Reverse mortgages how they work – the reverse mortgage programs are for seniors who own their homes and have equity available in them (equity can be calculated by taking the value of the home and subtracting any outstanding debts/liens against the home.)

Seniors who qualify can enjoy the benefits of accessing their homes equity at historically low interest rates, while never having to make a mortgage payment, keeping ownership of the home, and creating a new income source from the homes existing equity.

There are many reverse mortgages pros and cons – seniors should review the program and be familiar with how it works for them. The reverse mortgage is now an affordable option to tap into the equity in retirement thanks to the HECM saver program and many banks/lenders bringing down their origination fees. With the current market conditions right now is a great time to start learning more and even comparison-shopping some lenders for a HECM loan.

What is a Hard Money Loan

A hard money loan is a loan that doesn’t come from a bank.  They are typically issued by private lenders or from private companies.  For example, when you drive around town and see all of the business signs that say something like ABC Capital, ABC Funding or ABC Financial Group; these could be hard money lenders. These types of loans are given to people that have real collateral, which in most cases means that you have actual real estate to collateralize the loan.  In many cases, hard money loans are provided to help people buy real estate that they cannot get financing for from a bank.

Hard money loans carry a much higher interest rate than traditional mortgages and commercial property loans.  They are also for much shorter durations.  While a residential or commercial property loan is often for periods between 15 and 30 years, most hard money loans are for a period of a few months up to a few years.  Whereas traditional loans are given by banks based on income, debt ratios, and credit scores; these types of loans are usually based almost solely on the value of the underlying asset.  A typical hard loan will be for as much as 60-70% of the value of the underlying asset, which is a much smaller percentage than traditional loans, which can reach as high as 90-100% of the property value.

Hard money lenders are willing to give loans without as strict of requirements as traditional lenders because the loans are more fully collateralized.  That’s because the low loan to value (LTV) ratio means that they are more likely to get their money back if loan payments are not made.  Also, these types of lenders are compensated with higher interest rates than traditional loans, which is also an incentive for these types of lenders.

When a Hard Money Loan Makes Sense

These types of loans can be very beneficial for both the lender and the individual getting the loan, but only in the right circumstances.  One should never take out a hard money loan on existing property unless they have a detailed plan on how to pay the money back.  As hard money loans have short durations, you must pay back all of the principal at once, so you won’t be able to spend the money from the loan on anything.  Instead, you’ll have to find a way to refinance the loan into a traditional loan at some point.  Here are some examples of how to use a hard money loan to your advantage.

Example 1.  You are Buying a Property That Needs Improvements

If you are buying a home that needs a lot of improvements and is deemed unliveable for some reason, a traditional lender will probably not give you a loan.  For example, I have a friend that bought a foreclosed home and the kitchen flooring was removed during a remodel.  Because the flooring was removed the banks considered the home unliveable and would not give a traditional loan for the house.  Unfortunately, you can’t touch the floor until you own the house, and you can’t own the house until you fix the floor.  For reasons like this, you could get a hard money loan, then buy the house and fix the floor.  After that, you should be able to qualify for a traditonal loan where you can refinance the property and then pay off the hard money.  In this example, a hard money loan is a great asset.

Example 2.  You Don’t Qualify for a Traditional Loan Because Your Debt Level

Another example would be for a real estate investor.  Often times, investors are turned down for loans on second and third properties because they have too much debt overall and not enough income to show for it.  In many cases, banks need to see years of positive cash flows from your property before they are willing to lend money to you.  If you need money to buy your next investment property and can’t get a loan for this reason, you could consider getting a hard money loan.  The idea would be that you get the loan, buy the property, and then improve the cash flow on the property during the course of the hard loan so that when the hard loan comes due, you can refinance into a traditional long term loan.  In cases like this, when you have multiple properties it often makes sense to refinance existing properties that have proven cash flows and then use that equity to help pay off the hard money lender.

In conclusion, you can see that hard money loans can make sense, but you must be very careful not to get stuck in a hard loan with no way to refinance and pay off the hard lender.  These loans are basically bridge loans that need to be paid off in a short time.  Never even consider a hard loan for personal spending or any other reason than using it for investment purposes.  Hard loans should only be used in circumstances in which you are almost certain that you will be able to pay back the loan in the specified period.  You must have a clear and detailed plan as to how you are going to use the loan to get your property in good enough shape to finance it with a traditional loan.

The 4% Rule

The 4% rule is used by many financial advisors to make a simple calculation of how much money you need to save for retirement.  While a very simple rule in and of itself, this formula is based on very complex and detailed scenario analysis.  Statisticians have looked at historical rates of returns, economic scenarios, the probabilities of different financial market movements, inflation, and several other factors.  They then computed all of the different scenarios that could happen to these factors during retirement and assigned probabilities to each scenario.  Then, they made a formula based on all of the scenarios.  The formula was conceived to determine how much money you can withdraw from your retirement savings each year and not run out of money during your lifetime.  Well, according to all of the analysis, the safe amount for you to withdraw during retirement is 4%.

So, the rule says you can withdraw 4% of your retirement savings during your first year of retirement.  It then goes on to say that each year after that, you can withdraw the same dollar amount adjusted for inflation.  That means that your real withdrawal rate will stay the same each year but that the actual dollars withdrawn can grow to match inflation.  Based on the probabilities, if you stick to the 4% rule, you will have a 90% chance that your money lasts at least 30 years.  However, that assumption actually includes many bad scenarios.  If the scenarios pan out a little better, you actually have a large chance of your money growing faster than you spend it.  For this reason, the rule also says that you have a 75% chance of still having 70% of your assets left after 30 years.  Even more exciting, is that you actually have a 50% chance of having twice as much money in 30 years as you started with.  That’s because there is a good chance that your retirement assets will grow faster than the 4% withdrawal rate.  For example, a diversified portfolio of stocks, bonds and cash over a 30 year period should average an annual return of somewhere between 7-10 percent.

Now that we’ve discussed how this calculation was created and how it works, let’s look at how to put the rule to work.

Using the 4% Rule to Calculate How Much Money You Need to Retire

Since the rule states that you can withdraw four percent of your assets in the first year of retirement, then it stands to reason that you will need to save 25 times as much as your first year’s withdrawal.  That means that if you need $100,000 per year to live during retirement, that you will need to save $2.5 million.  Sounds like a lot, right?!  Well, before you jump to a conclusion, let’s look at some other factors that can help you reach this goal.

First, let’s make sure that you are using the correct figures.  If you are not planning on retiring for another 20 years but think you’ll need $100,000 in today’s money, then you need to take into account inflation.  In twenty years, assuming inflation of 2.5%, $100,000 of today’s money would be $164,000.  Make sure you calculate the money needed based on the time you retire.

Now, let’s look at other income that you may have during retirement.  Let’s say you are expecting to get social security payments each month.  The average monthly benefit for retired people is about $1,200 per month.  That’s almost $15,000 per year.  Subtract the $15,000 from the $100,000 you need to live and you now need just $85,000 per year and need to save $2.125 million.  However, if you’re calculating retirement for a time in the future, you will be able to assume a higher social security payment, as they are adjusted for inflation.  We recommend you look at your annual social security statement to help you estimate the amount of money you can count on from social security.

Also, you may have some other form of payment such as a retirement pension account or life insurance that you have purchased.  Estimate how much you think you’ll get each month and then subtract that from the money you’ll need each year during retirement.  Let’s say you’re expecting to get $2,500 per month from your pension.  That’s another $30,000 to subtract, on top of social security payments.  That means that if you needed $100,000 you would now need only $55,000 per year.  That means you’d need to save $1.375 million.

Don’t forget to take your spouse’s social security and pension into account.  Let’s say your spouse is getting the same benefits as you, that would mean that combined you would be collecting $90,000 per year from combined pensions and social security.  That means that you’d only need to withdraw about $10,000 per year from your retirement savings, and that you’d only have to save about $250,000 to be prepared for retirement.

Finally, you should take into account the amount of time until retirement.  Just like you need to make sure that you use future dollars that include inflation in them, you’ll also get to enjoy the compounding growth of investing from now until the time you reach retirement.  For example, if you determine that you need to save $2 million for retirement but you only have $200,000 saved, you could get discouraged.  However, let’s assume you have 30 years left before retirement.  Without adding anything to your savings, and assuming a 9% annual rate of return, that $200,000 will grow to $2.7 million.  You shouldn’t count on getting a 9% return, and you should keep saving as much as possible, but it is comforting to look at how the growth of your savings can help you reach your goal.

Another example would be someone that is 30 years away from retirement age and that hasn’t saved anything yet.  Let’s say that you determined that you need $1 million to retire.  Seems impossible right? Now, let’s look at how much money you’d have to invest each month to reach $2 million in 30 years, given a 9% rate of return.  You’d have to invest $546 per month for 30 years to reach $1 million.  This may seem like a lot of money, but $546 is really only about the cost of the average car payment that many people pay each month.  Furthermore, as you get older you will probably make more money and will be able to save more quickly.  All of these factors should be considered when computing and planning your retirement goal.

We know we didn’t touch on every possibility here and that you may or may not agree with our assumptions, but we hope this gives you a good understanding of saving for retirement and allows you a quick and easy way to get a ballpark estimate of how much money you’ll need to retire based on the 4% rule.  Please leave us any relevant comments you have below.

These type of plans were started by Congress in 1978. Before that, pension plans were the typical retirement account that was offered by employers. These pension funds generated a steady source of income for the recipient over the course of their retirement. After their introduction, 401k plans were found to be a more lucrative option for the employers than to provide them with a pension. Besides, the resulting compounding interest with delayed taxation of the 401k plan itself is often much more beneficial for employees in the long run.

401k plans are defined contribution plans.  That means that the employer and employee together are responsible for the amount of money put into the plan.  This is the opposite of pension plans, which are defined benefit plans.  A defined benefit plan guarantees a specific payment to a retired employee, whereas a defined contribution plan provides whatever value has been built up from contributions and compounding over the life of the investment. Most employers prefer 401ks because they are easier to account for and can be less expensive.  For it is much easier to account for the exact amount of money that is put into a 401k plan versus having to make accruals and account for pension withdrawals that won’t happen for years of even decades, and that have payments that last as long as the employee is alive.  The difficult accounting for pensions and the lower cost of 401ks makes the 401k a much better option for the employer.  And for the employee, they get more control over how the money is invested, as they can usually choose the funds they wish to invest in.  Also, when an employee changes companies, they can transfer their 401k plan to a new employer, or to any broker as a rollover 401k.  Through this, the employee has unlimited control and accountability for their own retirement savings.  For astute investors, this is almost always a better scenario than relying on your company to invest for your pension plan.  Over the long term, many companies change their pension strategies or are involved in mergers or acquisitions that make changes to the pension.  Although pensions are governed and insured by the government, they are not guaranteed.  If a company goes bankrupt and hasn’t fully funded the pension, the employee is only guaranteed a portion of the pension that they were promised.  A 401k, on the other hand, is fully vested shortly after adding the money to your account, and once vested, it cannot be taken away by any company or any bankruptcy proceedings.

401k plans are also more investor-friendly, as they let you control the investment process with the options of mutual funds, stocks, bonds and money market investments. But at the same time, the plans have various restrictions and stipulations. To safeguard the employer from employees leaving very early, you need to serve a minimum period of time to have an access to the money contributed by the company, though you can withdraw your contribution at any time if you want.  When it comes to withdrawing money from the plans, a set of complex rules guide the withdrawal process and there are costly penalties for withdrawal of funds before the specified retirement age.

The whole process of setting up, managing and supervising the plans is supervised by an agency that is hired by the employer.  Popular companies that do this include Fidelity Investments, T Rowe Price and Charles Schwab. These institutions work as a liason between you and your account and they help guide you through all the updates and necessary paperwork.  They also allow online access to your account so that you can easily make changes, shift investments, take out loans against your account, or transfer the account to another broker if you leave the company you work for.

For these plans to be successful, it is very important to use them to the fullest extent. First of all, you should try to match the amount invested by your employer, which is normally up to 3% of your salary. That means if your salary is $60,000, your employer’s contribution will not go beyond $1,800. The rules of matching funds vary, so don’t forget to check with your employer about the details. Almost all the plans offer matching funds – the most popular being 3% of your salary, according to the Profit Sharing/401k Council of America.  To get the matched funds from your employer, you typically need to contribute the same ratio of funds as your employer.  For example, if your employer will match 3%, then you need to contribute 3% also.  So, in effect, you will be adding 3% of your income and your employer will add the same.  Some employers, however, match at a 50% rate.  In other words, if they offer up to 3% match, you may need to contribute as much as 6% to get the full employer match.  Whatever it is that your employer offers, make certain that you take full advantage of their matching policy.  After all, this is free money.  They are giving you money for your account and all you have to do is add some yourself.

Beyond getting your employer’s match, you should also strive to contribute as much money as your employer or the government allows.  If you can contribute up to 10% of your salary, then do it.  If your employer allows you to contribute more, then you should also do that.  Adding money to your 401k reduces your taxable income and grows tax-free until retirement.  It may seem difficult to put that much money into your plan, but to reach retirement, and especially early retirement, you’ll need to make sacrifices in order to ensure that you invest enough money toward your retirement.

There are a number of other 401k plans that you should be aware of.  The first one is called a Roth 401k.  Roth 401ks, are like 401ks except that the money you add to your Roth 401k is added after tax.  However, when you reach retirement and withdraw money from this account, you do not have to pay taxes on any of the withdrawals.  That means that using a Roth 401k will help lower your taxable income during retirement.  The tradeoff is that you’ll have to pay taxes on the money you add to your account in the year that you make the contribution.  This is a small price to pay for the long term tax-free compounding that these accounts offer.  Typically, if you have quite a few years before retirement, these types of retirement accounts are much more beneficial and profitable than their traditional counterparts.  If you’re wondering how to open an account like this, you have to look to your employer.  Many employers offer you a choice between a 401k and a Roth 401k plan, so its up to you to decide which to use.  We recommend using the Roth if available.

Another type of 401k plan is the plan for small businesses.  If you are self employed, you can start a 401k plan through one of many brokers, like Schwab or Etrade.  This works for incorporated businesses that you own and even for sole proprietors.  After filling out the paperwork, you make a contribution at the end of each year.  For the self employed, these accounts are more flexible.  Even though you don’t get a match from anyone, you are allowed to not only contribute a certain percent of your income to the account, but you can make a profit sharing contribution to the account that can be as high as 100% of your adjusted income, up to around $50,000 per year.  Basically, using an account like this can shelter a lot of money from taxes.  And if you prefer a Roth 401k, you can open a self employed Roth 401k account yourself and make similar contributions.

Overall, the 401k is an extremely valuable tool when it comes to investing for your retirement.  If you are offered the chance to participate, make sure you take it.

Top States to Retire Based on Taxes

Picking the states with the lowest taxes isn’t as easy as it sounds.  That’s because you pay taxes on everything you earn or spend, including income tax, sales tax, property tax and fuel tax.  If you’re retired, and depending on your lifestyle, the taxes that might have the biggest impact on you are real estate taxes, sales taxes, and perhaps tax deductions to social security earnings, as most retirees recieve a significant amount of income from social security.  Just remember that every state is going to their tax money, but they all go about it slightly different.  Find a state that will minimize your individual taxes.  For example, if you spend a lot of money, then look for a state with low sales tax.  If you buy expensive homes, look for a state with low property taxes.  If you have a lot of dividend income, look for a state with low state income taxes or dividend taxes. With all of these taxes in mind, here are some of our findings on the states with the best taxes to retire.

States With Low Sales Tax

Sales tax is the tax you pay each time you buy something.  Oregon, New Hampshire and Montana have no sales tax.  Alska has about 1% in sales tax.  The next states with the lowest sales tax rates are Hawaii (4.35%), Maine (5%), Virginia (5%), Wyoming (5.17%) and South Dakota (5.22%).  The top three states have rates as high as 9% and include California, Arizona and Tennessee.

States With Low State Income Tax

State income tax still matters when you’re retired because you still have taxable income in the form of IRA withdrawals, pensions and social security income.  If your income is going to be high during retirement, than choose one of these states to minimize your state income taxes.  State income taxes are zero percent in Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming.  New Hampshire and Tennessee only apply income tax to income from interest and dividends.

States That Deduct Social Security Income From Their Taxes

Quite a few states let you deduct any social security earnings from your tax base.  In other words, you don’t have to pay state taxes on your social security income in these states: Alabama, Arizona, Arkansas, California, Delaware, Georgia, Hawaii, Idaho, Illinois, Indiana, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Mississippi, New Jersey, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, Virginia and Wisconsin.

States With The Lowest Property Taxes

If you’re retired and your house is paid for, then you have no mortgage and your biggest annual expense on your house will likely be property taxes.  The property tax rates by state vary dramatically, with high taxes in states like Texas and Wisconsin that are almost ten times as high (as a percent of home value) as the states with the lowest property taxes.  According to the Tax Foundation, the states with the lowest property tax rates (% tax of home value is in parenthesis) are Louisiana (0.18%), Hawaii (0.26%), Alabama (0.33%), Delaware (0.43%), West Virginia (0.49%), South Carolina (0.50%), Arkansas (0.52%), Mississippi (0.52%), New Mexico (0.55%) and Wyoming (0.58%).

Best States to Retire in Based on Weather

There’s a reason that old people constantly talk about the weather.  That’s because it’s important to have good weather when you’re retired and have all day to enjoy it.  For that reason, weather really does matter when choosing the state you want to retire in.  Furthermore, cold weather climates make it much more difficult to get out and about as we age.  The difference between living in a moderate versus col climate can make a bid difference in how active we can keep our lifestyles and the amount of exercise we can get each day. We understand that everyone prefers a different climate, so here are some of the different climates and the most popular states that have them.

Cold Weather States

Many people still prefer to have all four seasons, or lots of outdoor activities to participate in.  There are lots of cold weather states that have ample sunshine and lots of stuff to do.  Colorado for example, because they are next to the mountains, they have rather mild winters and lots of sunshine, but great access to hiking and skiing.  Montana and Wyoming are similar, with lots of outdoor activities and sparsely populated areas to retire.  If you like city life, New York can’t be beat for its atmosphere and available entertainment.  Minneapolis is a cold weather state but the entire downtown has been designed with skywalks so that you barely have to step outside to get where you want to go.

Tropical Weather States

Hawaii and Florida top these lists.  Hawaii is expensive for retirees because everything has to be shipped to the island, but it sure offers tropical weather.  Florida also has tropical weather, but is quite a bit more humid in the summers.

Hot and Humid States

Most of the Southeast US is considered hot and humid.  States include Georgia, Mississipi, Alabama, Louisiana and Texas.  These states are extremely hot in the summer and very mild in the winter.

Hot But Dry States

The Southwest states have become very popular retirement destinations because of the year round warmth and the dry, dessert heat.  These states include Arizona and New Mexico.  They also offer lots of retirement housing and RV resorts.

Good Retirement States Based on A Low Cost of Living

Cost of living is a measure of how much “everything” costs in a specific area.  It takes into account home values, the cost of food at grocery stores, insurance rates, taxes and everything into one figure.  It is based solely on how much it costs to live somewhere, and has nothing to do with how good of a place it is to live.  With that said, the top ten states with the lowest cost of living, according to CNBC, are Oklahoma, Tennessee, Arkansas, Kentucky, Kansas, Nebraska, South Dakota, Texas, Georgia and Missouri.

So, now that you’ve sorted through all of these statistics and opinions about which state is the best state to retire in, have you made an opinion?  From all of our research, our opinion is that Texas and Florida offer the best weather, lowest taxes and very reasonable costs of living.  However, in our opinion, there is a lot more to think about when choosing a place to retire.  The main factor being family.  You’ll want to live where your family is so that you can be close to your children and get to know your grandchildren.  For that reason, the ultimate goal would be to save enough money so that you can have two homes.  One in your dream climate for the winters, and one next to your family for the rest of the year.

Top Ten Reasons to Retire Early

1. Because You’ve Got Enough Money to Retire

Many people consider this the number one reason to retire early.  That is because it is really the only requirement needed for retirement.  All of the other reasons to retire early are based on desires or circumstances.  Retiring because you’ve saved enough money is by far the hardest step to retiring, because, as we all know, saving that much money is by far the hardest accomplishment.  With that said, retiring just because you have enough money is not always the right decision.  Make sure you’re ready to handle the day to day life of retirement, and that you have hobbies and friends to keep you busy.

2. Because You Want to Focus On Your Family

Many people spend their life working harder and harder so that they can get ahead in their career, only to be able to spend less and less time with their family. In fact, most people that have families struggle with finding the right balance between work and family.  If you ask the average person, they will almost always tell you that their family comes first, but if you ask the family, they will often feel differently.  It is this dilemma that often motivates individuals to accelerate their savings make family a top reason to retire early.

3. Because You Want to Retire While You Are Still Young

We work so hard during our lives to make money so that we can enjoy life, travel and buy the things we’ve always dreamed of.  Unfortunately, we rarely have the money needed for these privileges until we get older.  If we wait too long to retire, then we could miss the opportunity to take advantage of all of these life long dreams.  By retiring when you are young, you will have the energy and ambition to really enjoy your retirement, and hopefully do things that older retirees aren’t able to accomplish.

4. Because the Opportunity Presented Itself

Sometimes a good reason to retire is simply because the idea presents itself.  Perhaps the company you have been working for your entire life offers you an early retirement package that is too good to be true.  Or maybe they offer you an early retirement package and hint that layoffs are coming if you don’t take it.  Better yet, maybe your company has been bought out and you recieve a massive buyout payment for your ownership.  Whatever the case, there are hundreds of reasons that can lead you to consider retiring early, even if it wasn’t in your original plan.  Remember, you can always look for work during retirement.

5. Because the Economy Tells Me To

Similar to number four above, a good reason to retire early is because the economy is telling you to.  If you have enough money to retire and the economy is in the dumps, and suddenly lose your job, you may want to consider retiring early rather than finding a job in a difficult economy while at a difficult age for hiring.  If you were debating on whether to retire or not, a bad economy can sometimes lead you down the path of retirement.

6. Because You’re Tired of Working For the Man

Years of working for companies can make one very weary of living the corporate lifestyle.  Whether it’s all the disagreements with management, the thousands of hours of meetings that get nowhere, the days and months of travel, or maybe you’re just tired of the whole corporate culture that you’ve had to live with for your entire working life.  The hatred of working for others and the desire to get away from this oppression can be a very valid reason.

7. Because You Want to Travel

Traveling, I mean really traveling, takes a lot of time.  A lot more time than normal jobs will let you take off.  If you’ve been dreaming for years or even decades about traveling to distant lands and learning new cultures, you’ll probably want to do so before you get too old or lose motivation.  That’s why the desire to travel makes a great reason to retire early.  If you can’t afford to retire early, see if your employer will give you 6 months of unpaid leave, so that you can travel enough to get the bug out of your system until you can officially retire.

8. Because You Want to Be Free From Commitments

Waking up to an alarm clock every day is just not living.  At least not living the way we dream about.  Having days, weeks, months and years filled with commitments to work and to your career can just be tiring.  Freeing yourself of these commitments is another good reason.

9. Because You Deserve It

Let’s be honest, you’ve studied, worked, and sacrificed your entire life to get ready for this moment.  You’ve given up your personal time, family moments and let your dreams get pushed back year after year.  Let’s face it, you deserve this!

10. Because You’re Ready to Retire

Perhaps the most important reason is actually the simplest.  Because you’re ready.  Believe it or not, many people are never ready for retirement.  They have defined themselves by their work, career or what they do so deeply all of their lives that when it comes time to move on, they simply can’t find the reasons to do so.  To get ready, you’ll need to make sure that you will be able to stay very busy and motivated.  Studies show that retirees that lose focus and motivation tend to die shortly after retirement.  Don’t let this happen.  Find hobbies, interests and dreams to pursue during retirement.  Try to develop them beforehand so you’ll have an easier transition.  Also, find other retired people with similar aspirations (hopefully a spouse) so that you’ll have a partner to travel and seek entertainment with.  If you know that you won’t get bored when you retire (and plan for the next 40 years), then there is a pretty good chance that you’re ready.

Developing Countries Save More Money

The savings rate of China is about 50%, and is by far the highest percent we found for any country. It’s amazing that almost half of all income is saved rather than spent.  We’re not sure why China’s saving rate is so high but the percent has climbed steadily since the government liberalized their economy back in 1992.  Maybe the extra financial freedom was incentive to save more money.  It may also have something to do with the strict population control policy that the government has implemented.  Fewer children mean more savings.  Also, the information put out by

Other developing or emerging countries that have high savings rates are Brazil, India and Vietnam.  What’s interesting is that these countries save such a high percent of their income despite having drastically lower incomes than other countries.

A Few Developed Countries Also Have High Savings Rates

There are a few developed countries that also have high saving rates.  Most notably, Switzerland, which saves in the range of 10-30% of its income, depending on which source you use.  Maybe that’s why they are the banking capital of the world.  High savings rates lead to high stability and a strong and durable government and economy.   Other notables are France, Germany, Belgium and Spain, which all save somewhere in the ballpark of 12 – 16%.  Note that when global economies turn sour, these countries seem to fair better than countries with low savings rates.

The United States Has One of the Lowest Savings Rates in the World

Did you know that the savings rates for the United States were actually negative for a while during the mid 2000s!  Low interest rates led many people to refinance their homes and actually take out more money on average than they saved.  Over the last few decades the savings rate of the US has been somewhere between 2-3% on average, however, according to some reports that rate has risen to 5% since the latest recession and financial crisis of 2009 began.  Decades ago, the US saving rate was around 10%, so it has somewhat steadily declined over the years.  It seems like it may be related to government.  After all, the government not only spends more than it earns, but it encourages people to spend by keeping interest rates low and by adding liquidity to the economy that makes getting loans and spending easier.

Other Countries With Low Savings Rates

Finland, Denmark and Norway have the three lowest savings rates of all countries.  In fact, in some studies, all three of them have had negative savings rates for years.  Other studies show that they have savings rates in the low single digits.  It seems that these low rates are likely a result of the type of governments.  These Nordic countries all have ultra high taxes and some of the largest entitlements of any country.  Because health care and retirement income are provided by the governments (to some extent), there maybe less reason for the people to save their money than in less developed countries where people must save for retirement and medical costs.

And then there’s Greece.  Although the data is very spotty on Greece, the data we found showed that they have had negative savings rates for years.  It’s no surprise that because of these savings rates and the extremely high level of entitlements, that Greece has been in the most trouble of all countries lately.

After reading this, do you have an opinion or explanation of why a particular country has a low or high savings rate?  If so, leave us your comments below.

We believe that if you are going to have an opinion on who pays the majority of taxes, then at least your information should be based on facts.  For that reason, we’ve compiled data from the Internal Revenue Service and have converted the data into easy to read charts that give you some real data points on the distribution of taxable income, taxes paid, and effective tax rates.

All figures below are based on figures from the IRS and are based on adjusted gross income, which is income after excluding such things as tax-deferred retirement contributions.  Also, these figures represent federal income tax, and do not include state income taxes, social security, self-employment, unemployment, sales tax, property taxes, use taxes, or any other taxes that do not fit these categories.  Now that we’re clear on what these figures present, let’s look at the data.

Who Pays Most of the Taxes?

This is easy to answer with facts.  The top 1% of taxpayers pay 38% of the total taxes, the top 5% pay 58%, the top 10% pay 70%, the top 25% pays 87% and the top 50% pay over 97% of the total taxes.  This clearly answers the question of who pays the most taxes, as over half of all taxes are paid by the top 5%.  Here is a chart that shows the distribution of federal income taxes paid by taxpayers in different earnings percentile.  It shows the percent of income earned and the percent of taxes paid for each percentile.

Do the Wealthy Get More Tax Breaks?

Tax breaks come in many sizes and shapes.  High income earners generally have more complicated taxes, more business expenses, and more expenses that are eligible for itemizing and capitalizing to a business.  Low income taxpayers are typically eligible for tax credits such as earned income credits and credits for children and childcare.  Also, federal income tax rates are bracketed, with higher earners having higher percentage tax rates.  Let’s look at what the facts say about the amount of tax breaks that these classes get.  This can help answer the question as to whether or not the “rich” pay their fair share.  If the top percent of taxpayers have a lower effective tax rate, then we’d guess they get more breaks.

Here are the facts:  The top 1% of taxpayers earn 20% of the nation’s income but pay 38% of the taxes.  The bottom 50% of taxpayers earn 13% of the overall income, and pay just 2.7% of the taxes.  The average tax rate paid by the top 1% is 24% while it is only 2.6% for the bottom half of taxpayers.  Furthermore, between 35 and 45% of American households pay no federal income tax.  And, in 2009, that percent was 51%.  This data leads us to believe that the tax breaks for the bottom half greatly outweigh the tax breaks for the “rich”.

Who Pays the Highest Tax Rates

Another common assumption that many people use when complaining about taxes is that the “rich” don’t pay high tax rates.  This is another assumption that can easily be debunked with facts.  We’ve computed the effective tax rates based on adjusted gross income for the many percentiles of taxpayers and put it in the chart below.  As you can see, the high income taxpayers pay significantly higher tax rates, averaging 23%.  Compare this to the less than 3% average tax rate for the bottom half of all income taxpayers.

So What is the Truth About Who Pays their Fair Share of Taxes?

Well, the answer to this question is one that can’t be answered with facts.  Most people have already justified and answered these questions themselves.  The majority of people truly believe that the “rich” do not pay their fair share of taxes.  For whatever reason, most people consider anyone that earns more than them as “rich”, and so almost everyone can justify such a response.  One should look at the facts when forming their opinion.  They should also look at other factors such as cost of living.  The top 5% earn $159,000 or more per year.  Although this sounds like a lot, many of these families live in areas such as San Francisco or New York City where rent can be $4,000 per month and other expenses are also much higher.  Add in all of the other taxes that must be paid on state and local income, sales taxes, real estate taxes, tolls, transportation, and all of the taxes on products like gas, cars and cell phones; and many of these people do not fit into the “rich” category.

Explain What a Career Is To Your Child

Start by explaining to your child what a career is and why they will want to have one someday.  Get them interested in how jobs work and make them start thinking about what people do when they grow up.  Don’t limit your conversation to fire fighters and astronauts, include all of the careers that may appeal to them in the future.  Children may not seem excited to talk about careers, but they definitely take this information in and process it.  Letting them know that someday they will have the career of their choice can make it easier for them to understand why they go to school.

Start Talking About Different Careers Early and Often

The best way to get your child to think about their future is to discuss them early and often.  For example, if your son is obsessed with jet airplanes, then explain to them the types of careers they could have that would contribute to jet airplanes.  In this case, you could tell them about the different jobs associated with jet airplanes.  Tell them about the engineers that design the planes, the pilots that fly the planes, the mechanics that fix the planes, and all of the companies that help make parts for the planes.  Tell them about the companies like Lockheed Martin, Boeing, Southwest Airlines, and the Air Force.  Let them start to see for themselves the different careers associated with the things they like.

Ask Your Child What They Want to Do When They Grow Up

Another simple way to help prepare your child for a career is to occasionaly ask them what they want to do when they grow up.  Most young kids will have a pretty quick response, and it will likely change often.  When they tell you what they want to be, make sure you describe to them in more detail the pros and cons of that career.  For example, if your child wants to be an airline pilot, describe to them what their life might be like.  For example, tell them that they will have to live close to a large city that has an airport, and that they will travel a lot.  Also let them know that they will be away from their family for long periods of time and that they will experience long delays and have to sleep in lots of hotels by themselves.  In other words, try to give your child a more detailed picture of what their life will be like if they were to choose that career.

Encourage Your Child to Learn About Careers

As your child gets older, encourage them to learn about different jobs.  Sit down with them and help make a list of the different career paths that they might be interested in.  Be as diverse as possible.  Then go to the library and check out books about each one.  The library literally has thousands of books about different careers.  The books are written for a range of readers as young as kindergarteners all the way to adults.  As your child gets older, encourage them to come to work with you for a few hours and explain to them what you do on a daily basis.  Encourage them to ask questions about things they are interested in.  For example, if your child wants to be a video game developer, find a local software company and send them an email asking a few questions about what it’s like to work for a video game company and what recommendations they would have to help prepare you for this type of career.

Help Your Child Choose the Right Classes

Find out what your child is good at and help them become better.  For example, if your child is gifted at math but not very strong in writing, encourage them to look into careers in engineering, chemistry, computer science or some other science.  If they are interested in a particular field, make sure they sign up for the right classes in grade school and high school.  And make sure they find other activities that can help build these schools.  For example, if your child wants to be a writer, then get them to sign up for all the literature classes they can.  Try to get them into any advanced placement (AP) classes.  Also, have them join any organized book clubs, debate team or other clubs or organizations that can help improve these skills.  Don’t just look at your school, but look for national writing clubs and find local and national writing events to compete in.  Even if they dont’ win, it will greatly improve the skills they will need to get ahead.

Give Your Child Any Advantage You Can

Do what you can to give your child some way of standing out when it comes to getting into college or applying for their first job.  For example, get them into the best schools.  Also, encourage them to learn another language, start their own summer business, play team sports, and find interesting or unique hobbies.  All of these extracurricular activities can help your child stand out from other applicants for both their college applications and job interviews.

Prepare Your Child for College

Many students start college with no idea as to what they want to do.  This is okay, but at least make sure your child knows their options and which fields they might do best in.  Help your child get ready for college by getting them to enroll in several extracurricular activities and team sports.  Also, get them to take as many advanced classes as possible, and have them prepare for their standardized test by getting them some home study courses.  More importantly, find some way for them to stand out from other applicants.

Help Your Child Choose the Right College

Choosing the right college is a difficult task, and one that your child will need help with.  Find out what your child wants to get out of college.  Are they very social?  Are they the top of their class?  Are they science or art oriented?  Do they want to be close to home?  Do your research and find a large list of potential colleges.  Go over the list with your child and tell them the pros and cons of each school.  Make sure you discuss the costs of each school so you they can understand the tradeoffs between quality and cost, and help choose the school that offers the most value.  If your child knows what career path they want to pursue, find the top 10 schools for that profession and help them choose which to apply to.

Teach Your Child How to Network and Be Creative

The most important thing you can teach your child to get them ready for the real world is to be creative and to network.  Being creative means learning to think on your own.  Being able to survive a long term career means you’ll have to be able to adapt and thrive in changing environments.  Teach your child not to think of a career as just another job, but as a way to express themselves and find solutions that others haven’t thought of.  Also, most good jobs are found from people you know, not based on just your resume.  Teach your child the importance of getting along with others and keeping in touch, even if just occasionally.

Website Content Provider / Article Writer

If you’re in college, then you should be good at writing.  And if you’re not, then this is a great way to get better.  Use the skills you learn in college to produce website content and articles for others.  To accomplish this, you can take one of two different approaches to finding clients.

The first approach is to write about something you know about.  If you are really into a particular hobby, video games, or have any other strong interest you can use your expertise to get paid.  To do this, you’ll want to go to a freelance site like elance.com and setup an account.  Build your profile and list all of the niches that you have expertise.  Also, search for any prospective employers that may be looking for articles in the niches you chose.  Have a writing sample ready so that you are ready to make a bid.  Also, spend some time looking around the website to see how much other people are bidding for the type of online job you want.  This approach may or may not find you work right away.  If not, here’s the next option.

Be proactive with your search.  There are hundreds of thousands of sites and blogs that need content.  Go find sites that you would be interested in writing for and contact them directly.  Use their contact forms to email them something simple like:

Hi, I am a college student looking for a job writing articles for websites like yours.  I have expertise that relates to your website and I am offering to write you 5 unique articles for your website, each at least 500 words.  In return, I would like to recieve $50 to help pay some of my college expenses.  If you are interested, please reply with a list of some of the keywords that you’d like these articles to cover.   I can also provide you with a writing sample.

The second approach you can take to get paid for your writing is to write about something other than your expertise.  It is more time consuming because you have to do research on each topic, but isn’t that a requirement of all college writing anyway?  By taking this approach, there are lot more jobs that you can bid on, as you can write on almost any topic needed.  To follow this approach, use the same techniques as above, including an account at a freelance site and also contacting websites directly.

Social Networking Promoter

Most college students are really good at social networking with sites such as facebook and twitter.  The older generation, of which many are the owners of the websites you are targeting, often have a hard time understanding how social networking fits in to their overall marketing strategy.  Also, it takes time and effort to get people to interact with your social network.

If you’re good at social networking, use your skills to help someone that’s not.  In other words, come up with a business plan that can help websites get their visitors more interactive with their site.  Look on freelance sites to see if people are hiring social marketers and get your bio updated on these accounts.  Also, use the direct contact method to try to find websites (that you are also interested in) that will pay you to manage their social networking.  Look for sites that either don’t have a facebook page or that have a dormant facebook page.  When marketing directly, send an email something like this:

Hi, I am a college student looking to earn some money to help cover my school expenses.  I noticed that your site does not have much interaction with social networks such as facebook or twitter.  I have experience working with these sites and would like to manage your social network for a low monthly fee of $50.  For this fee, I would find and post at least 10 interesting and related articles on your social network pages each month.  This will increase the number of fans and followers, which can also increase your monthly traffic and help you place higher with Google and other search engines.  Please let me know if you are interested and we can get started right away.

Okay, this is an example of something to write to prospective employers, but you should modify it to be more engaging and creative.  Maybe offer a consultation on their social networking strategy or something that will get their attention.  Try a few approaches to find out what works best.

Web Designer

If you are in college you are also probably more computer literate than the generation before you.  This may mean that you already have some web design skills.  If not, you could probably learn them pretty fast.  If you think this would be a good online job for you, make sure that you also have some good design skills, and not just good programming skills.  Make sure that you become familiar with different website software programs such as Dreamweaver and WordPress.   Offer to do your first design job for free, or in return for a copy of the software you need to complete it.  Then hone your skills and use your first job to get more jobs.  Get a bio on a few freelance websites and cite your references.  It is difficult to get started with web design, but if you make one client happy, they will likely use you again, or refer you to others.

You should also be proactive when looking for clients.  Visit lots of websites and find some that look outdated.  Contact them directly with an email that states something like:

Hi, I am a college student looking to earn some money to help with my schooling.  I have been working on my web design skills and would like to offer to help you redesign your site.  By updating some of the graphics and fonts, as well as rearranging the content in a more engaging manner, I believe your site could be more engaging for your visitors.  I am available for $10 an hour, which is a much lower fee than professional web designers charge, and I can show you a sample page that uses some of my ideas if you are interested.

Of course you’ll want to tailor your email to whomever you are sending it.  Make sure and include some specifics about each site you are contacting so that they will feel compelled to respond.

Marketing Services / Backlink Developer

Similar to the other online jobs for college students listed above, jobs providing marketing or backlink services can be found through both freelance sites and by direct contact with website owners.  Basically, site owners are always starved to get relevant and quality backlinks to their websites.  It is a time consuming process that takes a long time to pay off, so if you find a job doing this you can make it last.  Start by understanding how to get backlinks.  Do your research, and when you’re ready to find a job, describe it using the term marketing services or backlink developer.  They sound more important and will help you distinguish yourself from others.

Here are the main ways to get quality backlinks for your clients:

• Write short articles and publish them to a variety of article publishing sites (like ezinearticles).  Include a backlink in the resource or bio section.
• Post comments on other blogs with a link to their site.
• Offer to contact other sites and offer link trades on their behalf.
• There are many other creative ways to get links if you do your research.

When you contact a potential client, make sure you include some kind of pricing mechanism in your offer.  For example, you can offer to post 10 comments for $10, or write 5 articles for $50, or get paid $5 for each reciprocal link that you find.  You can also offer to buy links or find guest posts on their behalf.

In summary, there are quite a few online jobs for college students, but they are all competitive and require some research and job skills that must be developed.  Besides being creative and resourceful, you must stay motivated and continue to search for more clients.  Don’t stop with just one job, but leverage each job you get to find more.  After a while, the word of mouth advertising could become enough for a full time job if you desired.  And who knows, maybe you could start getting other college kids to do the work while you work on finding new clients.