1:34 The Great Millennial Wealth Shift
If you do not need Social Security benefits when you reach full retirement age, consider waiting until age 70 to receive the maximum possible benefit. Waiting any longer will not raise what you'll receive.
Why Baby Boomers Lack Retirement Funds
A key reason Boomers lack funds is the stock market decline during the Great Recession. This event scared many older adults out of the markets, causing them to miss the subsequent rebound. Panic selling, although understandable, decimated many retirement accounts.
The following years of low-interest rates drastically undermined the yields of bond funds that savers and retirees were urged to purchase. These yields, in turn, were invested in capital that earned virtually no interest. With wages plateauing, it was difficult for most workers to ramp up savings in their final earning years.
The most recent blow has been the COVID-19 pandemic with the accompanying huge losses and gyrations of the stock market. The risk of panic selling returned in full force in February and March 2020. Even those who resisted likely took heavy hits to their assets.
Making all this worse: a lacking of planning. “This is the first generation to face saving for retirement on their own,” says Elyse Foster, CFP and principal at Harbor Financial Group, Inc. “I believe, early on, there was a lack of information on the importance of saving early and often. The assumption seemed to be ‘you are on your own.’”
With luck, Generation X and the Millennials will benefit from seeing the impact of not planning early. But the Boomers have to deal with now.
26% The percent of Baby Boomers that have a backup plan for retirement income if forced into retirement sooner than expected, according to the Insured Retirement Institute.
Is This a Crisis?
Whether or not this can be called a crisis depends on which Boomers are being discussed, including the types of assets they can access. Boomers who own their own homes in an area with a lower cost of living may be able to live on quite a bit less than a rent-paying retiree in a major metropolitan area.
According to the Social Security Administration, 90% of retirees today receive Social Security benefits, in contrast to only 69% of retirees in 1962. The average Social Security benefit is $1,503 per month in 2020, substantially less than the average wage, which is approximately $3,668, according to the Bureau of Labor Statistics.
For many retirees, leaving work can mean a sometimes drastic lifestyle adjustment. Mark Hebner, president and founder of Index Fund Advisors, Inc., explains it the following way:
"Aside from solely relying on Social Security, looking to downsize your home, moving to a more affordable state, relying on public transportation, and having a robust budget that itemizes discretionary and non-discretionary items are all a good start. The most important thing is that retirees have the right mindset about their lifestyle in retirement. This is why it is important to start making lifestyle adjustments before you retire."
The Bottom Line
For those depending on Social Security benefits in their senior years, maintaining a comfortable lifestyle in retirement will likely be difficult. But whether Baby Boomers are in a retirement crisis depends on how you measure the situation, where they are living, and how their circumstances compare with their predecessors.
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db41dd3a4c61754bce40009c57cfdbb3 | https://www.investopedia.com/articles/personal-finance/032415/importance-excel-business.asp | The Importance of Excel in Business | The Importance of Excel in Business
Microsoft (NASDAQ: MSFT) Excel was released in 1985 and has grown to become arguably the most important computer program in workplaces around the world. , you generally would use Excel. In business, literally, any function in any industry can benefit from those with strong Excel knowledge. Excel is a powerful tool that has become entrenched in business processes worldwide--whether for analyzing stocks or issuers, budgeting, or organizing client sales lists.
Finance and Accounting
Financial services and financial accounting are the areas of finance that rely on and benefit from Excel spreadsheets the most. In the 1970s and early 1980s, financial analysts would spend weeks running advanced formulas either manually or in programs like IBM's (NYSE: IBM) Lotus 1-2-3. Now, you can perform complex modeling in minutes with Excel.
Walk through the finance or accounting department of any major corporate office, and you will see computer screens filled with Excel spreadsheets crunching numbers, outlining financial results, and creating budgets, forecasts, and plans used to make major business decisions.
START
Most users know that Excel can add, subtract, multiply, and divide, but it can do much more with advanced IF functions when coupled with VLOOKUP, INDEX-MATCH-MATCH, and pivot tables. (For more, see the Investopedia Guide To Excel For Finance: PV And FV Functions.)
Marketing and Product Management
While marketing and product professionals look to their finance teams to do the heavy lifting for financial analysis, using spreadsheets to list customer and sales targets can help you manage your salesforce and plan future marketing strategies based on past results.
Using a pivot table, users can quickly and easily summarize customer and sales data by category with a quick drag-and-drop.
Human Resources Planning
While database systems like Oracle (ORCL), SAP (SAP), and Quickbooks (INTU) can be used to manage payroll and employee information, exporting that data into Excel allows users to discover trends, summarize expenses and hours by pay period, month, or year, and better understand how your workforce is spread out by function or pay level.
HR professionals can use Excel to take a giant spreadsheet full of employee data and understand exactly where the costs are coming from and how to best plan and control them for the future.
You Can Do Anything With a Spreadsheet
Using Excel for business has almost no limits for applications. Here are some examples:
When planning a team outing to a baseball game, you can use Excel to track the RSVP list and costs. Excel creates revenue growth models for new products based on new customer forecasts. When planning an editorial calendar for a website, you can list out dates and topics in a spreadsheet. When creating a budget for a small product, you can list expense categories in a spreadsheet, update it monthly and create a chart to show how close the product is to budget across each category. You can calculate customer discounts based on monthly purchase volume by product. Users can summarize customer revenue by product to find areas where to build a stronger customer relationships. Use complex calculation methods, like Sharpe ratios.
Excel is not going anywhere
Excel is not going anywhere, and businesses will continue to use Excel as a primary tool for diverse functions and applications ranging from IT projects to company picnics.
A working knowledge of Excel is vital for most office based professionals today, and stronger Excel skills can open the door to promotion and leadership opportunities. Excel is a powerful tool but cannot function alone. It takes a savvy computer user to take advantage of everything Excel has to offer to provide the best results for their company.
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5c58d93ea17a6622d2115e69549db7c6 | https://www.investopedia.com/articles/personal-finance/032415/why-are-tesla-cars-so-expensive.asp | Why Are Tesla Cars So Expensive? | Why Are Tesla Cars So Expensive?
Tesla, Inc. (TSLA), the brainchild of entrepreneur Elon Musk, made waves by challenging the auto industry and producing its own all-electric car. Initially, Tesla's main competitors remained faithful to the internal combustion engine or introduced models that blended gasoline with batteries by way of hybrid vehicles. But now traditional car companies including Toyota (TM), Ford (F), and General Motors (GM) have all launched or have plans to launch all-electric cars that they hope will rival Tesla's models.
Not all of them will be ultra-luxury rides. Even Tesla has introduced new models that are relatively affordable.
Key Takeaways Compared to traditional cars or hybrid vehicles, Tesla's all-electric cars are more expensive; for example, the flagship 2020 Model S sedan has a starting price of $74,990. The demand for Tesla cars is high and the company has not been able to keep up with production, leading to a waitlist of vehicles on backorder. Consumer demand for Tesla's cars is spurred by modern design, innovative technology, and high performance that makes the cars a "green energy" favorite. In addition to high demand, the other reason for Tesla cars' high price is the high cost of the electric battery packs that supply the vehicles with power.
One reason traditional automakers hesitated to undertake electric vehicle (EV) production was that the costs were so high that the cars would end up being prohibitively expensive.
The earliest Tesla cars rolled out at high price points. Tesla still produces its flagship 2020 Model S sedan at a base price of $74,990, while the Model X starts at $79,990. But the 2021 Model 3 starts at under $40,000.
Supply and Demand
There is clearly a demand for Tesla cars. Every month the company seems to set new sales records. But despite the demand, there is a bottleneck in production, creating a waitlist for backordered vehicles that is growing steadily.
Unlike established car companies, Tesla does not have the manufacturing capacity to meet the current demand all at once. Because the demand exceeds the current supply, basic economics suggests that the price would be bid up. Tesla seems to be constrained by production, not demand.
The demand is fueled in part by the green energy movement. Because Tesla cars are all-electric, they do not consume greenhouse gas-emitting gasoline and do not directly create carbon dioxide. It remains true, however, that CO2 is a by-product of the electrical generation needed to charge the car's batteries.
Demand is also driven by Tesla's sleek, modern design and its high-tech driver interface and dashboard that features an impressive all-digital, touch-sensitive display.
In addition, Tesla cars are high performance. The Model S can cruise for over 400 miles on a full charge, and recharging is a user-friendly task. The Model S can accelerate from 0-60 miles per hour in as little as 2.3 seconds. Combined with all of this is the fact that electric cars are virtually silent when they drive, a truly desirable feature for many.
The Tesla Model X is a more family-friendly SUV that can comfortably fit seven passengers. By expanding its product line, Tesla is sure to increase demand for its cars.
The question remains as to whether it can build out enough capacity to produce those vehicles in a short amount of time. To that end, Tesla has completed building phase one of its enormous "Gigafactory" in the Nevada desert, which allows the company to scale up production of both its cars and the battery packs required to power them. About a third of the factory was up and running in early 2021.
At about 30% done as of June 2020, Tesla's Gigafactory houses approximately 5.3 million square feet of operational space over several floors. When completed, Tesla expects its factory to be the biggest building in the world.
Battery Technology Is Expensive
Batteries to store and use electrical power are the most expensive single component of these cars. One of management's main goals has been to reduce the battery costs per kilowatt-hour for its cars, and the company has made some significant headway toward that goal. Forbes estimates Tesla's battery costs have declined from roughly $230 per kilowatt-hour in 2016 to $127 in 2019. Because of the company's higher volumes, Tesla's battery costs are about 20% lower than the industry average.
A lot of research and development is going into battery technology, and the hope is that in a short time the cost of battery power storage will be able to compete with the cost of gasoline or other fossil fuels.
How Tesla and the Electric Vehicle Market Are Changing
The electric vehicle market is changing fast, with Tesla among those leading the way.
In mid-2020, the average sticker price for an electric vehicle was a hefty $19,000 higher than the average for a gasoline-powered car. Small-scale production simply costs more.
But the gap is beginning to close. The 2021 Tesla Model 3 starts at $37,900, while the Model S base price is $69,420 and the Model X is $79,900.
This reflects Musk's initial assertion that his company had to start out with a luxury offering in order to get established before ramping up to include (relatively) more affordable models.
For the sake of comparison, a gas-powered Mini Cooper starts at about $22,400 while the electric model starts at $29,900. If you qualify for the $7,500 tax credit for electric vehicles, it's pretty much a wash.
(The federal tax credit of "up to" $7,500 for electric and hybrid vehicles may help some buyers of electric vehicles, but this credit is being phased out model by model as sales increase. Tesla buyers no longer qualify. A federal government website lists credits by year, make, and model for electric and hybrid vehicles.)
The Bottom Line
Tesla cars are expensive, but that hasn't stopped people from lining up to buy them. One reason the price is so high is that, at the moment, demand is outstripping supply. Expanding production capacity and building new factories is sure to help moderate prices.
The other main reason for Tesla cars' high sticker price is the very high cost of the electric battery packs that supply these vehicles with power. While the cost of battery technology and its energy efficiency has improved over the past few years, more research and development is needed to create a truly affordable electric car.
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4cdf9c4e5654c0784e5be519ebe56fab | https://www.investopedia.com/articles/personal-finance/032416/cheapest-way-buy-two-or-more-airline-tickets.asp | The Cheapest Way to Buy Two or More Airline Tickets | The Cheapest Way to Buy Two or More Airline Tickets
If you're traveling on your own, no problem. Just book your tickets. All you have to do is compare prices on an airfare search site to find the cheapest flight available.
But what about when you're traveling with family and friends? Here's where it gets interesting. You could shop the usual way–entering the total number of passengers instead of just one–but doing that might mean you spend more than you have to.
Key Takeaways If you purchase multiple tickets in a single transaction, the price will be the same for each of the tickets. If not enough of the lowest-cost seats are available, you'll pay a higher cost for all of the seats. Buy the tickets one at a time to make sure you get all of the lowest-cost seats available.
Here's a technique that ensures that you'll get the lowest possible fare for every ticket you buy.
The Reservation System Quirk
A quirk in airline reservation systems requires that every ticket purchased in a single reservation (or transaction) be the same price. If there aren't enough of the cheapest-priced tickets available, the system moves up to the next highest level of ticket prices. When it reaches a level that has enough seats available, it offers you the higher price for all of them.
To help make sense of this, it's useful to know that there are about 10 different price points on each flight. There are even multiple price points within economy class. The prices vary depending on when you buy your tickets.
Let's say you're seated in a middle seat in coach and paid $100 for your ticket. To your left is a woman who paid the next lowest fare of $125 and to your right is a fellow who paid the top economy price of $140. (These figures are pulled out of the air for illustration purposes but all are well within the range of possibility.)
When Prices Vary
Now say you took your family of four along on that trip. You buy your tickets in a single transaction as usual. If there are four tickets available at the lowest price, terrific. You got the $400 deal.
But let's say there are only two of the cheapest tickets left. If you buy all four tickets in one transaction, you will not pay $100 + $100 and $125 + $125 for a total of $450. Instead, you will pay $125 for every ticket, for a total of $500.
Remember the system quirk? The system will not split up a group to mix ticket prices because all tickets sold in a single transaction must be sold for the same price. When there are not enough cheaper-priced tickets to match the number of passengers, the reservations system automatically bumps up to a price tier where there are enough same-priced tickets.
This can be avoided, though. All it takes is a few extra minutes of your time.
Purchase Tickets One at a Time
Whichever travel booking site you use, begin by opening two separate flight search pages to your destination:
On one page, open a booking for one person. On a second page, open a booking for the total number of people in your party.
If the price offered in the search for a single ticket is cheaper than the per-ticket price offered for the whole party, you know there is at least one cheaper seat available. Buy it, and repeat the process of buying a cheaper ticket one at a time. You may end up buying all the tickets you need, one at a time.
If the price of one ticket rises to the price shown on your group booking page, you can use the group booking page to order the remaining seats you need all at once. Or, change the seat number on the single-ticket search page to buy the remaining tickets at the higher price.
You've just bought all of the tickets at the lowest total price available.
If You Press the Wrong Key
U.S. airlines are required to give you a 24-hour change-your-mind grace period to cancel a reservation in case of an error. Most offer a straight refund within this period. American Airlines’ policy is to allow shoppers to hold a booking for 24 hours (with no price change) before paying for it.
Rick Seaney is the CEO and co-founder of FareCompare.
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9fb7b5bab6a24b05305a2be1f9d73c11 | https://www.investopedia.com/articles/personal-finance/032515/masters-degrees-us-vs-uk.asp | Comparing Master's Degrees in the U.S. vs. the U.K. | Comparing Master's Degrees in the U.S. vs. the U.K.
For prospective graduate students, comparing master's degree programs in the United States versus the United Kingdom requires thoughtful consideration of factors such as time, cost and effort. Regardless of which side of the Atlantic you are on, whether you should go to grad school after college depends on your goals. For many, an advanced degree can lead to better career opportunities, or a step toward obtaining a Ph.D. or other advanced degree. Here we compare master's degrees in the U.S. and the U.K., highlighting the key differences that could impact your decision.
Key Takeaways Universities in the U.S. and U.K. consistently rank in the top 10 in the world. There are three types of master's degrees in the U.K.: taught master’s degrees, postgraduate diplomas, and research-based master’s degrees. A British master's degree can take as little as nine to 12 months to finish, compared with two years in the U.S.
Master's Degrees in the U.K.
Attending the most prestigious universities can be important to some people. The U.K. is home to renowned institutions such as the University of Oxford and the University of Cambridge. Times Higher Education ranks these two schools, along with the Imperial College London, among the top 10 best from the nearly 1,400 universities across 92 countries it surveyed. The rankings consider the school's teaching environment, resources devoted to research, and the international outlook of its staff and students.
One reason Americans choose to study in the U.K. is that the time to finish a degree is significantly shorter (and therefore less expensive) than American universities. In the U.K., there are three types of master’s degrees: taught master’s degrees (one year), postgraduate diplomas (two semesters, no thesis), and research-based master’s degrees (12-24 months, used as an entry to Ph.D. programs).
If your goal for obtaining a master’s degree is professional advancement, then it is often quicker to study for nine to 12 months (between two and three semesters) in the United Kingdom than it is to pursue a two-year master’s degree in the United States.
Costs vary considerably based on program type. The average cost of tuition for a non-British or EU passport holder working toward a British master’s degree is about £15,000 per year, or $18,500. A business degree is more than £20,000 per year, or $24,700.
However, these amounts do not factor in living costs. According to visa requirements, students must have access to £1,265 per month if they plan to study in London, or £11,385 over a period of nine months. If they plan to study outside of London, they must have access to at least £1,015 per month, or £9,135 over nine months.
Master's Degrees in the U.S.
In that same Times Higher Education survey, the remaining seven universities in the top 10 were in the U.S., and not just the east coast Ivy League schools you might expect. The California Institute of Technology and Stanford University placed higher in the rankings than Harvard University, the Massachusetts Institute of Technology and Princeton University. In short, there are good schools on both sides of the Atlantic. Universities in the U.S. and U.K. account for 85 of the top 200 schools in the world.
Public universities in the U.S. charge an average of $11,900 per year for in-state tuition. Non-profit private institutions charge $27,350 per year on average. It is difficult to calculate average living expenses due to geographical differences, but a very general estimate is $7,000 to $20,000 per year. The cost to attend Harvard Business School is significantly higher: expect to pay more than $111,000 per year for combined tuition and living expenses.
Though tuition in the U.S. can be lower if attending a public school, and the cost of living lower if living in a small town, the time to finish a graduate degree is potentially longer. This means the overall cost of an American master’s program is equal to or slightly more expensive than in the U.K.
Following a four-year degree, American master’s degree programs typically require two years of study and thesis work. Some degrees can be completed in one year, depending on course load. American master’s degrees can be professional or research-based. Research degrees are good starting points for Ph.D. degrees.
Special Considerations
According to the British Council’s Student Decision Making Survey, students looking for better career opportunities following graduate school typically choose the U.S. to study. This is likely to do with professional connections. The U.S. is perceived as offering better industry connections and opportunities to advance a career.
In the same survey, students who chose the U.K. did so because of the perceived higher quality of education. American students wishing to study in region-specific fields (such as medieval history, geology and archaeology) often find the U.K. offers more opportunities for first-hand research.
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db85dc806ec611c75feedeefc63a9b1f | https://www.investopedia.com/articles/personal-finance/032615/best-places-exchange-currency-las-vegas.asp | Best Places to Exchange Currency in Las Vegas | Best Places to Exchange Currency in Las Vegas
Visiting the United States and heading to Las Vegas? There’s plenty to do in one of the largest vacation spots in the country. But to take full advantage of all the things the city offers, you will need some cash—or at least some way to pay in the local currency—and that usually involves converting your home currency into U.S. dollars. How do you make the exchange? Here are some options.
At Your Hotel
If you’re staying at a larger hotel, there’s a good chance that it has a currency exchange desk. The problem: Once you figure in the exchange rate and the fees, it could be costly. For that reason, as a general rule, avoid exchanging currency at your hotel.
Key Takeaways Currency exchange desks at the airport or your hotel may make you pay more than 25% in fees.The exchange rate that casinos offer is sometimes a great deal and may well be your best option. It’s good practice to visit your local bank to have some cash in hand before you leave your home country.If you need spending money while in Vegas, your debit card may work at an ATM.Consider using a 0% foreign transaction fee credit card.
At the Casino
Now we’re talking! If you plan to wait until you get to Las Vegas to exchange your currency, a casino can be a good choice. Most large casinos will gladly exchange your money for a fee. Vegas insiders say that often, the exchange rate casinos offer is a great deal and may well be your best option. Why are the exchange rates better, you ask? Because the casino fully expects you to dump your dollars into slot machines or at the blackjack tables.
At Your Local Bank
It’s a good idea to have some cash in hand before you leave your home country. You probably won’t need a lot, but having some emergency money to cover situations when you can't use a credit card is a good idea. Your local bank is probably the place to go. You will probably pay a delivery fee along with the foreign exchange rate, but it’s probably the better value.
At an ATM
If you need spending money while in Vegas, your debit card will probably work at an ATM. The only problem is the fees, but some banks have partner ATMs around the world where the out-of-bank user fees are waived. You will only pay the fee your bank charges. Look on your bank’s website for a list of partner ATMs. If you can find one close to you, the fee will likely be 3% or less.
At the Airport
When you arrive at McCarran International Airport, or whichever airport you fly into, there will be currency exchange desks that will gladly help. Try not to let them because this is probably the worst way to exchange your money. Don’t be fooled by the enticing “no fee” advertisements. The exchange rate will be less than favorable or the fees may be called something else.
You might pay more than 25% in fees for currency exchange at the airport.
When You're Buying Something
Most people agree that credit cards are the best way to pay when traveling abroad. There’s no lack of 0% foreign transaction fee credit cards. Check the terms of your card to see if your card charges a fee. If it does, and you will be gone for an extended period or plan to travel abroad frequently in the future, consider finding a 0% foreign transaction fee card. If your card does charge a fee, it’s probably not higher than 3%. (If it is, get rid of it.) Even with the fee, your credit card is probably the best way to pay.
The Bottom Line
If you have to exchange your money for U.S. dollars in Las Vegas, stay away from options clearly geared towards tourists, such as hotels and airports. You will pay hefty fees for the exchange. Check the casinos for actual cash exchanges, but your best strategy is to pay with your credit card. If you have the right card, you may avoid transaction fees. The next best choice is an ATM that is part of your home bank's network.
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2b5245108983c62247b9f06e8b3c2ad6 | https://www.investopedia.com/articles/personal-finance/032615/how-youtube-ad-revenue-works.asp | How YouTube Ad Revenue Works | How YouTube Ad Revenue Works
Most internet browsers think of YouTube as a place to waste time watching silly clips or the latest music videos. To others, it is a place to upload and share videos from concerts, a newsworthy event, or even family events with friends online. A smaller group thinks of YouTube as a central part of their online income strategy.
Earning with YouTube is easy, but making big money with the platform can be a challenge. Here is how YouTube ad revenue works and how to get started making money through the platform.
Enable AdSense for YouTube on Your Account
The first two steps in earning online revenue with YouTube is to open an account and turn on account monetization. Enabling monetization requires accepting YouTube’s advertising guidelines and connecting to an AdSense account for payment. Enabling ads on your YouTube videos requires agreeing to Google’s ad revenue share for YouTube. There is a 45/55 split for all content creators, so Google keeps 45 percent of all YouTube advertising on your videos, and you get the remaining 55 percent.
Upload a Video and Promote
In order to earn revenue on a video, you need to first post videos on your YouTube account. You can create and edit your videos in advance using an editing program such as Adobe (ADBE) Premier or Apple’s (AAPL) iMovie, or you can upload a raw video from your phone or computer and use the YouTube video editor. Once your video is online, you need people to watch it. Promote your content on social networks, to family and friends, on blogs, Tumblr (YHOO), and any other possible digital outlet. More views means more money in your pocket.
In 2013, the average cost per thousand (CPM) for YouTube was $7.60. CPM (cost per thousand) is an industry term that represents revenue per thousand views. In 2013, the average income for each YouTube content creator was $7.60 per every thousand views. A video with 500 views would have earned roughly $3.80. A video like Gangnam Style with a billion views would earn $7.8 million. Some videos earn a higher or lower than average rate depending on the video content. Videos containing copyrighted music do not earn revenue for the video creator, and some topics may not attract advertisers. Others have a strong draw from advertisers and drive up the CPM.
If you’re having trouble getting views, try to be creative on where you share your videos. Targeting an audience with an interest in your type of content works better than trying to appeal to a general audience, so you may find better results from a Facebook (FB) group, sub-Reddit or forum about the specific topic. Also be sure to set up your individual channel settings so if one video becomes popular visitors can easily find related videos you’ve created.
Get Paid From AdSense
Once you link your AdSense account to your YouTube account, you will receive credit for each video’s monthly revenue. Once you accumulate $100 in earnings, Google will issue a payment to your bank account. You can choose to be paid via direct deposit (not available in all countries) or check—direct deposit is the fastest method and has no fee. If you are located in the United States and earn more than $600 per year, Google will issue a 1099 form. Either way, you are required to pay income tax on your earnings.
The Bottom Line on Earning With YouTube
Individuals and businesses make millions of dollars through YouTube advertising, but there are risks to using a platform controlled by another company. Not only is there a chance that a change in Google's search algorithms could make or break video traffic, but Google also takes a hefty 45 percent cut of revenue from video advertising. Nevertheless, YouTube is a massive platform and is the world's second largest search engine after Google, which includes YouTube videos in search results. If the benefits of reaching YouTube's large audience and having Google handle the most labor-intensive parts of building an advertising network outweigh the costs and risks, this platform is a great resource for turning videos into cash.
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63e006251b310045f8408ea961eef114 | https://www.investopedia.com/articles/personal-finance/032615/take-these-simple-steps-open-ira.asp | Simple Steps to Open an IRA | Simple Steps to Open an IRA
Getting started with an individual retirement account (IRA) can seem complicated, but it takes just a few simple steps. Years from now, you’ll thank yourself for taking the time to make the right investment decisions.
Key Takeaways You can set up an IRA at almost any bank, brokerage, or other financial institution. When picking a place for your account, consider the fees and costs attached to the IRA. Traditional IRAs and Roth IRAs are the two major types of IRAs available to individual investors. There are annual limits to how much you can contribute to a traditional or Roth IRA.
Where to Open an IRA
You can set up an IRA at almost any bank, brokerage, or other financial institution. All it takes is your signature on the paperwork and a check for your first contribution.
You can also take care of most of the details online. In fact, online brokerages have eclipsed traditional brokerages to become the primary way people sign up for new accounts. The best brokers for IRAs and Roth IRAs have user-friendly interfaces and valuable informational materials, which makes opening and maintaining an account easier than ever.
Considerations When Choosing an IRA Provider
When picking a place for your account, consider the fees and costs attached to the IRA.
As with any investment, there are trading fees, and they vary widely. You should be wary of gratuitous charges like "maintenance" fees or "custodial" fees.
On the other hand, some companies offer special deals for new accounts. Check whether a custodian you’re considering is offering an incentive to get your business.
In addition, consider the options they offer for your investment. Your IRA money can be invested in exchange-traded funds (ETFs), mutual funds, bonds, individual stocks, and many other types of assets. You can choose risky growth funds or slow-growing but stable money market funds. Best of all, you can spread your money around, mixing conservative and aggressive investments.
Once you have an account, you'll get the usual quarterly and annual statements, although you can check the progress of your funds online anytime.
Investments that are less risky in the short term generally have lower long-run returns.
You can change your mind about how your money is invested at any point, and you probably should periodically. Investment advisers urge people to take some risks when they’re young and get more cautious as they get closer to retirement.
Traditional IRA or Roth IRA?
Traditional IRAs and Roth IRAs are the two major types of IRAs available to individual investors. Small business owners and self-employed people can also open a SIMPLE IRA or a SEP IRA.
The main difference between traditional and Roth IRAs lies in the tax treatment of your contribution.
Your contribution to a traditional IRA is in pretax dollars. It reduces your taxable income for the year. After retirement, you usually owe taxes on all the money that you withdraw, both the original dollars paid in and the investment income that those dollars earned. A Roth IRA requires payment in after-tax dollars. You pay taxes on the income in the year that you make the deposit and therefore get no immediate tax benefit. But after you retire, your entire nest egg is tax-free, including the investment income.
IRA Contribution Limits
There is a limit to how much you can contribute to a traditional or Roth IRA annually. For the tax years 2020 and 2021, the maximum is $6,000 a year. People age 50 and over can contribute another $1,000 as a "catch-up" contribution. You cannot contribute more than 100% of your employment income.
Even if one spouse is not employed or has very little income, married couples can invest more. A married couple can jointly contribute twice the individual limit, even if one partner has little or no earned income. Each can also contribute $1,000 more if age 50 or over.
How to Get Started
Right about now, you may be feeling that you don't have enough time to do this properly. It's easier than you think.
You can probably open an IRA at the bank where you already have an account. Just be sure that the fees are reasonable.
Roth IRAs and traditional IRAs are both excellent choices. The traditional IRA saves you money every tax year during your working years. The Roth means a little more pain upfront for a lot of gain after you retire.
Remember, you can always change your investment decisions or even switch providers altogether if you find a better deal.
Best of all, you can set up automated payments to add to your new IRA regularly. That way, you can grow your investments every year and reap long-term financial benefits in the future.
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02755fce8f7a7959ce4b3f2e73a6f482 | https://www.investopedia.com/articles/personal-finance/032616/managing-your-own-401k-pros-cons.asp | Managing Your Own 401(k): The Pros and Cons | Managing Your Own 401(k): The Pros and Cons
Participants in 401(k) plans might feel restricted by the narrow slate of mutual fund offerings available to them. And within individual funds, investors have zero control to choose the underlying stocks, which are selected by the mutual fund managers, who regularly underperform the market.
Fortunately, many company's offer self-directed or brokerage window functions that give investors the option to seize the reigns over their own financial destinies by managing their 401(k) plans for themselves. But there are both pros and cons to taking the do-it-yourself route.
Pros More investment options Higher quality investments Use your own investing acumen Cons Higher fees Labor-intensive research Lack of liquidity/transparency
The Pros of Managing Your Own 401(k) Plan
More Choice
Self-directed plans offer more investment choices. In addition to mutual funds, portfolios may include exchange traded funds (ETFs), individual stocks and bonds, plus non-traditional assets like real estate.
“When you go the self-directed route, you are no longer tied to the 15-18 set investment options of your 401(k) plan,” says John P. Daly, CFP®, president, Daly Investment Management, LLC, in Mount Prospect, Ill. “You can purchase just about any stock, ETF, or mutual fund available on the custodian’s platform. This can be very beneficial, especially if your plan has limited investment options or low-quality investment options.”
Quality
Instead of a limited number of mutual funds, brokerage windows offer a substantially wider array of choices, letting investors be more discriminating in their selection process.
Experience
Those with investment knowledge and skill can put their experience to the test. This can be a major advantage to traditional 401(k) management.
Discipline
Disciplined investors who maintain their composures during market volatility can exploit opportunities available in a self-directed 401(k). This gives them a leg up over mutual funds managed by someone else.
Non-traditional Investment Options
Self-directed 401(k) investors can incorporate real estate assets and other non-traditional investments into their portfolios, which can potentially provide extraordinary earning opportunities. These options aren’t available to regular 401(k) investors.
Key Takeaways Many companies offer self-directed or brokerage window functions that let self manage 401(k) plans. Self-directed plans provide access to a wider swath of investments, including non-traditional assets like real estate. The broader investment choices may invite unforeseen tax consequences.
The Cons
There are many potential downsides to managing your own investments.
Rules
Among the plethora of choices available under self-directed 401(k)s, some will inevitably be off-limits due to regulations from the Internal Revenue Service (IRS), which prohibits certain types of investments. Those unfamiliar with these regulations may run into trouble and encounter severe tax consequences, as a result.
Fees
Self-investors who stray beyond mutual funds, or who trade stocks too frequently may find themselves saddled with exorbitant fees that can potentially wipe out most—if not all, of their gains.
If you choose to have a self-directed 401(k), it’s imperative that you know the IRS regulations about which investments are not allowed.
Inexperience
Less experienced investors may miss nuances that a professional manager and a financial advisor will catch.
"The biggest bonus to having a self-directed option is the ability to control the expense ratios within each individual investment,” says David S. Hunter, CFP®, president of Asheville, N.C.-based Horizons Wealth Management, Inc. “However, this opens up thousands of investment options, and there is always the chance that an investor will be paralyzed by options and may not participate as much as one would with a set-it-and-forget-it 401(k) plan.”
Lack of Liquidity/Transparency
Some non-traditional investments lack transparency and liquidity, which may restrict investors from easily buying and selling their positions. This can be a rude awakening to those accustomed to the ease of dealing with traditional stocks and bonds.
“The downside of managing your own 401(k), beyond the additional fees, is you potentially becoming your own worst enemy,” says Mark Hebner, founder and president of Index Fund Advisors, Inc., in Irvine, Calif., and author of "Index Funds: The 12-Step Recovery Program for Active Investors.”
“Many investors who do not work with a professional wealth advisor often allow short-term market movements to dictate their long-term investment strategy," Hebner adds. "This approach can potentially cause disastrous long-term effects during very turbulent times.”
Investors in self-directed plans should be sure to diversify their stock holdings, to build downside risk protection into their portfolios.
Self-Directed 401(k) vs. Self-Directed IRA
In addition to the self-directed 401(k), the IRS also provides the option of a self-directed IRA. The pros and cons are similar. One major difference is the vastly higher contribution limit with self-directed 401(k)s.
Secondly, self-directed 401(k) plans allow loans, although they may be difficult to obtain. Finally, investors don't need to hire a custodian for self-directed 401(k)s, although IRAs require a trustee.
Lastly, if you're into trading derivatives, such as equity options, regulations prohibit those types of transactions in a 401(k), but they are permissible, with certain restrictions, in a self-directed IRA.
The Bottom Line
Managing their own portfolios may afford investors a broader array of investment options. But there are also added complexities when it comes to fees, liquidity, and other elements. Those who take the self-directed plunge should take the time to learn the tools available to help smooth out the process.
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e4181a667148a369bbbec0df9ac949bc | https://www.investopedia.com/articles/personal-finance/032814/pros-and-cons-using-airbnb.asp | Airbnb: Advantages and Disadvantages | Airbnb: Advantages and Disadvantages
Airbnb: An Overview
Airbnb is an online marketplace that connects people who want to rent out their homes with people who are looking for accommodations in that locale. It currently covers more than 100,000 cities and 220 countries worldwide. The company’s name comes from “air mattress B&B.”
For hosts, participating in Airbnb is a way to earn some income from their property, but with the risk that the guest might do damage to it. For guests, the advantage can be relatively inexpensive accommodations, but with the risk that the property won’t be as appealing as the listing made it seem.
Key Takeaways Travelers can often book an Airbnb for less than the cost of a hotel room. The main risk to the traveler is that the property may not live up to its listing. The main risk to hosts is that guests might do serious damage to their property. The global pandemic due to the novel coronavirus has resulted in significant changes to Airbnb’s extenuating circumstances cancellation policy.
The Advantages of Airbnb
Wide Selection
Airbnb hosts list many different kinds of properties—single rooms, a suite of rooms, apartments, moored yachts, houseboats, entire houses, even a castle—on the Airbnb website.
Free Listings
Hosts don’t have to pay to list their properties. Listings can include written descriptions, photographs with captions, and a user profile where potential guests can get to know a bit about the hosts.
Hosts Can Set Their Own Price
It’s up to each host to decide how much to charge per night, per week, or per month.
Customizable Searches
Guests can search the Airbnb database—not only by date and location, but by price, type of property, amenities, and the language of the host. They can also add keywords (such as “close to the Louvre”) to further narrow their search.
Additional Services
In recent years Airbnb has expanded its offerings to include experiences and restaurants. Besides a listing of available accommodations for the dates they plan to travel, people searching by location will see a list of experiences, such as classes and sightseeing, offered by local Airbnb hosts. Restaurant listings also include reviews from Airbnb hosts.
Protections for Guests and Hosts
As a protection for guests, Airbnb holds the guest’s payment for 24 hours after check-in before releasing the funds to the host.
For hosts, Airbnb’s Host Guarantee program “provides protection for up to $1,000,000 in damages to covered property in the rare event of guest damage, in eligible countries.”
The Disadvantages of Airbnb
What You See May Not Be What You Get
Booking accommodations with Airbnb is not like booking a room with a major hotel chain, where you have a reasonable assurance that the property will be as advertised. Individual hosts create their own listings, and some may be more honest than others. However, previous guests often post comments about their experiences, which can provide a more objective view.
Check the comments of other guests who have stayed at that Airbnb property to make sure the listing is accurate.
Potential Damage
Probably the biggest risk for hosts is that their property will be damaged. While most stays go without incident, there are stories of entire houses being trashed by dozens of partygoers when the Airbnb hosts thought they were renting to a quiet family. Airbnb’s Host Guarantee program, described above, provides some assurance, but it may not cover everything, such as cash, rare artwork, jewelry, and pets. Hosts whose homes are damaged may also experience considerable inconvenience.
Added Fees
Airbnb imposes a number of additional fees (as, of course, do hotels and other lodging providers). Guests pay a guest service fee of 0% to 20% on top of the reservation fee, to cover Airbnb’s customer support and other services. Prices display in the currency the user selects, provided Airbnb supports it. Banks or credit card issuers may add fees if applicable.
And while listings are free, Airbnb charges hosts a service fee of at least 3% for each reservation, to cover the cost of processing the transaction.
Taxes
Both hosts and guests from the European Union, Switzerland, and Norway may be subject to a value-added tax (VAT). And depending on their location, hosts may be subject to rental income taxes. To assist with U.S. tax compliance, Airbnb collects taxpayer information from hosts so they can provide an account of their earnings each year via Form 1099 and Form 1042.
It Isn’t Legal Everywhere
Before listing their properties on Airbnb, would-be hosts need to check their local zoning ordinances to make sure it’s legal to rent out their properties. Hosts may also be required to obtain special permits or licenses.
Cancellations Due to COVID-19
On March 11, 2020, the World Health Organization declared a global pandemic due to the novel coronavirus. In response, Airbnb adjusted its extenuating circumstances cancellation policy on March 14. The newest adjustment was made on October 1. Reservations booked on or before March 14 with a check-in date within the next 45 days from today are eligible for a full refund for coronavirus-related reasons. To facilitate this, Airbnb has set aside a fund of $250 million that will be used to help hosts impacted by the cancellations, paying them 25% of what they would have received for a normal cancellation.
Reservations made after March 14 are not eligible for this policy and subject to standard cancellation procedures. Reservations made before March 14 but with a check-in date within the next 45 days from today will be revisited as the policy is updated. The new policy “doesn’t apply to Airbnb Luxe, Luxury Retreats, or domestic bookings in mainland China, which all have their own policies.” Airbnb has set aside a $10 million support fund to assist “our community in mainland China directly.”
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9eb5d8770cbc23eb99db765d109bdfaa | https://www.investopedia.com/articles/personal-finance/033015/5-secrets-you-didnt-know-about-traditional-iras.asp | 5 Secrets About Traditional IRAs | 5 Secrets About Traditional IRAs
An individual retirement account (IRA) is a perfect way to supplement a work-based retirement vehicle. Individual taxpayers can open either a traditional individual retirement account (IRA) or a Roth IRA. For 2020 and 2021, annual contributions to either type of account max out at $6,000 per year, $7,000 for those 50 or older.
Only the traditional IRA allows a tax deduction when it's opened. It also has no income restrictions limiting who can open one, though the ability to deduct contributions can be limited for those with a retirement plan at work (or a spouse who has one).
Key Takeaways An IRA is an investment vehicle that earns money tax-free until funds are withdrawn. The IRS allows taxpayers to deduct the amount of their traditional IRA contributions from their taxes. An IRA can hold equities, bonds, real estate, and other investments.
Finding further information on the traditional IRA isn’t difficult, but a few important factors aren’t overly apparent. Here are five.
1. Limits on Investments
An IRA is a type of investment vehicle that earns money tax-free until funds are withdrawn and is not an actual investment. For example, the custodian—the financial company that offers and oversees the traditional IRA—will also offer a choice of investments varying in return and risk, such as Treasury bills, money market funds, mutual funds, stocks, and bonds.
You can't invest in just anything, however. Certain types of investments are prohibited from being in IRAs, such as life insurance and antiques or collectibles.
2. The Beneficiary Form
The beneficiary form tells the custodian what to do with the funds should the account holder die. Without the form, loved ones run the risk of not receiving the money quickly or in full. This form also needs to be kept updated, especially if the account holder goes through a divorce or other major life changes.
3. Mandatory Withdrawals
Not all retirees need to rely on an IRA for living expenses. Unfortunately, because the IRS imposes required minimum distributions (RMDs), account holders must begin withdrawing money from their traditional IRA generally by April 1 of the year following the year in which they turn age 72 (or 70½ for individuals who reached that age during 2019 or in a prior year). Failing to do so results in hefty tax penalties—50% for every dollar not withdrawn. This is one area where Roth IRAs are a better alternative—they have no RMDs until the account holder dies.
4. No Borrowing
Some retirement plans allow short-term loans, but the traditional IRA isn’t one of them. Borrowing from a traditional IRA incurs taxes at the account holder's income tax rate, possibly on the entire value of the IRA, if the account is pledged as collateral. According to the IRS, "If the owner of an IRA borrows from the IRA, the IRA is no longer an IRA, and the value of the entire IRA is included in the owner's income."
One option is to withdraw money from an IRA and roll it over into either the same or a new IRA within 60 days. This is not considered a loan; rather, it is a distribution and rollover. This option can be done only once a year, and care is needed with deadlines.
5. Real Estate Is a Valid Holding
An IRA doesn’t have to hold only equities, bonds, and other Wall Street-type investments. The account can hold real estate, too. The catch is that the real estate has to be a business property; the account holder can’t purchase a second home or pay off a current home. A house can be bought and flipped as an investment property.
The IRS has strict rules regarding real estate in an IRA. Because of the higher dollar value and the less liquid-nature of real estate, this option is only for the more sophisticated investor and requires having a self-directed IRA (SDIRA), a type that allows you to have a wider range of investments. Talk to the appropriate experts before considering adding real estate or opening an SDIRA.
The Bottom Line
Traditional IRAs offer a great chance to save for retirement, but several details and restrictions aren't generally known, such as accessibility of funds and what is and isn't a proper investment within the account.
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5b32f38a684d7d6e965f835cbbd6d088 | https://www.investopedia.com/articles/personal-finance/033015/hotels-vs-airbnb-paris-visitors.asp | Hotels Vs. Airbnb For Paris Visitors | Hotels Vs. Airbnb For Paris Visitors
There’s no denying that Paris has amazing hotels – more than 2,000 of them, and they cover all the bases: romantic, historic, stylish, luxurious, palatial. But a nice, well-located Paris hotel can be pricey. And location matters: If you’re not staying in the heart of the city, you could spend half your visit riding the Metro and buses.
Instead of paying a pile of euros for a hotel room, consider renting a privately owned room from a Paris resident through Airbnb, the online service that launched in 2008. (See How Airbnb Makes Money.)
Log on to Airbnb.com to view more than a thousand listings for Paris, searching by type of accommodation (shared, private room or entire place), location and price (conveniently listed in U.S. dollars). You can view photos and read descriptions and user reviews. After creating a profile, you book through the site and wait for the host to confirm your reservation. Your payment goes to Airbnb (via a major credit card or PayPal) and is forwarded to the owner (minus a service fee) 24 hours after you check in.
Most of the time, an Airbnb rental costs far less than a hotel room. However, it means you’re staying in somebody else’s apartment. Whether the owner is home or you’re taking over the whole place, there are pluses and minuses, and we’ll get to that. But first, let’s consider some options.
The following examples compare rooms in three Paris hotels with Airbnb rentals in the same neighborhoods. We looked at a three-night weekend stay in a private room for two from May 15 to 18, 2015. (These properties book up fast; our dates may no longer be available.)
[Prices are current as of March 2015, at an exchange rate of one euro to US$1.08.]
ON THE SEINE
HOTEL: Hotel Notre Dame Saint-Michel A glamorous hotel in the Latin Quarter, housed in a 400-year-old building beside the Seine near Notre Dame Cathedral. The 26 rooms were recently redone by fashion designer Christian Lacroix.
What you’ll pay: $290 per night for a river view.
AIRBNB: “Houseboat/péniche Eiffel Tower” In this case we really mean “on the Seine.” The room is in a 100-year-old houseboat moored just minutes from the Eiffel Tower. It’s cramped but romantic; guests have a private entrance, deck and bathroom.
What you’ll pay: $124 per night, plus a $44 service fee for the minimum three-night stay.
IN THE MARAIS
HOTEL: Hôtel Caron de Beaumarchais An intimate 19-room hotel named for the 18th-century author of “The Marriage of Figaro.” Antique furnishings, rich fabrics and floral wallpaper will make you feel as if you’ve entered the life of a French nobleman.
What you’ll pay: $215 for a courtyard view
AIRBNB: “Large bedroom in the Marais” This spacious and sunny room has a stunning view of the Hotel de Soubise, the historic mansion museum next door. A recent guest reported, “I felt very welcome; Marie offered me a delicious lunch when I arrived.”
What you’ll pay: $105 per night, plus $23 cleaning fee and $40 service fee
IN SAINT-GERMAIN-DES-PRÉS
HOTEL: Hotel Baume Enjoy the chic art-deco design of this new 35-room hotel. It’s an easy walk to the Louvre, and there are dozens of restaurants nearby.
What you’ll pay: From $248, for a “double room classic with shower”
AIRBNB: “Trendy flat in St-Germain-des-Prés" A recently renovated studio, with exposed beams, Parisian-chic styling and a modern kitchen. It’s a mere two blocks from Luxembourg Gardens with a welcoming host who speaks English and French.
What you’ll pay: $126 per night, plus a $45 cleaning fee and a $50 service fee
Hotels Vs. Airbnb: Pros and Cons
Saving money isn’t the only reason to consider Airbnb. Here are some other points to keep in mind.
Space: Most Paris hotel rooms are small, so you’re not giving up that much by choosing Airbnb. In fact, you may end up with more room than you’d get in a hotel, at a lower rate.
Personal contact: Airbnb offers the chance to meet a real Parisian. But even if your host isn’t a local, he or she will likely be happy to steer you to the nearest Metro stop and recommend favorite museums, bars and restaurants.
Less flexibility: Many Paris Airbnb hosts require a minimum stay of two or three nights. Check-in times might be inconvenient for late arrivals, unlike at a typical hotel, but that can be negotiated with your host.
Fewer – or more – amenities: Business travelers tend to prefer speedy check-in, and may need a business center, hotel bar or restaurant. But Airbnb renters are often invited to use the kitchen, which may be stocked with coffee and breakfast croissants. And Wi-Fi is usually free. However, make sure you check the details: For example, our houseboat’s listing reads: “Please note that towels are NOT provided, so be sure you bring your own!”
Is trust an issue? According to Airbnb, “Guests and hosts verify their IDs by connecting to their social networks and scanning their official ID.” Both hosts and renters establish an online reputation, since everyone can see how others rate them. And you can use the site’s messaging system to get more info, from hosts or other guests.
The Airbnb business: In Paris as in New York City (see Hotels Vs. Airbnb For New York City Visitors) there are concerns that the Airbnb boom is cutting into the number of low-cost residential properties available. Also, locals complain that their buildings are being turned into hotels – and they’re losing their sense of community. While those renting out space are required to use their apartments as their primary residence, such laws are tough to enforce. The host of one Paris listing cheerfully admits: “Hello! Myself, together with my friend Stefano, we manage apartments in Paris on behalf of some other friends who are not living in this wonderful city.”
THE BOTTOM LINE
While a stay in a Paris hotel is not to be missed, Airbnb offers many temptations in prime locations at affordable prices. Browse for a half hour and you may find yourself checking airfares to get your trip underway. (Read When Is It Cheaper To Fly To Europe? Heading to Vegas instead? See Hotels Vs. Airbnb For Vegas Visitors.)
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0a95e8c4253f388f350365b839b9fdc3 | https://www.investopedia.com/articles/personal-finance/033015/top-us-housing-market-indicators.asp | Top U.S. Housing Market Indicators | Top U.S. Housing Market Indicators
Residential housing market activity contributes about five percent to the U.S. gross domestic product (GDP) each year, taking into account investment in the construction of single and multi-family housing together with the remodeling costs and other associated fees charges broker fees and taxes.
Thus, whether you are an investor looking to follow the broader economy or whether you are looking for indications about the state of the housing market, housing market indicators could provide input.
Key Takeaways The residential housing market is a sizable chunk of the U.S. GDP, making up around 5% per year.Investors should therefore pay attention to economic indicators related to housing and construction as a window into the broader economy.Here, we look at eight important economic indicators related to the housing market.
1.Construction Spending
The U.S. Census Bureau puts out a monthly report on new domestic construction spending activity, by dollar value, in the country. The report gives a breakdown by residential and nonresidential spending, as well as by private and public spending. It also provides the previous month’s activity and the previous year’s activity for the same month for comparison purposes.
The Bureau has conducted the survey for over 50 years; it covers construction work done on new structures and those done as improvements to existing structures in both private and public sectors. Data estimates include the cost of labor and materials, cost of architectural and engineering work, overhead costs, interest and taxes paid during construction, and contractor’s profits.
2. Residential Construction
Another U.S. government report on new residential construction, or housing starts, focuses on residential construction activity nationwide through the number of new permits issued and houses that builders have just started to work on. There is a regional breakdown of the activity, as well as figures for the previous month’s and year’s activity.
3. Home Sales
The National Association of Realtors (NAR) provides an existing home sales report on the number of used homes sold every month, as well as previous month and previous year input, for single-family houses, condos, and co-ops. This report, based on actual home sale closings, also provides input on inventory, prices, and regional sales performance.
4. State-level Home Sales Reports
Various realtor groups in major states with significant housing activity—such as California, Florida, Illinois, and Texas—put out periodical reports on the sales activity and home prices in their respective states. These reports provide a more nuanced local-level market feel.
5. New Home Sales
A government report on new residential sales provides input on the number of new homes sold nationwide, based on sales contracts signed. It looks at the sales broken down by region and by various price points, such as sales under $150,000 and higher than $750,000.
Also, it looks at the inventory of new houses for sale and the median and average prices of houses sold.
6. Pending Sales
Looking at the number of purchase contracts signed by buyers of existing homes, the National Association of Realtors produces a pending home sales index monthly report. This gives an idea about the level of sales closings to expect in upcoming periods. It also gives a regional breakdown of the pending sales activity and compares it to activity in the previous month and year.
7. NAHB’s Housing Market Index
The National Association of Home Builders (NAHB) puts out a monthly NAHB/Wells Fargo Housing Market Index that looks at the level of confidence that builders have in the single-family housing market. By taking a monthly survey of home builders, the NAHB gets input on how they feel about the current level of sales and buyer traffic, as well as their sales expectations for the upcoming six months.
The index also provides regional input for the Northeast, Midwest, South, and West regions.
8. Regional Price Indices
To get an idea about the level of home prices nationwide, which could provide a hint about buyer interest and general housing market optimism, there are also various price indices available.
For instance, Standard & Poor’s puts out its S&P/Case-Shiller Home Price Index monthly. This looks at the national trend, as well as prices in certain metropolitan areas. There is also the Federal Housing Finance Agency’s House Price Index that uses input from Fannie Mae and Freddie Mac to track single-family home prices. And CoreLogic, Inc. has its own version of a home price index that looks at nationwide prices and also takes into account the impact of distressed sales.
The Bottom Line
There is a variety of input available for investors who are looking to get an idea about the state of the US housing sector. Used together, these indicators could help paint a picture of the health of the housing market.
Mortgage lending discrimination is illegal. If you think you've been discriminated against based on race, religion, sex, marital status, use of public assistance, national origin, disability, or age, there are steps you can take. One such step is to file a report to the Consumer Financial Protection Bureau or with the U.S. Department of Housing and Urban Development (HUD).
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6efe32fd5b601c3b29944deaa10ed6cf | https://www.investopedia.com/articles/personal-finance/033115/are-mortgages-available-mobile-homes.asp | Are Mortgages Available for Mobile Homes? | Are Mortgages Available for Mobile Homes?
Manufactured Homes
Manufactured homes account for 6% of all occupied housing, but a much smaller percentage of home loan originations, according to a report issued by the Consumer Financial Protection Bureau (CFPB). Many people still refer to this type of housing as a mobile home, a term that actually refers to structures built before HUD code standards were established in 1976.
But whatever you call them, one reason loan originations are so low is that people living in manufactured homes tend to be “financially vulnerable,” as the CFPB puts it – older individuals or low-income families who tend to be offered less than favorable rates and terms on any type of loan.
According to the CFPB, about 32% of households living in a manufactured home are headed by a retiree. Their median income is half that of other families, and they have about one-quarter of the median net worth of other households. Also, manufactured homes aren't always eligible for a traditional mortgage on any terms because the prospective homeowner doesn't own the land on which they are located.
Before taking out a loan on a manufactured home, it's important to know what your options are and make sure you apply for the most favorable type of financing. Never accept a loan offer before researching your choices, especially if you're putting the home on a piece of property that you own.
Key Takeaways Mobile, or manufactured homes make up 6% of all occupied housing in the U.S. but a far lesser percentage of all mortgage originations.Mobile home occupants are often deemed to be higher credit risks due to lower incomes and assets.Moreover, mobile homes are often considered movable - as opposed to real estate - making them eligible for more costly chattel loans rather than traditional mortgages.
Limited Financing Options
There are only two types of manufactured home financing: a traditional mortgage and a chattel mortgage. Most people understand the traditional mortgage: find an existing home or build one, then apply for a 30-year fixed mortgage or another mortgage type and lock in a highly favorable interest rate.
However, if the manufactured home is not permanently affixed to the land on which it stands – and if the homeowner just leases the land on which the manufactured home is located – the building is considered personal property instead of real estate. Only around 15% of new manufactured homes are titled as real property. This forces nearly 85% of borrowers into a chattel loan, a category that provides far fewer protections and at much less generous terms.
Traditional Mortgages
When a structure is considered real estate, all the protections that come with mortgages apply. The borrower can get an FHA-insured mortgage or one backed by Fannie Mae, which also backs loans on manufactured housing.
The loan will be covered by consumer protection laws that apply to traditional mortgages, including various state foreclosure and repossession laws that don’t apply to property loans. Mortgage loans are likely to be available at more favorable rates that chattel mortgages.
Chattel Mortgages
A chattel loan allows for a mortgage on a property that is considered 'movable'. Chattel mortgages are loan arrangements in which an item of movable personal property acts as security for a loan. The movable property, or chattel, guarantees the loan, and the lender holds an interest in it. Mobile homes, as well as airplanes, yachts, houseboats, and certain farm equipment may qualify for chattel mortgages.
First and most important, chattel loans are priced much higher. 21st Mortgage Corporation, one of the largest originators of chattel loans, says that rates on manufactured homes start at 6.99%. Again, those with dinged credit can expect to see significantly higher rates.
Chattel loans are generally for shorter periods of time, which lowers the total amount of interest paid. Even so, 21st Mortgage offers terms as far out as 23 years. Finally, chattel loans often have lower closing costs and the time it takes to close on the loan is often much shorter.
The Bottom Line
It's important to be sure to apply for the right kind of mortgage. The CFPB is concerned because at least 65% of manufactured home owners who also own their land took out a chattel loan. Some of these owners may have reasons to want a chattel loan – such as not wanting to give up control of their land – but the more likely problem is not knowing that a traditional mortgage is available to them.
If you live in a manufactured home that is permanently affixed to the land on which it's located – and if you own that land or are considering buying it – you probably qualify for a traditional mortgage, complete with interest rates that could be half that of a chattel loan. Consider both options carefully.
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9a663fc0f080a8612674771e226f91b4 | https://www.investopedia.com/articles/personal-finance/033115/comparing-credit-karma-vs-experian.asp | Credit Karma vs. Experian: What's the Difference? | Credit Karma vs. Experian: What's the Difference?
Credit Karma vs. Experian: An Overview
If you’re checking your credit score or credit report, Credit Karma and Experian are two names you’ll likely come across. Experian is one of the big three credit reporting bureaus, along with Equifax and TransUnion. Credit Karma is a free website that provides credit scores and reports to its members, along with financial articles and advice. Everything on Credit Karma is free if you sign up for its membership.
Key Takeaways Credit Karma is a user-friendly website that offers free Vantage 3.0 scores from TransUnion and Equifax. Experian offers free access to credit scores and credit reports through various free product suites, as well as paid score and report options. Credit Karma does not provide FICO scores or Experian credit reports. All Americans have the right to a free credit report every 12 months from Experian and the other two major credit bureaus, via AnnualCreditReport.com. All three credit reporting companies currently provide access to weekly credit reports in response to pandemic-related financial concerns.
Credit Karma
As previously mentioned, Credit Karma is not a credit bureau; it is an online financial platform that makes credit bureaus’ information available to consumers. Members can check and monitor their credit scores and credit reports for free. The site also offers various financial and educational tools to help you improve your credit rating. Founded in 2007 by CEO Kenneth Lin, the company was privately held until late February 2020 when Intuit announced it was buying the company for $7.1 billion.
Credit Karma is a full online platform, so everything happens at CreditKarma.com. That’s where you’ll register as a member to gain access to your credit scores and reports, which you can print or save as PDFs. Members can also register bank and credit card accounts to get a full financial picture. And you can access your account online or via a mobile app for iPhone or Android.
Credit Karma offers Vantage 3.0 scores from TransUnion and Equifax. Vantage is a collaboration of the three major credit bureaus, including Experian. Scores are updated once a week, plus members can sign up for credit monitoring alerts, so they’ll be notified whenever their score changes. Outside of Credit Karma, many of the best credit monitoring services also provide these types of alerts, in addition to identity monitoring and/or protection tools.
Credit Karma offers full credit reports from TransUnion and Equifax, updated weekly. You cannot get your FICO scores via Credit Karma.
Experian
Experian is probably best known as one of the three major credit reporting bureaus in the United States (the other two are TransUnion and Equifax). But that service is just one part of this global company, which is headquartered in Dublin, Ireland, and listed on the London Stock Exchange (EXPN).
According to the most recent figures (February 2019), Experian is headed by CEO Brian Cassin, has 17,000 employees, and operates in North America, the U.K., Brazil, and beyond. Experian has four main business lines: credit services, marketing services, decision analytics, and consumer services. It also owns the for-profit FreeCreditReport.com (not to be confused with AnnualCreditReport.com, the Federal Trade Commission-authorized website for free credit reports). Experian does offer consumers options for free credit reports through its website along with options for free credit scores.
For credit questions, the Experian credit hotline leads to a real person with credit knowledge who can answer questions about your credit, right down to offering you a step-by-step walkthrough of your credit report. Like Credit Karma, the site provides financial advice articles and videos. On Twitter and YouTube, every Wednesday at 3:00 p.m. Eastern Time, a live #CreditChat covers financial topics like raising your credit score and frugal ways to go green. Experian offers the FICO Score 8 Model, one of 49 different FICO scores.
Credit Karma vs. Experian Example
When you visit Credit Karma everything is free. Free credit scores, free credit reports, and free credit monitoring and alerts. You’ll never be asked to register a credit card, as you do for most “free trials.”
Credit Karma recommends credit cards that will save you money and for which you’re likely to be approved. Its website is oriented not just to giving you access to your credit ratings but to improving them. It has various financial calculators, as well as lists of credit factors that go into your credit score—with a personalized grade for each and suggestions for how various actions will affect those factors. In addition, you can file your federal taxes and certain state returns for free via Credit Karma.
Everyone has the right to a free credit report every 12 months from Experian and the other two major credit bureaus, via AnnualCreditReport.com.
When you visit Experian you will find a list of various free options packages, special deals for purchase, such as the 3-Bureau Credit report and FICO score for $39.99, this includes scores from Experian, Equifax, and TransUnion, plus what credit factors raise or lower your scores. This is a one-time pull of your reports; although the information won't be updated after your first access, the initial reports remain available for you to refer to for 180 days.
Another option is the Experian IdentityWorksSM Plus or Experian IdentityWorksSM Premium, which not only provides you with all three reports and FICO scores but also provides identity theft monitoring, alerts, and Dark Web surveillance—all for $19.99 a month, after a 30-day free trial period.
Lastly, Experian offers a service called Experian Boost which allows consumers to to add positive payment history for telecom and utility payments to their Experian credit reports to potentially boost their credit scores instantly. Experian customers who are looking for an additional way to boost their credit scores, particularly those stuck with a poor credit history, may want to consider working with one of the best credit repair companies currently on the market.
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35392253a378d370ccaa411b1ab3488e | https://www.investopedia.com/articles/personal-finance/040115/how-umbrella-insurance-works.asp | How Umbrella Insurance Works | How Umbrella Insurance Works
Chances are slim that you will lose a lawsuit for a sum greater than what your existing insurance will pay—but if you ever did find yourself in that situation, you could lose all your savings. Umbrella insurance is designed to make sure you never find yourself living that nightmare. Below, we'll take a closer look at this extra liability coverage: how an umbrella policy works, who needs it, how much it costs and what it won’t cover.
Key Takeaways Umbrella insurance is a type of personal liability insurance that covers claims in excess of regular homeowners, auto, or watercraft policy coverage. Umbrella insurance covers not just the policyholder, but also other members of their family or household. Umbrella insurance coverage covers injury to others or damage to their possessions; it doesn't protect the policyholder's property. Umbrella insurance is quite cheap compared to other types of insurance.
What Is Umbrella Insurance?
Umbrella insurance is a type of personal liability insurance that can be indispensable when you find yourself liable for a claim larger than your homeowner's insurance or auto insurance will cover. If you own a boat, umbrella insurance will also pick up where your watercraft's liability insurance leaves off.
Umbrella insurance even covers certain liability claims those policies may not, such as libel, slander, and false imprisonment. And if you own rental property, umbrella insurance provides liability coverage beyond what your renter's policy covers.
How Does an Umbrella Policy Work?
Here are some examples of incidents an umbrella policy could cover if your homeowner's insurance or auto insurance wasn’t enough:
Your dog runs out of the house and viciously attacks a neighbor who was going for a walk. Your neighbor sues you to cover her medical bills, lost wages, and pain and suffering. Your daughter gets into a fight at school and punches another girl, breaking her nose. The girl’s parents sue you. You cause a 10-car accident and your auto insurance property damage coverage isn’t high enough to replace all 10 accident victims' vehicles. Nor is your personal liability coverage high enough to pay for their medical bills. You send sandwiches to your son’s school for a field trip lunch. Several students develop food poisoning and their parents sue you. Your teenager throws a party at your house while you’re out of town. Someone brings alcohol to the party, and one of the guests is arrested for driving under the influence on the way home. You are sued.
Umbrella policies also cover malicious prosecution, wrongful entry, invasion of privacy, and other hazards.
As you might have gleaned from these examples, umbrella insurance covers not just the policyholder, but also other members of their family or household. So if your teenager isn’t the best driver, you can sleep better at night knowing your umbrella policy will cover the injured parties’ medical bills if your kid is found liable for a major accident. That being said, make sure you understand how your policy defines a household member so you’ll actually have the coverage you need.
You might have also noticed that, even though umbrella insurance acts as coverage above and beyond your homeowners and auto insurance, the incident doesn’t have to involve your property or your vehicle for your umbrella insurance to cover it. You’re also covered worldwide, with the exception of homes and cars you own under other countries’ laws.
Do You Need Umbrella Insurance?
There’s certainly a fear factor involved in the decision to buy umbrella insurance. Many insurance companies say you need it because of the lawsuit-happy world we live in, where anyone can sue you for anything and ruin you financially. You can find plenty of personal liability horror stories in the news, where juries awarded multimillion-dollar judgments to the victims that individuals had to pay. But how likely are you to find yourself in such a situation? Do you really need umbrella insurance?
As a general rule, you might hear you should purchase umbrella insurance if the total value of your assets, including ordinary checking and savings accounts, retirement and college savings and investment accounts, and home equity is greater than the limits of your auto or homeowner's liability. The idea behind this advice is that you want to have enough liability insurance to fully cover your assets so you can’t lose them in a lawsuit.
This recommendation doesn’t quite make sense, though, because jury awards can easily exceed insurance policy limits. The real question you should ask yourself is, am I at risk of being sued? Everyone is, so in a sense, umbrella insurance makes sense for everyone. It’s a small price to pay for the extra peace of mind.
But some people are more likely to need an umbrella policy than others. If you engage in some activity that puts you at greater risk of incurring excess liability, you’re an even better candidate for an umbrella policy. Personal liability risk factors include owning property, renting it out, employing household staff, having a trampoline or hot tub, hosting large parties, and being a well-known public figure.
Having a teenage driver in the family also puts you at increased risk, as does owning a dog or owning a home with a swimming pool. Basically, the more likely you are to be sued, the more strongly you should consider purchasing umbrella insurance. But anyone who is risk-averse will sleep better at night knowing they’re protected by an umbrella policy.
An Example of How Umbrella Insurance Works
Let’s say your homeowner's insurance has a personal liability limit of $300,000. You throw a large holiday party, and one of your guests slips and falls on your icy front steps. She ends up with a concussion and some astronomical medical bills and decides to sue you. In court, the jury sides with your party guest and awards her a judgment of $1 million. This judgment is $700,000 higher than your homeowner's insurance liability limit.
Without a personal liability umbrella, you have to pay that $700,000 out of pocket. The money will have to come out of your retirement account, your main source of savings. The loss is devastating and means you’ll have to work 10 additional years, find a higher paying job, or drastically cut back your expenses to replenish your savings and get back on track to be able to retire.
But if you have $1 million in umbrella insurance, your umbrella policy will cover the portion of the judgment that your homeowner's insurance doesn’t, and your retirement savings will remain intact. The umbrella policy will also cover any attorney fees and other expenses related to the lawsuit that weren’t covered by your homeowner's policy. That coverage is in addition to the $1 million.
So if you have a $5,000 deductible on your homeowner's insurance, you’ll pay that amount out-of-pocket. Then, your homeowner's policy will pay the next $295,000, which gets you to the $300,000 policy limit. Your umbrella insurance doesn’t have a separate deductible in this case, because the homeowner's policy covered part of the loss. Your umbrella policy pays the remaining $700,000 of the judgment plus legal expenses, so you’re only out-of-pocket $5,000 for the $1 million judgment.
What if you were found liable in a case where your homeowner's or auto insurance didn’t apply? Then you’d pay an umbrella insurance deductible, called self-insured retention, before the umbrella policy kicked in.
How Much Does Umbrella Insurance Cost?
The cost of an umbrella liability policy depends on how much coverage you purchase, the state where you live (insurance rates vary by state) and the risk that insuring you presents to the insurance company. The more homes or cars you own, and the more household members your policy will cover, the more it will cost.
But umbrella insurance is quite cheap compared to other types of insurance, especially considering how much coverage it provides. The Insurance Information Institute says most $1 million policies cost $150 to $300 per year. You can expect to pay about $75 more per year for $2 million in coverage, and another $50 per year for every extra $1 million in coverage beyond that. Most insurance companies’ umbrella liability policies start at $1 million in coverage, with higher limits available.
Why is umbrella insurance so cheap? It’s partly because you have to carry plenty of homeowner's and auto insurance before an insurance company will issue you an umbrella policy. You’ll probably have to carry the maximum liability coverage available under your homeowner's and auto policies before you can purchase an umbrella policy.
Most people already have at least $100,000 in homeowner's coverage. Minimum auto insurance liability coverage depends on your state’s laws but typically runs $25,000 per person and $50,000 per accident. The maximum you can usually purchase is $500,000 in personal liability under your homeowner's policy and $250,000 per person and $500,000 per accident under your auto insurance policy.
If you don’t already have this much coverage, your homeowner's and auto insurance premiums will go up, making the umbrella policy more expensive than it might seem at first glance.
Purchasing Umbrella Insurance
If increasing your coverage and purchasing an umbrella policy is too expensive for you, as an alternative, you may be able to purchase endorsements to your auto or homeowners insurance that increase your liability limits beyond the usual maximums. You probably won’t get as much coverage as an umbrella could provide, but you’ll still be better protected than you were before.
Another possible requirement for getting umbrella insurance is that you have your auto or homeowner's insurance with the same company that issues your umbrella policy. But even if the umbrella insurer you choose does not require you to have your homeowner's and auto insurance policies with that company as a condition of getting umbrella insurance, it might be cheaper this way to get the insurer’s bundling discount. Also, it might be easier to have all your policies with the same company for administrative reasons.
Then again, switching insurers to have all your policies under one roof might mean higher premiums overall, if the new company's rates are higher. So you’ll want to compare quotes carefully.
What Doesn't Umbrella Insurance Cover?
One great thing about umbrella policies is that they provide broad coverage. They cover any incident that the policy does not specifically exclude, unlike some insurance policies, which only cover specifically named incidents. But no insurance policy covers everything. Here are some things your umbrella policy likely won’t cover:
Damage to your own property. Remember, it’s a liability policy, so it will only cover you if you’re held responsible for damage to someone else’s property. Make sure you have enough homeowner's insurance to protect your own property and possessions. Damage that you or a covered member of your household cause on purpose. If you deliberately pushed your party guest down the stairs, umbrella insurance wouldn’t cover the costs of the lawsuit or judgment (and neither would your homeowner's insurance). Liability incurred in business or professional activities. You’ll need business liability insurance to cover these incidents. Liability you agreed to assume under a contract you signed. Liability related to war or armed conflicts. Good luck finding any type of insurance that covers war-related damage; the financial losses associated with war are too high for insurance companies to cover.
The Bottom Line
Even the most careful person with the best intentions can end up on the hook for a huge judgment from a personal liability lawsuit. While you’re unlikely to find yourself in this situation, it’s still smart to protect yourself against such a devastating financial loss. Umbrella insurance can help you do that.
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41ce918a5fcd84033212105ae45a39c8 | https://www.investopedia.com/articles/personal-finance/040115/top-7-mistakes-avoid-your-529-plan.asp | Tips for Creating a 529 Plan | Tips for Creating a 529 Plan
Investing for your child’s education is one of the most important things you can do as a parent. A 529 plan is an easy way to accomplish that, while also enjoying some tax advantages. Originally intended for post-secondary education, 529 plans can now be used for K-12 education costs. And, since the passage of the SECURE Act in December 2019, they can also be used for student loan payments. Here is how to get started.
Key Takeaways Your home state's 529 plan may be the best place to invest, particularly if you'll get a tax break. Some states offer 529 prepaid tuition plans that allow you to lock in future tuition at today's rates for community colleges, colleges, and universities in that state. You can open a 529 plan through a broker or other financial advisor or directly from the plan. Investing directly is generally less expensive.
1. Check Your State's Plans First
All 50 states and the District of Columbia offer one or more 529 plans. You don't have to invest in your own state's plans, although that might entitle you to a tax deduction or credit. More than 30 states provide such tax breaks.
Seven states currently offer tax breaks regardless of which state's plan you invest in. They are Arizona, Arkansas, Kansas, Minnesota, Missouri, Montana, and Pennsylvania.
A number of independent websites, including Morningstar and Savingforcollege.com, periodically rate state 529 plans based on their investment performance and other factors. Investopedia recently published its list of the five best 529 plans.
2. Compare Plan Fees
One reason you might want to invest in an out-of-state 529 plan is if you can get a better deal on plan fees. You can find information on a plan's annual fees and compare plans side by side on the College Saving Plans Network website, which is affiliated with the National Association of State Treasurers.
That difference in fees can really add up over time. If you invest $10,000 on the day your child is born, it will be worth $39,246 on their 18th birthday if you assume an 8% return with 0.1% internal fees. If those fees are 1.1%, the same 8% return will only grow to $32,746. "That's free money you're just leaving on the table that could be spent on your child's education," says Brian Preston, a certified financial planner with Preston & Cleveland Wealth Management in McDonough, Ga., and host of The Money Guy Show, a finance podcast.
Fees vary substantially between direct plans, which are sold directly to account owners, and advisor-sold plans, which are sold by brokers and other financial advisors. New York's 529 College Savings Program Direct Plan, for example, currently has annual fees of 0.15%, while New York's 529 Advisor-Guided College Savings Program has fees of 0.65% to 2.15%.
So if you're comfortable making your own investment decisions, you'll save substantially by investing through a direct plan.
3. Consider Savings Plans vs. Prepaid Plans
There are two basic types of 529 plans: savings plans and prepaid tuition plans. Fewer than ten states currently offer prepaid tuition plans, but if your state is one of them, it will give you the opportunity to lock in future tuition costs at current prices. Bear in mind that prepaid plans can limit your choice of schools, typically to that state's community colleges, colleges, and universities. With a 529 savings plan, you can use the money at any eligible institution in any state—and for a wider range of expenses, including room and board.
Prepaid plans also differ widely in what kinds of guarantees they offer, so be sure to read the fine print. Prepaid plans cannot be used for K-12 education.
4. Choose Your Investments
Once you've picked a plan, your next step is deciding how you want your contributions invested.
Most plans offer a selection of mutual funds, such as stock and bond funds, ranging from conservative to aggressive. Some also offer other options, such as guaranteed investment contracts (GICs) from insurance companies and certificates of deposit (CDs) from banks. You don't have to put all of your money in one type of investment; you can diversify among several.
As a general rule, the more years until the account beneficiary will need the money for education, the more aggressively you might want to invest. The reason is that you'll likely receive a higher return over time and also have more time to recover if the financial markets take a tumble.
Many 529 plans now include age-based or target-date funds that adjust their asset allocation over the years, becoming more conservative as withdrawal time nears. If you aren't comfortable choosing investments—or don't want the hassle of reallocating your 529 portfolio periodically—these funds can be a smart choice. Just make sure their fees are not too high.
Automatic investment programs make funding your 529 account easy, and you'll also benefit from dollar-cost averaging.
5. Invest Early—and Often
The sooner you can get started, the better. As an example, $1,000 deposited when your child is born will grow to $3,996 in 18 years at an interest rate of 8%. Wait until your child is 10 and that $1,000 has only eight years to grow and will amount to just $1,851 by age 18.
As mentioned, you can start a 529 plan either through an advisor or, less expensively, by investing directly with the plan's sponsor. While states administer 529 plans, they typically turn over the day-to-day operations to major financial services companies, such as Fidelity, T. Rowe Price, or Vanguard.
Unlike most mutual funds, 529 plans typically require no minimum investment or a very small one, such as $25.
For subsequent contributions, many plans also offer automatic investment programs that will withdraw whatever amount of money you choose from your bank account on a monthly, quarterly, or semiannual basis and invest it in the plan. One advantage of investing periodically throughout the year, rather than in a lump sum, is you'll benefit from dollar-cost averaging. Some plans and employers also allow you to have money automatically withdrawn from your paycheck to go into a 529 plan.
Automatic plans like these make investing almost effortless, which can be a particular boon to busy parents.
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e251c3facc8b26f9eae04750c00ee45f | https://www.investopedia.com/articles/personal-finance/040315/when-not-open-roth-ira.asp | When Not to Open a Roth IRA | When Not to Open a Roth IRA
In the family of financial planning products, the Roth individual retirement account (IRA) sometimes looks like the cool younger brother of traditional retirement accounts. Indeed, the Roth version, first introduced in 1997, offers a number of attractive features that its standard siblings lack: the absence of required minimum distributions (RMDs), plus the flexibility to withdraw money prior to retirement without penalties.
A Roth indeed makes sense at certain points in your life. At others, however, the traditional version of the IRA or 401(k) has a strong allure as well. Often, choosing between one or the other comes down to how much you're making now and how much you expect to bring in once you stop working.
Key Takeaways A Roth IRA or 401(k) makes the most sense if you're confident of higher income in retirement than you earn now. If you expect your income (and tax rate) to be lower in retirement than at present, a traditional account is likely the better bet. A traditional account allows you to devote less income now to making the maximum contribution to the account, giving you more available cash.
Different Accounts, Different Tax Treatments
Here's a quick refresher on the respective major types of retirement accounts. Both offer distinct tax advantages for those squirreling away money for retirement. However, each works a little differently.
With a traditional IRA or 401(k), you invest with pretax dollars and pay income tax when you take money out in retirement. You then pay tax on both the original investments and on what they earned. A Roth does just the opposite. You invest money that's already been taxed at your ordinary rate and withdraw it—and its earnings—tax-free whenever you want, provided you've had the account for at least five years.
In choosing between Roth and traditional, the key issue is whether your income tax rate will be greater or lesser than at present once you start tapping the account's funds. Without the benefit of a crystal ball, that's impossible to know for sure; essentially, you're forced to make an educated guess.
For instance, Congress could make changes to the tax code during the intervening years. There's also a time factor. If you're opening the Roth late in life, you need to be sure you'll be able to have it for five years before starting to take distributions in order to reap the tax benefits.
The Case for a Roth
For younger workers who have yet to realize their earning potential, Roth accounts have a definite edge. That's because when you first enter the workforce, it's quite possible that your effective tax rate, expressed as a percentage, will be in the low single digits. Your salary will likely increase over the years, resulting in greater income—and quite possibly a higher tax bracket—in retirement. Consequently, there's an incentive to front-load your tax burden.
"We advise younger workers to go with the Roth because time is on their side," says financial advisor Brock Williamson, CFP, with Promontory Financial Planning in Farmington, Utah. "Growth and compounding are one of the beautiful truths about investing, especially when the growth and compounding are tax-free in the Roth."
Another reason is that if you're young, your earnings have decades to compound, and with a Roth, you will owe zero taxes on all that money when you withdraw it at retirement. With a traditional IRA, you'll pay taxes on those earnings.
On the other hand, if you choose a traditional IRA or 401(k), you have to divert less of your income to retirement in order to make the same monthly contributions to the account—because the Roth would essentially require you to pay both the contribution and the taxes you paid on that amount of income. That's a plus for a traditional account, in the short term, at least.
Still, look a little harder. Let’s say that after making the maximum contribution to your traditional retirement fund, you then choose to invest all or part of the tax you saved compared with investing in a Roth. However, those additional investments will not only be in post-tax dollars, but you'll also be taxed on their earnings once you cash them out.
Because of those differences, you might end up paying more tax in the long run than if you put the entire sum you can afford to invest in a Roth account in the first place.
1:33 When Not to Open a Roth IRA
Forgoing the Roth Due to Taxes
The tax argument for contributing to a Roth can easily turn upside down if you happen to be in your peak earning years. If you're now in one of the higher tax brackets, your tax rate in retirement may have nowhere to go but down. In this case, you're probably better off postponing the tax hit by contributing to a traditional retirement account.
For the most affluent investors, the decision may be moot anyway, due to IRS income restrictions for Roth accounts. In 2021, individuals can't contribute to a Roth if they earn $140,000 or more per year—or $208,000 or more if they're married and file a joint return.
Contributions are also reduced, though not eliminated, at lower incomes. Phaseouts begin at $125,000 for single filers and $198,000 for couples filing jointly. While there are a few strategies to legally circumvent these rules, those with a higher tax rate may not have a compelling reason to do so.
If your income is relatively low, a traditional IRA or 401(k) may let you get more plan contributions back as a savers' tax credit than you’ll save with a Roth.
By contrast, you won't be disqualified due to income from contributing to a traditional IRA. You may, however, have your contributions capped at below the full maximum if you qualify within your company as a highly compensated employee.
Using a Traditional Account to Lower Your AGI
A traditional IRA or 401(k) can result in a lower adjusted gross income (AGI) because your pretax contributions are deducted from that figure, whereas after-tax contributions to a Roth are not. And if you have a relatively modest income, that lower AGI can help you maximize the amount you receive from the saver's tax credit, which is available to eligible taxpayers who contribute to an employer-sponsored retirement plan or a traditional and/or Roth IRA.
Under the program, the percentage of contributions credited back to your taxes depends on your AGI. As the credit is designed to encourage lower-income workers to contribute more to their retirement plans, the lower the AGI, the higher the percentage credited back to you. For 2021, joint filers with an AGI of above $66,000 receive no credit, but those with a lower AGI get between 20% and 50% of their contributions credited back to them.
Consequently, pre-tax retirement contributions can boost credit by lowering your AGI. That lowering can be especially useful if your AGI is just above a threshold figure that, if met, would deliver a bigger credit to you.
Skipping the Roth to Boost Immediate Income
There's another reason to hedge on a Roth, and it relates to access to income now versus potential tax savings down the road. A Roth can take more income out of your hands in the short term because you're forced to contribute in post-tax dollars. With a traditional IRA or 401(k), by contrast, the income required to contribute the same maximum amount to the account would be lower, because the account draws on pretax income.
If that immediate windfall from using a traditional account is invested, we argued above, a Roth can actually offer the better tax option. Nevertheless, there are many other uses for the money other than investing it. The amount "saved" by making a maximum contribution to the account in pretax dollars could instead be used for any number of useful, even vital, purposes—buying a home, creating an emergency fund, taking vacations, and so on.
The upshot is that a traditional retirement account increases your financial flexibility. It allows you to make the maximum allowed contribution to the IRA or 401(k) while having extra cash in hand for other purposes before you retire.
The Argument for Both Roth and Traditional
If you're somewhere in the middle of your career, predicting your future tax status might seem like a complete shot in the dark. In that case, you can contribute to both a traditional and a Roth account in the same year, thereby hedging your bet. The main stipulation is that your combined contribution for 2021 can't exceed $6,000 annually or $7,000 if you're age 50 or over.
There can be other advantages to owning both a traditional and a Roth IRA or 401(k), says James B. Twining, CFP, CEO, and founder of Financial Plan Inc., in Bellingham, Wash.
Twining adds the following:
In retirement, there may be some "low tax" years due to large long-term care expenses or other factors. Withdrawals can be taken from the traditional IRA in those years at a very low or even a 0% tax bracket. There may also be some "high tax" years, due to large capital gains or other issues. In those years the distributions can come from the Roth IRA to prevent "bracket spiking," which can occur with large traditional IRA withdrawals if the total taxable income causes the investor to enter a higher graduated tax bracket.
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b0e5e16d340227f83843cca8594118f4 | https://www.investopedia.com/articles/personal-finance/040414/future-tax-preparation-industry.asp | The Gloomy Future of the Tax Preparation Industry | The Gloomy Future of the Tax Preparation Industry
Undertakers and those in the funeral and burial business will always be able to rely on a steady stream of customers. And because taxes are, of course, the other inescapable element of life, income tax preparers have enjoyed a similar level of job security for the past several decades. But changes in the demographics of both those in the industry as well as their clientele have created an element of uncertainty regarding the future of this profession. Taxpayers now have more options than ever when it comes to filing their returns, and preparers have been forced to offer an ever-wider array of products and services in order to maintain their business.
A Changing Marketplace
In 2017 there were about 152 million individual returns filed in America. And despite all of the recent changes, taxpayers still have three basic avenues to choose from when they file. About half of filers went to a Certified Public Accountant (CPA) or a tax preparation franchise such as H&R Block or Jackson Hewitt to have their taxes prepared. Filers with complex returns, such as those who have business-related income or deductions from corporations, partnerships or oil and gas leases, or day traders who will require complicated basis calculations will continue to use trained professionals to prepare their returns. But the majority of filers with simpler returns are being presented with more and more options that make it possible for them to accomplish this task on their own. Of course, these software programs have been available for years to allow even those with moderately difficult returns, such as someone who runs a side business out of their home and itemizes deductions, to file their returns electronically.
The market has become even more competitive with cheaper web-based programs such as TaxAct and TaxSlayer that are now available through the IRS Free File program. The recent introduction of free electronic filing of state returns through state tax websites provides many filers with a no-cost alternative for state filing, which usually comes with a charge even with IRS Free File programs. The demise of refund anticipation loans (RALs) has also significantly diminished the bottom lines of many smaller preparation firms, as well as the major franchises. Preparers who own or work for small firms that previously depended upon return preparation fees as their primary source of revenue have seen a major reduction in their incomes as a result of this change.
The Digital Age
The tax preparation process itself has steadily become faster and more efficient as more and more information is now available in digital format. A growing number of preparers can now import much or all of their client data from personal finance websites, such as Mint.com or bookkeeping programs such as Quicken, directly onto their tax returns with a single click instead of entering all of those numbers manually. And electronic signatures that are entered with the client’s verbal permission often make it unnecessary for clients to physically appear in the preparer’s office. Mobile apps now allow taxpayers who file short forms to bypass computer preparation altogether.
Value-Added Services
Smart tax preparers know that preparing a client’s tax return is also an extremely effective form of prospecting for other types of business. One of the key reasons for this is that most clients do not view their preparers as salespersons but rather as professionals or advisors. This strategic advantage allows those with the proper training, licensure, and experience to quickly ascertain a client’s overall financial situation and offer insurance or investment products, or other services that may be needed, such as auditing, bookkeeping or even comprehensive financial plans. The additional revenue that can be generated from this approach can be substantial in many cases.
For example, a preparer who carries a life and health insurance license could do a $150 standard return for a customer who is retiring and needs to roll over the $200,000 that they have accumulated in their company retirement plan. The preparer could move this money into an indexed annuity and reap an additional $10,000 if the carrier that is used pays a 5% gross commission. The client has reaped an important additional benefit at no additional out-of-pocket cost and the preparer has received additional revenue that would otherwise require the preparation of approximately another 67 returns at that cost on a pretax basis. Practitioners who can successfully integrate their tax business with other aspects of financial planning can gain an edge by offering free or discounted returns for clients who use their more profitable services.
The Affordable Care Act has provided prepares with yet another opportunity to offer additional services to their customers. Jackson Hewitt and H&R Block have integrated enrollment into Obamacare directly into the interview process, and smaller preparers may soon be able to follow suit. This can greatly simplify the enrollment process for customers by allowing them to use the proceeds from their tax returns to pay for health care coverage. Other tax providers such as TaxAct also allow filers who must pay educational expenses for either themselves or their dependents to use the information on their returns to generate a FAFSA form.
The Bottom Line
Although the tax preparation industry is likely to survive, and perhaps even to thrive for the foreseeable future, preparers at both large and small firms can expect their competition to increase and will need to continue to find ways to differentiate themselves from their peers in order to maintain profitability. Customers will be offered an ever-widening array of choices for preparation in not only how they can file, but also of additional financial and accounting services that they might need. For more information on the future of tax preparation, consult your tax preparer or financial advisor.
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463bc42bc85e5de9918113f928c33642 | https://www.investopedia.com/articles/personal-finance/040715/what-microlending-and-how-does-it-work.asp | What Is Microlending and How Does It Work? | What Is Microlending and How Does It Work?
Peer-To-Peer Financing
The peer-to-peer economy has revolutionized the way people do business, and the financial sector has seen some impressive advancements leveraging P2P applications. One of the most used applications is microlending or microcredit. Microloans are small loans that are issued by individuals rather than banks or credit unions. These loans can be issued by a single individual or aggregated across a number of individuals who each contribute a portion of the total amount.
Often, microloans are given to people in Third World countries, where traditional financing is not available, to help them start small businesses. Lenders receive interest on their loans and repayment of principal once the loan has matured. Because the credit of these borrowers may be quite low and the risk of default high, microloans command above-market interest rates making them enticing for some investors.
Microlending Risk and Reward
Microlending has been facilitated by the rise of the internet and the worldwide interconnectivity that it brings. People who wish to put their savings to use by lending and those who seek to borrow can find each other online and transact.
The credit rating of borrowers is imputed using data (including whether or not the borrower owns a home), a credit check or background check, and repayment history if the borrower has participated in microloans in the past. Even those with excellent credit scores can expect to pay slightly more than traditional credit. As a result, lenders may earn a better return than through traditional savings or CDs.
Because these loans are not typically backed by any sort of collateral, if a borrower defaults, the lender may expect little or nothing to be recovered. On Prosper.com, the best-rated borrower can expect to pay a minimum of 6% annually on a loan, and the riskiest borrower will pay an interest rate of up to 31.9%. If an investor thinks that 6% for a relatively safe loan is worth the risk, the loan may produce outsized returns compared to other forms of lending.
Because of the inherent risk of any single microloan, lenders often invest only a small amount per loan but may fund a portfolio of many dozens of microloans. Therefore, any individual borrower may find their loan is funded by a large number of lenders, each contributing a small percentage of the total amount. By spreading the risk across a wide array of loans with different credit qualities and other attributes, lenders can ensure that even if one or two loans default, their portfolios will not be wiped out.
Lenders of microloans are typically individuals, as professional investors and financial institutions find the risks far outweigh the reward. As a result, most microloans are peer to peer in the purest sense.
Microlending's Users
Microloans may serve one of two main purposes. The first is to help the poor in Third World countries start small businesses. The lenders are individuals who pledge a certain amount of money to loan out to a deserving entrepreneur in another country.
Companies like Kiva administer microlending for these humanitarian purposes. Borrowers will describe the type of business they wish to start, how it will operate, and present a business plan outlining day-to-day operations. Borrowers will often also feature a personal story and a short biography.
The second purpose is to lend to individuals in developed countries who may have bad credit and cannot obtain credit from banks, or who seek to borrow small amounts of money that are below the amounts required by a bank. Lending Club and Prosper are two companies that administer peer-to-peer microlending for these purposes. A borrower may seek funding for any number of reasons, which are made explicit to potential lenders. If the lender does not trust the borrower they will elect not to fund that particular loan. In some cases, loans may not be fully funded because they cannot attract enough lenders to contribute.
To date, more than $17 billion has been borrowed on microlending site Prosper and more than $50 billion through Lending Club. These companies typically earn a profit by charging fees to originate and maintain loans that are then added to the borrower's interest rate.
The Bottom Line
Microlending is a financial innovation made possible by technology and the peer-to-peer economy. People looking to lend money to earn potentially high returns may fund borrowers who either have no access to credit due to geography or cannot get credit from traditional sources, such as banks or credit unions.
Many lenders may fund a single microloan, while others may spread investment across a portfolio of microloans to diversify their risk exposure. Microloans carry high-interest rates because they are typically much riskier than other forms of borrowing and do not post collateral in case of default.
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b159064b00769b5a72242e41cc5f058f | https://www.investopedia.com/articles/personal-finance/040815/converting-traditional-ira-savings-roth-ira.asp | Converting Traditional IRA Savings to a Roth IRA | Converting Traditional IRA Savings to a Roth IRA
A Roth IRA conversion lets you shift money from a traditional IRA into a Roth IRA. Doing so lets you take advantage of a Roth IRA's many benefits, including tax-free withdrawals in retirement and no required minimum distributions during your lifetime. But is a Roth IRA conversion always a smart move, financially speaking?
Key Takeaways A Roth IRA conversion lets you convert a traditional IRA into a Roth IRA. You will immediately owe taxes due on the converted amount, but qualified withdrawals in retirement will then be tax-free. A conversion makes the most sense if you expect to be in a higher tax bracket in the future. Due to tax laws passed in 2017, a conversion can no longer be reversed back to a traditional IRA.
Since Roth IRAs were first introduced in 1998, many owners of traditional IRAs have looked on them with envy. That’s because Roth IRAs have at least two advantages over the traditional kind.
Benefits of Roth IRAs
For one thing, any money you withdraw from a Roth is tax-free, provided you are 59½ or older and it's been at least five years since you first contributed to a Roth. By contrast, the withdrawals you make from a traditional IRA are taxed as ordinary income.
For another, traditional IRA owners must start taking required minimum distributions (RMDs) from their accounts by April 1 of the year following the calendar year in which they reach age 72. (Prior to 2020, the required beginning age (RBA) had been 70½; for those who turned 70½ before year-end 2019, that remains their RBA.) Roth owners, however, can leave their accounts untouched until they need the money. And they can pass the entire account to their heirs.
There is a tradeoff, though. Traditional IRA owners who qualify get a tax break for the money they put into their accounts. Roth owners do not; they put post-tax money into their account.
Fortunately, for traditional IRA holders who yearn for a Roth, the law allows for conversions. At one time, only people with incomes under a certain amount could do Roth IRA conversions, but the limits were lifted as of 2010. Income limits still apply to Roth contributions, however.
Of course, just because you can convert, should you? Here are some of the pros and cons.
The Case for Roth IRA Conversions
The motivations below may drive you to convert.
1. You Might Save on Taxes in the Long Run
When you convert some or all of the money in your traditional IRA to a Roth, you have to pay income tax that year on the converted amount. Even so, converting could be a smart move if you end up in a higher marginal tax bracket in later years or if tax rates rise overall.
Once you pay tax on that money, it’s tax-free ever after, no matter how tax rates may change. And all the money you earn in that account is tax-free as well. Money in a traditional IRA grows tax-free until you withdraw it. But once you take it out, you have to pay taxes on both the original contributions and what they earned over time.
“When it comes to converting, time is of the essence for at least three reasons,” says Matthew J. Ure, VP of Anthony Capital, LLC-Southwest Region, in San Antonio, Texas.
Ure adds the following:
First, the money put into a Roth must have five years to mature in order to protect any growth from taxes. Second, often by staging the conversion over several years you can minimize disruption to your current tax situation. Finally, the ability to convert is not a right guaranteed by the Constitution—rather, it is a loophole that opened up after the original legislative prohibition expired, and a loophole that has come under attack recently. Although the new administration seems more amenable to keeping conversions alive for now, the statements by both political parties highlight the risk one takes in deferring a desirable conversion.
2. You’ll Escape RMDs and Harsh Penalties
With traditional IRAs, you must start taking RMDs at age 72. Otherwise, you’ll face a big tax penalty—50% of the amount you failed to withdraw. And, of course, you’ll owe income tax on whatever you take out.
With a Roth, on the other hand, RMDs are never necessary during your lifetime. If you have other sources of income and don’t need the money in your Roth for living expenses, you can keep it intact for your grateful heirs.
“Roth IRAs can be a good estate and tax planning tool because they are not subject to RMDs. And so long as you have earned income, you may continue making contributions at any age,” says Stephen Rischall, a retirement planning expert and founding partner at 1080 Financial Group in Los Angeles, Calif.
If you do need money, on the other hand, and you’re under 59½, you can withdraw your contributions—though not the earnings—without any penalty.
3. It Could Be the Only Way to Get One
If you want a Roth, for inheritance or other purposes, but earn too much to contribute to one, converting the money you already have in a traditional IRA is your only option.
1:34 Converting Traditional IRA Savings To A Roth IRA
The Case Against Roth IRA Conversions
As with any financial move, conversions have their downsides too.
1. You Might Pay More in Taxes in the Long Run
Converting from a traditional IRA to a Roth can make sense if income tax rates (yours personally or the whole country’s) go up in the future. But if you’re likely to be in a lower tax bracket later, as many people are after they retire, you would do better to wait.
2. You’ll Face a Big Tax Till Now
Depending on how much you convert, your tax bill could be substantial, and the money to pay it will have to come from somewhere. If you plan to cover the taxes by withdrawing extra money from your traditional IRA, you’ll generally be subject to a 10% early withdrawal penalty if you’re under 59½.
Even if you aren’t penalized, you’ll still be reducing your retirement savings to pay the taxes. Taking the money from nonretirement accounts is a better idea, but not a perfect one. By giving it to the IRS now, you’ll be sacrificing whatever it might have earned if you’d kept it invested.
“If you do a conversion, you should be able to pay the taxes with an outside source," says Morris Armstrong, founder of Armstrong Financial Strategies, Cheshire, Conn. "Otherwise, the math does not favor the conversion. Always remember that you are not converting in a vacuum and the total picture needs to be evaluated.”
Pros Even though you'll owe tax on the converted amount, you might save on taxes in the long run. There are no required minimum distributions during your lifetime. You can withdraw your contributions at any time. Cons You owe tax on the converted amount—and it could be substantial. You may not benefit if your future tax bracket is lower than it is now. You must wait five years to take tax-free withdrawals, even if you're already age 59½ or older.
How to Do a Roth IRA Conversion
If you decide you want to convert, the simplest way is to have the financial institution that currently holds your traditional IRA transfer some or all of that money into a Roth. If you’d rather move your account to another institution, the new one should be more than happy to help you.
You could also do the rollover yourself, withdrawing money from your traditional IRA and depositing it in a Roth account. This is the riskiest option, however. If you don’t complete the rollover within 60 days, the money becomes taxable and may be subject to penalties.
What’s more, it will no longer be in an IRA—Roth or traditional —and it will have lost the advantage of tax-deferred or tax-free growth.
Recharacterization
Recharacterization was the reversal of an IRA conversion, such as from a Roth IRA back to a traditional IRA, generally to achieve better tax treatment. The strategy of recharacterizing from a Roth back to a traditional IRA was banned by the Tax Cuts and Jobs Act of 2017.
Recharacterizations were mostly performed after a conversion from a traditional individual retirement account (IRA) to a Roth IRA, though they could go the other way, as well. A traditional-to-Roth conversion, also known as a "rollover," could result in a significant and unexpected tax burden—so much so that the individual who had done the conversion could decide to undo it, which resulted in a recharacterization.
The Bottom Line
Converting a traditional IRA into a Roth IRA can provide tax-free income and estate-planning advantages in the future. But you’ll have to pay taxes on the money now, at what could be a higher rate than you’ll owe in retirement.
“On a planning note, it is always nice to have tax diversification among the types of retirement accounts you have," says David S. Hunter, CFP®, president of Horizons Wealth Management, Inc., in Asheville, N.C. Hunter says that this is primarily because "without a crystal ball, we cannot guarantee what tax rates will be in the future. Better to have the tools to react to any tax environment than to make an all-in bet on what the rates will be.”
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208d30d754d607d78565bd4ac17cd8d7 | https://www.investopedia.com/articles/personal-finance/040915/how-many-startups-fail-and-why.asp | How Many Startups Fail and Why? | How Many Startups Fail and Why?
Starting a business is a lot harder than most people think. Rarely is a business so in tune with its niche that it can float along with minimal effort. But why do so many businesses fail? For that matter, how many of them actually do fail? The reasons run deep, but here is what you should know before starting your own business.
Key Takeaways The Small Business Administration (SBA) defines a "small" business as one with 500 employees or less.In 2019, the failure rate of startups was around 90%. Research concludes 21.5% of startups fail in the first year, 30% in the second year, 50% in the fifth year, and 70% in their 10th year.According to business owners, reasons for failure include money running out, being in the wrong market, a lack of research, bad partnerships, ineffective marketing, and not being an expert in the industry.Ways to avoid failing include setting goals, accurate research, loving the work, and not quitting.
How Many New Businesses Fail?
The Small Business Administration (SBA) defines a small business as an operation with fewer than 500 employees. That means there are a lot of businesses out there that are technically “small” even though they seem very large. These small businesses, as per the definition, make up 47.1% (latest information as of 2017) of the working population in the U.S., so their growth and success are vital to the U.S. economy.
There are currently 31.7 million small businesses in the United States, which make up 99.9% of all U.S. businesses. Many small businesses start up every month but the failure rate is high. As of 2019, startup failure rates are around 90%. 21.5% of startups fail in the first year, 30% in the second year, 50% in the fifth year, and 70% in their 10th year.
Given the number of businesses that start up, why do such a high percentage of them fail?
Reasons for Failing
If you poll former business owners, you will get a wide variety of reasons as to why their businesses failed.
Money Ran Out: This widely given reason doesn’t really explain why a business failed. The money ran out because it stopped coming in, so why did the cash flow dry up? Was it due to poorly managed costs or because sales weren't high enough? Money running out also relates to an inability to obtain financing or further financing needed to sustain a business, especially in the early days, until a business can start generating profits.
Wrong Market: Too many people try to start a business targeting everyone as their demographic. This doesn’t work out well. Next, they try to target everyone in their town. Again, too broad. The more narrowly defined your niche is, the easier it will be to market to the right audience.
Lack of Research: You have to know what your customers want. Too many would-be entrepreneurs go into the market thinking they have a great service or product to offer, but they fail to realize that nobody wants that service or product. By doing your homework and researching your market, you will know exactly how to meet your potential customers’ needs.
The Small Business Administration considers a business a startup when it hires at least one employee.
Bad Partnership: Often, when starting a business, a partner is needed. One of you is an expert in one area, and the other is an expert in another one. Your ideas for the company will conflict, and without a clear resolution, it starts internal strife. You work harder and your partner works less, but your partner thinks they are working harder than you. Ultimately, the business dissolves because the partnership didn’t work. By having a clear business plan that lays out the duties of each partner, you can avoid most conflicts before they even arise.
Bad Marketing: It could be said that a business boils down to two aspects: marketing and bookkeeping. If you excel at both, it doesn’t matter what you are selling or offering because someone will buy it. The sad truth is that most entrepreneurs know their craft and little else. Instead of fumbling through your marketing campaign, hire out that aspect of your business. It costs money, but if done right, it will bring in much more than what you spent.
Not an Expert: Too many entrepreneurs start their business because they need a job. They have a vague idea of what they are doing, and they think that because they’re better than their peers, they should make a living doing it. The sad truth is that without business skills and real expertise, these entrepreneurs are destined to struggle.
How to Avoid Failing
It seems that most businesses are destined for failure. But there are key points to not becoming one of the 20% that fails right off the bat.
Set Goals: Know exactly where you need to be and where you want to be. Without a goal, you’re just wandering aimlessly.
Research: Know everything about your market. Know what customers want. Know that they will pay $9 but not $10. Know their incomes, their desires, and what makes them tick. The more you know, the more you can pitch to them.
Love Your Work: If you don’t love what you do, it will show. You must be passionate about your business, or it will just be a job.
Don’t Quit: No matter how great of a business you have, you are going to have downtimes. There will be periods when things are dragging along and you question your decision to embark on this path. This is a time to put in extra hours, press harder, and make it work.
The Bottom Line
Approximately 11 out of 12 businesses fail. That's a high number indicating that many things need to go right for a business to succeed. Fortunately, you can be one of the 20% that succeed in the first year. To do this, you need to follow the tips outlined above, and, most importantly, you have to test your idea, do your homework, and make sure it will work before you jump in with both feet.
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e99049890b3f090fab1fdb42acfd61b7 | https://www.investopedia.com/articles/personal-finance/040915/how-whatsapp-makes-money.asp | How WhatsApp Makes Money | How WhatsApp Makes Money
WhatsApp was founded in 2009 by Brian Acton and Jan Koum as an alternative to pricey SMS services. The app allows users to upload their contact book and message anyone who has the app installed, at no cost. It is available for iPhones, Androids, and desktops.
Facebook Inc. (FB) purchased WhatsApp in February 2014 for $19 billion and according to the 2014 Facebook Form 10-Q, in the nine months preceding Sept 30, 2014, WhatsApp generated revenue of $1,289,000. On Monday, April 30, WhatsApp co-founder and Facebook Inc. director Jan Koum announced his departure from Facebook. Media reports indicate that Koum decided to leave after a disagreement with Facebook over its use of user data and its desire to allow advertisements on WhatsApp. Koum, along with his co-founder Brian Acton, has long been an advocate for the privacy of WhatsApp users.
In February 2020, WhatsApp had two billion users and was Facebook's second-biggest property, after its namesake app. It has surpassed Facebook's messenger and Instagram, the third- and fourth-biggest properties. So how is WhatsApp making its money?
Key Takeaways WhatsApp is a mobile app that allows users to message and call each other over the Internet.WhatsApp was founded in 2009 and bought by Facebook in 2014 for $19 billion.Facebook's biggest property is now WhatsApp, after its messenger service and Instagram.The way WhatsApp used to make money was through a subscription model. It cost $1 to download and then $1 a year going forward.Facebook eventually removed the $1 fee and made WhatsApp a free service, with the idea that consumers would communicate with businesses through it and businesses would pick up the cost.Potential revenue for WhatsApp is estimated to be $5 billion and the average revenue per user to be $4 in 2020.
One Dollar at a Time and Beyond
The short answer used to be $1 at a time. In some countries, the app used to cost about $1 to download; in others, the first year is free, but each subsequent year costs $1; in other words, WhatsApp had a subscription model. At the peak under this model, it had about 700 million users worldwide; yearly revenue can be estimated at $700 million per year at that time.
In January 2016, Facebook revealed in a 10-Q filing that because WhatsApp was monetized in "a very limited fashion," it may not be generating meaningful revenue in the long term, hinting that the strategy would change. Shortly after, WhatsApp announced in a blog post that the era of subscriptions had come to an end and the messaging app would now be free to use.
There are still no ads in the app, however. "Starting this year, we will test tools that allow you to use WhatsApp to communicate with businesses and organizations that you want to hear from," the company wrote at the time. The goal is to have people communicate directly with their banks, airlines, etc. over the app, while the businesses pick up the bill previously paid through subscriptions.
WhatsApp Business, the business platform of the messaging app, provides a host of tools for businesses to access company insights and measure metrics, making it an attractive tool for businesses.
Though WhatsApp's financial statements aren't public (Facebook doesn't break down its revenue by company), Forbes estimated potential revenue to be $5 billion and the average revenue per user to be $4 by 2020. As of February 2020, WhatsApp had over two billion users.
Other SMS Apps
Outside of America, where sending text messages is more expensive, SMS apps are popular and have successfully monetized. WeChat—the popular Chinese SMS app—has ads as well as online games. The company is partly responsible for Tencent's, which owns WeChat, $13.7 billion revenue in the third quarter of 2019. The app has over one billion active users.
Focusing on Growth
WhatsApp is adding almost a million users per day, mostly in Latin America, India, and Europe. With SMS apps, growth is exponential; when one person in a social group downloads and advocates using the app, many new users download the app to communicate with the original person. These new users then encourage other members of their other social groups to use the app.
By increasing market penetration, the app becomes indispensable and the user base grows.
Information from Statista
Is It Really About the Money Though?
Industry insiders have speculated that part of the rationale behind acquiring WhatsApp was for Facebook to access user’s behavioral data and personal information.
With location sharing data, 65 billion messages sent per day, and access to users' entire contact lists, Facebook has access to a ton of personal information—all uploaded and saved on its servers. While Mark Zuckerberg has previously promised that this data won’t be used to improve consumer targeting in Facebook ads, it will be unless the user changes the settings to not share information with Facebook.
End-To-End Encryption Controversy
WhatsApp, as well as other messaging providers (including Apple), have been in hot water with governments around the world after it was determined that terrorists used apps to communicate before and during attacks.
Governments and counter-terrorism agencies wanted the companies behind these apps to share the encryption key to gain access to messages sent and received by the terrorists. The companies, however, refused to oblige. This led to WhatsApp's adoption of end-to-end encryption, which prevents anyone, including WhatsApp, except the sender and receiver from gaining access to the data shared on the app.
The Bottom Line
WhatsApp has become one of the most popular messaging services in the world with only room to grow. Whether you believe that Facebook overpaid for WhatsApp or not, the fact is that the app has a growing revenue stream with endless possibilities that will allow it to bring in more revenues over time.
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bf316079b6356cea0cc75ddec72714e9 | https://www.investopedia.com/articles/personal-finance/041015/spring-landscaping-ideas-pay.asp | Spring Landscaping Ideas That Pay Off | Spring Landscaping Ideas That Pay Off
The season for spring landscaping is here, and it’s time to look at what you can do to increase the appeal of your home’s exterior. It’s important to make calculated decisions about your landscaping so that you don’t spend too much, but still make improvements to your lawn. Landscape design can boost the resale value to your home by up to 20%. It can also:
Raise property value by 12% Increase your ROI by over 50% Decrease the length of the period during which your home is on the market
You should invest around 10 percent of your home’s total value in landscape design. You can either do softscape renovations like the installation of plants, shrubs and trees, or more hardscape renovations. Some of the best hardscape landscape renovations are:
Lighting Fencing Garden Pathways Fire Pits Decks
Consult with a landscaper. You’ll need to design a plan for the front yard or backyard so you don’t end up destroying everything in the process or spending too much money on the wrong projects.
Designing Your Landscape Around Trees
Some of the most worthwhile ways to allocate funds for landscape design center around trees. Depending on how long you plan to live in your home, you can plant trees that will grow over time and provide protection from the sunlight and other elements. You will spend anywhere between $50 and $200 on new trees. Some of the best trees to consider planting are sugar maple, Colorado blue spruce, northern red oak, and eastern red cedar.
Remember: if you decide to plant a tree, there will be additional costs for maintenance (i.e. trimming branches and leaf removal), mulching and other care to ensure it grows.
Patios and Ponds
There are various outdoor hardscapes you can add to increase the appeal of your home, but the most common are decks and patios. A landscaped patio can increase your home’s value by almost 12%. If you decide to install a patio, you’ll spend between $1,500 and $2,500 on average. You can also erect a deck which more easily blends into the natural landscape or install a water feature like a small pond, swimming pool or hot tub. It’s all about comfort and how well everything harmonizes with the natural landscape.
Outdoor Lighting
Outdoor lighting can greatly increase the appeal of your home exterior and landscape without requiring you to spend a fortune. It can help accent the beauty of trees, as well as your garden and lawn. You can also increase the security of your lawn by lighting a pathway from the driveway to your door. While it might not seem as helpful during the day, night lighting could be a crucial selling point for potential buyers.
The Bottom Line
Spring landscaping could be the crucial selling point for your home, so it’s important to choose which softscapes and hardscapes in which you want to invest. A landscape professional will usually know which ones work best for your budget and design, so work with them to get the best layout for your spring landscape.
Disclaimer: The opinions expressed are those of HomeAdvisor and are subject to change at any time due to changes in market or economic conditions. The comments should not be construed as a recommendation of any individual holdings or market sectors. This material does not constitute any specific legal, tax or accounting advice. Please consult with qualified professionals for this type of advice.
Investopedia and HomeAdvisor have or may have had an advertising relationship, either directly or indirectly. This post is not paid for or sponsored by HomeAdvisor, and is separate from any advertising partnership that may exist between the companies. The views reflected within are solely those of HomeAdvisor and their Authors
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aea444ec17471fb9cacda767d650cfac | https://www.investopedia.com/articles/personal-finance/041216/3-reasons-invest-multifamily-real-estate.asp | 3 Reasons to Invest in Multi-family Real Estate | 3 Reasons to Invest in Multi-family Real Estate
Real estate can be an alternative for those unable to withstand the volatility of the stock market. It is also a better investment for investors who wish to take an active role in growing their capital, rather than passively putting their money into a fund managed by someone else. One of the beautiful things about real estate investing is that there is more than one strategy that can be successfully used.
For example, real estate investing moguls Donald Bren and Zhang Xin both built their billion-dollar fortunes by developing various residential and commercial properties. On the other hand, Equity Residential founder Sam Zell created his wealth by slowly acquiring an income-producing portfolio of rental properties.
Other real estate investors have also made millions of dollars from house flipping or purchasing properties that are in disrepair for cents on the dollar and renovating them to later sell them to a new owner.
Key Takeaways Owning rental real estate can be a smart way to diversify your investment portfolio and generate a steady income. A multi-family property can multiply your income with only incremental added cost. Multi-family rentals are typically easier to finance compound returns more quickly and tend to benefit from economies of scale.
Investing in Multifamily Properties
Rental property investing is the preferred investment strategy for investors who want an additional source of monthly income along with a slow but steady appreciation in the value of their portfolio. When it comes to residential real estate, there are two main types of properties that one can invest in: single-family and multifamily.
As the name implies, single-family properties are residential buildings with only one available unit to rent, while multi-family properties, also commonly known as apartment complexes, are buildings with more than one rentable space. While there are fewer barriers to entry when building a portfolio of small homes, there are several advantages to investing in large residential complexes. Here are three reasons to consider investing in multifamily real estate as opposed to single-unit rental properties.
1. More Expensive, but a Lot Easier to Finance
In most cases, if not all, the cost to acquire an apartment building will be significantly higher than the cost to purchase a single-family home as an investment. A one-unit rental could cost an investor as little as $30,000 while the cost of a multi-family building can go well up in the millions.
At first sight, it might seem as though securing a loan for a single-family property would be a lot easier than trying to raise money for a million-dollar complex, but the truth is that a multi-family property is more likely to be approved by a bank for a loan than the average home.
That’s because multi-family real estate consistently generates a strong cash flow every month. This remains the case even if a property has a handful of vacancies or a couple of tenants who are late with their rent payments. If a tenant, for example, moves out of a single-family home, that property would become 100% vacant.
On the other hand, a ten unit property with one vacancy would only be 10% unoccupied. As a result, the likelihood of a foreclosure on an apartment building is not as high as a single-family rental. All of this equates to a less risky investment for a lending institution and can also result in a more competitive interest rate for the property owner.
2. Growing a Portfolio Takes Less Time
Multi-family real estate is also very suitable for property investors who wish to build a relatively large portfolio of rental units. Acquiring a 20 unit apartment building is a lot easier and much more time-efficient than purchasing 20 different single-family homes.
With the latter option, one would need to work back and forth with 20 different sellers, and conduct inspections on 20 houses that are each located at a different address.
Additionally, in some cases, this route would also require an investor to open 20 separate loans for each property. All of this headache could be avoided by simply purchasing one property with 20 units.
3. You're in a Position in which Property Management Makes Financial Sense
Some real estate investors do not enjoy the actual management of their properties, and instead, hire a property management company to handle the day-to-day operations of their rentals. A property manager is typically paid a percentage of the monthly income that a property generates, and their duties might include finding and screening tenants, collecting rent payments, handling evictions, and maintaining the property.
Many investors who own one or two single-family homes do not have the luxury of contracting an external manager because it would not be a financially sound decision due to their small portfolio. The amount of money that multi-family properties produce each month give their owners room to take advantage of property management services without the need to significantly cut into their margins.
The Bottom Line
Much like stocks, real estate investing allows for one to be successful through several different strategies. One of the most popular ways to invest in real estate is to own a collection of rental properties. Properties that only have one residential rental unit are commonly referred to as single-family properties, while apartment complexes that have multiple rental units are known as multi-family properties.
There are many advantages to owning multi-family real estate. These include access to easier and better financing opportunities, the ability to quickly grow one's rental property portfolio, and the luxury of hiring a property manager.
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2bf559735a1ca301382809dcf8b33c54 | https://www.investopedia.com/articles/personal-finance/041315/how-invest-liquor-deo-stz.asp | How to Invest in Liquor | How to Invest in Liquor
Sin stocks are publicly-traded companies that produce or generate a product or activity that may be considered immoral or unethical by some people's standards. This can include alcohol and beverage companies, and cigarette and tobacco companies. But the term sin stock doesn't just pertain to liquor and cigarettes. It also includes gambling companies, war and weapons companies, and those involved in sex-related industries.
One of the most popular segments that makes up this sector is the liquor industry. While there are many companies to choose from, two key names that come to mind are liquor producer Diageo (DEO) Constellation Brands (STZ) which makes beer, wine, and spirits. This article looks at what it means to invest in sin stocks, the market for liquor companies, as well as some of the key financial ratios for each company.
Key Takeaways Alcohol is one of the most popular segments in the sin stock industry.There is a common misconception that investing in alcoholic beverage companies will always be profitable because of high demand for liquor.Companies like Diageo and Constellation performed poorly during the economic crisis. Americans are continuing to drink less alcohol because of a drive for more healthy lifestyles.
Profitable Sin Stocks: A Fallacy?
There is a common theory that investing in sin stocks will always be profitable. That's because there's a belief that the market for certain products like cigarettes and alcohol never dies down. The idea is bolstered even further by the notion that people tend to drink and smoke excessively when the stock market tanks—likely out of frustration—further boosting sales of sin stocks. There is some truth to this. These goods are considered consumer staples—products people may continue to buy even when the economy is weak. Demand for consumer staples tend to be noncyclical, meaning consumer demand is consistent all year long. But, there's always an exception to every rule, and this theory has many cracks.
Alcohol may also considered by some to be a luxury good, and therefore, part of consumers' discretionary spending. Depending on someone's personal circumstances, they may decide to stop buying their weekly bottles of wine or beer, or stop going to the local bar if they can't afford it. That's probably why the stocks of both Diageo and Constellation Brands performed relatively poorly during the 2008 financial crisis. After all, in down economies, investors seldom rush to buy alcohol stocks.
Investors seldom rush to buy alcohol stocks when the economy weakens.
Even in healthier economic climates, sin stocks are never a sure thing, and different companies can behave differently, under similar circumstances. Case in point: In 2015, Diageo depreciated 11.63%, while Constellation appreciated 54.93%. This difference may be explained by the fact that Constellation is a smaller company. Companies that are more nimble tend to outperform in bull markets.
The Liquor Market Overall
As consumers look to more healthy lifestyles, demand for alcohol has been waning, according to IWSR, which provides market analysis about the alcoholic beverages industry. In 2018, the group reported a decline in alcoholic beverage consumption among Americans for the third year in a row.
Demand for beer dropped from 78.9% to 78.3% between 2017 and 2018. IWSR reported that while beer volumes dropped, consumers are still interested in craft beer. But that isn't the case for hard liquor, which still remains popular among consumers. Sales in spirits rose in 2018 to represent 37.3% of the U.S. liquor market. Premium liquor was the highest part of this segment, followed by value, high-end, and super premium spirits.
Diageo vs. Constellation
Diageo
Diageo was founded in 1997 after Guinness and Grand Metropolitan merged and is based in London, U.K. The company has a presence in many different parts of the world. But if you don't recognize the Diageo name, you may know some of its key brands. The company is the maker of Smirnoff vodka, Johnnie Walker, Bailey's, and Guinness. Diageo also has a stake in a number of high-end brands including Veuve Clicquot and Moët Hennessy.
As of June 5, 2020, Diageo's market cap was $85.67 billion, and its share price closed at $163.52. The company offers a 1.87% dividend yield. Its return on equity was reported as being 32.86%. As of December 2019, Diageo's debt-to-equity ratio (D/E) was 1.14. The company's operation cash flow generation as of 2019 was reported to be $3.25 billion.
Constellation
Formed in 1945, Constellation Brands is based in Victor, New York. The company has more than 100 different brands under its umbrella including Corona, Modelo Negra, High West Whisky, and Svedka Vodka. Constellation has been expanding primarily through acquisitions. Some of its notable purchases include wine brand Robert Mondavi in 2004 as well as the American arm of Grupo Modelo's beer business from Anheuser-Busch in 2013.
Constellation's stock closed the trading day on June 5, 2020 at $181.42, with a market cap of $34.9 billion. The company's dividend yield was 1.71%. Its D/E ratio was 0.9, while its return on equity (ROE) was reported at -0.1%. The company's operation cash flow as of 2019 was $2.2 billion.
The Bottom Line
This is simply a matter of your investment philosophy. If you’re looking for stock appreciation and you're willing to accept the potential for increased downside risk, then you might want to consider Constellation Brands. If you’re more risk-averse and would like to collect dividends, then you might want to consider Diageo. Just keep in mind that neither stock is likely to be exceptionally resilient if the broader market falters. That said, this should just be a temporary hit in both cases.
Dan Moskowitz does not have any positions in DEO or STZ.
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1ea0ed9f94ccc117e97b0b36f2a5a2a9 | https://www.investopedia.com/articles/personal-finance/041315/tips-charitable-contributions-limits-and-taxes.asp | Charitable Contribution Deduction: Rules and Special Benefits for 2020 | Charitable Contribution Deduction: Rules and Special Benefits for 2020
Gifts to charity are one of the best tax-saving opportunities available. Not only does the charity itself benefit, but taxpayers enjoy tax savings by deducting part or all of their contributions on their tax returns. For 2020, special rules provide more generous tax treatment for qualifying cash contributions. These temporary provisions will not apply after 2020 unless Congress amends the law.
Key Takeaways The Charitable Contributions Deduction allows taxpayers to deduct contributions of cash and property to charitable organizations, subject to certain limitations.For a charitable contribution to be deductible, the recipient charity must be a qualified organization under the tax law.Annual caps limit the total amount of charitable contribution deductions and special rules limit certain deductions based on the type of property donated and the type of tax-exempt organization receiving the donation.For 2020, cash contributions receive enhanced benefits: The annual cap is raised for cash contributions and taxpayers who do not itemize deductions may deduct up to $300 of cash contributions in addition to claiming the standard deduction.
The Basics of the Charitable Contribution Deduction
The tax treatment of a charitable contribution varies according to the type of contributed asset and the tax-exempt status of the recipient organization. Rules differ for individual, business and corporate donors. And the amount of the deduction is subject to standards and ceilings. For the 2020 tax year, special temporary rules increase allowable deductions and, thereby, the tax benefits for charitable gifts made in cash. Here's an outline of the rules for deducting charitable contributions, including the more generous allowances for 2020.
Not all donations qualify for deductions
The tax law imposes requirements designed to ensure that deductions are allowed only for contributions that serve a charitable purpose. Therefore, a recipient must qualify for tax-exempt status as required by the tax code and determined by the U.S. Internal Revenue Service (IRS).
The list of eligible entities includes organizations operated exclusively for religious, charitable, scientific, literary, or educational purposes; the prevention of cruelty to animals or children; or the development of amateur sports. Nonprofit veterans' organizations, fraternal lodge groups, cemetery and burial companies, and certain legal corporations can also qualify if donations are designated for eligible purposes.
To determine whether an organization qualifies to receive deductible contributions, the IRS Tax Exempt Organization Search tool can help verify an organization’s tax-exempt status and determine its eligibility for deductible contributions. A donation to a federal, state, and local government may be eligible if the gift is earmarked for public purposes (such as maintaining a public park). Gifts to benefit a particular individual, a for-profit business or other private interest do not qualify as deductible charitable contributions.
Please note, a special measure in the CARES Act (the coronavirus relief bill) allows taxpayers to take an above-the-line deduction for up to $300 in charitable cash donations beginning in 2020. This means, even if you take the standard deduction, you can still claim up to $300 in donations for 2020 when you file your taxes in 2021.
Rules for claiming a deduction: who, what, and how much
In order to get the potential tax benefits, individual taxpayers must file IRS Form 1040. Except for a special benefit available only in 2020, charitable contributions must be claimed as itemized deductions on Schedule A.
For 2020, taxpayers who claim the standard deduction on their tax returns are entitled to deduct up to $300 of charitable contributions made in cash "above-the-line," that is, in calculating their adjusted gross income (AGI). Certain types of contributions are not eligible for the $300 deduction, including (1) gifts of noncash property, such as gifts of securities; (2) contributions to private non-operating foundations; (3) donations to supporting organizations and new or existing donor-advised funds; (4) contributions to veterans’ organizations, fraternal societies and certain cemetery and burial companies; and (5) contribution carryforwards from earlier years.
The above-the-line deduction of $300 will benefit many taxpayers who do not itemize. Because of the present, high levels for the standard deduction, and the ceiling on state and local tax deductions, many taxpayers realize greater tax savings by claiming the standard deduction rather than itemizing. The 2020 standard deduction is set at $24,800 for joint returns and $12,400 for unmarried individuals, with an added $1,300 for each married individual over age 65 or blind, or $1,650 for unmarried individuals. State and local tax deductions are capped at $10,000 ($5,000 if married filing separately).
Often, taxpayers whose total itemized deductions, including charitable deductions, for a year would be less than the standard deduction are advised to group their charitable contributions into a single tax year to maximize their tax savings. They may choose to donate in one year the gifts that they might otherwise donate over two years, then skip a year. For 2020, some taxpayers, particularly those at low- and middle-income levels with modest charitable contribution totals, may find that the special $300 deduction negates any benefit from grouping two or more years’ charitable gifts.
'Quid-pro-quo' contributions allowed only partial deduction
For certain donations, some calculation is required to determine the amount that can be deducted. These include ‘quid-pro-quo’ donations for which the donor receives an economic benefit, e.g., goods or services, in return for the gift. If a donor receives a T-shirt "for a cause" in return for a contribution, the entire amount of the contribution is not deductible. The deduction is limited to the amount of the contribution that exceeds the fair market value of the shirt.
For example, if the contribution is $40, and the fair market value of the T-shirt is $20, the deductible amount is only $20 ($40 donation – the shirt's $20 value). The same rule applies for contributions for events like charity dinners, where the fair market value of the meal must be subtracted from the cost of the event to determine the amount of the deduction.
Deduction for donated goods set at fair market value
Charitable contribution deductions are allowed for donations of goods, including clothes, household items, and more to Goodwill, the Salvation Army, and similar charities. But these types of noncash gifts have their own rules. Used clothing and household items must be in usable good condition; additional regulations apply to vehicle donations. The amount of the deduction is limited to the item's fair market value at the time of contribution, e.g., its thrift-store price.
Some tax preparation programs include a calculator to help determine items' fair market values. When a taxpayer claims more than $500 in total deductions for noncash contributions, IRS Form 8283 must be filed with the tax return. IRS Publication 561 is a useful resource to help you decide the value of your noncash contributions.
Donation Limits: Special 2020 Rules
The tax code imposes various limits on the deductible amount for certain charitable contributions. For 2020, the limits are increased for certain cash contributions.
Caps on deductions for cash contributions raised for 2020
For 2020, the ceiling on deduction for charitable contributions of cash is increased. Previously the deduction for cash contributions to qualifying organizations was limited to 60% of an individual taxpayer’s contribution base, which is generally equal to taxpayer’s adjusted gross income, AGI (calculated without any net operating loss carrybacks). For this one year, taxpayers may deduct the amount of their cash charitable contributions in excess of their allowable noncash charitable contributions, up to the full amount of their AGI. This higher ceiling will enable some taxpayers to eliminate all their taxable income. If a taxpayer’s contributions exceed the ceiling, the unused amount may be carried forward for up to five years.
The organizations that qualify for the increased ceiling for cash contributions are entities operated for religious, charitable, scientific, literary, or educational purposes; the prevention of cruelty to animals or children; or the development of amateur sports; as well as private operating foundations and certain governmental units. For non-qualifying organizations, which include (1) private non-operating foundations, (2) supporting organizations and existing or new donor-advised funds; and (3) veterans’ organizations, fraternal societies and certain cemetery and burial companies, total deductions continue to be capped at 30% of the taxpayer's AGI.
Non-cash contributions are not eligible for the increased ceilings. Noncash contributions to qualifying organizations continue to be capped at 50% of the individual donor’s AGI. Non-cash donations to non-qualifying entities continue to be capped at 30% of AGI. Also, contributions of appreciated capital gain property generally are capped at 30% of AGI if made to qualifying organizations, and 20% of AGI in the case of non-qualifying organizations, including private non-operating foundations.
The higher ceiling on deductions for 2020 offers a tax-planning opportunity potentially attractive to high-bracket taxpayers who make cash contributions. High-bracket taxpayers planning to make significant cash contributions in 2021 might evaluate whether making such gifts in 2020 in order to take advantage of the temporary, higher ceilings would result in greater tax savings than would spreading the gifts over two or more years.
2020 benefits for business
Businesses making charitable contributions in 2020 also are eligible for some increased benefits. Sole proprietors and owners of “pass-through” business entities report the deductions on their own returns in accordance with the rules for individual taxpayers, including the increased ceilings for cash gifts. For C corporations, contribution limits are increased for cash donations from 10% to 25% of taxable income (with some adjustments). Special rules apply for businesses’ contributions of food inventory. The cap on such contributions generally is increased from 15% of net income for owners of pass-through businesses and from 15% of taxable income for C corporations to 25% in each case.
Benefits for specific circumstances
From time to time, the tax code provides ceilings higher than those generally applicable for special interest situations, for example, to assist recovery from a disaster or to benefit a specific industry or purpose. Currently, a qualified farmer or rancher can claim a qualified conservation deduction of up to 100% of adjusted gross income (less other allowable charitable deductions ) for a contribution of property for agriculture or livestock production, provided that the property continues to be used or available for such production.
Deductions require records
Taxpayers must keep detailed records to support their charitable deductions. In order to claim a deduction for cash, you must have a written record, canceled check, or bank/payroll debit. Every contribution of more than $250 in cash or property must be backed by a written acknowledgement from the donee stating the amount of the contribution, whether or not any goods or services were provided to the contributor, and the fair market value of any such goods or services. Significant property contributions also require appraisals.
The Bottom Line
For specific guidance about what is and isn't allowed, download a copy of IRS Publication 526 and Form 8283 (for noncash charitable donations) for easy reference. In addition, check IRS Charitable Contribution Deductions, which is updated to include the special rules for 2020, to clarify any applicable limits on deductions.
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0e1d73022441d1181398c395d2f714db | https://www.investopedia.com/articles/personal-finance/041415/my-credit-score-useful-outside-us.asp | Is My Credit Score Useful Outside the U.S? | Is My Credit Score Useful Outside the U.S?
One phrase that you probably won’t need to learn if you are traveling is the credit score. That’s not because they don’t exist in other countries. In fact, the American credit bureau Equifax operates in 15 countries spread across Europe and Latin America.
For some globetrotters, the headache that arrives the morning after the bon voyage party can’t be blamed on the third glass of champagne. It might be from that anxiety-provoking question: Will my credit score matter overseas?
The short and sweet answer—especially sweet to those whose credit score is in the lower ranges—is that no, your credit score won’t follow you overseas. In that sense, your credit score will do you less damage than a nasty cold caught at the JFK departure gate.
Key Takeaways A credit score accrued in the United States has no bearing overseas; it will neither harm nor help you in overseas financial dealings. The technology doesn't yet exist for the possibility of international credit scores; additionally, laws prohibit the sharing of credit information overseas. Auto dealers, credit card providers, and other lenders have their own means of assessing your worthiness as a potential creditor, often specific to country or region—outstanding debt and income verification are typically required. However, it can be challenging for some expatriates to establish credit-worthiness on foreign soil; traditional credit-building techniques like taking out a store credit card or a pre-paid debit card can help. If returning to the U.S. at some point is a possibility, then make sure to keep U.S. based credit cards active and payments up-to-date; all other premiums or payments need to be kept up-to-date as well.
Up in the Air
The moment your 747 reaches altitude on the way to London Heathrow or Tokyo Narita airports, your American credit score does not exactly disappear into thin air. However, its power—at least on foreign soil—is negligible to nonexistent. It's true that many countries, including Canada and the U.K., have credit scoring systems that are not entirely dissimilar to the American system. Yet not only is there no communication between the systems, expect to be surprised by key differences in the necessary components of establishing credit in other countries. For example, in the United Kingdom, lenders consider voting behavior as a positive sign – which means that unless you become a UK citizen and sign up for electoral polls, you'll have to seek out other ways of establishing credit.
It's not that overseas lending institutions don't care about the credit history you´ve established in your country of origin. Countries such as Germany—which, as the financial stalwart of the European Union, has a highly sophisticated banking and credit system—simply lack the systems to thoroughly investigate a potential client's credit history in the United States.
While technology may have created an initial barrier for the kind of global credit score system that might now be technically feasible, laws at the national and international level prohibit sharing credit histories with overseas lenders. The reason is consumer protection: The growing trend of identity theft, which preys upon customer data, makes such legislation essential.
What to Expect
If foreign lenders will not have access to your American credit score, what can you expect if you want to, say, open a credit card with a local bank or buy a car? Overseas banks and lending institutions may indeed inquire about outstanding debts in your home country. While such inquiries may not be followed up with verification, it goes without saying that it´s crucial to be truthful when dealing with overseas financial institutions. Expect to furnish income verification from your current employer, which should be fairly simple to obtain from your new place of work.
So-So Credit
If you've consistently missed credit card payments or defaulted on a car loan, perhaps the promise of starting from scratch – credit-wise, at least – is one added appeal of an overseas adventure. This fresh start applies to those who have declared bankruptcy as well: Although total filings by businesses and individuals fell to 1.03 million in 2013 from 1.19 million in 2012, according to a report from the American Bankruptcy Institute, that's still no small number. In 2014 more than a million bankruptcies – both business and individual – were filed in the United States. While bankruptcy doesn't “disappear” on your credit back home, it will have far less power (if any) overseas.
If the news that your credit score means about as much in Bogota as your local gym membership card provokes a sigh of relief, great. Just don’t get too relaxed. While an overseas relocation might offer a fresh start for those whose credit score back in the States prevents them from getting the best interest rates on major purchases like cars or homes, it’s not a catch-all solution – especially if you plan to repatriate to the United States in the future.
Excellent Credit
What if you're embarking on a foreign assignment, and you'd happily pack your credit score along with the family dog? While you can’t exactly take it with you, you can maximize its impact on overseas lenders with a few strategies.
Though expatriation may render your stellar credit score less important, it doesn´t mean it can't be useful. While your credit history will not automatically transfer to foreign lending institutions, there are several ways to capitalize on your strong financial history when dealing with an overseas bank. One simple measure would be to print out your credit report, along with any accompanying documentation, to bring to appointments with lenders. Another strategy? Before you make the move, ask your bank to furnish you with a hard copy, and sign a letter on official stationery that details your credit history.
What is the future of personal finance for American expatriates? Recent changes to U.S. banking and tax laws point in the direction of more – not less – cooperation between American and overseas banks. But many Americans who take jobs on foreign soil find it's the opposite: Securing loans for homes or cars in countries where they hold no prior credit history is a challenge.
Building Credit Abroad
What do you do in the meantime? First, don't give up your U.S. credit cards. If possible, keep active savings, checking, and credit card account. Two caveats: Be sure to follow any minimum usage requirements on the account so it is not simply closed for inactivity, and use a card with no foreign transaction fees. Even if you're living abroad, what you buy on your U.S. card will count as a foreign transaction and add to the cost of each purchase.
If you can't get a standard credit card in your new country, you may need to start by trying to open a store credit card (despite the high-interest rates they charge). Make regular purchases and pay the bills promptly to start building a local credit history. Meantime, try to open an account at a local bank and get used to paying cash for many purchases.
Be prepared that if you return to the United States, your credit score will be waiting there for you; living abroad doesn't negate the U.S. credit score.
Coming Home
In 1940, when the American novelist Thomas Wolfe popularized the adage “You can't go home again,” presumably he wasn't referring to credit scores. (To be fair, that was 49 years before the emergence of FICO scores.) Depending on your length of stay overseas, your credit – whether good, bad, or ugly – will be waiting for you upon your return.
If you plan to remain overseas for at least seven years, you'll find that any delinquencies or negative marks on your credit report will have disappeared within that time. If they remain, you should contact the credit bureau to request the removal of expired debts from your report. Thankfully, a poor-to-below-average credit score can be repaired in a few years with consistent effort, though major financial setbacks, such as having a home in foreclosure or unpaid debt in collections, can take seven to ten years to resolve.
If you originally set off towards foreign shores with excellent credit, you may worry that your good credit history will “disappear” after a number of years overseas. While it can be challenging to reestablish strong credit after a decade or more without U.S. financial activity, there are several ways to circumvent a major problem.
First, there's no need to close all of your U.S. accounts before leaving: If possible, keep active savings or checking and credit card accounts and do enough transactions to keep them open until you return. The same is true for accounts in your adopted country: Until you re-establish credit in the United States, keep your foreign accounts and credit cards open, unless it's simply not feasible to do so. Just make sure to comply with the new FBAR regulations that mandate that all Americans with overseas financial holdings report them to the U.S. government.
Finally, by opening an American Express account overseas, your foreign cardholder status may positively influence your application back home. At the very least, most banks will issue secured credit cards with a reasonable amount of capital. Here's the bad news: That brilliant credit you’ve established in the U.K. won’t matter much back in the States.
While there’s no quick fix for repairing bad credit – whether solo or shared – moving overseas can offer a way to remake your credit history with a better outcome.
The Bottom Line
If the thought of abandoning your admirable credit score ¨back home” upsets you, don't fret: It will be there when you return – provided you return within a handful of years and/or remain vigilant about keeping your accounts active. And if you've struggled with your credit, moving abroad might present a fresh start from a financial perspective as well as a cultural one.
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100b38502ecea4ce43259c209c9abf44 | https://www.investopedia.com/articles/personal-finance/041515/10-tips-avoid-common-financial-scams.asp | 10 Tips To Avoid Common Financial Scams | 10 Tips To Avoid Common Financial Scams
Data breaches, identity theft, and online scams, oh my! Year after year, a destructive flood of fraud sweeps the nation, leaving countless victims in its wake. Unfortunately, new and improved technology only gives fraudsters an edge, making it easier than ever for scam artists to nab financial data from unsuspecting consumers.
In fact, swindlers and hackers pinched US$16 billion from 15.4 million U.S. consumers in 2016, according to Javelin Strategy & Research’s 2017 Identity Fraud Study. To make matters worse, the Identity Theft Resource Center reports there were 1,473 recorded data breaches in 2019. But even in these uncertain times, there are things consumers can do to protect themselves from greedy, increasingly crafty fraudsters.
(See also, Baby Boomers Beware: Financial Fraud That Targets Seniors.)
1. Never Wire Money to a Stranger
At some point or another, you’ve probably received an odd email from a wealthy Nigerian prince whose father/mother/brother recently died and left him a huge fortune. Because of his noble status in a foreign country, the prince needs your help transferring the millions of dollars from a U.S. account. In return, he will reward you handsomely with hundreds of thousands of dollars! All you have to do is wire $5,000 to him.
Although it’s one of the oldest internet scams in the book, there are still consumers who fall for this rip-off or some variation of it. No matter what the circumstances – whether you receive an email from a wealthy traveler who needs your help getting back to the U.S. or your long-lost cousin who claims to be in an emergency situation – NEVER wire money to a stranger. Once you wire cash (especially overseas), it’s virtually impossible to reverse the transaction or trace the money. If you’re worried about your cousin, check separately. She’ll probably be safe at home, and you can alert her that her email’s been hacked.
One of these "Nigerian Princes" was recently detained and charged in December of 2017, and to no one's surprise, he turned out to be a 67-year-old man from Louisiana. This particular brand of the scheme first popped up in the 1980s and Americans have lost millions of dollars to the scam.
2. Don’t Give Out Financial Information
Never reveal sensitive financial information to a person or business you don’t know, whether they reach out to you via phone, text or email. Scammers will sometimes email or call you, claiming to be from a retailer, financial institution or government agency. They may say your account has been compromised or needs to be updated. More often than not, these crooks are trying to trick you into giving them your credit card number, Social Security number or other financial information.
This common scam is known as phishing. Remember, your bank or credit card company will never contact you and ask for your personal information. If you receive a suspicious call or email and are concerned about your account, call the credit card company or bank directly to check on your account status.
3. Never Click on Hyperlinks in Emails
If you receive an email from a stranger or company asking you to click on a hyperlink or open an attachment and then enter your financial information, delete the email immediately. Even if the email appears to be from your bank or credit card company, it’s more likely a scam known as pharming. The Better Business Bureau advises consumers to ignore and delete any emails that make these kinds of requests.
4. Use Tough-To-Crack Passwords
These days, a password like “12345” or “P@ssword” just isn’t going to cut it. Hackers can easily crack passwords that are simple number combinations or a common pet name. Create passwords that are at least eight characters long and that include some lower and upper case letters, numbers and special characters. You should also use a different password for every website you visit.
But how on earth are you expected to remember 20 different passwords that look something like this: “5Rg6&*eQ$3”? That’s where a password program like RoboForm or LastPass can help. These handy programs help you generate strong passwords and securely and quickly access them when you need them.
5. Never Give out Your Social Security Number
If you receive an email or visit a website that asks for your Social Security number, don’t do it. It’s more than likely a scam. Legitimate businesses rarely ask for this information.
6. Install Antivirus and Spyware Protection
Protect the sensitive information stored on your computer by installing antivirus, firewall and spyware protection. Once you install the program, turn on the auto-updating feature to make sure the software is always up-to-date.
7. Don’t Shop With Unfamiliar Online Retailers
When it comes to online shopping, only do business with familiar companies. If you’re interested in purchasing a product from an unfamiliar retailer, do some research to ensure the business is legit and trustworthy. Visit the Better Business Bureau’s website or search online for consumer feedback and complaints.
8. Don’t Download Software From Pop-Up Windows
When you’re online, be wary of pop-up windows that appear and claim your computer is unsafe. If you click on the link in the pop-up to start the “system scan” or some other program, malicious software known as “malware” could damage your operating system.
9. Make Sure the Websites You Visit Are Safe
Before you enter your financial information on any website, double-check the website’s privacy rules. Also make sure the website uses encryption, which is usually symbolized by a lock to the left of the web address. When you see the lock, this means the information you’re entering is safely encrypted and protected against hackers.
10. Only Donate to Known Charities
If you receive a call or email solicitation for a charity looking for donations, do your homework before you whip out your credit card. Some scammers create bogus charities to steal credit card information. You can search for legitimate charities on the IRS website.
The Bottom Line
In this day and age, it seems like financial scams and rip-offs are lurking around every corner – both on and offline. (See the Federal Trade Commission’s Scam Alert for the latest ones. Spotted a scam yourself? You can report it to the FTC here.) By following these 10 tips, you can outsmart even the most cunning fraudsters and shield yourself from financial harm.
(See also: Identity Theft: How To Avoid It.)
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f6143dd132cfd9d4b43def8076513b7b | https://www.investopedia.com/articles/personal-finance/041515/equity-vs-salary-what-you-need-know.asp | Equity vs. Salary in Tech: What's the Difference? | Equity vs. Salary in Tech: What's the Difference?
Equity vs. Salary: An Overview
Startups are known for being relatively cash-strapped, and they prefer to cut down on payments to employees considering their need to preserve cash and recycle whatever cash they generate into their business operations. They often offer equity compensation as a result.
The advantage of being paid a salary instead is that you know exactly what you're getting. It's a fixed sum that you can count on and plan your future around. Of course, you'll still be subject to the risk that your employer goes out of business or that your employment could be terminated, but salaries offer far more security than equity compensation overall.
Equity compensation often goes hand-in-hand with a below-market salary. They're not necessarily mutually exclusive.
Key Takeaways Equity is often promised along with a below-market salary. It's not always entirely an either/or situation. Equity compensation typically has a vesting schedule, which means that you'll only own your equity after a certain period of time. You're not tied to the company in the same way with salary payment. Tax implications of equity earnings can be far more complex than salary earnings.
Equity Compensation
The main risk associated with equity compensation is that it's not guaranteed that you'll gain from your equity’s appreciation. Too many variables can influence whether your equity stake will actually pay off.
First, the startup will have to succeed, and many flounder and go out of business. Consider how the dot-com bubble burst in 2000, leaving those who were offered stock options high and dry.
Equity compensation typically has a vesting schedule, which means that you'll only own your equity after a period of time. In the meantime, you'll be tied to the company as you watch for your equity pay to bear fruit. You could lose your stake if you're fired from the job.
There is a variety of ways of structuring equity payments, and each has its own advantages and disadvantages. You could be compensated in the form of incentive stock options (ISOs) or restricted stock units (RSUs).
Salary Compensation
You're not tied to the company in the same way when you earn a salary, and you keep whatever you earn when you earn it. But most large firms in any industry impose salary range structures or pay grades, that cap the most you can earn, even after multiple years of service. Some top executive positions can be exempt from this rule. That said, someone who's just starting out can feel fairly confident that his pay will increase over time. Do the job and there's little risk involved.
According to the Bureau of Labor Statistics (BLS), "information systems managers" make the top 20 list of highest-paid salary professions, but they come in at #16 on the list. The somewhat vague category of "chief executives" comes in at #10. Most of the top paying salaries go to those in the medical fields, and all these rankings are for those at the top of their games.
Equity vs. Salary Example
You have the potential for a major payout with options if your firm does succeed. You might even strike it rich if your firm comes out with a successful initial public offering. That’s how some of the earlier employees of companies such as Google (GOOG) and Facebook, Inc., became millionaires.
There's no such potential for any big payout in the future if you're earning a salary; you'll have to invest your income to generate any additional return.
You might find that you're in a hole after you pay taxes on equity income, even though you technically came out ahead. You might owe taxes even if your share price went down after you exercised your options and you own your shares. This introduces another element of risk. It’s important to exercise your equity options at the right time and to opportunistically cash in the shares you get so you can generate a real return rather than a paper return.
Each form of compensation has different tax consequences. It's important to know exactly how your employer is structuring your equity compensation because you could end up with a considerably bigger payout based on the form of compensation and the size of your stake in the company. A salary payment doesn’t involve that sort of complex structuring, except maybe to negotiate the timing of any bonus payout for tax-planning purposes.
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6f18abbca58b968c1109203ebed76681 | https://www.investopedia.com/articles/personal-finance/042215/stepbystep-how-fill-out-i9-form.asp | How to Fill Out an I-9 Form (Step-by-Step) | How to Fill Out an I-9 Form (Step-by-Step)
What Is an I-9 Form?
When you hire a new employee, you must verify that the person is legally eligible to work in the United States. Once you’ve made a job offer (but not before), the new employee must demonstrate eligibility to work in the U.S. by completing the I-9 Form, Employment Eligibility Verification.
As an employer it is your responsibility to see that this form from the U.S. Citizenship and Immigration Services is completed by the employee and you. Retain the form with your other employment records – do not file it with the government.
Filling Out an I-9 Form
The I-9 form is designed to obtain information from new employees that demonstrate their eligibility to work legally in the U.S. No worker is exempt from having to complete the form.
The I-9 form is made up of three parts:
1. Part I: For the Employee, Establishing Identity
This part of the form is completed by the employee. It includes information such as the employee’s full name, address, date of birth, Social Security number (if applicable), email address,and telephone number (the email address and phone number are optional).
This part is also used to attest – under penalty of perjury – that the person is legally eligible to work in the United States due to being:
A citizen A noncitizen national of the United States A lawful permanent resident An alien authorized to work in the U.S. The employee must enter the expiration date for this authorization, if applicable.
An employee who is an alien and authorized to work must enter the alien registration number (an “A-number” which is a unique 7-, 8-, or 9-digit number assigned to an alien) or Form I-94 admission number.
The employee must sign the form and date it. False statements can result in fines and/or imprisonment.
Some employees may need assistance to complete their portion of the form. If the employee is a minor or disabled (or needs translation), the person aiding in the completion of the form (i.e., the preparer and/or translator) must also include their name and address as well as a signature on the form (also under penalty of perjury).
2. Part II: For the Employer, Reviewing the Employee’s Documents
This part of the form is completed by the employer. It describes the documents that the employer has reviewed to verify eligibility of employment. The employer should take this action within three days of the first day of employment. The employer can — but is not required to — create a copy of the document(s) presented.
There are three lists of documents that can be used. The type of documents used dictate the portion of Part II that the employer must complete.
List A: The documents in this list establish both the employee’s identity and employment authorization. An employee need only present one of the following forms to satisfy the document requirement:
U.S. passport (or U.S. passport code) Permanent resident card (“green card”) or alien registration receipt card (technically, the green card is Form I-551) Foreign passport with a temporary I-551 stamp Employment authorization document that contains a photograph (Form I-766) For a non-immigrant alien authorized to work: a foreign passport and Form I-94 (or 94A) and an endorsement of the alien’s non-immigrant status as long as it has not expired Passport from the Federated States of Micronesia, Republic of the Marshall Islands
List B: The documents in this list show the identity of the employee. If an employee does not have a document from List A, one document from List B must be produced, plus one document from List C (below).
Driver’s license or ID card issued by a state (as long as it contains a photo ID and other personal information) School ID with a photograph Voter’s registration card U.S. military card or draft record Military dependent’s ID card U.S. Coast Guard Merchant Marine card Native American tribal document Driver’s license issued by a Canadian government authority
For minors (under age 18) who cannot produce one of the documents in List B, alternative documents that are acceptable to prove the employee’s identity include a school record or report card; client, doctor, or hospital record; or a day-care or nursery school record.
List C: This document establishes the employee’s authorization to work in the United States. Again, if the employee cannot produce a document from List A, they must produce one from List B and one from List C.
Social Security account number card (unless the card says: not valid for employment, valid only for work with INS authorization, or valid for work only with DHS authorization) Certification of birth abroad issued by the Department of State (Form FS-545) Certification of report of birth issued by the Department of State (Form DS-1350) Original or certified copy of a birth certificate issued by a state, county, municipal authority, or territory of the U.S. that has an official seal Native American tribal document U.S. citizen ID card (Form I-197) Identification Card for use of resident citizen in the United States (Form I-179) Employment authorization document issued by the Department of Homeland Security
As in the case of the employee, employers must attest under penalty of perjury that they have reviewed the necessary documents, believe they are genuine and believe to the best of their knowledge that the employee is authorized to work in the U.S. In addition to signing the certification section, the employer must note the employee’s first day of employment as well as other employer information (the name of the business, the title of the person signing the form and the business’s address).
3. Part III: For the Employer, When Rehiring
This part of the form is also completed only by the employer, but is used only in the case of re-verifying when re-hiring an employee. If an employee is re-hired within three years of the date of the original I-9, the employer can opt to complete this section or a new I-9.
If it is necessary to complete this part, then the employer merely lists the name of the employee (or new name if the employee has had a name change) and date of re-hire. If the previous authorization of employment expired but has now been extended, enter information about the document establishing such authorization (document title, number and new employment authorization expiration date).
As in the case of the other parts, the employee must sign under penalty of perjury that he/she believes the document presented is genuine and that the employee is authorized to work in the United States.
The Bottom Line
Employers must retain I-9s for the later of three years from the date of hire or one year after the date employment ends. From time to time, the federal government may examine your employment records. If you fail to produce I-9s, you can be subject to civil and/or criminal penalties. Find more information about the I-9 from the “Handbook for Employers: Instructions for Completing Form I-9”. For any further questions about the I-9, you can also consult with an employment law attorney.
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e3b68473f822a69e472ade89c181bd36 | https://www.investopedia.com/articles/personal-finance/042315/how-profit-solar-energy.asp | How to Profit From Solar Energy | How to Profit From Solar Energy
Solar energy has become a more viable option for consumers and businesses as technology has advanced and the cost has fallen. A report by the U.S. Department of Energy’s Lawrence Berkeley National Laboratory (LBNL) reports that the cost of utility-scale solar projects has fallen by 70% from 2010-2018. This decrease in production has also decreased utility prices.
Renewable energy sources are typically more in demand when the price of fossil fuels is high, but there are still many ways to profit from solar energy both when oil prices are low and when the price of oil rises in the future.
Solar Energy: An Overview
Solar energy typically works by converting light energy from the sun into electricity. Photovoltaic (PV) energy is created by using flat solar panels that can be affixed to a structure's roof or arrayed across open spaces. Another method, known as thermal solar, uses a series of mirrors to focus the sun's energy on a single point to turn water into steam, which then turns a turbine. For consumer and business applications, photovoltaic solar panels are much more common than other types.
The cost for solar power in Q4 2019 was below $.20 per KWH in all of the states recorded and below $.15 and $.10 per KWH in some states. The national average for fossil fuel electricity was $0.13. Prices are comparable, but the real savings from solar come in future years due to the 2.2% inflationary prices per year for fossil fuel electricity. With solar, you are locking in costs at a constant rate. The only additional cost factors are the upfront costs of installing a solar system and the fossil fuel electricity costs needed when solar doesn't cover all energy needs.
While the most efficient solar panels on the market today have efficiency ratings as high as 23%, the majority of panels range from a 15% to 20% efficiency rate. The most efficient solar panels and their efficiency rates are:
SunPower: 22.8%LG: 21.7%REC Solar: 21.7%CSUN: 21.2%Solaria: 20.5%
Another reason that the price of solar has dropped is due to an increase in supply, particularly from Chinese producers. China has over-produced solar panels relative to current demand, which is putting downward pressure on prices. At the same time, the cost of installing solar panels has fallen due to more efficient methods and specially designed tools.
Profiting From Solar Panel Installation
Most state governments offer some sort of tax subsidy or grants to encourage more widespread solar panel usage. As a result, the final cost after installation may be less than the sticker price. Furthermore, tax credits given for solar power could help reduce annual tax bills. However, the best way to profit from having solar panels installed on your roof is through net metering. (For related reading, see: A Solar-Powered Home: Will It Pay Off?)
Net metering allows utility customers who generate their own solar electricity to feed some of the energy that they do not use back to the grid. This billing method credits solar customers against their electricity consumption, lowering their monthly bills. Most states have passed net metering laws, but differences between state legislation and implementation mean that the benefits of net metering can vary for solar customers in different parts of the country.
Savings from solar panels add up. According to EnergySage, homeowners in Washington will save about $12,905, on average, if they go solar over a 20-year period. In California, homeowners will save approximately $11,800 on average, and, in New York, homeowners can save $11,000 over 20 years. Some estimates put these savings at much higher numbers.
Investing in Solar Stocks
The Solar Investment Tax Credit (ITC), introduced in 2006, has created an average annual growth rate in solar of 52%, according to the Solar Energy Industries Association. Moreover, as the supply glut from Chinese production is met by increasing demand, the profits of solar companies are likely to increase. (For related reading, see: Why You Should Invest in Green Energy Right Now.)
One of the most convenient ways to invest in the solar energy sector is through the Invesco Solar ETF (TAN). The ETF's goal is to track the MAC Global Solar Energy Index. It includes companies that produce solar power equipment and products for end users, companies that produce the equipment used by solar panel producers, solar installers, and companies specializing in solar cell manufacturing. YTD, March 2, 2020, the fund had a return of 17.91% and a 65.65% return in 2019.
Investors seeking individual companies may want to consider the following companies:
Daqo New Energy
Daqo (DQ) is a Chinese company that makes polysilicon, an important material in the construction of solar panels. The company is expected to have created 70% more million tons of polysilicon in 2019 than it did in 2018. The stock is up 20% in 2020, with a total return of 108%.
JinkoSolar
JinkoSolar (JKS) is a Chinese solar company that produces solar panels. The company is changing its method of production, creating panels that operate at higher efficiency rates, which can be sold for more. The company has a total return of 119%.
Vivint Solar
Vivint (VSLR) provides rooftop solar and storage solutions for residences and has a total return of 103%. The company expanded quickly in 2019, with solar installations up 17.6% from the prior year. The stock is up 48% in 2020. Vivint has some of the lowest solar installation costs in the country and is expected to show significant future growth as the residential solar industry expands.
The Bottom Line
Solar power is becoming more affordable and more efficient at turning the sun's energy into usable electricity. For those seeking an investment option in the solar sector, solar company stocks or ETFs are a good option. People can also profit from solar energy by having solar panels installed on their own homes or businesses in order to take advantage of net metering to reduce utility bills.
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baf60ed02d52822d56c1ebbae4ed9bc7 | https://www.investopedia.com/articles/personal-finance/042315/wepay-vs-paypal-fees.asp | WePay vs. PayPal Fees: What's the Difference? | WePay vs. PayPal Fees: What's the Difference?
WePay vs. PayPal Fees: An Overview
PayPal and WePay are both online and mobile ways of making digital payments. PayPal was founded in 1998 as an alternative to traditional paper-based banking. The company's main focus is facilitating payments and enabling money transfers between businesses and people cross different locations, currencies, and languages. WePay was founded in 2008 as a way to collect money from various sources in a hassle-free manner. In 2011, the company began focusing on accepting credit card payments for small businesses. JPMorgan Chase & Co. acquired WePay in 2017. WePay's three main services integrate with Chase bank.
This article compares the two payment gateways PayPal and WePay. We look at the pros and cons in terms of the fees that they charge and the services that they offer. Lastly, we explain which of the two payment providers are the best option depending on the context.
Key Takeaways PayPal is an online payment systems company that facilitates money transfers and serves as an alternative to traditional paper payment methods. WePay is an online payment systems company that provides integrated payment solutions to crowdfunding and SaaS platforms. WePay offers three tiers of service—Link, Clear, and Core—which integrate into WePay's parent company, Chase. Paypal offers a variety of service options for merchants, for example, there are options for charitable organizations or businesses that require an integrated API. Fees and restrictions vary between PayPal and WePay, making one more attractive than the other for some merchants.
WePay Fees
WePay, which is a JPMorgan Chase company, is an online payment system that provides integrated payment solutions primarily to SaaS and crowdfunding platforms. It is a bit different from PayPal. For starters, merchants integrate the payment system into their website to make the shopping experience seamless. WePay has three distinct services: Link, Clear, and Core
Link
Link is a way for merchants to conduct transactions through Chase's integrated payment service while earnings fees, which can be automatically deposited into Chase bank accounts. The merchant's customers pay 2.9% + $0.25 for each transaction.
Clear
The second service WePay offers is known as Clear and is a white label payment approach that allows merchants to set their own pricing. The service also enables merchants to integrate the payment data into their applications and then control how users experience the process. In short, Clear is a way for companies to leverage WePay's technology to offer online payment using their own brand.
Core
Lastly, Core lets companies fully integrate into Chase's infrastructure for payment processing and cash management. It gives the merchant control of the user experience and transaction life cycle. Core is the choice for companies that do a lot of transactions, want to become full-fledged payment facilitators, and hope to achieve economies of scale.
WePay Fees Pros and Cons
WePay is a predominantly web-based credit card processor built for online use, and it does not process payments at brick-and-mortar locations. Although the fee structure is favorable and the processing costs are low, according to Finder.com, it does not provide full-fledged merchant accounts, and WePay has been know to freeze accounts.
Pros Sending invoices is free. The cost to accept credit card payments is relatively cheap at 2.9% + 30¢. The cost of processing ACH payments is 1% + $0.30. There are no setup fees or monthly fees. Cons WePay‘s support is onlyavailable by email. No dedicated merchant accounts, so WePay may not be thebest fit for large businesses.
PayPal Fees
PayPal is known and trusted by millions of people. The company uses this trustworthiness in its marketing strategies—an overview of their website encourages businesses to use PayPal and display the PayPal logo as a sign that the merchant is serious about business.
325 million The number of accounts PayPal held worldwide in 2020. PayPal is available in 202 countries and 25 currencies.
PayPal transactions are completed within minutes, and the company promises that the money will be available for deposit or withdrawal to a bank account immediately. Money is secure, privacy is protected, and since the customer base is so large, transactions are faster than traditional methods where customers enter their shipping information and payment details on the merchant site. PayPal’s website can be confusing for merchants because there are so many different packages and services available.
PayPal Merchant Account
Businesses can sign up for merchant accounts. Merchant account fees for online transactions are 2.9% + $0.30 per transaction in the United States. Fees for doing business outside of the United States are 4.4% + a fixed fee, depending on the country.
In addition, these fees exclude merchants whose average sale is less than $10 (micropayment transaction fees are lower at 5% + a fixed fee, depending on the country).
PayPal offers different fees for charitable merchant accounts. The fees for domestic transactions for charitable organizations are 2.2% + a fixed fee. The fees for receiving international charitable transactions are 2.2% plus an additional percentage-based fee depending on the originating country.
Finally, some merchants either don’t want to send their customers to PayPal’s website to finalize payment or want phone and fax payment support or virtual terminals for their brick-and-mortar business. PayPal has solutions for those merchants and offers packages with monthly fees and (sometimes) lower transaction fees.
PayPal Fees Pros and Cons
Pros Sending money to a friend or a family member from a non-merchant account is free. There are no service fees for merchant accounts; you only pay when you sell. Cons Some banks require a transaction fee when you transfer fundsfrom your PayPal account to your bank account. Fees increase for international transactions depending onthe country. PayPal can freeze accounts without warning—which can bedisastrous for a business.
Key Differences
WePay offers "white-label" payments, which means platforms have their own, self-branded payment solution when they partner with WePay without having to become a payment facilitator themselves. PayPal has a similar option called PayPal Payments Pro, but it is pricey.
With respect to chargebacks, WePay charges $15.00 per chargeback (in addition to the amount of the chargeback); $15.00 per ACH return (in addition to the amount of the return); and a $25.00 research fee. PayPal charges a nonrefundable $20 fee whenever a buyer files a chargeback.
WePay's website shows a long list of prohibited activities, for example, adult sites, gambling, auctions, debt, drugs, and many more. PayPal is less restrictive.
WePay Frequently Asked Questions
What Is WePay?
WePay is an online payment service provider based in the United States and controlled by JPMorgan & Chase. It is a digital solution that provides integrated and customizable payment processing APIs to platform businesses such as crowdfunding sites, marketplaces, and small business software companies. PayPal is among its competitors.
Is WePay the Same as PayPal?
WePay is a payment provider for independent software vendors and software platforms. WePay offers "White Label" payments, which is an API that is integrated into a website so that customers don't have to leave the site. If If you want access to an API with PayPal, you need to use PayPal Payments Pro, which throws in a $30 monthly fee 2.9% + $0.30 per transaction. PayPal cannot process Apple Pay or ACH. Conversely, WePay cannot process PayPal payments.
Who Uses WePay?
Users of WePay include crowdfunding sites, such as GoFundMe; event management, such as ConstantContact; accounting and invoicing platforms, such as FreshBooks; and eCommerce sites.
How Do I Get My Money From WePay?
In most instances, a payment is a simple transaction using a credit or debit card. Every payment transaction involves at least three players, but as many as five or six other entities can be involved. This complex sequence is intended to protect all parties and make sure that funds are properly transferred for real and valid transactions and to identify and block fraudulent transactions.
With every credit transaction, a sequence of queries and instructions takes place behind the scenes along two paths. First, card and transaction data are passed to the card-issuing bank to get payment approval and notification of that approval is passed back. Second, when approval is granted, a new process to transmit money is started. Finally, the money is transferred with fees deducted from the payment by participants in the process. The funds will appear in the receiver's WePay account.
Is WePay Safe to Use?
WePay claims to provide 100% coverage of a platform’s payments-related risk, which means the company will cover fraud losses and chargebacks. WePay secures payment and customer information and maintains compliance with payment card industry safety standards.
The Bottom Line
WePay specializes in white label payments where platforms have their own, self-branded payment solution. If all you want is the ability to process debit, credit, and ACH payments, WePay is a good way to go in the digital payments space. However, if you intend to build an e-commerce business, PayPal might be the better option because it provides more support. However, that support comes in the form of higher fees.
WePay gives you access to their API that integrates their payments into your website. Customers don't have to leave your site, and the entire experience can be seamless. This can be bad, however, if you don’t have any coding experience or developer resources.
In terms of pricing and fees, PayPal costs the same for businesses processing less than $3,000 per month. Past that, you may need a merchant account, which is likely to increase your monthly costs. Both WePay and PayPal could do better on the customer service front, and it can prove difficult to contact the customer service department of either group.
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32e17e37a29a99782a2868b0660e6cbd | https://www.investopedia.com/articles/personal-finance/042514/home-appraisal-your-key-successful-refinance.asp | Home Appraisals: Your Key to a Successful Refinance | Home Appraisals: Your Key to a Successful Refinance
When you consider refinancing your mortgage, a lot will hinge on the appraisal. If your home’s value is so low that you’re underwater, you can’t refinance. If your appraisal value puts your home equity at less than 20%, you’ll get stuck paying for private mortgage insurance (PMI) or having to bring some cash to the table to do a cash-in refinance. What’s more, you might not get the lowest interest rate available, as lenders consider borrowers with less equity to be riskier.
If you’re thinking about refinancing, you should understand the appraisal’s essential role in the process and how you can prepare your home, which is key to achieving a successful refinance.
Key Takeaways A homeowner who plans to refinance a mortgage must first get an appraisal, which typically costs $300 to $500 for a single-family home. The appraiser, an independent professional, thoroughly evaluates a home—in person—and examines similar properties before arriving at a valuation for the home. Freshening up a home's paint job, clearing away clutter, and pointing out hidden features may help increase the odds of a high appraisal. A homeowner who believes an appraisal is too low can appeal, but the chance of an appraiser changing it is very slim unless there is substantial evidence that the value is off.
1:36 The Home Appraisal: Key To A Successful Refinance
What Is a Home Appraisal?
An appraisal is conducted by a licensed or certified professional, whose opinion of a home’s value is provided as a disinterested and unbiased third party. The appraiser gets paid for providing the service of valuing your home but has no skin in the game when it comes to whether you’re able to refinance as a result of the value they arrive at.
In a refinance transaction, the appraisal protects the bank by ensuring that it doesn’t lend the borrower more money than the property is worth. If the property later goes into foreclosure for any reason, the lender wants to be able to resell the property and get its money back.
An appraiser visits your home for between 30 and 60 minutes to measure its dimensions, examine amenities, and evaluate the overall condition, both inside and out, taking photos of the exterior, the garage, and every interior room.
They then examine the transaction records of properties similar to yours—ideally, properties in your neighborhood that have sold recently. Based on the home visit and these records, the appraiser arrives at a professional opinion of how much your property would sell for if you put it on the market. The bank uses this value—along with your income, assets, and credit history—to determine how much it will lend you and at what terms.
How Home Appraisals Work
Two types of refinancing transactions do not require an appraisal—the Federal Housing Administration’s (FHA) streamline refinance and the Veterans Administration’s (VA) Interest Rate Reduction Refinance Loan. All other types of refinancing transactions require an appraisal.
Federal regulations dictate how lenders and appraisers must behave throughout the appraisal process. After the housing crisis, the government wanted to increase appraiser independence to prevent the possibility of lending based on inflated home values. The Dodd-Frank Act and the Truth in Lending Act now require appraisals to be “conducted independently and free from inappropriate influence and coercion.”
Because federal appraiser independence requirements define a narrow scope of acceptable interactions between an appraiser and loan officers, lenders are afraid that having any contact with appraisers could be construed as violating the law by attempting to influence the appraiser’s opinion before the appraisal is completed.
Lenders err on the side of caution to avoid the possibility of severe disciplinary action. Loan officers and brokers cannot select the appraiser, nor can the borrower.
The lender often will order the appraisal through a third party called an appraisal management company (AMC). “Using an AMC is not a requirement, but that is the common approach to appraiser independence,” says Joe Parsons, senior loan advisor at Pinnacle Capital Mortgage of Dublin, Calif., a regional banker, and mortgage broker.
Many lenders—especially small, local ones—have direct referral relationships with a small group of individual appraisers and may not use an AMC. Or the lender may have an in-house independent appraisal department. The appraiser should have local knowledge of the area (called market competence). Appraisers are expected to follow the Uniform Standards of Professional Appraisal Practice issued by the Appraisal Foundation, a professional organization, though these standards are not law.
Who Pays for the Appraisal?
Appraisal fees vary by state, but appraisers must charge customary and reasonable fees for the area. Expect to pay the lender $300 to $500 for an appraisal of a standard single-family home. “More complex properties are more expensive because the inspection takes more time,” says Erin Benton, vice president of Decorum Valuation Services, an appraisal management company in Ellicott City, Md.
Your must pay for the appraisal regardless of whether your loan closes because the appraiser still did the work. While the fee may seem worthwhile if it enables you to get the refinancing terms you want, it can seem like a waste of money if a low appraisal means you can’t refinance.
Since lenders cannot discuss a home’s value or anticipated “target value” with an appraiser at the time of assignment, homeowners are not able to get an appraiser’s ballpark estimate of whether their home is likely to appraise high enough for them to refinance before they pay for the service, as they could before the new regulations. At best you can search for recent comparable sales on websites such as Zillow and Redfin, but these records may be inaccurate or incomplete.
Another option is to ask a real estate agent to do a comparative market analysis and provide you with printouts of recent comparable sales from the Multiple Listing Service, says Bruce Ailion, an agent with RE/MAX Greater Atlanta. Ask nicely, as the agent will be doing you a favor—unlike with a home sale, he or she won’t earn any commission from your refinance.
What Do Appraisers Look For?
The value the appraiser gives your home largely depends on the recent sales prices of comparable properties. All the same, you’re mistaken if you think you can’t do anything to help your home come in at the high end of its potential appraisal value.
Getting your home appraised is similar to going on a first date, says Ailion. While you have no idea how your partner will like or evaluate you, being well-groomed substantially improves your chances of being deemed attractive. “So it is with the appraisal,” he says. “Your property should be neat and clean, uncluttered, and easy to inspect. Any pets should be contained and smell masked. You don’t want the appraiser to be rushed to get out.”
Here’s how certified residential appraiser Ralph J. Vaccari, president of Vaccari & Associates in Marblehead, Mass., describes his approach to the job: “Generally, it should not matter if your lawn is not mowed or your house is a mess. It’s important to realize, though, that a dirty or unkempt home can increase its appearance of wear and tear beyond normal, and that condition can, in fact, affect value.”
According to Vaccari, the appraiser cares about the following:
Exterior and interior condition Total room count, with value added to bedrooms and bathrooms Functionality, including interior room design and layout, and functional obsolescence Improvements to kitchens and baths, windows, the roof, and the home’s systems (heating, electrical, and plumbing) over the previous 15 years that make the home more up to date, functional, and livable by today’s standards Condition and age of the home’s plumbing, electrical, and HVAC systems Exterior amenities, such as detached garages, decks, and porches. Pools and hot tubs will also add to a home's value Location Unappealing features, such as an exterior appearance that’s inconsistent with the rest of the neighborhood will detract from the value
It’s a good idea to point out features that may not be immediately apparent that could potentially add to the appraiser’s opinion of value, says Parsons.
Mortgage lending discrimination is illegal. If you think you've been discriminated against based on race, religion, sex, marital status, use of public assistance, national origin, disability, or age, there are steps you can take. One such step is to file a report to the Consumer Financial Protection Bureau or with the U.S. Department of Housing and Urban Development (HUD).
Preparing for an Appraisal
Preparing your home for an appraiser’s visit, however, is different from preparing it for a prospective buyer. “When you are opening your home to a prospective buyer, you want to trigger emotional responses,” says Parsons. “As a seller, you want that buyer to be able to imagine how happy and comfortable they will be there. No such subjective considerations apply to an appraisal.”
Vaccari adds that a homeowner wouldn’t make a change, such as ripping up old carpet to reveal hardwood floors, for an appraisal, as he or she might for a seller. But freshening up the home’s paint, both inside and out, can help, as can clearing away clutter to allow full access and viewing of all areas of the home, including the basement. Finally, says Ailion, “If the tax records are incorrect, point that out.”
Otherwise, Vaccari says, it is the appraiser’s responsibility to discover problems and ask questions where warranted.
If You Secure a Good Appraisal
Congratulations! You have completed a major step toward refinancing your mortgage and saving money. Now it’s time to go through the next series of steps with your loan officer. If you’ve secured a favorable appraisal, use a tool such as the Consumer Financial Protection Bureau's mortgage calculator to research interest rates on a refinanced mortgage for a home of your value. Being armed with these figures can give you some bargaining power when you meet with your lender.
If you want to appeal a low appraisal, you will have a better chance of succeeding if you offer strong data to support your case.
Getting a Second Opinion
Sometimes the appraiser’s value is not only lower than you’d like it to be but lower than you think your home is worth. “An appraisal is just one person’s opinion,” Ailion says. “While this is a trained and educated opinion, as with all professions, there are good and bad practitioners.”
Given the strict federal regulations governing the process, is there anything you can do about a low appraisal? “If the homeowner does not like the value of the appraisal, they can write a letter of appeal to the lender or AMC, but the chance of an appraiser changing his or her opinion is very slim unless the homeowner has overwhelming evidence that the value is off,” says Benton.
Your appeal will only succeed if you can show that the appraiser made a significant error, such as listing the square footage or room count incorrectly; that they disregarded an important amenity such as a pool or spa; or disregarded a comparable sale that might support a higher value while “cherry-picking” a less-suitable comparable that would indicate a lower value, says Parsons.
You might also make a case, says Ailion, by pointing out that the comparables used were in an inferior school district or an inferior subdivision that did not have a homeowner’s association with swimming pools and tennis courts, that all the comparables were distressed or real estate owned sales, or that they have other negative externalities influencing value, such as being on a busy street.
“Explain why they are different and not equal to yours," says Ailion. "You must prove something is in error with the comparables selected.”
Your Options When the Appraisal Is Low
If you are not able to successfully challenge a low appraisal, how do you ensure that the refinance goes through? If the appraisal pegs you at less than 80% equity, you will not meet the necessary 80% loan-to-value ratio and will need to pay PMI unless you choose to do a cash-in refinance.
If the appraisal puts you at less than 80% equity, you can do a cash-in refinance, adding enough money at the closing to get to that magical 80% loan-to-value ratio and avoid PMI.
You can choose to pay the PMI for now. If home values continue to rise, you can later provide comparable sales to your mortgage servicer and ask it to remove PMI, even if you have not yet paid down much of your principal.
If the appraisal reveals that you’re underwater, however, all you can do is wait for the market to improve, unless you qualify for a program such as the High LTV Refinance Option from Fannie Mae or a Freddie Mac Enhanced Relief Refinance. HARP (Home Affordable Refinance Program), which had offered government assistance to homeowners who were underwater, expired at the end of 2018.
The Bottom Line
Understanding how the appraisal process works will give you the best chance of getting an appraiser to assign the highest possible value to your property. Appraisals don’t always come in at the values borrowers hope for, and they are a human process with room for subjectivity and mistakes. You can appeal a low appraisal, but you’ll only succeed with strong enough data to back up your claim.
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ff95fd63800ab90705549084ea7608aa | https://www.investopedia.com/articles/personal-finance/042815/can-my-retirement-social-security-be-garnished.asp | Can My Retirement Pay and Social Security Be Garnished? | Can My Retirement Pay and Social Security Be Garnished?
Can your Social Security and retirement pay be garnished? In a word: No. But in two words: Well, maybe. And in a phrase: Depends on who’s doing the garnishing.
First, They See You in Court
Here’s how garnishing works: A creditor—let’s call him Mr. Potter—hauls you to, say, the Bedford Falls Courthouse and wins a judgment against you. Let's call you George. We're guessing there are a few fans of the movie It's a Wonderful Life out there.
Key Takeaways The U.S. Treasury can garnish your Social Security benefits for unpaid debts such as back taxes, child or spousal support, or a federal student loan that’s in default. If you owe money to the IRS, a court order is not required to garnish your benefits. You’ll have to shell out 15% of your Social Security for back taxes and as much as 65% for alimony or child support owed.
Then the creditor asks the judge for an order to garnish your wages, bank account, and any other assets you may have, such as that dusty painting in the hideous old frame, even though the thing's been in the Bailey family forever.
Where You Can Win Some
What Pottercorp (aka “They”) can’t take is federal benefit payments. We’re talking Social Security, veteran’s benefits, Railroad Retirement, and Office of Personnel Management retirement. Especially if “They” (aka Pottercorp) has issued you a credit card or auto loan, and your payment is late.
Creditors holding medical bills, along with personal and payday loans, are also prohibited from garnishing these benefits. That’s according to Section 207 of the Social Security Act. It’s the law.
If you’re not ordered to pay back taxes or child support, then the bank has to review the history of your account (or accounts) for two months prior to receiving the garnishment order. If your Social Security or other protected benefits have been directly deposited into your accounts within that two months—the so-called look-back period—the bank must protect the funds up to the total of the direct deposits. You’re free to spend it on anything, including a flaming rum punch for Clarence the Angel.
And You Can Lose Some
Not so fast, George Bailey! If you’re still working, that mean old Mr. Potter—your legitimate creditor—can garnish your wages and, depending on the state you live in, other allowable assets you have, like the house, car, or even that moldy old Monet. Welcome to It's-a-Not-So-Wonderful-Life renting a shack in Pottersville.
Here Come the Feds
However, say you owe the federal government back taxes. Well, the Treasury Department is colder and nastier than Mr. Potter. You’re going to fork over 15% of your Social Security. If you owe alimony or child support, they can get involved in that too: You may have to fork over as much as 50% to 65%. The IRS doesn't require a court order to garnish your benefits, either—it can do it on its own.
Once your bank, the Bailey Building and Loan, receives the garnishment order, it has two business days to conduct a review and identify your accounts. If the order is to collect federal taxes or child support, the Building and Loan may freeze those accounts, even if the money is from Social Security.
If you make an arrangement with the IRS to pay off back taxes, it will no longer garnish your Social Security benefits as long as you follow through.
Plans set up under the Employee Retirement Income Security Act (ERISA), like 401(k)s, are generally protected from judgment creditors. The fact that 401(k) plans legally belong to your employer also offers some protection from federal tax liens.
Overdue-Student-Loan Blues
George Bailey didn’t go to college and didn’t need to take out a federal student loan. But if he had and then became delinquent on it, the government could take up to 15% of the outstanding debt. But it would have to keep its sticky fingers off the first $750 of his monthly benefits.
For example, if he got $850 in benefits, 15% of that would be $127.50. But since he can't be given less than $750, the most that can be taken is $100. This rule applies only to federal student loans, not private loans.
The Bottom Line
If you are in danger of having your Social Security or retirement income garnished and it doesn’t seem like it's going to end happily like the movie It’s a Wonderful Life, get legal help. The American Bar Association provides links to free and low-cost lawyers who can advise you.
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0f01bd6b7ec0b876b715cc39279f3a8c | https://www.investopedia.com/articles/personal-finance/042815/story-behind-apples-success.asp | How Did Apple Get So Big? | How Did Apple Get So Big?
On August 2, 2018, Apple made history by becoming the first publicly traded U.S. company to be valued at $1 trillion, as measured by market capitalization. In August of 2020, the company broke records again by becoming the first U.S. company to reach a $2 trillion market cap. Apple (AAPL) hovered just below that level as of early October 2020.
Since 2010, Apple has been one of the most valuable companies in the world. It stayed at or near the top for many years after that. The reason Apple is so highly valued is simple on the surface: the company makes popular products with generous margins. However, a curious reader who digs a little deeper will find mistakes, overthrown CEOs, and much more. In this article, we’ll look at the story behind Apple’s success.
Key Takeaways Steve Jobs and Steve Wozniak co-founded Apple in 1977, introducing first the Apple I and then the Apple II.Apple went public in 1980, but Jobs eventually left—only to triumphantly return several years later.Apple's success lies in a strategic vision that transcended simple desktop computing to include mobile devices and wearables.Both performance and design are key drivers of the Apple brand and its ongoing success.
From Apple I to Steve Jobs 2.0
Understanding why Apple became so successful requires looking back at its origins and history. From the first Apple computer (the Apple I, which was just a motherboard without a monitor or keyboard) to the latest iWatch, here is a brief overview of the chronology of Apple's innovative products.
Apple, founded by Steve Jobs and Steve Wozniak, started out in the business of kit computers with the Apple I. This initial production run is popular as a collectible now. However, it will mainly be remembered for helping the company get enough capital to build the Apple II in 1977—the same year Apple officially incorporated. Wozniak primarily built both these computers, and Jobs handled the marketing side.
The Apple II drove the company’s revenue until the mid-1980s, despite the hardware remaining largely the same. Apple attempted updates like the Apple III and the Apple Lisa, but these failed to catch on commercially. Although the Apple II was still selling, Apple as a company was in trouble when the 1980s began.
The 1984 release of the Macintosh was a leap forward for Apple. However, in the intervening years between the Apple II and the Macintosh, IBM had caught up. Disappointing revenues from the Macintosh and internal struggles for control led to Apple's board dismissing Jobs in favor of John Sculley (some sources say Jobs decided to leave).
In any case, Jobs worked on NeXT Inc. after leaving Apple. Under Sculley, Apple started growing its product lines.
Sculley served as Apple’s CEO until 1993. During those years, Apple enjoyed strong growth. It created new products, including laser printers, Macintosh Portable, PowerBooks, the Newton, and much more. Apple products continued to sell at a premium, so the margins were generous for Apple and led to strong financial results. During the same period, however, cheaper computers running Windows were serving a far larger middle market, while Windows also benefited from powerful Intel processors. By comparison, Apple seemed to be stalling.
Two CEOs, Michael Spindler and Gil Amelio, failed to turn the tide against the relentless spread of systems running Microsoft operating systems. Microsoft's new operating system, Windows, was becoming the industry standard, and the Apple Macintosh was showing signs of age. Amelio eventually set about addressing some of these issues by buying NeXT Inc.—the company run by none other than Apple founder Steve Jobs.
The Second Chance CEO
From the Macintosh onward, Apple has either been a reflection of or a reaction to Steve Jobs. In the Macintosh, Apple was trying to create a machine that made computing simple and enjoyable. In particular, Jobs was out to create a user experience that would convince everyone to buy a Mac.
Jobs believed a truly revolutionary product couldn't depend on customers’ needs and wants. He thought customers could not understand the value of a product until they were actually using it. Unfortunately, Jobs was ahead of his time in 1985—precisely 12 years ahead of his time.
When Jobs overthrew Amelio and took Apple's reins once more in 1997, the hardware had caught up to his vision for all things digital. He launched the iMac with a strong marketing campaign featuring the "Think Different" slogan. Although Jobs is often given credit for spending the money and time on marketing, excellent marketing and branding have always been key to Apple's growth. The real difference between the iMac and all the products preceding it was the beauty and design.
It was not a tower and monitor setup like every other PC on the market. The iMac almost looked like a racer’s helmet photographed at speed, a colorful blur sweeping back from the screen. In 1998, the iMac was the most aesthetically pleasing machine on the market. It was the computer no one knew they wanted until they saw it. It was elegant and, thanks to the OS upgrade, it was user-friendly.
The iEcosystem
The iMac was just the start as Apple released a string of hit products that reflected the new focus on elegance and user experience. These included the iBook, the iPod, the iPhone, the MacBook Air, and the iPad. The iPod became the category killer in MP3 players, and the iPhone essentially launched and then dominated the smartphone market. The iPad then somehow convinced millions of people that they needed yet another screen to consume content.
All these devices were perceived as being better in quality—and certainly in design—than competing products. Jobs was relentless on design and indoctrinated the entire culture of Apple into the art of design.
The other point he brought Apple back to in his second tenure is the ease of use. After a few minutes of using the wheel on an iPod or tapping icons on an iPad, these new forms of control became part of the simplicity that makes Apple appealing. Now every product update from Apple is anticipated by the media and the general public, in addition to the fans that the company had from the start.
More importantly, all of these products moved Apple into a new business model of creating a tight ecosystem of hardware, software, and content. Apple didn't create iTunes to be a simple program for users to transfer MP3s onto iPods, as was the case with many other manufacturers' offerings. Instead, the company attacked the concept of an album by breaking them into songs that would be sold individually at a fraction of the whole album's price.
The same process took place with software. Many popular computer functions could be done on Apple's mobile devices using stripped-down apps—available, of course, on Apple's App Store.
Being the first big mover into many of these markets, Apple built the stadium and set the rules for the game. When you pay for books, movies, apps, or music on an Apple device, Apple gets a cut. Of course, this business doesn't generate as much revenue as selling an iPhone or an iPad, where the markup is much more generous.
That said, it is the content you buy through Apple that locks many people into buying Apple again when their i-devices get old. So the content part of the ecosystem pays off for Apple in the short-term and the long-term. Once you migrate to Apple because of the design or the simplicity, it is the integration with your content that keeps you there.
The Post-Jobs Era
Steve Jobs died in 2011 of pancreatic cancer. Serving as CEO until shortly before his death, Steve Jobs turned the reins of the company over to Tim Cook. The post-Jobs era at Apple has nonetheless been a success by most measures. Apple continued to be the dominant tech company in both market share and stock price.
Some analysts feel that without Jobs as the creative force, Apple has become solely iterative in its tech releases rather than transformative. The major release of the post-Jobs era has been the Apple Watch. The firm also created Apple TV devices and launched the Apple TV+ streaming video-on-demand service to go with it.
In the absence of a groundbreaking new product, Apple is heavily reliant on the iPhone's production cycle to power its financial success. Critics say that without Steve Jobs at the helm, Apple has lost its innovative edge in recent years and is riding on its brand to drive sales.
The company still produced some of the best products with the most integrated ecosystem. However, the gap between Apple and competitors like Samsung and Google was no longer as pronounced as it once was. Indeed, companies like Samsung were increasingly poised to take the lead when it comes to product innovation in some categories.
Apple in the 20s
Apple's market capitalization reached new highs in 2020, as the company enjoyed some successes and set new goals for the future. The company's revenue from wearable technology, such as the Apple Watch, set new records. Apple's revenue from services also rose to record highs during the coronavirus pandemic, as contactless payment options like Apple Pay became more popular.
Apple also announced two major changes to the Mac in 2020. First, Apple is transitioning the Mac away from Intel processors to its own custom-designed chips. Apple's new processors are based on the ones used in iPhones and iPads, making them more energy-efficient. The new chips have the potential to give Apple's laptops longer battery life and more processing power than PCs.
Secondly, Apple is changing the macOS so that developers can make iOS and iPadOS apps run on the Mac without modifications. That will dramatically expand the number of apps available on the Mac and make it more competitive with PCs.
The Bottom Line
There is a fairly good chance that you are reading this article either on an Apple device or with one near you. Maybe you are doing it on a MacBook Air while listening to an iPod touch and occasionally glancing at the newest Apple Watch for alerts from your iPhone. The reason behind that—and behind Apple’s success—is that its devices are beautiful to look at and a pleasure to use. That's why the company has such a powerful brand and lofty stock valuation.
The marketing helps, and the media and fan frenzy never hurt. However, it is the quality of the products that drive Apple's success. Add to this the iEcosystem that makes it much easier to stay with Apple than try something new, and you have a company with what Warren Buffett called an economic moat. It should not be surprising that Buffett invested heavily in Apple.
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dbec05f0580564ec5850066241995277 | https://www.investopedia.com/articles/personal-finance/042914/top-pension-systems-world.asp | Best Countries for Pensions and Retirement | Best Countries for Pensions and Retirement
The quality of pension systems available to workers varies greatly across the globe. The Netherlands has the best system, while the U.S. isn't even close to the top, according to the Melbourne Mercer Global Pension Index 2019.
The index, published by the Monash Centre for Financial Studies in collaboration with global consultant Mercer, compares 37 retirement income systems, covering a wide variety of pension policies and practices, in addition to suggesting ways that each system can be improved to provide more adequate retirement benefits.
Key Takeaways The Netherlands, Denmark, and Australia have the best pension systems. The U.S. ranks far from the top. Common challenges pension systems around the world need to address include increasing the average retirement age due to rising life expectancy, encouraging more savings, and limiting access to funds before retirement.
Pensions are a unique and valuable type of retirement plan, in which an employer makes contributions to a pool of funds and invests it on the employee's behalf, with the earnings on said investments generating income to the worker upon retirement. In the U.S., more and more employers in the private sector have switched from traditional pension plans to 401(k)s.
Here, we take a look at the results of the latest index, released in Oct. 2019, which ranked the pension systems of 37 countries representing more than 63% of the world's population.
The Top 3 Pension Systems
The index compares retirement income systems and rates each based on its adequacy, sustainability, and integrity. The index value for each country is represented by a value between zero and 100, with higher values signifying more favorable pension systems.
The average score for the 37 countries included in the 2019 index was 59.3. The top three countries with the highest overall index grade were:
1. Netherlands
With an index value of 81, the Netherlands received the highest score for 2019, ranking first for the second year in a row.
Its retirement income system uses a flat-rate public pension and a semi-mandatory occupational pension linked to earnings and industrial agreements. Most of the Netherlands' employees are members of these occupational plans, which are industry-wide defined-benefit plans. Earnings are based on a lifetime average. The index found that the overall index value could be improved by:
Increasing household savings and reducing household debt Increasing workforce participation among older workers as life expectancy rises
2. Denmark
Denmark came in a close second with an overall score of 80.3.
Worldwide, pension systems are under more pressure than ever before because of rising life expectancy, increased government debt, uncertain economic conditions, inflation risk, and a shift towards defined-contribution plans.
Denmark has a public basic pension scheme, a supplementary pension benefit tied to income, a fully funded defined-contribution plan, and mandatory occupational schemes. The index noted that Denmark's score could be improved by:
Increasing household savings and reducing household debt Introducing measures to protect the interests of both spouses in a divorce Increasing workforce participation among older workers as life expectancy rises
3. Australia
Australia ranked third with an overall index value of 75.3 in 2019. Its pension system includes a means-tested, government-run Age Pension, mandatory employer contributions paid into private-sector plans (primarily defined-contribution plans), and voluntary contributions from employers, employees, and the self-employed paid into private-sector plans. Here's what Australia could do to improve its overall index value:
Increasing the net replacement rate in the government pension for average income earners Increasing household savings and reducing household debt Mandating that part of the retirement benefit be taken as an income stream Increasing workforce participation among older workers as life expectancy rises Increasing the pension age as life expectancy rises
How the U.S. Scored
The U.S. tied with Malaysia, ranking 16 with a score of 60.6, which was better than 2018 when it came in at 19 with a score of 58.8. The U.S. retirement income system includes Social Security and has voluntary private pensions, which can be occupational or personal.
The index had numerous recommendations for what the U.S. system could do to improve its overall index value:
Raise the minimum pension for low-income retirees Adjust the level of mandatory contribution for median-income earners Improve the vesting of benefits and maintain the value of benefits through to retirement Limit access to funds before retirement Require that part of the retirement benefit be taken as an income stream Increase Social Security funding Raise the state and private pension age to receive benefits Provide incentives to delay retirement and increase workforce participation among older workers Provide access to group retirement plans for workers who don't have an employer-sponsored plan
How All Countries Ranked
The following chart shows the 37 countries included in the index and how their pension systems scored and ranked in 2019:
Global Pension System Ranking by Country Rank Country 2019 Index Score 1 The Netherlands 81 2 Denmark 80.3 3 Australia 75.3 4 Finland 73.6 5 Sweden 72.3 6 Norway 71.2 7 Singapore 70.8 8 New Zealand 70.1 9 Canada 69.2 10 Chile 68.7 11 Ireland 67.3 12 Switzerland 66.7 13 Germany 66.1 14 United Kingdom 64.4 15 Hong Kong 61.9 16 United States 60.6 16 Malaysia 60.6 18 France 60.2 19 Peru 58.5 20 Colombia 58.4 21 Poland 57.4 22 Saudi Arabia 57.1 23 Brazil 55.9 24 Spain 54.7 25 Austria 53.9 26 South Africa 52.6 27 Italy 52.2 27 Indonesia 52.2 29 Korea 49.8 30 China 48.7 31 Japan 48.3 32 India 45.8 33 Mexico 45.3 34 Philippines 43.7 35 Turkey 42.2 36 Argentina 39.5 37 Thailand 39.4 Source: Melbourne Mercer Global Pension Index 2019
Index Scoring Explained
The Melbourne Mercer Global Pension Index is calculated using the weighted average of three sub-indices. The average sub-index scores for all 37 countries were 60.6 for adequacy, 69.7 for integrity, and 50.4 for sustainability. This is what each sub-index takes into consideration:
Adequacy Sub-Index
The adequacy sub-index, which represents 40% of a country's overall index value, looks at how a country's pension system benefits the poor and a range of income earners. Additionally, the adequacy measure considers the system's efficacy and the country's household savings rate and rate of homeownership.
Sustainability Sub-Index
The sustainability index, which represents 35% of a country's overall index score, considers factors that can affect how sustainable a country's retirement fund system. Indicators include the level of coverage of private pension plans, government debt, and economic growth.
Integrity Sub-Index
The integrity sub-index makes up 25% of a country's overall index value. It examines the communication, costs, governance, regulation, and protection of pension plans within that country. It also considers the quality of the country's private sector pensions because, without them, the government becomes the only pension provider.
The Bottom Line
The Melbourne Mercer Global Pension Index includes recommendations to improve each country's retirement-income systems, acknowledging that no universal solution exists because each system has evolved from unique economic, social, cultural, political, and historical circumstances.
Common challenges in pension systems around the world include the need to increase the average retirement age to reflect increasing life expectancy, encourage more savings, and increase access to private pensions for the self-employed. Pension systems globally should also limit access to funds before retirement and improve transparency to improve participants' understanding and confidence.
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1a2ef6e1b4b15b2a547703b23721266a | https://www.investopedia.com/articles/personal-finance/042914/when-grad-school-worth-it.asp | When Is Grad School Worth It? | When Is Grad School Worth It?
For some people, going to graduate school means the difference between being stuck in a rut and advancing their career. For others, a graduate degree may have minimal effect on their earnings and career trajectory. Attending school may still be worth it intellectually, but try not to decide whether to go without doing the analysis and the math. Go ahead and ask yourself the following questions, then get out your calculator.
Key Takeaways Before you apply for graduate school, make sure you weigh out your options to see if it makes sense.Ask yourself whether continuing education fits with your career goals.Research how much you'll be able to earn after you graduate. Be sure to analyze and forecast the financials.
Does Graduate School Fit With Your Career Goals?
One of the first and most important steps you should take is to decide what kind of job you want and how that job relates to the degree you are considering.
Will you be comfortable with the lifestyle, day-to-day activities, hours, and responsibilities associated with the job? Shadowing professionals, interning, and conducting informational interviews can give you a better idea of what the job is really like. For instance, law school might seem a responsible choice, but will you be happy spending 60 hours a week reading detailed documents? Doing your research before committing to grad school can save you from pigeonholing yourself in the wrong career.
Next, make sure you check out the job requirements in the Bureau of Labor Statistics Occupational Outlook Handbook. This is a comprehensive resource that matches job titles with the skills and education required for that position. In many careers—science, law, medicine—a graduate degree is necessary to move beyond entry-level work. But experience and quality of work are more important than having an advanced degree in other fields like marketing and computer science.
Finally, be sure the school you're considering will get you where you want to go. A master of business administration (MBA) is a classic example where networking and connections are one of the main draws. If your option is a second-tier school, will it give you the kinds of connections you need to rise in the field?
How Much Can You Expect to Earn After Graduating?
Before paying for grad school—especially if it involves taking out big loans—be sure you'll earn enough in the future to make that debt and/or time worth it. Be sure to research these four issues:
Starting salaries for your program's graduates. This information should be available through the universities you are considering or on a number of publicly-available websites.How much do people in the field ultimately earn? Take a look at some of the major salary-information websites like Glassdoor, Payscale, and Salary List to research and learn more.Can graduates find jobs? Research employment statistics for the programs to which you're applying. Will you have easy access to career services and other types of alumni networking support?Translatable skills. Can you expect an oversupply of new graduates with the same degree and skills, or does your career field have a shortage of new hires? Look for an in-depth breakdown of job projections on the Bureau of Labor Statistics (BLS) website.
Websites like Glassdoor and the Bureau of Labor Statistics can give you valuable insight into salaries and job projections.
Analyze and Forecast the Financials
Now it's time to do some math to see the type of financial impact a graduate degree can make versus the cost of obtaining it.
Assess the Cost of the Program
Calculate tuition, cost of living, books, and fees for each program you're considering. Apply for grants, fellowships, and financial aid. Look into working as a teaching assistant, research assistant, or even a resident hall advisor to help reduce expenses. Can you work while you are in school? Will your current employer pay for some of the costs of your degree through its benefits program?
Inquire About Second Chance Scholarships
Not every student who is awarded a scholarship will attend the program. A few weeks after acceptance decisions are announced, call your graduate program to see if they have any recently-available funding—even if you have already been given a scholarship. If you were accepted into other programs, don’t be shy about name dropping to remind them that you are a competitive candidate.
Asking for money may feel uncomfortable, but your school has already decided that they want you. The worst that will happen is that they will say no, while the best-case scenario is free money for one awkward email/phone call.
How Long Will It Take to Payoff?
Consider the amount of money you expect to make the first few years out of graduate school and the long-term earning potential of someone in your field. How long will it take for you to earn enough to pay back your loans?
How Does It Affect Your Earning Potential?
Imagine you are currently making $35,000 per year. You like your job, but there is no option for a promotion within your company. The two-year graduate program you are interested in costs $50,000. After graduating, you expect to start off making $45,000. In an upper-level position, someone with your degree can expect to make $75,000. In the first five years after graduate school, you will have earned $50,000 more than you would have made without graduate school—and that's if you stay at $45,000 with no promotions.
You will also have more doors open to you and larger long-term earning potential. Is it worth it to you to spend two years in school and the next five years working to break even, financially? That's what you have to decide.
The Bottom Line
If you're thinking about graduate school to avoid the real world or because you’re not sure what you should do next, it is probably a better use of time and money to hold off for a few years. Graduate degrees are expensive, hard work, and take a lot of time.
But an advanced degree is about more than money. Graduate school provides you with knowledge, skills, a network, and a wider set of career opportunities. Even if you don’t end up using your new degree or working in the field, having it will increase your value as an employee in the future. You may also want to think about the intangibles as you do your research and add up the costs.
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a399ff474b4e589a0f2af56622002ce7 | https://www.investopedia.com/articles/personal-finance/043015/top-financial-advisor-scams-and-how-avoid-them.asp | Top Financial Advisor Scams and How to Avoid Them | Top Financial Advisor Scams and How to Avoid Them
Bernie Madoff, the once highly regarded investment advisor turned Ponzi swindler, exemplifies the dark underbelly of the financial advisor field. At first, Madoff appeared to be the perfect financial professional for his clients. The rich and elite had no idea their stellar returns were funded by incoming Madoff investors. If the wealthy elite can get snookered by a financial advisor, what’s to protect the average individual from the same fate? Beware of financial advisor scams and learn how to protect yourself.
Key Takeaways While there are many honest financial advisors, there are also many unscrupulous ones engaging in fraudulent behavior; it's important to know the most common ones to look out for.Bernie Madoff has become synonymous with the Ponzi scheme, in which the payment of returns to current investors come from money deposited by new investors; meanwhile, the advisor siphons off some of the money.The affinity fraud targets a group, often in combination with a Ponzi scheme, such as a religious organization or friend group, by convincing the group to go along with a scam because their friends are involved.Other scams include misrepresenting qualifications, such as claiming experience or certifications you don't have or promising unrealistic returns, such as claiming an investment will generate huge numbers.With a "churning" scam, the advisor makes lots of unnecessary trades, which costs the customer in commissions and often results in less-than-stellar investment returns.
Ponzi Scheme
According to the Securities and Exchange Commission (SEC), “A Ponzi scheme is an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors. Ponzi scheme organizers often solicit new investors by promising to invest funds in opportunities claimed to generate high returns with little or no risk.” The Ponzi scheme is a classic scam and incorporates components of other scams as well. The investment proceeds in this classic scam are simply the new investors' monies doled out to existing clients. Without fail, the initiator of the Ponzi scheme siphons money off to fund an extravagant lifestyle.
Affinity Fraud
The affinity fraud targets a particular group with its ploy, frequently in conjunction with a Ponzi scheme. This scam is effective because we tend to trust other members of our “tribe.” The cohort group might share the same religion, cultural background, or geographic region. This affinity targeting makes gaining new participants in the scam easier because there is a built-in level of trust. To further con the participants, the scammer might belong to the group or pretend to be a member.
The following affinity scam-Ponzi scheme targeted Persian-Jewish community members in Los Angeles. Shervin Neman raised more than $7.5 million for investment in his so-called hedge fund. He promised that the fund invested in foreclosed real estate which would be quickly bought and then resold for a profit. In reality, Neman used the money raised to fund his extravagant lifestyle and pay off new investors.
Misrepresentation Scam
Misrepresentation of credentials is another way financial advisors scam the unsuspecting public. The field of financial planning is ripe for malfeasance because there is not one particular credential or licensing requirement to practice. In fact, there are dozens of financial planning designations such as certified financial planner (CFP), registered investment advisor (RIA), certified public accountant (CPA), chartered financial analyst (CFA) and many more. The public may not be aware of the designations, ethics, or requirements for certification and thus may be receiving advice from someone with no education, experience, or background in the investment advising field. It’s quite easy for someone to hang up a shingle and start doling out advice. The scammer can then close up shop and walk away with the proceeds or swindle the unsuspecting clients with fake products.
Unrealistic Returns
Promising or even guaranteeing higher than market returns for your investment is a common trick. The popular axiom, “if it’s too good to be true, it probably isn’t” is usually accurate. It is unlikely that an advisor can offer a client returns that are unavailable to the rest of the world. This scam preys upon the clients’ greed and dreams of easy money. If an advisor offers or guarantees returns higher than 12-15%, it is likely a scam. For example, over the last 85 years, the U.S. stock market has averaged approximately 9.5%. This return is not a “safe” return, but quite volatile, meaning there were many negative return years over the decades.
In 2012, owners of a Dallas, Texas-based voice over Internet Protocol (VoIP) offered Christian investors, affiliated with a private school, returns as high as 1,000% per year to invest in their company, Usee, Inc. As one would expect, they have been prosecuted by the SEC.
Churning
Many stockbrokers have been charged with the “churning” scam. Since traditional stockbrokers are paid when their clients buy or sell a security, they can be motivated to make unnecessary stock trades to pad their own pockets. The churning scam involves the financial advisor making frequent buy and sell trades, which not only costs the customer in commissions but usually results in sub-optimal investment returns.
There are many other investment scams as well as additional varieties of the schemes mentioned above. Next, find out how to avoid falling prey to a shady investment advisor.
Protecting Yourself
Vet and verify the financial advisor's background. Find out if the advisor has received any disciplinary action or complaints. These websites help uncover unscrupulous advisors: www.finra.org/brokercheck, www.adviserinfo.sec.gov, www.nasaa.org, www.naic.org, and www.cfp.net.
Ask how the advisor is compensated. Is it by the commission, assets under management, fee, or a combination of payment structures? If the potential financial advisor is unclear or hedges when asked about fees, walk away. Ask for the advisor's ADV Part II document which explains the professional's services, fees, and strategies.
When discussing investment ideas and strategies, ask about the advantages and disadvantages of each recommendation. There are no perfect investments, and every financial product has a downside. If the advisor is unclear or you don’t understand the investment, it may not be for you. Although, you may consider gathering a second opinion.
Do not give the financial advisor a power of attorney or ability to make trades without first consulting you. Require every financial action to be cleared with you first. Further, make certain you receive statements not only with the advisor’s letterhead, but also from the custodian, or financial institution which holds your money and investments.
When vetting a potential advisor, it's important to ask for names of satisfied, long-term clients. However, while this is a good idea, in theory, this protection has a downside, as the referrals could be prescreened or friends of the advisor.
The Bottom Line
Do not act in haste. Always take time to think about or “sleep on” a financial decision. An attempt to rush you should be a red flag. If there’s a good opportunity today, it won’t go away tomorrow. Don’t be afraid to walk away if an offer doesn’t seem right.
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b60a4a94e3e6394e6b4212865f0de46c | https://www.investopedia.com/articles/personal-finance/043015/us-vs-china-military-budget.asp | U.S. vs. China Military Spending: Which Is Bigger? | U.S. vs. China Military Spending: Which Is Bigger?
U.S. Military vs. China Military: Which Spends More?
The United States and China are the world's biggest military spenders, but dollar for dollar the U.S. spends far more. It's not only spending more than China, but the U.S. spends almost as much on its military as the eight other nations on the top 10 list of military spenders combined.
The U.S. spent $649 billion on its military to 2018, according to a report published in 2019 by the Stockholm International Peace Research Institute. That's significantly more than China, second on the list of top military spenders.
Together, the report says, the U.S. and China are responsible for half of the world's military spending. Overall, global military spending is at its highest level since 1988, when reliable figures first became available.
U.S. Military Spending
The U.S. trimmed its military budget for years, but the belt-tightening period seems to be at an end, at least for now. The nation's 2018 spending represents a 4.6% increase, the first since 2010. The additional money is to be spent on a military modernization program that was approved during the Obama administration and is intended to continue for another 20 to 25 years.
Some argue that the U.S. has woken up to find itself no longer the planet's sole military superpower. "For the first time in decades, the United States military apparatus does not possess a clear advantage on the world stage," says DefenseNews.com. "The flattening of the technological landscape and emergence of peer adversaries requires that the U.S. innovate to remain dominant."
China Military Spending
It may come as no surprise that a nation with a 4,000-year history of achievement is unlikely to play second fiddle for more than a couple of centuries.
In 2013, President Xi Jinping coined the phrase "the Chinese Dream" to capture the country's domestic, regional, and global ambitions.
The next century may well be defined in part by the tension between the American dream and the Chinese dream.
China spent $250 billion on its military in 2018, an increase of 83% during the period from 2009 through 2018. The U.S., as noted, spent $649 billion, but that represents a reduction of 17% during the same period.
That was enough for China to take second place on the list, outspending a top 10 that also includes Saudi Arabia, India, France, Russia, the U.K., Germany, Japan, and South Korea.
$18 billion Total Chinese military budget in 1989. The figure rose to $250 billion in 2018.
It could be argued that China actually outspends the U.S. on its military when personnel costs and purchasing power are taken into account. In fact, Army Chief of Staff Mark Milley made that argument in front of a Senate Defense Appropriations Subcommittee in May 2018.
Chinese military spending has risen consistently since at least 1989. The figure for that year was $18 billion.
Key Takeaways The U.S. is the world's top military spender, at $649 billion in 2018. China is a distant second at $250 billion. The two nations together are responsible for half of the world's military spending. The U.S. is increasing its military spending for the first time since 2010.
Special Considerations on Military Spending
Global military spending hit $1.82 trillion in 2018, an overall increase of 2.6% that was largely driven by the U.S. and China.
Some observers may find it surprising that Russia is only number seven on the list of military spenders, behind India and France. The Stockholm Institute notes that, if Russia is spending less, its Eastern European neighbors are spending more in order to stave off the perceived growing threat from the former Soviet Union. Poland increased its budget by 8.9% in 2018, to $11.6 billion, and Ukraine spent 21% more, for a total $4.8 billion. Bulgaria, Latvia, Lithuania, and Romania all increased their military budgets by 18 to 24%.
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9615a50860669830de4d50d6d5ec4ddb | https://www.investopedia.com/articles/personal-finance/050115/getting-mortgage-non-us-citizens.asp | Getting a Mortgage for Non-U.S. Citizens | Getting a Mortgage for Non-U.S. Citizens
For many foreign-born individuals living in the United States, owning a home is one of the cornerstones of the American dream. But there’s a perception among some non-U.S. citizens that there’s no way they can obtain a mortgage, thus creating a huge barrier to that goal. However, according to the National Association of Realtors (NAR), resident foreign buyers—those living in the United States either as recent immigrants or those holding visas for professional, educational, or other purposes—are actually more likely to purchase a home using a mortgage. In their "Profile of International Activity in U.S. Residential Real Estate" published in July 2019, the NAR reported that 67% of resident foreign buyers acquired mortgage financing from U.S. sources.
Certainly, buying a home can present challenges if you’re not a citizen. But as the NAR report shows, the reality is that many lenders are willing to extend credit to non-citizens—even to those without a credit history in the United States. Non-citizens can even qualify for government-insured mortgages, which have the advantage of requiring low down payments. Here we discuss what you need to know to qualify for a home loan in the U.S. if you're not a citizen.
Key Takeaways Owning a home in the U.S. is certainly achievable for non-U.S. citizens, but it comes with a bit of extra work.Obtaining a mortgage can be the trickiest part for a foreigner, and will depend to some extent on their residency status.Generally, it's easier for foreigners to qualify for a U.S. home loan if they are permanent residents with a green card or non-permanent residents with a valid work visa. The Federal Housing Administration (FHA) offers home loans to non-U.S. citizens with the same loan terms as it does other buyers.A good strategy is to establish relationships with banks that have a U.S. presence in order to build up an American credit report history.
Home Ownership and Residency Status
One point to keep in mind is that the requirements for getting a home loan depend in large part on one’s residency status. Most borrowers tend to fall within one of the following groups:
Permanent residents with a green card (Form I-551)Non-permanent residents with a valid work visa (E1, E2, H1B, H2A, H2B, H3, L1 and G1-G4)“Foreign nationals,” whose primary residence is not in the U.S.
Generally, it’s much easier to get a loan if you fall into one of the first two categories. That’s because mortgage giants Fannie Mae and Freddie Mac—which buy the majority of home loans on the secondary market—have pretty much the same guidelines for green card and work visa holders as anyone else. The main caveat is that the lender has to verify the legal residency of the applicant.
However, foreign nationals don’t conform to Fannie or Freddie standards, so lenders have to keep these loans on their own books. Because the bank assumes more risk this way, it’s more likely to require a substantial down payment.
FHA Loans
Keep in mind that the Federal Housing Administration (FHA), which has relatively low credit score requirements and requires a down payment as low as 3.5%, is another option for non-U.S. citizens. It offers the same loan terms as it does to other buyers, provided the borrower shows proof of permanent residency in the U.S.
If you’re a non-permanent resident seeking an FHA mortgage, you have to use the home as a primary residence and supply a valid Social Security number and Employment Authorization Document. This means that the agency does not extend mortgages to non-residents just planning to use the home occasionally.
Documentation Hurdles
The main obstacle to getting any mortgage is proving to the lender that you fit its risk profile. That means providing your employment history, credit history, and proof of income. For U.S. citizens, this is a relatively straightforward process because most have a credit trail in the United States and a backlog of W-2 forms and tax returns that show their earnings over the years.
But things get a little trickier for someone who hasn’t been in the country all that long or doesn't live in the U.S. most of the time. For example, how do you prove your creditworthiness if you don’t have a credit report from the three major bureaus: Equifax, TransUnion, and Experian?
You have a definite advantage if you have an existing relationship with an international bank with branches in the U.S. It will have a record of your finances already, so it may be more willing to take a bet on you, even without an American credit report. Fortunately, the mortgage industry is dominated by large, global banks, so there’s a good chance you’ve had accounts with one of them in the past.
Also, some lenders may be willing to order international credit reports as a substitute for the three major U.S. credit bureaus. However, this can be an expensive process and one that’s generally only available for residents of Canada, the United Kingdom, and Ireland.
If you don’t have a long work history in the U.S., you have another reason to give FHA loans some thought. The FHA accepts non-U.S. tax returns as proof of employment.
Lenders to Consider
Some lenders will make borrowers go through more hoops than others to get a loan, so you can eliminate a lot of headaches by identifying ones that frequently work with non-U.S. citizens. If you’ve done business with an international bank that operates here, that’s probably the place to start.
Credit unions are another alternative. These nonprofit financial service providers tend to offer extremely competitive rates and, depending on their location, may have special lending programs for green card and visa holders.
The Bottom Line
Many banks and mortgage companies offer conventional and FHA home loans to non-U.S. citizens, provided they can verify their residency status, work history, and financial track record. Lenders that work with this population extensively tend to be more flexible with the documentation you need.
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3a60cce84ce9789ed8276b766d74e696 | https://www.investopedia.com/articles/personal-finance/050115/mortgage-vs-student-loan-vs-saving.asp | You Should Pay off These Types of Debts First | You Should Pay off These Types of Debts First
There are few things as disheartening as finding yourself under a massive amount of debt. Unfortunately, that’s an experience many consumers have, whether it’s maxing out credit cards or financing a new home. So, if you have a few extra dollars in your bank account, you should use them to pay down your loans ahead of schedule, right?
In reality, choosing to eliminate your debt is not so clear-cut. Though some loans are inherently toxic to one’s financial picture, other forms of credit are relatively benign. When you consider the alternate ways in which you can spend your excess cash, it might do more harm than good to use it to pay more than your monthly minimum.
Key Takeaways If you have several loans or debts to repay, deciding which ones to pay off first can be a difficult task. Try to prioritize high-interest debts as well as those that will most impact your credit score negatively if you fall behind. This prioritizing based on objective metrics can be hard as people grow emotionally attached to paying off certain types of more benign debts like a home mortgage or student loan first.
Debts to Eliminate Now
Which loans to pay off first? Well, some kinds of debt should be eliminated as quickly as possible, like credit card debt. Why? Because the math is radically different when you look at credit card debt, which for many consumers comes with a double-digit interest rate. The best strategy for credit card balances is to get rid of them as quickly as you can.
In addition to ridding yourself of a big interest charge, ditching credit card debt will likely also improve your credit score. About a third of your all-important FICO score is tied to how much you owe creditors—and revolving credit card balances are weighted against you even more than other types of debt.
By lowering your “credit utilization ratio”—how much you owe in relation to your available credit—you can boost your score and improve your chances of getting the loans you truly need. A good rule of thumb is to borrow no more than 30% of your total credit line. If you have a significant amount of debt that falls into this category, you may need to consider debt relief options.
Another form of credit that can hurt your finances is an auto loan. While the interest rate on these is fairly low these days, it’s the length of these loans that can be a concern. According to Experian Automotive, the average car loan lasts nearly six years. That’s well beyond the basic warranty period for most manufacturers, so you could be on thin ice if something happens to your vehicle and you still have a loan balance.
It may be a good idea to retire that automotive debt while you’re still under warranty.
Debts to Pay Down Later
Should I pay off my mortgage? Which types of debt are better to pay down later? These are questions that can be answered—most financial experts agree that student loans and mortgages belong in the above category. That's in part because some mortgages carry a prepayment penalty if you retire the loan early. But perhaps an even bigger consideration is how inexpensive these loans are compared to other forms of debt. That’s especially true in a low-interest-rate environment.
Many homeowners today are paying between 3.5% and 4% on their mortgage. Many federal student loans for undergraduates currently charge a similar rate, at 4.53% on the loan.
Those rates are even cheaper when you consider that interest on both of these loans is generally tax-deductible. Let’s assume that you have a 30-year mortgage with a fixed interest rate of 4% on the loan. Even if you don’t have any other loans with a higher interest rate, you might not want to pay more than the minimum amount due each month.
Why? Because your extra dollars could be put to better use. Economists refer to this as an "opportunity cost." Even if you’re on the extremely conservative side, investing that money into a diversified portfolio gives you a very good chance of returning more than 4% on it.
Tax-Advantaged Accounts
Here’s where we should remember the old adage: past performance does not guarantee future results. And certainly, stocks can experience volatility in the short-term. But the point is that over time the market has shown a tendency to return well over 4% during the long haul.
If you’re putting your spare money into tax-advantaged retirement accounts such as a 401(k) or a traditional IRA, the benefit of investing your spare money is even stronger. That’s because you can deduct your contributions to these accounts from your taxable income.
When you accelerate student loan and mortgage payments, you’re doing the opposite; you’re using post-tax dollars to reduce tax-deductible interest. So while there may be an emotional benefit to getting rid of these loans, it very often doesn’t make sense from a purely mathematical standpoint.
Consider Creating an Emergency Fund
While paying down high-interest-rate loans is an important goal, it shouldn’t necessarily be your first priority. Many financial planners suggest your first goal should be creating an emergency fund that can cover between three to six months’ worth of expenses.
It’s also wise to avoid pre-paying your loans at the expense of a retirement account. Except for specific circumstances, taking funds from your 401(k) early will trigger a costly 10% penalty on the entire withdrawal.
Forgoing contributions to your employer’s retirement plan can be just as perilous, especially if it offers a matching contribution. Let’s say your company offers a match of 50 cents on every dollar you put into the account, up to 3% of your salary.
Until you hit the match, for each dollar you pay to a lender instead of your 401(k), you’re essentially throwing away a third of your possible investment (50 cents of the total $1.50 contribution). Only after you’ve contributed enough to tap all the matching funds available should you pay more than the monthly minimum payment, even on credit card debt.
The Bottom Line
There are certain types of debt that you should eradicate as soon as you can (except at the expense of employer matches to tax-advantaged retirement accounts). But with low-interest rate loans, including student loans and mortgages, you’re normally better off diverting extra cash into a tax-advantaged investment account.
If you have enough left over to max out your allowable annual contributions for an IRA and 401(k), any extra cash beyond that amount should go into a regular investment account rather than toward paying off low-interest loans. You'll net more money in the end.
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d7f7c566eea67e86369afa2b902e729c | https://www.investopedia.com/articles/personal-finance/050214/credit-vs-debit-cards-which-better.asp | Credit Cards vs. Debit Cards: What's the Difference? | Credit Cards vs. Debit Cards: What's the Difference?
Credit Cards vs. Debit Cards: An Overview
Credit cards and debit cards typically look almost identical, with 16-digit card numbers, expiration dates, and personal identification number (PIN) codes. Both can make it easy and convenient to make purchases in stores or online, with one key difference. Debit cards allow you to spend money by drawing on funds you have deposited at the bank. Credit cards allow you to borrow money from the card issuer up to a certain limit in order to purchase items or withdraw cash.
You probably have at least one credit card and one debit card in your wallet. The convenience and protection they offer are hard to beat, but they have important differences that could substantially affect your pocketbook. Here's how to decide which one to use to meet your spending needs.
Key Takeaways Credit cards give you access to a line of debt issued by a bank while debit cards deduct money directly from your bank account. Credit cards offer better consumer protections against fraud compared to debit cards linked to a bank account. Newer debit cards offer more credit-card-like protection, while many credit cards no longer charge annual fees. When comparing credit cards or debit cards linked to a bank account, it's important to consider the fees and benefits.
What Is a Credit Card?
A credit card is a card issued by a financial institution, typically a bank, and it enables the cardholder to borrow funds from that institution. Cardholders agree to pay the money back, with interest, according to the institution's terms.
Credit cards are issued in four categories:
Standard cards simply extend a line of credit to their users for making purchases, balance transfers and/or cash advances. Rewards cards offer cash back, travel points, or other benefits to customers, based on how they spend. Secured credit cards require an initial cash deposit that is held by the issuer as collateral. Charge cards have no preset spending limit, but often do not allow unpaid balances to carry over from month to month.
Credit card users can reap cash, discounts, travel points, and many other perks unavailable to debit card holders by using rewards cards. Rewards can be applied on a flat-rate basis or at tiered rates. For example, you might have a card that offers unlimited 2 miles per dollar on purchases and another that offers 3 miles per dollar for travel spending, 2 miles per dollar for dining and 1 mile per dollar for everything else. You could then use miles earned to book future travel arrangements.
Tip When choosing rewards cards, pay attention to whether rewards can expire and what options you have for redeeming them.
Benefits of Using Credit Cards
Credit cards can offer certain advantages over debit cards, though they can also have some downsides. Here's a closer look at the pros and cons of spending with credit cards.
Build Credit History
Credit card use is reflected on your credit report. That includes positive history, such as on-time payments and low credit utilization, as well as negative items such as late payments or delinquencies. Your credit report information is then used to calculate your credit scores. Responsible spenders can raise their scores with a history of expenditures and timely payments and by keeping their card balances low relative to their card limits.
Tip Many credit card companies offer free credit score monitoring and tracking as a card perk so you can keep an eye on your progress when building credit.
Warranty and Purchase Protections
Some credit cards may also provide additional warranties or insurance for items purchased—above those the retailer or brand is offering. If an item bought with a credit card becomes defective after the manufacturer’s warranty has expired, for example, it is worth checking with the credit card company to see if it will provide coverage. Or you may have purchase and price protection built in to help you replace items that are stolen or lost or refund price differences when the item you purchased is sold elsewhere for less.
Fraud Protection
Credit cards offer much greater protection than debit cards in most cases. As long as the customer reports the loss or theft in a timely manner, their maximum liability for purchases made after the card disappeared is $50. The Electronic Fund Transfer Act gives debit card customers the same protection from loss or theft—but only if the customer reports it within 48 hours of discovery. After 48 hours, the card user's liability rises to $500; after 60 days, there is no limit.
Other Credit Card Benefits
The Fair Credit Billing Act allows credit card users to dispute unauthorized purchases or purchases of goods that are damaged or lost during shipping. But if the item was bought with a debit card, it cannot be reversed unless the merchant is willing to do so. What is more, debit card theft victims do not get their refund until an investigation has been completed.
Credit card holders, on the other hand, are not assessed the disputed charges; the amount is usually deducted immediately and restored only if the dispute is withdrawn or settled in the merchant's favor. While some credit and debit card providers offer zero-liability protection to their customers, the law is much more forgiving for credit card holders.
If you need to rent a car, many credit cards provide some sort of waiver for collisions. Even if you want to use a debit card, many car rental agencies require customers to provide credit card information as a backup. The only way out for a customer may be allowing the rental agency to put a hold of perhaps a few hundred dollars on a bank account debit card as a form of surety deposit.
Cons of Using Credit Cards
The main drawbacks of using credit cards center on debt, credit score impacts and cost.
Spending Can Lead to Debt
When you make purchases with a credit card you're spending the bank's money, not your own. This money has to be repaid, with interest. At the very least, you're required to make the minimum payment due to your card each month. Racking up high balances on multiple cards could make it difficult to keep up with monthly payments and put a strain on your budget.
Credit Score Impacts
Paying your bill on time and keeping balances on credit cards low can help your FICO scores. But misusing credit cards could hurt your credit history if you get into the habit of paying late, max out one or more of your cards, close down older accounts or apply for new credit too often.
Tip Set up credit card alerts to notify you of payment due dates and card balances so you can pay on time and avoid maxing out your credit limit.
Interest and Fees
Since a credit card is essentially a short-term loan you'll have to pay back what you spend with interest. The interest rate and the fees the credit company charges are used to calculate your annual percentage rate (APR). The higher the card's APR, the more it will cost you to carry a balance from month to month.
In terms of fees, you should be aware of whether your card charges an annual fee, foreign transaction fee, balance transfer fee, cash advance fee, late payment fee or a returned payment fee. As a general rule of thumb, the better a credit card's rewards program is and the more benefits it offers, the higher the annual fee will be.
What Is a Debit Card?
A debit card is a payment card that makes payment by deducting money directly from a consumer’s checking account, rather than via loan from a bank. Debit cards offer the convenience of credit cards and many of the same consumer protections when issued by major payment processors like Visa or MasterCard.
There are also two types of debit cards that do not require the customer to have a checking or savings account, as well as one standard type:
Standard debit cards draw on your bank account. Electronic Benefits Transfer (EBT) cards are issued by state and federal agencies to allow qualifying users to use their benefits to make purchases. Prepaid debit cards give people without access to a bank account a way to make electronic purchases up to the amount that was pre-loaded on the card.
Frugal consumers may prefer to use debit cards because there usually are few or no associated fees unless users spend more than they have in their account and incur an overdraft fee. (The no-fee advantage does not hold for prepaid debit cards, which frequently charge activation and usage fees, among other costs.) By contrast, credit cards generally charge annual fees, over-limit fees, late-payment fees, and a plethora of other penalties, in addition to monthly interest on the card’s outstanding balance.
1:08 How Debit Cards Work
Benefits of Using Debit Cards
Debit cards can have both upsides and downsides, just like credit cards.
Avoid Debt
A debit card draws on money the user already has, eliminating the danger of racking up debt. Retailers know people usually spend more when using plastic than if they were paying cash. By using debit cards, impulsive spenders can avoid the temptation of credit and stick to their budget. This can help keep you out of high-interest debt.
Fraud Protections
In addition, some debit cards—particularly those issued by payment processors, such as Visa or MasterCard—are starting to offer more of the protections enjoyed by credit card users.
The key is reporting fraud or theft as soon as you realized it's occurred. Your liability for fraudulent purchases is determined by the time frame in which it's reported. Waiting too long to let the bank know that your card has been used for unauthorized purchases could result in you being held responsible for any and all losses.
No Annual Fee
While many credit cards charge an annual fee, debit cards don't. There's also no fee for withdrawing cash using your debit card at your bank's ATM. Credit cards, on the other hand, can charge a cash advance fee plus a steep interest rate for that convenience. You may, however, pay other fees to maintain your checking account.
Important Cash advances from a credit card don't have a grace period; instead, interest begins accruing right away.
Cons of Using Debit Cards
Similar to credit cards, the biggest downsides of using debit cards center on credit score impacts and cost.
No Rewards
Unless you have a rewards checking account, you won't earn any points, miles or cash back on purchases made with your debit card. Since rewards can save you money, depending on how you redeem them, you could be missing out if you only spend with a debit card.
Won't Build Credit
Building good credit means demonstrating to lenders that you can responsibly repay money you borrow. When you're spending with a debit card that's linked to your bank account you don't have the opportunity to do that. So using a debit card alone won't help you establish or build a credit history.
Fees
While debit cards don't have an annual fee, you may pay other fees to have a checking account. Those can include monthly maintenance fees, overdraft fees if you overspend from your account, returned item fees and foreign ATM fees if you use your debit card at another bank or financial institution's machine.
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f633c00d3ed0853225c9a9f976d6e69e | https://www.investopedia.com/articles/personal-finance/050415/8-energyefficient-home-design-ideas-invest.asp | 8 Energy-Efficient Home Design Ideas for Your Home | 8 Energy-Efficient Home Design Ideas for Your Home
Being energy-efficient simply means using less energy to do the same things you normally do like heating and cooling, turning on the lights, or cooking and refrigerating your food. But why is this so important? Conserving energy helps you reduce the amount of energy waste you produce, which has many benefits.
Becoming energy-conscious has a number of environmental benefits. You may not believe it, but even the smallest change can have a major impact on greenhouse gas emissions and other kinds of pollutants. This, in turn, can lead to a drop in water usage. But you'll also see a change to your bottom line—notably, a drop in your utility bills. That's because energy-efficient innovations are much cheaper to use. Since these tools require much less energy to use, utility service demand and usage drop, putting more money in your pocket.
So how much do you spend every month on your utility bills? If you're spending a lot of money to keep the lights on and the water running, maybe it’s time to look at different ways to help you save. Depending on your budget, you have plenty of options to cut energy costs at your disposal—from minor tweaks to major home renovations. Rather than continuing to throw money at the utility companies, consider these ways to lower your bills.
Key Takeaways Becoming energy-efficient reduces energy waste and utility bills.Replacing appliances and fixtures with energy-efficient options and using window treatments are two of the easiest ideas.Consider ceiling fans to reduce heating and cooling costs and smart landscaping to give your exterior a cost-saving boost. Insulation and flooring help keep heat in your home. If you can, try adding a skylight or even a cool roof to your home.
Replace Fixtures
Lighting fixtures and kitchen appliances use a lot of energy, so it's only natural that they would be the first place to start. Consider replacing bulbs with their CFL and LED alternatives to increase efficiency. LED and CFL bulbs last longer and consume less energy than incandescent and fluorescent bulbs. They burn just as brightly and don’t give off as much heat or make a buzzing noise when they’re on. This is also the cheapest option on the list, so it definitely makes sense.
The kitchen is one of the most frequently used rooms in the home, so you should optimize its efficiency. If you have the budget, replace your kitchen appliances with Energy Star alternatives. Consider these facts:
Energy Star refrigerators are 9% more efficient than those that meet minimum federal efficiency standards.Standard-sized Energy Star dishwashers cost roughly $35 to run each yearEnergy Star washing machines use 25% less energy and 33% less water than regular washers
You may also qualify for an Energy Star rebate from your state when you replace certain appliances. Be sure to check out the Energy Star website for more details.
Use Window Treatments
Here's another very easy and inexpensive option. While some of your window treatments may have been installed for decor, they also serve a functional purpose. They can help reduce energy costs in your home. Depending on the type of window treatments you have, you can use them to reduce how much air you losing or keep cool air inside your home. Window treatments also help prevent the sun from heating up rooms, allowing you to use the air conditioner less on sunny days. Consider installing blinds, shutters, curtains, or even drapes.
To optimize your energy cost reduction, go for hard window treatments like shutters and blinds over soft treatments. These are generally more effective at keeping heat and air inside than fabric curtains and drapes. Or double up and layer your window treatments—leaving blinds closed with a curtain to cover them can give you style and sustainability.
Hang Ceiling Fans
Ceiling fans help cut utility costs by acting as an alternative to your HVAC system. While running the fan still requires electricity, it’s far less expensive than using a heating or cooling system.
Fans are more economical and use about the same amount of energy as a light bulb. They push all the hot air to the ceiling in the summer and if you change the rotation in the winter, all the cool air goes towards the ceiling while warm air is pushed downward.
This can help you save around 40% on your cooling bill in the summer and about 10% on your heating costs in the winter. The cost to install a ceiling fan is around $140 to $355, according to Home Advisor. This, of course, depends on how many you install and the electrical wiring involved.
Landscape
You can also save energy with smart landscaping. This involves techniques to make your yard look great while helping you save money. Consider:
planting native, low-maintenance plants that you don't have to overwaterplanting trees on the side of your home that faces the sun to cut down on cooling costsmaintaining your yard so it doesn’t become a liability in the winter
Hiring a licensed contractor ensures any energy-efficient upgrades you can't do on your own are installed properly.
Check Your Insulation
Proper insulation is essential for maintaining your home’s temperature during the summer and winter when the HVAC system is running. If your attic or wall insulation is inadequate, has holes, or is missing entirely, you must replace it.
There are various types of insulation available to trap air and prevent it from leaking out. The right kind for your home depends on your budget. You’ll need to consult with an insulation contractor to do the installation since some types of insulation—blown-in insulation in particular—can be harmful to the lungs.
Install New Flooring
Flooring also helps maintain your home’s temperature and cut energy costs. Carpeting and rugs trap heat and keep your home warm during the winter. Consult a flooring professional who can help you choose options to reduce your energy costs. It’s an inexpensive way to cut costs compared to projects like gutting your siding and replacing it with an energy-efficient alternative.
Add a Skylight
Skylights are a great focal point for any home. But there's also an economic benefit by adding one. They increase the efficiency of your home, improve your heating, interior lighting, and air ventilation.
The U.S. Department of Energy (DOE) recommends that a skylight be:
No bigger than 5%t of the floor area in a room with many windows.No bigger than 15% of the floor area in a room with almost no windows.
But skylights aren't for everyone. You'll have to make sure the existing design of your home can accommodate one. Consult with a professional before you think about cutting out a piece of your ceiling and putting in a new window.
Install a Cool Roof
This doesn't mean you'll have the most talked-about roof on the block. A cool roof reflects more sunlight, allowing less heat to be absorbed than a regular roof. They work the same way clothing does—if you wear darker clothing, you'll absorb more light, which makes you hotter. Wearing brighter clothing deflects more light and can keep you much cooler. This principle helps keep the temperature of your roof down, which lowers the overall temperature of your home. So you can keep that air conditioner down, too. You'll also be able to cool areas of your home that tend to get hot like your garage.
Manufacturers generally design and construct material from paint that is highly reflective . Alternatively, these roofs can also be manufactured with a very reflective tile, shingle, or sheet covering. Roofing installers use certain types of materials when installing a cool roof.
You can install a cool material on just about any style of roof. And a cool roof isn't more expensive than a standard roof. If it is, it will pay back quickly. In fact, the Department of Energy estimates that you may save as much as 65 cents per square foot over the life of the roof when you buy an Energy Star-rated cool roof. Just keep your location in mind—make sure it makes sense to have one. If you live in a place with tough winters, this may not be the option for you. Or check out the Cool Roof Calculator through the Environmental Protection Agency (EPA) website to find out how much you can save.
The Bottom Line
You can help the environment by becoming more energy-efficient. Replacing bulbs and appliances, doing smart landscaping, and installing a cool roof can help keep greenhouse gas emissions low. But if that isn't incentive enough, think about the money you'll save in utility bills over the long run. Just a few extra dollars now mean big savings in the future.
Disclaimer: The opinions expressed are those of Home Advisor and are subject to change at any time due to changes in the market or economic conditions. The comments should not be construed as a recommendation of any individual holdings or market sectors. This material does not constitute any specific legal, tax or accounting advice. Please consult with qualified professionals for this type of advice.
Investopedia and Home Advisor have or may have had an advertising relationship, either directly or indirectly. This post is not paid for or sponsored by Home Advisor, and is separate from any advertising partnership that may exist between the companies. The views reflected within are solely those of Home Advisor and their Authors.
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b5efc13973e0e1901eefe9087ca657f6 | https://www.investopedia.com/articles/personal-finance/050415/best-websites-find-job-tourism.asp | Best Websites for Tourism Jobs | Best Websites for Tourism Jobs
The tourism industry has experienced sustained growth over the past six decades and has become one of the largest and fastest growing economic sectors in the world.
If you work in the tourism industry, you help support the billions of people who travel at home and abroad each year for business and/or pleasure. The industry is divided into different career areas, and jobs can be found in accommodation, food and beverage services, recreation and entertainment, transportation, and travel services. Jobs range from operational (e.g., tour guide) all the way up to executive-level positions (e.g., hotel general manager). Looking for a job in tourism? Here, we take a look at five websites that can help you get started.
Cool Works
CoolWorks.com’s mission is to connect adventurous job seekers with employers and one another. Many jobs listed on CoolWorks are hospitality and guest service industry-oriented and include jobs in national parks, resorts, ranches, guest lodges, restaurants, summer camps, campgrounds, ski resorts, retreat and conference centers, outfitters, tour/travel and guiding companies. Non-service industry employers also post jobs, including Conservation Corps, organic farms and gardens, Alaska fisheries, wilderness therapy programs, outdoor educational programs, and non-profits. Search jobs by category, state, season or national park.
Hcareers
Hcareers.com is an online hotel, restaurant, and hospitality job board for positions in North America. Headquartered in Centennial, Colo., Hcareers is the recommended job board of the American Hotel & Lodging Association (AHLA), the National Restaurant Association (NRA), and the Canadian Restaurant and Foodservice Association (CRFA). Search for “all hospitality” jobs, or narrow your results to the casino, conference/meeting/events, cruise ship, food service, golf-country club, hotel, restaurant, retirement community or travel/tourism. You can also refine your search by specifying a position, skills or company, and by entering a location (city, state or zip).
GoAbroad.com
Based out of Fort Collins, Colo., GoAbroad.com is an international education and experiential travel website that was created to link prospective travelers with organizations providing international opportunities. Search for jobs by country and by type, including tourism, hospitality, sports, recreation, parks, and hotel/restaurant/hospitality. The website also posts opportunities to study, volunteer, intern and teach abroad.
Hospitality Online
HospitalityOnline.com lists thousands of jobs in hospitality, including those in hotels, casinos, restaurants, and clubs. Headquartered in Seattle, Wash., Hospitality Online’s employment database is updated daily to provide current information. Major employers that list jobs include Hampton, Hilton, Hyatt, Marriott, and Wyndham. Search jobs by category, title and state/city/zip. You can also search recently posted jobs and jobs by brand (employer).
ResortJobs
ResortJobs.com features jobs with ski and snowboard resorts, camps, national parks, cruise ships, restaurants, spas, and hotels. Headquartered in Chatham, Mass., ResortJobs.com also provides career research, tools/tips, articles, and advice, as well as an eNewsletter that offers career news and links to employment opportunities with some of its top employers. Search jobs by keyword, country, city, and state; or by top 10 jobs and featured employers, including Crowne Plaza, MGM Resorts and Universal Studios.
Bottom Line
Worldwide, international tourism receipts reached nearly $1.7 trillion (yep, that’s trillion) during 2019, according to the most recent data available from UNWTO. Millions of people around the world work in the tourism industry, behind the scenes, and on the front lines, to support the billions of people who travel each year for business and pleasure.
The websites listed here are only a few of the places online to search for jobs in tourism. Online aggregators like Monster.com and Indeed.com also post jobs (try entering “travel and tourism” in the search box, or a specific job title – like “chef” – to find jobs). Remember, you can also look for job postings on employer-specific employer websites if you have a company (or companies) in mind. Outdoor adventure company Nantahala Outdoor Center (www.noc.com), for example, named “One of the Best Outfitters on Earth” by National Geographic, maintains an updated list of both seasonal and year-round jobs open at its main campus and various outposts throughout the Southeast.
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38906d0feb82dda5533c511838ee4134 | https://www.investopedia.com/articles/personal-finance/050515/financial-considerations-buying-tiny-house.asp | Financial Considerations of Buying a Tiny House | Financial Considerations of Buying a Tiny House
Did an episode of the TV show “Tiny House Nation” get you thinking about massively downsizing your living space? Or maybe you haven’t yet bought a house and want to opt-out of the typical 2,000-plus square foot home in the suburbs and all the ongoing work and expenses that come with a place that size.
Whether it’s simplicity, saving money, or an alternative lifestyle you seek, a tiny house could help you meet those goals. Here, we’ve laid out the main financial considerations in choosing a tiny house – one that’s just 100 to 400 square feet all told.
(For more, see: Tiny House Movement: Making Market Opportunities)
Key Takeaways The tiny house phenomenon is an increasingly popular trend, with homes on the order of 100s of square feet are being offered to consumers and DIYers.The tiny house itself can run you from $10,000 to $100,000 depending on materials, footprint, accessories, and amenities, which can be paid in cash or financed through specialty mortgage companies.You will also need to purchase land appropriate for your new tiny house, but you may only need a fraction of an acre.Of course there will also be ongoing costs including maintenance, utilities, and property taxes.
Buying One New
The up-front cost of a tiny house depends on its size, finishes, and amenities, as well as whether you build it yourself, have one built for you or buy a pre-owned house. Expect to pay anywhere from a few thousand dollars to more than $70,000.
The best-known purveyor of tiny houses is the Tumbleweed Tiny House Company, founded by Jay Shafer in 1999 and based in Colorado Springs, Colo. The company sells four tiny house models that it will build for you: the Elm, the Cypress, the Farallon, and the Roanoke. They range in size from 164 to 225 square feet and are designed to sit on trailer beds and function like RVs. Each base model comes in a variety of sizes and floor plans; prices range from $69,000 for a 164-square-foot Cypress model or $57,000 for the 174-square-foot Roanoke model to $78,000 for a 204-square-foot Elm, and $77,000 for the 225-square-foot Farallon.
Numerous options are included in the base price, but certain options add slightly to the cost, such as board-and-batten siding, front steps, replacing a window with a side door or adding a screen door to your front door. Other options, such as dormers, skylights, a polyurethane-sealed interior or propane electric light energy for off-the-grid living, add to the cost significantly. Tiny house delivery is $1,160 if you live in Colorado and increases to as much as $4,560 for the East Coast. Regardless of the house model, the trailer to put your tiny house on costs another $4,000 to $6,000, based on trailer length. Tumbleweed will also sell you plans so that you can build the house yourself.
Tiny Home Builders, based in DeLand, Fla., and founded by Dan Louche, who built his first tiny house in 2009, will also sell you plans for a tiny house. If you want something between total DIY and a finished product, the company will sell you a shell of a tiny house that includes the trailer, framing and sheathing, and Rain & Ice Shield wrap and metal roofing. For a bit more money, your shell can include the windows, siding and trim, and electrical and plumbing rough-in. Both shells require you to finish the interior at an additional cost.
Tiny Home Builders will also completely build a tiny house for you, right down to the appliances, which include air conditioning, an induction cooktop, a microwave, and a tankless water heater. Basic shells start at $15,700 for a standard, 12-foot model; prices top out at $68,000 for a completed 28-foot house with dormers. There are plenty of sizes and price options in between.
Build It Yourself or Buy Pre-Owned
You might be able to cut your up-front costs significantly by buying a tiny house plan and building the house yourself. You’ll need to be confident about your construction skills and have hundreds of hours of spare time. Plans for any of Tumbleweed's four models cost $759. In addition, Tumbleweed sells a how-to DVD for $60 and streams 3D tours on the website.
The biggest costs of DIY, besides your time, are materials and tools. Tumbleweed says you can expect to spend a minimum of $10,000 to build one of its houses yourself using recycled materials. There’s also an in-between option that Tumbleweed calls the Amish Barn Raiser, where Tumbleweed builds the structure for $13,000 to $16,000 and you finish it at additional cost. The additional cost will depend on the materials you choose to complete the work.
You could also buy a pre-owned tiny home. One place to find listings for existing tiny homes is TinyHouseListings.com. At the time of writing, there were hundreds of listings nationwide, dozens of which were priced below $30,000.
Finding Land
You’ll need land to put your tiny house on. How much land you want, where that land is located and whether you rent or buy the land will determine its cost. Most cities’ zoning laws won’t let you purchase a piece of land to put such a small dwelling on, so you’re most likely looking at renting, not owning, the land under your tiny house. The American Tiny House Association website is a good place to start learning about the local regulations that apply to tiny homes.
If your tiny house is on a trailer and local laws allow homeowners to park trailers on their property, you may be able to rent land from a traditional homeowner for a few hundred dollars a month. However, municipalities that allow homeowners to park trailers on their property don’t necessarily allow people to inhabit those trailers as a primary residence, so make sure to learn about the local laws before you park your house. If frequent travel is part of your tiny house lifestyle, you may be able to park your house at various campsites, as long as you don’t stay longer than the maximum number of days a site allows. A trailer park or mobile home park might be another option, but height and other restrictions sometimes rule out this option. If you already own land that will legally and logistically accommodate your tiny house, your land costs will be zero.
Financing a Tiny House
While tiny houses are much less expensive than traditional homes, unlike a traditional home, you can’t get a mortgage to buy one. Your best bet might be a recreational vehicle loan or travel trailer loan from a credit union if your tiny house meets the criteria to be classified as an RV or travel trailer. A Waco, Texas-based company called Rock Solid Funding specializes in helping consumers find these loans, with terms ranging from one to 15 years and interest rates ranging from 5.99% to 18.95%.
Another alternative is a personal loan, but it will have a much higher interest rate than a mortgage would. If your tiny house is cheap enough, you might be able to charge it to one or more credit cards, but the interest payments will be expensive. No mortgage also means no mortgage-interest tax deduction, and a credit card or personal loan interest is not tax-deductible.
If you have and will continue to own a traditional home, you could use a home equity loan or line of credit to finance your tiny house; the interest would then be tax-deductible. However, you’d be putting your primary home up as collateral, meaning you could be foreclosed on if you aren’t able to make the loan payments.
To finance a tiny house, you’ll need good credit, meaning a score of at least 700, to get an unsecured loan, and OK credit, 640 or better, to get a secured loan. The better your credit, the lower your interest rate.
Saving up and buying your tiny house with cash is the cheapest option. If you must use financing, here’s a chart that will give you a rough idea of how much different options cost.
Sample Traditional Home vs. Tiny House Financing Costs for a Borrower with Excellent Credit $250,000 traditional mortgage $60,000 tiny house loan with RV or trailer financing $60,000 tiny house loan with low-interest credit card financing $60,000 tiny house loan with home equity loan financing $60,000 tiny house loan with personal loan financing Interest rate 4.00% 6.00% 11.00% 7.60% 9.00% Maximum term 30 years 15 years 15 years 20 years 5 years Monthly payment $1,193.54 $506.31 $681.96 $487.84 $1,253.19 Total interest $179,673.77 $31,135.80 $62,752.80 $57,081.60 $15,191.40 Total principal + interest $429,673.77 $91,135.80 $122,752.80 $117,081.60 $75,191.40 Sources: Bankrate, Wells Fargo and Rock Solid Funding loan calculators and interest rates as of April 24, 2015.
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Ongoing Costs and Incidentals
Heating and cooling bills will be significantly lower than for a traditional home since you’re changing the temperature of a much smaller space. Consider the tiny home’s insulation before you buy or build; a well-insulated home will be more comfortable and cost less to heat and cool. Electricity will also cost less since tiny homes don’t have the space for tons of energy-hogging appliances.
You won’t have the enormous property tax bills that come with traditional home ownership, but if you live in a state with personal property taxes, you’ll likely pay an annual personal property tax on your tiny house as an RV or trailer. You may be able to deduct the personal property tax on your federal tax return if you itemize your deductions. But without the massive expense of mortgage interest, you might not have enough deductions to come out ahead from itemizing and end up taking the standard deduction.
A couple of other costs some tiny-home owners find themselves with are fines for violating local housing and zoning laws and monthly storage-space rental for excess personal belongings.
The Bottom Line
There’s much more to tiny house ownership than the potential to save lots of money. It’s about simple living, freedom, environmental stewardship – and living life to the fullest in accordance with your personal value system. Living in a tiny house might give you more money to have life experiences or more time to enjoy non-work activities.
The trade-offs include a lack of privacy and solitude if you share your tiny house with family; being generally perceived as strange for choosing an alternative lifestyle; and the headaches of dealing with laws that weren’t designed with tiny houses in mind. The financial considerations are just the beginning of deciding whether to become a tiny house owner. It's a larger life decision than most moves to new housing. Research it thoroughly before taking the leap.
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7ef222bb201edba22256a877d9656890 | https://www.investopedia.com/articles/personal-finance/050515/how-calculate-beta-private-company.asp | How to Calculate the Beta of a Private Company | How to Calculate the Beta of a Private Company
Beta as an Indicator
A company’s beta is a measure of the volatility, or systematic risk, of a security, as it compares to the broader market. The beta of a company measures how the company’s equity market value changes with changes in the overall market. It is used in the capital asset pricing model (CAPM) to estimate the return of an asset.
Beta, specifically, is the slope coefficient obtained through regression analysis of the stock return against the market return. The following regression equation is employed to estimate the beta of the company:
Δ S i = α + β i × Δ M + e where: Δ S i = change in price of stock i α = intercept value of the regression β i = beta of the i stock return Δ M = change in the market price e = residual error term \begin{aligned} &\Delta S_i = \alpha + \beta_i \times \Delta M + e\\ &\textbf{where:}\\ &\Delta S_i=\text{change in price of stock }i\\ &\alpha=\text{intercept value of the regression}\\ &\beta_i=\text{beta of the }i \text{ stock return}\\ &\Delta M=\text{change in the market price}\\ &e = \text{residual error term} \\ \end{aligned} ΔSi=α+βi×ΔM+ewhere:ΔSi=change in price of stock iα=intercept value of the regressionβi=beta of the i stock returnΔM=change in the market pricee=residual error term
Such a regression analysis can be conducted for listed companies because historical stock-return data is used. But what about private companies?
Due to the lack of market data on the stock prices of private companies, it is not possible to estimate stock beta. Therefore, other methods are required to estimate their beta.
Calculating Beta From Comparable Public Companies
In this approach, we first need to find the average beta of the publicly-traded companies that generate income from similar operations as the private company. This will be a proxy for the industry average levered beta. Second, we need to unlever the average beta using the average debt-to-equity ratio for these comparable companies. The final step is to re-lever beta, using the private company’s target debt-to-equity ratio.
Assume we want to estimate the beta of an illustrative energy services company with a target debt-to-equity ratio of 0.5, and the following companies are the most comparable companies:
Comparable Companies, as of year-end 2014 Beta Debt Equity D/E Halliburton Company ( HAL) 1.6 7,840 16,267 0.48 Schlumberger Limited. ( SLB) 1.65 10,565 37,850 0.28 Helix Energy Solutions Group Inc. ( HLX) 1.71 523.23 1653.47 0.32 Superior Energy Services, Inc. ( SPN) 1.69 1,627.84 4079.74 0.40 Averages Weighted average beta 1.64 Weighted average D/E 0.34
The equity-weighted average beta of the four companies is 1.64. This is close to the arithmetic average of about 1.66. The chosen method to find the average beta may depend on the specifics of the data and size range of the comparable companies.
For instance, if there are one very large company and three very small companies, then a weighted average method will be biased toward the beta of the large company. In this particular example, however, we can take the weighted average beta as it is close to the arithmetic average, which gives equal weight to each company’s equity.
The next step is unlevering the average beta. For this, we need the average debt-to-equity ratio for these companies. The weighted average debt-to-equity ratio is 0.34.
β u = β L 1 + ( 1 − T ) × D E = 1 . 6 4 1 + ( 1 − 0 . 3 5 ) × 0 . 3 4 = 1 . 3 4 3 \begin{aligned} \beta_u &= \frac{\beta_L}{1 + (1 - T) \times \frac{D}{E}} \\ &= \frac{1.64}{1 + (1 - 0.35) \times 0.34} \\ &= 1.343 \\ \end{aligned} βu=1+(1−T)×EDβL=1+(1−0.35)×0.341.64=1.343
Thus, we get the unlevered beta of 1.343.
Where D/E is the average debt-to-equity ratio of the comparable companies, T is the tax rate, Bu the unlevered beta, and BL the levered beta.
In the final step, we need to re-lever the equity using the target debt-to-equity ratio of the private company, which equals 0.5.
β L = β U × [ 1 + ( 1 + T ) × D E ] = 1 . 3 4 3 × [ 1 + ( 1 − 0 . 3 5 ) × 0 . 5 ] = 1 . 7 8 \begin{aligned} \beta_L &= \beta_U \times [1 + (1 + T) \times \frac{D}{E}] \\ &= 1.343 \times [1 + (1 - 0.35) \times 0.5]\\ &= 1.78 \\ \end{aligned} βL=βU×[1+(1+T)×ED]=1.343×[1+(1−0.35)×0.5]=1.78
In this example, the beta of the illustrative private company is higher than the average levered beta due to a higher target debt-to-equity ratio.
This method has certain pitfalls, including the fact that it neglects the difference between the size of the private company and that of the public company. Most of the time, publicly-traded companies are much larger in size compared to private ones.
Earnings Beta Approach
Usually, listed companies are large companies that operate in more than one segment. Therefore, it may be problematic to find a comparable firm whose beta would adequately represent the business beta of the private company being valued. For instance, Apple Inc. (AAPL) has a diverse set of operations, including personal computers, smartphones, tablets, and other items. This company would likely be poorly comparable to a private company that has a single operation, such as smartphone production.
When it is difficult to obtain reliable comparable beta, a company’s earnings beta can be used as a proxy for the levered beta. In this method, the company’s historical earnings changes are regressed against the market returns. An appropriate market index can be used as a proxy for the market. For instance, if the company is operating in the U.S. market, the S&P 500 can be used as a proxy.
Beta obtained from historical data needs to be adjusted to make sure that it reflects the company’s expected future performance. To reflect the mean-reverting feature of beta (beta tends to revert to one in the long run), we need to estimate adjusted beta using the following equation:
β adj = α + ( 1 + α ) × β h where: α = smoothing factor β h = historical beta β adj = adjusted beta \begin{aligned} &\beta_{\text{adj}} = \alpha + (1 + \alpha) \times \beta_h \\ &\textbf{where:}\\ &\alpha=\text{smoothing factor}\\ &\beta_h=\text{historical beta}\\ &\beta_{\text{adj}}=\text{adjusted beta}\\ \end{aligned} βadj=α+(1+α)×βhwhere:α=smoothing factorβh=historical betaβadj=adjusted beta
The smooth factor can be derived through complex statistical analysis based on historical data, but as a rule of thumb, the value of 0.33 or (1/3) is used as a proxy.
The earnings beta approach also has some pitfalls. First, private companies do not usually have extensive historical earnings data for reliable regression analysis. Second, accounting earnings are subject to smoothing and accounting policy changes. Therefore, these may not be appropriate for statistical analysis, unless necessary adjustments have been made.
Bottom Line
The valuation of private companies using CAPM can be problematic because there is no straightforward method for estimating equity beta. To estimate the beta of a private company, there are two primary approaches.
One approach is to obtain a comparable levered beta from an industry average or from a comparable company (or companies) that best mimics the current business of the private company, unlever this beta, and then find the levered beta for the private company using the company’s target debt-to-equity ratio. Alternatively, one can find the beta of the company’s earnings and use it as a proxy for the company after appropriate adjustments are made.
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3eccb561b5c7217541a7023de19742a0 | https://www.investopedia.com/articles/personal-finance/050515/how-swift-system-works.asp | How the SWIFT System Works | How the SWIFT System Works
SWIFT for Electronic Funds Transfers
Need to transfer money overseas? Today, it is easy to walk into a bank and transfer money anywhere around the globe, but how does this happen? Behind most international money and security transfers is the Society for Worldwide Interbank Financial Telecommunications (SWIFT) system. SWIFT is a vast messaging network used by banks and other financial institutions to quickly, accurately, and securely send and receive information, such as money transfer instructions.
In 2019, more than 11,000 SWIFT member institutions sent approximately 33.6 million transactions per day through the network. In this article, we will explore what SWIFT does, how it works, and how it makes money.
Key Takeaways Society for Worldwide Interbank Financial Telecommunications (SWIFT) is a member-owned cooperative that provides safe and secure financial transactions for its members. This payment network allows individuals and businesses to take electronic or card payments even if the customer or vendor uses a different bank than the payee. SWIFT works by assigning each member institution a unique ID code that identifies not only the bank name but country, city, and branch.
Inside a SWIFT Transaction
SWIFT is a messaging network that financial institutions use to securely transmit information and instructions through a standardized system of codes.
SWIFT assigns each financial organization a unique code that has either eight characters or 11 characters. The code is interchangeably called the bank identifier code (BIC), SWIFT code, SWIFT ID, or ISO 9362 code. To understand how the code is assigned, let’s look at Italian bank UniCredit Banca, headquartered in Milan. It has the 8-character SWIFT code UNCRITMM.
First four characters: the institute code (UNCR for UniCredit Banca) Next two characters: the country code (IT for the country Italy) Next two characters: the location/city code (MM for Milan) Last three characters: optional, but organizations use it to assign codes to individual branches.
Assume a customer of a Bank of America (BAC) branch in New York wants to send money to his friend who banks at the UniCredit Banca branch in Venice. The New York customer can walk into his Bank of America branch with his friend’s account number and UniCredit Banca’s unique SWIFT code for its Venice branch.
Bank of America will send a payment transfer SWIFT message to the UniCredit Banca branch over the secure SWIFT network. Once Unicredit Banca receives the SWIFT message about the incoming payment, it will clear and credit the money to the Italian friend’s account.
As powerful as SWIFT is, keep in mind that it is only a messaging system. SWIFT does not hold any funds or securities, nor does it manage client accounts.
The World Before SWIFT
Prior to SWIFT, Telex was the only available means of message confirmation for international funds transfer. Telex was hampered by low speed, security concerns, and a free message format; in other words, Telex did not have a unified system of codes like SWIFT to name banks and describe transactions. Telex senders had to describe every transaction in sentences that were then interpreted and executed by the receiver. This led to many human errors.
To circumvent these problems, the SWIFT system was formed in 1973. Six major international banks formed a cooperative society to operate a global network that would transfer financial messages in a secure and timely manner.
Why Is SWIFT Dominant?
According to the London School of Economics, "support for a shared network...began to achieve institutional form...in the late 1960s, when the Société Financière Européenne (SFE, a consortium of six major banks based in Luxembourg and Paris, initiated a ‘message-switching project.'"
SWIFT was then founded in 1973 with 239 banks in 15 countries. By 1977, it expanded to 518 institutions in 22 countries.
Although there are other message services like Fedwire, Ripple, and Clearing House Interbank Payments System (CHIPS), SWIFT continues to retain its dominant position in the market. Its success is attributed to how it continually adds new message codes to transmit different financial transactions.
While SWIFT started primarily for simple payment instructions, it now sends messages for a wide variety of actions, including security transactions, treasury transactions, trade transactions, and system transactions. Nearly 50% of SWIFT traffic is still for payment-based messages, 47% is for security transactions, and the remaining traffic flows to Treasury, trade, and system transactions.
Who Uses SWIFT?
In the beginning, SWIFT founders designed the network to facilitate communication about Treasury and correspondent transactions only. The robustness of the message format design allowed huge scalability through which SWIFT gradually expanded to provide services to the following:
Banks Brokerage Institutes and Trading Houses Securities Dealers Asset Management Companies Clearing Houses Depositories Exchanges Corporate Business Houses Treasury Market Participants and Service Providers Foreign Exchange and Money Brokers
Services Offered by SWIFT
The SWIFT system offers many services that assist businesses and individuals to complete seamless and accurate business transactions. Some of the services offered include:
Applications
SWIFT connections enable access to a variety of applications, which include real-time instruction matching for treasury and forex transactions, banking market infrastructure for processing payment instructions between banks, and securities market infrastructure for processing clearing and settlement instructions for payments, securities, forex, and derivatives transactions.
Business Intelligence
SWIFT has recently introduced dashboards and reporting utilities which enable the clients to get a dynamic, real-time view of monitoring the messages, activity, trade flow, and reporting. The reports enable filtering based on region, country, message types, and related parameters.
Compliance Services
Aimed at services around financial crime compliance, SWIFT offers reporting and utilities like Know Your Customer (KYC), Sanctions, and Anti-Money Laundering (AML).
Messaging, Connectivity, and Software Solutions
The core of the SWIFT business resides in providing a secure, reliable, and scalable network for the smooth movement of messages. Through its various messaging hubs, software, and network connections, SWIFT offers multiple products and services which enable its end clients to send and receive transactional messages.
How Does SWIFT Make Money?
SWIFT is a cooperative society owned by its members. Members are categorized into classes based on share ownership. All members pay a one-time joining fee plus annual support charges which vary by member classes.
SWIFT also charges users for each message based on message type and length. These charges also vary depending upon the bank’s usage volume; different charge tiers exist for banks that generate different volumes of messages.
In addition, SWIFT has launched additional services. These are backed by the long history of data maintained by SWIFT. These include business intelligence, reference data, and compliance services and offer other income streams for SWIFT.
Challenges for SWIFT
The majority of SWIFT clients have huge transactional volumes for which manual entry of instructions is not practical. The need for automation for SWIFT message creation, processing, and transmission is growing. However, this comes at a cost and increased operational overhead.
Although SWIFT has been successful in providing software for automation, that too comes at a cost. SWIFT may need to tap into these problem areas for the majority of its client base. Automated solutions within this space may bring in a new stream of income for SWIFT and keep clients engaged in the long run.
The Bottom Line
SWIFT has retained its dominant position in the global processing of transactional messages. It has recently forayed into other areas, such as offering reporting utilities and data for business intelligence, which indicates its willingness to remain innovative. In the short- to mid-term, SWIFT seems poised to continue dominating the market.
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3276876be8c7bddf00770b41972a238d | https://www.investopedia.com/articles/personal-finance/050815/swimming-pools-costs-vs-longterm-value.asp | Swimming Pools: Costs vs. Long-Term Value | Swimming Pools: Costs vs. Long-Term Value
There are many changes you can make to your home to increase its value. You may consider new landscaping or even sprucing up the inside of your home with some fancy, high-end upgrades. And then there's the much-coveted swimming pool. This can be a great investment if it's the right size and if you live in the right place, not to mention if you’re willing to put in the time and effort to keep it in good shape.
But before you consider a pool, it’s important to weigh the costs of installation and maintenance of a pool against the actual utility/value of the pool. Read on to find out about some of the factors you should consider, along with the figures on installing and maintaining this expensive addition to your home.
Key Takeaways A pool is a great addition to any home but makes more sense if you live in a warmer climate and a posh neighborhood.The average cost of installing a pool is about $28,000, while maintenance can run as high as $4,000.Having a pool will only boost the value of your home by a maximum of 7% in certain circumstances.
Considering a Pool?
Most of would dream of putting in a swimming pool. After all, it represents a lavish lifestyle. Who doesn't dream of sitting on a lounge chair by the pool with a cocktail in hand? But if you're thinking about getting one installed—and you're serious about it—it's a good idea to figure out if it really makes financial sense.
A pool is a great addition to any home. But it makes much more sense if you live in a warmer climate or in an area that has fairly short and temperate winters. Why bother putting something in if you're only going to be able to use it a few times each year? Similarly, it's much more appropriate if you live in a high-end neighborhood. There's a much better chance that other homes in your area will have a pool, allowing potential buyers with an apples-to-apples comparison if you decide to sell—more on this a little later.
Now let's look at the costs associated with pool ownership. According to HomeAdvisor, the cost of building a swimming pool ranges anywhere between $14,112 and $41,424, with the average cost sitting at $27,588. These figures account for both in- and above-ground pools.
Then there's the cost of maintaining and running the pool. Depending on the size and type of pool, you can expect to pay as much as $8,000 for heating and filtration. Then there are the extras such as:
pool covers: $600 to $2,000diving board: $300 to $5,000enclosures: $4,800 to $14,300
HomeAdvisor estimates that the cost of running an in-ground pool can range anywhere between $500 to $4,000 every year.
If this hasn't deterred you, but you still want to save on the cost, consider going from a large pool to a smaller one—perhaps a cocktail, lap, or plunge pool. The material also affects the cost. While concrete will last longer, it costs more than a pool lined with vinyl or tile. Fiberglass shells can cut your cost by about 50%, and going from in-ground to above-ground reduces the price tag even more.
You can cut down the cost of installation if you choose to go with a smaller pool.
Resale Value
Not only does a pool increase your social worth, but it can also increase the value of your home. But probably not as much as you think. According to HouseLogic, there's no real guarantee that you'll make your money back. In fact, adding a swimming pool may only increase your home's value by 7%. This, of course, depends on a number of different factors including your location. Living in a posh area and a warm climate will definitely help get your home and your pool noticed by potential buyers. But it's also important if you still have some backyard left for other activities. A pool that takes up the entire backyard can be a turnoff for most shoppers.
There are also other factors that can determine whether you'll get a return on your watery investment including the condition of the pool, the type of pool you have, and its age. Most people will probably pass on your home if you have an old pool that is in poor condition that doesn't fit the style of your home or neighborhood.
And remember, you may love your swimming pool, but it's not for everyone. A lot of couples may consider it a safety hazard for their young children. So you may be limiting potential buyers to older couples or families with teenage kids.
Pros and Cons of a Swimming Pool
If you really want a swimming pool, you have to weigh both the advantages and disadvantages of putting one in your home.
Pros
Let's first take a look at some of the benefits of having a pool. If you fork out the money to put one in, you'll probably be one of the most popular people in your neighborhood or social circle—especially if you're the only person who has one. The pool gives you a great space to entertain your family, friends, and other visitors.
You'll also give you and your family a place to swim in the summer—if it's an outdoor pool—or all year-long in the case of an indoor one. Aside from the cost of maintenance, you won't have to spend a dime on a YMCA membership or burn gas to get to a community swimming pool. And not only is it convenient, but it's also private, so no sharing with strangers.
Having a pool at home also provides you a way to stay cool on those hot summer days. This can help you save money during a heatwave, cutting back on the costs of air conditioning.
Cons
Other than the initial installation cost and ongoing maintenance costs, some of the disadvantages of having a swimming pool might be:
Adults may not derive as much enjoyment from it as kids doDepending on where you live, outdoor pools can only be used during the warmer monthsYou may experience a high degree of accidents and/or injuriesIf you sell your home, it may sit on the market longer than homes without a pool
The biggest issue to weigh is the extent to which the pool will be used. You’re spending a lot of money on it, so you have to ask yourself if you'll get your money's worth for an investment that you'll only use for a few months out of the year. Sure, you'll have an at-home alternative to beach trips and community pools, but how often do you go on those trips? Will you be out in the pool every day? Once a week? Every other week? Take some time to carefully consider your options before you make a decision.
The Bottom Line
Think carefully before you get a contractor to break ground on a swimming pool. Do the costs outweigh the return? A pool has the best shot of adding value to your home if you live in a hot, tropical area where neighboring homes also have pools. But you may end up with a negative return on investment (ROI) from installing a pool if you live in areas where there aren’t any pools in the neighborhood. If this is the case, don’t waste tens of thousands of dollars on a worthless investment.
Disclaimer: The opinions expressed are those of Home Advisor and are subject to change at any time due to changes in market or economic conditions. The comments should not be construed as a recommendation of any individual holdings or market sectors. This material does not constitute any specific legal, tax or accounting advice. Please consult with qualified professionals for this type of advice.
Investopedia and Home Advisor have or may have had an advertising relationship, either directly or indirectly. This post is not paid for or sponsored by Home Advisor, and is separate from any advertising partnership that may exist between the companies. The views reflected within are solely those of Home Advisor and their Authors.
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8d8afb0c11450752eb7d6198e4f51bac | https://www.investopedia.com/articles/personal-finance/050815/what-do-financial-advisers-do.asp | What Do Financial Advisors Do? | What Do Financial Advisors Do?
You may wonder what a financial advisor does. In general, these professionals help you make decisions about what you should do with your money, which may include investments or other courses of action.
Key Takeaways A financial advisor is often responsible for more than just executing trades in the market on behalf of their clients.Advisors use their knowledge and expertise to construct personalized financial plans that aim to achieve the financial goals of clients.These plans include not only investments but also savings, budget, insurance, and tax strategies.Advisors further check in with their clients on a regular basis to re-evaluate their current situation and future goals and plan accordingly.
1:00 Get the Most Out of Your Financial Advisor
The Many Roles of a Financial Advisor
A financial advisor is your financial planning partner. Let's say you want to retire in 20 years or send your child to a private university in 10 years. To accomplish your goals, you may need a skilled professional with the right licenses to help make these plans a reality; this is where a financial advisor comes in.
Together, you and your advisor will cover many topics, including the amount of money you should save, the types of accounts you need, the kinds of insurance you should have (including long-term care, term life, disability, etc.), and estate and tax planning.
The financial advisor is also an educator. Part of the advisor's task is to help you understand what is involved in meeting your future goals. The education process may include detailed help with financial topics. At the beginning of your relationship, those topics may include budgeting and saving. As you advance in your knowledge, the advisor will assist you in understanding complex investment, insurance, and tax matters.
Step one in the financial advisory process is understanding your financial health. You can’t properly plan for the future without knowing where you stand today. Typically, you will be asked to complete a detailed written questionnaire. Your answers help the advisor understand your situation and make certain you don't overlook any important information.
The Financial Health Questionnaire
A financial advisor will work with you to get a complete picture of your assets, liabilities, income, and expenses. On the questionnaire, you will also indicate future pensions and income sources, project retirement needs, and describe any long-term financial obligations. In short, you’ll list all current and expected investments, pensions, gifts, and sources of income.
The investing component of the questionnaire touches upon more subjective topics, such as your risk tolerance and risk capacity. Having an understanding of your risk assists the advisor when it’s time to determine your investment asset allocation. At this point, you'll also let the advisor know your investment preferences as well.
The initial assessment may also includes an examination of other financial management topics, such as insurance issues and your tax situation. The advisor needs to be aware of your current estate plan, as well as other professionals on your planning team, such as accountants and lawyers. Once you and the advisor understand your present financial position and future projections, you’re ready to work together on a plan to meet your life and financial goals.
Creating The Financial Plan
The financial advisor synthesizes all of this initial information into a comprehensive financial plan that will serve as a roadmap for your financial future. It begins with a summary of the key findings from your initial questionnaire and summarizes your current financial situation, including net worth, assets, liabilities, and liquid or working capital. The financial plan also recaps the goals you and the advisor discussed.
The analysis section of this lengthy document will provide more information about several topics, including your risk tolerance, estate-planning details, family situation, long-term care risk, and other pertinent present and future financial issues.
Based upon your expected net worth and future income at retirement, the plan will create simulations of potentially best- and worst-case retirement scenarios, including the scary possibility of outliving your money. In this case, steps can be taken to prevent that outcome. It will look at reasonable withdrawal rates in retirement from your portfolio assets. Additionally, if you are married or in a long-term partnership, the plan will consider survivorship issues and financial scenarios for the surviving partner.
After you review the plan with the advisor and adjust it as necessary, you’re ready for action.
Advisors Plan Action Steps
A financial advisor is not just someone who helps with investments. Their job is to help you with every aspect of your financial life. In fact, you could work with a financial advisor without having them manage your portfolio or recommend any investments at all.
For many people, however, investment advice is a major reason to work with a financial advisor. If you choose this route, here’s what to expect.
The advisor will set up an asset allocation that fits both your risk tolerance and risk capacity. The asset allocation is simply a rubric to determine what percentage of your total financial portfolio will be distributed across various asset classes. A more risk-averse individual will have a greater concentration of government bonds, certificates of deposit (CDs) and money market holdings, while an individual who is more comfortable with risk may decide to take on more stocks, corporate bonds, and perhaps even investment real estate. Your asset allocation will be adjusted for your age and for how long you have before retirement. Each financial advisory firm is required to make investments in accordance with the law and with its company investment policy when buying and selling financial assets.
Financial Advisors and Investments
It’s important for you, as the consumer, to understand what your planner recommends and why. You should not blindly follow an advisor’s recommendations; it’s your money, and you should understand how it’s being deployed. Keep a close eye on the fees you are paying—both to your advisor and for any funds bought for you.
Ask your advisor why they recommend specific investments and whether they are receiving a commission for selling you those investments. Be alert for possible conflicts of interest.
A commonality among firms is that financial products are selected to fit the client’s risk profile. Suppose, for example, a 50-year-old individual who’s already amassed enough net worth for retirement and is predominantly interested in capital preservation. They may have a very conservative asset allocation of 45% in stock assets (which may include individual stocks, mutual funds and/or exchange-traded funds (ETFs)) and 55% in fixed-income assets such as bonds. Alternatively, a 40-year-old individual with a smaller net worth and a willingness to take on more risk to build up their financial portfolio may opt for an asset allocation of 70% stock assets, 25% fixed-income assets, and 5% alternative investments.
While taking into account the firm’s investment philosophy, your personal portfolio will also fit your needs. It should be based on how soon you need the money, your investment horizon, and your present and future goals.
Regular Financial Monitoring
Once your investment plan is in place, you’ll receive regular statements from your advisor updating you on your portfolio. The advisor will also set up regular meetings to review your goals and progress, and to answer any additional questions you may have. Meeting remotely via phone or video chat can help make those contacts happen more often.
In addition to regular, ongoing meetings, it’s important to consult with your financial advisor when you anticipate a significant change in your life that might impact your financial picture, such as getting married or divorced, adding a child to your family, buying or selling a home, changing jobs, or getting a job promotion.
Signs You May Need an Advisor
Anyone can work with a financial advisor at any age and any stage of life. You don’t have to have a high net worth; you just have to find an advisor suited to your situation.
The decision to enlist professional help with your money is a highly personal one, but any time you’re feeling overwhelmed, confused, stressed out, or scared by your financial situation may be a good time to look for a financial advisor.
It’s also fine to approach a financial advisor when you’re feeling financially secure but you want someone to ensure that you’re on the right track. An advisor can suggest possible improvements to your plan that might help you achieve your goals more effectively.
Finally, if you don’t have the time or interest to manage your finances, that’s another good reason to hire a financial advisor.
Those are some general reasons you might need an advisor’s professional help. Here are some more specific ones.
None of Your Savings Is Invested or You Don’t Know How to Invest
Because we live in a world of inflation, any money you keep in cash or in a low-interest account declines in value each year. Investing is the only way to make your money grow, and unless you have an exceptionally high income, investing is the only way most people will ever have enough money to retire.
You Have Investments, but You’re Consistently Losing Money
Even the best investors lose money when the market is down or when they make a decision that doesn’t turn out as they’d hoped. But, overall, investing should increase your net worth considerably. If it’s not doing that, hiring a financial advisor can help you find out what you’re doing wrong and correct your course before it’s too late.
You Don’t Have a Current Estate Plan
A financial advisor can also help you put together an estate plan to make sure your assets are handled according to your wishes after you die. And if you aren’t properly insured (or aren’t sure what insurance you need), a financial advisor can help with that, too. Indeed, a fee-only financial advisor may be able to offer a less biased opinion than an insurance agent can.
Helping You Reach Your Goals
Financial advisors can assist you with investing and reaching your long-term goals in so many ways.
Expertise
Financial advisors know more about investing and managing money than most people. They can guide you to better choices than you might make on your own.
Accountability
Financial advisors help keep you on track by talking you out of making emotional decisions about your money. For example, buying a stock that’s been skyrocketing or selling all your stock funds when the market plummets.
Advice
It’s in the name: Financial advisors can make suggestions about the best strategies to implement to improve your finances. This can include everything from what investments to make to what insurance to buy.
Evolution
As your life circumstances change, a financial advisor can help you adjust your financial plan so that it always fits your current situation.
Action
Many people don’t take the steps they should manage their finances because they’re too busy or too uncertain about what to do. Working with a financial advisor means someone else can handle what you don’t have time for and make sure your money is being deployed in the best way.
The Costs of a Financial Advisor
A rule proposed by the Department of Labor (DOL) would have required all financial professionals who work with retirement plans or give retirement plan advice to provide advice that is in the client’s best interest (the fiduciary standard), as opposed to simply suitable for the client (the suitability standard). The rule was passed, its implementation was delayed and then a court killed it.
But in the roughly three-year interval between President Obama's proposal of the rule and its eventual death, the media shed more light than it had previously on the different ways financial advisors work, how they charge for their services and how the suitability standard might be less helpful to consumers than the fiduciary standard. Some financial advisors decided to voluntarily move to a fiduciary standard or more heavily promote that they already operated under that standard. Others, such as certified financial planners™(CFPs), already adhered to this standard. But even under the DOL rule, the fiduciary standard would not have applied to non-retirement advice – a standard that is bound to cause confusion.
Commission-Based Model
Under the suitability standard, financial advisors typically work on commission for the products they sell to clients. This means the client may never receive a bill from the financial advisor. On the other hand, they could end up with financial products that charger higher fees than other similar products on the market. These same financial products may result in the advisor earning a high commission.
Fee-Based Model
Under the fiduciary standard, advisors either charge clients by the hour or as a percentage of their assets under management (AUM). A typical percentage fee is 1%, while a typical hourly fee for financial advice ranges from $120 to $300. Fees vary by location and the advisor’s experience. Some advisors may offer lower rates to help clients who are just getting started with financial planning and can’t afford a high monthly rate. Typically, a financial advisor will offer a free, initial consultation. This consultation provides a chance for both the client and the advisor to see if they’re a good fit for each other.
Combination of Fees and Commissions
Financial advisors can also earn a combination of fees and commissions. A fee-based financial advisor is not the same as a fee-only financial advisor.
A fee-based advisor may earn a fee for developing a financial plan for you, while also earning a commission for selling you a certain insurance product or investment.
A fee-only financial advisor earns no commissions.
The Securities and Exchange Commission (SEC) proposed its own fiduciary rule called Regulation Best Interest in April 2018. In some ways, it was considered to be less strict than the DOL’s fiduciary rule, while also addressing some of the concerns of the critics of the DOL's fiduciary rule. At the same time, the SEC's rule was more all-encompassing because it would not be limited to retirement investments.
How Different Types of Financial Advisors Get Paid Fee-Only Fee-Based Commission-Based Earns money when you buy specific investments No Yes Yes Earns money when you buy a specific insurance product No Yes Yes Earns money based on how well your investment portfolio performs Yes Sometimes No Has a conflict of interest No Yes Yes
Considering a Robo-Advisor
A digital financial advisor, also called a robo-advisor, is a tool that some companies provide for their customers. A robo-advisor uses computer algorithms to manage your money based on answers to questions about your goals and risk tolerance. Robo-advisors don’t require you to have much money to get started, and they cost less than human financial advisors. Examples include Betterment and Wealthfront. These services can save you time and potentially cost you less money.
However, a robo-advisor can’t speak with you about the best way to get out of debt or fund your child’s education. It also can’t talk you out of selling your investments out of fear or help you build and manage a portfolio of individual stocks. Robo-advisors typically invest clients’ money in a portfolio of exchange-traded funds (ETFs) and mutual funds that provide stock and bond exposure and track a market index. It's also important to keep in mind that if you have a complex estate or tax issue, you will likely require the highly personalized advice that only a human can offer.
Some firms, however, combine digitally managed portfolio investment with the option for human interaction at an additional cost. One such service is Personal Capital. Some people call these services digital advisors because interactions happen by phone or video chat instead of in-person; others use the terms “robo-advisor” and “digital advisor” synonymously.
Which Type of Financial Advisor Is Best for You? Human Advisor Robo-advisor Digital Advisor Services Holistic financial advice, including budgeting, estate planning and investing Investment advice only Different levels of service based on your assets under management Typical Fee 1% 0.24% to 0.50% 0.89% Best For Anyone who wants to meet with their advisor in person; clients with complex circumstances; high net worth clients Anyone who prefers a fully automated online experience with no consultations; clients with simple finances; low net worth clients Anyone who wants a mostly automated digital experience, but the opportunity to speak with an advisor online or by phone
The Bottom Line
Not all financial advisors have the same level of training or will offer you the same depth of services. So when contracting with an advisor, do your own due diligence first and make sure the advisor can meet your financial planning needs.
Check out their certifications as well, and be sure you understand, agree with, and can afford their fee structure. Also, investigate their regulatory history with your state regulatory agency, FINRA’s BrokerCheck, and the SEC’s Investment Advisor Public Disclosure database.
Finally, be aware that finding an advisor who is the right fit for your personality is key to developing a successful, long-term relationship. An advisor can have all the experience, credentials, and success stories in the world. However, if you don’t like someone, you won’t enjoy working with them. And it's possible your financial plan may suffer as a result.
1:43 7 Steps To Evaluate A Financial Advisor
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12d2becbea468a30ed350b8d1c06c05a | https://www.investopedia.com/articles/personal-finance/051415/5-countries-lowest-interest-rates.asp | The 5 Countries With the Lowest Interest Rates | The 5 Countries With the Lowest Interest Rates
Interest rates change over time depending on market conditions and are a popular monetary tool in helping to stimulate the environment in times of economic difficulty or to contract the money supply in times of high inflation.
The world is currently going through a global pandemic, and so all countries are in a unique situation to prevent their economies from collapsing and therefore are adjusting their monetary policies to suit the times. The following are the five countries with the lowest interest rates as of November 2020.
1. Switzerland
The Swiss National Bank reported an unchanged benchmark of a three-month LIBOR of -0.75%. Inflation for 2019 was 0.36% and is expected to be -0.39% in 2020. GDP growth prediction for 2020 was meant to be between 1.5% to 2%, but now the government expects the economy to contract due to the Coronavirus pandemic. Switzerland has maintained the same interest rate for the last five years.
2. Denmark
The primary interest rate in Denmark is the certificate of deposit rate set by the Central Bank of Denmark. The current rate is -0.60%, which is a slight increase from the previous level of -0.75%. This is in contrast to other nations that have been relaxing monetary policy in response to the Coronavirus. Inflation in 2019 was 0.73% and is expected to be 0.7% in 2020.
3. Japan
The Bank of Japan reported an unchanged interest rate of -0.1%. The government will increase its purchasing of riskier assets and corporate bonds to reduce the economic damage from the Coronavirus pandemic.
Interest rates are always set by a country's central bank unless they are part of a specific union, in which case the central bank of that union will determine the rate.
The government is also offering loans against corporate debt as collateral with rates set at 0%. Japan's inflation rate in 2019 was 0.48% and is expected to be 0.23% in 2020.
4. Sweden
The central bank of Sweden reported a benchmark interest rate of 0%. The main interest rate in Sweden is the repo rate; the rate at which banks can borrow from the central bank for seven days.
Sweden's central bank will be purchasing additional securities in 2020 to sure up its economy against the pandemic and offering increased loans to banks. Sweden's interest rate was increased to 0% in late 2019 from -0.25%, which was the end of a five-year run of negative interest rates. Sweden's inflation rate in 2019 was 1.7% and is expected to be 0.46% in 2020.
5. Spain
Spain is part of the Eurozone, so its interest rate is set by the European Central Bank. The current rate for Spain is set at 0%, its rate for the last four years. This is the same rate for the entire eurozone. Spain's inflation rate in 2019 was 0.7% and is targeted at -0.3% for 2020.
The Bottom Line
The majority of the countries on this list have a negative interest rate. The countries in the eurozone currently have an interest rate of zero. The country with the lowest interest rate after the Eurozone's 0% rate is the United Kingdom, at 0.1%, followed by the U.S. at 0.25%.
The world is currently going through an unprecedented time due to the Coronavirus pandemic and countries are changing monetary policy to prevent an economic collapse. However, most rates have stayed fairly static from before the pandemic but this could possibly change depending on how the pandemic proceeds.
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19a6085cab8264d2a4bc554330924595 | https://www.investopedia.com/articles/personal-finance/051415/indias-twochild-policy.asp | Child Policy in India | Child Policy in India
China is well known for having instituted a one-child policy back in 1979. While the policy was effective in stemming population growth, critics argue that the side effects have created many societal problems in China today.
Despite the problems associated with China’s one-child policy, some political leaders in India have been working for many years to create similar legislation. In 2016, Member of Parliament Prahalad Singh Patel introduced a bill that would have limited Indians to two children. However, this proposed two-child policy did not even make it to a vote.
Key Takeaways India did not have a national child policy as of January 2020. Many local laws in India apply penalties for having more than two children. India's fertility rate was already down to 2.3 children per woman in 2016. Local two-child laws in India have been criticized for being unnecessary, violating women's rights, and discriminating against Muslims.
Developments in 2020
In early 2020, National Volunteer Organization (RSS) leader Mohan Bhagwat declared that a two-child policy would be one of the organization's primary goals. Bhagwat's support made the two-child policy more controversial. Some have criticized the proposal as an attempt to limit the growth of India's Muslim population.
Historically, the RSS was closely linked with the ruling Indian People's Party (BJP). Under the leadership of Indian Prime Minister Narendra Modi, the BJP has moved away from the RSS.
Local Two-Child Policies
While there was no national two-child policy in India as of early 2020, there were local laws. These family planning laws are aimed toward politicians, both current and aspiring. Under the policy, people running in panchayat (local government) elections can be disqualified if they have not respected the two-child policy. The idea behind the law is that ordinary citizens will look up to their local politicians and follow their family size example.
Some local governments have gone a step further. There are laws in some states that apply penalties to ordinary citizens for having more than two children. These disincentives include denying government rights to children born after the second child. They may also deny state-provided healthcare for mothers and children, including nutritional supplements for pregnant women.
For fathers, there may be fines and jail time. Penalties also include a general decrease in social services for large families and restrictions on government employment and promotions.
Criticisms
Almost from the beginning, these laws have been questioned. People are quick to point out that India is a country with a booming technology industry, one that relies on young people. There is a fear that restrictions on having children will produce a shortage of the educated young people needed to carry on India’s technological revolution.
There are already well-documented problems with China's one-child policy. Worst of all, there is a gender imbalance resulting from a strong preference for boys. Millions of undocumented children were also born to parents who already had one child. These problems could come to India with the implementation of a two-child policy.
Most importantly, there is increasing evidence that India's birthrate is slowing down to sustainable levels. In 2000, the fertility rate was still a relatively high 3.3 children per woman. By 2016, that number had already fallen to 2.3 children. Furthermore, India's economy was growing 6% per year in the years leading up to 2019, more than enough to support modest population growth.
Some critics also claim that two-child policies are a way to discriminate against Muslims. Since Muslims are more likely to have more than two children, they are also more likely to be barred from office. Muslim fertility rates are somewhat higher than Hindu fertility rates in India, which has created exaggerated fears that Muslims will take over the country. Some believe that the RSS wants to limit family sizes to preserve the current ratio of Hindus to Muslims in India.
A final criticism of two-child policies in India is that the laws violate women's rights. Human rights activists argue that the laws discriminate against women right from birth by encouraging the abortion or infanticide of females. The two-child policies also create incentives for men to divorce their wives and abandon their families if they want to run for political office.
In addition, women in India are often unaware of two-child policies. There have been cases where women with many children try and run for political office, only to be turned away because of laws they didn’t know about.
The Bottom Line
Many Indian local governments, perhaps inspired by China’s one-child policy, have created laws that apply penalties for having more than two children. The laws are heavily criticized in India and abroad. While they are less severe than China's one-child policy, the two-child laws in India are still considered problematic and discriminatory.
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23951e958267f4d5e92cecbd053b56c7 | https://www.investopedia.com/articles/personal-finance/051415/your-retirement-plan-track.asp | Is Your Retirement Plan on Track? | Is Your Retirement Plan on Track?
Americans may be optimistic people by nature, but when it comes to retirement, many of us have our doubts.
In the most recent Retirement Confidence Survey from the Employee Benefit Research Institute, only 27% of respondents said they were very confident of having enough money for a comfortable retirement. Another 42% were somewhat confident.
That leaves almost a third of Americans—some 31%—who doubt they’re on track to retire successfully. And unfortunately, they may be right.
Key Takeaways For many Americans, retirement planning is becoming a pressing issue. Determining your expected expenses in retirement is an essential first step. While most people have one source of income, retirees can have several: Social Security, investments, pensions, and retirement plans. If your projected expenses are greater than your projected income in retirement, it might be time to take decisive steps like spending less now and adding more to retirement savings.
To determine whether you’re on track, it helps to know where you want to go. What kind of retirement lifestyle do you envision for yourself? What’s that likely to cost? And, the make-or-break question: Will you have the money to pay for it? Here’s how to get some answers.
1. Estimate Your Expenses
Generations ago, people assumed their expenses would automatically decline in retirement. More recent experience shows that isn’t always the case. Some expenses should go down, especially work-related ones like commuting—but others, such as vacations and dining out, may go up.
If you plan to downsize to a smaller home, you might save some money on housing. If you intend to upsize or do major remodeling, though, your housing costs could be higher.
So, starting with your current expenses as a guide, try to create a ballpark budget for retirement. Some experts even suggest living on that budget for a while before you retire to see how realistic it is.
“We study cash flow, taxes, and retirement plan contributions to establish a lifestyle amount," says Nick Vail, a financial advisor at Integrity Wealth Advisors in Indianapolis, Ind. "This represents what you are currently living on now."
Vail adds the following:
The majority of people are not living on 80% to 90% of their income, as many companies will suggest you’ll need in retirement. Many are closer to 65% to 70% when you take into consideration mortgage payments, taxes, and what they are currently deferring into retirement plans. We use the lifestyle amount as a baseline when projecting retirement income needed.
2. Add up Your Income
During your working years, you’ve probably had one basic source of income: a salary. In retirement, however, you’ll most likely have multiple sources, including Social Security, a traditional employer pension (if you’re lucky enough to have one), investments, and earnings from any work you do. Try to estimate each of those, then tote them all up. The following are some tips:
Social Security
You can get a projection of your future benefits at the Social Security website, using the Retirement Estimator or other calculators on the website that help you estimate important elements, such as life expectancy.
“I encourage everyone, and I mean everyone, to create an account on www.ssa.gov to see their exact benefits," says Marguerita Cheng, CFP®, CEO of Blue Ocean Global Wealth in Rockville, Md. "In fact, I do it right with my clients. If the client has a spouse or partner, I have them both do it.”
Employer Pensions
If you have a traditional, defined-benefit pension coming from an employer, you should receive periodic estimates of your benefits. However, your benefit could vary depending on when you retire and the form in which you elect to take the money (lump sum vs. annuity, single-life vs. joint-life payout, etc.). Your plan administrator should be able to estimate your likely pension income under the scenario of your choice. Test out several possible scenarios to see which is best.
Investment Income
Your investment and retirement accounts, such as 401(k) plans and IRAs, could provide a substantial portion of your monthly income in retirement, especially if you lack a traditional pension. After age 72, you’ll generally have no choice but to withdraw a certain amount each year from the retirement accounts, in the form of required minimum distributions.
For the purposes of this exercise, figure that every year during retirement you can withdraw 4% of your total principal, plus a small annual increase for inflation, without exhausting your savings. The 4% rule, as this is called, is the subject of some controversy in the financial planning community, but it’s still a reasonable place to start.
Earnings From Work
Many Americans say they plan to keep working in “retirement,” either part-time or full-time. That doesn’t always work out, however, so it’s best not to count on any income you aren’t absolutely sure of.
3. Do the Math
If your projected income exceeds your projected expenses, you’re on track, at least for now. Something could still come along and derail you—a job loss, a market plunge—but so far, so good.
If you discover a shortfall, however, all is not lost. For example, could you:
Scale back your spending now and in retirement? Plan to retire a little later? Save more aggressively between now and then?
Any of those steps, or some combination of them, could help put you squarely back on track.
The Bottom Line
The only way to know whether you’re on track to a comfortable retirement is to run the numbers. Make a best-guess estimate of your retirement expenses, add up all your likely income sources, and compare the two. If the result isn’t what you hoped for, you might need to adjust your plans.
According to Mark Hebner, founder and president of Index Fund Advisors, Inc., in Irvine, Calif., and author of "Index Funds: The 12-Step Recovery Program for Active Investors":
Depending on how close you are to retirement, you can either start saving more or you’re going to have to slowly start adjusting your standard of living. It doesn’t have to be dramatic, but you may want to get to a point where you are comfortable with the standard of living that you can afford.
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aacab104969e659972aab4d7878c655b | https://www.investopedia.com/articles/personal-finance/051613/how-start-saving-retirement.asp | Starting a Retirement Fund: How to Start Saving | Starting a Retirement Fund: How to Start Saving
Unless you are independently wealthy, setting aside money today to see that you have enough for the years down the road by starting a retirement fund is not an option—it’s mandatory.
Unfortunately, inertia can be a powerful force, and going from not saving to saving can be daunting to most people. So much investment and financial advice is designed for people who have already begun saving and investing for the future. Below are some strategies for those looking to starting the process.
Starting a Retirement Fund
If you earn money, you pay Social Security taxes, but the funds used to pay Social Security benefits are expected to become depleted in 2034, according to the Social Security Administration. Thus, it is unclear how well its benefits will cover the actual cost of living. Simply consider the debate today over chained CPI, a newer way of measuring inflation, and what that could mean to the value of future benefits.
It is also important to note that the government (and many businesses) offers incentives to save. Putting aside money into an appropriate qualified retirement plan, such as an individual retirement account (IRA) or a 401(k), lowers a tax bill in the year that the money was saved and can accumulate tax-free for decades. Similarly, many companies will also contribute funds if an employee contributes to a retirement account. An employer’s contribution amounts to free money, and most financial advisors would encourage their clients to maximize this opportunity.
Challenges at the Start
Most people who are not already saving believe that they do not have enough money to meet day-to-day expenses, let alone have any left over to save. However, paying yourself should be every bit as much of a priority as paying other people. Of course, it is unwise to default on loans or allow bills to go past due, but if you don’t take care of yourself, who will?
There will be months when you come up short and have little to save. You will also find that your investment choices may be limited. It is important not to become discouraged, but to save as much as you can as often as you can.
Key Takeaways The most important step to take in saving for your future is to start saving.The government and many businesses offer incentives to save, such as IRA or 401(k) accounts, which allow the account holders to accumulate savings tax-free for many years.An employer’s contribution to a retirement account amounts to free money, and the benefit should be maximized.
Start Small
The personal-finance industry is set up to cater to those who have considerable wealth—virtually every bank and brokerage would rather deal with 10 millionaires than 10,000 people with $1,000 each. Nevertheless, your savings and retirement plans should be based on what meets your needs, not those of the financiers.
To that end, even $250 or $500 in retirement savings is a worthwhile start. Any savings establishes a habit and the process. There are multiple brokers now that offer no-minimum, no-fee retirement accounts. The key to saving for retirement is to be consistent. It should be a continuous, lifelong habit.
Thus, it helps to set yourself up for success. For example, don’t attempt to scrape together the cash for a last-minute contribution to an IRA in April right before you file your tax return. Instead, save a little each month, ideally using an online savings account, and only tap into it in extreme emergencies.
Most of these online accounts will allow you to automatically deduct a set amount every month from your regular account. If your employer offers a 401(k) program, you can have deductions made automatically from every paycheck.
Brokerage firms should be selected based on the fees charged and their range of ETFs and mutual funds.
Selecting a Brokerage Firm
An increasing number of large, national, well-known (they advertise on TV) brokerage and mutual fund firms are willing to open small accounts without fees or minimums. Opening accounts with these larger firms is a good idea. They often have a wide selection of investment options (mutual funds, exchange-traded funds, or ETFs) and the most transparent and reasonable fees.
Also, these large firms have the infrastructure to offer you additional services (including personal investment advisors) as your needs change over time.
It is important to take the time to make a good selection. Most, if not all, firms charge fees for transferring accounts, and switching firms repeatedly will reduce your savings. Focus on fees and the range of ETFs and mutual funds that they offer. Don’t be too concerned with the trading tools and services they provide, because trading is not wise when you are saving and have limited funds.
Be Realistic About Risk
Those who are just starting to save for retirement also need to consider investment risk. While academics and investment professionals struggle to define and measure risk, most ordinary people have a pretty clear understanding of it: What’s the likelihood that I’m going to lose a substantial portion of my money (with “substantial” varying from person to person)?
I suggest that novice savers and investors be realistic about risk. While any amount of savings is a good start, small amounts of money are not going to produce livable amounts of income in the future. This means that it makes very little sense to invest in fixed-income or other conservative investments at the beginning. Similarly, you don’t want to destroy that initial savings right off the bat, so avoid the riskiest areas of the market—no biotech, no gold, no leveraged funds, and so on.
A basic index fund (a fund that matches a popular index such as the Dow Jones Industrials or S&P 500) is a good place to start. There is certainly a risk that the price will fall, but odds of a total wipeout are nearly zero and favor a reasonable amount of growth.
The best first investments are in mutual funds and ETFs, which are low cost and require little effort.
Your First Investments
As a new saver/investor, your first investments will most likely be in ETFs or mutual funds. ETFs and mutual funds allow you to invest almost any amount of money (from a little to a lot) with little hassle and cost. With a mutual fund or an ETF, you can take $500 and essentially buy tiny stakes in dozens (if not hundreds or thousands) of stocks all at once, giving you a greater likelihood of seeing positive returns and fewer major losses.
Index ETFs have become popular in recent years. For a minimal cost (an initial commission and a small annual fee that is paid or deducted automatically from the shares themselves), an investor can effectively buy the entire S&P 500 or other popular indexes. A growing number of ETFs allow investors to invest in broad categories such as “growth” or “value,” which is something that has been available to mutual fund investors for decades.
Mutual funds, however, still have their place. They often give investors the benefits of active management from a fund manager, who makes decisions on a day-to-day basis to try to earn higher returns for investors. By comparison, most ETFs run on autopilot—holding a specified list of stocks (usually matching an index) and only changing when the index changes.
When looking for mutual funds, determine the fees and expenses (lower is better) and also look at the performance. Ideally, you want a fund that has not only performed well overall compared to its peers but has also lost less money in the bad times.
Regarding first investments, consider two or three ETFs. Most mutual funds have minimum investment amounts of $1,000 or more, so they may not be an option yet. Consider buying one or two of the following ETFs:
Vanguard Total Stock Market (VTI)SPDR S&P 500 (SPY)Vanguard Dividend Appreciation (VIG)Vanguard Value (VTV)Vanguard Growth (VUG)Vanguard FTSE All-World Ex-US (VEU)Invesco Dynamic Large Cap Value (PWV)SPDR Dow Jones Industrial Average (DIA)SPDR S&P Dividend (SDY)Invesco S&P 500 Pure Growth (RPG)
If you can afford to own two or three, try to get a good mix. For example, one large market fund (VTI, SPY), an international fund (VEU), and either a growth (VUG, RPG) or value (VTV, PWV) fund, based on your personal preferences.
$5,000 The suggested amount to have in retirement savings before investing in stocks.
Accumulating More
Over time the habit of saving will hopefully take hold. Moreover, you may find that your earnings increase, and you can save more. As you do that, and your initial investments grow in value, you will find that you have an increasing number of investment options.
With more money to invest, mutual fund investment minimums may be less restricting, and you may be able to own more funds and ETFs. You may also find that you can afford to take more risks (investing more in growth stocks or more-aggressive growth equities) or target particular types of investments (investing in specific sectors or geographical areas). If this becomes the case, be careful not to diversify excessively. It is much better to have five great ideas than 15 mediocre ones.
Some readers may be wondering by now when they can start buying individual stocks. There is no hard-and-fast rule here, but I would suggest that $5,000 in total savings is a good number to use as a minimum. There is nothing wrong with investing $1,000 in an individual stock or two and keeping the rest in funds or, if you are comfortable, increasing the allocation to individual stocks.
Investing in individual stocks is quite different from investing in funds or ETFs. It requires assuming more responsibility for your investment decisions, which requires the investment of considerable time and research. The rewards can be greater, but without the ability to invest the necessary time on an ongoing basis, it is wiser to choose funds and ETFs for the long term.
As your earnings increase and you have more money left at the end of the month, try to max out your annual contributions to your 401(k), IRA, SEP IRA, or whatever savings options are available to you. Contribute up to the annual maximum allowed by law.
Other Options
Saving in organized retirement accounts is just one type of saving, but there are many more options. The government has specific rules and limits on how much you can save each year in tax-sheltered accounts. However, there are no limits on the savings you can put into ordinary taxable brokerage accounts. Although the dividends can be subject to taxation, and you will pay taxes on capital gains, you are still saving and building wealth.
The Bottom Line
The most important part of any savings or retirement plan is simply to start. There is no one right way to save money, nor one right way to invest. You will make mistakes along the way, and sooner or later you will see the value of some (if not all) of your holdings decline.
While this is not desirable, it is normal. What is important is that you keep saving, learning, and looking to build wealth for the future. If you establish the habit of saving money every month, take the time to place your money wisely, and patiently allow your wealth to build, you will be taking huge steps forward in making your financial future more secure.
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0c5bcbf40ed557408c8091aee79c8791 | https://www.investopedia.com/articles/personal-finance/051614/five-things-know-about-quitclaim-deeds.asp | Top 5 Facts About Quitclaim Deeds | Top 5 Facts About Quitclaim Deeds
Real property was once transferred through a ceremonial act known as “livery of seisin" in which the person transferring the land passed a twig or clod of turf from the land to the person taking delivery of the land.
A verbal and/or written contract may have accompanied the gesture, but only the "livery of seisin" legally transferred title to the property. Of course today, title to real property is conveyed by a deed. A property deed is a written and signed legal instrument that is used to transfer ownership of real property from a previous owner (the grantor) to a new owner (the grantee).
Deeds can be classified in numerous ways. Broadly, deeds are either official or private. Official deeds are executed pursuant to court or legal proceedings, such as trustees' deeds and tax deeds. Most property transactions, however, involve private deeds.
Deeds are also categorized based on the type of title warranty provided by the grantor. General warranty deeds provide the highest level of buyer protection, while quitclaim deeds typically provide the least.
Key Takeaways A property deed is a written and signed legal instrument that is used to transfer ownership of real property from a previous owner (the grantor) to a new owner (the grantee). Broadly, deeds are either official or private. General warranty deeds provide the highest level of buyer protection, while quitclaim deeds typically provide the least.
Quitclaim deeds are most often for transferring property between family members or to cure a defect on the title, such as a misspelling of a name. Although they are relatively common and most real estate agents have experience dealing with them, they are generally used in transactions where the parties know each other and are therefore more likely to accept the risks associated with the lack of buyer protection. They may also be used when a property transfers ownership without being sold, that is when no money is involved.
Because quitclaim deeds offer such limited buyer protection, it's important to understand exactly what you're getting when you buy property this way. Here are five things to know about these contracts.
1:40 Five Things To Know About Quitclaim Deeds
1. You're buying the least amount of protection of any deed.
Also called a non-warranty deed, a quitclaim deed conveys whatever interest the grantor currently has in the property if any. The grantor only "remises, releases, and quitclaims" their interest in the property to the grantee. There are no warranties or promises regarding the quality of the title. The deed will clarify this by including language such as, "The Grantor makes no warranty, express or implied, as to title in the property herein described."
In situations where the grantor under a quitclaim deed has no interest in the property, the grantee acquires nothing by virtue of the quitclaim deed and acquires no right of warranty against the grantor.
2. Only accept a quitclaim deed from grantors you know and trust.
Because quitclaim deeds make no warranty about the quality of the grantor's title, they are best for low-risk transactions between people who know each other and typically involve no exchange of money. Quitclaim deeds, therefore, are commonly used to transfer property within a family, such as from a parent to an adult child, between siblings, or when a property owner gets married and wants to add their spouse to the title.
Married couples who own a home together and later divorce also use quitclaim deeds. When one party acquires the home in a divorce settlement, the other may execute a quitclaim deed to eliminate their interest in the property (and to comply with the court's decision).
3. They can be used to clear a title defect.
A quitclaim deed is often used to cure a defect (a "cloud on the title") in the recorded history of a real estate title. Title defects include items such as issues with wording (for example, on a document that does not comply with state standards), a missing signature (such as that of a spouse), or failure to properly record real estate documents. For example, if the name of a grantee is misspelled on a warranty deed placed in the public record, a quitclaim deed with the correct spelling can be executed to the grantee to perfect the title.
As another example, assume a title search reveals that the spouse of a past grantor may have an interest in the property because they did not properly execute a past deed in the chain of title. In this situation, the spouse of the past grantor can be asked to execute a quitclaim deed to the present owner, "quitclaiming" any interest they may have in the property.
4. They're as effective as a warranty deed to transfer title, but only if the title is good.
A quitclaim deed can convey title as effectively as a warranty deed if the grantor has a good title when the deed is delivered. It is the lack of any warranties, however, that make a quitclaim deed less attractive from a grantee's perspective. If the title contains a defect, for example, the grantee has no legal recourse against the grantor under the deed. A quitclaim deed is often used if the grantor is not sure of the status of the title (whether it contains any defects) or if the grantor wants no liability under the title covenants.
5. A quitclaim deed affects ownership and the name on the deed, not the mortgage.
Because quitclaim deeds expose the grantee to certain risks, they are most often used between family members and where there is no exchange of money.
Due to this, quitclaim deeds typically are not used in situations where the property involved has an outstanding mortgage. After all, it would be difficult for many grantors to pay off a mortgage without proceeds from the sale of the property.
In some instances, however, quitclaim deeds are used when the grantor has a mortgage. In this case, the grantor remains liable for the mortgage even after ownership has transferred through the execution of a quitclaim deed. Quitclaim deeds transfer title but do not affect mortgages.
This situation can become worse if the mortgage contains a due-on-sale clause, a common provision stipulating that the entire loan becomes due as soon as the title is transferred (not just if the property is "sold" with an exchange of money, as the name "due-on-sale" would seem to imply).
If the grantor has quitclaimed the property with the belief that the grantee will make the mortgage payments, the grantor has no recourse if the grantee stops making payments or sells the property to another party. To mitigate potential financial and legal troubles, the grantee can assume the mortgage with the lender (with the lender's approval) or refinance the property and pay off the original loan. To add protection to the grantor, a legally enforceable agreement can be drawn to document the terms of payment.
The Bottom Line
The transfer of an owner’s title is made by deed. Certain essential elements must be contained in the deed for it to be legally operative. Different deeds provide various levels of protection to the grantee, and the form of the deed determines the obligations of a grantor.
A quitclaim deed offers the least level of buyer protection and is generally used for title transfers between family members or to clear a defect on the title. If the property comes with what is known as a "special-purpose deed"—which could be a correction deed, a deed of gift, or a deed of release—it usually offers no more protection than a quitclaim deed. Be sure to consult a qualified real estate attorney: Deeds are important legal documents that affect ownership interests and rights.
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6943b4aaf759a4b4285b8cc61617f636 | https://www.investopedia.com/articles/personal-finance/051815/top-11-companies-owned-facebook.asp | 5 Companies Owned By Facebook | 5 Companies Owned By Facebook
Facebook Inc. (FB), the world's largest social networking website, was founded by CEO Mark Zuckerberg and several Harvard College roommates in 2004. The company's name initially was FaceMash, which was changed to TheFacebook, eventually dropping "The" from its name to become, simply, Facebook. Zuckerberg and his co-founders initially launched the service for their Harvard classmates, quickly expanding it to other universities and then to the general public. The company since then has grown into a global giant with 2.5 billion users and a market cap of $479.2 billion. The company reported FY 2019 net income of $18.5 billion on $70.1 billion in revenue, nearly all of which came from advertising.
Facebook has expanded far beyond its original social networking platform since its founding 16 years ago. Its products also include messenger services, photo and video sharing, augmented reality, and many other apps and services. Acquisitions have been key to growing these businesses and Facebook's revenue in general. Facebook's strategy has been to buy potential rivals before they can get too big. In the process, the company sometimes has paid exceptionally high prices for some deals. The company has also drawn attention from the Federal Trade Commission (FTC) due to potential anticompetitive practices, with the FTC recently demanding data on unreported purchases from Facebook as well as other big tech companies.
Wednesday, Dec. 9, 2020, the Federal Trade Comission (FTC) and the attorneys general from 46 states, Washington, D.C., and Guam filed antitrust suits against Facebook, the culmination of a yearlong investigation. The suits allege that Facebook's acquisitions strategy has been designed to eliminate competition, specifically accusing Facebook's acquisitions of Instagram and Whatsapp as being illegal. The suits are also asking courts to prevent Facebook from acquiring anything worth over $10 million while the case is pending. A separate FTC lawsuit is trying to force Facebook to spin-off WhatsApp and Instagram.
Below, we look in more detail at Facebook's 5 biggest acquisitions. The company does not provide a breakdown of how much profit or revenue each acquisition currently contributes to Facebook.
Instagram
Type of Business: Photo and video-sharing appAcquisition Cost: $1.0 billionAcquisition Date: April 9, 2012
Instagram is a photo and video-sharing social networking platform that was launched in 2010. Through the Instagram app, users can upload, edit, and tag photos and videos. The company remained independent up until it was acquired by Facebook for $1.0 billion in 2012. While Facebook bought Instagram as the photo-sharing company was garnering significant attention from venture capital firms and other investors. Some estimates indicate that Instagram generates more advertising revenue than its parent company.
When it acquired Instagram, Facebook opted to build and grow the Instagram app independently from Facebook's main platform; Instagram remains a separate platform to this day. The price that Facebook paid for Instagram, which at that time was generating no revenue, reflects Facebook's willingness to pay a premium for young companies.
WhatsApp
Type of Business: Mobile messenger serviceAcquisition Cost: $19.0 billionAcquisition Date: February 19, 2014
WhatsApp is a messenger and calling service available to users throughout the world. The platform was launched in 2009 as a low-cost alternative to standard text messaging services. Throughout much of its history, WhatsApp has allowed users to send messages and make calls directly to other users for no cost, regardless of location. Users can also send photos, videos, and documents over the platform. Facebook bought WhatsApp at a time when the smaller company boasted more than 400 million active monthly users, making it a fast-growing potential rival to Facebook's platform.
When Facebook purchased WhatsApp, it was an independent company that had recently been valued at $1.5 billion. Although it is unclear exactly how much revenue WhatsApp generates, some estimates are that WhatsApp revenue will be as high as $5 billion by 2020.
Oculus VR
Type of Business: Virtual reality technology companyAcquisition Cost: $2.0 billionAcquisition Date: March 25, 2014
Just weeks after announcing its acquisition of WhatsApp, Facebook followed up by buying virtual reality hardware and software company Oculus VR. This company was founded in 2012 and is best known for its Oculus Rift product, a virtual reality headset that was designed for video gaming. Since Facebook's purchase of Oculus VR in 2014, the subsidiary has made multiple acquisitions of its own. Perhaps the most prominent was the 2015 purchase of Surreal Vision, a company specializing in 3D scene mapping reconstruction.
At the time that Facebook acquired Oculus VR, the company had only produced a development prototype of what would become its popular headset product. Facebook's purchase of Oculus VR gave it an instant presence in the virtual reality market at a time when developers were showing growing interest in VR.
Onavo
Type of Business: Mobile web analyticsAcquisition Cost: $100–200 million (estimated)Acquisition Date: October 2013
Founded in 2010, Israeli company Onavo performs web analytics on other mobile apps to determine customer usage. Facebook acquired Onavo in October 2013 for an undisclosed amount that some analysts estimated to be between $100 million and $200 million. At the time of the acquisition, Onavo was an independent company. Although Onavo is not one of Facebook's largest acquisitions, Onavo's technology may have allowed Facebook to make crucial early determinations about other companies and apps to acquire. Onavo has occasionally been classified as spyware, forcing Facebook to pull Onavo from both the iOS and Android app stores in the face of criticism.
Beluga
Type of Business: Messaging serviceAcquisition Cost: UndisclosedAcquisition Date: March 2, 2011
Messaging app service Beluga, founded in 2010, was acquired by Facebook a year later. Facebook bought Beluga in the midst of the startup's fundraising process for an undisclosed sum. In buying Beluga, Facebook acquired the technology that eventually became the social media company's highly successful Messenger platform. In the process, Facebook again expanded its offerings and eliminated a potential rival.
Facebook Diversity & Inclusiveness Transparency
As part of our effort to improve the awareness of the importance of diversity in companies, we have highlighted the transparency of Facebook's commitment to diversity, inclusiveness, and social responsibility. The below chart illustrates how Facebook reports the diversity of its management and workforce. This shows if Facebook discloses data about the diversity of its board of directors, C-Suite, general management, and employees overall, across a variety of markers. We have indicated that transparency with a ✔.
Facebook Diversity & Inclusiveness Reporting Race Gender Ability Veteran Status Sexual Orientation Board of Directors C-Suite General Management ✔ (U.S. Only) ✔ Employees ✔ (U.S. Only) ✔
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2c4411ca3bf8f1d0e47b269b0b56b725 | https://www.investopedia.com/articles/personal-finance/051914/mortgage-amortization-strategies.asp | Mortgage Amortization Strategies | Mortgage Amortization Strategies
For many people, buying a home is the largest single financial investment they will ever make. Because of the hefty price tag, most people usually need a mortgage. A mortgage is a type of amortized loan in which the debt is repaid in regular installments over a period. The amortization period refers to the length of time, in years, that a borrower chooses to pay off a mortgage.
While the most popular type is the 30-year, fixed-rate mortgage, buyers have other options, including 25-year and 15-year mortgages. The amortization period affects not only how long it will take to repay the loan, but how much interest will be paid over the life of the mortgage. Longer amortization periods typically involve smaller monthly payments and higher total interest costs over the life of the loan.
Shorter amortization periods, on the other hand, generally entail larger monthly payments and lower total interest costs. It's a good idea for anyone in the market for a mortgage to consider the various amortization options to find one that provides the best fit concerning manageability and potential savings. Here, we take a look at different mortgage amortization strategies for today's home-buyers.
Key Takeaways Choosing the period over which you should pay off your mortgage is a trade-off between lower monthly payments vs. lower overall cost.The maturity of a mortgage loan follows an amortization schedule that keeps monthly payments equal while modifying the relative amount of principal vs. interest in each payment.The longer the amortization schedule (say 30 years), the more affordable the monthly payments, but at the same time, the most interest to be paid to the lender over the life of the loan.
Amortization Schedules
The exact amount of principal and interest that make up each payment is shown in the mortgage amortization schedule (or amortization table). Early on, more of each monthly payment goes towards interest. Interest on a mortgage is tax-deductible. If you are in a high tax bracket, this deduction will be of more value than to those with lower tax rates. With each subsequent payment, more and more of the payment goes to the principal, and less to the interest, until the mortgage is paid in full, and the lender files a Satisfaction of Mortgage with the county office or land registry office.
Longer Amortization Periods Reduce Monthly Payment
Loans with longer amortization periods have smaller monthly payments because you have more time to pay back the loan. This is a good strategy if you want payments that are more manageable. The following figure shows an abridged example of an amortization schedule for a $200,000 30-year, fixed-rate loan at 4.5%:
Table 1: Mortgage Amortization Schedule Month Payment Principal Paid Interest Paid 1 $1,013.37 $263.37 $750.00 2 $1,013.37 $264.36 $749.01 3 $1,013.37 $265.35 $748.02 180 (15 years) $1,013.37 $516.62 $496.75 240 (20 years) $1,013.37 $646.70 $366.67 300 (25 years) $1,013.37 $809.53 $203.84 360 (final payment) $1,013.37 $1,009.58 $3.79 NOTE: The mortgage payment for this 30-year, fixed rate 4.5% mortgage is always the same each month ($1,013.37). The amounts that go towards principal and interest, however, change every month. Shown here are the first three months of amortization schedule, and then payments at 180, 240, 300 and 360 months.
Summary for the 30-year, fixed-rate 4.5% loan:
Mortgage amount = $200,000Monthly payment = $1,013.37Interest amount = $164,813.42Total cost = $364,813.20
Shorter Amortization Periods Save You Money
If you choose a shorter amortization period—for example, 15 years—you will have higher monthly payments, but you will also save considerably on interest over the life of the loan, and you will own your home sooner. Also, interest rates on shorter loans are typically lower than those for longer terms. This is a good strategy if you can comfortably meet the higher monthly payments without undue hardship.
Remember, even though the amortization period is shorter, it still involves making 180 sequential payments. It's important to consider whether or not you can maintain that level of payment.
Figure 2 shows what the amortization schedule looks like for the same $200,000 4.5% loan, but with a 15-year amortization (again, an abridged version for simplicity's sake):
Table 2: Mortgage Amortization Schedule Month Payment Principal Paid Interest Paid 1 $1,529.99 $799.99 $750.00 2 $1,529.99 $782.91 $747.08 3 $1,529.99 $785.85 $744.14 60 (5 years) $1,529.99 $976.38 $553.60 120 (10 years) $1,529.99 $1,222.23 $307.75 180 (final payment) $1,529.99 $1,524.27 $5.72 NOTE: The same $200,000 4.5% loan, but with a 15-year amortization. The first three months of the amortization schedule are shown, along with payments at 60, 120 and 180 months.
Summary for the 15-year, fixed-rate 4.5% loan:
Mortgage amount = $200,000Monthly payment = $1,529.99Interest amount = $75,397.58Total cost = $275,398.20
As we can see from the two examples, the longer, 30-year amortization results in a more affordable payment of $1,013.37, compared to $1,529.99 for the 15-year loan, a difference of $516.62 each month. That can make a big difference for families on a tight budget or who simply want to cap monthly expenses.
The two scenarios also illustrate that the 15-year amortization saves $89,416 in interest costs. If a borrower can comfortably afford the higher monthly payments, considerable savings can be made with a shorter amortization period.
Accelerated Payment Options
Even with a longer amortization mortgage, it is possible to save money on interest and pay off the loan faster through accelerated amortization. This strategy involves adding extra payments to your monthly mortgage bill, potentially saving you tens of thousands of dollars and allowing you to be debt-free (at least in terms of the mortgage) years sooner.
Take the $200,000, 30-year mortgage from the above example. If an extra $100 payment were applied to the principal each month, the loan would be repaid in full in 25 years instead of 30, and the borrower would realize a $31,745 savings in interest payments. Bring that up to an extra $150 each month, and the loan would be satisfied in 23 years with a $43,204.16 savings. Even a single extra payment made each year can reduce the amount of interest and shorten the amortization, as long as the payment goes towards the principal, and not the interest (make sure your lender processes the payment this way).
Naturally, you shouldn't forgo necessities or take money out of profitable investments to make extra payments. But cutting back on unnecessary expenses and putting that money towards extra payments can make good financial sense. And unlike the 15-year mortgage, it gives you the flexibility to pay less some months.
Online mortgage-amortization calculators can help you decide which mortgage is right for you and calculate the impact of making extra mortgage payments. Additionally, mortgage calculators can be used to determine the best interest rates available. To get started, try the calculator below.
Other Choices
Adjustable-rate mortgages may allow you to pay even less per month than a 30-year, fixed-rate mortgage and you may be able to adjust payments in other ways that could match an expected rise in personal income. However, monthly payments on these can rise—how often depends on economic indicators and on how the contract is written—and with mortgage interest still at almost historic lows, they are probably an unwise bet for most homeowners. Similarly, interest-only and other types of balloon mortgages often have low payments but will leave you owing a huge balance at the end of the loan term, also a risky bet.
The Bottom Line
Deciding which mortgage you can afford should not be left solely to the lender: Even in the current lending climate with its tougher standards, you might be approved for a bigger loan than you truly need. If you like the idea of a shorter amortization period so you can pay less interest and own your house sooner—but can't afford the higher payments—consider looking for a home in a lower price range. With a smaller mortgage, you might be able to swing the higher payments that come with a shorter amortization period.
Because so many factors can affect which mortgage is best for you, it's important to evaluate your situation. If you are considering a huge mortgage and you are in a high tax bracket, for example, your mortgage deduction will likely be more favorable than if you have a small mortgage and are in a lower tax bracket. Or, if you are getting good returns from your investments, it might not make financial sense to cut back on building your portfolio to make higher mortgage payments. What always makes good financial sense is to evaluate your needs and circumstances, and take the time to determine the best mortgage amortization strategy for you.
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2120b17ebd1d6839e9406248e2d95596 | https://www.investopedia.com/articles/personal-finance/051915/10-us-cities-you-dont-need-car-visit.asp | 10 U.S. Cities You Don't Need A Car To Visit | 10 U.S. Cities You Don't Need A Car To Visit
Ask almost anyone returning from a tour of the great cities of Europe what they loved most about their trip, and you’ll hear, “We walked everywhere!” Often followed by the lament, “Why can’t our cities be like that?”
While it’s true that the majority of American cities don’t have the pedestrian-friendly cultures of Paris, London, or Rome, there are places in the United States where walking is the normal mode of getting around. These locations typically combine reliable public transit and a growing number of bike share systems, There are even some vacation destinations where having a car is a liability and will stand in the way of you fully enjoying your visit.
Here are your 10 best car-free destinations.
New York City
Manhattan and the four outlying boroughs are probably the best known of America’s walkable cities. New York has an excellent 24-hour subway system that connects four of the five boroughs (Staten Island is the exception; it is served by a ferry and bus system). America Walks, a nonprofit advocacy group for pedestrians, consistently awards New York its No.1 Walk Score for walkability.
Walking in New York is endlessly entertaining and allows for spontaneous visits to whatever shops, eateries, galleries, or parks catch your eye. Manhattan is compact, and you’ll find that walking a few blocks in any direction will bring dramatic changes in scenery. Visitors who enjoy cycling can purchase a 24-hour ($12) or a 3-day pass ($24) to Citibike, New York’s bike share system, to take an unlimited number of 30-minute rides about town and on bike paths. (As with most bike share systems, rides beyond 30 minutes will cost you extra.) And a continually expanding ferry service (a one-way adult pass is $2.75). Routes to St. George from Manhattan are lanching in 2020, and routes to Coney Island are launching in 2021.
Transportation to and from the airports, while not as simple as in some cities, includes subway, private bus, and Long Island Rail Road options.
If you still feel like bringing your car, just in case, consider this: Parking rates run around $50 a night in midtown, and there are hefty tolls to enter the city on every bridge and tunnel. New York City wants you to walk!
Many cities make taking a car an expensive undertaking. For example, overnight parking in New York can cost upwards of $50.
San Francisco
Also scoring high marks from America Walks, San Francisco is New York City’s West Coast counterpart. Like Manhattan, San Francisco is devilishly difficult to navigate by car and has similar sky-high parking rates.
But also like Manhattan, the city is a joy to perambulate, particularly the popular tourist areas such as Union Square, North Beach, Chinatown, and the Financial District where you can enjoy browsing the abundant Ferry Plaza farmers’ market. Know, however, that it is possible to end up strolling into some unsavory areas, particularly at night. If in doubt, ask at your hotel or another local source. In addition to the famous cable cars, there is the BART (Bay Area Rapid Transit), buses and ferry service to get you around and even beyond the city.
Las Vegas
If you live in Las Vegas, you probably are car-dependent because most of the affordable homes and mall shopping are in outlying areas in the desert. But if you are visiting for the nightlife and the entertainment, forget the four wheels!
Nothing beats the fun of walking the Vegas Strip and taking in the surging sea of humanity entering and exiting the casinos and ogling the neon-splashed landscape. Las Vegas Boulevard offers people-watching at its best (and worst—you will have to fend off panhandlers and hawkers, but just accept that it goes with the territory).
If you want to venture beyond the Strip to visit downtown’s Fremont Street Experience, for example, or you just get tired of pounding the pavement, the area is well-served by The Deuce, a fancy double-decker bus that costs $8 for a 24-hour pass. There is also the competing Arrow trolley bus as well as free monorails that connect related casinos.
Honolulu
Walking in paradise? Indeed: There are few things more pleasurable than strolling the length of Kalakaua Avenue in Waikiki. The weather is almost always perfect, the people are friendly, and you are in sight of the beach. But don’t limit yourself to Waikiki; there are a wealth of other neighborhoods and historic attractions such as the spectacular Iolani Palace and Chinatown that are best explored on foot.
One of the area’s biggest tourist draws is the USS Arizona Memorial at Pearl Harbor, which is accessible by TheBus ($2.75 for a one-way fare and $5.50 for a one-day pass), Oahu’s public transit system. TheBus routes also serve the airport and more remote attractions like Sea Life Park and Hanauma Bay, although the lax on-time performance may fray the nerves of some.
As in other big cities, Honolulu parking is limited and expensive. If you do opt for a car, wait to pick up your rental until you’re ready to leave town to explore the North Shore.
Washington, DC
The National Mall was designed for walkers so that visitors can fully appreciate the impressive views of our capital’s monuments, museums, and memorials. Few vistas rival the beauty of the Washington Monument mirrored in the reflecting pool at the foot of the Lincoln Memorial. Segway tours have also become a popular way to experience the Mall.
But don’t limit yourself to this popular tourist circuit: Use the clean, efficient Metro subway to go further afield to attractions like the National Zoo and the lovely historic district of Dupont Circle. Alternatively, use Capital Bikeshare, with 4,500 bikes at 290-plus stations to explore the city ($2 for a single trip or $8 for a 24-hour pass). Be aware, however, that some of DC’s outlying neighborhoods are not tourist-friendly. Plan your travels carefully and ask for advice if you’re concerned.
Thanks to Major Pierre Charles L’Enfant’s 18th-century urban planning, Washington is difficult and confusing to navigate in a modern vehicle. Maybe that’s why DC drivers have more accidents than most other urbanites. Our advice? Leave the car at home.
Boston
Although the climate here is sometimes unkind, Boston ranked No.3 in America's 10 Most Walkable Cities by CBSNews and has even dubbed itself “the walking city.” In fact, one of the city’s top attractions is its 2.5-mile Freedom Trail where visitors explore Boston’s rich and important history (including America’s oldest bar!) on foot.
Boston's pedestrian-friendly environment is complemented by public transit options: Massachusetts Bay Transportation Authority’s extensive subway, bus, and water taxi system, and Hubway is the city’s bike share program (a day pass is $10). Use the water taxi to cross the Charles River to visit Cambridge and see Harvard Yard. If all that doesn't convince you not to cruise Bean Town streets in your vehicle, consider that Boston drivers rank the third highest for accident frequency, according to Allstate’s 2019 “America’s Best Drivers Report.”
Portland
Not only celebrated as a safe and fun walking city, but Portland is also often named America’s best biking city as well. Because Portland is a small city—its population was estimated to be 667.343 million in 2019 by US Population2019—it is built on a walkable scale.
Portland’s notoriously overcast weather means it stays mild for the most part, but do bring an umbrella. The Pearl District offers one of the city’s most pleasant strolls, as does the three-mile Waterfront Loop along the Willamette River.
Car-free travelers can depend on the city’s TriMet light rail, streetcars, and buses. TriMEt includes connections to the airport, train station, and to Beaverton, which is home to Nike’s enormous campus.
The Oregon coast, Willamette Valley wineries and Columbia River Gorge are all so spectacular that they justify renting a car, but save the vehicle pick-up for when you’re on your way out of town.
Chicago
Ranking No.4 on America's 10 Most Walkable Cities by CBSNews, Chicago, like Portland, also scores high as a bicycle-friendly community (No.6, per Bicycling’s 2018 survey), meaning that its streets are less car-centric than most urban areas. Chicago's Divvy bike sharing system has 6,000 bikes at over 570 stations across the city. Visitors can get a 24-hour pass for $15, for as many 3-hour rides as they like.
While its winter weather can be harsh, Chicago has stunning panoramas from the Navy Pier of Lake Michigan and the iconic skyline that make for delightful walking the rest of the year. Walking the Magnificent Mile rivals a stroll on New York Fifth Avenue any day.
America’s third largest city also has good 24-hour public transit composed of Chicago Transit Authority buses and rapid transit (the El), so exploring further afield is easy (as is getting to and from the two airports). So head out to one Chicago’s top-ranked walking neighborhood, like Lincoln Park, for some more foot time.
The Windy City isn’t as car-averse as some urban areas; its drivers land on neither the best nor the worst lists. Still, you’ll see a lot more and experience the city more intimately if you leave your vehicle at home.
Philadelphia
The city founder himself, William Penn, laid out the street grid in Philadelphia’s center in the 17th century, so what better way to pay him tribute than to amble around those pedestrian-friendly 25 blocks situated between the Schuylkill and Delaware Rivers.
Philadelphia ranks just after Boston (No.5 and No.3, respectively) in America Walks’ walkability ratings and is similar in its wealth of historic attractions, parks, and squares. There are 67 National Historic Landmarks within the City of Brotherly Love’s confines; look for the "Walk Philadelphia" signs to help you navigate. Spring and fall are the most glorious times to stroll, but the climate is relatively mild year-round, although below-freezing temperatures do occur in winter.
Philadelphia’s transit authority, SEPTA, runs buses, subways, trolleys, and trains, so if you want to explore outside the Center City district, you have a range of options. The Philadelphia Zoo, America’s oldest, is located in Fairmount Park and is an easy walk from a SEPTA bus stop, for example.
Philadelphia underwent a revitalization in the 1990s, and its violent-crime rate has dropped consistently for the past several years. Still, it is America’s sixth largest city, so pay attention to where you meander.
Fast Fact New York was considered the nation's most walkable city, according to CBSNews in 2019.
Minneapolis
Where else can you walk in the sky? Ingenious Minneapolis has made its frigid winters and warm, humid summers walkable with its downtown Skyway System. Open varying hours seven days a week, the 9.5 miles of elevated walkways link major businesses, residences, and attractions over 80 blocks including Target Center, the Hennepin County Government Center, and dozens of hotels, restaurants, and shops.
In balmy weather, Minneapolis is a pleasure to stroll at street-level too. There is an extensive network of parks with scenic walking and biking paths connected by the 51-mile Grand Rounds Scenic Byway. Small wonder Minneapolis was ranked the nation's third healthiest city in ACSM’s American Fitness Index 2019.
Minneapolis also excels at public transit, linking both the Minneapolis-St. Paul airport and the famous Mall of America to downtown via light rail. So, if you want to do some mall walking in the nation’s largest, hop on Metro Transit and head out to Bloomington.
Smaller than Portland, Minneapolis (population 432,114 million according to estimations by US Population2019) is a city built on a human scale, making walking and biking (check out NiceRide bike share) the best ways to appreciate it. Driving and parking are feasible in this friendly Midwestern town, but why bother with the car, especially if you’re not used to driving in snow?
The Bottom Line
In some U.S. cities, being without a car is a plus. These pedestrian-friendly centers, with good public transit and a growing number of bike share and bike path systems, make it fun for tourists to explore – without ever having to worry about (or pay for) a parking spot. Of course, be conscious of traffic (drivers aren’t always aware of you) and if you ever have safety concerns, ask locals where they’d feel comfortable strolling.
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5fcc540e085a1c31dbf910b502c04810 | https://www.investopedia.com/articles/personal-finance/051915/what-are-tax-advantages-when-buying-home.asp | Top Tax Advantages of Buying a Home | Top Tax Advantages of Buying a Home
Thinking of buying a home? There are plenty of perks if you do buy one. You can decorate it to suit your taste; you can put in a professional home theater system or perfectly customize the walk-in closet to hold everything you have in just the way you want it. But there are other benefits—financial benefits. If you rented in the past, all of your money went to the landlord. None of it came back to you as a tax deduction, but all of that is about to change.
These tax breaks aren’t just available for the single-family home in the nice subdivision, either. You could purchase a mobile home, townhouse, condominium, cooperative apartment, and, yes, a single-family home. As long as you’re entering into a mortgage contract, you’re eligible.
The only downside is that your taxes are about to get more complicated. Gone are the days when you plug your W-2 information into the 1040EZ form and, 10 minutes later, your taxes are done. As a homeowner, you enter the wonderful world of itemizing. You will have your own treasure trove of stories about losing receipts and calling stores days before your taxes are due, just to shave a couple more dollars off your taxable income. Yet it’s all worth the hassle when you see how much money you might save.
Key Takeaways Owning a home will often be the most expensive and important purchase you will make in your life. To encourage homeownership, the IRS has provided several tax breaks for owning a home. Credits may also be available for certain home improvements such as using clean energy or for qualified first-time home buyers.
How Deductions Work
In the tax world, there are deductions and there are credits. Credits represent money taken off of your tax bill. Think of them as coupons. If you get a $500 tax credit, your tax due will go down $500. A tax deduction reduces your adjusted gross income, which in turn reduces your tax liability. For example, you’re in the 24% tax bracket your tax liability will be reduced by 24% of the total claimed deduction. So if you claim a $2,000 deduction you can expect your tax liability to drop by about $400.
Types of Deductions
Most of the favorable tax treatment that comes from owning a home is in the form of deductions. Here are the most common deductions:
Mortgage Interest
Unless your case is the rarest of rare cases, you can probably deduct all of your home mortgage interest. There are some exceptions: for example, there is a $750,000 yearly cap on the amount you can deduct, but chances are this won't apply. In many instances, you can even deduct late fees.
In January, after the end of the tax year, your lender will send you IRS Form 1098, detailing the amount of interest you paid in the previous year. Be sure to also include any interest you paid as part of your closing. Lenders will include interest for the partial first month of your mortgage as part of your closing. You can find it on the settlement sheet. Ask your lender or mortgage broker to point this out to you. If it’s not included on your 1098, add this to your total mortgage interest when doing your taxes.
Real Estate Taxes
The money you pay in property taxes is deductible, too. If you pay your taxes through a lender escrow account, you’ll find the amount on your 1098 form. If you pay directly to your municipality, you will have personal records in the form of a check or automatic transfer.
If you reimbursed the seller for any real estate taxes they prepaid while you owned the home, include those payments as well. You can find them on your settlement sheet.
Points
You may have paid points to the lender as part of a new loan or refinancing. Points are normally priced as a percentage of the total loan. If you paid $275,000 for your home, each point costs you 1% of your home, or $2,750. As long as you actually gave the lender money for these points, you get a deduction.
If you refinanced your loan, or took out a home equity line of credit, you receive a deduction for points over the life of the loan. Each time you make a mortgage payment, a small percentage of the points is built into the loan. You can deduct that amount for each month you made payments. If $5 of the payment was for points, and you made a year’s worth of payments, your deductible amount is $60.
Private Mortgage Insurance (PMI)
If you took out a loan in 2007 or later, you might be able to deduct your private mortgage insurance payments. Lenders charge PMI to borrowers who put down less than 20%. If you’re single and your adjusted gross income is less than $50,000, you’re eligible for the deduction. Above $50,000, the deduction phases out. If you’re married, the threshold is $100,000.
If You Sell Your Home
Chances are you won’t have to pay taxes on most of the profit you might make when you sell your home. If you’ve owned and lived in the home for at least two of the five years before the sale, you won’t pay taxes on the first $250,000 of profit. If you’re married, the number doubles to $500,000, but both spouses have to meet the residency requirement. You might even be able to meet part of the residency requirement if you had to sell your home early due to a divorce, job change, or something else.
Tax Credits
If you took out a loan in 2007 or later, you might be able to deduct your private mortgage insurance payments.
Lenders charge PMI to borrowers who put down less than 20%. If you’re single and your adjusted gross income is less than $50,000, you’re eligible for the deduction. Above $50,000, the deduction phases out. If you’re married, the threshold is $100,000.
Also, check energy.gov to find out whether your state also offers tax credits, rebates, and other incentives for energy-efficient improvements to your home.
The Bottom Line
Let’s keep this in perspective. If you’re in the 24% tax bracket, you’re still paying nearly 75% of your mortgage interest without any deductions. Don’t fall into the trap of thinking that paying interest is beneficial because it reduces your taxes. Paying off your home as quickly as possible is, by far, the best financial move. There’s no prepayment penalty for paying off your mortgage, so pay as much as you can if you plan to live in the home for a long time. Of course, talk to your financial planner about the most beneficial way to pay down your debt.
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60a5c54cea7b7c267e13f7ef16086055 | https://www.investopedia.com/articles/personal-finance/052014/garage-sale-vs-donation.asp | Garage Sale vs. Donation | Garage Sale vs. Donation
As you clean out your attic and closets, you might find yourself neck-deep in bell-bottom jeans, polyester leisure suits, dusty garden gnomes and heaps of old toys—not to mention that collection of velvet dolphin paintings you inherited from your grandmother. You know you want to get rid of it all, but what will get you the biggest bang for your stuff?
You could plant a garage sale sign in your yard and try to make some quick cash. Then again, you could save yourself blood, sweat and tears and simply donate the goods to your local charity—which could lead to a decent tax deduction next April.
Keep reading to learn which option makes the most financial sense.
One’s Man Trash = A Wad of Cash?
There’s no question that garage sales require a ton of work. You have to sort through your unwanted stuff, place price tags on each item and then haul everything onto the driveway and neatly display the goods. If you want folks to show up, you’ll also need to promote your sale by planting signs around the neighborhood and maybe also advertising through the local penny-saver or community website. Yet despite all the time and effort they require, some folks actually enjoy holding garage sales—and the lucky ones end up making a decent chunk of change.
Although the average yard-sale item is priced at a meager 85 cents, these sales rake in more than $4 million each week across the U.S., according to a Signs.com study. While that may seem like serious dough, the profits are far less impressive when you break down the numbers by individual garage sales. The vast majority of sellers makes less than $300, based on a poll by YardSaleSearch.com.
On the plus side, the proceeds from a garage sale are not taxable. “Garage sales are considered the sale of personal property, and you do not have to claim the money you received from the sale,” explains P. David Alessandri, a Certified Public Accountant in Tampa, Florida.
Donate for Good Karma – and a Nice Tax Deduction
If the thought of organizing a garage sale makes doing your income taxes sound like fun, you can always box up your unwanted items and drop them off at the local Goodwill, Salvation Army or another charitable organization's shop. You'll avoid a the headache of a sale and have the satisfaction of helping families in need. As an added bonus, you may be eligible for a tax deduction.
To be sure that donation is truly tax deductible, keep these three things in mind:
Be sure to donate the items to a qualified charitable organization.Always obtain a proof of donation for your contributions.Itemize your deductions on your tax return, rather than using the standard deduction.
“As long as you itemize your deductions, you can list your ‘non-cash’ donations on Schedule A,” Alessandri explains.
Your donated items are assessed at “fair-market value,” which you can determine by comparable sales on eBay, Craigslist or at local thrift stores. You can also find donation-value guides on many charitable organization websites. If your donations for the year add up to more than $500, you must complete Form 8283 and attach it to your return. On this more complex form, you have to describe each item over the $500 that you donated, identify the recipient and provide information about the value of the item, including your cost or adjusted basis.
How big a deduction will you receive? That depends on your tax bracket and rate. For example, if you donate goods with a fair market value of $1,000 and your effective tax rate is 15%, you will reduce your tax bill by $150.
The Bottom Line
So, which has the higher payoff: garage sale or donation? If you file a tax return with itemized deductions, consider doing both. Hold a garage sale for some quick cash. Donate the items you don’t sell to a charity for the tax deduction. “That way, you’ll end up with some cash and maybe a little extra tax savings on your tax return,” Alessandri adds. If you take the standard deduction, though, bite the bullet and have a garage sale.
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89dc4cae44a83c66e76150961a84b86e | https://www.investopedia.com/articles/personal-finance/052014/whats-best-time-get-longterm-care-insurance.asp | The Best Time to Get Long-Term Care Insurance | The Best Time to Get Long-Term Care Insurance
Too often, those who seek long-term care only think about the cost of such services once they need them. That usually results in serious sticker shock. According to Genworth Financial, Inc. (GNW), which sells long-term care insurance, the average cost of a semi-private room at a nursing home in the United States is more than $77,000 a year.
For many older adults, long-term care insurance is an option worth considering. It may not make sense for those at the extremes of income, who are either wealthy enough to fund their own care or who qualify for Medicaid. But for those in the middle, weighing the pros and cons of these policies is a useful exercise.
If you concluded that long-term care insurance makes sense for you, timing is critical. Those who sign on too late could find themselves weighed down by higher premiums, or worse, find themselves ineligible to receive a policy. Signing on too early, on the other hand, could leave you paying many years of premiums before you are likely to need care.
Key Takeaways If you think you're going to need long-term care insurance, it's better to buy it in advance, versus waiting until you actually need it. Buy it too late and you may face stiff premiums, or be denied coverage altogether; buy it too soon and you may be paying needlessly for years. For most people, buying in their mid-50s makes the most sense, even though most claims aren't filed until a person is in their 70s or 80s.
The Best Age to Buy
The American Association for Long-Term Care Insurance (AALTCI) recommends that individuals take out a policy in their mid-50s. That may seem early, considering the vast majority of claims occur when people are in their 70s or 80s. The organization argues, however, that those who hold out may not qualify if their health diminishes.
While the Affordable Care Act prohibits traditional health insurers from excluding consumers based on pre-existing medical conditions, the bill doesn’t include long-term care policies. By the time people need help with activities such as bathing or dressing or have conditions such as Alzheimer’s disease and Parkinson’s disease, they could be stuck with higher premiums or have their application rejected. According to the AALTCI, roughly 23% of applicants in their 60s are declined coverage, whereas only 14% of those in their 50s are turned down.
Long-term care insurance is a necessity of the middle class, not the wealthy, who can afford private care, nor those who qualify for Medicaid.
Rates Only Get Higher
Another reason to be proactive about long-term care insurance is that premiums correspond to age. Every time people in their 50s reach a new birthday, the annual premiums they would be charged typically go up 2%-4%. Once they reach their 60s, premiums jump 6-8% for each year of age.
To get the same amount of coverage, someone who waits until age 65 to buy a policy could be charged premiums that are more than twice as high as those paid by an individual who bought their plan at 55. If the consumer is like most Americans, he/she won’t file a claim until at least age 80. Even with 10 extra years of premiums, buying insurance at 55 could save significant money in the long run.
The longer you wait to get long-term care insurance, the more expensive it is, with premiums corresponding to age.
Consider Inflation Protection
If you do buy in your mid-50s, the odds are you’ll be paying in for more than two decades before filing a claim. But because of inflation, the amount of coverage you buy won’t be worth nearly as much as it is today.
Consider an individual who buys a $150,000 policy and doesn’t need it for 20 years. If long-term care costs rise 3% a year on average, the insurance provides the equivalent of just $83,051 in protection.
Fortunately, many policies today come with inflation protection. The amount of benefits grows at either a fixed amount each year or compounds by a certain percentage annually. Naturally, you’ll pay significantly more in premiums to get this added benefit. But if you’re concerned about a minimal level of protection when you reach an advanced age, that could be a sacrifice worth making.
The Bottom Line
If you decide that long-term care insurance is the best way to prepare for your long-term care needs, there are advantages to buying it before you hit your 60s. You’ll not only increase your chance of getting approved but also benefit from a lower rate, in most cases. Keep in mind that pre-existing conditions may also affect your ability to gain coverage, as well as its cost.
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db3e7071bac5ed308630c709d01279eb | https://www.investopedia.com/articles/personal-finance/052714/annuitization-your-best-strategy.asp | Is Annuitization Your Best Strategy? | Is Annuitization Your Best Strategy?
If you're about to retire and own an annuity, you might be considering whether to convert your investment into a series of periodic payments. The process is called annuitization, and depending on which payment option you select, it is possible to receive payments up until you die—even if total payments exceed the value of the contract. But there are pitfalls as well. It's important to understand the math behind annuitization and long-term consequences.
Key Takeaways While annuitization provides a retirement income stream that annuity owners can’t outlive, there are long-term consequences that need to be taken into account. Annuitization is generally a good choice for those who expect to live much longer than their projected statistical lifespan. To decide if annuitization is the right option, you’ll need to consider your longevity, financial circumstances, risk tolerance, and investment objectives.
How Annuitization Works
Several decades ago, life insurance carriers began offering packaged annuity products to retirement savers as a form of insurance against outliving their income. More recently, some employers are including annuity options in their 401(k) plans, encouraged to do so after provisions in the Setting Every Community Up for Retirement Enhancement (SECURE) Act make it easier to offer annuities through sponsored retirement plans.
One of the key benefits annuities offer is the ability to provide a guaranteed monthly payment to the beneficiary until death, even if the total payout exceeds the value of the contract. In order to obtain this guarantee, however, the contract must be annuitized.
Annuitization is a single, one-time event that occurs between the accumulation and payout phases in an annuity. When the contract owner is ready to begin receiving annuity payments, the insurance carrier converts the accumulation units in the contract into annuity units and computes a mathematical monthly payout based upon several factors, including the value of the contract, the projected longevity of the beneficiary or beneficiaries, and the type of payout selected.
To decide if annuitization is the right move for you, consider the following:
Your Financial Objectives
The reason to choose annuitization is for the payout to be a source of monthly income. Wealthy investors who use annuities as tax shelters will typically opt for other forms of distribution. The majority of annuity owners typically choose either a straight systematic withdrawal or say they don't expect to withdraw funds unless an emergency arises.
A key factor to consider here is how much money you have saved in assets outside the annuity contract. If, for example, you have another $100,000 in liquid savings elsewhere, annuitization may be an appropriate choice because you have other assets to draw upon in the event of an emergency.
It is obviously not wise to convert all your savings into an irrevocable cash flow, even if doing so would provide the greatest possible return on investment. For this reason, most annuity carriers will only allow clients to put 60% to 80% of their assets into annuities.
However, those who are applying for Medicaid could benefit from an irrevocable payout because this will prevent the accumulation value of the contract from being included in their assets during the spend-down process. The rules for this exclusion are complex and vary from one state and insurance carrier to another.
Your Life Expectancy
Annuitization offers different options, allowing you to figure in your estimated lifespan and whether the annuity needs to provide for your heirs.
The financial consequences of substantially under- or over-projecting one’s life expectancy can range from detrimental to devastating.
Let's say you choose a straight life payout of some sort with no period certain clause. If you opt for that straight life payout, you will forfeit the unpaid portion of your contract back to the carrier if there is any principal left when you die. Had you chosen a contract with a period certain clause, that option would have guaranteed payouts for a specific term and would have continued to pay your heirs had you died before the payout period ended.
On the other hand, retirees who chose not to annuitize their contracts and make it past their life expectancy may outlive their savings.
You can improve your odds of making the right decision by researching your projected statistical longevity and comparing this with your own estimate based on such factors including your family’s medical history, and your own current health and lifestyle.
Today, approximately one out of every three 65-year-olds will live past 90, and about one out of seven will live past 95, according to the Social Security Administration.
Annuitization is a godsend for those who substantially exceed their projected lifespans. Married couples who want a higher payout without the risk of forfeiture may come out ahead by taking a straight joint-life payout with no period certain of any kind, and then purchasing a joint first-to-die term insurance policy that will pay out a tax-free death benefit to the survivor. Work through the cost implications of the choices you are considering before making a final decision.
An Example of Deciding to Annuitize
Let's take a look at a hypothetical example of a married couple and what they would need to consider to decide whether or not to take the annuitization route.
Jim and Mary are married, and both retired last month. Jim is 68 years old and Mary is 65. They purchase a $100,000 indexed annuity contract that will begin paying them immediate income. They have to choose the payment option.
If they choose to use an income-benefit rider for protection, they will receive a $5,000 per year minimum guaranteed payout as long as one of them is living—even after the accumulation value in the contract has been exhausted. Their payout may be slightly higher if the markets perform well. If they go for a joint-life payout with a 20-year period certain that requires annuitization, the best quote they get is $5,746 per year, which would guarantee total payments of at least $114,920 ($5,746 x 20 years).
Obviously, the annuitized joint-life contract would have paid them the highest monthly amount. However, this payout would have been irrevocable. The income-benefit-rider option, on the other hand, will allow them to withdraw any remaining accumulation value in the contract at no charge once the surrender charge schedule expires.
This example illustrates the trade-off between payout and liquidity. Jim and Mary will need to analyze carefully the likelihood that they might need to access the accumulated value in the contract at some point in the future, such as to pay for medical expenses.
Annuitization Alternatives
Annuity owners who choose not to annuitize their contracts have several other options. They can simply liquidate their contracts at no cost if they are at least age 59½ and the surrender charge schedule on their contract has expired. They can also pass the entire amount in the contract on to their beneficiaries after their death if they don't need to take distributions while they are living.
Income-benefit riders have become perhaps the most popular alternative to annuitization because they provide a guaranteed stream of income that often exceeds the actual accumulation value of the contract without locking the annuity owner into an irrevocable payout schedule. Contract owners will, therefore, receive a fixed monthly payment that still permits them to withdraw any remaining balance minus any applicable surrender charges or fees.
The Bottom Line
Annuity owners have several factors to consider if they are contemplating whether to annuitize their contract. Current health and projected longevity must be analyzed, as well as their financial circumstances, risk tolerance, and investment objectives—for example, the need for liquidity. Some annuity carriers are also starting to offer a measure of flexibility for withdrawal from annuitized contracts, such as allowing the distribution of future payments within the period certain.
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7168f639f0ea6a6aea8eccdff5895140 | https://www.investopedia.com/articles/personal-finance/052815/how-fly-first-class-cheap.asp | How to Fly First Class for Cheap | How to Fly First Class for Cheap
How Do You Fly First Class for Cheap?
As airlines continue to nibble away at the amenities, the comfort space, and the all-round ambiance of the coach cabin, flying first-class for cheap has become the dream for many travelers. Below, we'll look at some tips for scoring seats in the front of the plane—be it first class or business class—without breaking your wallet.
Key Takeaways Try to avoid buying business or first-class tickets outright, always—or at least, purchase seats on weekends, when fewer corporate travelers fly (fares might be lower).Joining airline loyalty programs and using co-branded credit cards can often earn you enough miles or points to buy premium seats.One tactic is to buy a coach seat, then use your frequent flyer points to upgrade to first class.It might be possible to upgrade a seat for less, or even for free, close to departure when you are checking in, or at the gate.
Understanding How to Get Cheap First Class Flights
On domestic flights, you’re more likely to see business-class seats than first class. In either case, how do you get them without paying a fortune to upgrade?
Don’t Book First Class Directly
A business-class ticket can cost as much as five times more than a coach ticket. Although flying business class is a better experience, it’s not five times better. Besides, in most cases, you can get them for cheaper using other means than buying them outright.
Remain Loyal
Airline loyalty programs aren't what they used to be. Even if you’re a frequent traveler, the perks you receive aren't nearly what they once were. All the same, those miles will add up, and eventually, you can use them for a free upgrade. But watch the expiration dates and make sure to read all e-mails that come from the airline. Don’t let points expire.
Easy Up
Andy Abramson, CEO of Comunicano, Inc., and one of the first Business Traveler magazine's Business Travelers of the Year recommends making use of easy-up fares. The way to do this is by purchasing "an upgradeable coach or premium economy fare, and then applying your points to get into first-class,” he says. In other words, don't buy expensive; buy cheap, and then upgrade.
Use Elite or Airline Credit Cards
Some of the mid-tier cards offer travel rewards, but the elite travel cards are where to find the real perks. Cards such as American Express Platinum, Chase Sapphire Preferred, and some of the co-branded cards like the Delta SkyMiles American Express card or the United MileagePlus Card offer big bonuses if you sign up and spend a certain amount within a short period.
“Once you pick an airline, the best advice is to get that airline's co-branded card," says Rosemarie Clancy, former vice-president of content and marketing at RewardExpert.com. "Many offer 50,000-mile sign-up bonuses, which is more than half the miles needed to get to Europe in first class, for instance."
Clancy adds the following: "Once you meet your minimum spend, which is usually around $4,000, think about getting a second card for your business, spouse or even yourself, especially one with transferable points like American Express Membership Rewards or Chase Ultimate Rewards. The Chase Sapphire cards offer bonus points [after spending a certain amount in the first three months] which are often enough, when combined with a mile bonus on an airline card, for one first-class round-trip ticket to London or Paris."
If you travel a little more frequently than the average vacationer, the annual fee associated with cards like the American Express Platinum pays for itself quickly in perks and rewards.
Buy the Points
There are plenty of websites that allow you to buy and sell points, but steer clear since major airlines frown on it, and it may result in you losing your miles or not being able to use the miles you purchased.
Instead, purchase them directly from the airline. They usually cost 2.5 cents per mile, but keep an eye out for promotional pricing deals. Whether it results in paying less for your first class seat depends on many variables, so crunch the numbers before you purchase.
Fly When Business Travelers Aren't
Business travelers fly all week. The last thing they want to do is fly on the weekends. That’s why you won’t see as many people flying in business suites on Saturdays and Sunday mornings. That might leave more business class seats up for grabs.
Book cheaper first-class flights on weekends, when most business travelers aren't flying.
Watch for the Open Seat
If your coach seat is towards the front of the plane, listen for the cabin door to shut. If there’s an open first-class seat, ask the flight attendant if you can move. Although free upgrades at the gate are becoming scarce, things might be more easygoing on-board. Of course, it always helps if you take the time to strike up a conversation with the attendant when you first board the plane.
Upgrade at Check-In
If you really want an upgraded seat and don’t have the miles to get it for free, purchase an upgrade when you check-in, even if you're doing it online. If there are seats available, airlines will often offer them at a discounted rate—since there are only 24 hours before takeoff at this point.
If you don’t mind the gamble, ask the gate attendant what they’re charging for the upgrade. It might be even cheaper than the reduced online rate.
Business vs. First-Class
If you’re wondering about the difference between first-class and business class, the answer is that it depends on the airline, the specific aircraft, and the route. At some airlines, there is no difference. At others, first class is a definite step above business class, especially on international flights.
As a rule of thumb, first-class customers have no—or at most one—seat next to them. They enjoy better service (i.e. flight attendants assigned exclusively to their cabin), higher-quality food and drinks, and access to the most luxe airport lounges.
But first-class seats can be pricey. In some parts of the world, a ticket could cost you thousands or even tens of thousands of dollars. A first-class ticket from New York to Singapore on Singapore Airlines, the most luxurious flight in the world, costs upwards of $15,000, for example. Of course, that does get you your very own suite on the plane, a double bed, and meals cooked by world-famous chefs.
Unless you're truly in the financial stratosphere, it’s difficult to justify the cost of a first-class seat if business class is available. The perks are similar, especially on domestic flights.
Cheap First Class Flight FAQs
Is it Worth Flying First Class?
It depends on the airline; a first-class ticket on a longer, international flight may feel more worthy to enjoy a more comfortable experience.
How Do You Ask for an Upgrade to First Class?
You can upgrade to first class anytime before the plane takes off. To fly for cheap, or even for free, ask for an upgrade close to departure when you are checking in or at the gate.
How Much Does It Cost to Upgrade to First Class?
It depends on the airline. Some airlines charge a few hundred dollars to upgrade an economy ticket to first class.
How Much Does It Cost to Fly Business Class?
While an economy ticket from San Francisco to New York could cost approximately $250, a business class ticket could cost more than double that amount in the range of $1,000. Prices will depend on each airline and route. It's easy to compare prices on sites like Google Flights, Expedia, and Kayak by making sure to unselect "economy" and choose first or business class.
The Bottom Line
“In the old days status fliers would get upgraded at the gate," Andy Abramson says. "That's possible on long hauls when there's plenty of first and business class inventory on the plane, but these days we have smaller planes and fewer seats to fill up.”
It’s not going to be easy to get the upgrade for cheap. In most cases, you will have to pay for something. But especially for longer flights, it might be well worth the extra cost.
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d39bbbec469805a2439fe409ac1a67bb | https://www.investopedia.com/articles/personal-finance/052815/professional-home-staging-worth-cost.asp | Is Professional Home Staging Worth The Cost? | Is Professional Home Staging Worth The Cost?
Home staging has become a "must do" for sellers. Some 77% of buyer's agents said home staging makes it easier for prospective buyers to visualize the property as a future home. Staged homes sell faster and for more money than those that are unstaged, according to industry analysis.
Key Takeaways Home staging is the curated furnishing and prepping an uninhabited home that is for sale on the real estate market.Proponents say that staging a home can increase a home's selling price and the likelihood that it will sell quickly as it helps prospective buyers better imagine how they can use the livable space.Staging, however, comes with a cost: you will have to pay the stager as well as pay for the rental for furnishings and home accents while the house remains unsold.Here, we weigh these costs and benefits to see if home staging really pays.
What is Staging?
Good staging is “a form of visual merchandising that draws on some of the fundamentals of interior design,” according to Gordon Roberts, a broker with Sotheby’s International Realty. “The object of staging is to flatter the property but not be too obvious about it, like being dressed without drawing particular attention to what you’re wearing.”
Melinda Massie, the owner of a Fort Worth home-organizing firm, says that good staging lets the buyers imagine themselves in the home; shows off its good features and hides its flaws; turns weird spaces into usable spaces; creates a mood (stagers call it “emotional” staging); and makes the home look significantly better in photos.
Benefits of Staging
Staging has only recently come into prominence—20 years ago nobody worried about staging. As a post on the legal website "NOLO.com" points out, “Giving your home a good scrubbing and hiding the kitty litter was considered enough before putting out the ‘for sale’ sign. [Now] more and more home sellers in many parts of the U.S. enlist the services of home stagers.” That makes it very likely your property will be competing with homes that have been professionally staged. In addition, the huge popularity of HGTV shows has heightened buyer expectations.
A stager can help with your online listing, too. A staggering number of people—95% according to a National Association of Realtors (NAR) report—use the Internet during their home search. That means that your home had better show really well online. Staging and photos by a professional can help you do that—and keep your home off Terrible Real Estate Agent Photographs.
Consider the return on investment. As Sid Pinkerton, a New York City-based stager, points out, if you found a financial planner who could give you a return on investment (ROI) of 5%, 10%, or sometimes as much as 20%, “wouldn’t you think they were a genius? Well, that’s what a good stager can do.”
How Staging Affects Time on Market
The Real Estate Staging Association (RESA) has a staging savings calculator that lets you figure out how much time and money (mortgage payments, carrying costs, etc.) to save if you stage your home before listing it. Its “Consumers Guide to Real Estate Staging” reports that homes that had not been staged before listing sat on the market an average 143 days.
Once these homes were staged, they sold in 40 days. Homes that were staged pre-listing averaged 23 days on the market. You can expect differences from state to state—in California homes sold five times faster, in Oregon seven times faster—but ”faster” is the key word here.
How Staging Affects Sale Price
According to the NAR report, 58% of sellers’ realtors believe that buyers offer more money for staged homes (29% think they offer 1% to 5% more; 21% put the increase at 6% to 10%; 3% put it as high as 20%). Only 14% of the realtors didn't feel staging had any impact on a home's selling price. Home Staging Resource, an organization that offers training and resources to stagers, is even more bullish on staging (as you’d expect): Its website states that in a survey of 3,500 staged homes, 46% sold for 10% more than they would have unstaged.
Ari Harkov, a broker for Halstead Property, cites another potential result of good staging: If you use your own furniture and the staging makes it look really good, sometimes the buyer will ask to buy the furniture, too.
The Cost of Staging
This is one of those “it depends” situations. It’s not possible to put an exact price tag on staging since there are so many variables: the state and city where the property is located; whether it’s a vacant property or one that’s being lived in (vacant properties really do need to have some furniture added because, as realtor Sissy Lappin says, “Seeing a vacant house is like looking at yourself in the mirror naked – you see every flaw!” ); whether you want a stager to do a walk-through and write a report; whether you want a whole house do-over using your own furniture or some supplied by the stager; or whether you want all rooms done or just the living room and the kitchen.
Some stagers charge by the hour, others have a set fee. Be sure to be clear about all terms of any contract you sign such as initial fee, timing and additional costs including furniture rentals.
In the last few years a new category of staging—virtual staging in which furniture and accessories are photoshopped into rooms—has appeared. It’s worth considering for online photos and is not as expensive as actual staging. But full disclosure is absolutely necessary. Harkov says that there should be two photos —one real, one photoshopped—on the site. He adds that there is data to show that virtually staged photos on a website bump up the viewing numbers and may convince someone that the property is worth a look.
Professional vs. DIY Staging
Consider the design skills, time and energy that staging will require and be realistic about whether you could undertake the task yourself. One stager quoted in a Brick Underground blog didn’t mince words: “Most homes I see that are not professionally staged look like Pottery Barn meets grandma’s hand-me-downs.” If you think you’re up for the challenge, check out the tips in How To Stage Your Home For A Quick Sale and Stage Your Home Like a Pro For Free.
How to Find Professional Help
Unlike some professions, there is no official licensing entity and no licensing exam for staging. Just about anyone can call themselves a stager, so the best way to find a good one is to get referrals from a seller you know who has used and found success with a particular stager or from your broker. A good broker will have connections to good stagers.
The Bottom Line
The cost of staging by a professional—someone who has a great track record in the biz, sound design sense and who comes well-recommended—can mean money in the bank for you. If staging helps you sell your home sooner (keeps it from being out there so long that people start wondering what’s wrong with it); if it saves you a month or more of carrying expenses; if it creates the kind of buzz that brings in offers above your asking price then your money is well spent. As Krisztina Bell, a stager in Atlanta, says, “It costs more not to stage—the average cost of a complete staging is usually much less than your first price reduction.”
For more selling tips, see Dos And Don'ts Of Selling A House and Selling Your House? Avoid These Mistakes.
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cbe0e76dd8b976a12aa733bb1312a7ca | https://www.investopedia.com/articles/personal-finance/053116/top-10-checking-accounts-us-expats-living-abroad-cof-schw.asp | Top 10 Checking Accounts for U.S. Expats Living Abroad | Top 10 Checking Accounts for U.S. Expats Living Abroad
For U.S. citizens living abroad, referred to as expatriates or expats, maintaining checking and other bank accounts in the United States provides several advantages. These include the convenience of paying bills or making payments in the country and the ease of direct deposits for employment or Social Security payments.
However, using these accounts while living in a foreign country can be expensive due to bank fees. For example, ATM transaction fees can be high—anywhere from $1 to $5 per transaction, if you choose the wrong bank. And without a strong mobile platform and 24-hour help centers, it may be difficult to access funds when overseas.
Below are the 10 top checking accounts for expats—with proven track records. Some of the banks listed have a hefty physical presence abroad, think HSBC and Citi, and others, like Ally Bank or Capital One, operate, for the most part, as online entities. All the banks listed have been vetted with expats and travelers in mind. All information has been updated as of Jan. 2, 2021.
Key Takeaways U.S. expatriates looking for the best checking account will need to consider whether they prefer a bank with a physical location, an online-only bank, or one that offers the best of both.Other things to consider are foreign transaction fees, which can eat away at your balance each time you make an ATM withdrawal or debit card purchase.Some banks and credit unions will offer reimbursement of foreign transaction fees.In order to receive reimbursement of fees and other benefits on your checking account, you may need to meet a minimum monthly balance or other requirements.
Capital One
Expats can use the Capital One 360 interest-bearing checking solution offered by Capital One Financial Corp. (COF) without paying maintenance, foreign transaction, or ATM fees. Account owners can set up direct deposits for work or Social Security payments. In addition, for Capital One 360 products, there are no additional fees when you use your debit card abroad.
Be aware that if you plan on making mobile deposits of checks while living abroad, you might face restrictions that prevent you from doing so depending on the financial institution you use. For example, while you can deposit a check from anywhere in the U.S. and U.S. territories using Capital One's mobile deposit app, certain items are not eligible for this service, including checks that are not payable in U.S. currency or are not drawn on a financial institution located in the U.S.
Charles Schwab Bank
For expats seeking a low-cost checking account for international use, the Schwab Bank High Yield Investor Checking Account offered by the Charles Schwab Corp. (SCHW) pays rebates on all ATM charges, processes transactions in foreign currencies at no charge, and does not charge service fees. The account pays interest and can be linked to Apple Pay. When you open a checking account with Schwab Bank, you will need to open and be linked to a Schwab One brokerage account, as well.
Citibank
The Citibank ATM Network is available in over 40 countries, so accessing an ATM may not be a problem. A subsidiary of Citigroup Inc. (C), Citibank offers expats the convenience of handling their financial affairs in offices around the world, as well as online. With the Citi International Personal Account Package and the Citigold interest checking account, customers receive wealth management and financial planning services in addition to banking services.
Customers must maintain a minimum combined average monthly balance of $200,000 in eligible linked banking, investment, and retirement accounts. There is no monthly service fee for accounts that meet the minimum average monthly balance. The account offers fee waivers on most bank services and reimbursement of fees charged by other banks for using non-Citi ATM machines. Depending on the type of Citigold account you hold, wire transfer fees are either waived or reduced.
HSBC
The international footprint of HSBC Holdings PLC (HSBC) provides expats an unparalleled physical presence with operations in 64 countries and territories. HSBC Premier checking offers a variety of features, including no ATM or transaction fees, no annual fees, and emergency cash up to $10,000 should a customer's wallet be lost or stolen.
To qualify for the Premier account, customers must maintain a minimum balance of $75,000 in linked accounts with the bank or have monthly recurring third-party direct deposits of at least $5,000 or an HSBC U.S. residential mortgage loan with an original loan amount of at least $500,000.
If you can't afford a Premier account, try an HSBC Choice or Advance checking account, both of which allow you to bypass ATM fees in specific countries.
HSBC Bank is known for its customer service and will help you open an account overseas, even before you move. In addition, you can move your funds via its mobile app between any of your HSBC accounts, which can come in handy if you have multiple accounts across multiple countries.
Alliant Credit Union
The high-interest rate checking account at Alliant Credit Union pays an annual percentage yield (APY) of 0.25% with no minimum balance requirement and no monthly service fees. Unlike many banks, credit unions often pass processing charges on transactions through to customers without markups.
As a result, fees charged to expats on foreign ATM withdrawals and debit card purchases are 1% of the total transaction. However, Alliant does offer an ATM fee rebate of up to $20 per month.
Some financial institutions charge foreign transaction fees to customers who make withdrawals from foreign ATMs or make purchases in a foreign currency using an electronic payment card. These fees are typically 1% to 3% of the transaction's value.
First Republic Bank
The ATM Rebate checking account offered by First Republic Bank (NYSE: FRC) offers free withdrawals at ATMs around the world, refunds on charges for withdrawals from non-network ATMs, and waived transaction fees on debit card use. The account pays interest when a minimum of $3,500 is maintained throughout each monthly statement cycle. There is a $500 minimum to open an ATM Rebate checking account.
Ally Bank
While it only offers online banking, Ally Bank has a robust online interface for expats with free bill paying, no maintenance fees, and no monthly maintenance minimums. Ally Bank charges a standard foreign transaction fee of up to 1% of the transaction amount for ATM withdrawals and debit card transactions. There may be an additional charge if you use a non-Allpoint ATM overseas.
Fidelity Investments
For expats holding investment accounts with Fidelity Investments, the debit card included with the Cash Management Account can be used to withdraw cash from over one million ATMs worldwide. For each foreign transaction, there is a 1% foreign transaction fee for non-U.S. dollar transactions, which may apply whether or not there is a currency conversion. The account also offers travel and emergency assistance, accident insurance, and damage waivers for car rentals.
Navy Federal Credit Union
For active and retired members of the military who banked with the Navy Federal Credit Union (NFCU) while living stateside, the credit union also adds value for members living abroad. You won't be charged ATM access fees when using International Navy Federal and CO-OP ATMs.
However, some CO-OP ATMs and non-NFCU ATMs may charge an International Assessment Service Fee (ISA) of 1% of the amount withdrawn. The credit union pays a rebate of up to $10 per statement period to cover ATM charges for direct deposit accounts. The Flagship Checking account pays tiered dividend rates with a maximum APY of 0.45% for balances over $25,000.
State Department Federal Credit Union
If you or an immediate family member is employed by the U.S. Department of State, this federal credit union has a lot to offer its members. You can open a Basic checking account (no minimum required), an Advantage account with a $2,000 balance, or a Privilege account with a $25,000 balance. All accounts give members access to nearly 30,000 free ATMs. Members can utilize the credit union's robust online banking system, plus its 24-hour call center.
The credit union offers Advantage account holders a monthly reimbursement of up to $15 for ATM foreign transaction fees. Privilege account holders receive a monthly reimbursement of up to $25. The Advantage checking account pays dividend rates with an APY of 0.45% and the Privilege checking account pays an APY of 0.50%.
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d06f34d1c46f2e14c9e22bad4ce6f1bd | https://www.investopedia.com/articles/personal-finance/060215/most-expensive-states-retire.asp | The Most Expensive States to Retire In | The Most Expensive States to Retire In
More than half of all Americans – 58% – feel like they are not on track for retirement, according to a study from the National Institute on Retirement Security. A recent survey from the U.S. Government Accountability Office shows that 29% of Americans over age 55 have no retirement savings, either in the form of individual retirement plans, employer-sponsored 401(k)s, or defined benefit plans. These and a host of studies and surveys support what many Americans already know: The majority of us are financially unprepared for retirement.
Many people who don’t have the money to retire at home may look for alternatives. Some people might consider moving abroad where there is a lower cost of living and access to affordable healthcare.
But where to go? We looked at data from Bankrate.com’s “Best and Worst States to Retire” list to determine which states are the most expensive, taking into consideration each state’s cost-of-living rank as well as its tax-rate rank. We looked at the 10 worst (i.e., most expensive) states in each category, and found six that made top 10 appearances in both categories – making them the priciest places to retire in, overall. Here's the roster, starting with the most expensive state.
New York
Cost-of-Living Rank: 50 (2nd highest)
Tax Rate Rank: 50 (highest)
State Income Tax: 4.0% to 8.82%
State Sales Tax: 4.0%
Estate/Inheritance Tax: Yes/No
New York has the 3rd highest cost of living in the U.S., behind only California. The state’s 12.97% tax burden for 2019 (the most recent data available from The Tax Foundation, a private tax policy research organization) is well above the national average of 9.9% – and is the highest in the country. Taxpayers paid $2,929 per capita in state and local taxes in 2016, and the top rate for capital gains is 31.5%, the second-highest rate in the U.S. (after California). State and local governments collect about $2,782 per capita in property taxes in 2016, the 5th highest in the nation.
Connecticut
Cost-of-Living Rank: 46 (5th highest)
Tax Rate Rank: 49 (2nd highest)
State Income Tax: 3.0% to 6.99%
State Sales Tax: 6.35% (7.75% for certain luxury items)
Estate/Inheritance Tax: Yes/No
Connecticut is the 5th most expensive state in terms of cost of living. Its 2012 tax burden of 12.6% ranks 2nd highest in the nation, and taxpayers pay $7,869 per capita in state and local taxes. Property tax collections amount to about $2,726 per capita, which ranks 2nd nationally. Connecticut offers no exemptions or tax credits for most pensions or other retirement income – including Social Security benefits (unless the taxpayers have a federal adjusted gross income of less than $50,000, or less than $60,000 for married taxpayers filing jointly). The exceptions are Railroad Retirement benefits and military pensions, which are both excluded from taxes.
California
Cost-of-Living Rank: 49 (2nd highest)
Tax Rate Rank: 45 (6th highest rate)
State Income Tax: 1.0% to 13.3%
State Sales Tax: 7.25%
Estate/Inheritance Tax: No/No
California has the 2nd highest cost of living and ranks 6th in terms of tax rates. The individual income tax top rate of 13.3% is the highest among states that impose an individual income tax. Its 2012 tax burden of 11% ranks 6th highest in the nation, and taxpayers pay $5,237 per capita in state and local taxes. State and local governments collect about $1,365 per person for property taxes. The state sales tax is 7.25% (the highest among the states mentioned here), and the combined rate in special city/county taxing districts can be as high as 9.75%. Although Social Security and Railroad Retirement benefits are exempt from taxes in California, all other sources of retirement income are fully taxed. The state has the highest capital gains tax rate in the country, topping out at 33%.
New Jersey
Cost-of-Living Rank: 43 (8th highest)
Tax Rate Rank: 48 (3rd highest)
State Income Tax: 1.4% to 8.97%
State Sales Tax: 7.0%
Estate/Inheritance Tax: Yes/Yes
New Jersey has the 8th highest cost of living and the 3rd highest tax rate in the country. The state’s 2012 tax burden was 12.2%, and taxpayers pay $6,926 per capita in state and local taxes. Property tax collections are about $2,989 per person, which ranks 1st nationally. New Jersey is one of only two states that levy both an inheritance tax and an estate tax. While close relatives are generally excluded from the inheritance tax, other beneficiaries face tax rates ranging from 11% to 16% on inheritances over $500.The estate tax is set to disappear in 2018.
Rhode Island
Cost-of-Living Rank: 41 (10th highest)
Tax Rate Rank: 43 (8th highest)
State Income Tax: 3.75% to 5.99%
State Sales Tax: 7.0%
Estate/Inheritance Tax: Yes/No
Rhode Island has the 10th highest cost of living in the country, and the 8th highest tax rate, even though it lowered its top income tax rate from 9.9% to 5.99% in 2011. The state had a 2012 tax burden of 10.8%, and taxpayers pay $4,998 per capita in state and local taxes. Property taxes are about $2,282 per capita, which ranks 6th nationally. Railroad Retirement benefits are exempt from taxes, and so are Social Security benefits if they fall below the applicable threshold ($80,000 for single filers and up to $100,000 for joint filers). Other retirement income is taxable at ordinary income tax rates.
Vermont
Cost-of-Living Rank: 42 (9th highest)
Tax Rate Rank: 41 (10th highest)
State Income Tax: 3.55% to 8.95%
State Sales Tax: 6.0%
Estate/Inheritance Tax: Yes/No
Vermont has the 10th highest cost of living and 8th highest tax rate. Its 2012 tax burden was 10.3%, and taxpayers pay $4,557 per capita in state and local taxes. Property tax collections amount to about $2,331 per capita, which ranks 5th nationally. Vermont taxes most retirement income at ordinary income tax rates, including Social Security benefits, which are taxed up to 85% (in sync with the federal rate) of benefits. Railroad Retirement benefits are exempt.
The Bottom Line
Several states have tried to make their tax systems more appealing to retirees. Maine, for example, boosted the amount of pension income you can exclude from state taxes, and Nebraska increased its exemption for Social Security income. The federal exclusion for estate tax is currently $5.45 million, and both New York and Maryland are incrementally increasing their exemptions to match the federal amount.
Whether you are concerned with making your money last longer during retirement or leaving more assets to your children, the local cost of living and tax rate may be an important consideration during retirement. Not that non-financial factors – your interests, hobbies, comfort, health, and proximity to friends and family – aren't important when choosing a retirement destination. Just bear in mind that wherever you retire (be it in place, in another state, or abroad) can have a considerable impact on your finances, as well.
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03dabb19bf6e16eef5ad275359f2e47d | https://www.investopedia.com/articles/personal-finance/060415/importance-millennial-consumers.asp | The Importance of Millennial Consumers | The Importance of Millennial Consumers
Millennials are the next baby boomers: a group of people so economically valuable that advertisers drop their existing methods to cater to them. Today, millennials only account for 25% of the total population but have already surpassed the baby boomers (those born between 1946 and 1964) in numbers. With an estimated U.S. population of 320 million, the millennials represent a substantial amount of spending money.
Who Are the Millennials?
Millennials are the group of people born from 1981 to 1996, dates recently crystallized by the Pew Research Center after years of vagueness that set them anywhere from 1980 to the early 2000s. The generation is also sometimes known as Generation Me, Trophy Kids, or the Peter Pan Generation, nicknames that imply negative stereotypes, such as that the demographic is lazy, spoiled, and selfish. According to an April 2012 survey from the Boston Consulting Group, the typical millennial would describe himself as tech-savvy, cool, and young (and, admittedly, lazy).
Key Takeaways Millennials represent a large segment of the population and are an important target market for consumer companies. The group consists of people born between 1980 and the early 2000s, or roughly 25% of the U.S. population. Many millennials research online, test products in stores, and seek out honest reviews before making a decision to buy. While many are underemployed and burdened with student debt today, millennials are likely to get richer over time and represent an important market for advertisers and consumer companies alike.
The laziness is perhaps understandable because millennials grew up as digital natives and seem to command technology capable of doing anything they don’t feel like getting up to do. The television remote is too far away? There’s an app for that. Don’t want to deal with a long commute every day? Work remotely half the week. To older generations, it seems like millennials are doing a whole lot of nothing.
Why Do Millennials Matter?
Millennials are careful with their money. Having come of age in the aftermath of 9/11 and during the Great Recession, Millennials are facing futures with less overall wealth than the previous generations. A number of things have caused this problem. First off, millennials bought into the American Dream of having post-secondary degrees and, as such, colleges are graduating an increasing number of students each year. However, these new grads are faced with debts that average roughly $33,000, according to Forbes.
Large debts mean that millennials are not able to live the same way their parents did. Entry-level salaries are sometimes meager and much of that income goes towards debt payments, credit cards, and, unless they’ve moved back in with mom and dad, to living expenses. There simply isn’t a lot of money left over for non-essentials.
While online shopping is a great convenience that could, perhaps, contribute to the aforementioned lazy millennial stereotype, brick-and-mortar shops aren’t going away. Remember, this is a generation that has either grown up or become accustomed to the instantaneous world of the Internet. For them, waiting for seven to nine business days for a product to ship is agony when the shop down the road has the same item ready for immediate use.
Why Now?
Why should advertisers pay attention to this poor, low-spending demographic? For starters, millennials are extremely loyal to the right companies. While Sears (SHLD) and Chevrolet (GM) may not be getting millennial dollars, companies with an efficient social media presence and those that customize the shopping experience find that young adults will return.
In addition, companies are finding that traditional advertisements are becoming less effective as a means to entice millennial shoppers. That's because the demographic typically choose to spend their scarce cash on products that they know will be worth their money: they research online, test the products in stores, and then seek out honest reviews by their peers before making a purchase.
By capturing the millennials now via cheap techniques, companies will find their advertising dollars stretch further as this group gets richer.
The Bottom Line
Millennials are underemployed and heavily indebted, but although guarded with their money, the group will spend when they think the purchase is worth the money: on services, heavily researched quality goods, and purchases that their peers have made. The group is loyal to companies that treat them like people, not numbers, and that interact with them (and solve problems) on their favorite social media sites.
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d5cc8d55f276dbeacf1f3c6579957c26 | https://www.investopedia.com/articles/personal-finance/060514/4-big-reasons-your-expenses-could-rise-retirement.asp | 4 Big Reasons Your Expenses Could Rise in Retirement | 4 Big Reasons Your Expenses Could Rise in Retirement
Many of us assume our spending will decline in retirement, but this isn't always the case. There are four prime reasons why your expenses could actually rise. The good news is that there are ways to save money on each.
One common rule suggests people plan on needing about 70% to 80% of their pre-retirement income to pay the bills. Many retirees do find that their expenses go down, sometimes even below that estimate. There are no more daily commuting costs or having to maintain a work wardrobe, and fewer (if any) pricey business lunches. Add to this an end to withholding for 401(k) plans, Medicare, and Social Security.
But others are surprised to see expenses heading in the opposite direction. Travel is one big reason. Uncovered medical expenses are another. Ditto for unexpected tax bills. Still another cause: Retirees simply have more free time to spend, spend, and spend.
Key Takeaways While many retirees find that their expenses go down once they stop working, this is not always the case. More money spent on travel and uncovered medical expenses, as well as unexpected tax bills and more free time to shop, are four big reasons why. The good news is that with some proper planning, it’s possible to save money on each.
“Overall expenses rise between 2% and 4% annually, and if retirement income is fixed, this can be a challenge 10 to 15 years into retirement,” says Wes Shannon, CFP®, managing partner, SJK Financial Planning, LLC, in Hurst, Texas.
1. Travel
Your travel expenses could easily shoot up in retirement, particularly in the early years. Suddenly, you’ll have the leisure to go places you’ve always wanted to see but never had time for when working and perhaps raising kids. Of course, your job-related commuting expenses will no longer be a factor, so whatever you were spending there each month can be applied to your new and fun travel budget.
Ways to Save on Travel
Many hotels and some airlines offer senior discounts. But check before you buy: They aren’t always the best deal you can get.
Senior discounts might knock 10% to 15% off the regular room rate at many hotel chains, but better promotions are often available. Rather than requesting a senior discount upfront, ask the reservations agent for the best available price on the kind of room you want. Next, see if the senior discount can be applied on top of that. Consider the senior rate alone as your fallback position.
It’s much the same when it comes to plane tickets. Some airlines, such as American, Delta, and United, offer senior fares on selected routes, generally to passengers 65 and older. It could be worth a call to ask, but, as usual, you might land a cheaper ticket with a little searching.
If you’re open to rentals and don’t mind being in the kitchen, consider VRBO (Vacation Rentals By Owner) or Airbnb.
“Offerings are typically other people's second homes in typical vacation locations,” says Bill DeShurko, CIO, Fund Trader Pro, in Centerville, Ohio. “Now that we are empty nesters and hope to pick up on our vacationing, although we could fly to more exotic destinations, we have a year planned with VRBO accommodations. Our idea of a vacation is sitting out on our deck looking out over a lake, the mountains, or a beach. And we look for activities that include boating, golf, tennis, and fly fishing. We never seem to not be able to find a VRBO listing.”
Don't Forget Insurance Costs
Travel insurance, which you’re almost certain to be offered, is another consideration. Before you automatically buy a policy for peace of mind, make sure you know exactly what it covers and which restrictions lurk in its fine print—these could keep you from ever collecting.
If you’re on Medicare, bear in mind that it generally doesn’t cover medical expenses outside the United States. That includes if you are on a cruise ship that is more than six hours from a U.S. port. That's another reason to buy travel insurance; just make sure healthcare is covered in the policy, not just trip cancellation.
Some Medicare supplement, or Medigap, policies provide for emergency healthcare coverage when you’re away from the U.S. If you have Medigap, review your policy before you pay for duplicative coverage.
Perks for Seniors
It’s also worth checking your credit card agreement or calling the issuer to see what travel coverage, if any, it provides. Some cards cover such risks as lost baggage, but only if you bought your travel tickets with that specific card.
Probably the greatest edge retirees have in getting terrific travel deals is their flexibility to travel when they aren’t competing with business travelers or vacationers whose schedules are more constricted.
2. Healthcare
As mentioned earlier, Medicare, the federal program that insures many Americans over age 65, usually won’t cover you if you get sick and need treatment overseas. It also doesn’t fund a number of other expenses that your previous, employer-paid health insurance probably took care of. These include most dental care, eye exams, hearing aids, and routine foot care, among others. So you probably should build some extra money for these services into your retirement budget. If your former employer provides any retiree health benefits, those will figure into the equation too.
“Healthcare is one of the larger budget items for retirees, especially in their later years. Understanding industry statistics in terms of healthcare expenses beyond what is covered by Medicare parts A and B is a good starting point to start saving and budgeting for future healthcare expenses,” says Mark Hebner, founder, and president, Index Fund Advisors, Inc., Irvine, Calif., and author of “Index Funds: The 12-Step Recovery Program for Active Investors.”
Ways to Save on Healthcare
If your non-covered medical expenses are substantial, one way to ease the burden a bit is by bunching them into a single calendar year and claiming a tax deduction. Don’t put off emergency procedures, of course, but if you can safely wait a bit for non-urgent dental work or a new hearing aid, you might accumulate a large enough bill to reach the threshold for claiming a deduction.
For the 2020 tax year, eligible, unreimbursed medical and dental expenses are deductible to the extent that they exceed 7.5% of your adjusted gross income.
3. Taxes
Your income may decline during retirement, resulting in a lower marginal tax bracket and a smaller income tax bill. But if you have a lot of money in retirement plans, such as traditional IRAs, that are subject to required minimum distributions (RMDs) every year after age 72, you could actually find your income and income taxes going up.
“Most people are surprised at the tax hit when withdrawing from traditional 401(k) and IRAs in retirement. Roth IRAs can help soften the tax blow since those withdrawals are tax-free,” says David N. Waldrop, CFP®, president of Bridgeview Capital Advisors, Inc., in El Dorado Hills, Calif. Plus, Roth IRAs aren't subject to RMDs.
Note, too, that your Social Security benefits could be taxable if your income exceeds certain limits. For example, if your total income exceeds $32,000 for couples or $25,000 for singles, you may have to pay taxes on it.
Ways to Save on Taxes
First, if you’ve reached the age for RMDs, don’t ignore them, or you’ll face a substantial tax penalty. Try to get a close estimate of how much money you’re likely to need to cover the taxes on any required minimum distributions and figure out where the money is going to come from.
50% The amount of penalty tax you will pay if you fail to take the required minimum distributions. As of 2020, this age is 72. Prior to that, it was 70½ years old.
That could mean withdrawing more from your retirement accounts to cover the tax or taking money from non-retirement accounts, which might be taxed at a lower rate. The former is taxed as ordinary income, while the latter may be taxed at more favorable, long-term capital gains rates. If this is unfamiliar territory for you, you might want to enlist the services of an accountant or a financial planner to run some different scenarios.
Also, find out whether being of retirement age entitles you to any special breaks on property taxes where you live. You can’t assume you’ll just get them automatically, as your local tax assessor probably has no idea how old you are. The website for your state tax department is a good place to start.
4. Shopping
Retirement often means spending more time at home, particularly during daylight hours. You could find yourself wondering how you ever lived with those worn carpets and dingy drapes, not to mention that circa-1970s wood paneling. You might also want to treat yourself to an up-to-date kitchen, a more luxurious bath, or a separate home office where you can manage your investments or write your spy novel. And you may want to make some "universal design" alterations to increase your security and comfort, such as replacing doorknobs with handles or installing grab bars in the bathroom.
If redecorating or remodeling would make your life more comfortable—and if you can afford it—there’s little reason to deny yourself. Don’t forget, however, that retirement can last a long time, and many of us are likely to live into our 90s or beyond. Ideally, our savings should hold out as long as we do. In other words, don’t go crazy with credit cards.
Ways to Save on Shopping
Fortunately, one of the great things about being retired is that you don’t just have more time to shop. You also have more time to shop around for the very best deals. So take advantage of that and enjoy it.
The Bottom Line
While you take advantage of the freedom retirement brings, keep an eye on your expenses. Set a budget and cut back if needed. Also, take the time to find the best deals on travel and make sure to be as tax efficient as possible when it comes to healthcare expenses and required minimum distributions.
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3ab69ae2b90b8bfcfd84f01f9a0f2f13 | https://www.investopedia.com/articles/personal-finance/060515/when-do-i-stop-paying-social-security-tax.asp | When Do I Stop Paying Social Security Tax? | When Do I Stop Paying Social Security Tax?
Of all the taxes that come out of your paycheck, none may be as inescapable as those that go to Social Security. Whether you're salaried or self-employed, you must generally contribute throughout your entire working life. There are, however, a few exceptions, which we'll cover here.
Key Takeaways Most American workers have to pay Social Security taxes for as long as they're working.There are a few exceptions, including members of certain religious groups and some types of nonresident aliens.Federal employees hired before 1984 may also be exempt because they pay into a separate retirement system.
Basics of Social Security Withholding
If you work for an employer, your paycheck will likely show an amount withheld for FICA, the Federal Insurance Contributions Act. FICA includes both Social Security and Medicare, the federal health insurance program for Americans 65 and over.
As of 2021, your wages up to $142,800 ($137,700 for 2020) are taxed at 6.2% for Social Security, and your wages with no limit are taxed at 1.45% for Medicare. Your employer matches those amounts and sends the total to the government.
If you work for yourself, you have to pay both halves because you are, in effect, both employee and employer. This is known as SECA, or the Self Employed Contributions Act, tax.
Who Doesn't Have to Pay Social Security?
High Earners
As mentioned above, workers making the big bucks pay for only a portion of their income. After their income hits a certain level, their Social Security withholding stops for the year. Officially known as the wage base limit, the threshold changes every year.
The 2021 wage limit for paying FICA taxes is $142,800, versus the $137,700 limit in 2020.
Members of Some Religious Groups
Some workers are exempt from paying Social Security taxes if they, their employer, and the sect, order, or organization they belong to officially decline to accept Social Security benefits for retirement, disability, death, or medical care. To receive the exemption, members of such groups must apply using IRS Form 4029. A number of restrictions apply, including:
The group must have been in existence since 1950.The group must have provided its members with a realistic standard of living since that time.
Certain Foreign Visitors
Although nonresident aliens employed in the U.S. normally pay Social Security tax on any income they earn here, there are some exceptions. Mostly, these apply to foreign government employees, students, and educators living and working in the country on a temporary basis and possessing the correct type of visa. In some cases, their families and domestic workers can also be exempt.
Some American College Students
American college and university students who work part-time at their schools may also qualify for an exemption from Social Security tax. The job must be contingent on the student’s full-time enrollment at the college or university.
"Students who are employed by a school, college, or university where the student is pursuing a course of study are exempt from paying FICA taxes as long as their relationship with the school, college, or university is student, meaning education is predominantly the relationship, not employment," says Alina Parizianu, CFP®, MBA, financial advisor, ACap Asset Management, New York, N.Y.
Income beyond a certain level ($142,800 in 2021) isn't subject to Social Security tax, but Medicare tax applies to all income.
Pre-1984 Federal Employees
Civilian employees of the federal government who started their jobs prior to 1984 are covered under the Civil Service Retirement System (CSRS), while those who were hired in 1984 or later are part of the Federal Employees Retirement System (FERS). Workers covered by the CSRS are not required to pay Social Security taxes, nor will they receive Social Security benefits. However, those covered by the FERS are part of the Social Security system and contribute to it at the current tax rate.
Certain State and Local Government Workers
State or local government employees, including those working for a public school system, college, or university, may or may not pay Social Security taxes. If they're covered by both a pension plan and Social Security, then they must make Social Security contributions. But if they're covered solely by a pension plan, then they don’t have to contribute to the Social Security system.
The Bottom Line
So, when do you stop paying Social Security tax? As long as you're employed, the answer is almost always "never." But there are exceptions to every rule, and if one of those discussed above seems to apply to you, be sure to check it out.
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241a8305024aea1e151d89a637efbad2 | https://www.investopedia.com/articles/personal-finance/060915/how-are-dividends-iras-taxed.asp | How Are Dividends on IRAs Taxed? | How Are Dividends on IRAs Taxed?
Growing Funds Faster
Dividend-earning stocks and mutual funds can help your retirement portfolio grow more quickly, so long as you reinvest the dividends. But they can be a tax trap when you want to take the money out, especially if you invested your money in a traditional IRA.
Key Takeaways Dividends earned in traditional IRAs are not taxed when they are paid or reinvested, rather retirement account withdrawals are taxed at one's current income tax when they are withdrawn. Roth IRA funds grow tax-exempt, including the payment of dividends, and so these are not subject to taxation. These deferments and exemptions are only valid if you wait until at least age 59½ to withdraw retirement funds.
The Tax Trap Explained
In a regular investment account, the dividends and capital gains you earn benefit from capital gains tax treatment. This means these earnings could be taxed at a lower rate (from 0% to 20%, depending on your income level).
For example, if you earn less than $40,000, you would pay 0% taxes on dividends and long-term capital gains. Those who earn between $40,001 and $441,450 would pay only 15% on dividends and capital gains. Those who earn more than $441,450 would pay just 20% on dividends and capital gains.
But when that money is in an IRA, the treatment can be radically different, depending on which type of IRA you have and when you want to withdraw the money.
Before retirement, money in any type of IRA actually avoids taxes. You will not pay any taxes on dividends that are reinvested in either a Roth IRA or traditional IRA and left in that account.
"The great benefit of retirement accounts, IRAs and Roth IRAs, is that dividends are not taxed on an annual basis. That is the tax deferral component," says John P. Daly, CFP®, president of Daly Investment Management LLC in Mount Prospect, Ill. "With a regular taxable investment account, dividends are taxed every year you receive them."
With an IRA, the catch comes when you want to withdraw money. The rules are different depending on which type of IRA you have. Here is how they work for both Roth and traditional IRAs.
1:04 How IRA Dividends Are Taxed
Roth IRA Withdrawals
As long as you withdraw money invested in a Roth IRA after the age of 59½—and you owned that account for more than five years—you will pay zero taxes on the withdrawals, even if the withdrawals include dividends. If you do need to withdraw money prior to 59½, you are required to pay taxes on any gains you withdraw at your current tax rate. You will not have to pay taxes or any penalty on contributions made to the IRA because that money was taxed prior to making that contribution.
"Withdrawals from Roth IRAs are a little tricky. Before retirement, you will only be taxed on earnings made on top of your contributions. For example, if 80% of your Roth IRA is made up of contributions, while the rest is made up of earnings, then only 20% of each withdrawal will be taxed at your income tax rate," says Mark Hebner, founder and president of Index Fund Advisors Inc. in Irvine, Calif., and author of Index Funds: The 12-Step Recovery Program for Active Investors.
If you decide to take out money prior to the age of 59½, you may also owe a 10% penalty on any gains you withdraw, unless the withdrawal qualified for a special exception. Special exceptions can include disability, first-time home purchase, and some other qualified exceptions. Even if you meet the special exception rules, you will need to pay taxes on dividends and capital gains at your current tax rate.
Traditional IRA Withdrawals
Most money withdrawn from a traditional IRA is taxed at your current tax rate, which could be as high as 39.6%. Any capital gains on the earnings in your IRA account do not benefit from lower capital gains tax treatment; they are taxed at the same rate as regular income.
The only exception to that rule is when you contribute to a traditional IRA using money that has already been taxed (in other words, you haven't taken a tax deduction when making the contribution). But beware of taking this approach: Mixing tax-deferred contributions with taxable contributions in a traditional IRA can be a nightmare to sort out at retirement.
If you take money out before the age of 59½, you may also need to pay a 10% penalty on contributions and gains unless you meet the qualifications for a special exception.
"The idea of being in a lower tax bracket at retirement is why most Americans contribute to a retirement plan," says Morris Armstrong, EA, founder of Armstrong Financial Strategies in Cheshire, Conn. "If they can save $25 today and only pay $15 in tax when they retire, they think it is a good deal. The reality can be a wake-up call. Many people are in the same bracket and are now paying tax on every dime of income."
Owners of a traditional IRA are mandated to begin taking required minimum distributions (RMDs) at age 72.
The Bottom Line
An IRA is a great option to save for retirement. The key is to know the rules for withdrawals before you invest, so you do not face any tax surprises at retirement.
"Tax diversification can be just as important as investment diversification. It's important to have a mix of taxable, tax-deferred, and tax-free investments," says Marguerita M. Cheng, CFP®, chief executive officer of Blue Ocean Global Wealth in Gaithersburg, Md.
As long as you meet the qualifications for a Roth IRA, that should always be your first choice. You lose the tax break on the contribution, but the long-term benefits are generally worth it.
Additionally, "for many Americans... [especially] millennials, a Roth IRA is the best choice since tax rates will only increase in the future. Although a retiree might benefit from a traditional IRA in the short term, a Roth will win for the majority. Also, with a Roth IRA, you're not restricted to future uncertain tax rates or required minimum distributions," says Carlos Dias Jr., founder and managing partner of Dias Wealth LLC in Lake Mary, Fla.
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318a08d56fedb24936620dcb53128c9a | https://www.investopedia.com/articles/personal-finance/061015/how-elon-musk-became-elon-musk.asp | How Elon Musk Became Elon Musk: A Brief Biography | How Elon Musk Became Elon Musk: A Brief Biography
Visionary entrepreneur Elon Musk is the co-founder of PayPal (PYPL) and Tesla Motors (TSLA) as well as the founder of SpaceX. His astounding success has given rise to comparisons of Musk and Steve Jobs, Howard Hughes, Henry Ford, and Bill Gates. Amid an often difficult childhood, Musk developed a relentless work ethic (he is known to work as many as 80 to 120 hours per week) and a tenacious single-minded vision.
On Sept. 7, 2018, Musk appeared to be smoking marijuana while interviewing for a podcast. Coupled with the exit of Tesla's head of human resources and chief accounting officer, that news saw the stock drop in trade. This was just another addition to the string of bad news for the company, including a shareholder lawsuit against Musk and the company for his infamous tweet on Aug. 7. Musk had tweeted that he is considering taking Tesla private. The company later decided against the move.
Despite these incidents, Tesla's stock has only continued to climb higher under Musk's leadership, increasing his wealth along with it. In Jan. 2018, Tesla announced a compensation structure in which Musk would not receive an annual salary but would instead earn cash based on the increasing market caps the company hoped to achieve over the next ten years. As of Jan. 26, 2021, according to the Bloomberg Billionaires Index, he has an estimated total net worth of $209 billion, surpassing Jeff Bezos as the richest person in the world.
We look at the early life and education of the man behind a string of companies that have disrupted multiple industries.
Key Takeaways Elon Musk is the charismatic founder and CEO of electric car maker Tesla as well as SpaceX and the Boring Company. Born and raised in South Africa, Musk spent time in Canada before finally moving to the U.S. Educated at the University of Pennsylvania in physics, Musk started getting his feet wet as a serial tech entrepreneur with early successes like Zip2 and X.com.
Family Background and Youth in South Africa
Elon Reeve Musk was born in 1971 in Pretoria, one of South Africa's three capital cities. His father was an engineer and his mother was a model and nutritionist. He is the oldest of three children in an ambitious family. His brother Kimbal Musk is currently a venture capitalist and environmentalist. His sister Tosca Musk is an award-winning producer and director.
After his parents divorced when he was a child, Musk lived primarily with his father. Musk started school a year early, attending the private Waterkloof House Preparatory School and later graduating from Pretoria Boys High School. He read voraciously and was also an avid fan of comics. Self-described as a bookworm and something of a smart aleck, he was bullied in school and withdrew to his books at the expense of his social life.
Bullied as a Child
Musk’s intellectual aptitude did him few favors as a child. He found few friends in the tough-minded Afrikaner culture he encountered in school.
"I had a terrible upbringing. I had a lot of adversity growing up. One thing I worry about with my kids is they don't face enough adversity," he would later say in an interview.
Musk attended the English-speaking Waterkloof House Preparatory School, and later graduated from Pretoria Boys High School. The years were lonely and brutal, from his descriptions.
“They got my best friend to lure me out of hiding so they could beat me up. And that hurt,” Musk said. “For some reason they decided that I was it, and they were going to go after me nonstop. That’s what made growing up difficult. For a number of years there was no respite. You get chased around by gangs at school who tried to beat the (expletive) out of me, and then I’d come home, and it would just be awful there as well.”
If there was a point of bright escape for Musk; it was technology. When he was only 10, he became acquainted with programming via the Commodore VIC-20, an inexpensive home computer. Before long, he had become proficient enough to create Blastar — a video game in the style of Space-Invaders. He sold the BASIC code for the game to a magazine called PC and Office Technology for $500.
In one telling incident at that time, Musk, along with his brother, planned to open a video game arcade near their school. Ultimately, their parents nixed the plan. But apparently the only thing stopping them was the need for a city permit which had to be applied for by an adult.
Moving to Canada
At 17, Musk moved to Canada to avoid serving in the South African military, whose main duty in the late 1980s was enforcing apartheid. He would later obtain Canadian citizenship through his mother.
After emigrating to Canada, Musk enrolled in Queen's University in Kingston, Ontario. It was there that he met Justine Wilson, an aspiring writer. They would marry and have five sons together, twins and triplets, before divorcing in 2008.
Musk's Education in the U.S.
After two years at Queen's University, Musk transferred to the University of Pennsylvania. He took on two majors, but his time there wasn’t all work and no play. With a fellow student, he bought a 10-bedroom fraternity house, which they used as an ad hoc nightclub.
Musk graduated with a Bachelor of Science in Physics, as well as a Bachelor of Arts in Economics from the Wharton School. The two majors speak to the direction Musk’s career would take later, but it was physics that made the deepest impression on his thinking.
“(Physics is) a good framework for thinking,” he’d later say. “Boil things down to their fundamental truths and reason up from there.”
Musk was 24 years old when he moved to California to pursue a Ph.D. in applied physics at Stanford University. With the Internet exploding and Silicon Valley booming, Musk had entrepreneurial visions dancing in his head. He left the Ph.D. program after just two days.
In 1995, with $28,000 and his younger brother Kimbal at his side, Musk started Zip2, a web software company that would help newspapers develop online city guides. In 1999, Zip2 was acquired by Compaq’s AltaVista web search engine for a whopping $340 million. Musk used his Zip2 buyout money to create X.com, which he intended to shape into the future of banking. X was merged with a company called Confinity and the resulting company came to be known as PayPal. Musk was then ousted from the company before it was bought by eBay for $1.5 billion.
After PayPal slipped away, Musk helped generate funding for an electric car startup called Tesla.
Tesla and Beyond
In 2004, Musk joined engineers Martin Eberhard and Marc Tarpenning to help run Tesla Motors, where Musk was integral in designing the first electric car: the Tesla Roadster. After Eberhard was ousted from the firm in 2007, following a series of disagreements, Musk seized management control as CEO and product architect. Under his watch, Tesla has become one of the world's most popular and coveted car brands.
With his interstellar travel company SpaceX, Musk landed several high-profile contracts with NASA and the United States Air Force to design rockets and conduct military missions. Musk has been vocal about his plans to send an astronaut to Mars by the year 2025 in a collaborative effort with NASA.
In addition to producing electric vehicles, Tesla maintains a robust presence in the solar energy space, thanks to its acquisition of SolarCity. Founded in 2006, this clean energy services company currently produces two rechargeable solar batteries, mainly used for stationary energy storage purposes. The smaller Powerwall was developed for home backup power and off-the-grid use, while the larger Powerpack is intended for commercial or electric utility grid use.
The Bottom Line
Musk's early interest in reading philosophy, science fiction, and fantasy novels is reflected in his sense of idealism and concern with human progress. He aims to work in the areas he has identified as crucial to our future, specifically the Internet, the transition to renewable energy sources, and space colonization. With his work with PayPal, Tesla Motors, SolarCity, and SpaceX, he has defied critics and made advances in all three of these frontiers.
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a3a48eb677e20e355aed98fc10e02ecc | https://www.investopedia.com/articles/personal-finance/061214/disability-insurance-business-owners.asp | Disability Insurance For Business Owners | Disability Insurance For Business Owners
There are plenty of good reasons to have individual disability insurance to replace your income should you become injured.
But if you own a business, it's not just about you. As a business owner, you’re probably the primary driving force of your business, as well as the bankroll. When you're planning for your business, one contingency you need to include is what would happen if you get sidelined. Here's the sobering statistic from the Council for Disability Awareness (CDA), an insurance industry group: One in four of today's 20-year-old's will become disabled before they retire, and they can expect to be off the job for the average long-term disability claim, 34.6 months. That's almost three years. It's not because they spend weekends racing motorcycles or commute long distances. Heart disease, back problems, cancer and other medical problems are more likely to cause disability than accidents.
Consider several key steps as you comb through options with your broker:
1. Disability income for you and disability insurance for your business are two different issues
You need to provide coverage for both your family and your business.
For the home front: income coverage. Figure what you'll need to cover the mortgage, cable bill, car payments, tuition and food, among other expenses.
For the business: overhead coverage. Start with payroll, rent, utilities and any equipment or vehicle leases you carry. Employee benefits and advertising are two other costs.
How do you balance both? Former president of the CDA, Barry Lundquist, recommends addressing your personal income needs first, then taking on business overhead coverage.
2. Shop professional and industry associations
Group rates are frequently cheaper than individual premiums. If you belong to a professional association, that's the first place to check for disability coverage rates. This is particularly important for stand-alone practices, which are likely to need a lower level of coverage (and have less financial muscle to dictate terms) than a larger business. The American Dental Association, for instance, sponsors disability income, overhead and business expense coverage for members at what potentially could be a discount.
3. Bundling gets you leverage
Another way to cut prices is to bring multiple needs to one carrier. You may get underwriters to come down on disability premiums if your company is large enough to add in group voluntary disability coverage for employees – or you can shop your personal disability coverage alongside your business overhead policy.
4. Read the fine print and consider adding riders to customize your coverage
Several key provisions will keep your family afloat and your business running. Each may end up adding to the amount you’ll need to budget for premiums however, so investigate various options before you settle on a final policy.
“Own Occupation”
One key small-print factor is “own occupation” – a way of saying that you’ll receive full benefits as long as you aren’t working your original job. That’s an important consideration: if you are a construction contractor, you might work for a stretch as a draftsman, and you don't want to lose benefits because you did this.
Part time, full time
Use a magnifying glass – and be sure you understand and can live with – wording in your policy that covers exactly how much you can collect in claims if you start back part time.
Replacements
Look over provisions for hiring a replacement to carry your burden and fulfill your duties on the job while you’re recuperating.
Cost increases
Inflation happens and will affect the value of your coverage. Check to see what your carrier does to adjust your coverage when costs climb.
5. Plan ahead
Start-ups – and their bosses – find it next to impossible to acquire disability or overhead coverage without a proven track record. If you’re planning to strike out on your own and your current employer offers disability income coverage, see whether you could retain the insurance after you leave and consider signing up before you hand in your resignation.
Establish an emergency fund: Overhead coverage policies typically set up a 30-day waiting period before paying claims. You may want to stash away a cushion to cover company outlays during that period.
6. Factor in your business structure
Disability can wreak havoc on different types of companies – sole proprietorships, partnerships or corporations – in a variety of ways. For an architecture firm where partners share clientele and costs, your time away will increase day-to-day pressures and fewer people will be billing to cover the partnership's monthly expenses. Then again, your engineering company might depend on two or three “brains” to solve some of the knottiest problems; losing you could affect its ability to provide services.
Structure disability overhead coverage to fill the gaps, depending on your company set-up. One option is to buy "key person” coverage that provides funding when a critical player is sidelined. This can work for a variety of business types.
If your business is a partnership, you and your partners should examine several other possibilities. One is disability buyout coverage, which can foot the cost of a disabled partner’s share if they will be out for so long that it makes sense to leave the business. Attorneys often recommend coupling buyout policies with a buy-sell agreement that spells out the terms – including the price paid for each partner’s share or the formula used to value chunks of the company.
The Bottom Line
Running a small business is taxing when you’re in the best of health. Considering how much your brainchild probably relies on you, it makes sense to protect it – and your family – from your inability to work when making insurance plans.
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a78e1cedb80a0a4bcb5db8281f64d7ac | https://www.investopedia.com/articles/personal-finance/061314/dont-sign-legal-pitfalls-signatures.asp | Major Legal Pitfalls of Signatures | Major Legal Pitfalls of Signatures
Signing your name on a document or check seems a pretty straightforward process. So does endorsing a check for a spouse or child who's out of town. But in fact, all of these actions can have unpleasant legal ramifications depending on how you do them.
Key Takeaways Using the wrong color ink could keep your signature from being scanned correctly.Even with joint accounts, it's illegal to endorse your spouse's signature.It is also illegal to sign your child's name on the back of a check.
The Ink-Color Question
Think twice about the pen you use to sign a credit card application or check. Opt for a pen with the wrong-color ink, and you could trigger a fraud alert or nullify the check.
Surprisingly, the wrong-color ink can be black, says Jim Angleton, president of Aegis, a corporate prepaid debit- and charge-card issuer. “If you’re applying for a credit card in person, your bank may ask you to sign the application in blue ink.”
That’s because blue ink is harder to reproduce and easier to spot on paper that’s typically filled with lots of black (fine) print. And, Angleton says, because black ink is the most widely used printer-ink color, it’s the easiest color to duplicate or copy via home software and printers.
“Blue ink is preferred because when black ink is used, someone at the bank or credit card company may not be able to tell whether they are looking at a photocopy of a signature or an originally inked signature,” says Cina L. Wong, CDE, a certified and court-qualified forensic handwriting expert. “It's easier to assume that the document is 'original' if it is signed in blue ink.”
“We advise signers of our documents to use blue ink as it offers a contrast to our applications, which is especially beneficial should there be any ID issues in the future,” says Angleton.
Ink Color on Checks
Signing a check or endorsing the back of a check in red ink could trigger trouble by delaying payment of the check. In extreme instances of fraud prevention, it could even void the check’s validity.
“Red ink has been considered a warning color since the Cold War era,” says Angleton. “And the thinking that red is a warning color lingers today.” Long ago, bank proofers used a red pen to circle the signature on a check if they suspected it to be fraudulent. As a result, the color remains stigmatized in the financial industry.
In the days before color copying, red didn’t photocopy well, either. Because it would appear faint or non-existent on a photocopy, red pens were considered taboo for signing or endorsing checks, says Wong.
“Today, scanners that read documents use a red laser light,” Wong explains. “When the red laser light scans the document, it turns the entire document a red color. So a signature written in red ink appears to vanish.”
Stay Away From 'Fun' Ink Colors
Trendy and fun ink colors such as green, pink, or purple can be problematic on checks, too. In general, most checks are imaged, or scanned, using a super high-speed scanner. Some types of scanners are unable to detect or decipher such unusual colors, which means that a check might not be properly applied or might have processing issues.
Wong says that’s one possible explanation for why most government documents state "please sign in black or blue ink."
Signing for Your Spouse
The color of ink you use isn't the only potential legal pitfall signatures can bring. Let's say your spouse is out of town and you want to deposit an expense check or rebate made out to your mate. You could find yourself in legal trouble.
Even if you're legally married and have a joint bank account, it’s illegal to endorse your spouse’s name on the back of a check, says Charles R. Gallagher III, an attorney at Gallagher & Associates in St. Petersburg, Florida. Technically, signing someone else’s name is fraud. And that could lead to the check being denied for payment and even to your arrest if your spouse were to press charges.
No Workaround
Many think the workaround to fraud is simply signing "For Deposit Only" on the back of the check. But Gallagher says that tactic is far from foolproof. If your spouse gets angry, they still could press the legal issue and claim you stole the money.
The safest approach is getting written authorization stating that it’s OK to sign a spouse’s name on checks when they are unable to. “You can always obtain a formal power of attorney to ensure the bank won't give you a hassle,” says Gallagher.
Letting Someone Sign for You
Got a taste for take-out Chinese but don’t feel like picking up the food? Don’t send your child or friend to the restaurant with your credit card.
“You sign a legal contract with the credit card provider that authorizes only you to use the credit card. You’re breaching that contract when you give another permission to use your card,” says attorney Stephen Lesavich, Ph.D., author of “The Plastic Effect: How Urban Legends Influence the Use and Misuse of Credit Cards.”
“That breach may result in the cancelation of the card based on the terms of the credit-card contract you signed,” Lesavich adds.
Your credit card company may never know you gave your spouse, BFF, or kid your credit card to use. So the charge may sail through the system without any issues.
It's best to use blue or black ink for signatures. Avoid colors like red, purple, and green.
Being Accused of Fraud
But the person you send to pick up your food could hit a snag if the merchant asks for identification, especially if the signature on the card doesn’t match the one on the receipt. “A merchant could report fraudulent use to the credit-card company,” says Lesavich. Being accused of making or permitting fraudulent credit card charges could be embarrassing to both of you. It can also result in the credit-card company canceling the card and/or putting a hold on it based on a purchase you would normally not make.
You’re also opening yourself up to potential loss. Frequently permitting a child or pal to use your credit card may be viewed as authorizing that person to act as your "agent." “That person may incur additional charges you are responsible for, but did not initially authorize them to make or intend for them to make,” says Lesavich. “That’s why it’s important to remember that you are financially responsible for all charges for any authorized use of your own credit card by you or another person.”
Signing Your Child’s Name
Even if you’re depositing the money into your child’s personal bank account, it’s illegal to sign your or your child’s name on the back of that check Grandma sends to a minor for a holiday or birthday present.
“Banks usually have policies on how they want a check made out to a minor to be endorsed,” says attorney Matt Reischer, Esq., CEO, LegalAdvice.com. “Some banking institutions want the child’s name spelled out and designated parenthetically as a minor with the parent’s signature underneath.”
Other banks may want the check endorsed “For Deposit Only,” followed by the child’s bank account number. That’s why it’s best to verify with your bank about its endorsement policy to prevent Grandma from having to issue a new check.
Once your child is over 18, check-signing rules are the same as for your spouse. Unless you have a power of attorney or written authorization, signing your child’s name on the back of a check could be viewed as fraud and lead to the bank or your child taking legal action.
The Bottom Line
Let your spouse and grown-up child sign their own checks—never in red ink—and get authorization if you need to bank on their behalf. Stock up on blue-ink pens and save the fancy ink colors for birthday cards. You'll stay out of legal trouble.
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697b20f512ff090bb02b973a9ea2ed6b | https://www.investopedia.com/articles/personal-finance/061314/rise-401k-brokerage-accounts.asp | The Rise of 401(k) Brokerage Accounts | The Rise of 401(k) Brokerage Accounts
For many years the investment options offered in company-sponsored 401(k) plans were limited to mutual funds and annuity contracts, along with one or more guaranteed accounts and, perhaps, the company’s stock. However, some plans now allow participants to buy and sell securities inside their 401(k)s. The option is known as a self-directed brokerage account (SDBA) or a 401(k) brokerage window.
This alternative has raised many eyebrows in fiduciary circles, as it allows investors to take much greater risks with their retirement savings than they previously could with even the most aggressive fund choices. Those 401(k) participants who have this option available to them need to carefully evaluate the possible gains—and losses—that they may sustain from their trades.
Key Takeaways Self-directed brokerage 401(k) accounts allow for investing in a much wider array of alternatives. Fees for the increased amount of transactions can cut into profits. People who restrict the amount of money they put into such an account generally fare better.
How a 401(k) Self-Directed Brokerage Account Works
Employers who offer brokerage accounts in their 401(k)s must pick a specific firm to use, such as E*Trade or Charles Schwab, and list this account along with the other investment choices in the plan. In some cases, participants may have a specified window of time each year to move money from their general omnibus account in the plan into the brokerage account.
Plan participants can then buy and sell stocks, bonds, ETFs, and mutual funds in the normal manner, albeit with no tax consequences. However, some types of higher-risk trades are prohibited, such as trading on margin and buying put or call options or futures contracts. Covered call writing is permissible unless the plan’s charter forbids it.
As of 2015, 40% of U.S. employers offered brokerage windows in their 401(k) account, according to a study by HR consulting firm Aon Hewitt. Some 19% of the plans Vanguard administers offer a brokerage window, according to the mutual fund company’s How America Saves 2019 Report.
The Plan Sponsor Council of America’s 60th Annual Survey of Profit Sharing and 401(k) Plans, released in 2018, indicated that about a quarter of the plans offered by 590 plan sponsors featured a brokerage window. Some 403(b) plans now also offer this feature.
Vanguard reports that 19% of its 401(k) accounts offer a brokerage window, but only 1% of participants take advantage of it.
Pros and Cons of Using 401(k) Brokerage Accounts
It is fairly easy to see both the benefits and drawbacks of using brokerage accounts in 401(k) plans.
Pros Wider range of investment choices than regular 401(k)s, including stocks, ETFs and bonds. Can invest in multiple sectors or subsectors Successful investors may earn far more than they would through investment vehicles available in traditional employer plans. Cons Employees who aren't experienced investors can lose significant retirement money through badly chosen trades. More difficult to construct a sound portfolio, especially given transaction fees and commissions. Higher risk of emotion-driven trading, which can lead to buying high and selling low.
More Choice
In their favor, brokerage accounts allow investors to choose from a vast array of investment choices, ones that permit them to invest in specific sectors, subsectors, or other elements of the market that may be very difficult to duplicate with traditional plan alternatives.
Participants who wish to invest in frontier markets will quickly be able to find an appropriate stock or ETF that fits their investment objective. Those who choose wisely may be able to grow their retirement portfolio faster than through the choices available to members of a company-organized 401(k) plan.
Risky for Inexperienced Investors
Of course, having that level of freedom is not always good. Because 401(k) plans are nondiscriminatory by nature, most plan charters require that these accounts must be offered to all employees in a company—including those with little or no knowledge or experience with investments. In many cases, the plan feature was added because a few top-level employees lobbied for it, and then they paid for—and followed the advice or strategy of—a professional money manager.
“It was a standard plan design, especially for law firms, historically,” says David Wray, president of the Plan Sponsor Council of America (PSCA), which represents companies that offer 401(k) and profit-sharing plans. Even today, “the people who use [brokerage windows] are typically highly paid—not your typical 401(k) participant going into a target-date fund,” Wray adds.
Indeed, 2019 data from Charles Schwab, a leading provider of SDBAs, shows that average advised balance for self-directed brokerage accounts as of March 31, 2019, was $436,593 .
More Difficult to Create Sound Retirement Portfolio
The vast range of investment alternatives available inside a brokerage account can make it harder to construct a sound portfolio, and numerous transactions with their corresponding fees and commissions will inevitably erode the returns received by participants.
Those who do not have a predetermined investment plan also risk allowing their investment decisions to be driven by their emotions, which can lead to chasing “hot” stocks or funds and buying high and selling low.
Fiduciary Issues With 401(k) Brokerage Accounts
Plan sponsors that offer brokerage accounts should carefully analyze the potential liability of substantial losses sustained by novice investors. Many sponsors believe that they cannot be held responsible for what happens in these accounts, but many benefits experts and attorneys say otherwise.
All other investment options inside qualified plans are required by the Employee Retirement Income Security Act of 1974 (ERISA) to meet certain fiduciary characteristics, even if they are aggressive in nature. Nevertheless, a large percentage of the investment options that participants can purchase in a brokerage account will fail to meet this standard.
To manage a self-directed brokerage account successfully takes a great deal of knowledge and expertise.
Winners and Losers With 401(k) Brokerage Accounts
It is easy to see who could come out ahead by trading securities in a 401(k) brokerage account. Highly educated investors, such as medical professionals and specialists, engineers, accountants—and those with previous trading and investing experience—can use these accounts to achieve returns far beyond what they might be able to achieve using traditional plan options, such as mutual funds.
But lower-income participants—factory workers, retail or food-service employees, and others who work in jobs that don’t require such skills—likely will not have the same education and expertise. And plenty of people with higher incomes and more education don't know much about investing, either. Employees without adequate knowledge and guidance could easily be enticed into making foolhardy choices, such as buying and selling mutual funds with front or back-end sales charges or choosing investment options that contain risks they do not understand.
So far most studies and data released on this subject seem to indicate that a relatively small percentage of employees choose to invest material amounts of their plan savings into brokerage accounts. Only about 3% to 4% of those with access to a 401(k) brokerage window use it, the Aon Hewitt study found; the PSCA survey reported that only 1.3% of total plan assets are accounted for by investments through brokerage windows.
Vanguard, Fidelity, and Schwab have all stated that only a very small fraction of their customers with access to brokerage accounts inside qualified plans have signed up for them. (For Vanguard the figure is 1%, according to its How America Saves 2019 Report).
The Bottom Line
Brokerage accounts can be a good idea for 401(k) plan participants who are experienced and knowledgeable investors. Employees who lack the education to make sound investment decisions by themselves should probably think twice before taking this path. Investors also should watch extra fees that could be assessed when taking this route.
One good way to limit risk with these accounts is by restricting the amount of money that goes into them. Participants who allocate the majority of their plan assets into other investment alternatives and trade sparingly may see much better results. For more information on the use of brokerage accounts inside qualified plans, consult your company plan sponsor or financial advisor.
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46eabe79d51d93d3749d17370d970c4d | https://www.investopedia.com/articles/personal-finance/061416/assure-insurance-should-you-buy-unemployment-benefits.asp | Should You Buy Private Unemployment Insurance? | Should You Buy Private Unemployment Insurance?
You walk into your office on a Monday morning, get settled in with a fresh cup of Joe and in comes your supervisor with a pink slip. What an unpleasant surprise, especially considering you’ve spent several years with your employer and your last evaluation was excellent.
To make things worse, you won’t be receiving a severance package: The only money coming in until you find a new job is what you hope you will get after you apply for unemployment benefits through the state, plus what you get from cashing out your vacation time, if that’s possible. Now what? (How to Apply for Unemployment Insurance will help with the first step.)
The only logical answer is to start searching for work immediately. However, if you had known about it – and signed up in time – you might have benefited from private supplemental unemployment insurance, a product developed by IncomeAssure. And you may want to consider it in the future, so you can protect yourself going forward.
As you figure out how your finances might work out, ask yourself whether supplementary unemployment insurance would be worth it for you.
How the Program Works
When you enroll in an IncomeAssure plan and then lose your job, you become eligible to receive a monetary benefit that equals up to half of your weekly pretax income at your previous employer. This amount is derived from your weekly state unemployment benefit and your weekly IncomeAssure supplemental benefit.
To demonstrate: If you live in Florida and your annual salary is $65,000, your weekly earnings before taxes are $1,250. If you receive $275 per week from the state – the maximum unemployment benefit Florida offers – your check from IncomeAssure will be for $350 if you choose a salary replacement rate of 50%. This amounts to $625, or half of what you were earning each week prior to termination. Benefits are taxable and can be received for up to 24 weeks. If your state program has a benefit term that lasts less than 26 weeks, you may be able to obtain extended unemployment benefits.
A Few Important Considerations
For starters, only salaries up to $250,000 are covered, and a six-month waiting period applies from the date of initial enrollment. (If your annual earnings exceed this amount, only $250,000 will be used in the calculation to determine the weekly benefit.) Also, the program works in conjunction with unemployment benefits, so you are automatically ineligible if you aren’t approved to receive state benefits.
What's more, you cannot enroll in an IncomeAssure plan if you are self-employed, or if you resigned from your previous position and are currently pursuing a new career opportunity.
In the event your employer severs employment before the waiting period lapses – or issues a layoff that was common knowledge among employees – you are only eligible for a refund of your premium payments rather than for benefit payments under the policy.
How Much Does It Cost?
The amount of your monthly premium will depend on the following factors:
State where you are currently employed Desired salary-replacement rate (choices are 25%, 30%, 35%, 40%, 45% or 50%). Industry Number of extended benefit periodsGross annual salary and commission
According to the website, most premiums are less than 1% of the member’s gross annual salary and commission in premiums, but you can use the online calculator to obtain a more accurate quote. “For example, if you make $75,000 per year, your policy could cost less than $50 per month,” the website adds. You should also know that premiums are waived during the period in which you are receiving benefits through IncomeAssure.
The Bottom Line
Private unemployment wage insurance may be worth the investment if you want peace of mind and can comfortably afford to make the monthly premium payments. However, if you already have a hefty sum of cash stowed away for an emergency – or liquid assets on hand that you don’t mind tapping – it may make more financial sense to use those to support yourself after a layoff in lieu of paying monthly premiums. (For more, see Help! My Unemployment Benefits Are Running Out.)
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a5034061d4f15f59dd15956479e86824 | https://www.investopedia.com/articles/personal-finance/061515/quick-guide-landlord-insurance.asp | A Quick Guide to Landlord Insurance | A Quick Guide to Landlord Insurance
Landlords renting out a residential property (house, vacation cottage, apartment) for the first time may assume that their homeowners insurance will cover all the costs in the case of a natural disaster, accident or other damaging events. That’s a rookie mistake.
Key Takeaways Homeowners insurance will not cover a dwelling that is not occupied by its owner, which is why you need landlord insurance.Core coverages of landlord insurance are property damage, rental income lost due to a property’s temporary inhabitability, and liability protection.Additional riders can be purchased for coverage for income lost when a tenant misses a rent payment, flood damage, expenses incurred when having to bring a building up to code after damage has been done to it, and more.
Why You Need Landlord Insurance
Chances are that your policy only covers owner-occupied homes. If you start renting out to someone else, the coverage no longer applies. And as renters are generally not held liable when a large appliance malfunctions, a person suffers an injury on the property (through no fault of the tenant), a forest fire damages or destroys your home, or burglars simply empty the place, that means you could be left out to dry for these or other misfortunes caused by humans or Mother Nature.
This is where landlord insurance comes in. These policies come in all shapes and sizes. Before you begin price shopping, consider what you need to specifically address and protect against in your rental property.
What Does Landlord Insurance Cover?
A good, comprehensive landlord insurance policy will have three core protections:
Property Damage—This is coverage in the event that the real estate or furnishings suffer from a natural disaster, fire, electric/gas malfunction, earthquake, vandalism, or irresponsible tenants. If possible, try to get a policy that offers replacement cost instead of the actual cash value (especially if fixtures and furnishings are old) or a predetermined lump sum of cash.Lost Rental Income/Rental Default Insurance —Should something cause your property to be totally uninhabitable (severe mold, termites, a rat infestation, or a sinkhole), this feature provides temporary rental reimbursement to cover the rent money you’d otherwise receive if tenants could be occupying the property.Liability Protection—This is coverage for the medical or legal costs that might ensue if the tenant or a visitor suffers injury due to a property maintenance issue (such as icy walkways, architectural collapse, or an out-of-control hive of bees).
You might also see underwriters refer to different packages as DP-1, DP-2, or DP-3 (DP stands for “dwelling property”). Each of these refers to varying levels of coverage, with DP-1 being the most basic, and DP-3 representing the most comprehensive.
Additional Coverage
There are several common riders that can come with landlord insurance policies. They’re not as vital as the key provisions mentioned above, but they could come in handy and save you some money in the long run.
Guaranteed Income Insurance—This covers the landlord if a tenant comes up short on the rent one month (or doesn’t pay at all).Flood Insurance—As many landlord insurance policies don’t include flood damage related to natural disasters or municipal plumbing, this coverage is worth adding if the property is in a flood-prone zone.Emergency Coverage—In the event a tenant calls you out to fix something such as a leaking dishwasher or was accidentally locked out of the house, this feature can help cover some or all of the costs you incurred to travel to the property and resolve the issue.Additional Construction Expenses—This will cover expenses incurred by having to bring a building up to code after it has been damaged.
15% The amount by which landlord insurance is generally more expensive than homeowners insurance
How Much Does Landlord Insurance Cost?
According to a 2019 report from the National Association of Insurance Commissioners (NAIC), the average cost of homeowners insurance was $1,211, though prices can vary significantly by state. However, as rental properties are more prone to damage and incident, you can expect to pay about 15% more for landlord insurance on the same property, according to the free real estate investment tracking site Stessa.com.
There is also an inverse relationship between the price of your premiums and the length of time the property is in service. For example, according to Houselogic.com, an informational website run by members of the National Association of Realtors, expect to pay nearly double in annual premiums if you rent out your home for only 12 weeks instead of an entire year. The reasoning is that short-term tenants are less likely to notice (or even mention) maintenance issues. They might be more careless, or they may not understand the layout of the house and the location of the plumbing, load-bearing supports, or electrical wiring. All this can increase the probability of problems and the insurer’s risk.
When shopping for policies, be sure to ask your homeowners insurance provider about bundle options. If you sign up for homeowners and landlord insurance through the same company, you may receive a discount.
Landlord insurance does not cover a renter’s belongings, so it’s wise to counsel your renter to look into getting renter’s insurance.
The Bottom Line
Before you decide to rent out a piece of property, take a look at your homeowners insurance policy. Don’t assume it will cover damages and liabilities while you’re not living there. If you want to protect your home and rent it out as well, landlord insurance is a must.
You might also want to suggest that your tenants take out a renter’s insurance policy, so that their own personal effects will have coverage in the event of an accident.
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ffd4763830cafd30e19d80ec386c236c | https://www.investopedia.com/articles/personal-finance/061615/how-fill-out-fmla-forms.asp | Completing Family and Medical Leave Forms | Completing Family and Medical Leave Forms
If you are taking a protected leave of absence from work under the Family and Medical Leave Act (FMLA), you may need to fill out FMLA forms to satisfy your employer’s requirements. The act was signed into law by President Clinton in February 1993. It requires that certain employers allow eligible employees access to unpaid time off for specific family and medical reasons. You need to review the FMLA eligibility checklist and fill out the FMLA application, consisting of the Family Medical Leave Act forms.
Key Takeaways FMLA provides unpaid leave that guarantees your job. You and your employer must fill out the appropriate paperwork in order to take it. The U.S. Department of Labor’s Wage and Hour Division (DOL-WHD) is in charge of the FMLA program. Some of the qualifying reasons for taking FMLA leave are pregnancy, adoption, personal illness, and military leave.
How the Family Medical Leave Act Works
The FMLA applies to public and private employees who have worked with the same employer for more than 1,250 hours over the past year. The act limits its scope to employers with more than 50 employees and also excludes—or limits—specific categories of upper-level employees.
It gives eligible employees the ability to be out of work for up to 12 weeks—without pay—when they experience a qualifying need. The needs include caring for an ill family member, tending to a new child—both by birth and by adoption—and recovering from a serious injury or illness. The types of qualified medical and family purposes also include adoption, pregnancy, foster care placement, family or personal illness, or military leave.
FMLA gives eligible employees the ability to be out of work for up to 12 weeks but it is without pay and an applicant must meet strict criteria.
The U.S. Department of Labor’s Wage and Hour Division (DOL-WHD) oversees the FMLA program. They have designated seven different FMLA application forms aligned to the reason for the qualified leave and how much information your employer requires to approve or deny the request. You can download the form from the DOL-WHD website or by calling them at 1-866-487-9243. Also, your human resource officer can help you locate the correct request application for your situation.
Below are descriptions of the various forms and the information asked for each type of leave and how to apply for FMLA.
FMLA Form WH-380-E for Employee Health Condition
Your employer can use Form 380-E (Certification of Health Care Provider for Employee's Serious Health Condition) to obtain a medical certification of your own need to take a leave of absence from work. This form has three sections, one that your employer will complete, one section for you to complete, and the final section is for your doctor or health care provider to complete.
Your human resource office will usually give you the partially-completed form for you to complete.
It covers information about your condition, including:
When it began How long it might last Whether your condition has required an overnight stay in a medical facility, and if so, when Which job responsibilities your condition prevents you from fulfilling Your symptoms, diagnosis, and treatment regimen How much time off you need, and whether it will be continuous or sporadic Whether your condition will require follow-up treatment that will require you to miss work
FMLA Form WH-380-F for Family Health Condition
You can use Form 380-F (Certification of Health Care Provider for Family Member's Serious Health Condition) to tell your employer that you need to take leave to care for a seriously ill or injured family member. You’ll need to provide your family member’s name and your relationship to that family member (only certain relatives qualify).
You’ll also need to describe the type of care you must provide and how much time off you will need. This form, like 380-E, requires the employer, employee, and the health care practitioner to complete specific information.
Your relative’s medical provider must complete the rest of the form with information similar to that required by Form 380-E, such as:
When did the condition begin How long might it last What type of care your relative needs and other important medical information such as the schedule of care
The idea is to explain why your absence from work is necessary.
FMLA Form WH-381 Eligibility and Rights
Form 381 (Notice of Eligibility and Rights and Responsibilities) is a notification document that your employer may give you within five business days of receiving the notice of your intent to take an FMLA leave. This form confirms the information you gave your employer, including the dates and reason for your leave. You don’t need to complete any part of this form.
However, depending on how your employer completes this form, you might need to take additional steps. If your employer uses this form to confirm and approve your leave, there’s nothing more to do. But your employer might use this form to request that you submit one of the other reports described in this article to:
Certify your need to take leave Request proof of your relationship to the family member you’re requesting leave to care for Document military family leave
It may also say that you need to take the steps necessary to maintain your health insurance during your leave. It may also specify that you are required to periodically report back to your employer during your leave to let them know when and if you expect to return to work.
The FMLA protects your job while you are on leave but because it is unpaid time off (up to 12 weeks) many families simply cannot afford to take it.
FMLA Form WH-382 Designation Notice
There are several reasons why your employer might hand you Form 382 (Designation Notice). There’s nothing for you to fill out yourself, but if your employer uses this form to ask for additional information to determine whether your leave request is valid, you’ll need to take steps to provide that information.
If your employer is using this form to tell you that they are requesting a second or third medical opinion of your ability to work, you’ll need to make arrangements for that medical appointment. Your employer is required to foot the bill for these opinions.
FMLA Form WH-384 for Military Family Leave
Your employer can ask you to complete Form 384 (Certification of Qualifying Exigency For Military Family Leave) to prove your need to take leave under the FMLA’s special provisions for military service members and their families. For example, you might need time off to make financial and child-care arrangements pending your spouse’s deployment.
This form asks you for information about how long and how often you’ll need to miss work, the name of the military member this request is related to, your relationship to them, and their dates of active duty. You’ll need to specifically state why you’re requesting leave and provide proof in the form of the service member’s active duty orders or other acceptable documentation.
FMLA Form WH-385 for Servicemember Care
Use Form 385 (Certification for Serious Injury or Illness of Covered Servicemember for Military Family Leave) to request leave to care for a sick or injured service member. You will use 385 to provide details about the individual you will be caring for, including your relationship with that person and the amount of time off you expect to need.
Following that, you’ll need to give the form to the service member’s qualified health provider (such as a Department of Defense doctor) to complete the sections of the form about the service member’s condition and treatment.
FMLA Form WH-385-V for Veteran Caregiver Leave
If you want to take leave to care for a veteran who is seriously ill or injured and requires your care, your employer might give you Form 385-V (Certification for Serious Injury or Illness of a Veteran for Military Caregiver Leave). You must provide the veteran’s name and your relationship to them—leave may only be granted if you are their spouse, child, the parent, or the next of kin.
You’ll also need to fill out the date of the veteran’s discharge, indicate whether the veteran was dishonorably discharged, provide the veteran’s rank and branch at the time of discharge, and check the box indicating whether they are receiving medical treatment for an injury or illness. You must then describe the type of care you need to provide and the amount of time you need to provide that care. After that, you'll give the form to the veteran’s qualified health provider (such as a U.S. Department of Defense doctor) and ask them to complete the form's sections about the veteran’s condition and treatment.
If you are asking for FMLA leave for a veteran, you must be a direct family member in order to receive permission.
FMLA Application FAQs
How Can I Get FMLA Paperwork?
You can download the paperwork or ask your HR department for it, but usually, most related forms are completed (in large part) by your employer, physician, or midwife, in the case of a birth.
When Can I Apply for FMLA?
In order to be eligible to take leave under the FMLA, an employee must be employed by a covered employer and have worked 1,250 hours during the 12 months prior to the start of the requested leave time. Your employer must have 50 or more employees, and you can't qualify for leave unless you have worked for your employer for at least one year, although the 12 months do not need to be consecutive.
An employee is often required to provide the necessary paperwork to apply for FMLA ahead of their leave. For example, if you are asking for time off for the birth of your child, you must fill out the paperwork at least 30 days before your leave starts.
What Are the Steps for FMLA?
First, talk to your HR department about the qualifications for family and medical leave, and if you qualify, ask for the paperwork and make sure all appropriate parties fill it out, You will most likely be asked to fill-out a portion of the paperwork, depending on the form.
What Is the Easiest Way to Get FMLA
If you qualify for leave Go into your HR office and explain to them why and when you want to take FMLA, and find out how and if you can qualify for it.
Do Doctors Have to Fill Out FMLA Paperwork
Yes. Nearly all the forms must be filled out by a medical or healthcare practitioner, like a doctor or specialist.
The Bottom Line
Most FMLA forms do not require you to fill out the form yourself—they require you to take certain steps to prove your need for taking leave or provide information about how long you’ll miss work. It is usually an employer or doctor who fills out the majority of the form.
Your employer’s use of these forms is optional, but they can help formalize arrangements between employers and employees to ensure both parties fulfill their rights and responsibilities. And it is worth noting, leave under the FMLA is unpaid, unless your company (and not many do) provide paid time off for the 12 weeks.
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9987ec2d348ad6694e2fa00897065cd5 | https://www.investopedia.com/articles/personal-finance/061615/how-obamacare-affected-insurance-industry.asp | Insurance in the Age of Obamacare (AET, CI) | Insurance in the Age of Obamacare (AET, CI)
The Affordable Care Act, or Obamacare as it is commonly known, has remained more or less intact since it was signed into law on March 23, 2010. Despite more than 50 attempts to repeal the law and significant attempts to weaken it, it’s still standing. And despite all the doomsday forecasts, the insurance industry has done extremely well in the Obamacare era.
New Regulations
The primary goal of Obamacare was to make health insurance more affordable for all and to extend its reach to those who could not afford the premiums because they were too poor to pay or too sick to qualify. It also aimed to extend coverage to people like the self-employed, who found it difficult to buy affordable insurance on the open market.
In order to achieve all this, the new law made health insurance mandatory, subjecting those without coverage to a fine. That fine has been effectively abolished beginning in 2019.
The law provided government subsidies to help individuals below certain income levels to pay for the new mandatory coverage. (On Oct. 2019, former President Donald Trump halted payments of some of these subsidies to insurers. In 2020, however, a federal appeals court ordered that the subsidies be paid.)
The law forbid insurance companies from denying coverage or charging higher premiums to those with pre-existing conditions. And, it defined the minimum requirements for coverage.
Ultimately, the purpose of these new insurance regulations was to extend health benefits to all Americans at an affordable price. While many people could benefit from the new law, insurance companies worried that it would be at their expense.
Yet, there was one aspect of the law that the insurance companies failed to fully take into account. That is the vast number of new customers they would acquire.
New Business
Oddly, insurance companies did not foresee the influx of business from millions of new clients. Many of them had government-subsidized premiums with payments that went directly to their insurers. Many others were healthy young people who hadn't bothered with health insurance until the law required it. The new subsidies helped those who could not afford health insurance and put the government in the business of transferring large sums of cash directly to insurance companies. The New York Times noted that made insurers the “most direct beneficiaries of the law.”
About 20 million Americans were covered by health insurance policies they purchased through the federal database as of 2019. According to the U.S. Census Bureau, the number of Americans who remained uninsured was 9.2% at the end of 2019, up from 8.9% in 2018. But that was still an improvement from the pre-Obamacare peak of 19% in 2012.
New Profits
Since Obamacare was passed in 2010, health insurance companies have significantly outperformed the S&P 500. As of Feb. 2020, UnitedHealth Group’s (UNH) stock surpassed the index over the 10-year period by about 500 percentage points and Centene Corporation (CNC) beat the index by over 600 percentage points. Health insurers Anthem (ANTM), Cigna (CI), and Humana (HUM) performed almost as well.
Meanwhile, new insurance companies have been popping up to take advantage of the business created by the law. While this is a sign of a healthy industry, it is also creating increased competition. That may help keep costs for customers low while putting pressure on existing insurers. Yet, competition is one of the very foundations of an efficiently functioning market economy.
The Bottom Line
Far from being victims of Obamacare, the insurance industry has enjoyed increased revenue from millions of new customers. This also means that at least one goal of the new law has been achieved: increased coverage, with the number of uninsured Americans falling by nearly 41% to 9.2% since the law went into effect.
As for the second goal of greater affordability, the subsidies have made insurance accessible to many but has caused some premiums to rise in order to accommodate the minimum coverage levels now required. Years past its passage, the jury is still out on the real impact of Obamacare.
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a4bb3f1511788ab702a33624283b6d90 | https://www.investopedia.com/articles/personal-finance/061616/529-strateges-maximize-student-aid-options.asp | 529 Strategies That Maximize Student Aid Options | 529 Strategies That Maximize Student Aid Options
Having a 529 plan strategy that maximizes your student aid options is ever more crucial. If you’re the parent of a future college student, you have to save now, but tucking money away in a savings account isn’t going to work. You have to invest it to stay ahead of inflation. Many people turn to a 529 savings plan—a tax-advantaged plan that can help pay education expenses—to make their money grow. That can be a smart move, but how they later spend their 529 money could be just as important.
After all, college isn’t cheap. Anybody who is or was in college—or is currently saving toward the cost of higher education—already knows that. What they may not know, however, is how fast the costs are rising. The accepted rule of thumb is that the cost of college increases at about twice the rate of inflation. That means that each year, you can expect to pay at least 5% more.
Key Takeaways Spending all the money in your 529 plan before taking out student loans might make you eligible for more financial aid in the future. However, that strategy can backfire if you're unable to get loans later. Plus, parents with relatively high incomes may be ineligible for aid regardless of how much money they have in their 529 plans.
In the best possible scenario, you would combine 529 funds with help from the government to cover the complete cost of college for your child. But government help is often income-based—and that's where handling those 529s strategically comes in.
When and How to Spend 529 Funds
A Wall Street Journal columnist advised not long ago that once a child reaches college, it might work to the family’s advantage to spend all of its 529 funds in the first two years in the hopes of getting financial aid in the third and fourth years. That's if the parents expect a high-expense or low-income year. Good advice? We decided to check it out with other experts. The variety of advice we found made it clear that families would be wise to consult a college financing expert for advice specific to their own situation.
Depleting the 529 account first can make sense for some families, Gretchen Cliburn, CFP, director at BKD Wealth Advisors, notes. “If you know your education costs will exceed your 529 savings, I would recommend spending the 529 balance first before borrowing any money.”
But not if you think you might have trouble getting a loan later on. Running through 529 funds in the first two years can backfire, says Joseph Orsolini of College Aid Partners. “Families really need to budget out the four years of college to determine the best course of action with spending savings and borrowing. I have seen a number of families spend down their 529 accounts in the first couple of years, but later run out of money and not be able to borrow in the final years,” he warns. “These students are left without resources to finish college.”
What if you anticipate a fall-off in family income? “Low income is a relative term for people," Orsolini says. "Dropping from $150k to $100k is a huge reduction, but in most cases, it will not result in any additional financial aid. If your child is at an elite college that matches 100% of need, it might be worth relying on this strategy, but most colleges will not increase an aid package simply for spending down your 529 fund.”
The rules can be different for grandparents. “One important aspect to remember while considering when to spend the 529 money is who owns the plan,” says Ryan Kay, a certified financial planner. “If a grandparent is the owner, for example, and they distribute funds from the 529 plan, the money will count as student income for next year’s FAFSA and could negatively impact the student’s ability to qualify for financial aid. So when the grandparent is the owner, oftentimes it’s best to leave the money in the 529 plan until the student has filed the final FAFSA (January 1 of their junior year of college).”
Factor in the Federal Tax Credit
The American Opportunity Tax Credit (AOTC) provides a tax credit of up to $2,500 when you spend $4,000 on tuition, fees, textbooks, and other course materials. However, it phases out at certain income levels ($90,000 for individuals, $180,000 for married couples filing jointly). Also, you can’t use the same expenses to justify a tax-free distribution from a 529 plan—there’s no double-dipping.
“The tax credit is worth more per dollar of qualified expenses than the tax-free 529 plan distribution, even considering the 10% tax penalty and ordinary income taxes on non-qualified distributions,” says Mark Kantrowitz, publisher and VP of research at Savingforcollege.com. “Families should prioritize $4,000 in tuition and textbook expenses to be paid for using cash or loans before relying on the 529 plan. Otherwise, [it’s preferable] to spend down the 529 plan balance as quickly as possible, so that the assets do not persist year after year to reduce aid eligibility by 5.64% of the asset value.” (The money in a 529 plan is considered a parental asset, and 5.64% is the percentage of parental assets that counts toward the expected family contribution each year on the FAFSA.)
New Rules for 529 Plans
Two recent tax reform laws—the Tax Cuts and Jobs Act (TCJA) of 2017 and the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019—also made some relevant changes involving 529 plans.
For example, account holders can now use their 529 plans to pay the beneficiary's tuition for K-12 education at public, private, and religious schools. Those withdrawals will be tax-free on the federal level and in many states, as well. So it's now possible to spend down a 529 account even before your child sets foot on a college campus.
The Tax Cuts and Jobs Act of 2017 and the SECURE Act of 2019 both expanded the rules on how 529 plans can be used.
The SECURE Act, signed into law in December 2019, expanded 529 plan coverage to allow for some student loan repayment. Previously, student debt wasn't considered a qualified educational expense or eligible for tax-free withdrawals. Under the new rules, plan holders can withdraw a lifetime maximum of $10,000 from their 529 accounts, federally tax-free, to help pay off qualified education loans. That applies not only to the beneficiary; any siblings can also draw $10,000 each.
The Bottom Line
Like many financial questions, there are a lot of what-ifs here, but in general, our experts recommend not spending all your 529 money now and betting on future financial aid. However, they note, the strategy could represent a cost savings for some people.
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d5ddd1466ac2cfe7240a4106d1b9f4a3 | https://www.investopedia.com/articles/personal-finance/061715/private-jet-charter-vs-first-class-whats-best.asp | Private Jet Charter vs. First Class: Comparing the Differences | Private Jet Charter vs. First Class: Comparing the Differences
Private Jet vs. First Class: An Overview
Some people may give you flack for asking the question, but if you've got disposable dollars to spend on air travel, it's worth considering. Whether it's a business trip or a vacation, a chartered jet allows you to maximize your time at your destination and minimize the number of hours you spend traveling.
On the other hand, first class is also a luxurious way to travel, even if it means you have to put up with crowds at airport security and other discomforts of commercial flights. So, which factors determine whether it's better for you to fly first class or charter a private jet? There’s no reason to consider both options if you can only afford one, so let’s get the financial elephant in the room out of the way. A private jet is more expensive than a first-class seat, which can run anywhere from $800 to thousands of dollars.
According to Greg Richman, president of on-demand charter service Skyjet, price depends on the plane size, “Light Jets start at $2,800 per hour. Mid-Size Jets start at $3,800 per hour. Super Mid-Size Jets start at $4,500 per hour. Large Cabin Jets start at $6,500 per hour.” On a commercial aircraft, you rent a seat. If you want to bring somebody with you, you rent two seats and pay double the cost. If you want to bring seven other people on a trip from Los Angeles to Vegas, which takes about an hour, you pay up to $8,000 to fly first class on a commercial jet with eight people. With charters, on the other hand, you rent the plane.
Key Takeaways If you are flying overseas, first class may be much more affordable than a private jet. Private planes may be more economical for executives whose time is as valuable as money. Private planes offer more individualized amenities to offer passengers than first-class flights. If you are traveling solo, first-class tickets will likely be less expensive than buying a seat on a charter jet. For larger groups, a private jet may prove less expensive than buying rows of first-class seats.
Private Jet
Private jets are for customers of the high-end private jet industry. Adam Twidell, CEO of private jet booking platform PrivateFly.com, says, “On any private jet charter you will always receive VIP catering, which on short flights usually includes cold meats, salad, fruit, sandwiches, or pastries. Champagne is always available on board, as is a range of soft drinks, tea, and coffee.
"However, due to the bespoke nature of private jet charter, you can request any sort of amenity to be available for you during your flight," Twidell continues. "At PrivateFly, we see a wide range of catering requests from our clients, and our Flight Team is able to accommodate all of them. From birthday cakes to a specific brand of herbal tea, we go to great lengths to make sure our passengers’ needs are met.”
Traveling on a private jet is expensive, but when multiple people fly and the value of a senior executive’s time is taken into account, the cost isn’t as outlandish.
First Class
As of May 2019, a true first-class ticket (not business class) from Los Angeles to Las Vegas costs anywhere from $700 to $1,000, depending on the airline, but there's one situation when it's almost always more cost-effective to choose first class over a private jet: flying overseas.
Long trips require a larger, more expensive plane with a bigger range. This would make a commercial flight considerably cheaper unless you took a very large group with you on the charter and would have otherwise bought everyone first-class seats. (For more, see Credit Cards That Will Get You First Class Flights and How To Fly First Class For Cheap.)
True first class flying on a commercial aircraft comes with amenities, but generally not at the level—or personalization—of flying privately.
Commercial aircraft only have access to the largest airports. If the traveler is flying to attend a meeting well outside the nearest metropolitan area, he or she will need to add significant round-trip driving time to get from the metro airport to the meeting location.
Customers flying privately can also bring pets—as well as golf clubs, skis, and other bulky items (presentation boards, anyone?) that don’t easily fit on commercial aircraft. They also avoid the risk of losing these items in checked baggage. In addition, private planes may provide easier access for elderly, handicapped, or injured travelers, as well as better accommodating wheelchairs and other equipment.
Special Considerations
To the average onlooker, it’s easy to see private-jet flying as excessive—like owning a Rolls Royce or an expensive yacht. What makes it more economical is when you factor in the value of a person’s time. Private jets are able to fly into smaller airports, often getting their clients to their location faster. In addition, flyers don't have to wait in long security lines at large airports, which can be time-consuming even for those with Trusted Traveler status.
Because companies don’t want to fly their jets without passengers, they are often happy to wait for their customer if they’re flying back the same day. This courtesy avoids having to schedule meetings around commercial flight schedules that may have stops at other airports before reaching the destination. Executives can also conduct business meetings and work more easily on a private jet, so flight time isn't wasted. Taking into account the value of a high-level executive’s time, a private jet may quickly become more economical than commercial aircraft.
There’s also the reliability factor. Not making it to an important meeting because a flight was canceled could be a risk that some people cannot take. It's likely that most people who charter flights do it because they just don’t want the hassle of flying commercial, and money is no object. But don't assume that, as the saying goes, if you have to ask, you probably can’t afford it. In fact, compared to ever-increasing first-class rates, it might be marginally more affordable than many people imagine, especially those traveling as a group.
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fa257152d1f234984cfbaa9630808da5 | https://www.investopedia.com/articles/personal-finance/061814/5-ways-get-maximum-student-financial-aid.asp | 5 Ways to Get Maximum Student Financial Aid | 5 Ways to Get Maximum Student Financial Aid
As the price of a college education continues to soar, many American families are counting on significant outside help to foot the bill. Consider that the average cost for tuition and fees at an out-of-state public university is now nearly $24,000 per year, according to The College Board. For private schools, tuition and fees average $32,410.
For students who haven't earned lucrative scholarships, need-based financial aid can play a vital role. The key to receiving a generous package rests largely on the Free Application for Federal Student Aid form, better known as the FAFSA. This is the document that schools use to determine federal aid, including Federal Direct Loans and Pell Grants. Many institutions also use it to decide whether students are eligible for any of their own scholarship funds.
Much of the time, parents don’t give the FAFSA much thought before the deadline. By understanding how the form works, however, you’ll have a better chance of meeting the aid criteria. It’s also important to look beyond the form itself and realize that finding the right school can be just as important to your aid prospects as what you put in the document.
Here are some basic steps for ensuring that you get the best combination of grants, loans, and work-study programs possible.
Key Takeaways With the cost of college tuition soaring, parents and students need to benefit as best they can from need-based financial aid, scholarships, and other financial support available. Filling out the Free Application for Federal Student Aid form (the FAFSA) is critical, as it is what schools use to determine federal aid, as well as whether students qualify for any school-specific scholarship funds. To benefit, a family should file and not assume they won't qualify, do the filing early, minimize taxable income, consider carefully whose name any college savings have been listed under, and also remember that FAFSA isn't the whole picture when it comes to financial aid.
1. File Early
Perhaps the easiest move you can make is to fill out the FAFSA as early in the year as possible. That’s because many federal loans and grants are awarded on a first-come, first-served basis. Even if the university has a much later deadline, it helps to submit the document as soon after Oct. 1 (the new, earlier FAFSA filing date) as possible.
Many parents assume they have to put the FAFSA on hold until they complete their previous year’s tax return. Unfortunately, doing so can put your chances of need-based assistance in serious jeopardy. The new rules let you fill out the financial aid documents using the previous year’s data. You can do this automatically by using the IRS Data Retrieval Tool on the official FAFSA website, which is available roughly three weeks after filing the form.
Oct. 1 The earliest date at which you can file the Free Applications for Federal Student Aid form, also known as the FAFSA.
2. Minimize Your Taxable Income
The FAFSA is the main tool universities rely on to determine the applicant’s “expected family contribution” (EFC)—that is, the estimated amount the student and his or her parents can kick in toward tuition and other expenses. All else being equal, a lower EFC will result in greater need-based aid.
When calculating the family’s portion of expenses, the biggest factor is its income level. Needless to say, it helps to keep the amount of taxable income as low as possible in the base year.
Thanks to the 2021 Consolidated Appropriations Act, beginning in October 2022 the term "student aid index" (SAI) will replace EFC on all FAFSA forms. In addition to some changes in the way the SAI is calculated, the change attempts to clarify what this figure actually is—an eligibility index for student aid, not a reflection of what a family can or will pay for postsecondary expenses.
How can a family accomplish this feat without hurting itself in the short term? One way is to postpone the sale of stocks and bonds if they generate a profit, as the earnings will count as income. That also means holding off on early withdrawals from your 401(k) or IRA. Besides, ask your employer if you can defer any cash bonuses to when they won’t have a negative impact on your child’s financial aid.
3. Clarify Who ‘Owns’ Your Assets
If you’ve been putting money away for your children’s college education over the years, you’ll be in much better shape when they graduate from high school. But all that saving does have a small catch—some of that money will be included in your EFC. One important aspect to realize about the FAFSA is that schools anticipate students will contribute more of their assets toward higher education than parents will.
Consequently, your application will fare much better in most cases if any college savings accounts are in a parent’s name. So if you set up a Uniform Gift to Minors Act (UGMA) account for your child to avoid gift taxes, you could be hurting your chances of need-based aid. You’re often better off emptying these accounts and putting the money into a 529 College Savings Plan or a Coverdell Education Savings Account. Under current rules, these are both treated as a parent’s asset, as long as the student is classified as a dependent for tax purposes.
4. Don’t Assume You Won’t Qualify
Having a substantial family income doesn’t always mean that financial aid is beyond your reach. It’s important to remember that the needs-analysis formula is complex. According to the U.S. Department of Education, factors such as the number of students attending college and the parents' age can affect your award. It’s always a good idea to fill out the FAFSA just in case.
Keep in mind, too, that some universities won’t offer their own financial aid, including academic scholarships, if you don’t fill out the FAFSA first. The assumption that the form is only for low- and middle-income families often closes the door to such opportunities.
5. FAFSA Isn’t the Whole Picture
While the FAFSA is a vital tool in determining need-based aid, some families actually put too much emphasis on the document. The fact is, most financial-aid counselors have the authority to use resources as they see fit. The expected family contribution usually plays a big role, but it may not be the only factor they’ll consider.
The more an institution values the student’s skills and experiences, the more likely it is to woo them with an attractive aid package. The key is to look for colleges representing a good fit and reach out to the financial aid office about your child’s prospects for grants or federally subsidized loans. (For example, Harvard has several specific programs for academically excellent students.) This, in addition to its academic reputation, can help families select whether a school is worth pursuing.
The Bottom Line
A generous financial-aid award can take much of the sting out of college tuition costs. The best way to improve your child’s chances of getting one is by filing early and doing whatever you reasonably can to reduce your family’s estimated contribution.
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f953f550a64307bc622f3d413502d62c | https://www.investopedia.com/articles/personal-finance/061914/downsides-downsizing-retirement.asp | 4 Mistakes People Make When Downsizing in Retirement | 4 Mistakes People Make When Downsizing in Retirement
Many people fantasize about financing a good chunk of their retirement by selling their current home, buying a smaller place, and investing the difference for income. In reality, however, they often reap far less profit than they might have hoped.
Done right, downsizing can still be a good idea. You might not just walk away with more money but also simplify your life and reduce your home-maintenance and utility costs for years to come. To reach that happy outcome, you need to steer around the unexpected pitfalls that make downsizing so dicey. Here are four traps that await downsizers, with ways to avoid each.
Key Takeaways Downsizing to a smaller home in retirement must be done wisely. You need to accurately determine your current home’s worth by using several online resources or local real estate agents or hiring an independent appraiser. You need to be clear-eyed about the cost of real estate in the area to which you are moving by using the same resources. You should look carefully at the tax implications of a move.
1. Overestimating What Your Current Home Is Worth
It’s easy to fantasize about the high price your house will fetch. Perhaps the neighbors down the street sold theirs for an extravagant sum—or so they said—and were last seen packing their new Bentley and heading for Acapulco. Chances are that you don’t know three important things: what they actually netted from the deal, how their home differs from yours in qualities prospective buyers most value, and whether the real estate market at that point was better or worse than it is now.
What to do instead: Any number of websites, including Realtor.com and Zillow.com, will give you information on what homes in your area have sold for recently. You can also use online estimators from major banks, such as Bank of America and JP Morgan Chase, to determine a home’s value. It’s best to check several of these, in part because they use different formulas to arrive at their estimates.
Another option is to consult several local real estate agents for a dispassionate estimate of your home’s current market value. Getting more than one is important, because an agent who desperately wants your listing might give you too rosy an estimate. You could also hire an independent appraiser. “Every good retirement income advisor should have a list of reputable real estate agents that specialize in the senior market and can help retirees estimate the value of their home,” says Dave Anthony, CFP, RMA, president and portfolio manager of Anthony Capital in Broomfield, Colo.
When you’re talking to the agents or appraisers, ask about inexpensive things you can do to boost your home’s selling price. Most experts say that major renovations aren’t a good idea unless your home is a total wreck, because they rarely recoup their cost. In Remodeling’s “2020 Cost vs. Value Report,” even the project that recouped its value the most—manufactured stone veneer—lost money, though it came close to breaking even at 95.6%. Other projects fell far short of that. New vinyl windows recouped just 72.3%, for example, and a bathroom remodeling just 56.6% for an upscale remodel and 64% for a midrange one. The lesson here: Save yourself the money and hassle and let your home’s next owners deal with those kinds of projects; their tastes may differ from yours anyway.
Still, a few simple spruce-ups, such as fresh paint here and there, pruning overgrown shrubs, and de-cluttering your home from top to bottom can be worth the effort. If you wish, you can engage the services of a professional home stager to help you. For free advice on the topic, just do a web search on the phrase “home staging.”
2. Underestimating What a New Home Will Cost You
Just as people tend to be optimistic about what their homes will sell for, they’re likely to imagine that they’ll get a steal on the next place they buy. It’s worth remembering that the potential buyers of your current home—and the sellers of your next one—are thinking the same way.
What to do instead: Use the tools listed above for researching recent sales prices to find what you can expect to pay for the type of home you plan to buy. If you’re thinking of moving to a new area, there’s no substitute for spending some time there and visiting potential homes. Even if you’re familiar with a place from vacationing in the vicinity, it could pay to visit in different seasons to make sure you’ll be happy there all year. A prudent course—if you have the time and patience—is to move to the area and rent for a year or so before buying. Far too many retirees move on impulse, regret their decision, and end up calling for the moving van again.
Also, beware of costly add-ons that could boost the price of your new home beyond the estimates. It’s easy for a new two-bedroom condo in some areas to approach the price of a four-bedroom house, especially if you decide to treat yourself to all the latest amenities.
3. Ignoring the Tax Implications
Unless you make a whopping profit on the sale of your home (and if you do, congratulations), you may not owe any income tax on the profit. Current Internal Revenue Service (IRS) rules allow most couples to exclude up to $500,000 in gains from their taxable income. Singles can generally exclude up to $250,000. The rules also take into account how long you’ve owned and lived in the home, among other factors. They’re all explained in IRS Publication 523, “Selling Your Home.” “If you’re not in a low tax bracket—and either don’t meet the exclusion or made a substantial profit on the sale of your home—you might consider using a tax-loss harvesting strategy, offsetting stock, bond, or mutual fund losses with the gains, since it is filed on Schedule D,” says Carlos Dias Jr., founder and managing partner of Dias Wealth LLC in Lake Mary, Fla.
Even if you don’t owe income tax, there are other tax considerations to factor in before you choose to move. Some popular retirement destinations have high property taxes. A location with low property taxes might have higher sales or income taxes, or it might tax your pension income differently.
What to do instead: First, try to determine your likely gain. That’s not just the difference between what you paid for your home and what you sold it for, but the difference between the selling price and your home’s cost basis. Cost basis includes what you paid initially plus any permanent improvements you made over the years. IRS Publication 523 explains those too.
Compare the income and property taxes of where you plan to move with those of your current location. Also, look into any special breaks for homeowners over a certain age. The state’s tax or revenue department website is a good place to start. Figure the new tax situation into your retirement budget and see whether it will cut your tax bill or result in a higher overall tax burden.
6% The amount you'll likely pay in real estate commissions on a home sale
4. Forgetting About Closing Costs
If it’s been years since you bought a home, you may have forgotten all the closing costs you had to pay at the time. Those probably included legal fees, recording fees, title insurance, and a long list of miscellaneous charges. Not only will you have to pay closing costs when you buy your next home; you’ll also be faced with a second set as a home seller. Most significantly, according to Realtor.com, those can include real estate commissions as high as 6% and sometimes higher, if you use an agent.
What to do instead: Agent commissions can be negotiable, so try to get the most favorable possible figure nailed down at the outset. As a buyer, you might be able to persuade an eager seller to absorb some of the closing costs, but you should bear in mind that whoever buys your home will probably try the same maneuver on you. Otherwise, plan to bring your checkbook and write a lot of checks.
The Bottom Line
Downsizing your home can be a way to free up some additional cash for retirement, but you should run the numbers before you start packing. You may find ways you didn’t realize would save you money on the switch, or you could decide it pays to retire in place, at least for now.
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